The top US derivatives regulator has warned that prediction market contracts tied to what a person says or does carry a heightened risk of manipulation, putting exchanges on notice as the industry faces increasing scrutiny over market integrity.

Prediction markets let participants trade event contracts whose payouts depend on real-world outcomes, ranging from cryptocurrency prices to the words a person might say. The Commodity Futures Trading Commission's (CFTC) Division of Market Oversight said on Tuesday that it issued an advisory to some of its regulated entities, noting that there are only "limited circumstances" in which "mention markets" — event contracts based on whether an individual will say certain words, attend or appear at an event, or interact with another person — can be listed consistently with the Commodity Exchange Act.

"These contract types present a heightened risk of manipulation because their settlement turns on the discrete conduct of a person that may be neither independently generated nor externally verifiable," the regulator said.

According to CNBC, the CFTC letter said exchanges listing mention markets should weigh four factors: whether adequate oversight measures are in place to detect manipulation, whether the words or actions used for settlement are independently verifiable, whether external pressure could influence the subject's conduct, and what outside obligations the subject of a mention market may have. The factors act as a practical screen for listing decisions, since the Commodity Exchange Act obliges designated contract markets — the CFTC-regulated exchanges known as DCMs — to list only contracts not readily susceptible to manipulation.

CFTC Chair Mike Selig welcomed the guidance in an X post on Tuesday, saying that "regulatory clarity drives sound markets."

"Pleased to see staff provide guidance on the potential risks and unique considerations associated with the listing of mention markets on CFTC-regulated exchanges and remind DCMs of their obligation to list only contracts not readily susceptible to manipulation," he wrote.

The advisory follows a string of cases in which traders were accused of exploiting privileged information on prediction markets. Last month, a former White House teleprompter operator was ordered to return $107,539 in profits and pay a $65,000 civil penalty for trading contracts tied to speeches by US President Donald Trump.

Cointelegraph reached out to the CFTC for comment.

The CFTC had reportedly already begun examining mention markets before Tuesday's advisory. CNBC and NPR reported in August that the regulator had opened a review into the contracts over manipulation concerns, with Kalshi removing mention markets tied to sporting events "until further notice" while the inquiry proceeded.

Kalshi faces fresh scrutiny over unusual trading

Separately, unusual trading activity on Kalshi has drawn fresh scrutiny over potential market manipulation.

In August, nearly one million trades worth more than $5 billion were placed in a single market tied to the price of Ether, with more than a third of them occurring in nearly identical amounts of around $5,500, the Wall Street Journal reported on Tuesday.

The activity has caught the attention of federal regulators and traders, according to the Journal, though Kalshi has rejected suggestions that the transactions amounted to wash trading — a practice in which one party effectively trades against itself, generating volume without genuine market risk.

With the advisory turning the CFTC's August review into published guidance, how exchanges apply the four factors to mention markets — and what, if anything, regulators conclude about Kalshi's Ether-linked trading — are the immediate questions hanging over prediction markets.