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Chinese Trade Regulators Challenged By Message Apps

January 5, 2016 - Written By Daniel Fuller

For as long as capitalism, free markets and trading have been around, people have found new and more convenient ways to trade, as well as ways to cheat the system. Ranging from schemes like market manipulation and insider trading to complex, multi-account and multi-service trading to skirt tax responsibilities, regulators have always had to be vigilant and stay on top of innovations and market trends. Messaging apps such as Whatsapp, LINE and WeChat are the newest frontier in trading and, at least in China, are presenting issues with regulating and keeping track of transactions.

The advantages of using these messaging apps are obvious; you can reach a larger audience and reach people faster, more easily and in most cases more conveniently than through common channels such as dedicated trading apps and websites or through a phone call. Just about everybody from big firms like China Galaxy Securities to smaller outfits like Great Wall Securities and even private traders are hopping on the bandwagon. The communications through these apps are harder to monitor than dedicated channels and have the potential to be abused. Insider trading and other assorted schemes are easier to execute through outside channels such as these apps and many organizations and trading channels ban their use in trading entirely. This does not sit well with the user bases of these apps who are interested in trading and can be quite large; WeChat alone boasts some 600 million active users.

Firms offering accounts through these chat services fall under closer scrutiny from officials, but it’s not hard for things to slip through the cracks despite a more vigilant eye from above. For most organizations, recording, monitoring and controlling communications through third-party channels is difficult, if not impossible, given their setups in regards to employee and account holder management. It should also go without saying that traders could just as easily use their own devices on outside networks to conduct trading activity, which has left more than a few traders with their activity suspended. The Hong Kong Securities and Futures Commission and many brokerages discourage this kind of behavior, but this does not deter a great many traders and brokers, leading to communications and even full-on trade orders unaccounted for. The use of social media and messaging apps for trading is causing issues in the United States and other countries as well, where similar rules regarding monitoring of communications exist and technology on the monitoring side is having a hard time keeping up with new tech being used to communicate.