With its new smart router in operation, Nomura Securities International expects later this month to unveil its direct-market access service to its electronic clients.
The new technology augments the electronic offering at the U.S. brokerage arm of the giant Japanese bank. And after months of configuring and testing, NSI can now direct all of its desk and algorithmic flow to the markets through the smart router, according to Amit Manwani, who heads quantitative and analytics products in the U.S.
"It will be a complete electronic execution offering, from the traditional worked-order program business, all the way to DMA." Manwani said. "Our clients will be able to either go to the traditional work-order desks, access an algo or go directly to our smart router. And if they so choose, they’ll be able to go directly to the markets, bypassing the smart router, in case they want to direct an order to a specific market center."
Nomura Group acquired Lehman Brothers’ European, Asian and Middle Eastern investment banking and equities operations in the fall of 2008. For the last 15 months, the U.S. firm has been building its electronic services from the ground up. DMA and smart routing comprise the latest stage.
Formerly, the firm connected to the major U.S. markets through a hub that accessed the New York Stock Exchange, Nasdaq and Arca. Within the past year, NSI added connections to all of the lit venues–such as BATS and the ECN Direct Edge–as well as the alternative trading systems.
Completing connections to all of the major pools of liquidity makes the new smart router more efficient, Manwani said. In addition to connectivity, its technology focuses on liquidity taking and posting tactics. For taking liquidity, the smart router incorporates both exchange-access and venue-quality costs, Manwani said.
For posting liquidity, the smart router functions similarly to a dark aggregator strategy. It can search in different lit and dark venues to find liquidity, Manwani said. While orders are being routed, the smart router can shift pieces of the order around to venues that have the highest chances of finding fills, he added.
"There is need for more sophisticated, for more real-time monitoring of where liquidity is," Manwani said. "The challenge is: how do you allocate a 500-share-order to 10 different venues, and depending on which venues have some activity, re-allocate shares that so that you have a high chance of getting filled?"
The smart router was built for most of NSI’s client base. This includes those who use Nomura’s algos to execute orders but don’t require a sales trader, and who leave the routing to the smart router. It also includes so-called SmartDMA clients who use their own algorithms and just want exchange access, Manwani said. These clients rely on the router to choose the best execution venues, regardless of whether they’re taking or providing liquidity.
High-frequency trading clients will eventually use NSI’s "extremely low-latency direct DMA" connectivity suite to reach the markets, Manwani said. Many of them would already have their own equivalent of a smart router. This will be NSI’s filtered NXT Direct offering. The service will give clients co-located exchange access. It is scheduled to debut sometime this summer for U.S. clients. Nomura already offers the service in Japan and Europe, Manwani added.
"It’s important that we’re able to ensure that our electronic offering is relevant to all the clients that would want to use us in an electronic capacity," Manwani said.
