JP Morgan Chase is on the verge of launching a new dark pool, sources close to the big bank say.
Called JPM-X, the platform is based on technology built by Bear Stearns, and will replace an earlier dark pool called Lighthouse.
JP Morgan launched Lighthouse early in 2008, just before the bank acquired a floundering Bear Stearns.
Lighthouse is still operational as an internal cross, sources say, but is in the process of being decommissioned. The system was never registered as an alternative trading system.
JPM-X, on the other hand, is an ATS. It is expected to be considerably larger than Lighthouse due to the acquisition of Bear Stearns. The deal brought to JP Morgan a large prime brokerage operation as well as Bear’s clearing and retail businesses.
In at least one critical respect, JPM-X will operate in fundamentally different fashion from Lighthouse: it will not transmit indications of interest.
“We do not send out IOIs,” Brett Redfearn, JP Morgan’s global head of liquidity, said at a recent industry conference. “We believe—just like flash orders—there is some leakage associated with the practice.”
Some dark pool operators send out electronic messages to other dark pools or liquidity providers noting the presence of an order in their pool. Many in the industry find the practice harmful.
(New rules proposed by the Securities and Exchange Commission could sharply curtail the practice.)
A year-and-a-half ago, JP Morgan believed transmitting IOIs was a good way to increase the chances of finding a match in its pool. Lighthouse was built as both an internal crossing mechanism as well as a seeker of external liquidity. It was called Lighthouse because it scanned other dark pools much as a real lighthouse scans the darkened seas.
Redfearn, who was previously with Bear Stearns, took over JP Morgan’s electronic trading department after the merger, replacing Carl Carrie.
Sources say the system was originally built by Bear Stearns, but has been significantly augmented since the merger. The system is operational and is expected to be launched soon. JP Morgan executives would not comment for this article.
