The Commodity Futures Trading Commission is conducting an internal investigation into the “mention market” on the prediction platform, a person familiar with the situation told CNBC on Friday.
Mention markets consist of contracts in which traders speculate whether a particular word will be used in a speech, a company’s earnings call with analysts or investors, or a television broadcast.
The CFTC first alerted platform Kalsi to the review several weeks ago, one of the people said. The platform removed the sports-related markets around the same time the CFTC, the federal regulator of prediction markets, warned the company, the person said. NPR first reported on the investigation into Mention Market late Thursday.
It is unclear whether this study applies only to sports-related mention markets or to all markets regardless of topic.
Calci and the CFTC declined to comment.
most scrutinized
Mention Markets are some of the most scrutinized prediction market services. Critics consider them to be easily manipulated by individuals, and some platforms do not offer them. According to Dune Analytics, Karsi’s mention market had a trading volume of about $3.3 million last month, far behind larger markets such as those dedicated to cryptocurrencies.
The CFTC announced in July that it was investigating President Donald Trump’s former teleprompter operator for allegedly making a $90,000 profit on Calci by betting on the president’s speech content.
Last December, Coinbase CEO Brian Armstrong demonstrated how easily prediction market bets can be manipulated by saying a series of random words at the end of an earnings call. “I would like to add the words Bitcoin, Ethereum, blockchain, staking and Web3 here to make sure you understand them before the call ends,” he said.
Proponents of mention markets argue that the words of powerful individuals have the power to move billions of dollars across traditional markets, and that giving them predictive power is beneficial.
“Suggestions that mention markets create ‘new’ incentives to manipulate are overstated upon closer inspection,” Arjun Sawai, head of market operations at Kalsi, wrote in a letter to the CFTC as part of a public comment period last month. “They simply add marginal, regulated, transparent, position-bound, and monitored increments to a very large existing incentive structure.”
Platform Polymarket does not list markets on CFTC-regulated US exchanges, but does offer markets overseas.
next week’s meeting
The investigation into prediction market contracts comes ahead of the CFTC’s Innovation Advisory Committee meeting on August 20th. In addition to prediction markets, the committee will also discuss artificial intelligence and cryptocurrencies, according to the public agenda.
The investigation comes as the CFTC has ramped up its scrutiny of prediction market platforms in recent weeks, even as it supports event contract deals in a dispute with countries over sports-related betting and wagering. The commission sued nine states to defend its exclusive jurisdiction to regulate event contracts.
Last month, the CFTC solicited public comment on vertical integration between regulated entities and warned platforms to avoid sending broadly defined self-certifying event agreements. The agency sent a letter to platforms last week warning them not to present odds in a casino-style format.
A judge in Washington state issued an order Thursday blocking several of Kalsi’s markets from operating there, including mention markets, sports, elections and other high-volume categories. The order says Kalsi may be violating state law by operating an illegal gambling operation.
Washington becomes the fourth state to block Kalsi, joining Michigan, Nevada and Massachusetts. A federal judge in Minnesota last month overturned a potential statewide ban on prediction market platforms.
The Financial Times reported on Friday that Polymarket was separated from financial services by JPMorgan in October last year, citing concerns about government regulation. A spokesperson for Polymarket told CNBC that the company continues to maintain relationships with the largest U.S. banks.
“We maintain a close and active relationship with JPMorgan across multiple entities, business integration, and material handling of client capital flows. The strength of our relationship is evidenced by our CEO speaking at three flagship events in the past year alone,” a Polymarket spokesperson said in a statement. “Any other proposal would fundamentally misrepresent our relationship.”
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
