NEW YORK (CNN/Money) - When a big investor is willing to suffer a loss to prove its point, you know that it's hopping mad.
Such is the ire of Fidelity Investments, the nation's biggest mutual fund company, which this week revealed that it had met with New York Stock Exchange officials, including interim Chairman John Reed, about replacing the Big Board's specialist system.
The kicker? According to Securities and Exchange Commission filings, funds managed by Fidelity own 5.2 percent of the shares outstanding in LaBranche, a specialist firm whose very future is in doubt if the Exchange switched to the electronic trading system Fidelity says it would prefer. And as of June, Fidelity held over 3 percent of the shares outstanding in Goldman Sachs, which bought specialist firm Spear, Leeds & Kellogg three years ago for nearly $7 billion. An end to the specialist system could lead to Goldman having to take an impairment charge for its Spear acquisition -- and a heavy hit to Goldman's stock.
Specialists match investors' orders to buy stocks with orders to sell them. Other stock exchanges do this electronically, but the New York Stock Exchange says that the human-factor creates a more orderly market. Not so, according to critics, who say that electronic exchanges provide just as good a pricing environment, absent a middleman taking his cut.
Furthermore, many investors -- Fidelity included -- believe that specialist firms regularly take advantage of their inside knowledge of how much buying and selling there is in any given stock. From the looks of it, Fidelity's decision to agitate for changes at the NYSE suggests that it believes the benefits gained by a switch to an electronic trading system outweigh any losses it might take in LaBranche or Goldman.
"Whether or not we are an investor in these stocks is irrelevant to how we feel the NYSE structure disadvantages certain investors by giving privileges to a certain few," said Fidelity spokesperson Anne Crowley.
Crowley also said that the decision to buy or sell rests with individual fund managers, and there is no firmwide point of view on what shares are good or bad. Keeping to company policy, she would not say whether Fidelity fund managers have cut their Goldman holdings. By law Fidelity would have to file with the SEC if there were any material change in its LaBranche stake, since it owns more than 5 percent of the company.
Many investors think NYSE will eventually move to an electronic trading platform, but the consensus still seems to be that the shift will be quite gradual.
"It's going to take a while for the specialist system to be scrapped," said Julius Baer head of U.S. equities Brett Gallagher, who owns "a little" Goldman Sachs. "There are so many powerful and vested interests in it."
But with mutual funds like Fidelity -- a big client of some of those powerful and vested interests -- calling for reform, changes could come rather quickly.
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