As prediction markets and the sports event contracts they offer proliferate across much of the U.S., a pair of Canadian financial regulators have made clear that they take an oppositional stance.
A joint statement issued last week by the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) states that financial regulators do not support the idea that sports event contracts should be regulated as derivatives or securities.
The guidance was released Thursday, on the fifth anniversary of Parliament decrimininalizing single-event sports betting.
The financial regulators acknowledged that certain contracts, defined as “event contracts, prediction contracts or prediction market contracts,” do meet the country’s existing “broad definitions of securities or derivatives under securities and derivatives legislation,” but also note that some such contracts may be “excluded.” The staff memo clearly recommends banning such contracts, and goes on to plainly state neither agency has “authorized” offering any contracts outside of what they deem “permissible.”
“Dealer members may only facilitate trading of a limited set of Event Contracts that are traded and cleared through certain U.S. regulated exchanges and clearing houses, namely those that are based on economic, environmental or financial indicators,” staff wrote.
Some financial institutions have received permission to offer prediction products in Canada, but the menu of legal options is highly restrictive and does not include sports contracts. In April, the regulators released a reminder for those companies that do have approval to stay within the rules, Covers reported.
Supreme Court showdown coming in US?
The guidance came one day before the U.S. Ninth Circuit ruled that Nevada could enforce its gaming laws on prediction markets. The state has already banned — and is enforcing its prohibition of — sports event contracts. The decision was the second by a circuit court, and created a clear split — the Third Circuit previously offered the opinion that New Jersey state gaming regulators could not enforce their laws on prediction markets.
The state of New Jersey has until Thursday to appeal its Third Circuit loss to the U.S. Supreme Court, and observers widely believe the court will take the case, in part due to the difference in opinion from two circuit courts.
In July, Alberta became the second province to launch single-event wagering and online casino. Ontario was the first in April 2022. Some provincial lotteries offer a version of legal sports betting, but only provincial governments in Alberta and Ontario have promulgated regulations and stood up competitive markets.
Per the guidance from the financial regulators, some Canadian jurisdictions already technically ban short-term contracts under “Multilateral Instrument 91-102 Prohibition of Binary Options, which prohibits any person from advertising, offering, selling or otherwise trading a binary option having a term to maturity of less than 30 days, with or to an individual.”
