EU regulation of prediction markets: The European Union, through the European Securities and Markets Authority (ESMA), has said some prediction‑market event contracts qualify as financial instruments and therefore fall under the EU’s binary options ban. Yes‑or‑no event contracts that meet the financial‑instrument definition cannot be marketed, distributed or sold to retail clients. The prohibition covers contracts treated as derivatives under MiFID II and affects platforms including Kalshi and Polymarket.
ESMA has said that the commercial label of a product as an ‘event contract’ is irrelevant for its legal classification. A contract sold as an event contract can still qualify as a MiFID II financial instrument if its underlying falls within the derivatives categories set out in MiFID II. Event contracts that meet the definition of financial instruments are treated as derivatives and fall under national product intervention measures for binary options. When an event contract is a financial instrument, marketing, distribution or sale to retail clients is prohibited under the EU’s binary options ban.
ESMA noted that a coupon, reward or interest‑like payment on user funds does not change the binary structure of the product. It emphasized that firms must determine legal classification on the basis of a product’s features and functioning rather than its commercial name. ESMA also said the restriction is not limited to retail-facing platforms: firms offering investment services linked to these products in the EU need MiFID II authorization even if distribution is limited to non‑retail clients.
Under EU regulation of prediction markets, ESMA has said that yes-or-no event contracts that meet the definition of financial instruments cannot be marketed, distributed or sold to retail clients. Event contracts that meet the definition of financial instruments are treated as derivatives under MiFID II. Such contracts fall under national product intervention measures for binary options. A contract sold as an ‘event contract’ can still be a MiFID II financial instrument if its underlying falls within the derivatives categories set out in MiFID II.
The restriction is not limited to retail-facing platforms: firms offering investment services linked to these products in the EU need MiFID II authorization even if distribution is limited to non-retail clients. If event contracts are not financial instruments, they may fall under national gambling laws. Event contracts that are tokenized and not classified as financial instruments may fall under the Markets in Crypto-Assets (MiCA) framework. ESMA emphasized that firms must assess legal classification based on a product’s features and functioning rather than its commercial name.
Kalshi was valued at $22 billion in its latest funding round. Kalshi and Polymarket are identified as prediction‑market platforms in the regulatory coverage. The article lists these firms by name in the context of EU regulation of prediction markets.
Jump Trading has taken small stakes in both Kalshi and Polymarket. Those stakes were taken in exchange for providing liquidity to the platforms. The reporting presents these ownership and liquidity arrangements as factual business activities related to the prediction‑market sector.
Under the EU binary options ban, yes‑or‑no event contracts that meet the definition of financial instruments are restricted from marketing, distribution and sale to retail clients, and the commercial label of such contracts is irrelevant to their legal classification. ESMA requires firms to assess legal classification based on a product’s features and functioning, and the measures extend beyond retail channels because firms offering investment services linked to these products in the EU must hold MiFID II authorization even where distribution is limited to non‑retail clients.
