The European Securities and Markets Authority has issued a major warning. It states that certain prediction-market event contracts may be covered by the European Union’s existing ban on binary options.
The regulator says yes-or-no contracts that function as financial instruments cannot be marketed, distributed, or sold to retail clients in the EU. ESMA emphasizes that a product's actual function, not its commercial name, determines its legal classification.
This move targets contracts with a binary payout structure, typically a fixed amount or nothing, based on the outcome of a future event. Such products, if they qualify as derivatives, fall under national product intervention measures.
The warning arrives as prediction platforms like Kalshi and Polymarket experience explosive growth. Kalshi was recently valued at $22 billion. ESMA states that firms offering related investment services require MiFID II authorization, even if distribution is limited to non-retail clients.
ESMA notes these contracts may also be subject to national gambling laws or, if tokenized, the Markets in Crypto-Assets (MiCA) framework.