Instinet 8-K Instinet Group Announces Second Quarter 2004 Results

Exhibit 99.1

INSTINET GROUP ANNOUNCES SECOND QUARTER 2004 RESULTS

NEW YORK, July 26, 2004 – Instinet Group Incorporated (Nasdaq: INGP) today announced net income of $8 million or $0.03 per share for the second quarter of 2004 compared to a net loss of $5 million or $(0.02) per share for the second quarter of 2003 and net income of $19 million or $0.06 per share for the first quarter of 2004. The second quarter 2004 results included a $7 million gain related to the mutual release by Instinet Group, Zone Trading Partners and affiliated parties of execution obligations, a write-off of fixed assets of $2 million and a severance charge of $4 million. Excluding these items and their related tax effect, pro forma operating income for the second quarter of 2004 was $8 million, or $0.03 per share compared to a pro forma operating loss of $2 million or $0.00 per share for the second quarter of 2003 and pro forma operating income of $13 million, or $0.04 per share for the first quarter of 2004.¹

Edward J. Nicoll, Chief Executive Officer of Instinet Group, commented, “We had a good second quarter considering weaker U.S. and European equity markets and our business again returned a profit. Instinet, the Unconflicted Institutional Broker, added to its Pure Block Trading Solution by introducing its Intra-Day Cross (IDX) during the quarter while INET, the electronic marketplace, maintained its 25% market share. Despite weak market conditions and a competitive environment, Instinet Group continues to be profitable while we serve our clients in the lowest cost and most efficient way possible while at the same time maintaining our focus on their interests.”

Financial Performance

Instinet Group

Revenues

Total consolidated revenues for Instinet Group, net of interest, were $280 million for the second quarter of 2004, level with second quarter of 2003 and down 11% from the first quarter 2004.

Expenses

Total expenses for the second quarter of 2004 were $265 million, down 7% from the second quarter of 2003 and down 5% from the first quarter of 2004.

Cost of revenues were $158 million, 9% lower than the first quarter of 2004 primarily due to decreased transaction volumes. Cost of revenues as a percentage of total revenues, net increased to 56% from 55% in the previous quarter primarily due to increased routed share transaction volume at INET, our electronic marketplace.

¹ See table titled “Reconciliation of Pro Forma Operating Results for 2Q04

Direct expenses were $114 million for the second quarter of 2004, down 2% from the first quarter of 2004.

• Compensation and benefits expense was $56 million in the second quarter of 2004 down 6% from the previous quarter primarily due to lower variable compensation associated with lower profitability and lower revenues and a decline in our employee base, offset by a $4 million increase in severance expense.

• Communications and equipment expense was $17 million, down 22% from the previous quarter, primarily due to lower client communication and equipment costs.

• Depreciation and amortization expense was $16 million, up 5% from the previous quarter primarily due to a $2 million write-off of fixed assets.

• Professional fees were $8 million, up $3 million from the previous quarter primarily due to higher consultant and legal fees.

At June 30, 2004, Instinet Group had net cash (cash and cash equivalents and securities owned less short-term borrowings) of approximately $742 million, total assets of approximately $1.9 billion, and shareholders’ equity of approximately $1 billion. There were approximately 332 million shares of common stock outstanding. Instinet Group employed 1,090 persons at June 30, 2004, down 3% from March 31, 2004. Our headcount at June 30, 2004 included 914 employees from Instinet, 71 employees from INET and 105 employees from Instinet Group.

John F. Fay, Chief Financial Officer of Instinet Group, commented, “Instinet Group posted lower earnings compared to its first quarter primarily due to weaker market volumes. Despite an extremely competitive marketplace, our second quarter income marks our second consecutive profitable quarter and the realization of our past restructuring efforts.”

Business Segments²

Instinet, the Unconflicted Institutional Broker

• Instinet reported a net loss before income taxes of $3 million for the second quarter of 2004, compared to net income of $18 million from the first quarter of 2004.

• Instinet’s customers traded an average of 102 million shares a day in the second quarter of 2004 down 9% from 112 million shares a day during the first quarter of 2004. Average daily consideration in non-U.S. equities for the second quarter of 2004 was $896 million, a 4% decrease from the first quarter of 2004.

² See also table titled “Statements of Operations – Segments” on our website atwww.investor.instinetgroup.comunder the headings “Investor Relations”.

• Total revenues, net of interest, were $173 million for the second quarter of 2004, down 13% compared to the first quarter of 2004, primarily due to weaker U.S and non-U.S equity market volumes.

• Cost of revenues as a percentage of total transaction fees were 47% in the second quarter of 2004 compared to 45% in the first quarter of 2004.

• Gross margin of $93 million for the second quarter of 2004 was $17 million, or 16%, lower than the first quarter of 2004.

• Direct expenses of $96 million for the second quarter of 2004 were up 4% from the first quarter of 2004.

Business Highlights

• Instinet launched its U.S. securities Intra-Day Cross (IDX), which offers automatic matching of orders at a specified price. IDX complements our existing block trading solutions - Continuous Block Crossing (CBX) and End of Day Cross (EDX).

• Last week Instinet announced the creation of an independent research partnership named “Instinet Research Partners.” Beginning with four non-traditional independent research firms, this network of firms uses primary research techniques to provide institutional investors with objective analysis and insight on various companies and sectors. Each partner covers a separate sector, and Instinet will exclusively offer its reports to its institutional clients.

INET, the electronic marketplace

• INET reported net income before income taxes of $11 million for the second quarter of 2004, up $5 million, or 82% from the first quarter of 2004.

• INET reported a NASDAQ-listed equity share volume of 433 million shares per day in the second quarter of 2004, down 15% from the previous quarter. INET’s share of the total market in NASDAQ-listed equity trading was 25.0% in the second quarter of 2004, consistent with the previous quarter.

• Total revenues, net of interest, were $112 million, 7% lower than the previous quarter primarily due to lower overall average daily matched volumes in the second quarter of 2004 compared to the first quarter of 2004.

• Cost of revenues as a percentage of total transaction fees were 74% in the second quarter of 2004 compared to 75% in the first quarter of 2004.

• Gross margin was $30 million for the second quarter of 2004, 3% lower than the previous quarter.

• Direct expenses of $18 million for the second quarter of 2004 were down $6 million or 24% from the first quarter of 2004.

Webcast

Instinet Group will webcast a conference call to discuss its second quarter results at 11:00 a.m. New York time on July 27^th athttp://www.investor.instinetgroup.com. A replay will be available at the same address following the call.

About Instinet Group

Instinet Group, through affiliates, is the largest global electronic agency securities broker and has been providing investors with electronic trading solutions and execution services for more than 30 years. We operate our two major businesses through Instinet, LLC, the Unconflicted Institutional Broker, and Inet ATS, Inc., the electronic marketplace.

• Instinet, the Unconflicted Institutional Broker, gives its customers the opportunity to use its sales-trading expertise and advanced technology tools to interact with global securities markets, improve trading performance and lower overall transaction costs. Through Instinet’s electronic platforms, customers can access other U.S. trading venues, including NASDAQ and the NYSE, and almost 30 securities markets throughout the world. Instinet acts solely as an agent for its customers, including institutional investors, such as mutual funds, pension funds, insurance companies and hedge funds. Lynch, Jones & Ryan, Instinet Group’s commission recapture subsidiary, and Instinet Clearing Services, Inc., Instinet Group’s clearing broker, are also a part of Instinet.

• INET, the electronic marketplace, represents the consolidation of the order flow of the former Instinet ECN and former Island ECN, providing its U.S. broker-dealer customers one of the largest liquidity pools in NASDAQ-listed securities.

# # #

This press release is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

^©2004 Instinet Group Incorporated and its affiliated companies. All rights reserved. INSTINET and INET are service marks in the United States. Instinet Group Incorporated is part of the Reuters family of companies. Instinet, LLC (branded Instinet, the Unconflicted Institutional Broker), member NASD/SIPC; Inet ATS, Inc. (branded INET), member NASD/NSX/SIPC; Lynch, Jones & Ryan, Inc., member NASD/SIPC; and Instinet Clearing Services, Inc., member NASD/SIPC, are subsidiaries of Instinet Group Incorporated.

This news release may be deemed to include forward-looking statements relating to Instinet Group. Certain important factors that could cause actual results to differ materially from those disclosed in such forward-looking statements are included in Instinet Group’s Annual Report on Form 10-K for the fiscal year ended December 31,2003, and other documents filed with the SEC and available on the Company’s website atwww.investor.instinetgroup.com.

Instinet Group Incorporated

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended									Six Months Ended
	June 30, 2004			March 31, 2004			June 30, 2003			June 30, 2004			June 30, 2003
Revenue
Transaction fees	$	276,600		$	309,916		$	275,909		$	586,516		$	531,133
Interest income		4,250			4,420			6,651			8,670			12,998
Interest expense		(806	)		(1,062	)		(2,106	)		(1,868	)		(4,217	)
Interest income, net		3,444			3,358			4,545			6,802			8,781
Total revenues, net		280,044			313,274			280,454			593,318			539,914
Cost of Revenues
Soft dollar and commission recapture		53,103			60,100			49,604			113,203			98,662
Broker-dealer rebates		62,388			68,147			58,630			130,535			109,050
Brokerage, clearing and exchange fees		42,321			44,404			33,446			86,725			67,471
Total cost of revenues		157,812			172,651			141,680			330,463			275,183
Gross margin		122,232			140,623			138,774			262,855			264,731
Direct Expenses
Compensation and benefits		55,844			59,533			60,749			115,377			124,733
Communications and equipment		16,950			21,642			31,617			38,592			62,337
Depreciation and amortization		15,855			15,037			23,534			30,892			47,608
Occupancy		9,260			9,307			13,175			18,567			29,633
Professional fees		8,172			5,017			7,228			13,189			13,566
Marketing and business development		5,302			3,322			3,480			8,624			6,261
Other		2,830			2,876			6,301			5,706			12,050
Total direct expenses		114,213			116,734			146,084			230,947			296,188
Contractual settlement		(7,250	)		—			—			(7,250	)		—
Investments		—			(4,674	)		(2,841	)		(4,674	)		18,837
Insurance recovery		—			(5,116	)		—			(5,116	)		(5,000	)
Total expenses		264,775			279,595			284,923			544,370			585,208
Income (loss) from continuing operations before income taxes		15,269			33,679			(4,469	)		48,948			(45,294	)
Income tax provision (benefit)		6,827			14,865			732			21,692			(5,775	)
Net income (loss)	$	8,442		$	18,814		$	(5,201	)	$	27,256		$	(39,519	)
NET INCOME (LOSS) PER SHARE - BASIC & DILUTED
Net income (loss) per share	$	0.03		$	0.06		$	(0.02	)	$	0.08		$	(0.12	)
Weighted average shares outstanding - basic		332,282			331,241			330,841			331,765			330,803
Weighted average shares outstanding - diluted		335,119			334,388			330,841			334,713			330,803

Instinet Group Incorporated

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended
	Jun 30, 2004			Mar 31, 2004			Dec 31, 2003			Sep 30, 2003			Jun 30, 2003			Mar 31, 2003			Dec 31, 2002			Sep 30, 2002			Jun 30, 2002
Revenue
Transaction fees	$	276,600		$	309,916		$	279,708		$	268,210		$	275,909		$	255,224		$	278,441		$	263,917		$	269,933
Interest income		4,250			4,420			5,899			4,931			6,651			6,347			8,546			10,699			11,958
Interest expense		(806	)		(1,062	)		(2,283	)		(1,237	)		(2,106	)		(2,111	)		(2,776	)		(3,185	)		(3,403	)
Interest income, net		3,444			3,358			3,616			3,694			4,545			4,236			5,770			7,514			8,555
Total revenues, net		280,044			313,274			283,324			271,904			280,454			259,460			284,211			271,431			278,488
Cost of Revenues
Soft dollar and commission recapture		53,103			60,100			58,817			54,894			49,604			49,058			50,161			51,824			61,738
Broker-dealer rebates		62,388			68,147			54,507			53,552			58,630			50,420			56,601			39,004			25,503
Brokerage, clearing and exchange fees		42,321			44,404			37,275			35,553			33,446			34,025			36,994			42,079			33,767
Total cost of revenues		157,812			172,651			150,599			143,999			141,680			133,503			143,756			132,907			121,008
Gross margin		122,232			140,623			132,725			127,905			138,774			125,957			140,455			138,524			157,480
Direct Expenses
Compensation and benefits		55,844			59,533			51,079			51,450			60,749			63,984			60,745			63,809			70,989
Communications and equipment		16,950			21,642			20,890			24,917			31,617			30,720			36,604			26,620			29,187
Depreciation and amortization		15,855			15,037			18,500			22,408			23,534			24,074			24,659			16,712			17,930
Occupancy		9,260			9,307			12,122			12,567			13,175			16,458			16,158			12,223			13,595
Professional fees		8,172			5,017			8,611			5,739			7,228			6,338			7,820			5,110			6,646
Marketing and business development		5,302			3,322			7,483			2,958			3,480			2,781			3,756			2,451			7,480
Other		2,830			2,876			2,300			4,491			6,301			5,749			13,783			6,714			13,449
Total direct expenses		114,213			116,734			120,985			124,530			146,084			150,104			163,525			133,639			159,276
Restructuring		—			—			59,497			—			—			—			62,405			955			42,410
Goodwill and intangible asset impairment		—			—			21,668			—			—			—			—			551,991			—
Contractual settlement		(7,250	)		—			—			—			—			—			—			—			—
Investments		—			(4,674	)		(10,268	)		667			(2,841	)		21,678			19,878			20,336			13,181
Insurance recovery		—			(5,116	)		(2,492	)		(2,989	)		—			(5,000	)		—			—			—
Total expenses		264,775			279,595			339,989			266,207			284,923			300,285			389,564			839,828			335,875
Income (loss) from continuing operations before income taxes and discontinued operations		15,269			33,679			(56,665	)		5,697			(4,469	)		(40,825	)		(105,353	)		(568,397	)		(57,387	)
Income tax provision (benefit)		6,827			14,865			(18,331	)		1,652			732			(6,507	)		6,690			(39,958	)		(14,117	)
Income (loss) from continuing operations before discontinued operations		8,442			18,814			(38,334	)		4,045			(5,201	)		(34,318	)		(112,043	)		(528,439	)		(43,270	)
Discontinued operations:
Loss from operations of fixed income business		—			—			—			—			—			—			(412	)		—			(23,581	)
Income tax benefit		—			—			—			—			—			—			252			—			6,946
Net income (loss)	$	8,442		$	18,814		$	(38,334	)	$	4,045		$	(5,201	)	$	(34,318	)	$	(112,203	)	$	(528,439	)	$	(59,905	)
Basic and diluted:
Earnings (loss) per share	$	0.03		$	0.06		$	(0.12	)	$	0.01		$	(0.02	)	$	(0.10	)	$	(0.34	)	$	(2.05	)	$	(0.24	)

Note: Results for Island Holding Company, Inc. are included subsequent to 9/20/02.

Instinet Group Incorporated

Operating Data

(Unaudited)

	Three Months Ended
	Jun 30, 2004			Mar 31, 2004			Dec 31, 2003			Sep 30, 2003			Jun 30, 2003			Mar 31, 2003
U.S. Market
Trade Days		62			62			64			64			63			61
Average daily NASDAQ-listed equity share volume (millions)		1,735			2,030			1,757			1,730			1,788			1,459
Average daily U.S. exchange-listed equity share volume (millions)		2,072			2,262			1,920			1,884			2,012			1,894
Average daily U.S. equity share volume (millions)		3,807			4,292			3,677			3,614			3,800			3,353
Total U.S. equity share volume (millions)		236,023			266,109			235,306			231,311			239,387			204,545
Instinet, the Unconflicted Institutional Broker
A. U.S. Equities1
Our total average daily volume (million shares)		102			112			108			99			96			90
Our share of total market		2.7	%		2.6	%		2.9	%		2.7	%		2.5	%		2.7	%
Our average daily volume (million shares) - Institutional and Crossing		78			90			84			78			79			76
Average amount charged to client per share (cents per share)2 - Institutional and Crossing		1.50			1.50			1.47			1.52			1.57			1.52
Our average daily volume (million shares) - Institutional Correspondents		24			22			24			21			17			14
Average amount charged to client per share (cents per share)2 - Institutional Correspondents		0.08			0.11			0.09			0.11			0.09			0.05
B. Non-US Equities3
Our average daily consideration (millions)	$	896		$	932		$	609		$	649		$	666		$	783
Average basis points charged to client per consideration traded		5.1			5.3			5.9			6.2			5.7			5.1
INET, the Electronic Marketplace
A. Our Matched Average Daily Volume4
Our NASDAQ-listed equity share volume (million shares)		433			508			414			413			465			402
Our share of total market		25.0	%		25.0	%		23.6	%		23.8	%		26.0	%		27.5	%
Our U.S. exchange-listed equity share volume (million shares)		71			62			52			47			52			56
Our share of total market		3.4	%		2.8	%		2.7	%		2.5	%		2.6	%		3.0	%
Our total U.S. equity share volume (million shares)		504			570			466			460			517			458
Our share of total market		13.2	%		13.3	%		12.7	%		12.7	%		13.6	%		13.6	%
B. Our Routed Average Daily Volume (million shares)5		115			91			65			30			28			21
Headcount6		1,090			1,126			1,210			1,259			1,311			1,428

¹ Instinet average daily U.S. equity share volume is counted as the sum of our customers’ share volume per side related to a trade. For example a matched trade where one customer buys 100 shares and the other sells 100 shares is counted as 200 shares; if the buy or sell order were routed out, we would count 100 shares on the customer side.

Institutional and Crossing comprise of certain U.S. buy-side clients, all of the clients of Lynch, Jones & Ryan and our international business. They include fund managers, pension plans, hedge funds and other clients. Crossing includes order flow from both buy-side and sell-side clients who execute though our after hours cross. Institutional Correspondents represent our direct market access U.S. buy-side clients.

² The amount charged per share is the average cents per share charged net of soft dollar and commission recapture expenses.

³ Commissions on international transactions are presented as basis points (one hundred of one percent) of the total value (consideration) of the transaction.

⁴ In computing our U.S. share volume for INET in either NASDAQ-listed or U.S. exchange-listed equities, we count the customer share volume on one side of the matched trade. Matched volume reflects transactions where the buyer and seller are matched on INET.

For example, where a customer sells 100 shares to another customer as a matched trade, we count 100 shares. INET share volume includes transactions sent to it by Instinet, the Institutional Broker and prior quarters have been recalculated to include this volume.

In computing our total market share, our numerator share volume is counted as described above for each market where we disclose a market share statistic. The denominator for NASDAQ market share is total NASDAQ share volume as published by NASDAQ. For U.S. exchange-listed market share, the denominator is the total share volume of U.S. listed markets obtained from a widely recognized market data vendor. Listed markets include the New York Stock Exchange, American Stock Exchange, Boston Stock Exchange, Philadelphia Stock Exchange, National Stock Exchange, Chicago Stock Exchange and Pacific Stock Exchange. Historical amounts may be restated due to updates of volume information from these sources.

⁵ Routed volume reflects transactions where the trade was not matched on INET.

⁶ Instinet Group headcount is as of the end of the reporting period.

Instinet Group Incorporated

Statements of Operations - Instinet, the Unconflicted Institutional Broker Segment Trend

(In thousands)

(Unaudited)

	Three Months Ended
	Jun 30, 2004			Mar 31, 2004			Dec 31, 2003			Sep 30, 2003			Jun 30, 2003			Mar 31, 2003
Revenue
Transaction fee	$	162,905		$	185,412		$	174,153		$	165,903		$	161,996		$	154,527
Clearing revenue		6,731			10,390			8,272			7,329			6,295			5,270
Total transaction fees		169,636			195,802			182,425			173,232			168,291			159,797
Interest income, net		3,001			3,143			3,095			3,586			4,419			4,127
Total revenues, net		172,637			198,945			185,520			176,818			172,710			163,924
Cost of Revenues
Soft dollar and commission recapture		53,103			60,100			58,817			54,894			49,604			49,058
Brokerage, clearing and exchange fees		26,825			28,645			24,624			27,568			26,311			26,153
Total cost of revenues		79,928			88,745			83,441			82,462			75,915			75,211
Gross margin		92,709			110,200			102,079			94,356			96,795			88,713
Direct Expenses
Compensation and benefits		47,647			45,141			42,092			39,516			39,466			47,227
Communications and equipment		14,957			16,531			14,678			19,536			27,373			26,137
Depreciation and amortization		13,206			12,040			13,347			13,530			13,998			14,891
Occupancy		7,862			8,206			6,360			6,838			6,830			7,538
Professional fees		4,925			3,016			5,410			3,066			4,683			3,819
Marketing and business development		3,068			2,789			6,973			1,528			1,480			1,791
Other		2,799			2,405			3,755			2,223			2,456			3,832
Technology service company charges		(6,664	)		(8,146	)		(7,973	)		(7,491	)		(8,834	)		(8,833	)
Corporate overhead charges		8,058			10,474			10,672			14,012			21,340			19,074
Total direct expenses		95,858			92,456			95,314			92,758			108,792			115,476
Total expenses		175,786			181,201			178,755			175,220			184,707			190,687
Net income (loss) from continuing operations before income taxes	$	(3,149	)	$	17,744		$	6,765		$	1,598		$	(11,997	)	$	(26,763	)

Instinet Group Incorporated

Statements of Operations - INET, the Electronic Marketplace Segment Trend

(In thousands)

(Unaudited)

	Three Months Ended
	Jun 30, 2004			Mar 31, 2004			Dec 31, 2003			Sep 30, 2003		Jun 30, 2003		Mar 31, 2003
Revenue
Transaction fees	$	111,059		$	119,799		$	101,668		$	99,278	$	111,736	$	98,607
Interest income, net		443			215			521			108		126		109
Total revenues, net		111,502			120,014			102,189			99,386		111,862		98,716
Cost of Revenues
Broker-dealer rebates		62,388			68,147			54,507			53,552		58,630		50,420
Brokerage, clearing and exchange fees		19,591			21,444			17,036			12,285		11,253		11,052
Total cost of revenues		81,979			89,591			71,543			65,837		69,883		61,472
Gross margin		29,523			30,423			30,646			33,549		41,979		37,244
Direct Expenses
Compensation and benefits		3,072			3,808			4,660			4,024		3,565		4,334
Communications and equipment		1,501			4,343			5,349			4,453		3,419		3,611
Depreciation and amortization		2,411			2,583			4,027			7,014		7,160		7,382
Occupancy		384			569			1,819			1,203		1,225		1,818
Professional fees		603			277			899			704		228		374
Marketing and business development		1,346			722			226			39		42		43
Other		(502	)		(123	)		(2,854	)		1,747		3,630		1,368
Technology service company charges		6,664			8,146			7,973			7,491		8,834		8,833
Corporate overhead charges		2,876			3,953			3,572			5,097		9,189		6,865
Total direct expenses		18,355			24,278			25,671			31,772		37,292		34,628
Total expenses		100,334			113,869			97,214			97,609		107,175		96,100
Net income from continuing operations before income taxes	$	11,168		$	6,145		$	4,975		$	1,777	$	4,687	$	2,616

Instinet Group Incorporated

Statement of Operations - Segments 1

(In thousands)

(Unaudited)

	Three Months Ended June 30, 2004
	Instinet			INET			Eliminations			Corporate			Total
Revenue
Transaction fees	$	169,636		$	111,059		$	(4,095	)		—		$	276,600
Interest income, net		3,001			443			—			—			3,444
Total revenue, net		172,637			111,502			(4,095	)		—			280,044
Cost of revenues
Soft dollar and commission recapture		53,103			—			—			—			53,103
Broker-dealer rebates		—			62,388			—			—			62,388
Brokerage, clearing and exchange fees		26,825			19,591			(4,095	)		—			42,321
Total cost of revenues		79,928			81,979			(4,095	)		—			157,812
Gross margin		92,709			29,523			—			—			122,232
Direct Expenses
Compensation and benefits		47,647			3,072			—			5,125			55,844
Communications and equipment		14,957			1,501			—			492			16,950
Depreciation and amoritization		13,206			2,411			—			238			15,855
Occupancy		7,862			384			—			1,014			9,260
Professional fees		4,925			603			—			2,644			8,172
Marketing and business development		3,068			1,346			—			888			5,302
Other		2,799			(502	)		—			533			2,830
Technology service company charges		(6,664	)		6,664			—			—			—
Corporate overhead charges		8,058			2,876			—			(10,934	)		—
Total direct expenses		95,858			18,355			—			—			114,213
Contractual settlement		—			—			—			(7,250	)		(7,250	)
Total expenses		175,786			100,334			(4,095	)		(7,250	)		264,775
Net income from continuing operations before income taxes	$	(3,149	)	$	11,168		$	—		$	7,250		$	15,269

¹ See also table titled “Statements of Operations - Segments” on our website atwww.investor.instinetgroup.com under the heading “Investor Relations” for historical data.

Instinet Group Incorporated

Reconciliation of Pro Forma Operating Results for 2Q04

(In thousands, except per share amounts)

(Unaudited)

In evaluating our financial performance and results of operations, management reviews certain financial measures that are not in accordance with generally accepted accounting standards in the United States (“non-GAAP”). Non-GAAP measurements do not have any standardized meaning and are therefore unlikely to be comparable to similar measures presented by other companies. Management uses non-GAAP financial measures in evaluating our operating performance. In light of the use by management of these non-GAAP measurements to assess our operational performance, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. These non-GAAP financial measures should be considered in the context with our GAAP results. A reconciliation of our non-GAAP measurements are provided below.

Management reviews adjusted operating income, in addition to GAAP financial results. This non-GAAP financial measurement excludes non-operating items, which by their nature, management does not consider to be a true reflection of the operating results and financial performance of our business. These non-operating charges are investment gains and losses, charges related to our cost reduction initiatives, contractual settlements, fixed asset write-offs, goodwill impairment, insurance recoveries, and the related tax effects of those items. The following schedule reconciles our pro forma net income (loss) to our GAAP financial results:

	Three Months Ended									Six Months Ended
	June 30, 2004			March 31, 2004			June 30, 2003			June 30, 2004			June 30, 2003
Total revenues, net, as reported	$	280,044		$	313,274		$	280,454		$	593,318		$	539,914
Total expenses, as reported		264,775			279,595			284,923			544,370			585,208
Severance included in compensation and benefits		(3,688	)		—			(7,938	)		(3,688	)		(17,084	)
Real estate abandonment costs included in occupancy		—			—			—			—			(2,333	)
Fixed asset write-off in depreciation and amortization		(2,018	)		—			—			(2,018	)		—
Contractual settlement		7,250			—			—			7,250			—
Investments		—			4,674			2,841			4,674			(18,837	)
Insurance recovery		—			5,116			—			5,116			5,000
Pro forma operating expenses		266,319			289,385			279,826			555,704			551,954
Pro forma income (loss) before income taxes		13,725			23,889			628			37,614			(12,040	)
Income tax provision (benefit), as reported		6,827			14,865			732			21,692			(5,775	)
Tax effect of pro forma adjustments		(1,495	)		(4,308	)		1,413			(5,803	)		14,632
Pro forma provision for income taxes		5,332			10,557			2,145			15,889			8,857
Net income (loss), as reported		8,442			18,814			(5,201	)		27,256			(39,519	)
Net effect of pro forma adjustments		(49	)		(5,482	)		3,684			(5,531	)		18,622
Pro forma net income (loss)	$	8,393		$	13,332		$	(1,517	)	$	21,725		$	(20,897	)
Earnings (loss) per share - basic and diluted, as reported	$	0.03		$	0.06		$	(0.02	)	$	0.08		$	(0.12	)
Net effect of pro forma adjustments		—			(0.02	)		0.02			(0.02	)		0.06
Pro forma earnings (loss) per share - basic and diluted	$	0.03		$	0.04		$	—		$	0.06		$	(0.06	)
Weighted average shares outstanding - basic		332,282			331,241			330,841			331,765			330,803
Weighted average shares outstanding - diluted		335,119			334,388			330,841			334,713			330,803