Financial Firms Ban Employee Prediction Market Trading as Compliance Concerns Spread

Goldman Sachs Group has updated its personal trading policy to ban employees from trading on event contracts related to specific companies, election outcomes or the performance of any financial market, Bloomberg reported Thursday (July 9).

The policy also bans trading on event contracts having to do with the dates of ceasefires in conflicts, the price of bitcoin and the outcome of merger-related regulatory approval processes, according to the report.

“You must be vigilant to ensure that your participation does not violate laws and regulations and does not appear improper,” the bank’s policy says, per the report.

Goldman Sachs said that repeated violations of this policy may lead to firing or the closing of an account and that improper trades may lead to requirements that the employee forfeit or donate to charity any profit over $200, according to the report.

The report said that the boom in prediction market platforms has created new risks around insider trading, especially for financial industry employees.

JPMorganChase & Co. told employees earlier this year to “think carefully” before making trades related to the financial sector. Hedge funds Point72 Asset Management and Balyasny Asset Management banned employees from using prediction markets in their personal accounts, according to the report.

It was reported in April that New York and Illinois took steps to ban government employees from engaging in prediction market trading based on insider knowledge gained in the course of their official duties.

The moves came amid mounting concern that lightly regulated prediction markets that allow users to trade on outcomes ranging from elections to geopolitical events are vulnerable to insider trading and other forms of market abuse, the April report said.

A bill introduced in the U.S. House in June would ban members of Congress, their spouses and their dependent children from trading on prediction markets on public policy issues and political outcomes. The Stop Lawmakers from Predicting Act is aimed at keeping elected officials from cashing in on information that is not yet available to the public.

It was reported in April that Wall Street broker Bernstein expects prediction market volumes to hit $1 trillion by 2030, up from $51 billion last year and an expected $240 billion this year.