Hedge funds advised to ask Bloomberg on potential data privacy breaches
Hedge funds have been advised to seek reassurance from Bloomberg that they have not been subject to any data privacy breaches in light of revelations that the company’s journalists had inappropriate access to terminal data.
It was revealed last week that Bloomberg reporters could access client usage data, most frequently used commands on the terminals and even transcripts of help-desk inquiries in what appears to have been a standard practice since the 1990s. However, Bloomberg said its reporters were not able to access clients’ messages, nor identify whether users were looking at certain stocks and bonds. Bloomberg has since stopped giving its journalists access following complaints from several banks, most notably J.P. Morgan and Goldman Sachs.
Despite this, one consultant urged hedge funds to check with their account managers at Bloomberg that they are unaffected. This would mirror actions by J.P. Morgan, which has reportedly sent a letter to Bloomberg demanding instances of its journalists accessing log-in or usage data on any of the bank’s employees. “I would advise hedge fund managers to ask their account managers about whether Bloomberg journalists could access their data,” said the consultant.
“I would also advise managers to try and obtain a guarantee in their Bloomberg contract that data will not be misused in the future,” added the consultant. This may be wishful thinking given the sheer dominance Bloomberg has in the market, although competitors such as Thomson Reuters, Markit and SuperDerivatives are trying to break its stranglehold.
The consultant conceded hedge funds’ bargaining position was weak. “Hedge funds do not have much of a negotiating position with Bloomberg when it comes down to discussing the contracts. Everybody uses Bloomberg to confirm details of trades, so it could be a tall order to negotiate or renegotiate their contracts. I suspect even hedge funds running several billion dollars would struggle,” he continued.
Hedge funds have not reacted kindly to the privacy breach at Bloomberg. “It is stunning that they let their news reporters have access to (client) details. This is a very large black eye for Bloomberg,” said one hedge fund chief operating officer in an email. The COO added Bloomberg had at least been “saying the right things about changing” its internal data policies although confirmed his firm was “casually” looking at alternatives to Bloomberg. The COO said this was primarily down to costs rather than any data privacy concerns though.
One multi-billion dollar hedge fund chief compliance officer said he had been involved in internal discussions about the Bloomberg privacy breach, but said there were no plans to change terminal providers. Two institutional investors contacted by COOConnect said they were not pushing hedge funds on the issue.
Reports have said banks such as Goldman Sachs and Deutsche Bank are in talks with Thomson Reuters and Markit about developing a rival service to Bloomberg whereby the banks’ internal messaging systems would be integrated onto a new platform. Citi’s FX traders have also been told to stop using Bloomberg chat in favour of an internalised messaging service although this appears to be borne out of cost rather than privacy fears.