Conflicts of Interest in Proprietary Trading
There are a number of ways in which proprietary trading can create conflicts of interest between a trader's interests and those of its customers.
As investment banks are key figures in mergers and acquisitions, it is possible (though prohibited) for traders to use inside information to engage in merger arbitrage. Investment banks are required to have a Chinese wall separating their trading and investment banking divisions; however, in recent years, dating most recently back to the Enron scandal, these have come under great scrutiny.
One example of an alleged conflict of interest can be found in charges brought by the Australian Securities and Investment Commission against Citigroup in 2007.
Read more about this topic: Proprietary Trading
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