The US Commodity Futures Trading Commission (CFTC) has issued a warning to prediction market operators regarding event contracts tied to an individual’s words or actions, highlighting the heightened risk of manipulation involved.
The advisory from the CFTC’s Division of Market Oversight was released on Tuesday, covering “mention market” contracts that settle based on specific words spoken by a person, their attendance or appearance at an event, or interactions with others. The regulator stated that such contracts are more vulnerable to manipulation because their outcome depends on the discrete actions of an individual, which may not be easily verified.
The advisory also outlines limited circumstances under which mention market contracts can be listed in accordance with the Commodity Exchange Act and CFTC regulations. Exchanges are reminded that Core Principle 3 requires them to list only contracts that are not easily manipulated and to provide complete, contract-specific analysis demonstrating compliance with applicable requirements.
Mention markets have come under increased scrutiny recently, with Kalshi, a US-regulated platform, discontinuing sports-related mention markets due to a CFTC review as reported by CNBC. Kalshi’s rival, Polymarket, offers mention markets through its international exchange, which is not regulated by the CFTC.
The scrutiny surrounding this contract type heightened after reports of Gabriel Perez, a longtime teleprompter operator for President Donald Trump, trading on Kalshi contracts linked to specific statements made by Trump. The CFTC ordered Perez to pay $172,539 in August for insider trading involving mention market event contracts.
As per the new advisory, exchanges considering mention markets should assess four factors: the outside obligations of the person subject to the contract, external pressures influencing the individual’s speech or actions, independent verification of the contract’s settlement terms, and the presence of oversight measures to detect manipulation. Exchanges are also encouraged to consult the CFTC’s Division of Market Oversight during the initial design stages of mention market contracts to identify ways to mitigate manipulation risks.
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