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What is Instinet?

Deanira Bong
Deanira Bong

Instinet is an electronic communication network that facilitates trading by allowing traders and investors to display bid and offer quotes for stocks and conduct trading. It also lets them use brokers' services to conduct securities transactions. Using electronic trading products, Instinet also offers brokerage services such as sales trading, transaction analysis, commission management and access to research material provided by third parties.

Instinet's clients include mutual funds, insurance companies, pension funds and other institutional investors. The network allows investors that want to buy or sell securities to advertise trading interest on its system, then lets them trade directly and anonymously with one another. This helps institutional investors avoid paying brokerage commissions, lowering their overall execution costs. Investors can also choose to use brokers to place orders on securities on all U.S. exchanges and some non-U.S. exchanges, including those without automated trading systems. Unlike traditional brokerage houses, Instinet does not trade stock for its own account and is no competition for its clients.

Man climbing a rope
Man climbing a rope

The birth of Institutional Networks in 1969 marked the first time that U.S. institutions used an automated electronic system to conduct direct trading with one another. It also created the "green screen" — the first U.S. quote montage that contained stocks listed on the New York Stock Exchange (NYSE). Institutional Networks also created what is probably the first direct market access system that allowed institutional investors to directly access U.S. exchanges. After changing its name to Instinet in 1985, the company continued to make drastic improvements to the way people trade. For example, it launched the first U.S. point-in-time cross that conducted a nightly after-hours match at the market closing price, and it set up one of the first modern execution management systems for equity trading.

The company has changed ownership a few times over the years. Reuters Holdings bought Instinet in 1987 and offered 15 percent of its shares on NASDAQ under the symbol "INET" in 2001. Silver Lake Partners, a private equity group, bought Instinet in 2005, and Nomura Holdings bought it in 2007. Instinet has also bought other companies, such as TORC Financial and ECN Island, which it then sold to NASDAQ.

Instinet was headquartered in New York in 2010 with subsidiaries in several locations in the U.S., Canada, Europe, Japan, Hong Kong, Singapore and Australia. It regularly ranks among the world's best brokerages, receiving nine awards in 2009 alone. It received awards for technology, brokerage, execution quality and commission management from financial media outlets and financial research associations.

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