Banks curb prediction market trading as insider-risk fears spread
Wall Street banks are tightening internal rules on prediction market trading after insider-trading concerns surfaced around platforms like Polymarket and Kalshi. CNBC reports that Goldman Sachs has banned employees from trading event contracts tied to the bank—covering areas such as financial markets, macroeconomy, elections, and geopolitics. Morgan Stanley also reportedly has employee policies, while Bank of America is issuing new prohibitive measures.
The crackdown follows US regulatory attention on prediction market trading. In May, the US Department of Justice and the CFTC said a Google engineer, Michele Spagnuolo, profited about $1.2M on Polymarket after accessing nonpublic information at work. Earlier, lawmakers were considering measures to restrict political prediction market activity by government officials.
On the platform side, Polymarket is seeking regulatory approval to expand features for US users. It has applied (via an affiliate, Coming Home GBA LLC) to become a futures commission merchant, targeting margin trading that would reduce upfront capital requirements. Polymarket still needs CFTC authorization for non-fully collateralized trading. Its rival, Kalshi, already received US approval for margin trading after an NFA authorization in March.
Activity remains strong: Polymarket hit a record $713M in daily taker volume on June 20, and Kalshi posted a record monthly trading volume near $9.4B in June, boosted by the 2026 FIFA World Cup.
For traders, this signals rising compliance risk around prediction market trading, but does not yet suggest demand destruction given ongoing high volumes.
Neutral
Banks tightening prediction market trading policies is mainly a compliance signal, not a direct protocol-level restriction on retail users. Short-term, the headlines can pressure sentiment and reduce perceived “cleanliness” of flows, especially if traders fear tighter internal access rules could slow or curtail institutional participation. The case cited by DOJ/CFTC (nonpublic information leading to profits) also raises headline risk that can amplify volatility around major political or macro events.
However, the article also highlights ongoing growth and liquidity: Polymarket reached record daily taker volume and Kalshi hit near-record monthly trading volumes, with the FIFA World Cup boosting participation. Meanwhile, Polymarket is still pursuing regulatory pathways for margin trading, suggesting the market infrastructure may expand rather than contract.
Historically, when US agencies pursue insider-risk enforcement in prediction/derivatives-adjacent spaces, markets often see a temporary sentiment dip, followed by stabilization once rules and access boundaries become clearer. Over the long term, clearer compliance frameworks could support institutional confidence—though the most likely effect is a slower onboarding pace for banks/insiders rather than a sustained bearish trend for on-chain/retail prediction activity. Overall, trader impact is expected to be more about risk premium and sentiment than immediate liquidity collapse.