Australian financial regulator believes prediction market contracts share characteristics with binary options, which are prohibited in Australia
The Australian Securities & Investments Commission (ASIC) has warned Australian prediction market users that they do not have protections under Australian law.
ASIC chair Sarah Court said that prediction market contracts have all the features of a bet and share characteristics with binary options, which were banned for retail clients in 2021.
“ASIC is not currently convinced that prediction markets for retail clients are in the public interest,” said Court. “They are highly speculative, typically involving an all-or-nothing outcome based on the occurrence of a particular event, a characteristic they share with binary options, which are prohibited for retail clients in Australia.
“In many cases, these events have nothing to do with investment. They might include, for example, whether it will rain tomorrow or whether a particular sporting team will win or by how many goals. These features raise questions about whether prediction market contracts are appropriately described as investment products.”
Court also said that prediction markets may also give rise to market integrity risks, including the misuse of confidential information, market manipulation and disputes over how outcomes are determined.
“Australians who choose to access offshore prediction markets directly online should be aware that they do not have protections under Australian law,” Court continued. “Australian financial service licensees that facilitate access to offshore prediction markets should be aware that all their licence obligations under Australian law continue to apply to them in this activity.”
ASIC’s approach to prediction markets is consistent with its approach to binary options. Both binary options and prediction market contracts involve speculating on the binary outcome of a future event.
Prediction markets contracts are generally offered via a market platform while binary options are sold over-the-counter via brokers.
ASIC banned the sale of binary options to retail clients in 2021 and subsequently extended the ban for a decade in response to data showing that up to 77 per cent of retail clients had lost A$14 million in last year.
ASIC’s approach is also consistent with approaches taken in several comparable jurisdictions, including parts of Europe and the United Kingdom, where regulators have restricted access to event contracts that share similar characteristics to binary options.