Nomura has laid out plans to decommission its NX dark multilateral trading facility (MTF) as part of the transfer of the bank’s equity execution business to its agency brokerage subsidiary Instinet.
NX MTF will first reclassify as broker crossing network (BCN) from 26 November before being closed in Europe completely once Nomura’s equity trading clients have moved across to Instinet, a process that is currently scheduled for completion in March 2013.
Instinet already operates Blockmatch, a dark MTF that offers largely the same functionality as NX, including the ability for users to match orders at bid, mid or offer price points.
Nomura hopes the liquidity from its clients that resides in NX will move over to Blockmatch after the migration.
The decision to reclassify NX into a BCN from an MTF was driven by new European short-selling rules which came into force on 1 November, explained Ben Springett, head of electronic trading, EMEA at Nomura.
“Guidelines from the European Securities and Markets Authority required MTFs to make a technical change to the reporting of client transactions to meet the new short-selling rules,” Springett told theTRADEnews.com. “Rather than undergo the development work to meet these requirements, we took the option to reclassify as an OTC venue for the few months before NX is decommissioned.”
He added the decision to close NX, rather than operate it alongside Blockmatch after the migration, would lead to greater crossing opportunities for users because liquidity would be concentrated in one place.
As a BCN, clients will still be able to determine if their orders were traded in NX – via the FIX tag 30 field in post-trade reports – but data will no longer be available via websites such as those operated by Thomson Reuters and BATS Global Markets.
In January 2010, Nomura became the first investment bank to register its BCN as a MTF, requiring it to publish post-trade prices as soon as a trade is completed and offer membership on a non-discretionary basis. UBS and Goldman Sachs are two other brokers that also opted to launch dark MTFs.
According to figures from Thomson Reuters, NX traded €546 million, or 1.59% of dark MTF transactions, in October.
The venue reached a peak of 11% of dark MTF trading in January 2011. In October, BCNs accounted for €30 billion, or 50.7% of overall dark trading. Blockmatch traded €1.38 billion worth of orders last month, giving it a dark MTF market share of 4.39%.
Nomura’s plans for NX in Asia and the US remain under review. Instinet operates over 10 venues across the US and Asia, including markets tailored for Hong Kong, Korea, Japan and Australia. Decisions on the other execution products that will be used after the migration, including algorithms and connectivity, will be announced in due course.