Europe’s markets regulator said event contracts that function like binary options can fall under national investor-protection rules, regardless of how platforms label them.
ESMA (Europe’s securities regulator) said some contracts offered by prediction market platforms including Polymarket and Kalshi could come under MiFID II (EU markets rulebook) if their structure makes them financial instruments such as binary options. In a July 3 statement, the regulator said only event contracts tied to an underlying listed in Annex I, Section C(4) to (10) of MiFID II qualify as financial instruments, covering instruments including options, futures, swaps and other derivatives. When they do qualify, ESMA said they are derivatives and fall within temporary product intervention measures on binary options, making them subject to protections enforced by National Competent Authorities (national market regulators) across member jurisdictions. The regulator added that product labels do not matter and firms must assess each contract’s actual features and comply with existing rules, including securing authorization to distribute them even when they are offered only to non-retail clients. ESMA also said that paying a coupon or reward on funds posted does not alter a contract’s binary character. Cris Carrascosa, CEO of ATH21, said the statement was not aimed at curbing innovation but at reminding firms how far existing regulation can reach, arguing that compliance depends on a case-by-case review of each product’s characteristics rather than its label.