Wall Street giant JPMorgan Chase & Co. (JPM - Free Report) entered into strategic partnership with a leading electronic market maker – Virtu Financial, Inc. (VIRT - Free Report) , to gain access and trade in the U.S Treasuries market.
According to the agreement, which is atleast for three years, JPMorgan will use Virtu’s technology to trade a small part of its fixed income business – dealer to dealer markets in U.S. Treasuries.
High-frequency trading firm Virtu makes markets in 36 countries by offering quotations to buyers and sellers in over 12,000 financial instruments on more than 235 exchanges.
A spokesperson for JPMorgan stated, “We are committed to staying a leader in fixed income." He further added, “Working with outside firms is complementary to our internal investments and ensures that we are evaluating innovative technologies as the markets evolve.”
Notably, Virtu is also the designated market maker for JPMorgan's stock on the floor of the New York Stock Exchange.
A report by The Wall Street Journal quoted Douglas Cifu, Chief Executive Officer of Virtu Financial saying, “We see ourselves as a financial technology company that understands markets and trading.” Cifu further added, “The theme here is big institutions reaching out to us and figuring out ways they can make their business more cost efficient and scale-able using our technology and understanding of the market microstructure.” Notably, Virtu is also working with T. Rowe Price Group, Inc. (TROW - Free Report) to enhance the asset manger’s trade execution.
Regarding the partnership with JPMorgan, Cifu mentioned that J.P. Morgan has been a “key business partner” of Virtu since its foundation. He stated, “We believe this agreement will be a win-win for both parties where J.P. Morgan can benefit from applying Virtu’s technology to certain markets and Virtu can benefit from leveraging its existing technological footprint to serve banks like J.P. Morgan.”
With lightning speed and algorithms, the high speed traders buy and sell securities within fraction of seconds. The main objective is to gain profit from the smallest price changes. This trading is carried on through the use of supercomputers, specially designed for similar transactions.
High-frequency trading drew criticisms in 2010, when it was held responsible for wiping out hundreds of billions of dollars of market value in a "flash crash." The release of Flash Boys: A Wall Street Revolt by Michael Lewis, that focused on the role of high frequency trading firms rigging the U.S. stock market, sparked a number of regulatory investigations into high frequency trades for possible violations of laws.
However, with the electronic trading currently dominating the market, the latest deal signals how Wall Street banks are gradually relying on high-frequency trading firms in order to reap benefits from their technological capabilities.
JPMorgan currently carries a Zacks Rank #3 (Hold). Comerica Incorporated (CMA - Free Report) is a better ranked stock in the finance space sporting a Zacks Rank #1 (Strong Buy).
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