Instinet ready to become newest TSX rival
Aims for launch in fourth quarter
BOYD ERMAN AND ANDREW WILLIS
June 11, 2007
Instinet LLC, the global pioneer of alternative trading systems, is set to launch a rival to the Toronto Stock Exchange by year-end, joining a field crowded with new entrants to the stock market game.
The company's ICX market, which promises fully anonymous trading, has received all necessary regulatory approvals and is shooting for a fourth-quarter launch. In the meantime, Instinet is looking to drum up investors to buy a stake in the Canadian system.
Instinet's system will be one of at least four new systems in the works to give traders alternatives to swapping stock via the TSX Group Inc.'s exchange - all promising blazing speed and low costs. Investment Technology Group Inc. is starting up its TriAct Canada marketplace next month, and Pure Trading is in the final stages of preparing to open its doors. Next year, Alpha, a venture of the big six banks and Canaccord Capital Inc., is slated to get going.
Instinet is betting that faster trading systems will draw investors from around the world, especially those who use sophisticated algorithms that demand light-speed communications and matching of buy and sell orders. The company is hoping to appeal, for example, to hedge funds who are interested in Canada, now the sixth-largest equity market in the world by capitalization, because it's not as well-known as some other markets and there are inefficiencies that good traders can exploit.
"Success means expanding interest in the Canadian marketplace with global investors," said Tal Cohen, senior vice-president of Instinet.
Mr. Cohen declined to say how big a stake the company might sell in its Canadian operations, saying those decisions will be made closer to the launch date. The company is looking for partners who are big traders.
Alternative markets have been popular investments for securities firms in Canada. Pure is backed by UBS AG and Morgan Stanley. Goldman Sachs Group Inc. is an investor in Perimeter Financial Corp.'s BlockBook system, which is already up and running.
The firms see an opportunity to make money if the markets take off and, in the meantime, the added competition for the TSX Group keeps the pressure on for lower trading fees at the Toronto Stock Exchange.
TSX Group, in addition to cutting fees last year by about 16 per cent, has been investing in faster trading technology in a bid to stay ahead of its rivals.
Most analysts who follow the trading landscape say that there will be too many marketplaces for all to survive, even if more investors come to Canada to trade.
The likely outcome is a wave of mergers, similar to what happened during the first ATS boom in the U.S. in the 1990s. The U.S. is now undergoing another surge in ATS activity, as technological advances make it easier to create trading systems from scratch.
Instinet has been a player in the ATS game since the beginning, launching the first alternative market in 1969.
Today, the company operates markets in the U.S., Asia and Europe.
The company is now owned by Japanese financial-industry giant Nomura Holdings Inc. |
