The US Commodity Futures Trading Commission (CFTC) has warned prediction market operators that event contracts tied to an individual’s words or actions carry a heightened risk of manipulation.
The CFTC’s Division of Market Oversight issued the advisory on Tuesday, covering “mention market” contracts that settle based on whether a person says certain words, attends or appears at an event, or interacts with another person.
The regulator said these contracts are more susceptible to manipulation because their settlement depends on the discrete conduct of an individual, which may not be independently generated or externally verifiable.
The advisory sets out limited circumstances under which mention market contracts may be listed in accordance with the Commodity Exchange Act and CFTC regulations. It also provides non-exhaustive factors that designated contract markets (DCMs) should consider when designing and submitting these contracts under Regulations 40.2 or 40.3.
The CFTC reminded DCMs that Core Principle 3 requires them to list only contracts that are not readily susceptible to manipulation. It also stressed that exchanges submitting mention market contracts under Part 40 should provide complete, contract-specific analysis demonstrating that the contracts meet the applicable requirements.
Mention markets have faced increased scrutiny in recent months. Kalshi, one of the few US-regulated platforms offering such contracts, previously pulled sports-related mention markets amid a CFTC review, according to CNBC.
“We’ve addressed this guidance based on a prior discussion with the CFTC,” Kalshi spokesperson Elisabeth Diana said in a statement.
Kalshi’s rival Polymarket offers mention markets through its international exchange, which is not regulated by the CFTC.
The contract type came under scrutiny after reports that Gabriel Perez, a longtime teleprompter operator for President Donald Trump, traded on Kalshi contracts linked to whether Trump would make certain statements. The CFTC ordered Perez in August to pay $172,539 for insider trading involving mention market event contracts.
Under the new advisory, the CFTC said exchanges considering mention markets should assess four factors: the outside obligations of the person who is the subject of the contract; external pressures that could influence that person’s speech or conduct; whether the words or actions used to settle the contract can be independently verified; and whether sufficient oversight measures are in place to detect manipulation.
The CFTC also encouraged exchanges to consult its Division of Market Oversight during the early stages of designing mention market contracts to identify ways to mitigate manipulation risks.