The Commodity Futures Trading Commission (CFTC) has warned that prediction-market contracts based on whether a person will say particular words or attend an event face a “heightened risk of manipulation”.
In an advisory published on Tuesday, staff in the CFTC’s Division of Market Oversight said there were only “limited circumstances” in which such contracts could be listed without breaching the Commodity Exchange Act or the agency’s rules.
“This advisory is intended to alert DCMs [designated contract markets] that Mention Market contracts may present a heightened risk of susceptibility to manipulation,” the staff said.
The warning comes as prediction markets have grown rapidly in popularity and reached a value of billions of dollars. Concerns about insider trading have also increased, particularly where people with advance knowledge of an event may be able to influence contracts or trade ahead of the wider market.
The CFTC has already brought cases involving people accused of profiting from this type of information. One was a former White House teleprompter operator who, according to the agency, used advance access to President Trump’s speeches to make money from “mention markets” on Kalshi.
The regulator also charged former Rep. George Santos. It said he made public statements two weeks before a State of the Union address about whether he would attend, causing the price of the relevant event contract to rise or fall “significantly”.
Under the advisory, designated contract markets are expected to consider whether the person whose speech or actions determine the outcome of a contract is bound by obligations that would discourage deliberate interference with the result.
Those obligations could be legal, professional, contractual, fiduciary, confidentiality-based or organisational, the CFTC said.
The agency added that any designated contract market listing mention-market contracts should establish proactive trading rules and controls aimed at preventing manipulation.
The CFTC has also asserted a broad role for itself in overseeing prediction markets. That position has faced resistance from some states, which argue that sports betting should fall under their own authority and that related contracts breach state gaming laws.
The question of which authorities should regulate sports betting conducted through prediction markets remains before the courts.
