Electronic trading system and broker-dealer
may find that its plan for an initial public offering changes the electronic trading market's landscape.
Once Instinet has its own stock, rather than just that of parent company
, it will be easier for Instinet to buy other companies, including its competitors. And that in turn may force other players to grow, or concede ground.
Last spring, Instinet was widely believed to have been in talks with competitor
, owned by
. Perhaps Instinet will revisit those talks, something one person with knowledge of the situation suggests. If not, he says, Island could turn to the public markets so it could grow easier as well. Island has long been viewed as a potential IPO candidate, but it has been held back in part by Datek. The privately held parent company's problems with regulators have restricted its own money-raising efforts.
Island President Matt Andresen declined to comment on whether there were indeed talks with Instinet or about any plans for a public offering. But there is change headed to the upstart.
"Clearly we've made no bones about it for a long time that Datek will not continue to be the 85% owner of Island," Andresen says. "For Island to continue, no brokerage can be majority owner of it."
The reason: A trading system is only as valuable as the orders it trades. Island was able to achieve critical mass because of its order flow from Datek's active investor clientele, enabling it to sign up a couple hundred more trading firms that send it orders as well. But to grow further, Island needs to have even more firms using the service and in order for them to do that, they need to be confident that it's independent from a brokerage they compete with.