On 3 July 2026 the European Securities and Markets Authority published a public statement asking firms to work out whether the products they sell fall inside the national product intervention measures on binary options. The argument in it is short. An event contract pays a fixed amount or nothing, which makes it a derivative, and an event contract that qualifies as a financial instrument therefore sits inside measures that forbid selling it to retail clients. ESMA filed the statement as ESMA35-243228190-8148, addressed to firms and national regulators alike.
What the statement does not spell out is that those measures are not a flat ban. They carry written exemptions, and a footnote points at them in a single line. For a venue that has concluded the European Union is closed, it is the most interesting sentence in the document.
It is worth following slowly, for two reasons. The exemptions are not written where the statement says they are. And read condition by condition, they describe two other products, which a venue does not reach by adjusting a setting.
The ban attaches to the shape of the payout, not to the subject of the question
The definition does more work than the label. In the version published in the Official Journal as Decision (EU) 2018/795 of 22 May 2018, and reproduced in ESMA's own notice of that decision, reference ESMA35-43-1135, a binary option is a derivative that must or may be settled in cash, that only provides for payment at its close-out or expiry, and whose payment is limited to a predetermined fixed amount or zero depending on whether the underlying meets one or more predetermined conditions. Three structural features, nothing about elections, sport or the weather. A yes or no contract that settles in cash, pays only at the end and pays a fixed sum or nothing meets all three by design. Hence ESMA could write in the 3 July 2026 statement that the commercial name a firm chooses, including the words event contract, is irrelevant to categorisation under MiFID II, and that firms owe clients a careful legal analysis.
One limit on scope does real work. ESMA states that not all event contracts are financial instruments, and that only those whose event question relates to an underlying mentioned in Section C(4) to (10) of Annex I of MiFID II qualify. The payout shape brings a contract inside the measures once it is an instrument; the event question decides whether it is one, and the uneven answers that second test produces are covered in our piece on what five member states told ESMA about how they classify these products.
The first exemption requires that the losing side be paid back in full
The first exemption covers a binary option for which the lower of the two predetermined fixed amounts is at least equal to the total payment made by a retail client, including any commission, transaction fees and other related costs. It appears as Article 1(3)(a) of Decision (EU) 2018/1466 of 21 September 2018, and ESMA set it out in the notice of that decision, reference ESMA35-43-1391.
Read as a product requirement, it is severe. It does not ask a venue to cap losses, disclose them better or warn earlier. It asks that the worse of the two outcomes return everything the client paid, fees included. On a prediction market the worse outcome is zero, and that is the mechanism rather than a defect: a contract priced at thirty cents is a claim on a dollar, and the thirty cents is what the wrong side gives up so the right side can be paid.
Remove that and there is nothing to settle from. If both sides are made whole, the winner can only be paid out of the venue's own balance sheet, which is a different business with different capital behind it. The first exemption describes a capital protected structured product sold by an issuer that carries the downside itself. Such products are lawful. They are not prediction markets.
The second exemption sets three conditions and all three must hold at once
The second exemption, Article 1(3)(b) of the same decision, is a list, and the conditions are cumulative. The term from issuance to maturity must be at least 90 calendar days. A prospectus drawn up and approved under the prospectus rules must be available to the public. And the option must not expose the provider to market risk throughout its term, with neither the provider nor any entity in its group making a profit or loss on it beyond previously disclosed commission, transaction fees or other related charges. They are not equally hard to satisfy: one is close to free, two are not.
Ninety days removes the loop the product is built around
The reasoning behind the term is on the record. In its decision of 2 July 2019 prohibiting the marketing, distribution or sale of binary options to retail investors in or from France, the Autorité des marchés financiers explains that at the renewal stage ESMA had obtained information about binary options that run long, come with a prospectus and are fully hedged by the provider or another group entity, and that these were unlikely to raise the investor protection concern the original decision identified. The French regulator records that a minimum term ameliorates the effects of complexity and opacity, that an investor can more reasonably form a view over 90 days than over the very brief terms typical of the market, and that a longer term reduces the scope for, in the regulator's words, "frequently repeated speculative trades that worsen losses and are associated with addictive behaviour".
That last clause deserves a second reading. The regulated harm is not the yes or no shape. It is repetition: contracts resolving fast enough that a user can take the same position again before thinking about the last one. Ninety days is a blunt instrument aimed at that loop, and it collides with how event contracts are sold. A market on a result known this evening cannot run 90 days, and neither can one on a weekly number or a single match. A venue could list only contracts maturing a quarter out, but a book of entirely long-dated contracts is a different product with different users. This is Directive 06 of our manifest written by someone else: revenue is meant to come from many informed participants over years, not a few ruined ones over months.
A prospectus assumes an issuer, and a matching venue is not one
The second condition asks for an approved prospectus available to the public. The French decision describes what that buys the investor: prescribed information about the provider, including its business model and financial statements, and about the risks and characteristics of the product, subject to scrutiny by the national regulator. Every noun there belongs to an issuance rather than a matching service: a prospectus has an offeror responsible for the document, a defined set of securities and a regulator that approves it before the offer opens. An exchange listing hundreds of contracts, some created on request within the hour, has nowhere to put that. It is the same structural problem, from the other side, as the one in our article on who signs the disclosure document for a market that opened an hour ago.
The reference behind this condition has also moved. The 2018 decisions point at Directive 2003/71/EC, since replaced by Regulation (EU) 2017/1129. Germany and Ireland updated the pointer in their permanent measures; the French text, as published, still cites the directive alone.
The condition that sounds hardest is the one a fee-only venue may already meet
The third condition is that the option must not expose the provider to market risk at any point in its term, and that neither the provider nor any group entity may make a profit or loss on it beyond previously disclosed commission, transaction fees or other related charges. Written down, it sounds like the toughest of the three. In practice it may be the one a well-built venue passes without changing anything. A central limit order book that matches two clients against each other, never takes the other side and earns only a disclosed fee is, on the face of the wording, a provider with no market risk and no profit or loss beyond disclosed fees. A venue that quotes its own prices, runs an automated market maker with house capital or earns the spread fails it at once, as does any arrangement where an affiliate stands behind the book.
That inversion is the practically useful finding. The condition that reads like a wall is the structural one, and some venues already sit on the right side of it; the two that actually block the exemption are administrative, being the length of the contract and the approved prospectus. The third condition is also a usable disclosure even where the exemption is out of reach, because whether the venue ever takes the other side of a contract is what Directive 02 asks to be stated in plain language on the surface where the trade happens.
The exemptions are not in the decision the statement cites
Here the paper trail bends, and a firm doing the careful analysis ESMA asks for should know before relying on a quotation. Footnote 4 of the 3 July 2026 statement says that certain binary options, as described in paragraph 3 of Article 2 of the ESMA Decision, were excluded from the scope of the measures. Footnote 2 defines the ESMA Decision as Decision (EU) 2018/795 of 22 May 2018, at OJ L 136, 1.6.2018, p. 31.
That decision has no such paragraph. As published in the Official Journal it runs to three articles: Article 1 imposes the prohibition and defines a binary option, in two paragraphs; Article 2 forbids knowing and intentional participation in circumvention activities, in one unnumbered sentence; Article 3 covers entry into force and applies the measure from 2 July 2018 for three months. ESMA's own notice reproduces the same three articles. There is no Article 2(3), and the original measure granted no exemptions at all.
They arrived four months later, in the renewal. ESMA gathered evidence in between, as the French regulator records, and Decision (EU) 2018/1466 of 21 September 2018 both renewed the prohibition and amended it, adding the two exclusions as Article 1(3)(a) and 1(3)(b). They sit in Article 1(3) again in the renewals of 14 December 2018 and 22 March 2019. BaFin cites them that way, and so do the French and Irish measures.
None of this changes what the law requires, and the substance of footnote 4 is correct: exemptions exist. But the address is wrong. A firm following the citation to Decision (EU) 2018/795 finds a prohibition with no exemptions, and may conclude there is no way out or quote into its compliance file an article number that does not exist. That measure is in any case the wrong document to read, because it stopped applying years ago.
What applies is twenty-seven national measures, and they are not identical
ESMA renewed the temporary prohibition quarterly and then stopped. Announcing the end of the measure on 1 July 2019, it said the prohibition would expire at the end of that day, because most national regulators had taken permanent measures at least as stringent as its own. Since then the operative texts have been national ones, adopted under the product intervention power in Article 42 of Regulation (EU) No 600/2014. Footnote 2 of the 3 July 2026 statement describes those measures as mostly mirroring the ESMA decision without any changes, and in place in all member states. The first half carries the weight, and three measures show why.
The French decision of 2 July 2019 contains both exemptions, in reverse order. The Central Bank of Ireland measure contains both as well, in its binary options intervention measure, with the prospectus condition citing either Directive 2003/71/EC or Regulation (EU) 2017/1129.
The German act does not. In the general administrative act BaFin issued on 1 July 2019, the operative provisions prohibit the marketing, distribution and sale of binary options to retail clients, define them in the familiar terms, and then grant a single exemption, numbered 3: the 90 day term, the approved prospectus and the absence of provider market risk. The capital protected shape appears nowhere in the operative part. It is mentioned only in the background section, describing ESMA's renewal decision. The act then states that it applies to all binary options that do not fall under its own number 3, whatever name they are sold under.
On the wording of that act, the product the first exemption describes was exempt across the Union until 1 July 2019 and sits inside the prohibition in Germany from the next day. We read three of the twenty-seven measures and make no claim about the rest, which is itself the point: a venue cannot learn its position from the ESMA decision, from a summary of it, or from whichever member state it checked first.
What a venue should be able to answer before it quotes an exemption
None of this makes the European Union hostile territory. It is a product rule with a stated purpose, and the useful response is not to hunt for the narrowest reading that keeps a book open.
Five answers, in writing, before any exemption is claimed. Which national measure applies in each member state the venue reaches, named and dated, rather than the expired ESMA decision. Whether an exemption is relied on at all, and under which national text, given that the German and French measures do not offer the same two. What share of the book runs 90 days or more, since that is the condition most books fail first. Whether the venue, or any group entity, ever takes the other side of a contract or earns anything beyond disclosed fees. And whether the firm holds a MiFID authorisation, because the retail prohibition and the licence are separate obstacles: ESMA used the same statement to remind firms that distributing these contracts needs authorisation as an investment firm even when every client is non-retail, covered in why going professional-only does not remove the licence.
Directive 05 of our manifest asks that standards be set against the jurisdiction that regulates next, not only the one that has not yet. The two exemptions describe what the European Union was willing to leave alone in 2018, and neither was written with this category in mind. A venue that can say which condition it fails, and why, stands in a better place than one holding a footnote to an expired decision. Firms ready to put that in writing can sign the commitment.