Platform aims to address buy-side traders’ core challenge of sourcing quality block liquidity.
Instinet, the agency broker owned by Nomura, has launched its conditional order management platform, BlockCross, in Japan adding to its expansion in Asia this year.
BlockCross has connected to NX, Nomura’s dark pool in Japan.
Gael Vasseur, Head of Global Execution Services, Japan at Nomura, told Markets Media that the bank has been the number one broker in Japan for many years, with a large franchise allowing it to reach and connect with various types of investors including institutions, corporates, and retail.
“NX is the largest Japanese dark pool which adds value for both international and domestic investors, and its liquidity is a game changer,” added Vasseur.
Ned Millington Buck, Head of BlockCross, Asia Pacific at Instinet described the launch of BlockCross in Japan as a significant and exciting milestone in the growth of Instinet’s suite of innovative block trading solutions across Asia.
“Leveraging the broad capabilities and harmonized expertise of Nomura & Instinet’s unified Global Execution Services (GES) platform, we offer clients a solution that incorporates the anonymous blotter-integrated crossing technology of Instinet’s BlockCross with Nomura’s scale, strength of client franchise and balance sheet,” he added.
Millington Buck told Markets Media that sourcing quality block liquidity remains one of the most critical challenges for clients, especially in Japan, given the sophistication of the market landscape.
“With Nomura’s partnership, our connection to the NX dark pool, and the breadth of unique domestic liquidity available, we’re delivering a compelling option for investors seeking to elevate execution performance,” added Millington Buck.
He continued that Japan is a highly important market for clients and the depth of portfolio-weighting, global investor sentiment and level of market volumes have all contributed to the anticipation surrounding this launch.
Nomura analysts said in a report that they expect non-resident investors to start buying Japanese equities because they offer a way of diversifying risk in Asia; deflation is coming to an end in Japan; and corporate governance is improving. However, the report highlighted that it will still take around ¥10 trillion in net buying to eliminate the underweight position of non-residents in Japanese equities.
Yunosuke Ikeda, chief equity strategist/head of macro strategy, Japan at Nomura Securities said in a report that an end to deflation in Japan and a long-term rise in share prices could see the Nikkei 225 rising to 45,000 if profit margins at Japanese companies were to rise to the same level as those at European companies.
Vasseur said: “The stars have aligned as there is growing overseas interest in Japan following its performance this year.”
Asian expansion
Instinet has been expanding in Asia by adding securities from Indonesia, Malaysia and Philippines in its dark pool in Hong Kong in March. BlockMatch Asia had launched with Hong Kong securities in February 2022.
In March Instinet also launched BlockCross in Asia giving clients manual conditional crossing capability against Instinet’s global franchise flows for the first time, following the platform’s growth in the US, Canada and Europe.
Millington Buck said there has been strong client-led adoption of the platform in Asia and argued this can be attributed to two main differentiators – access to GES global agency flows, coupled with the granular level of user control over counterparty selection to help alleviate concerns over conflicts of interest.
“We are very pleased to now extend these capabilities to Japan as well,” he said.
Competition has increased in Japan since Cboe Global Markets completed its purchase of Chi-X Asia Pacific, an alternative market operator, in 2021. Cboe Japan completed the transition to Cboe technology on 13 November 2023, after a two-year integration effort and launched the first phase of Cboe BIDS Japan, a large-in-scale trading platform.
Execution strategies
Only one quarter, 24%, of domestic Japanese institutions have adopted algorithmic trading, compared to 36% of the offshore institutions according to a report from consultancy Coalition Greenwich.
In addition, foreign/offshore investors plan to execute more than half of their Japanese equity trading volume via algos by 2025. Japanese domestic institutions plan modest increases to bring algo execution to about 40% of overall Japanese equity trading volume according to the report.
“Domestic institutions plan to maintain their reliance on portfolio trades, which are expected to account for 36% of Japanese equity trading volume in 2025, compared to less than 10% among foreign/offshore institutions,” said Coalition Greenwich. “These strong preferences are creating differentiation in the offerings of banks, with domestic banks further strengthening portfolio trading capabilities and the foreign banks pioneering in algorithmic capabilities.”
