This content is from: Portfolio

Starters: Fidelity’s new black box

Fidelity’s new black box; FirstRain's research platform

Stock exchanges are gobbling each other up at an unprecedented pace, but, paradoxically, the number of places to get a trade executed is mushrooming. The latest entry in a field that has seen crossing networks and alternative trading systems built by Wall Street firms like Citigroup, Credit Suisse and Goldman, Sachs & Co. comes from the brokerage arm of giant money manager Fidelity Investments.

The firm has spent 18 months and many millions of dollars developing CrossStream, a new system that will pair matching customer orders instead of sending them to be executed on exchanges or other electronic platforms. The system, which became available last month, is designed to improve execution quality for the retail investors, investment advisers and family offices that provide most of its brokerage business today and to attract more block orders from big institutions.

Any customer orders that can be matched internally at a better price than what’s available in the wider market will be automatically executed. (Those that can’t will be sent elsewhere to be filled.) Alternatively, institutions can let block orders sit in CrossStream and be taken out little by little, by smaller orders from other Fidelity customers.

Fidelity believes CrossStream will stand out from the array of similar systems popping up these days because its brokerage unit handles a huge volume of trades — about $3 billion daily — from a wide variety of small and large investors. “Our flow comes from a number of diverse kinds of firms and individuals,” says Mark Haggerty, president of Fidelity Capital Market Services. “That’s going to create lots of opportunities for crosses and matches in a way that’s different from firms that only have high-net-worth or institutional business.” — Justin Schack


Raining research on money managers

Gaurav Rewari and Jaswinder Pal Singh want to reinvent investment research. Instead of focusing on individual companies and their reported results, Rewari — a former product development executive at business intelligence outfit MicroStrategy — and Princeton University computer sciences professor Singh have designed a new application that allows investors to analyze the entire web of relationships that contribute to a company’s financial health.

The duo’s firm, called FirstRain, started six years ago by marketing its data mining system to individual investors. The firm then turned to corporations, thinking that the FirstRain system — which aggregates data from 12,000 sources, including government sites, subscription services and local news sources — would help executives gather intelligence on competitors. Then last year a money management executive using FirstRain realized that the system could be a powerful tool for helping portfolio managers evaluate investments. The Foster City, California, company has since begun marketing to institutional investors, signing on the likes of Artisan Partners, JPMorgan Asset Management and Pioneer Investments.

Investors can use FirstRain’s technology to analyze documents, as well as to monitor and search the Web for information about a company’s suppliers, customers and competitors — what FirstRain calls the corporate “ecosystem.” A portfolio manager of energy stocks, for instance, could use the technology to get information about Exxon Mobil Corp., alternative energy sources like ethanol and even global corn harvests (most ethanol in the U.S. is made from corn). Similarly, an analyst looking for investment opportunities related to Apple Computer’s iPod might use the firm’s search technology to gather information about companies that make the device’s component parts and accessories.

FirstRain supplements its search and data mining tools with about 100 staff in India, who help users set up their ecosystems and ensure the technology delivers relevant information. “They are exercising sound judgment on which sites you want to monitor,” explains Rewari. “It’s our own version of the World Wide Web.” — Julie Segal

Related Content