Waters Rankings Winners' Circle: Instinet Targets Broker-Dealers in Sell-Side Push

Having won the Best Execution Management System (EMS) Provider award at the Waters Rankings in 2012, Instinet is looking to expand its traditional client base from the buy side to the sell side in the near future. Widely respected already for its global reach, its Newport platform is currently undergoing development for the push, which aims to grow from its existing pool of portfolio traders into the broker space.

“Moving forward, we’re working on building out Newport’s capabilities for the broker-dealer community—developing an order management system-lite, if you will,” says Erin Sheehan, Newport product strategist at Instinet. “By adding advanced allocation capabilities, position management, the ability to organize and send broker-neutral commission and fee reports, source stock locates, and import restricted lists, we believe that Newport can become a very compelling offering for the sell side.”

This follows several years of positioning Newport as a leading product in the EMS space. In the Americas, it connects to 25 equity exchanges and ECNs, as well as over 30 dark pools or broker crossing networks. In Europe, it links to 35 exchanges and lit networks, and 15 dark multilateral trading facilities (MTFs) and crossing networks, while in Asia, it can delve into 20 exchanges and over 18 other liquidity pools.

Multi-Asset Coverage
Building out its capabilities in derivatives trading, accordig to Instinet, has been a key differentiator for Newport in the way that it operates within the marketplace, along with leveraging its connectivity.

“Newport originated as a pure equities platform, catering mostly to portfolio traders,” says Sheehan. “Over the last three years, however, we’ve made great strides in our efforts to diversify the platform in three key areas. First, we integrated support for derivatives into the platform, initially with options and then futures. Instinet’s acquisition of Torc Financial was key in this regard, as the Torc technology has enabled us to deliver advanced derivatives capabilities such as the spreads trading functionality we recently introduced. Second, we dramatically increased the number of destinations available globally through Newport. As a result, clients can today access over 500 destinations around the world, including the algorithmic suites and cash desks of virtually all major broker-dealers globally as well as approximately 125 market centers. And third, we have continued to add support for a wide range of workflows, such that Newport is now an ideal solution out of the box for single-stock traders, those primarily trading options and option spreads, or users trading complex portfolios.”

Neutral Ground
Underpinning Newport’s success, and that of Instinet as a whole, is its agency-only and broker-neutral bearing, says Frank Freitas, COO at Instinet. Although owned by Japanese investment bank Nomura, Instinet remains a qualitatively independent entity, and one that trades purely for its clients rather than its own book.

“When Nomura purchased Instinet several years ago, the technology was obviously a major driver, but another was Instinet’s agency-only positioning,” Freitas explains. “Unlike bulge-bracket firms, we trade only on behalf of our clients, so all of the intellectual property that we develop, be it quantitative or technical, goes directly to the client’s benefit rather than ours.  Nomura has been proactive in its efforts to preserve Instinet’s agency model, and that plays out in the EMS space as well. The types of conversations we have and partnerships we develop with our clients as an agency firm are not the kind we could have were we a bulge firm.”

Along with the push toward sell-side firms, and its continued independence, the use of analytics within the program framework itself has helped to distinguish Newport, according to Sheehan. “One of Newport’s primary differentiating factors is its integration with Instinet’s analytics suite, Insight,” she says. “Insight’s visualization capabilities allow users to view pre-trade, real-time and post-trade information graphically, helping them make the most informed trading decisions possible.”