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ESMA clarifies when prediction-market contracts fall under EU binary-options rules
The European Securities and Markets Authority said on July 4 that certain event contracts could breach the bloc's binary options prohibition when sold to retail clients as financial instruments. Firms must evaluate products by their features rather than labels.
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The European Securities and Markets Authority said on July 4 that some prediction-market event contracts may violate the European Union's binary options ban when they function as financial instruments for retail clients. “This means that the marketing, distribution or sale to retail clients of event contracts that meet the definition of financial instruments is prohibited,” the authority stated.
ESMA added that the product's commercial name is irrelevant if its underlying meets MiFID II derivatives definitions.
Contracts that qualify as financial instruments count as derivatives and fall under national product intervention measures for binary options, the regulator said. A coupon, reward or interest-like payment on user funds does not alter the binary payout structure, it noted.
Firms offering related investment services in the EU require MiFID II authorization even when distribution targets only non-retail clients, ESMA said.
Such contracts may also fall under national gambling laws or, if tokenized and outside financial-instrument rules, under the Markets in Crypto-Assets framework. CoinDesk reported that Kalshi was valued at $22 billion in its latest funding round. Jump Trading has taken small stakes in Kalshi and Polymarket in exchange for liquidity provision.
