A NEW BEGINNING. 

Lehman had spent years building a premier equities division, reaching the top of the LSE. Adam Toms and Andrew Bowley explain how they plan to emulate that success at Nomura.

Can you tell me about Lehman’s development in Europe and the platform since the acquisition by Nomura?

Adam Toms: From 2000 onwards, Lehman Brothers invested significantly in trading technology and infrastructure. The team had a clear view on the evolution of the European market place in terms of the types of investors participating in the market, and central to this was the belief that liquidity providers and high frequency traders would contribute significantly to exchange activity going forward. A great deal of emphasis was placed on innovation in terms of technology and also new products for clients. It enabled the bank to become a market leader in the electronic services space that has grown with institutional and hedge fund clients in Europe over the last few years. The goal was always to become the number one firm across the European exchanges and for several years, the bank held the number one spot on the London Stock Exchange.

Following Nomura’s acquisition of the Equities business in Europe and Asia in October 2008, our goal has been to be among the top three brokers on the LSE by the end of the year. We were ranked 84th on the LSE last December and in March 2009 we were already 10th place by volume and value of equities. Globally, our express goal is to become a top five player in the global equities market by 2011.

What changes have you made to the platform?

Adam Toms: The acquisition and subsequent integration gave us a very unique period of around four months to develop and implement innovative changes to our offerings, leveraging the global resources of Nomura. One of the real advantages of being out of the market was that we were able to step back and look at how we could improve the technology and infrastructure offered to clients and to ensure that we continue to be a leading execution provider globally. The trading environment had also changed dramatically from September to December and continues to do so – we needed to ensure that our platform had the scaleability and flexibility to be able to respond. We totally transformed what we had before to ensure our offering moved forward. We offer direct market access (DMA), smart order routing systems, algorithms (ModelEx) and dark pool services (NX) across Europe but I think our new platform is one of the strongest in the region given the significant enhancements we have made.

Did you lose many people?

Adam Toms: Since October, we have retained and hired some extremely talented individuals and reorganised the structure of our equities division. We have had significant retention rates in the electronic team including 100% of the management team. Innovation and how we deliver those products and services to clients remain a key focus for us. Our experienced sales and product teams are central to this.

What have been the biggest challenges since the merger?

Adam Toms: From a logistical viewpoint, we had to reconfigure everything in Europe. This meant integrating the front and back offices, dissecting all the different components at a global level and taking the best elements from the legacy businesses. It also meant connecting to 31 different venues as well as renegotiating agreements with a range of existing and new vendors. The integration happened very quickly and smoothly. For everyone involved at Nomura, it was an absolutely unique experience.

Andrew Bowley: The current market conditions have been one of the biggest challenges. It is interesting to be re-starting and launching a new business in such an environment but we have a long- term strategy and are clear about the end goal. We feel confident about the robustness and capacity of our infrastructure, but investing in technology will continue to be a priority. For example, since we launched the new offering in January 2009, we have been continuously enhancing our electronic trading suite to maximise the off book liquidity management, including smart order routing performance, latency and algorithmic tools. We cannot afford to stand still or change course because of what we hopefully see as a short to medium term downturn. We want to ensure we have the right number of people, resources and infrastructure to grow the business to meet our three to five year objectives.

What about the image of Nomura as being Japanese and not a global player?

Adam Toms: People know Nomura as a Japanese bank with an excellent domestic franchise across many lines of business, but it is now an enhanced global investment bank with a global equity offering. The reputation of the team and platform is strong with clients and they like the enhancements to the new platform. This combination of strengths is very appealing to clients and our ranking progress across the Pan European Exchanges and MTFs is testament to this.

We also expanded our European research product and have been actively hiring in that area. (Nomura recently hired eight senior analysts covering business services, leisure and transport & infrastructure sectors). Our goal is to have over 600 stocks (up from 400 at Lehman) under coverage by early next year. I think it is registering with the whole marketplace that we are aggressively pursuing our plans and we are on target to reach our goals.

What impact has the financial crisis had on electronic trading?

Bowley: Today, there is much more emphasis on efficient liquidity management and liquidity seeking solutions. This is not only because of the financial crisis and lower trading volumes, but also due to the fragmentation on the back of MiFID. It is harder to find liquidity because the flow is now spread across a raft of venues. We are connected to them all and are completely agnostic; we route orders to the most suitable venue at any point in time and do not have any bias, each venue is evaluated independently.

As a result of the structural changes in the market place, smart order routing is a key focus for our franchise. There is an increased demand for more aggressive strategies which can avoid opportunity costs and we have been making adjustments to our models.