JP Morgan joins ISE via Actant

JP Morgan, the investment banking arm of JP Morgan Chase, has joined the International Securities Exchange (ISE) as a competing market maker, using the Actant Aqtor front-end platform for trade execution and risk strategies. JP Morgan will use Aqtor for market-making functions, including order entry, pricing models and writing custom trading strategies.

The deal, the terms of which were not disclosed, had been in the works for several months, said Actant chief executive Kevin Kenety. The vendor mainly supports liquidity providers and not price-takers or institutional order flow. Competing market makers have created elaborate proprietary systems because off-the-shelf software is not compatible with their overall trading strategy, Kenety said.

"Why do people go through proprietary development?" Kenety asked. "It’s not cost. In many cases, it costs more to build than buy. Firms believe they will get something they can’t get anywhere else. How to bridge that gap? Do it on a stand-alone basis."

Though the stand-alone trading station is considered enough to be a 'turnkey' solution, the Aqtor platform comes with a programming interface called Script Editor, which uses a protocol called QT Script. JP Morgan is using QT Script to integrate order flow and mesh proprietary modelling into Aqtor, formulating customised trading strategies that produce firm, fixed prices while limiting exposure to the market, Kenety said.

The document object model (DOM) API allows JP Morgan’s options traders to pass along Aqtor’s QTTrinomial pricing models into its own platforms as well. The vendor will most likely make improvements to future releases of Aqtor based on the customisation it performed for JP Morgan, Kenety said. Actant developers will continue to pass new ideas on to their colleagues at the firm. But the strategies that JP Morgan develops with Aqtor will stay at JP Morgan.

"With QT Script, we’ll write up a script that suggests how you can use it and they can take on that whole new behaviour by e-mail," Kenety said. "But we don’t have to know what scripts they write. It’s not an intellectual property issue."

Aqtor is deployed on Windows NT. Each trader’s workstation is customised for individual strategies and preferences, with each station acting as its own client and server, and all code running in one address space. Installation can take less than an hour, but the configuration can take one to three months, depending on how advanced the trader wants the application to be, Kenety said. When Aqtor is required to keep track of the entire desk’s positions, it can run in client-server mode.

Kenety could not disclose how many options traders currently use Aqtor for ISE access.