The Commodity Futures Trading Commission issued an advisory on Tuesday to certain entities under its oversight, flagging that "mention" contracts within prediction markets carry a heightened exposure to manipulation.

The agency detailed in a statement announcing correspondence sent to designated contract market operators that these contracts are especially vulnerable to improper influence. The reasoning cited is that "their settlement depends on a specific individual's action, which may neither arise independently nor be confirmable through external means."

The correspondence clarified that the regulator is not instituting fresh obligations for supervised exchanges. Rather, it aims to offer direction on how these entities can lawfully introduce "mention markets" in alignment with the Commodity Exchange Act, the statute governing assets within the CFTC's jurisdiction.

These markets feature contracts where traders wager on the precise words or phrases that will surface in speeches, corporate earnings calls, or television broadcasts, and they have drawn the regulator's attention. Reports last month indicated that the CFTC was conducting an internal assessment of such contracts, prompting trading platform Kalshi to withdraw its sports-related mention market offerings in response to the inquiry.

Interest in mention markets spiked in July when reports emerged that a longtime teleprompter operator for the U.S. President had leveraged contracts tied to presidential remarks, trading profitably on the prediction site Kalshi. That operator, Gabriel Perez, reached a settlement with the CFTC in August, paying a fine of $172,539 for engaging in insider trading within prediction markets.

In its advisory, the CFTC recommended that platforms introducing mention markets evaluate four key criteria: the external obligations the market's underlying individual may bear; any outside pressures that could shape that person's statements or actions; whether the speech or conduct used for settlement can be independently verified; and whether adequate surveillance mechanisms are in place to detect manipulation of the contracts.

The commission added that it encourages exchanges to engage with its market oversight division early in the contract design phase to discuss strategies for mitigating manipulation risks.