Banking & Finance

JPMorgan backing technology to transform trading desks

Changes happening in Europe and North America first, but Asia driving mobile

PUBLISHED : Monday, 07 August, 2017, 10:14pm
UPDATED : Monday, 07 August, 2017, 11:25pm

As trading revenues plunge at bulge bracket investment banks, JPMorgan Chase & Co. is putting its faith in technology to drive growth.

“We know in our hearts that if, in five years we are doing exactly what it is we are doing today, then we will not be the top franchise,” said David Hudson, JPMorgan’s global head of markets execution in an interview in Hong Kong. “The retail banking market has gone through big changes in the way people interact with machines and computers, but the wholesale market has not.”

Getting that change right will be crucial for building relationships with clients in the future.

The second quarter was a tough one for the trading desks of big Wall Street banks, despite the growth in other departments.

In the second quarter of this year, Goldman Sachs’ trading revenue fell 17 per cent, while at Citigroup, it was down 7 per cent. JPMorgan’s revenue fell somewhere in between, declining 14 per cent to US$4.8 billion.

Hudson, who took up his role last year, has a remit to drive innovation in JPMorgan’s trading businesses around the world.

The bank is also giving Hudson and his team the resources to make these changes.

JPMorgan spent more than US$9.5 billion last year on implementing technology across its business.

Of that amount, about US$600 million was spent on emerging financial technology solutions, including building and improving digital and mobile services and partnering with fintech companies.

“[The technology] is altering how our clients trade and how we interact with them,” Hudson said. “There’s a lot of focus on electronic trading. [Clients] want to use technology to access the market and multiple products more efficiently. They also want better, simpler ways to interact with us.”

This is important all around the world, though innovations appeared in European and North American markets before they reached Hong Kong and the wider Asia Pacific region, Hudson said.

“One area where Asia is first and highest for us, however, is mobile, as there is a general acceptance of mobile in Asia and so a lot of our products in this area take off first here,” he said.

Foreign exchange trading is one of the sectors where electronic trading an execution can make the greatest difference

More than 80 per cent of JPMorgan’s foreign exchange trading are conducted electronically. In 2016, the firm’s electronic trading in forex grow 50 per cent in volume.

Equity trading is another area where technology can make a significant difference. In its European equity business, JPMorgan has been using machine learning tools to execute trades.

The artificial intelligence programme, known as LOXM, will take signals from the markets, learn lessons from the historical data, and create all of the parameters to execute client orders with the fastest speed and the best price.

“In the old days, you would do that by hand. But machines are doing it more efficiently,” Hudson said.

The programme will also be launched in North America and Asia-Pacific soon, he added.

However, Hudson shrugged off concerns that automation would lead to job cuts.

“With the help of machines, we are able to grow our business with the same number of traders,” Hudson said. “The machine is just a tool to people. It helps you understand the ambiguous world, understand the intuition, emotion, sentiment, the clients, and the unstructured environment in the world we are living in. Computers can’t make decisions, but they can help people get the information to make decisions.”

For sales people, technology allows them to devote more time to building relationships, such as going to face-to-face meetings with clients.

As for the trading ideas, Hudson sees some coming from outside of the bank.

The firm launched an in-residence programme last year, inviting fintech startups to become a “resident” of JPMorgan in order to develop innovations that could revolutionise the sector.

During the six-month period of “residency”, those fintech firms will get access to JPMorgan’s facilities, systems and expertise. They may receive continued support from the bank afterwards to bring the solutions to the market.

“If the solution can help us and our clients, we’ll try to bring them in. It might be about big data, documentation, visualisation, or trading tools,” Hudson said. “The idea here is we can get to the market faster by embracing other people’s ideas and technology rather than doing it ourselves.”