The U.S. Commodity Futures Trading Commission (CFTC) on Tuesday issued the latest guidance, warning that “mention markets” in prediction markets that are tied to the words and actions of specific individuals carry a higher risk of market manipulation and can only meet (the Commodity Exchange Act) and relevant CFTC requirements in limited circumstances.
“Mention markets” are high-risk
The CFTC’s market oversight division said these types of event contracts are primarily settled based on whether a person will utter certain words, attend or appear at a particular event, or interact with another person. Unlike markets whose outcomes can be generated independently and verified externally, the results of “mention markets” depend on the individual behavior of a specific person. Since such behavior may not be able to generate the outcome independently and is not necessarily verifiable externally, these markets are more vulnerable to manipulation.
The CFTC reminded designated contract markets (DCMs) that are regulated must ensure that any derivatives listed are not easy to be manipulated. For exchanges looking to launch “referenced markets,” regulators require more complete analyses tailored to individual contracts and assessments of conditions such as market surveillance mechanisms, whether settlement outcomes can be independently verified, and external factors that could affect the conduct of the relevant individuals.
A former White House staffer used advance information for trading
The CFTC’s warning was not the first time it took action against the potential insider-trading risks of “referenced markets.” In August, the CFTC issued an enforcement order against Gabriel Perez, a former White House press-briefing operator, saying that during his time in the role he could obtain advance access to U.S. President Donald Trump’s speech content and use the related nonpublic information to trade “referenced market” contracts on Kalshi.
Perez was ultimately ordered to refund roughly $108,000 in trading profits and pay a $65,000 civil penalty, for a total exceeding $172,000. The CFTC said the relevant trades involved profiting from speech information obtained in advance—specifically whether trades profited from contracts tied to whether Trump mentioned certain words in his address.
The CFTC has also previously handled other cases involving nonpublic information in prediction markets. This year in February, the agency disclosed two cases, including one in which a trader obtained YouTube video content in advance due to a work connection and then traded related event contracts based on it.
The CFTC lists market design and monitoring considerations
The CFTC did not ban “referenced markets” across the board; instead, it said such contracts may only meet regulatory requirements under certain conditions. Exchanges need to assess whether the relevant individuals are bound by legal, professional, contractual, fiduciary, or confidentiality obligations, and whether those obligations are enough to reduce the likelihood that they would intentionally influence contract outcomes.
In addition, exchanges should consider whether there are adequate market monitoring and trading control measures, whether contract outcomes can be verified by independent sources, and whether external pressure could influence the conduct of the targeted parties. The CFTC emphasized that independent verifiability and sufficient public oversight are important factors in reducing the risk of manipulation in such markets.
The CFTC chairman Mike Selig also said Tuesday that regulatory clarity helps build healthy markets, and that this guidance serves as a reminder to regulated exchanges that when launching so-called “referenced markets,” they must ensure the contracts are not easy to be manipulated.
Kalshi trading activity also draws attention
At the same time, another recent Kalshi trading activity has also drawn market attention to trading patterns. According to the (Wall Street Journal), in August, a Kalshi market related to the price of ether saw nearly 1 million trades with a notional value of more than $5 billion, more than one-third of which were very close in size—about $5,500 per trade.
The trading pattern has drawn attention from federal regulators and market participants, but Kalshi denied that these trades constitute “wash trades.”
Overall, the CFTC’s guidance shows that as the size of prediction-market trading continues to grow, the regulatory focus has shifted from whether markets can offer contracts tied to particular events to whether the contract outcomes are easy to be influenced by counterparties or traders who have access to nonpublic information. For platforms like Kalshi, demonstrating that the relevant contracts have sufficiently independent verification and market surveillance mechanisms will be an important part of the next regulatory review.
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