The European Securities and Markets Authority just told the prediction market industry what it probably didn’t want to hear: calling your product an “event contract” instead of a “derivative” doesn’t make it legal to sell to retail customers in Europe.
ESMA issued a public statement on July 3 clarifying that prediction market products with binary outcomes, the yes-or-no bets that have become wildly popular on platforms like Polymarket, fall squarely under existing financial instrument regulations. And those regulations, specifically the ones banning binary options for retail clients, haven’t gone anywhere.
What ESMA actually said
The regulator’s position is straightforward. If a product offers a fixed payout based on whether a future event happens or not, its legal classification depends on the product’s underlying characteristics, not whatever creative label a company slaps on it in its marketing materials.
Binary options have been effectively banned for retail investors across the EU since May 2018, when ESMA first enacted a temporary prohibition under Article 40 of the Markets in Financial Instruments Regulation. That temporary measure proved popular enough that most EU member states adopted permanent national bans of their own.
