In a panic over recent allegations of collusion and manipulation in Libor and the Forex markets, several banks are considering barring their staff from taking part in chat rooms. It's the latest chapter in a saga of futile efforts to restrain traders from sharing information, and brings to mind the famous quip of Groucho Marx: "I don't want to belong to any club that would accept me as one of its members."
JPMorgan Chase and a number of other U.S. and European investment banks are discussing whether to disable links to chat rooms and communication bulletin boards made available through IT and trading systems used by their staff. According to the Wall Street Journal, the recent scandals over interest-rate rigging and the heightened regulatory interest in the online conversations conducted by traders, are making banks anxious about what is being said by whom, and to whom.
Traders in stocks, bonds, currencies and commodities are often linked up by equipment provided by information purveyors, such as Bloomberg, which provide chat rooms for participants. These fora, which provided colourful ammunition for prosecutors in the Libor-rigging case, are seen as a potential elephant-trap by the banks which are required by law to retain copies of all communication by their traders.
Such chat rooms are nothing new – many are publicly available to amateur investors, day traders and anybody interested in gossip about stocks and shares. They can be full of scurrilous rumour or even malicious intent – such as the notorious "pump and dump" tactics adopted by some banks during the dotcom boom when traders and analysts would puff the merits of dubious tech stocks and then sell into the rising share price. Again, these electronic rumour mills are nothing more than contemporary versions of the coffee houses of the early 19th century in the City of London where stockjobbers would mingle with investors, talk up companies' shares and generate business.
Bloomberg has declined to comment on the story. The news organization has already found itself under fire over the alleged use of its client data by its own journalists. Bloomberg was forced to bring in tighter controls after Goldman Sachs complained that journalists may have been tapping into confidential information.
This isn't just about building data walls; what the regulators and compliance industry are seeking to do is abolish the guts of markets. In any marketplace, competitive advantage is about access to information. It is no accident that the early exchanges were nothing more than cafes where investors gossiped. Then, the notion that it was wrong to act on inside information would be regarded as preposterous. In those days, no one invested without a tip, a nudge or a wink.
The theory that lies behind the current regulatory scramble is that the flow of information can be properly regulated, such that no investor has better access than another. Any working journalist can testify that this objective is quite absurd. In the physical commodity sector, it would be impossible to regulate such information as it would mean controlling almost infinite amounts of data about harvests, weather and stockpiles of grain, for example.
It is tempting to suggest that traders still bent on collusion should simply abandon electronic communication and revert to writing letters with pen and ink (and then destroying them).