| VIII. Chinese Walls |
The term "Chinese Walls" is a shorthand way of describing the financial intermediary's procedures for handling confidential or inside information.
- The "Location" of the Chinese Wall
Chinese Walls are not necessarily physical although they can have a physical element. Nevertheless, Chinese Walls do have a location. Broadly speaking, one will find a Chinese Wall between two parts of the firm:
- Departments that normally have inside information as part of their job functions (e.g. structured finance, investment banking, credit department, etc.) or "Potential Insider" functions.
- Departments that normally do not have inside information - and which could not operate normally if they did have such information ( e.g. sales, trading, research, etc.) or "Public" functions.
Two rules of thumb for handling confidential or inside information:
- Presume that the information at hand is confidential.
It must be a financial intermediary's policy to safeguard the confidentiality of information (e.g., information received from clients or transactions with clients).
- Follow a "Need to Know" policy.
- Crossing the Chinese Wall
From time to time, it may be necessary for a person who has inside information to disclose that information to a person from "outside the Chinese Wall". In this situation, the person receiving the information is "over the wall". Bringing a person over the wall is perfectly legitimate provided the crossing is in accordance with the firm's Need to Know policy and the financial intermediary's Chinese Wall Crossing Procedures have been followed. Exercise caution in revealing:
- Any specific information on any order other than which is publicly available
- Any information on unfilled or partly filled orders
- A client name or identification on narrow references - like a large government bank.
- Procedures for Crossing the Chinese Wall
Before crossing the Chinese Wall, senior management, as well as Compliance approval must be obtained. Ensure that the person going over the wall understand the consequences of having inside information. Records of the wall crossing - including who is over the wall, the date and circumstances of the wall crossing, what information was transferred, who approved it, etc. must be maintained.
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