Digging Into Perpetual Futures; National Best Bid & Offer Rule
The TD Cowen Insights podcast dives into two seismic shifts in U.S. financial markets: the explosive rise of perpetual futures (perps) and the SEC's push to dismantle the National Best Bid and Offer (NBBO) rule. Perps—derivative contracts with no expiration—have long dominated crypto trading, with 80% of crypto volume now flowing through them rather than actual tokens. Now, the CFTC has cleared the way for U.S. retail access via platforms like Coinbase and Kashi, though with wildly different leverage caps: 5x at Kashi, 20–50x at Coinbase. The real concern? 500x leverage is technically possible, creating a high-stakes, automated casino-like environment where retail traders are auto-liquidated if they move against the market. The podcast warns this could trigger systemic risks, especially as perps expand into stocks and commodities. Meanwhile, the SEC’s proposed repeal of Rule 611—the 'order protection rule' that enforces NBBO—threatens to upend market structure. While institutions argue they can achieve better execution outside the NBBO, critics fear this will erode retail protection and deepen fragmentation. The rule’s removal could be a critical enabler for tokenized equities and DeFi, but at the cost of undermining the price integrity that has long protected small investors. As both trends accelerate, the episode paints a picture of a financial system on the brink of transformation—driven by innovation, but with regulatory guardrails still catching up.
80% of crypto trading occurs via perpetual futures, not actual tokens, signaling a structural shift in market behavior.
CFTC has approved U.S. retail access to perps through Coinbase (Bermuda) and Kashi, but with no leverage caps, enabling up to 50x leverage.
Perps with 500x leverage create a 'casino' environment where retail traders are auto-liquidated if they move against the market.
SEC is proposing to eliminate the NBBO rule (Rule 611), allowing institutions to trade outside protected quotes for better execution.
Removing NBBO could enable tokenized equities and DeFi platforms to operate without being bound by U.S. market structure rules.
…and 3 more takeaways available in PodZeus
Welcome & Market Overview: May’s Challenges and June’s Rebound
Jared Seberg and Scott Smith open the podcast with a review of May’s market dynamics, highlighting financials' 340 basis point underperformance due to IPO-driven capital reallocation. Negative headlines from Jamie Dimon about AI commoditization and rising expenses contributed to bank sell-offs, though June saw a modest recovery as valuations became more attractive.
Earnings Season Outlook: Constructive for Most, Except Insurance
Scott Smith outlines expectations for the upcoming July earnings season, noting broad constructive sentiment across financials due to a strong jobs market and positive credit commentary. The exception is insurance, where pricing pressures remain tough. Alternative asset managers are also showing resilience, with BDC redemption levels better than expected.
The Rise of Perpetual Futures: From Crypto to Traditional Markets
Reid Nock explains that perpetual futures (perps) are non-expiring derivatives where longs and shorts pay each other every 8 hours based on price movement. Originally dominant in crypto—where 80% of trades occur via perps—they are now expanding into U.S. markets with CFTC approval.
Leverage, Risk, and Retail Exposure in Perps
The podcast highlights the extreme leverage available in perps—up to 500x—enabling retail traders to take massive bets on assets like Bitcoin, gold, and stocks. However, this comes with high risk: positions are auto-liquidated if they move against the market, creating a casino-like environment.
Regulatory Concerns: KYC, AML, and Leverage Caps
Despite CFTC approval, there are no leverage caps in the current framework. Kashi offers 5x, while Coinbase offers 20–50x, raising investor protection concerns. The lack of KYC/AML compliance in crypto perps is a major regulatory hurdle for U.S. adoption.
“It's kind of like a casino where if you stay in the market long enough at that high leverage, given that resets every eight hours, it's only amount of time before you get blown out.”
“And so getting rid of it will leave a huge hurdle for different crypto platforms to potentially get more volume and get started.”
“80% of all crypto trades don't happen through the actual tokens. But people are trading these tokens through perps.”
Host
Guests
Reid Nock
person
Jared Seberg
person
Scott Smith
person
SEC
organization
CFTC
organization
Coinbase
organization
Kevin Warsh
person
Kashi
organization
Clarity Act
other
CME
organization
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