Instinet Sets New Course With Analytics, Routing System

Reuters Holdings PLC's Instinet Corp. subsidiary is beta- testing a PC-based trading platform, and plans to introduce an enhanced automated order-entry feature that would allow users to place orders in rapid succession, in a similar fashion to the New York Stock Exchange's SuperDot system.

Instinet has also set up a high-level task force composed of top company executives -- including Reuters executives -- and outside consultants to try to determine the direction that Instinet should take. On the table: other trading instruments besides equities, third-party analytics and a greater international presence.

The new initiatives are at least partly the doing of new Instinet chief executive, Michael Sanderson -- formerly head of Merrill Lynch & Co.'s Canadian operation. Sanderson couldn't be reached for comment

New Strategy

Instinet is adopting its parent's Reuter Terminal as the platform for its equities automated execution system. The 386 PC runs Microsoft Corp. Windows 3.0 and is being beta-tested at various Instinet sites. The Reuter Terminal will be deployed nationally throughout the year at no extra charge to clients and will replace Instinet's current generation of dumb terminals.

Instinet will offer the Reuter Terminal with or without Reuters' market data services. Eventually, industry sources say, Instinet plans to offer Reuter Terminals in local area network configurations.

In the meantime, Instinet has formed a high-level task force of some 10 executives including outside consultants. These executives are charged with determining what analytics and Reuters services should be made available to Instinet customers. Current plans call for Instinet customers to be able to receive any Reuters services running on its Integrated Data Network.

In addition to Reuters services and analytics, Instinet plans to offer an enhanced automated order-entry system that will allow customers to place orders in rapid succession, in a similar fashion to the New York Stock Exchange's SuperDot order-routing system. The service -- the Order Management System -- is in beta test at several big institutional investor sites.

Details of OMS haven't been finalized. But sources say OMS orders could be routed to Instinet's Gates small order- matching facility or broadcast via Instinet's screen network for negotiation by phone.

Says one industry executive aware of Instinet's institutional beta tests: "It's a system that allows you to float your orders on the market -- ensuring that your bids and offers only hit when the market is at a specific level."

Institutional index funds use the NYSE's SuperDot system to place hundreds of buy and sell orders at a time. Sources say Instinet's OMS will offer SuperDot users a lower-priced, anonymous alternative for certain large order executions.

SuperDot, says industry sources, will still be the order- routing system of choice for large buyers and sellers of equity in need of speedy execution. Orders of under 2,000 shares are guaranteed quick fills by the NYSE but not by Instinet.

In addition to the SuperDot-like feature, Instinet intends to introduce a mouse and a "rudimentary alert" facility that will allow traders to track bids and offers, sources say.

Heavy Traffic

Instinet has seen its trading volume rise in the last five years to about eight million shares a day. Despite this rise in volume, cost-cutting seems to be continuing at Instinet.

Sources say the company recently laid off staff involved with its Situs joint development with the American Stock Exchange to build a private placement trading system. However, industry sources close to the AMEX claim that the Situs effort is on schedule and that Instinet is in beta test with the PC-based platform that will support Situs. An Instinet spokesman declines to comment.

Competition has increased too. The company has between 1,500 and 2,000 installations; about 300 of these are at buy-side institutions. But a new NASDAQ automated trading system -- SelectNet -- threatens to put a dent in Instinet's marketplace (TST, Nov. 5, 1990).