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[Release No. 34-106422; File No. SR-KALSHIEX-2026-02]

Self-Regulatory Organizations; KalshiEX LLC; Notice of Filing and Immediate

Effectiveness of a Proposed Rule Change Relating to Listing Standards for Security

Futures Products

September 18, 2026.

Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 (“Act”), 1 and Rule

19b-7 under the Act,2 notice is hereby given that on September 18, 2026, KalshiEX LLC

(“Kalshi” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”)

the proposed rule change described in Items I, II and III below, which Items have been prepared

by the Exchange. The Commission is publishing this notice to solicit comments on the proposed

rule change from interested persons. Kalshi has submitted the proposed rule change to the

Commodity Futures Trading Commission (“CFTC”) for approval under Section 5c(c) of the

Commodity Exchange Act (“CEA”) 3 on September 18, 2026. The CFTC has not yet approved

the proposed rule change.

Self-Regulatory Organization’s Description and Text of the Proposed Rule Change

Kalshi proposes to adopt Chapter 14 of its Rulebook to enable the Exchange, pursuant to

its designation by the CFTC as a contract market (a “DCM”) and notice-registration with the

SEC as a national securities exchange under the Act, to list contracts that convey exposure to the

price of an underlying equity security, have no pre-specified expiration date and are designated

15 U.S.C. 78s(b)(7).

17 CFR 240.19b-7.

7 U.S.C. 7a-2(c).

as Perpetual SFPs in their respective contract specifications (such contracts, “Perpetual SFPs”) as

security futures.

Holders of long and short positions in Perpetual SFPs will exchange periodic payment

obligations in the form of “funding payments” that vary based on the price of the equity security

underlying a Perpetual SFP (the “Underlying Security”) relative to the price of the Perpetual

SFP. The method through which the Exchange will calculate Perpetual SFP funding payment

obligations and associated settlement mechanics are set forth in Rule 14.10, discussed below.

When the price of a Perpetual SFP exceeds the price of its Underlying Security, payment

will be due from long-side holders of the Perpetual SFP to short-side holders, and vice versa if

the price of the Underlying Security exceeds the price of the Perpetual SFP. This funding

mechanism is designed to cause the price of the Perpetual SFP to converge to the price of the

Underlying Security at each daily settlement cycle by incentivizing market participants to take

on positions in the Perpetual SFP (long or short) that align the price of the Perpetual SFP with

the price of its Underlying Security. Holders of Perpetual SFPs will exit their positions by offset.

All transactions involving Perpetual SFPs listed on the Exchange will be cleared by Kalshi Klear

LLC, a CFTC-registered derivatives clearing organization (“Klear”).

Categorization of Perpetual SFPs as Security Futures Products

The CFTC has already approved Kalshi’s listing of perpetual contracts referencing

Bitcoin (the “BTCPERP Contracts”) as commodity futures contracts. 4 Although Perpetual SFPs

differ from the BTCPERP Contracts in that they overlie equity securities, rather than digital

commodities, the defining characteristics of commodity futures and security futures products

Order Approving KalshiEX LLC BTCPERP Futures Contract, In re Request for Approval by KalshiEX

LLC of the BTCPERP Futures Contract (CFTC May 29, 2026).

apart from their respective underliers are the same. This is clearly reflected in the statutory text

and structure of the Act and the CEA.

The CEA classifies securities as a type of “excluded commodity,” 5 such that security

futures are themselves a type of commodity future. Further, the phrase “contract of sale for

future delivery” used in the “security future” definition6 mirrors the language used consistently

throughout the CEA to reference commodity futures contracts (“contracts of sale of a commodity

for future delivery”).7 There is no case law or regulatory guidance attributing a different

meaning to the phrase “contract of sale for future delivery” as used in the security future

definition relative to the same phrase as used to reference commodity futures contracts elsewhere

in the CEA, and courts often interpret the meaning of words in a statute by looking to similar

phrases used elsewhere in the same statute. 8

Like the BTCPERP Contracts, Perpetual SFPs will exhibit the “key characteristics of

futures contracts” identified in relevant judicial precedent and CFTC guidance: they will trade at

a fixed, standardized unit quantity; each party’s obligations will be guaranteed via novation to

Klear, a central clearing house that sets margin requirements; holders will be able to exit their

positions by offset, they will be available to the public (subject to eligibility requirements in Rule

14.37, discussed below); they will enable their holders to shift and assume risks associated with

7 U.S.C. § 1a(19).

15 U.S.C. § 78c(a)(55) (defining “security future” as “a contract of sale for future delivery of a single

security or of a narrow-based security index, including any interest therein or based on the value thereof,”

subject to exclusions not relevant here).

See, e.g., 7 U.S.C. § 2(a)(1)(A).

See, e.g., Unicolors, Inc. v. H&M Hennes & Mauritz, L.P., 595 U.S. 178, 179 (2022) (“nearby statutory

provisions help confirm that here “knowledge” refers to knowledge of the law as well as the facts.”);

United Sav. Ass’n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 371 (1988) (“A

provision that may seem ambiguous in isolation is often clarified by the remainder of the statutory

scheme—because the same terminology is used elsewhere in a context that makes its meaning clear […]”).

holding Underlying Securities without requiring actual possession or transfer of such Underlying

Securities; and they will be traded on the centralized market of the Exchange. 9

That Perpetual SFPs will lack a predetermined final settlement date does not disqualify

them from categorization as security futures products. Although security futures contracts have

traditionally involved “future delivery” in the form of final settlement (in cash or by physical

delivery) of the contract on a pre-specified expiry date, the text of the “security future” definition

does not require future delivery on a single, specified future date. 10 Every court that has

specifically addressed the regulatory treatment of contracts of indefinite duration has found them

to be futures contracts where the defining characteristics of a futures contract exist. 11 In one

such case, the Seventh Circuit specifically addressed the treatment of listed security derivatives

of indefinite duration, holding that contracts of “indefinite duration” can possess the attribute of

See note 4 supra; CFTC v. Co Petro Marketing Group, Inc., 680 F.2d 573, 579-580 (9th Cir. 1982)

(“Except for price, all the futures contracts for a specified commodity are identical in quantity and other

terms. The fungible nature of these contracts facilitates offsetting transactions by which purchasers or

sellers can liquidate their positions by forming opposite contracts.”); In re Stovall, et al., [1977-1980

Transfer Binder] Comm. Fut. L. Rep. (CCH) 20,941, p. 6 (CFTC Dec. 6, 1979) (describing futures

contracts as “standardized contracts for the purchase or sale of commodities which provide for future, as

opposed to immediate, delivery, and which are directly or indirectly offered to the general public and

generally secured by earnest money, or ‘margin’ [and that] are entered into primarily for the purpose of

assuming or shifting the risk of change in value of commodities, rather than for transferring ownership of

the actual commodities.”); Salomon Forex, Inc. v. Tauber, 8 F.3d 966, 971 (4th Cir. 1993) (“To facilitate

the development of a liquid market in these transactions, these contracts are standardized and transferrable.

Trading in futures seldom results in physical delivery of the subject commodity, since the obligations are

often extinguished by offsetting transactions that produce a net profit or loss”).

See note 6, supra. Unlike elsewhere in the CEA, Congress did not define “security future” to capture a

contract only if it had a single future delivery date. Contrast with 7 U.S.C. § 1a(24) (defining a foreign

exchange forward as a “transaction that solely involves the exchange of 2 different currencies on a specific

future date at a fixed rate agreed upon on the inception of the contract covering the exchange.”) (emphasis

added).

See Standard Forex II, 1996 WL 435440, at *10, 1996 U.S. Dist. LEXIS 14778, at *29 (E.D.N.Y. 1996).

See also CFTC v. Intern. Fin. Servs., 323 F. Supp. 2d 482, 498 (S.D.N.Y. 2004) (“As a matter of law,

defendants wrongly characterize certain indicia of futures contract [sic] as essential features of such

contracts. Principally, they argue at length that without a fixed date for future delivery, a transaction

cannot be a futures contract within the [CFTC]’s jurisdiction. They cite no authority for this proposition,

however [. . .]”) and CFTC v. International Foreign Curren., 334 F. Supp. 2d 305, 312 (E.D.N.Y. 2004)

(“[T]he fact that Defendants’ contracts failed to have a specified future delivery date is not determinative”).

“futurity” – generally associated with futures contracts – because futurity means any “value that

is set in the future.”12 As future executory payment obligations of contract holders, the periodic

funding payments associated with Perpetual SFPs constitute “value that is set in the future” as

much as the final settlement date of a traditional futures contract. 13

Although certain regulations adopted by the Commission and the CFTC applicable to

security futures (the “Final Settlement Rules”) contemplate cash-settled security futures having a

final settlement price, 14 the Final Settlement Rules do not affirmatively create a standalone

regulatory requirement that security futures, whether cash-settled or otherwise, must have a

predefined final settlement date. Rather, the joint adopting release of the Commission and the

CFTC for the Final Settlement Rules is not only silent on the possibility that a security future

may lack a final settlement date, but the core problem the agencies sought to address by adopting

the Final Settlement Rules – namely, liquidity constraints resulting from closing-price settlement

Chicago Mercantile Exchange v. SEC, 883 F.2d 537, 541 (7th Cir. 1989). Security futures were

categorically prohibited at the time CME v. SEC was decided. However, the opinion makes clear that “any

index” – including, in principle, a narrow-based security index – could be used as the underlying interest

for index participations, which the CME v. SEC court held would be treated as futures. Id. at 539. Under

CME v. SEC, as applied under current law, those contracts would constitute security futures. See also

CFTC v. First Lexington Group, LLC et al., 03 CV 9124 (GBD) (S.D.N.Y. Mar. 24, 2008).

The Chicago Mercantile Exchange (“CME”), beneficiary of the CME v. SEC holding, recently initiated

litigation against the CFTC in response to the CFTC’s approval of Kalshi’s BTCPERP Contract, arguing

that the BTCPERP Contracts should not have been approved for listing as futures contracts. Chicago

Mercantile Exchange Inc. v. Selig, and Commodity Futures Trading Commission, Case No. 26-cv-02157

(D.D.C. June 18, 2026). The existence of this litigation should not affect the Commission’s regulatory

treatment of Perpetual SFPs. Not only have no merit rulings yet been delivered in connection with CME’s

lawsuit, but CME’s arguments are misguided as to the text and judicial interpretation of the CEA. For

example, CME argues that perpetual contracts such as the BTCPERPs are swaps under the CEA, but

ignores the rest of the CEA’s “swap” definition, which per se excludes futures from its scope; CME argues

that perpetual contracts are not futures contracts because they lack a final settlement date, failing to grapple

with the lack of any binding judicial precedent supporting this conclusion and affirmative case law

contradicting it. Id. at 35. CME’s arguments also contradict positions CME itself has taken in the past.

See, e.g., Letter from Jonathan Marcus, Senior Managing Dir. & Gen. Couns., CME Grp. Inc., to

Christopher J. Kirkpatrick, Sec’y of the Comm’n, 2 (May 21, 2025) (“certain perpetual-style derivative

contracts may accurately be classified as futures”); Letter from Craig S. Donohue, Chief Exec. Officer,

CME Grp. Inc., to David A. Stawick, Sec’y of the Comm’n, 4 (July 22, 2011) (“under [the Dodd-Frank

Act] market participants retain the option to trade products as either ‘futures’ or ‘swaps’ [. . .]”).

17 C.F.R. §§ 41.25(c); 240.6h-1(b) (the “Final Settlement Rules”).

– does not exist for contracts that, like the Perpetual SFPs, generally do not expire. 15 Further, the

perpetual nature of the Perpetual SFPs is not inconsistent with the Final Settlement Rules, which

generally require that the final settlement price of a cash-settled security futures contract must

fairly reflect the opening price of the underlying security or securities. 16 Rather, the Perpetual

SFPs will still be subject to and the Exchange will comply with the Final Settlement Rules to the

extent Kalshi initiates delisting or accelerated final settlement procedures pursuant to Rule 14.7

or Rule 14.30 (each as discussed below).

Chapter 14 of the Exchange’s Rulebook

Proposed Chapter 14 specifies rules regarding listing standards, margin requirements,

eligibility criteria, contract specifications, membership standards and other provisions relating to

Perpetual SFPs listed on the Exchange. The full text of Proposed Chapter 14 is included in

Exhibit 4 hereto and provided in blackline format—proposed new language is underlined; and

proposed deletions are in [brackets]. The Exchange developed Chapter 14 to comply with

Section 6(h) of the Exchange Act17 and the criteria under Section 2(a)(1)(D)(i) of the CEA. 18

II.

Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for the,

Proposed Rule Change

In its filing with the Commission, the Exchange included statements concerning the

purpose of and basis for the proposed rule change and discussed any comments it received on the

proposed rule change. The text of these statements may be examined at the places specified in

SEC and CFTC Joint Final Rule, Cash Settlement and Regulatory Halt Requirements for Security Futures

Products, 67 Fed. Reg. 36740, 36755 (May 24, 2002) (“The SEC believes that SEC Rule 6h– 1(b)(1)

should facilitate the ability of the securities markets to handle expiration-related unwinding programs and

mitigate the liquidity strains that had previously been experienced in the securities markets on expirations

for stock index futures and options”).

17 C.F.R. §§ 41.25(c); 240.6h-1(b).

15 U.S.C. § 78f(h).

7 U.S.C. § 2(a)(1)(D)(i).

Item IV below. The self-regulatory organization has prepared summaries, set forth in sections A,

B, and C below, of the most significant aspects of such statements.

Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis

for the, Proposed Rule Change

Purpose

The Exchange proposes to adopt Kalshi Rulebook Chapter 14 (“Perpetual Security

Futures Products”) to allow the listing of Perpetual SFPs as security futures products.

Listing Standards for Perpetual SFPs

Kalshi proposes adopting Rulebook Chapter 14, Part II and related new definitions in

Rule 14.2 to set out listing standards pursuant to which it will list Perpetual SFPs for trading and

procedures for delisting. The proposed initial and maintenance listing standards are equally or

more stringent than the sample listing standards published in Staff Legal Bulletin No. 15 (“SLB

15”).19 Commission staff published SLB 15 to provide guidance as to how an exchange can

comply with the requirements of Section 6(h)(3) of the Act and Section 2(a)(1)(D) of the CEA,

which set forth minimum criteria for security futures products traded on national securities

exchanges. SLB 15 makes clear that, in addition to the listing standards it sets forth, “there may

be other listing standards that would also be consistent with the [Act].” 20

The proposed Perpetual SFP listing standards are identical to the sample listing standards

in SLB 15, except that they:

● Reflect the modifications to the statutory listing standards requirements jointly

adopted by the Commission and the CFTC with respect to shares of exchange-traded

SEC Division of Market Regulation, Staff Legal Bulletin No. 15: Listing Standards for Trading Security

Futures Products (Sept. 5, 2001), available at https://www.sec.gov/interps/legal/mrslb15.htm.

Id.

funds (“ETFs”) and trust-issued receipts (“TIRs”);21

● Include more stringent listing standard requirements, consistent with rule changes

recently filed by another security futures exchange, 22 including that (i) the Underlying

Security must have an estimated deliverable supply in excess of 20 million shares, (ii)

the Underlying Security must have a minimum market capitalization of at least $100

billion, and (iii) the Underlying Security must have had a minimum average daily

value of transactions (“ADTV”) of at least $450 million over the prior six months,

except where the Underlying Security has been listed for trading for less than six

months, in which case the requirement would be a minimum ADTV of at least $1

billion over the prior month;

● Include more stringent maintenance listing standard requirements, consistent with

rule changes recently filed by another security futures exchange, 23 including that (i)

the Underlying Security must have an estimated deliverable supply in excess of 20

million shares, (ii) the Underlying Security must have a minimum market

capitalization of at least $50 billion and (iii) the Underlying Security must have had a

minimum ADTV of at least $200 million for the prior calendar quarter, except where

the Underlying Security has been listed for trading for less than a quarter, in which

See Joint Order Modifying the Listing Standards Requirements under Section 6(h) of the Securities

Exchange Act of 1934 and the Criteria under Section 2(a)(1) of the Commodity Exchange Act, Securities

Exchange Act Release No. 34-61027 (November 19, 2009), 74 Fed. Reg. 61380 (November 24, 2009)

(superseding Joint Order Granting the Modification of Listing Standards Requirements, Securities

Exchange Act Release No. 46090 (June 19, 2002), 67 Fed. Reg. 42760 (June 25, 2002)).

See Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; Notice of Filing and Immediate

Effectiveness of a Proposed Rule Change Relating to Adoption of Chicago Mercantile Exchange’s Rules

Governing Security Futures Product Listing Standards, Adoption of Chicago Mercantile Exchange Inc.’s

Rules Governing Security Futures Adjustments, and Adoption of Chicago Mercantile Exchange Inc.’s

Rules Governing Cash Settled Single Stock Security Futures, Exchange Act Release No. 34-105844 (July

2, 2026), 91 Fed. Reg. 41676 (July 7, 2026) (“CME SFP Rule Filing”).

Id.

case the requirement would be a minimum ADTV of at least $1 billion over the

trading period during the calendar quarter;

● Categorically exclude several categories of securities from serving as underlying

securities of Perpetual SFPs, as described below;

● Require the issuers of securities underlying Perpetual SFPs to be current in all

periodic reporting obligations under Sections 13 and 15(d) of the Act (or, if the

security is an ETF share, under the Investment Company Act of 1940 (the “1940

Act”) and the Securities Act of 1933) and provide that the Exchange shall verify

reporting status through review of the issuer’s EDGAR filings prior to listing and on

an ongoing basis thereafter;

● Because Perpetual SFPs have no expiration date such that the Exchange will not

continually open for trading contracts for subsequent delivery months, provide that

failure of a security to satisfy maintenance standards and failure to remedy such

failure within a 90 day cure period result in delisting of the Perpetual SFP overlying

that security;

● Provide that the Exchange shall immediately halt trading (including the execution and

reporting of block trades) in and initiate delisting of a Perpetual SFP upon the

occurrence of any of the Immediate Delisting Events described below; and

● Contain certain provisions that reflect rule changes that have been filed by other

security futures exchanges since the adoption of SLB 15, which vary from the sample

listing standards set forth in SLB 15.

This section describes the generalized Rule framework for Part II of Rulebook Chapter

14 (Rules 14.3 through Rule 14.8).

Initial Listing Standards for Perpetual SFP. Rule 14.3 provides that an equity security is

eligible to serve as the Underlying Security for a Perpetual SFP listed on the Exchange only if it

satisfies the following requirements at the time of initial listing:

Rule 14.3(h), or “Requirement 1,” requires that the Underlying Security must be common stock,

an American Depositary Receipt (“ADR”), TIR or an ETF share that satisfies the requirements

of Rule 14.4(e). Rule 14.4(e) categorically excludes exchange-traded notes, closed-end fund

shares, shares of other pooled investment vehicles registered under the 1940 Act and shares of

leveraged, inverse or synthetic exchange-traded products from eligibility to serve as Underlying

Securities for Perpetual SFPs, provided that Rule 14.4(e) does not exclude from eligibility shares

of an ETF that “(i) is registered with the [Commission] as an open-end management investment

company or unit investment trust under the [1940 Act], (ii) issues and redeems shares at net asset

value in creation-unit aggregations, (iii) holds or seeks to track a diversified portfolio or index of

equity securities, and (iv) is not leveraged, inverse or synthetic.”

Rule 14.3(a) requires that the Underlying Security “must be registered pursuant to

Section 12” of the Act (“Requirement 2”) and “a ‘NMS security’ as defined in Section 11A of

the Exchange Act and Rule 600(b) of SEC Regulation NMS” and its issuer “must be in

compliance with any applicable requirements of the” Act (“Requirement 3”). In addition, Rule

14.3(a) provides that securities traded exclusively on over-the-counter (“OTC”) markets, foreign

exchanges without a U.S. listing or any non-registered trading venue are not eligible to serve as

Underlying Securities for Perpetual SFPs and that, in all cases, an Underlying Security must

satisfy the requirements applicable to securities underlying SFPs under CFTC Regulation

41.21(a).

Rule 14.3(e), or “Requirement 4,” requires that “[t]he Underlying Security must have a

Public Float of not less than 7,000,000 shares.” Rule 14.2 defines “Public Float” as “the number

of outstanding shares of the Underlying Security that are not held by officers, directors, or

beneficial owners of more than 10% of the class of securities, calculated based on the most

recent publicly available filings with the SEC.” The corresponding requirement in the SLB 15

listing standards requires any security underlying a security futures product based on a single

security to have at least seven million shares outstanding that are owned by persons other than

those required to report their stock holdings pursuant to Section 16(a) of the Act, which requires

reporting by “[e]very person who is directly or indirectly the beneficial owner of more than

10 percent of any class of any equity security (other than an exempted security) which is

registered pursuant to [Section 12], or who is a director or an officer of the issuer of such

security.”24

Rule 14.3(j), or “Requirement 5,” requires an Underlying Security, other than an ETF

share or a TIR, to have at least 2,000 security holders, whether of record or beneficial.

Rule 14.3(c), or “Requirement 6,” requires that any Underlying Security “have an ADTV

of not less than $450,000,000 over the six months immediately preceding the New Product

Committee (“NPC”)’s review, except where the Underlying Security has been listed for trading

for less than six months, in which case the Underlying Security must have an ADTV of not less

than $1,000,000,000 over the prior month.” In computing ADTV, the Exchange will use

consolidated price data from the relevant securities information processor (“SIP”). The

15 U.S.C. § 78p(a)(1).

Exchange proposes adding this requirement, which is substantially more stringent than the

corresponding requirement in the SLB 15 listing standards which require any security underlying

a security futures product based on a single security to have an ADTV of at least 109,000 shares

in each of the preceding 12 months, in order to more effectively protect against manipulative

practices.

Rule 14.3(d), or “Requirement 7,” requires that “[i]f the Underlying Security is a

‘covered security’ as defined under Section 18(b)(1)(A) of the Securities Act of 1933, the closing

price of the Underlying Security has been at least $3.00 for the previous five consecutive

business days preceding the date on which the Exchange commences to list and trade the

Perpetual SFP contract on such Underlying Security.” And, “[i]f the Underlying Security is not a

‘covered security’ as defined under Section 18(b)(1)(A) of the Securities Act of 1933, the closing

price of the Underlying Security has been at least $7.50 for the previous five consecutive

business days preceding the date on which the Exchange commences to list and trade the

Perpetual SFP contract on such Underlying Security.” The $3.00 minimum share price

requirement for Underlying Securities that are “covered securities” has been implemented by

several other security futures exchanges. 25

In the case of an Underlying Security that is an ADR, Rule 14.3(l), or “Requirement 8,” requires

that one of the four conditions set forth in requirement VIII of the SLB 15 initial listing standards

for security futures products based on a single security must be satisfied.26

See, e.g., CME SFP Rule Filing at 41678; Self-Regulatory Organizations; Notice of Filing and Immediate

Effectiveness of Proposed Rule Change by CBOE Futures Exchange, LLC Relating to Its Listing Standards

for Security Futures Products, Exchange Act Release No. 34-52295 (August 18, 2005), 70 Fed. Reg.

49691, 49692 (Aug. 24, 2005).

See SLB 15 (“If the underlying security is an ADR: (a) The Exchange or Association must have an

effective surveillance sharing agreement with the primary exchange in the home country where the stock

underlying the ADR is traded; (b) The combined trading volume of the ADR and other related ADRs and

securities occurring in the U.S. ADR market, or in markets with which the Exchange or Association has in

place an effective surveillance sharing agreement, represents (on a share equivalent basis) at least 50% of

Rule 14.3(m) includes interpretations of Requirements 4 (Public Float), 5 (Number of

Shareholders), 6 (Trading Volume) and 7 (Share Price) as applied to “Restructure Securities,”

defined in Rule 14.2 as an “equity security that a company issues or anticipates issuing as the

result of a spin-off, reorganization, recapitalization, restructuring or similar corporate

transaction” consistent with the term’s definition in SLB 15. 14.3(m) interprets Requirements 4,

5, 6 and 7 as applied to Restructure Securities in a manner substantially identical to the

interpretations of the corresponding requirements in SLB 15 to Restructure Securities, except

that the relevant market price of the Restructure Security – for purposes of determining whether

a Restructure Security that is distributed pursuant to a public offering or a rights distribution

satisfies Requirement 7 – refers to the market price of the Restructure Security being at least the

minimum share price applicable to it under Rule 14.3(d) (which may be $3.00 for Restructure

Securities that are “covered securities” or $7.50 for Restructure Securities that are not “covered

securities”). Rule 14.4 categorically excludes Restructure Securities that are not yet issued and

outstanding, regardless of whether the Restructure Security is traded on a “when issued” basis or

on another basis that is contingent upon the issuance or distribution of securities (“Requirement

9”).

the combined worldwide trading volume in the ADR, the security underlying the ADR, other classes of

common stock related to the underlying security, and ADRs overlying such other stock over the threemonth period preceding the dates of selection of the ADR for futures trading (‘Selection Date’); (c)(1) The

combined trading volume of the ADR and other related ADRs and securities occurring in the U.S. ADR

market, and in markets where the Exchange or Association has in place an effective surveillance sharing

agreement, represents (on a share equivalent basis) at least 20% of the combined worldwide trading volume

in the ADR and in other related ADRs and securities over the three-month period preceding the Selection

Date; (2) The average daily trading volume for the security in the U.S. markets over the three-month period

preceding the Selection Date is at least 100,000 shares; and (3) The trading volume is at least 60,000 shares

per day in the U.S. markets on a majority of the trading days for the three-month period preceding the

Selection Date; or (d) The Securities and Exchange Commission and Commodity Futures Trading

Commission have otherwise authorized the listing”).

Rule 14.3(b), or “Requirement 10,” requires that any Underlying Security must have a

market capitalization of at least 100 billion U.S. dollars, calculated as of the product of (i) the

closing price on the principal listing exchange of the security and (ii) total shares outstanding,

measured as of the most recent trading day prior to the NPC’s review of the security. The

Exchange proposes adding this requirement, which is substantially more stringent than the

corresponding requirement in the SLB 15 listing standards which do not impose any minimum

market capitalization requirement for the underlying securities of initial listing of security futures

products based on a single security, in order to more effectively protect against manipulative

practices.

Rule 14.3(f), or “Requirement 11,” requires that “[t]he Underlying Security must have an

Estimated Deliverable Supply in excess of 20 million shares.” Rule 14.2 defines “Estimated

Deliverable Supply” as the “free float of the Underlying Security, calculated as issued and

outstanding shares less restricted shares (e.g., restricted and control securities not registered with

the SEC for public sale).” This definition is intended to reflect the definition of “estimated

deliverable supply” in CFTC Regulation 41.25 and the CFTC’s guidance in Appendix A to

Subpart C of Part 41 of CFTC Regulations.27 The Exchange proposes adding this requirement in

order to more effectively protect against manipulative practices.

Rule 14.3(g), or “Requirement 12,” requires that the issuer of an Underlying Security

“must be current in all periodic reporting obligations under Sections 13 or 15(d) of the [Act]

(including, in the case of a foreign private issuer whose equity securities are represented by an

See 17 C.F.R. § 41.25(a) (defining “Estimated deliverable supply” as “the quantity of the security

underlying a security futures product that reasonably can be expected to be readily available to short traders

and salable by long traders at its market value in normal cash marketing channels during the specified

delivery period.”); 17 C.F.R. Appendix A to Subpart C of Part 41 (Guidance and Acceptable Practices for

Position Limits and Position Accountability for Security Futures Products) (a)(1).

ADR, the reports required on Form 20-F and Form 6-K).” Rule 14.3(g) further provides that the

Exchange shall verify reporting status through the Commission’s EDGAR reporting system prior

to listing. With respect to Underlying Securities that are ETF shares, Rule 14.3(g) provides that

the “issuer must instead be a registered investment company that is current in the periodic

reports, financial statements, and registration-statement or prospectus updates required of it

under the [1940 Act] and the Securities Act of 1933, as verified through the [Commission’s]

EDGAR system.”

In the case of an Underlying Security that is an ETF or a TIR, Rule 14.3(k), or

“Requirement 13,” requires such an Underlying Security to “have had a total trading volume (in

all markets in which it has traded) of at least 2,400,000 shares or receipts evidencing the

Underlying Security in the twelve (12) months preceding the NPC’s review.”

Categorical Exclusions from Eligibility. In addition to these requirements, Rule 14.4

categorically excludes from eligibility as an Underlying Security for a Perpetual SFP listed on

the Exchange: (i) any security whose issuer has filed a bankruptcy petition or has been the

subject of an involuntary petition (or is subject to analogous foreign insolvency proceedings, (ii)

any security that is subject (or, in the prior 10 trading days has been subject) to a trading halt,

suspension or revocation of listing by its principal listing exchange or by the Commission

pursuant to Section 12(k) of the Act, 28 or that is subject to a suspension of the effectiveness of, or

revocation of, its registration by the Commission pursuant to Section 12(j) of the Act, 29 (iii) any

security issued by a blank check company or special purpose acquisition company that has not

completed a qualifying de-SPAC business combination or that remains in the pre-combination

15 U.S.C. § 78l(k).

15 U.S.C. § 78l(j).

trust period, (iv) any security whose issuer is or is controlled by entities in a sanctioned

jurisdiction or is subject to sanctions, (v) other than qualifying ETF shares, exchange-traded

notes, closed-end fund shares, pooled investment vehicles registered under the 1940 Act and

leveraged, inverse or synthetic exchange-traded products, (vi) rights, warrants, subscription

receipts, units consisting of multiple component securities or similar derivative or hybrid equity

instruments and (vii) subject to exemptions which may be granted by the NPC, any security for

which a material corporate action has been publicly announced and is pending completion, where

such action, if completed with respect to the underlying security of a Perpetual SFP, could result

in accelerated final settlement of the Perpetual SFP.

The Exchange proposes adding these categorical exclusions in order to more effectively

protect against manipulative practices.

New Product Approvals. Rule 14.8 sets forth the Exchange’s new product approval

process for Perpetual SFPs. Prior approval of the NPC is required for any new Perpetual SFP to

be listed on the Exchange. The NPC shall consist of at least three members, including the

Exchange’s Head of Markets (or his or her designee) and requires the NPC to maintain written

records of all product determinations. For each proposed Perpetual SFP listing, the NPC shall

verify that the Underlying Security satisfies all initial listing criteria under Rule 14.3, confirm

that no categorical exclusion under Rule 14.4 applies, evaluate the susceptibility of the

Underlying Security to manipulation, assess the adequacy of the proposed contract

specifications, review the availability and reliability of data sources necessary for settlement and

margining and document the basis for its determination in a written approval memorandum. The

NPC shall specifically factor anti-manipulation considerations into their determination of

whether to approve a new Perpetual SFP for listing on the Exchange and may deny or condition

approval on enhanced position limits, margin requirements or other risk controls upon

identification of elevated manipulation risk. The NPC retains discretion to decline to list a

Perpetual SFP on any Underlying Security notwithstanding such security’s satisfaction of any

criteria set forth in Chapter 14. Additionally, Rule 14.3(i) states that, for an issuer with multiple

classes of common stock, each class shall be assessed independently against the criteria in Rule

14.3. The NPC may elect to list Perpetual SFPs on more than one class of an issuer’s stock.

Following NPC approval, the Exchange shall certify or submit for voluntary approval the

new Perpetual SFP with or to the CFTC pursuant to either (i) CFTC Regulations 40.2 and

41.23(a)30 or (ii) CFTC Regulations 40.3 and 41.23(b),31 and, where applicable, certify or

submit corresponding rule changes with or to the CFTC pursuant to CFTC Regulation 40.5 or

CFTC Regulation 40.6,32 in each case as applicable. The Exchange shall ensure that the listing

process for and trading of Perpetual SFPs comply with all Commission and CFTC requirements

applicable to security futures products. The Exchange shall publish and maintain current on its

website a table (the “Approved Securities Table”) setting forth the Underlying Securities that

have been approved to underlie Perpetual SFPs listed on the Exchange.

Maintenance Listing Standards for Perpetual SFPs. Rule 14.6(a) provides that the

Exchange shall, on the last business day of each calendar quarter (each such date, a “Review

Date”), “evaluate each listed Perpetual SFP against” each of six maintenance requirements and

Rules 14.6(d) and 14.6(f) each set forth additional maintenance requirements. These eight

maintenance requirements are as follows, as of each Review date: (i) the Underlying Security

maintains a Public Float of not less than 6.3 million shares (“Requirement 1.a”), (ii) other than

17 C.F.R. §§ 40.2, 41.23(a).

17 C.F.R. §§ 40.3, 41.23(b).

17 C.F.R. §§ 40.5, 40.6.

for ETF Shares and TIRs, there are at least 1,600 holders of the Underlying Security, whether of

record or beneficial (“Requirement 2.a”), (iii) the ADTV of the Underlying Security is not less

than $200 million for the prior calendar quarter, except where the Underlying Security has been

listed for less than a quarter, in which case the Underlying Security must have an ADTV of not

less than $1 billion over the period traded during the calendar quarter (“Requirement 3.a”); (iv)

the Underlying Security must have a closing price of not less than $3.00 per share on each of the

ten (10) consecutive trading days immediately preceding the Review Date (“Requirement 4.a.”),

(v) if the Underlying Security is an ADR, meet one of the four criteria set forth in Maintenance

Requirement V of SLB 15 (“Requirement 5.a”), (vi) confirmation that the issuer of the

Underlying Security is current in all periodic and other reporting obligations under Sections 13

and 15(d) of the Act33 (“Requirement 6.a”), (vii) the Underlying Security has an estimated

deliverable supply of at least 20 million shares (“Requirement 7.a”) and (viii) the Underlying

Security has a market capitalization of not less than $50 billion (“Requirement 8.a”).

For Underlying Securities that are Restructure Securities, pursuant to Rule 14.6(h), the

ADTV and market price history of the related equity security of the relevant company that

existed prior to the ex-date of the spin-off, reorganization, recapitalization, restructuring or

similar corporate transaction giving rise to a Restructure Security prior to commencement of

trading in the Restructure Security, including when-issued trading, may be taken into account in

determining whether the corresponding maintenance requirements (i.e., Requirements 3.a and

4.a, respectively) apply.

Rule 14.6(e) provides that, for an Underlying Security that is an ETF share or a TIR, the

applicable initial listing requirements shall apply to the ETF share or TIR instead of the

15 U.S.C. §§ 78m, 78o(d).

maintenance requirements described above.

Under Rule 14.6(b), if an Underlying Security fails to satisfy any one of these

maintenance requirements on a Review Date, the Exchange shall provide notice to its

participants and allow a cure period of ninety (90) calendar days. If the Underlying Security

fails to regain compliance with all applicable maintenance requirements within this cure period,

the Exchange shall initiate delisting procedures with respect to the Perpetual SFP overlying such

Underlying Security pursuant to Rule 14.7. Because Perpetual SFPs have no fixed expiration

date, such that they have indefinite durations and do not require periodic contract roll-overs on a

delivery month, the initiation of delisting procedures with respect to a Perpetual SFP is the

analogous measure to refusal to open for trading a dated security futures product with a new

delivery month.

Immediate Delisting Events. Rule 14.6(c) provides that certain events relating to an

Underlying Security will result in immediate delisting of the corresponding Perpetual SFP by the

Exchange without the ninety (90) day cure period described above. Such events include: (i)

delisting of the Underlying Security from the national securities exchange on which the security

is primarily listed for trading (the “Primary Listing Exchange”), (ii) the issuer’s entry into

bankruptcy, liquidation or insolvency proceedings, (iii) the Commission’s issuance of a trading

suspension under Section 12(k) of the Act or an order under Section 12(j) of the Act suspending

the effectiveness of, or revoking, the registration of the security, (iv) the security ceasing to exist

as a result of a completed corporate action or (v) the issuer or its controller becoming subject to

sanctions (each such event, an “Immediate Delisting Event”). Upon the occurrence of an

Immediate Delisting Event, the Exchange shall promptly confirm that such event has occurred

and, upon such confirmation, immediately halt trading (including the execution and reporting of

block trades) in the Perpetual SFP corresponding to the relevant Underlying Security. The

Exchange shall then publicly announce such halt and notify participants by Exchange Notice of

the applicable final settlement timeline. All open positions in affected Perpetual SFPs shall be

settled in accordance with the delisting procedures in Rule 14.7.

Delisting Procedures. Rule 14.7 provides that, “[w]hen the Exchange determines that a

Perpetual SFP must be delisted, the following procedures apply.”

The Exchange shall first provide written notice to all of its participants specifying the

reason for the delisting and the applicable timeline. For delistings involving a cure period (i.e.,

failure to satisfy a maintenance requirement), the Exchange shall provide not less than thirty (30)

calendar days’ notice prior to the final settlement date of the relevant Perpetual SFPs. For

Immediate Delisting Events, the Exchange shall conduct final settlement as promptly as

practicable, but no later than five business days following the triggering Immediate Delisting

Event.

Final settlement will then proceed in a manner fully compliant with the Final Settlement

Rules. Where delisting arises from a Corporate Action addressed under Part VII of Chapter 14

and as applicable, the final settlement price shall be the consideration payable to holders of the

Underlying Security under the announced terms of the Corporate Action. Otherwise, the final

settlement price for a delisted Perpetual SFP shall be the opening price of the Underlying

Security on its Primary Listing Exchange on the date of final settlement. Where such price is not

readily available, the final settlement price shall fairly reflect the price of the Underlying

Security on its Primary Listing Exchange during the most recent regular trading session for such

Underlying Security or the next available opening price of the Underlying Security.

Notwithstanding the foregoing, as provided in the Final Settlement Rules, where Klear, in its

capacity as central clearinghouse of the Perpetual SFPs, determines that such price is not

consistent with the protection of customers and the public interest, taking into account the factors

set forth in CFTC Regulation 41.25(c)(3) and Commission Rule 6h-1(b)(3),34 Klear may

determine, pursuant to its rules, an alternative final settlement price.

Higher Margin Levels for Perpetual SFPs

Kalshi proposes adopting Rulebook Chapter 14, Part V and related new definitions in

Rule 14.2 (the “Perpetual SFP Margin Rules”) to specify customer margin requirements for

Perpetual SFPs listed on the Exchange. Specifically, the Perpetual SFP Margin Rules will

establish procedures relating to the determination and administration of customer margin

requirements for Perpetual SFPs and the applicability of those requirements.

Section 3(a)(57)(C) of the Act defines “higher margin level” and “higher level of margin,” when

such terms are used with respect to a security futures product, as “a margin level established by a

national securities exchange registered pursuant to [S]ection 6(g) [of the Act] that is higher than

the minimum amount established in effect pursuant to [S]ection 7(c)(2)(B)” of the Act. 35 Section

7(c)(2)(B) of the Act grants the Commission and the CFTC joint rulemaking authority to

prescribe margin requirements for security futures products.36 Pursuant to this authority, the

Commission and the CFTC have adopted parallel rules establishing a fifteen (15) percent

minimum initial and maintenance customer margin requirement for long or short security future

positions and permitting exchanges to prescribe lower margin requirements for permitted

offsetting positions involving security futures and related positions.37 The Perpetual SFP Margin

17 C.F.R. §§ 41.25(c)(3); 240.6h-1(b)(3).

15 U.S.C. § 78c(a)(57)(C).

15 U.S.C. § 78g(c)(2)(B).

17 C.F.R. §§ 242.403(b); 41.45(b) (together, the “Customer Margin Rules”).

Rules will establish “higher margin levels,” as defined in Section 3(a)(57)(C) of the Act, as

discussed below.

Perpetual SFP Margin Rates. Rule 14.16(a) requires each member of the Exchange

intermediating Perpetual SFP transactions on behalf of customers (such members, who must

satisfy the eligibility requirements set forth in Rule 14.37, “SFP Broker Members”) that is also a

futures commission merchant that has entered into an futures commission merchant (“FCM”)

Member Agreement with Kalshi (a “FCM SFP Broker Member”) to collect and maintain from

each of their customers, for each Perpetual SFP position carried in such customer’s account,

“margin in an amount not less than 15.50% (such percentage, the “Perpetual SFP Margin Ratio”)

of the Current Market Value of the position” (such amount, with respect to a Perpetual SFP, the

“Perpetual SFP Required Margin”).

Rule 14.16(b) further provides that the “Current Market Value” of a position equals the

product of (i) the number of Perpetual SFP contracts comprising the position, (ii) the number of

shares of the Underlying Security represented by one Perpetual SFP contract, which shall be one

hundred (100) shares of the Underlying Security (the “Contract Unit”) and (iii) the settlement

value, as determined by the Exchange pursuant to Rule 14.12(a)–(c), of the Perpetual SFP (the

“Mark Price”). Rule 14.12 describes the process by which the Exchange shall determine the

Mark Price of a Perpetual SFP as “the following tiered methodology, applied in descending

order:

(i)

Tier 1—Trade VWAP. [i]f one or more trades other than [b]lock [t]rades in the

Perpetual SFP occur during the [sixty-second] Computation Interval, the Mark Price

shall be the volume-weighted average price (“VWAP”) of those trades (excluding any

[b]lock [t]rades executed during the Computation Interval). The VWAP calculation

shall be adjusted to exclude outliers. The Exchange generally shall apply a Median

Absolute Deviation filter but may, in its discretion, exclude other outlier or

manipulative transactions. Tier 1 shall not apply, and the Mark Price shall instead be

determined under Tier 2 or Tier 3, as applicable, if the VWAP so calculated differs

from the Underlying Price Index as of the Mark Price Calculation Time by more than

fifty percent (50%) of that Underlying Price Index.

(ii)

Tier 2—Sampled Midpoint Average. [f]or purposes of this Tier 2, sixty (60)

observation points shall occur at exactly N seconds before the Mark Price Calculation

Time for each integer N from 1 through 60 (each, an “Observation Point”). The

prevailing best bid and prevailing best ask at an Observation Point shall be the best

bid and best ask resting on the Perpetual SFP order book as of that instant. An

Observation Point shall be “two-sided” if both a prevailing best bid and a prevailing

best ask are present at that instant, and the “Midpoint” at a two-sided Observation

Point shall be the arithmetic mean of its prevailing best bid and prevailing best ask. A

two-sided Observation Point shall be disregarded if the difference between its

prevailing best ask and prevailing best bid exceeds ten percent (10%) of its Midpoint.

If the Mark Price is not determined under Tier 1, whether because no trades in the

Perpetual SFP occur during the Computation Interval or because Tier 1 does not

apply as provided in paragraph (a)(1), and at least one Observation Point is two-sided

and is not disregarded, the Mark Price shall be the arithmetic mean of the Midpoints

at all two-sided Observation Points that are not disregarded.

(iii)

Tier 3. [i]f the Mark Price is not determined under Tier 1 or Tier 2, the Mark Price

shall equal the prior Mark Price plus the net change in the Underlying Price Index

between the prior Mark Price Calculation Time and the current Mark Price

Calculation Time”

(iv)

If a Mark Price cannot be determined under Tiers 1-3, the Exchange may determine

the Mark Price using (a) the Underlying Price Index, if available and reliable, or (b)

such other reasonable methodology as the Exchange determines appropriate pursuant

to Rule 7.1.

Pursuant to Rule 14.12(b), “[i]f trading in a Perpetual SFP is halted during any portion of the

Computation Interval, trades occurring during the halt shall be excluded from Tier 1, and no

Observation Point occurring during the halt shall be considered two-sided for purposes of Tier 2.

If trading in the Perpetual SFP is halted at the Mark Price Calculation Time, the Mark Price shall

be determined under Tier 3.”

The Exchange shall not permit customer margin requirements lower than the Perpetual SFP

Required Margin (i.e., the Perpetual SFP Margin Ratio multiplied by the Current Market Value

of a Perpetual SFP position), including for offsetting positions involving Perpetual SFPs and

related positions that would be permitted under subparagraph two (2) of the Customer Margin

Rules to be subject to margin requirements lower than the fifteen (15) percent minimum margin

requirement established under subparagraph one (1) of those rules. 38 Further, the Exchange shall

17 C.F.R. §§ 242.403(b)(2); 41.45(b)(2). Certain national securities exchanges registered under Section

6(g) of the Act have filed rule changes establishing customer margin requirements for security futures with

the Commission under Sections 19(b)(1) and 19(b)(2) of the Act. See Self-Regulatory Organizations;

Notice of Filing of Proposed Rule Change by the Nasdaq Liffe Markets, LLC Relating to Margin Rules for

Security Futures Products Other Than Options on Security Futures, 67 Fed. Reg. 61361 (Sept. 30, 2002);

Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by OneChicago, LLC Relating to

Customer Margin Requirements for Security Futures, 67 Fed. Reg. 61707 (Oct. 1, 2002); Self-Regulatory

Organizations; CBOE Futures Exchange, LLC; Notice of Filing and Order Granting Accelerated Approval

of Proposed Rule Change Relating to Customer Margin Requirements for Security Futures, Exchange Act

Release No. 34-52381 (Sept. 2, 2005); Self-Regulatory Organizations; Board of Trade of the City of

Chicago, Inc.; Notice of Filing and Order Granting Accelerated Approval of Proposed Rule Change

Relating to Customer Margin Requirements for Security Futures, Release No. 34-53626 (April 10, 2006);

Self-Regulatory Organizations; Chicago Mercantile Exchange Inc.; Notice of Filing of a Proposed Rule

Change Relating to Amendments to Chicago Mercantile Exchange Inc.’s Rules Governing Performance

not exempt market makers (i.e., Exchange members that are registered as dealers with the SEC

under Section 15(b) of the Act) or “exempted persons” as defined in applicable SEC and CFTC

regulations39 as “customers” for purposes of the Perpetual SFP Margin Rules, notwithstanding

that the Customer Margin Rules would permit such exemptions. 40 Pursuant to Rule 14.16(c), the

Perpetual SFP Margin Ratio shall apply at all times to all positions, and there shall be “no

separate initial margin or maintenance margin rate.” Rule 14.16(d) further provides that the total

Perpetual SFP Required Margin for a FCM SFP Broker Member’s customer account shall, in all

cases, be the sum of the Perpetual SFP Required Margin for each individual Perpetual SFP

position, provided that, pursuant to Rule 14.16(e), “[t]he Exchange may, in its discretion, impose

margin requirements in excess of the Perpetual SFP Margin Ratio for any Perpetual SFP or class

of Perpetual SFPs, effective upon such notice to FCM SFP Broker Members as the Exchange

deems appropriate.” The Exchange may consider factors including market volatility, liquidity

conditions, concentration risk, and the financial condition of FCM SFP Broker Members or their

customers in determining whether to impose such higher margin requirements.

Bond Requirements: Account Holder Level, Exchange Act Release No. 34-105607 (June 3, 2026).

However, the rules of each such exchange contemplated margin requirements no higher than the “minimum

amount established in effect pursuant to” the Customer Margin Rules adopted by the Commission and

CFTC “pursuant to [S]ection 7(c)(2)(B)” of the Act. Section 7(c)(2)(B) of the Act grants the Commission

and the CFTC joint rulemaking authority to prescribe margin requirements for security futures products.

15 U.S.C. § 78c(a)(57)(C). Accordingly, these rules did not result in “higher margin levels” as defined in

Section 3(a)(57)(C) of the Act, such that they were required to be filed under Sections 19(b)(1) and

19(b)(2) of the Act. See 15 U.S.C. § 78f(g)(4)(B)(ii). By contrast, rule changes related to higher margin

requirements may be filed by an exchange pursuant to Section 19(b)(7) of the Act. See 15 U.S.C. §

78f(g)(4)(B)(i).

17 C.F.R. § 41.43(a)(9); 17 C.F.R. § 242.401(a)(9).

See 17 C.F.R. §§ 41.43(a)(5); 242.401(a)(5) (excluding “exempted persons” from the “customer”

definition); 17 C.F.R. §§ 242.400(c)(2)(v); 41.42(c)(2)(v) (permitting an exchange to adopt rules

containing specified requirements for security futures dealers subject to which a security futures dealer’s

relationship with a security futures intermediary is excluded from the customer margin requirements of the

Customer Margin Rules).

Rule 14.22(a) further states that “[t]he Exchange may, in an emergency, impose special

margin requirements for specific Perpetual SFPs or accounts, or require FCM SFP Broker

Members to collect margin on an intraday basis, effective immediately upon notice to FCM SFP

Broker Members.” The Exchange is required, pursuant to Rule 14.22(b) to report any such

emergency actions taken to the Commission and the CFTC as promptly as practicable.

Perpetual SFP Margin Administration. Rule 14.17 identifies the manner in which a

customer may satisfy the Perpetual SFP Required Margin. Consistent with Commission Rule

242.404(b) and CFTC Regulation 41.46(b), 41 under Rule 14.17(a), acceptable types of collateral

for Perpetual SFPs include cash and, if permitted by the Exchange at its discretion and with

notice to members, margin securities (subject to specified restrictions), exempted securities, any

other assets permitted under Regulation T of the Board of Governors of the Federal Reserve

System to satisfy a margin deficiency in a securities margin account, and any combination

thereof. Rule 14.17 further provides that “[t]he Exchange may impose conditions on, or decline

to accept, any form of collateral.” Pursuant to Rule 14.17(b), the collateral value of all collateral

accepted to satisfy the Perpetual SFP Required Margin shall be determined in accordance with

CFTC Regulations 41.46(c) and 41.46(e) and the parallel provisions in Commission Rules

242.404(c) and 242.404(e).42

In addition, Rule 14.18 sets forth rules relating to the Exchange’s daily mark-to-market

process and Rule 14.19 details the Exchange’s process for administering margin calls to

participants with under margined Perpetual SFP positions.

Contract Terms and Trading Rules for Perpetual SFPs

17 C.F.R. §§ 242.404(b); 41.46(b).

17 C.F.R. §§ 41.46(c), 41.46(e), 242.404(c), 242.404(e).

Kalshi proposes adopting Rulebook Chapter 14, Parts III (Contract Specifications and Trading

Rules), VI (Position Limits and Reporting), and related new definitions in Rule 14.2 to govern

the specifications and trading of Perpetual SFPs.

Contract Specifications. Part III of Chapter 14 (Rules 14.9 through 14.13) sets forth

certain contract specifications for Perpetual SFPs, including:

Trading Unit. Rule 14.9(a) sets forth the Contract Unit (one hundred (100) shares of the

Underlying Security) and provides that eligible participants may trade fractional Contract Unit

quantities as provided in the applicable contract specifications for a Perpetual SFP. For the

avoidance of doubt, the Exchange does not propose to offer Perpetual SFPs on fractional

interests in Underlying Securities. Rather, one Perpetual SFP Contract Unit will in all cases

overlie one hundred (100) shares of the Underlying Security, and the Exchange shall permit

participants to trade a fractional quantity of the Perpetual SFP Contract Unit.

Minimum Price Fluctuation. Rule 14.9(c) specifies that the minimum price fluctuation

for Perpetual SFPs shall be one one-half of a cent ($0.005) per share. The Exchange proposes

this rule in order to permit market participants to more precisely price the equity financing

spread. The Commission has previously permitted rule changes by OneChicago, LLC

(“OneChicago”) to adopt four decimal pricing for security futures products. 43 As noted in the

filing discussing OneChicago’s proposed rule change, “[u]nlike securities—which are assets—

[security futures] are contingent liabilities that represent the forward value of the underlying

security. The primary difference in pricing between securities and the [security futures] that

Self-Regulatory Organizations; OneChicago, LLC; Notice of Filing of Proposed Rule Change to Implement

Four Decimal Pricing for Outright Transactions in Single Stock Futures, Release No. 34-81022 (June 26,

2017), 82 Fed. Reg. 29953 (June 30, 2017).

overlay them is the interest rate component of the forward contract.” 44 The equity financing

spread (i.e., the “interest rate component”) of a Perpetual SFP is essentially the cost of carry of

the Underlying Security, and this spread is generally quoted in basis points (i.e., hundredths of

percentage points). Because the equity financing spread associated with a given Perpetual SFP

quoted in basis points by reference to the notional value of a Perpetual SFP, sub-penny pricing is

necessary to ensure that that the price of a given Perpetual SFP is sufficiently granular to

accurately capture its associated equity financing spread.

Perpetual SFPs will have daily settlement cycles, during which funding payment

obligations and payments will be exchanged to motivate price convergence with the Underlying

Security. As a result, the carry component of a Perpetual SFP will reflect only a single day of

financing rather than, as would be the case with a traditional dated future, a full month, quarter or

year of financing. For example, in the case of an Underlying Security priced at four hundred

dollars ($400) per share, a one cent tick size would represent approximately .25 basis points on a

single-day basis, or roughly 91 basis points annualized. OneChicago cited a 141 basis point

annualized spread as unreasonably wide for a financing instrument. 45 By contrast, the halfpenny pricing proposed by the Exchange would produce half that – a roughly 46 basis point

spread on an annualized basis –, permitting a materially more precise reflection of the equity

financing spread.

Furthermore, three decimal pricing for Perpetual SFPs does not present the same

concerns that motivated the Commission to limit the tick size of certain NMS securities to a

penny.46 The Commission adopted Regulation NMS Rule 612 in order to address concerns to

Id. at 29953–29954.

Id. at 29954.

17 C.F.R. § 242.612 (“NMS Rule 612”).

prevent market participants from “queue-jumping” by “gain[ing] priority over existing limit

orders by posting an economically insignificant price improvement,” thereby harming market

liquidity and price discovery of cash equity markets. 47 Although Perpetual SFPs are not NMS

securities subject to Regulation NMS Rule 612, the Exchange has considered whether the

concerns underlying Regulation NMS Rule 612 apply to the Exchange’s proposed three decimal

minimum pricing increment for Perpetual SFPs. The Exchange does not believe that permitting

Perpetual SFPs to trade with a tick size of $0.005 will harm liquidity and price discovery for cash

equity markets or will lead to queue jumping in Perpetual SFPs. Perpetual SFPs are structurally

tethered to cash equity prices through the daily funding mechanism, such that liquidity and price

discovery of Perpetual SFPs are driven by the cash market prices of the Underlying Securities

they reference. Where the price of a Perpetual SFP deviates from the price of the Underlying

Security, the funding mechanism creates a strong, proven economic incentive to converge the

price of the Perpetual SFP back towards the price of the Underlying Security. Sub-penny pricing

of Perpetual SFPs would therefore be unlikely to have any impact on cash market prices for

Underlying Securities, as the prices of Perpetual SFPs are themselves subservient to the prices of

their Underlying Securities. Further, the Exchange does not believe that three-decimal pricing

results in minimum pricing increments so arbitrarily small as to raise queue-jumping concerns in

Perpetual SFP markets, given the impact of financing spreads as discussed above. Also, the

Commission itself recently acknowledged that, since adoption of Regulation NMS Rule 612 over

two decades ago, “the market has evolved considerably,” necessitating and justifying

Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders,

Exchange Act Release No. 101070, 89 Fed. Reg. 81620, 81622 (Oct. 8, 2024).

amendments to permit half-penny tick sizes for NMS securities with sufficiently narrow bid-ask

spreads.48

Settlement Method. Perpetual SFPs will be cash-settled.

Periodic Transfers and Funding Rate. As mentioned above, holders of long and short

positions in Perpetual SFPs will exchange periodic payment obligations in the form of “funding

payments” that vary based on the price of the Underlying Security relative to the price of the

Perpetual SFP. Rule 14.10 sets forth the process by which the Exchange shall calculate,

administer and settle funding payment obligations and entitlements of holders of Perpetual SFP

positions.

For each successive sixty-second interval, beginning at the start of a clock minute and

ending immediately before the start of the next, within the regular trading session of the U.S.

equity cash market on a given trading day (each such sixty-second interval, a “Computation

Interval” and this entire period, the “Funding Period”) during which the U.S. equity cash market

is open for regular trading and trading in the Underlying Security is not halted, the Exchange

shall compute a “Premium,” which Premium shall be equal to, for a given Computation Interval,

the (i) Mark Price, calculated as of the end of the Computation Interval, less (ii) the timeweighted average of the last sale price of the Underlying Security as reported by the securities

information processor pursuant to the effective national market system plan for the Underlying

Security (the “Underlying Price Index”) 49 over the Computation Interval (the “Reference Price”),

Id. at 81623.

During periods when the equity cash market is closed, the Underlying Price Index shall instead be the

official closing price of the Underlying Security from the most recent regular trading session of the

Underlying Security.

divided by (iii) the Reference Price. 50

Pursuant to Rule 14.10(c), calculation of the Premium shall not take into account any

block trades executed or reported to the Exchange during a Computation Interval. Block trades

are privately negotiated transactions between Exchange participants (i.e., members or member

customers) that may only be executed on the Exchange if they comply with the requirements of

Rule 5.3(e), including that they must meet the applicable minimum size threshold established by

the Exchange and each party must be an eligible contract participant as defined in CEA Section

1a(18),51 among other requirements. To help ensure that the mark price and funding rate

calculation fairly reflect the prevailing executable value of Perpetual SFPs in a competitive

marketplace, and given that block trades are privately negotiated, block trades in a Perpetual SFP

are excluded from the Mark Price calculation for that SFP and, accordingly, are not reflected in

Premium calculations.

The “Funding Rate” for a Funding Period will be equal to the equally weighted arithmetic

mean of the Premiums computed during that Funding Period (the “Mean Premium”), subject to

adjustments as described below. If no trades (or only block trades) in the Perpetual SFP are

executed during a Computation Interval, the Premium for that Computation Interval is excluded

from the Funding Rate calculation, and no Premium will be computed for any Computation

Interval falling in whole or in part within any period specified in Rule 14.10(f), including periods

when the U.S. equity cash market is closed or when trading in the Underlying Security is halted

on its Primary Listing Exchange. The Funding Rate is derived solely from observed Premiums,

Premiums are used to calculate daily funding obligations associated with Perpetual SFPs, which do not

constitute final settlements of Perpetual SFPs and, accordingly, are not subject to the Final Settlement

Rules.

7 U.S.C. § 1a(18).

the methodology contains no separate interest rate or dividend term, and expected carry and

Ordinary Dividends are reflected only to the extent reflected in the Premium. 52

The Funding Rate may be adjusted subject to a “Deadband Threshold” of 0.002% and a

“Maximum Funding Magnitude” of 2.00%, each as defined in Rule 14.2 and applied as provided

in Rule 14.10(d). Pursuant to Rule 14.10(d), the Funding Rate will be reduced (or increased, if

the Mean Premium is negative) toward zero by the Deadband Threshold if the absolute value of

the Mean Premium for a given Funding Period exceeds the Deadband Threshold, and will be

zero where the absolute value of the Mean Premium does not exceed the Deadband Threshold.

In other words, the Deadband Threshold will operate as a continuous reduction in absolute value

of the Mean Premium, rather than as a discontinuous threshold, so that the Funding Rate varies

continuously with the Mean Premium. Additionally, if the absolute value of the Funding Rate

exceeds the Maximum Funding Magnitude, the Funding Rate shall be set to the Maximum

Funding Magnitude with the same sign as the originally calculated Funding Rate. The purpose

of the Deadband Threshold is to mitigate the operational burdens of market noise and small price

deviations (including those potentially attributable to manipulation attempts). The purpose of the

Maximum Funding Magnitude is to prevent large but transitory price deviations from triggering

disruptive funding payments.

Pursuant to Rule 14.10(e), at the scheduled close of each regular trading session in the

U.S. equity cash market (ordinarily 4:00 PM ET, or the scheduled early close on early-close

As noted in Rule 14.27, discussed below, “[t]he economics of an Ordinary Dividend shall be transferred

between open interest [in Perpetual SFPs] through the Funding Rate, and no adjustment shall be made to

the Contract Specifications, Daily Settlement Price, Contract Unit, or number of outstanding contracts of a

Perpetual SFP to reflect an Ordinary Dividend.” Rather, the economics of Ordinary Dividends will be

incorporated into the calculation of Premiums, on the basis of which Funding Rates for Perpetual SFPs are

derived, due to the decline in price of the Underlying Security subject to the Ordinary Dividend on the exdate, which will be reflected in the Underlying Price Index (and therefore the Reference Price) and not

otherwise offset within the Perpetual SFP.

days) on each day on which the cash market is open for regular trading (the “Daily Settlement

Time”), holders of Perpetual SFPs will exchange periodic funding payment obligations and

entitlements. Specifically, if the Funding Rate is positive, each holder of a long position shall

pay, for each Perpetual SFP Contract Unit held (including fractional Contract Unit positions), to

holders of short positions in the Perpetual SFP an amount equal to the Funding Rate multiplied

by the Mark Price as of the Daily Settlement Time (the “Daily Settlement Price”) multiplied by

the Contract Unit. If the Funding Rate is negative, holders of short positions shall pay, for each

Perpetual SFP Contract Unit held (including fractional Contract Unit positions), to holders of

long positions in the Perpetual SFP an amount equal to the absolute value of the Funding Rate

multiplied by the Daily Settlement Price multiplied by the Contract Unit. If the Funding Rate is

zero, no transfer will be made. Such periodic transfers will be computed by the Exchange and

collected and paid through Klear, as the clearing house for Perpetual SFPs. Funding payments

are separate from variation margin and any other payment obligations due to or from a

participant of the Exchange. Pursuant to Rule 14.12(c), if a Daily Settlement Price cannot be

determined pursuant to Tiers (1) through (3) set forth in Rule 14.12, the Exchange may

determine the Daily Settlement Price pursuant to the Underlying Price Index as of the Daily

Settlement Time, if it is available and reliable, or the Exchange’s Market Outcome Review

Process under Rule 7.1.

Under the Market Outcome Review Process, the Exchange’s Outcome Review

Committee, a standing committee consisting of three members, two of which must be Public

Directors appointed by the Exchange’s Regulatory Oversight Committee pursuant to Exchange

Rule 2.7(e), would determine the final Daily Settlement Price for a given Funding Period. The

Outcome Review Committee would review all relevant evidence and determine a final Daily

Settlement Price within a 24-hour period after the Market Outcome Review Process is initiated,

and associated funding entitlements and obligations would be settled on the date that the

Outcome Review Committee reaches a determination on the Daily Settlement Price. If the

Market Outcome Review Process is initiated, the Exchange will post on its website that the

Perpetual SFP’s Daily Settlement Price is under review.

Trading Hours. Rule 14.11 provides that “Perpetual SFPs shall be available for trading

from 6:00 PM ET on Sunday through 5:00 PM ET on Friday, with a daily maintenance window

from 5:00 PM ET to 6:00 PM ET during which Perpetual SFPs do not trade, subject to trading

halts as provided in Rule 14.13 and the Exchange’s discretionary authority under Rule 14.15.”

Rule 14.11 further states that “[t]he Exchange may establish specific trading hours for particular

Perpetual SFPs or classes of Perpetual SFPs as it deems appropriate.” The trading hours for

Perpetual SFPs will be consistent with the 23 hours a day, five days a week trading schedules

established for cash equities and security futures on other national securities exchanges. 53

Coordinated Trading Halts. Rule 14.2 defines a “Regulatory Halt” to include any event within

in the meaning of that term in (i) Commission Rule 6h-1(a)(3) and CFTC Regulation 41.1(l) and

(ii) the “Plan to Address Extraordinary Market Volatility Submitted to the Securities and

Exchange Commission Pursuant to Rule 608 of Regulation NMS Under the Securities Exchange

Act of 1934” approved 31 May 2012 by the SEC, as amended from time to time (SEC, SRO

Rulemaking, National Market System Plans, File 4 631) and as implemented under New York

Stock Exchange Rule 7.12 for Trading Halts Due to Extraordinary Volatility or under Nasdaq

Stock Market Rule 4121 for Trading Halts Due to Extraordinary Volatility. Consistent with the

See, e.g., Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment

Nos. 2 and 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Amended by

Amendment Nos. 2 and 3, to Extend the Exchange’s Trading Hours to 23 Hours a Day, Five Days a Week,

Release No. 34-105199 (April 10, 2026); CME SFP Rule Filing at 41683.

parallel requirements in CFTC Regulation 41.25(b)(2) and Commission Rule 6h-1(c),54 Rule

14.13(a) provides that the Exchange shall “halt trading in a Perpetual SFP at all times during a

Regulatory Halt affecting the Underlying Security.” Rule 14.13(a) further provides that, “[f]or

the avoidance of doubt, no [b]lock [t]rades in a Perpetual SFP may be executed on or reported to

the Exchange during any period during which the Exchange has halted trading in the Perpetual

SFP.” Rule 14.13(b) further specifies that, in the event of a Regulatory Halt resulting from the

operations of a circuit breaker or trading curb procedures by a national securities exchange or

national securities association, the levels, thresholds and durations applicable to such marketwide circuit breaker or trading curb procedures are those established by the applicable national

securities exchange or national securities association, as in effect from time to time. Pursuant to

Rule 14.13(c), “[s]uspension of trading due to a Regulatory Halt shall remain in effect until the

Primary Listing Exchange of the Underlying Security resumes trading, unless the Exchange

determines, in its discretion, that additional conditions must be satisfied before trading in the

Perpetual SFP may resume.” The Exchange shall resume trading only upon its determination

that price discovery in the Perpetual SFP can occur on a fair and orderly basis.

Rule 14.13(d) authorizes the Exchange to, at its discretion, permit members to submit,

modify or cancel orders in affected Perpetual SFPs, but clarifies that “[n]o matching shall occur

during the Regulatory Halt.” Rule 14.13(d) also provides that “[a]ll market orders resting at the

time a Regulatory Halt is initiated shall be cancelled.”

Rule 14.13(e) requires the Exchange to “promptly disseminate notice to all Members of

any coordinated trading halt and the resumption of trading via the Exchange’s notification

channels and market data feeds.”

17 C.F.R. §§ 41.25(b)(2); 240.6h-1(c).

Finally, Rule 14.13(f) authorizes the Exchange to “at its sole discretion, halt trading

(including execution and reporting of [b]lock [t]rades) in a Perpetual SFP at any time when

trading in the Underlying Security is halted for any reason on any national securities exchange

listing the Underlying Security.”

Position Limits and Reporting for Perpetual SFPs

Kalshi proposes adopting Rulebook Chapter 14, Part VI and related new definitions in Rule 14.2

to specify position limits and position accountability levels applicable to Perpetual SFPs and

related large trader reporting obligations. Rule 14.23(a) provides that “[e]xcept with the prior

written permission of the [Exchange’s] Chief Regulatory Officer or his designee, all Members

must comply with the position limits set forth in” Rule 14.23. The proposed position limits and

position accountability levels are designed to ensure compliance with CFTC Regulation

41.25(b)(3), a primary purpose of which is to ensure comparability of position limits applicable

to security futures with those applicable to equity options.55

CFTC Regulation 41.25(b)(3) requires DCMs to have rules establishing position limits

and position accountability levels applicable during “the last three trading days of an expiring

contract month” of a security future.56 Because the Perpetual SFPs have no predetermined

expiration date, and can have potentially indefinite durations, the Exchange believes that the

position limit requirements of CFTC Regulation 41.25(b)(3) apply with respect to a Perpetual

SFP only during the three (3) trading days (the “last three trading days”) preceding the date on

See, e.g., Position Limits and Position Accountability for Security Futures Products, Final Rule, 84 Fed.

Reg. 51005, 51006 (“When adopted, the [CFTC]’s existing [security futures products] position limits were

set at levels that were generally comparable, but not identical, to the limits that applied to options on

individual securities at that time. However, over time, a competitive disparity emerged between the

[CFTC]’s [security futures product] position limits and security options limits despite both serving

economically similar functions. …. To address this disparity, the Commission drafted the Proposal with the

goal of providing a level regulatory playing field”.

17 C.F.R. § 41.25(b)(3).

which the Exchange has determined that final settlement of a Perpetual SFP will occur pursuant

to Rule 14.7 (applicable to Perpetual SFPs that are delisted by the Exchange due to the

Underlying Security or its issuer failing to satisfy a maintenance listing requirement during the

applicable cure period or being subject to an Immediate Delisting Event) and Rule 14.30

(applicable to Perpetual SFPs subject to accelerated final settlement, discussed below).

In order to more effectively protect against manipulation, the Exchange shall impose position

limits more stringent than those required under CFTC Regulation 41.25(b)(3) throughout the life

of each Perpetual SFP. Specifically, Rule 14.23(b) provides that, except as otherwise provided

in Rule 14.23, Perpetual SFPs, which will in each case overlie a single Underlying Security,

“shall be equal to: (i) at all times other than the last three trading days of an expiring contract,

50,000 Perpetual SFP [units of exposure equal to one hundred (100) shares of the Underlying

Security (each such unit, a “Standard Contract Equivalent”)] or (ii) during the last three trading

days of an expiring contract, 25,000 Perpetual SFP Standard Contract Equivalents.” Rule

14.23(b) further specifies that “[t]he number of Standard Contract Equivalents held by a person

may not exceed the limit either net or on the same side of the market.” Notwithstanding the

foregoing, Rule 14.23(b) provides that a Perpetual SFP position in excess of the applicable

position limit that arises solely as the result of an adjustment to a Perpetual SFP effected in

connection with a corporate action affecting the Underlying Security pursuant to Part VII of

Chapter 14 “shall not, by reason of the adjustment alone, constitute a violation of [Rule 14.23],

provided that the person holding the position does not increase the position on the same side of

the market after the adjustment becomes effective.” Rule 14.23(b) further clarifies that “[i]n no

event shall the applicable [position limit] be established or administered in a manner inconsistent

with CFTC Regulation 41.25 and applicable CFTC regulations, guidance or orders.”

Rule 14.23(c) sets out liquidity-tiered position limit standards. Specifically, where the estimated

deliverable supply of an Underlying Security exceeds twenty (20) million shares, the Exchange

may (if appropriate in light of the liquidity of trading in the Underlying Security) assign the

Perpetual SFP to a liquidity tier and adopt a position limit for the Perpetual SFP no greater than

the lesser of (i) the number of Perpetual SFP Standard Contract Equivalents specified for the

applicable tier in the schedule established by the Exchange by notice to Members and (ii) the

equivalent of 12.5 percent of the estimated deliverable supply of the Underlying Security, either

net or on the same side of the market, applicable to positions held during the last three days of an

expiring contract.

Consistent with CFTC Regulation 41.25(b)(3), for a Perpetual SFP on an Underlying

Security where the six-month total trading volume exceeds 2.5 billion shares and the estimated

deliverable supply exceeds 40 million shares, the Exchange may adopt a position accountability

rule in lieu of a position limit under Rule 14.23(d). The position accountability level shall be

twenty-five thousand (25,000) Standard Contract Equivalents, or such lower level as the

Exchange may specify with respect to such a Perpetual SFP.

For purposes of determining the applicability of Rules 14.23(c) and 14.23(d), the

Exchange shall calculate, on a monthly basis, the estimated deliverable supply and six-month

total trading volume for each Underlying Security, as provided in Rule 14.23(g). Rule 14.23(g)

also states that “[t]he Exchange shall adjust position limits as appropriate based on data and shall

file any changes with the CFTC pursuant to CFTC Regulation 41.24.”

Furthermore, Rule 14.23(a) specifies that, notwithstanding anything to the contrary in

Rules 14.23(c) or 14.23(d), no position or positions aggregated in accordance with Rule 14.23(e)

shall be permitted in excess of 200,000 Perpetual SFP Standard Contract Equivalents.

Rule 14.23 also includes provisions governing position limit exemptions and aggregation. Rule

14.23(e) generally governs how position limits adopted by the Exchange for Perpetual SFPs

apply to market participants with respect to aggregation of positions they hold or control. Rule

14.23(f) provides that “[t]he Exchange may grant exemptions from the position limits set forth in

[Rule 14.23] for Perpetual SFP positions used for qualified hedging strategies,” requires

applications for such exemptions to be filed with the Exchange in such form as the Exchange

may prescribe and authorizes the Exchange to condition any exemption upon such terms and

conditions as the Exchange deems appropriate. Rule 14.24 governs position accountability

requirements for market participants who hold positions in Perpetual SFPs in excess of

applicable position accountability levels. In order to be subject to position accountability levels

under Rule 14.23(d), as noted above, the Underlying Security of a Perpetual SFP must have a

six-month total trading volume exceeding 2.5 billion shares and estimated deliverable supply in

excess of 40 million shares, consistent with CFTC Regulation 41.25(b)(3)(i)(B). 57 Accordingly,

only Perpetual SFPs on the most liquid Underlying Securities shall be subject to position

accountability levels. Further, a position accountability rule may not be applied in lieu of a

position limit during the last three trading days of a Perpetual SFP. Rule 14.24(b) permits the

Exchange to establish higher position accountability levels for market makers in Perpetual SFPs

17 C.F.R. § 41.25(b)(3)(i)(B).

where the market maker has quoting obligations, in accordance with the Exchange’s market

maker program applicable to Perpetual SFPs.

Perpetual SFP Corporate Actions, Adjustments and Accelerated Final Settlement

Kalshi proposes adopting Rulebook Chapter 14, Part VII and related new definitions in Rule 14.2

to specify the Exchange’s response to events initiated by the issuer of an Underlying Security

that alters the number, form, value, or economic characteristics of outstanding shares, including

but not limited to stock splits, reverse stock splits, stock dividends, special or extraordinary cash

dividends, rights issues, spin-offs, mergers, acquisitions, tender offers, exchange offers,

delistings, and name, ISIN or CUSIP changes (“Corporate Actions”). Rule 14.26(c) provides

that any cash or stock dividend, stock distribution, stock split, reverse stock split, rights offering,

distribution, recapitalization, reclassification, reorganization or similar event, or a merger,

consolidation, tender or exchange offer, dissolution, liquidation or delisting affecting the issuer

of an Underlying Security, the number of Perpetual SFP contracts, the Daily Settlement Price,

the Underlying Security or any of the foregoing may be adjusted in accordance with Part VII of

Chapter 14.

As a general matter, Rule 14.26(b) provides that “[d]eterminations as to whether and how

to adjust the terms of a Perpetual SFP to reflect a Corporate Action affecting the Underlying

Security shall be made by the [Exchange’s Chief Regulatory Officer (the “CRO”)], or such other

officer or committee as the [Exchange’s] Board of Directors may designate, based on the CRO’s

judgment as to what is appropriate for the protection of investors and the public interest, taking

into account fairness to the buyers and sellers of the affected Perpetual SFPs, the maintenance of

a fair and orderly market, consistency of interpretation and practice, and the preservation, to the

greatest extent practicable, of the economic equivalence of open positions immediately before

and after the Corporate Action.” Pursuant to Rule 14.26(d), “[t]he CRO may, in addition to

determining adjustments on a case-by-case basis, adopt interpretations of general application to

specified types of events.” Each such determination of the CRO will be made in the CRO’s sole

discretion and, in the absence of fraud or willful misconduct, be conclusive and binding on all

participants and not subject to review. Rule 14.26(f) provides that the Exchange shall not be

liable for any failure to make, or delay in making, an adjustment to reflect a Corporate Action

that it does not learn of, or does not learn of in a timely manner.

Subject to the discretion of the CRO to make exceptions in any case or group of cases as set forth

above, Part VII also sets forth the following general rules regarding how the Exchange shall

address Corporate Actions.

Pursuant to Rule 14.26(g), adjustments under Part VII shall, as a general rule, become

effective on the ex-date, as determined by the Primary Listing Exchange.

Rule 14.27 sets forth the general rules regarding how the Exchange will address Ordinary

Dividends (defined below), Extraordinary Dividends (defined below) and certain other

distributions affecting Underlying Securities. Rule 14.27 provides that the economics of

regularly-scheduled cash dividends paid by the issuer of an Underlying Security in accordance

with the issuer’s established dividend policy that do not exceed the “Extraordinary Dividend

Threshold” established by the CRO (initially, ten percent (10%) of the cum-price of the

Underlying Security) (such regularly-scheduled dividends, “Ordinary Dividends”) shall be

transferred through the Funding Rate, and no adjustment shall be made to the Contract

Specifications, Daily Settlement Price, Contract Unit or number of outstanding Perpetual SFP

contracts to reflect an Ordinary Dividend. 58 The rule also provides that cash distributions by the

See note 52, supra.

issuer of an Underlying Security that the issuer designates as “special”, “extraordinary” or “nonrecurring,” that fall outside of the issuer’s established ordinary dividend policy or that exceed the

Extraordinary Dividend Threshold (such distributions, “Extraordinary Dividends”) and all other

cash or property distributions that are not Ordinary Dividends for which the CRO deems an

adjustment to be appropriate “shall be reflected by a per-contract cash amount recorded against

open positions and settled in cash at the Daily Settlement Time … by a reduction of the Daily

Settlement Price by the value per share of the” distribution. The CRO may reflect such

distributions by another method upon a determination that such other method “best preserves the

economic equivalence of open positions” and may “halt trading in the affected Perpetual SFP in

connection with an Extraordinary Dividend.”

Rule 14.28(a) sets forth the general rule that the Exchange will address forward stock

splits, stock distributions and dividends or bonus issues in respect of an Underlying Security by

proportionately reducing the Daily Settlement Price established immediately before the event

and proportionately increasing the number of Perpetual SFP contracts comprising each open

position. In the case of a reverse stock split or consolidation of shares, Rule 14.28(a) sets forth

the general rule that the Daily Settlement Price of the relevant Underlying Security established

immediately before the event shall be proportionately increased and the number of Perpetual SFP

contracts comprising each open position shall be proportionately reduced. In each case, the

Daily Settlement Price shall be multiplied by, and the number of Perpetual SFP contracts

comprising each open position divided by, the ratio of the number of shares outstanding before

the event to the number outstanding after the event. The Contract Unit shall remain unchanged

and the notional value of each open position shall be substantially unaffected by the adjustments

contemplated in Rule 14.28. The adjustment shall be implemented following the Daily

Settlement Time on the last-cum trading day.

Rule 14.28(b) provides the general rule that “[t]he Exchange shall ordinarily adjust the

terms of a Perpetual SFP to reflect a rights distribution in the manner that best preserves

economic equivalence, except that no adjustment shall ordinarily be made to reflect the issuance

of rights that are not immediately exercisable, that trade together with the Underlying Security

and that may be redeemed by the issuer (so-called “poison pill” rights). If such rights later

become exercisable, begin to trade separately from the Underlying Security, or are redeemed, the

CRO shall determine whether an adjustment is appropriate.”

Rule 14.28(c) provides that “[a]djustments of the Daily Settlement Price shall be rounded

to the nearest minimum price increment, and adjustments of the number of Perpetual SFP

contracts comprising a position shall be rounded to the nearest minimum trading increment under

Rule 14.9(a) and the applicable Contract Specifications in the manner the CRO determines,

consistent with the methodology of [Klear] and any relevant reporting authority; any resulting

difference between aggregate long and aggregate short open interest shall be resolved by the

Exchange in coordination with [Klear] and shall not be allocated to [p]articipants. Where

rounding would not preserve economic equivalence to the greatest extent practicable, the CRO

may apply an alternative convention or a compensating cash adjustment.”

Rule 14.29 sets forth general rules regarding how the Exchange will address mergers,

tender offers and reorganizations affecting the issuers of Underlying Securities. For tender and

exchange offers, Rule 14.29(a) provides that “[n]o adjustment shall ordinarily be made to reflect

a tender offer or exchange offer to holders of the Underlying Security … [but that a] Perpetual

SFP shall ordinarily be adjusted or settled to reflect a merger, consolidation, or similar event that

becomes effective following completion of such an offer.” Rule 14.29(b) provides that, “[w]hen

the Underlying Security is converted in a merger or similar event into the right to receive a fixed

amount of cash, the Perpetual SFP shall ordinarily be closed and subject to final cash settlement

at such fixed amount of cash.” Pursuant to Rule 14.29(c), “[i]n the case of a merger,

consolidation, reincorporation, or similar event in which shares of the Underlying Security are

converted into or exchanged for shares of another company, the Perpetual SFP shall ordinarily be

closed and subject to final cash settlement in accordance with Rule 14.30 at the value of the

shares of the resulting or acquiring company receivable per share of the Underlying Security,”

subject to the CRO’s authority to instead direct that open positions be converted into positions in

Perpetual SFPs that reference the shares of the resulting or acquiring company with

corresponding adjustments to the number of Perpetual SFP contracts comprising each open

position.

Rule 14.29(d) provides that “[n]o adjustment shall ordinarily be made to reflect a change

in the capital structure of the issuer where the Underlying Securities held by the public are not

converted into another security, cash, or other property,” including the issuance of new debt or

equity, refinancing of outstanding debt, a partial stock repurchase by the issuer or the sale of

significant assets of the issuer. Corporate Events that do not “alter the economic rights attached

to the shares,” such as name changes, likewise shall not give rise to any adjustment.

Rule 14.29(e) provides that, notwithstanding the foregoing, the CRO may, in the CRO’s sole

discretion, effect accelerated final cash settlement of the affected Perpetual SFP in accordance

with Rule 14.30 in lieu of any adjustments or conversion otherwise provided under Rules 14.28

or 14.29. The CRO may effect accelerated final settlement pursuant to Rule 14.29(e) upon a

determination that “continued trading following the Corporate Action would not result in a fair

and orderly market, would give rise to material risk or pricing discontinuities, would result in an

illiquid or unrepresentative market in the affected Perpetual SFP, or would otherwise be

impracticable, inequitable or undesirable.”

Rule 14.30 sets out the Exchange’s rules and procedures related to accelerated final

settlement of Perpetual SFPs in connection with certain Corporate Actions affecting Underlying

Securities or their issuers. Rule 14.30(a) provides that “[t]he CRO may declare a Perpetual SFP

subject to accelerated final cash settlement upon: a determination under Rule 14.29(e) or any

other event that renders continued trading in the Perpetual SFP impracticable or inequitable.”

Pursuant to Rule 14.30(b), open positions in a Perpetual SFP subject to accelerated final

settlement shall be closed by cash settlement at a final settlement price determined in accordance

with Rule 14.7(c).

Rule 14.30(c) specifies that accelerated final settlement pursuant to Rule 14.30 “shall

occur as promptly as practicable, and ordinarily within three (3) business days, following the

CRO’s declaration.” Rule 14.30(c) further provides that “[t]he Exchange shall provide not less

than two (2) business days’ notice prior to accelerated final settlement, except where emergency

circumstances require more immediate action, and shall not close the affected Perpetual SFP

earlier than necessary to give effect to the Corporate Action, in order to minimize premature

closures in the event the Corporate Action does not become effective.”

In addition to the foregoing, Part VII of Chapter 14 includes rules relating to the

reliability of settlement prices and references prices used by the Exchange to determine Daily

Settlement Prices and any final settlement prices in respect of Perpetual SFPs, erroneous or

unavailable prices and operational provisions relating to adjustments and accelerated final

settlement.

Membership Standards

SFP Broker Member Eligibility Criteria. In order to be eligible for membership to transact in or

intermediate transactions in Perpetual SFPs, a person must satisfy the eligibility criteria set forth

in Rule 14.37. Specifically, in addition to complying with the requirements and satisfying the

conditions for membership set forth in Chapter 3 of the Exchange’s rules, a member of the

Exchange must satisfy the following criteria in order to be eligible for membership to trade

Perpetual SFPs as an SFP Broker Member: (i) the member must not be subject to statutory

disqualification under Section 3(a)(39) 59 of the Act or Section 8a(2) of the CEA;60 (ii) the person

must not be subject to any order denying, suspending or revoking registration or membership

with any securities or futures regulatory authority and (iii) in the case of a FCM or introducing

broker member of the Exchange seeking to intermediate Perpetual SFP transactions on behalf of

its customers, (a) be registered in good standing with the CFTC and be registered with the

Commission as a broker-dealer (or operate pursuant to notice registration under Section

15(b)(11) of the Act61 and (b) be a member in good standing of the National Futures Association

(“NFA”).

Intermediation of Perpetual SFP Transactions by Kalshi Prime. Subject to the

requirements and conditions contained in Part X of Chapter 14, an affiliate of the Exchange,

Kalshi Prime LLC (“Kalshi Prime”) will intermediate Perpetual SFP transactions on the

Exchange as an FCM SFP Broker Member. Kalshi Prime will be registered in good standing

15 U.S.C. § 78c(a)(39).

7 U.S.C. § 12a(2).

15 U.S.C. § 78o(b)(11).

with the CFTC as a FCM and notice-registered with the Commission as a broker-dealer under

Section 15(b)(11) of the Act and a member of NFA. The Exchange proposes to adopt Rule

14.38 to govern the Exchange’s receipt of inbound orders in Perpetual SFPs from and provision

of system access and data distribution services for the purpose of intermediating Perpetual SFP

transactions to Kalshi Prime.

Pursuant to Rule 14.38(e), Kalshi Prime’s privileges as an FCM SFP Broker Member on

the Exchange would be limited to those available to other FCM members of the Exchange under

Exchange Rule 3.2(g): (i) intermediating customer transactions on Kalshi, (ii) distributing Kalshi

data to its customers pursuant to any data distribution agreement with Kalshi and (iii) accessing

Kalshi’s trading systems electronically. Rule 14.38(e) further specifies that Kalshi Prime will

have such privileges only with respect to Perpetual SFP transactions on the Exchange and will be

subject to all of the Exchange’s rules to the same extent and on equal terms as such rules apply to

other FCM SFP Broker Members. 62

The Exchange recognizes “that the potential for unfair discrimination may be heightened

if a national securities exchange or its affiliate owns or operates a broker dealer … because the

Kalshi Prime would also be expressly prohibited, under Rule 14.38(f), from providing or performing the

functions that the Commission and courts have previously found to result in exchange affiliates being

“facilities” of such exchange – namely, Rule 14.38(f) would prohibit Kalshi Prime from providing order

routing services, co-location services, market data services or any other services or functions determined by

the Exchange, in its sole discretion, to constitute a system of communication from or to the Exchange for

the purpose of effecting transactions on the Exchange, except to the extent such activities are encompassed

by the permitted FCM SFP Broker Member functions under Rule 14.38(e) and provided or performed

subject to the same terms and conditions as any other SFP Broker Member. See Order Approving

Proposed Rule Change by the Pacific Exchange, Inc., as Amended, and Notice of Filing and Order

Granting Accelerated Approval to Amendment Nos. 4 and 5 Concerning the Establishment of the

Archipelago Exchange as the Equities Trading Facility of PCX Equities, Inc., Release No. 34-44983 (Oct.

25, 2001), 66 Fed. Reg. 55225, 55234 (Nov. 1, 2001) (the “PCX Order”) (finding an exchange-affiliated

broker-dealer’s order routing service for the exchange to constitute a facility of the exchange because it was

“uniquely linked to and endorsed by [the exchange] to provide its outbound routing functionality,” but that

the affiliated broker-dealer’s introducing broker and electronic communications network functions did not

constitute facilities of the exchange); Self-Regulatory Organizations; Cboe Exchange, Inc.; Order

Disapproving a Proposed Rule Change To Adopt a New Rule Regarding Order and Execution

Management Systems, Release No. 34-101491 (Oct. 31, 2024), 89 Fed. Reg. 88080 (Nov. 6, 2024) (finding

that an exchange-affiliated order and execution management system constituted a facility of the exchange

financial interests of the national securities exchange may conflict with its responsibilities as [a

self-regulatory organization] regarding the affiliated broker-dealer.”63 For the reasons described

below, the Exchange does not believe that Kalshi Prime’s role as an FCM SFP Broker Member

permitted to intermediate Perpetual SFP transactions will impair the ability of the Exchange to

carry out the purposes of the Act and to comply and enforce compliance by its members and

persons associated with its members with the Act, Commission rules thereunder and the

Exchange’s rules consistent with Section 6(b)(1) of the Act, 64 give rise to unfair discrimination

or conflicts of interest between customers, issuers and broker or dealers on the Exchange

inconsistent with Section 6(b)(5) of the Act,65 or create a burden on competition inconsistent

with Section 6(b)(8) of the Act. 66

The Commission has itself acknowledged that a national securities exchange may have

subsidiaries or affiliates that are broker-dealers,67 provided that such affiliated broker or dealer

must be a member of another self-regulatory organization that is primarily responsible for

because its functions were “more akin to an optional order routing function … than to an introducing

broker-function.”); Intercontinental Exch., Inc. v. SEC, 23 F.4th 1013, 1022 (D.C. Cir. 2022) (holding that

wireless co-location services offered by an exchange affiliate constituted facilities of the exchange because

they were “‘system[s] of communication …. maintained by or with the consent of the exchange’ that [are]

offered ‘for the purpose of effecting or reporting transactions on the exchange.”); Market Data

Infrastructure, 86 Fed. Reg. 18596, 18666 (Apr. 9, 2021) (“The Commission would expect that the

activities of a competing consolidator affiliated with a national securities exchange would be likely to fall

within the statutory definitions”).

PCX Order at 55233.

15 U.S.C. § 78f(b)(1).

15 U.S.C. § 78f(b)(5).

15 U.S.C. § 78f(b)(8).

Regulation of Exchanges and Alternative Trading Systems, 63 Fed. Reg. 70844, 70891 (Dec. 22, 1998)

(“National securities exchanges could, under the rules the Commission is adopting today, form subsidiaries

or affiliates that operate alternative trading systems registered as broker-dealers. If a national securities

exchange chose to form such a subsidiary or affiliate, the exchange itself could remain registered as a

national securities exchange, while the subsidiary or affiliate operated as a broker-dealer”).

examining the broker-dealer.68 In addition, the Commission has approved exchange rulechanges permitting certain activities of affiliated broker-dealers subject to appropriate safeguards

to ensure such activities are consistent with Sections 6(b)(5) and 6(b)(8) of the Act.

For example, in its order regarding rule changes of the Pacific Exchange, Inc. (“PCX”) to create

a new electronic communications and trading facility, the Archipelago Exchange (“ArcaEx”),

after consideration of the “potentially unfair advantages” associated with exchange-broker

affiliation, the Commission approved PCX rules permitting ArcaEx’s broker-dealer affiliate,

Wave Securities LLC (“Wave”), to intermediate transactions as an introducing broker on PCX,

under circumstances similar to those at issue here.69 In so doing, the Commission emphasized

that: “[i]n its introducing broker role, Wave would be acting as a user/member of the ArcaEx on

precisely the same terms as any other member. Wave would not be the sole source of sponsored

access to the ArcaEx; all other [Equity Trading Permit] Holders could readily provide similar

services on behalf of their customers.”70 The Commission further emphasized that PCX had

implemented additional protections to “limit the risk that Wave would receive an unfair

advantage over other [Equity Trading Permit] Holders in operating as an introducing broker,”

including through rules provisions requiring strong information barriers between PCX and its

facilities and the introducing-broker functions of Wave.71

Id.; see also PCX Order at note 111.

See PCX Order at 55233–55234. In the PCX Order, the Commission also concluded that the introducing

broker and electronic communications network functions of Wave did not constitute “facilities” of PCX as

defined in Section 3(a)(2) of the Act. PCX Order at 55234. Because Kalshi Prime will not engage in any

activities that the Commission has previously determined constitute “facilities” of an exchange and given

the safeguards discussed herein to limit operational integration between Kalshi Prime and the Exchange,

the Exchange shall not treat Kalshi Prime’s operations as an FCM SFP Broker Member intermediating

Perpetual SFP transactions as a facility of the Exchange. See note 62, supra.

Id. at 55234.

Id.

Also, in the securities options context, the Commission has previously approved rule

changes of Cboe C2 Exchange, Inc. (“Cboe C2”), a national securities exchange, to permit its

affiliated broker-dealer, Cboe Trading, Inc. (“Cboe Trading”), to provide inbound options

routing services where Cboe C2 implemented controls to ensure that an unaffiliated selfregulatory organization was primarily responsible for performing regulatory responsibilities for

Cboe Trading and that Cboe Trading “does not develop or implement changes to its systems on

the basis of nonpublic information obtained as a result of its affiliation with the [e]xchange until

such information is available generally to similarly situated Trading Permit Holders of the

[e]xchange.”72

The Exchange does not believe that Kalshi Prime’s role as an FCM SFP Broker Member

on the Exchange will be inconsistent with Sections 6(b)(1), 6(b)(5) or 6(b)(8) of the Act because

the Exchange has implemented robust protections and safeguards to ensure that Kalshi Prime

will not be operationally integrated with or have privileged access to the systems or information

of the Exchange, similar in nature to those implemented by PCX in respect of Wave’s

introducing-broker function and Cboe C2 in respect of Cboe Trading’s inbound options routing

services.

Pursuant to Rule 14.38(g), the Exchange will be prohibited from permitting the entry of

orders through Kalshi Prime that result in Kalshi Prime’s customers receiving privileged

treatment on the Exchange in any respect or being placed at a competitive advantage vis a vis

participants of the Exchange who enter orders otherwise than through Kalshi Prime. Rule

14.38(g) also prohibits the Exchange from establishing or administering its platform or any rule,

Self-Regulatory Organizations; Cboe C2 Exchange, Inc.; Notice of Filing and Order Granting Accelerated

Approval of a Proposed Rule Change Concerning an Affiliation between the Exchange and Cboe Trading

and to Adopt Rules to Permit Inbound Routing by Cboe Trading, Release No. 34-82952 (March 27, 2018);

83 Fed. Reg. 14096 (Apr. 2, 2018).

policy, fee, order routing, communication or other system, margin requirement or other

functionality in a manner designed or reasonably likely to privilege Kalshi Prime relative to any

other FCM SFP Broker Member. Consistent with the Exchange’s regulatory obligation to

“provide its members, persons with trading privileges and independent software vendors with

impartial access to its markets and services,” 73 these rules are designed to ensure that Kalshi

Prime does not receive any unfair advantage over other SFP Broker Members intermediating

Perpetual SFP transactions, such that other SFP Broker Members can readily provide similar

services on behalf of their customers.

Further, Rule 14.38(b) would prohibit the Exchange from permitting Kalshi Prime to

intermediate Perpetual SFP transactions on the Exchange unless a third-party self-regulatory

organization unaffiliated with the Exchange (a “Third-Party DSRO”) conducts surveillance and

examination of Kalshi Prime as would otherwise be required of the Exchange under CFTC

Regulation 1.52(c). Kalshi Prime’s Third-Party DSRO will be NFA. And Rule 14.38(i)

requires, consistent with Exchange Rules 2.9 and 12.3 and CFTC Regulation 1.69,74 that “only

Public Director members of the [Exchange’s Board of Directors], Regulatory Oversight

Committee, Disciplinary Panel, Outcome Review Committee or Appeals Committee may take

part in matters for which [Kalshi Prime] is a named party in interest” and that the Exchange’s

“Chief Compliance Officer shall report any such matter to the Regulatory Oversight

Committee.”

Accordingly, all supervision, oversight and enforcement of Kalshi Prime’s compliance

with applicable law and Exchange rules would occur on an independent basis: (i) NFA, as Kalshi

17 C.F.R. § 38.151(b).

17 C.F.R. § 1.69.

Prime’s Third-Party DSRO, would perform surveillance and examination of Kalshi Prime’s

compliance with CFTC regulatory requirements relating to minimum net capital and related

financial matters, customer funds segregation, risk management and financial reporting (which

would otherwise be performed by the Exchange itself under Regulation 1.52(c)); (ii) NFA would

also surveil and examine Kalshi Prime, in its capacity as a member of NFA, for compliance with

CFTC regulations and NFA rules relating to, among other things, supervision, anti-money

laundering, recordkeeping, business continuity and disaster recovery, information security, fraud

and related matters, frontrunning, suitability, risk disclosures, sales practices and marketing; 75

and (iii) only independent decisionmakers (i.e., Public Directors that, pursuant to Rule 2.2(g),

must be found by Kalshi’s Board of Directors to have no “Material Relationship,” as defined in

Rule 2.2(g), with the Exchange) of applicable Exchange committees may participate in matters

involving Kalshi Prime’s compliance with Exchange rules and all such matters must be reported

to the Exchange’s Regulatory Oversight Committee.

The Exchange is also instituting additional safeguards in Rule 14.38 similar to those

approved for PCX to ensure that Kalshi Prime does not receive any informational or other

competitive advantages from its affiliation with the Exchange. Specifically, Rule 14.38(h)

provides that “[t]he officers and directors of the Exchange shall establish and maintain

procedures and internal controls reasonably designed to adequately restrict the flow of

confidential and proprietary information between the Exchange and the functions of any

[a]ffiliated SFP Broker Member.” Pursuant to Rule 14.38(h), the Exchange may only furnish to

Kalshi Prime the same information on the same terms that the Exchange makes available in the

See NFA, Compliance Rules, https://www.nfa.futures.org/rulebooksql/rules.aspx?Section=4. NFA’s

examination program includes ongoing financial surveillance, identification of high-risk firms, and on-site

examinations at intervals of no less than eighteen months. See 17 C.F.R. §§ 1.52(c)(1)(iv), (d)(2)(ii)(C)(4).

normal course of business to any other SFP Broker Member and, as necessary to administer its

rules or comply with applicable law, communicate non-public information to Kalshi Prime that

relates solely to Kalshi Prime or one or more of its customers.

Finally, Rule 14.38(d) provides the Exchange with broad authority to deny or condition

Kalshi Prime’s application to intermediate Perpetual SFP transactions as an FCM SFP Broker

Member “so long as such action is impartial, transparent, fair and non-discriminatory.”

Accordingly, the Exchange could, at any time, upon a determination that Kalshi Prime has

obtained privileged or exclusive access to the Exchange with respect to Perpetual SFPs, the

information barriers contemplated in Rule 14.38(h) prove ineffective, or otherwise, suspend,

condition or terminate Kalshi Prime’s ability to intermediate Perpetual SFP transactions as an

FCM SFP Broker Member.

The Exchange therefore believes that its addition of Rule 14.38 and admission of Kalshi

Prime as an FCM SFP Broker Member on the Exchange will not grant Kalshi Prime any unfair

advantage over other FCM SFP Broker Members intermediating Perpetual SFP transactions for

their customers and will ensure appropriate operational segregation of Kalshi Prime’s FCM SFP

Broker Member functions from the operation of the Exchange and its facilities.

Trading Safeguards, Sales Practices and Market Surveillance

Kalshi proposes adopting Rulebook Chapter 14, Parts IV (Trading Safeguards), VIII (Sales

Practices) and IX (Market Surveillance) and related new definitions in Rule 14.2.

Part IV of Chapter 14 governs the trading safeguards applicable to Perpetual SFPs, the

parameters, procedures and methodologies of which shall be established and published by the

Exchange by Exchange Notice or technical specification and may be modified by the Exchange

at any time. The Exchange shall communicate material changes to trading safeguards to its

members, except that the Exchange shall not be obligated to provide prior notice of any such

changes upon a declaration that “Stressed Market Conditions” exist for one or more Perpetual

SFPs. Pursuant to Rule 14.14(d), the Exchange shall provide self-match prevention functionality

for Perpetual SFPs. Rule 14.14(e) sets forth the categories of persons prohibited from trading in

Perpetual SFPs, which include: (i) any person who is an officer, director, or 10% or greater

shareholder subject to Section 16 of the Act of an issuer of any Underlying Security of a

Perpetual SFP, (ii) any person who is in possession of material non-public information regarding

an issuer of an Underlying Security of a Perpetual SFP, and (iii) any family member or

household member of a person in the aforementioned categories. Rule 14.15 provides that,

notwithstanding any other provision of Chapter 14, “the Exchange shall have the authority to

halt, suspend, or restrict trading in any Perpetual SFP, or to modify the parameters of any trading

safeguard, at any time and for any duration, if the Exchange determines, in its sole discretion,

that such action is necessary or appropriate to: (i) maintain fair and orderly markets; (ii) protect

market participants; (iii) address an emergency, (iv) respond to extraordinary market conditions;

or (v) comply with applicable law or regulation.” Rule 14.15(c) provides that the Exchange shall

promptly report to the CFTC any trading halt, trading suspension or declaration of Stressed

Market Conditions in accordance with Part 38 of CFTC Regulations.76 The Exchange is

adopting Part IV of Chapter 14 in order to more effectively protect against manipulative

practices and insider trading, and to promote fair and orderly trading in Perpetual SFPs on the

Exchange.

Part VIII of Chapter 14 requires that each SFP Broker Member effecting transactions in

Perpetual SFPs for its customers must comply with the sales practice requirements of the NFA

17 C.F.R. Part 38.

and, to the extent applicable, the rules of any national securities association of which such SFP

Broker Member is a member, including suitability obligations and customer account approval

procedures. Part VIII further provides that, before opening an account for a customer to trade

Perpetual SFPs, an SFP Broker Member must deliver to the customer the Risk Disclosure

Statement for Security Futures Contracts prescribed jointly by NFA and the Financial Industry

Regulatory Authority (“FINRA”), 77 and must obtain written acknowledgment of receipt.

Part IX of Chapter 14 governs the Exchange’s market surveillance program for Perpetual SFPs,

including its rules and procedures for real-time market monitoring, coordinated market

surveillance and its audit trail.

Rule 14.34 provides that “[t]he Exchange shall conduct real-time market surveillance of

all trading activity in Perpetual SFPs to detect potential violations of Exchange rules, the CEA,

the [Act], and other applicable laws and regulations.” The rule further provides that “[m]arket

surveillance shall include monitoring for: manipulation of Perpetual SFP prices or the prices of

Underlying Securities; insider trading; front-running; violations of position limits and reporting

requirements; wash trades; self-referencing or self-matching trades; and other fraudulent or

manipulative practices.” Pursuant to Rule 14.35, “[t]he Exchange shall maintain membership in

the Intermarket Surveillance Group (“ISG”) and shall comply with all ISG requirements for the

sharing of surveillance information.” Rule 14.35 further provides that “[t]he Exchange shall

share information with other markets on which the Underlying Securities and related securities

trade, including transaction information, customer identity information, position information, and

any other information necessary for coordinated surveillance” and that “[t]he Exchange shall

See FINRA and NFA, Security Futures Risk Disclosure Statement (updated 2020), available at

https://www.finra.org/sites/default/files/2020-08/Security_Futures_Risk_Disclosure_Statement_2020.pdf.

coordinate with other markets in investigating potential violations involving Perpetual SFPs, and

the Underlying Securities.”

Rule 14.36 provides that “[t]he Exchange shall maintain an audit trail sufficient to

facilitate coordinated surveillance among the Exchange, any market on which an Underlying

Security is traded, and any market on which any related security is traded.” Pursuant to Rule

14.36, the Exchange’s audit trail shall capture, at a minimum: “the time of order receipt and

execution (to the millisecond); the identity of the [p]articipant entering the order; the identity of

the customers, if applicable; the terms of the order; any modifications or cancellations; and the

execution price and counterparty.” The Exchange maintains its audit trail in accordance with

DCM Core Principle 10 in Section 5(d)(10) 78 and CFTC Regulations 38.550, 38.551 and

38.552.79 Pursuant to Rule 14.36(c), and consistent with CFTC Regulation 1.31(b), 80 the

Exchange shall maintain records of all transactions in Perpetual SFPs for a period of not less than

five years.

Statutory Basis

The Exchange believes that proposed Chapter 14 is consistent with Section 6 of the Act

and, in particular, furthers the objectives of Sections 6(b)(1)81 and 6(b)(5)82 of the Act insofar as

it is designed to ensure the compliance of the Exchange and its members with applicable

provisions of the Act and Commission and Exchange rules, to prevent fraudulent and

manipulative acts and to promote just and equitable principles of trade. The Exchange further

7 U.S.C. § 7(d)(10).

17 C.F.R. §§ 38.550, 38.551, 38.552.

17 C.F.R. § 1.31(b).

15 U.S.C. § 78f(b)(1).

15 U.S.C. § 78f(b)(5).

believes that the proposed rule change is consistent with Section 6(h)(3) 83 of the Act which

contains detailed requirements for listing standards and conditions for trading security futures

products.

The Exchange believes that its adoption of Chapter 14 is consistent with Section 6(h)(3),

and that they are designed to prevent fraudulent and manipulative acts and practices, to promote

just and equitable principles of trade, and, in general to protect investors and the public interest,

because:

● The Exchange has established and shall monitor and enforce compliance with the rules of

the Perpetual SFPs, including the initial and maintenance listing standards for Perpetual

SFPs;

● The listing standards for Perpetual SFPs described above require a liquid underlying

market for any Perpetual SFP the Exchange will list for trading, and therefore the

proposed Perpetual SFPs will not be readily susceptible to manipulation. In particular,

the Exchange’s proposed initial listing standards for Perpetual SFPs require that the

Underlying Security for each Perpetual SFP must exceed 20 million shares in estimated

deliverable supply (Rule 14.3(f)), have a minimum market capitalization of at least $100

billion (Rule 14.3(b)) and have had a minimum ADTV of at least $450 million over the

prior six months (with a higher ADTV requirement for securities with less than six

months trading history) (Rule 14.3(c)). Pursuant to Rule 14.4, the Exchange shall not list

any Perpetual SFPs, notwithstanding satisfaction of the initial listing criteria in Rule 14.3,

on securities within one of the categories enumerated in Rule 14.4, including securities

subject to a trading halt, suspension or revocation of listing by its principal listing

15 U.S.C. § 78f(h)(3).

exchange or by the Commission pursuant to Section 12(k) of the Act. 84 Further, pursuant

to Rule 14.6, the Exchange shall delist Perpetual SFPs that fail to satisfy the maintenance

listing standard requirements established under the rule following the ninety (90) day

cure period specified therein or that are subject to any Immediate Delisting Event. Under

the maintenance standards in Rule 14.6(a), the minimum ADTV is at least $200 million

for the prior calendar quarter (with a higher ADTV requirement for securities with less

than one quarter trading history, the estimated deliverable supply maintenance standard is

the same as in Rule 14.3(f) and the maintenance market capitalization standard is $50

billion. The proposed listing standards assure a robust market for the Underlying

Security to protect against manipulation. In this regard, Kalshi has carefully structured

the initial listing standards to assure that the contracts it will list at a minimum meet the

more stringent requirements for Kalshi to have the flexibility permitted under CFTC

Regulation 41.25(b)(3)(i)(A)85 to set position limits as a percentage of the Underlying

Security’s estimated deliverable supply.

● Trading in the Perpetual SFPs will be subject to the Exchange rules, which include

prohibitions on manipulative or disruptive trading practices prohibited by the CEA or by

the CFTC, fraudulent or abusive trading, trading with access to material non-public

information that is the subject of an underlying of a contract, and several other harmful or

potentially manipulative trading practices. Further, pursuant to Rule 14.8, the NPC shall

specifically consider whether a proposed underlying security for a proposed Perpetual

SFP has been the subject of, or is reasonably susceptible to, manipulation and, where the

15 U.S.C. § 78l(k).

17 C.F.R. § 41.25(b)(3)(i)(A).

NPC identifies elevated manipulation risk, it may impose enhanced position limits,

margin requirements or other risk controls as a condition of listing, or may decline to list,

the Perpetual SFP. Further, as with any new product listed for trading on the Exchange,

trading activity in the Perpetual SFPs will be subject to monitoring and surveillance by

the Exchange (see Rule 14.34).

● Pursuant to Part VI of Chapter 14, the Exchange will establish speculative position limits

and/or accountability levels for any Perpetual SFP it lists as required by and consistent

with CFTC Regulation 41.25(b)(3) and Appendix A to Subpart C of Part 41 of CFTC

Regulations (Guidance on and Acceptable Practices for Position Limits and Position

Accountability for Security Futures Products).

● Transactions in Perpetual SFPs will be cleared by Klear in Klear’s capacity as a CFTCregistered DCO and are subject to all CFTC regulations related to the clearing of futures.

● The Perpetual SFPs will be listed for trading on the Exchange’s electronic trade

execution system (the “Platform”), which provides for competitive and open execution of

transactions.86 Eligible participants may also execute and submit block trades in

Perpetual SFPs, subject to and in accordance with Rule 5.3(e).

● The Platform and related Kalshi systems will capture requisite trade information for

Perpetual SFPs, which will ensure that the audit trail and the audit trail data for trading of

Perpetual SFPs will be sufficient for the Exchange to monitor for potential market abuse.

● The Exchange’s existing rules contain prohibitions precluding intermediaries from

disadvantaging their customers, including but not limited to prohibitions on front running

Exchange participants may also use the Exchange’s Request for Quote (“RFQ”) pre-execution

communications system to solicit interest in a market, subject to placement of resulting orders in the order

book on a price-time priority basis as though they were placed manually (at a lower time priority than

existing resting orders) and in accordance with Rule 5.3(b).

and entering orders for their own proprietary accounts when the intermediary has in hand

an order to buy or sell the same contract for a customer at the same price or at the market

price. These rules apply to transactions in Perpetual SFPs on the Exchange.

● Chapter 9 of the Exchange rules contains provisions that allow the Exchange to

discipline, suspend or expel members or market participants that violate any applicable

rules of the Exchange. Trading in the Perpetual SFPs will be subject to Chapter 9, and

the Exchange’s Disciplinary Panel or any Oversight Panel established by Kalshi with

requisite authority may exercise its enforcement power in the event rule violations in

Perpetual SFPs are identified.

● Market participants may use the arbitration provisions set forth in Chapter 10 of the

Exchange rules to settle disputes with respect to trading of Perpetual SFPs.

● The Exchange will publish information regarding trading volume, open interest and price

information daily on its website for Perpetual SFPs.

● The Exchange will amend the Exchange rules accordingly on the effective date, which

will be publicly available on the Kalshi website, to reflect the addition of Chapter 14

regarding Perpetual SFPs.

● The requirements and conditions applicable to Kalshi Prime’s intermediation of Perpetual

SFP transactions in Rule 14.38 are designed to eliminate any unfair discrimination

between customers, issuers, brokers or dealers arising from Kalshi Prime’s affiliation

with the Exchange and ensure that the Exchange retains the ability to carry out the

purposes of the Act and to comply and impartially enforce compliance by its members

and persons associated with its members with the Act, Commission rules and the rules of

the Exchange.

Below is a summary of each requirement or condition under Section 6(h)(3) of the Act,

followed by a brief explanation of how Kalshi will comply with it, whether by particular

provisions in Chapter 14 or otherwise.

Clause (A) of Section 6(h)(3) of the Act87 requires that any security underlying a security

futures product be registered pursuant to Section 12 of the Act. 88 This requirement is addressed

by Exchange Rules 14.3(a), 14.4(b) and 14.6(c).

Clause (B) of Section 6(h)(3) of the Act89 is applicable only to physically delivered

security futures products and is therefore not germane to the proposed products.

Clause (C) of Section 6(h)(3) of the Act90 provides that listing standards for SFPs must

be no less restrictive than comparable listing standards for options traded on a national securities

exchange or national securities association registered pursuant to Section 15A(a) of the Act. 91

For the reasons discussed above, Kalshi believes that the listing standards proposed by Kalshi for

Perpetual SFPs are no less restrictive than comparable listing standards for exchange-traded

options. The Exchange expects that all Underlying Securities to be eligible to underlie

exchange-traded options.

Clause (D) of Section 6(h)(3) of the Act92 requires that each security futures product be

based on common stock or such other equity securities as the Commission and CFTC jointly

determine are appropriate. This requirement is addressed by Rule 14.3(h).

15 U.S.C. § 78f(h)(3)(A).

15 U.S.C. § 78l.

15 U.S.C. § 78f(h)(3)(B).

15 U.S.C. § 78o-3(a).

15 U.S.C. § 78f(h)(3)(D).

Clause (E) of Section 6(h)(3) of the Act93 imposes requirements with respect to linkages

and coordinated clearing across clearing agencies that clear security futures products. This

provision is inapplicable. Pursuant to Section 6(h)(7) of the Act, 94 this requirement is deferred

until the “compliance date” (as defined therein) and is currently inapplicable to Klear’s clearing

of the Perpetual SFPs. Further, no other clearing house currently clears the Perpetual SFPs that

Kalshi proposes to list.

Clause (F) of Section 6(h)(3) of the Act95 requires that only a broker or dealer subject to

suitability rules comparable to those of a national securities association registered pursuant to

Section 15A(a) of the Act effect transactions in a security futures product. This requirement is

addressed by Part VIII of Chapter 14 (Sales Practices), which requires an SFP Broker Member

effecting Perpetual SFP transactions of its customers to comply with the sales practices

requirements, including suitability obligations and customer account approval procedures, of the

NFA and, to the extent applicable, the rules of any national securities association of which such

SFP Broker Member is a member. Pursuant to Section 15A(k) of the Act, 96 NFA is a national

securities association for the limited purpose of regulating the activities of NFA members who

are registered as brokers or dealers in security futures products under Section 15(b)(11) of the

Act.97

15 U.S.C. § 78f(h)(3)(E).

15 U.S.C. § 78f(h)(7).

15 U.S.C. § 78f(h)(3)(F).

15 U.S.C. § 78o-3(k).

15 U.S.C. § 78o(b)(11).

Clause (G) of Section 6(h)(3) of the Act98 requires that each SFP be subject to the

prohibition against dual trading in Section 4j of CEA.99 The Exchange does not have a rule

prohibiting dual trading as this provision is inapplicable to our circumstances. “Dual trading” is

defined in Section 4j of the CEA as “the execution of customer orders by a floor broker during

the same trading session in which the floor broker executes any trade in the same contract market

or registered derivatives transaction execution facility” for the account of such floor broker, an

account for which such floor broker has trading discretion or an account controlled by a person

with whom such floor broker has a relationship through membership in a broker association. 100

Trading of Perpetual SFPs will occur on the Platform, an electronic trading system, and

not on a trading floor. Accordingly, Kalshi does not have floor brokers. Further, CFTC

Regulation 41.27, adopted pursuant to Section 4j(a) of the CEA, 101 only requires a DCM

operating an electronic trading system to include in its rules a dual trading prohibition for

security futures products only if their electronic trading system “provides market participants

with a time or place advantage or the ability to override a predetermined algorithm.”102 These

features are not present on the Platform. Accordingly, the Exchange is not required to and does

not intend to include a specific dual trading provision in its Rules. However, the Exchange’s

current rules include, in Rule 5.17, a similar prohibition on any FCM or introducing broker

member from entering into an order to buy or sell a contract for their own account or any account

15 U.S.C. § 78f(h)(3)(G).

7 U.S.C. § 6j.

100

7 U.S.C. § 6j(b).

101

7 U.S.C. § 6j(a).

102

17 C.F.R. § 41.27(b)(2).

in which they have a proprietary interest when the intermediary has in hand an order to buy or

sell the same contract for a customer at the same price or at the market price.

Clause (H) of Section 6(h)(3) of the Act103 provides that trading in a security futures

product must not be readily susceptible to manipulation of the price of such security futures

product, nor to causing or being used in the manipulation of the price of any underlying security,

option on such security, or option on a group or index including such securities.

As discussed above, the Exchange believes that its listing standards are designed to

ensure that Perpetual SFPs and their Underlying Securities will not be readily susceptible to price

manipulation. In particular, Part II of Chapter 14 includes several initial and maintenance listing

criteria that are significantly more stringent than the listing standards in SLB 15. Specifically,

the Exchange’s initial listing standards require that the Underlying Security for a Perpetual SFP

have an estimated deliverable supply in excess of 20 million shares (Rule 14.3(f)), a minimum

market capitalization of $100 billion (Rule 14.3(b)) and an ADTV of at least $450 million over

the prior six months or higher for securities with less than six months trading history (Rule

14.3(c)).

Pursuant to Rule 14.6, the Exchange will delist a Perpetual SFP on an Underlying

Security that fails to meet its maintenance standards following the expiration of a ninety (90) day

cure period or that is subject to an Immediate Delisting Event. Several of the Rule 14.6

maintenance standards proposed by the Exchange are more stringent than the corresponding

standards in SLB 15, requiring the Underlying Security to maintain an estimated deliverable

supply in excess of 20 million shares, a market capitalization of at least $50 billion and a

minimum ADTV of at least $200 million for the prior calendar quarter or higher for securities

103

15 U.S.C. § 78f(h)(3)(H).

that have been listed for trading for less than a quarter. In addition, Rule 14.4 categorically

excludes, among other securities, any security that is subject to a trading halt, suspension or

revocation of listing by its principal listing exchange, ensuring that securities with cash markets

experiencing significant disruption, including due to potential manipulation, may not become

Underlying Securities of Perpetual SFPs. And, in addition to these minimum criteria, the NPC

shall, pursuant to Rule 14.8 specifically consider the susceptibility to manipulation of a security

when determining whether to permit the listing of a Perpetual SFP on such security, and retains

discretion to decline to list a Perpetual SFP on any security regardless of whether the security

satisfies the aforementioned criteria.

Further, the Funding Rate calculation methodology for Perpetual SFPs is carefully

designed to ensure that periodic funding obligations of holders of Perpetual SFPs are resilient to

disruptive or anomalous trading behavior affecting both Perpetual SFPs and their Underlying

Securities. First, each of the inputs to the Funding Rate calculation is independently resistant to

manipulation: the Reference Price reflects real-time consolidated equity cash market data,

thereby incorporating the depth, liquidity and competitive price discovery of U.S. cash equity

markets, while the Mark Price (which equals the Settlement Price as of the Periodic Transfer

Time) is calculated through an objective, tiered methodology designed to prevent isolated or

anomalous activity from materially affecting the calculation. Further, the Funding Rate

calculation is the product of hundreds (390 during a regular 9:30am – 4:00pm trading day) of

sequential Premium calculations, each equally-weighted and incorporating the Reference Price

and Mark Price observed during the applicable respective Computation Interval. Averaging

observations across the full trading day substantially dilutes the effect of any isolated distortion

and would require a person seeking to manipulate the Funding Rate to sustain a material market

influence across numerous Computation Intervals. Such conduct would require repeated

exposure to execution risk and transaction costs and would generate an observable pattern of

order and trading activity detectable by the Exchange’s real-time monitoring and trade

surveillance controls.

The Exchange will also maintain several controls external to the Funding Rate calculation

methodology to ensure the integrity of daily funding settlements and their resistance to

manipulation. As provided in Rule 14.10(i), the Exchange will monitor the performance of the

funding mechanism in maintaining economic correspondence between the price of each

Perpetual SFP and its corresponding Underlying Price Index, including through surveillance of

Premium behavior around the Daily Settlement Time to identify any unusual, potentially

manipulative or disruptive trading behavior occurring near a daily settlement period. The

Exchange may amend the Funding Rate methodology and related parameters (e.g., the Deadband

Threshold and Maximum Funding Magnitude) in accordance with applicable Exchange Rules

and applicable law. Funding Rates and associated periodic funding payment transfers will also

be subject to the Exchange’s Market Outcome Review Process, set forth in Exchange Rule 7.1,

whereby the Exchange’s Outcome Review Committee may determine the final settlement

outcome of the Perpetual SFP for the applicable daily settlement period. The Exchange may

initiate the Market Outcome Review Process at its sole discretion and by taking into account

circumstances that may have a material impact on the reliability or transparency of the

underlying related to a contract (i.e., the Underlying Price Index of a Perpetual SFP).

Additionally, pursuant to Rule 14.10(g), the Exchange may initiate the Market Outcome Review

Process for any daily settlement for which the Daily Settlement Price cannot be determined

under Rule 14.12(a), a Perpetual SFP’s terms and conditions or the Underlying Price Index

(because it is unavailable or unreliable). Finally, Rule 14.10(j) provides that the Exchange may

take such actions as it deems necessary and appropriate in accordance with the procedures set

forth in Exchange Rule 2.8 – including, but not limited to, temporarily adjusting the Maximum

Funding Magnitude, modifying margin requirements or imposing additional risk controls – in the

event of an “Emergency” as defined in Exchange Rule 2.8. Collectively, these controls

supplement the already manipulation-resistant funding calculation methodology by ensuring the

availability of controls within the discretion of the Exchange to detect, remedy and deter

manipulation.

The Exchange’s proposed position limits for Perpetual SFPs are also designed to most

effectively protect against manipulation. Not only are the speculative position limits and

position accountability provisions described in Part VI of Chapter 14 consistent with CFTC

Regulation 41.25(b)(3)(i), but the position limits proposed by the Exchange in many respects

exceed regulatory requirements in their stringency because they apply regulatory position limits

across the life of a Perpetual SFP, rather than only during the last three trading days of a contract.

In addition, the Exchange is adopting, pursuant to Part IV of Chapter 14, rules regarding

trading safeguards applicable to Perpetual SFPs, including pre-trade and intra-trade safeguards,

and will have the authority to establish and amend the parameters, procedures and methodologies

for such safeguards at its discretion. The Exchange shall also provide self-match prevention

functionality for Perpetual SFPs and prohibit insiders and persons in possession of material nonpublic information in respect of issuers of Underlying Securities from trading Perpetual SFPs.

More generally, Exchange Rule 5.17 imposes prohibitions on any person “engag[ing] in

conduct or practices inconsistent with just and equitable principles of trade” or “engag[ing] in

any activity that is intended to, or has the effect of, manipulating the market in violation of

Sections 6(c) and 9(a)(2) of the CEA,” in addition to prohibitions on various other manipulative

or deceptive trade practices. These provisions will apply to transactions in Perpetual SFPs on the

Exchange. Chapter 9 of the Exchange rules spells out the disciplinary capabilities and processes

of the Exchange and Rule 9.5 describes the various penalties that the Exchange may impose on

persons violating its rules, which include: fines or penalty fees, disgorgement of profits resulting

from the violation plus the cost of damages to counterparties, suspension of trading or member

status or privileges and revocation of trading or member status or privileges.

Clause (I) of Section 6(h)(3) of the Act104 requires that procedures be in place for

coordinated surveillance among the market on which a security futures product is traded, any

market on which any security underlying the security futures product is traded, and other markets

on which any related security is traded to detect manipulation and insider trading. The Exchange

has procedures in place for coordinated surveillance consistent with these requirements. In

particular, pursuant to Rule 14.35, the Exchange shall maintain membership in the Intermarket

Surveillance Group (“ISG”) and shall comply with all ISG requirements for the sharing of

surveillance information. Rule 14.35 also provides that the Exchange shall coordinate with other

markets in investigating potential violations involving Perpetual SFPs and their Underlying

Securities, and Exchange Rule 2.15 permits the Exchange to enter into information-sharing

agreements with any person or body, including with domestic or foreign regulatory or selfregulatory organizations, associations and boards of trade.

Clause (J) of Section 6(h)(3) of the Act105 requires that the market on which a security

futures product is traded has in place audit trails necessary or appropriate to facilitate the

104

15 U.S.C. § 78f(h)(3)(I).

105

15 U.S.C. § 78f(h)(3)(J).

coordinated surveillance required in subparagraph (I), as discussed above.

The Exchange relies on its Surveillance Department to perform surveillance of listed

contracts. The Surveillance Department maintains a comprehensive suite of proprietary and

vendor surveillance systems that leverage high-performance, multi-availability zone, cloudhosted datastores to process, store, and analyze the audit trail records described below, together

with cleared trades and allocations, positions, and referential data including instrument metadata.

The Exchange’s logging system will capture audit trail data for trading of Perpetual SFPs. The

Exchange’s audit trail is maintained in accordance with Core Principle 10 in CEA Section

5(d)(10) and CFTC Regulations §38.550, §38.551 and §38.552. The Exchange retains the audit

trail for a minimum of 5 years, as required by CFTC Regulation §1.31(b).

The Surveillance Department makes use of the proprietary Investigative Dashboard in

order to reconstruct historical trading conditions. The Investigative Dashboard allows analysts to

view the historical state of an order book at any moment in time together with the order,

participant, and execution details recorded in the audit trail described below. Coupled together,

this empowers officers to replay the exact sequence of events that preceded and succeeded the

investigated activity. Anomalous and potentially fraudulent or disruptive activity is

automatically flagged for review by the surveillance team: flags are introduced by both

proprietary surveillance systems and by Solidus Labs’ trade surveillance technology, which

ingests a real time data feed from the Exchange.

The Exchange maintains a complete audit trail of participant and Exchange activity.

Records are generated in real time, at the moment the Exchange acts, and are created whenever a

participant performs an operation that changes the state of the Exchange, including the entry,

modification, and cancellation of orders, the execution of trades, requests for quotes and

responses to them, participant access to the platform, and the movement of funds. For each

order-related operation, the Exchange records at least the following:

● A unique order identifier.

● The identity of the participant, and where the activity is conducted for a customer

account, house account, or sub-account, the identity of that account and its relationship to

the member.

● The date and time the instruction was received, recorded to microsecond precision in

Coordinated Universal Time.

● The market to which the order relates, identified by market ticker or internal market

identifier, and the related event and series.

● The price and size of the order, and the price and size at which it was filled.

● The order’s duration or expiration instruction, including any specific expiration time.

● The outcome of the order — whether it rested on the book, was filled in whole or in part,

was cancelled, or expired — and, for cancellations and modifications, the reason

recorded for the change.

● The risk controls applied to the order, including any maximum execution cost, post-only,

and reduce-only, as submitted by the participant.

● The means by which the order was submitted, whether by application programming

interface, FIX connection, web platform, or mobile application.

● The originating network address of the participant’s session and the outcome of the

authentication for that session, including whether multi-factor authentication was used.

● The Exchange’s processing time for the instruction, measured from receipt to response.

● The fees assessed to each side of the resulting trade.

Each record also identifies the Exchange system and software version that processed the

instruction, so that any entry in the audit trail can be attributed to a specific operation of a

specific version of the Exchange.

The Exchange’s logging system is operated on the Datadog platform. For ease of

retrieval and long-term retention, the details of these operations are also stored in relational

databases operated on Amazon Web Services (“AWS”). The Exchange maintains the following

databases:

● Query Exchange (Historical) — the record of orders and executed trades, including

each trade’s identifier, market, price, size, time, the identifiers of the orders on both sides,

the participants and sub-accounts on both sides, fees, and the Exchange clock value at

execution. The Query Exchange database is held on the Exchange’s query-exchange

historical cluster.

● Users — the record of members and accounts, including account type, verification status,

account creation and update history. The Users database is held on the Exchange’s users

cluster.

In addition, Klear maintains its own record of each cleared trade in its Trades and Users

databases. These records carry identifiers in common with the Exchange’s own records, so that

any trade can be traced between the Exchange’s internal record and the clearinghouse record.

AWS supports a managed relational database service that separates computing from

storage and replicates each write across multiple independent data-center facilities. The stored

record therefore does not depend on any individual server or storage device. Daily snapshots of

each database are produced and retained as backups of historical database state.

Records are retrievable by order identifier, trade identifier, participant, account, market,

and time period. Because the Exchange’s trade record carries the identifiers used by both Klear

and the Exchange’s own operational logs, a single trade or order can be reconstructed across all

three records — the operational log of the instruction as received and processed, the Exchange’s

database record of the resulting order and trade, and Klear’s record of the cleared trade.

The Exchange shall cooperate and share information with the Commission required by

the Act, including to facilitate the Commission’s assessment of market data relating to the

trading of Perpetual SFPs.

Clause (K) of Section 6(h)(3) of the Act106 requires that a market on which a security

futures product is traded have in place procedures to coordinate trading halts between such

market and any market on which any security underlying the security futures product is traded

and other markets on which any related security is traded. This requirement is addressed by Rule

14.13.

Clause (L) of Section 6(h)(3) of the Act107 requires that the margin requirements for a

security futures product comply with the regulations prescribed pursuant to Section 7(c)(2)(B) of

the Act.108 To implement Section 7(c)(2)(B) of the Act, the Commission and the CFTC have

adopted parallel rules establishing a fifteen (15) percent minimum initial and maintenance

customer margin requirement for long or short security future positions and permitting

exchanges to prescribe lower margin requirements for permitted offsetting positions involving

security futures and related positions.109 The Perpetual SFP Margin Rules in Part V of Chapter

106

15 U.S.C. § 78f(h)(3)(K).

107

15 U.S.C. § 78f(h)(3)(L).

108

15 U.S.C. § 78g(c)(2)(B).

109

17 C.F.R. §§ 242.403(b); 41.45(b).

14 impose a minimum customer margin requirement of 15.50% of the Current Market Value of a

Perpetual SFP position and do not allow for the lower margin requirements for permitted

offsetting strategies or exemptions for exempted persons and market makers permitted under the

Customer Margin Rules. The Exchange has chosen to adopt customer margin rules for Perpetual

SFPs more stringent than those required by the Customer Margin Rules in order to protect

investors and the public interest by reducing the risk of participants incurring margin obligations

that they do not have the financial resources to satisfy. Thus, the Exchange believes that its

Perpetual SFP Margin Rules are consistent with the requirements of the Act.

For the reasons described above, the Exchange believes that the listing standards, margin

levels and trading rules submitted herewith satisfy the requirements set forth in Section 6(h)(3)

of the Act. Kalshi also believes that its proposed rule changes are consistent with Section 6(b) of

the Act, in general, and further the objectives of Section 6(b)(5) of the Act, in particular, in that

they are designed to remove impediments to and perfect the mechanism for a free and open

market and a national market system, and, in general, to protect investors and the public interest

Self-Regulatory Organization’s Statement on Burden on Competition

Kalshi does not believe that the proposed rule changes will impose any burden on

competition not necessary or appropriate in furtherance of the purposes of the Act. Currently, no

other exchange lists security futures products with no predefined final settlement date for trading.

Nothing in the filing restricts or impedes another exchange from offering such security futures

products for trading subject to its compliance with applicable regulatory requirements under the

Act, CEA and respective rules of the Commission and CFTC governing security futures

products.

Further, for the reasons described above, the Exchange does not believe that admission of

Kalshi Prime as an FCM SFP Broker Member will impose any burden on intramarket or

intermarket competition that is not necessary or appropriate in furtherance of the Act as the

requirements of Rule 14.38 – the requirement of an unaffiliated Third-Party DSRO, the

prohibition on privileged or competitively advantageous treatment of Kalshi Prime, the

establishment of information barriers between the Exchange and Kalshi Prime and the

requirement that only Public Directors on relevant committees and panels of the Exchange

governing matters involving Kalshi Prime – help to prevent an unfair burden on competition and

unfair discrimination between customers, issuers, brokers, or dealers.

Self-Regulatory Organization’s Statement on Comments on the Proposed Rule

Change Received from Members, Participants, or Others

The Exchange has not solicited, and does not intend to solicit, comments on this proposed

rule change. The Exchange has not received any unsolicited written comments from members or

other interested parties.

III.

Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action

The proposed rule change will become effective on November 2, 2026, or such later date

as it may be approved pursuant to CFTC Regulations.

Within 60 days of the date of effectiveness of the proposed rule change, the Commission,

after consultation with the CFTC, may summarily abrogate the proposed rule change and require

that the proposed rule change be refiled in accordance with the provisions of Section 19(b)(1) of

the Act.110

110

15 U.S.C. § 78s(b)(1).

IV.

Solicitation of Comments

Interested persons are invited to submit written data, views, and arguments concerning

the foregoing, including whether the proposed rule change is consistent with the Act. Comments

may be submitted by any of the following methods:

Electronic comments:

•

Use the Commission’s Internet comment form (http://www.sec.gov/rules/sro.shtml); or

•

Send an e-mail to rule-comments@sec.gov. Please include File Number SRKALSHIEX-2026-02 on the subject line.

Paper comments:

•

Send paper comments in triplicate to Secretary, Securities and Exchange Commission,

100 F Street, NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-KALSHIEX-2026-02. This file number

should be included on the subject line if e-mail is used. To help the Commission process and

review your comments more efficiently, please use only one method. The Commission will post

all comments on the Commission’s Internet website (http://www.sec.gov/rules/sro.shtml).

Copies of the filing will be available for inspection and copying at the principal office of the

Exchange. Do not include personal identifiable information in submissions; you should submit

only information that you wish to make available publicly. We may redact in part or withhold

entirely from publication submitted material that is obscene or subject to copyright protection.

All submissions should refer to File Number SR-KALSHIEX-2026-02 and should be submitted

on or before [INSERT DATE 21 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL

For the Commission, by the Division of Trading and Markets, pursuant to delegated

authority.111

Sherry R. Haywood,

Assistant Secretary.

111

17 CFR 200.30-3(a)(73).

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.