What Is Instinet?
Instinet is a global financial securities service that operates an electronic securities order matching, trading, and information system which allows members, primarily institutional traders, and investors, to display bids and offer quotes for stocks, and conduct transactions with each other.
Instinet is an example of a dark pool of liquidity, a private exchange for trading securities that are not accessible by the investing public. The name implies a lack of transparency. and they facilitate block trading by institutional investors who did not wish to impact the markets with their large orders.
According to the SEC, there were 64 registered Alternative Trading Systems, or dark pools, as of February 2022.
- Instinet is a private exchange for trading securities that are not accessible by the investing public.
- Instinet is considered an Alternate Trading System, or dark pool.
- Dark pool trades are intended to reduce volatility by obscuring large trades.
- Instinet is Wall Street's oldest electronic communications network, or ECN,
Instinet is an institutional, agency-only broker that also serves as the independent equity trading arm of its parent, Nomura Group. It executes trades for asset management firms, hedge funds, insurance companies, mutual funds, and pension funds.
Headquartered in New York, the company offers investment market insights, full-service trading desks, advanced algorithmic trading strategies, access to unique and specialized liquidity, and workflow solutions to help clients efficiently manage their investment process.
Instinet is best known as one of the first off-exchange trading alternatives, with its “green screen” terminals prevalent in the 1980s and 1990s, and as the founder of Chi-X Europe and Chi-X Global.
Who Founded Instinet?
Instinet was founded by Jerome M. Pustilnik and Herbert R. Behrens and was incorporated in 1967 as Institutional Networks Corp. Aiming to compete with the New York Stock Exchange, Instinet established computer links between major institutions, such as banks, mutual funds, and insurance companies, with no delays or intervening specialists.
Instinet is Wall Street's oldest electronic communications network, or ECN, and after it was acquired by Reuters Group in 1987, it and other electronic communications networks evolved into major threats to the established stock exchanges.
The company split its electronic communications network and its brokerage business into Inet ECN and Instinet, respectively, in 2003. Nasdaq then acquired Inet ECN in 2005, and Instinet was sold to a private equity firm.
What Is Nomura?
In February 2007, Nomura purchased Instinet from private equity firm Silver Lake for a reported $1.2 billion. Nomura is a global financial services group with an integrated network spanning over 30 countries and regions. As of 2020, Instinet is operated as an independent subsidiary of Nomura and is headed by CEO Ralston Roberts.
Instinet credits itself with creating the term "fintech," or financial technology in 1969 before the term was coined. As it continues to expand in 2022, Instinet and Nomura are acquiring FIS Execution Services to obtain its algorithmic trading technology and intellectual property to help clients improve execution quality, minimize information leakage and decrease execution costs.
Why Do Investors Use a Dark Pool Like Instinet?
The lack of transparency favors the institutional investor since it may result in a better price than on an exchange. Dark pool participants do not disclose their trading intentions and there is no visibility to the public. The institutional seller also has a better chance of finding a buyer for the full share block in a dark pool since it is a forum dedicated to large investors.
How Does Trading With Instinet Affect the Stock Market?
Dark pool trades are intended to reduce volatility by obscuring large trades. Large visible block sales tend to decrease the stock price. Dark pools allow large institutional holders to buy or sell in large volumes, without transparency, which does not affect the wider market.
What Is a "Cross" Trade?
Instinet runs a crossing network of the NYSE's last sale at 6 pm daily. A “cross” is a trade in which a buyer and seller interact directly with no assistance from a market specialist. These buyer-seller pairs are commonly matched up by a computer system such as Instinet.