Goldman Sachs bans staff from prediction market trading

Key Takeaways

• Goldman Sachs updated its personal trading policy to ban employees from prediction market trading on elections, companies, and financial markets
• JPMorgan, Point72, and Balyasny have also restricted or warned employees about prediction market use
• Prediction market volumes are expected to hit $1 trillion by 2030, up from $51 billion last year

Goldman Sachs has banned employees from trading on prediction markets involving companies, election outcomes, or financial market performance. The policy update, reported by Bloomberg on July 9, marks the clearest signal yet that Wall Street sees event contracts as a compliance minefield.

The bank's internal guidance is blunt: "You must be vigilant to ensure that your participation does not violate laws and regulations and does not appear improper." Repeated violations can lead to termination. Employees who make improper trades may be required to forfeit profits over $200 or donate them to charity.

What exactly did Goldman ban?

The prohibition covers event contracts tied to specific companies, election results, financial market performance, ceasefire dates in conflicts, Bitcoin prices, and merger-related regulatory approvals. That last category is particularly relevant. Goldman employees routinely work on deals where they know months in advance whether regulators will approve a transaction. Trading on that knowledge through a prediction market would be textbook insider trading.

Goldman is not alone. JPMorgan Chase told staff earlier this year to "think carefully" before placing trades related to the financial sector. Two major hedge funds, Point72 Asset Management and Balyasny Asset Management, went further and banned employees outright from using prediction markets in personal accounts.

Why prediction markets became a compliance problem

Prediction markets let users trade contracts based on real-world outcomes. Will the Fed cut rates in September? Will Company X's merger get approved? Will a ceasefire hold? Platforms like Kalshi, which is CFTC-regulated, and offshore crypto-based Polymarket saw explosive growth during the 2024 U.S. presidential election. Bernstein expects total prediction market volume to reach $1 trillion by 2030, up from $51 billion last year and an estimated $240 billion in 2026.

That growth creates a problem for financial firms. Their employees sit on material non-public information every day. A trader who knows a merger will close, an analyst who has early GDP figures, a banker who knows a client is about to announce layoffs. Any of them could theoretically profit by trading event contracts before the information goes public.

Existing insider trading rules apply to prediction markets, but enforcement has lagged. The platforms are new, lightly regulated, and operate in legal gray zones. Financial institutions are not waiting for regulators to catch up.

Government employees face restrictions too

Wall Street is not the only sector worried. In April, New York and Illinois moved to ban government employees from prediction market trading based on insider knowledge gained through their official duties. The concern is obvious. A staffer who knows about an upcoming regulatory decision or policy announcement could profit before the public learns anything.

Congress is considering similar rules. The Stop Lawmakers from Predicting Act, introduced in June, would prohibit members of Congress, their spouses, and dependent children from trading on prediction markets involving public policy issues and political outcomes. The bill targets the same problem: elected officials cashing in on information not yet available to the public.

What this means for prediction market platforms

Platforms like Kalshi and Polymarket have positioned prediction markets as superior information aggregators. The theory: if people can bet real money on outcomes, prices reflect the crowd's true expectations better than polls or pundit opinions. That argument has academic support. Robin Hanson, an economist at George Mason University who pioneered prediction market research, has long argued they are "simply the best way to aggregate information about uncertain future events."

But the same features that make prediction markets useful for forecasting make them attractive for insider trading. A market that efficiently incorporates information will efficiently incorporate illegal information too. The Goldman ban and similar moves suggest that compliance departments at major financial institutions have decided the risk is not worth it.

The bigger picture for fintech compliance

Prediction markets are just one example of a broader pattern. New financial products often outpace regulation. Firms that deal in sensitive information have to make judgment calls before regulators issue guidance. Goldman's approach, a blanket ban rather than case-by-case analysis, is the conservative choice. It sacrifices employee freedom for compliance certainty.

Other firms may follow. When Goldman and JPMorgan move, mid-sized institutions often adopt similar policies within months. Compliance officers at regional banks and asset managers are likely reviewing their own policies right now.

Frequently Asked Questions

What are prediction markets?

Prediction markets are exchanges where users buy and sell contracts based on the outcome of real-world events, such as elections, economic data releases, or corporate mergers. Prices reflect the market's collective probability estimate for each outcome.

Why is Goldman Sachs banning prediction market trading?

Goldman employees have access to material non-public information about mergers, regulatory decisions, and financial markets. Trading on prediction markets using that information would constitute insider trading. The ban is a compliance measure to prevent legal and reputational risk.

Which prediction market platforms are affected by these bans?

The bans apply to employee trading on any prediction market platform, including CFTC-regulated Kalshi and offshore platforms like Polymarket.

Are prediction markets legal in the United States?

Regulated prediction markets like Kalshi operate legally under CFTC oversight. However, insider trading laws apply to prediction markets just as they do to stock markets. Trading based on material non-public information is illegal regardless of the platform.

How large is the prediction market industry?

Wall Street broker Bernstein projects prediction market volumes will reach $1 trillion by 2030, up from $51 billion in 2025 and an expected $240 billion in 2026.

Source: PYMNTS | / PYMNTS