For years, Silicon Valley has been chided for trying to “move fast and break things.” At Kalshi, we set out to show that one can innovate without breaking things. We are innovating while respecting laws and regulators. While others may push new boundaries without regard for regulation, we believe our regulation-first approach will allow us to build an exchange that will withstand the test of time.
There’s good reason for all the interest in our regulatory journey, because our approach will teach future generations of entrepreneurs which path to take. We’re proud to share our story and inspire future founders.
From the onset, Kalshi’s mission has always been clear: allow people and businesses to mitigate and take control of risks that relate to them. Financial firms and banks have designed complex, indirect products to allow large institutions to get or hedge exposure to events, a deeply powerful tool. The question we asked: why shouldn’t everyone have access to this?
We are building the New York Stock Exchange of events. We decided on day 1 to take the harder path: build a fully regulated exchange, with a deep commitment to compliance. The decision was not taken lightly. This path meant that we were years away from launching our exchange and bringing our vision to fruition, and that we may even launch behind competition that opted for an easier and faster approach by eschewing regulatory approval. This path also meant that we would have the opportunity to develop the asset class in a way that is safe and responsible, which we see as the only way to build for the long-term.
Our process started in February 2019. We worked productively with the Commodity Futures Trading Commission (CFTC) for two and a half years to develop our exchange, products (“contracts”), market structure, surveillance, and compliance programs to provide a safe, secure and orderly market. The Commission, as always, focused on administering the Commodity Exchange Act and carrying out its mission with rigor and precision. Like all other exchanges that preceded us, we received detailed and constructive feedback from the CFTC staff and Commission. We incorporated the feedback and iterated our approach, and we successfully demonstrated our ability to comply with the detailed and rigorous regulatory framework that makes designated contract markets the bedrock of the commodities and derivatives industry.
In November 2020, our approval to become a regulated exchange was unanimous and bipartisan, a testament to the effectiveness and diligence of the CFTC’s process. That was the first step of a continuous process: our engagement with the Commission continued beyond our designation and ensured that all of the pieces came together for a robust and successful launch in July 2021. This process that started in 2019—and was crucial to bringing Kalshi’s exchange to life— will continue for the years to come: it is an essential part of our ongoing duty and commitment to innovating, responsibly.
Every contract listed on CFTC-regulated exchanges gives market participants the ability to hedge risks they are facing. The contracts we list undergo rigorous, multi-step reviews by our regulatory staff as well as the CFTC. As a regulated exchange, we embrace the responsibility to offer event contracts that comply with the CFTC Core Principles: from our robust KYC, rules against trading on insider information and other prohibited activities, to our incredibly talented surveillance staff who monitor our markets, we are committed to preserving market integrity and protecting customers.
It was always clear: the CFTC is open to innovation yet suitably diligent and cautious. This balance has consistently borne fruit in powerful and responsible innovation in the markets since its establishment in 1975. Innovation is a good thing, especially in one of the oldest industries in America - commodities and derivatives. When that innovation is done responsibly, it often gets widely adopted to the point where you don’t remember when it didn’t exist.
We are proud of the path we chose, and we are honored and humbled by the chance to work with institutions like the CFTC that are pillars of this great nation founded on the rule of law. Our success is a victory for all future entrepreneurs who read the rules and respect them, and a defeat for those who think they’re above that.