Nomura's Drew Vaden talks to Anthony Malakian about his plans to grow Nomura Holdings and challenge the existing Wall Street heirarchy
You don’t spend more than a quarter of a century at the same firm and not develop a deep attachment to it. In his 28 years at Morgan Stanley, Drew Vaden had experienced a wild journey that brought him up through the ranks as a technologist, then as a trader, and back again to the ranks of the technologists and to upper management.
Vaden saw firsthand the blood-letting that occurred on Wall Street over the past two years. He survived, but there was something missing, something that he had lost or moved away from—that which got him out of bed in the morning and made him enjoy going to work each day.
The crisis on Wall Street was an eye-opening event for many different reasons for many different people. But for Vaden, it came down to this: He wanted to be a part of building something, growing a business. He wanted to be at the roots of an organization and help it grow.
While serving as CIO of Morgan Stanley’s institutional securities carried a significant amount of responsibility, the simple fact was that Morgan Stanley was already a powerhouse. The opportunities to truly build something new had become few and far between. It was time for a change.
“The financial industry volatility of 2007 and 2008 caused me to rethink my approach to the job,” says Vaden, sitting in a chic conference room overlooking Ground Zero in Lower Manhattan. “I had spent most of my career asking: What does the firm want and need from me? But after my former firm’s close call, and the experience of watching several other Wall Street companies be acquired or go out of business, I realized I needed there to be better short-term balance. I needed to be more focused on doing something I truly enjoyed.”
Nomura Holdings was already a giant in Asia and had significantly grown its European presence after acquiring Lehman Brothers’ equities divisions in Europe in the fallout of 2008. But in the US, Nomura’s business was in its nascence. In 2006 and into 2007 the Tokyo-headquartered firm rolled back its US presence, as it found it hard to grab market share from Wall Street’s big hitters. Then the insanity of 2008 hit. It was a whole new landscape facing the securities industry.
This was the opportunity Vaden had been looking for, but he didn’t recognize it at first. A colleague had asked him if he would be interested in speaking with the brain trust of Nomura. Vaden approached his first interview with skepticism, although he had an idea of what he wanted and it only took 15 minutes for him to realize that this was the break he had been looking for.
Vaden says that he’s come into this experience with a clearer understanding of what he wanted to get out of this new challenge. “I love building businesses, and that is why I have come to Nomura,” he says. “I’m now excited to come to work every day knowing I make a difference. That’s very exciting to me. I couldn’t have invented a better opportunity in terms of what I would like to do than my role here at Nomura.”
Not a Start-up, But Close
Nomura was looking for someone who had been there and done that when searching for the person who would lead its technology overhaul in the US. The window of opportunity wouldn’t be open forever, so the firm needed someone who could hit the ground running. Vaden was that guy, says Simon Lucocq, global CIO of Nomura.
Lucocq says that while Vaden would be put in charge of the Americas, the Morgan Stanley vet had a good understanding of the global matrix. Also important was the fact that he had a strong background in fixed income, specifically in New York. Add to that Vaden’s genial, yet direct, manner, and Lucocq says his firm felt that Vaden would be the right person to immediately fit in with the team. After about a two-and-a-half-month interviewing process, Vaden was offered the job in January this year.
“Drew’s 28 years of industry experience, together with his approach toward global management and his enthusiasm to be part of the global team clearly demonstrated he was the right person for the role,” Lucocq says. “A major part of Drew’s role is to ensure technology is well positioned to deliver and support the ongoing and increasing demands of a diverse business. The buildout of the New York franchise is an essential element of the Nomura globalization strategy.”
While Nomura Americas isn’t exactly a start-up, it only had an IT staff of about 140 at the start of 2009. Today, that count is north of 500—and growing. Vaden says that, like himself, Nomura has only hired experienced people—again, so the firm can hit the ground running.
Going forward, however, Nomura will be more active in university recruiting and training junior people. One analyst, who asked not to be identified, says that this is likely because Nomura has been aggressive in hiring senior executives and offering them “extremely” competitive contracts.
Over the past few months Nomura has raided Deutsche Bank, Barclays Capital, Credit Suisse, Wells Fargo and UBS in order to make the necessary big-name hires, which even made the pages of The Wall Street Journal and The New York Times’ “Deal Book.” So to scale back on people costs, Nomura will have to start to look to the colleges.
Mandate for Growth
While Nomura immediately became a player in Europe with the Lehman acquisition, and while it is Japan’s largest brokerage, across the Pacific it is barely a blip on the radar. And as Vaden says: “Without the US, you don’t have a credible global footprint.”
Nomura’s quick growth in Europe was solely based on its acquisition of Lehman, says Simmy Grewal, an analyst with research firm Aite Group. After purchasing Lehman’s assets, Nomura took a break and stepped away from the market for about six months in order to regroup. Grewal says this shows that the firm has patience and won’t rush toward growth at the expense of its infrastructure.
And similar to the US—where bank officials say that Nomura will be a top five company in short order—after the Lehman purchase, Nomura said it would be one of the top brokers on the London Stock Exchange (LSE) by turnover and shares traded. It did that in July 2009, according to Grewal, and is close to being a top five player in the European equities space, as well.
“They’re building up every element within the equities space, looking at electronic trading and things like that and building up every element in the European markets, and I think that is similar to what they will do in the US,” she says. “Allowing Barclays to grab Lehman’s assets in the US was probably always Nomura’s plan, since they wanted to hit the US market going from scratch and building up that way.”
Vaden’s mandate is to support the expansion of the firm’s US business. There was a tech footprint at Nomura upon his arrival, as the firm had already begun to build out its infrastructure in the second quarter of 2009, but there was still a lot left to be done.
The initial changes made were tactical. The firm first had to upgrade its datacenter capacity and create a plan to keep capacity high even as it grew. That also means not only building out application production capacity, but test capacity as well to figure out load balance on the work it is doing on the mainframe. By mid-2009, Vaden says there were only a few cycles left on Nomura’s mainframe to dedicate to development, but it has grown the IBM mainframe setup by 50 percent over the past year.
Nomura also upgraded its trading floor networks, database operations support, and increased its storage capacity. It plans to invest in products that can drive algo trading in equities and fixed income.
Globally, the firm is in the process of rationalizing its different settlement systems, as the US settlement system for cash products is unique to the US; similarly, London is unique to London, as Tokyo is to Tokyo.
Nomura has also been rolling out new systems on the application front as it has introduced new fixed-income products. It started with an upgrade to the rates trading platform, then the credit trading platform, and it is now concentrating on the electronic trading infrastructure.
On the data side, Nomura has invested in its real-time data infrastructure in order to build its electronic execution business. The firm also plans to invest a “fair amount more” in data repositories and tick data.
In the “flow businesses”—cash equities, foreign exchange (FX), corporate and government securities, and repo—Nomura has quickly gained traction, Vaden says. He adds that in all those areas where the bank has produced technology, it is up and running and performing “aggressively” against the competition. While the firm’s derivatives capabilities are solid, the volumes are still relatively modest. Yet Vaden says that he plans to invest in technology for middle- and back-office processing of derivatives trades.
Vaden believes that being a small firm is an advantage to catching the big players, simply because it can move faster to improve its infrastructure.
“As the new kid on the block, we cannot only afford to be disruptive; we have to be [disruptive],” he says. “Our advantage is we don’t have an established, old-style franchise that we are protecting. We have the ability to work with the businesses and figure out how we can use technology to win business and market share. So while other companies may have made a lot more investment historically, we are coming in at a time when we have a relative advantage from a timing perspective. I think that we have made excellent use of that opportunity, but that window is now closing.”
Gearing for Growth
Governance will also be a major focal point for Vaden and Nomura going forward. As more and more people have come through the door, the firm has had to establish a balance between providing proper security, yet not stifling these new employees who are excited at the prospect of creating something new.
In response, Nomura has introduced a series of work streams to ensure that it has clearly articulated policies, procedures that go with those policies, standards for change control and standards for incident tracking. It has also made some hires in the auditing department. Vaden says that right now the firm is in reasonably good shape for an organization that has grown this fast, and that by the end of the year it will be in a “very good place.”
While Nomura has quickly gained ground on the technology front, both Vaden and Lucocq believe that there is still much to do. Even with fewer players in the market, the ones that are still alive are arguably stronger for the experience. For example, Morgan Stanley is known as being an innovative company on the technology side of the business, especially when it comes to electronic trading, which begs the question: Can Nomura really break through to the upper echelons of Wall Street? For Vaden, the short answer is “yes.” While it may not have the breadth of technology that a Morgan Stanley has, it can introduce new things quickly, and that helps to simplify the technology.
“We still have lots of things to deliver to build out this business in order to be a top five player,” Vaden says. “We’re competing with firms that have invested billions in technology over many years. So we have a lot of work to do.
“Yet the gap isn’t as big as you might think, given the relative investments. Part of that is thanks to the leverage we got from the Lehman acquisition. And it is actually a relative advantage that we are a lot smaller—we can be incredibly focused and we can hire good talent. There is also a tremendous buzz here. Our teams are that much closer to the business. There’s less complexity to getting things done; there are fewer impediments.”
Vaden continuously points to his eclectic team as an advantage. Creating a large, new group filled with employees from different organizations is a risk; egos can get in the way and people can be stuck in their ways. But Vaden feels Nomura is creating its own culture and that by bringing all these varied ideas together, the bank is creating an environment that is exciting, where people want to come into work, pitch their ideas, and see those ideas come to life.
“It’s the great melting pot of Wall Street,” he says. “One of the things that I really like about working here is that we have talent from everywhere.”
Not Your Typical CIO
Vaden’s résumé doesn’t exactly fit the Wall Street CIO mold. He graduated from Swarthmore College, a few miles southwest of Philadelphia, with a BA in political science. Twenty-eight years ago, he started in Morgan Stanley’s technology training program. But after four years he left the so-called “geek techies” to be with the cool kids on the trading desk. He started out in OTC bond options in 1985. After a couple years as a junior trader he was sent to London to start Morgan’s European bond options desk. He spent three years in the UK before returning to take over the bond options desk in New York.
But once a techie, always a techie. While Vaden admits to greatly enjoying his time as a trader, it wasn’t what he wanted to do for the rest of his career. Trading essentially had an expiration date. So Vaden next became an IT manager covering delivery of technology to the firm’s fixed-income and then foreign exchange businesses, where he was global COO of FX trading and sales. That lasted for two years before he bounced back to fixed income as the asset class’s global CTO.
One day he walked into the office of his then-boss, Zoe Cruz—considered at the time to be the most powerful woman on Wall Street—and announced that in fixed income there were too many silos, nobody owned anything, and teams were going off in different directions. He told her that a technologist couldn’t fix that problem; it had to be a managerial solution. Cruz agreed, and gave Vaden the job of merging the cluster of small businesses.
His final position at Morgan Stanley was divisional CIO and global head of application development for institutional securities, where he oversaw an organization of 3,500 people and supported fixed income, equities, prime brokerage, investment banking, FX, commodities, research, capital markets and operations.
It was a unique trip to the top, to say the least. Even his looks don’t fit the archetypical CIO dye—he has a “GQ” style about him, although he does have his rough edges, too. On this June afternoon three of his fingers are wrapped in band-aids, injuries sustained while working on his vacation home in Maryland. Clearly Vaden’s urge to build extends outside his professional life.
DREW VADEN: FUNDAMENTAL DATA
Alternate career choice: Vaden says if he hadn’t gone into banking he would most likely have gone into mechanical or electrical engineering.
Last book read: The Big Short by Michael Lewis
Most influential person in business: “I have been extremely fortunate to work with many exceptional people in my career,” Vaden says. “But the one who had the greatest impact on me in the long run was the late Bill Cook. Bill was a Wall Street visionary who realized in the early 1980s that the management information systems (MIS) function could be transformed into a strategic business advantage.”
What keeps him awake at night: The long list of things to get done occupies his thoughts, but he says that given the hours he works, very little actually keeps him awake at night.
Favorite vacation spot: Vaden owns a house in the eastern shore of the Chesapeake Bay in Maryland.
Favorite hobbies: He enjoys waterskiing and woodworking.
Most recent gadget: A fiber optic camera. “We have an old house and needed to see what was inside the walls to plan some renovation,” Vaden says. He also recently purchased an iPad 3G.
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