Integration plan undecided as Nomura commits to Instinet
Key decisions affecting the future of the electronic
trading businesses of Japanese bank Nomura and its Instinet agency brokerage
have yet to be communicated to staff following a ‘town hall’ meeting chaired by
Instinet CEO Fumiki Kondo.
Kondo, sole head of the firm since the
departure of Anthony Abenante last week, told New York-based staff yesterday that
they would not be folded into Nomura Securities International, Nomura’s US
broker-dealer. “Instinet has way too much business in the US for a single
broker-dealer licence to make sense,” said one source familiar with the
Instinet regularly achieves 5% of average
daily volumes in the US equities markets and was the fifth largest brokerage in
the US by commission in Q4 2011 according to data compiled by TradingScreen.
But despite releasing a statement
confirming its intention to make Instinet “the Nomura Group’s electronic
trading arm”, important calls have either not yet been taken or communicated in
a number of important areas. Staff remain in the dark as to which product
capabilities will survive an integration process designed to eliminate cost overlaps.
Both Nomura and Instinet currently offer direct market access, comprehensive
algorithmic trading suites and off-exchange dark trading services in multiple
A prolonged period of low trading volumes lasting
into the first quarter of 2012 has sustained pressure on Nomura to cut costs
following the announcement of a US$591 million loss in the quarter to September
2011. The firm responded in November by asserting it would cut US$1 billion from
budgets, which many expected to signal the rapid integration of Instinet into
Nomura’s electronic trading business, especially as both units were acquired in
Nomura bought Instinet from private equity
group Silver Lake for US$1.2 billion in late 2006, then took on the European
and Asian assets of Lehman Brothers in Q4 2008, including a successful
electronic trading business that was seen as offering the Japanese bank a
strong opportunity to establish a top-tier global equities franchise.
Despite Kondo’s assurances to US staff and
the likely survival of the Instinet in other important financial centres such
as London and New York, it is not yet clear how clients will access and pay for
Nomura-owned electronic trading services in the aftermath of the integration
process, sources said.
Instinet’s unconflicted agency only-model
has to date been a key element of its brand value, but executives may soon need
to decide how to maintain the Instinet identity while attempting to fairly
allocating revenues, for example, from Japanese clients that wish to use
Instinet’s algorithms in the US to implement a trading idea inspired by the parent
investment bank’s research department.
Instinet will no longer operate as a
separate broker-dealer in Nomura’s home market, where it had previously driven
use of electronic trading for through the introduction of crossing services for
institutional investors such as JapanCrossing and CBX Japan. In future, the two crossing services will be operated on an offshore basis with trades reported to ToSTNeT, the Tokyo Stock Exchange's post-trade facility.