The transformation of the Irish Stock Exchange from a floor-based system to full electronic trading has been given an early boost with the decision by one of the world's biggest broking and investment houses, Merrill Lynch, to become a member of the exchange. Merrill Lynch is the third overseas member of the ISE, following CSFB and Commerzbank.

The introduction of electronic trading means that one of the key measures consultant Mr Peter Bacon said was required to maintain the Irish market is now in place. The second - a specific market for technology stocks - is due on stream in a matter of weeks. The third measure identified by Bacon, the reduction or abolition of stamp duty, will be partially in place in the new iteq market, although extending this exemption to the rest of the market may take longer to achieve.

Stock exchange managing director Mr Tom Healy said that with the new Xetra trading platform now in place, it is likely that other international broking groups will look for ISE membership. Market sources said there is also the possibility that one of the international online dealing firms like Charles Schwab or E*trade may do likewise and compete head-on with the online dealing business planned by some of the bigger Irish broking houses.

To gain access to the Xetra trading platform on which Irish shares are now being traded electronically, other brokers will have to become ISE members. "Merrill Lynch joining is a big deal for us and it should bring in other international broking houses," said Mr Healy.

Yesterday's first day's trading on Xetra was trouble-free although trading volumes were very low as brokers adapted to the new system where they use an electronic order book to enter buy and sell orders which are then automatically matched and the trades completed.

Trading on Xetra began yesterday with a 10-minute auction period where brokers place orders for equities, specifying both price and quantity. At the close of the auction, Xetra matches the maximum orders at the best possible price - in effect setting a starting price for the day's trading.

Davy, Goodbody and a third brokers - possibly from overseas - are seen as the most likely early designated brokers, although many public companies are likely to put pressure on their own brokers to become a designated broker for their own shares even though market sources believe that many brokers will be reluctant to take positions except in the larger, more liquid stocks.