A number of major banks have banned traders from chat rooms in the last few weeks.
It has been a common practice for traders to use chat rooms to have casual online conversations about markets, ideas, even strategies with friends on other trading floors. Often these conversations will include multiple brokers from various institutions at the same time.
Therein lays the problem. As one compliance officer told me “nothing good can come from chat rooms.”
Not Reviewed, but Discoverable
Recent allegations of collusion in establishing rates for interest indexes (LIBOR, TIBOR) and foreign exchange have management nervous that chat rooms could be easily used to coordinate such connivance. Chat rooms are never used for trading and therefore have not, traditionally, been reviewed with any regularity by compliance departments; they are nonetheless recorded, and more importantly, discoverable.
Management at an increasing number of banks is becoming aware that they may not like the “casual” conversations that traders are having when they think no one is watching. Even if not a source of outright collusion, chat rooms can be a source of inappropriate banter—again, all discoverable.
Collusion Isn’t the Only Fear
While the immediate motivation may be that management is trying to prevent opportunities for collusion amongst traders, they may also be eliminating a source of future electronic evidence of employment practices liability. If you think traders have never commentated on colleagues in an inappropriate manner then I suggest that you have never stepped foot on a trading floor.
There may be value in friendly traders sharing ideas over an electronic forum, but the risks associated and scale of the fines involved with collusion charges are simply too large in the opinion of some banks.
There is no doubt that all major financial institutions will be reviewing their electronic communication policies in light of the recent moves by these leading banks.