Key Takeaways:
Wall Street's largest banks are moving to restrict employee trading on prediction markets as regulators and lawmakers intensify scrutiny of insider trading on platforms where volumes have quadrupled in a year.
Goldman Sachs has prohibited employees from trading prediction market contracts tied to the bank itself, elections, financial markets, macroeconomic data and geopolitics, according to a CNBC report. Morgan Stanley already has relevant policies in place, while Bank of America is updating its internal guidelines, the report said. JPMorgan Chase has reminded staff that existing personal trading policies extend to prediction markets, a spokesperson confirmed.
"The rules around insider trading in prediction markets are hazier than those that apply to trading traditional securities," said Joshua Mitts, a law professor at Columbia University who co-authored the first systematic study of insider trading on Polymarket. "Once you're not a security, things get a lot trickier in terms of enforcing insider trading law."
The study, which analyzed two years of Polymarket data, identified more than 210,000 suspicious trades with traders logging a nearly 70% win rate — far exceeding random chance. The paper estimates at least $143 million of profit was tied to suspicious activity. The findings come as prediction market volumes surged to about $64 billion in 2025 from $16 billion in 2024, according to industry data.
The crackdown follows the first insider trading case involving a private company and prediction markets. In May, the Commodity Futures Trading Commission and the Justice Department charged Google software engineer Michele Spagnuolo with allegedly using confidential information about the company's "Year in Search" lists to trade Polymarket contracts, with the CFTC alleging profits of about $1.2 million.
Regulatory and Legislative Pressure Mounts
The CFTC has signaled it will pursue enforcement. Enforcement Director David Miller said Tuesday the agency will prosecute cases against those who tip or trade with misappropriated information, pushing back against what he called a "myth" that insider trading law doesn't apply to prediction markets. The agency also issued an advanced notice of proposed rulemaking seeking comments on prediction market trading and reminded designated contract markets of their self-regulatory obligations.
Lawmakers are moving in parallel. Senator Richard Blumenthal, a Connecticut Democrat, and Representative Ritchie Torres, a New York Democrat, have each proposed bills targeting conflicts of interest and insider trading on the platforms. Representative Bryan Steil, a Wisconsin Republican, introduced legislation this month to prevent public officials from wagering on public policy outcomes and political events.
The platforms themselves are responding. Polymarket updated its terms to ban bets made with stolen confidential information or illegal tips. Kalshi said it has opened 200 investigations over the past year, frozen flagged accounts and imposed monetary penalties in some cases. Kalshi posted a record monthly trading volume of nearly $9.4 billion in June, while Polymarket reached $713 million in daily taker volume on June 20, both fueled by the 2026 FIFA World Cup.
What's at Stake for Banks and Markets
For Wall Street, the challenge is that existing codes of conduct at the largest banks warn against using confidential information for trading but do not specifically enumerate prediction markets or event contracts. A CNBC survey found only three of 50 companies contacted already have prediction market policies, while two others said they are reviewing the issue.
The legal ambiguity creates risk. Because prediction market contracts are typically tied to macroeconomic events rather than individual companies, they are more likely to be classified as commodities than securities, placing them under CFTC jurisdiction where anti-fraud rules are less developed than securities laws, Mitts said. Blockchain-enabled accounts on platforms like Polymarket also make identifying traders more challenging, complicating enforcement even when employees disclose activity to their employers.
"If you're a bank, you want to have a very strong policy in place, simply to protect yourself from the risk that regulators say, 'Well, you facilitated this, or you encouraged this sort of trading,'" Mitts said.
Polymarket is simultaneously seeking to expand its U.S. footprint. The platform filed an application on July 3 to become a futures commission merchant through its affiliate Coming Home GBA LLC, a move that would require CFTC authorization to offer margin trading to U.S. users. Its main rival Kalshi already received such approval in March through its affiliate Kinetic Markets LLC.
This article is for informational purposes only and does not constitute investment advice.
