Why is the European Securities and Markets Authority warning prediction market platforms?

The European Securities and Markets Authority (ESMA) said some event contracts offered by prediction market platforms could qualify as financial instruments under MiFID II. If they meet the criteria, the contracts may be regulated as derivatives and subject to existing EU financial rules.

What are MiFID II rules for prediction market contracts?

Under MiFID II, event contracts may be treated as financial instruments if they relate to underlying assets listed in Annex I of the directive. The European Securities and Markets Authority (ESMA) said firms must assess each contract individually to determine whether the rules apply.

How is the European Securities and Markets Authority (ESMA) treating binary options and event contracts?

The European Securities and Markets Authority (ESMA) said qualifying event contracts are considered derivatives and fall within existing product intervention measures for binary options. The regulator added that the name of the contract does not change its regulatory classification.

What does the European Securities and Markets Authority (ESMA) require from prediction market operators?

The European Securities and Markets Authority (ESMA) said firms should review each event contract on a case-by-case basis and obtain the required regulatory authorisations where applicable. Operators must also comply with national investor protection rules if their products fall within MiFID II.

Why did legal experts welcome the European Securities and Markets Authority's (ESMA) statement?

European law firm ATH21 said the European Securities and Markets Authority's (ESMA) statement clarifies how existing regulations may apply rather than creating new rules. The firm said businesses should focus on each product's characteristics instead of its label when assessing compliance.

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ESMA warns prediction markets over EU rules

Written by Heidi Cuthbert Published Jul 6, 2026, 6:10 AM

The European Securities and Markets Authority said some prediction market contracts could be regulated as financial derivatives under MiFID II.
Platforms offering qualifying event contracts may need regulatory authorisation and must comply with national investor protection rules.
The regulator said firms should assess each product individually because contract labels do not determine regulatory treatment.

The European Securities and Markets Authority (ESMA) warned that some event contracts offered by prediction market platforms, including Polymarket and Kalshi, could qualify as financial instruments under the Markets in Financial Instruments Directive II (MiFID II).

ESMA said event contracts linked to underlying assets covered by Annex I of MiFID II may be classified as derivatives, placing them within existing product intervention measures that apply to binary options.

“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,” ESMA said.

The regulator said the name given to an event contract does not affect its regulatory status and that firms should assess each product individually, obtain the required authorisations where applicable and comply with national market protection rules, even when products are offered only to non-retail clients.

ESMA also said that offering investors a coupon or reward on deposited funds does not alter the binary nature of an event contract, while legal experts said the guidance reinforces the application of existing rules rather than introducing new restrictions.

The statement follows increased regulatory scrutiny of prediction market platforms across several jurisdictions as authorities assess whether event-based contracts should be regulated under existing financial market laws.

Cris Carrascosa, chief executive of European law firm ATH21, said companies should analyse each product based on its characteristics rather than its label to determine whether it falls within the scope of current financial regulations.