Nomura has unveiled plans to migrate execution services clients to its Instinet agency broker subsidiary, as part of wide-ranging reforms to the Japanese bank’s equities franchise.
Instinet will now offer execution to Nomura’s Americas, EMEA and Asia ex-Japan customers, covering cash, program trading and electronic trading services.
Nomura will continue to offer investor and corporate solutions products – including flow and structured derivatives, delta one, convertibles, prime services, futures and options and equity capital markets and syndication services. Nomura clients that switch to Instinet for execution will also have access to the Japanese bank’s equity research and corporate access offerings.
Consolidating execution services under the Instinet brand will eliminate the overlap in trading services between the two firms, which arose following Nomura’s purchase of Lehman Brothers’ European and Asian assets in 2008.
“The reality is that we have been running two competing execution services business within Instinet and Nomura over the last four years, which has essentially doubled our costs,” Sam Ruiz, head of equities, EMEA at Nomura, told theTRADEnews.com. “We now plan to retire the Nomura platform and use the best of its assets to create a new and enhanced business proposition at Instinet.”
Ruiz added that the need to better control costs was exacerbated by dwindling equity turnover levels and the market’s shift towards more electronic and low-touch trading services, which he said had accelerated over the last few years.
“Equity markets are being dramatically reshaped globally as a result of the current environment and the accompanying demand for transparent, agency-driven execution,” said Benoit Savoret, joint head of global equities at Nomura. “The changes announced today uniquely position Nomura in this new market environment.”
Following the combination, Instinet will work to ensure buy-side clients have full visibility on the specific services they will pay for, to allay fears over potential conflicts of interest.
“The preferred mechanism going forward will be for clients to pay for Nomura research and other services via Instinet on an unbundled basis,” said Adam Toms, CEO of Instinet Europe.
Toms replaced Richard Balarkas at the helm of Instinet’s European business in June. His appointment followed the departure of Anthony Abenante as co-CEO of Instinet, leaving Fumiki Kondo as sole CEO of the firm.
Toms added that the choice of which electronic execution services to be used under the Instinet brand would be decided over the coming months.
As part of the Lehman Brothers’ acquisition, Nomura inherited the former US bank’s low-latency execution infrastructure that was popular with high-frequency trading firms, as well as LX, a dark pool that has since been transformed into the NX multilateral trading facility.
Instinet offers the Execution Experts algorithmic suite, the Newport execution management system, an independent research offering known as Instinet Access and a number of execution venues that include the Blockmatch dark multilateral trading facility in Europe and the CBX and BLX dark pools in the US.
According to Toms, the overlap between the execution tools offered by both Nomura and Instinet would give the new entity the opportunity to reassess the services it offers to clients.
“We are looking at all the technology across both entities, which will ultimately be fully owned and operated by Instinet," said Toms. "This will also give us a chance to revisit our execution services products and think strategically about what clients need for tomorrow's markets.”
In Q3 2011 a US$591 million loss at Nomura caused the bank to announce a US$1.2 billion cost cutting programme, which led to increased speculation over the future of Instinet. Last week the bank announced a new pre-tax profit target of US$3.2 billion to be achieved by 2016, part of which included a further US$1 billion worth of cuts that would be completed by March 2014. Nomura declined to comment on the future of staff that currently work for the Japanese bank’s execution unit.
Nomura bought Instinet from private equity group Silver Lake for US$1.2 billion in late 2006.