JPMorgan Reviews Its Clearing Customer Relationships In An Effort To Reduce Risk

The severe losses from Knight Capital’s electronic trading snafu are among the reasons for the review, although the bank does not plan to sever its relationship with Knight.
The relationship between the two firms did come under stress, however, during the debacle as JP Morgan refused to accept thousands of securities owned by Knight as Knight desperately tried to secure new financing.
The collapse of MF Global Holdings, Ltd. as well as the Knight trading debacle have highlighted the fact that clearing is where massive financial interests change hands.
Previously, it had been viewed as a highly lucrative yet uneventful business.
Other large firms could follow JPMorgan’s lead and either limit the amount of business they do with certain clients or discontinue relationships altogether.
The review JPMorgan is conducting is also serving to identify the funding problems Knight experienced during its trading debacle so that similar situations can be avoided in the future.

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