Key facts
- CFTC staff warned that prediction market contracts based on whether a named person says certain words, attends an event, or interacts with another individual are presumptively susceptible to manipulation.
- Such contracts, known as 'mention markets,' extend beyond speech to include attendance, handshakes, photographs, and social media interactions.
- A former White House teleprompter operator was fined $65,000 and ordered to return $107,539 for trading contracts based on advance knowledge of President Donald Trump's speeches.
- Exchanges listing these contracts must demonstrate robust surveillance and controls to rebut the presumption of manipulability.
Staff at the Commodity Futures Trading Commission's Division of Market Oversight have warned that prediction market contracts based on the discrete actions or statements of named individuals are highly susceptible to manipulation. The advisory, issued Tuesday, covers so-called 'mention markets' where settlement hinges on events like whether a person says specific words, attends a meeting, or engages on social media.
These contracts differ from typical event contracts that settle on outcomes like economic data or election results, as the settlement in mention markets depends on conduct that may be "neither independently generated nor externally verifiable," according to the advisory. This opens the door for traders to influence outcomes, for example, by paying a podcast host to use a catchphrase.
The advisory reminds registered exchanges that they must list contracts that are not readily susceptible to manipulation. While exchanges can rebut the presumption of manipulability, staff expect a high bar of evidence demonstrating robust surveillance and controls. Factors to be considered include whether the individual faces legal or professional obligations deterring interference, whether they can be pressured, and the verifiability and public scrutiny of their conduct.
The guidance follows a recent settlement where Gabriel Perez, a former White House teleprompter operator, was fined $65,000 and ordered to return $107,539 in profits for trading contracts based on advance knowledge of President Donald Trump's speeches. CFTC Chair Mike Selig commented on X that the advisory provides regulatory clarity for sound markets.