CFTC warns 'mention market' prediction contracts carry heightened manipulation risk

CFTC staff flag 'mention market' contracts

The Commodity Futures Trading Commission (CFTC), a US regulator that oversees futures and derivative markets, said contracts on prediction markets that depend on whether someone "mentions" certain words or attends an event carry a "heightened risk of manipulation."

The warning came in an advisory posted Tuesday by the CFTC's Division of Market Oversight. Agency staff said there are "limited circumstances" in which these contracts can be listed without breaking the Commodity Exchange Act and agency rules.

Prediction markets let people buy contracts that pay out based on the outcome of an event. A "mention market" is a contract tied to whether a specific person says certain words, or to whether they show up at an event.

What the advisory asks exchanges to check

• Staff said the advisory is meant to alert designated contract markets, which are exchanges allowed to list these contracts, that mention markets may be more open to manipulation.
• Exchanges should assess whether the person whose speech or conduct decides the contract's outcome is bound by independent legal, professional, contractual, fiduciary, confidentiality, or organizational duties that meaningfully discourage behavior meant to affect settlement.
• Exchanges that list mention markets should set up proactive trading rules and controls to try to block manipulation.

Earlier CFTC cases involving mention markets

The agency has brought charges against a few people. One case involved a former White House teleprompter operator, who the agency said used advance access to President Trump's speeches to profit from mention markets on Kalshi, a prediction market platform.

In a separate case, the CFTC charged former Rep. George Santos and said he made public statements two weeks before a State of the Union address about whether he would attend, which caused the price of the event contract to rise or fall "significantly."

Concerns grow as prediction markets expand

Over the past year, worries about insider trading have grown as prediction markets have become much more popular and are now worth billions of dollars, according to the report.

Who regulates prediction markets is still disputed

The CFTC has broadly claimed a leading role in regulating prediction markets. States have pushed back, with some arguing that sports betting in particular falls under their authority and that these contracts break their gaming laws. Which body actually regulates sports betting through prediction markets is still being worked out in the courts.

What is confirmed

The CFTC's Division of Market Oversight posted the advisory on Tuesday, and the content of that advisory is confirmed by the agency's own material. The earlier enforcement cases against the former White House teleprompter operator and former Rep. George Santos are reported by The Block, which describes them as CFTC actions.

What is still unclear

The advisory does not say whether any specific contract must be delisted. It also does not settle the dispute between the CFTC and states over who regulates sports betting through prediction markets, which the report says is still being decided in court.

Why it matters

Mention markets depend on what one person says or does, which the CFTC says makes them easier to influence. The advisory tells exchanges how to judge those risks and asks them to add controls, which could affect which of these contracts are listed and how they trade.

Sources

• The Block

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