CFTC warns prediction markets of heightened manipulation risk

The CFTC's Division of Market Oversight issued an advisory to some regulated entities on Tuesday. The advisory warned that contracts tied to a person's words or actions carry a heightened risk of manipulation. It said only limited circumstances allow mention markets to be listed consistently with the Commodity Exchange Act. Mention markets are event contracts based on whether an individual will say certain words, attend or appear at an event, or interact with another person. The CFTC said settlement based on a person's discrete conduct may be neither independently generated nor externally verifiable. The warning followed cases involving traders accused of using privileged information on prediction markets. A former White House teleprompter operator made more than $107,000 trading contracts tied to President Trump's speeches. The operator was ordered last month to return $107,539 in profits and pay a $65,000 civil penalty. The CFTC letter said exchanges should consider whether they have adequate measures to detect manipulation. It also identified independent verifiability, external pressure on the subject's conduct, and the subject's outside obligations as factors. CFTC Chair Mike Selig welcomed the guidance on Tuesday. Selig said regulatory clarity drives sound markets. Selig also reminded designated contract markets to list only contracts that are not readily susceptible to manipulation.