Commodity Futures Trading Commission staff issued a six-page warning Tuesday on mention markets, cautioning that contracts tied to a single person’s words or actions are easy to manipulate and that exchanges must clear a higher bar before listing them.
The Division of Market Oversight said in a staff advisory that it may view mention markets as “presumptively readily susceptible to manipulation.”
“Because the outcome of these contracts is often within the control of a small number of actors, the settlement condition is comparatively easier to cause, prevent, or influence for personal gain,” the advisory read.
Mention markets allow traders to take positions on whether a specific person will say certain words, attend an event or interact with someone else. There have been several instances of mention market manipulation in recent months.
The end of mention markets?
Jaret Seiberg of TD Securities said the advisory “effectively” shuts down the “vast majority” of mention markets, though he views the move as a long-term positive for the industry as it reduces the pressure on Congress to “fast track” legislation to address manipulation.
“Such legislation could become a vehicle for broader limits on prediction markets – including a ban on sports contracts – which would be a bigger long-term threat to the industry,” he said.
Kalshi reportedly paused mention markets involving sports broadcasts last month amid federal review. The NFL has also labeled such contracts “objectionable” in two letters sent to predictions platforms.
What the advisory says
The advisory reflects only the views of DMO staff and “does not necessarily represent the views of the Commission.” It also creates no new binding rules or regulations.
However, DMO staff is recognizing the harms of a small number of people that can influence the market. It must maintain certain checkpoints to be listed.
“Accordingly, DMO staff view independent verifiability and substantial public scrutiny as essential attributes that DCMs should consider in determining whether any Mention Market contract may be listed in a manner consistent with Core Principle 3,” the advisory said.
DMO said exchanges should address four factors in any filing to list a mention market, though it noted the list isn’t exhaustive:
- Independent obligations: Exchanges should consider whether the person controlling the outcome faces legal, professional or contractual duties strong enough to deter them from gaming the contract.
- Outside pressure: Exchanges should assess whether others could manipulate the outcome by pressuring, persuading or paying off the person whose conduct decides it.
- Verification and public scrutiny: Exchanges should weigh whether the outcome can be independently confirmed and happens in a setting that draws real public attention, since private settings and throwaway words are easier to exploit.
- Safeguards: Exchanges must show their trading rules, surveillance and controls are strong enough to detect and deter manipulation and insider trading tied to the contract.
While following those factors closely, prediction markets “are encouraged to engage with DMO staff” to determine any heightened manipulation risks, and if there is, how they can be mitigated.
Why DMO sees heightened risks
The letter uses a live-streamed podcast as an example of how a mention market could be manipulated. The host could easily say the catchphrase, and a trader could induce it by submitting a question or buying an on-air shoutout.
It also states that those closest to the outcome often have access to information, such as scripts, prepared remarks, guest lists, or unpublished content, that isn’t public.
“This access also makes individuals more susceptible to influence by others seeking to manipulate the outcome, whether through social engineering, inducements, or public pressure campaigns,” the letter said.
The advisory also touched on “actions of a person not subject to public scrutiny,” which could mean manipulation is harder to detect.
Examples of manipulation
During the CFTC’s first Innovation Advisory Committee meeting last month, CME Group CEO Terry Duffy was the most outspoken critic on market manipulation because of previous incidents.
A White House teleprompter operator got caught trading on particular words President Donald Trump would say on a speech, profiting more than $100,000. U.S. Army Master Sergeant Gannon Ken Van Dyke used classified information to make more than $400,000 on the capture of Venezuelan President Nicolás Maduro.
Former Congressman George Santos was fined by the CFTC $35,000 for manipulating a contract involving his own attendance at the the latest State-of-the-Union address. He also became the first person Kalshi has ever permanently banned from using its platform.
In addition, Coinbase CEO Brian Armstrong, who also attended the Innovation Advisory Committee meeting, rattled off a string of words at the end of the company’s earnings call last October that matched mention markets listed on Kalshi and Polymarket. The words had nothing to do with his remarks.
The scenario mirrors one flagged directly in the advisory, which warned that “an unrelated buzzword recited during an earnings call” may not draw the same scrutiny as words that matter to the event itself.
