Perfect for Each Other

By Elizabeth Bennett  |  Posted 2005-05-23 Print this article Print

Rahul Merchant loves to play matchmaker, linking the needs of Merrill Lynch's business units with his arsenal of systems and applications.

Perfect for Each Other

How does the 47-year-old Merchant make hundreds of millions of dollars in technology worthwhile—multiple times? He plays matchmaker.

To make a technology satisfy a business need, he meets with a dozen information architects and five chief technology officers twice a month. Each architect is responsible for designing and streamlining technology in a product area, such as fixed income trading. Each technology officer drives strategy and execution—with Merchant's counsel—in a broad business area like human resources, finance or global markets trading.

Merchant then has to match existing applications and systems with what the company's businesses actually need and want. And each business, whether it's the unit that sells stocks to large insurers and other institutions, or the group that services retail customers in cities across the country, has its own technology experts. They're called business line technologists, and they develop applications and systems tailored to the needs of an individual business.

Once it's determined that a technology, such as a system that supports managing risks in foreign currency trading, might be a good match for a particular business, discussions begin between Merchant's system architects and the potential users of the technology.

The meetings can be held over a couple of weeks or even a month, depending on the complexity of the project, and can go through two or three rounds of specifying desired capabilities. Yet, that does not mean a match absolutely will happen.

"You can't force it," Merchant says.

The on-demand risk assessment and management system was one service struck by Cupid's arrow.

On Demand Risk (ODR) is an application that provides Merrill Lynch's trading, risk management, and clearance and settlement areas with a common application for intra-day pricing, risk assessment, and profit and loss for fixed income securities portfolios. ODR integrates numerous trading and market data systems to calculate a consistent and consolidated set of measures of risk—such as which way interest rates will move and how exchange rates between currencies will fluctuate—that can be applied across trading products, systems and regions. In the past, this information was not available on demand. GBT consolidated several disparate applications, creating a more efficient, streamlined system.

The system was first deployed last year in the fixed income business of Merrill Lynch's Global Markets and Investment Banking Group and then reworked for the Merrill Lynch Investment Managers (MLIM) group, which oversees the assets of individuals, institutions and corporations. Merchant and his team "encouraged and pushed" the head of fixed income analytics in the banking group to collaborate with Merchant's head of fixed income technology as well as business line and senior technologists for the investment managers group.

Once a match is made, the product-level architects meet with the technology designers and developers, who look at the system and confirm that the match can be consummated.

Gathering details on trades had been labor- and time-intensive, requiring manual input from traders on the trading floor at the time any security was bought or traded. And then, analytics had to be applied. According to Merchant, a single portfolio is subject to 10 to 15 kinds of risk, including market volatility and credit spreads—the variance between Treasury and non-Treasury securities. ODR automatically analyzes all of these market conditions and provides profit-and-loss and risk data. It also performs simulations, such as what would happen to a portfolio if interest rates dropped or rose.

The system has saved GBT's internal clients time, because they can now view a portfolio's risks in a single place and do not have to manually gather information from different systems.

With hundreds of thousands of transactions taking place each second and billions of dollars on the line, Merrill Lynch also found its hedge fund customers were building increasingly global investment portfolios. These customers have to buy and sell assets, look for funding for their portfolios, clear and settle trades once they are executed, and lend and borrow stocks.

Before July 2004, Merrill's customers—hedge fund managers—had to look at numerous reports to get a complete picture of a portfolio, which might have hundreds of trades in it. Their desire, according to Merchant: "'I want to click a button and see my entire portfolio.'"

The demand became GBT's goal, but solving the problem "was not trivial," he says. The project's complexity lay in the multitude of accounting methods required for each transaction and the dozen disparate systems generating the reports, not to mention the time differences at each city's exchange.

Merrill used a mix of branded servers and processors, as well as homegrown and commercial software, to provide fund managers with a single window into their customers' investments and transactions—and the risk associated with them.

Senior Writer
Elizabeth has been writing and reporting at Baselinesince its inaugural issue. Most recently, Liz helped Fortune 500 companies with their online strategies as a customer experience analyst at Creative Good. Prior to that, she worked in the organization practice at McKinsey & Co. She holds a B.A. from Vassar College.

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