Instinet Europe Doubles Client Volumes

Terry Flanagan

Instinet Europe, the agency broker, doubled its traded client volumes in Europe last year as it looks to adapt its business to the new regulations which will change trading in the region

Instinet, which is owned by Japanese bank Nomura, said it doubled its traded client volumes in Europe last year to €990bn, compared to €486bn in 2013.

The agency broker was also fifth in Markit’s 2014 European Cash Equity and ETF Broker Rankings. Instinet said it was the only firm in the top ten to rise in the Markit rankings last year as it increased market share for customer business from 6% to 10%.

Adam Toms, chief executive of Instinet Europe, told Markets Media: “Prior to the migration of the Nomura business, Instinet had a share of 1%, which is now up to around 6% of pan-European equity trading as measured by Bats. Our customer share now stands at 10% as per the recent analysis by Markit.”

Nomura transferred its cash equities unit to Instinet in 2012 and Instinet spent the next year integrating the two businesses. Toms described 2013 as year of settling down to enable it to grow organically in 2014.

Toms said there been year-on-year growth across all three business segments in Europe – institutional, broker-dealer and the latency sensitive business.

“The growth shows the diversification in our business as our market share has grown not just in large-cap but also mid- and small-cap stocks,” added Toms. “We have a trusted status as an agency firm and some clients look to utilise this capacity to trade more sensitive holdings.”

Toms became chief executive of Instinet Europe in 2012. Previously he had been co-global head of electronic trading at Nomura. He joined Nomura following its acquisition of the European assets of Lehman Brothers in 2008, where he had been head of the firm’s European portfolio and electronic sales trading desk.

“The momentum in our franchise and market share is likely to consolidate around this level, as it is harder to break into the top three,” Toms said. “With regulatory changes that may affect our business still underway, we are mapping out our product suite to ensure we continue offering innovative solutions to our clients.”

Under MiFID II, the European Securities and Markets Authority has proposed changing the way that asset managers pay for research in order to reduce conflicts of interest which could affect Instinet’s platform for commission sharing arrangements.

Fund managers will either have to pay for research from their own resources or make payments from a specific research account funded by a client. The size of the research payment account has to agreed by the client, disclosed upfront and is not allowed to be linked to execution volumes or dealing commissions or spreads.

Last week the UK Financial Conduct Authority said that it endorsed Esma’s proposals but that fund mangers should stop using CSAs, which rely on execution commissions to fund research. Toms declined to comment on the potential impact.

MiFID II also places double caps on the total amount of trading that in dark pools at 4% in an individual stock for a single venue and 8% across the whole market and changes the pre-trade transparency waivers which are used to help the buyside trade larger blocks.

Last year Turquoise, the pan-European multilateral trading facility owned by the London Stock Exchange, launched Block Discovery, a service to make it easier for fund managers to execute large blocks as the venue aims to increase its average trade size.

“The Turquoise Block Discovery platform is achieving an average order size of €300,000 and is interesting to look at as a test case for MiFID II,” added Toms. “It is a test for the industry to see whether Block Discovery can achieve larger average trade sizes.”

Toms said trading volumes increased last October and has carried on through January and February, although the catalyst for the recent additional activity has been driven by macro themes such as Greece and the Eurozone.

“We are very focussed on growing our institutional market share and providing outsourcing solutions for other broker-dealers. We are also watching the agency multi-asset landscape with a great deal of interest,” he said.

Markit’s customer business refers to business filled by an executing broker for its customer, whether it has been executed on exchange or retained on the broker’s books. The data provider said its rankings are based on data provided by contributing brokers covering an estimated 80% of all cash equity trading in Europe. The contributed data is subject to a stringent set of rules and validation checks to provide a representative dataset across cash equity and ETF markets aded Markit.

Feature image by Rob Hyrons/Dollar Photo Club

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