System overhaul prepares J.P. Morgan for market evolution

A platform consolidating J.P. Morgan's trading and analytic functions across asset classes forms the bank's core strategy for meeting regulatory change and repositioning its trading business.

A platform consolidating J.P. Morgan’s trading and analytic functions across asset classes forms the bank’s core strategy for meeting regulatory change and repositioning its trading business.

The web-based system, named J.P. Morgan Markets, brings more than 30 disparate systems on to one platform, letting the firm’s institutional investor clients perform pre- and post-trade analysis and execution across multiple asset classes.

The first phase of the system went live on Monday and includes research, analytics and execution of FX, interest rates and commodities trades, with the migration of other asset classes – including equities – to be phased in throughout the year.

The system has been developed to meet new rules in the US and Europe that require the central clearing of OTC derivatives and the creation of new venues to trade them on, known as swap execution facilities (SEFs) in the US and organised trading facilities in Europe.

The new regulations, the Dodd-Frank Act in the US and the European markets infrastructure regulation and MiFID II in Europe, will significantly reduce derivatives-related revenue for investment banks, which have traditionally profited most from the US$650 trillion swaps industry by determining the terms for both sides of a trade.

The J.P. Morgan systems overhaul is also recognition that trading in derivatives will increasingly resemble equities, feeding an industry trend of investment banks boosting non-equities offerings to drive revenue growth, by supplementing trading and execution with in-depth analytics.

Scott Wacker, head of FX sales, Europe at J.P. Morgan, has been involved in the project since it began 18 months ago and said the consolidation of platforms creates operational efficiencies for the buy-side and allays concerns about new regulatory regimes.

“We will be able to take our experience of cleared and OTC derivatives and combine them onto this single platform. That will help customers streamline their trading activities and stay compliant with regulatory change as swaps rules take effect,” Wacker said.

Central counterparties will also have easier access to clients over the system, which J.P. Morgan believes will be a central point of competitive advantage, in addition to streamlining its own clearing and settlement activities across asset classes.

“Customers are also concerned about the combination of their activities in relation to new regulatory requirements, particularly with reporting and execution under the SEF regime. J.P. Morgan Markets is designed specifically with post-trade services in mind, and we plan to take some of those headaches away for those clients,” Wacker said.

Moreover, the system will allow for easier analysis across asset classes and also let buy-side traders streamline the creation of sub-accounts, with an online dashboard replacing the current manual system to monitor progress, designed to save time for institutional investment firms.