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JP Morgan Takes Stake in SmartPool
October 1, 2008
JP Morgan Chase & Co., days after acquiring Washington Mutual’s banking operations from the Federal Deposit Insurance Corp., said Tuesday that it has joined NYSE Euronext, BNP Paribas and HSBC in backing SmartPool, the block trading venue expected to begin limited operations in November.
First announced in October 2007, SmartPool is currently being tested by clients and its clearing partners, LCH.Clearnet and EuroCCP, a subsidiary of Depository Trust & Clearing Corp. By year-end, the multilateral trading facility (MTF) will offer 1,000 equities in 14 European markets. Originally set for a second-quarter launch, SmartPool was delayed while its three investors sought additional partners. In May, Roland Bellegarde, head of European execution at NYSE Euronext, said that, “in terms of incorporating the company as a joint venture, we need a full set of investors.”
“By investing in SmartPool, we feel we have the opportunity to help contribute to the developing market infrastructure in Europe,” Lee Cook, JP Morgan’s head of cash equities in Europe, the Middle East and Africa, told Securities Industry News. Cook added that the investment is not a reaction to volatile market conditions but rather “the change in market structure and liquidity fragmentation” caused by the Markets in Financial Instruments Directive, which went into effect in November. The bank declined to disclose the size or cost of its stake in the dark liquidity pool.
Yvette Roozenbeek, NYSE Euronext's executive director and head of strategic development, would not divulge the percentages held by each SmartPool partner, but she did say that NYSE "is and will remain the majority stakeholder in order to maintain its neutrality as an independent platform." Roozenbeek added that the transatlantic exchange operator is "happy to talk to any other strategic partners that could be of benefit to the platform."
As MTFs evolve, said Cook, JP Morgan “will continue to connect to these venues in order to provide best execution to our clients and will evaluate potential investment opportunities on a case-by-case basis.” The bank is also an investor in BATS Trading, which plans to launch a European platform by the end of the year.
Bellegarde noted that NYSE is “delighted that JP Morgan is joining as a partner in SmartPool,” adding that “in the intensely competitive European landscape, NYSE Euronext is committed to offering its customers a comprehensive and complete offering.” Pending approval, London-based SmartPool will be supervised by the Financial Services Authority (FSA).
On Sept. 8, NYSE Euronext unveiled plans to launch another MTF in November. That platform--dubbed Octopus, for the time being--will trade blue-chip pan-European equities and is intended to complement the Euronext markets in Belgium, France, Portugal and the Netherlands as well as the joint-venture platform for block orders. Based on Arca technology and designed for high-frequency traders, Octopus “is part of our strategy to offer a pan-European trading service across a range of asset classes to meet the trading needs of all types of order flow,” said Cees Vermaas, Euronext’s executive director of European sales, at the time.
SmartPool will offer a competitively priced venue for institutional order flow, ensuring minimal market impact on a low-latency trading platform, according to a statement from its co-owners. The MTF will leverage NYSE technology and existing links between Euronext and its sell-side users. Flow on the platform will interact with NYSE Euronext orders and in the future will be routed to other destinations.
