ESMA Cautions That Prediction Markets May Already Break EU Retail Rules

Europe’s top securities regulator says a growing number of prediction market products could already be breaking rules meant to protect everyday investors, even though companies are branding them as something new.

Event Contracts Aren’t a Loophole, Regulator Says

The European Securities and Markets Authority made clear on Friday that businesses cannot dodge financial oversight by simply calling a product an “event contract” instead of a derivative. According to the watchdog, contracts already banned from retail sale under binary options restrictions dating back to 2018 remain off-limits, no matter what label companies attach to them.

What matters, the regulator explained, is how a contract actually works, not how it’s marketed. Products offering yes-or-no outcomes with fixed payouts are likely to be treated the same as traditional binary options.

Rules Still Apply Even for Bigger Investors

Even when regular retail customers are kept out, ESMA says firms offering these contracts to professional or institutional clients still need proper licensing under the EU’s financial instruments framework. The regulator noted this isn’t a new rule, but a reminder issued as prediction markets have grown rapidly in popularity.

Meanwhile, the United States is dealing with its own clash over prediction markets, as state regulators and the federal government disagree on whether these products should be treated as gambling or legitimate derivatives trading, with legal battles playing out in multiple states.