The Commodity Futures Trading Commission (CFTC) issued an advisory Tuesday on “mention” prediction markets, which allow consumers to win money if a particular word or phrase is said during an event.
Several top prediction operators were warned by the CFTC that mention markets pose a greater risk of nefarious manipulation.
Key Takeaways
- The CFTC’s letter did not tell platforms to remove mention markets.
- Mention markets also generally include appearance and interaction contracts.
- Several recent scandals involving high-ranking individuals have served as warnings of the dangers of mention markets.
The correspondence also addressed contracts related to attendance and interaction involving specific individuals, which are often grouped with mention markets.
“These contract types present a heightened risk of manipulation because their settlement turns on the discrete conduct of a person that may be neither independently generated nor externally verifiable,” read the release.
Operators were not instructed to restrict mention markets, they were advised that these markets present greater risks than others, and that they must be listed in accordance with the guidelines established by the Commodity Exchange Act and the CFTC.
Mention markets and related contracts cannot be created at a whim. Designated contract markets (DCM) are assigned the burden of proof to prove that their mention markets are not easily manipulable and do not add internal or external pressure to individuals who will settle mention outcomes, such as sports commentators, celebrities, and political figures.
“The advisory also reminds DCMs of their obligation… to list only contracts that are not readily susceptible to manipulation and emphasizes the importance of providing complete, contract‑specific analysis when submitting these products,” the CFTC stated.
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Mention markets embroiled in controversy
Mention markets are not available at every regulated prediction platform. Kalshi is one provider that offers them en masse, and its primary competitor, Polymarket, only lists them on its global exchange, which does not fall under the CFTC’s regulation.
“We’ve addressed this guidance based on a prior discussion with the CFTC,” Kalshi spokesperson Elisabeth Diana said in a statement to CNBC.
The CFTC said operators are encouraged to collaborate with its officials and division of market oversight when designing mention contracts to limit their risks.
Prediction markets have come under fire for mention and related contracts in recent months.
In February, ex-congressman George Santos announced that he would attend the State of the Union at the White House, only to purchase Kalshi contracts that would settle as winners if he did not show.
An investigation found that Santos profited $17,839 from the trades. He was fined $71,356, roughly four times his winnings, and given a lifetime ban by Kalshi in August.
A former White House teleprompter operator who had worked with President Donald Trump since 2016 was also fined $65,000 and ordered to return $107,539 he made from illegal mention market trading in August.
Gabriel Perez was accused of using his access to Trump’s speech material to predict words and topics he would discuss at key events. He would even sell contracts mid-speech if Trump skipped a section that contained items that Perez predicted would be mentioned.
“It doesn’t matter who you are: violate our rules or federal law and you will face the consequences,” Robert Denault, Kalshi head of enforcement, wrote on X after the punishment was confirmed by the CFTC.
