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Instinet Instinet

Fintech at Fifty

The rise of Instinet as a
transformational force

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Pencil sketches of the artwork from several chapters of Fintech at Fifty.

“Vision is the art of seeing what is invisible to others.”

Jonathan Swift

We dedicate Fintech at Fifty to the millions of individual investors who put their trust in the capital markets—and in professionals like us—every day. When we focus on doing our best for them, we contribute to building better markets for everyone.

Foreword

Significant change rarely occurs when things are going well. For obvious reasons, most people would not willingly rock a boat that is sailing comfortably along. But sometimes a new course can be set by a visionary individual who sees an opportunity for radical improvement and steps forward to challenge the status quo.

In 1969, Jerome Pustilnik was that visionary individual. He recruited some like-minded partners and started a company called Institutional Networks that would fundamentally change the structure of the financial markets. Their innovation was an electronic network for trading stocks. An alternative to the single, central limit order book that was available to only a few people. It would be a place for investors to connect with each other to execute trades at the best possible price, and for lower cost.

These principles seem basic now, but their introduction was a moment in history that would slowly, inexorably, begin a revolution. Fifty years ago, it was hard to predict the scope of this change, even for the visionaries that were making it happen. And, like most truly fundamental shifts, it took time to catch on. But then, after almost two decades of hard work, Instinet became an overnight success.

Eventually, these ideas about electronification and disintermediation reached a critical mass and gathered enough momentum to break the inertia of hundreds of years of business as usual. Like many evolutions, it was often propelled forward in giant leaps by external, dramatic events. Finally, it became clear that an accessible, transparent, and efficient electronic marketplace could bring innumerable benefits to the industry, the economy, and individuals everywhere.

It wasn’t always easy for the people who labored to make Instinet successful over the decades. They faced tremendous headwinds. The firm made strategic decisions—time and time again—to position itself exactly where the industry and its clients needed to go. Sometimes it was serendipitous, but most of the time it was because the leaders who have driven Instinet forward over the years have all embraced the pioneering spirit that inspired the firm’s original founders. They discovered that challenging the status quo can be habit forming; it can become an integral part of an organization’s culture.

Of course, no company exists in a vacuum. The influences that shape an enterprise come from without, as well as within. Over the last fifty years, we have seen dramatic changes in the global geopolitical landscape; in the role and evolution of technology; in the economic environment, the markets, and the regulatory structures that govern them; and in the world’s people—our cultures, our societies, and our lifestyles. So it would be impossible to chronicle the history of Instinet, and of the existing state of fintech, without taking all of these critical factors into consideration.

When Instinet’s founders sketched out the first schematics of their electronic network, they knew it was a game changer. They saw the extraordinary potential of a simple premise: connecting people with information, and with each other, to trade more efficiently. Technology was the medium that made it possible. What they probably didn’t foresee was how profound the electronic transformation of the markets would become. Or how technology would—and still does—relentlessly push us forward, continuously expanding the limits of what’s possible.

When we think about what’s next for the financial markets, we can try to track and anticipate technological breakthroughs: advances in big data, machine learning, artificial intelligence, quantum computing, the Cloud, and distributed ledgers. Even virtual reality. But in another fifty years, these may all seem as quaint as the mainframes, punch cards, and teletypes of 1969. So perhaps there’s another way to think about what’s next—to focus on what’s constant, rather than what’s changing.

This brings us back to our original premise: connecting people with information and with each other to trade more efficiently. When you look past the awesome complexity, speed, and scale of today’s global financial markets, this remains the essence of what we do.

It also brings us back to human ingenuity: the inspiration and hard work of people like Pustilnik and the community of innovators who built upon his ideas and took them farther than he may have ever imagined.

It is this kind of relentless intellectual curiosity, the willingness to anticipate and bring about change, and the philosophy of innovating for the real needs of the market and its participants that will define and create what comes next. It always has, and it always will. So while the technologies of 2069 may exceed today’s wildest dreams, that’s one prediction we are willing to stand by.

“Instinet’s greatest legacy is that it proved that low prices, low commissions, and frequent, fast, and anonymous trading were entirely possible. That has become second nature to many traders.”
Jerome Pustilnik, Founder & CEO: 1969 – 1984

“It was an uphill struggle to be first. Being the first is always more painful than being second. A lot of these innovations were probably going to happen anyway. They happened sooner because Instinet did them.”
David Manns, Chief Systems Architect: 1971 – 2002

“It’s hard to trade a stock when you don’t know the price and if you bought or sold it. With Instinet, they enforced the audit trail. Everyone knew the price and whether it was bought or sold. As volumes started to explode, Instinet opened the eyes of a lot of people.”
Bill Lupien, CEO: 1984 – 1988

“My time at Instinet is the best time of my career. Best job I have ever had. Best people, best time. We created technology people didn't think would be possible.”
Michael Sanderson, CEO: 1991 – 1998

“We brought in a lot of young, brilliant technologists. The triumph was getting them to wear a shirt with a collar on it. They would always forget to wear a tie when meeting with clients. These were the kind of people that were flying drones around the office when no one knew what a drone was.”
Ed Nicoll, CEO: 2002 – 2006

“Instinet always had a strong culture of doing the right thing by its clients. It’s always had, and it still has, great people working for the firm who are passionate about the business. And are constantly innovating. That’s a pretty good recipe for success.”
Doug Atkin, CEO: 1998 – 2002

“So many of the ideas that Instinet has and continues to put in place are from conversations with clients—what they are looking for, how they can improve their execution quality and overall trading process. Clients have a good appreciation of what Instinet can do for them. And they want to see how the firm continues to innovate, so they want to stay involved.”
Jonathan Kellner, CEO: 2014 – 2018

“Instinet’s DNA is about fostering innovation and being part of the market’s evolution. I look forward to the next phase of Instinet’s remarkable story as we break new ground and make new history.”
Ralston Roberts, CEO of Instinet

Arrows, diamond shapes, and chevrons animate across a field of red.

The unique artwork of Takahiro Kurashima has been embedded in scenes throughout the story.

Envisioning
Fintech at Fifty

When we thought about how to present the rich history of Instinet (and the revolution in financial technology we put into motion fifty years ago), it became clear to us that a story about visionary transformation should be told visually. There is no better way to illuminate a period of unprecedented technological and cultural change: the exceptional dynamism, volatility, and innovation. And the sheer magnitude of change.

We also found this visual approach fitting because, as a company, we are all about demonstrating our value rather than just talking about it. We like nothing more than the chance to show our clients and the markets what we can do, how we do it, and why it makes a difference. We hope this story is a testament to the real-world approach to innovation that we try to apply every day.

We knew that chronicling five decades of progress in this way would be a challenge, but also a “once-in-a-company’s-lifetime” opportunity. So we invited not just one, but six gifted artists to help bring our story—and the story of fintech—to life. Is this an ambitious and unusual approach? Yes, it certainly is. And we think that would sit very well with our forward-thinking founders, who taught us to never hesitate to challenge the status quo.

Disruption

A man on the moon. An international energy crisis. The dawn of mainframe computing. A war that divides a nation, and the generations. The birth of electronic stock trading.

Hair is getting longer. Ties wider. And patience for the status quo is growing thin.

It is a decade defined by cultural, political, and economic disruption. Change—and the ineffectual battle against it—is a constant. The world feels more connected, yet more divided than ever before. Technology starts its journey to become mainstream. And life will never be the same.

In the financial world, the National Association of Securities Dealers launches NASDAQ to rival the New York Stock Exchange, while a wily upstart called Institutional Networks begins laying the groundwork for a radically new way of distributing market information and connecting counterparties over computer networks.

The Seventies Timeline
  • December 1969

    Institutional Networks Corporation launches with six clients.

  • 1971

    NASDAQ is established; The Instinet Communications System is patented.

  • 1972

    Terrorists strike at the Munich Olympics.

    Ferdinand Marcos declares martial law in the Philippines.

    Tensions in Northern Ireland escalate.

  • 1973

    The Middle East oil embargo grips the US; the UK stock market crashes.

    The World Trade Center complex in New York is officially dedicated and opened.

  • 1974

    The Watergate scandal comes to a head; Nixon resigns.

    The world population reaches 4 billion.

    Evita Peron is sworn in as the first female President of Argentina.

    The Rubik’s Cube puzzle is invented.

  • 1975

    NYC nearly goes bankrupt.

    The Vietnam War ends.

    The song “Bohemian Rhapsody” is released by the band Queen.

    The Helsinki Accords are signed in Finland.

  • 1976

    The US celebrates its bicentennial.

    The Apple-1 debuts.

    The Consolidated Tape System is introduced, which provides last sale and trade data for securities across the US regional stock exchanges.

  • 1977

    The first Star Wars film is released.

    Instinet debuts the “Green Screen” terminal, introducing a real time order interface to the market.

  • 1978

    Camp David Accords are signed between Begin and Sadat, and both leaders win the Nobel Peace Prize.

  • 1979

    The Iranian revolution and hostage crisis unfolds.

    CompuServe debuts the first commercial online service.

    Institutional Networks ends the decade with over 100 clients, and ambitious goals.

The world was changing fast.

A figure walks in front of large crowd of protesters outside the New York Stock Exchange.

Political, cultural, and economic disruption swept through American life.

Old connections, ancient alliances, and conventional wisdom couldn’t keep up.

But inside the New York Stock Exchange, decades-old traditions held firmly to the status quo.

Floor brokers and specialists kept to their routines, even as trading volume—and the mountains of paperwork—surged.

Traders on a crowded exhange floor shout order signals: 37 on the spread; He's out; 60 bid at even.

A few visionaries saw a wave of change coming.

A figure walks through an office past desks and an old-style stock ticker.

So they set to work on the foundations of the high-speed electronic markets we know today.

It didn’t begin with a bang, but with a soft, sure voice of reason.

The same figure walks past a computing department room with old fashioned mainframe computers with spinning reels of tape.

In the early 70s, computers were far from the nimble and portable machines we have today.

But their increasing use and influence in business would prove to be just as disruptive as the decades of cultural and political upheavals.

Only not as loud.

Jerome Pustilnik

Like many of his younger colleagues, an ambitious stock analyst from Forest Hills, Queens, took notice.

Jerome inspects the ticker tape, saying: Waiting for stock prices on the paper ticker is such as waste of time. A coworker responds: And so is looking through these mutual fund listings. But that's the way it is. Holding a bundle of ticker tape, Jerome responds to his coworkers: It would be so much easier and more accurate if we could access it more quickly. When we need it! Jerome's supervisor responds: I don't know Pustilnik. It seems like a fantasy.
A montage of images of Jerome working out his ideas: Why do we need a middle man?  The way we do our work could be so much more efficient if we had better access to information!

Pustilnik knew that Herbert Behrens would listen with a fair ear.

Jerome sits with Herbert Behrens at a lunch counter. He says: I’ve been thinking. What if we could do more than just look up holding and prices? He hands Herbert a piece of bread roll and says: What if investors could share information on which stocks they wanted to buy or sell. On a computer network. Herbert responds: Directly with each other? You mean outside the exchange?” Jerome answers: Exactly! Outside the exchange!

Jerome knew his bosses—and the Wall Street status quo—wouldn’t necessarily like the idea of direct transactions between counterparties.

But he knew it would be more efficient.

And now it was possible.

Jerome sits in a train car, and thinks to himself: Information is the real currency of business. Sooner or later, Wall Street is going to get on board. We see Jerome's face in close up. He exclaims: We have to do this right now!

Jerome Pustilnik and Herbert Behrens called their new business Institutional Networks Corporation.

It was the first alternative trading system to the New York Stock Exchange.

The founders and first employees of Institutional Networks celebrate in their new offices. The patent drawing for the Instinet Communications system.

They went live in December 1969 with six clients and the dream of a fast, efficient, and more accessible stock market.

Against the backdrop of the 70s, of hard political and economic realities, the founders of Instinet began to build their revolutionary business. Client by client.

Jerome sits on the train reading a paper.  Voices of passengers behind him say: You can’t trade securities with a computer. It takes instinct. And guts! Jerome chuckles to himself as the other passengers continue: Replacing the exchange floor with computers—that’s just crazy. I don’t know, maybe he’s onto something! Jerome presents to businessmen around a conference table. He says: Our system offers investors an alternative to the single stock exchange. It’s the future of stock trading. A terminal in every office. Even on every desk! Jerome and a colleague un-box a new computer terminal, saying: Fellas, this machine is going to change your lives.

1977: Instinet introduces the “Green Screen” terminal. It provides investors with real-time stock quotes for the first time.

Manual order management was another obstacle to accurate—and more efficient—trading.

Businessmen meeting in a luxurious boardroom. One says: We fill out a card for every order. When we take more than a dozen order cards to the broker, he starts to get confused. Other executives respond: And what if something happens to that guy? It's risky! There's got to be a better way. Jerome presenting to the same group with a picture of the Instinet Terminal, says: We can help you automate that, too. And send your orders directly to the market.
Jerome stands beside a mainframe computer, and speaks to a colleague: We’re hardwired to 100 clients, with 200 Green Screens installed. Revenues have tripled in the last few years. Don’t forget, we’re just getting started.

Transparency

TV news never stops. Our phones go cellular. We get to see a real comet and witness a virtual financial "Big Bang." Global markets crash. The Cold War thaws. And a wall we thought would last forever comes tumbling down.

Fashion turns to shoulder pads, pleated pants, and skinny ties. Music to metal, new wave, Michael, and Madonna. Life is moving faster, and the connectivity and perspective made possible through rapid technological innovation is becoming a catalyst for change in every part of our lives.

Whether we are watching world events unfold in real-time, plugging in our first personal computer, or meeting Mario, a virtual plumber that would bring video gaming to the masses, we are suddenly experiencing and interacting with technology in new ways.

Black Monday is the decade's defining moment for the global securities markets. And its aftershocks and lessons help accelerate yet another wave of market innovation.

The Eighties Timeline
  • 1980

    CNN—the world's first 24-hour cable news network—is established.

    The Polish government recognizes the trade union Solidarity.

  • 1981

    The first DeLorian automobile rolls off the production line.

    The first Space Shuttle goes into orbit.

  • 1982

    AT&T agrees to break up.

    The first computer virus is found: the "Elk Cloner," written by a 15-year-old.

    Mexico's foreign debt default announcement triggers a Latin American debt crisis.

    Time Magazine names the computer its Man of the Year.

  • 1983

    The first commercial cell phone becomes available.

    Word processing software is first released, soon to become Microsoft Word.

  • 1984

    Apple introduces the first Macintosh personal computer.

    TED conference is founded.

    Australian banks are deregulated.

  • 1985

    Institutional Networks formally changes its name to Instinet.

    The charity single record We Are the World is released.

  • 1986

    Instinet creates the first aftermarket crossing system and extends its electronic network overseas, joining the London Stock Exchange.

    London's markets move electronic in an event called the "Big Bang."

    Halley's Comet passes through our solar system.

  • 1987

    October's Black Monday crash causes the stock market's steepest decline since the Great Depression.

    Reuters acquires a majority stake in Instinet.

  • 1989

    Bush and Gorbachev meet for the Malta Summit, signaling a thawing of the Cold War after nearly 45 years.

    Citizens are allowed to freely cross the Berlin Wall for the first time in nearly 30 years.

    Instinet trades approximately six million shares a day in volume, on average.

If the 70s were defined by fundamental political, cultural, and technological disruptions, the 80s saw the stubborn barriers between the old and the new fully giving way.

But one of the first barriers to fall was the one between advanced technology and the general population.

Images of the early MTV and a space shuttle launch on old tube televisons.
Two traders sit at desks with old-style computer terminals and stacks of paper. One plays with a Rubic's cube.

The rise of personal technology would prove to be perhaps the most transformational change of all.

An auspicious IPO foreshadowed a new age of culture-busting electronics.

Things were changing, too, at the venerable New York Stock Exchange. The pull of technology and more complex and connected markets were redefining the role of traditional market participants.

A newspaper headline reads "An orderly debut for Apple" next to a picture of Steve Jobs and Steve Wozniak. John Phelan, head of the New York Stock Exchange, speaks to a colleague: I was a specialist on the floor myself. I know it’s going to be painful, but we’ve got to make some radical changes. Electronic trading. Instantaneous information. That’s the future. We need to embrace it or get left behind.

After gaining a solid foothold in the 70s, Institutional Networks was also in for some big changes, with a new CEO and lofty ambitions.

Instinet CEO Bill Lupien speaks to a group of executives among trading desks. He says: We’re only doing listed stocks. We’re competing with NYSE and everybody else. I think we can sell this to the over-the-counter market, too. An executive responds: Wow! Anonymous OTC trading? Will that even work? Lupien replies: We can make it work. And once we do, everyone will want it.

In 1980, it introduced the first direct market access system. By 1983, the company was serving over 100 institutional clients. But even more dramatic growth was on the horizon.

Lupien speaks with other executives at a conference room table, saying: If we open up the system to the wholesale market makers, and to the sell-side, we can build an even bigger and more robust market. One of his colleagues adds: And why can’t the system be international, too?

By the end of 1984, Instinet was trading 3,500 stocks on exchanges throughout the US, and connecting a network of 500 broker-dealers.

The new Instinet logo is unveiled.

In 1985, Institutional Networks changed its name to Instinet.

In 1986, Instinet extended its electronic network overseas, joining the London Stock Exchange.

A Financial Times newspaper headline reads: Reuters makes bid for Instinet.

Realizing the value of Instinet as an information company as much as a technology or trading company, British media conglomerate Reuters—already a major stockholder—completes its purchase of a controlling stake in 1987.

On October 19, 1987, the forces that would reshape the markets over the next decades came into high relief.

A collage of images of anxious and frightened traders in offices across the US looking on as the market tumbles on Black Monday.

Black Monday,” the steepest market collapse since the Great Depression, shook the foundations of the world’s financial institutions.

New York Stock Exchange president John Phelan addresses the press: No matter what happens, the exchange will stay open. Newspaper headlines shout "Crash!" and "Panic!" Inset picture of George Michael sings: Because I gotta have faith, faith, faith.

With orders backing up and the market tumbling, the value of Instinet’s network was becoming clearer to desperate traders.

Two desperate traders on phones complain: We’ve got to unwind these positions. Now! I can’t get anyone to pick up the phone. Why won’t they answer? An Instinet trader takes a call. Caller asks: Can you take orders over the phone? Trader responds: Well, I guess we can. But you’ve got our terminal right there. Caller continues: I don’t know how to run it! And I’ve got a lot of orders. Trader answers: Go ahead, we'll take them.

What had been a disastrous day for the market would be a turning point for Instinet. And the beginning of a fundamental shift that would put the company—and electronic trading—on a rapid upward trajectory.

Instinet execs listen to conference room speaker phone. The voice says: Can you send somebody over here to train us on your machine, today? One of the execs says to the others: You won't believe it, our volume is going through the roof! Instinet employees training customers on the Instinet electronic trading system.

In the aftermath of the crash, more market participants began to embrace electronic trading in earnest. They didn’t want to be in the dark like that again. They began to demand more direct control.

Regulators moved to make the markets less susceptible to crashes, and set in motion a series of reforms that would help bring electronic markets into the mainstream over the next decade.

A congressional committee meets. Chairman Nicholas Brady speaks: What caused the crash? The simple conclusion is that the system grew geometrically with the technological and financial revolution of the 1980's. And we failed to understand fully that these regional marketplaces are, in fact, one interrelated global market.
Computer monitors burn blue in a office at night. Outside, we see a scene of skyscrapers framed by clouds and a full moon.

Instinet was perfectly positioned to fill this gap, and investors wanted in.

In December 1987, Instinet introduced Crossing Network, an after-hours trading system that matched buy and sell orders at the day’s closing price.

In the wake of the UK market’s 1986 “Big Bang” deregulation, London asserts itself as a world financial center—and the nexus for new market structures and products.

The House of Parliament in London framed by a British Union Jack flag.

In 1998, Instinet begins the global expansion of its electronic agency brokerage model, opening its first international office in London.

Events shown on old tube television screens: The 1988 Moscow summit; the 1989 Exxon Valdez oil spill; the 1989 Tiananmen Square riots. The Berlin Wall falls: two men embrace as a crowd of onlookers and press watch in silence.
A man on an early mobile phone next to four clocks reading the time in New York, London, Zurich, and Tokyo.

As the 80s came to a close, Instinet continued to innovate — and continued to become a bigger and more critical part of the trading community.

Alternatives

We meet the World Wide Web. The USSR evaporates. NAFTA erases borders and FIX makes real-time a market reality. The dot-com economy inflates. And regulators expand their focus from Wall Street to Main Street.

Grunge rock goes global. Supermodels wear flannel shirts. As the end of the millennium looms, the global public hungers for everything and anything new. More powerful and accessible technologies are redefining music, art, and fashion—along with how we create, deliver, and consume almost every kind of media.

Personal computing is going relentlessly mobile, with each new device slimmer, faster, more powerful, and more interconnected than the last. Investors are also clamoring for something new: new sectors, new sources of return, a whole new economic order.

As the demand for electronic trading increases, new alternative venues grow up in Instinet’s image. For many market participants, the decade will prove to be a wild ride, but Instinet will continue to thrive, adapt, and break new ground.

The Nineties Timeline
  • 1991

    The World Wide Web debuts as an internet service.

    Following a popular referendum, the Soviet Union is officially dissolved.

    The Financial Information eXchange electronic communications (FIX) protocol enables international real-time sharing of securities transaction and market information.

  • 1993

    Instinet creates the first Order Management System, one of the earliest examples of a modern execution management system for equity trading.

    Instinet launches operations in Canada.

    12 European countries come together to form the EU.

  • 1994

    The North American Free Trade Agreement (NAFTA) goes into effect.

  • 1995 - 1996

    The US federal government shuts down twice due to budget disagreements.

    Instinet launches operations in Tokyo, Japan.

    Newly emerging internet companies spark investor interest that reaches beyond professional investment managers, all the way into Main Street.

  • 1997

    The Asian Financial Crisis sends shockwaves through global markets; the Dow falls over 7%.

  • 1998

    The SEC adopts new Order Handling Rules to increase transparency and standardize disclosures to clients for the handling of securities trading orders.

  • 1999

    “Y2K” technology projects across the world brace systems and platforms for the new millennium.

    As new trading venues fragment the US equity market, Instinet launches a pioneering smart order routing technology called Helix.

September 1990. New York City. Trimean Investments interviews a hot new prospect.

Jason First, a young recruit, is being interviewed by executives of Trimean Investments. They ask: We like your background in mathematics, Jason. How much hands-on computer experience do you have? Jason answers: A fair amount; Programming at school, working with statistical models.

Jason First

One Trimean executive says to another: That's where this business is going. Jason adds excitedly: That’s why I’m excited about this job. It’s a chance to use technology to make a difference. A close up of a handshake. The executive says: Jason, welcome to the Trimean team.

America didn’t know it yet, but it would soon be waking up to a dot-com world.

We see Jason in a packed high-rise elevator.

How people got information, interacted with each other, and did their jobs was being radically redefined.

And on Wall Street, Jason was part of a new, tech-savvy generation ready to rewrite the future.

Jason smiles and thinks to himself: I bet we could write a program that could do a lot of this stuff faster. And better.
Jason sits at a computers monitor. His supervisor says, nervously: This is how we submit the orders. Listen, you have to be really careful. Errors can cost us a lot of money. Two older colleagues gesture toward Jason in the office. One says: Hey, who's the college boy?

There was an atmosphere of optimism, a sense that people and communities coming together could make a real difference…

Jason and friend in the massive crowd watching Nelson Mandela's motorcade move through New York City.

…that once unshakable institutions could change.

Decorative musical notes and a few lyrics of the REM song Losing My Religion. A finger points at an internet browser image on a computer screen. A voice says: See, you just type in a website address here, and voila! Jason is with a group of friends in his apartment. One holds up a newspaper and says: Sure J.F. But why would people use that when they can just buy a newspaper? Jason responds: Yeah, but that comes out once a day. This is news in real time.

Wall Street's institutions were on notice, too. Access to more technology and better information were empowering individual investors to demand more attention—and a better deal.

SEC Chairman Arthur Levitt addresses the audience at the 1993 North American Security Administrators Association Conference: Today, the enemy we face is a feeling that our financial markets are becoming so institutionalized, so exotic, and esoteric they no longer serve the small-time entrepreneur or investor looking to claim their share of the American dream.

It wasn’t just the regulators who were trying to level the playing field…

New SEC Chairman Arthur Levitt

Jason reads news on computer at his desk, saying: This research is really interesting. These professors suggest the dealers are colluding to widen spreads! A co-worker, leaning over Jason's desk, responds: And the electronic trading firms seem to say this specialist tier may be driving up execution costs.

Forward thinking traders like J.F. were looking for better—and more cost-effective—ways to meet their clients’ objectives.

A close up of Jason thinking to himself: What the exchanges need is some real competition — like what they’re doing with Instinet.

Instinet’s first-to-market position and aggressive innovation was turning the small firm into a market powerhouse.

An Instinet specialist addresses Jason and his colleagues, referring to a technical diagram on a white board: We call it an order management system: OMS. You put in your order parameters and broker routing, and it automates almost everything else. Jason speaks to the group: We’ll be able to increase our order volume. And cut costs while we’re at it. The Instinet rep responds: And you can more accurately track your order flow, too. Here, let me show you.

As the first electronic exchange, the NASDAQ had attracted many of America’s most innovative companies.

As the tech sector’s fortunes and influence grew, so did NASDAQ’s volume and stature.

Investors—from venture capitalists to the man on the street—were pouring more and more money into tech. A new hot dot-com seemed to debut every day.

The NASDAQ  IPO bell ringing ceremony for the dot-com firm The Globe.

As the market turned the corner to the decade ahead, tech company valuations and stock prices were reaching unprecedented heights.

Instinet’s fortunes were rising along with the tech tide. By the mid-90s, trades on the platform represented nearly one-fifth of the NASDAQ’s total volume.

And as the market got more complex, the innovations kept coming.

Jason presenting to a group of traders. He refers to a diagram on a whiteboard and says: See? Using Instinet’s smart order router, we get simultaneous access to multiple venues. And it automatically seeks the best price.

Regulators announced major structural reforms via new order handling rules and the introduction of Reg. ATS to govern alternative trading systems.

A group of Jason's colleagues respond to his presentation, saying: This will really help us to capture more liquidity. And get better execution prices, too. The market won't move before our order can fill. I've been hearing about these algorithms, too. This sounds like the best way to try them.

Instinet’s success and the growing demand for electronic trading wasn’t lost on potential competitors. New ECNs started to come online and give Instinet its first real competition.

But at the dawn of a new century, the industry was anxious about what came next.

SEC Chairman Arthur Levitt speaking to the 1998 Securities Industry Association Annual Meeting: How do we ensure that advances in technology do not outpace our ability to protect investors? How does the industry use technology to meet the best interests of its clients?

SEC Chairman Levitt

In the audience, Jason looks at his smartphone and says to his boss sitting next to him: It's the tech desk. They want to brief us on Y2K. His boss responds: Y2 what?
Jason and his friend stand in Times Square, looking up at the NASDAQ headquarter building. Jason says: It's been a hell of ride. I wonder how much longer it can last. His friend responds: J.F, back when you started at the firm, did you think you’d still be at it now?
A close view of Jason's determined look as he thinks to himself: There’s a lot more to do. Still a chance to make a difference.
A split image of the a capsule docking with the International Space station and the NASDAQ electronic billboard in Times Square, which displays a closing level of 4069.

The world was preparing for a new century, equal parts hopeful and anxious.

But the seemingly endless advancement of technology—and the soaring markets—seemed unstoppable.

On December 31, 1999, the NASDAQ closed above 4,000—nearly ten times its level at the start of the decade.

Volatility

The new millennium arrives (and the sky doesn’t fall). The tech bubble bursts, but innovation marches on. The iPhone. Dark pools. WIFI and HFT. New ideas, names, and phrases for a new age. The interconnected nature of the global marketplace has never been more apparent.

As the 21st Century dawns, the Internet has captured not only our imaginations (and more and more of our time), but also an oversized chunk of our investment dollars. The seemingly endless enthusiasm for any company with “dot-com” after its name, however, won’t last.

When the bubble bursts, the rapid loss of value is unprecedented. And as investors and the markets rally to recover, the horrific attacks of September 11th strike at the very heart of the financial industry—and remake the world order. Before the decade is done, yet another bubble will grow and burst—this one tied to housing and exotic synthetic investments.

The ripple effects will throw the global financial markets into a prolonged tailspin. But through this relentless volatility, the digital transformation of the markets surely and quietly continues.

The Two Thousands Timeline
  • 2000

    The dot-com bubble bursts; the NASDAQ Composite loses nearly 80% of its total value.

  • 2001

    Instinet launches an IPO.

    Terrorists attack the Twin Towers and the Pentagon; US markets remain closed until the following week.

  • 2002

    Instinet buys rival ECN Island to consolidate its OTC market share; Instinet’s daily trading volume grows to over 700 million shares.

  • 2004

    Inet ECN overtakes NASDAQ as the largest single OTC trading venue in the US with a 38% market share.

  • 2006

    NASDAQ completes the purchase of Inet’s technology, and Instinet’s agency model broker goes private.

  • 2007

    EU Regulators implement MiFID Level 1—Markets in Financial Instruments Directive.

    Instinet becomes part of the legendary Nomura Group of companies.

    Instinet creates Chi-X Europe, a regulated multilateral trading facility.

  • 2008

    Markets crash due to a confluence of events surrounding the mortgage and credit crisis, causing the Global Financial Crisis.

    Instinet creates Chi-X Global.

  • 2009

    The American Recovery and Reinvestment Act is implemented as an economic stimulus package.

    At the height of the financial crisis, Instinet’s stable agency model and dependable platform help the firm record its first ever billion-share trading day.

In March 2000, after years of euphoric speculation in everything dot-com, the bubble burst.

The loss was unprecedented. In less than a month, the NASDAQ lost nearly a trillion dollars in value.

A fanciful scene of a stock exchange floor with characters representing famous failed dot-com companies, including the pets dot-com socket who holds a needle to a giant balloom printed with text: NASDAQ 5000.

It was a devastating reality check for a market trying to break with the past.

A janitor sweeping up order tickets after hours at a closed stock exchange. An investor, head in hands, watching the value of his portfolio plummet on his computer screen. A figure with a handful of worthless dot-com stock certificates, trying to use them to buy a cup of coffee.

For everyday investors that had bought into the “new economy” hype.

And for thousands of dot-com paper millionaires.

But even as these public faces of technology failed, the inexorable progress of the information age continued.

Supercomputers were unraveling humankind’s biggest mysteries.

Illustrations of a double helix, the mars rovers, and a blackberry PDA.

Electronic emissaries were being dispatched to explore other planets.

Mobile devices and newfangled wi-fi networks were deepening technology’s integration into the fabric of our lives.

The post-bubble reality called for the orderly and transparent environment of electronic markets.

And the major players were increasing their investments in electronic trading.

The Reuters Instinet IPO ceremony against the backdrop of the Reuters tower billboard in Times Square.

Then, on a clear September morning, the unthinkable.

A figure running down the the street with a speeding fire truck in the background. Scenes of a police barricade in front of the New York Stock Exchange, candles and commemorative pictures on a fence, traders silently looking up at news displays, and the reopening of the New York Stock exchange on September 17.

The shocking loss of life and damage to downtown infastructure brought the markets to a hault.

The attack touched every part of the tight-knit Wall Street community.

Instinet lost some of its own, along with hundreds of colleagues and friends.

The impact radiated out to the global financial community.

Exchanges closed and indexes fell across the world.

But when the markets reopened, the sense of solidarity and pride was palpable.

In a shaken and disrupted industry, a new resolve took hold. The push to modernize the markets regained momentum.

Newspaper headlines announcing regulation NMS, MiFID, and Instinet's acquisition of rivaal ECN, Island.

Regulators in the US and EU pushed for more competition and fairer markets.

“We are addressing problems that have lingered in the marketplace for years that resulted in inferior outcomes for investors.”

Chairman William H. Donaldson

U.S. Securities and Exchange Commission

“MiFID will transform the landscape for trading securities and introduce much-needed competition and efficiency throughout Europe’s financial markets.”

Charlie McCreevy

European Commissioner

To compete with the now growing wave of ECNs, NYSE and NASDAQ became public companies, and began to use their new capital to invest even more in electronification.

A see-through human figure from the front holding both arms out with hands upturned, representing the separation of Intstinet's technology and agency brokerage activities.

NASDAQ moved quickly buying Instinet’s Inet ECN from Reuters.

In 2007, Instinet became part of the Nomura Group of companies, bridging East and West, and laying the groundwork for a new kind of full-service global trading firm.

Thriving under the new model, Instinet pioneered Chi-X, the first multilateral trading facility.

The market moved out of its early-decade doldrums on the back of low interest rates and new, opaque credit derivatives. It was too good to be true.

A line of Dominoes falls in a chain reaction with the labels that say deregulation, housing bubble, CDO's, credit freeze, and Lehman Brothers.

In 2008, a perfect storm of rising fed rates, speculation, and an over-leveraged housing market unraveled the bull market.

A line of black bulls with large horns stampedes across a landscape of digital ones and zeros.

The desire for market stability and reliable liquidity spurred innovations that defined the market for the next decade.

At the NYSE and the world’s major exchanges, the migration of trading from the open floor to massive, offsite data centers was underway.

A data center outside of New York City intakes massive amounts of data, as if they were a river.

So called “dark pools” of off-exchange liquidity that had been quietly building up volume from institutional investors, began to multiply.

Quantitative traders using advanced technology at mind-blowing speeds continued to transform the nature of trading and market liquidity.

And Instinet was at the center of it all.

Two figures watching the construction of the new World Trade Center tower; one says: It's going to be 1776 feet tall. That's so cool. The other responds: It's going to be a message to the world.

Agility

Media gets social. Marijuana goes mainstream. The Cloud solidifies in an app-based economy. Big Data, AI, and machine learning redefine intelligence. The Flash Crash redefines volatility. #ArabSpring. #BlackLivesMatter. #MeToo.

The new normal? For some, it’s too much. After 40 years of increasing globalization, a wave of political backlash and nationalistic sentiment rises. But even as physical borders harden, the role of virtual communities continues to expand. Geopolitical movements and events are live-streamed over social media and broadcast channels to a real-time-primed global audience. In a widening “Twitterverse” of content published and proliferated by millions of known and unknown contributors, however, the world is starting to ask questions about the quality as well as quantity of that information.

The drumbeat of the financial markets is regulation, regulation, regulation; new paradigms dictated by Dodd-Frank, the Volcker Rule, and MiFID II. By decade’s end, the business models of many market participants are under review as traditional investment banking models struggle amid extreme pressure to reduce risk, yet still achieve performance.

In this ever-expanding, fintech-empowered landscape, being nimble and open to new ways of thinking and working becomes more important than ever.

The Two Thousands Tens Timeline
  • 2010

    Instagram is founded; 25,000 users sign up on its first day.

    Deepwater Horizon oil rig explodes in the Gulf of Mexico, becoming the worst oil spill in US history.

    A major US market crash dubbed “The Flash Crash” occurs over a 20-minute period, causing significant disruption.

  • 2011

    Japan is hit by an earthquake and devastating tsunami.

    The space shuttle Discovery makes its final flight, 27 years after its inaugural launch.

  • 2012

    Mohammed Morsi is declared the winner of Egypt’s first democratic election in more than a generation.

    The IPO of Facebook is the biggest in technology and among the largest in Internet history to date.

    Instinet becomes the global equities execution arm of Nomura.

  • 2013

    The Boston Marathon is attacked by terrorist bombers.

    Black Lives Matter emerges as a political movement.

  • 2014

    Stock Connect links mainland Chinese markets to Hong Kong and the world’s investors.

    Crude oil prices plummet from above $100 per barrel to below $50.

  • 2015

    Same-sex marriage is legalized in all 50 US states.

    Instinet Europe Limited is authorized as a Payment Institution in anticipation of MiFID II.

    NASDAQ buys Chi-X Canada from Instinet.

  • 2016

    The United Kingdom votes to leave the European Union, a.k.a. Brexit.

    Instinet sells Chi-X Australia, Chi-X Japan, and Chi-Tech to private investment firm J.C. Flowers & Co.

    Instinet integrates Nomura’s US Equity Research team into its platform.

  • 2017

    The #MeToo movement takes off in the US.

    Instinet acquires BlockCross from State Street.

    Instinet launches European liquidity streaming relationships.

  • 2018

    The Federal Reserve sets the target federal funds rate above 2% for the first time in a decade.

  • 2019

    Instinet celebrates its 50th anniversary and fifty years of fintech.

It would become a decade of recovery, reinvention, and newfound stability. But in 2010, the world was still reeling from the recent global financial meltdown.

Two traders at their desks talking. The first says: Liquidity is getting more and more fragmented. With all the noise it’s impossible to see the big picture anymore. The other responds: Yeah, it’s really hard to squeeze out alpha. When spreads are so thin, how do we find upside?

A fresh, crippling debt crisis was cascading through the Eurozone.

Two European Union officials at a finance meeting juxtaposed against an image of the Parthenon. The first says: We agree that the current market turmoil highlights the need to make rapid progress on financial markets regulation and supervision. The second adds: We must reaffirm our commitment to ensuring the stability and integrity of the European markets.

And the world was being introduced to a new kind of unnerving volatility.

A close up a finger pushing a large red button, sending shock waves outward. Text reads: Flash crash, it's down 1000 points in like two and a a half minutes. This can't be real!

Responding to older crises and newer market disruptions—and trying to anticipate emerging challenges—regulators across the globe drafted wide ranging new rules.

President Obama signs regulatory legislation, saying: This reform is designed to make sure that firms compete on price and quality—not on tricks and not on traps. Images of protest in Egypt and on Wall Street; tweeted messages say: We are the 99 percent! End economic inequality now!

And re-level the investment playing field.

In the wider world, a generation amplified by social technology was agitating for fairness in its own way. And by new rules.

Two executives on a stage with a large Nomura logo as a backdrop. One says: The equity markets are being dramatically reshaped globally as a result of the current environment and the accompanying demand for transparent, agency-driven execution. The other adds: The changes announced today uniquely position Nomura to take advantage of—and evolve with—the new market environment.

Amid this broad changing of the guard, Instinet had been quietly innovating…

…embracing an agile way of thinking and building solutions to meet the challenges of shifting investor objectives and new market structures.

Meanwhile, the warp speeds that had transformed trading were starting to become the new normal.

Having access to ultra-low-latency market connections was now table stakes.

The mountains of data generated by electronic trading platforms were also becoming an invaluable asset.

Images of computer servers in racks in a data center, lines of computer code on a screen, and a trader at his workstation. Unseen voices say: Putting the trading servers close to our matching engines shaves off critical microseconds. This space is already sold out. We’re building more as fast as we can. Co-locating our servers in the data centers is the first step. But now we have to start thinking about how to get to the markets smarter, not just faster. They built these real-time analytics right into the Newport’s desktop. I can visualize trade data without leaving the EMS.

Under the new regulatory regimes, providing new and better ways for traders to navigate an unfamiliar landscape became critical…

A group of Insitinet reps and clients speak around an Instinet booth at an industry conference: The question is how do we demonstrate best execution? On every trade, for every client? By studying the data, so you can be smarter about where you find your liquidity, how you get there, and how you evaluate it. With our agency model, we can help you aggregate liquidity in ways that work for you, without information leakage. Algos. RFQs. Full-service desks. And manage it all on great workflow technology.

…And opportunities for different venue-crossing experiences, each fine-tuned for particular…

Scenes of three diverse traders: an African American man in New York, a woman in Paris, and an Asian man in Hong Kong.

objectives

strategies

and order types.

A cascade of juxtaposed images with the text 'The magnitude of change has been breathtaking': a mainframe computer and the cloud; a trading floor and a computer workstation, a Vietnam war protest and a #MeToo poster, ticker tape and a digital data display, a man on the moon and a space station, a trader's hand signals lines of computer code, a rotary telephone and texts, the original logo for Institutional Networks and today's Instinet logo.

But the clear vision of Instinet’s founders remained. As well as their pioneering spirit.

A busy scene on the Instinet trading floor. A sales trader on the phone says: Newport EMS integrates your entire trade workflow. It's so much more than executions. Another says: We call our new intelligent trading architecture Tactic Engine. Let me show you how it works. A software engineer writes on a white board and says: We rebuilt the the liquidity-taker module. We’re getting great results. An analyst refers to a laptop screen, saying: We can trade some of this voice, and put the rest in across a set of algo orders. The EPS estimate looks good. But I’d like run this through one of our models to cross check it. A research analysts presents from a podium: There are reasons to buy stocks or use particular strategies, but there are always underlying risks that investors aren’t aware of. 50 years later, and still, it’s just the beginning.

Artist
Biographies

  • Takahiro Kurashima

    Takahiro Kurashima

    Tokyo, Japan

    Takahiro has always been fascinated by unseen things and unintentional forms. He brings this same attention to his original artwork, using his designs to suggest the existence of invisible things and present a new perspective on the world. Since graduating in 1992 from Musashino Art University in Tokyo, Takahiro’s work has been featured in numerous publications and exhibitions, including solo exhibitions at the Slant Gallery in Kanazawa and the Morioka Shoten bookstore in Tokyo. His published works include Poemotion 1, Poemotion 2, and Poemotion 3, and he recently collaborated with Hermès on a video to promote their new watch collection.

    takahirokurashima.com

  • Nick Bertozzi

    Nick Bertozzi

    Queens, New York

    A comics reader since his single digits, Nick has written and drawn many comics that have been published in a handful of European languages, and won multiple Harvey Awards. His most notable works include: The Salon, Lewis & Clark, Persimmon Cup, the New York Times bestselling Shackleton: Antarctic Odyssey, and he has written Becoming Andy Warhol and drawn the New York Times bestselling graphic novel, Jerusalem: A Family Portrait. He has taught cartooning at the School of Visual Arts in New York City for many years.

    nickbertozzi.com

  • Owen Brozman

    Owen Brozman

    Brooklyn, New York

    Owen illustrates comics, advertisements, murals, album covers, magazines, books, and more. His work includes the New York Times bestseller You Have to F*%king Eat (the sequel to the bestselling classic children’s bedtime story parody Go the F*%k to Sleep), and the latest book in the series, F*%k, Now There Are Two of You. He also illustrated Kindness & Salt, a cookbook by the team behind Brooklyn’s Buttermilk Channel and French Louie, and the graphic novel Nature of the Beast.

    owenbrozman.com

  • Josh Neufeld

    Josh Neufeld

    Brooklyn, New York

    Josh is a cartoonist known for his nonfiction narratives of political and social upheaval told through the voices of witnesses. He is the writer and artist of the bestselling nonfiction graphic novel A.D.: New Orleans After the Deluge and the illustrator of the bestselling graphic nonfiction book The Influencing Machine: Brooke Gladstone on the Media. With his wife, fiction writer Sari Wilson, Josh co-edited Flashed: Sudden Stories in Comics and Prose. His books have been translated into numerous languages, and he has been a Knight-Wallace Fellow in journalism, an Atlantic Center for the Arts Master Artist, and a Xeric Award winner.

    joshcomix.com

  • James Otis Smith

    James Otis Smith

    Brooklyn, New York

    James is the creator of Gang Of Fools, a vivid look at our dystopian urban future, with equal parts contemporary street life and speculative cyberpunk-like techno-consequences in the vein of Black Mirror and Philip K. Dick’s Electric Dreams. He is also the artist behind Showtime at the Apollo: The Story of Harlem’s World Famous Theater. He’s worked with Morgan Stanley, HarperCollins, Abrams Books, Syfy Channel, DC Comics, and more. He currently lives in the only apartment in Brooklyn not overrun by cats.

    jamesmith3blog.wordpress.com

  • Chris Koehler

    Chris Koehler

    San Francisco, California

    Chris is an award-winning artist whose work has been featured in The New York Times, Washington Post, Wired, The Atlantic, and Popular Science as well as movie posters for Marvel Studios and book covers for Penguin Random House and Tor. His illustrations have been recognized by Communication Arts, Society of Illustrators, American Illustration, Spectrum, and 3x3.

    In addition to being a freelance brush for hire, Chris is the artist behind the acclaimed comic Legend. He has taught in the Illustration and MFA in Comics Programs at California College of the Arts and in the Design Department at UC Berkeley. He can often be found hunched over a sketchbook in a coffee shop.

    chriskoehler.com

Glossary

Acknowledgments

Fintech at Fifty would not exist without the people who created the history we celebrate. From our founders, early leaders, and their families, to our current leadership and dedicated employees, and our extraordinary clients. We also wish to pay tribute to Anil T. Bharvaney and Stephen K. Tompsett, members of the Instinet family who lost their lives at the World Trade Center on September 11, 2001. We would not be who we are or where we are today without all of them.

Thank you to everyone who helped bring the story of Fintech at Fifty to life: the artists who brought their individual perspectives, insights, and style to each decade; Takahiro Kurashima, whose unique animation effects are featured throughout the story; and the current and former Instinet employees and friends of the firm who gave interviews and provided material that helped define and shape the story.

The images featured at the beginning of each chapter were sourced from Getty and Alamy. The writing, design direction, and production were overseen by Thinkso Creative, Instinet’s New York-based creative agency.

© Instinet Incorporated. All rights reserved. INSTINET is a registered trademark in the United States and other countries throughout the world. No part of this publication may be reproduced or disseminated without the prior written permission of Instinet Incorporated.

The factual content of Fintech at Fifty was collected from several sources, including the recollections of Instinet employees, their colleagues, and industry peers, material from the company’s archives, and publicly available information. While the intention was to present an accurate account of the events and actions of the people portrayed, Instinet assumes no responsibility or liability for any errors or omissions in the content of this website, including attributed quotations. For the sections of the website in which characters and scenes have been invented, the names, characters, businesses, places, events, and incidents are either the products of the author’s imagination or used in a fictitious manner, and any resemblance to actual persons, living or dead, or actual events is coincidental. The information contained in this website is provided on an “as is” basis with no guarantee of completeness, accuracy, usefulness, or timeliness.

Photo in The Seventies by Paul Slade/Paris Match Archive via Getty Images.

Programmed by Project Ricochet.

Set primarily in the Atlas Grotesk, Chronicle Text, and Px Grotesk typefaces.

Written and designed by Thinkso.

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