The Federal Reserve on Wednesday approved the purchase of a $50 billion fund that would invest in airlines and other high-frequency trading firms, a move that analysts said was a significant signal of investor confidence.
The approval, by the Federal Reserve’s board of governors, means the investment arm of the Federal Deposit Insurance Corp. will become the primary fiduciary of the fund’s assets, which would make it a central player in the industry.
The Federal Deposit Association, the largest banking lobby in the United States, called the approval a “win-win” for investors and industry.
The investment arm will also benefit from the bank’s recent investment decisions in the stock market and other sectors, including in commodities and real estate, the association said.
The FDIC said in a statement that the deal, which is subject to a 30-day public comment period, will give investors more flexibility in how to spend their money.
It also is expected to boost the fund to an estimated $60 billion by 2027, and to $90 billion by 2025, the agency said.
Its investment in high-speed trading firms like the NYSE and Nasdaq would be the largest in the world and a major win for the Federal Government, said David Einhorn, a managing director at Morgan Stanley.
That investment would also boost the value of the investment fund by $2.5 trillion, he added.
The fund’s purchase comes as more and more investors are taking a more cautious view of the financial industry and are wary of the potential dangers posed by technology companies and their aggressive use of high-tech trading tools.
The fund’s board members have been among the most vocal proponents of investing in companies like Airbnb, Facebook and Uber.
The investment arm is expected pay $15 a share, which could be significantly lower than what most investment banks pay.
The Feds board is also expected to approve the sale of other holdings.
The deal is a major victory for the financial services industry and a welcome boost for the Feds overall financial stability, said Matt Ritter, an investment banker at J.P. Morgan.
The FDIC board has been reluctant to approve large-scale deals involving the financial sector, he said.
But the FEDC’s approval will help reassure investors and the financial system that the agency will be there to protect investors.
The board’s decision is expected before the end of the year, and the FIC will make final decisions about the purchase before then.
The move is a sign of confidence in the financial markets, said Brian Shanks, head of technology at brokerage Morningstar.
Investors are now more aware of the risks of high tech trading, he noted.
The $50bn investment will come as the Fidelity Investment Advisory Fund, which also is a subsidiary of Fidelity Investments, is in the midst of an ambitious $40 billion investment to improve the performance of its low-cost index fund.
The Fidelity fund is also a big winner from the FDIC’s approval.
The agency is not yet clear about how the deal will affect the futures markets, which are expected to be heavily affected by the news.
But one major market participant, the New York Mercantile Exchange, has already started selling a $2 billion order to buy the fund.