Improving your chat

Instant messaging technology got a bad rep during the recent rate fixing scandals. Will efforts to tighten up chat culture threaten Bloomberg's dominance in the market?

With compliance teams at financial institutions looking at new initiatives to tighten up chat culture, Bloomberg’s hegemony could come under threat by new entrants.

Instant messaging and chatrooms are integral tools for the traders to pick up news, execute orders and exchange information. They have also proven to be integral tools for those seeking to manipulate the markets. Chatrooms made the spotlight during the Libor and FX fixing scandals which uncovered collusive behaviour being undertaken in rooms with nefarious monikers like The Cartel, The Bandits Club and The Mafia.

Bloomberg’s chat feature —called Instant Bloomberg—was set up in 2003 and has grown out of the terminal’s popularity. Participants say they will often look to buy a Bloomberg terminal just to get access to the messaging service. Indeed, there are around 18 million chats every day. In November 2016, a one-hour outage in Bloomberg chat threw the markets into virtual disarray as participants scrambled to connect ahead of the US presidential election, attesting to its importance. 

But cracks have started to appear in the world of Bloomberg chat of late. The company was caught up in controversy in 2013 when it was discovered that Bloomberg journalists had been using the terminal to get access to normally private customer information. This at the same time as the industry was carrying out a wholesale reassessment of the use of chat in the wake of the rate fixing scandals.

“There is a heightened sense of wanting to do something,” said Eddie Cogan, founder of Catelas, a messaging security service. “We have gone to banks who said they are switching off their Bloombergs. While that’s not going to happen I think that use of Bloomberg has decreased somewhat. You used to have thousands of different multilateral chatrooms that’s definitely been cut back.”

Sullied reputations aside, there is another significant pressure occupying participants right now—cost. Bloomberg terminals are sold at around $24,000 per user per year and many are questioning whether paying this amount is justified in an era of belt-tightening.

“A lot of people pay for Bloomberg just for chat,” said one head of trading at a US asset manager. “In 2017 there will be a big focus on cost—Bloomberg is a big cost so people may look to cut this.”

Two years ago 15 investment banks and asset managers got together to launch Symphony, a new messaging service designed to challenge the Bloomberg hegemony. The people behind Symphony believe that it is a viable rival to the Bloomberg chat tool. For one it costs just $15 per month for the basic messaging service. At the same time it is intended to be more compliance friendly.

“Compliance is different in different countries—you’re not just checking chat but doing it in real time,” said David Gurle, founder and chief executive of Symphony. “We have a unique security model it encrypts data end to end and allows monitoring to be done real time by using programmed keyword checks.”

Gurle stated that with the creation of Symphony, the market is voicing its concerns over Bloomberg’s data use record.

“There are concerns around who owns the data on Bloomberg and how it is protected,” he added. “When you use data on Bloomberg it’s owned by them not you. They do whatever they want to do with it. People refrain from posting some data because they think Bloomberg can use it.”

Symphony currently has 130 customer firms signed up to it with 150,000 individual licenses sold to-date. The company got a massive vote of confidence last year when BlackRock, one of the initial backers, announced it was replacing its old internal messaging system with its chat to be used by its 13,000 global employees. It is also being aligned to replace old dealer internal chat systems, including Deutsche Bank’s DB chat and UBS’s MindAlign.

But many participants are yet to be convinced.

“I don’t know how much traction that (Symphony) has right now,” said the head of trading at a major buy-side firm who asked to remain anonymous.

While not everyone may love Bloomberg, its ubiquitous terminal technology means it is difficult to break the Instant Bloomberg chat stranglehold. Others have, however, been growing in recent times. Thomson Reuters’ Eikon Messenger and ICE’s Instant Messaging function profited from the closure of Yahoo chat last year. Indeed, the latter, used mainly by the exchange’s commodities and energy trading community saw 500% growth to 36,000 users in 2016.

Most traders were already prohibited from using mobile phones on trading floors. Deutsche Bank went a step further by banning text messaging and communication apps like WhatsApp on company phones after it suspended one of its traders for inviting a trading counterparty to join a WhatsApp group he had created in December. Most recently, the UK Financial Conduct Authority (FCA) issued a £37,198 fine to a former Jefferies investment banker for sharing client information on WhatsApp.

At the same time many have reduced the number of people allowed into chatrooms at one time.

“We don’t have multi chatrooms anymore,” said Michael Horan, head of trading services at BNY Mellon Pershing. “We don’t allow conversations with more than two counterparties and have tightened up on compliance for additional protection against market manipulation.”

The increased focus on compliance has led to new codes of conduct and security to monitor the use of this type of communication technology. Last May, the Bank for International Settlements (BIS) issued a code of conduct for foreign exchange participants banning the use of particular words in chatrooms that could hint at collusive activity. Banks themselves have also been souping up their chatroom police. But catching bad chat behaviour is not an easy task.

“Since Libor, banks are saying you need to control chatrooms and they want the content controlled and monitored,” said Cogan. “The problem is you can’t pick up things because traders have their own lingo. Monitoring works on email because you have context. On messaging there is no context and people misspell.”

Stopping misbehaviour on chat—even the innocent kind—is vital in this new era of extreme regulation. Cogan added that new technology needs to look beyond chatroom messages at different modes of communication and interaction including email and text messaging to build up an “ecosystem” of behaviour. It is a fine line, however, to how much policing can occur before the system turns into Big Brother.

“Anything that restricts traders doing business will not be welcomed,” said Jon Simone, financial markets compliance at Nice Actimize, a provider of communications monitoring software. “There is the further question of how you separate private from public communication? If somebody is using their own phone how do you monitor it?”

Still, not everyone in the industry is sold by chat. There remain many traditionalists in the market who believe in the telephone. A head of sales trading at a major European bank says that text speak cannot replace the information gleaned through a phone call.

“Everyone is on Bloomberg messenger or chat,” he said. “No one talks anymore it is bizarre. But in my opinion if you have something important to say then pick up the phone. When you have a guy on the phone then you can unleash everything you have got—the hit ratio you get after calling is amazing. I try to put it across to the guys to make the call. If something is worth talking about you should call.”

Given the new regulations in the market, the future of chat is difficult to predict. Some feel that chat is growing more important as many financial institutions migrate to use messaging over email as their main form communication.

Recent scandals have pushed the use of chat technology into a much more controlled and confined environment. But it is unlikely that this will stop the technology itself. Whether Bloomberg or any other, chat remains imperative for trading.

This article was updated on 6 April 2017 as it mistakenly stated Symphony was going to replace Barclays' B Chat. Barclays has no intention of changing its internal chat room.