Scandals spark ban on bank chat rooms

SEVERAL banks, including Barclays, Citigroup and the Royal Bank of Scotland, have banned the use of most group chat rooms in moves that highlight how global probes into alleged benchmark manipulation are driving a radical reform of trading floors.

Investigations into the Libor interbank lending rate manipulation scandal prompted the RBS last year to ban unmonitored chat rooms in which traders used to discuss market topics with rivals, two people familiar with those measures said.

“The bank clamped down on this big time. I think we were even going slightly overboard on this,” one senior banker said.

Two months ago, Citi banned traders’ chat rooms with mul- tiple banks, restricting instant messages to conversations with traders at one bank at a time. Barclays — which, like the other two banks, declined to comment — made similar reforms last year.

Executives at JPMorgan are also examining whether conversations on so-called multidealer chat rooms should be carried out bilaterally over the phone.

Banks are re-evaluating their messaging systems as they grapple with the fallout from the Libor scandal and a global probe into the alleged manipulation of the $5.3-trillion-a-day foreign exchange market, the latest in a series of benchmark-related rate-rigging investigations.

At least eight regulators in the UK, US, Switzerland and Hong Kong are involved in investigating more than 15 banks. That has so far triggered the suspension of at least 12 traders across the globe amid suspicions that chat rooms were used to share sensitive client information.

The RBS is looking into allegations that some traders have been talking to their counterparts at other banks in chat rooms that were labelled “client communication”, a person familiar with the probe said.

The Libor scandal, which has led to $3.7-billion (about R37.5billion) in fines, has raised banks’ awareness of the problems associated with chat rooms as investigators have seized on trails of incriminating messages, which have subsequently proved a public rela- tions nightmare for several banks. “We wish we had never allowed chat rooms,” one top executive at a large European bank said.

But many of the most used systems — such as the prevalent Bloomberg accounts — still operate outside the bank’s monitoring capabilities.

In recent months, eight of the world’s largest investment banks have agreed to use a service operated by Markit, the UK data provider, that will connect market participants without taking them outside their own secure internal system.

Senior traders said it had long been a problem to stop junior members of the trading floor from talking too freely in chat rooms. —© The Financial Times