Founded in 1969, Instinet Corp. was a pioneer in the electronic trading of securities. Instinet was one the first electronic communications networks (ECN), a trading network that eliminates the middle man in stock trading. Instinet facilitates trading for large institutional investors ? mutual funds, pension funds and companies that hold and trade large blocks of stock. Investors not having access to direct trading through ECNs usually pay a "spread" on their trades to their brokers. By linking buyers and sellers directly, Instinet eliminates the payment of spreads. While the spreads are only a few cents per share, the totals can add up quickly. Instinet claims it saved its user $1.2 billion on trades in 1997.

Scooped up by Rueters

Instinet operated independently until 1987, when U.K.-based Rueters Holdings purchased the company. Rueters provides financial information and news to the institutional investors Insitnet targets and to various news organizations. With Rueters help, Instinet has established and international presence. The firm has a seat on 18 exchanges, including the Nasdaq an American Exchange in the U.S. and the London, Hong Kong and Paris exchanges overseas. The overseas expansion has had its price, though. Euromoney reported that Instinet spent nearly $100 million in 1992 to expand into Europe and Asia, but that only 20% of the firm's revenues come from these markets. The remaining 80% comes mostly from Nasdaq trades; it has been estimated that Instinet executes 15%-20% of all Nasdaq trades. Since the company doesn't receive money from spreads, like brokers, they charge a per share fee, usually about $.03.

Uncertain future

Despite Instinet's growth and its alliance with a well-known firm, the company faces an uncertain future. Some securities industry analysts believe ECNs are on their last legs and will soon be replaced with for-profit exchanges. Instinet has tried to change with the times. For example, the firm purchased a 12.3% stake in Archipelago Holdings, a rival ECN that applied for full-exchange status with the Securities and Exchange Commission. Additionally, Instinet entered into an agreement with E*Trade to provide after-hours trading to E*Trade customers. "New technology has redefined the shopping habits and shopping hours everywhere, except our industry," Instinet CEO Douglas Atkin told Business 2.0. Instinet trades an estimated 20 million shares after the 4 P.M. closing bell for the NYSE and Nasdaq.

Instinet purchased institutional discount brokerage firm Lynch, Jones & Ryan Inc. in November 1999. LJR executes trades, mainly for pension funds, for about .02 per share, a significant discount from the $.054 that most traders charge. The big move, however, is still to come. In January 2000, Atkin announced that Instinet would launch a borkerage service for retail customers. The online brokerage will compete with discount firms such as Ameritrade and Instinet partner E*Trade. The service was expected to be up and running in April 2000. The price of trades has not been announced, but it is expected to be between the $9.95 charged by the cheapest of discount firms and less than the $29.95 by the more expensive brokers.

Trading in Japan