Instinet

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Instinet Incorporated
INSTINET logo 323.gif
Founded 1969
Key People Jonathan Kellner, CEO; Richard Parsons, CEO, Instinet Europe
Products Agency Brokerage, Electronic trading
Website www.Instinet.com

Instinet, owned by owned by Nomura Holdings Inc., is an institutional, agency-only broker. Instinet provides access to hundreds of multi-asset liquidity venues -– including stock exchanges, alternative trading platforms and its own liquidity pools -– in more than 40 countries.[1] Its global trading platform includes algorithms, routing functionality, transaction analytics and other trading tools and can be reached through Instinet's proprietary front ends, its sales traders or selected third-party systems.

Instinet acts solely as an agent for more than 1,500 clients around the world, with the goal of lowering overall trading costs. In addition to its electronic trading suite, Instinet also offers commission management programs, access to third-party, independent research and the Meet the Street corporate access platform.

Separately, Instinet also operates the Chi-X Global platforms, which include Chi-X Canada and Chi-X Japan, and soon, Chi-X Australia and Chi-East. Instinet launched Chi-X Europe in 2007, and subsequently sold off equity stakes in the platform to 19 other financial institutions. Chi-X Europe is today independently operated, with Instinet the largest shareholder in its ownership consortium.

Products and Services

Front End Technology

Instinet offers several front end trading platforms. Its flagship platform is Newport 3, a multi-asset, broker-neutral execution management system. In July 2010, Instinet was named the “Best Execution Management System Provider” by Waters Magazine for Newport 3, which is also used by the firm’s sales traders around the world.[2] Newport allows users customize trading strategies, execute across global destinations, monitor progress and analyze performance. In addition to Newport, Instinet offers Trading Portal and TOP (previously offered by TORC Financial, which Instinet acquired in August 2009.[3]) in the U.S. and Instinet Advance in Europe

Alternative Trading Platforms

Instinet offers 12 alternative liquidity pools around the world. These include:

Americas

  • Instinet CBX: A continuous, fully dark dark pool; no IOIs or orders routed from it.
  • Instinet BLX: A dark pool model that initiates point-in-time crosses within a continuous crossing framework. BLX aggregates buy/sell orders in a stock and triggers a passive cross when matchable volume grows to specified size.
  • Instinet Crossing: Comprised of 11 daily point-in-time crossing matches, including a pre-market VWAP cross and an after market cross.
  • Options CBX: A fully dark pool for US listed options. Once a match is made, Instinet’s smart order router will seek the options exchange on which it is most likely complete the largest percentage of the order based on Exchange's BBO (best bid or offer), resting liquidity and historical data.

Europe

  • BlockMatch: Constituted as an MTF (not systematic internalizer), BlockMatch is a continuous dark pool for European equities.
  • BlockMatch Closing Cross: Continuous cross for European equities operating from 1640-1700 UK time; executions priced at the primary exchange's closing auction price.

Asia

  • CBX ASIA: A continuous dark/lit pool for Hong Kong and Japanese equities.
  • CBX ASIA HK Closing Cross – Continuous cross for HK equities, with executions re-priced to the market closing price after the close.
  • JapanCrossing – Comprised of three daily point-in-time matches for Japanese equities; includes a pre-open VWAP cross plus matches at closing price of AM and PM sessions of primary exchange.
  • KoreaCross -- First and only independent matching system for Korean equities; includes a pre-open VWAP cross.

Algorithms

Available globally, Instinet’s Execution Experts are event-driven, multi-asset algorithmic trading strategies. Originally developed by Nomura’s US equities group, the Experts were incorporated into Instinet’s algo framework following the combination of Instinet and Nomura’s US equities groups in late 2007.

Analytics

Instinet’s Insight is a global, broker-neutral analytics suite for pre-, real-time and post-trade analysis. The platform is fully integrated within Instinet’s Newport 3 EMS.

Sales Trading

Instinet offers anonymous, agency-only sales and portfolio trading from 13 trading desks around the world.

Commission Management

Instinet’s CSA/CCA programs are available to clients globally, primarily through its Plazma commission management platform. In August 2010, Instinet was found by Integrity Research Associates to be the most widely accepted CSA provider, and was also named the #1 Global, European and Asian CSA provider[4].

Independent Research

Through its Instinet Access program, Instinet provides exclusive access to seven independent research providers in the US. Globally, clients are able to pay hundreds of IRPs through Instinet’s CSA programs.

Meet the Street

Launched in 2010, Meet the Street is a web-based platform that matches corporate management teams with interested institutional investors. The platform aims to remove the inherent conflict with the traditional model, since the sell side representatives coordinating the meetings typically view heavy trading clients as the ideal customer, whereas the corporate management team would prefer a buy and hold investor.

Firm 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 Exchange by means of computer links between major institutions such as banks, mutual funds, and insurance companies, with no delays or intervening specialists.[5] 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.

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 stock market 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. Reuters, 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.

Under Reuters, the Instinet platform continued to grow through the late 1980s and into the early 1990s. By the time that the SEC introduced the Order Handling Rules and Regulation ATS 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 Instinet missteps that included over-aggressive expansion, lavish spending and technological stagnation, had managed to significantly erode the firm’s market share[6]. As a result, Instinet in 2002 merged with the Island ECN, renaming the Island technology platform INET.

In 2005, Instinet was acquired by NASDAQ. Nasdaq retained the INET ECN, but given the restriction on exchanges owning broker-dealers, Nasdaq sold Instinet’s agency brokerage business to Silver Lake Partners in a simultaneous transaction. 14 months later, Nomura purchased the firm from Silver Lake in February 2007 for a reported $1.2 billion[7]. Instinet is today operated as independent subsidiary of Nomura and run by co-CEOs Anthony Abenante and Fumiki Kondo. 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[8].

In its 40 year history, Instinet is credited with several electronic trading innovations.[9] In addition to launching one of the first electronic trading platforms in 1969, Instinet developed:

  • 1980: First direct market access system
  • 1986: First after market crossing system
  • 1993: Instinet OMS, one of the first modern EMS platforms
  • 1999: Instinet Helix, one of the first market routing platforms
  • 2007: Chi-X Europe, the first and largest European multilateral trading facility, which is now owned by a consortium of financial institutions

Key People

References

  1. Instinet's Global Market Access. Instinet.
  2. Press Release: Instinet Named “Best EMS Provider” by Readers of Waters Magazine. Instinet.
  3. Press Release: Instinet Agrees to Acquire TORC Financial, LLC. Instinet.
  4. Press Release: Instinet Most Widely Accepted CSA Provider, According to Integrity Research Buyside Survey. Instinet.
  5. Computer Net to Eliminate Broker Commissions Eyed. Miami Herald.
  6. Back From the Brink. Institutional Investor.
  7. Nomura to Buy Instinet. Financial News.
  8. Instinet: 40 Years and Counting. Instinet.
  9. Instinet Timeline. Instinet.