Big banks and brokerages are cracking down on prediction markets as fears grow that they could be misused to trade on confidential information. The rapid growth of these platforms, which enable users to wager on the results of real-world events, has caused banks and regulators to revisit existing safeguards.
Goldman Sachs Morgan Stanley Tighten Rules on Event-Based Trading
Goldman Sachs has implemented internal policies to prevent employees from participating in contracts involving such areas as economic indicators, political developments and financial markets. The restrictions are designed to prevent employees from profiting from sensitive knowledge obtained through their work. The bank has not disclosed details of the policy publicly but has reiterated its long-standing position that non-public information cannot be used for personal gain, as reported by CNBC.
Morgan Stanley has also adopted this approach, incorporating rules for trading in prediction markets into its code of conduct for employees. While details have not been revealed, the switch signals a larger trend among big financial institutions to crack down on new trading avenues.
The actions come amid a surge in popularity for platforms like Kalshi and Polymarket, which allow people to bet on everything from election results to corporate performance numbers. Legal experts warn that the wide range of contracts available creates new opportunities for insider trading, as employees may have knowledge that could affect the probability of certain outcomes.
Enforcement Action Pushes Firms to Rethink Prediction Market Policies
These concerns have been further fueled by recent enforcement activity. In one high-profile case, a Google tech worker was accused by US regulators of using inside information to make a fortune on a forecasting site. The case is seen as a precursor to how traditional insider trading rules may be applied in this ever-evolving space.
The risks are growing, but many companies still have no clear policy on prediction markets. Corporate clients are increasingly seeking advice on how to navigate this unfamiliar territory, industry advisors say. Some companies lean on the general rules governing insider trading, but compliance experts say that explicit references to prediction markets can give employees clearer boundaries.
Regulators are still working out their approach. There is little precedent, and authorities have considerable flexibility in how they pursue violations. This uncertainty has caused companies to act proactively as opposed to waiting for formal guidance.
Meanwhile, prediction market operators are stepping up their own monitoring. Partnerships with analytics and compliance firms are designed to identify suspicious activity and enhance transparency. However, experts warn that ultimately the responsibility is on employers to train employees and enforce internal controls.