JP Morgan’s Nexus platform doubles trading activity in a year

JP Morgan has seen the notional value of trades on its Nexus platform increase by five times in the last three years, and more than double in the past 12 months as a result of an increased number of institutional clients becoming comfortable with automation and the self-structuring of products.

Advances in technology are transforming what was traditionally a manual area of the market, allowing institutional investors to build their own products and then monitor and adjust them online – delivering “the ultimate in flexibility” in how they manage their portfolios and serve their own clients, according to Rui Fernandes (pictured), head of equities structuring and fund-linked products, Europe, Middle East and Africa at JP Morgan in London.

“There is a clear trend within the structured products market to develop products that sometimes are labelled actively managed structured products, where either the investor or a third party has the ability to manage the underlying assets of that product,” said Fernandes. “That management can be very active and include many instruments across-asset classes with very sophisticated execution techniques, but can also be very simple and require only marginal tweaks to an underlying basket every quarter or reduce the leverage embedded in a product, for instance.”

Nexus provides a platform where the end investor can manage the outcome efficiently and in a way that is very similar to the workflow an investor operates under, said Fernandes. “That is a very powerful tool and adds value to the end investor to deliver their investment strategies.”

The platform now has approximately $5bn of notional value invested linked to multiple underlying assets and delivered to clients globally.

Nexus allows clients to create self-managed underlyings delivered as strategies or indices across all asset classes, which in turn are delivered to their own clients as synthetic exposures in the form of certificates, notes, swaps or funds. After initial agreements are established with the bank, institutional clients can regularly rebalance their portfolios and run analytics and reporting, allowing for greater operational efficiency, said Hans Jacob Feder, head of the Nexus platform at JP Morgan.

“Nexus is solving a problem that investors face, while simplifying the process of building a product,” said Feder. “Institutional investors and asset managers face increasing regulatory burdens and Nexus offers a structure for investors to place their trades and get them delivered in whatever format is suitable to the client. The platform is flexible enough to provide execution in different markets and time zones, but also to provide post-trade services.”

Although Nexus provides the same interface and functionalities for all clients, the platform can also be used to address the needs of providers in different market segments such as asset managers which can structure and launch whole funds through self-structured, self-managed synthetic products, including principal-protected, multi-asset and currency hedging products; wealth managers and private banks that can use their internal expertise to create self-managed investment products; and pension funds and insurers which can create structures that can effectively hedge liability exposures and rebalance regularly as exposures change.

The rise in activity is explained by a combination of factors including the increased visibility in the market over the last few years of single-issuer platforms and the requirements from institutional investors to address reporting and regulatory constrains in a cost-efficient way, said Feder.

“Electronic developments are helping to solve specific problems investors face when building their portfolios by not only providing a pool of assets to choose from but also simplifying the process of building products,” he said. “Nexus is now a key part of our structured products business and we will continue investing in it and add new functionalities and features to be ahead of the curve and provide a value added proposition in terms of asset allocation and risk management.”

Nexus leverages the infrastructure of the bank and JP Morgan has very strong trading capabilities in terms of risk management, systems, and reporting, said Feder. “We use this as a lever because for banks the trading desks are seen as profit centres as opposed to cost centres, but for asset managers trading systems are something that they would typically like to outsource,” he said.

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JP Morgan’s Nexus platform doubles trading activity in a year