A Message to Foreign Exchange Clients of Nomura: Disclosure of FX Practices and Terms and Conditions of FX Dealing
The following disclosure is made by the Global Foreign Exchange Business Line of Nomura, hereinafter "Nomura", to set out how Nomura operates and engages with its clients in the wholesale foreign exchange market. It contains important information, including but not limited to information about the treatment of orders, conflicts of interest and client communications. You should read and understand this disclosure. To the extent you continue to enter into spot, forward, swap and/or FX option transactions (collectively "FX Transactions") with Nomura, it will be on the basis that you have done so. This disclosure is part of the terms and conditions on which you agree to transact with Nomura. For the avoidance of doubt, this disclosure does not apply to exchange traded funds or similar securities, listed derivatives traded on an agency basis, or any brokerage or clearing service directly or indirectly provided by Nomura.
Role as Principal
For FX Transactions:
- Nomura acts solely as principal;
- In respect of price discovery, price quoting, order taking (as applicable) and trade execution, unless expressly agreed in writing, Nomura acts in an arm's-length role in relation to its clients and does not act as agent, fiduciary or in any advisory capacity (nor does it undertake or perform any duties attributable to such capacity);
- Communications by Nomura are not intended to and should not be construed nor inferred as recommendations or advice; and
- Clients should independently evaluate the terms, conditions and appropriateness of any transaction based upon their own understanding, goals and circumstances.
Nomura may act as a market maker for a portfolio of positions for multiple clients' competing interests, as well as its own. Such market making may include managing risk, sourcing liquidity and other activities of a market maker. It may also include execution on a systematic, automated basis through the use of algorithms or other execution methodologies and it may trade prior to or alongside a client's transaction.
Such market making activity can have an impact on the price Nomura offers and the liquidity at levels necessary to execute a transaction. It may also trigger stop loss orders, barriers, knock-outs, knock-ins and similar conditions and may affect the market price of the relevant or related instruments and a particular event or reference price may be impacted. Nomura will not deliberately carry out market making activity with the intention of harming client interests and will endeavour to minimise any market impact. Nomura may realise a profit, or equally, a loss, in connection with market making activity.
In order to manage risks to which Nomura may be exposed should a transaction subsequently be executed, either on a standalone or portfolio basis, Nomura may pre-hedge such risks in the market either on a principal basis or by placing orders in the market for the relevant financial instruments. Nomura may also unwind or adjust hedge positions on an on-going basis. Such pre-hedging activity may contribute to market movements that could adversely affect a counterparty's interests in the transaction.
Such pre-hedging activity may have an impact on the price Nomura offers and liquidity at levels necessary to execute a transaction. It may also trigger stop loss orders, barriers, knock-outs, knock-ins and similar conditions and may affect the market price of the relevant or related instruments and a particular event or reference price may be impacted. Nomura will not deliberately enter into pre-hedging transactions with the intention of harming counterparty interests and will endeavour to minimise any market impact. Nomura may realise a profit, or equally, a loss, in connection with pre-hedging activity.
FX Transaction Requests and Execution
Nomura seeks to ensure that orders are appropriately time-stamped. Orders received by voice or manually, will be stamped as soon as practicable. Orders received by electronic platforms or application programming interfaces will be time stamped at time of receipt and again at time of acceptance. Amendments and cancellation instructions will be time stamped when received, at the point they are triggered and at the time of execution.
Nomura's receipt or acceptance of an order and or any indication that Nomura provides to a client that Nomura is "working" on trade execution with that client, is an indication that Nomura is willing (but not obligated) to enter into all or a portion of a trade at the price requested by the client.
Unless otherwise expressly indicated by Nomura, any price or quotation provided by Nomura is solely indicative. Quotations on a trading venue provided by Nomura are not necessarily prevailing market rates at the time of transaction and may be changed according to prevailing market rates. A quotation on a trading venue provided by Nomura does not mean a benchmark. Where Nomura accepts an order, Nomura is merely indicating willingness to attempt to enter into the trade at the specified price. Nomura may follow a client's instructions in deciding whether and how to execute an order and shall continue to act solely as principal. Nomura will reasonably determine, based upon prevailing market conditions and competing requests, the timing, venue and manner of execution of an order as well as the size of any fill. Nomura shall not otherwise use any discretion unless and to the extent specifically indicated in a client's instructions. Nomura will not, unless specifically agreed, act as agent of the client.
Nomura will ensure that client orders are executed in a prompt, fair and expeditious manner, relative to other orders and/or to the trading interests of Nomura. When aggregating client or own account orders with other client orders the effect of aggregation may work to the disadvantage of the client in relation to a particular order, but no client within the aggregated pool will be favoured in terms of price and quantity and as such allocations will be effected on a pro- rata basis at the same price. Where clients' orders have been aggregated with Nomura's own account order and the total order cannot be completed, the client order will be completed first. Where Nomura is not able to execute all or a portion of an order, Nomura will communicate this as soon as practicable.
In certain FX markets, Nomura may utilize a number of internally developed tools designed to access both external and internal sources of liquidity in order for Nomura, acting as principal, to provide what Nomura deems to be the most favorable bids and offers and executions reasonably available under the circumstances. These tools may include algorithms, internalization engines and/or smart order routers that route full or partial orders to various external liquidity sources, including certain trading venues that electronically provide information to Nomura regarding their available and accessible liquidity. Nomura may benefit from reduced transaction costs when executing through certain internal or external trading venues and may receive other benefits as a result of other interests in the venue. In addition, all or a portion of a client's order may be filled by internal sources of liquidity rather than any external trading venues. To the extent Nomura executes an FX Transaction through internal sources of liquidity and that liquidity is sourced from another client, Nomura may also receive additional compensation and fees.
The level at which an FX Transaction is executed may be inclusive of what Nomura considers to be a reasonable bid-ask spread that includes a markup above the price at which Nomura may transact, or has transacted, with other clients, in addition to any disclosed fees that may be charged to access particular sources of liquidity. In all cases, Nomura's handling of orders will depend on the ability of Nomura to access liquidity (such as in the case of "market" or "at best" orders) or liquidity at the relevant or better price (such as in the case of "limit" orders). In addition, as the level at which Nomura seeks to execute an FX Transaction will likely include a bid-ask spread and/or markup as described above, the determination of an "all-in" price may impact whether or the extent to which the terms of a client's instruction or order have been met.
Market Orders may also be subject to priorities and/or aggregation which Nomura determines may result in either Nomura's trade with a client or other client trades being executed ahead of, or alongside, any trades Nomura executes with that client, which may impact the price of that client's transactions, the timing of execution and/or the amount of that client's fill. There may also be inherent latencies at both internal and external venues that result in delays between the time Nomura receives a client's request and the time of execution of the FX Transaction. In particular, please see the discussion of electronic trading below. These latencies and Nomura's risk management practices may impact whether Nomura is able to execute all or a portion of a client's Market Order and the price at which it may be executed.
Pricing, Mark-ups and Fees
The price of any FX Transaction that Nomura executes may include what Nomura believes to be a reasonable bid-ask spread and/or markup, allowing Nomura to earn an appropriate return for its activities. Such mark-up may be reflected in a bid-offer spread or as an additional charge above a price sourced by Nomura externally or internally. In determining the bid-ask spread and/or markup on any trade, Nomura may take into account a number of factors. Appendix A describes a number of these key factors. This list of factors is not exhaustive and other factors may impact pricing. Nomura may also be compensated in the form of a fee agreed with the client.
Nomura may offer different services to different clients for the same or similar type of transaction and, as a result, the factors applicable for each transaction may differ and different prices may apply to different clients for the same type of transaction. Consequently, Nomura may transact with another client at a price different than the original bid, offer or order and may also earn compensation (such as markup from such other client) in connection with fulfilling any such bid, offer or Market Order in addition to any designated spread or fee and need not disclose that compensation to the client.
From time to time Nomura may enter into a contract with a counterparty to execute a transaction at a rate calculated by a third-party (such as WM/R) based on trading during a specified time of day (commonly referred to as the "Fixing Window"). Risk management related to such transactions may lead Nomura to execute hedging transactions before, during or after the Fixing Window. Although such hedging activities, as well as unrelated transactions and other ordinary course of business activities executed by Nomura prior to and during the Fixing Window, or at other times, are not undertaken with the intention of impacting the benchmark fixing or related markets, this activity may have such an unintended effect in certain cases.
Nomura engages in other ordinary course of business activities that may impact a benchmark rate, including sourcing liquidity for other Market Orders that are unrelated to a benchmark fixing, or acting as a market maker or engaging in risk management activities. Such activities may cause Nomura to execute unrelated FX transactions during a Fixing Window or at other times that may impact transactions relating to a benchmark fixing.
In some cases, the terms of an FX Transaction may provide that the value of an exchange rate or fallback exchange rate is to be determined based on a dealer poll. Nomura may be requested to provide quotations from time to time in such dealer polls. Any such quotations may affect, materially or otherwise, the settlement of FX transactions. If Nomura provides such quotations and also acts as principal in foreign exchange transactions that refer to the corresponding exchange rate, then it faces an inherent conflict of interest, which will be managed through the relevant policies, procedures and other controls Nomura has in place to mitigate these conflicts and enhance the integrity of its submitted dealer poll quotations.
When a client submits a Market Order on any electronic trading venue, Nomura follows the procedures applicable to the Market Order on the platform specified by the client. Certain third-party platforms, as well as any electronic trading platform hosted or operated by Nomura involving streamed pricing or requests for quotes, may subject Market Order to pre-trade checks performed by Nomura to determine whether or not Nomura will accept the Market Order. These pre-trade checks, which may delay acceptance or rejection of a request to trade, are commonly referred to as "last look" when they are applied to indicative quotes. Please see the information for Electronic FX clients on the Nomura website here: https://www.nomuranow.com/disclosures/
Handling of Client Information
Protecting the confidentiality and security of client information is an important part of how Nomura conducts its business. Nomura has internal policies, procedures and controls in place that are designed to protect a client's confidential information, both internally (on a "need to know" basis) and externally as well as to adhere to and abide by any applicable regional laws, rules and regulations regarding the handling of client information. There may be instances where Nomura makes use of client information. In instances where this occurs, Nomura exercises care in limiting the sharing and use of such information only for the intended purpose.
Nomura may make use of some information contained in requests and executed transactions in order to effectuate and risk manage the transactions, as well as for portfolio and inventory risk management purposes and, with respect to executed transactions, to provide "market color" and develop trade ideas as may be appropriate. With regard to executed transactions, Nomura may analyze this information on an individual and aggregate basis for a variety of purposes, including counterparty, portfolio and inventory risk management, sales coverage, and client relationship management. In addition, Nomura may analyze, comment on and disseminate anonymized and aggregated information regarding executed transactions, as well as requests that may be away from the current market, together with other available information regarding various markets, internally and to clients as part of its general market color, commentary and trade ideas. Market color and commentary are not objective or independent, and may not be subject to the same controls as research. Neither market color nor commentary are advice and should not be relied on as such by a client.
In addition, Nomura may use the economic terms of a transaction request (but not the client identity) to test liquidity and/or execute trades with one or more third parties (including interdealer brokers) in order to source liquidity. Nomura may also use the economic terms of various transactions (including market, liquidity and credit risks) on an individual, portfolio, or other basis to evaluate and execute risk-mitigating transactions. Nomura also may from time to time, and depending upon the circumstances, use one or more third-party service providers to service a client account or facilitate completion of a transaction, and such agents may require certain information in order to accomplish execution and settlement. In addition, as part of its obligations as a regulated entity, Nomura may also share client information as requested or required by applicable global regulators.
Nomura may from time to time, and depending on the circumstances, use third-party service providers in serving client accounts. Nomura may share confidential information with these service providers. Nomura will secure the agreement of service providers to maintain the confidentiality of confidential information and take precautions to determine that they have appropriate procedures in place to prevent the unauthorized release of confidential information to others.
Nomura is dedicated to upholding a high level of integrity and adhering to published industry best practices in its dealings with its clients. This includes relying on the apparent authority of a client's personnel with respect to Market Orders and the execution of any trades. This disclosure is intended to underscore the commitment of Nomura to providing clients with more transparency regarding its business practices. If a client has questions after reading this disclosure or its dealings with Nomura, the client is encouraged to contact its representative at Nomura.
FX Trading Practices and Information Annex A - Pricing Factors
Factors that Nomura takes into account for determining bid-ask spread and/or markup typically include those set out below. This list is not exhaustive and Nomura may take into account other factors that it considers appropriate in determining bid-ask spread and/or markup. Pricing factors include the following:
- A.The type of product, transaction and market in which the product would be traded, such as:
- (i)the trading venue (e.g., single dealer or third party electronic or voice trading platform or exchange);
- (ii)the type of Market Order (e.g., expression of interest or order, and terms of such request, including "stop loss," "at best" or "limit");
- (iii)whether the trade is deliverable or non-deliverable;
- (iv)whether the underlying currency is located in a closed-market or open-market jurisdiction;
- (v)the size, type, complexity and direction of the transaction;
- (vi)market conditions, including market events, volatility and time of execution;
- (vii)transparency of the market, including visible liquidity, trading volume and available external venues or platforms; and
- (viii)the accessibility of third party quotations and other pricing information;
- B.Internal costs such as counterparty credit risk, hedging and market risk to Nomura, funding, capital and overhead;
- C.Services requested by the client in connection with the related Market Order;
- D.Client-specific factors, such as: the volume, types of trades and frequency/velocity of trading the client executes both with Nomura and in the market; credit quality; and potential market impact; and
- E.Applicable regulatory requirements.