JPMorgan Chase’s corporate and investment bank has begun to roll out a technical platform designed to consolidate 30 different trading systems into one.
The “first wave of execution” in the J.P. Morgan Markets system puts trading in foreign exchange, rates and commodities onto the platform, said Alex Nacht, managing director of markets strategies at the firm.
Trade research and analytics will also be included in the initial set of services for clients around the world, along with a variety of post-trade services.
“By having a high degree of automation at every stage of a trade, clients will be able to focus on trading ideas, rather than the increasing complexity of a post-regulatory world in trade execution, post-trade clearing, settlement and reporting,” said Troy Rohrbaugh, global head of FX and rates trading, announcing the start of the rollout.
J.P. Morgan ranks as the sixth leading global bank in foreign exchange trading, according to the Euromoney 2012 FX Survey, with somewhere between a 6 and 10 percent share of the market. Roughly $4 trillion in currencies changes hands daily, according to the Bank for International Settlements.
The rollout involves a “broad set of functionality,” said Nacht, starting with access to information from its existing MorganMarkets research service as well as a market data portal.
The platform’s analytical services allow for data queries and creation of charts, across different types of securities; a market monitor; a suite of securitized products and mortgage tools; pre- and post-trade analytics for equities; and pricing and structuring of fixed-income products.
The system will execute trades in interbank cash markets; spot trading, with delivery of one currency for another normally two days after the trade date; forward trading, where delivery is at a future date; swaps, where currency is bought on one day and sold on another date, simultaneously; and nondeliverable forwards, where there is no physical exchange of currencies and a contract is settled in cash, usually dollars.
Customers currently get JPM research from MorganMarkets, trade currencies on MorganDirect and use an option structuring tool on a service called Athena. However, all these portals are being migrated to J.P. Morgan Markets, where a client can do all three on the same site, with one login.
“We have created J.P. Morgan Markets to give clients an intuitive user experience, and a convenient and efficient way to trade across different asset classes, all in one place,” said Rohrbaugh.
The rollout of the unified system will help J.P. Morgan more easily report the details of trades to regulators, as required, for instance, by the 2010 Dodd-Frank Wall Street Reform Act.
“In our view, the value proposition is not necessarily an enhanced functionality for a given product,” said Scott Wacker, chairman of the steering committee on the J.P. Morgan Markets project. “But it’s more the interconnectivity between products and the fact that going forward, with increased regulation, the ability to optimize your activities across products and even your actions within a single product is going to be very important.”
In the foreign exchange case, trades involving nondeliverable forwards, for instance, will need to be carried out on “swap execution facilities” and then centrally cleared, as required by Dodd-Frank for certain forms of swaps.
Forward trades and currency swaps do not have to be carried out on these new facilities. But details of trades have to be reported to regulators. FX options are intended to be carried out on the new venues, but so far the industry has not figured out how to clear physically settled FX options, which is the norm in the over-the-counter market.
And details of spot trades don’t have to be reported at all, said Wacker, who also is head of FX sales for Europe, the Middle East and Africa, for the business.
“If you think about that, it’s quite complicated,” said Wacker.
Which is one of the main reasons J.P. Morgan will be consolidating information and trading capabilities for a wide range of types of securities onto the Markets platform. The system, which uses just one computer language to build and maintain features, will keep track of regulatory requirements and streamline reporting, Wacker said.
“Future waves” being released through 2013 will involve a “broader set of execution capabilities across fixed income,” Nacht said.
Equities transactions will not be part of the execution systems in the platform, initially. That’s because clients don’t typically go onto a single-dealer platform such as this one and trade extensively in stocks, the company said.
But over time, stock trading capabilities will be added. One example is a part of the platform called Nexus, which allows institutions to create “synthetic” portfolios of assets and then buy and sell these portfolios.
Most clients and products will be transferred onto the system by the end of 2013, as well.
“By the end of this year, we will have consolidated more than 30 platforms into one client offering,” said Peter Cherasia, global head of markets strategies. “It will enable us to quickly deliver innovative new products as we adapt to changing market conditions.”
J.P. Morgan Markets eventually will include all forms of electronic trading services offered by the bank, from front to middle to back office.
With $18 trillion of assets under custody and $393 billion in deposits, the J.P. Morgan corporate and investment bank spends more than $3 billion a year on technology.
In August 2011, the bank transferred more than 1 million accounts onto a new broker-dealer platform, known as Morgan Communications or MORCOM. The online system serves both retail and institutional brokers.
That initiative, as well as a widespread consolidation of systems, was part of a Strategic Re-engineering Program that, in effect, got its start with the May 2008 completion of the acquisition of Bear Stearns, the collapsed Wall Street investment bank.
The re-engineering included four main consolidation efforts:
• Derivatives trading platform program: a rationalization of core trading platforms.
• Back-office re-engineering program: improving front-to-back-office systems.
• Derivatives program: Upgrading derivatives clearing operations and achieving “straight-through processing,” also in front-to-back systems.
• Critical platforms re-engineering program: Initiatives to lower overall expenses and increase the speed of bringing new services to market.
The combined company didn’t need to run two clearance and settlement platforms for stock transactions, for instance. And it certainly didn’t need 14 different platforms for trading derivative securities, from futures and options to currency swaps.
J.P. Morgan Markets is a “strategic initiative,” said Nacht. But it is not specifically a part of the strategic re-engineering program.
The unification of research, analytic and trading services “is the next step in the evolution” of J.P. Morgan’s investment banks operations, Nacht said, “built on top of the [strategic re-engineering program] foundation.”