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Making A Splash On Wall Street

Making A Splash On Wall StreetTufts graduate Seth Merrin – who has already brought high-tech innovation to Wall Street once – hopes to do it again with his new idea for peer-to-peer transactions. New York City.

Medford/Somerville, Mass. [01.28.04] Taking a page from the playbooks of Silicon Valley start-ups and music swapping services, Seth Merrin is working to transform Wall Street ... again. The 1982 Tufts graduate and industry pioneer - widely known for automating the manual, paper-heavy system used by traders in the 1990s - has developed another idea that appears poised to change the way the nation's biggest investment firms do business.

"No one can say Merrin's ideas lack chutzpah. With his latest brainstorm, the 43-year-old New York entrepreneur is mounting an assault on no less than the New York Stock Exchange and the stranglehold it maintains on the trading of its own listed stocks," reported Businessweek. "Merrin's company, LiquidNet, is Wall Street's answer to online dating, matching big buyers and sellers of stock over the Internet."

Merrin - a Wall Street whiz kid who became the head risk-arbitrage trader for Oppenheimer & Co. at just 22 years old - realized he could use peer-to-peer technology to help traders buy and sell huge volumes of stock without artificially driving up the price.

"Any existing venue, whether it be a broker and its many intermediaries or ‘talkative' traders, increases the number of possible people that know about a large trade, in turn affecting the price at which an institution will be able to buy or sell," reported Wall Street and Technology. "As it stands today, you can be sure that if Fidelity is looking to sell a million shares of IBM, they are not the only ones on the Street who know about it."

By creating an anonymous environment to help buyers and sellers find each other, Merrin's company is saving investment firms huge amounts of money while cutting down the legwork involved in such large transactions.

"If a trader is looking for a half-million shares of IBM, LiquidNet will ‘ping' all the other systems on the network and return with a message saying yes, there are a number of possible sellers," reported Wall Street and Technology. "No names are given, no specific amount of shares divulged. It is also a passive system in that it requires no added work from the trader."

The inspiration for the system came to Merrin in the middle of the night.

"I was lying in bed not thinking about anything and I just shot up in bed, and thought, dammit it can't be this simple," the Tufts graduate told E-Finance Insider. "I got out of bed and ran to the kitchen, got a piece of paper and basically drew it out. I just had to see if all the lines connected or what was I missing. I slept on it and I looked at it the next morning, and it still looked good to me."

Merrin turned to a broad array of people across the industry to refine his idea - incorporating input from traders and the chairmen of several investment firms.

"One of the problems that [other companies] have had recently is that they didn't seek out the insight of enough buy-side traders to make them successful," Kevin Cronin - head of listed equities at AIM Funds - told Wall Street and Technology. "I think Seth has been proactive in that he has sought and gotten a lot of input ... to make sure the system [addresses] all the possible angles."

As a result, LiquidNet has caught on quickly - signing on more than 250 institutional customers to its "peer-to-peer" network.

"Many people are putting their faith not only in the idea, but in Merrin himself," reported Wall Street and Technology. "When asked why he chose to put his name and money behind the new system, [Neuberger Berman chairman Larry] Zicklin says, ‘I've known Seth Merring over a long period of time, I've seen the work he's done, and in many respects, you're always interested in betting on the jockey. He's a hell of a jockey.'"

Zicklin's sentiments are shared by many around Wall Street, who have watched Merrin turn his ideas into major successes in the past.

Fed up with the piles of paperwork involved in Wall Street trading, Merrin quit his job at Oppenheimer & Co. and focused on streamlining the process.

"From the back of his father's ancient-art boutique on Manhattan's Fifth Avenue, Merrin hatched a plan to transform manual buy-and-sell orders into an electronic management system," reported Businessweek. "The idea was revolutionary - and a tough sell."

But the resilient Tufts graduate focused on educating Wall Street about the value of his ideas. After several years of patience and hard work, his company (Merrin Financial) took off.

"I learned from my mistakes: you never want to be so bleeding edge that you have to spend years educating the marketplace as to why something is a good thing," he told E-Finance Insider. "There are easier ways to make money."

After selling the company for "low eight figures," Merrin headed west to Silicon Valley where he learned about peer-to-peer applications while heading a health care company.

Seeing an opportunity to put the technology to work on Wall Street, Merrin "cashed out and returned to NYC with that [technology] in hand and a clipboard full of ideas in the other," reported Wall Street and Technology.

Just a short time later, LiquidNet was born and Merrin was well on his way to another Wall Street success.

As he likes to say while pitching his company to new clients and investors: "You could say a new sheriff's in town."

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