European Union · CoinDesk
EU moves to block retail investors from explosive boom of multibillion-dollar prediction markets
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The European Securities and Markets Authority (ESMA) said some prediction-market contracts may be covered by the European Union’s binary options ban, warning firms that yes-or-no event contracts cannot be marketed, distributed or sold to retail clients when they qualify as financial instruments.
Key facts
- Kalshi was valued at $22 billion in its latest funding round, while Jump Trading has moved to take small stakes in Kalshi and Polymarket in exchange for liquidity provision
- The European Securities and Markets Authority (ESMA) said some prediction-market contracts may be covered by the European Union’s binary options ban, warning firms that yes-or-no event contracts
- Event contracts that qualify as financial instruments are derivatives, ESMA said
- ESMA said a coupon, reward or interest-like payment on user funds does not change the product's binary structure
Summary
ESMA warns that some prediction-market event contracts may violate the EU's binary options ban if they function as financial instruments for retail clients. Regulators emphasized that a product's actual function as a derivative matters more than its commercial name or labeling when assessing compliance. Firms offering investment services linked to these products need MiFID II authorization, though they may also face national gambling or MiCA oversight. “This means that the marketing, distribution or sale to retail clients of event contracts that meet the definition of financial instruments is prohibited,” ESMA said in a statement.