The term Chinese wall refers to a division made between two or more departments of an institution to avoid potential conflicts of interest. In trading, Chinese walls are most often used to prevent insider trading by separating a service provider’s brokerage department from departments which are privy to insider information.
This may be the case, for example, when a universal bank has both stock brokerage and investment banking operations. In this case, investments in companies by the investment bank or possible mergers and acquisitions organized by the investment banks could directly impact the stocks of the companies in question, and knowledge of this information would give the same bank’s brokerage department and unfair advantage over investors.
The term originates from the Great Wall of China. It is also used in a broader sense to describe any form of strong barrier between two parties.
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