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Summary
Binary options are contracts that allow investors to take a position on the occurrence, non-occurrence, or extent of an occurrence of a certain event. Although these products can reference financial or economic data, more recently there has been an increase in the popularity of such contracts in non-financial contexts, including in relation to the outcome of sporting or political events, the weather, and a large number of other “events”. These types of contracts are often known as “event contracts”.
The popularity of event contracts in the United States in particular has recently risen dramatically. However, this growth has not been without controversy. As with other jurisdictions, in the United States the line between when a contract is considered to be a financial contract (and so subject to the supervision and rules of financial services regulators) and when a contract trips into gambling or gaming is not always clear. Given the extensive regulations and, in some places, outright prohibitions on gambling that exist in certain parts of the United States, this is an important distinction.
It is not just in the United States that this distinction is somewhat unclear and, at the same time, extremely important. UK and EU financial regulators have seen fit to ban the sale of those binary options that qualify as MiFID financial instruments to retail consumers due to the inherent risks of these products, and the poor conduct of the firms selling them – a different outcome from that which applies to spread betting or gambling.
This alert compares and contrasts the legal characterisation of event contracts in the United States, the United Kingdom, Singapore, and Hong Kong.
However, before we look more closely at event contracts, it is important to be clear on the difference between binary options and spread bets because this can have significant implications in terms of the requirements that apply to the offer of such products.
The difference between binary options and spread bets
Binary options are those which speculate on the occurrence or non-occurrence of a certain specified event within a fixed timeframe. These contracts pay out on an all-or-nothing basis, so the person placing the bet will receive a fixed amount if a given event occurs and will receive nothing, and also lose their entire stake, if the event does not occur. A simple binary option may be on the price of a stock rising to a specified price (in the financial context) or on a sports team winning a match (in the non-financial context).
Spread bets are similar, in that they allow people to take a position on the extent of the occurrence of an event (or the extent of a particular price movement), but the return on a spread bet will vary depending on the level of movement or the magnitude of the event. Rather than paying out depending on whether a particular binary outcome occurs, spread bets focus on whether a variable (e.g. the price of a stock or number of goals scored by the winning team, etc.) will move outside, or remain within, a designated range, known as the “spread”. The greater the movement outside of the spread, the greater the return or loss, depending on whether the movement reflects the prediction of the person placing the bet or not.
A financial spread bet could relate to the price of a share, financial index, or commodity, and the return or loss will increase for each point of value by which the relevant market moves. So, if a £1-per-point bet on a chosen market is opened, and the relevant market moves 50 points in the direction of the chosen bet, it will produce a profit of £50. Conversely, if the market moves 50 points against the prediction, it will generate a £50 loss. A common example of non-financial spread betting is betting on how many goals a sports team will win a match by, with the profit increasing for each goal scored above the chosen spread.
The regulatory treatment of binary options and spread bets varies across jurisdictions and depends in part on how the particular contract is structured, as well as the nature of the underlying asset or event. The particular regulatory characterisation of such contracts is extremely important and can determine whether the contract can be offered legally at all and, if so, to and by whom.
United States
In the United States, event contracts are regulated similarly to futures contracts, meaning they must be traded on a platform registered with the Commodity Futures Trading Commission (CFTC) as a Designated Contract Market (DCM) or a Swap Execution Facility (SEF). Under the Commodity Exchange Act (CEA) and CFTC regulations, the CFTC may prevent a DCM or SEF from listing an event contract if it involves (1) activity that is unlawful under federal or state law; (2) terrorism; (3) assassination; (4) war; (5) gaming; or (6) other similar activity determined by the CFTC, by rule or regulation, to be contrary to the public interest.1
Event contracts have been controversial in the United States for a number of reasons. On the regulatory side, the CFTC has brought enforcement actions and/or sued trading platforms for either failing to register as a DCM or offering event contracts that the CFTC claimed involved one or more of the events listed above. In its most recent litigation involving event contracts, the CFTC claimed that Kalshi, a US-based event contract platform, by issuing contracts relating to “Congressional Control” (i) violated the CEA because they “involve” “gaming”; (ii) were in violation of certain state laws that prohibit betting or wagering on elections, and (iii) were not in the public interest.
The district court sided with Kalshi and granted the company’s motion for summary judgment, finding that “gaming” must refer to the “act of playing a game” or “playing games for stakes”. Because elections are not games, the court concluded that the category does not apply to election contracts. The CFTC appealed, requesting an administrative stay of the district court ruling, but the circuit court refused. The case remained active until the CFTC dropped its appeal on 5 May 2025.
Another controversial aspect of event contracts is whether they constitute gambling, and whether state gambling and other laws are pre-empted by the CEA. Several state gaming commissions have sued event contract platforms, and several Indian tribes have sued as well. Court decisions on these issues have been mixed. Event contract platforms have succeeded in a number of important cases; however, in Nevada, for example, a federal judge recently lifted a preliminary injunction that prohibited the Nevada Gaming Commission and the Nevada Gaming Control Board from pursuing any enforcement action against Kalshi.
In a similar action, a state trial court in Massachusetts recently ruled against Kalshi, finding that Kalshi’s contracts constituted “gaming” and that gaming is within the state’s traditional policing powers. The court also held that the provisions of the CEA that provide for federal pre-emption of state laws did not extend to event contracts or state gaming laws or regulations.
In late December 2025, a new chairman, Michael Selig, was appointed to the CFTC, and he is currently the only commissioner at the agency. Chairman Selig was asked extensively about his perspectives on event contracts at his confirmation hearing before the Senate Agricultural Committee. Given the likelihood that the legality of event contracts will continue to be litigated, and possibly be argued before the US Supreme Court, Chairman Selig was firm in stating only that he would follow the rulings set forth by the courts.
United Kingdom
Both spread bets and certain binary options fall within the Financial Conduct Authority’s (the FCA) regulatory remit as “specified investments” under Article 85 of the Regulated Activities Order (the RAO), which covers contracts for difference (CFDs) and similar contracts. Financial spread bets perform in a very similar manner to traditionally understood financial CFDs in the UK, except that their structuring as bets results in differing UK tax treatment (including typically avoiding capital gains tax).
The distinction between spread bets and binary options is important as only spread bets can be marketed to retail customers (within specific conduct regimes, by regulated entities), whereas binary options that fall within the scope of Article 85 of the RAO cannot.
As regards spread bets, no restrictions are placed in the Article 85 RAO definition upon the type of property, index, or other factor that can be referenced by the contract. Notwithstanding this, recent statements from the FCA’s CEO to HM Treasury confirm that he regards spread betting products that are based on non-financial indices, such as sports or political performance, as not being within the scope of the FCA’s perimeter.
By contrast, the RAO is clearer in stating that binary options will only fall within the regulatory perimeter where they are within the scope of the definition of a “financial instrument” for the purposes of the Markets in Financial Instruments Directive II (MiFID). To qualify as a financial instrument under MiFID, the underlying event must therefore relate to securities, currencies, interest rates, emissions allowances, commodities, financial indices, climatic variables, or economic statistics, following the schema of MiFID. The importance of this distinction is that such contracts cannot be marketed to retail clients.
Binary options that are linked to events that are not related to finance or economics (e.g., where the outcome is related to a sports score or the number of votes won by a party in an election) will not be caught (as confirmed in the Perimeter Guidance manual (PERG)2 of the FCA Handbook) and can therefore be offered to retail customers. Such contracts will nevertheless be regulated by the UK’s Gambling Commission under the Gambling Act 2005 as “betting” and so fall under a distinct licensing and conduct regime.
While there remains some doubt therefore regarding the regulatory position of non-financial spread bets in the UK, it remains quite clear that both spread bets and binary options fall within the financial regulatory perimeter when related to underlying financial factors. It is also clear that non-financial binary options do not. However, legislative certainty would be welcomed (by the FCA as well as others) as to the position regarding non-financial spread bets so that there is no risk of confusion when it comes to regulatory responsibility for the supervision of providers of such contracts and the protections afforded to those who purchase them.
Given the uncertainty and conflicting views, anyone contemplating offering event contracts in the UK would be well advised to proceed with caution and ensure that they obtain proper legal advice as to the regulatory treatment of the products to be offered and the applicable requirements and restrictions that attach to such offer.
Singapore
The regulatory treatment of event contracts in Singapore depends on the subject matter of the contract, rather than whether the contract is structured as a binary option or spread bet. Broadly speaking, contracts that are related to tradable instruments or indices are treated as financial derivatives whereas those that reference non-financial events or outcomes are more likely to be classified as bets and be subject to gambling regulation.
Derivatives regulation
Both binary options and spread bets may be considered “derivatives contracts” under the Securities and Futures Act 2001 (the SFA), such that intermediary activities relating to such bets may require licensing for various regulated activities (e.g., dealing or providing financial advice).
“Derivatives contracts” are contracts or arrangements which (i) require a discharge of future obligations and (ii) have their value determined by reference to the value or amount (or fluctuations thereof) of any underlying thing(s). An “underlying thing”, to date, includes “traditional” underlyings such as currencies, interest rates, securities, fund units, commodities, etc., but does not include events.
The definition of a derivatives contract will capture binary options relating to an underlying thing, since the value of the bet (albeit on an all-or-nothing basis) is still determined by reference to the value or amount of the underlying (e.g., whether the price of a stock reaches a target amount). It will also capture spread bets relating to an underlying thing, since the degree of price movement also depends on fluctuations in the value or amount of the underlying thing.
As a result, both a binary option and spread bet of a financial nature (e.g., which relates to the price of a share, financial index, or commodity) will likely fall under the purview of the Monetary Authority of Singapore (the MAS), while those relating to events (e.g., in a sports match) are likely to be out of scope.
Gambling regulations
Events-related contracts (whether binary or spread) are instead likely to fall within the scope of the Gambling Control Act 2022 (the GCA), which is the main gambling legislation in Singapore and is administered by the Gambling Regulatory Authority (the GRA).
The GCA prohibits the conduct of a “betting operation” without a licence or exemption. This prohibition also extends to betting operations conducted outside Singapore in which persons physically in Singapore can participate.
A person conducts a betting operation if the person (including via an agent, by acting in concert, or through remote communication), among other things, operates a facility that enables persons to place or accept bets with other persons, or otherwise pays, negotiates, or settles bets. The act of “betting” refers to making or accepting a bet involving payment or staking of money (or anything of value) on, among others, the outcome of a race, competition, or sporting event, or the likelihood of anything occurring or not occurring, in Singapore or elsewhere. No distinction is made between binary options and spread bets.
Given the wide definition of what constitutes betting and the conduct of a betting operation, event contracts (regardless of the nature of the event) are likely to be subject to the GCA’s regulatory regime
Hong Kong
Securities and future regime
Both binary options and spread bets are capable of falling within the scope of the Securities and Futures Ordinance (Cap. 571) (the SFO), which is administered by the Securities and Futures Commission (the SFC). However, the exact classification of such contracts under the SFO will depend on how they are structured.
First, such contracts may potentially be classified as “structured products”, which include instruments under which some or all of the return or amount due (or both the return and the amount due), or the method of settlement, is determined by reference to, among others, the occurrence or non-occurrence of any specified event(s).
There is no definition of what constitutes a specified event, save that it does not include events which relate only to the issuer and/or guarantor of the instrument. Therefore, both spread bets and binary options are potentially caught, regardless of whether the event concerns the price movement of a stock or an occurrence or non-occurrence of an event in the context of a sports match. If so, they must be authorised by the SFC before being offered to the Hong Kong public.
Some structured products are also concurrently classified as “OTC derivatives products”, with the exceptions including those which are authorised to be offered to the Hong Kong public. The licensing regime for OTC derivatives products under the SFO is not yet in operation as of the date of this publication, but once implemented, activities relating to contracts which are OTC derivatives products may require a licence for various regulated activities (e.g., dealing in, advising on, or providing clearing services).
Finally, it is also possible (though less likely) for such contracts to be classified as futures contracts, being contracts, or options on contracts, made under the rules or conventions of a futures market.
Specific legal advice on the applicability of the SFO regime should be sought, given that the classification depends on how the contract is administered, rather than whether it concerns a binary option or spread bet, or whether the nature of the contract is financial or concerns a sporting or political event.
Gambling regulations
Activities relating to bets which fall within the scope of the SFO are excluded from the scope of the Gambling Ordinance (the GO) by virtue of section 404(1) of the SFO. However, it is unclear whether this serves as a persuasive basis for arguing that event contracts (e.g., relating to sports, which are traditionally seen in the betting industry) should not be subject to regulation under the GO because they may already be subject to regulation under the SFO.
Contracts which are not regulated by the SFO are likely to be subject to the GO, which specifically prohibits betting with a bookmaker, whether the contract is entered into within or outside Hong Kong. Unauthorised bookmaking is similarly a crime. Betting with overseas bookmakers, even if they are legal in the jurisdiction where they operate, is an offence regardless of how the bet is placed (although, in practice, enforcement of this provision may be difficult). Most overseas bookmakers geo-block Hong Kong-based users from accessing their platforms.
The restrictions in the GO extend to contracts for differences (defined as agreements “the purpose or effect of which is to obtain a profit or avoid a loss by reference to fluctuations in the value or price of property of any description or in an index or other factor designated for that purpose in the agreement”). CFDs that are traded on specified stock or futures exchanges are excluded. These exchanges are listed in the SFO and generally include only well-regulated exchanges in reputable jurisdictions.
1. CEA section 5c(c)(5)(C)(i); 7 U.S.C. § 7a–2(c)(5)(C)(i). Spread bets involving sports, elections, and other subjects of typical event contracts are not common in the United States, perhaps because DCMs have historically structured event contracts to be fully collateralized (which presumably cannot be done with spread bets) in order to rely on certain regulatory exemptions the CFTC has provided to such contracts.
2. PERG 2.6.24A(5): “a simple binary sporting bet is not a contract for differences as: (a) it is not covered by MiFID and so it does not meet the condition in PERG 2.6.24AG(1)(d); and (b) it does not come under any other part of the definition of a contract for differences” [emphasis added].
Client Alert 2026-017