Instinet Corp., the world’s largest agency broker, Wednesday stepped back from previously stated plans to open its own online retail brokerage to compete with services from companies like E*Trade Group. Instead the Reuters Group PLC subsidiary now plans to market its equity retail trading product on a private label basis through its wholesale business.
The platform will be aimed both at existing online retail brokerage firms that want access to Instinet’s liquidity and towards financial institutions that don’t already have online brokerage services. Those institutions would use Instinet’s services on the back-end.
Instinet attributed the change in direction to current market conditions, noting that “the high costs of customer acquisition, lower levels of trading activity, slowing rate of new customer growth, and substantial declines in the value of online brokerage businesses all make the wholesale market a more attractive business model at this time.”
“As we analyze the recent developments related to the online retail brokerage sector, we believe that the most prudent way to deliver an Instinet quality service to individual investors and value to Reuters shareholders, in the current circumstances, is by deploying our retail assets on a wholesale basis,” said Douglas Atkin, chief executive officer of Instinet Corp.
Instinet’s clout in the wholesale market — accessible only to professional trading firms and financial institutions — is considerable. Founded in 1969 and acquired by Reuters in 1987, Instinet trades more than 400 million shares per day on average. It describes itself as a “pure agency” because it maintains a neutral position in all transactions.
The company spent much of the year trying to break into the retail market, first in an attempt to acquire Datek Online that fell apart over antitrust concerns, and then through the creation of its own direct retail platform. While the company has completed the platform, it will not seek to market it under the Instinet.com brand. Rather, the company said it would combine key elements of the service with existing functionality to address the retail market indirectly through the brands of other financial services and brokerage firms which wish to utilize Instinet’s execution and clearing services.
The company’s retail clearing and account managing platform has already been launched. The company said the first major wholesale customer relationship was established in October and more than 30,000 trades per day are being processed.
“Instinet’s strategy is to serve individual investors through a variety of means, including this new line of retail trading and clearing products,” said Peter Job, chief executive officer of Reuters. “We already have a successful wholesale model in the Reuters Group supplying packaged solutions of content and technology to a range of broking clients through Reuters Investor services. Instinet will take this further by providing the complete package including execution and clearing.”
As many as 75 Instinet.com employees have reportedly been laid off as a result of the strategic turnabout.
Instinet is not confirming the lay-offs, according to Instinet spokesperson Silvia Davi. However, Davi said, “At this point there are a number of employees that have skills that can be used in other parts of Instinet or possibly even Reuters. We’re doing everything we possibly can to place these employees in other parts of Instinet or Reuters Group.”