Island tie-up may give Instinet push to upgrade technology

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.