Goldman Sachs Prediction Market Ban Targets Insider Trading Risks as Wall Street Clamps Down on Polymarket and Kalshi

Goldman Sachs employees can’t gamble on finance or politics anymore. At least not on prediction markets. The bank just slammed the door on platforms like Polymarket and Kalshi—one of Wall Street’s most aggressive internal crackdowns yet as the industry confronts a dangerous new frontier for insider trading. First reported by Bloomberg and confirmed by Reuters, the policy makes a single, telling exception: sports and entertainment. Staff can still bet on the Super Bowl. Just not on the next Federal Reserve decision. Morgan Stanley is another major firm tightening its rules, Reuters reported. These restrictions are being written directly into employee handbooks. For some banks, the ban is total.

The fear is straightforward. Employees in M&A, rates trading, or political advisory roles handle material non-public information every single day—a secret deal closing date, a Fed policy shift, a regulatory decision. That confidential knowledge maps perfectly onto prediction market contracts. A trader who knows a merger is coming could buy into a “Will Company X announce an acquisition by July 31?” market before the news breaks. It’s the same information asymmetry banks police in stock markets, but this time it’s unfolding on platforms with virtually no surveillance.

That regulatory gap is what spooked compliance teams. Decades of work went into building pre-clearance systems and blackout windows for stock trades. Prediction markets, which exploded into the mainstream during the 2024 election and kept growing, simply bypass those defenses. The World Casino Directory noted that these new policies focus squarely on conflicts of interest and insider trading risks—not just basic legal compliance. Banks aren’t waiting for a federal mandate. Goldman is leading the charge.

Most of Wall Street is still playing catch-up. CNBC contacted 50 companies about their prediction market policies. Only a handful had a clear answer. The rest had no written rules, hadn’t even considered the issue, or refused to comment. That silence speaks volumes: prediction markets have outraced corporate compliance frameworks. The banks now scrambling to update their codes of conduct are reacting to employee behavior that’s already happening.

The platforms in the crosshairs? Polymarket and Kalshi. Both dominant US venues. They rode a wave of political and crypto-fueled interest into the mainstream, and now they’re at the center of a compliance crisis they didn’t ask for. Polymarket recently filed for a US margin trading license—a bid for financial legitimacy that also deepens its institutional footprint, the very thing that makes it a problem for banks. Kalshi, which operates under CFTC oversight, has similarly expanded its market offerings into areas that overlap dangerously with Wall Street’s insider knowledge.

The regulatory landscape is a mess. The SEC has stalled more than 24 prediction market ETF applications from firms like Roundhill and Bitwise well past the standard 75-day review window. No federal law explicitly bans insider trading on prediction markets. The CFTC regulates Kalshi’s event contracts but hasn’t issued guidance on whether trading with MNPI there is illegal. That vacuum is why banks are acting alone. If regulators won’t draw a line, compliance departments will. And Goldman’s near-total ban is the boldest line yet.

It’s the same logic banks use for stocks. Employees already face pre-clearance and blackout periods for equities in sectors they cover; a Goldman banker on a tech deal can’t just buy the target company’s stock. The new restrictions extend that principle to a new asset class. If you can’t trade the stock on inside information, you can’t trade the binary market tracking that stock’s fate either. Simple in theory. Messy in practice—prediction markets are often decentralized, sometimes pseudonymous, and far tougher to monitor than a Fidelity account.

What happens next? Will regulators create formal rules for prediction market insider trading? Will other firms copy Goldman’s blanket ban or settle for narrower limits? And how will Polymarket and Kalshi respond to pressure from the institutional users who are now a key part of their business? The SEC’s silence on those ETF applications suggests federal guidance isn’t coming soon. Until it does, the banks are making their own rules. Goldman has set the high-water mark.

The next signal to watch: whether the CFTC or SEC issues formal guidance on MNPI in prediction markets, and whether Morgan Stanley’s tightened rules—or those of the dozens of firms that gave CNBC vague answers—end up matching Goldman’s strict ban or fall short.