Prediction Markets and Event Contracts: Where Gambling Meets the Financial Markets

Introduction

The recent surge in interest in prediction markets has attracted the expected regulatory attention from securities and commodity futures regulators in Canada. On April 2, 2026, the Canadian Securities Administrators (the “CSA”) published a notice (the “CSA Notice”) reminding industry participants and investors of the regulatory requirements governing prediction markets and event contracts. The CSA Notice followed a bulletin published on March 26, 2026 (the “CIRO Bulletin”) by the Canadian Investment Regulatory Organization (“CIRO”), which addressed the application of CIRO requirements to event contracts.

Prediction markets are platforms that facilitate the trading of “event contracts” (also referred to as prediction contracts or forecast contracts), being contracts that pay out based on the outcome of future events. As such they occupy the “Bermuda Triangle” between securities, commodity futures and gambling. Depending on their structure, event contracts may constitute securities or derivatives and may therefore be subject to Canadian securities and derivatives legislation. On their face, event contracts constitute executory contracts—contracts for the exchange of value in the future at a specified time and price. With the outcome binary in nature (you either win or lose), most would view such contracts as either a bet or a commodity futures contract. Confusion arises in part as “security” under Canadian securities legislation is defined to include a “commodity futures contract or commodity futures option that is not traded on a commodity futures exchange.”

Apart from regulating event contracts themselves, CIRO has so far authorized two of its Investment Dealer Members (“Dealer Members”), being Interactive Brokers Canada Inc. and Wealthsimple Inc., to facilitate trading in event contracts for Canadian clients, including access to contracts executed on certain foreign-regulated (non-Canadian) prediction markets. These developments have attracted significant public attention—both positive and negative—particularly in relation to concerns regarding insider trading and market integrity.

Background

The regulatory treatment of prediction markets in Canada has evolved through the application of existing legal frameworks rather than the adoption of a bespoke regulatory regime. Historically, activities involving betting on future contingencies engaged broad federal prohibitions under Sections 202 and 206 (Gaming and Betting provisions) of the Criminal Code (Canada). While the language of those provisions predates modern digital platforms, they have formed part of the broader legal backdrop against which prediction markets have developed.

More recently, regulatory attention has shifted to the application of securities and derivatives legislation to event based contracts. In this regard, the CSA have emphasized that any person trading in, or facilitating trading of, event contracts that constitute securities or derivatives must comply with applicable regulatory requirements, including registration or recognition obligations. In certain jurisdictions, additional statutory prohibitions may also apply.

In particular, Multilateral Instrument 91 102 – Prohibition of Binary Options (“MI 91-102”) prohibits the advertising, offering, selling or trading of binary options with a term to maturity of less than 30 days, with or to an individual. As explained in the companion policy to MI 91-102, a binary option is intended to capture a broad range of products—regardless of how they are labelled—that are based on the outcome of a yes or no proposition tied to the performance of an underlying asset, interest, value or event.

Binary options are generally characterized by regulators as having automatic exercise and a fixed, predetermined payout if the specified condition is met, with little or no payout if it is not. These products typically do not confer any right or obligation to buy or sell the underlying interest. The CSA have noted that the time period for determining the outcome of a binary option can be extremely short—sometimes minutes or hours—and that the definition is intended to capture discrete, all or nothing payout structures, as opposed to contracts with continuous or variable returns.

The CSA have cautioned that failure to comply with applicable securities and derivatives requirements may result in enforcement action. While certain CIRO-approved Dealer Members may facilitate access to event contracts traded on non-Canadian prediction markets, the CSA have not, to date, recognized any prediction market in Canada as an exchange or registered it as a dealer, or exempted it from those requirements.

CIRO-Specific Guidance on Event Contracts

The CIRO Bulletin specifies that trading of event contracts by Dealer Members is subject to specific terms and conditions imposed by CIRO, in consultation with CSA members, as well as CIRO’s requirements applicable to options trading. Any Dealer Member seeking to trade in, or facilitate trading of, event contracts is required to provide written notification to CIRO in accordance with CIRO rules.

At present, CIRO authorizations are limited to event contracts that are traded and cleared through certain U.S. Commodity Futures Trading Commission regulated exchanges and clearing houses.

Permitted and Prohibited Event Contracts

CIRO has clarified that Dealer Members authorized to facilitate trading in event contracts may do so only in respect of a limited and defined set of products. Under the terms and conditions imposed by CIRO, Dealer Members may facilitate trading only in event contracts relating to:

• Economic forecasts, including contracts based on economic statistics such as sovereign debt levels, inflation rates, central bank reserve rates, labour market data and housing statistics;
• Environmental forecasts, including contracts based on climate indicators related to average global temperature; and
• Financial indicators, including contracts such as U.S. 500 Forecast Contracts that settle based on the daily settlement price of the Chicago Mercantile Exchange (“CME”) E Mini S&P 500 futures.

CIRO has also imposed restrictions on the maturity of permitted event contracts. Dealer Members may facilitate trading only in event contracts with a term to maturity of 30 days or longer. For greater certainty, the issuance of a new threshold in respect of an event contract constitutes a new contract, which must independently satisfy the 30-day minimum term requirement.

Certain categories of event contracts remain expressly prohibited and may not be offered, traded or facilitated by Dealer Members. In particular, Dealer Members may not trade in event contracts based on the outcome of elections, political events or other events of a political nature, including contracts predicting election results, political party leadership outcomes or referendum results. Event contracts based on the outcome of unlawful activities under Canadian federal, provincial or territorial law are also prohibited. In addition, Dealer Members are not permitted to allow clients to use leverage, including margin accounts, in connection with trading in event contracts.

Dealer Members wishing to offer event contracts beyond those categories specified above are required to notify CIRO in writing and file a material change to business activities application.

Ongoing Regulatory Review

The CSA and CIRO have indicated that they continue to monitor developments involving prediction markets and event contracts and intend to issue further guidance on the application of securities and derivatives legislation to these products. The terms and conditions applicable to Dealer Members remain subject to ongoing review and may be amended. The CSA and CIRO have also stated that additional regulatory action may be considered.

Any industry participant interested in trading in, or facilitating trading of, event contracts with Canadian investors is encouraged to consult with their local CSA member and CIRO before doing so.

Conclusion

Recent guidance from the CSA and CIRO highlights that, while limited access to certain event contracts is currently permitted through authorized Dealer Members and subject to specified conditions, prediction markets remain an area of active regulatory oversight in Canada. Market participants should carefully consider the application of Canadian securities and derivatives legislation and CIRO requirements when assessing activities involving event contracts.

If you have any questions with respect to this legal update, please contact Ron Schwass ([email protected]), Carlye Bellavia ([email protected]) or any other member of our Corporate Finance & Securities practice group. The authors gratefully acknowledge the assistance of articling student Malindu Danthanarayana in the preparation of this update.

This update is intended as a summary only and should not be regarded or relied upon as advice to any specific client or regarding any specific situation.

If you would like further information regarding the issues discussed in this update or if you wish to discuss any aspect of this commentary, please feel free to contact us.