Fri Feb 10, 2012 4:06pm EST
* Instinet eliminates 4 pct of staff
* Cuts follow layoffs in Europe last year
* Stock trading hurt by low volume, shrinking commissions
By Jed Horowitz
Feb 10 (Reuters) – Nomura Holdings Inc. laid
off about 25 employees at its Instinet electronic brokerage unit
this week, the latest sign of stress caused by low stock trading
volume in the United States.
The cuts represent about 4 percent of Instinet’s worldwide
staff and comes amid a swathe of layoffs on Wall Street that
have hit brokerages that execute stock trades for hedge funds
and other active traders particularly hard.
In January Ticonderoga Securities and WJB Capital Group -
equities brokers in New York that together had about 175
employees – closed their doors as costs rose and the number of
customers declined. Susquehanna Financial Group, a unit of
options market-maker Susquehanna International Group, laid off
about 15 percent of its staff in January and Gleacher & Co, a
small investment bank, shuttered its equities business in
August.
Instinet, which Tokyo-based Nomura bought in early 2007 for
$1.2 billion from private equity firm Silver Lake Partners, cut
about 10 percent of its 170 European staffers last April. It has
about 600 employees worldwide, with most based in six U.S.
offices.
An Instinet spokesman declined to comment on this week’s
cutbacks, which were confirmed by several traders and
consultants within and outside the firm.
SHRINKING ORDERS, LOWER COMMISSIONS
Agency brokers such as Instinet, which match buyers and
sellers but do not risk their own capital on filling trade
orders, have been depleted by U.S. stock trading volumes that
fell 13 percent in 2010 and another 8 percent in 2011 as many
hedge funds closed their doors and the price volatility that
stimulates trading weakened.
To build a bigger share of the shrinking pie, many of the
brokers have added services such as research, algorithmic
trading formulas and trade-cost analytics in recent years,
raising their fixed costs in a business where profit margins
have long been thin.
Trading commissions paid by mutual funds and other
institutional traders, known in Wall Street argot as “the buy
side,” have slipped from about 15 cents a share in the 1970s to
less than a penny a share today over electronic systems.
“With commission spending lower, the buy-side trading
function is getting leaner and more selective, and the sell side
is experiencing the crunch,” Instinet Managing Director Alison
Crosthwait wrote in a research report last month.
“Simultaneously, the cost of technology and regulatory
compliance has skyrocketed.”
Crosthwait, who joined Instinet in September 2010 as
director of global trading research, was among those laid off
this week. The cuts affected salespeople, traders and support
people worldwide but the firm’s senior executive ranks were not
touched, the sources said.
Nomura will continue to operate Instinet autonomously from
its own branded U.S. equities businesses, the people said,
despite hints from the Japanese bank last year that it might
integrate the offerings to achieve cost-savings.
Nomura has been aggressively selling prime brokerage
services to hedge funds by offering high-speed trading
equipment, trading floor access and cut-rate commission
commitments but does not market access to Instinet as part of
its marketing pitch, said people close to the operation and
potential clients.
Nomura also has been modifying Instinet’s Chi-X business,
which competes with stock exchanges worldwide. The U.S.
brokerage sold its London-based Chi-X Europe business and last
October reduced its stake in Chi-X’s Asian and Canadian
operations.
Nomura is not the only firm from outside the United States
to be retrenching. Royal Bank of Scotland Group, which
is controlled by the U.K. government, said last month that it
was closing its cash equities operations worldwide as part of
3,500 layoffs through its investment bank.
