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BlackRock Inc. CEO Laurence Fink. BlackRock, the world's largest money manager by assets, has applied to the U.S. Securities and Exchange Commission to compete as a broker dealer against big Wall Street banks.

Mark Lennihan/Associated Press/Mark Lennihan/Associated Press

BlackRock, the world's largest money manager by assets under management, has applied to the U.S. Securities and Exchange Commission to become a broker dealer, according to a person familiar with the situation, putting it into direct competition with traditional Wall Street banks.

BlackRock last year launched an internal trading platform designed to save investors money by executing trades within the group, which has $3.5-trillion (U.S.) in assets under management. It now plans to allow customers of its advisory business, BlackRock Solutions, to trade bonds electronically.

The firm's desire to expand its trading business was revealed in the Financial Times in September, 2009, at a time when 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.

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Other asset managers also run trading operations. Fidelity has long operated a broker dealer within its capital markets arm, and runs its own system for executing stock trades away from the traditional exchanges.

However, the move by BlackRock to offer an electronic bond trading service to about 50 of its very large advisory clients, such as insurance companies and sovereign wealth clients, could cut out a profitable source of business for the investment banks.

BlackRock declined to comment. The company has always said that the aim was not to marginalize the investment banks.

"They are going after a market that the dealers have dominated for years and they are very sensitive to any industry move that threatens their profits," said Sang Lee, managing partner at Aite Group, the research and advisory company. "Just because BlackRock are attempting this type of platform does not guarantee that it will work."

The proposal by BlackRock marks the strongest evidence to date of a sea change across Wall Street as new rules for capital and trading are finalized. Big Wall Street banks face growing pressure that will limit their traditional trading activities.

As Basel III capital standards, the proposed Volcker Rule ban on proprietary trading and regulation of derivatives under the Dodd-Frank Act are implemented, hedge funds, high-frequency trading firms and asset managers are expected to become more active in the secondary trading of fixed-income securities.

It is a trend that dealers warn could create greater risk for the overall financial system. "The risk is that high frequency market-making firms and other players become the market's primary sources of liquidity, and those players might not always be there in large sizes and in volatile markets," said the head of rates trading at a leading dealer in New York.

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