For the past two years, Frank Troise and Neal Goldstein have been trying to set their investment bank, J.P. Morgan, apart from rivals by creating a trading platform that allows institutions to use – if they so choose – leading edge trading technology from a variety of sources. And get better results.
Troise is global head of what J.P. Morgan calls its Electronic Client Solutions. Goldstein is head of electronic “connectivity.” Which is to say, he has to figure out how to allow the “solutions” – which range from algorithms to smart order routing to direct market access – to connect to the trading desks and venues that matter.
And pull in the orders on stocks, bonds and derivatives such as futures and options that matter at any time, for institutional clients to get business done.
“We keep pushing the envelope to make sure that, if you’re doing business with us, you have the most-advantaged platform in your hands,” said Troise.
It’s a statement almost the head of almost any investment bank’s trading technology might make.
But, for instance, J.P.Morgan’s system is certified at this point to route orders and handle algorithmically driven trading strategies that start with execution management systems such as JP Morgan’s Neovest and Goldman Sachs’ Redi+ system, as well as orders emanating from execution management systems developed by Bloomberg, Charles River, Decalog, Eze Castle, Investment Technology Group, Fidessa Latent Zero, Moxy, Portware and Reuters.
Through the connections that Goldstein has set up, those customers also have access to liquidity at more than 1,000 different trading firms around the world, to capture their indications of interest in stocks or other instruments in ‘dark’ pools of liquidity as well as notices of execution.
They can route their orders to various desks within J.P. Morgan or directly to a particular pool of liquidity, anywhere in the world, through the company’s high-speed broker-neutral execution management system.
That is delivered through the firm’s wholly-owned Neovest subsidiary.
J.P. Morgan has owned Neovest since 2005 and still must convince potential new customers that its only charge is to carry out customers’ orders – and not favor Morgan’s trading desks or internal pools of liquidity.
But the pools of liquidity that Morgan pulls together are, to be certain, used to attract more new customers and more business from existing customers.
The liquidity includes not just orders emanating from trading desks around the world or connections to dark pools on multiple continents or Morgan’s own trading desk. Users have access to liquidity from its retail and commercial bank, as well as its J.P. Morgan Private Bank, the J.P. Morgan clearing business and the J.P. Morgan securities custody business.
“We’re fighting fire with fire,” said Troise. The question, he says, is “do you choose to compete at the highest level? We do.”
In that process, the investment bank’s institutional customers get treated as if they are high-frequency or statistical arbitrage traders. After all, at this point, the company’s competitors are specialists in high-speed, highly-automated trading.
The company has to have different trading systems set up and ready to go to handle different types of operating models by its customers. Some want to use high-frequency trading signals to support ‘fair value’ trading models. Others want to use the same signals to support aggressive, short-term trading tactics and others want to just post limit orders – fixing the prices they’re interested in paying or getting – without giving away what they’re doing. Meaning: They want fast fills of the orders they place, period.
J.P. Morgan also has two such facilities and soon a third in London, as well as a location in Tokyo and one soon-to-come in Hong Kong.
For clients operating at ultra-low-latency trading speeds, J.P. Morgan uses servers that employ field programmable gate arrays to respond to customers’ own needs to change strategies tactically, as new better algorithms for executing strategies are developed.
The gates in such processors can be adjusted to handle new instructions and functions, as needed. In effect, they can be programmed and re-programmed, using software, as needed. Then, operate at hardware speeds.
The operation also draws liquidity from JPMorgan’s own dark pool, known as JPMX or the J.P. Morgan Cross.
But the key is to put, Troise said, all assets from all sources of “high quality” liquidity on one screen, for the company’s institutional customers. That’s what sets it apart from other investment banks. In effect, it has a broker-neutral trading platform, through NeoVest, that gives fast access to any third-party infrastructure any where in the world.
J.P. Morgan’s main U.S. technical operations, for instance, are in the Savvis NJ2 data center in Weehawken, N.J. That site was chosen for its central location to liquidity flowing through market centers in the Wall Street area. The Savvis facility hosts the BATS Global Markets exchanges, for instance, and J.P. Morgan’s customers get low-latency access to matching engines of venues there and immediately nearby.
Now, the company has been able to attract more than 500 accounts, worldwide, by offering soup-to-nuts services, from pre- to post-trade analytics, direct market access and smart order routing, algorithmic trading products nd so-called “differentiated liquidity.” Meaning: Orders that matter. Orders that can be taken to the bank. At meaningful prices.
At least, that’s what Troise and Goldstein contend. The proof is in the pudding for each customer acquired. Until then, it’s just talk.
But, says Troise, J.P. Morgan now can “talk the talk and walk the talk.”
Tom Steinert-Threlkeld writes for Securities Technology Monitor.