Kalshi has notified the Commodity Futures Trading Commission (CFTC) that it is adding a new “Death Rule” to its rulebook to address how its markets settle when a living person dies before an event contract expires.
In a March 2 filing, Kalshi said it’s amending Rule 6.3 on settlement, with the change going into effect on March 17. The exchange says the change is meant to provide “additional clarity” around market resolutions and support market integrity, fairness, and equal access to information.
The proposed amendment gives the prediction market discretion to settle affected contracts at the last traded price before the subject’s death. If Kalshi determines that trading activity has been materially affected by the circumstances surrounding the death, such as “reasonably anticipated” events, the rule allows it to use a fair price from before those circumstances became known.
The filing comes just days after the exchange faced intense backlash from traders over how it handled the “Ali Khamenei Out As Supreme Leader?” market after joint United States-Israeli strikes on Iran resulted in his death on February 28.
Traders who thought the contract would resolve “YES” after Khamenei was killed instead saw the market frozen at the last traded price before his death became public, prompting outrage from some and focusing the spotlight once again on prediction markets tied to war, geopolitics, and mortality.
New Rule Gives Kalshi Broad Discretion Over Death-Linked Settlements
The amendment cites several CFTC core principles, including Core Principle 12, which covers the protection of markets and market participants. By codifying and memorializing these practices, Kalshi’s Chief Regulatory Officer, Richard Heaslip, argued the exchange is working to “minimize market disruption, minimize perverse incentives, and protect the markets.”
The filing outlines a structured hierarchy for determining a “fair” settlement:
- Primary Discretion: Settle at the last traded price before death.
- Market Distortion: If the death was anticipated, use the price prior to those circumstances becoming public.
- Committee Oversight: If no last traded price is deemed fair, an Outcome Review Committee will determine the final price.
- Trading Halts: Kalshi may pause trading if it believes a death is “imminent” or that the circumstances leading to it are currently occurring.
In the notice, Heaslip acknowledges that not all market participants agree with these settlement operations but says the rule provides necessary clarity: “It is the view of the Exchange that this is an important and appropriate provision for the purposes of preventing perverse incentives or the appearance of such.”
Fallout From Operation Epic Fury
Demands for clarity on how markets are resolved reached a fever pitch after Khamenei’s death, with the Kalshi market becoming one of the most controversial prediction markets of the year.
While there were persistent suspicions of insider trading on Polymarket following the strikes, on Kalshi, anger among traders stemmed from the exchange freezing its Khamenei market and settling it at the price it last traded at before the Supreme Leader’s death.
Many took to social media expressing their belief, with others saying the contracts were nothing more than a proxy for a “death market,” which is prohibited under U.S. law for event contracts. After Khamenei’s death was confirmed, Kalshi paused the market, refunded all fees, and capped payouts at the last traded price.
Those who placed “YES” bets on the market responded with anger, with several taking to social media to say they’d been scammed out of money they believed they had earned. Kalshi CEO Tarek Mansour took to X to defend the move, saying, “We don’t list markets directly tied to death. When there are markets where potential outcomes involve death, we design the rules to prevent people from profiting from death.”
The new rulebook amendment appears to be a direct effort to ensure those “ad hoc” decisions are now firmly backed by a CFTC-filed regulatory framework.
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