CFTC warns prediction markets over manipulation risk

The U.S. Commodity Futures Trading Commission issued an advisory on Tuesday warning that "mention markets," prediction contracts that settle based on whether a specific person says certain words, attends an event, or appears publicly, carry a heightened risk of manipulation. In the advisory, the CFTC's Division of Market Oversight said there are only limited circumstances in which such contracts can be listed consistently with the Commodity Exchange Act. The agency said these contracts 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 does not ban mention markets. Instead, it outlines factors exchanges should weigh before listing them, including whether adequate oversight measures exist to detect manipulation, whether the words or actions used for settlement are independently verifiable, what external pressure could influence the subject's conduct, and what outside obligations the subject may have.