Instinet - The First Electronic Communication Network
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ICMR HOME | Case Studies Collection
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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Please note:
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.
Introduction
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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%.
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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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