What tools are you using to negotiate your trades?
This Bloomberg article should be a wake-up call if you’re still using Private Messaging to negotiate your trades.
If ‘going digital’ to you means replacing face-to-face meetings and ‘phone calls with private messaging applications like WhatsApp, then you should probably think again. The transition to private messaging apps has been widely embraced by a trading community used to negotiate product deals individually on a one-to-one basis. They are arguably quicker than the equivalent phone calls and are encoded, making them secure, but that’s where the advantages end.
Trading this way is intrinsically inefficient, both from the time it takes to negotiate deals shuttling backwards and forwards between potential trading partners, but also because it restricts the number of potential partners you are exposing the trade to, and without that market transparency, there is no way of actually knowing if optimum price discovery has been achieved, or visibility of market data with which to plan better future strategies.
But almost more important than these innate inefficiencies is the fact that trading this way exposes you to significant risk from a lack of an auditable trail. Private messages cannot be monitored by employers and are often not archived correctly, making compliance incredibly difficult. The consequences of non-compliance for individual firms can be huge; for example, in the US financial services industry, $2 billion worth of fines are expected to be issued to banks by the Securities and Exchange Commission in 2022 in response to poor record keeping of communications on private messaging apps.
“Beyond planning to pay hefty fines, some banks have already let go traders for improperly exchanging information on personal mobiles. HSBC Holdings Plc, which said in February, it was facing a US probe over the issue, recently fired a trader in London after scrutinizing the personal mobile phones of some staff in relation to the WhatsApp probe.”
The good news is that using a digital trading platform resolves these issues. The intrinsic advantage of a digital marketplace is better price discovery from assembling more buyers and sellers in one marketplace at one time. Still, the most significant benefit is the additional transparency. Because all bids, offers, counters, questions and trades are automatically recorded, it systematically creates a detailed audit trail to facilitate better compliance.
If the merits still need to convince you of digital trading platforms, then the avoidance of compliance fines gives you another reason to reconsider.
Read the original Bloomberg article here:
Wall Street's Record Fines Over WhatsApp Use Were Years in the Making