Hedge Funds Turn on Prediction Markets and Tell Employees to Stay Away
Credit: MarkBuckawicki/Wikimedia Commons
Some major Wall Street firms have been exploring dedicated prediction market trading desks, recruiting analysts with experience on platforms like Kalshi and Polymarket, and debating where these new markets could offer an untapped information edge. However, others are telling employees to stay off these platforms entirely.
Point72 Asset Management and Balyasny Asset Management, which rank among the industry’s biggest multistrategy firms, have both introduced blanket bans on employees trading in prediction markets. Bloomberg cited people familiar with the matter who requested anonymity due to the private nature of the policies.
The ban shows that Wall Street is hardening its attitude toward a sector it was flirting with a few months earlier. Compliance departments are trying to get ahead of regulatory ambiguity, insider trading risks, and escalating legal battles involving state regulators.
No Clear Rulebook for Prediction Markets
U.S. regulators classify prediction market platforms as derivatives under the Commodity Futures Trading Commission (CFTC), so employee activity can technically trigger the same tracking and reporting requirements that apply to other derivative trades. However, platforms like Kalshi and Polymarket largely lack systems that produce the reliable electronic records financial firms need to demonstrate compliance. That gap could leave firms exposed in several ways.
The policies at Point72 and Balyasny go further than standard Wall Street personal trading rules. Firms usually allow employees to trade their own accounts once they observe conflict-of-interest restrictions and avoid acting on material non-public information. The decision to go further signals how seriously these firms view the risk.
Not every firm has followed the same approach. JPMorgan Chase told employees this week that workers must follow the same personal trading standards governing other markets if they participate in prediction markets, so the firm has not imposed an outright ban.
Some Wall Street Firms Are More Bullish
While Point72 and Balyasny are telling employees to stay off prediction markets, Susquehanna International Group (SIG) has taken the opposite approach. The Philadelphia-based quantitative trading giant, founded by billionaire Jeff Yass, has become one of the most aggressive institutional players in the space.
SIG already employs about 60 prediction market traders, split between its Pennsylvania headquarters and Dublin office. The firm became the first official market maker on Kalshi, secured reduced fees and higher position limits in return for providing liquidity, and also holds a stake in the platform.
The Chicago-based proprietary trading firm DRW has also posted a role for a dedicated prediction market trader with a base salary of up to $200,000. The job posting explicitly mentions building a desk focused on Polymarket and Kalshi, targeting strategies such as market-making, cross-platform arbitrage, and event-driven outcomes.
Taking a Conservative Approach in Prediction Markets
Most of the industry has shown interest in exploring prediction markets, but firms are proceeding carefully.
The Investment Adviser Association, which represents more than 600 firms controlling about $35 trillion in assets, has reported a big uptick in member interest in understanding the regulatory and compliance implications of these markets. Lawyers advising investment managers say the number of such inquiries has increased massively in recent months.
For now, the industry remains divided, and firms may need to rewrite the policies they are drafting today as the regulatory picture evolves. What is clear is that prediction markets, once seen as a scrappy but promising new asset class worth embracing, have become a compliance headache with an uncertain legal future, sitting at the intersection of derivatives law, securities regulation, and state gaming statutes.
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