In April, we wrote about Canada’s emerging prediction market framework and the narrow path regulators appeared prepared to allow. Since then, prediction markets have continued to make headlines here in the Great White North and abroad. This article aims to provide an overview of the latest news related to prediction markets, with a focus on retail platforms educating investors, mainstream media covering younger-user interest, sports leagues responding to integrity risks, and overseas regulators pushing back against a product that they view as plain ol’ gambling.
Coming Soon to a Country Near You
As we’ve previously discussed, in its March bulletin, the Canadian Investment Regulatory Organization (“CIRO”) confirmed that two investment dealer members had been authorized to facilitate trading in a limited set of event contracts, to be exclusively traded and cleared through certain U.S. CFTC-regulated exchanges and clearing houses. CIRO’s permitted categories are limited to economic and environmental forecasts, as well as financial indicators. CIRO also imposed a minimum 30-day maturity requirement, prohibited dealer-facilitated contracts tied to elections and other political events, and prohibited leverage, including margin accounts, for transacting in event contracts. As a result, a Canadian investor accessing an approved event contract through a CIRO-regulated dealer is in a very different position from a Canadian user accessing an unregulated platform offering markets on politics, sports, entertainment, or other discrete public events.
The next step is to determine whether that narrow framework can survive contact with retail demand. Wealthsimple’s recent public explainer on prediction markets is a good example of how these products may start to be presented to ordinary Canadian investors. The explainer describes prediction markets as places to buy and sell contracts whose value depends on the outcome of future events, with many contracts structured as binary “yes” or “no” positions that pay out if the user is correct. It also reaffirms that, in Canada, approved prediction market contract trading is currently limited to the CIRO-mandated topics.
Interactive Brokers Canada provides a more concrete example of how the permitted model could work in practice. Its Canadian prediction markets page describes ForecastEx Forecast Contracts as exchange-listed yes-or-no contracts across economics, finance, and climate indicators, typically settling at $0 or $1 depending on the outcome. It also explains that prices are generally quoted between $0.01 and $0.99, with the price reflecting the market’s perceived likelihood of the event occurring.
Considerable effort is being put into making the argument that these products are financial instruments that allow users to express a view on inflation, interest rates, climate indicators, or other measurable outcomes. However, these descriptions (maybe unintentionally) frame the ordinary use-case of the product much like a wager – pick “yes” or “no,” risk a known amount, and receive a fixed payout if right. The legal classification may be securities- or derivatives-based, but that doesn’t stop the consumer experience from being closer to betting or gamified speculation.
Markets in the Media
Prediction markets may be here sooner than we expect. A May Globe and Mail piece framed prediction market trading as “coming to Canada” and noted that younger investors are already using them. This article illustrates that prediction markets have already entered the Canadian personal-finance conversation, and may appeal more to younger users who are already accustomed to products that blend investing, gaming, social media, and short-term speculation.
That creates an investor-protection question that is not fully answered by the current framework. These platforms may explain how a contract settles, what the maximum loss is, and what event source determines the outcome. Unfortunately, these mandated disclosures do not necessarily answer whether retail users will understand and approach these products as derivatives, bets, entertainment, hedging tools, or some combination of all four.
Sports Leagues
At the same time, the sports-integrity side of the prediction market debate is developing quickly, despite the fact that sports contracts are not part of Canada’s current securities-law pathway. On May 21, Reuters reported that the NHL had signed an information-sharing agreement with the CFTC to address integrity risks in hockey-related prediction markets, including insider trading, fraud, and match-fixing.
That development is relevant in Canada even if Canadian investment dealers cannot offer sports event contracts under the present framework. For one, the NHL is, of course, deeply connected to the Canadian market. More importantly, these integrity concerns are familiar from sports betting. The misuse of confidential information, suspicious trading patterns, prohibited participants, and the risk that betting or trading activity could create incentives around game outcomes are well-established pitfalls. They may be packaged differently, but from a sports-integrity perspective, prediction markets and sports betting may belong in the same risk conversation.
Trouble in Europe
International developments point in the same direction. On May 26, Reuters reported that Spain had temporarily blocked Polymarket and Kalshi while investigating whether the platforms were operating without required gambling licences. The Guardian similarly reported that Spanish regulators are taking the position that prediction markets are a form of gambling requiring regulation and safeguards, including identity checks and protections for minors and vulnerable individuals.
Canada’s framework may help avoid the immediate classification fight by limiting approved contracts to economic, environmental, and financial indicators through registered dealers, but that does not eliminate the underlying gambling-law question. The more prediction markets move into sports, politics, entertainment, and other mass-market events, the harder it becomes to treat them solely as financial products.
What’s Next?
The unresolved Canadian issue is therefore not simply whether prediction markets can be structured in a way that’s compliant with Canadian securities laws – in some circumstances, they already can be. The more difficult questions are practical and regulatory. How will these products be marketed? How are they understood by users? And, is securities-style disclosure enough for products that may feel functionally similar to gambling?
For now, Canada’s approach is not a prediction market free-for-all. It is a limited experiment in regulated event contracts and one that may soon force regulators to decide whether prediction markets are best understood as trading, betting, or a hybrid category requiring elements of both regimes. As these platforms become more popular in jurisdictions that allow them, Canadian regulators may face mounting pressure to answer this question for good.
