BOSTON - Fidelity Investments Inc. is trying to get the New York Stock Exchange to use an electronic trading system rather than one in which most transactions go through a floor trader.
The biggest U.S. mutual fund company wants the NYSE to make its trading system more competitive, spokeswoman Anne Crowley said yesterday. Fidelity has said that electronic systems such as those offered by the Nasdaq stock market are more efficient and help reduce costs by limiting the role of traders on the floor.
Fidelity and fund companies such as American Century Investment Management want the NYSE to change its 211-year-old auction system after the ouster of Chairman Richard Grasso amid a furor over his $139.5 million pay package.
Fidelity executives, including head global stock trader Scott DeSano, have met with interim Chairman John Reed to air their views, The Wall Street Journal reported yesterday.
Bank of America Chief Financial Officer James Hance echoed such views. "We do think the specialist system could use some adjustments," he said yesterday during a conference call to discuss the bank's earnings. "As we have grown, we have seen the specialists struggle to keep up with our volumes."
The treasurers of California, Pennsylvania and Kentucky met with Reed yesterday to seek a review of corporate governance at the world's largest stock exchange.
"I still believe it's in the interest of the New York Stock Exchange for there to be a top-to-bottom investigation," California Treasurer Philip Angelides told Bloomberg News. "The NYSE needs to be a forum that investors trust."
"We've seen calls like this before, but things always go back to the best pricing model," said Michael LaBranche, chief executive officer at LaBranche & Co. "If markets are able to compete on price, the New York Stock Exchange will be in good shape."
Maurice Greenberg, chairman of American International Group Inc., has been a vocal critic of the specialist system. In a Financial Times opinion article last week, he said the time is ripe for an end to the system.
"If the specialist cannot effectively perform his role, then we need to look for alternatives, including the electronic matching of buyers and sellers, with no human intervention," Greenberg wrote.
Reed has said he is working with the NYSE's board to ensure better representation for all parties at the exchange, including investors.
He also has said the 1,366 members that make their money from orders sent to the exchange floor represent his most important constituency.
American Century and other fund companies have said they want their large orders to bypass the NYSE's auction process to get better prices.
Under the current system, the companies have said that some of their largest orders aren't executed because, under NYSE rules, floor traders who "improve" on an existing order by a penny a share can place their own orders before the fund's.