JPMorgan's Troise Faces Job of Rehabilitating Broker ITG

  • Former bank executive's hire by embattled broker welcomed
  • ITG shares up close to 10% in past week after 40% decline

Frank Troise is heading back to Investment Technology Group Inc. with a mission: Clean up the mess that led to a record fine and a 40 percent slide in the broker’s share price.

Troise, who had been a managing director at JPMorgan Chase & Co. since 2010, was named ITG’s next chief executive officer and president on Oct. 19. He is expected to start in January at the firm where he worked from 1997 to 2005. Troise will have to re-establish ITG as a perceived safe haven for asset managers, a reputation shredded by a summer of executive upheaval and a high-profile settlement with the Securities and Exchange Commission.

As he works to rebuild that trust, Troise’s first challenge will be to show the firm has transformed a culture that led to the creation of the secret proprietary trading desk at the heart of the SEC’s case. Strategic decisions related to ITG’s research unit and possible deal activity also will be on his agenda. If Troise succeeds, it will not only boost the firm and its shareholders, but also burnish JPMorgan’s reputation as a hothouse for corporate leaders.

“A very good move for both Frank and ITG,” said Alasdair Haynes, founder and chief executive officer of European stock market Aquis Exchange Ltd., who worked with Troise at ITG. “He is really one of the good guys and really understands the electronic markets well.”

ITG’s current troubles began on July 29 when it revealed it was in talks with regulators to settle allegations of illicit activity in its dark pool. The following day its stock fell 24 percent. Despite gaining 9 percent in the past week as investors reacted positively to Troise’s hire, the shares are still down about 35 percent since news of the settlement broke.

Significant Challenges

“We felt an outsider was important,” Chris Allen, an analyst at Evercore ISI, said in a note following the announcement. “We are also encouraged by his experience and quite frankly willingness to leave such a post at JPMorgan for a business that is currently undergoing significant challenges.”

Troise’s hire “is an important step towards rebuilding the brand in the coming months and a clear positive for the shares,” Allen said.

The fallout has so far claimed CEO Bob Gasser and General Counsel Mats Goebels and has bestowed on ITG the unwanted accolade of having received the largest penalty for a dark pool operator, $20.3 million, in U.S. history. Details of the settlement were made public on Aug. 12, and showed that the firm ran a secret desk that used knowledge of customer orders to trade for its own benefit.

Andrew Ceresney, director of the SEC’s enforcement division, said at the time that “the conduct here was egregious.”

Project Omega

The trading desk was known as Project Omega, according to the SEC, which said ITG’s wrongdoing spanned from April 2010 to July 2011. The agency said that among the problems was that Project Omega knew about the trades customers wanted to place. For example, when a client wanted to buy a stock, Project Omega detected the order and sought to buy that stock on a public venue before selling it profitably to the client.

While Gasser and Goebels have gone, some of ITG’s current board approved the trading-desk project, including Chairman Maureen O’Hara.

“To the extent that ITG fell short in the past, we are taking responsibility for those actions,” O’Hara said in a letter to clients in early August. “The company said it plainly last week -- and let me repeat it here again today -- mistakes were made and we should have done better.”

The settlement was a shock to clients who’d considered ITG an asset-manager friendly broker that didn’t have many of the conflicts inherent in the bank-broker business model. Its Posit venue, one of the original dark pools which started more than 25 years ago, has suffered a 64 percent drop in volume since the week of July 20, according to data from the Financial Industry Regulatory Authority.

“He’s been hired because of his strong reputation and relationships with large buyside clients, and his challenge is going to be to bring back these clients to ITG,” Rich Repetto, an analyst at Sandler O’Neill & Partners LP, said by phone.

Research Unit

Troise also will need to decide ITG’s direction. Under Gasser, ITG built a research unit that drew the ire of activist investors for being less profitable than other parts of the company. The company’s name was also mentioned as a potential buyer of other trading firms. Troise might be similarly inclined, if comments last year to the Wall Street Journal are any indication.

“It is a business where you can have a tremendous amount of operational efficiency” through scale, Troise said to the paper about electronic trading.

In a memo about his departure, Troise’s old bank wished him well.

“Since joining JPMorgan in 2010, Frank has helped build best-in-class trading capabilities,” wrote Troy Rohrbaugh, global head of macro trading, and Tim Thorsby, the global equities chief. “In five years, our market share in electronic equities has more than tripled in both the U.S. and Europe.”

Most recently, Troise had been overseeing JPMorgan Execution Services, a cross-asset team started last year. The experience should help at ITG, where the firm recently started a fixed-income trading venue.

The hire is yet another sign of JPMorgan’s primacy on Wall Street. Companies in need of new leadership have often turned to former executives of the bank, which has emerged as one of the winners in the aftermath of the financial crisis. The list of ex-JPMorgan managers-turned-CEOs includes Standard Chartered Plc’s Bill Winters, First Data Corp.’s Frank Bisignano and Visa Inc.’s Charlie Scharf. Former JPMorgan executive Jes Staley is the frontrunner for the top job at Barclays Plc.

“A long time ago, I was told by a gentleman that ran McKinsey that if you’re a good company you’re going to lose people,” Jamie Dimon, CEO of JPMorgan, said Monday in a Bloomberg TV interview. “They’re going to have to compete with us, but I do wish them the best.”

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