KM: I joined Barclays Capital back in ’97 as a technology developer. Then I moved into a role as developer on the Arbitrage and Delta1 trading desk. Barclays Capital had exited equities but still had equity derivatives so the Arbitrage and Delta1 area was the only pure equities trading we did. My role was to build the desks’ trading platform and that’s where I spent a good chunk of my career. We did a broad range of electronic trading and over time that evolved into a client algorithmic trading offering, all of which we built from scratch. I was there at the time of the Lehman acquisition, which happened just after 2008; an interesting time to merge with the Lehman’s equities franchise. That have me exposure to a full service equities house. Then I moved to RBS to run a group called trading services. RBS was looking to increase its efficiency and reduce its cost base. I was brought in to apply my expertise of electronic, automated trading from exchange based trading and apply that across the asset class spectrum including fixed income and foreign exchange trading. Concurrently, the mission was to reduce the number of systems the bank had, to a smaller number of cross-asset systems that cost less. That team covered electronic execution, market data and data analysis. With that platform in place, I really wanted to move to the buy side and a month ago I had the opportunity to join JP Morgan Asset Management to re-start my relationship with Kristian West, the global head of equities trading from my time at Barclays Capital, who’s been here for a number of years now. He oversees equities trading within the firm and was looking for someone to build the platform to automate, streamline and globalise trading to deliver the best possible execution for our clients.
The mission was to reduce the number of systems the bank had, to a smaller number of cross-asset systems that cost less.
HoT: Could you tell us a bit about the trading philosophy and strategies for the equity products at JP Morgan Asset Management?
KM: J.P. Morgan Asset Management is one of the largest and best-known names in investment management. We have $1.8 trillion of assets under management, which is a huge responsibility that clients are entrusting us with. Every day there are portfolios and funds that need to rebalance, and all of that trading activity goes through our internal trading desk. The trading philosophy is to continue to deliver the best possible execution for our clients. We trade on 50 or more markets across the world and have a large range of orders, from high numbers of small orders that we can trade in a fully automated way, all the way to small numbers of extremely large orders that are complex to execute. Our role is to arm the traders with a variety of tools and data to get the job done efficiently. So, it’s a real blend. Fundamentally, we’re trying to change trading from an art to a science and we’re putting as much rigor into that as possible; gathering the metrics, analysing the performance and then optimising, using all of that data to drive continual improvement. Using a systematic and data driven approach means we can demonstrate to our clients and regulators that we have robust processes in place, and the ability to execute according to their wishes.
HoT: What criteria do you use in choosing the trading platforms and other technology for the firm?
KM: It’s a combination of build and buy, depending on what gives us the best value. In areas that are commoditised, we will buy. In areas that will give us a competitive advantage, we’ll build ourselves. For example, we’ve built our order management platform in-house because being at the heart of the trader workflow was an area where we believed we could differentiate ourselves. It’s the same on the automation side, another area where we have built rather than bought. On the exchange management side, there are a number of great vendors out there, and so we buy in. When managing connectivity to a wide range of venues that constantly change, it is more efficient for a vendor to handle.
HoT: Do you ever outsource any parts of your operation?
KM: We leverage outsourcing within Trading Technology only in very specific areas. This includes buying whole services or outsourcing the building of things. Outsourcing enables costs to be shared across a number of firms who all leverage the same services, but you give up control over the roadmap of those products and we lose any competitive advantage we may have, if everyone has the same product. Within trading we balance those factors to decide what to outsource. As an example, trading infrastructure is a service that we outsource, because it’s a niche area where service providers can do better than we could do ourselves.
HoT: What impact, if any, are new regulations having on your day to day activities?
KM: Regulatory considerations are a huge part of my role. Making trading systematic and transparent has always been a priority for us, consistent with the regulatory agenda. , The challenge is understanding the volume of regulatory change that is coming, figuring out how it impacts our systems and how we evidence that we are doing the right things. Thankfully within J.P. Morgan we have people that are dedicated to digesting all of the regulations, and help keep us on-track. It is just an integral part of how we operate.
HoT: Could you please expand on your experiences of the Barclays acquisition of Lehman’s at the time of the 2008 crash. Has that experience changed your outlook in any way?
KM: It was very dramatic. Barclays Capital had its own successful, but niche, equities business and then we unexpectedly benefited from the unfortunate demise of Lehman Brothers. We had to bring the two businesses, the BarCap and Lehmans business units together in a short space of time to give our clients a full service equities offering, so that was a very interesting period. In terms of how it has changed my outlook, we focus more heavily now on the transparency that we give our clients, and driving for simplicity rather than complexity. Another area has been the increased focus in resilience and safety we have in our electronic trading platforms. While we have always cared about safety, the 2008 crash reminded everyone of the breadth and scale of issues that could occur. We have had to think through all the different permutations of things that can go wrong, and build in protection. This extends beyond the software itself, to the development and business processes.