What it is:
How it works (Example):
Squawk boxes come in different shapes and sizes, but they are generally small speakers. Each brokerage firm or financial institution has its own squawk box system. Every morning, the firm's commentator will broadcast information such as the firm's current analyst recommendations on certain stocks, market events, and information about certain block trades. The information is intended to help the firm's brokers trade more effectively, profitably, and efficiently by advising clients in a more timely and strategic manner. Many exchanges run a live running commentary over a squawk box that subscribers pay to listen to.
Other technology is slowly replacing the squawk box, such as secure internet messaging.
Why it Matters:
The squawk box is used to essentially conduct a live radio broadcast within a brokerage firm. As such, the information broadcasted via squawk box can reveal sensitive, strategic firm or trading information and is thus usually restricted. For example, if a brokerage firm has a huge institutional block trade to execute, it might use the squawk box to disseminate that information to its brokers so they can facilitate the trade throughout the trading day.
Clearly, the knowledge of a large pending block trade can influence market prices, and so it is important to keep squawk box information confidential. Otherwise, people are prone to front running, which is unethical and often illegal behavior.