Canada’s main market regulators have drawn a line around sports and entertainment prediction contracts. In a joint staff notice published on 27 August, the Canadian Securities Administrators and the Canadian Investment Regulatory Organization said event contracts tied to sports or entertainment outcomes should not be regulated under securities or derivatives law. CIRO also said it did not consider it appropriate to facilitate or approve applications by its dealer members to trade those contracts.
The notice said the products, often described as event contracts, prediction contracts or prediction market contracts, are settled on the outcome of a future event. It added that they can be structured with fixed or contingent payouts, and acknowledged that such products may fall within broad legal definitions of securities or derivatives. Even so, the regulators’ view is that the sports and entertainment variants should stay outside that framework.
The guidance did not open the door to a broader Canadian market for all such instruments. It said CIRO investment dealer members may only facilitate trading in a limited set of event contracts under interim terms and conditions, and only where those contracts are traded and cleared through certain U.S. regulated exchanges and clearing houses and are based on economic, environmental or financial indicators. Trading outside those permitted categories has not been authorized.
The regulators said their assessment of other categories of event contracts is still ongoing. That fits with an earlier reminder from the Alberta Securities Commission on 2 April, which said two CIRO members had been authorized to facilitate Canadian client access to a limited set of event contracts, that no prediction market had yet been recognized as an exchange or registered as a dealer, and that anyone trading or facilitating trading in contracts that are securities or derivatives must comply with the relevant registration or recognition rules. The ASC also warned that failure to comply could lead to enforcement action, and further guidance on other event-contract categories will follow.
