Nomura Holdings closed its acquisition of Instinet in early 2007 and soon appointed two new Co-CEOs to take the helm at the global agency brokerage. The two executives appointed just about a year ago, both from the Nomura side, were Fumiki Kondo and Anthony Abenante.

As the duo approaches the one-year mark at Co-CEOs at Instinet, Advanced Trading sat down with Kondo and Abenante to hear how their roles are playing out, how the two firm's are leveraging each others assets, what new offerings clients can be expecting soon and how Instinet's subsidiary Chi-X is faring in Europe and beyond.

Kondo previously served as Executive Vice President of Nomura BlackRock Asset Management, while Abenante was Managing Director responsible for U.S. equity and global program sales and trading at Nomura Securities International.

The discussion comes on the heels of Instinet's first combined product offering. The recently released Instinet Execution Experts algorithmic trading suite leverages the best of both Instinet's and Nomura's algorithms.

Anthony Abenante (left) and Fumiki Kondo (right) co-CEOs of Instinet. Photos by Stephen Aviano

Advanced Trading: - How do you break out your roles as Co-CEOs? Who is responsible for what?

Fumiki Kondo: Basically both of us run the whole business together but I'm in charge of Asia and Europe operations and Anthony oversees the U.S. operations and global technology along with the CTO. I also look after the more corporate issues.

Anthony Abenante: It's actually worked out very well because we have complimentary skills. I've been here learning more about the global markets and extending the model. Kondo was EVP at Nomura BlackRock and he knows the operating side very well. Has been helpful as we try to rationalize things here. The firm is in a much better spot now.

Kondo: We have completely different backgrounds and I don't compete with Anthony when it comes to the execution and technology business. I'm learning every day from Anthony while my role is making sure the Instinet business model is not deteriorated because of the new company model. We are very careful not to mix the brands of Nomura and Instinet.

AT: Where are you working to combine Nomura and Instinet's expertise and technology offerings?

Abenante: One of the first synergies we recognized was in the U.S. equities space. Clearly (Nomura didn't have) the scope of what Instinet had from a liquidity standpoint. But Nomura had a rich set of analytics; microstructure research and a broad component based algorithmic system, which we called the Execution Experts. So we saw it best to take the U.S. businesses and merge them together with Instinet remaining as the brand for U.S. equity and program trading. That began last fall and we finished up pretty quickly over the course of a few months.

We will be generalizing the algorithmic suite for global and for multi-asset trading as well. Those are our two next steps as far as the algo suite and the personnel side as well.

The Nomura algo suite was based on newer technology, it was built form scratch in Nomura starting at the end of 2003. So when I first got to Nomura I brought a team with me and the attractive aspect was that we could build from scratch.

Kondo: We also wanted to emphasize the Instinet agency model " the unconflicted trading model. Nomura does have a proprietary desk so what we did was separate very clearly what Nomura offers and what Instinet offers. We appreciate Instinet as an agency only broker and when the team came to Instinet it didn't bring anything involving proprietary trading.

Abenante: Instinet has a very broad swath of clients from hedge funds to traditional asset managers. And as we looked at the complementary relationships it was amazing. We've increased our penetration and wallet share with some very large institutions here because of the some of the relationships.

It's all about best execution but how do you improve that? At the end of the day we need to traffic in being more intelligent around our trading by layering in more research and mathematics into the great distribution footprint and liquidity pool we have here.

AT: When will the new algorithms for multi-asset trading be available and what will they cover?

Abenante: It's hard to say when exactly because the globalization side is job number one now. We are going through the globalization process so we can generalize at the same time and put them together. We'll be taking the infrastructure and having a practical application available in Europe and Asia first for cash equities. We hope to have all that done by the end of the year. So I would expect it would be a 2009 initiative that would look at multi-asset algorithms. I think it's a great growth opportunity for us.

The initial area of focus for us will be listed equity options and listed futures. I think its' a natural extension of our business. I posit that the listed equity options business looks a lot like the cash equity business 8 years ago with the same phenomenon around market dynamics and moving to algorithmic and direct access.

AT: Chi-X Europe, the pan-European multi-lateral trading facility and Instinet subsidiary launched last year, has been gaining momentum and volume. What do you see happening going forward in the European MTF/ATS space?

Abenante: I think the backdrop in Europe with MiFID gave our firm a unique opportunity. There have been other attempts by ATS' gain traction but we clearly have an operating expertise in the space. There are plenty of people moving into that space now. We never expected to be the only one in the space, but we benefited from being first mover so our hope is there will be some stickiness to liquidity. With that said we're not resting on our laurels. We continue to work on the underlying technology, the matching engine, getting more efficiencies and continuing to reduce latency.

We've also launched Chi-X Global and Chi-X Canada is in a soft launch there and we've seen some decent market share growth. We think that the Canadian market has great growth opportunity. I think there are inefficiencies in that market that make a facility like Chi-X attractive. It will allow some of the high frequency traders there to run models there that they haven't been able to in the past.

We've also filed paperwork to launch Chi-X ATS in Australia and we're waiting for comment. We think in the Asian area we think that will be the first market that will set precedence from a regulatory standpoint and we're hoping some of the other Asian markets will take that lead.

AT:Do the ATS' leverage the same technology?

Abenante: Yes the majority of the technology base will be the same, then given the microstructure issues in each of those markets, there will be some additional code. We think that's an operating advantage. We developed the platform from the ground up with the idea it would be a global matching engine.

AT: How do you work to bring down latency?

Abenante: Our software engineers are constantly working to optimize the code and achieve performance gains. We've seen continued improvement but we'll also continue to re-optimize the model we have.

Beyond latency, capacity is a huge thing people are focusing on. It's one of Chi-X's key positions and latency and capacity definitely go hand in hand. Ultimately the whole idea is to continue to increase throughput. As we want to add other features into he exchange we're careful not to do anything to the core-matching engine. It has been designed to provide a very efficient processing environment.so when we do other things such as add-ons; we have to be cognizant of what the performance is going to be.

Instinet's co-CEOs on the trading floor

AT:Are there any new features you're working on for Chi-X Europe?

Abenante: The routing piece will be very important, we don't run the smart order router in Chi-X Europe right now. We're in the process of merging that code into what we've done in Canada. That will be a huge new feature. Part of how successful you are depends on the having the makers and takers. How do you get people to make? One way is to ensure they won't have stock trade around them. So having a router that allows you to post flow on a new fledgling exchange is a very powerful tool. It allows you to say if I see a better price in a different market I can go out there and do it. That will be a very significant add-on to Chi-X Europe. We're working on that and expect it will be done sometime this year.

AT: Do you think the volume in dark pools will continue to grow?

Abenante: Ultimately I don't think the market is going to go 30 or 40 percent dark unless you have substantial amount of market making being done by the bulge bracket guys putting prop flow in the dark pool. I think what's going to happen is that people get smarter and smarter in understanding the cost of trade. We build TCA tools and we'll continue to evolve in that space. Especially when markets aren't like they were in bull markets people become more aware of the cost of implementing ideas.

AT: How exactly do you see TCA evolving?

Abenante: The important thing about TCA is maintaining a consistent approach. So whether you think the methodology is flawed and I think you could argue any of the market impact estimators people use and incorporate into TCA has some flaw. It's hard when you get over a certain threshold say 100 percent of a mid cap or small cap name - how do you model that? I think to some degree a matter of maintaining a consistent approach.

Also, by brining in more risk modeling techniques into TCA side. That's something we're focusing on— giving our clients more real time feedback as to what their trades are doing. When we give pre-trade feedback obviously its based on historical data and we don't know what the market is going to do that day so it's static. What we're building now—we're calling it Instinet Insight— is a full analysis suite of pre and post and also intra trade analytics.

When you look at portfolio trading typically its the tails that kill youthose two or three sigma trades that kill you. Our thoughts are let's give people information earlier in the day not at 4:15. We'll give you the tool kit to see what's happening and our sales traders will have it as well to provide better color. Part of Instinet Insight will be a Web-based product where users can look at how trades are doing within each of their algos, giving them real feedback to perhaps the opportunity to change tactics. I think people will focus on intra trade as the next cycle of TCA evolution.

Instinet Insight is used internally right now, but we hope towards the end of the summer to be pushing it harder. We have some integration into our Newport EMS. A richer set of features will exist on an application that will then communicate with Newport. We're focusing on Web-based technology, the delivery is much more simple.