The Nasdaq Stock Market Inc. announced Friday that it will buy leading electronic exchange competitor Instinet Group Inc. for US$1.88 billion and standardize on the company?s Inet electronic trade matching platform. "They have the leading technology on the planet. They have response times to incoming orders of 5 milliseconds. We have a clear plan that fits into our existing platform. What we are left with is a pure technology matching engine," Nasdaq CEO Bob Greifeld said during a news conference this afternoon.
The deal comes just two days after New York Stock Exchange Inc. announced that it had agreed to merge with electronic trading system Archipelago Holdings Inc., a move aimed at moving the Big Board away from two centuries of floor-based trading and into the electronic exchange marketplace.
Inet, Instinet?s electronic marketplace, trades about 25 percent of the Nasdaq-listed volume daily. Instinet, the institutional broker, trades approximately 100 million shares daily in the U.S. and operates in 30 securities markets around the world. Based in New York, it was founded in 1969, has about 1,000 employees and had revenues of $1.2 billion last year.
Even as Nasdaq announced that it would purchase Instinet?s electronic communications network, it also announced plans to sell Instinet?s institutional brokerage arm to private investment firm Silver Lake Partners and agreed to sell Instinet?s subsidiary, Lynch, Jones & Ryan, Inc., to The Bank of New York for an about $174 million.
Greifeld said synergies between Nasdaq?s and Instinet?s infrastructure would result in a $100 million savings each year for the next three years. Greifeld didn"t expand on what those synergies would be, other than to say that Nasdaq has "a clear plan that fits into our existing road map."
"We know exactly what we?re going to do. The hard work is behind us," he said.
Nasdaq?s chief financial officer, David Warren, said that integrating Nasdaq?s operations with Instinet?s would go smoothly based on past successes. He cited Nasdaq?s acquisition of Brut LLC in September for $190 million, saying that integration project is well ahead of schedule.
"We are able to quickly and successfully integrate acquisitions," Warren said.
Greifeld said the deal will allow Nasdaq to compete more effectively with other U.S. and international markets through a better technological platform that saves money and improves the quality of trade executions.
"I think we want to make it very clear we do have opportunity to gain significant market share for companies that are listed on the New York Stock Exchange. We"ll have a maniacal focus to make sure we"re successful in that endeavor," Greifeld said.
In 2002, Nasdaq spent $107 million for its SuperMontage electronic order display and execution system. That system will in all likelihood be scrapped, according to Jodi Burns, an analyst at Celent Communications LLC in Boston.
Burns said that while it"s a loss of assets to get rid of the technology behind the trade engine, Nasdaq needed it at the time to compete against other electronic markets, such as Instinet and Archipelago.
Compared to the New York Stock Exchange"s integration issues with Archipelago, Nasdaq"s challenges are much much smaller, Burns said.
"In general, Nasdaq is planning to use the Inet order matching system, but its own quote and trade reporting system won"t change," she said,