Goldman Sachs is drawing a line around prediction markets, the booming event-betting business that Wall Street wants to study, bank, and maybe monetize. But, apparently, not let its own staff freely trade.
- The New York-based bank recently updated its personal trading policy to ban employees from trading event contracts tied to specific companies, election outcomes, financial markets and some geopolitical events, Bloomberg has learned, referring to the bank's internal documents.
Despite the ban, Goldman Sachs employees can still bet on questions such as whether a team will win a championship, Bloomberg notes. The line appears to run through anything that could touch the bank's business, its clients, its bankers' private information, or the news cycle in which Wall Street has an edge.
- The banned examples reportedly include contracts on whether Goldman Sachs will announce a restructuring in a specific quarter, whether it will acquire a specific company, the price of Bitcoin, regulatory approval for mergers and the date of ceasefires in conflicts.
- Repeated violations may lead to firing or account closure, and Goldman can require employees to forfeit profits above $200 or donate the money to charity.
The risk for banks is pretty clear. A banker who knows about a merger, a restructuring, an earnings surprise, a regulatory delay, or a client decision may not need to buy a stock to trade on it. A prediction-market contract can turn the same private information into a bet with a cleaner-looking label.
In late May, the Justice Department charged Michele Spagnuolo, a Google software engineer, with using confidential Google information to make $1.2 million in profits on Polymarket contracts tied to Google's most-searched list.
Polymarket said it helped law enforcement investigate the activity.
But Goldman Sachs isn't alone. As Reuters noted, other Wall Street banks have also been adding rules on prediction market betting to employee conduct codes, with Bank of America restricting some event contracts and JPMorgan applying its ban on trading on non-public confidential information to prediction markets as well.
- The problem, as Bloomberg writes, is that the same markets Goldman Sachs is restricting for staff may become business for the bank itself.
- Goldman CEO David Solomon called prediction markets "super interesting" earlier in January and said he had met leaders of the two largest firms in the sector, though details of that meeting remain unclear.