CFTC Warns Kalshi, Polymarket and Prediction Markets Over Manipulation Risks

TLDR

• The CFTC has warned that prediction markets based on what a person says or does face a heightened risk of manipulation.
• These “mention markets” can include bets on whether someone uses certain words, attends an event or interacts with another person.
• The regulator said such contracts may only be suitable in limited circumstances and must not be readily susceptible to manipulation.
• The warning follows a CFTC case against a former White House teleprompter operator who made more than $107,000 trading contracts linked to presidential speeches.
• The CFTC has not banned mention markets outright, but platforms face greater scrutiny over how they design and monitor them.

The U.S. Commodity Futures Trading Commission has warned prediction-market operators about contracts tied directly to what specific people say or do. The regulator says these so-called mention markets carry a greater risk of manipulation because the person determining the outcome may be able to influence it.

Mention markets can involve questions such as whether a public figure will use a particular word, appear at an event or meet another person. The CFTC said these outcomes differ from events that are generated independently and can easily be verified from outside sources.

CFTC Says Mention Markets Face Higher Manipulation Risk

The CFTC’s Division of Market Oversight said Tuesday that mention markets can be listed only in limited circumstances under existing derivatives rules. Exchanges are required to ensure that contracts are not readily susceptible to manipulation.

The concern is that an individual who knows a market exists could intentionally change what they say or do to affect the result. People close to that individual may also have access to information about their planned behavior before the wider market does.

The regulator did not impose a blanket ban on these contracts. Instead, it outlined factors exchanges should consider when deciding whether a mention market can operate fairly.

Platforms should examine whether the outcome can be independently verified and whether outside obligations make it difficult for the subject to manipulate the result. The CFTC also highlighted the importance of public settings, external scrutiny and surveillance capable of detecting suspicious trading.

Prediction-market companies such as Kalshi and Polymarket have helped drive rapid growth in event contracts covering politics, economics, sports and other subjects. The latest guidance puts extra attention on contracts where one individual has direct influence over the settlement outcome.

Trump Speech Trading Case Highlights Risks

The CFTC warning follows a recent enforcement case involving presidential mention markets. In August, the regulator ordered former White House teleprompter operator Gabriel Perez to return $107,539.02 in trading profits and pay a $65,000 civil penalty.

The CFTC said Perez had access to presidential speeches before they were delivered while working for the federal government. He used that nonpublic information to trade contracts based on words and phrases President Donald Trump might use during speeches.

Perez also received a three-year trading ban under the settlement. The CFTC said Kalshi assisted with the investigation.

The case illustrates the type of information advantage regulators are concerned about in mention markets. Someone involved in preparing a speech, event or public appearance may know the outcome of a contract before other traders.

The CFTC had already issued broader guidance earlier this year reminding prediction exchanges that they act as frontline regulators for their own markets. That March advisory stressed surveillance, contract design and compliance with rules preventing manipulation.

Prediction Markets Face Growing Regulatory Scrutiny

The latest advisory does not prevent platforms from offering contracts based on speeches or public appearances. It does, however, raise the regulatory hurdle for demonstrating that a specific market can operate without being easily manipulated.

The agency said exchanges should provide detailed analysis for each contract when submitting mention markets under CFTC rules. That could force platforms to apply tighter monitoring and more restrictive designs to these products.

The guidance arrives as prediction markets continue expanding into new categories and attracting larger trading volumes. With that growth, regulators are paying closer attention to insider information, market surveillance and whether traders can directly influence the events they are betting on.

For Kalshi, Polymarket and other prediction platforms, mention markets may remain available in some form. The CFTC’s message is that contracts involving a person’s own behavior will face greater scrutiny than markets based on independently determined events.