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Chinese wall
A Chinese wall or ethical wall is an information barrier protocol within an organization designed to prevent exchange of information or communication that could lead to conflicts of interest. For example, a Chinese wall may be established to separate people who make investments from those who are privy to confidential information that could improperly influence the investment decisions. Firms are generally required by law to safeguard insider information and ensure that improper trading does not occur.
Bryan Garner's Dictionary of Modern Legal Usage states that the metaphor title "derives of course from the Great Wall of China", although an alternative explanation links the idea to the screen walls of Chinese internal architecture.
The term was popularized in the United States following the stock market crash of 1929, when the U.S. government legislated information separation between investment bankers and brokerage firms, in order to limit the conflict of interest between objective company analysis and the desire for successful initial public offerings. Rather than prohibiting one company from engaging in both businesses, the government permitted the implementation of Chinese-wall procedures.[citation needed]
A leading note on the subject published in 1980 in the University of Pennsylvania Law Review titled "The Chinese Wall Defense to Law-Firm Disqualification" perpetuated the use of the term.
Alternative phrases include "screen", "firewall", "cone of silence", and "ethical wall".
"Screen", or the verb "to screen", is the preferred term of the American Bar Association Model Rules of Professional Conduct. The ABA Model Rules define screening as "the isolation of a lawyer from any participation in a matter through the timely imposition of procedures within a firm that are reasonably adequate under the circumstances to protect information that the isolated lawyer is obligated to protect under these Rules or other law",[full citation needed] and suitable "screening procedures" have been approved where paralegals have moved from one law firm to another and have worked on cases for their former employer which may conflict with the interests of their current employer and the clients they represent.
A Chinese wall is commonly employed in investment banks, between the corporate-advisory area and the brokering department. This separates those giving corporate advice on takeovers from those advising clients about buying shares and researching the equities themselves.
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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Chinese wall
A Chinese wall or ethical wall is an information barrier protocol within an organization designed to prevent exchange of information or communication that could lead to conflicts of interest. For example, a Chinese wall may be established to separate people who make investments from those who are privy to confidential information that could improperly influence the investment decisions. Firms are generally required by law to safeguard insider information and ensure that improper trading does not occur.
Bryan Garner's Dictionary of Modern Legal Usage states that the metaphor title "derives of course from the Great Wall of China", although an alternative explanation links the idea to the screen walls of Chinese internal architecture.
The term was popularized in the United States following the stock market crash of 1929, when the U.S. government legislated information separation between investment bankers and brokerage firms, in order to limit the conflict of interest between objective company analysis and the desire for successful initial public offerings. Rather than prohibiting one company from engaging in both businesses, the government permitted the implementation of Chinese-wall procedures.[citation needed]
A leading note on the subject published in 1980 in the University of Pennsylvania Law Review titled "The Chinese Wall Defense to Law-Firm Disqualification" perpetuated the use of the term.
Alternative phrases include "screen", "firewall", "cone of silence", and "ethical wall".
"Screen", or the verb "to screen", is the preferred term of the American Bar Association Model Rules of Professional Conduct. The ABA Model Rules define screening as "the isolation of a lawyer from any participation in a matter through the timely imposition of procedures within a firm that are reasonably adequate under the circumstances to protect information that the isolated lawyer is obligated to protect under these Rules or other law",[full citation needed] and suitable "screening procedures" have been approved where paralegals have moved from one law firm to another and have worked on cases for their former employer which may conflict with the interests of their current employer and the clients they represent.
A Chinese wall is commonly employed in investment banks, between the corporate-advisory area and the brokering department. This separates those giving corporate advice on takeovers from those advising clients about buying shares and researching the equities themselves.
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.