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November 1, 2013

Instinet Builds Out Cash Desk

Agency-only broker adds high-touch staff and broadens trading desk offerings after completing Nomura absorption

By

John D'Antona Jr.

Agency-only brokerage Instinet recently completed the build-out of a cash or "high-touch" trading desk in the U.S. to complement its other trading desks.

The move follows Instinet's absorption last year of about 30 front-office staff from sister company Nomura's former equities execution services. Previously, Instinet maintained a tiny cash desk. The new desk is much larger and staffed with 15 people mostly in New York; others are in St. Louis, San Francisco and Boston.

Jonathan Kellner

In total, Instinet now has about 100 sales/trading staff in the U.S.

[See Traders Magazine Instinet Coverage]

Nomura Holdings folded its entire global equities trading business outside of Japan into agency broker Instinet during fall and winter of last year. This happened in a bid to cut costs and provide a unique business model amid the current global commission slump. All execution services-including cash, programs and electronic products, for the Americas, Europe and Asia ex-Japan-were migrated to Instinet. The move didn't affect Nomura's research, prime brokerage and ECM businesses, which continue to be operated by Nomura's separate broker-dealers.

Instinet prevailed for three simple reasons: It has good technology, an established customer base and a lean operating model. Nomura's algorithms never gained the popularity its cousin Instinet enjoyed.

However, Nomura's high-touch desk, according to sources, stuck its neck out for clients with its wallet by aggressively committing capital to win business-only to have its head handed back with huge loss ratios. That was complementary to Instinet's business model. The new cash desk, led by Mark Govoni, who came over from Nomura last November and runs sales and trading in New York, will not commit capital.

Jonathan Kellner, regional head for the Americas at Instinet, told Traders Magazine interview this migration included the addition of 10 traditional cash equity traders, five of whom are sector traders, covering consumer, financials, industrials, technology and media/telecommunications, bumping up Instinet's small cash desk to about 15 people. A total of 29 front-office staff came over from Nomura in the U.S.

Five of Instinet's legacy sales traders were moved over to this new cash trading group. There will be more hires to this desk, Kellner added.

Prior to the cash desk build-out, Instinet offered its clients cash trading via its hybrid desk, where sales traders manually handled orders but executions were done electronically.

"Our expanded cash desk now operates alongside a hybrid sales trading/electronic trading desk and an execution trading desk, which we use to aggregate client flow from across the front office to improve client crossing opportunities," Kellner told Traders Magazine. "Prior to the migration, Instinet's single-stock high-trading offering included only the hybrid desk."

Instinet now offers its clients four trading desks to choose from: electronic or low-touch, program trading, hybrid trading desk and now a traditional cash trading desk. The hybrid desk is akin to a "one-touch" trading desk where the buyside has a single point of contact to handle its orders either electronically or manually. The cash desk provides traditional manual trading services, where a sales trader handles an order, provides market color and oversees execution.

"There is high demand for a cash desk backed by high-quality content and liquidity, and that is why we established one," Kellner said.

 


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