Instinet - The First Electronic Communication Network|IT and Systems|Case Study|Case Studies

Instinet - The First Electronic Communication Network

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Case Details:

Case Code : ITSY018
Case Length : 08 Pages
Period : 1987-2001
Pub Date : 2002
Teaching Note : Available
Organization : Instinet
Industry : Electronic Communication Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"One of the biggest challenges they've (Instinet) got is their competition is getting stronger, I think that they are struggling a bit to come to terms with their position in the market."

- Antonia Ness, senior research associate at brokerage Raymond James & Associates.


On January 25, 2002, Instinet announced that it laid off 150 employees, i.e., about 7% of its staff, to cut costs.

The move seemed to have come amid increased competition for share orders. Earlier, in 2001, Instinet laid off 240 employees. The two-year old Wall Street slump, and increasing competition among Electronic Communication Networks (ECNs)1 - Instinet seemed to be in problems from all sides.

In November 2001, Island ECN, one of Instinet's competitors, reported that its Nasdaq trading volume surpassed Instinet's for the first time ever.

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In December 2001, while Island garnered 10.1% of the Nasdaq share volume, Instinet managed 9.2%.

The companies that ran ECNs, generated most of their business from matching Nasdaq shares for customers.

ECNs accounted for about one-third of Nasdaq's trading volume. Instinet was also expected to face more competition from the planned merger of its competitors -Archipelago2 and RediBook3.

In December 2001, Archipelago and RediBook had a combined share volume of 8.6% of Nasdaq share volume.

Analysts felt that the merger will allow the two companies to cut down costs apart from increasing their share volume.

Excerpts >>

1]  An ECN is an electronic trading system that matches customer buy and sell orders with direct electronic access.

2]   Archipelago L.L.C., initially known as Terra Nova Trading L.L.C., is based in Chicago and is one of the first four ECNs approved by the Securities Exchange Commission. It was launched in 1997 as a joint venture with a software development firm, Townsend Analytics. It subsequently changed its name in April 1999.

3]  RediBook ECN is operated by a consortium of some of the largest firms including Charles Schwab, Fidelity Investments, Donaldson, Lufkin & Jenrette; Lehman Brothers; Credit Suisse First Boston; Bank of America; Fleet Securities, Inc. etc.

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