The European Securities and Markets Authority, the European Union's financial markets regulator, warned that some prediction market contracts may already be banned for ordinary users in Europe.
- In a July 3 statement, the regulator targeted event contracts, the regulator's term for yes-or-no markets.
- That can mean betting on whether Bitcoin reaches a certain price, a stock ends the day higher, or an economic report beats expectations.
ESMA's concern is that some of these products look like binary options, all-or-nothing financial bets that usually pay a fixed amount or nothing. Europe already restricts those products for retail users because they're considered risky and easy to market aggressively.
ESMA
The thing is that prediction markets can't avoid those rules by using a softer name. As ESMA argues, the commercial name provided by firms is "irrelevant," meaning a platform may still face binary-options rules even if it calls the product an event contract.
Some markets may fall under gambling laws. Some tokenized markets may fall under the European Union's crypto rules. And some may not be financial products at all.
Still, the warning creates a real sorting problem for prediction markets because a football game, presidential election, crypto token, stock index or inflation report could each fall under different rules.