Merrill Buys Internet Tech Shop

Merrill Lynch is buying the Internet technology unit of a New York hedge fund as it moves beef up its online presence.

The brokerage giant (MER) on Friday said it expects D.E. Shaw's Cambridge-based DESoFT unit to forward Merrill's financial expertise and products line to the Internet using DESoFT's real-time online trading and database applications.

Terms were not disclosed.

Merrill has been beta testing its own system for Internet-based trading and plans to roll out the stock trading capability to a small fraction of its total client base within several weeks, a spokeswoman said earlier.

The option to trade through the Internet will be available to some 55,000 clients with money in Merrill's Financial Advantage or Asset Power accounts. Clients are allowed up to 50 free trades a year in the sliding fee-based account.

Internet-based brokerages saw a 50-100 percent rise in trading volumes in January, Internet analyst Bill Burnham at CS First Boston told CBS.MarketWatch.com earlier this week. One good month does not a quarter make, but barring extraordinary events, the online brokers are heading into a big quarter.

One in seven stock trades are placed through the Internet, one estimate shows. But it's tough to figure out who's taking customers from whom, analysts note.

"Generally, the full-service brokers aren't losing accounts to the Internet (trading sites). They are losing some level of commissions to Internet traders," Burnham said.

Merrill's client assets totaled $1.4 trillion at the end of 1998, and the broker has some 9 million customer accounts. To compare, E-Trade Group (EGRP) had 676,000 accounts at year-end. Charles Schwab (SCH) said Tuesday that assets in customer accounts totaled $521 billion in January.

Written By Emily Church, CBS MarketWatch