ESMA says prediction market contracts fall under EU rules

The European Union's top securities regulator has warned that many contracts offered by prediction markets likely fall under existing financial rules, meaning they could be automatically banned for retail investors across the bloc. In a public statement on July 3, the European Securities and Markets Authority (ESMA) clarified that companies cannot circumvent EU regulations simply by marketing binary-style products as "event contracts" rather than derivatives.

ESMA stated that the assessment depends on a contract's inherent characteristics, not its branding. Contracts with binary outcomes and fixed payouts are likely to qualify as financial instruments under the EU's Markets in Financial Instruments Directive (MiFID II). If they do, national measures implementing ESMA's 2018 ban on binary options for retail investors would automatically apply. The regulator emphasized this is not a new restriction but a clarification of how existing rules may already cover products expanding under the prediction market label.

The guidance also draws a line for professional and institutional clients. Even if retail investors are excluded, offering qualifying event contracts to these clients still...