Why traders need Twitter but can't get it

In these days of global rolling 24-hour news, internet and social media, news increasingly breaks first on Twitter. Even back in January 2009, when Captain Chesley “Sully” Sullenberger managed to land his stricken jet on the Hudson river, the first reports were on Twitter – 15 minutes before the mainstream media coverage of the event began.

But in 2009 there were only (only!) 300 million smartphones globally. By the end of 2017 that number had grown to 2.89 billion (source: Statista) and Twitter has become almost ubiquitous. Many major newspapers now regularly include Tweets as sources in breaking stories.

News moves financial markets. Traders in investment banks really need access to breaking news, and much of that news breaks on Twitter. After all, if a piece of news breaks about a major commodity – for example an attack on an oil pipeline somewhere in the world – then the price of that commodity is likely to be affected. And those oil traders that saw the story break on Twitter are able to react before the same news is carried on conventional news media – leaving those traders who rely on the news wires at a disadvantage.

Research suggests that the miracle on the Hudson wasn’t unique – it found that in general news breaks on Twitter up to 10 minutes before it hits the wires and the regular news media.

But that’s not the only reason. Twitter is an increasingly valuable source of analysis and opinion. And both of these are useful in finance. Increasingly analysts, investment managers and portfolio managers want access to Twitter for research purposes to better inform their investment strategies and trading decisions.

So why can’t traders have Twitter?

The primary reason is to prevent collusion between traders. The forex scandal that came to light in 2013 was the result of traders in multiple banks colluding in online chat rooms to manipulate exchange rates. Even before that story broke, banks and other financial firms were aware of the risks of traders being able to use private, sometimes encrypted, communication channels to share prices, fix indexes and benchmarks, and receive privileged information. Twitter could easily be used for this – not only does it have a public broadcast mechanism over which coded messages could be sent, but it has the capability of closed user groups and it has a one-to-one encrypted private messaging capability.

There is also a regulatory requirement that all traders’ communications should be recorded. MiFID II, which came into force early in 2018, makes this more explicit as part of its trade reconstruction requirements. And of course it’s not possible for a financial firm to record their staff’s Twitter private messages.

For similar reasons private mobile phones are generally banned from trading floors.

Of course, this doesn’t prevent a trader from using their mobile phone outside the bank, or even in the corridor (although in our experience, as most large buildings are effectively Faraday cages because of their method of construction, the mobile phone signal may be very poor inside a bank).

The real drawback to using Twitter on a phone outside the trading room is – how do you know when to leave the room? That’s the point about breaking news – you need to be aware of it when it happens. If you’re relying on checking Twitter when you visit the bathroom or go for lunch then you’ll have missed the news when it broke and you might as well rely on the news feeds you have on your trading terminal.

However, that doesn’t mean it doesn’t happen. We’ve been told, anecdotally that, in one or two firms, when an instrument price moves unexpectedly, traders without Twitter who can’t work out what’s happened will, sometimes with the knowledge and consent of the head of desk or compliance officer, access Twitter on their mobile phone to see if they can find out. Once this becomes commonplace then the bank has no control and no oversight, so it’s risking multi-million dollar fines, while individuals including the trader, the head of desk, the head of trading and the compliance officer are risking its reputation at least being fined, losing their jobs and potentially losing their liberty!

So traders just can’t have Twitter. And that’s it.

Or can they?

EarlyBird is designed to enable finance professionals to realise the full value of Twitter as a news, analysis and research resource. Check it out. www.marketearlybird.com.

Posted on 2/13/2018 5:19:01 PMTwitter Compliance