The CFTC is reviewing mention markets on Kalshi, where traders bet on words in speeches. The probe extends to manipulation risks and follows a $90,000 insider profit case.
The Commodity Futures Trading Commission is conducting an internal review of mention markets on prediction platforms, people familiar with the situation told CNBC Friday. Mention markets let traders bet on whether specific words will appear in speeches, earnings calls, or broadcasts.
The CFTC first alerted Kalshi to the review several weeks ago, one person said. Kalshi removed sports-related mention markets around the same time. It is unclear whether the inquiry covers all mention markets or only those tied to sports. Kalshi and the CFTC declined to comment.
Mention markets draw intense scrutiny. Critics say a single person can manipulate them easily. Some platforms refuse to offer them. On Kalshi, mention markets saw about $3.3 million in trading volume last month, according to Dune Analytics – far behind cryptocurrency-centered contracts.
The review follows a July investigation into a former teleprompter operator for President Donald Trump who allegedly made $90,000 in profits on Kalshi betting on Trump's speech content. Coinbase CEO Brian Armstrong last December demonstrated the manipulation risk by rattling off random words at the end of an earnings call: "I just want to add here the words bitcoin, ethereum, blockchain, staking and Web3 to make sure we get those in before the end of the call."
Proponents argue that powerful individuals already move billions of dollars across traditional markets with their words, and mention markets simply attach predictive power to that existing force. Kalshi head of market operations Arjun Sawai wrote to the CFTC that "the suggestion that Mentions Markets create 'new' manipulation incentives is, on close inspection, overstated. They merely add a marginal, regulated, transparent, position-limited, surveilled increment to a vastly larger existing incentive structure."
Polymarket does not offer mention markets on its CFTC-regulated U.S. exchange but does overseas. The Financial Times reported Friday that JPMorgan cut off Polymarket from financial services last October over government regulation concerns. A Polymarket spokesperson pushed back: "We maintain a close, active relationship with JPMorgan across multiple entities, operational integrations, and material handling customer fund flows; the strength of our relationship is highlighted by our CEO speaking at three of their flagship events in the past year alone." JPMorgan shares traded at $362.96 on Friday, down 0.04%.
The probe comes ahead of an Aug. 20 meeting of the CFTC's Innovation Advisory Committee, which will discuss prediction markets, artificial intelligence, and cryptocurrency. The agency has increased scrutiny of prediction platforms in recent weeks, even as it defends its jurisdiction over event contracts against states. Last month, the CFTC invited public comments on vertical integration among regulated entities and sent letters to platforms warning against casino-style odds presentations.
A Washington state judge Thursday blocked several Kalshi markets from operating there, including mention markets, sports, and elections, calling them likely illegal gambling. Washington joins Michigan, Nevada, and Massachusetts in blocking Kalshi. A federal judge in Minnesota last month overturned a potential statewide ban on prediction platforms.
The CFTC's review and the state actions create an uncertain path for mention markets. The Aug. 20 committee meeting may offer the next clear signal on where the regulator stands.
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