Finance: What is a Chinese Wall?

What is a Chinese Wall? The term “Chinese Wall” is applied to a code of silence over certain operations or activities to isolate different departments from conflicts of interest that can ethically compromise the parent company. Taking the analogy of China’s Great Wall, the Chinese Wall is intended to separate sensitive information between trading, brokerage, and investment banking departments within a financial firm, for example, since inside information leaks could potentially cause conflicts of interest that could alert regulators. News agencies need to maintain a similar separation between journalism and marketing departments for the same integrity maintenance reasons.

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Transcript

00:22

other without a whole lot of arrows in its back

00:25

in front Yeah and yeah so they just don't get

00:29

past it Period Well in wall street speak note the

00:33

wall in their wall street Yeah fine tradition of walls

00:37

in finance will chinese walls refer to the divisions between

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one set of financial people at a company and other

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departments of people at that same company like a big

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bank might have an investment arm their own mutual or

00:50

hedge funds but they might also have a corporate finance

00:53

department which does mergers and acquisitions Well what happens if

00:57

google is about to buy netflix at a big premium

01:00

price and they've hired the bank tto help them close

01:03

the deal Well it would be illegal for the bankers

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to tip off the banks hedge fund division or mutual

01:10

fund investing division so that they could front run the

01:13

deal by a whole bunch of netflix shares before they

01:16

printed up in the news and make a free you

01:19

know one hundred dollars or one hundred fifty dollars a

01:22

share or more in games Yeah that would be totally

01:25

illegal leaking inside information Yeah very illegal So a chinese

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wall is put in place with just a single person

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or very small group of people who sit on top

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of the wall think game of thrones looking over both

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sides of it and they are restricted from trading on

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their own pretty much ever like In theory the chinese

01:46

wall separates the bankers from even being ableto wander over

01:50

to the hedge fund side of the world The idea

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is that the sides air divvied up so that information

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cannot leak through enough to allow insider trading toe happen

02:01

well in reality Sadly chinese walls often end up being

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more like swiss cheese Insider trading and information leaking between

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departments and companies happens all the time even and especially

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when it shouldn't And unlike good swiss cheese however the

02:16

guys and gals convicted of insider trading have already gone 00:02:19.865 --> [endTime] bad Ooh