Chairman Ned Johnson is personally pushing the bold move

April 10, 2014 — 6:51 PM UTC by Brooke Southall

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Brooke’s Note: Fidelity insists this is nothing new. Indeed, it’s not in the sense that virtually all big-time traders have long sought to trade “blindly” to avoid the vagaries of clever traders playing off of big moves. But there are, in any realm, levels of the game and it seems clear, in the wake of new revelations about the increased cleverness of traders, that Fidelity is looking to take its blind trading to a new level.

Fidelity Investments may have the ultimate answer for trading systems that take a secret toll — creating its own trading venue perhaps in conjunction with friendly competitors. The addition of a trading venue, dubbed Sakura, would not result in the firm dropping out of the dozens of other venues it currently uses.

The Boston-based giant’s actions were reported in a Wall Street Journal article today based on anonymous sources and seem to correspond to the hoopla about high frequency trading that has pervaded the investing consciousness since Michael Lewis began his book tour for “Flash Boys.”

In a statement to RIABiz, Fidelity allowed through its spokeswoman Erica Birke that there is truth to the story about what the WSJ says is code-named “Sakura.” See: Nine threats to the RIA business and how they can be avoided.

'Address today’s market structure’

“We are exploring with other asset managers the possibility of a trading venue that we expect will strengthen fund performance, address today’s market structure, and provide higher levels of transparency, liquidity and control for the benefit of all fund shareholders,” the e-mail reads.

Further, it adds: “At Fidelity, trading is a key aspect of how we manage our funds, and we are exploring with other asset managers the possibility of a trading venue that we expect will strengthen fund performance, address today’s market structure, and provide higher levels of transparency, liquidity and control for the benefit of all fund shareholders. For years, we have been thinking about how we could create a better trading venue for companies that manage long-term investment portfolios, just as we do. However, it is premature to discuss details at this time.” See: Fidelity Investments soon to jack up commissions on DFA and Vanguard Group mutual fund trades.

The detailed statement appears to refer directly to funds and asset managers, a semantics choice that seems to suggest the program is aimed at securing better trading for the hundreds of billion of dollars in assets in its mutual funds, hence its 401(k) plans which invest heavily using Fidelity mutual funds. See: The PBS 'Frontline’ 401(k) documentary names suspects but leaves out major culprits of the theft of the American retirement.

Where RIAs fit in

In a follow-up e-mail, I asked whether RIAs trading through Fidelity were contemplated in any trade execution improvements.

Birke declined to offer specifics but says her firm already considers its trading capabilities for RIAs to be a big edge given the capital markets desk it maintains.

The Fidelity e-mail continues on to say: “As you know, Fidelity invests significantly in leading-edge trading technology and market access tools in an effort to seek better executions, lower prices and superior, long-term fund performance on behalf of our shareholders. We constantly review the quality of trading services and execution that we receive, and have considerable flexibility to access markets across a wide range of venues as we strive to seek best execution for the funds and help our shareholders meet their investment goals.”

Mutual threat

The project does not seem solely focused on Fidelity “fund shareholders” based on the WSJ report, which says that Fidelity is pitching this project to other so-called asset managers. Getting critical mass through collaboration may be the key to making the project into a net gain for Fidelity and its customers.

The Charles Schwab Corp. has also reacted to the HFT scandal at the highest levels of the company. See: Chuck Schwab and Walter Bettinger issue call to squash flash traders but RIAs question hysteria over the issue.

For the WSJ article, click here



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Teresa Vollenweider said:

April 10, 2014 — 8:24 PM UTC

Who are Fidelity’s “friendly competitors” as mentioned in the article?

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