CFTC Warns Prediction Market Platforms Over Mention Market Manipulation

On Tuesday, the Commodity Futures Trading Commission issued a six-page warning about mention markets on online prediction platforms. The CFTC cautioned that contracts tied to what a single person could say or do could be easily manipulated and that exchanges must meet a higher standard before listing such markets. 

"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. For example, a contract might depend on whether the host of a live-streamed podcast utters a particular catchphrase; the host can easily fulfill this condition, and a trader may directly induce the outcome by submitting a question or purchasing an on-air acknowledgment," the staff advisory notice said in part. 

There have been instances of manipulation, including a former teleprompter operator for President Donald Trump who was investigated earlier this year after winning over $100k on such markets. 

With this advisory, Jaret Seiberg of TD Securities believes this effectively ends this market, but views it as a long-term benefit for the industry.

“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,” Seiberg said. 

Kalshi paused mention markets related to sports broadcasts last month. The NFL also labeled these markets as "objectionable" in a letter it sent to popular prediction market platforms.

CFTC Outlines Four Factors for Mention Markets

In the advisory, the CFTC's Division of Market Oversight (DMO) said that exchanges should focus on four factors in any filing for a mention market, including, but not limited to, the following: 

Previous Mention Markets Have Faced Manipulation Concerns

As mentioned above, the DMO used a live-streamed podcast as an example, as someone who traded on it could do something to influence it, such as purchasing a Super Chat on YouTube requesting they say it or something of that sort. 

Other examples of market manipulation exist beyond the Trump teleprompter operator. Another popular example is former Congressman George Santos, who was fined $35,000 by the CFTC for manipulating a contract involving his attendance at the State-of-the-Union address. He was also banned from using Kalshi.