In Japan, specifically, that translates into a proprietary methodology we use in NX Pool to measure the liquidity quality, looking at the ‘price trajectory’, sometimes called ‘mark outs’ or ‘reversion’, around a match in the pool. Each market handles the management of counterparty types slightly differently, in response to the local market microstructure and other factors. Each pool, whether broker or exchange owned, must publish their governance and operations rulebooks, so this information is available.įor the suite of APAC venues operated by Nomura and Instinet 1, our governance principles focus on offering a better experience, unique liquidity, and an alternative to the primary exchange. Most dark pools match within the bid / ask of the primary exchange, as a general rule. Historically, dark pools have been marketed as venues where the order book is invisible, so they are useful for not signaling a trader’s intentions, thus reducing the risks of trading impact on the stock price, and helping realize spread savings by executing at the midpoint. Why do traders interact in dark pools? And what is the optimal way of interacting with that alternative liquidity? The following Q&A with Firas Hadj-Taieb, Global Co-Head of Quant Trading Strategy & Research for the GES team at Nomura, examines this trend in more detail. While each market has its own story to tell, and is evolving at its own pace, there are some common themes. How do each of the venues execute, how do their platforms and participants behave, and what are the best ways to interact with those venues on a very specific ‘case-by-case basis’? Whilst the APAC region does not have the vast, potentially confusing array of alternative venues and fragmentation found in other regions, Nomura and Instinet tell GlobalTrading that they have seen a marked rise in lit and dark pool trading in the region, especially in Japan, Australia, and Hong Kong. They say there is a fourth key factor to add to the equation: Venue Analysis. Nomura and Instinet, however, working together under an umbrella they call Global Execution Services (GES), believe that the market should focus on a quartet now, rather than a triad. Execution providers must invest in technology and conduct continuous, data-intensive research, to ensure that the triad of ‘Price, Volume, and Time’, and the way algos address that triad, is perpetually reviewed and adapted.

Mature algorithmic trading strategies and technology that leverages machine learning and artificial intelligence is more democratized, so predicting fair value and volumes, and optimizing the pace of order management are more nuanced than ever. In today’s dynamic and changing trading environment, there remains one constant objective: to continuously seek improvement of execution performance for investors. With Firas Hadj-Taieb, Global Co-Head of Quant Trading Strategy for GES, Nomura

Swimming in the dark