Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS), the two largest U.S. investment banks, are reportedly banning staffers from trading on prediction markets in efforts to prevent conflicts of interest.
Media reports indicate Goldman is telling employees to stay away from financial and political derivatives on platforms such as Kalshi and Polymarket, warning that repeat offenders could be subject to disciplinary action, including losing their jobs and being forced to relinquish any ill-gotten prediction market profits.
An unidentified source told Reuters that Morgan Stanley’s code of conduct features clauses about prediction markets, among other financial and trading topics.
News of the bans by the two Wall Street behemoths surfaces less than four months after news swirled that JPMorgan is considering issuing initial guidelines. CNBC reported earlier today that Bank of America is close to finalizing prediction market guidelines for its employees.
Why the Goldman, Morgan Stanley Bans Make Sense
News of the moves by Goldman Sachs and Morgan Stanley may be music to the ears of companies such as Kalshi and Polymarket because those operators are actively attempting to clampdown on various forms of insider trading in an effort to weed out bad actors and build trust with the public.
The prohibitions by the banks are sensible because some employees, particularly those in investment banking, regularly come into contact with sensitive, non-public information. In a hypothetical example, a Morgan Stanley banker working on a hot initial public offering (IPO) may be privy to the exact size of that deal while a prediction market is offering event contracts that exact topic.
Barring the Wall Street crowd from trading event contracts pertaining to IPOs, mergers and acquisitions and other corporate events on which they have access to sensitive information could benefit prediction markets in other ways. Operators are looking to grow beyond sports derivatives and boosting use cases for professional traders is fertile ground for that expansion. Pros love edges, but the market can’t function as the Wild West.
Sports Are Safe
In what may be a relief to some Goldman staffers, the bank will allow employees to trade entertainment and sports event contracts on prediction markets. So they can indulge in World Cup derivatives or bets on awards shows.
In other prediction market bans news, Arizona Gov. Katie Hobbs (D) on Wednesday signed an executive order prohibiting public officers and staffers from leveraging their positions for financial gains on prediction markets, joining several other governors from across the U.S. that have already done so.
“Arizonans deserve a state government that works for them, not one where insiders exploit public service for their own gain,” Hobbs said in a press release. “Public service is a privilege, and we will not tolerate anybody abusing that privilege to line their own pockets.”
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