BlackRock system won't compete with bond dealers, CEO says

Wed Apr 18, 2012 3:27pm EDT

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(Reuters) - BlackRock's new bond trading system for clients is not meant to put the company in competition with Wall Street's fixed-income brokers, Chief Executive Laurence Fink said on Wednesday.

"This is not going to transform BlackRock in any way," Fink said during a conference call with analysts on the company's first-quarter results. "This is not going to change our behavior, our relations with the sell side."

BlackRock, with assets under management of $3.7 trillion, is overall the world's largest money manager and one of the biggest on the bond side.

Repeating arguments he has made on prior earnings conference calls, Fink said the trading platform was aimed at filling a gap in trading that might occur if Wall Street firms and major banks reduce their participation in bond trading. Big banks and brokers are widely expected to cut back on bond trading to meet new capital standards from regulators and trading limits like those in the Volcker rule.

"We are responding to the regulatory regime that is transforming the future ways of the business," Fink said.

The New York-based company, owned in part by PNC Financial Services Group Inc and Barclays Plc, said its new trading network has not yet been approved by regulators.

The system is related to the BlackRock's Aladdin risk management service, which covers about $10 trillion of assets. BlackRock customers using the risk management service to trade bonds among themselves and with BlackRock fund managers could use the new system to bypass Wall Street dealers.

And it follows the same track taken by Aladdin. The risk management system was first used internally at BlackRock and then opened as a service when clients requested access. The BlackRock Solutions unit that oversees Aladdin, once just a cost borne by the company, generated $123 million of revenue in the first quarter.

If Wall Street steps back from fixed-income trading, as many expect, the bid/ask spreads to trade bonds could widen, Fink said on Wednesday's call. If that problem does not materialize, BlackRock's new trading platform would not be needed, he added.

"If we could see a narrowing in bid/ask spreads, we don't need the Aladdin trading platform," Fink said.

BlackRock has been working on the trading platform for more than a year. At a Goldman Sachs investor conference in December, President Robert Kapito said the trading platform would open in early 2012.

On BlackRock's fourth-quarter earnings call with analysts in January, Fink said the new system was not meant to put his company in competition with Wall Street brokerages.

The platform garnered renewed attention last week when the Wall Street Journal reported that BlackRock was working on the system.

(Reporting By Aaron Pressman; Edited by Steve Orlofsky)

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