Why Billionaire Steven Cohen’s Firm And JPMorgan Bet On A Startup Ripping Out Trading Desk Phones
By Alex Konrad
When Wall Street is bustling with trades, banks that want to scale up will shell out $10,000 for a new trading phone and desk. Adding a floor? That’ll run you $500,000, says CEO Jerry Starr. The same costs will come up if a company needs a second trading floor to protect its business.
Starr’s company, Cloud9 Technologies, believes there’s no need for a phone anymore when traders can use something easier: cloud computing. His two year old startup claims to have an app that can handle those same calls and add security and compliance. And while the market is still early, Cloud9 is gaining the support of the financial establishment with each dollar it raises.
The latest firm to stand with Cloud9′s app is billionaire Steven Cohen’s firm Point72 Asset Management. The firm, which employs more than 1,000 people and manages $11 billion in Cohen’s assets, invested in Cloud9 directly through a new startup-investment unit called Point72 Ventures and is rolling out the product in its expansion into new offices in Europe and Asia. The investment closes out a $30 million funding round led by JPMorgan and including Barclays and ICAP.
Their backing represents a gradual acceptance of trading by app, Starr claims, centered around security concerns and the ability to recreate a trade that goes bad. Cloud9 started out with energy traders who have the lowest thresholds for security and compliance, then moved to brokers. “Now we’re moving up the food chain,” Starr says. “The last will be the tier 1 banks.”
That’s historically proven a challenge to contenders looking to break through the status quo of voice trading, which in may respects still operates functionally as it did when the fictional Gordon Gekko would have been building his trading empire.
What Cloud9 can mean for Wall Street in the long term is a customizable flexible trading setup that could eliminate the need for some trading floors as employees can work wherever their institution allows. JPMorgan, for example, put the company through 40 demonstrations before implementing the service, and has it turned off outside their office. Were a natural disaster to strike, the bank could simply turn on remote trading and keep its employees home or in areas with power and internet connections with little more than flipping a virtual switch.
Point72′s significance in the consortium backing Cloud9 has more to do with how communications will evolve between the buy-side and the sell-side, the firm says, and it will look to make more investments in that category. “The financial services industry has had a lack of true innovation for decades around telecommunications,” says Pete Casella, co-head of the Ventures wing of Point72 and a former executive at JPMorgan, where he’d become aware of Cloud9 and its potential (Point72 was already separately looking at the technology, too). “We were blown away by Cloud9’s ability to solve so many of the structural and technical problems plaguing trading desks.”
While companies could see benefits in their recording of trader interactions for compliance, Starr stresses the flexibility of not being bound to a phone. “Not needing this big trading telephone desk in front of you, the space you save alone is huge. All you need is a secure internet line.”