Wall Street banks tighten staff rules on prediction market bets

Goldman Sachs has barred employees from some prediction market wagers tied to finance and politics, according to Reuters, as large Wall Street banks tighten conduct rules around fast-growing event-contract platforms. Reuters reported that Morgan Stanley, JPMorgan Chase and Bank of America are also introducing restrictions, extending compliance controls into a market that has drawn regulatory attention over possible misuse of non-public information.

Goldman told staff they may not use platforms such as Kalshi to trade event-based contracts linked to financial markets or political outcomes where the activity could create an actual or apparent conflict involving the bank, its clients or the wider financial sector, Reuters reported, citing a person familiar with the matter. Bloomberg reported that repeated breaches of the policy could result in disciplinary action, including dismissal, and that employees may have to surrender profits made from prohibited trades.

Prediction markets allow users to take positions on the outcome of specified events through contracts whose value depends on whether the event occurs. In the cases now drawing bank scrutiny, the contracts can relate to market, economic or political results, which may overlap with information employees encounter in their roles at financial institutions.

The banks’ approach reflects a familiar compliance framework applied to a newer class of products. Reuters reported that Morgan Stanley, JPMorgan and Bank of America are moving to limit prediction-market use in a manner consistent with existing rules governing more traditional betting activity by employees. Such policies are designed to reduce conflicts of interest and protect against situations in which staff could appear to benefit from information obtained through their work.

Regulatory scrutiny grows

The restrictions come as prediction-market venues have expanded rapidly. Kalshi recently raised capital at a valuation of $22 billion, according to Finextra, underscoring investor interest in platforms that offer event-based contracts.

Regulators and law-enforcement agencies have also begun testing how existing market-abuse rules apply to the sector. The Commodity Futures Trading Commission and the US Department of Justice recently charged a Google employee over alleged trading on Polymarket contracts connected to Google’s “Year in Search” lists.

The CFTC said Michele Spagnuol, using the account name “AlphaRaccoon,” allegedly used non-public information to trade those contracts and made about $1.2 million in profit. The case has become a reference point for compliance departments assessing whether employee access to sensitive corporate, market or political information could create legal and reputational risk in prediction markets.

The reported bank policies do not amount to a market-wide ban on prediction markets. They indicate that major financial firms are applying internal conduct standards to a developing trading venue where personal wagers, client relationships and access to confidential information may intersect.

This story draws on original reporting from Finextra Research.