On July 3, ESMA issued a statement warning that some event contracts resembling binary options could fall under current derivatives regulation. The regulator stressed that firms offering these instruments should assess whether these contracts fall under this classification to comply with regulatory requirements.
Key Takeaways
ESMA warned prediction contracts may act as binary options, forcing platforms to seek MiFID II approval.Regulators declared event contract labels irrelevant, subjecting them to national market protection rules.European law experts urged firms to analyze products case-by-case to guarantee regulatory compliance.ESMA declared that event contracts that qualify as financial instruments “are derivatives and fall within the scope of the temporary product intervention measures on binary options,” and are subject to market protections established by National Competent Authorities (NCAs) in each of their jurisdictions.
The name or qualifications given to these derivatives as event contracts are “irrelevant,” ESMA claimed, and the firms offering them should conduct a thorough assessment of these offerings and comply with current regulatory requirements, including obtaining authorization for their distribution, even if limited to non-retail customers.
“In some cases, an investor may receive a ‘coupon’ or ‘reward’ representing the interest earned on the funds paid. The existence of such ‘coupon’ or ‘reward’ does not change the binary nature of the event contract itself,” ESMA concluded.
