Application of CIRO Requirements to Event Contracts

In response to growing interest among market participants and investors in prediction markets and event contracts, which are derivative contracts based on the outcomes of future events, the Canadian Investment Regulatory Organization (CIRO) is publishing this bulletin to clarify the application of its requirements to Dealer Members.

To date, two CIRO Investment Dealer Members have been authorized by CIRO to facilitate trading in event contracts. Trading of event contracts by these Dealer Members is subject to certain terms and conditions imposed by CIRO, in consultation with Canadian Securities Administrators (CSA) members, as well as CIRO’s requirements regarding options trading. The terms and conditions are attached as Appendix A.

CIRO has authorized trading by these Investment Dealer Members in a limited set of event contracts that are traded and cleared through certain U.S. Commodity Futures Trading Commission regulated exchanges and clearing houses. Any Investment Dealer Member seeking to trade or facilitate trading in such products must provide written notification to CIRO pursuant to Investment Dealer and Partially Consolidated Rule subsection 2246(2).1

CIRO emphasizes that certain categories of event contracts remain prohibited and may not be offered, traded, or facilitated by Dealer Members. Notably, Investment Dealer Members may not trade in event contracts based on the outcome of elections, political events, or other events of a political nature such as contracts predicting political party leaders' nominations or referendum results, or otherwise offer event contracts based on the outcome of unlawful activities under Canadian federal, provincial or territorial law. Investment Dealer Members are expected to exercise due diligence to ensure that any event contracts made available to clients do not fall within these prohibited categories.

In addition to the contract type restrictions outlined above, CIRO has imposed limitations on the permissible maturity of event contracts. Specifically, Investment Dealer Members may only facilitate trading in permitted event contracts that have a term to maturity of 30 days or longer.

CIRO and the CSA continue to monitor developments with prediction markets and event contracts and intend to issue further guidance which could result in the imposition of further restrictions.

Appendices

Appendix A – Terms and conditions

Appendix A – Terms and Conditions

1. Investment Dealer Members’ offering of event contracts will be limited to the following:
   • Economic Forecasts: such as contracts based on economic statistics related to the amount of sovereign debt, inflation rates, central bank reserve rates, labor markets, and housing;
   • Environment Forecasts: such as contracts based on climate indicators related to the average global temperature;
   • Financial indicators: such as US 500 Forecast Contracts that settle based on the daily settlement price of the Chicago Mercantile Exchange (“CME”) E-Mini S&P 500 Futures.
2. Investment Dealer Members’ offering of event contracts will be limited to contracts with a term to maturity of 30 days or longer. For greater certainty, issuing a new threshold in respect of an event contract constitutes a new contract, this new contract must also have a term to maturity of 30 days or longer.
3. Investment Dealer Members will not offer event contracts based on the outcome of elections, political events, or other events of a political nature such as contracts predicting election results, political party leaders' nominations or referendum results or otherwise offer event contracts based on the outcome of unlawful activities under Canadian federal, provincial or territorial law.
4. Investment Dealer Members will not allow clients to use leverage, including the use of margin accounts, for transacting in event contracts.
5. Investment Dealer Members will notify CIRO in writing and file a material change to business activities application should it wish to offer event contracts beyond those specifically listed in section 1 above.

• 1See GN-2200-21-001 – Reporting of material changes to business activities and Notice of Business Changes.