Several banks including Barclays, Citigroup and Royal Bank of Scotland have banned the use of most group chat rooms as global probes into alleged benchmark manipulations drive a radical reform of trading floors.
The scandal over manipulation of the Libor interbank lending rate prompted RBS last year to ban unmonitored chat rooms where traders discussed 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.
Citi two months ago banned chat rooms with multiple banks, restricting instant messages to conversations with traders from one institution at a time. Barclays, which like the other two banks declined to comment, imposed similar bans late last year.
Executives at JPMorgan are also examining whether conversations currently carried out on so-called “multi-dealer” chat rooms should be done bilaterally over the phone, it emerged two weeks ago.
Banks are re-evaluating their messaging systems as they grapple with the fallout from the Libor scandal and a global probe into alleged manipulation of the $5.3tn-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 investigations of more than 15 banks. So far at least a dozen traders have been suspended amid suspicions that chat rooms were used to share sensitive client information.
RBS was looking into allegations that some of its traders had been talking to counterparts at other banks in chat rooms designated for “client communication”, one person familiar with the internal probe said.
The Libor scandal, which has led to $3.7bn in fines, has raised banks’ awareness of the problems associated with chat rooms as investigators have seized on trails of incriminating messages. These have subsequently proved a public-relations 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 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.
“Customers say we need to look very closely at the rooms we have, and shut down the ones that are not business critical; stop rooms where people have chats on the sly, and we need to have a system where we can identify the individual with his company,” said David Craig, president of Financial and Risk at Thomson Reuters, which runs a popular instant messaging service for financial markets.
Senior traders said it had long been a headache to stop junior members of the trading floor from talking too freely with each other in chat rooms. “As soon as you get them to stop, they just start up again. They say all sorts of stupid things,” one said.
Additional reporting by Delphine Strauss in London