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Jared Dillian
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The Liquidity Problem

Maudlin Economics Jared Dillian examines stock market liquidity.

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July 31, 2001

A Bull Blazing a Trail

By Peter Chapman

Ever the pioneer, Merrill Lynch has been trading a small portion of its Nasdaq orders on an agency basis for over a year. Its modus operandi does not always involve bringing two naturals together, though.

"There is no reason why you cannot act as agent for a client in a principal market," said Merrill's Nasdaq head, Leo Ressa. "It's how you approach each trade."

Ressa explains his traders can work the order in the inter-dealer market and on ECNs as long as the executions occur in a "client facilitation" - and not a principal--account. The customer is then charged a commission, but not a spread.

Ressa adds that Merrill is putting systems into place that allow it to offer clients the option of trading in any of four ways: pure agency, riskless principal with a commission--equivalent; risk principal with a commission--equivalent; and net.