The agency tasked with regulating derivatives has flagged that prediction contracts based on who says what carry a higher manipulation risk, and has advised exchanges to come to it for guidance on protective measures.
On Tuesday, the CFTC conveyed a message to designated contract market entities, warning that prediction markets’ “mentions” contracts carry a heightened risk of exploitation. The agency argued that these contracts are more vulnerable “because their settlement turns on the discrete conduct of a person that may be neither independently generated nor externally verifiable.”
What the CFTC Says
The note made clear the agency was not imposing new obligations on exchanges, but instead offering guidance on when mention markets could be listed in line with the Commodity Exchange Act. Mention markets are contracts that ask traders to predict which words will appear in a speech, a corporate earnings call or during a television broadcast.
In August, CNBC reported that the CFTC was conducting an internal review into the contract type. In response, Kalshi pulled its sports-related mention markets.
The Perez Settlement
The CFTC also pointed to a settlement from August, in which a longtime teleprompter operator for President Donald Trump was forced to pay a $172,539 fine for insider trading on a prediction market, and settled with the CFTC.
Four Factors for Exchanges
The CFTC advised exchanges listing mention markets to consider four factors:
- Outside obligations of the subject
- External pressure that could influence the subject’s speech or conduct
- Whether words or actions are independently verifiable
- Whether there are adequate oversight measures for detecting manipulation
To reduce the chance of manipulation, the CFTC’s division of market oversight suggests exchanges work with it during the design phase of mention market contracts.
The Approach
The CFTC is taking a cautious approach by issuing warnings about risk without imposing new regulatory requirements, which aligns with its stated position. The agency has made it clear to regulated markets that prediction markets centered around what people say are susceptible to manipulation, and it is asking exchanges to work with the agency on protections.
The Commodity Futures Trading Commission has made its position clear. Exchanges now have the instructions on what it demands of them as they decide whether to list these contracts.
Disclosure
Kalshi has invested in CNBC, and the two companies have also worked together on customer acquisition.
Where the paper stands
The paper backs exchanges keeping their own rules and is against agencies writing new rulebooks for them. The CFTC’s guidance on mention markets asks exchanges to consult with the agency on protective measures before new contracts are listed. That is not the same as a rule, but it is the agency widening its own reach into contract design, and it carries risk for the small exchange against the giant.
The CFTC’s own settlement with a longtime teleprompter operator for President Trump is telling. The agency found exploitation in a prediction market and settled it with a fine. That is narrow oversight aimed at a specific harm, the kind the paper accepts. The guidance for exchanges, by contrast, is a broad advisory across contract design, a whole new layer of oversight the agency is giving itself.
The paper would prefer exchanges keep their own standards and face consequences if contracts fall short, rather than consulting an agency that has helped write the rules. Readers should watch for the line between guidance and regulation, and for any sign that the agency’s reach is growing without corresponding benefit to the small exchange that cannot afford it.
Source material: “CFTC says prediction markets' 'mentions' contracts present a higher risk of manipulation,” CNBC.
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