Profile in Success: JP Morgan Derives Clear Benefits From Cincom Smalltalk (EMEA Version)

7/28/2019 Profile in Success: JP Morgan Derives Clear Benefits From Cincom Smalltalk (EMEA Version)

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Goal: To leverage JP Morgan's success,

which is based on the time-to-market of new products

To scale up products in the marketto gain significant market share

Challenge:To provide a developmentenvironment that: Accommodates the highly

complex nature of JP Morgan'sderivative products

Provides unparalleled productivityto stay ahead of the competition

Has the scalability to be deployedto support extremely high tradingvolumes

Solution:

Cincom SmalltalkKey Results: The Smalltalk-developed Kapital

system has enabled JP Morgan tobe a market leader.

JP Morgan estimates thatSmalltalk is three times moreproductive than other languages,which allows them to consistentlybeat the competition.

Revenues from the business thatKapital supports contribute an

extraordinary percentage of JPMorgans total revenues.

Profile in Success: JP Morgan

JP Morgan Derives ClearBenefits from CincomSmalltalk

JP Morgan Chase is a leading financial services firm serving capitalmarkets throughout the world. With assets of $1.1 trillion and acomponent of the Dow Jones Industrial Average, capabilities includeinvestment banking, research, private equities, investmentmanagement, private banking and treasury and security services.

As one of the worlds leading investment banks, it has extensiverelationships with corporations, financial institutions, governments andinstitutional investors worldwide. The firm provides a full range ofinvestment-banking and commercial-banking products and services,including advising on corporate strategy and structure, capital raisingin equity and debt markets, sophisticated risk management and

market-making in cash securities and derivative instruments in allmajor capital markets. It also commits the firms own capital toproprietary investing and trading activities.


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One of the key elements of JP Morgans success isbased on one of its differentiators the time-to-market ofnew products. Supporting this is a commitment to useinformation technology to provide this competitiveadvantage.

The Project: The Kapital System

JP Morgan has developed Kapital, the worlds mostadvanced financial risk management and pricing systemthat supports interest-rate hybrids and credit-hybridstrades. It empowers hybrid derivative businesses totrade large volumes of highly complex financialinstruments with ease and simplicity. The Kapital Systemis built on the Cincom Smalltalk development platform.

There are two main differentiators that have set JPMorgan and the Kapital system well above thecompetition. The two concepts that sound very simple

but are vital to JP Morgans success are the time-to-market of new products and the scalability of theoffering.

Time-to-market: Identifying new market opportunities isessential to investment banks. However, profitability,success and giving customers the best return oninvestment come from being able to execute on thosenew market opportunities before the competition. Theseamless integration between the financial applicationframework and the technical infrastructure that Smalltalkprovides enables both business and IT staff to prototypeand develop new ideas that can be directly promotedinto product sets. Individuals creating new products forthe business do not have to fully understand how theunderlying infrastructure actually works. Allowingfinancial developers to concentrate on the area in whichthey are experts finance without having to learnabout the intricacies of database management,distribution algorithms, memory management, etc.enables an extremely quick turnaround of new financialproducts.

With such a high productivity factor thatSmalltalk gives us, reaction times to marketchanges have enabled us to beat most ofour competitors.

Dr. Colin Lewis, Vice-President, JP Morgan

With Smalltalk as the engine of Kapital and the uniquedesign of the system, JP Morgan is able to go from anew product idea to market in what would beconsidered a very short space of time. Comparableofferings from competitors are typically seen at leastseveral months later.

Scalability: Being able to create new, complex dealsquickly is not the only factor required in enabling anorganisation to have the edge; many financialinstitutions create new complex deals. However, asorganisations try to increase market share, thetechnology foundations that these new products have

been developed upon tend not to scale linearly. Thisinability to detect and resolve bottlenecks in both thetechnology and business processes generally prohibitsthe management of large amounts of highly complex,computing-intensive, financial data. However, with therich financial and infrastructural development tools thatKapital offers, developers are able to identify potentialbottlenecks and address them quickly. Many banks usespreadsheets to build derivatives trading models. Whileusing such an approach does not prohibit a companyfrom developing these highly complex trades, it doeslimit the ability to do a large number of them.

We have estimated that if we had builtKapital in another language such as Java,we would require at least three times theamount of resources.


Many times JP Morgan has seen its competition notwanting to give a price on certain complex deals. Onepossible conclusion for this is that using spreadsheets tomodel highly complex trades can lead to such systemsbeing maxed out with very few of them, severelylimiting the ability to gain more market share. TheKapital system does not run into scalability issues evenwhen the volumes are high. It is this innate scalingprovided by Kapital that places JP Morgan beyond mostof its competitors.


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The Business and Technical Goals

From a business perspective, Kapitals five primary goalsare:

To be the prime record for all credit and interest-ratehybrid derivative trades at JP Morgan

To calculate the fair value of all its deals on a dailybasis

To inform the front office on how much money it willgain or lose in the next business day depending uponchanges in the market conditions

To support mid office in managing large numbers ofcomplex hybrid derivatives deals

Supports fast time-to-market for new productdevelopment

From an IT perspective, Kapital is:

A framework for constructing new financialapplications

A complete development environment includingsource code management and debugging facilities

A transparent persistence mechanism enabling thestorage of any type of financial object

A distribution infrastructure enabling the distributionof any type of financial task

We believe we have a truly awesome RAD

environment. Dr. Colin Lewis, Vice-President, JP Morgan

The benefits: In terms of return of investment, specificnumbers are confidential, but it is understood that theKapital development team currently consists of aboutless than 1percent of the overall IT staff at JP Morgan.However, the businesses that Kapital supports contributean extraordinary percentage of JP Morgans totalrevenues. It is a well-known fact that JP Morgan simplydominates the derivatives market.

Why Cincom Smalltalk?Productivity, scalability, portability and flexibility.

The key is that our development resourcesdo not have to be Smalltalk experts.


JP Morgan uses the languages and techniques to fit theproblem at hand. For the Kapital system, it was clearthat fashion programming such as C++, Java and C#would not meet all of their requirements. Plus, they wereconscious that fashions are seasonal. The derivativesbusiness is constantly changing, and a flexible andcomplete development environment was needed thatcould handle the complex requirements while beingparticularly well suited to a high rate of change.

Dr. Colin Lewis, Vice-President at JP Morgan, comments:

A key factor that has justified using Cincom Smalltalk,above and beyond the technical capabilities that itoffers, is the productivity that it has delivered. The key isthat our development resources do not necessarily needto be Smalltalk experts. We have estimated that if wehad built Kapital in another language, such as Java, wewould require at least three times the amount ofresources to develop and maintain the application.Because of the rich toolset within Kapital, we believe wehave a truly awesome financial RAD environment.Without Kapital, we would not be market leaders. Withsuch a high productivity factor that Smalltalk gives us,reaction times to market changes have enabled us to

beat most of our competitors.

Finally, portability and stability are big issues for us. Ourbase system now runs on three different operatingsystems: Solaris, Windows NT and Linux. The Smalltalkportion of our system requires very little modificationacross differing operating systems. The power of thisportability came to bear when we changed our primaryinfrastructure from SMP enterprise servers to cheapblade technology. The transition has taken only sixmonths to do; the bulk of the time was in retestingexternal C calls, which all had to be recompiled. Thiswould have been impossible to do in such a short timespan in another language, concludes Lewis.


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FORM EM040819-1-A4 5/14

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Profile in Success: JP Morgan Derives Clear Benefits From Cincom Smalltalk (EMEA Version)