JPMorgan, Goldman Sachs & Morgan Stanley Are Mining Data Together

While collecting data isn't against the law, communication between firms in an attempt to manipulate the market is.

In the world we live in today, driven by evolution in technology, data is one of the most prized commodities on the planet; and big banks have tons of it. Recently, JPMorgan, Goldman Sachs and Morgan Stanley announced that they are teaming up together to create a massive data company.

Today, we are going to discuss the details of the company the three major banks will be creating, what we’ve seen in the market as a result, and what we can expect to see moving forward.

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Details of the Data Company

In my opinion, the new data company which is to be created screams “Securities Fraud”. Nonetheless, it’s going to happen. Reuters reports that JPMorgan Chase & Co, Goldman Sachs Group and Morgan Stanley are working together to create a company that will “pull together reams of data used to determine pricing and transaction costs.”

The new company will take a seven figure investment from each of the major banks in order to create and it will be launched within the next 6 to 12 months. The project is called “SPReD”; a term that stands for Securities Product Reference Data. While collecting data isn’t against the law, communication between firms in an attempt to manipulate the market is. So, it will be interesting to see what steps are taken to structure this data giant in a legal way.

How the Market Reacted to the News

It seems as though I’m not the only person who has concerns about the new data company these banks plan to create. As a matter of fact, on Wednesday, the day the story hit the news, all three banks realized declines in their stock prices.

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While there are always multiple factors that lead to movement in the market, it would be hard to discount the fact that these declines had something to do with investor disapproval of the plans to create the data company. Here’s what the market did Wednesday…

  • JPMorgan – JPMorgan closed the trading session at $67.61 per share after a loss of 0.88%.
  • Goldman Sachs – Goldman Sachs closed the trading session at $200.95 per share after a loss of 0.11%.
  • Morgan Stanley – Finally, Morgan Stanley closed the trading session at $37.44 after a loss of 1.00%.

What to Expect Moving Forward

Banking stocks have had a rough time over the past month; all three of the stocks mentioned above included. In my opinion, that’s not likely to change. The reality is that having more data that will lead to better moves in the market is a great thing.

However, this new data company reminds me of a recent settlement in which 5 major investment banks, including JPMorgan, were fined as a result of communications with each other leading to a conspiracy to manipulate market movement. If you haven’t read the story, click here to learn more.

While I haven’t read any stories of other analysts connecting the new company with what happened in the case of the 5 banks conspiring to manipulate the market, it’s hard to argue that’s not exactly what’s happening here. Unfortunately, I think that this move is one that will cause a continuation of the downtrends the banking sector has already been dealing with; as it simply doesn’t make sense that this kind of move would follow legal protocol.

What Do You Think?

Do you think the new data company is a good idea or does it remind you of past issues? Will history repeat itself, leading to future fines for JPMorgan, Morgan Stanley and Goldman Sachs? Let us know your opinion in the comments below!

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