TOKYO, Dec 3 — Nomura Holdings Inc. is expanding an electronic stock trading service that matches buyers and sellers seeking to make large transactions as asset managers switch to Japanese equities.
Three Nomura officials will travel to the US in January to meet hedge funds, pension funds and asset managers to pitch the service, which enables big trades of Japanese companies’ shares outside of the Tokyo Stock Exchange, said Joji Watanabe, head of execution at Japan’s biggest brokerage.
Institutional investors are looking for ways to execute large orders without disrupting the market, especially after the exchange began allowing smaller price increments this year, said Watanabe, 49. Japan’s Government Pension Investment Fund is shifting more of its assets to stocks from bonds to increase returns as Prime Minister Shinzo Abe tries to spark inflation.
“We want to strengthen this business,” Watanabe said in an interview in Tokyo. “Investors don’t want the market to recognize that they’re trading large volumes of shares as they increase their Japanese stock allocations due to Abenomics.”
The Tokyo-based brokerage began offering the service to some clients in July, said Watanabe, a former president of Instinet Japan Ltd, a trading platform owned by Nomura. He didn’t elaborating on how much business it’s generated so far.
Large blocks
Nomura will permit only orders to buy or sell large blocks of shares into the new platform, according to Watanabe. This will differentiate it from other private trading venues that have come under scrutiny in the US for allowing high-frequency traders to use information gleaned there to make speedy trades that can put other investors at a disadvantage.
Nomura’s service is capable of executing trades that are 10 times the daily average value of transactions of any given stock on the exchange, Watanabe said. In the US, Liquidnet Holdings Inc. is among companies that operate platforms for big investment firms to swap large blocks of stock.
Japanese brokerages have boosted commissions from equity trading since the market rallied two years ago when Abe came to power pledging to stimulate the economy. The Nikkei 225 Stock Average closed on December 2 at a more than seven-year high, buoyed by unprecedented monetary easing by the Bank of Japan.
Nomura earned ¥36.9 billion (RM1.0 billion) in commissions from stock trading for institutional investors in the three months ended September 30, the most in five quarters. By comparison, its fees from investment banking, including mergers advice and underwriting, totalled ¥20.6 billion.
The US$1.1 trillion (RM3.7 trillion) GPIF, the world’s largest investor of retirement savings, said in October that it will boost local stocks to 25 per cent of its assets from 12 per cent.
Tick sizes
Off-bourse trading of individual stocks listed on the Tokyo Stock Exchange’s First Section, including block trades, more than doubled to ¥45 trillion last year from ¥21.9 trillion in 2012, according to data from the exchange. Trading on the exchange climbed to ¥576.3 trillion from ¥273.4 trillion, the data show.
Japan Exchange Group Inc., operator of the Tokyo bourse, allowed trading of smaller tick sizes for some large companies this year to increase liquidity. That made it more difficult for large trades to be made at the same price.
“The change of tick size by the TSE is one of the factors” that make it attractive for investors to perform big trades off the exchange, Watanabe said.
Nomura has been exploring other ways to execute stock trades more efficiently. In December 2013, the brokerage began a project that seeks to trim costs of trades for institutional investors by crunching so-called big data to find opportune times to make transactions. The project examines potential correlations between a company’s share moves and events ranging from currency fluctuations to earthquakes.
Anomaly focus
“We focus on anomalies and medium-term events that nobody notices,” Daisuke Harada, vice president of electronic trading sales at Nomura, said in an interview.
A record 500 foreign investors, including 12 sovereign wealth funds, signed up to attend a forum that Nomura is hosting in Tokyo this week, said Kenji Yamashita, a Tokyo-based spokesman. About 1,500 Japanese investors are also going to the event that ends on December 5, with Economy Minister Akira Amari among the speakers. — Bloomberg
