CFTC warns exchanges over prediction market risks

(PRESS RELEASE) -- The Commodity Futures Trading Commission’s Division of Market Oversight issued an advisory that addresses the listing and trading of event contracts that are based on whether an individual will say or “mention” certain words, attend or appear at an event, or otherwise interact with another person, which are commonly referred to as “mention market” contracts.

These contract types present a heightened risk of manipulation because their settlement turns on the discrete conduct of a person that may be neither independently generated nor externally verifiable.

The advisory outlines the limited circumstances in which such contracts may be listed consistently with the Commodity Exchange Act and Commission regulations and provides non-exhaustive examples of factors that DCMs should consider when designing and submitting mention market contracts under Commission Regulations Sections?40.2 or 40.3.

The advisory also reminds DCMs of their obligation under Core Principle 3 to list only contracts that are not readily susceptible to manipulation and emphasizes the importance of providing complete, contract-specific analysis when submitting these products under Part 40.