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Merrill Lynch Ramps Up Algorithmic Trading Access

Merrill Lynch is rolling out its algorithmic-trading strategies to institutional clients via Bloomberg and other third-party systems, signaling that it's becoming more aggressive in marketing its capabilities.

Turning the corner on building its algorithmic trading strategies, Merrill Lynch is beginning to speak publicly about its capabilities as it rolls them out to institutional clients in both the U.S. and Europe through third-party order-management systems (OMSs).

On Tuesday, the brokerage house announced that MLX-ACT, its algorithmic and computer-based equity-trading service, is now accessible to institutional clients through Bloomberg terminals.

"We are well on our way to being integrated with every key global delivery channel," says Mike Stewart, managing director and head of global portfolio and automated trading at Merrill Lynch in New York.

While competitors such as Credit Suisse First Boston, Morgan Stanley and Banc of America Securities have generated a lot of media buzz about their algorithmic-trading strategies -- partly by announcing a series of integration deals with OMS vendors -- Merrill Lynch has been quietly spreading the word.

"Our main focus has been on developing the infrastructure and on calibrating the trading strategies," says Stewart. "At this point, we have a very competitive, increasingly mature set of algorithmic products, which we deliver through custom and third-party channels," he adds.

Merrill began building the product in 2002, which includes a data infrastructure, a market-access engine and the strategy creation.

The X-ACT algorithmic trading engines were organically developed by an internal team, leveraging extensive research and analysis of market microstructure and stock-specific behavior patterns, states the release. Strategies are continuously re-calibrated based on real-time market data, execution costs and benchmark relative performance, adds the release. Rather than just schedule orders for a given benchmark, such as VWAP (volume weighted average price), Merrill's algorithms look at historical data and real-time data to determine submission to the market, while seeking short-term price improvement for each component order.

Merrill went live internally in the third quarter of 2003, and it has been adding strategies, as well as internationalizing the product, ever since. It's been offering access to clients since the end of the first quarter of 2004, says Stewart.

Right now, Merrill's strategies are accessible to the firm's sales and trading staff, and to institutional customers that have a direct connection via the Financial Information Exchange (FIX) protocol. Though Bloomberg is the first channel to be announced, Stewart says that Merrill is in the process of integrating with a variety of third-party firms. "We want ease of use, platform independence and broad product penetration," says Stewart, who adds that the firm has also focused on integrating directly with individual clients.

Meanwhile, in Europe, Merrill's products are up and available to Merrill trading desks and to buy-side clients that request a direct connection.

In July, Merrill said it would make its algorithmic strategies available inside of Royal Blue's OMS, toward the end of the fourth quarter, and it will utilize Bloomberg in Europe as well.

"Clients in the U.S. and Europe will be able to seamlessly access the engines in both regions," says Stewart. Next, Merrill plans to launch its algorithmic-trading capabilities in Asia during the fourth quarter and first quarter of 2005. Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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