CFTC Issues Advisory on Event Contracts Tied to Individual Conduct

The Commodity Futures Trading Commission’s Division of Market Oversight today released an advisory concerning the listing and trading of event contracts tied to whether a person says or “mentions” specific words, attends or appears at an event, or otherwise interacts with another individual. Such products are commonly known as “mention market” contracts.

Because settlement for these contracts depends on a specific action by an individual that may not be independently produced or externally verifiable, the products carry an elevated risk of manipulation. DMO staff said such contracts may be viewed as presumptively readily susceptible to manipulation when their outcomes can be controlled or influenced by a single person, a small group, or individuals with access to or influence over the person whose conduct determines settlement.

The advisory details the limited situations in which DCMs may list these types of contracts under the Commodity Exchange Act and Commission regulations. It also identifies several factors DCMs should consider when creating and submitting mention market contracts under Commission Regulations Sections 40.2 or 40.3, including whether independent obligations constrain the individual controlling the outcome, whether outside pressure could influence that person, whether the outcome can be independently verified and is subject to substantial public scrutiny, and whether the DCM has sufficiently robust trading rules, surveillance, and controls to address manipulation risks.

The Division’s advisory also serves as a reminder that, under Core Principle 3, DCMs may list only contracts that are not readily susceptible to manipulation. However, DMO staff said the determination remains specific to each contract, and that a well-designed product combined with appropriate trading rules, surveillance, and safeguards may, in limited circumstances, overcome the presumption of manipulation susceptibility. The advisory further stresses that submissions of these products under Part 40 should provide a complete contract-specific analysis and sufficient detail on the measures being used to mitigate identified risks.