Just as networks constrain how buyers and sellers interact, they also constrain how traders interact in the world of mutual funds. Retail investors often trust companies such as Fidelity Investments to manage their money and make trades on their behalf. Clients’ returns reflect, even if only slightly, the Fidelity traders’ performance, which require them to interact with outside brokers. Behind traders and brokers, however, are humans, and their trading decisions may be affected by many factors. This situation is analogous to a network with varying degrees of edge intensities.

For example, if a client wants to purchase some shares of a company, his trader will locate brokers with clients looking to sell those shares. While the trader’s goal should be to secure the lowest price for his client, this does not always occur. Sometimes, brokers who have ingratiated themselves with the trader may end up with the sale, even if at a slightly higher cost.

The US Securities and Exchange Commission (SEC) alleged Fidelity traders have done just that, as published in an article in today’s Boston Globe. The article explains how the SEC accused Fidelity stock traders of accepting millions in gifts from brokers. Fidelity settled the case, agreeing to an $8 million fine. If these charges are true, it would mean that traders would be less likely to seek out the best deals for their customers, choosing instead to rely on potentially higher cost deals from these gift-toting brokers.

While the SEC allocated significant resources to investigate Fidelity’s activities over several years, this incident shows that similar examples may go unnoticed on a daily basis on a smaller scale. This example shows that many factors appear in actual markets that are not considered in ideal networks such as those reviewed in class. While personal contacts often play a large part in business networks, one must always consider the legal and ethical limitations so as not to cross necessary boundaries.