EU Regulator Warns Prediction Market Operators May Already Fall Under Binary Options Ban

Key Insights

• Rebranding a binary payout product as an "event contract" or "prediction market" does not exempt it from EU rules — classification hinges on whether the underlying falls within Section C(4)-(10) of Annex I of MiFID II, not on commercial labelling.

• The MiFID II authorisation requirement applies even to firms distributing qualifying event contracts solely to professional or institutional clients, closing off a retail-exclusion workaround.

The European Securities and Markets Authority (ESMA) has reminded investment firms that event contracts — the instruments underlying so-called prediction markets — may already be caught by the European Union's long-standing ban on marketing binary options to retail investors, regardless of how the products are commercially branded.

In a public statement dated 3 July 2026 and addressed to firms and national competent authorities (NCAs), the EU's markets regulator said it and NCAs across the bloc have observed a rise in the offering of event contracts alongside the broader global growth of prediction markets and increasing retail participation. ESMA defines event contracts as agreements with a binary financial outcome — a fixed payout or none at all — determined by a yes-or-no answer to a question about a future event.

Not every event contract is a financial instrument, ESMA said. Only those referencing an underlying listed in Section C(4) to C(10) of Annex I of the EU's Markets in Financial Instruments Directive (MiFID II) meet that threshold. Where they do, ESMA said, they classify as derivatives and, because of their binary structure, fall within the scope of national product intervention measures on binary options that prohibit marketing, distributing, or selling such products to retail clients.

Those measures trace back to ESMA Decision (EU) 2018/795, adopted on 22 May 2018, which temporarily banned the marketing of binary options to retail clients across the Union. That temporary ban was extended through quarterly renewals until July 2019, by which point every EU member state had adopted permanent national measures mirroring it. Those national bans remain in force today.

ESMA was explicit that the commercial label a firm gives a product — including calling it an "event contract" — has no bearing on how it is categorised under MiFID II. Firms, the regulator said, must carry out their own legal analysis of a product's structure and mechanics to determine whether the intervention measures apply, consistent with their overarching obligation to act honestly, fairly, and professionally in clients' best interests. The statement also addressed a specific workaround: offering a "coupon" or "reward" representing interest earned on staked funds does not change a contract's underlying binary nature or exempt it from the rules.

Separately, ESMA reiterated that providing investment services involving financial instruments in the EU requires MiFID II authorisation as an investment firm — a requirement that applies even when event contracts are distributed exclusively to non-retail (professional or institutional) clients.

The regulator noted that event contracts falling outside the financial-instrument definition may still be regulated elsewhere: as bets under national gambling legislation, or, where they take token form, as crypto-assets under the EU's Markets in Crypto-Assets Regulation (MiCA). ESMA added that firms attempting to circumvent the product intervention measures are prohibited from doing so.