Sports betting will not be coming to an investment dealer near you under new guidance from securities regulators, which stipulates that event contracts based on the outcome of sports and entertainment events don’t fall under securities or derivatives legislation. That means regulated dealers need to steer clear of these kinds of trades too.
In a joint notice, the Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) set out the regulators’ conclusion that certain event contracts — specifically contracts based on sports and entertainment events — shouldn’t be regulated as securities or derivatives.
As a result, they said investment dealers that have received conditional relief to facilitate trading in certain event contracts shouldn’t be enabling trading in these kinds of contracts.
As for other types of event contracts, the regulators said that an assessment of their regulatory status is “ongoing.”
In the meantime, the guidance said that the under the terms of the relief that has been granted to a couple of dealers to enable trading in event contracts, permission is limited to 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,” the notice said.
Facilitating trading in other types of contracts hasn’t been authorized by CIRO, or the CSA, it noted.
The regulators also indicated that they will continue to review the terms and conditions that have been set out in existing relief, which may lead to “further restrictions or other changes” to these conditions.
Investor advocacy group FAIR Canada welcomed the regulators’ guidance, but said that it “remains concerned about the risks that permitted prediction market contracts may pose to retail investors” — including the risk of investor losses, opportunity cost, and “broader market integrity concerns.”
“Canada’s capital markets are intended to support investment, capital formation, economic growth, and market efficiency,” said JP Bureaud, executive director of FAIR Canada, in a release.
“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. Innovation alone is not a sufficient basis for regulatory approval,” he added.
FAIR also pointed out that dealers have incentives to maximize trading activity.
“This creates a commercial incentive for dealers to expand the range of available contracts and encourage greater participation, creating conflicts between their business interests and the interests of their clients,” it said.
This story has been edited to add comments from FAIR Canada.