By Lianting Tu and Carrie Hong
(16 Oct 2017) In China, bankers and traders don’t just hit the phones or send an email when they have a deal to sell. They take to WeChat. Regulators elsewhere may be clamping down on the financial industry’s use of private messaging apps, but in the world’s second-largest economy the practice is flourishing. Players in China’s $11 trillion bond market use personal accounts on WeChat and QQ -- apps owned by Chinese tech giant Tencent Holdings Ltd. -- for everything from distributing research to soliciting orders. While it’s not illegal to use social media to conduct business, most developed-market regulators require records to be kept, which is where China’s embrace of this new technology can get problematic. A banker in Hong Kong found that out the hard way when he was censured by the city’s securities watchdog last week for accepting order instructions by WeChat and mobile phone. The use of social-media tools in China’s financial markets is an “irreversible trend,” said Hao Hong, chief strategist at Bocom International Holdings Co. in Hong Kong. “That being said -- for sure there are risks in using WeChat during any deal executions, as a WeChat account is mostly personal and is not regulated.” China does have policies about message record-keeping, but it’s unclear to what extent they are enforced when it comes to WeChat or QQ communication, according to bankers spoken to by Bloomberg News. The National Association of Financial Market Institutional Investors requires that brokers in the interbank market keep “instant messaging records” for at least three months, according to rules posted on their website.
Financial technology in China has reached such a level that even soured loans and distressed assets can be easily bought on e-commerce platforms such as Taobao. Established in 2011, WeChat has quickly become ubiquitous in China, used by nearly a billion people to message, post pictures, source news and make electronic payments. Mainland traders create groups on WeChat or QQ to share research and relevant news -- but also rumors. In June, speculation that banks were trying to sell notes of China’s Dalian Wanda Group Co. was circulated on WeChat groups, helping trigger a plunge in the shares and bonds of Wanda’s listed units, analysts told Bloomberg, asking not to be identified as they are not authorized to speak publicly. Wanda later said the rumor was false. “WeChat and QQ are more efficient in reaching people compared with making calls,” said Wang Ming, chief operating officer at Shanghai Yaozhi Asset Management Co. “If you want to borrow or lend money, buy or sell a certain bond, just send it to the groups and when someone is interested you can then have a private conversation.” Wang said his firm doesn’t have rules around recording pre-transaction communications, but employees should try and confine their WeChat or QQ messaging to company computers, for recording purposes. Any deal-related transactions that take place on people’s personal mobile phones wouldn’t be tracked by the firm, he said.
In China, it’s typical for the details of a bond purchase -- the price, the size, the terms -- to be agreed to in personal messages, according to multiple bond traders and bankers across state-owned banks, commercial lenders and smaller securities houses Bloomberg spoke with. The people asked not to be identified as they either aren’t authorized to speak to media, or because the information is sensitive. The People’s Bank of China and the securities regulator didn’t immediately respond to faxes seeking comment on the use of personal messaging apps for financial business. China Foreign Exchange Trade System, a unit of the PBOC and home of the official interbank market, also didn’t reply. NAFMII said it couldn’t immediately comment on its record-keeping rules or whether it has censured anyone for breaching them. China isn’t the only place where personal messaging apps are used to exchange financial news and information. In Taiwan, the mobile chat app Line is popular among market players and South Koreans use KakaoTalk, a similar messaging service. Facebook Inc.’s WhatsApp is popular among the Indian trading community.
But it can be an unfamiliar world for developed-market investors to navigate. DeepBlue Global Investment Ltd., a Hong Kong-based hedge fund, is embracing WeChat as a tool to get China-related news quickly, but they have to be careful determining the reliability of the information, said founding partner Ziyun Wang. It’s a sentiment shared by Jim Veneau, head of fixed income for Asia at AXA Investment Managers Asia Ltd. in Hong Kong. “We are open to all sources of public information and if it impacts what we invest in we have to explore it,” he said. “The problem is rumors starting in chat rooms can have an impact.” Jane Yip, a spokeswoman for Shenzhen-based Tencent, didn’t respond to an email seeking comment. Last week wasn’t the first time Hong Kong has barred someone over WeChat record-keeping, with an account executive banned for six months in March. Earlier this year, an ex-Jefferies Group LLC banker was fined in the U.K. for sharing confidential data on WhatsApp, while most Wall Street banksare said to have policies in place to prevent unmonitored communications amid an explosion of personal messaging use in the finance community. Deutsche Bank AG, however, has banned text messages and WhatsApp-like services globally to bolster compliance standards. Most bankers learn the hard way to value communication regulations -- when there is a dispute, says Clifford Lee, head of fixed income at DBS Group Holdings Ltd. in Singapore. “Trade confirmations that are not done via officially monitored or recorded mediums can lead to problems,” he said. They just “may not be so evident now just because of the current strong market momentum.”