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January 2, 2007

Fidelity Brokerage Begins Operating in the Dark

By Nina Mehta

Fidelity Capital Markets Services, the institutional brokerage arm of the Fidelity conglomerate, has launched an internal crossing system. Dubbed CrossStream, the alternative trading system matches buy and sell orders anonymously among the brokerage division's large and varied client base.

"The diversity of our customer base and the diversity of our order flow creates opportunities for matches," Mark Haggerty, president of Fidelity Capital Markets Services, told Traders Magazine. The broker's clients include retail investors, institutions, hedge funds, investment advisers and correspondent broker-dealers. That encompasses a mix of buyside and sellside firms with both large and small orders.

Fidelity Reseach & Management Company, the investment manager for Fidelity's mutual funds, will decide whether or not its funds can use CrossStream as an execution venue. FRM is separate from Fidelity's brokerage division.

Fidelity Brokerage Company, the parent company of Fidelity Capital Markets Services, executes $3 billion in equity orders every day. The firm does not say how many shares that represents, but at an average of $28 per share, that works out to 107 million shares per day. (The average volume-based share price on the New York Stock Exchange last year was $35, while the average on Nasdaq was $22; $28 per share is a rough volume-weighted-average of those two markets.)

Orders that match in CrossStream execute within the national best bid or offer.

Customers cannot choose to execute at the midpoint. Instead, the system's matching engine determines where within the spread the order executes.

Orders passing through CrossStream can match against other orders passing through or against resting liquidity within the system.

Haggerty says customers can opt out of executing against proprietary flow from other brokerage customers. He declined to be more specific about that. Fidelity Brokerage Company itself does not generate any proprietary flow, Haggerty said.