Merrill Lynch is forming a proprietary equity-linked trading group that will be spun off from its convertible bond group. The new effort, named the Strategic Risk Allocation Group, will take positions in over-the-counter equity derivatives and equity-linked notes, according to Olivier Deloire, head of European equity-linked trading in London. The move is regarded as a major departure for Merrill, since the firm has historically been risk averse, said rivals.
One reason for establishing the group is it will allow Merrill's convertibles group, which previously took some proprietary positions, to focus on client matters, said a recruiter familiar with the firm's plans.
Merrill has drafted in a pair of heavyweights to co-head the operation. Ajay Soni, managing director of Japanese equity derivatives in Tokyo, is relocating to London as co-head, and Jason Harkavy, head of equity-linked trading for the Americas in New York, assumes the other co-head position and will remain in New York. Both will report to Rafael Berber, head of global equity trading in London. Soni and Harkavy declined comment. Calls to Berber were not returned.
"They're not seen as a risk house," said a rival trader in London. He continued that the move is surprising because Merrill is typically not an aggressive market maker. Another equity professional said that as a market maker in relatively illiquid structured equity products, Merrill cannot escape taking on some proprietary risk, but the decision to establish a separate prop group is evidence of a new-found risk appetite.