CFTC warns 'mention market' prediction contracts carry heightened manipulation risk

The Commodity Futures Trading Commission is warning that bets on prediction markets based on whether someone will "mention" specific words or who will attend an event come with a "heightened risk of manipulation."

In a new advisory posted on Tuesday by the CFTC Division of Market Oversight, agency staff said there are "limited circumstances" in which those contracts can be listed without running afoul of the Commodity Exchange Act and agency rules.

"This advisory is intended to alert DCMs [designated contract markets] that Mention Market contracts may present a heightened risk of susceptibility to manipulation," staff said.

Over the past year, concerns around insider trading have bubbled as prediction markets have skyrocketed in popularity and are now worth billions of dollars. The CFTC has brought charges against a few people, including a former White House teleprompter operator, who the agency said used his advance access to President Trump's speeches to profit from "mention markets" on Kalshi. Separately, the CFTC charged former Rep. George Santos and said he made public statements two weeks before a State of the Union address on whether he would attend, causing the price of the event contract to increase or decrease "significantly."

As part of the advisory, staff said DCMs should assess "whether the individual whose speech or conduct controls the outcome of the contract is subject to independent legal, professional, contractual, fiduciary, confidentiality, or organizational obligations that meaningfully deter conduct designed to affect settlement," and said DCMs that list mention markets should put into place proactive trading rules and controls to try and block manipulation.

The CFTC has also broadly asserted a leading role in regulating prediction markets, despite pushback from states, some of which argue that sports betting in particular falls within their remit and that the contracts violate their gaming laws. Who actually regulates sports betting through prediction markets is still being worked out in the courts.