Galaxy Research said the U.S. Commodity Futures Trading Commission released guidance this week on so-called mention markets, a type of prediction market tied to a person’s speech, appearances, or interactions. The guidance focuses on contracts that settle based on whether a named individual takes a specific action, such as mentioning a topic during a public event.
According to Galaxy Research, the CFTC drew a distinction between these contracts and more traditional event contracts, such as whether the Federal Reserve will raise interest rates, where the outcome is generally outside the control of any one individual. In mention markets, by contrast, settlement depends on a person’s voluntary conduct, which the agency said creates a higher risk of manipulation.
The CFTC’s Division of Market Oversight said such markets should be presumed readily susceptible to manipulation and asked exchanges to assess them across four areas, including independent constraints on the person involved, outside pressure risks, independent verification and public scrutiny, and the adequacy of trading rules and surveillance. Galaxy Research added that the guidance is not binding and does not ban exchanges from listing mention markets, but said the manipulation risk remains difficult to eliminate fully, especially when a person can trigger the outcome without any economic interest. It also noted that the First Amendment limits prior restraints on speech.
Galaxy Research said the U.S. Commodity Futures Trading Commission, or CFTC, issued guidance this week on “mention markets,” covering prediction markets tied to a person’s speech, public appearances, and interactions.
The firm said the CFTC distinguished these contracts from traditional event contracts tied to outcomes that an individual cannot easily control, such as whether the Federal Reserve will raise interest rates. Mention markets, by comparison, settle on a specific person’s voluntary conduct, such as whether Elon Musk will mention Bitcoin on the next SpaceX earnings call.
CFTC flags higher manipulation risk
Because settlement depends on a named individual’s own actions, the CFTC said mention markets carry a greater risk of manipulation. The agency’s Division of Market Oversight, or DMO, said these markets should be presumed “readily susceptible to manipulation.”
The DMO asked exchanges to evaluate them across four areas:
- whether the person in question is subject to independent constraints;
- whether there is a risk of outside pressure;
- whether the market can be independently verified and publicly scrutinized;
- whether trading rules and surveillance measures are adequate.
Galaxy Research says the guidance is not binding
Galaxy Research said the guidance does not amount to a binding rule and does not prohibit exchanges from listing mention markets.
Even if a market meets those standards, the firm said it remains difficult to fully address manipulation risk when an individual can deliberately trigger the outcome without having any economic interest in doing so. It also said the First Amendment limits regulators’ ability to impose prior restraints on speech.
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