The European Securities and Markets Authority (ESMA) issued a public statement on 3 July reminding firms that products marketed as "event contracts" may still be subject to the bloc's long-standing prohibition on binary options for retail clients, regardless of their commercial branding.Old Rules, New WrapperThe statement, addressed to both firms and national competent authorities (NCAs), responds to the rising popularity of prediction markets globally and growing retail participation in them. ESMA defines event contracts as agreements with a binary financial outcome, either a fixed payout or nothing, that hinges on a yes-or-no answer to a question about a future event.According to the regulator, not every event contract qualifies as a financial instrument. That classification depends on whether the underlying event question relates to matters covered by MiFID II. Where they do qualify, ESMA states these contracts are derivatives and fall within the scope of national product intervention measures on binary options, which prohibit their marketing, distribution or sale to retail clients across all EU member states. Those measures trace back to a temporary EU-wide prohibition ESMA introduced in 2018, which was later replaced by permanent national rules mirroring the original decision.ESMA was explicit that the name a firm gives a product does not affect how it is categorised under MiFID II. The statement says firms must carry out a careful legal analysis of a product's structure and functioning to determine whether product intervention measures apply, and must do so while meeting their obligation to act honestly, fairly and professionally in clients' best interests.The statement also addresses a common feature of some event contracts: a "coupon" or "reward" representing interest earned on funds paid in. ESMA clarifies that the presence of such a coupon does not change the underlying binary nature of the contract itself.Authorisation Required Even for Non-Retail ClientsSeparately, ESMA reiterated that offering investment services involving financial instruments in the EU requires authorisation under MiFID II, irrespective of the client category served. This means firms distributing event contracts that qualify as financial instruments need this authorisation even if they only serve non-retail clients.The regulator noted that event contracts may also be classified as bets under national gambling legislation, or, where they take a tokenised form and are not financial instruments, as crypto-assets regulated under the Markets in Crypto-Assets Regulation (MiCA).ESMA added that participating in activities designed to circumvent the product intervention measures is prohibited. This article was written by Arnab Shome at www.financemagnates.com.

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