Prediction markets, once a niche way to trade on real-world outcomes, have become a fast-growing test case for regulators on both sides of the Atlantic. Platforms such as Kalshi and Polymarket now offer contracts linked to everything from elections and sporting events to economic data and policy decisions.
Trading across major prediction market platforms rose sharply in June, driven in large part by contracts linked to the FIFA World Cup. The surge in activity has intensified scrutiny of market integrity, customer protection and the boundary between financial regulation and gambling law.
Prediction markets have developed most visibly in the US, where platforms have attracted significant retail participation. Europe has taken a more restrictive approach to retail distribution. But that does not necessarily rule out a market for professional investors.
What are event contracts?
Prediction markets allow participants to trade contracts linked to the outcome of a future event. Most operate through binary “yes/no” contracts that pay a fixed amount if a specified event occurs and nothing if it does not. The price of the contract changes as participants reassess the probability of the outcome.
By aggregating the views of traders with money at risk, prediction markets can produce real-time estimates of the likelihood of an event. Proponents argue that the contracts can support forecasting, information discovery and, in some circumstances, hedging.
Despite their recent prominence, event contracts are not new. In 1988, the Iowa Electronic Markets, operated by the University of Iowa, began offering contracts linked to political outcomes. What has changed is the number and variety of contracts available, the scale of trading and the political and regulatory attention they have attracted.
The legal treatment of event contracts often depends on what they reference. Regulators may regard them as financial instruments, gambling products or, in some cases, another type of regulated product.
How are prediction markets regulated in the US?
In the US, prediction markets have grown rapidly through federally regulated markets overseen by the Commodity Futures Trading Commission.
The CFTC has asserted federal jurisdiction over event contracts traded as swaps or futures under the Commodity Exchange Act. It also has the authority to restrict event contracts – such as those relating to terrorism, assassination or war – upon an affirmative “contrary to the public interest” determination.
In June 2026, the CFTC proposed new rules to further clarify which event contracts would be considered contrary to the public interest and therefore prohibited from trading on CFTC-regulated exchanges.
While certain US states have raised jurisdictional challenges, the CFTC has continued to assert federal jurisdiction over derivatives traded on its registered markets.
What is the EU’s approach?
The EU has taken a restrictive approach to the retail distribution of event contracts with binary outcomes. Event contracts that qualify as financial instruments are derivatives under MiFID II and are covered by national product-intervention measures that prohibit the marketing, distribution or sale of binary options to retail clients.
In a public statement on 3 July, the European Securities and Markets Authority reiterated that binary event contracts that qualify as financial instruments under MiFID II fall within the scope of those existing national measures. Whether a contract is a financial instrument depends on the underlying event: contracts linked to matters such as climatic variables, inflation rates or official economic statistics, for example, may fall within MiFID II.
Event contracts that do not qualify as financial instruments, such as those linked to sporting or political outcomes, instead generally fall subject to national gambling law. Several European gambling regulators have classified major prediction market platforms, including Polymarket and Kalshi, as unlicensed gambling operators and have taken enforcement action, including ordering access to websites to be blocked.
Does the EU prohibition apply to institutional investors?
The product-intervention measures prohibit the marketing, distribution or sale of qualifying event contracts to retail clients. They do not constitute a blanket prohibition on event contracts being offered to professional clients.
ESMA has said that firms distributing event contracts that qualify as financial instruments in the EU require authorisation as investment firms, even when distributed only to non-retail clients. The products and the services provided therefore remain subject to the applicable requirements of the EU financial services framework.
Under MiFID II, professional clients include regulated financial entities, governments, central banks, certain large companies and other institutional investors. The classification is defined in legislation and does not automatically cover every company or sophisticated individual.
The distinction is important. Europe’s rules largely close off qualifying financial instrument binary event contracts to retail clients but leave open the possibility of a market for professional clients through appropriately authorised firms and regulated market infrastructure.
What is the UK’s approach?
The UK has adopted a broadly similar approach. In its March 2026 perimeter report, the Financial Conduct Authority said that event contracts, which it calls “prediction market products,” linked to non-financial events, such as sporting or political outcomes, fall within the Gambling Commission’s remit.
Products referencing financial or certain climatic events fall within the FCA’s regulatory perimeter. The regulator added that the financial prediction market products it has seen are binary options and therefore “remain subject to the FCA’s permanent ban on the sale of binary options to retail consumers.”
As in the EU, the retail prohibition does not necessarily prevent suitably structured products from being offered to eligible professional investors. But the venue, firm and contract would still need to meet the relevant regulatory requirements.
Why might institutional investors use event contracts?
The potential institutional use case is likely to centre on events that create identifiable economic or financial exposures, rather than the sporting and political contracts that have driven much of the recent attention around retail prediction markets.
An event contract could, for example, provide a defined payout depending on whether European gas storage reaches a specified level, inflation exceeds a stated threshold or the ECB takes a particular policy decision.
Such contracts could allow an investor to express a view on a discrete outcome or hedge the risk associated with it. Their prices could also provide a real-time market estimate of the probability of that outcome, complementing surveys, economic forecasts and signals derived from conventional derivatives markets.
The potential demand remains uncertain, however. Institutional investors can already manage many economic exposures through interest rate, inflation, energy and options markets. An event contract would, therefore, need to provide a sufficiently useful or direct exposure, as well as enough liquidity, to justify trading it as a separate product.
Some institutional market participants have reportedly questioned whether investors will use prediction market products directly in meaningful size, even if the prices they generate prove useful as information signals.
Are European exchanges developing event contracts?
Some European exchanges are exploring event-based products focused on economic outcomes.
ICE Futures Europe has said it is developing economic indicator futures contracts, which it plans to launch on 10 August, subject to regulatory approval. Speaking at FIA’s IDX conference in June, Chris Rhodes, president of ICE Futures Europe, said the exchange was developing binary-outcome contracts linked to economic variables and distinguished the proposed products from retail-focused prediction markets.
At the same event, Robbert Booij, chief executive of Eurex, said contracts linked to inflation, unemployment figures and central bank decisions could be useful from an institutional perspective because investors have views and exposures they may wish to hedge.
Eurex has separately been examining whether event-based products could be incorporated into its existing listed and cleared derivatives infrastructure rather than placed on a standalone prediction market platform. Its dividend derivatives have been discussed as one possible template for expanding into other events with measurable financial outcomes.
These developments suggest that a European institutional market, if it emerges, may differ from the broad, consumer-facing platforms that have driven growth in the US. It could instead consist of a narrower range of contracts linked to economic variables and offered through established derivatives exchanges and clearing arrangements.
No large institutional European event contract market has yet emerged, however, and exchange initiatives remain under consideration or subject to regulatory approval.
What regulatory and operational questions remain?
Regulatory permission alone would not ensure that an institutional market was viable.
Beyond needing liquidity, binary contracts may also present particular risk management challenges. Their all-or-nothing payout can create concentrated exposure as the outcome approaches, while contracts linked to similar events may become highly correlated.
Exchanges and clearinghouses would need robust rules governing margin, settlement and the source used to determine whether an event had occurred. Those questions could become particularly important if an economic data release were corrected, a policy announcement ambiguous or the official result of an event disputed.
Market integrity would also be central. Event contracts can create concerns about manipulation, conflicts of interest and the use of non-public information by people in a position to influence or know the outcome.
In the US, FIA has said that exchanges and clearinghouses offering event contracts should demonstrate how the products comply with standards relating to market integrity, financial safeguards, risk management and participant protection. It has also raised the question of whether the risks associated with some leveraged event products should be separated from wider clearing-default resources.
Yes/no – will Europe go all in?
Europe appears unlikely to replicate, at least in the near term, the broad retail-led prediction market boom seen in the US.
Qualifying binary event contracts remain prohibited for retail clients, while platforms offering products classified as gambling must navigate separate national licensing regimes.
For professional investors, the position is more nuanced. The EU retail prohibition does not amount to a wholesale ban. Event contracts that qualify as financial instruments could, in principle, be distributed to professional clients through appropriately authorised firms and regulated market infrastructure.
The interest shown by ICE Futures Europe and Eurex suggests established exchanges see possible applications for contracts linked to economic outcomes. But no large institutional European event-contract market has yet emerged.
Europe’s central question may not hinge on regulatory permission but rather if event contracts can become useful institutional derivatives rather than predominantly retail instruments for speculation.
