It’s time. After a year-long build out of its electronic trading desk and offerings, JPMorgan is ready to go head-to-head with the industry’s trading elite with what it believes is a new-and-improved suite of trading products.
Frank Troise, managing director and global head of electronic trading, joined JPMorgan from Barclays Capital last April. He inherited an established electronic trading desk with a full palette of algorithms, smart-order router technology and post-trade analytics. Still, the brokerage firm needed to distinguish itself from the crowd to raise its profile. Troise went to work.
Since then, he’s been adding staff across the board, as well as tweaking code and modifying routing logic to make JPMorgan more competitive. And finally, after 10 months, Troise believes the pieces are in place and the firm is ready to make a major push.
"In 2010 we set the vision, added more expertise to the team and enhanced the products. 2011 is about getting the JPMorgan name out there as a high-end provider of electronic trading solutions while continuing to invest heavily in next-generation products," Troise said.
For example, he said the desk already had several algorithms, but clients wanted the firm’s product offerings tailored to their individual needs, such as offering multi-asset trading strategies. They also made a plea for JPM to not give its algorithms names that distracted them from the strategies each algo represented: "Call a VWAP algo, a VWAP algo, and don’t confuse us," they essentially said in chorus.
According to a recent Tabb Group study, JPMorgan has its work cut out for it. The report, "U.S. Equity Trading 2010/2011," ranked JPMorgan No. 13 among top algorithmic providers. The report went on to say that JPMorgan’s algorithms had an 11 percent usage rate among head traders in 2010. In 2009 that share was at 16 percent. By comparison, Credit Suisse was ranked No. 1 in 2010 with 69 percent of head traders using its algorithms.
Troise conceded it’s difficult for brokers to differentiate their algorithms from one another, but he says that the JPMorgan electronic trading group is up to the challenge. And customization is the reason behind his optimism. His programmers are focusing on speeding up the customization process of the algo, which includes initial tuning, getting feedback on its performance and then re-tuning the tool again for even better execution.
By ramping up electronic trading with a bigger staff and improved products, the bank could make some noise in the industry. Despite a rank of 13 in algos in the Tabb report, JPMorgan was still ranked No. 3 by the buyside, as it relates to commission dollars spent in 2010. The Tabb report ranked JPMorgan behind Credit Suisse and Bank of America Merrill Lynch, which topped the survey.
The electronic trading group has doubled its size since April. "We’ve done a lot of hiring across the globe and across product, service, sales, and quant analytics," Troise said. "We’re investing in the electronic desk aggressively-whether it be on the technology and infrastructure end or client-facing electronic trading personnel."
Troise is no stranger to the business. He was previously the head of equities electronic trading product at Barclays Capital, where his duties included oversight of global product management for the electronic trading of equities and listed options. Prior to Barcap, he worked at Lehman Brothers from 2005 to 2008 and at Investment Technology Group from 1997 to 2005.
He declined to offer the specific number of new hires, but in general terms, offered that the electronic trading group has not only grown twofold, but has expanded the subject matter expertise of its IT development squad and core technology team. The U.S. client-facing team has also doubled, while the U.S. products team has tripled in size during the build out.
New hires hail from various backgrounds, ranging from the high-frequency strata to equities sales traders. Many of the new hires-quants, programmers-have a thorough knowledge of HFT strategies. With their deep understanding of low-latency trading, they can give clients an edge in the marketplace.
And knowledge of HFT cannot be underestimated today, as it is said to represent between 50 and 60 percent of total trading market volume.
Troise noted that JPM modified the existing smart-order router technology to target more trading venues and counter parties, all in the name of increasing fill rates.
While routing remains a major component of electronic trading, JPMorgan also looks to internalize more order flow. Troise said the firm runs a JPMorgan-only book in the Level One segment of Level ATS. According to Troise, Level provides a robust crossing infrastructure. Orders sent to JPMorgan’s private book in Level One are only eligible to interact with JPMorgan-approved order flow. "Over the past quarters we’ve ramped up our crossing in this venue significantly," he said.
Lastly, the firm has been gearing up globally to expand client business. The desk has targeted these markets: Japan, where new liquidity pools are emerging; Australia, where increased market fragmentation is becoming a concern for investors; Singapore, where there are rumblings of the formation of a Pan-Asia dark pool, as well as in more developing economies such as in India, Brazil, Russia and Turkey.
