The top US derivatives regulator has warned that prediction market contracts tied to what a person says or does carry a heightened risk of manipulation, putting exchanges on notice as the industry faces increasing scrutiny over market integrity.
The Commodity Futures Trading Commission’s Division of Market Oversight on Tuesday said it issued an advisory to some of its regulated entities, advising that there are only “limited circumstances” in which “mention markets” — event contracts based on whether an individual will say certain words, attend or appear at an event or interact with another person — can be listed consistently with the Commodity Exchange Act.
“These contract types present a heightened risk of manipulation because their settlement turns on the discrete conduct of a person that may be neither independently generated nor externally verifiable,” the regulator said.
The warning follows several cases involving traders accused of exploiting privileged information on prediction markets, including a former White House teleprompter operator who was ordered last month to return $107,539 in profits and pay a $65,000 civil penalty for trading contracts tied to US President Donald Trump’s speeches.
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According to CNBC, the CFTC letter said exchanges listing mention markets should consider four factors: whether there are adequate oversight measures in place to detect manipulation, whether the words or actions used for settlement are independently verifiable, external pressure that could influence the subject’s conduct, and what outside obligations the subject of the mention market may have.
CFTC Chair Mike Selig welcomed the guidance in an X post on Tuesday, saying that “regulatory clarity drives sound markets.”
“Pleased to see staff provide guidance on the potential risks and unique considerations associated with the listing of mention markets on CFTC-regulated exchanges and remind DCMs of their obligation to list only contracts not readily susceptible to manipulation.”
Cointelegraph reached out to the CFTC for comment.
The CFTC had reportedly already begun examining mention markets before Tuesday’s advisory.
CNBC and NPR reported in August that the regulator had opened a review into the contracts over manipulation concerns, with Kalshi removing mention markets tied to sporting events “until further notice” as the regulator conducted its inquiry.
Prediction market Kalshi faces fresh scrutiny
Separately, unusual trading activity on Kalshi has drawn fresh scrutiny over potential market manipulation.
In August, nearly one million trades worth more than $5 billion were made in a single market tied to the price of Ether, with more than a third occurring in nearly identical amounts of around $5,500, the Wall Street Journal reported Tuesday.
The activity has caught the attention of federal regulators and traders, according to the Journal, though Kalshi has rejected suggestions that the transactions amounted to wash trading.
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