Fidelity to NYSE: Quit Specialist System
Tue Oct 14,10:28 AM ET Add Business - Reuters to My Yahoo!
By Svea Herbst-Bayliss
BOSTON (Reuters) - Fidelity Investments, the No. 1 mutual fund company, is pressuring the New York Stock Exchange (news - web sites) to quit a centuries-old auction system where floor traders match buyers and sellers, saying the system hurts investors.
Boston-based Fidelity said it would like the exchange to adopt an electronic trading system like the one used at other exchanges and by the Nasdaq Stock Market.
"We are saying that at this point in time there is an opportunity for the exchange to consider improving itself, making itself more effective and to promote competition and reform the rules," Fidelity spokeswoman Anne Crowley said.
She added that Fidelity is urging the exchange to switch to more modern trading systems. "Considering the advances in technology, we ask if there isn't a way to take advantage of them to improve the market structure."
Fidelity's comments mark the most recent trouble for the NYSE. In September, Richard Grasso was forced out of his job as chairman and chief executive following the disclosure of his $188 million compensation package. Following Grasso's departure, several board members also quit their posts.
Fidelity, which traditionally prefers to work behind the scenes in shaping policy, has long been frustrated with the exchange's so-called specialist system because specialists can trade for their own accounts. This could hurt other investors.
The NYSE is the only major stock exchange to use specialists to help match investors' buy and sell orders. Specialists also use their own capital to buy or sell shares when investors do not agree on a price.
Fidelity's head of global equity trading, Scott DeSano, told The Wall Street Journal in an interview on Tuesday that specialists often step into the market for their own profit.
"We don't need that kind of intervention in the marketplace," he said.
As the country's biggest mutual fund company, Fidelity trades millions of shares a day, accounting for as much as 5 percent of the NYSE's daily volume.
While Fidelity has been eager to see change for some time, the company is taking a more public stance now that the exchange is considering a number of changes weeks after its former chairman was pressured to leave.
Top executives from privately held Fidelity met with NYSE officials last week and also expressed their concerns to financial regulators in Washington.
The stock exchange said John Reed, the exchange's interim chairman since after Grasso's departure, met on Friday with Abigail Johnson, who runs Fidelity's investment management arm. Johnson is the granddaughter of the company's founder.
"We believe the issues of more critical importance deal with promoting competition in the NYSE's market and reforming the NYSE's rules governing trading," Crowley said. Fidelity said it is speaking for millions of shareholders who would benefit from an updated system. But the company also said that any changes will not happen overnight. |
