(Adds comments from Fidelity, Vanguard, consultant, bylines)
By Ross Kerber and Tim McLaughlin
BOSTON, April 10 Fidelity Investments said on Thursday it is exploring the creation of a new trading venue with other asset managers, as U.S. regulators investigate the controversial practice of high-frequency trading.
Fidelity, the No. 2 U.S. mutual fund company, and other so-called buy-side firms have been using alternative trading systems (ATS) to reduce predatory behavior that undermine getting the best price when trading stocks. In 2012, for example, Fidelity introduced an extension of its CrossStream ATS to execute block trades anonymously, including features to monitor predatory behavior and to reduce information leaks, Fidelity said at the time in a press release.
Fidelity on Thursday offered few details about what a new trading platform might provide. Company spokesman Steve Austin said Fidelity is looking at more ways to boost fund performance and to improve other areas such as transparency and liquidity.
The development comes as the fairness and efficiency of exchanges have come under scrutiny recently over concerns they may not offer equal terms to all investors.
Many banks and hedge funds use sophisticated computer programs to send large batches of orders into equity and futures markets in fractions of a second, a controversial practice known as high-frequency trading (HFT).
Proponents of HFT say the firms make it easier for other buyers and sellers to meet each other in the market, but critics argue it can cause sudden market crashes and easily mask market manipulation or other illegal activity.
In his new book, "Flash Boys: A Wall Street Revolt," author Michael Lewis says the U.S. stock market is rigged in favor of high-speed electronic trading firms, which use their advantages to extract billions from investors.
HFT makes up more than half of all U.S. trading volume.
Last year, IEX Group launched an exchange for buy-side companies such as mutual funds as an alternative to traditional trading venues.
Geoff Bobroff, a fund industry consultant based in Rhode Island, said Fidelity might also be looking for ways to leverage its heavy technology spending and noted the company has already built ties with a rival, BlackRock Inc, to sell exchange-traded funds.
Fidelity's Austin said renewed concerns about HFT did not prompt the exploration of the new trading venue, saying the company and others have been exploring the possibility for years.
Among other big asset managers, spokespeople for T. Rowe Price and BlackRock declined to comment.
A spokesman for Vanguard, John Woerth, said via email that "Vanguard does not comment on discussions with specific brokers or route venues, but we are continually evaluating potential trading partners that will enable us to achieve best trade execution for our clients." (Reporting by Ross Kerber and Tim McLaughlin; editing by Richard Valdmanis and Diane Craft)