CFTC issues advisory restricting mention market event contracts

The Commodity Futures Trading Commission (CFTC) released a six-page advisory on Wednesday, restricting most mention market event contracts. These contracts are linked to whether specific words are spoken or whether individuals attend certain events. The CFTC assumes that mention markets are prone to manipulation and requires issuers to demonstrate that these contracts are free from manipulation before offering them.

Mention markets are particularly vulnerable to manipulation because certain individuals may know ahead of time whether the event will take place. Examples of such contracts include those based on whether a specific phrase will be used on a podcast, during a televised event, or whether a certain person will attend an event. The advisory aligns with Core Principle 3, which stipulates that only event contracts not easily susceptible to manipulation can be listed in Designated Contract Markets (DCMs).

The CFTC did not outright ban mention markets but instead mandates DCMs to prove that independent obligations limit controlling individuals, the individual is not subject to external pressure, independent verification of the event exists, and robust trading rules, surveillance, and controls are in place. This assessment stems from the belief that contract settlement may be controlled by a single individual or a small group with access to or influence over the individual whose words, attendance, or interaction determines settlement.