I want to ask a question about the purpose of the chinese wall in Investment Banks.
As far as I’m aware, the idea of a “Chinese Wall” or an “Ethical Wall” in Investment Banks is to prevent insider trading, where the sales & trading side of the bank for instance has no idea of the deals that the investment bankers are working on.
The intuition I gathered is that (in the example above for sales and traders) people working in sales can’t buy a stock of a company that’s not yet public nor can they influence the decision of the clients that they provide a service for.
However, I haven’t found any real reason about why a Chinese Wall exists in the first place between the different functions of a bank. Why can’t a Salesperson buy the stock before it goes up, or tell their clients about it ahead of time? Are there any other reasons that the bank would choose to put up a Chinese Wall aside from leaks to the public domain, for instance?
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Buying or selling a stock based on information not available to the public is insider trading, and very illegal.
If Joe Public can’t make the same decision you can, you can’t trade the stock.
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