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Nasdaq to purchase trading network

The image of Ed Nicoll, CEO of Instinet, appears on the electronic display of the NASDAQ marketsite in New York's Times Square on Friday. (Associated Press / The Spokesman-Review)
Associated Press
The image of Ed Nicoll, CEO of Instinet, appears on the electronic display of the NASDAQ marketsite in New York's Times Square on Friday. (Associated Press / The Spokesman-Review)

NEW YORK — The Nasdaq Stock Market Inc. is purchasing Instinet Group Inc.’s electronic trading network for $934.5 million, a move designed to improve Nasdaq’s position as competition grows among the world’s stock markets.

The long-rumored announcement Friday came two days after the New York Stock Exchange said it would merge with Archipelago Holdings Inc., operator of the ArcaEx electronic trading market, a surprise move that boosts the NYSE’s electronic trading offerings and increases its competitiveness against Nasdaq and other markets.

Instinet’s trading technology — considered the fastest and best in electronic stock trading — was a major factor in the deal, which also gives Nasdaq increased market share in its own listed stocks as well as NYSE-listed shares, and access to more trades and liquidity.

“This transaction will position us to offer investors increased choice in listed stocks on other markets as well as increased liquidity in Nasdaq-listed stocks. (Instinet) is the ideal partner for us to offer investors the best outcome for their trades,” said Bob Greifeld, Nasdaq’s chief executive officer, said at a press conference at Nasdaq’s Marketsite in Times Square.

Instinet’s technology will become the predominant electronic trading platform in the U.S. equity market, and the Nasdaq will abandon its own system to standardize on Instinet’s platform.

Instinet’s broker-dealer arm, to be run by Instinet CEO Ed Nicoll, will be sold to a private equity group, Silver Lake Partners, for $207.5 million. Another Instinet subsidiary, which manages commission rebates, will go to the Bank of New York for $174 million. The deal also include $562 million in cash that Instinet currently holds.

Shares of the Nasdaq Stock Market surged $3.11, or 29.2 percent, to $13.76, while Instinet shares fell 48 cents to $5.22. Instinet said in a release that investors would receive approximately $5.44 in cash per share. British financial information company Reuters Group PLC, which owns 62 percent of Instinet, said it expects to receive $1 billion from the deal; Reuters stock was up $1.44 at $49.20.

To finance the Instinet purchase, Nasdaq will take on $955 million in new debt, to be paid within six years. Nasdaq Chief Financial Officer Dave Warren said, however, the company will save $100 million in costs over the next two to three years, and plans to pay off the debt before it comes due.

The NYSE deal and the Nasdaq purchase put the two markets — the 213-year-old icon versus the slick, computerized upstart — into a head-to-head competition that will likely result in a variety of new investment products and lower transaction fees for both institutions and individual investors.

Greifeld took the opportunity to jab at the larger, older competitor — and the human specialists who manage floor auctions on the NYSE — in extolling the Nasdaq’s all-electronic trading systems. “We do not anoint anyone as a specialist or monopolist. It is the best of both man and machine,” he said. “We certainly accept the flattery of their imitation” in adopting an electronic platform, Greifeld added.