Canadian securities regulators decline to oversee sports, entertainment contracts for prediction markets

Canada’s securities and investment industry regulators are declining to oversee sports and entertainment bets on prediction markets, saying those trades don’t belong under securities law and won’t be offered through regulated investment platforms.

The Canadian Securities Administrators, an umbrella organization made up of provincial and territorial securities regulators, and the Canadian Investment Regulatory Organization, or CIRO, issued a joint statement Thursday clarifying how securities and derivatives laws apply to the growing market of events contracts, which allows users to wager on real-world events.

The CSA said that in its view, bets relating to sports and entertainment events should not be regulated under securities and derivatives legislation, while CIRO said it doesn’t consider it appropriate to approve or facilitate an application by its dealer members to trade those types of contracts. CIRO is a self-regulatory organization that oversees all investment dealers and mutual fund dealers, as well as all trading activity on Canada’s debt and equity marketplaces.

The guidance brings some clarity to a question that has been hotly debated in Canadian legal and financial circles: whether sports and entertainment prediction contracts should be regulated by securities regulators or gaming commissions. It remains unclear whether such types of prediction bets could still be made available in Canada by other means.

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The decision also draws a line around how far prediction markets can expand through Canada’s investment industry, shutting regulated dealers out of sports and entertainment contracts, even as those categories drive much of the industry’s growth in the U.S.

Currently, CIRO-approved dealers are only permitted to offer contracts tied to economic indicators, financial markets and climate trends, not sports or entertainment. In the U.S., sports contracts have been a major driver for the prediction market boom, accounting for 80 per cent of total trading volume on U.S. prediction market platform Kalshi between July, 2024, and this past May, according to the Pew Research Center.

Two companies have received CIRO-approval to provide Canadians with access to event contracts: Wealthsimple Inc., which partnered with Kalshi to offer its prediction market product, and Interactive Brokers Group Inc.

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In a white paper published earlier this month, Wealthsimple said that putting certain contracts, such as sports outcomes, under gaming regulation while the rest stay under securities regulation is “unworkable.”

“A contract on the outcome of a soccer match and a contract on the level of inflation are, mechanically, the same instrument,” wrote authors Blair Wiley, chief legal officer at Wealthsimple, and Catherine De Giusti, vice president of product legal and deputy general counsel at Wealthsimple.

Wealthsimple also argued that regulators should allow a broader range of prediction contracts, rather than limiting them to certain subjects. It proposed allowing contracts where the outcome can be determined using a trustworthy source, such as government data or an accredited news organization.

On Wealthsimple’s standalone prediction market app, Wealthsimple Predict, users can only trade on contracts permitted under the regulatory framework, but until recently could see other contracts that aren’t permitted, including contracts on which movie will win Best Picture at the Oscars and who will win the 2028 U.S. presidential election as of Wednesday.

On the Wealthsimple website, it says: “We make them visible so you can follow along, even if these markets fall outside the categories currently approved for trading in Canada.”

However, as of Thursday morning, these contracts were no longer viewable.

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The new guidance from Canadian regulators doesn’t settle how every type of prediction market contract will be treated, such as those relating to politics. “With respect to the regulatory status of other types of event contracts not addressed in today’s guidance, assessment is ongoing,” the notice said.

Liberal MP and former minister Karina Gould, who chairs the House of Commons finance committee, previously told The Globe that she believes prediction markets should fall under Canadian gambling rules and regulations in order to protect consumers.

In the U.S., where prediction trades are considered financial instruments, lawmakers are debating whether they should be classified as gambling products instead.

In March, a pair of U.S. senators introduced legislation called the Prediction Markets Are Gambling Act, which would bar prediction markets such as Kalshi and Polymarket from offering contracts tied to sporting events.

Critics also point to risks such as insider trading. A Google software engineer is alleged to have pocketed more than US$1.2-million by placing bets on search trends on Polymarket. In another example, an American soldier has been accused of using classified intelligence to make more than US$400,000 betting on the outcome of a U.S. military operation to capture Nicolás Maduro in Venezuela.

In Canada, financial institutions have implemented prediction market betting rules for their employees, with some barring certain staff from wagering on particular types of events.