Merrill shake-up in market-making

Merrill Lynch yesterday announced a restructuring of its UK market-making desk in a move which foreshadows widespread changes in the City ahead of the start of a new Stock Exchange trading system next year.

Merrill said it was cutting back its UK equity trading desk from 64 to 50 people and setting up a new structure in which the top 100 stocks were to be traded as a distinct group.

This anticipates how the market will work in a year's time when the Exchange introduces an order-driven system for the FTSE 100 stocks.

Although the changes at Merrill are relatively small, there may be similar restructurings across the equity market as the date for the start of the new trading system approaches. Cumulatively, there could be significant job cuts.

The new system will automate the trading function so that sales are input to a computer and matched to buyers at a given price. This will do away with the job of market-making in its present form.

The changes at Merrill, which bought the market makers Smith New Court nearly two years ago, will take place next January, though the exchange does not plan to make its own switch until the fourth quarter of next year. Merrill's present system trades stocks by sector, irrespective of size.

Michael Marks, co-head of global equities at Merrill, said the move was not just a result of the changes at the Stock Exchange. Clients were tending to buy and sell shares in the top 100 as a block, and the company would probably have decided to establish a separate desk to trade these large stocks whatever happened.

Mr Marks said he did not know whether other firms would do the same but added: "Everybody must be thinking through the numbers.''

Adrian Pinkus is to head the new FTSE-100 trading team at Merrill and David Smith will be in charge of other UK stocks. Some of the 14 losing their jobs will be relocated in the firm.

The Stock Exchange published an outline of the new trading system last week and it is now going out to members for consultation on the details. The proposals are a compromise aimed at meeting the objections of market makers to more radical reforms.