FAIR Canada tells regulators to hold the line on prediction markets
On the argument that Canadians will seek access whether or not the products are available domestically, FAIR Canada writes that investor demand is not the test, and that offshore activity involving unapproved products justifies enhanced enforcement, consumer warnings or other harm-reduction measures rather than regulatory approval.
Hedging rationales may apply to contracts tied to identifiable economic or financial risks, the paper says, but it is difficult to see how contracts tied to sports, entertainment, political outcomes or other non-economic events could serve the same purpose.
Even among the categories the CSA and CIRO already permit, FAIR Canada writes, there is no evidence that retail investors are using them to hedge risk.
The same test is applied to price discovery: whether the price produced helps with capital formation, asset valuation or risk management, not whether participants can generate a price for any uncertain outcome.
Many event contracts fall within the CSA’s broad definition of a binary option, the paper states, referring to Multilateral Instrument 91-102, Prohibition of Binary Options, dated December 7, 2017.
