Markets will always move faster than regulators, and the Virtus of the world are no exception. As with any shift as large as what the new Wall Street represents, there will be hiccups and problems. Trust is crucial. In the case of JPMorgan and Virtu, their top executives have known each other for years. The bank helped take Virtu public last year and has acted as its clearing broker since its inception in 2008.
That trust made Virtu an easy pick to help JPMorgan understand why the bank’s shares lost one-fifth of their value before quickly recovering nearly all of the drop on Aug. 24.
“Is there a situation where we can maintain our intellectual property, improve our position and possibly save costs by outsourcing certain things that Virtu has a competitive advantage in? The answer is yes,” JPMorgan’s Zames said in an interview. “We will stay a leader in market making at the end of the day, and certainly Virtu is going to be well-positioned to take advantage of those types of things.”
Regulators have spoken. Banks have retrenched. And the new Wall Street is here to stay.
“Banks collectively don’t necessarily have a competitive advantage in the connectivity space,” Zames said. “I think you’re likely to see more of this going on.”