Friday, September 14, 2007

Merrill Lynch IT Systems 2007

Merrill Lynch
Diane Schueneman
SVP, Head of Global Infrastructure Solutions

Thirty-six years at Merrill Lynch -- positions include international business manager for equities; head of futures clearing and execution services; COO, asset management, Merrill Lynch Investment Managers; head of technology and services, Global Private Client Group.

Florida Southern College.

Merrill Lynch
4 World Financial Center
250 Vesey Street
New York, NY 10080

More than $1.6 trillion in client assets.

I worked for Norman Tonkin, the regional director of institutional sales, for 16 years. To this day I talk to him on the phone.

The opportunity to go to London. That led to quite a number of years working overseas. The international experience was the biggest influence, in terms of my career capabilities and building out skill sets. Also, being in the futures business taught me a lot about technology. It taught me how to use technology to disrupt markets, and how you respond to create a more profitable business.


Everybody has talked over the past 10 years about globalization. Over the next 10 years we are going into virtualization. I need to understand how I can operate anywhere in the world, with any number of partners seamlessly and with total integration. It's all about collaboration tools: wireless, virtual workstations and telepresence. It's about how you connect people in seamless ways so that they can operate any time and any place.


IT Budget:
More than $1 billion for IT development.

Key Technology Management:
Ron DePoalo, Global Private Client Tech
Tony Kerrison, Global Technology Infrastructure, Corporate Technology, Merrill Lynch India Technology Services
Ajit Naidu, Global Equity Markets and Services Technology
Jim Noble, Transformation, Strategy and Architecture, Investment Bank and Research Technology
Adrian Pearce, Fixed Income, Currencies, and Commodities and Liquidity Risk Technology

Size of Technology Team:
Global Infrastructure Solutions has 13,000 employees.

Percent of IT Projects Outsourced:
Our sourcing strategy is very in-tune with where we exist -- everything from metro locations to near-shore and offshore locations. Of all the work that we do, we probably rely on strategic partners for about 15 percent of everything.

Key Technology Partners:
There are very few [technology] companies with which we're not doing business.

Success Metrics:
I use Six Sigma a lot. You want to achieve something that people have clarity and purpose around, and understanding as to whether they're getting there.


The Transformational Goals will lead into 2008 and 2009. We will get a lot more into the execution stage of them, as opposed to the planning stage. I think the one that will have the most traction will be the 70/30 Investment Strategy.

As part of the Transformational Goals, we'll be in high-execution mode with the completion of our infrastructure build-out. We're creating what we call a "global support model," in which we are monitoring everything 24/7 out of two locations -- Jacksonville and Singapore.

Our "Transformational Goals," or the T6, are simple and quantifiable, which is why we like them. These six goals are broader than just technology. But certainly the biggest impact for us will be in the technology space.

Goal 1: 70/30 Investment Strategy
Accelerate innovation and efficiency by shifting the mix of technology investment to 70 percent new development and 30 percent "lights on" maintenance.

Goal 2: STP
Build straight-through-processing platforms for 99.5 percent of all high-volume, commoditized products across both cash and derivatives by the end of 2009.

Goal 3: Application Availability
Drive availability of business critical applications to 99.95 percent, with major emphasis on end-to-end business process support.

Goal 4: Global Sourcing
Create competitive advantage by sourcing the right people with the right skills in the right locations at the right price point.

Goal 5: Client Satisfaction
To be in the top tier of client satisfaction across institutional clients and private clients, as measured by targeted external and internal surveys.

Goal 6: E-Channels
Become the industry leader in providing products and services to clients through electronic distribution channels.


Technology for Merrill Lynch Portfolio Managers.

Feb 2007

Merrill Lynch Investment Managers’ merger with BlackRock means

its wealth management division must evolve into a standalone

operation. Alison Ebbage meets the man facing the challenge

Last year’s merger of Merrill Lynch Investment Managers (MLIM) and BlackRock could have been a major headache for Merrill Lynch Portfolio Managers. This was a specialist, discretionary management unit for private clients, which was part of the institutionally-oriented MLIM.

However, since last year’s merger, the portfolio management division has since been integrated into Merrill’s huge private banking franchise, which runs $1,500bn (e1,200bn). This means its staff have not gone over to BlackRock with their MLIM colleagues, and have remained within the Merrill empire.

Until now, Merrill Lynch has prided itself on being able to provide a complete range of technology solutions with minimal recourse to outside agencies. But now that MLIM, the fund management arm, has moved over to BlackRock, taking with it some of the key technological platforms, Andrew Powell, previously head of international banking technology at Merrill Lynch Portfolio Managers, certainly has his work cut out.

In his new role, Mr Powell is now responsible for buying the back office and technology systems for the discretionary management capacity of the private banking arm, Merrill Lynch Global Private Clients. A key part of his role will be to untangle the complex relationship with BlackRock, so that his private bank can eventually operate on a standalone basis, treating BlackRock just like any other funds provider.

Moreover, he is expected to help expand the private client portfolio management business across much of continental Europe.

He says that until recently, the group’s private client businesses made some use of the MLIM technology, and that group thinking has not changed since the merger. The aim remains to buck the outsourcing trend by providing custom-built in-house technology solutions, which will be completed within the next two years.

“What it all comes down to is being able to leverage our internal capabilities when dealing with private client offerings, and in particular a sophisticated client base,” says Mr Powell.

He believes that control is a key factor in the private client business, and that therein lies one of the main attractions of keeping in-house service functions that are commonly outsourced.

“From a technological viewpoint, outsourcing still means relationship managing the vendor and making sure that the service is being delivered,” he says. “We also need to be able to see the overall architecture clearly, and that is much easier to do in-house. Sometimes in the past we have found that vendors can’t actually deliver what we have needed, and that has also influenced our decision.”

So what will the next two years hold while the firm develops its own systems? Mr Powell explains that as far as the discretionary business is concerned, BlackRock has now become a third-party manufacturer, and will do the financial modeling for Merrill, but that the tools to carry out private client business will be retained by or created internally within Merrill Lynch.

Mr Powell says the intention is to create an in-house fund range to act as an ‘augmenter’ to those products provided by BlackRock. Accordingly, a chief investment officer is to be appointed.

“Our plan is an aggressive one. By September 2007 we intend to be onto our own platforms and to have created new and leveraged systems and technological infrastructures where necessary. We have already done our GAP analysis and are now knee-deep in our build process,” he says, referring to the studies which have been completed to ascertain the gap between capabilities and requirements.

He adds that being able to, as well as being seen to be able to, pull together quality products with the technology to back them is key to business success.

“When building a new product we need to develop technological solutions quickly and with minimum impact on the client. That often means using existing systems on offer elsewhere in the firm,” confirms Mr Powell. “Doing a new build completely from scratch is becoming something of a rarity.”

Investor suitability

Execution is a case in point. In this instance, the private bank would typically go to its institutional desk on the corporate side of the investment banking business to execute its orders. It’s a sort of ‘outsourcing internally’, according to Mr Powell.

He cites two areas that have been particularly affected by the re-organisation. The first is compliance, in that the firm now needs to create its own means to evaluate and monitor activity.

“We are in the process of developing our own entity capable of looking at all the relevant structures within the discretionary environment. We also have our own compliance department,” says

Mr Powell. He adds that until the new build is complete, there will still be a certain amount of reliance on the capacity at BlackRock.

But pre-trade compliance, relating to the suitability of the investor and the compliance requirements of Merrill Lynch itself when, for example, avoiding banking deals with institutions on a banned list, is one example of capability that the firm needs to have. Disclosure reporting is another area to look at. Legislation requires the firm to have absolute transparency when it comes to its holdings.

“The authorities expect us to manage suitability as a compliance function and that is related to investor profiles, suitability and risk. We need to be able to look at trading sizes and risks that we have taken on and the size of individual investments that individuals have,” says Mr Powell.

Operational procedures are the second area targeted for swift action. Here the issue is mostly around execution capability, which needs to be looked at on a case-by-case basis. But generally, this has all been brought in-house, especially seeing as BlackRock’s private client activities are limited to the US.

Fixed income and forex trading are specific examples, where new systems are needed for the much smaller trading volumes demanded by private clients.

“Again, we have tweaked the institutional platform to meet our own needs and have also appointed our own broker,” says Mr Powell, adding that BlackRock is now moving to its own new platform on this front.

Despite all this change, the re-organisation and split away from an industrialised, fund manufacturing business has been largely well received by clients. Mr Powell says reactions to the changes have been positive and that not a single client has been lost. “Obviously we needed to get consent to transfer assets over to the new entity but this went smoothly and we had 98 per cent of it wrapped up within four months,” he says.

Indeed, for clients, little will change on the surface. Mr Powell is determined to make any changes to the workings of the business as seamless as possible.

“We will continue to offer a holistic advisory service plus loans and trust services all wrapped into the private client relationship. Obviously it’s not all about transaction processing. For example, with structured products, we need to have a control framework to determine that we are getting the pricing and movements right as well as access to other institutional data to compare against.”

He comments that even sophisticated clients can become swamped by large amounts of data and information. “We need to carefully consider how to tailor the information which they have access to so that it will be of most use to them,” he says.

Internal structure

To this end, the client relationship management offering is being reworked to offer clients the use of a single IT system as far as possible, rather than several systems split in accordance with the firm’s internal structure.

Internal breadth and depth will prove key to this process, but some areas undoubtedly need some external help. Mr Powell says that being able to access this when needed is a sign of strength, even for a firm committed to doing as much as possible in-house.

“Clearly being a global firm means that we can use all the various experience and systems quickly, but we are also able to use a risk-based analysis on a case-by-case basis to show us when we need to access external help. That’s what helps us to maintain our high standards,” he says.

He cites complex products as such an instance, saying that the private bank acts as the distributor and so needs these links to ensure accuracy when it comes to pricing or amalgamating various instruments.

One area currently being brought in-house is custody and settlement for plain vanilla funds. Consequently the firm’s relationship with one such third party provider, the Bank of New York (BoNY), will end by the end of 2008. Currently the BoNY provides custody, banking and cash management infrastructures and fund management software with a dedicated team that will now transfer to Merrill Lynch.


Buy-Side Technology Guide 2007 - M

Merrill Lynch

About the company
Merrill Lynch is one of the world’s leading wealth management, capital markets and advisory companies, with offices in 37 countries and territories and total client assets of approximately $1.6 trillion. As an investment bank, it is a leading global trader and underwriter of securities and derivatives across a broad range of asset classes and serves as a strategic advisor to corporations, governments, institutions and individuals worldwide.

Merrill Lynch Execution Services offers a complete suite of premier equity trading services to leading institutional clients around the world. The firm is the gold standard in block trading and capital commitment. Merrill Lynch’s industry-leading portfolio and algorithmic trading platforms are ranked number one and two, in the US and internationally.
Merrill Lynch’s algorithmic trading platform offers a variety of benchmark-related strategies driven from a single architecture. At its core, the architecture is based on practical market microstructure research and an extensive quantitative data infrastructure.

Proprietary framework includes:
- Guidance through suitability checks.
- User-defined parameters and constraints, including limit price and order amendments.
- Dynamic inputs that react to real-time trading information.
- Fully anonymous automated internal crossing.
- Strategy customisation.
- Flexible and comprehensive analytical reporting.
Additional benefits:
Fully integrated with equities
- Access to capital from program trading desk.
- Access to combined risk book via capital commitment to leverage Merrill Lynch’s diversified risk profile and risk management skills.
Access to unique forms of liquidity
- Leverage Merrill Lynch’s significant equities order flow.
- Benefit from low alpha/benign crossing opportunities.
- Crossing methodology armed with anti-gaming logic to protect against adverse selection/signalling. Algorithms designed to be fully modular/flexible
- Sophisticated yet transparent algos to reduce residual risk.
- Volume and volatility forecasting to reduce slippage.
- Represent orders in dark pools while trading in continuous market without information leakage/signalling.

US Electronic Sales
Telephone +1 212 449 6090
EMEA Electronic Sales
Telephone +44 (0)20 7996 5117

Asia Electronic Sales
Telephone +52 2161 7550
Japan Electronic Sales
Telephone +813 6225 8398

Morgan Stanley

About the company
Morgan Stanley is a global financial services firm and provider of electronic trading products and solutions. Morgan Stanley Electronic Trading (MSET) is part of Morgan Stanley institutional securities division, and clients have access to a range of financial services including underwriting, sales and trading, capital raising and mergers and acquisitions. MSET provides a spectrum of services, from pre-trade analytics to execution and post-trade execution performance analysis. Morgan Stanley’s suite of electronic trading tools helps clients achieve best execution; they can choose to trade through Passport, the firm’s integrated front-end system, through FIX, or from their proprietary trading system. MSET clients can trade global equities, futures, options, swaps and FX – all from one platform, as well as utilise the electronic sales trader designated to know your account and provide execution consultancy.

MS-BXS Morgan Stanley’s Benchmark Execution Strategies (BXS) are a set of trading algorithms designed to minimise market impact in today’s rapidly changing trading environment, while enhancing traders’ skills. BXS aims to minimise execution shortfall relative to a specific trading benchmark.
SORT/DMA Smart Order Routing Technology (SORT) provides access to multiple liquidity pools, giving preference according to current and historical price, liquidity and speed. SORT is Reg NMS-compliant, managing direct connections to all Reg NMS-protected market centres. SORT also provides advanced order types, including LoFloor, NoFloor and NightVision. Beyond SORT for equities, Morgan Stanley offers OSORT for options and SORTETF for exchange-traded funds. DMA is also available to send orders directly to a specific exchange or ECN. One MSET’s new ‘One’ algorithm is a customisable strategy that combines algorithms and DMA to meet a trader’s specific goal. It is designed to replicate how an individual trader trades a particular stock and can be tailored to each trader’s needs depending on their execution demands. It can also alleviate pressure on the trader to constantly watch their order under changing market conditions. Post-trade Morgan Stanley continues to add value upon execution, providing performance analysis showing daily, weekly and monthly results, by summary statistics and by strategy. Morgan Stanley helps traders understand their executions and advise them on planning future trades. Each trade becomes an opportunity to adjust strategies or trading parameters to improve future performance.

Telephone +1 (877) 761-MSET
Telephone +1 (888) 465-2554 (from US)

Telephone +44 (0)20 7425 3222
Telephone +1 (800) 932-8918 (from US)
+852 2848 8222 (HK)
+813 5424 5709 (Tokyo)

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