Chinese Walls

I was wondering if the concept of chinese walls within instutions really work? Do you think private information made available to the private side of the wall really isn't influencing how trades are conducted on the public side? Also in that context, when investors had access to private information (e.g. the private version of a bank book) and are subsequently disqualified from buying a companies public shares - can't they simply let someone else place their trades?

My first internship is yet to come but in theory that seems questionable to me.

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Comments (8)

Feb 4, 2019 - 12:20pm

In theory yes, in practicality no.

Usually on trading floors the DCM/IB guys are either on a seperate floor or locked in a different room. However, I've been on floors where they 'ran out of room' and now the DCM guys were sitting beside traders.

Feb 7, 2019 - 10:29am

RBC TO has DCM on tradding floor (and it isnt an IBD role) and BMO TO has LevFin on trading floor (but it is an IBD role)

Feb 4, 2019 - 7:36pm

This one goes somewhat in the same direction.
I've the impression that there are also a few additional fields which provide the respective companies with clear advantages.
Don't know if it's actually prohibited or maybe just unethical but what about the companies that put millions of trades a day? As far as I've understood, they gather these trades in a queue and algorithms place them when the respective exchange opens. Having this data before the action begins must be easily exploitable, at least for those who have the statistical acumen.

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Feb 5, 2019 - 5:19am

Chinese walls in my experience are more like Mexican walls, conceptually they exist, but in reality they don't.

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Feb 7, 2019 - 1:11pm

Having someone else buy/sell stock on your behalf can be tricky, even if you don't share the same home address or surname, people who use insider info do get caught thinking that they'll never get caught because the account or what-have-you wasn't in their name.

As for the the solidness and success of Chinese Wall/ethical firewall policies, they vary greatly from firm to firm.

I worked at one IB where, on our start date, we were each given multiple copies of the same laminated card [size of a classic business card] with the procedures and policies for the company's CW, including specifying that you were not discuss deal details when in elevators or other public spaces. We were told to carry one in our wallets and tape one to our desk phone to be able to easily check it if/when a situation might require contacting Legal & Compliance along with bulleted reminders of do's and don't's.

Another IB firm I worked at had a yearly mandatory in-person session regarding ethics and such, covering their Chinese Wall protocols and things like how to avoid social engineering scenarios.

At my current firm, the IB side is not to contact the traders/analysts directly. Our department is the liaison, we reach out to the traders/analysts via emails that must not show any client details, charge codes, code names, nothing identifying. There are also provisions for calls with analysts that have to be funneled through another group that acts as a buffer and those calls are recorded and the buffer group will chime in and say whether something can or can not be asked/answered.

And even though I've never worked directly on a deal, I've regularly contended with FINRA requests, asking me when did I "know what about" a transaction because many a law firm and bank will add the research associates onto the deal team roster. Some may call it overkill, some may call it CYA, it is what it is. I will say though that my suspicions lie in the general direction of if a company has serious CW implementations, it's likely they've been fined in the past and so they become more serious about it and err on the side of excessive caution and hoops to jump through.

Feb 7, 2019 - 1:28pm

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