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Definition of 'Chinese Wall'
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.
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Investopedia explains '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.
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After the crash of 1929, this barrier helped define ethical limits, but it did little to prevent fraud.
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The better you understand why insider trading can be criminal, the better you'll understand how the market works.
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Established in 1933 and repealed in 1999, the Glass-Steagall Act had good intentions but mixed results.
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From a tulip craze to a dotcom bubble, read the cautionary tales of the stock market's greatest disasters.
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