The Commodity Futures Trading Commission advised some regulated entities on Tuesday that prediction market “reference” contracts are at high risk of being manipulated.
In a press release announcing a letter sent to designated contract market actors, the CFTC said the contracts are susceptible to abuse because “settlements enable individual conduct that is neither independently generated nor externally verifiable.”
The letter noted that the agency is not creating new obligations for regulated exchanges to follow, but rather advising entities on when they can list reference markets in accordance with the Commodity Exchange Act, the law that governs assets regulated by the CFTC.
The mention market, which consists of contracts that ask traders what specific words will be used during speeches, corporate earnings calls, and television broadcasts, is under CFTC oversight. In August, CNBC reported that the network was conducting an internal investigation into the contract structure, and that platform Karshi withdrew from the sports-related mention market in response to the investigation.
Kalshi is one of the few US regulated platforms that features a mentioned market. Their biggest rival, Polymarket, only features them on international exchanges that are not regulated by the CFTC.
“We worked on this guidance in prior consultation with the CFTC,” Karsi spokeswoman Elizabeth Diana said in a statement.
The mention market also made headlines in July after it was reported that President Donald Trump’s longtime teleprompter operator had profited from trades in Karshi related to mention market contracts related to Trump’s comments. Teleprompter operator Gabriel Perez settled with the CFTC in August, forcing him to pay a $172,539 fine for insider trading in prediction markets.
In its letter, the CFTC advised that exchanges listed on the Mention Market should consider four factors: External pressures that may influence the subject’s behavior. Whether the words and actions used in the settlement are independently verifiable. whether appropriate monitoring measures are in place to detect contractual manipulation;
The CFTC added that it encourages exchanges to engage with the CFTC’s Market Oversight Division in the early stages of developing market agreements on how to mitigate operational risks.
Disclosure: CNBC and Kalsi have a commercial relationship that includes customer acquisition and minority ownership.
