CFTC Committee Meeting Addresses Prediction Market Risk

The Commodity Futures Trading Commission’s first Innovation Advisory Committee meeting was held Thursday to discuss the latest in prediction market regulation, including growing concerns about “mention markets” seen on platforms.

CFTC Chairman Michael Selig, the sole official on the typically five-member federal agency panel, said the commission’s role is to provide input on the agency’s decisions to tighten regulations on the market.

The committee is comprised of more than 30 members and includes executives from Robinhood, Nasdaq, and CME. The group first discussed the regulatory landscape regarding cryptocurrencies and artificial intelligence, but the most passionate discussions revolved around prediction markets.

The nearly three-hour meeting was also attended by Shayne Coplan, CEO and founder of Polymarket, and Luana López Lara, co-founder of Carsi.

Key concerns that came up at Thursday’s meeting included self-certification of event contracts, as well as “mention markets” (contracts where traders guess specific words used in speeches or earnings calls) and susceptibility to manipulation. Committee members also discussed the regulatory roadmap for prediction markets.

At Thursday’s meeting, CME Group Chairman and CEO Terry Duffy took the most aggressive stance on how prediction markets should operate.

Pursuant to the Commodity Exchange Act, prediction market platforms may propose, submit, and certify event contracts without prior approval from the CFTC. This is known as self-certification. Duffy noted that this way that platforms can speed up the process of posting new event contracts could make the market susceptible to manipulation.

“Since this administration took office in January 2025, there have been 2,500 self-certifications, and not a single one has been objected to,” Duffy said. “There has been a lot of self-certification of products that violate the basic principles.”

After Mr. Duffy expressed concerns about market manipulation, Mr. López-Lara asked whether CME had ever had a problem with insider trading.

“If you want to debate it, I’m happy to debate it,” he replied.

Ms. López Lara expressed support for self-certification, noting that it is beneficial for timely events. “We need to be able to quickly deliver these markets for our users,” she said.

Duffy also highlighted recent instances of insider trading in prediction markets. This includes the arrest of a U.S. soldier in April following a bet on the arrest of Venezuelan leader Nicolas Maduro, and a teleprompter operator who is the subject of a federal investigation in connection with a bet on President Trump’s remarks.

CME’s Duffy also brought up the insider incident related to Kalsi’s so-called mention market, a concern shared by Robinhood co-founder and CEO Vlad Tenev.

The mention market typically involves what celebrities say in speeches, events, and earnings calls.

Tenev did not call for a complete ban on the mentioned markets, but said federal authorities should consider them carefully.

In his remarks, Selig detailed a three-part roadmap for prediction markets.

First, Selig mentioned the agency’s proposal from June to revise the rules regarding event contracts that the CFTC can prohibit. He also pointed out the need to define the term “gaming” and clarify public interest standards.

“Contracts are at risk of being rejected based on the arbitrary whims of political bias, leaving the DCM (designated contract market) to operate in the shadows,” he said. Prediction markets act as DCMs.

The second step includes proposals to modernize the reporting framework for fully collateralized event contracts.

The third step involves proposing further amendments to the way designated contract markets or DCMs list event contracts, ensuring stronger consumer protection requirements.

The commission’s first meeting comes after the White House hosted crypto leaders on Wednesday, along with Selig and Securities and Exchange Commission Chairman Paul Atkins.

There, Mr. Selig criticized New York State Attorney General Letitia James. The Empire State filed a lawsuit in July accusing Kalsi of acting as an “illegal gambling operator.” The CFTC responded on Aug. 11, issuing emergency authorities and ordering Kalsi to continue offering event contracts in the state.

“We have also protected federally regulated prediction markets from rogue state attorneys general like Letitia James who seek to override federal law and relegate these markets to unregulated foreign venues,” Selig said in remarks Wednesday.

Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.