SKN | CFTC Warns Prediction Markets Over Manipulation Risks in ‘Mention’ Contracts

Key Points

• The CFTC said event contracts tied to whether a specific person says something, appears at an event or interacts with another person carry heightened manipulation risks.
• The regulator said such contracts should only be listed in limited circumstances and outlined factors exchanges should consider, including independent verification and safeguards against outside influence.
• The warning follows a CFTC enforcement action against a former White House teleprompter operator who made $107,539 in profits using nonpublic information about presidential speeches.

The US Commodity Futures Trading Commission is tightening its scrutiny of prediction-market products that settle on the words or actions of specific individuals, highlighting manipulation risks as event contracts expand across regulated derivatives markets.

The CFTC’s Division of Market Oversight issued a staff advisory on September 22 covering so-called “mention markets.” These contracts can be based on whether an individual uses particular words, attends or appears at an event, or interacts with another person. The agency said such products can create unusual market-integrity challenges because their outcomes depend on discrete human behavior that may not be independently generated or externally verifiable.

CFTC Sets Conditions for Mention Markets

The advisory does not establish a blanket prohibition on mention contracts. Instead, CFTC staff said there are limited circumstances in which these products can be listed consistently with the Commodity Exchange Act and Commission regulations.

The regulator reminded designated contract markets that they are required under Core Principle 3 to list only contracts that are not readily susceptible to manipulation. Exchanges submitting mention-market contracts under the CFTC’s Part 40 framework are also expected to provide contract-specific analysis.

The guidance places particular emphasis on how an exchange can demonstrate that the outcome of a contract can be reliably determined without being easily influenced by participants who have an informational or personal connection to the event.

Four Factors Exchanges Must Consider

According to the advisory, exchanges evaluating mention markets should consider several characteristics of the underlying contract. These include whether sufficient surveillance and oversight measures are available to identify manipulation, whether the words or conduct used for settlement can be independently verified, and whether external pressure could influence the individual’s behavior.

The CFTC also highlighted the outside obligations of the person whose conduct determines the outcome. That factor can become particularly significant when contracts involve public officials, corporate executives, athletes or other individuals whose schedules and communications may be affected by professional responsibilities.

The central issue is whether the contract’s outcome can be considered sufficiently objective and resistant to manipulation for trading on a regulated derivatives exchange.

Enforcement Case Highlights Insider-Information Risk

The advisory follows a recent CFTC enforcement action that illustrated one of the risks surrounding these markets.

On August 28, the agency ordered Gabriel Perez, a former White House teleprompter operator, to disgorge $107,539.02 in trading profits and pay a $65,000 civil monetary penalty. The CFTC said Perez had access to presidential speeches before they were delivered and used that nonpublic information to trade contracts based on words or phrases President Donald Trump might use during speeches. The order also imposed a three-year trading ban.

The case demonstrates how information obtained before a public event can potentially provide a significant advantage when the event itself determines the settlement of a contract.

The CFTC had already issued broader guidance on prediction markets in March, emphasizing that designated contract markets have surveillance and self-regulatory responsibilities over the products they list.

Prediction Markets Face Broader Regulatory Attention

The latest advisory comes as US prediction markets continue to expand beyond traditional economic and sports-related event contracts. The CFTC has described prediction markets as an increasingly popular financial product while emphasizing that innovation must remain within the federal derivatives framework.

Kalshi has also faced regulatory pressure this year. In August, the CFTC exercised emergency authority after the exchange notified the agency of a market emergency following a lawsuit by New York Attorney General Letitia James seeking restrictions on Kalshi’s event contracts.

Separately, reports of unusually large trading activity on Kalshi have raised additional questions about market surveillance, although those reports concern broader trading activity rather than the specific mention-market contracts addressed by Tuesday’s advisory.

Outlook

The CFTC’s latest guidance puts greater responsibility on prediction-market exchanges to demonstrate that contracts tied to individual behavior can withstand manipulation risks before being listed. As event markets expand into increasingly specific questions about people, institutions and real-world events, the ability to independently verify outcomes and prevent participants from influencing settlements is likely to remain a central issue for US derivatives regulators.