Nomura is consolidating its two equities trading platforms, the investment bank’s own and that of wholly owned affiliate Instinet.
The expected outcome is a leaner, more competitive and more logically built brokerage – but with plenty of job losses at Nomura’s equities business throughout Asia and Europe, say clients and rival brokers.
Without going into details, Instinet’s regional CEO, Glenn Lesko, acknowledges that the consolidated business will involve “more machines than people”.
IT and other budgets will ultimately be set by Nomura group, but Lesko says that by ending parallel investment into execution businesses, a consolidated budget will still allow Instinet to remain technologically competitive.
The move should also bolster the liquidity available within Instinet’s network. “Execution services is a business of scale,” he says.
Such a streamlining has been welcomed by some clients. “The net outcome for the buy-side: positive,” says one fund management head of dealing in Hong Kong.
Another buy-side client of Instinet says the deal should not negatively impact service. “This is something they probably should have done earlier, but were distracted by the financial crisis,” he says.
The move is driven by Nomura International’s desire to cut costs at a time when equity volumes are thin and commissions hard to win.
Nomura will retain the high-touch aspects to the business, including research and research sales. It will continue delta-one operations and equity derivatives, convertibles, futures and options, and prime services to hedge funds. It is calling this ‘corporate and investor solutions’ and will include proprietary activity.
But all execution functions are being moved to Instinet, including program trading, cash equities trading and electronic trading. This ends an experiment in which Nomura attempted to keep a full-service offering under its own name while allowing Instinet to exist as an agency-only specialist in electronic execution.
That model will continue, as will Nomura’s commitment to research, says its head of Asia Pacific equities, John Adair: “Order flow can be bundled or unbundled, depending on the client’s wish. But we will have only one client-facing execution business: Instinet.”
He says the firm is working with its compliance, IT and legal arms to migrate Nomura’s low-touch activity to Instinet by the end of the Japanese fiscal year, March 31, 2013.
Instinet’s electronic business is well regarded. It is a pioneer in dark pools in Japan and Korea, and it enjoys a leadership position in aggregating multiple dark pools throughout Asia to overcome industry fragmentation.
One rival broker says this won't dramatically change the landscape, because Nomura's low-touch business had been relatively small, but it does send a message about what clients really value.
"Large investment banks have been letting go of staff in their high-touch research sales area, while the agency-only electronic space hasn't felt the crunch. This shows that execution is valued and that the industry may have overvalued the true proposition of research sales."