Instinet - The First Electronic Communication Network
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Case Details:
Case Code : ITSY018
Case Length : 08 Pages
Period : 1987-2001
Pub Date : 2002
Teaching Note : Available
Organization : Instinet
Industry : Electronic Communication Countries : USA
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Excerpts
Background Note
Instinet, then known as Institutional Networks
Corporation, was founded in 1969 in the US, and it pioneered the
concept of electronic stock trading. Initially, Instinet ECN was
designed to enable institutional money managers to trade in listed
stocks directly with each other with the objective of reducing the
trading or transaction costs...
ECN: The Virtual Stock Exchange
An ECN is an electronic trading system that matches customer
buy and sell orders with direct electronic access. With the influx of new
technologies, markets around the world seemed to be undergoing a rapid
transformation.
Innovations in networking technology and the growing popularity
of the Internet has led to a boom in the ECN market. In 2000, ECNs accounted for
about 30% of the total share volume in Nasdaq stocks and 3% of exchange-listed
stocks... |
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Instinet - A Hybrid Trading Model
Instinet offered two different trading options - a standard crossing
arrangement and a continuous trading system (Refer Figure I). There was a
central order book in which investors entered orders. The book was
accessible through Instinet's proprietary terminal, supplied free of cost to
brokers and institutional investors. Instinet's trading system was different
from other ECNs in that it did not offer automated matching facility. It
offered an interface which enabled investors to view different trading
interests and negotiate electronically...
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The Future of Instinet
By late 1990s, competition in the ECN market had
intensified. By early 1999, there were 9 ECNs registered with the SEC
and Nasdaq. These new entrants gave a tough competition to Instinet.
Instinet's competitors like Island and Archipelago took advantage of the
latest networking technologies and reduced transaction costs and
attracted more order flow. Moreover, competition in Nasdaq trading also
increased.
Therefore, Instinet was looking at other markets to increase order flow.
It was collaborating with other ECNs, expanding services, and to enter
international markets... |
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