Banks curb staff trading on prediction markets over insider risk

Goldman Sachs has prohibited employees from trading on event contracts that reference the firm, people familiar with the matter said. Morgan Stanley confirmed it maintains internal rules that limit employee activity on prediction markets, and Bank of America is preparing new prohibitions for staff trading on those platforms.

The Goldman restriction covers event questions tied to the firm and extends to some contracts on financial markets, macroeconomic outcomes, elections and geopolitics, according to the people. A Goldman Sachs spokesperson declined to comment.

Morgan Stanley confirmed the existence of policies that restrict staff trading on prediction markets. A Bank of America spokesperson said the bank is in the process of issuing new prohibitive measures for employee activity on those platforms.

Prediction markets let users buy and sell contracts that pay out if a stated event occurs. Some contracts reference firm-specific developments, regulatory actions, election results or economic indicators. Regulators and law enforcement have flagged cases where individuals allegedly used confidential information to place profitable bets.

In May, federal prosecutors and the Commodity Futures Trading Commission said a software engineer earned about $1.2 million on a prediction market after accessing confidential workplace information. Separately, officials have alleged a service member made more than $400,000 betting on the removal of a foreign leader.

On June 18, a member of Congress introduced a bill to bar certain public officials from wagering on public policy issues and political outcomes. The measure targets the potential for conflicts when government employees or officials place bets on political or policy events.

Prediction-market platforms are seeking wider access in the U.S. One operator filed paperwork with the National Futures Association to become a futures commission merchant through an affiliate, a step toward offering margin trading to U.S. users. Offering margin would allow customers to take larger positions with less capital upfront and would require separate authorization from the Commodity Futures Trading Commission for non-fully collateralized trading. Another platform’s affiliate received NFA authorization earlier this year.

Trading volumes on these platforms have grown. One operator recorded a single-day taker volume peak of about $713 million in late June. Another reported a record monthly trading volume of nearly $9.4 billion for June.

Compliance teams at banks are weighing how to extend existing rules that bar trading on material nonpublic information to contracts on prediction markets. Institutions already block trading in specific securities or instruments and impose restrictions on staff; the new guidance applies that oversight to event contracts that reference the banks’ operations or market-moving events.

Enforcement actions by the Justice Department and the CFTC, along with proposed legislation, have led firms and compliance departments to review employee trading rules and their monitoring practices for prediction-market activity.