Additional News:
Friday November 19, 6:15 am Eastern Time
Instinet plans New Year bond system launch
By Bernard Hickey
LONDON, Nov 19 (Reuters) - Instinet, the electronic broking unit of Reuters Group Plc, said it had signed up almost all the major primary bond dealers in the United States and Europe for its new bond broking system, which it plans to launch in the New Year.
Instinet, along with several other brokers and investment banks, hopes to revolutionise the multi-trillion dollar trade in bonds by transferring the currently voice-based inter-dealer brokerage market to cheaper-to-run electronic services.
The venture is also a major expansion for the U.S.-based Instinet, which has focused until now on electronic broking systems for the U.S. and now the European equity markets.
Instinet had originally planned to launch its electronic brokerage system for bond market dealers in autumn 1999.
But it said it had decided not to force a launch this year on its investment banking clients, many of which had frozen computer systems development ahead of the millennium.
``We've completed the system and we have successfully sold it to substantially all the primary dealers in the United States for day-one use,' Instinet's Managing Director of Fixed Income Markets Peter Fenichel told Reuters in an interview.
Instinet had also sold it to almost 50 investment bank clients in Europe, including to all the major primary dealers.
``It was pretty clear to us that as we looked at the ability of our clients to support new production systems in the fall, we would have been forcing them to do it,' he said.
``We made a judgment it was better to hold off to the New Year than to force a launch in either the U.S. or Europe in the fourth quarter,' he said. Instinet had decided to use the time to carry out more beta-site testing.
``We'll take advantage of the next two to three months to make some improvements that we wouldn't otherwise have been able to make had we launched in the fall.'
RACE TO BE FIRST BIG PLAYER
Instinet will compete against several systems that are already up and running.
The world's biggest inter-dealer broker of U.S. Treasuries, Cantor Fitzgerald LP, launched its Cantor e.speed electronic broking system for U.S. Treasuries, UK gilts, Eurobonds and European government bonds in July.
Instinet plans to launch initially with Treasuries, European government bonds and eurobonds, but not with UK gilts.
Cantor Fitzgerald is planning an initial public offering of its e-broking division, ESpeed Inc (NasdaqSC:ESPD - news), to raise up to $162 million and value the unit at about $900 million as it invests in expansion of the new system.
Liberty Brokerage's LibertyDirect system for U.S. Treasuries was also launched in the summer.
But the biggest -- and first -- player in the sector at the moment is EuroMTS, which is owned by a consortium of 24 investment banks and trades Italian, German, French and other euro-zone government cash bonds.
Launched in April, EuroMTS has quickly captured over a quarter of euro-zone turnover.
Other inter-dealer broker systems in the pipeline include;
* Garban-Intercapital's (quote from Yahoo! UK & Ireland: ICL.L) planned joint venture with news and information group Bloomberg, and
* Brokertec, a start-up owned by a powerful consortium of investment banks.
TRADING COSTS TO PLUMMET
Instinet's Fenichel said the bond trading systems would slash costs for dealers, both through lower commissions and through lower back office costs as the electronic systems allowed greater use of straight-through processing.
Fenichel said Instinet's brokerage costs would be about half the headline costs of the voice- and telephone-based systems, and lower on large volume deals.
These sharply lower costs meant the voice brokers knew their days were numbered, and many were scrambling to set up their own systems as their profits tumbled, he said.
There was unlikely to be much of a fight between the voice and electronic brokers in the initial stages, he added.
``The introduction of this technology is not going to have to fight the voice brokers on the beach. They've already given up the beach and are having trouble feeding their troops.' |
