Fidelity Investments punches NYSE just below the belt

Car Key Boi

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Fidelity Pressures NYSE to Change System
Tuesday October 14, 1:39 pm ET
By Svea Herbst-Bayliss

BOSTON (Reuters) - Fidelity Investments (News - Websites) , the No. 1 mutual fund company, is pressuring the New York Stock Exchange (News - Websites) to quit a centuries-old auction system where floor traders match buyers and sellers, saying the system hurts investors.

Boston-based Fidelity, whose trades make up about 5 percent of the NYSE's daily volume, said it urged the exchange to adopt an electronic trading system like that used by other exchanges and the Nasdaq stock market.

...

Fidelity's volley hurt shares of specialists, with LaBranche & Co Inc.'s (NYSE:LAB - News) shares tumbling over 6 percent to $12.99 and the Netherlands-based Van der Moolen Holding NV (NYSE:VDM - News; Amsterdam:VDMN.AS - News) skidding over 5 percent to $10.31.

Meanwhile, companies that specialize in electronic trading of stocks, longtime competitors to the NYSE system, attracted investors.

Instinet Group Inc. (NasdaqNM:INET - News) climbed 13 percent, or 69 cents, to $5.96, and Knight Trading (NasdaqNM:NITE - News) added 1.4 percent, or 19 cents, to $14.16. Instinet is majority owned by global news and information company Reuters Group Plc (NasdaqNM:RTRSY - News; London:RTR.L - News).

On the floor of the exchange and in trading rooms, Fidelity's move drew sharp criticism.

"Fidelity is a monstrously huge mutual fund, and their statement is audacious and eye-popping. They are talking about doing away with the franchise of the specialists," said Jefferies & Co. Inc. analyst Charlotte Chamberlain.

But Fidelity is not alone in its calls for change. The chairman and chief executive of insurer American International Group Inc. (NYSE:AIG - News) , Maurice Greenberg, last week in an opinion piece in the Financial Times wrote critically of the specialist system and said an alternative system may be needed.

In addition, the chief financial officer of Bank of America (NYSE:BAC - News) ,Jance Hance, in a conference call on Tuesday said change was needed.
 
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