Regulators Tighten Grip on Prediction Markets Amid Scrutiny of 'Mention Markets'

Federal regulators and major banks are increasing their oversight of prediction market platforms, with a particular focus on "mention markets." The Commodity Futures Trading Commission (CFTC) is reportedly reviewing these markets, where traders bet on the occurrence of specific words in speeches, earnings calls, or broadcasts. This heightened scrutiny has led to platforms like Kalshi taking down sports-related mention exchanges, while competitors like Polymarket avoid offering them on their U.S. exchanges.

CFTC's Internal Review and Platform Responses

People familiar with the matter confirmed to CNBC that the CFTC is conducting an internal review of prediction betting platforms' mention markets. Kalshi was reportedly alerted to this review several weeks ago, prompting the removal of its sports-related mention markets. Separately, The Financial Times reported that JPMorgan Chase severed ties with Polymarket last October due to concerns about government regulation, although a Polymarket spokesperson stated they maintain a relationship with the bank.

Concerns Over Manipulability and Regulatory Hurdles

Mention markets, which involve contracts where traders speculate on whether specific words will be used in various public forums, are among the most scrutinized offerings on prediction platforms. Critics argue that these markets are susceptible to manipulation by individuals. For instance, the CFTC is investigating a former teleprompter operator for President Donald Trump who allegedly profited $90,000 by betting on the content of Trump's speeches. Coinbase CEO Brian Armstrong previously highlighted the ease of manipulation by example, demonstrating how random words could be inserted into an earnings call to influence prediction market outcomes.

Proponents, however, argue that mention markets are valuable for attaching predictive power to words from influential figures that can impact traditional markets. Arjun Sawai, Kalshi's head of market operations, wrote in a letter to the CFTC that these markets merely add a regulated, transparent, and surveilled increment to an existing incentive structure, rather than creating new manipulation incentives.

Broader Regulatory Actions and State-Level Bans

The CFTC's increased scrutiny comes ahead of a meeting of its Innovation Advisory Committee, where prediction markets, AI, and cryptocurrency will be discussed. The commission has also been actively defending its jurisdiction over event contracts, suing nine states that have challenged its authority. In recent weeks, the CFTC has warned platforms against sending broadly-worded, self-certified event contracts and advised against presenting odds in a casino-style format.

Adding to the regulatory pressure, a Washington state judge issued an order blocking several of Kalshi's markets, including mention, sports, and election markets, ruling that the platform may be operating as an illegal gambling operation. This makes Washington the fourth state, alongside Michigan, Nevada, and Massachusetts, to block Kalshi's operations. However, a federal judge in Minnesota recently overturned a potential statewide ban on prediction market platforms.

Polymarket, while not offering mention markets on its CFTC-regulated U.S. exchange, does offer them internationally. The company's statement emphasized a strong ongoing relationship with JPMorgan, countering reports of being cut off.

Disclosure: CNBC and Kalshi have a commercial relationship that includes customer acquisition and a minority investment.