Competition down the road... wonder how Datek's after-hours, and pre-open trading plans are coming along....
Courtesy of Stephen Karasick of SI:
Message 10169583
<<Commentary
Technology's back on Wall Street
And that's got some thinking about Reuters' Instinet
By Emily Church, CBS MarketWatch
Last Update: 4:22 PM ET Jun 17, 1999 Internet stocks
MarketWatch Internet headlines
NEW YORK (CBS.MW) -- Bankers, brokers and upstart "enablers" are crawling all over Manhattan this week at a financial technology show, looking for the latest online gadgets and black-box trading techniques.
You can blame Merrill Lynch's (MER: news, msgs) foray into online trading and the looming extension of U.S. trading hours for the renewed interest in what vendors are trotting out at the Securities Industry Association show.
Technology as a growth engine is purring on Wall Street. Firms say they're going to pony up more than expected for Wall Street technology over the next three years, and new development looks like it's going to take a large chunk of the $24 billion to be spent in 2002. See full story.
Here's one big "what if" that's making the rounds on the multilevel show floors at the New York Hilton: Instinet's going retail, really retail, as in Instinet.com. Open an account and place your order without the aid of a Wall Street institution's trading desk.
The broker-dealer's active off-exchange trading scene started the mini bang that's coming in after-hours stock trading.
Is Instinet, owned by Reuters (RTRSY: news, msgs) of London, a flick of the switch away from opening its order book to the individual investor?
Threats abound
Threats to Instinet's off-market dominance abound. Instinet, founded in 1969, was the first of a growing number of electronic communications networks, or ECNs, that match buyers and sellers in the U.S. stock markets.
Rivals for post- and pre-market liquidity are busy sewing up partnerships. To name a few: Goldman Sachs (GS: news, msgs) and E-Trade (EGRP: news, msgs) have stakes in the Archipelago ECN, Toronto Dominion's (TD: news, msgs) Waterhouse in Island ECN. Microsoft co-founder Paul Allen is in Datek and the fast-growing Island ECN, too.
Eclipse Trading -- headed by Instinet's former chief executive -- is planning a July launch of after-hours trading with Morgan Stanley (MWD: news, msgs), Citigroup's (C: news, msgs) Salomon Smith Barney and market maker Madoff Securities on board. Brass Utilities, an ECN known as Brut, is sewing up partnerships with two e-brokers, a source close to the company said.
And don't forget the nimble gang of start-ups bringing up the rear. One-year-old DH Financial is offering to execute 24-hour fixed-income, commodities, equities and other securities trades. Track Data's (TRAC: news, msgs) sales guys say they've had more than 30,000 downloads of the company's new trade-enabling platform.
The heady pace of change is making Instinet look a little flat-footed.
What broker deals?
Instinet's CEO, Doug Atkins, discussed the company's willingness to work with e-brokers in The Wall Street Journal just over a month ago; we haven't seen any Instinet deals with the e-brokers since then.
An Instinet spokesman, reached by CBS.MarketWatch.com this week, could not immediately comment on any Instinet plans to ally itself with a Web broker.
Still, one person close to Instinet says retail access -- for individual investors who trade hundreds rather than thousands of shares -- could be a mere three months away.
A retail move by the leading off-exchange platform wouldn't come as too much of a surprise to some deal-hardened executives.
"There's been a lot of smoke in that direction, but then there's been a lot of rumors lately," said Kenneth Pasternak, CEO of Knight/Trimark (NITE: news, msgs), a leading market maker that sends orders to Instinet and other ECNs. Indeed, executives at Knight-Trimark already have said they intend to roll out a Web site for traders later this year.
"Instinet from 9:30 to 5 p.m. is a big yawn, but certainly ... post- and pre-market and allowing customers to trade in those sessions would be an interesting market evolution," Pasternak said.
"Instinet has brand, but there's some lively competition out there," he added. "Attracting people to a Web site and processing trading is something that Waterhouse and Ameritrade and E-Trade do quite well. Anybody can do it, but it's not easy do it."
Instinet's main liquidity providers -- not to mention Ameritrade (AMTD: news, msgs), Waterhouse and E-Trade -- could view Instinet competition with some concern.
"I've been speculating that they might (offer direct access)," said David Whitcomb, CEO of Automated Trading and a finance professor at Rutgers University. "It's not beyond the bounds of possibility. They would be a major player in retail.
"But Instinet has said that it's seeking retail business through other brokerage firms and that seems more likely because their strategy has always been not to compete with the broker-dealers," he added.
Main Street vs. Wall Street
Sounding that cautionary note that's kept Instinet out of retail, Eclipse's Mike Sanderson, former Instinet CEO, called the possibility of appealing to individual investors "quite a draw away from the institutions."
Yet in opening its doors to the relentless CNBC business cable channel in morning television and by doing some advertising and investing $20 million in W.R. Hambrecht & Co., Instinet has raised a flag in some minds that the broker-dealer wants to be an online, retail player.
Several weeks ago, Merrill Lynch may have accelerated Wall Street's rush to reach out to individual investors when it unveiled an Internet strategy that will allow $29.95 trades.
"We enjoy seeing the Merrill Lynches and Morgan Stanleys of the world re-invent themselves," said John Forlines III, a managing director at J.P. Morgan (JPM: news, msgs) and co-head of the Wall Street firm's technology and telecommunications investment banking group.
Forlines, of course, was grinning as he said that. >>
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