New York, NY – Last week, JP Morgan Chase sent a formal letter to global market data vendor Bloomberg LP, requesting five years of internal logs verifying what data the firm’s journalists had accessed about how the bank’s employees had used the terminal. JP Morgan also sought confirmation of the controls that have been put in place to keep this from occurring again.
Background on the Issue
In a formal statement, JP Morgan Chase said, “Our legal department sent a formal request to Bloomberg to verify exactly what information reporters had access to and confirmation of their controls to prevent future breaches.”
The request by JP Morgan came last week after it became known that Bloomberg journalists had long accessed information about the usage patterns of its subscribers. This transpired because executives at Goldman Sachs had expressed concern over the practice to Bloomberg after one of the firm’s reporters shared the terminal login habits of one of Goldman’s executives to another.
This acknowledgement has sparked both concern and anger across Wall Street as traders and investment bankers have wondered what types of proprietary data Bloomberg’s journalists have had access to.
Bloomberg says that its reporters have historically had access to a user’s login history, help desk inquiries, and how many times different computer programs were accessed.
Bloomberg’s Response
Matthew Winkler, the editor-in-chief of Bloomberg News publically apologized last week, explaining that this access can be traced to long-time practices at Bloomberg News. “Our reporters should not have access to any data considered proprietary. I am sorry they did. The error is inexcusable,” Winkler wrote in an op-ed.
In an internal memo to Bloomberg employees sent last Friday, CEO Dan Doctoroff also expressed his apologies, writing: “Client trust is our highest priority and the cornerstone of our business, and we are deeply committed to ensuring the complete integrity and confidentiality of our clients’ data in all situations and at all times.”
Last week, Bloomberg also said that it had restricted its journalists from accessing any information about its terminal subscribers, including the information they had previously been able to access. In addition, Bloomberg said that it had appointed Steve Ross, a senior executive responsible for the day-to-day operations of its market data terminal business, as its first dedicated compliance chief.
As a result of this scandal, Bloomberg has been in contact with executives at a number of their large customers, including JP Morgan, Goldman Sachs and Morgan Stanley in an effort to convince them that they were addressing this issue and that their firms’ proprietary data had always been kept confidential.
The Market’s Reaction
Thomas Nides, Morgan Stanley’s vice chairman explained their firm’s interactions with Bloomberg management on this issue, saying: “They’re assuring customers this was a mistake and that they’re going to rectify that. We want to make sure we have all the facts, but right now we’re taking the company’s assurances,” that the issues with use of customer data didn’t extend to trades or instant-message conversations.
Goldman Sachs’ President Gary Cohn has also spoken extensively with Bloomberg management about this issue. Last week he told the media that the bank does not have a major concern about the issue.
Despite these expressions of confidence in Bloomberg’s response, some are not so convinced. Citigroup used this development as an excuse to move its foreign exchange traders from using the Bloomberg messaging service to their own internal chatrooms. In addition, some Wall Street traders have started discussing whether the big banks should try to form a cooperative that could compete with Bloomberg.
Integrity’s Assessment
We are not convinced that a mass exodus to an alternative market data platform is likely over the near term as the Bloomberg terminal has become deeply imbedded in the workflow of many sell-side and buy-side firms. However, we would not be surprised if some clients use this development as a reason to emphasize a competing provider like Thomson Reuters, FactSet or S&P Capital IQ.
We do believe that this scandal, on top of the news a few weeks ago that Thomson Reuters was sending out certain data earlier to specific clients, is likely to prompt market data firms and their Wall Street clients, to become much more sensitive to the potential compliance risks associated with the use of these previously “safe” information sources.