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The debate over transparent markets has existed since the onset of computer-based exchanges. Last month the conversation reared its ugly head again with the recent release of Michael Lewis’s book, Flash Boy: A Wall Street Revolt. And this time Wall Street plans to do something about it.
Lewis articulately argues that the U.S. stock market is rigged in favor of high-speed electronic trading firms, which use their advantages to extract billions from investors.
Whether or not you agree with the “market is rigged” claims made by Lewis, you can’t deny that transparency in the markets has been compromised by high-frequency traders. Specifically, their use of “dark pool” exchanges makes it possible for them to conduct their trading activities which now makes up roughly half of all U.S. trading volume.
Individual and institutional investors are appropriately outraged by the activities of these high frequency traders.
The second-largest mutual fund company had enough of the shenanigans. Fidelity Investments – with $1.95 trillion under assets under management – is sick and tired of being nickeled to death. With nearly every transaction, Fidelity’s fund managers feel the pain of high frequency trading.
As a result of their ongoing frustrations with high frequency skimming techniques, Fidelity has decided to start a new stock exchange. The exchange will allow Fidelity’s mutual funds and other big money managers to keep their orders safe from predatory high frequency traders. And by doing so, they’ll be able to generate higher returns for their investors.
The project code named “Sakura.” The new exchange aims to be a stark difference from the 40 or so dark pools that currently exist.
“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,” says Fidelity’s Erica Birke.
More importantly, “the venue if successfully launched, would also PREVENT HF Traders from interacting with market orders.”
Recently Blackrock (NYSE: BLK) – the biggest manager of financial assets – has expressed great interest in Sakura. And they are not the only ones joining the cause: T. Rowe Price has announced interest in starting their own exchange as well.
The heroes of Flash Boys operate a new stock exchange called IEX. This exchange is already up and running, and has attracted interest from some of the top hedge fund managers (learn how to route your trades through IEX by clicking here).
Sakura seems to be Fidelity’s internal solution to stomping out high frequency trading. If it’s successful, Fidelity will level the playing field for individual investors who own Fidelity mutual funds and ETFs.
It’s highly unusual for investment managers to collaborate. And the fact that Fidelity, Blackrock, and T. Rowe Price are working together highlights the magnitude of the issue. These firms are committed to ending high frequency trading, and they’re willing to partner up to achieve that goal.
Investment fund managers that can secure themselves from high frequency traders will separate themselves from everyone else. That will lead to better returns for their investors, and higher fees for their firms.
I know you’ll want to start protecting yourself from high frequency traders today.
Our team has prepared two special reports to help you protect yourself against high frequency trading. These reports include:
- 10 Strategies for Protecting Your Wealth from Wall Street’s Sharks
- HFT-Free Investing: Making IEX Work for You
When you click here today, you can learn how to immediately access these special reports. Plus, I’ll immediately send you one of the last copies of Flash Boys: A Wall Street Revolt. The book is absolutely free – my gift to you.