ASIC raises red flags on prediction markets

ASIC chair Sarah Court has warned retail investors to be wary of "highly speculative" prediction markets, likening them to betting.

Court said prediction market contracts "have all the features of a bet" and that the regulator believes they are not in the public interest.

"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," she said.

"In many cases, these events have nothing to do with investment."

Prediction markets can include betting on whether the outcome of whether it will rain tomorrow or whether a particular sporting team will win or by how many goals.

ASIC currently treats prediction markets similar to the way it approaches binary options.

Both binary options and prediction market contracts involve speculating on the binary outcome of a future event. Prediction markets contracts, meanwhile, 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% of retail clients lost about $14 million last year.

Court noted that these features raise questions about whether prediction market contracts are appropriately described as investment products.

"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," she said.

Some AFSLs facilitate access to offshore prediction markets. Court warned these AFSL holders to be aware that all of their licence obligations under Australian law continue to apply to them when engaging in this activity.