The European Securities and Markets Authority (ESMA) said some predictive market contracts could be covered by the European Union’s binary options ban, warning firms that yes-or-no event contracts cannot be marketed, distributed or sold to retail clients when they are considered financial instruments.
“This means that the marketing, distribution or sale to individual clients of event contracts meeting the definition of financial instruments are prohibited,” ESMA said in a press release.
The regulator has targeted contracts where the payout is binary, usually a fixed amount or nothing, and depends on the outcome of a future event.
ESMA said the product label is irrelevant, as a contract sold as an “event contract” can still be a MiFID II financial instrument if its underlying falls within the derivatives categories.
Event-driven contracts considered financial instruments are derivatives, ESMA said. This places them within the scope of national intervention measures on binary options products.
The warning comes as prediction markets grow in crypto and traditional finance. Kalshi and Polymarket have been seen as potential M&A targets as operational lines blur between exchanges, brokerages and sportsbooks.
