ESMA statement on application of national product intervention measures on binary options to event contracts

The European Securities and Markets Authority (ESMA) have published a statement reminding firms to assess whether the new products they offer fall within the scope of existing national product intervention measures on binary options. ESMA's statement responds to the growing popularity of prediction markets—or event contracts— and increasing retail participation globally. ESMA defines "event contracts" as agreements whose financial outcome is binary (a fixed payout or no payout at all) and depends on a yes-or-no answer to a question about a future event. ESMA confirms that not all event contracts are financial instruments, and 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. Event contracts qualifying as financial instruments are derivatives and fall within the scope of the temporary product intervention measures on binary options which were initially adopted by ESMA Decision (EU) 2018/7952 and which were subsequently replaced by permanent national product intervention measures mirroring the ESMA temporary measures. As a result, the marketing, distribution or sale of such products to retail clients is prohibited. ESMA reminds firms that product categorisation depends on a product's characteristics rather than its commercial name, and that firms must carefully assess whether the measures apply to the products they offer, while meeting the overarching obligation to act honestly, fairly and professionally in accordance with the best interests of clients. ESMA also reminds firms that providing investment services relating to such instruments requires MiFID II authorisation, even when only distributed to non-retail clients.

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