The European Securities and Markets Authority (ESMA) on Friday issued a statement reminding firms that prediction-market event contracts may be covered by the existing EU and national product-intervention rules for binary options.
ESMA said event contracts, which pay a fixed amount or nothing depending on whether a yes-or-no condition about a future event is met, can qualify as financial instruments. Whether they do depends on the specific event question underlying the contract.
Where they qualify as financial instruments, ESMA said the contracts are derivatives. Because of the binary outcome, they can trigger national competent authorities’ permanent prohibitions on marketing, distributing, or selling binary options to retail clients.
The regulator also said that distributing in-scope event contracts in the EU requires authorisation as an investment firm, even when the contracts are offered only to non-retail clients.
ESMA added that some event contracts may alternatively fall under national gambling law.
Existing binary-options regime
ESMA first prohibited retail binary options distribution at EU level in 2018 under MiFIR product intervention powers. It stopped renewing that temporary measure in July 2019 after most national competent authorities adopted permanent local measures that were at least as stringent. Friday’s statement applies that perimeter to prediction-market contracts.
