Merrill Takes a Position on Technology's Front Line

Merrill Lynch (MER) stepped to the forefront of Wall Street's technology revolution Wednesday to launch a platform that transports much of the process of serving institutional investors to the Internet.

The firm unveiled iDeal, a system that connects Merrill to its institutional clients via the Internet for trading stocks, bonds and other securities, viewing roadshows, participating in conference calls, downloading prospectuses, and placing orders for IPOs and then viewing share allocations.

"It sounds like Merrill Lynch is becoming a Wit Capital (WITC) for institutional investors," says Michael Flanagan of Financial Services Analytics, which doesn't underwrite companies.

Merrill's plan is another example of the steps major securities firms are taking to integrate technology into their key businesses, and it shows their willingness to challenge their own traditional models.

Goldman Sachs (GS) also is working on rolling out an electronic system for its institutional clients to provide access to Goldman equity offerings. That new system, GS-Online, was mentioned last April in Goldman's Securities and Exchange Commission filings leading up to its IPO last May, but the firm has been relatively closed-mouth on the subject since.

Merrill's effort will use its new Direct Markets unit to try and stuff some of the time-consuming and expensive distribution efforts of new issues into an electronic pipeline in an attempt to lower costs and keep clients in its embrace.

Competitively, Merrill has grabbed the first-mover advantage among traditional firms, says another Wall Street analyst who requested anonymity, adding that it's no secret that many of Wall Street's biggest firms have been working on online trading systems to support their institutional businesses.

However, the scope of what Merrill's iDeal will offer -- an online entry into both debt and equity trading as well as a virtual investment banking presence on the Net -- is an ambitious attempt to top what's being offering by specialty electronic investment banks.

However, there's a possibility, says one institutional investor, that fund managers and other big clients will balk at the prospect of an electronic platform.

"Call me old-fashioned, but when I place a $1 million order, I want to talk to somebody," says David Briggs, head of equity trading at Federated Investors (FII).

Briggs admitted, however, that Merrill's new system would likely eliminate many of the glitches, delays and repetitive phone calls that sometimes plague the system now. "I think if they let investors pick and choose the services they want to automate, that would be best," he says.

Merrill executives are confident, however, that the institutional community will accept iDeal, and expect the system will be fully operating by February, according to Michael Ryan, Merrill's global head of equity capital markets.

Securities firms have already seen offerings done online through firms such as E*Offering, and they've also seen an increasing level of institutional participation in automated trading systems like Investment Technology Group (ITG). Merrill's new system seems to bring both together, says Flanagan of Financial Services Analytics.

As for the future, Merrill may have taken the first step, Flanagan says, but he doesn't think systems like iDeal will mean the end of the way Wall Street does business. "Selling securities can take some heavy marketing and a well-performed roadshow," he says. "It's not always the same thing when it's on a computer."

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