Instinet, which is trading under the symbol "INET" on the Nasdaq, set a price of $14.50 Thursday night, above its previously issued range of $11.50 to $13.50. That price valued the company at $3.5 billion.
When shares opened, they were up 17 percent at $17, and by midday, they were trading at $18.25, up 25 percent. The stock ended the regular session up $3.15, or nearly 22 percent, to $17.65. The company offered 32 million shares.
Parent company Reuters is retaining ownership of 86 percent of the company, with 238.9 million shares outstanding.
The offering was led by Credit Suisse First Boston.
Instinet hit the market on a good week; after months of a virtual IPO desert, optical switch maker Tellium made quite a splash Thursday, rising as much as 46 percent from its opening price.
"It's certainly has been something we've been preaching about for the last four weeks," said David Menlow, president of IPOfinancial.com. "The fundamentals have steadily improved; all we needed was a few offerings to confirm that to the broad public."
Still, Menlow cautioned not to expect a return to the heady days of the IPO market, when virtually any company with a dot-com name could rake in cash on the public markets.
"IPO participants are heavily battle-scarred from the evaporation of financial wealth as a result of excesses at that time," he said.
But the Instinet IPO should garner a lot of interest from investors.
In a departure from the dot-com IPO days, Instinet has been profitable for the past three years, posting net income of $148 million for 2000, on sales of $1.4 billion. In the first quarter of this year, Instinet recorded a profit of $50.1 million, up from $42.5 million in the year-ago quarter.
The company does face some risks, including increased competition from other electronic communications networks (ECNs) as well as the stock exchanges. The New York Stock Exchange, for instance, recently changed its rules to allow transactions in NYSE-listed stocks during off-hours.
Instinet also faces risks involving regulatory issues. Regulators in the United States and abroad have taken an increased interest in the actions of ECNs. The Securities and Exchange Commission and the National Association of Securities Dealers (NASD) are considering, among other issues, "the continuing ability of ECNs to charge access fees and the levels of those fees," Instinet stated in an SEC filing.
It could also be hurt by a downturn in the financial markets, especially outside the United States, because Instinet's fees there are based on the value of transactions as opposed to volume.
Instinet will use about $150 million of the money raised in the IPO to repay a loan to Reuters, with the balance going toward general corporate purposes including possible acquisitions. Instinet has already been in discussions to acquire ProTrader Group, a provider of advanced trading technologies and electronic brokerage services, for $150 million.
Beyond the cash, the IPO would give Instinet another source of acquisitions funds--its stock, Menlow said. And acquisitions will be needed to give these ECNs an edge, he said. Other companies are broaching the issue of going public.
"This is a battlefield of epic proportions, with the prize being market share," he said. "To not come public is a financial faux pas for these companies. They need to have the resources available to them for acquiring other companies and new technology without the financial impairments of writing a check."