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January 1, 2005

Sales and Trading for Nomura in U.S.

By Peter Chapman

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Next Generation Technology for Quants

The firm is known for fundamental research but Nomura Securities, Japan's top broker, is using the lure of new technology to break into U.S. equities.

The plan is the first major stab by Nomura at the sales and trading of U.S. equities for U.S. customers.

The broker has been in the U.S. since 1927 and has a staff here of about 700, but its reputation is greatest in the fixed income markets. Now Nomura is offering a new algorithmic trading platform - the broker claims it is the next generation - as it makes a major push to sign up money managers.

"Our plan is to compete on the merits of our execution technology," says Anthony Abenante, Nomura's head of U.S. equity sales and trading. "The approach is based on unique and value-added quantitative research."

The broker, Japan's largest with $4 billion in commissions this year, has placed first in Institutional Investor's annual All-Japan Research Team poll in nine of the past 11 years. In the U.S. and Europe, Nomura has a dominant position in the niche business of selling Japanese equities to money managers.

In the U.S., however, Nomura's impact on the business of trading U.S. stocks for institutions is negligible. It runs a thriving index arbitrage desk and supports a small mergers-related customer business, but lacks a full-fledged trading operation.

That is changing. In 2003, it nabbed a team of traders and technologists from Investment Technology Group. Abenante oversaw sales and trading in ITG's western region. The exec began his career writing code for Morgan Stanley's program trading desk and later he would design ITG's first VWAP algorithm. The mass hire also included one of ITG's main algorithmic modelers.

Also in 2003, Nomura hired John Comerford from Schwab Capital Markets to head quantitative trading research. Comerford and his team are the brainpower behind Nomura's new trading platform. The one-time portfolio manager at quant house Symphony Asset Management spent his days at Schwab creating algorithmic trading models.

Last year, Nomura again tapped ITG for staff. The brokerage recruited Larry Weiss, ITG's former program trading head, to run a customer facilitation/blind-bidding desk. All told, the new U.S. equity sales and trading team counts 26 staffers in New York and San Francisco. Since June, the crew has traded about $10 billion of stock, according to Nomura.

Quantitative research is not new for Nomura, just unsung. In Tokyo, Nomura houses a quantitative research group of 50 people. The group focuses on portfolio strategy, performance, construction and rebalancing as well as the discipline of transaction cost analysis.

Nomura execs maintain a quantitative approach is easier to apply globally. The broker is launching similar sales and trading initiatives in London for European equities and in Hong Kong for non-Japanese Asian stocks.

In light of all the ITG hires and Nomura's quant approach, is Nomura building a miniature version of ITG? After all, the specialty shop made its name marketing sophisticated analysis and trading technology to quants. It was building algorithmic trading models before the phrase went mainstream. Even so, there is one big difference between Nomura and ITG - capital. ITG handles orders strictly on an agency basis.