Submitted by nsscadmin on
There’s been a lot of talk about prediction markets and event contracts recently. They’ve been covered frequently by the media and are a common discussion point online on social media, forums, and financial apps.
Through all the talk and discussion, the most important question when it comes to prediction markets and event contracts is, are they legal in Nova Scotia? The answer is complex as some contracts can be available to Nova Scotians and some are prohibited if they are subject to Multilateral Instrument 91-102 Prohibition of Binary Options (MI 91-102).
Before examining in the intricacies of MI 91-102, we should define prediction markets and event contracts for those who are unclear what exactly they are. Prediction markets are marketplaces where users trade event contracts where the value of the contracts are based on the yes or no outcome of a future event, also called a binary event. Event contracts are the contracts that are traded on prediction markets. When purchasing an event contract, you are predicting a specific future result. This could be a future weather temperature, the price of a financial instrument, or an interest rate, for example.
For investors and securities regulators, event contracts also fall under the heading of binary options. A binary option is essentially the closest thing to gambling when investing and is a financial derivative that allows someone to make all-or-nothing wagers on future events. The payout or loss of a binary option is solely determined by the outcome of the yes/no proposition and the market’s expectation of the odds of the event.
Binary options fraud was rampant in Canada in the mid 2010s and led to Canadian securities regulators (including the NSSC) to make specific prohibitions around binary options to protect investors. This can be found in MI 91-102 and also applies to event contracts under securities laws.
Under MI 91-102, the advertising, offering, selling, and trading of binary options with a term of less than 30 days is prohibited in Canada. This prohibition on these type of short-term binary options has made it so that popular prediction market platforms like Polymarket and Kalshi cannot offer event contracts in Nova Scotia and other Canadian jurisdictions if their event date is for less than 30 days away. For example, a type of prohibited contract would be on the price of Bitcoin at 5:00 pm Eastern Time today.
In March, CIRO announced that two CIRO Investment Dealer Members have received authorization to facilitate the trading of event contracts under specific terms and conditions, that include:
- Limiting permitted event contracts to economic forecasts, environmental forecasts, and financial indicators.
- Requiring permitted event contracts to have a term of 30 days or longer.
- Prohibiting event contracts based on the outcomes of elections, political events, and sporting events.
- Prohibiting the use of leverage and margin accounts.
So, event contracts may be available to Nova Scotia investors who have access to the two CIRO investment dealers, but they are very limited in scope. No sports. No politics. No wars. No religion.
The CSA and CIRO are expected to release joint guidance on prediction markets and event contracts later this summer. If that new guidance changes or adds to the current guidelines, this post will be updated, and future blog posts will also highlight any new additions to the discussion.