BlackRock, the world’s largest money manager, expects to launch an internal trading platform next year in a move that would strike at the heart of the profit centers of many Wall Street firms.
BlackRock is hiring programmers and other high-tech workers to build the platform, expected to be one of the world’s largest.
The company moved its headquarters last year in part to make room for the expanded trading business, which will be housed in its BlackRock Solutions unit.
“We are developing the technology in-house to offer better value by lowering trading costs,” said Rob Kapito, BlackRock president and one of eight founders of the company, in an interview.
The firm’s desire to expand its trading business was revealed in the Financial Times in September 2009. At the time, Larry Fink, BlackRock’s founder and chief executive, criticized Wall Street’s “luxurious” trading profits, particularly in a post- crisis landscape with fewer groups competing for business.
The plan is that if some BlackRock clients are selling a security and others are buying, the group can “cross” those trades internally without going through a Wall Street bank.
But BlackRock insists that the plan is not meant to marginalize Wall Street. Mr Kapito emphasized the important role played by investment banks in trading and the provision of liquidity.
“Wall Street provides that with size and scale,” he said. “If we offset cross trades internally between clients, it doesn’t preclude the need to get liquidity outside, it is part of our fiduciary duty to do so. We still have to make sure fair allocation can take place.”
Still under discussion is how to make the decision when to trade internally and when to use outside counterparties.
Few other fund managers have the size of BlackRock, which has $3,450 billion of assets under management, and its experience of developing its own technology to take on the high costs and complexity that have hindered previous attempts to develop such platforms.
Its BlackRock Solutions division provides infrastructure and risk analytics for more than 200 institutions with a combined $10,000 billion of assets. The New York Federal Reserve and the UK Treasury have hired the company to help with assets from troubled institutions.