CFTC Staff Advisory Says Prediction Market 'Mention' Contracts Invite Manipulation

In brief

• CFTC market oversight staff said prediction market contracts settling on whether a named person says certain words should be presumed readily susceptible to manipulation.
• The presumption also covers contracts on attendance, handshakes, photographs and social media interactions.
• Exchanges can rebut it, but staff expect a heightened showing and detailed evidence of surveillance and controls.

Prediction market contracts that settle on whether a named individual says particular words, turns up somewhere or interacts with someone else should be treated as presumptively open to manipulation, staff at the Commodity Futures Trading Commission's Division of Market Oversight said on Tuesday.

The category, which the industry calls mention markets, reaches well beyond speech, taking in contracts on attendance, handshakes, photographs and social media engagement.

Most event contracts settle on outcomes nobody controls, such as economic data, election results or sports. In mention markets, settlement turns on the discrete conduct of one named person, which staff wrote may be "neither independently generated nor externally verifiable."

The advisory cites the example of a contract on whether a podcast host uses a catchphrase; the host can simply say it, and a trader can induce the outcome by submitting a question or paying for an on-air mention. Those nearest the outcome often hold scripts, prepared remarks or guest lists, which staff treat as material nonpublic information.