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ESMA targets “event contracts”
The European Securities and Markets Authority (ESMA) warned that many prediction-market event contracts already face the EU’s retail ban on binary-style products, saying companies cannot evade rules by marketing binary outcomes as “event contracts” rather than derivatives.
“ESMA warns that many prediction-market event contracts already face the EU's retail ban”
ESMA’s guidance, issued as a reminder, said it followed increased offerings of event contracts and the rapid growth of prediction markets, while noting that qualifying binary options have been subject to national restrictions across the EU since 2018.
ESMA framed the key issue as whether a contract’s underlying characteristics qualify it as a financial instrument, with the regulator warning that binary outcomes and fixed payouts are likely to fall within existing restrictions.
The guidance also emphasized that even where retail investors are excluded, offering qualifying event contracts to professional or institutional clients still requires authorization under the EU’s Markets in Financial Instruments Directive, or MiFID II.
In the United States, the same kind of “event contracts” dispute is being fought between state gaming regulators and the Commodity Futures Trading Commission (CFTC), with the CFTC asserting “exclusive jurisdiction” over prediction markets.
Regulators, courts, and filings
ESMA said its July 3 statement does not introduce new legislation, instead clarifying that the existing regulatory framework may already cover some prediction market products being marketed in Europe.
The regulator directed firms and national regulators to assess whether event-based contracts qualify as financial instruments under MiFID II, warning that if the threshold is met, the EU’s retail restrictions on binary options introduced in 2018 would automatically apply.
In Spain, the Ministry of Consumer Affairs temporarily blocked Kalshi and Polymarket on May 26 after determining that the platforms did not hold the gambling licenses required under Spanish law.
On June 19, gambling regulators from nine European countries, including Belgium, France, Germany and Spain, issued a joint statement warning consumers about unlicensed gambling websites operating across Europe ahead of the FIFA World Cup.
In the US, a Massachusetts judge on June 30 allowed state authorities to file an amended complaint against Kalshi in an ongoing lawsuit alleging the company’s sports-event contracts constitute illegal gambling under state law.
What’s at stake next
ESMA’s position raises the compliance bar for any firm considering a European launch because it ties consequences to contract classification under MiFID II, rather than to how the product is labeled in marketing.
“ESMA warns prediction market contracts face EU retail ban Europe's top securities regulator says rebranding binary options as 'event contracts' doesn't dodge existing rules that ban their sale to retail investors”
Finance Magnates described ESMA’s move as raising the entry bar for a market that “barely exists in Europe,” noting that none of the major platforms runs a licensed prediction market business within the European Union.
ESMA also reminded firms that distribution of event contracts qualifying as financial instruments in the EU requires an authorisation as investment firm, even where only distributed to non-retail clients.
The regulator further stressed that firms must conduct a careful legal analysis of products and their functioning, including whether binary outcomes and fixed payouts fall within product intervention measures on binary options.
Across the EU, the guidance comes alongside enforcement actions already taken by national authorities, including Spain’s May 26 temporary block of Kalshi and Polymarket and the June 19 joint warning by regulators from nine European countries.
