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Risks of Event Contracts and Prediction Markets

Risks of Event Contracts and Prediction Markets

Thansettakij•Economy•53m ago

Reader Briefing

The Securities and Exchange Commission of Thailand clarifies that Event Contracts are not under its supervision as they do not meet the legal definition of futures contracts.

  • •Event Contracts are financial products on Prediction Markets where returns are based on the outcomes of specific events.
  • •Global regulators including CFTC and ESMA are developing guidelines to manage risks associated with these contracts.
  • •The Securities and Exchange Commission of Thailand (SEC) determines that Event Contracts do not fall under the Derivatives Act 2003.
  • •Thai investors are advised to carefully study information and platform reliability before investing in Event Contracts.

Overview

  • •Event Contracts are traded on Prediction Markets such as Kalshi and PredictIt, allowing investors to bet on economic data, election results, or socio-political events.
  • •The Securities and Exchange Commission of Thailand notes that high leverage in Event Contracts leads to very high investment risks.
  • •The Commodity Futures Trading Commission (CFTC) developed guidelines to review Event Contracts, focusing on economic purpose, risk management, and public interest.
  • •The European Securities and Markets Authority (ESMA) states that all-or-nothing Event Contracts falling under MiFID II are considered Binary Options and cannot be marketed to retail investors.
  • •Regulators are increasingly concerned with behavioral risks, as short-term contracts and all-or-nothing returns may encourage gambling over fundamental analysis.
  • •Market integrity is a concern because some participants might have the ability to influence the outcome of the referenced event for their own benefit.
  • •Event Contracts do not meet the definition of futures contracts under the Derivatives Act 2003 because the referenced outcomes are not 'goods' or 'variables'.
  • •The Securities and Exchange Commission of Thailand will closely monitor international developments regarding investor protection and market integrity.

Full article content is available on the original source.

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Source: Thansettakij (Original)

Key Entities

Organization

Securities and Exchange Commission(สำนักงานคณะกรรมการกำกับหลักทรัพย์และตลาดหลักทรัพย์)ℹ️
The Thai regulatory body that determined Event Contracts are not under its supervision.
Kalshiℹ️
A Prediction Markets platform based in the United States.
PredictItℹ️
A Prediction Markets platform based in the United States.
Commodity Futures Trading Commission(CFTC)ℹ️
A regulator that published guidelines for reviewing Event Contracts and had a legal dispute with Kalshi.
European Securities and Markets Authority(ESMA)ℹ️
A regulator that identifies all-or-nothing Event Contracts under MiFID II as Binary Options.
International Organization of Securities Commissions(IOSCO)ℹ️
An organization providing principles for the supervision of derivatives markets.

Law

Markets in Financial Instruments Directive II(MiFID II)
The European Union capital market legal framework governing investment services and investor protection.
Derivatives Act 2003(พระราชบัญญัติสัญญาซื้อขายล่วงหน้า พ.ศ. 2546)
The Thai law used to determine if Event Contracts are classified as futures contracts.

Place

United States(สหรัฐฯ)ℹ️
The country where Kalshi and PredictIt operate.
European Union(สหภาพยุโรป)ℹ️
The region governed by the MiFID II framework.