[DigitalToday reporter Chi-gyu Hwang (황치규)] The European Securities and Markets Authority (ESMA) warned that a large share of prediction market contracts may already be subject to a ban on sales to retail investors. Cointelegraph reported on Thursday that ESMA said firms cannot avoid European Union financial rules even if they promote the products as "event contracts".

In a public statement, ESMA reaffirmed that event contracts that qualify as financial instruments cannot already be marketed, distributed or sold to retail investors. The measure follows the implementation by member states in domestic rules of ESMA's 2018 restrictions on binary options. ESMA said the statement does not introduce new rules but reiterates existing restrictions.

The key test is the nature of the contract, not its name. ESMA said event contracts with outcomes that split into one of two and fixed payouts are likely to qualify as restricted financial instruments.

Rules do not disappear even if the products are offered only to professional investors or institutional investors. ESMA said that if the contracts qualify as financial instruments, they require authorisation under the Markets in Financial Instruments Directive, MiFID II, even if retail investors are excluded.

ESMA issued the guidance as the supply of event contracts has recently increased and prediction markets have grown rapidly. Binary options that meet the criteria of financial instruments have already been subject to country-by-country restrictions across the European Union since 2018.