Reuters, Instinet To Merge, Setting Stage For Launch Of Integrated Data Network

With its acquisition of Instinet Corp. and the imminent launch of its U.S. equities feed, Reuters Holdings PLC has the elements in place for its assault on the U.S. securities industry. Tying all of the pieces together will be Triarch, a new LAN-based digital trading room system from Reuters subsidiary Rich, Inc.

Instinet's board quickly accepted the Reuters bid after the offer was sweetened from $7.25 to $8.50/share, thereby putting Instinet's market value at $102 million. Reuters will pay in cash for the first 5.1 million shares -- to give it 51 per cent -- and will swap $8.50 worth of Reuters ADRs for each share in the remaining 49. The cash tender offer has begun and will expire December 11th.

"It is contemplated," says a joint statement, "that Instinet will continue to operate under its present name and with existing management." Nonetheless, one source says that only one member of Instinet's senior management has an employment contract.

Meanwhile, the long-awaited U.S. equities feed from Reuters is only "a few weeks" away, according to Bill Kline, vice president, sales, at Rich, Inc. The 56 kilobits/second feed -- called the "Integrated Data Network" -- will comprise real-time data from every exchange in the world, but for the moment will not include any contributed data from the Reuter Monitor service. See You Later, Video

What will win acceptance for the IDN feed in trading rooms, Kline says, is that its protocol and data format will match those generated by the new Rich Triarch system. Although Rich made its fortune in video switching, the firm now maintains that video is obsolete and all-digital is the way to go. "I don't think that any of the major firms -- and by major I mean 40 or 50 trading positions and greater -- is going to buy video any more," says Kline.

The centerpiece of Triarch is what Kline calls a "ticker generator" -- a system to convert page-based data services such as Telerate and Reuter Monitor into a digital format. "The ticker generator extracts logical data from page-oriented data," he says, and "we make it conform to the IDN protocol."

Thus the IDN/Triarch-equipped trading room will have access to exchange and contributed data in a common format. "Our goal at Rich and Reuters," says Kline, "is to provide one logical data stream representing every traded instrument so that you can use it in real-time analytics."

In Kline's scenario, the Triarch LAN is a backbone to which all of Reuters's recent developments and acquisitions are attached. IDN exchange data and IDN-formatted contributed data would drive a real-time analytic system based on the "Schwarzatron" recently acquired with Network Utilities, Inc. (MTR, October 1986)

If a trading opportunity is spotted by the analytic system, the trade would be routed to Instinet for execution. Once the trade is executed, positions would be updated using a portfolio management system based on the recently-acquired Reveal Software, Inc. (MTR, October 1986). All of these functions could appear in separate windows on the Advanced Reuter Terminal (MTR, June 1986).

While this scenario applies only to the trading environment, Kline sees it extending down to the retail branch as well. Firms would distribute IDN data over their own networks, use ARTs as broker workstations, execute trades through Instinet, and manage portfolios using Reveal.

The role of Instinet, of course, teems with unknowns. Of some interest is whether Reuters will view Instinet bid and offer prices as "exchange" or "contributed" data. Instinet trades are reported on SIAC's consolidated ticker and presumably will appear in the IDN feed. Whether Reuters will use IDN to advertise Instinet bid and offer prices as well remains to be seen. /P>