On 4 October 2024, the United States Commodity Futures Trading Commission issued a supplemental no-action letter in response to a request from KalshiEX LLC and Kalshi Klear LLC, which grants exemptions to Kalshi and its clearing organisations, specifically Kalshi Klear LLC and LedgerX LLC, regarding compliance with provisions of the United States Commodity Exchange Act and United States CFTC regulations. The relief provided in this letter is an extension of a previous no-action letter issued in 2021 and exempts changes in Kalshi’s clearing operations, as the firm transitions from clearing contracts through LedgerX to Kalshi Klear LLC.
The no-action relief granted by the United States CFTC offers Kalshi and its clearing entities exemptions from various reporting and recordkeeping requirements under United States regulations, including those specified in United States CFTC Regulations 38.8(b), 38.10, 38.951, and 39.20(b)(2), as well as Parts 43 and 45 of the United States CFTC regulations. These regulations generally govern the swap data reporting and clearing requirements for designated contract markets (DCMs) and derivatives clearing organisations (DCOs). The Kalshi Contracts, which are binary options on the outcomes of specific events, are defined as “swaps” under the United States Dodd-Frank Wall Street Reform and Consumer Protection Act.
The background of this relief is tied to the United States CFTC’s original no-action letter issued on 22 April 2021, which provided exemptions for Kalshi and LedgerX in relation to swap reporting and recordkeeping. However, following the registration of Kalshi Klear LLC as a DCO on 28 August 2024, Kalshi sought to amend the prior letter to reflect its new clearinghouse, allowing Kalshi to clear its contracts exclusively through Kalshi Klear LLC. This transition represents a shift in Kalshi’s operations, with the company phasing out the use of LedgerX for clearing purposes.
In the request to the United States CFTC, Kalshi committed to specific operational safeguards, including that all contracts will be fully collateralized, transaction data will be promptly published on Kalshi’s website, and necessary reporting will continue to be provided to the United States CFTC. Additionally, the no-action relief is subject to several conditions. These include maintaining full collateralization for all contracts, ensuring that no third-party clearing members are involved, and allowing the United States CFTC, the United States Department of Justice, and other regulatory bodies full access to Kalshi’s records for inspection purposes.
This no-action letter from the United States CFTC provides Kalshi with regulatory flexibility as it shifts its clearing operations to Kalshi Klear LLC. It exempts Kalshi from compliance with certain regulatory obligations, provided that it adheres to the conditions outlined by the United States CFTC. However, the letter explicitly states that this relief does not constitute a legal determination regarding the underlying legality of the Kalshi Contracts and does not excuse Kalshi from compliance with other applicable provisions of the United States Commodity Exchange Act and related United States CFTC regulations.
(Source: https://www.cftc.gov/csl/24-15/download, https://www.cftc.gov/PressRoom/PressReleases/8995-24)
