The Canadian securities regulatory bodies have expressed that contracts related to sports and entertainment prediction markets should not fall under the existing securities and derivatives laws. This statement has intensified discussions regarding the regulation of these products in Canada.
On Thursday, the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) released this position amidst a rising interest in prediction markets.
According to the CSA, Event Contracts linked to sports and entertainment outcomes should not be classified under securities legislation. CIRO also stated that it is not suitable to approve applications from their dealer members for trading these Event Contracts.
Currently, only Wealthsimple and Interactive Brokers Canada have received CIRO’s nod to provide access to prediction markets. Existing regulations limit eligible contracts to sectors such as financial markets, economic indicators, and environmental forecasts, explicitly excluding sports, entertainment, and election contracts.
Additionally, contracts must resolve in a minimum of 30 days and be traded and cleared through exchanges and clearinghouses regulated by the U.S. Commodity Futures Trading Commission. The regulators noted that other categories, including political, geopolitical, and cryptocurrency event contracts, are still under evaluation.
This stance differs from Wealthsimple’s position, which contended in a white paper dated August 4 that treating sports contracts under gaming regulations while leaving other prediction markets under securities laws is impractical and fails to accurately represent the nature of these contracts.
Wealthsimple’s Chief Legal Officer Blair Wiley and Vice-President of Product Legal Catherine De Giusti argued that a contract predicting the outcome of a soccer match is fundamentally similar to one predicting inflation levels.
They further asserted that bilateral sports betting, where a gaming operator sets the odds, should be governed by gaming laws, while sports event contracts traded through regulated derivatives market intermediaries ought to be under securities laws.
The Canadian Gaming Association (CGA) advocates for provincial regulation of sports prediction products. The Criminal Code of Canada grants provinces the authority over gambling, including sports betting.
The CGA has consistently argued that all forms of sports wagering should be regulated at the provincial level, with oversight based on the product's nature. They believe that the guidance from CSA and CIRO reinforces this viewpoint by differentiating sports betting from financial contracts based on their purpose.
CGA President and CEO Paul Burns stated, “Sports wagering is sports betting, regardless of the platform, and it should be regulated within the framework established by provinces.”
Fair Canada has also expressed concerns that prediction markets might expose retail investors to significant losses and divert funds from more productive investments. JP Bureaud, the executive director of Fair Canada, emphasized that before approving more event contracts, regulators need to ensure that there is clear evidence of public interest benefits and that strong protections for retail investors are in place.