JP Morgan Chase (JPM) and Deutsche Bank are extending bans on the use of multi-dealer online chatrooms, sources familiar with the plans told Reuters, as banks crack down on potentially inappropriate communications following a string of scandals.
Continue Reading Below
Chatrooms have been a focus for regulators investigating manipulation of benchmark interest rates and possible rigging in the $5.3 trillion-a-day foreign exchange (FX) market.
A source familiar with developments at JP Morgan, the biggest U.S. bank by assets, said the decision was unrelated to the FX probes which surfaced in June, noting chatrooms had been under review at the bank since earlier this year.
"This has always been about more than FX," the source said, adding that the casual nature of online chatrooms increased the potential for "inappropriate" remarks to be made.
The ban will come into force later this week and the use of such chatrooms among staff for social purposes will also be prohibited.
Deutsche Bank will widen a ban on multilateral chatrooms already in place for its foreign exchange and fixed income staff.
Continue Reading Below
It will now extend to all its corporate banking and securities businesses, including equities.
"It's basically across the whole investment bank," said a source familiar with the matter, adding that the ban will come into force on January 1, 2014.
Bilateral online chats between traders will not be affected, although they are under review at JP Morgan, while external chats between JP Morgan staff and clients will still be permitted.
JP Morgan declined to comment because the plans had yet to be finalized. Deutsche Bank also declined to comment.
Regulators are scrutinizing online messages between currency traders to see whether there is any evidence that they worked together improperly to influence foreign exchange "fixes" - the daily snapshots of currency rates used by firms and portfolio managers for valuing assets.
Traders at banks and other financial institutions often communicate with each other via third-party services including those offered by Bloomberg LP and Thomson Reuters Corp <TRI.TO> (parent of Reuters News).
The FX probe has prompted a swift reaction from lenders, chastened by their experiences of a five-year investigation into manipulation of the London interbank offered rate (Libor).
Banks including Citigroup <C.N>, Barclays <BARC.L> and UBS <UBSN.VX> have also clamped down on online chatrooms.
"Banks are taking this extremely seriously ... The lesson learned from Libor is that the stakes are very high for boards and for senior management," said Tony Murphy, a managing director at consultancy Promontory Financial Group who ran HSBC's global banking and markets division in the Americas.
Ten banks and brokerages have so far admitted wrongdoing in the Libor probe and have been fined nearly $6 billion in total.
Since the FX probe surfaced, compliance staff have warned currency traders not to exchange information with rivals in case it could be interpreted as collusion, and any discussion of fixes has to be reported.
"Chatroom activity and information flow is down significantly. We have to be careful who we talk to," said one veteran trader at a European bank based in London.
So fraught is the mood that some investment banks have even stopped dealers from telling their own salesforce about trades, flows and levels, the usual grist of FX market banter.
Reuters contacted nearly 30 traders or investment officers at banks and hedge funds about their firms' reaction to the FX probes and they all either declined to comment or spoke on condition they and their bank or fund would not be identified.
GUTS AND FEELING
Senior FX traders are being peppered with paperwork requests as compliance staff seek desk logs going back years and transcripts of staff communications, which are then handed over to in-house lawyers and regulators.
On the first floor dealing room at Barclays' headquarters in London's Canary Wharf, staff have dismantled glass cubicle meeting rooms that separated managers and traders, a source familiar with the matter said.
The glass walls came down after Barclays was fined $450 million last year for interest-rate manipulation and the move is part of Chief Executive Antony Jenkins' mission to instill more transparency at the bank and overhaul its culture.
On its credit desks, which help price corporate debt, Barclays' IT staff are reprogramming trading models to slow them down, part of efforts to reduce volatility and increase the transparency of the bank's trading activities. Such changes could also eventually be looked at for systems used by FX and fixed-income dealers, the source said.
Barclays declined to comment.
The chatroom clampdown has cut a key information channel for dealers, making investment decisions more difficult.
"No choice. I have to rely on guts and feeling," said one senior trader based in Singapore.
To get around the restrictions, some dealers are talking to each other on mobile phones off the trading floor, or taking strategic cigarette breaks to touch base with colleagues.
Where chatrooms are still allowed, dealers are ignoring awkward questions, or in some cases blocking contacts for fear it will look like they are getting too cosy.
"One trader blocked a broker after he invited him to dinner," said the trader in Singapore. "Nobody wants to get in trouble."