Re-Engineering J.P. Morgan
Why High-Performance Computing Can Be A Bear
February 7, 2012
• Back Office Reengineering Program: Improving front-to-back office systems.
• Derivatives Program: Upgrading derivatives clearing operations and achieving ‘straight-through processing,’ also in front-to-back systems.
• Critical Platforms Reengineering Program: Initiatives to lower overall expenses and increase the speed of bringing new services to market.
That all four might be needed was almost inevitable.
When it took over Bear in a fire sale that foreshadowed the worldwide credit crisis that would erupt in September 2008, J.P. Morgan had to write 400 programs just to make sure its own systems could interact with Bear Stearns’ trading, clearance and settlement systems.
The combined company didn’t need to run two clearance and settlement platforms for stock transactions, for instance. And it certainly didn’t need 14 different platforms for trading derivative securities, from futures and options to currency swaps.
Plus, it needed to upgrade its order management system, in the process. At the time – the second half of 2008 – J.P. Morgan’s system could only handle 40 orders a second. The state of the art? More than 3,000 a second.
In 2008, chief administrative officer for the Investment Bank and former chief financial officer, Paul Compton, and Cherasia went to chief administrative officer of JPMorgan Chase Frank Bisignano and chairman Jamie Dimon and asked for $50 million over two years to re-architect the company’s main trading systems.
The result was a “detailed yet very easy conversation around what the right thing to do was for the firm,’’ said Cherasia. Two meetings later, the Strategic Reengineering Program got its start.
14 SYSTEMS. GOAL: TWO.
The first part was to rationalize what was called the Equities Core Infrastructure.
That involved taking the nearly 400 different market data and transaction feeds and connections between the systems they served to make sure that details of every stock order and stock trade went through one large set of pipes. That was “so that we can dip into that order flow, internalize liquidity and provide price improvements to our clients,’’ Cherasia said.
Creating one big stream of liquidity from all parts of the company would let J.P. Morgan compress the process of allocating shares of stock to different accounts, achieve speedier and less costly settlements, minimize “breaks” in transactions and the reconciliation of and details and, in general, consolidate operating expenses.
This was no small matter.
In 2008, JP Morgan Chase, overall, had spent $4.3 billion on technology, communications and equipment. Adding and integrating Bear Stearns’ technical infrastructure could escalate that, potentially dramatically.
By the end of 2009, “we had taken a little bit more than a billion dollars out of that” spend, said Cherasia, with the re-engineering and consolidation project.
The overall JP Morgan Chase spend in 2009: $4.6 billion. And in 2010? $4.7 billion.
The strategic reengineering program began in earnest with 14 different trading platforms for derivatives. Four systems were eliminated right off the bat. But the rest of the plan for streamlining systems did not get finished until the tail end of 2009 – and got formalized with the two-meeting launch of the strategic re-engineering program authorized by Bisignano and Dimon in November 2009.
Another five systems were cut out in 2010 and 2011. The firm’s target is two platforms: one for fixed-income derivatives and one for equities derivatives.