How a contract settles

An event can be over long before its contract is. The result is on every screen, the price has moved almost all the way, and nothing has settled. Between the event and the payment sit four things: the one source the contract names, a time when trading stops, the exchange’s determination under its rules, and the clearinghouse. This note follows that path on a regulated venue, from the rules themselves: the CFTC’s rules, and the rulebooks of the two venues we quote on, Kalshi and Polymarket US.

Written down before the first trade

A designated contract market lists a contract by certifying it to the CFTC. The filing has to arrive by the start of the business day before the contract lists.¹ It carries the contract’s terms, and the terms must say how the settlement value is defined, calculated and revised.²

The CFTC’s guidance sets the standard for the source. It should be reliable, publicly available and published on time. Where a third party supplies it, the exchange should check that the third party’s practices leave little room to manipulate it. And trading should stop before the source publishes, unless the exchange can show that trading on would not distort the result.³

Two things follow. The terms are public: an exchange’s rulebook must be current and readily accessible, and its filings are posted when they are made.⁴ And they do not change quietly: a contract’s terms are part of the exchange’s rules, so changing them is a rule change, filed with the CFTC before it takes effect.⁵ The fine print is fixed before anyone trades, and anyone can read it.

A contract from start to finish

Station A is invented. It is the made-up contract from the anatomy of a contract on the Markets page: will the highest temperature recorded at Station A on the observation day be above 85°F? It settles on the first daily summary that Station A’s operator publishes, and later corrections are not used.

Listed. The venue files the contract and publishes its terms: the question, the source, the time trading stops, and how a revision to the source is treated.

Quoted and filled. Market makers quote a bid and an offer, and others trade against them. Every fill is a position, and it stays open until the contract settles.

Trading stops. At the time the terms set, before the summary comes out. What happens to an order still resting at expiration is in the rulebook. On Kalshi, resting orders are cancelled when the contract expires. On Polymarket US, a good-till-cancelled order stays in force until it fills, is cancelled or the contract expires.⁶

The source publishes. Station A’s operator publishes its first daily summary, and it shows 87°F. That reading decides the outcome, and no other does: not a weather app, not a second station down the road, not a correction the operator issues the week after.

The outcome is determined. The exchange applies the terms to the source: 87°F is above 85°F, so the answer is yes. It is the exchange that determines the outcome, under its own rules, not the source. Kalshi posts every outcome on its website before midnight Eastern on the day it is determined.⁷

Settled. Each YES contract pays 100¢ and each NO contract pays 0¢. The payments go through the clearinghouse, which stands between the two sides of every trade, so neither side depends on the other to pay. Once an account is credited or debited, the payment is irrevocable, though the rules leave room to correct errors.⁸

When the path bends

The rules are also written for the contracts that leave the straight path.

The CFTC’s rules set no fallback of their own. They require the exchange to keep watching the source, and to amend a contract’s terms where it has to. In an emergency an exchange may fix a settlement price, extend or shorten expiration, or change settlement terms, and it must tell the CFTC promptly.⁹ What actually happens is in each venue’s rulebook and each contract’s terms. On the two venues we quote on, the rulebooks say this.

The source is late. On both venues, the exchange may move the expiration date when an event is rescheduled or the source’s data is delayed.¹⁰

The source is unavailable. On Kalshi, the exchange may name a new source, which must be objective and verifiable and is announced on its website. On Polymarket US, a contract’s terms can name its sources in tiers, primary, secondary and tertiary, and the exchange may designate substitutes.¹¹

The source revises its number. Neither rulebook has a general rule. A revision is handled by each contract’s terms, the way Station A’s terms say that later corrections are not used. That is why the terms, not the headline, are the thing to price.

The outcome cannot be determined. On Kalshi, the exchange may settle at the last traded price; where that is not available or not fair, its Outcome Review Committee makes a binding determination. On Polymarket US, the exchange may settle the contract through its Contract Outcome Review Process.¹²

Who has the final word

On both venues, the exchange may open a review of an outcome before settlement, at its own discretion, and the result of the review is final. Neither rulebook gives a trader a way to request one.¹³ Who reviews, and how fast, differs.¹⁴

On each venue	Kalshi	Polymarket US
Who reviews an outcome	The Outcome Review Committee: three members, at least two of them Public Directors	The Chief Executive Officer, Chief Compliance Officer, Chief Operating Officer, Head of Markets, or their designate
How fast	A determination within twenty-four hours of the review opening	No time is stated
Reversing an outcome	Not stated in the rulebook; payment errors can be corrected	The exchange may reverse an outcome in the case of obvious error
When it settles after a review	The day the committee decides	The day the review concludes
Where the result is posted	Every outcome, on the website, by midnight Eastern that day	After a review, on the website and through system notices

Settlement reviews are separate from trade reviews. On both venues, a trade can be reviewed for error only if the request comes within fifteen minutes of the trade and before expiration.¹⁵ Disputes between participants can go to arbitration under each venue’s rules.

What we read before we quote

For a market maker the terms are part of the price. Before we quote a new contract, we need to know how it settles: the source, the time and the rounding. Two contracts that sound alike can settle on different sources, so we only treat them as the same risk when they settle under the same rules, as Sizing for the jump explains. And we treat every position as open until the contract settles under its rules, however clear the outcome looks from the first headline.

What this note leaves out

• No real contract. Station A is invented, and so are its operator, its reading and its terms. This note works at the level of the rules; each contract’s own terms decide its details, and they vary.
• Rules change. We read the rulebook versions named in the footnotes on November 4, 2026. A later amendment would be filed with the CFTC and posted by the venue. If one changes what this note says, we will add a dated correction.
• Only regulated venues. Some platforms settle through an on-chain oracle process instead. This note covers CFTC-regulated venues only, and takes no view on which design is better.
• Not legal advice. It is a reading of public rules, in plain words. The rules themselves are the authority.

Footnotes

1. 17 CFR 40.2(a), self-certification of new products. Federal rules here were read on November 4, 2026, as published on the eCFR, current as of November 2, 2026. The links go to the copy kept by Cornell’s Legal Information Institute. ↩

2. 17 CFR 40.1, definition of “terms and conditions”, item (1)(x): “the definition, composition, calculation and revision of the cash settlement price or index”. ↩

3. 17 CFR Part 38, Appendix C, paragraphs (c)(3), (c)(4) and (f), the guidance on showing that a contract is not readily susceptible to manipulation; paragraph (f) covers contracts that are not based on a price, such as binary contracts. ↩

4. 17 CFR 38.401(c) and (d), under Core Principle 7. ↩

5. 17 CFR 40.1, definition of “rule”, which includes a contract’s terms and conditions; and 17 CFR 40.6(a), which requires a rule change to reach the CFTC ten business days before it takes effect. ↩

6. Kalshi exchange rulebook, version 1.29 (posted August 2026), Rule 5.3(d). Polymarket US exchange rulebook, dated September 30, 2026, Rule 5.5(d). ↩

7. Kalshi rulebook v1.29, Rule 13.1(d). ↩

8. 17 CFR 39.27(b)(1) and 39.14(d), on the clearinghouse as counterparty and the finality of settlement. Kalshi’s clearinghouse rulebook (version 1.4), Rule 6.9; Polymarket US’s clearinghouse rulebook (August 14, 2026), Rule 5.1(h). ↩

9. 17 CFR 38.253(a), on monitoring cash-settled contracts; 17 CFR 38.350 and Appendix B to Part 38, Core Principle 6, on emergency authority; 17 CFR 40.6(a)(6), on filing an emergency rule within twenty-four hours. ↩

10. Kalshi rulebook v1.29, Rule 7.2(b). Polymarket US rulebook, September 30, 2026, Rule 10.3(b). ↩

11. Kalshi rulebook v1.29, Rule 7.2(a). Polymarket US rulebook, September 30, 2026, Rule 1.1 (definition of “Source Agency”) and Rule 10.3(a). ↩

12. Kalshi rulebook v1.29, Rule 6.3(c). Polymarket US rulebook, September 30, 2026, Rule 1.1 (definition of “Contract Outcome”) and Rule 10.4. ↩

13. Kalshi rulebook v1.29, Rule 7.1(a) and (c). Polymarket US rulebook, September 30, 2026, Rule 10.4(a) and (c). ↩

14. Kalshi rulebook v1.29, Rules 2.7(e), 7.1(a), 7.1(b) and 13.1(d), and its clearinghouse rulebook, Rule 6.9. Polymarket US rulebook, September 30, 2026, Rule 10.4(a) and (b). ↩

15. Kalshi rulebook v1.29, Rule 5.11(c). Polymarket US rulebook, September 30, 2026, Rule 5.7(b). ↩

@techreport{cipherg-n005,
  author      = {Dodson, Grayson},
  title       = {How a contract settles},
  institution = {CipherG Liquidity LLC},
  type        = {Research note},
  number      = {005},
  year        = {2026},
  month       = nov,
  url         = {https://cipherg.io/research/how-a-contract-settles/},
  note        = {Version 1}
}