Island tie-up may give Instinet push to upgrade technology

The rumoured tie-up between electronic communication networks (ECNs) Instinet and Island could give 83% Reuters-owned Instinet the impetus it needs to upgrade its equities trading platform technology, parts of which are almost 20 years old.

Instinet is said once again to be talking to Island – for the second time in about two years – about taking over its rival ECN in a $500 million deal. “This would force Instinet to revamp its technology. I don’t think they could use what they’ve got,” said a source that used to work at Instinet.

He said Instinet has dallied for years on re-developing its equities platform. There was some suggestion two years ago that it would undertake a Java-based overhaul, using Instinet’s fixed-income (IFI) platform, but this never came about. Instinet closed IFI last month due to a lack of liquidity.

RiskNews' sister publication Waters magazine reported in its June issue that Instinet is readying two new technology products – Newport, a program-trading system for fund managers, and Trading Portal, a front-end service for hedge funds.

But the core pieces of the equities platform “date back to year dot”, said the ex-Instinet employee. “There have been new bits added, but essentially it’s a hybrid.”

Integration with Island is unlikely to prove a quick fix for all of Instinet’s problems. “Island’s not geared towards the large-scale wholesale market. There would be some work to do there,” said the source.

Talks between Instinet and Island fell apart two years ago due to a “clash of personalities”, the source claimed. He believes the departure of former Instinet president and chief executive Doug Atkin last month with a rumoured $4.5 million pay-off, should make negotiations easier this time around.

Should the companies reach a deal, they would control more than 21% of the Nasdaq share volume.