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Elaine Wah

Modern Markets, Modern Metrics - A Blog By IEX

In this blog by IEX's Elaine Wah, the newest public exchange looks to refute public claims that the metrics it uses are designed to inflate its own volume numbers and mislead people.

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August 14, 2007

New Era for Nomura and Instinet

By Peter Chapman

The parachuting of two Nomura executives into Instinet signals the beginning of a new era for both firms.

Nomura, which closed its $1.2 billion acquisition of Instinet in February, recently installed two of its own as co-chief executive officers. Fumiki Kondo, a longtime Nomura executive who joined Instinet in February, and Anthony Abenante, previously head of U.S. equities at Nomura, replaced John Fay and Alex Goor. They are expected to work closely with senior Nomura officials to forge a closer relationship between the two broker-dealers.

"Our intention is to leverage both firms and provide the best product we can," Jonathan Kellner, Nomura's new head of equities, told Traders Magazine. "We have strengths at Instinet. We have strengths at Nomura. Let's put them together where it makes sense and provide one product to our client base."

Nomura's equities group employs 25 to 30 people in the U.S. and focuses on program trading. In 2006, it reported about 900 million listed shares traded to Thomson's AutEx service, ranking it 46th among trading houses. Instinet, on the other hand, is far larger, with about 300 staffers in the U.S. and another 300 overseas. It reported about 4 billion listed shares to AutEx in 2006, ranking as the 24th-largest trading house.

In the U.S., the two firms will remain in separate locations for now, but begin to operate as one, Kellner said. "Buyside clients want fewer relationships," he said. "We intend to combine two somewhat different businesses into one, giving them a relationship with one broker."

For the buyside, that could mean one salesperson representing products and services from both broker-dealers or a coordinated sales approach. Services will be co-branded with both the Nomura and Instinet logos. Much of the execution will be combined. Buysiders will be able to pay for Nomura quant research by trading through Instinet tools, for instance.

Kellner explained that the attraction of Instinet was largely its technology infrastructure and its desktop products, Newport and Portal. By infrastructure, he means the order-handling guts of the firm: taking orders in and routing them out. Newport and Portal are front-end direct-market-access platforms that allow Instinet's buyside customers to trade directly on markets and route orders to markets and brokers.

Nomura will be able to leverage that technology globally. Its main geographical focus these days is Asia. A big plus in this regard, Kellner explained, is Instinet's alternative trading system in Japan. It is the only ATS in Japan. Nomura, the largest brokerage house in Japan, will send its order flow into the system, which is expected to launch soon.

According to Instinet's former chairman and now adviser Ed Nicoll, who gave a televised interview when the deal was announced, Instinet's technology gives Nomura "a terrific leg up." Japan is two to three years behind the U.S. on the trading technology front," he said.

For Instinet, the attraction of a deal with Nomura was its global reach, Kellner asserts. Although Instinet is present around the world, "we give them client reach they did not have outside the U.S.," he said.