What Are Prediction Markets?

Prediction markets are platforms that allow participants to trade contracts based on the outcome of future events.

These products are commonly referred to as event contracts, prediction contracts or forecast contracts.

For example, an event contract might ask:

• Will Canadian inflation exceed a specified level?

• Will the Bank of Canada reduce interest rates?

• Will average global temperatures exceed a particular threshold?

• Will a sports team win a championship?

Although these contracts can share similar mechanics, their regulatory treatment may be very different.

A contract tied to an economic or financial indicator can resemble a derivative. A contract based on the outcome of a sporting event may look much closer to a gaming product.

That distinction is becoming increasingly important in Canada.

CIRO Introduces a Controlled Framework for Event Contracts

On March 26, 2026, the Canadian Investment Regulatory Organization (CIRO) published guidance explaining how its requirements apply to event contracts.

At the time, two CIRO Investment Dealer Members had been authorized to facilitate trading in a limited range of event contracts.

The permitted categories included certain contracts relating to:

• Economic forecasts, including inflation, labour markets, housing and sovereign debt

• Environmental forecasts, including climate indicators

• Specified financial indicators

CIRO also imposed several important conditions.

Permitted contracts must generally have a maturity of at least 30 days. Clients cannot use leverage or margin to transact in them. Event contracts based on elections, referendums and other political events are not permitted under the current framework.

Dealer Members wishing to expand their event contract offerings beyond the permitted categories must also notify CIRO and make a material change filing.

The approach reflects a cautious regulatory strategy: permit limited access through regulated firms, establish clear guardrails and continue assessing how the market develops.

CSA and CIRO Reinforce Existing Securities and Derivatives Requirements

On April 2, 2026, the Canadian Securities Administrators (CSA) and CIRO issued a broader reminder regarding the regulation of prediction markets in Canada.

The central message was clear.

Where an event contract constitutes a security or derivative, firms trading or facilitating trading in that contract must comply with applicable securities and derivatives legislation.

Depending on the activities being performed, this can include registration, marketplace recognition and other regulatory requirements.

The regulators also highlighted Canada’s existing rules concerning binary options. In participating CSA jurisdictions, certain binary options with a term to maturity of less than 30 days cannot be advertised, offered, sold or otherwise traded with an individual.

The regulatory analysis therefore depends on more than the label attached to the product.

Calling something an “event contract” or a “prediction market” does not determine its regulatory treatment. The substance and structure of the product remain critical.

The Dealer and the Prediction Market Are Not the Same Thing

An important distinction in the Canadian framework is the difference between a registered dealer providing clients with access to an event contract and the prediction market on which that contract is traded.

The two CIRO Dealer Members currently authorized to facilitate certain event contracts may provide Canadian clients with access to contracts traded on regulated foreign markets.

However, the CSA has noted that no prediction market itself had, as of its April guidance, been recognized as an exchange, registered as a dealer or exempted from those requirements by the CSA.

This means firms must look at the entire product and trading structure.

Questions may arise around:

• Who creates the event contract

• Who operates the marketplace

• Who facilitates the transaction

• Who interacts with the client

• Where the contract is traded and cleared

• Which entity holds client assets

Different regulatory requirements can apply to different participants within the same ecosystem.

The Regulatory Perimeter Becomes Clearer

The most significant development came on August 27, 2026, when the CSA and CIRO issued new guidance addressing event contracts based on sports and entertainment events or outcomes.

The CSA stated that, in its view, these types of contracts should not be regulated within securities and derivatives legislation.

CIRO similarly indicated that it does not consider it appropriate to facilitate or approve applications from its Dealer Members to trade these types of event contracts.

This distinction is important because it suggests that Canadian regulators are not treating all prediction markets as one regulatory category.

Instead, the nature of the underlying event is becoming an increasingly important part of the regulatory analysis.

Consider the difference between the following contracts:

• Will Canadian inflation exceed 3%?

• Will an equity market index settle above a particular level?

• Will average global temperature exceed a specified threshold?

• Will a hockey team win a championship?

The contract mechanics may be similar.

What the contracts ask participants to predict is very different.

That difference may ultimately determine which regulatory regime applies.

Not All Event Contracts Are Treated the Same Way

The emerging Canadian approach appears to distinguish between different types of underlying events.

Economic, environmental and specified financial event contracts are currently among the limited categories that CIRO-authorized dealers may facilitate, subject to conditions.

Sports and entertainment contracts, on the other hand, are now viewed by the CSA as products that should sit outside securities and derivatives legislation.

Political event contracts remain another distinct category. Under CIRO’s current conditions, Dealer Members cannot facilitate contracts based on election outcomes, political events, leadership contests or referendums.

The CSA has also made clear that its assessment of other types of event contracts remains ongoing.

Canada has therefore not established a comprehensive prediction markets framework.

The regulatory perimeter is still developing.

Outside Securities Regulation Does Not Mean Unregulated

One of the most important implications of the August guidance is that removing a product from the securities and derivatives framework does not necessarily remove it from regulation.

It may simply place the product within a different regulatory regime.

British Columbia provided an immediate example.

On August 28, 2026, the Independent Gambling Control Office stated that products based on sports or entertainment outcomes are considered gambling under British Columbia’s current regulatory framework.

Those products must therefore comply with applicable federal and provincial gaming requirements.

This illustrates an important principle for firms exploring prediction markets:

Moving outside the securities regulatory perimeter does not necessarily create a regulatory vacuum. It may simply change the regulator standing on the other side of the line.

Depending on the product and the jurisdictions in which it is offered, firms may need to consider:

• Securities and derivatives regulation

• Gaming regulation

• Anti-money laundering requirements

• Consumer protection

• Advertising and marketing requirements

• Client eligibility and geographic restrictions

• Product governance

• Market integrity and surveillance

For businesses operating nationally, provincial regulatory differences may create an additional layer of complexity.

Product Classification Should Begin Before Launch

For fintech firms, investment dealers and other businesses considering event contracts, regulatory classification should not be treated as an issue to address immediately before launch.

It should form part of the product design process itself.

Before introducing an event contract, firms should consider several key questions.

What Is the Underlying Event?

Is the contract based on:

• A financial indicator

• An economic outcome

• An environmental event

• A political event

• A sporting outcome

• An entertainment event

• Another category entirely

The answer may materially affect which regulatory regime applies.

How Is the Contract Structured?

Firms should consider:

• Term to maturity

• Payout structure

• Settlement mechanism

• Whether the contract resembles a binary option

• Whether leverage is available

• How prices are determined

The economic substance of the contract matters more than how the product is marketed or labelled.

What Role Is the Firm Performing?

A business may be:

• Creating event contracts

• Operating a marketplace

• Facilitating trades

• Acting as a dealer

• Providing client access to a third-party platform

• Holding client assets

Each function can create different regulatory obligations.

How Will the Contract Be Resolved?

Every event contract needs an objective mechanism for determining the outcome.

Firms should establish:

• The authoritative source used to determine the result

• The exact measurement period

• How revised data will be handled

• What happens if an event is cancelled or disputed

• How settlement disputes will be resolved

These issues are not merely operational.

They are part of effective product governance and risk management.

What the Latest Guidance Means for Firms

The Canadian prediction market framework is still evolving, but several themes are becoming clearer.

First, prediction markets are unlikely to be regulated as one homogeneous category.

Second, regulators are increasingly looking beyond the basic contract mechanics and considering the nature of the underlying event.

Third, determining that an event contract falls outside securities regulation does not necessarily mean that the product can be offered without regulatory oversight.

Finally, compliance considerations need to begin at the product-design stage.

For firms exploring prediction markets in Canada, the critical question may no longer be simply:

“Can we offer prediction markets?”

A better set of questions is:

What are we offering, what activity are we performing, who are we offering it to and which regulatory framework governs that activity?

As regulators continue to assess this developing market, firms that build regulatory classification, governance and compliance considerations into their product architecture from the outset will be better positioned to navigate what comes next.

This article is for general informational purposes only and does not constitute legal or regulatory advice.