CFTC Staff Advisory Says Prediction Market 'Mention' Contracts Invite Manipulation
Three weeks after fining a teleprompter operator who traded on speeches he had already read, regulators set out what exchanges must show.
The Commodity Futures Trading Commission (CFTC) has released an advisory that restricts most mention market event contracts, which are tied to specific words spoken or individuals attending particular events. In a six-page advisory, the CFTC presumes that these contracts are susceptible to manipulation due to the potential for individuals to have advance knowledge of the event's occurrence.
The advisory, stemming from Core Principle 3, requires Designated Contract Markets (DCMs) to demonstrate that the contracts are not easily manipulable before listing them. DCMs must prove that independent obligations, lack of external pressure on the individual, independent verification of the event, and robust trading rules are in place.
The CFTC does not completely ban mention markets but requires DCMs to rebut the presumption of susceptibility to manipulation. The agency believes that contract settlement may be controlled by a single individual, small group, or persons with access to the individual whose words or attendance determines settlement, making mention markets vulnerable to manipulation.
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