納斯達克交易所 (NDAQ) 2002 Q2 法說會逐字稿

Good afternoon. This is

and I will be your conference facilitor. After the speakers remarks there will be a question and answer period. I will provide further instructions before we take questions.

I would like to turn the conference call over to John Pitt, Vice President of Investor Relations at Instinet. Mr. Pitt, you may begin the conference.

Good afternoon and welcome to Instinet Group's conference call to discuss second quarter earnings.

During this conference call, we may make statements that are forward-looking in nature. Our actual results may be materially different from the results anticipated in those statements. You can find a detailed discussion of certain important factors that could cause actual results to differ materially from our expectations in our annual report on form 10K for the year end of December 31, 2001, and other documents filed with the SEC which are available on our Web site.

Today we will have remarks by Mark Nienstedt, Istinet's acting President and CEO and Chief Financial Officer, and Jean-Marc Bouhelier, our Chief Operating Officer. Mark Nienstedt will speak first. Over to you Mark.

Thank you and good afternoon. This is Mark Nienstedt. I'd like to welcome you to Instinet's earning call for the second quarter of 2002. I'd like to start out by reviewing our second quarter.

On a reported gap basis, Instinet lost $59.9 million, or 24 cents per share. This loss includes significant costs to restructure our operations, cost related to our fixed income business, which we shut down during the quarter, and a loss on our equity investments. Exclusive of these specific items, we lost one cent per share. We successfully achieved each of our key second quarter objectives. We significantly improved our products and competitiveness, we have grown our liquidity and trading volumes and we have significantly reduced our core fixed cross base. In addition, we negotiated the key strategic acquisition of the island ECN, to deliver further long-term benefits to our customers and our shareholders.

First our touch on our share volume figures in the U.S. market. Prior to the second quarter, Instinet had seen declines in its share of NASDAQ and total U.S. market volumes in each of the prior three quarters. This trend was related to three factors. First, there were major changes in the marketplace, most notably decimalization. Second, increasing weakness in the equity markets themselves impacted many of our customers. And third, the market looked to us for faster performance, more modern front ends and prices scaled to service levels.

As we have indicated previously, Instinet has aligned its core business with its key customer groups. We addressed system performance issues to become one of the fastest electronic services and have released modern, efficient front ends, designed with our customers to meet their specific requirements. We have tailored our pricing inline with service levels, and introduced liquidity rebates to strengthen our liquidity pool. The result has been dramatic. Following the introduction of our new pricing in mid-March, our share volume and share of market volume has grown each month. From 10.8 percent of NASDAQ in March, we have grown to 15.9 percent in June. And July is showing an increase from June's level.

The growth in our U.S. share volumes has come largely from our broker-dealer customers. Broker-dealer share volume grew by about 43 percent from the first quarter. In the second quarter, while broker-dealers accounted for 74 percent of our U.S. share volume, they represented just 21 percent of our net equity transaction fee. A year ago, the portion of our net transaction fees relating to broker-dealers trading in U.S. stocks was 44 percent. Pricing of U.S. shares, as expressed in average cents per side, was 36.5 cents per 100 shares in the second quarter, down from 55.0 cent per 100 in the first quarter and 63.9 cents per 100 in the second quarter of 2001. This reflects the full impact of the broker-dealer pricing changes that I discussed, as the second quarter was the first full quarter in which the new liquidity pricing was in place. We have addressed the need to align our pricing with both service levels and market conditions. We expect that while we continue to monitor pricing as an important part of our product offering, we now offer substantial value across our customer groups. We may continue to experience the greatest volume growth from our lower price groups with overall average pricing being somewhat lower all the time. It is important to note that our offerings are priced at levels that are profitable and current volume levels and will support profit and margin growth as volumes increase. Second quarter net non-U.S. equity revenue was 39.9 million dollars, a slight increase from the prior quarter but a decrease from the 48.8 million dollars in the second quarter of 2001.

Net non-U.S. equity revenue now represents 22% of net transaction fees. I will spend a few minutes on the cost side. We knew that we would need to reduce our fixed cost base significantly to support the pricing initiatives that we implemented. During the second quarter, we restructured our core equity business globally, reducing our staff count from 1,830 to 1,559 and discontinued our fixed income operation yielding an additional staff reduction of 107. Hence, the total staff count has decreased by 31% for 685 staff over the past twelve months. As we previously announced, we have been restructuring our operations with the intent of reducing our annualized fixed cost base by approximately $120 million dollars compared with the fixed cost base of 2001. During the second quarter we aggressively implemented this program. We recorded restructure costs of 42 million dollars largely associated with staff reductions of 271 or 15% in our core equities business. This follows reductions in our core business of 179 in the first quarter of the year and is in addition to the reduction of 123 fixed income staff this year. At June 30, our global staff count was 1,559. Again, as we previously announced, we discontinued our fixed income business during the second quarter. We included all costs related to this closure in the quarter and have shown the fixed income figures separately on our Income Statement as a discontinued operation. In the first quarter our fixed income business represented a net pre-tax cost of 9.8 million dollars for about 39 million dollars on an annual basis.

As a result, we believe that the actions we have taken are sufficient to achieve our fixed cost goal for the second half of 2002. We continue to identify additional areas to achieve; include, cost efficiencies further throughout the year and we expect cost energies from the Island Transaction. Our Balance Sheet remains very strong. A stockholder's equity, the book value of Istinet totaled 1.38 billion dollars at June 30, 2002, compared to 1.36 billion dollars a year earlier. Net cash and securities excluding cash held for customers totaled 633 million dollars at June 30 compared to 585 million dollars a year ago. Goodwill and other intangibles totaled 194 million dollars. I would like to provide a brief update on our Island Transaction. We are in progress with our regulatory filings and as such we remain competitors. We have no reason to change any of our expectations regarding the transaction, its timing or its benefits. I would now like to turn the call over to Jean-Marc Bouhelier, our Chief Operating Officer. Jean-Marc.

Good afternoon. At our last briefing and at our recent investor day I outlined our core strategy, which is to delivery our product and services and improve our client performance at a price which is competitive.

Position Instinet in the evolving U.S. market structure, complete the reengineering of our technology platform to shorten time to market, improve service and lower costs and deliver an appropriate return to our shareholders.

On the product and services side, we have completed the alignment of our organization with our client groups. The leadership of each of the segments is now fully in place and our roll out of new product is gathering momentum. The last time we spoke, the Instinet trading portal was in data testing with 20 clients, and we have planned to roll out to 50 clients this quarter.

I'm pleased to be able to say that with our new base deployment model, we have been able to deploy the portal to over a 180 client sites. New

management platform for passive and quantitative managers was scheduled to roll out to external clients as scheduled in June, with 10 clients in the U.S. and Europe now trading on these products.

Our global portable trading desk traded twice as many shares for new

in June as in May. We are still targeting 40 to 50 client site by the end of the year. Between new

and the portals, somewhere in the region of 15 percent of fine trading institutional business is passing through the new platform.

On the sales side, we have accelerated our program to move clients to our new Direct-FIX technology, which provides faster response time and richer trading functionality than its predecessor and is more cost effective to Instinet. We have exceeded our conversion goals for clients and third-party vendors, having converted more than two third of our fixed client base.

We believe that a combination of our increased performance, together with our competitive pricing, has contributed to the increasing participation from our market maker, Direct-FIX and profit driven client groups. The success of deploying portal and new ports, which are available over private network on the Web.

Coupled with our planned migration to the

and network is beginning to have a materially impact in reducing the overall costs of deployment of service to our customer. This we believe will enable us continue to deliver the superior service at the most competitive price in the market.

On the clearing side, since the beginning of the year through the use of techniques of compression and other technology efficiencies, we have reduced our clearing expenses by $18 million year on year. And have a program to reduce them by another five million by the end of the year.

We're also continuing to look at opportunities, both domestically and internationally, to off shore corresponding clearing service and to further reduce our clearing expenses. On the market structure front, our strategy is to provide our customers with the best tools for executing trades.

Our smart

of technology enables us to connect to multiple liquidity pools and these coupled with our estimated market attraction, allows us to expose our client orders to most

venues and take advantage of liquidity wherever it exists.

The

represents a significant liquidity

we provide our customer with a choice of representing their

in that marketplace. In the meantime, we are continuing to work with a regulators to ensure that there is one valuable alternative to

to declare independence of the

trading and

processor, and three, new discriminatory pricing.

As we stated at our investor day, we believe that merger with Island ECM will broaden and deepen our liquidity pool, which will benefit our clients and enable us to continue to provide the market with a viable and competitive alternative.

On the technology front, as demonstrated by the successful roll ads of

technology

, we have significantly shortened our time-to-market for new-product development. Our investment in improved performance and capacity has enabled us to support a record day of just under seven million orders and over seven million shares traded on July 16, with no interruption to service.

Looking forward, we have a number of new products in our pipeline, some of which are being developed in partnership with our major clients and are therefore under non-disclosure agreements. However, we'd like to give you an insight into one of them, which is our block-trading initiative. Our newest initiative in this arena, called targeted orders, which is designed to help traders identify potential

of a block order and negotiate directly with them without diminishing their ability to expose the order

to the market. This functionality is used for deployment in Q3 and Q4 of 2002.

Reviewing our Q2 business performance, we have seen quarter-on-quarter volume gross of 43 percent from our U.S. broker-dealer business. We have been particularly successful in driving NASDAQ-listed volume from these customers, a factor that includes faster response time, open connectivity solutions, a new red card, renewed efforts in sales and relationship building. Second quarter revenue from U.S. broker-dealer represented 21 percent of total global revenue. Revenue from the U.S. buy-site clients was down approximately eight percent in Q2 versus Q1. Volume from these customers fell four percent in the second quarter, compared to the previous quarter, attributable largely to lower activity generally in the U.S. from these clients. However, we saw some good volume gross from the small

buy-site customer groups.

The

and

climb group was up 21 percent quarter-on-quarter, driven by factors that include leveraging new port-to-handle

trading, higher volume from

traders and our focus on relationship building. For the second quarter, revenue from U.S. buy-site clients trading in U.S. equities represented 43 percent of total net revenues. Our international business comprising revenue from non-U.S. equities and revenue from international clients trading U.S. equities represented 31 percent of total Q2 net revenues. International revenues were flat quarter-on-quarter. In such difficult market conditions, we consider this a good result and are pleased with progress. As in the U.S., in the last quarter we have been resizing the European cost base for future profitability.

To conclude, by the end of the third quarter, we will have completed the majority of our cost restructuring, we will be operating with our new cost base and we will have completed the bulk of the deployment of our new product to a wide set of clients with a lower cost of ownership. We believe that this combination will help us achieve our operating targets, which remains a pre-tax profit of 20 percent and deliver and appropriate return to our shareholders.

I look forward to talking with you again. Now I'll turn the call back to Mark.

And I think we'll got straight in, John, to our Q&A.

Thank you. We will now begin the question-and-answer segment of this conference. If you have a question now, or any time during the remainder of the call, please press the number one on your telephone keypad and listen for a tone. The tone indicates that your line has been placed in the queue to have your question answered. Please make sure to take your phone off mute as soon as you hear the tone. Questions will be answered in the order that they are received. When it is your turn, I will call your name. If you are using a speakerphone, please pick up the hand set before speaking. Begin by stating your name and then ask your question. You can withdraw your question at any time by pressing the pound key.

One moment for questions. The first question is from

. Please state your name and ask your question.

, Bear Stearns. How are you doing guys?

Hey,

.

Hi.

I guess just a couple questions. First, I guess the biggest question is volume levels and how sustainable these volume levels are, and also the revenue per share coming down to about 35 percent quarter over quarter. Should we see this continuing coming down, or just a little comment on some of the

numbers.

I'll answer briefly and ask if Jean-Marc wants to add anything to it. I think we have seen significant increases in our share volume,

, and it's a been a result of the combination of factors, including the faster performance of our system from functionality improvements, and some of the rate

changes that we've made to the broker dealers. We were -- are the best placed to -- for this customer group to trade. And we're continuing to notice that our volume figures have gone up pretty evenly each month since we've rolled out these changes and continue through to the current period.

They continue to do that in July, so we feel very pleased that we match up very well with the alternatives for trading that are out there. In terms of the price changes, what we had in the second quarter was largely the impact of the revised pricing we put in in mid-March. So we had it in for the full quarter and it had liquidity rebates for brokers posting liquidity on Instinet. We had not had this element previously. A very small amount in the first quarter.

With that full impact in, we're getting the full benefit of it now. There is no anticipated further impact on this other than that if volumes continue to grow faster in the lowest price segments, the average will come down. But actually, each of our areas is now priced and serviced competitively against what else is out there. So I don't see anything of the order of what we've had second quarter to first quarter. Would you care to add anything, Jean-Marc?

No.

OK, second question was regarding -- I guess the SEC halting the market data programs. That have any impact on you, and then also, I guess it does on Island. What's the potential impact there?

It's been an extremely small impact on us, that's been an immaterial part of our financials, and not even a part of our forecast going forward. We're aware of the changes, or the action that's been taken, and we don't believe that this is going to have the material impact on Island's financials, but we'll continue to monitor that as we go forward.

OK, and then just finally, any comment on

and

? What's the latest on that?

do you want any of the most recent developments on the

?

No, the decision, we are still - we are still working with the regulators to make sure there is a viable

we - we believe that more needs to do to make that

viable alternative and so it's sort of work in progress. It's difficult to make much more comment on the subject.

Thank you.

You are welcome.

Our next question comes from

. Please state your name and ask your question.

Hi guys.

,

. Just a couple of questions, first do you have a sense what the pro forma market share on the NASDAQ would be for - if you rolled in

? And secondly, in terms of the broker/dealer rebates, do you expect that to be at similar levels as a percent to revenues in Q3? Thanks.

Let's say - we publish our share volume figures on a weekly, monthly and quarterly basis on our Web site and

I believe does have similar information that it makes available daily as well as weekly and monthly. So I think you can draw your own assumption on it from that.

Fair enough.

And your second question?

In terms of the broker/dealer rebates, should that kind of remain at a similar level as a percentage of revenues in Q3?

We would expect it unless that - that group grows at a higher rate than the rest of our business, and that certainly the case that we saw in the second quarter where we had a significant growth from that group. So their volumes will continue to go - to go up at the rates we've seen. You could get that to be a bit more of a percent, although that business, if you were to net it out of revenue, still places that - that revenue would be growing and that - that would be profitable business to us. So we would like that result.

Right, and just lastly, in terms of Q3, could we continue to expect better profitability I guess, you continue to be profitable in Q3? Thanks.

Well, we should see, you know we were very close in - in Q2 on a sort of ongoing operations basis. We took care of a lot of things that we needed to do to put us in a good position. July is off to a great start for us. So I think we're you know, we're in a - in a good position. You can continue to monitor our volumes as the quarter goes on. But I - you know I think that we are in - we are in a position to show a better result, and at the full benefit of our cost cuts in through the quarter when they were only partially in for the second quarter.

OK, thanks,

.

You're welcome.

Our next question comes from

. Please state your name and ask your question.

Hi,

at Deutsche Bank. First of all, in terms of converting customers to the - on the fixed client basis, you said you converted two-thirds, have a third to go. You expect to do the balance through the end of the year. Can we look for a proportional cost reduction on the communication line as that process that's ...

I'd like to - I'd like to possible to come back to you on that. I would say that the - the answer should be yes, but I would like to come back to you because it may actually be - it may actually play both ways, because I'm not sure we've actually achieved as much telecom reduction in the second quarter as we were hoping to achieve. So it may actually play a little bit in both ways. So I'd like to take it offline and come back to you on that.

OK. Not a problem. The increase in the broker-dealer trading, you made a lot of comments on that. Maybe just one last piece of information. Do you have any comment on how much of that comes from the broker-dealer cash equities desk versus program trading?

Yeah, we can give you a sense for that. The average for the sales site business was 34 percent, as we said in the call, and as you know, in that category, we have four groups of customers. We have market makers, direct access programs or even ACM's. And the market maker group was actually up about 34 percent, which is definitely online with the average for the entire group.

Across the board.

Across the board, and that percentage is year-over-year or quarter-over-quarter?

It's quarter-over-quarter the increase for the entire broker-dealer segment is 35 percent. The sub-segment of the market maker increased by 34 percent.

It's fairly well balanced.

It's actually almost inline with the average. The program guys are obviously at the top end, and other ACNs coming and taking liquidity with us are at the low end of that spread.

Right. Mark, how about just a - we've had a couple of restructuring charges the last couple of quarters. Good tax rate going forward?

A good tax rate going forward?

Yes sir.

I would say that for the year it's going to be, we will sort of need to wait and see what our tax rate is, because we've had the impact across a number of our companies, which are both within and outside the United States. And we very well may be, after the restructure charges, a fairly low margin for the whole year. And it's difficult to see - it's difficult to predict what the tax rate will be when the bottom line is small in relation to the total revenue.

All righty.

I think we've got to plan as we, you know, going forward to work on our tax rate. But this is going to be an unusual year. I don't want to present it as a negative here. It's just going to be difficult to make an assessment as to what the ultimate tax rate will be for the year.

And then, following up on a previous question, just in terms of the super montage, are you guys still participating and testing?

Yes.

OK. And then, the last one on the SEC pulling of the market that are revenue sharing, I understand the financial impact isn't that big. Is there anything that we could be reading into, and just in terms of the SEC stance, and their view on what the future of market structure might look like? In other words, do they have - your interaction with them leads you to believe that they are against fragmentation in any way, shape or form?

I think it's difficult to try to read something into that particular action by the SEC. It's certainly something that we will continue to monitor. But I don't think it by itself is indicative of any real change in SEC's stance.

OK. Fair enough. Thank you guys.

Our next question comes from Adam Townsend. Please state your name and ask your question.

Hi, it's Adam Townsend, J.P. Morgan. Looking at the PNL, given the timing of the staff reductions and so forth, is it prudent to use the current level of compensation as an appropriate level for the remainder of the year?

I think what you see in the second quarter is the compensation and benefits line that was shown there is -- that's not had the full impact of the staff reductions in there since they occurred throughout the quarter.

Okay, so there's a lag effect there and we should see a further decline in that line item.

There is somewhat of a lag effect there, yes.

Okay, and then also there's a bump up in the marketing and business development line, small but I'm just trying to get a handle on as you roll out more products, should that expect to remain near the current level or return back to levels of late last year?

I would expect that that would come down somewhat from the second quarter level. There were a few one time items that were in there that aren't indicative of permanent staying at that level.

OK and then finally, not to dwell on the market share gains, because they've certainly been impressive, but it looks like -- looking at the daily data, you've certainly gained a nice chunk of volume from stocks like WorldCom that have been trading, you know, elevated levels of share volumes, is there -- do you have any sense for if you netted that out, sort of extraordinary stocks like that, what the market share gains would look like?

Yeah, I've been watching that actually and just to give you a sense at 4:30 tonight our market share was 18.1 percent. Our market share in WorldCom was 18.3. So, actually our market share in WorldCom was actually pretty much in line our market share across all NASDAQ stock and I've been, sort of watching it and I would say with the exception of one or two days in the last few weeks, every day our market share in WorldCom has been pretty much in line with our overall market share. So I'm not expecting that to create a significant spike from a market share perspective.

Obviously from a volume perspective it creates a spike, but from a market share perspective, it does not.

OK, great. Thank you very much.

You're welcome.

Our next question comes from Charlotte Chamberlain. Please state your name and ask your question.

Good afternoon, I guess it's early evening there. Getting back to

. I was wondering we're hearing that while the NASDAQ folks are claiming that technology is going -- the technology and the roll outs are going quite well, in fact, it's not hooking up real well with some of the -- some of the search engines, like the

engines that the broker dealers use and I was just wondering from your perspective, you said you are participating, I was wondering if -- how well that's going? And the other issue about

is given that they're clearly late to the party in terms of getting out their own

, I was wondering if you're anticipating that they will, in fact, have to cut prices in order to attract participation? Especially if there is not total conductivity with many of the market makers and broker dealers, thank you.

OK, well, I guess three things. One is that with one exception, I think, one of the Saturday morning testing we had some significant problem because NASDAQ was not ready. Our experience so far with the testing has been, I would say, reasonable. We understand attending the conference call from NASDAQ that there are issues we integration, we

has brass. And my understanding from NASDAQ is that their view seems to be that as long as that - as that gets fixed they are - they are not going to push to launch the system. In term of - in term of pricing, you know it's very difficult for us to come upon - on the pricing of NASDAQ. I mean the only thing we can say is that is from our perspective we expect the market to remain very competitive. And - and in a way, you know we have done a lot of work to actually be integrated into our customer's solution. You know we are

into brass, we are already integrating into

into all those products. And in a way I would argue that your desk and every desk actually, already has access to

I think through all of

today. And - and we think that - that you know, that in a way provides a solution which is a least as good as

market can provide.

That's gets them exactly to my point; is that you've got a very powerful system, Lava has a very powerful system,

has a very powerful system, is there anything else that you see other than price cuts...

...when I go to customers I exactly have that conversation, which is from my perspective, once you have Lava or

on your desk with access to all the liquidity pools with all the

and the - and the - the

and everything, and the fast connectivity, I'm starting to understand what you are missing. But something must be missing because you know, it looks like there is a necessity to bring another solution to the market, but certainly we are very

with that kind of platform to the

in a very efficient manner as far as

.

Well I - I totally agree with you as well. So it would seem to my - my quandary is, OK, we've got a new - a new system. It doesn't have any super wonderful bells or whistles. It seems to me the only way you can get the - the sales side to participate is to cut price so that you are cheaper than other sources of liquidity. Or am I missing something?

I - I constantly disagree with you, but it's very difficult for me to - to comment on the pricing policy of one of our competitors, so...

...OK, OK.

I have the some questions in my head.

OK, thank you.

Our next question comes from

. Please state your name and ask your question.

Good afternoon,

with Raymond James. One housekeeping issue,

. Can you reconcile for us the restructuring costs, just kind of getting us from the 24 cent loss down the one - one cent loss at an operating basis, just what -- including the tax, exactly that type of thing? If it's something you want to do off line, that's fine too, but...

... yes, why don't we do that off line, we've got a bit of a reconciliation, and if you come back to our investor relations group, they can provide that to you.

OK, fair enough. And secondly, I just want to get a feel for - I - kind of hangin gyour hat on the by side clients. Obviously they are really paying the bills here with your price declines on the sales side. I'm curious if you are seeing any type of pressure coming back from your by side clients at this point, given the fact that you know, they are all struggling to hit their return - I think their return number and find any way to improve their own underlying performance. Are you seeing anybody come back to you and try to lower - lower their own pricing and participating on your network?

Well we've done some pricing that's been related to the service levels that buy-side customers require. So we've targeted a combination of technology and service level and type of business that we get from a buy-side customer and even their cost profile and the way they breakdown their trades for clearing. And that provided them with different products and services that are more inline with what they're looking for. So for customers that are at the high end of the service requirements from us, and at the high end of the cost, we earn a commensurate commission for customers that have sought something priced lower with lower service. We've provided that.

Overall, we've had good experience on the buy-side on pricing, but in the future if we grow faster some of the lower price and lower service business, we could see a decrease in the average buy-side pricing. But again, we were fairly careful in how we have set that up, so that our intent is to grow all of the types of business. And that we can be profitable in all types, although if the low priced one grows faster than the high-priced one, the average itself will show a change.

OK. In general, is it safe to say that it's the largest clients who have the most technology backbone that are the ones that are requiring less service and therefore paying slightly lower fees?

It's more about, you know, and you said the matter of size is more matter of what kind of services it consumes, so we actually have very small clients who are very demanding on pricing, because effectively from their perspective, the only thing they're using is our platform and our technology. And they also have a way carrying their business, which allows us to keep the carrying costs down. And they don't do allocation, and they don't do - they don't consume our research services, and they don't use our trading desk and they don't do all sorts of things which tends to be expensive to us. And with our new portal, which we can deliver on the web, even the communication costs becomes very low. So it's not a matter of size, it's more a matter of what service they consume, and what is the cost for us to deliver the service. And I would agree with Mark. We can't - the one thing we can't forecast is how the business mix is going to change between those different service levels. But I think what we can say is that we have a better tie between the way we collect revenue and the way we incur cost. And so hopefully we'll be in a better position to manage the relationship between our revenues and our cost based.

OK. Thank you.

I think that we're going to have to convert to money to in a term of this year certainly, we've taken a fairly conservative view on the subject.

Thank you. Our next question is from Richard Repetto.

Yeah, Rich Repetto, Putnam Lovell. I just had a question on the ADF. Our you satisfied with how that's developing? And the platform there? I haven't had an update on that in awhile.

No we're not.

Could you give more color, Jean-Marc, on that. I mean, seeing that we're only supposedly, if they went on schedule we'd be a week away. Not likely to happen, but anymore color on what's the problem there or what are the issues?

Well, there are a number of issues. One of the issues is the connectivity solutions, which basically are proprietary connectivity solution, and which not encourage many people to spend time and resources to connect to it. So we think that unless they provided a connectivity solution which is a market

it will actually limit the viability of it.

And the second issue is that the -- are the economics around the

and the fact that, you know, if you're caught in the

and if you use the

as your main

platform, from a financial perspective, it actually puts you into a position where you're discriminating vis a vis NASDAQ and then there are some details, also rules and amendments that we've been debating with them and the SEC.

But the two key points are really the economics and the connectivity and, you know, we need to be made confident that the connectivity and the economics are right before we can actually really call it a viable solution and I agree with you that, you know, it looks like we're only one week or two weeks away, but, you know, from our perspective, we're not one week or two weeks away because the commitment that we had was that a viable solution would be up and running before the new system is launched. So, we still believe that that's a condition pre the launch of

and we're still waiting for, you know, the regulator and the

and the SEC to work with us to make sure that that happens.

And from your standpoint do you feel like there's an effort being made to work with you from that perspective? I mean, is there any way possible to get it done, even whether it be, you know, three weeks from now, mid-August?

I think some things are more difficult than others in our request list. So, you know, we've submitted the list of conditions that we think would make it a viable solution and I think some of then are reasonably easy to achieve and others are more difficult because they require more work.

Obviously if, when it was designed early on, it was designed with the right connectivity solution, it would have been easier to do it. But, so, you know, we'll have to see. But, you know, from our stand point, you know, we intend to continue to push that argument because we think that it will be better for the market and at the same time, you know, we have done all the work that we need to do to be ready to offer our customer the ability to continue trading within

but also be able to expose their order to

the say as we can expose their order to any other market. And I think that's the best we can do, waiting for some of the decisions to be made.

OK, and my last question is, the new -- the block trading product, I think it's called targeted offer --

Targeted order.

Targeted orders. It sounds a lot like

, you know, anonymous block, buy side, you know, trading system. Could you compare and contract at all with

?

Well, I guess there's a couple of things. One is that it -- as you say, it's negotiation between buy side, but the one thing that -- there's a couple of things that I think make it quite different. One of them is that we will deliver the

in such a way that customers will be able to continue to be exposed to the rest of the market. So we believe that that's actually a big differentiate there.

And the second big differentiate will be the fact that, you know, we have -- we actually have a number of customers who have actually committed to partner with us to deliver that product and we believe that that will, combined with

current liquidity of -- you know, one of the problem if you look at what happened in the last three years, is that you have real time trading systems such as

exchanges who have basically done one thing is that they've made the process of trading very electronic and very fast, but they've actually reduced the transaction size.

Then you have people like

-

,

,

, who has

, and

, who have actually taken the other approach and saying, "All we're going to do is we're going to create that private club that has a private dialog and that's going to find the natural buyer and seller." And I think each of those model has actually shown their limits. And what we're going to come to market with on - with targeted

is actually something that we combined and better integrate those two aspects of the market which we think is what the customers are looking for.

And just one follow-up - is it tied to the connectivity to the order management system?

Yes.

OK. OK, thank you.

But tied to the connectivity of the order management system of the customer - not the order management system of Istinet.

Our next question is from

. Please state your name and ask your question.

Hi.

, Merrill Lynch - I have two questions. First, I was wondering if you could provide us with an estimate of restructuring charges for the remainder of the year, if any. And second, can you provide us with an update of

financials for the second quarter?

Well, taking your first question,

, in part how we look at our costs for the rest of the year does in some ways depend on closing the

transaction. We've really done a lot of reengineering that we set out to do in the first half of the year and get that completed it is possible that we could find a way to continue that in some regard, but it would certainly be on a much lower scale than we've had in the first half of the year, that being separate from our ability to find some synergies when we're able to close the island transaction. And at this point, we are not providing

second quarter financial information.

OK, thank you.

You're welcome.

Our next question comes from

.

Hi. Well, following up immediately on that, you said right now you're not going to do

. Can we maybe expect it subsequently - maybe in your Q or someplace like that?

The other thing - in July, did you have better participation from the buy side? And during the analyst day, many of us asked about pricing when you and

get together. And I was wondering if you could - if you could share with us any more guidance as to how you see the price card developing when you get together with

.

Well, we've had no discussions on pricing and we'll not have pricing discussions relative to the

transaction. We don't have an intent on providing

financial information at any specific time, but we'll take a look at - as we continue to go forward as to what would be appropriate to that.

Your third question had to do with how really these volumes in our buy side business looks in July, and I - we don't really want to get out with on the earnings call of giving a lot of specific information. We've discussed how we've done on our volumes because we do make that available on our Web site on a weekly basis. But we feel - we feel good about July.

OK, well, then let me just ask one other thing. I mean the volatility has gone from the high 20s at the end of May to I guess today it averaged, you know, if you measured it by

, 48. I mean, that's just a huge spike in volatility, and I was wondering if that -- if there's anything in particular that that kind of spike in volatility -- I mean, it's a huge difference compared to anything we've seen since Instinet's been a public company. And I was wondering if you could kind of give us any guidance as to what that's doing to your metrics.

Well, the -- you know, everybody's talking about the volatility in the stock market, and what's going on. We haven't seen that as a key relative statistic to our daily trading volumes in relation to the size of the marketplace. I don't have a sense of that as being an important factor.

OK, thanks.

And I am showing no questions at this time.

OK. All right, well thank you for participating in Instinet's second quarter earnings call. We expect to have a transcript of this call on our Web site within the next few days. Before you go, we'd like to direct your attention to the last page of the second quarter earnings release, which is available on our Web site, which contains information regarding the future availability of information regarding the proposed

acquisition. Thank you.