ESMA’s statement reinforces that existing EU Member State product intervention measures on binary options apply to event contracts which constitute financial instruments.

By Gabriel Lakeman, José María Alonso, Axel Schiemann, Thomas Vogel, and Paloma Arizon

Link to Key Points: Key Points:

  • ESMA’s statement does not address some key areas of uncertainty in this area, such as the distinction between financial services and gambling regimes.
  • ESMA reminded firms that existing product intervention measures restricting distribution of binary options to retail clients may already capture these products where they constitute MiFID financial instruments.
  • The statement seeks to limit certain “coupon” or “reward” based approaches to mitigate the impact of product intervention measures, and targets distribution to institutional clients — signalling increasing focus by regulators on prediction markets.

On 3 July 2026, ESMA published a public statement addressing the application of existing national product intervention measures on binary options to event contracts. The statement comes against the backdrop of increasing attention to event contracts, which ESMA characterises as agreements whose financial outcome is binary (a fixed payout, or no payout at all) depending on a yes-or-no answer about a future event.

ESMA reminded firms that event contracts with an event related to an underlying mentioned in Section C(4) to (10) of Annex I of MiFID II may qualify as financial instruments1 and, as such, are derivatives falling within the scope of the national product intervention measures on binary options — originally adopted by ESMA in its Decision (EU) 2018/795 of 22 May 20182 and since replaced by permanent EU Member State-level national measures. As a result, the marketing, distribution, or sale to retail clients of such event contracts is accordingly prohibited.

From a technical perspective, the public statement is not breaking new ground, as it is already clear that certain event contracts may, depending on the underlying, fall within the financial services perimeter. In addition, the statement does not address the distinction between event contracts falling under gambling or non-financial services regimes and those which do not — a key question in this area. However, the ESMA statement does demonstrate a continuing regulatory focus on prediction markets, and contains some interesting positioning that seeks to limit provision of services to institutional clients, and on certain “coupon” or “reward” structures which seek to limit application of binary option intervention measures.

Link to ESMA Seeks to Apply Existing EU Rules ESMA Seeks to Apply Existing EU Rules

ESMA’s approach closely mirrors its earlier statement on perpetual futures contracts, where it confirmed that if a perpetual futures contract meets the definition of a contract for difference (CFD), it would be subject to existing product intervention measures applicable to CFDs. In both cases, rather than introducing new regulatory tools, ESMA has sought to confirm the application of existing frameworks to emerging product types.

In doing so, ESMA is clearly seeking to direct the EU-wide position on the treatment of these products. That said, it remains constrained by the fact that product intervention measures have evolved from EU-wide, ESMA-level temporary interventions to permanent measures adopted at the national Member State level. As a result, and without introducing new ESMA-level product intervention measures, ESMA is limited to seeking to direct supervisory convergence across national competent authorities (NCAs). The practical significance of ESMA’s statement will therefore depend, to some extent, on how individual NCAs respond. Nevertheless, ESMA’s intervention is a key development and can be expected to further restrict the distribution of event contracts in the EU.

Link to Neutrality of Coupon and Reward Mechanisms Neutrality of Coupon and Reward Mechanisms

The statement addresses prediction market products that incorporate a “coupon” or “reward” feature — typically representing interest or yield earned on funds paid into the contract. ESMA takes the position that the existence of such a coupon or reward does not change the binary nature of the event contract itself. This position appears aimed at certain prediction market structures in the EU which seek to pair a binary event payout with a yield or reward mechanism, resulting in a product which does not have a simple, fixed binary payout and could therefore be argued to be outside binary option intervention measures in individual EU Member States.

ESMA’s statement is a significant key development for firms looking to structure event contracts for retail distribution across the EU under the financial services regime, and it may serve to prompt greater harmonisation across individual EU Member State NCAs on treatment of contracts including a yield component.

Link to Impact on Institutional Distribution Impact on Institutional Distribution

Finally, the statement also targets distribution of event contracts to non-retail clients, stating that provision of investment services and activities in the EU requires authorisation under MiFID II, and so distribution to non-retail (e.g., institutional) clients also requires authorisation. This aspect of the statement appears targeted at firms seeking to provide services to institutional clients. However, such arrangements are typically cross-border in nature and, depending on the facts, would typically seek to avoid triggering EU licensing requirements through reliance on reverse solicitation or other established cross-border distribution arrangements. Although there is a general trend for EU regulators, including ESMA, to seek to restrict such models, provision of cross-border services without a local licence is an established route for servicing institutional clients, and so it is not clear that ESMA’s comments in this area impact the viability of such models.

Link to Looking Ahead Looking Ahead

ESMA’s statement sends a clear signal that the existing product intervention framework remains applicable to prediction markets — regardless of how products are branded. Firms offering or distributing event contracts, particularly to EU retail clients, should carefully assess whether their products fall within the scope of EU licensing requirements or Member State-level product intervention measures, including by considering the impact of any coupon or reward features.

It is notable that ESMA has published this statement at the same time as the European Commission is consulting on the regulatory treatment of prediction contracts as part of the broader MiCA review. That consultation, which is open until 30 September 2026, will explore whether and how prediction markets should be addressed within the EU’s cryptoasset regulatory framework. The interaction between MiFID II, the product intervention framework, and the forthcoming MiCA review will be an important area to watch in the months ahead.

Latham & Watkins will continue to monitor and report on developments related to prediction markets and the application of product intervention measures in the EU.