The Commodity Futures Trading Commission (CFTC) has issued a new advisory highlighting the potential risks associated with "mention markets" on prediction platforms, which could be prone to manipulation.

Advisory Highlights Risks of Behavior-Based Markets

The CFTC's advisory, released on Tuesday, specifically targets markets that revolve around individual behavior, such as those operated by Kalshi and Polymarket. While the agency is not outright banning these trading contracts, it has established a stringent threshold for their approval.

These mention markets differ from traditional markets as they hinge on the actions of a specific person, rather than on independently verifiable outcomes. The CFTC pointed out that these outcomes can be influenced by the individual’s conduct, which may not be independently verifiable.

This creates an environment where insider knowledge could manipulate the results. The CFTC's Division of Market Oversight views these markets as being "presumptively readily susceptible to manipulation," thus reminding operators that they must only engage in trading contracts that are resistant to such manipulation.

Instead of imposing a total ban on mention markets—like the current Kalshi market assessing what President Donald Trump will say at the United Nations—the CFTC has proposed a careful approach. It provided guidelines for crafting contracts that could mitigate manipulation risks, suggesting that these markets should demonstrate traits such as "independent verifiability and substantial public scrutiny."

The CFTC outlined several factors that could enhance a contract's robustness, which should be addressed in the platform’s regulatory submissions:

  • External circumstances that would complicate or prevent the individual from gaming the market;
  • The betting focus should be insulated from public pressures;
  • The market must involve a formal, public context with a public figure;
  • The betting scenario should be closely monitored for manipulation signs.

The agency has previously cracked down on illicit activities within these markets, as demonstrated by a recent enforcement action against a former teleprompter operator for Trump, who faced penalties for betting on his knowledge of the president's statements.

In another notable instance, Kalshi enforced a lifetime trading ban on former U.S. Representative George Santos due to allegations that he placed bets concerning his own participation in a State of the Union speech.