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June 2, 2009

Merrill's Electronic Trading is King in BofA-Merrill Combo

Integrating Low-Touch Trading Desks

By Nina Mehta

Also in this article

In the wake of Bank of America's 11th-hour acquisition of Merrill Lynch last Sept. 15, the combined firm managed to merge its two equities electronic trading groups without big drama. Merrill handily got the lead role in the combination.

"Merrill Lynch is a global franchise, while BofA was mostly focused on the Americas," said Roger Anerella, head of global execution services in the equities global markets division. "We execute five-to-seven times the equity trading volume they did, so we also had a broader, deeper footprint."

That equities powerhouse Merrill led the integration isn't a surprise. In recent years, Merrill has rounded out and centralized its equities trading services. It covers the waterfront from crossing and smart-order routing to algorithms across all regions and markets. BofA, meanwhile, had begun getting out of the institutional equities space in early 2008. As a result, its sales, trading and quant research teams had scattered, with many executives leaving or being pushed out.

Standalone Business

Much of the institutional electronic equities group was dismantled long before the Merrill acquisition," said William Harts, former head of electronic trading services and equity strategy for Banc of America Securities, who now consults for financial services companies and exchanges. "But Merrill's team under Mike Stewart is strong. He understands the business and commands a lot of respect from clients."

The combined global banking and markets division of BofA is now called Bank of America Merrill Lynch. Mike Stewart and Tom Patrick, both from Merrill, are co-heads of the global equity markets division. After the merger, the low-touch execution services division became a standalone business within this group. The other businesses are financing and services, the high-touch and portfolio cash desks, and derivatives.

For BofA-Merrill, a smooth merger of the low-touch groups was important. "The goal was to have a bigger and more powerful offering as a merged company," Anerella told Traders Magazine. "That was what we committed to up front." At the same time, he said, there was no need to keep duplicative infrastructure from both sides of the house. He declined to comment on the total number of the people in the combined group.

Historically, Merrill has had deep relationships with the 100 largest buyside clients, and a strong retail business, while BofA's strength was with clients outside the top 100. BofA has also had several large hedge fund clients, although it sold its prime brokerage operation to BNP Paribas last year.

As BofA's acquisition of Merrill approached Jan. 1, or "Legal Day One" of the new combined firm, BofA and Merrill clients became concerned about how the integration would affect them. Michael Lynch, head of Americas execution services, acknowledged this. "The main concern was timing," he said. "The questions were: How fast can you complete the integration? And will it take years?"

Michael Lynch