ESMA Says Many Prediction-Market Event Contracts Cannot Be Sold to Retail Investors

The European Securities and Markets Authority warned that many event contracts offered by the fast-growing prediction-market sector already fall under rules that bar sales to retail investors. The regulator made clear that simply renaming a product does not place it outside existing financial regulations.

Cointelegraph reported on July 3 that ESMA, in a public statement, said event contracts with binary outcomes and fixed payout structures are likely to be classified as financial instruments. Under restrictions on binary options introduced in 2018, products that meet those conditions cannot be marketed, distributed or sold to retail investors.

ESMA said a contract's legal status is determined by its underlying characteristics, not by how it is marketed. It also said firms targeting professional investors or institutions still need formal authorization under the European Union's Markets in Financial Instruments Directive, or MiFID II.

In the US, legal disputes over prediction markets are intensifying. State governments that classify event contracts as gambling are increasingly clashing with the Commodity Futures Trading Commission, which views them as federally regulated derivatives. Through March, 11 states including Nevada and Arizona had ordered major prediction platforms such as Kalshi and Polymarket to halt operations or had pursued criminal complaints alleging illegal gambling.

The CFTC, by contrast, sued some states in April, asserting exclusive jurisdiction over event contracts. It also filed court briefs supporting platforms including Kalshi.