CFTC Issues Advisory on Manipulation Risks in Prediction Market Contracts

This advisory signals a tightening regulatory environment for prediction markets, which could reshape trading strategies and market dynamics.

• On September 22, 2026, the CFTC issued a staff advisory warning about manipulation risks in prediction market contracts.
• The advisory targets contracts based on whether individuals will mention specific words or attend events, emphasizing compliance with existing regulations.
• This follows enforcement actions against individuals exploiting insider information, highlighting vulnerabilities in these markets.

• Prediction markets have surged, with trading volumes exceeding $25 billion in 2025, indicating growing interest and participation.
• Recent enforcement actions against figures like Gabriel Perez and George Santos underscore the risks of insider trading and manipulation in these markets.
• The CFTC's guidance aims to ensure that designated contract markets (DCMs) maintain integrity and compliance without imposing outright bans on specific contracts.

The CFTC's advisory on September 22, 2026, reflects a proactive approach to managing the risks associated with prediction markets, particularly those involving mention contracts. These contracts, which speculate on whether a named individual will mention specific words or attend events, are now presumed to be susceptible to manipulation. This presumption arises from the potential for named individuals or insiders to control outcomes, thus creating an uneven playing field for traders.

The advisory does not introduce new obligations but emphasizes compliance with existing Commodity Exchange Act Core Principle 3 requirements. This means that designated contract markets like Kalshi and Polymarket must demonstrate robust surveillance and verification mechanisms to counter the presumption of manipulability. They can rebut this presumption by providing evidence of independent verification, public scrutiny, and obligations that deter manipulation.

The backdrop to this advisory includes significant enforcement actions against individuals who exploited nonpublic information for personal gain. Gabriel Perez faced penalties for trading on advance speech access, while George Santos settled for similar infractions related to attendance contracts. These cases highlight the vulnerabilities inherent in prediction markets, particularly when contracts are tied to individual conduct.

As a result of the advisory, Kalshi has adjusted its product offerings, maintaining certain mention markets while excluding them from proposed margin frameworks. This indicates a cautious approach to compliance and risk management in light of heightened scrutiny. The advisory is active, and while it does not impose outright bans, it sets the stage for more rigorous evaluations of future product submissions.

The broader regulatory landscape is also evolving, with ongoing discussions about amending Regulation 40.11 to address specific event contract categories. This advisory is part of a larger trend of increasing regulatory oversight in the prediction market space, which could lead to more stringent rules and compliance requirements in the future.

• Traders in prediction markets: They may face fewer contract options and increased scrutiny on existing contracts.
• Market operators like Kalshi and Polymarket: They will need to enhance compliance measures and risk assessments for new products.
• Regulatory bodies: Increased workload in monitoring compliance and enforcing regulations in the prediction market sector.

• Future enforcement actions: Keep an eye on any new cases that may arise as the CFTC increases scrutiny on prediction markets.
• Regulatory amendments: Watch for developments regarding Regulation 40.11, which could redefine the landscape for event contracts.
• Market response: Observe how prediction market platforms adjust their offerings and compliance strategies in response to the advisory.