Brazil Approves Prediction Market as Regulated Financial Instrument
Regulators in Brazil have given the green light for B3 to introduce the country’s first prediction market targeted at professional investors, signaling a stark contrast to the regulatory landscape in the United States. This development marks a notable divergence in how different nations approach event-based trading, especially amid ongoing debates over gambling and financial markets.
This week, the Brazilian Securities and Exchange Commission, known as CVM, approved B3’s plans to operate a prediction market in Brazil. According to BNL Data, B3 aims to launch this platform in the first quarter of the year. However, access will be initially limited to high-net-worth individuals specifically, professional investors with assets exceeding R$10 million. The exchange will start by offering binary options, including “yes” or “no” scenarios on assets such as the dollar, Ibovespa, and bitcoin.
B3 President Gilson Finkelsztain commented on the development, stating, “The world of derivatives is increasingly approaching the frontier of the predictive market,” in an interview with Valor. The regulatory stance keeps B3 within the securities framework rather than under Brazil’s sports betting laws, which were established last year under the Ministry of Finance’s Secretariat of Prizes and Bets.
While this marks the first federally sanctioned prediction market in Brazil, the landscape is not entirely uncharted. Other operators are already providing futures markets in what remains a grey regulatory area, examples include Previas and Palpitada. Futuriza has announced plans to launch in March, offering options on political, economic, sports, and entertainment events.
Unlike in the US, where prediction markets face a complex web of regulations, Brazil’s approach is more centralized. There’s ongoing debate about which authority should oversee these markets potential options include the CVM, the Central Bank, or the Ministry of Finance. As a result, the regulatory environment remains somewhat ambiguous.
Major US-based prediction market operators, like Kalshi, have yet to enter Brazil’s market but are reportedly considering doing so later this year. In the US, prediction markets operate under the oversight of the Commodity Futures Trading Commission (CFTC), which claims jurisdiction over nationwide event trading. However, this has led to significant legal disputes, especially concerning sports betting.
More than twenty lawsuits are currently pending against prediction market operators, primarily Kalshi, with many arguing that these platforms are circumventing state gambling laws. Kalshi maintains that its regulation by the CFTC preempts state regulations, asserting that their event contracts are not bets. Courts in various states, including Maryland, Massachusetts, New Jersey, and New York have issued rulings on both sides of the debate, reflecting the complex legal landscape.
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Most recently, the Ninth Circuit Court of Appeals upheld Nevada’s ban on Kalshi offering sports contracts, citing the state’s authority to regulate gaming. This decision affects approximately 90% of Kalshi’s trading volume, which is heavily concentrated in sports markets. Conversely, Kalshi scored a victory in California, where a judge ruled that the CFTC’s regulation exempts these contracts from violating the Indian Gaming Regulatory Act (IGRA), as they are considered financial instruments rather than bets.
Recently, new CFTC Chair Michael Selig announced the agency’s support for prediction markets in court, signaling a more favorable stance toward their legitimacy and potential growth within the US regulatory framework.
