Prediction markets in Canada: emerging issues

The arrival of prediction markets in Canada has introduced a wave of practical challenges and emerging legal and regulatory issues, including questions relating to the scope of permissible trading, the limitations of traditional market surveillance, and new dynamics relating to the use of confidential information. Financial institutions, compliance professionals, and market participants should monitor regulatory developments and proactively consider how their existing policies apply to this evolving market.

Trading in prediction markets was first authorized in Canada in April 2026. Since then, prediction markets have continued to generate significant attention—and with it, a growing set of practical and legal challenges. This bulletin examines the emerging issues in this evolving landscape and what they mean for market participants.

What you need to know

• The scope of permissible trading. The Canadian Investment Regulatory Organization (CIRO) initially authorized trading in a “limited set” of event contracts based on (i) economic forecasts, (ii) environmental forecasts, and (iii) financial indicators. These categories appear to provide for trading in respect of macroeconomic hedges. But what, exactly, falls into these categories? Last week, the Canadian Securities Administrators (CSA) and CIRO confirmed that event contracts based on sports or entertainment are not regulated under securities and derivatives legislation, and that trading in event contracts outside the permissible categories is not authorized. However, it remains to be seen whether regulators will provide further guidance on the types of event contracts that properly fall within the approved categories.
• New challenges in policing misconduct. Regulators are likely to face challenges surveilling and policing market misconduct. Traditional market surveillance techniques used in equity markets do not translate neatly to prediction markets. The characteristics that make event contracts unique—such as their binary nature and defined price range—are likely to influence trading behaviour in ways that complicate efforts to detect insider trading and market manipulation.
• New dynamics risk creating an uneven playing field. Prediction markets have introduced new dynamics that risk creating an uneven playing field, such as traders who can affect the outcomes of underlying events and employee trading based on confidential (but not or not yet material or disclosable) information. Existing securities law mechanisms designed to level the playing field by mitigating information asymmetry, such as insider reporting obligations, do not neatly apply to prediction markets trading. It remains to be seen if, and how, regulators will respond to these emerging concerns.

Background

In April 2026, CIRO authorized two investment dealers to facilitate trading in a “limited set” of macroeconomic-related event contracts based on (i) economic forecasts, (ii) environmental forecasts, and (iii) financial indicators. The event contracts must have a maturity term of 30 days or longer, consistent with Ontario’s existing prohibition against trading binary options.

As explained in a previous bulletin, the increasing focus on prediction markets has raised widespread concerns about potential misconduct pertinent to this type of trading, including illegal insider trading and tipping, market manipulation, and the misuse of confidential business and government information. While these remain live concerns, new and increasingly nuanced issues continue to emerge.

What are the emerging issues?

The scope of permissible trading

Following CIRO’s authorization to trade in a “limited set” of event contracts based on economic forecasts, environmental forecasts, and financial indicators, questions remained about the types of event contracts that might fall into these categories and whether regulators will expand the list of approved categories in the future.

On August 27, the CSA and CIRO issued Joint Staff Notice 91-307 confirming that event contracts based on sports or entertainment (i) should not be regulated within securities and derivatives legislation, (ii) CIRO will not approve trading in these types of event contracts by dealer members, and (iii) trading in event contracts outside the permissible categories is not authorized. The CSA and CIRO also confirmed that assessment of other categories remains ongoing, and that existing terms and conditions for authorized dealers may be subject to further restrictions.

While the Joint Staff Notice provides additional clarity on the scope of permissible trading, it remains to be seen whether regulators will provide further guidance on the types of event contracts that properly fall within the approved categories.

New challenges in policing misconduct

Regulators are likely to face new and unique challenges surveilling and policing misconduct in prediction markets. Existing market surveillance techniques may not be effective in capturing market misconduct because the characteristics that make event contracts unique—such as their binary nature and defined price range—are likely to influence trading behaviour in ways that complicate efforts to detect insider trading and market manipulation. According to academic and industry commentators, including the Head of Enforcement at Kalshi, “prediction markets have several distinctive features that must be accounted for to ensure any surveillance system operates effectively”.¹

• The timing of insider trades. In equity markets, market surveillance monitors trades placed shortly before material events. This is because traders with material non-public information (MNPI) typically trade shortly before the MNPI becomes public to avoid the risk that the stock price drops for unrelated reasons. In prediction markets, a trader can possess MNPI about the market outcome itself, meaning that a trader who knows the outcome of an event contract can trade immediately (and potentially long before the public announcement). Accordingly, traditional market surveillance focused on trading activity shortly before public announcements or price movements may not capture insider trading in prediction markets.²
• Defined price range. Market surveillance monitors price movements and flags price changes that exceed certain thresholds. Given that event contracts trade between $0 and $1, the surveillance thresholds used to capture significant price changes in equity markets may not effectively capture misconduct in prediction markets.³
• Win rate. Market surveillance monitors “win rates”—i.e., the percentage of trades on which an individual earns a profit. However, because the price of an event contract signifies the probability of a particular outcome, a trader may have a very high “win rate” across various markets but earn only a small profit, meaning that “win rates” may be misleading and ineffective in capturing potential misconduct.⁴

Accordingly, the characteristics that make event contracts unique are also likely to influence trading behaviour in ways that may complicate efforts to detect market misconduct.

New dynamics risk creating an uneven playing field

Prediction markets have introduced new dynamics relating to the use of confidential information that risk creating an uneven playing field among traders. These concerns have prompted many companies to address how prediction markets trading fits within their existing personal trading and compliance frameworks.

In Canada, well-established securities law mechanisms—such as insider reporting obligations and prohibitions against illegal insider trading—are designed to “level the playing field” by mitigating information asymmetry in the market. But these mechanisms may not apply to trading in prediction markets—that is, some traders may have non-public information about the underlying event, while others might have the ability to influence the outcome of the event itself. For example, a reporting insider may have access to confidential but non-material information. If that insider purchased company shares, the insider would have to report those trades on the System for Electronic Disclosure by Insiders (SEDI). If, however, that insider purchased an event contract based on that same confidential information, there is no disclosure obligation. While this example is based on reporting insiders, there are similar concerns about employees trading based on confidential information that is not material to the company but is central to the outcome of an event on which a contract is based. These concerns are particularly acute given the subject nature of many event contracts and the risk that this type of information is available to a broader scope of employees.

Key takeaways

The arrival of prediction markets trading in Canada has introduced a wave of practical challenges and emerging legal and regulatory issues. The scope of permissible trading, limitations of traditional market surveillance, and new dynamics relating to the use of confidential information present distinct challenges that existing frameworks were not designed to address. The CSA and CIRO's recent Joint Staff Notice signals continued regulatory attention, but further guidance on event contracts is expected. Market participants, compliance professionals, and financial institutions should continue to monitor regulatory developments and proactively consider how their existing policies apply to this evolving market.