CFTC staff asks exchanges to explain speech-market safeguards

On Sept. 22, staff in the Commodity Futures Trading Commission’s Division of Market Oversight asked regulated exchanges to provide contract-specific explanations of safeguards for prediction markets that pay out based on a named person’s words, appearance or actions. Staff wrote that those contracts carry heightened risk of manipulation and may be “readily susceptible to manipulation.”

The advisory does not create a binding rule or ban speech-based contracts. It asks exchanges to justify how trading rules, surveillance and participant restrictions address each contract’s risks. Staff set four non-exhaustive questions exchanges should answer: whether the person who determines the outcome faces legal, professional or other obligations that deter gaming; whether that decision-maker could be pressured or induced; whether outsiders can verify the result under substantial public scrutiny and whether the decisive word or act has real significance in context; and whether trading limits, surveillance and controls match the contract’s specific risks.

Kalshi continued to list speech-related markets after the advisory. One contract asked whether former President Donald Trump would say the word ‘China’ at least five times during a Sept. 24 ceremony. Kalshi’s rules for that contract rely on live video or a stream to determine the outcome and fall back to official transcripts if staff cannot reach consensus. The rules bar trading by employees of source agencies and anyone holding material nonpublic information about the event.

CFTC staff noted that public video or transcripts address only part of the risk. A visible recording can confirm whether a word was said, but it cannot show who had advance access to a script, who influenced the speaker’s choices, or whether someone used private knowledge to trade before public disclosure. Staff asked exchanges to explain how they identify people who can control an outcome or have privileged access and how they detect trading by those insiders through other accounts.

Kalshi has told regulators it screens political figures and relevant government employees, restricts trading by people with inside information or influence over outcomes, monitors trading patterns, can freeze flagged accounts and refers cases to authorities. Kalshi spokesperson Elisabeth Diana on Sept. 23 said, “We’ve addressed this guidance based on a prior discussion with the CFTC.”

The advisory cited prior enforcement actions. In an August settlement, the CFTC found a White House teleprompter operator used access to presidential speech drafts before delivery to trade mention contracts and realized about $107,500. In a July settlement, the agency found a former member of Congress traded on a State of the Union attendance market while posting misleading statements about his plans.

Staff told exchanges filings should explain how surveillance and trading restrictions are matched to each event’s vulnerabilities, including methods to detect proxy trading, collusion or pressure applied to a speaker. Because the guidance is a staff view rather than a formal rule, exchanges retain discretion but are expected to provide contract-by-contract justification.