Merrill Lynch has slashed the number of traders on its equity derivatives proprietary trading desk to three people, from around 10, and has stopped statistical arbitrage prop trading. The firm is keeping a scaled down presence in volatility and convertible arbitrage. Officials familiar with the firm's activities said the cuts reflect a change in management philosophy following a recent reorganization that saw the desk come under the responsibilities of Barry Wittlin, co-head of the global rates group.
The decision to spin off the proprietary equity-linked trading group last year had been viewed by market observers at the time as a move by the U.S. giant toward becoming a more aggressive market maker (DW, 2/10). When responsibility for the desk was passed to Wittlin after having originally fallen under the brief of Rafael Berber, head of global equity trading, it became a reduced priority of the firm. The recent cuts signal a virtual disbanding of the group, noted one official. One Merrill insider countered that the changes only reflect a refocusing of the group, adding that the firm envisages making future hires for the desk. Wittlin and Berber did not return calls.
Merrill has cut all statistical arbitrage traders, including former head Morgan Slade. Jason Harkavy, managing director, is the only remaining trader on the desk trading volatility arbitrage, said an official familiar with the structure. Omar Brown and Geoff Keith, managing directors, both trade convertible arbitrage. Slade, Harkavy, Brown and Keith declined comment.
Daniel Bystrom, director of index trading volatility, who had traded volatility arbitrage on the prop desk, has moved to a separate division, charged with a new project of combining the firm's exchange-traded fund (ETF) and ETF options activities. The remaining traders from the prop desk have been let go, or moved into different divisions within the firm. The names of the other traders could not be determined. Bystrom declined comment.
The move by Merrill to cut its prop trading activities was made very suddenly and surprised many in the firm, said one official.
