Fidelity Investments, the biggest U.S. mutual fund company, with $442.3 billion in customer assets, is becoming a market maker on the Nasdaq Stock Market.
The Boston-based company is acquiring the Nasdaq trading operation of Wagner Stott Mercator for an undisclosed amount.
Fidelity has been expanding its brokerage business as part of a diversification plan aimed at reducing the company’s dependence on mutual fund sales for the bulk of its profits and revenue.
Fidelity, which made 305 municipal bond sales last year, wants to double that number and is considering underwriting corporate bonds. It also intends to sell more variable annuities, traditionally the domain of insurers.
Fidelity already owns the second-largest discount brokerage after Charles Schwab Corp. Fidelity’s stock trading for institutional clients and individual investors represented about 5 percent of all New York Stock Exchange activity last year.
The acquisition of Wagner Stott’s Nasdaq trading operation is part of Fidelity’s plan to make further inroads on Wall Street.
“By becoming a market maker in Nasdaq stocks, we are taking steps to help serve our retail and institutional customers more efficiently and give ourselves better control of the trading process in today’s rapidly evolving Nasdaq marketplace,” said Tim McKenna, president of Fidelity Capital Markets.
On the Nasdaq, market makers agree to post quotes at which they are willing to buy and sell stocks, ensuring that there is always a buyer or seller available to trade. They profit from the “spread,” or difference between the price they buy the stock and the price they sell it.
For most stocks quoted on the Nasdaq, there’s a difference of at least 12.5 cents between the price at which the market markers are willing to buy and sell shares. Market makers pocket that difference.
Wagner Stott, a 72-year-old firm, also is a specialist on the New York Stock Exchange and processes many of its trades through Fidelity’s National Financial Services Corp. affiliate.
Leslie Seff, Wagner Stott’s OTC trading chief, joined Fidelity along with about 25 other employees on Friday when control of Wagner Stott’s Nasdaq trading operation at 14 Wall St. in New York, transfered to Fidelity, the company said.
Fidelity said it has “aggressive” plans to increase its market-making business. The plan includes hiring more traders and acting as principal for a higher number of Nasdaq stocks, the company said.
As a seasoned financial analyst with a deep understanding of the investment landscape, particularly in the realm of brokerage operations and market dynamics, I bring forth a wealth of expertise to dissect and elaborate on the intriguing developments within Fidelity Investments, the largest U.S. mutual fund company.
Fidelity's recent strategic move to become a market maker on the Nasdaq Stock Market is a pivotal step in its ongoing diversification plan. The evidence supporting Fidelity's commitment to this strategy lies not only in its current status as the biggest U.S. mutual fund company with a staggering $442.3 billion in customer assets but also in its notable expansion in the brokerage business. This expansion is a deliberate effort to reduce the company's reliance on mutual fund sales for its primary source of profits and revenue.
One concrete piece of evidence supporting Fidelity's diversification plan is its acquisition of the Nasdaq trading operation of Wagner Stott Mercator, a move indicative of the company's intention to make significant inroads on Wall Street. Wagner Stott, a well-established 72-year-old firm, has a notable presence as a specialist on the New York Stock Exchange, and its Nasdaq trading operation is now under Fidelity's control.
The essence of Fidelity's strategy involves not only acquiring existing operations but also expanding its activities within the Nasdaq marketplace. By becoming a market maker on Nasdaq, Fidelity aims to serve its retail and institutional customers more efficiently, taking better control of the trading process in the rapidly evolving Nasdaq marketplace. This strategy is articulated by Tim McKenna, the President of Fidelity Capital Markets, who emphasized the company's goal to enhance efficiency and control in serving its diverse clientele.
In the context of Nasdaq trading, the term "market maker" is central to understanding Fidelity's new role. Market makers play a crucial role by agreeing to post quotes at which they are willing to buy and sell stocks, ensuring a continuous market and liquidity. Fidelity's move positions it to profit from the spread—the difference between the buying and selling prices of stocks. This strategic shift aligns with Fidelity's aggressive plans to increase its market-making business, as disclosed by the company.
Furthermore, Fidelity's intention to double municipal bond sales and explore underwriting corporate bonds, as well as venturing into the domain of variable annuities, showcases a comprehensive approach to expanding its offerings beyond traditional mutual funds.
In summary, Fidelity's recent acquisition and strategic initiatives underscore its commitment to evolving in response to market trends. The company's multifaceted approach, from market-making on Nasdaq to broadening its product offerings, positions it as a dynamic player in the ever-changing landscape of financial services.
