Kalshi Will Now Refund Trading Fees on Disputed Settlements
Kalshi will refund trading fees to self-clearing members who lose on disputed market settlements. Members clearing through FCMs are excluded.
Kalshi has updated its policies on contested market settlements. Going forward, when the platform voids or settles a market in a way that results in disputed outcomes, it will refund trading fees to affected users who incurred losses on the disputed contracts, with refunds distributed in proportion to each affected trader’s losses. The policy change follows a year in which Kalshi’s settlement decisions have repeatedly drawn complaints, class action lawsuits, and Congressional attention.
There is a meaningful asterisk in the policy. The refunds apply only to “qualifying self-clearing members,” the technical category for users who hold their own positions directly on the exchange. Members who clear through a Futures Commission Merchant or interact with the market through other intermediated channels fall outside the policy. In practice, that distinction excludes most professional market-making activity on the platform, as well as anyone trading through the API in a structure involving an FCM. The retail user trading through the consumer interface gets fee relief on disputed settlements. The institutional user going through standard derivatives plumbing does not.
The policy is the latest in an evolving set of settlement rules that have changed three times in roughly 18 months. Understanding why requires looking at the markets that prompted the changes.
The Khamenei Market Was the Major Turning Point
The most prominent disputed settlement in Kalshi’s history is the February market on whether Ali Khamenei would step down as Iran’s Supreme Leader. The market drew roughly $54 million in trading volume before Khamenei’s reported death on February 28. Traders who held “Yes” positions expected to be paid out at $1.00 per contract, on the straightforward reading that Khamenei was, in fact, no longer the Supreme Leader.
Kalshi settled the market at the last traded price prior to the death rather than at $1.00, citing a “death carveout” provision in the contract terms. The carveout had been disclosed in the CFTC-filed rules, where it referenced “the last traded price (prior to the death).” It was less clearly disclosed in the user-facing market page, which referred to “last traded price prior to confirmed reporting of death.” The grammatical ambiguity covered hours of active trading. Kalshi acknowledged the inconsistency, reimbursed all trading fees, and compensated net losses. A class action lawsuit was filed in the Central District of California a week later.
The Khamenei case illustrated why settlement rules matter and why users should understand them, but there was certainly mixed messaging from Kalshi. The contract said one thing in the regulatory filing and something slightly different on the trading page. Retail users traded based on what they could see. The platform settled based on what was filed. The dispute was effectively a question about whose interpretation of the rules controlled.
The Jimmy Carter Comparison Made the Problem Worse
The strongest argument against Kalshi’s Khamenei settlement came from a market the platform had already run two months earlier. The “Who will be at Trump’s inauguration?” market included Jimmy Carter as a possible answer. Carter died in late December 2024 at age 100. Kalshi settled the Carter contract to “No” on the inauguration question, which it had to, because he was not at the inauguration. The settlement was uncontroversial and routine.
The contrast did not escape Kalshi’s critics. As one widely shared X post put it during the Khamenei dispute: “You settle on death, just not when it makes you money.” The Carter market produced an outcome friendly to Kalshi’s payout structure and was settled cleanly. The Khamenei market would have produced an expensive payout, and Kalshi invoked a carveout that retail traders had not clearly seen. Whether the carveout was legitimately disclosed or not, the perception problem was the same, and users voiced their opinions.
The Policy That Continues to Evolve
The settlement rules themselves have moved through three distinct versions in roughly 18 months.
The original rule was straightforward and simple. When a market needed to be settled before its scheduled expiration due to unusual circumstances, Kalshi would settle at the last traded price. The mechanism was predictable, and the math was clear.
The second version added discretion. Kalshi would settle at the last traded price unless the platform determined that “trading activity was materially affected by the circumstances giving rise” to the settlement event. In that case, Kalshi would use the last traded price from before the circumstances became known. The Khamenei rule was a version of this, with the trigger being the death itself rather than its public reporting.
The current version, as documented in Kalshi’s CFTC-filed rules and applied in recent settlement decisions, gives Kalshi the authority to determine settlement prices “in its sole discretion” when no last traded price represents a fair value. The discretion is quite broad and leaves ample room for multiple interpretations. The platform can set the settlement at whatever price it deems fair, regardless of where the market traded at the time of the disputed event.
Each version of the rule has given Kalshi more discretion than the previous one. Each was a response to a specific case where the previous rule produced an outcome that either Kalshi or its users found unsatisfactory. The current version is the most flexible, and the new fee-refund policy is the practical concession that comes with that flexibility.
What the Self-Clearing Carveout Tells You
The decision to limit refunds to self-clearing members is the part of the new policy worth dwelling on. Kalshi has made a specific judgment about who deserves protection when settlements go wrong. Self-clearing members, who hold their positions directly on the exchange and largely overlap with the platform’s retail user base, will be made whole on fees. Members who clear through an FCM, who are presumed to have institutional infrastructure, professional risk management, and a fundamentally different relationship with the platform, will not.
The split aligns with how traditional financial exchanges treat retail and institutional participants. It also aligns with where Kalshi’s reputational risk actually lives. A retail trader who loses $260 on a disputed settlement can sue, post about it on social media, and become a regulatory example. A market maker losing six figures on the same settlement has a different set of options and a different relationship with the platform. The refund policy, among other things, acknowledges which complaints carry the most weight.
It is also the practical result of Kalshi’s professionalization under regulatory pressure. The platform has hired a former FBI analyst to lead its surveillance team, suspended congressional candidates for trading on their own races, and rolled out market integrity rules covering both retail and institutional users. Refunding fees to self-clearing members on disputed settlements is the latest piece of that buildout. It puts retail customers in a clearly different protective category from institutional customers, which is how every major regulated exchange operates.
For now, the Khamenei lawsuit is still pending. Future disputed settlements will likely follow, as that seems to be the nature of the business. The current policy is unlikely to be the last version of the rule.
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