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Spokane, Washington  Est. May 19, 1883

Fidelity Investments To Become Market Maker In Nasdaq Stocks

Tim Quinson Bloomberg Business News

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.