Canadian securities regulators have said sports and entertainment prediction market contracts should not be governed under securities and derivatives legislation, sharpening the debate over how such products should be regulated in Canada.
The Canadian Securities Administrators, or CSA, and the Canadian Investment Regulatory Organization, or CIRO, issued the position Thursday amid growing interest in prediction markets.
“CSA staff’s view is that Event Contracts based on sports and entertainment events or outcomes should not be regulated within securities and derivatives legislation. CIRO staff do not consider it appropriate to facilitate or approve an application by their dealer members to trade these types of Event Contracts,” the opinion reads.
Only Wealthsimple and Interactive Brokers Canada have received CIRO approval to facilitate access to prediction markets. Current rules restrict eligible contracts to areas including financial markets, economic indicators and environmental forecasts, while sports, entertainment and election contracts are excluded.
Contracts must also take at least 30 days to resolve and be traded and cleared through specified U.S. Commodity Futures Trading Commission-regulated exchanges and clearinghouses. The regulators said other categories, including political, geopolitical and cryptocurrency event contracts, remain under assessment.
The position contrasts with arguments from Wealthsimple, which said in an August 4 white paper that separating sports contracts into gaming regulation while leaving other prediction markets under securities rules is “unworkable and does not reflect the structure of these contracts or markets.”
“A contract on the outcome of a soccer match and a contract on the level of inflation are, mechanically, the same instrument,” Blair Wiley, Wealthsimple’s chief legal officer, and Catherine De Giusti, the firm’s vice-president of product legal and deputy general counsel, said in the paper.
Wealthsimple also argued: “We believe it is appropriate for bilateral sports betting, where a gaming operator sets the odds and takes the other side of the bet, to be regulated under gaming laws, while sports event contracts that are traded and cleared by regulated derivatives market intermediaries to be regulated under securities laws.”
The Canadian Gaming Association, or CGA, supports provincial gaming oversight for sports prediction products. Canada’s Criminal Code gives provinces authority over gambling, including sports betting.
The CGA said it has consistently maintained that all forms of sports wagering should fall under provincial gaming regulation, with oversight determined by the nature of the product. It said the CSA and CIRO guidance reinforces that position by distinguishing sports betting from financial contracts based on their function.
CGA President and CEO Paul Burns said: “Sports wagering is sports betting, whatever the platform, and it belongs within the framework that provinces have built specifically to regulate it.”
Fair Canada also raised concerns that prediction markets could expose retail investors to losses and divert money from productive investments.
“Before additional event contracts are approved, regulators should require clear evidence that they provide meaningful public interest benefits and that robust safeguards are in place to protect retail investors,” JP Bureaud, the executive director of Fair Canada, said in a statement.