Reuters plans retail online share service
Kirstie Hamilton , City Editor
London Times
June 20, 1999
REUTERS is preparing to move into the online retail stock-broking market. The information group is in talks with Yahoo!, the internet company, about a link-up that will give private investors access to Instinet, Reuters' share dealing service.
So far Instinet has been solely for the use of professional investors. By opening up its services to private investors, Reuters could become a potent force in a potentially lucrative internet broking market.
Big Investment banks such as Merrill Lynch and Goldman Sachs have recently become enthusiastic about online broking after initially shying away from the area.
Reuters confirmed talks cussions were underway, although declined to confirm details of the service being considered. But people close to the company have indicated that Yahoo!, one of the most successful internet search engines (services that allow people to navigate the worldwide web), is now the preferred partner.
Reuters has a small Yahoo! stake dating from the American company's early days. It holds this through its Greenhouse Fund, its venture capital fund set up less with the aim of making huge returns than with gaining access to cutting-edge technology. But it has proved profitable, with some of its investments proving runaway successes.
Big banks believe the internet could become the most important channel for private-client dealings within a short time.
One analyst expressed surprise that Reuters would attempt to move into an area dominated by its big clients. But the information group may attempt to achieve both aims: break into retail without upsetting clients.
"The investor would continue to deal with his or her e-broker and the broker would carry out the transaction," said Reuters. "Investors would not access Instinet directly." Instinet is the world's biggest off-exchange share trader and claims often to be able to execute deals at better prices by matching buyers with sellers than can be achieved on exchanges. Big investors and large brokerage firms are the only customers at present.
"They have the technology and the platform," said the analyst. "It makes sense to leverage it further, although in the past the company has always been wary of upsetting its biggest customers."
If Instinet does operate only through brokers it will function as a competitor to existing stock exchanges. Over recent months Reuters has shown an increasing enthusiasm for taking on mainstream stock exchanges. Last month it emerged as part of a consortium taking control of Tradepoint, the struggling British electronic share trading system.
Reuters teamed up with a number of other investors, including brokers such as Morgan Stanley Dean Witter and JP Morgan, to rescue Tradepoint and finance a new expansion programme.
In a move seen as following the same trend, Intercapital, a wholesale broker, said last week it had created an electronic trading alliance with Bloomberg, the American information group that is one of Reuters' biggest rivals. The trading alliance will enable Intercapital to post prices of financial products on Bloomberg screens.
Although Reuters has so far avoided confrontation with clients, some analysts believe it could become a big force in the business in its own right should it decide to follow that path. Neither Reuters nor Instinet are well-known brands among private clients but this is not necessarily seen as a drawback.
"No one had heard of Freeserve this time last year," said the analyst.
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