ASIC questions whether retail prediction markets serve the public interest

Australia’s corporate regulator has said it is not convinced that prediction markets aimed at retail clients are in the public interest, casting doubt on products that let users stake money on whether a specified event will occur.

The Australian Securities and Investments Commission said the contracts are highly speculative and usually have an all-or-nothing outcome. They can cover matters with little connection to investing, such as tomorrow’s weather, a sports result or a team’s winning margin.

ASIC Chair Sarah Court said prediction-market contracts have “all the features of a bet,” according to TokenPost. The regulator said the products raise questions over whether they should appropriately be described as investment products.

The statement did not create a new prohibition on prediction markets or determine an Australian market-licence application. But it sets out the test ASIC will apply under section 798A of the Corporations Act 2001, which requires it to have regard to the public interest when granting an Australian market licence.

ASIC identified risks involving the misuse of confidential information, market manipulation and disputes over how a contract’s outcome is determined. It said Australians accessing offshore prediction markets online directly do not receive protections under Australian law, while Australian financial-services licensees facilitating such access remain subject to their licensing obligations.

The regulator drew a comparison with binary options, which also turn on a binary future outcome. Prediction markets are generally offered through market platforms, whereas binary options are sold over the counter by brokers.

ASIC’s stance is consistent with its treatment of binary options, whose sale to Australian retail clients was banned in 2021 and later extended for a decade. The regulator said data preceding that intervention showed that up to 77% of retail clients lost a combined $14 million in the prior year.

Earlier ASIC reviews in 2017 and 2019 found that roughly 80% of retail clients lost money trading binary options. ASIC estimated net retail losses of about $490 million in 2018 and more than $6.7 million in 2019, and concluded that the products had caused, and were likely to cause, significant consumer detriment.

ASIC said its approach also accords with restrictions imposed in parts of Europe and the United Kingdom on event contracts that have characteristics similar to binary options. In August, the ABC reported that no prediction-market operator held an Australian financial-market licence as of Aug. 3, while FEXGlobal had expressed interest in becoming the first licensed operator.