In a move to beef up its Web presence, Merrill Lynch, the largest US brokerage, said it agreed to buy the online trading software business of D.E. Shaw, a struggling investment bank.
Merrill Lynch (MER) didn't disclose how much it's paying for the company, D.E. Shaw Financial Technology, which develops software for real-time online trading and other financial applications. The acquisition is part of the brokerage's plan to start an online trading operation.
In the next few weeks, Merrill is planning to roll out an online trading service for about 55,000 of its current brokerage clients. The service will extend the brokerage's Merrill Online service, which currently lets customers view research, check out account information, and chart securities -- but doesn't include a mechanism for making stock trades online.
For the past year, Merrill executives have been debating about jumping into the online trading fray. By taking on the likes of ETrade or Charles Schwab, Merrill risks alienating its army of well-paid stockbrokers. But if it sits out much longer, its 4.9 million clients could defect to lower-priced brokerages.
"Merrill Lynch has no intention of getting into the day trading business," said Susan Thomson, a Merrill spokeswoman.
Analysts saw the move into online trading as a smart play by Merrill, but don't expect it will be much of a competitive threat to the growing legions of discount online brokerages.
"The investor who is with the full service broker has make a conscious decision to be there," said Frank Lallos, an analyst for Gomez Advisors who covers the online brokerage industry. Full service customers pay a fixed percentage fee each year for a broad range of services, including a set number of stock trades as well as consultations with financial advisors.
"For the most part what you're getting is advice, life planning services, and hopefully access to information that wouldn't be available through a traditional discount firm," Lallos said.
Other full service brokerages, however, are likely to follow Merrill's lead, said Joan Solatar, an analyst with Donaldson, Lufkin & Jenrette.
"It's been my assertion that all of the full service brokers will have an online capability at some point," Solatar said.
Merrill Lynch said it plans to complete the D.E. Shaw purchase by April.
D.E. Shaw, founded in 1988 by computer whiz and former Columbia University professor David Shaw, cut 264 jobs, or a quarter of its work force, late last year. This came on the heels of losing its biggest customer, BankAmerica, following last summer's financial turmoil.
D.E. Shaw has already sold its market-making unit -- which completed buy and sell orders for stocks. The firm now is focusing on trading stocks for its own account and financial institutions and is looking to sell its Farsight Financial Services unit -- a broker-dealer that uses DESoft Technology.
Reuters contributed to this report.
