(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
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
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
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)