Report: Fidelity had Market Timing Relationship

According to a report on TheStreet.com, Oppenheimer’s Michael Sassano, one of Wall Street’s most successful market-timing brokers, had a Fidelity account that allowed him to frequently trade shares of non-Fidelity funds for the benefit of his hedge fund customers through the Fidelity trading platform.

The arrangement, negotiated in the fall of 2002 when Oppenheimer was still owned by Canadian Imperial Bank of Commerce, gave the 33-year-old Sassano access to dozens of mutual funds with which Oppenheimer lacked a formal relationship, the report said. Sassano, who once grossed $15 million a year in trading commissions from market-timing, is currently under investigation by the US Securities and Exchange Commission (SEC), the NASD and other regulatory agencies, according to TheStreet.com.

The Fidelity trading platform is the backbone of Fidelity’s investment advisory group, a division that boasts 2,100 institutional customers with $106 billion in assets under management. It was designed as a one-stop shop for Wall Street professionals, where funds from 390 other families trade side by side with the firm’s own offerings.

However, the platform’s easy access to a wide array of mutual funds made it an inviting target for timers, the report said. Because of the uneven oversight that existed among fund families, timers did occasionally have access to the Fidelity platform, TheStreet.com said. Fidelity wouldn’t comment on its relationship with Sassano, to TheStreet.com

The firm denies actively soliciting business from market-timers, though it admits that some timers may have been customers of the investment advisory group.

Fidelity isn’t the only financial services firm with a robust mutual fund trading platform that was targeted by timers. Charles Schwab, which boasts an equally impressive fund supermarket, also had run-ins with timers. In fact, people familiar with Sassano told TheStreet.com that the broker turned to Fidelity only after Schwab kicked him off its platform because of his repeated timing abuses.

To its credit, Fidelity often did crack down on market-timers who infiltrated the platform, even Sassano. Sources familiar with the situation told TheStreet.com that even though Fidelity permitted many of his trades to go through, others were blocked. People familiar with Sassano’s trading say he received a number of cease-and-desist notices from Fidelity when his market-timing became too abusive. Fidelity even assessed an excessive-trading fee on one of his clients.

Federal and state regulators have been pursuing a wide ranging investigation of abusive mutual fund trading practices, focusing largely on market timing, late trading and certain sales activities.