Instinet plans brokerage via Internet for public

Institutional provider to go retail in April

Electronic trading

January 08, 2000|By BLOOMBERG NEWS

NEW YORK -- Reuters Group PLC's Instinet Corp., the electronic trading network most widely used by institutions, said yesterday that it would open an Internet brokerage for consumers in April, increasing competition for online brokers such as Ameritrade Holding Corp. and E*Trade Group Inc.

New York-based Instinet will let retail clients place orders alongside those of institutional investors and offer access to charts, news and research, said Amy Butte, a Bear Stearns & Co. analyst.

Butte said her information came from a "private meeting" this week with Instinet President Doug Atkin. Terrence Mulry, an Instinet spokesman, confirmed that the brokerage will open in April. He declined further comment.

The move by Instinet could signal consolidation in the industry, as competition for customers erodes profits for brokers such as Ameritrade and E*Trade. Two-thirds of their revenue come from commissions, she said.

An Instinet brokerage could cut into the business of the biggest Nasdaq market maker, Knight/Trimark Group Inc., which gets half its trades from Internet brokers.

Instinet first disclosed plans to offer retail financial services in May. It said in a Securities and Exchange Commission filing in July that it planned to form Instinet.com Corp. for consumer brokerage, mutual funds and retirement accounts.

Internet brokerage trades have doubled in the past year to more than 700,000 transactions daily, accounting for at least one in six U.S. stock trades. Hungry for such growth, Web brokerages are spending $1.2 billion a year on ads to draw new clients.

Instinet, started in 1969, is the oldest and biggest of nine electronic communications networks. Most ECNs were started in the past two years. Combined, they execute nearly one-third of Nasdaq stock trades.

Internet brokerages such as No. 2 E*Trade and Charles Schwab & Co. Inc. have acquired stakes in ECNs to provide destinations for client orders other than market-maker desks.

The No. 2 ECN, Island ECN Inc., is owned by the fifth-biggest Internet brokerage, Datek Online Holdings Corp.

Schwab, the biggest Internet brokerage, can withstand a threat from Instinet because it is big enough and has a broad enough set of products, Butte said.

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