# Who stands between you and the exchange, and what each one holds

A broker, an introducing broker or a wallet app can sit in front of a US event exchange. Whose customer you are, who holds the money and who checked your ID.

*https://predictionmarkets.tools/guides/who-stands-between-you-and-the-exchange · background to Prediction Market Venues*

**Answer:** Up to three kinds of firm, each with a different job. A futures commission merchant opens your account, holds your money in segregated customer accounts and runs the identity check. An introducing broker takes your order but clears through a futures commission merchant, which holds the money. A wallet or other app working under CFTC Letter 26-25 holds nothing and chooses no route: you become the exchange's member or a broker's customer, and the app may charge a fee.

The prediction-market tab inside an app you already use is rarely the exchange. Behind it there can
be one firm, two or three, and each is defined less by its logo than by what it is allowed to hold
and what it is allowed to decide. The exchange's own rulebook names two of them, the futures
commission merchant and the introducing broker. Two CFTC staff letters of 2026 add a third, the
software provider that holds nothing at all.

This page sets the three beside the case with nobody in between, using Kalshi's rulebook, version
1.29, because it spells out every route in one document, the two CFTC letters, and one
introducing broker's own account of who does what.

## How it works

### Directly: you are the member

A direct account on Kalshi is a membership. Rule 3.1 calls it a Self-Clearing Member, says plainly
that its accounts "are not carried by an FCM", and makes the application itself an agreement "to
become a member of Clearing House, and be bound by Clearing House's Rules". The exchange collects
whatever it considers necessary "to verify the applicant's identity, perform a criminal background
check", and funds move between your Kalshi account and a bank account in your own name. One member,
one account: Rule 3.1(h) bars a second.

Note the word the rulebook uses for the money. Under Rule 3.1(e), "All funds deposited by
Self-Clearing Members shall constitute 'Proprietary Funds' in accordance with CFTC Regulations."
Rule 3.2, a page later, has a broker confirm that it keeps its customers' money in "Customer
segregated funds accounts". Two routes, two different words for the same dollar. What protection
attaches to each is a question for the clearing house's rulebook and the CFTC's regulations, and
this page does not answer it; it notes only that the rulebook does not treat them as one thing.

### Through a futures commission merchant: you are the broker's customer

On a brokered route your relationship is with the broker, a
[futures commission merchant](https://predictionmarkets.tools/glossary/futures-commission-merchant), and the exchange reaches you
through it. Kalshi's rules divide the work this way:

- **The money.** To be admitted, an FCM confirms it will hold customer funds in segregated customer
  accounts, and signs a guarantee to the clearing house for "the applicant's transactions and those
  of the applicant's FCM Customers" (Rule 3.2(b)). If your account goes negative from trading, the
  FCM may liquidate your positions (Rule 3.3(f)).
- **The identity check.** "FCMs must perform all required KYC, CDD and AML activities for their FCM
  Customers" (Rule 3.8(g)).
- **The paperwork.** The FCM must give you the rulebook, the terms of each contract and notice of
  new rules and amendments (Rule 3.2(f)), and must document that you acknowledged the rulebook
  before you trade (Rule 3.3(a)).
- **The interest.** Whether interest on collateral reaches you is governed, for FCM customers, "by
  the agreements between the clearinghouse and the FCM, and between the FCM and the FCM Customer"
  (Rule 8.1(c)). [What your money does while you wait](https://predictionmarkets.tools/guides/what-your-money-does-while-you-wait)
  works through what that means.

The contract you hold is the same one a direct member holds; the broker resolves nothing.
[Kalshi direct or through a broker](https://predictionmarkets.tools/compare/kalshi-through-a-broker) sets four brokers on that one
order book side by side, with their fees, their state lists and their own applications.

### Through an introducing broker: the order goes one way, the money another

An introducing broker is registered with the CFTC and a member of the National Futures Association,
as Rule 3.4(b) requires, and it may take your order. It does not carry the account. Kalshi's Rule
3.5(c) says its customers "must access Clearing House through a futures commission merchant", and
Rule 3.4(e) lets it submit orders only for a customer who clears that way. The rulebook still puts
the identity, customer due diligence and anti-money-laundering duty on the introducing broker for
its own customers (Rule 3.9(f)).

How that splits in practice is easiest to see in a firm that writes it down. Lumina Markets, which
describes itself in its own footer as a CFTC-registered introducing broker and NFA member, says in
its help centre that opening an account with it opens "a brokerage account at Interactive Brokers",
the clearing firm that "carries the account, holds the funds, and runs verification". Identity
verification, anti-money-laundering screening and bank verification "are run by IBKR, not Lumina";
deposits and withdrawals are processed by it; statements, confirmations and tax forms are generated
by it. The same page says the two are "affiliated companies under common ownership". So the app's
name is on your screen, and a second firm's name is on your money.

### Through a wallet or other software: a door with nothing behind it

On 17 March 2026 the CFTC's Market Participants Division answered a request from Phantom
Technologies, the developer of a self-custodial crypto wallet, which wanted to let its users trade
CFTC-regulated derivatives, "including event contracts", through its software. The division found
that what Phantom proposed would ordinarily require registration as an introducing broker, and
issued Letter 26-09: a no-action position instead.

What the software may do, on the letter's description: show market data and positions, let the user
"submit orders ... directly to" a designated contract market, futures commission merchant or
introducing broker, market those firms and steer users to them, take a share of their revenue, and
"charge a transaction-based fee directly to Users". What it may not do is the sentence the whole
position rests on: "At no point would Phantom hold, control, or take into custody User assets,
generate express 'buy' or 'sell' signals, or exercise discretion with respect to the routing or
execution of User orders."

And where the money is instead: the user keeps the funds securing their positions "in custody with
the DCM's derivatives clearing organization ('DCO') and/or an FCM that is a member of such DCO".
The letter calls this a "custodial" model. The self-custodial wallet holds your crypto; it does not
hold your event-contract money.

On 17 September 2026 the division extended the same position, in Letter 26-25, to any "Passive
Software Provider" on substantially the same terms, and noted that such providers "are not limited
to providers of crypto asset related software". Until then only Phantom could rely on its letter.
Ten conditions come with it. The ones that change something for a user:

1. You receive, and acknowledge, a disclosure of the provider's relationship with the exchange or
   broker, "addressing potential conflicts of interest (including fees)".
2. You receive and acknowledge a risk disclosure statement, unless the exchange or broker is
   already obliged to give you one.
3. You are onboarded as a direct member of the exchange or a customer of the broker, and "continue
   to have the ability to access the respective Registrant independently of the PSP".
4. The provider and each exchange or broker it works with sign an undertaking to be "jointly and
   severally liable" for the provider's violations of the Act, and file it with the division.

Both letters state their limits in their own text. They last "until the effective date of a
Commission rulemaking or guidance" on the subject, "represent the views of the Division only", are
"not binding on the Commission", and may be modified, suspended or terminated at the division's
discretion.

## What it costs

Each layer can charge, and only some of them are on the exchange's fee schedule.

- **The exchange's fee** is the floor on every route. Kalshi's Rule 3.13(d) has fees deducted from
  a direct member's own account and, for a broker's customers, from the customer account at the
  FCM.
- **The futures commission merchant** may add a fee of its own; the
  [broker comparison](https://predictionmarkets.tools/compare/kalshi-through-a-broker) records what four of them add.
- **An introducing broker's clearing firm** may charge for moving money. Lumina's page says
  "the fees on extra withdrawals are processed and charged by IBKR".
- **A software provider** may charge a transaction-based fee directly, and may also be paid a share
  of the exchange's or broker's revenue for bringing you. Both letters allow both, and require the
  conflict, "including fees", to be disclosed to you.

## What you can do about it

**Find the legal names before you fund anything.** For each app, write down three: the firm in front
of you, the firm that carries your account, and the exchange whose contract you will hold. A
footer line such as "CFTC-registered Introducing Broker and Member NFA" tells you the first is not
the second. The glossary entry on the
[futures commission merchant](https://predictionmarkets.tools/glossary/futures-commission-merchant) shows how to check a firm's
registration in a minute.

**Send each problem to the firm that owns it.** A rejected document, a delayed withdrawal or a
missing statement belongs to the firm that carries the account, not to the app and not to the
exchange. A disputed outcome belongs to the exchange; [who decides the
outcome](https://predictionmarkets.tools/guides/who-decides-the-outcome) covers how that works. A year-end form comes from
whoever holds the account; [who sends you a tax form](https://predictionmarkets.tools/guides/who-sends-you-a-tax-form) sets out
who sends what.

**On a wallet or software app, look for the acknowledgement.** An app relying on Letter 26-25 has to
show you its relationship and its fees and record that you acknowledged them. If you were never
asked, ask the app which exchange or broker you were onboarded with, and under what.

**Confirm you can reach the account without the app.** The staff letters make independent access a
condition, and Kalshi's Rule 3.3(d) lets a broker's customer move positions to their own exchange
account on closing. Log in to the carrying firm once directly, so that you know the route exists
before you need it.

**Do not carry wallet assumptions across.** A self-custodial wallet's promise is about the keys to
your crypto. Event-contract money under these letters sits with a clearing house or a broker, and
the key on your phone does not reach it. [Where your key lives](https://predictionmarkets.tools/guides/where-your-key-lives) is
about the other case, where the software does hold something.

The venue cards in [prediction market venues](https://predictionmarkets.tools/categories/prediction-market-venues) record, for each
app, whether it is an exchange or a broker in front of one.

## Tools this bears on

- [Kalshi](https://predictionmarkets.tools/tools/kalshi.md) — A CFTC-designated exchange for event contracts, settled in dollars against named sources.
- [ForecastEx](https://predictionmarkets.tools/tools/forecastex.md) — Economic and climate contracts on a CFTC exchange that pays interest on your collateral.
- [Robinhood Prediction Markets](https://predictionmarkets.tools/tools/robinhood-prediction-markets.md) — Event contracts in the Robinhood app, routed to four exchanges — one of them its own JV.
- [Coinbase Prediction Markets](https://predictionmarkets.tools/tools/coinbase-prediction-markets.md) — Kalshi's event contracts in the Coinbase app, via Coinbase's own FCM, in USD or USDC.

## FAQ

### If I trade event contracts from a self-custodial wallet app, does the wallet hold that money?

No, not under the CFTC staff letters that let such an app operate without registering. The letters describe a custodial model in which the money securing your positions sits with the exchange's clearing house or a futures commission merchant, and say the software provider would at no point hold, control or take custody of user assets.

### Who checked my identity when I opened a prediction-market tab inside a brokerage app?

The firm that carries your account. Kalshi's rulebook puts the identity, customer due diligence and anti-money-laundering checks on the futures commission merchant for its customers and on the introducing broker for its customers. Lumina's help centre says the checks for its accounts are run by Interactive Brokers, the clearing firm that carries them.

### Can I leave the app and keep my positions?

The documents provide for it. Kalshi's Rule 3.3(d) lets a futures commission merchant's customer who is closing that account ask to move positions to an account of their own with Kalshi. CFTC Letter 26-25 makes it a condition that users of a passive software provider can still reach the exchange or broker directly, without the app.

### What is a passive software provider?

The CFTC Market Participants Division's name, in Letter 26-25 of 17 September 2026, for a developer whose software lets users send orders for CFTC-regulated derivatives to an exchange or broker without holding their assets, generating buy or sell signals, or choosing where or how the orders execute. It is a staff position, not a registration category.

## Sources

1. [CFTC Letter No. 26-09, No-Action Position regarding Introducing Broker Registration (Phantom Technologies, Inc.)](https://www.cftc.gov/csl/26-09/download) — Commodity Futures Trading Commission, Market Participants Division, 2026-03-17
2. [CFTC Letter No. 26-25, No-Action Position regarding Introducing Broker Registration (Passive Software Providers)](https://www.cftc.gov/csl/26-25/download) — Commodity Futures Trading Commission, Market Participants Division, 2026-09-17
3. [KalshiEX LLC Rulebook, version 1.29 (Rules 3.1 to 3.9, 3.13 and 8.1)](https://kalshi-public-docs.s3.amazonaws.com/regulatory/rulebook/Kalshi%20DCM%20Rulebook%20v.1.29.pdf) — KalshiEX LLC, read 2026-10-23
4. [Why your account is held at Interactive Brokers](https://help.luminamarkets.com/en/articles/16040237-why-your-account-is-held-at-interactive-brokers) — Lumina Markets Inc., read 2026-10-23

*Last updated 2026-10-23. A reference page, corrected in place — not a dated post.*