Targeting small institutional investment firms that need a browser-based trading solution, Direct Markets--Merrill Lynch's money-manager-oriented e-commerce division--has entered into a partnership with FinTrack Systems Corp.
The deal calls for Direct Markets to offer FinTrack's Web-based equity trading system--dubbed eCharm for Equity--to its worldwide stable of buy-side clients. Direct Markets, as part of the agreement, has also taken a minority equity stake in the New York City-based FinTrack.
Michael Packer, managing director and head of the Direct Markets unit, describes FinTrack's system as a pure, browser-based order-entry and execution platform. Via the system, clients of Direct Markets can, in real-time, enter orders, change orders, cancel orders, execute orders and receive fills.
The system, which also provides clients with the ability to send and receive indications of interest (IOIs), was initially rolled out to customers of Direct Markets in January of 2000, says Packer. Though he says there have been "three or four iterations" of the equity trading system since the initial rollout, Packer declines to specify either the names or number of clients that have gone live with the system.
However, one source familiar with the deal between Merrill and FinTrack says that roughly 20 clients are using the Internet-enabled system today. While refusing to specify those clients, the source says that customer base is comprised of an eclectic mix of "money managers, hedge funds and pension funds" spread out across the globe.
Packer declines to provide specifics about Merrill's equity stake in FinTrack, but says the pact between the two firms is laced with incentives that will entice Merrill to work toward establishing FinTrack's system as a standard in the financial services industry. "When we work with other firms, we feel we will be most successful at Merrill Lynch if we help them be more successful--and that includes leveraging the capabilities we've built together for their other clients," says Packer.
Though FinTrack's platform is now available to Merrill's full universe of institutional investor clients, it is definitely not being aimed at very large buy-side firms--like Fidelity or Putnam Investments. Those clients--in lieu of employing a browser-based trading interface--usually connect their order management system directly to Merrill's using a FIX-based computer-to-computer interface. In fact, says Packer, between one-fourth and one-third of all of Merrill's U.S. institutional equity trading volume is imported via such an interface.
But Packer also says the FIX-based interface has not been a viable trading solution for "less sophisticated, smaller clients" that either "do not have a FIX engine on their end" or don't have the trading volume needed to justify building a link between their order management system and Merrill's. FinTrack's system, he says, provides those smaller institutions with a "direct, order-entry vehicle" for trading cash instruments.
Direct Markets' relationship with FinTrack really began to take shape last summer, after FinTrack asked Merrill if it had any interest in adopting an interest rate derivatives-trading system it had developed. At the time, Direct Markets was developing MLX--an institutional e-commerce portal through which it would eventually offer research, market commentary, analysis, post-trade reporting and a host of real-time trading services. And though Merrill rejected FinTrack's interest rate derivatives pitch, it did ask the vendor to build it a Web-based, institutional equity version of its platform.
The end result of all that negotiation is that FinTrack's system is now offered to institutional clients over MLX. But prior to partnering with FinTrack, Packer says, Direct Markets did evaluate a plethora of other suppliers of Internet-enabled equity trading systems. While declining to specify those vendors, he says FinTrack edged out its competitor because of its flexibility and speed.
In addition to FinTrack, Direct Markets has also recently forged a similar partnership (for Internet research services) with Multex Corp. And Packer hints that those deals may very well represent just the tip of the iceberg. "We're constantly looking for new vendors out there that offer new capabilities," he says.