CFTC calls prediction market contracts on specific words and handshakes a manipulation magnet 🤝

The U.S. Commodity Futures Trading Commission's Division of Market Oversight said on Tuesday that event contracts settling on whether a named individual says particular words, appears somewhere, or interacts with another person should be treated as presumptively open to manipulation, in an advisory directed at designated contract markets. The agency described them as contracts "neither independently generated nor externally verifiable," noting the category reaches beyond speech into attendance, photographs, handshakes and social media engagement, and most event contracts settle on outcomes such as economic data, election results or sports that no single party can influence.

The advisory, signed by acting division director Duncan Hennes, cites the example of a contract on whether a podcast host uses a catchphrase, where the host could simply say it, or a trader could induce the outcome by submitting a question or paying for an on-air mention. Staff wrote that those nearest the outcome often hold scripts, prepared remarks or guest lists, which should be treated as material nonpublic information. Under Core Principle 3, designated contract markets must list only contracts not readily susceptible to manipulation, though staff said that presumption can be rebutted.

To assess whether a contract belongs on a regulated exchange, staff said they will weigh whether the individual faces legal or professional obligations that deter interference, whether they can be pressured by others, whether the conduct is independently verifiable and publicly scrutinized, and how robust the exchange's own surveillance is. The advisory recommends restricted lists of participants with contract affiliations, third-party screening, pop-up warnings before trading, and position limits sized so that manipulation would cost more than it could earn. The document carries no legal force, representing the views of division staff rather than the Commission.

The advisory follows the CFTC's settlement last month with Gabriel Perez, a former White House teleprompter operator fined $172,000 over trades on presidential mention contracts using speeches he had seen in advance, who agreed to pay a $65,000 civil penalty and return $107,539 in profits. CFTC Chair Mike Selig welcomed the guidance in a post on X on Tuesday, saying "regulatory clarity drives sound markets" and that he was "pleased to see staff provide guidance on the potential risks and unique considerations associated with the listing of mention markets on CFTC-regulated exchanges." In June, the Commission proposed a framework for judging whether a contract involves terrorism, assassination, war, gaming or unlawful conduct, and would bar sports contracts settling on discrete player actions such as fouls or individual plays. Kalshi removed mention markets tied to sporting events "until further notice" as the regulator conducted a separate inquiry that CNBC and NPR reported in August.

Separately, Kalshi is facing fresh scrutiny after the Wall Street Journal reported on Tuesday that nearly one million trades worth more than $5 billion were made in a single market tied to the price of Ether ($ETH), with more than a third occurring in nearly identical amounts of around $5,500, drawing the attention of federal regulators and traders, though Kalshi has rejected suggestions of impropriety.