Instinet Group, Inc.

3 Times Square

New York, NY 10036
212-310-9500
www.instinetgroup.com

Sales

$1.1 billion

Business Description 

We are the largest global electronic agency securities broker and have been providing investors with electronic trading solutions and execution services for more than 30 years. We provide sophisticated electronic trading solutions and execution services to enable buyers and sellers worldwide to trade securities directly and anonymously with each other. We also give our customers the opportunity to use our sales-trading expertise and sophisticated technology tools to interact with global securities markets, improve their trading and investment performance and lower their overall trading costs. Through our electronic platforms, our customers can access other U.S. trading venues, including NASDAQ and the NYSE, and almost 30 securities markets throughout the world, including stock exchanges in Frankfurt, Hong Kong, London, Paris, Sydney, Tokyo, Toronto and Zurich. Our customers primarily consist of broker-dealers and institutional investors, such as mutual funds, pension funds, insurance companies and hedge funds.

Since the fourth quarter of 2003, we have been implementing a business restructuring plan to establish two distinct business lines:

• Instinet, the Institutional BrokerSM, which serves our U.S. and international institutional customers including customers of Lynch, Jones & Ryan, our commission recapture subsidiary.

• INETSM (formerly known as The Island ECN, Inc.), our electronic communications network (ECN) that combines the U.S. broker-dealer order flow of the Instinet ECN and the Island ECN and serves our U.S. broker-dealer customers. INET also includes our clearing broker, Instinet Clearing Services, Inc.

The aim of this restructuring is to empower each business to pursue its own distinct interests and add strategic clarity to each business. In December 2003, we began the separation of our institutional broker and ECN businesses and the consolidation of the order flow of our two ECNs. Our reorganization was substantially completed on February 9, 2004.

Instinet, the Institutional Broker, our global electronic agency securities broker, had over 1,030 institutional investor customers in the United States and approximately 720 customers in Europe and Asia as of December 31, 2003. These customers can use our sales trading expertise, sophisticated trading tools and advanced technology to execute their equity securities orders with Instinet’s other institutional customers on Instinet’s Continuous Block Crossing trading platform (CBXSM) or access other U.S. trading venues, including INET, or one of the almost 30 non-U.S. securities markets to which we are connected using Instinet’s smart order-routing technology. Instinet customers can also seek superior execution of their trades by displaying orders for U.S. equity securities in multiple U.S. trading venues simultaneously using Instinet’s ProActive SmartRouterSM. Instinet customers can connect to its systems through third-party front-ends, using financial information exchange (FIX) protocols, or use Instinet’s specialized trading front-ends such as our patent pending NewportTM system, designed to automate and manage global portfolio trading, and Instinet Trading PortalSM, which offers flexible functionality for interacting with Instinet’s other customers and accessing external markets. Instinet offers its customers other services designed to enhance their ability to achieve their trading objectives, including crossing services, block trading and portfolio trading. Instinet customers can also trade outside traditional market hours and obtain select proprietary and third-party research.

Through our Lynch, Jones & Ryan, Inc. subsidiary, Instinet is also one of the largest providers of commission recapture services to pension plans and other financial institutions worldwide. Instinet helps pension plans and other financial institutions save money by rebating a portion of their trading commissions back to the plans or financial institutions. Instinet is also one of the largest independent providers of research and other brokerage services through soft-dollar or other similar arrangements.

INET, our single electronic U.S. marketplace representing the consolidation of the order flow of our two ECNs, had approximately 800 broker-dealer customers in the United States as of December 31, 2003 (includes broker-dealer customers of both Instinet ECN and Island ECN). INET offers its customers one of the largest liquidity pools in NASDAQ-listed stocks, as well as liquidity in U.S. exchange-listed stocks and significant market share in exchange-traded funds (ETFs), through the existing Island ECN platform. This electronic platform executes trades quickly and reliably, while operating at a low cost. INET also provides its customers with access to other major U.S. trading venues, currently through Instinet’s smart order-routing technology, to give customers the opportunity to obtain superior execution. During 2003, INET’s average daily matched volume (includes broker-dealer customers of both Instinet ECN and Island ECN) was approximately 401 million shares in NASDAQ-listed stocks and 44 million shares in U.S. exchange-listed stocks. Matched volume reflects transactions where the buyer and seller are matched on INET. INET accounted for 23.8% of the total trading volume in NASDAQ-listed stocks and 2.3% of the total trading volume in U.S. exchange-listed stocks during 2003. For an explanation of how we calculate our trading volumes, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Calculation of INET Volumes.” More than 80% of INET customers’ transactions are generally executed within its internal liquidity pool.

Through our Instinet Clearing Services (ICS) subsidiary, INET provides clearing and settlement services in nearly all of the U.S. markets in which INET or Instinet executes trades for customers. ICS clears and settles trades for both INET and Instinet and also provides correspondent clearing services to a few securities brokers in the United States.