CFTC issues warning over risky prediction market ‘mention’ contracts

The U.S. derivatives regulator has issued a warning regarding prediction market mention contracts, citing a heightened risk of manipulation. The Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight stated that it has advised regulated entities there are limited circumstances under which “mention markets” can be listed in compliance with the Commodity Exchange Act.

These event contracts are based on an individual's words, attendance at an event, or interaction with another person. The regulator indicated that these contract types present an elevated risk of manipulation because their settlement depends on a person's conduct, which may not be independently generated or externally verifiable.

This advisory follows several instances where traders were accused of exploiting privileged information on prediction markets. One case involved 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 linked to former U.S. President Donald Trump’s speeches.

Exchanges listing these prediction market mention contracts should consider four factors, according to the CFTC. These include the adequacy of oversight measures, independent verifiability of actions, external pressures, and any outside obligations the subject may have. CFTC Chair Mike Selig emphasized that regulatory clarity promotes sound markets and that Designated Contract Markets (DCMs) must list only contracts not readily susceptible to manipulation.

The CFTC had reportedly begun examining mention markets prior to Tuesday’s advisory. Reports in August indicated that the regulator had initiated a review into these contracts due to manipulation concerns, leading prediction market platform Kalshi to temporarily remove mention markets related to sporting events.

Separately, unusual trading activity on Kalshi has drawn scrutiny regarding potential market manipulation. In August, nearly one million trades, totaling over $5 billion, occurred in a single market tied to Ether's price. More than a third of these trades were in nearly identical amounts of approximately $5,500. Federal regulators and traders have noted this activity, although Kalshi has denied that the transactions constituted wash trading.