Woofun AI reports that the European Securities and Markets Authority (ESMA) has declared many prediction market contracts subject to existing binary option prohibitions, asserting that marketing labels like "event contracts" cannot bypass financial regulations. The regulator emphasized that retail investors remain protected under national measures implementing 2018 restrictions, regardless of how platforms attempt to rebrand these instruments.

Specific regulatory criteria dictate that contracts featuring binary outcomes and fixed payouts qualify as financial instruments, thereby triggering strict authorization requirements under the Markets in Financial Instruments Directive, or MiFID II. This classification applies even when offerings are restricted to professional clients or institutional clients, meaning companies must secure proper licensing before distributing such products. The assessment relies entirely on structural characteristics rather than promotional language, a stance reinforced since the original 2018 binary options ban was enacted.

ESMA issued this public statement after observing increased offerings of event contracts and the rapid growth of prediction markets across the continent. The regulator clarified that no new restrictions were introduced, noting that qualifying binary options have already been subject to national restrictions since 2018. The warning serves as a reminder to operators that existing frameworks already cover these emerging financial products.

In the United States, a fierce regulatory conflict has erupted between state gaming regulators and the Commodity Futures Trading Commission, or CFTC, over whether event contracts constitute gambling or federally regulated derivatives. By March, authorities in 11 states had initiated legal or regulatory actions against platforms including Kalshi and Polymarket. Nevada became the first state to temporarily block Kalshi's operations, while Arizona escalated the dispute by bringing criminal charges alleging the company was running an illegal gambling business.

The CFTC subsequently asserted exclusive jurisdiction over prediction markets, arguing that Congress entrusted the agency with sole authority to regulate commodity derivatives markets, including event contracts.

Woofun AI data shows the regulator has sued several states and filed court briefs supporting platforms, including Kalshi, to defend this federal claim. This legal maneuvering directly challenges state-level enforcement actions and sets the stage for a broader constitutional confrontation.

The legal battle continues to escalate, with a Massachusetts judge allowing state authorities to file an amended complaint against Kalshi on June 30 regarding sports-event contracts. Industry groups, including the Indian Gaming Association and American Gaming Association, joined by tribal and labor groups, have urged lawmakers to amend the CLARITY Act to explicitly prohibit such contracts. As federal and state regulators remain deadlocked, legal experts suggest the US Supreme Court may ultimately resolve this jurisdictional impasse.