Chinese Wall

What is a 'Chinese Wall'

A chinese wall is the ethical barrier between different divisions of a financial (or other) institution to avoid conflict of interest. A Chinese Wall is said to exist, for example, between the corporate-advisory area and the brokering department of a financial services firm to separate those giving corporate advice on takeovers from those advising clients about buying shares. The "wall" is thrown up to prevent leaks of corporate inside information, which could influence the advice given to clients making investments, and allow staff to take advantage of facts that are not yet known to the general public.

BREAKING DOWN 'Chinese Wall'

Maintaining client confidentiality is crucial to any firm, but particularly large multiservice businesses. Where firms are providing a wide range of services, clients must be able to trust that information about themselves will not be exploited for the benefit of other clients with different interests. And that means clients must be able to trust in Chinese Walls. Some Wall Street scandals in recent years, however, have made some people doubt the effectiveness of Chinese Walls, as well placed executives of respectable firms have traded illegally on inside information for their own benefit.

RELATED TERMS
  1. Account Executive

    This term refers a person who has primary responsibility for ...
  2. Discretionary Account

    An account that allows a broker to buy and sell securities without ...
  3. Agency Broker

    A broker that acts as an agent to its clients. When acting as ...
  4. Party Wall

    In real estate, a shared wall that separates housing units. Party ...
  5. Client Base

    A company's primary source of business. A client base consists ...
  6. Open Architecture

    The option offered by an investment firm to let its clients invest ...
Related Articles
  1. Managing Wealth

    Asset Manager Ethics: Acting In the Benefit of Clients

    Investment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
  2. Financial Advisor

    Manage Your Clients' Expectations

    You can't control how they react to the market, but you can help them understand the reality of the situation.
  3. Financial Advisor

    Deal Effectively With Difficult Clients

    Learn how to tame the most shrewish clients with these simple methods.
  4. Financial Advisor

    Top Tips for the Recently Unemployed

    When a major life change such as a job loss comes up the advice and counsel of a trusted financial advisor can prove to be invaluable.
  5. Financial Advisor

    Private Banking Vs. Wealth Management: Not Quite the Same

    Discover the various ways in which private banking and wealth management services coincide, as well as the significant differences between them.
  6. Financial Advisor

    Growth Strategies For Financial Advisors

    These 5 strategies offer financial advisors a blueprint on how to grow their practices.
  7. Financial Advisor

    Losing a Client Is Not Always The End of The World

    Losing a client is never pleasant for a financial advisor, but sometimes this is a better outcome than continuing the relationship.
  8. Financial Advisor

    Advisors Need to Talk Less, Ask and Listen More

    Financial advisors spend a lot of time giving their clients advice on how to invest their money. But what they often forget to do is listen.
  9. Professionals

    Tips For Boosting Your Business

    Find out how butter up new clients, build up old files and better your bottom line.
  10. Financial Advisor

    The Plusses of Second Opinions for Clients

    If you are not collaborating with other professionals in your circle, you could be doing your clients a disservice.
RELATED FAQS
  1. How is something "brought over the wall" in an investment bank?

    An analyst who lends his or her expertise to an underwriting department is said to have been "brought over the wall". In ... Read Answer >>
  2. What does the saying "What's good for Wall Street is bad for Main Street" mean?

    Let's start by defining the terms "Wall Street" and "Main Street". Wall Street, in its broadest sense, refers to the financial ... Read Answer >>
  3. Why are fee-based accounts preferred by many high net worth individuals (HNWI)?

    Learn why many high-net-worth individuals prefer fee-based financial advisers, and learn how commission based advisers may ... Read Answer >>
  4. Does agency theory apply to brokers and clients?

    Learn how the existence of incentives that encourage moral hazard impacts broker-client relationships. Understand how agency ... Read Answer >>
  5. Your firm is a registered investment advisor that specializes in investment management ...

    The correct answer is b: As a professional, you must be able to recognize when clients make requests for services that are ... Read Answer >>
  6. What is the difference between fee-based advisors and commission-based advisors?

    Understand the difference between fee-based advisers and commission-based advisers. Learn what types of duties each type ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center