markets throughout the world. With assets of $1.1 trillion and a
component of the Dow Jones Industrial Average, capabilities include
investment banking, research, private equities, investment management,
private banking and treasury and security services.
As one of the world’s leading investment banks, it has extensive
relationships with corporations, financial institutions, governments and
institutional investors worldwide. The firm provides a full range of
investment-banking and commercial-banking products and services,
including advising on corporate strategy and structure, raising capital in
equity and debt markets, sophisticated risk management and market-
making in cash securities and derivative instruments in all major capital
markets. It also commits the firm’s own capital to proprietary investing
and trading activities.
– Dr. Colin Lewis, Vice President, JP Morgan
JP Morgan Derives
Clear Benefits from
P R O F I L E I N S U C C E S S
• Leverage JP Morgan's success, which is
based on the time-to-market of new
• Scale up products in the market to gain
significant market share.
Provide a development
• Accommodates the highly complex
nature of JP Morgan's derivative
• Provides unparalleled productivity to
stay ahead of the competition.
• Has the scalability to be deployed to
support extremely high trading
has enabled JP Morgan to be the
• JP Morgan estimates that Smalltalk is
three times more productive than other
languages, which allows them to
consistently beat the competition.
• Revenues from the business that Kapital
supports contribute an extraordinary
percentage of JP Morgan’s total
on one of its differentiators, the time-to-market of new
products. Supporting this is a commitment to use
information technology to provide this competitive
The Project: The Kapital System
JP Morgan has developed Kapital, the world’s most
advanced financial risk management and pricing system
that supports Interest Rate Hybrids and Credit Hybrids
trades. It empowers hybrid derivative businesses to trade
large volumes of highly complex financial instruments with
ease and simplicity. The Kapital System is built on the
Cincom Smalltalk development platform.
There are two main differentiators that have set JP Morgan
and the Kapital system well above the competition. The
two concepts that sound very simple but are vital to JP
Morgan’s success are the time-to-market of new products
and the scalability of the offering.
Time-to-market: Identifying new market opportunities is
essential to investment banks. However, profitability,
success and giving customers the best return on
investment, come from being able to execute on those
new market opportunities before the competition. The
seamless integration between the financial application
framework and the technical infrastructure that Smalltalk
provides enables both business and IT staff to prototype
and develop new ideas that can be directly promoted into
product sets. Individuals creating new products for the
business do not have to fully understand how the
underlying infrastructure actually works. Allowing financial
developers to concentrate on the area in which they are
experts finance without having to learn about the
intricacies of database management, distribution
algorithms, memory management, etc., enables an
extremely quick turnaround of new financial products.
With Smalltalk as the engine of Kapital, and the unique
design of the system, JP Morgan is able to go from a new
product idea to market in what would be considered a very
short space of time. Comparable offerings from
competitors are typically seen at least several months later.
Scalability: Being able to create new, complex deals
quickly is not the only factor required to enable an
organization to have the “edge”; many financial
institutions create new complex deals. However, as
organizations try to increase market share, the technology
foundations on which these new products have been
developed tend not to scale linearly. This inability to detect
and resolve bottlenecks in both the technology and
business processes generally prohibits the management of
large amounts of highly complex, computing-intensive
financial data. However, with the rich financial and
infrastructural development tools that Kapital offers,
developers are able to identify potential bottlenecks and
address them quickly. Many banks use spreadsheets to
build derivatives trading models. While using such an
approach does not prohibit a company from developing
these highly complex trades, it does limit the ability to do a
large number of them.
– Dr. Colin Lewis, Vice President, JP Morgan
Many times JP Morgan has seen its competition not
wanting to give a price on certain complex deals. One
possible conclusion for this is that using spreadsheets to
model highly complex trades can lead to such systems
being “maxed out” with very few of them, severely limiting
the ability to gain more market share. The Kapital system
does not run into scalability issues even when the volumes
are high. It is this innate scaling provided by Kapital that
places JP Morgan beyond most of its competitors.
numbers are confidential, but it is understood that the
Kapital development team currently consists of about less
than 1 percent of the overall IT staff at JP Morgan.
However, the businesses that Kapital supports contribute
an extraordinary percentage of JP Morgan’s total revenues.
It is a well-known fact that JP Morgan simply dominates
the derivatives market.
Why Cincom Smalltalk? Productivity, scalability, portability
JP Morgan uses the languages and techniques to fit the
problem at hand. For the Kapital system, it was clear that
“fashion” programming such as C++, Java and C# would
not meet all of their requirements. Plus, they were
conscious that fashions are seasonal. The derivatives
business is constantly changing, and a flexible and
complete development environment was needed that
could handle the complex requirements while being
particularly 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 it offers,
is the productivity that it has delivered. The key is that our
development resources do not necessarily need to be
Smalltalk ‘experts.’ We have estimated that if we had built
Kapital in another language, such as Java, we would
require at least three times the amount of resources to
develop and maintain the application. Because of the rich
toolset within Kapital, we believe we have a truly awesome
financial RAD environment. Without Kapital, we would not
be market leaders. With such 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. Our
base system now runs on three different operating
systems: Solaris, Windows NT and Linux. The Smalltalk
portion of our system requires very little modification
across differing operating systems. The power of this
portability came to bear when we changed our primary
infrastructure from SMP enterprise servers to cheap blade
technology. The transition has taken only six months to do;
the bulk of the time was in retesting external ‘C’ calls,
which all had to be recompiled. This would have been
impossible to do in such a short time span in another
language,” concludes Lewis.
The Business and Technical Goals
From a business perspective, Kapital’s five primary goals
hybrid derivative trades at JP Morgan.
• To calculate the fair value of all of its deals on a daily
or lose in the next business day depending upon
changes in the market conditions.
• To support the mid office in managing large numbers of
complex hybrid derivative deals.
• To support fast time-to-market for new product
From an IT perspective, Kapital is:
• A framework for constructing new financial applications.
• A complete development environment including source
code management and debugging facilities.
• A transparent persistence mechanism that enables the
storage of any type of financial object.
• A distribution infrastructure that enables the distribution
of any type of financial task.
“We believe we have
a truly awesome
– Dr. Colin Lewis, Vice
President, JP Morgan
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