Merrill Lynch is reorganizing its London cash and derivatives credit trading teams along industry lines and expects to mimic the reorganization in New York and Asia in the coming months. Merrill is initiating the reorganization now to take advantage of potential pricing discrepancies between various cash and derivative credit instruments, according to Dale Lattanzio, managing director and head of European high-grade and credit derivatives trading in London. The move reflects greater liquidity in credit-default swaps, meaning that demand for default swaps is now moving in lock step with demand for cash bonds.
At present Merrill splits its credit business according to product, for example separate groups cover bonds, credit-default swaps and loans, said Lattanzio. Under the new structure the credit business will be divided into four groups covering technology/media/telecoms (TMT), industrials, banks/financials, and U.S. credits. He doesn't anticipate management changes as a result of the shake-up.
Initially product specialists within each industry group will continue to trade the instruments they were previously responsible for, in other words the bond specialist in the TMT group will continue to cover bond trading, Lattanzio explained. Any move to allow all traders within each industry group to trade all credit instruments is some way off, he added.
A senior rival credit head said Merrill is wise to limit product coverage within each industry group, as this will prevent all the traders migrating to the highest margin instruments, leaving a gap in low margin business.
