Instinet
Encyclopedia
Instinet is an institutional, agency-only broker. As such, it executes trades for roughly 1,500 “buyside” clients such as asset management firms, hedge funds, insurance companies, mutual funds and pension funds. Headquartered in New York and with offices in 13 other cities around the world, Instinet provides sales trading services and a range of trading technologies such as the Newport EMS, algorithms, trade cost analytics, commission management, independent research and dark pools of liquidity.
To many, Instinet is best known as one of the original off-exchange trading alternatives, as its “green screen” terminals were extremely prevalent in the 1980s and 1990s, and, more recently, as the founder of Chi-X Europe and Chi-X Global
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by means of computer links between major institutions, such as banks, mutual funds, and insurance companies, with no delays or intervening specialists. Through the Instinet system, which went live in December 1969, the company provided computer services and a communications network for the automated buying and selling of equity securities on an anonymous, confidential basis.
Uptake of the platform was slow through the 1970s, and in 1983 Instinet turned to Bill Lupien, a former Pacific Stock Exchange specialist, to run the company. Lupien decided to market the system more aggressively to the broker community, rather than focus exclusively on the buyside as his predecessors had.
, which in 1985 had acquired a portion of the firm, acquired the entire business in May 1987, though under the deal Instinet would remain an independent, New York-based subsidiary. Lupien and COO Murray Finebaum would resign shortly thereafter.
(ATS) regulation in the late 1990s, Instinet was the dominant electronic communications network. However, these rules also gave rise to a new crop of technologically savvy competitors, some of whom employed radical new pricing schemes. By the early 2000s, these competitors, helped by missteps at Instinet that included over-aggressive expansion, lavish spending and technological stagnation, had managed to significantly erode the firm’s market share. As a result, Instinet in 2002 merged with the Island ECN, renaming the Island technology platform Inet
.
in 2005, in which Nasdaq retained the INET ECN
and subsequently sold the agency brokerage business to Silver Lake Partners
.
purchased the firm from Silver Lake for a reported $1.2 billion. Instinet is today operated as independent subsidiary of Nomura and run by CEO Anthony Abenante. In December 2009, in commemoration of its 40th anniversary, Instinet partnered with the Make-a-Wish Foundation
to grant the wishes of 40 children with life-threatening illnesses.
s in 1969, Instinet developed:
To many, Instinet is best known as one of the original off-exchange trading alternatives, as its “green screen” terminals were extremely prevalent in the 1980s and 1990s, and, more recently, as the founder of Chi-X Europe and Chi-X Global
Chi-X Global
Chi-X Global is a global, consortium-backed operator of alternative equity trading venues that compete with primary exchanges. Chi-X Global operates Chi-X Australia, Chi-X Canada, Chi-X Japan, Chi-East and the Chi-Tech technology unit.Originally launched by Nomura Holdings subsidiary Instinet,...
.
Early history
Instinet was founded by Jerome M. Pustilnik and Herbert R. Behrens and was incorporated in 1967 as Institutional Networks Corp. The founders aimed to compete with the New York Stock ExchangeNew York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
by means of computer links between major institutions, such as banks, mutual funds, and insurance companies, with no delays or intervening specialists. Through the Instinet system, which went live in December 1969, the company provided computer services and a communications network for the automated buying and selling of equity securities on an anonymous, confidential basis.
Uptake of the platform was slow through the 1970s, and in 1983 Instinet turned to Bill Lupien, a former Pacific Stock Exchange specialist, to run the company. Lupien decided to market the system more aggressively to the broker community, rather than focus exclusively on the buyside as his predecessors had.
Reuters Acquisition
As a result of Lupien’s refocusing of Instinet (which the business was renamed in 1985), the firm grew rapidly in the mid-1980s. For many institutions, the Crash of 1987 demonstrated the usefulness of the electronic trading system since many brokers and market makers were unwilling to answer their phones during the freefall. ReutersReuters
Reuters is a news agency headquartered in New York City. Until 2008 the Reuters news agency formed part of a British independent company, Reuters Group plc, which was also a provider of financial market data...
, which in 1985 had acquired a portion of the firm, acquired the entire business in May 1987, though under the deal Instinet would remain an independent, New York-based subsidiary. Lupien and COO Murray Finebaum would resign shortly thereafter.
Alternative Trading Systems regulations
Under Reuters, the Instinet platform continued to grow through the late 1980s and into the early 1990s. By the time that the U.S. Securities and Exchange Commission introduced the Order Handling Rules and Alternative Trading SystemsAlternative Trading Systems
Alternative Trading Systems , are United States Securities and Exchange Commission approved non-exchange trading venues specifically designed to match buyers and sellers to find counterparties for transactions, instead of trading large blocks of shares on the normal exchange, a practice that can...
(ATS) regulation in the late 1990s, Instinet was the dominant electronic communications network. However, these rules also gave rise to a new crop of technologically savvy competitors, some of whom employed radical new pricing schemes. By the early 2000s, these competitors, helped by missteps at Instinet that included over-aggressive expansion, lavish spending and technological stagnation, had managed to significantly erode the firm’s market share. As a result, Instinet in 2002 merged with the Island ECN, renaming the Island technology platform Inet
Inet
Inet, previously known as Island ECN, was an electronic trading platform. It was renamed to Inet after the Island Exchange was merged with Instinet in 2002. It was acquired by NASDAQ in 2005....
.
Public listing
Reuters would go on to IPO Instinet in 2001 keeping a 62% ownership stake. It would hold this until the 2005 acquisition of Instinet by NASDAQNASDAQ
The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the second-largest stock exchange by market capitalization in the world, after the New York Stock Exchange. As of...
in 2005, in which Nasdaq retained the INET ECN
Inet
Inet, previously known as Island ECN, was an electronic trading platform. It was renamed to Inet after the Island Exchange was merged with Instinet in 2002. It was acquired by NASDAQ in 2005....
and subsequently sold the agency brokerage business to Silver Lake Partners
Silver Lake Partners
Silver Lake is a US-based private equity firm focused on leveraged buyout and growth capital investments in technology, technology-enabled and related industries...
.
Nomura Acquisition
In February 2007, NomuraNomura
Nomura Nomura Nomura (野村 (field village), 埜村 (wilderness field) is a Japanese surname. It can refer to:-Finance:*Nomura Holdings, part of the Nomura Group (also including Nomura Securities Co.)-People:*Don Nomura (born 1957), Japanese-American baseball agent...
purchased the firm from Silver Lake for a reported $1.2 billion. Instinet is today operated as independent subsidiary of Nomura and run by CEO Anthony Abenante. In December 2009, in commemoration of its 40th anniversary, Instinet partnered with the Make-a-Wish Foundation
Make-A-Wish Foundation
The Make-A-Wish Foundation is a 501 non-profit organization founded in the United States that grants wishes to children who have life-threatening medical conditions. The charity now operates in forty-seven countries around the world through thirty-six affiliate offices.The president & CEO of this...
to grant the wishes of 40 children with life-threatening illnesses.
History of Innovation
In its 40 year history, Instinet is credited with several electronic trading innovations. In addition to launching one of the first electronic trading platformElectronic trading platform
In finance, an Electronic trading platform is a computer system that can be used to place orders for financial products over a network with a financial intermediary. This includes products such as shares, bonds, currencies, commodities and derivatives with a financial intermediary, such as a...
s in 1969, Instinet developed:
- 1980: First Direct Market AccessDirect Market AccessDirect market access ' is a term used in financial markets to describe electronic trading facilities that give investors wishing to trade in financial instruments a way to interact with the order book of an exchange. Normally, trading on the order book is restricted to broker-dealers and market...
system - 1986: First after market crossing system
- 1993: Instinet OMS, one of the first modern execution management systemExecution management systemExecution management systems are software applications utilized by institutional traders designed to display market data and provide seamless access to trading destinations fast for the purpose of transacting orders. They contain broker provided and independent algorithms, global market data and...
(EMS) platforms - 1999: Instinet Helix, one of the first market routing platforms
- 2007: Chi-X Europe, the first and largest European multilateral trading facilityMultilateral Trading FacilityA Multilateral Trading Facility is a specific type of European financial trading system. The concept was introduced within the Markets in Financial Instruments Directive , a European financial law, and describes a trading venue that brings together buyers and sellers in a non-discretionary way...
, which is now owned by a consortium of financial institutions, including Instinet, and is in the process of being acquired by BATS Global Markets - 2008: Chi-X GlobalChi-X GlobalChi-X Global is a global, consortium-backed operator of alternative equity trading venues that compete with primary exchanges. Chi-X Global operates Chi-X Australia, Chi-X Canada, Chi-X Japan, Chi-East and the Chi-Tech technology unit.Originally launched by Nomura Holdings subsidiary Instinet,...
, operator of Chi-X Australia, Chi-X Canada, Chi-X Japan and Chi-East, which is now owned by a consortium of financial institutions, including Instinet