Merrill takes on more risk, sets up equity prop-trading unit

Merrill Lynch appears determined to take more risk on its own books as part of an effort to boost profits. The firm’s latest move is to set up an equity prop-trading unit to trade equity-linked products. The development follows a decision last year to form a reinsurance arm that will retain non-mark-to-market financial risk such as the equity portion of synthetic CDOs.

The more aggressive risk stance follows a major shake-up in the US investment bank’s corporate and institutional client group last year that resulted in a number of derivatives traders and risk professionals taking top positions. In the firm’s latest results release, Merrill said it would concentrate more efforts on generating profits.

Ajay Soni, Japanese equity derivatives managing director, and Jason Harkavy, head of equity-linked trading for the Americas, will co-head the new prop-trading unit, termed the strategic equity risk allocation group. Merrill Lynch declined to provide Soni and Harkavy’s trading limits or daily value-at-risk.

Soni will relocate from Tokyo to London to take on the new role, while Harkavy will remain in New York. The pair are currently recruiting traders for the equity prop-trading team.

Merrill Lynch also named Mike Munns head of global equity-linked trading. He will partner equity-linked heads to ensure consistent trading practices, identify new business opportunities and manage global portfolio risk for equity-linked products. Jim Gatheral will head global quantitative analytics. All report to Rafael Berber, head of global equity trading.