Nomura Sheds Light on Dark Pool MTF Registration

At a time when dark pool regulations here in the U.S. are being hotly debated, Nomura has decided to relaunch its NX dark pool as a multilateral trading facility (MTF) in Europe.

The NX MTF dark pool will be regulated by the Financial Services Authority and will trade pan-European equities. It is expected to go live in January of 2010.

“In Europe a small number of brokerage firms have registered their platforms as MTFs but all banks to date operate as internal dark pools and Nomura is the first bank to move its dark pool to be a registered MTF,” explains Adam Toms, managing director and head of the Market Access Group at Nomura.

He adds that while regulatory pressure is certainly one driver behind the move to register as an MTF, the primary reason is more economical. “We’re moving our dark pool that was internally facing with clients out in a more efficient many to other market participants,” says Toms.

He says that the firm’s discussions with the FSA started over nine months ago, well before the dark pool debate with regulators heated up stateside.

Toms adds that the firm will launch some additional features to its dark pool when it begins operation as an MTF. “One new functionality will be the well formed market checks that make sure we are referencing a valid price on displayed exchanges and we’re also incorporating some new anti-gaming controls,” he notes. “We have various levels of controls in our pool designed to build confidence in the participants.”

The NX MTF will also offer strategy matching, which is basically a VWAP order crossing against another VWAP order, in addition to its mid-point crossing. “This brings in not just block crossing at the mid-point but also strategy matching which is more akin to algorithmic and passive usage,” says Toms, adding that the platform will not disseminate any type of IOIs.

As a registered MTF this means that trades taking place in NX will immediately hit the tape, but Toms says while he understands the broad concerns regarding information leakage, the pool’s anti-gaming technology should counteract them. He adds that as with the U.S. dark pool debate some market participants in Europe believe information hitting the tape immediately is a positive thing.

The NX platform is currently operating in three different regions — the Americas, Japan and Europe—and when asked about other regions moving to register their platforms as well Toms says it will be a decision for each individual region. “Each region has different regulatory speed and the nature of the markets is different so it will be different in each area but globally we believe in aligning to our clients interests,” Toms says.

As for future NX participants Toms says that he hopes existing clients will become more comfortable with the platform and continue to build their usage and the firm could also potentially work with dark pool aggregators and other broker-dealers as well to continue building an efficient framework.