Banks Bet Against Their Own Traders as Prediction Markets Draw Insider-Trading Heat 🎰

Goldman Sachs has banned its employees from trading event contracts tied to the bank, including those covering financial markets, macroeconomic events, elections and geopolitics, according to a CNBC report citing people familiar with the matter. Morgan Stanley has policies governing employee participation on prediction market platforms, unnamed sources told CNBC, while a Bank of America spokesperson said the bank is in the process of issuing new prohibitive measures for prediction market trading by its staff. A Goldman Sachs spokesperson declined to comment when contacted by Cointelegraph.

The clampdown comes amid heightened insider-trading concerns tied to prediction markets, drawing attention from the White House and US lawmakers. In May, the US Justice Department and the Commodity Futures Trading Commission said Google software engineer Michele Spagnuolo profited $1.2 million on Polymarket after allegedly exploiting nonpublic information obtained at work. On June 18, Wisconsin Representative Bryan Steil introduced a law aimed at preventing certain public officials from "wagering on public policy issues and political outcomes," though it does not mention White House officials. Earlier in January, a soldier allegedly made more than $400,000 betting on the removal of Venezuelan President Nicolás Maduro, who was ousted and captured by US forces.

Lawmakers are also examining political prediction market activity by government employees. The legislation and regulatory scrutiny echo a broader push by US officials to police event-contract trading, where thin liquidity and isolated markets can amplify the impact of privileged information.

Separately, Polymarket is seeking regulatory approval to offer margin trading for US users, which would allow users to bet on event outcomes with less capital upfront. The platform, through affiliate Coming Home GBA LLC, filed an application with the National Futures Association (NFA) on July 3 to become a futures commission merchant. Polymarket still requires authorization from the CFTC to permit non-fully collateralized trading. Its rival Kalshi, through affiliate Kinetic Markets LLC, secured NFA authorization for margin trading in March.

Activity on prediction markets has surged in recent weeks. Polymarket reached a record $713 million