Merrill Lynch Is New Site For NASDAQ Digital Interface

Merrill Lynch & Co. has taken over from Aria International, Inc. as development partner for NASDAQ's new Level II/III file server. The server -- called the NASDAQ Digital Interface -- will allow users on a LAN to access a large database of NASDAQ prices and will provide a gateway back to NASDAQ for updates and trade reports.

Aria was to have developed the NASDAQ-DI for pilot implementation at its Hambrecht & Quist project, but recent financial setbacks at the company stretched resources too thin and forced NASDAQ to look for another partner.

That partner is Merrill Lynch Capital Markets, where the NASDAQ-DI joins a list of ambitious development projects aimed at overhauling systems in the firm's equity trading operation.

"Historically we've always had a problem from our traders' point of view in presenting them a decent picture of what was going on in the market vs. where they stood with our proprietary trading information," says Don Trojan, the Merrill systems executive spearheading the project. "The server gives us a way of marrying the two using workstation technology."

The NASDAQ Digital Interface is an 80386-based version of the current NASDAQ Workstation, but comprising only the communications and data management/recovery functions. It runs under Xenix and supports up to 16 users through a TCP/IP interface.

The server is NASDAQ's first foray outside the pure one-to-one terminal-to-host environment. Market makers currently only have Level III access through the standalone workstation or the prehistoric Harris terminal.

Its database will include Level II market-maker bids and offers, information now only available in computer-readable form via the NQDS feed. Unlike the broadcast NQDS, however, the NASDAQ-DI will be interactive with extensive error-checking and recovery capabilities to provide enhanced reliability.

It will also include data from the public limit order book now being implemented on the NASDAQ Small Order Execution System (SOES).

The sudden availability of this much depth-of-market information in digital form is expected to spur development of new market-maker trading strategies and analytic systems at major OTC houses. "We're definitely looking at the Level II information," says Trojan.

The NASDAQ server is one of four enhancement projects under study at Merrill, says Trojan. The others are new price feeds for traders, better pricing for mainframe trading systems, and a quantitative workstation.

Teknekron Software Systems, Inc. is expected to be the integrator, and DEC, Sun and IBM "are all in the running" to provide workstation hardware, says Trojan.

The proposed workstation would provide OTC traders with live windows into the NASDAQ market, into the broader equities market and into Merrill's CICS-based proprietary account and trading systems.

"We're not talking about any dramatic offload from the mainframes because of our volume," says Trojan. Instead, the firm is looking at broadcasting position information from mainframes to workstations "so the mainframe still stays as the books but the information that we would be using for more sophisticated alert processing would be at the workstation level."

One complication to the NASDAQ-DI development is that the server is designed to work on only one LAN, while Merrill is pursuing a dual-LAN strategy. Each trader workstation will be connected to two networks, says Trojan, with some NASDAQ servers on one and some on the other. The first pilot installations should be rolled out to the trading floor by early June, he says.