On July 3, ESMA issued a statement warning that some event contracts resembling binary options could fall under current derivatives regulation. The regulator stressed that firms offering these instruments should assess whether these contracts fall under this classification to comply with regulatory requirements.
The European Securities and Markets Authority (ESMA), Europe’s main financial markets regulator, has issued a statement warning about the application of current regulatory frameworks to some contracts offered in prediction markets.
On July 3, ESMA stressed that some contracts offered on prediction market platforms such as Polymarket and Kalshi could fall under MiFID II (Markets in Financial Instruments Directive II) oversight, as they might resemble binary options.
The regulator stated that “only event contracts with an event question related to an underlying mentioned in Section C(4) to (10) of Annex I of MiFID II classify as financial instruments,” which include options, futures, swaps, and derivative contracts related to different subjects.
ESMA declared that event contracts that qualify as financial instruments “are derivatives and fall within the scope of the temporary product intervention measures on binary options,” and are subject to market protections established by National Competent Authorities (NCAs) in each of their jurisdictions.
