The glaring exception was in equities, the only major category in which it didn’t have a top-three position. Jason Sippel, a 16-year veteran of the company, remembers how hard it was to coax clients to trade with the bank. The belittling was relentless. “Clients used to beat us up when we saw them,” he says. “We didn’t have a strong risk offering for bigger trades, we were far behind in electronic trading, and we didn’t have a low-latency offering.”
Dimon, the aggressive leader who helped pioneer the financial supermarket with ex-mentor Sanford “Sandy” Weill, wouldn’t accept a subpar rank. In 2010 the bank hired Frank Troise, an electronic-trading specialist from Lehman Brothers and Barclays Plc and told him to build a world-class platform. At first, Troise and his new hires were a tribe unto themselves within JPMorgan. To protect the nascent electronic business from the voice traders whose livelihoods the unit threatened, Troise reported directly to Carlos Hernandez, the global equities chief at the time.
By the time Troise left JPMorgan in 2015 to run broker Investment Technology Group Inc., JPMorgan had tripled its market share in equities electronic trading. The company began pumping more capital into its prime brokerage for clients and ramped up investment in quant services, creating a devoted risk management team.
Sippel, who was head of prime services in 2015 and became co-head of equities in 2016 with Mark Leung, now had a different story to tell. Quants who needed the fastest access and ample liquidity were signing on. The company could market its growing inventory of stocks to other potential users, allowing them to match more buyers and sellers, as well as longs and shorts, internally, shaving expenses for everyone involved. Pricing their products competitively, they also persuaded their existing customers—JPMorgan has the world’s biggest fixed-income business—to use the bank’s equities desks. In this arena, scale is all that matters; those without it will find themselves unable to invest in the technology to stay relevant.
Despite being years late, JPMorgan grew by leaps and bounds. Sippel is blunt about how they got there: He calls it the Morgan Stanley playbook. Anchored by electronic trading and prime brokerage, the company has filled every major segment in every region of the world, a kind of convergent evolution with Pick’s nine boxes. That helped JPMorgan pull clients from weakened European investment banks. While the overall pool of trading fees shrank, JPMorgan managed to increase its market share. It had 10.3 percent of the global market in 2017, up from 5 percent in 2006.
Part of that story is the triumph of electronic trading. Even though per-trade commissions are a fraction of those from voice trading, electronic trading at JPMorgan has gone from a rounding error five years ago to pulling even with its higher-service counterpart. “The electronic side has won,” Sippel says. “And that’s not something we forced on them. Clients are choosing it because it’s more efficient, cheaper, easier.”
But now the game is changing again. The twin forces that have always shaped the markets—technology and regulation—are about to wreak havoc once more.
Investment banks are starting to unleash a new generation of learning machines on the markets to customize, hedge, and execute trades. It’s a step toward the post-human vision of markets that Pandit had at Morgan Stanley in the 1990s. Across the equities and fixed-income world, apart from a dwindling pool of human traders working on bespoke deals and the human minders of the machines, algorithms will be connecting sellers and buyers.
Then there are the regulations, the never-ending cascade of rules flowing from the wreckage of the financial crisis. The latest ones emanate from Europe in the form of the Markets in Financial Instruments Directive II (MiFID II), which requires unbundling trading commissions from research and increasing transparency—and is certain to accelerate the tilt toward machines.
And yet, for all the ways in which finance is becoming a place where machines transact with other machines, the race for trading riches will ultimately be won or lost by people such as Blankfein, Gorman, and Dimon, men driven to keep the throne—or claim it at last. Son and Campbell cover finance at Bloomberg News in New York.