The U.S. Commodity Futures Trading Commission, or CFTC, has issued a warning letter to certain entities under its supervision, stating that only limited circumstances allow prediction-market contracts tied to a person's speech or actions, known as speech markets, to be listed for trading in compliance with the Commodity Exchange Act. The CFTC's market oversight division said on Tuesday that such contracts carry a high risk of price manipulation because settlement outcomes depend on the specific behavior of a particular individual, which may not occur independently and cannot be verified externally. The warning follows several cases in which traders were accused of using insider information on prediction markets, including a former White House speechwriter reader controller who was ordered last month to disgorge 107,539 dollars in profits and pay a 65,000 dollar civil penalty for trading contracts tied to President Donald Trump's speeches. The CFTC letter said trading platforms listing speech markets should consider four factors: adequate surveillance measures to detect price manipulation, the external verifiability of the speech or action used for settlement, external pressures that could affect the target individual's behavior, and external obligations the target individual may have. CFTC Chairman Mike Selig welcomed the approach in a post on X, saying regulatory clarity is a driver of stable markets and reminding futures trading platforms of their obligation to list only contracts that are not easily susceptible to manipulation. The CFTC had already begun examining speech markets before issuing the warning. Earlier, platform Kalshi temporarily removed speech markets tied to sports events during an investigation, and more recently unusual trading activity on Kalshi has drawn fresh scrutiny, with nearly 1 million trades in August worth a total of more than 5 billion dollars in a single market tied to the price of Ether, where more than a third of the trades occurred at nearly identical amounts of about 5,500 dollars, according to the Wall Street Journal. Kalshi has denied suggestions that those transactions amounted to wash trading.
CFTC warns speech-market contracts risk manipulation and imposes listing conditions, directly targeting platforms like Kalshi that list them.
