Hyperliquid proposes 5 rule pillars for pre IPO perps

Hyperliquid Policy Center and trade[XYZ] asked the U.S. Securities and Exchange Commission on Aug. 18 to create a regulatory framework for pre IPO perpetual contracts.

The SEC added the joint submission to its public IPO modernization docket. Posting the letter confirms its receipt but does not mean the agency supports its recommendations or has approved the products.

The groups call the proposed instrument an IPOP. It would provide cash settled price exposure to a company approaching a public listing without conveying shares, voting rights, IPO allocations or claims against the issuer.

Hyperliquid proposal seeks five regulatory pillars

The 15 page letter asks the SEC and Commodity Futures Trading Commission to determine whether equity linked perpetuals are security futures or security based swaps. The classification would decide which registration, trading venue, clearing and margin requirements apply.

The groups also proposed rules covering product disclosures, listing eligibility, investor access and market integrity. They recommended disclosures addressing funding rates, leverage, liquidations, pricing methods, settlement and contract conversion rather than treating holders as equity owners.

Listing rules could limit an IPOP to a defined period after a company publicly files registration documents. Oracle and settlement procedures would be announced in advance, while changes would need disclosure.

Market integrity provisions could include audit trails, conflict controls and restrictions on deployers or affiliates trading while holding material nonpublic information. A phased rollout could also impose leverage and position limits before expanding access to retail investors.

Five markets underpin the price discovery argument

Trade[XYZ] told the SEC it had completed five IPOP markets tied to Cerebras, Quantinuum, SpaceX, SK Hynix and ChangXin Memory Technologies. The products operated for between one and 25 days before the referenced listings.

According to the applicants’ data, each contract’s final price before trading began was within 0.44% to 7.23% of the relevant stock’s opening price. Four U.S. offerings priced between 10.8% and 38.4% below the IPOP level recorded one day earlier.

Those figures support the groups’ claim that continuously traded derivatives “could” provide issuers and underwriters with an independent measure of demand. They do not establish how the products would perform across a larger or less active group of listings.

The SEC has not independently endorsed those performance claims. A five market sample is also too limited to establish that similar contracts would consistently improve IPO pricing.

As previously reported, the SpaceX product exposed a regulatory gray zone around private markets. SpaceX had not authorized the contract and received no proceeds from its trading.

Oracle risk remains central to investor protection

Pre IPO perpetuals depend on pricing and settlement rules designed by market deployers. Unlike listed stocks, private companies may lack a continuous, authoritative market price before their public debut.

Trade[XYZ] experienced a related problem after one unusually low SK Hynix share transaction entered its oracle inputs. As crypto.news reported, the SK Hynix pricing anomaly pushed the perpetual’s mark price down about 18% and triggered liquidations.

Trade[XYZ] later agreed to cover eligible losses as a discretionary measure. The company said its oracle followed its published design, although the external transaction involved only one share in a thin trading session.

The episode supports the letter’s call for disclosed oracle rules and market controls. It also shows why an accurate technical process may still produce a price that does not represent a deep or durable market.

SEC and CFTC must settle product classification

Trade[XYZ] currently operates these markets offshore and excludes U.S. persons. No approved U.S. pre IPO perpetual framework presently gives American retail traders access to the products described in the letter.

The CFTC’s May 29 policy established case by case review for perpetual contracts outside the Bitcoin product it approved for KalshiEX. The related policy text said equity based perpetuals would benefit from coordinated SEC and CFTC review.

The agencies have separately asked whether a cash settled perpetual referencing an equity security could qualify as a security future. Their eventual answer would determine whether current security futures rules can accommodate an instrument tied to a company whose shares have not yet started trading.

No response deadline applies to the Hyperliquid submission, and the SEC does not have to adopt its recommendations. Further steps could include staff discussions, another request for comment, joint agency guidance or formal rulemaking.