The European Securities and Markets Authority (ESMA) has reminded firms about existing rules for ESMA event contracts offered in the European Union. The statement follows growing interest in prediction markets and products marketed as event contracts. ESMA said firms must assess whether these products fall within existing binary options restrictions.

  • ESMA said event contracts are agreements with a binary financial outcome based on the answer to a future yes-or-no event. If these contracts qualify as financial instruments under MiFID II, they are treated as derivatives. In that case, they are generally covered by national product intervention measures that prohibit their marketing, distribution or sale to retail clients.
  • The regulator stressed that the commercial name of a product does not determine how it is regulated. Firms must examine the legal structure and characteristics of each product before offering it. ESMA said ESMA event contracts with binary outcomes are likely to fall within the existing measures.
  • According to ESMA, some event contracts may also be classified as bets under national gambling laws. Others issued as tokens may instead fall under the EU Markets in Crypto-Assets Regulation (MiCA) if they are not financial instruments. These classifications do not remove the need to assess whether the products are financial instruments under MiFID II (Markets in Financial Instruments Directive II).
  • ESMA also reminded firms that providing investment services for financial instruments requires MiFID II authorisation. This applies even when ESMA event contracts are distributed only to professional or non-retail clients. The authorisation requirement is separate from the retail marketing restrictions.
  • The regulator said firms should always act honestly, fairly and professionally in the best interests of clients when assessing these products. ESMA stated: “The commercial name provided by firms (e.g. ‘event contracts’) is irrelevant for the categorisation under MiFID II.” The statement is addressed to both firms and national competent authorities across the EU.

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