Timber Hill is too slow
Norwegians and high frequency firms take advantage of Timber Hill.
The largest market maker by turn-over volume in options on Euronext is probably the technological driven Timber Hill. It’s part of NASDAQ listed Interactive Brokers. Timber Hill is quoting everything and everywhere, using a linked global trading system.
One single trader/mechanic is responsible for quoting all Dutch options. Based in boring and tax friendly Zug, Switzerland. Trading everything with computer systems saves you from hiring traders and paying bonuses, but now and then you’ll encounter a loss when humans are smarter. Timber Hill lost 37 million dollar to All Options on the famous Altana trade. They are still angry.
As competitive market makers (cmm), Timber Hill is the largest market maker in terms of volume traded through their quotes. In the block trading market they are a lot smaller, and their traded volume through non-quote trades is unknown.
Timber Hill machinery has problems
But the machinery is having more severe problems at the moment. Just like Optiver, the profits plunged 97% to just 3,9 million dollar in the last quarter. Chairman and founder Peterffy blames high frequency traders for taking advantage of Timber Hill’s quotes in the market. The quotes can’t be updated fast enough : HFT firms arbitrage slow quotes.
Peterffy is calling for regulation, so he can’t lose on his “delta’s” anymore. If the SEC won’t rescue them, Timber Hill will leave certain option markets as a market maker. It’s way too early to call it a trend, but in a matter of weeks two firms are announcing to reconsidering their market making activities. We’ll see.
Tricked by Norwegian retail traders
On the other hand, something is definitely wrong with your trading systems if you’re tricked by some Norwegian retail traders. These Sven-Egil Larsen and Peder Velby discovered the stock quoting system in illiquid Scandinavian stocks by Timber Hill wasn’t very sophisticated. The quote robot was very, very stupid or “the person who programmed the robot is very, very stupid”. No matter how many shares being traded, Timber Hill was following all price movements. Both vikings are currently standing trial for market manipulation in Oslo. Sounds like innocent trading to me.
Before others start poking fun at Timber Hill, let us all recognize that for two decades their operation was extremely succesful, yielding literally billions of dollars in profit (and making Mr Peterffy a billionaire along the way). Maybe their run has come to its end, maybe it hasn’t, time will tell. But anyone ridiculing Timber Hill for being “very, very stupid” (like those two Vikings) needs to measure his success against theirs and admit defeat.
wtf are u talking abt man .. u got to be more stupid than anything..
this is website for old skool amsterdam traders .. they have no fucking clue how timber hill makes money off one trader/mechanic trading on whole of dutch options .. they are happy poking fun at even more old skool all options and IMC ..
as for the vikings .. they were maybe just caught in their own hubris .. exchange has rules and if they broke, they’ll pay for it dearly, even though they did well in short run .. but if they were just smart and did everything by books, well then thats just an expensive lesson for Timber hill just like Altana.. this is very competitive market and its always always possible even for GS/Timber Hill to get fucked from time to time .. they can afford the expensive mistakes and they’ll emerge stronger from it !
looks like they were the ones who were very very stupid – only able to make money by market manipulation.
I think Timber instead of complaining should thank those guys for showing them a mistake in the software. This time in over a year they lost less then 100k. If a hedgefund or market maker would have taken advantage it would have cost them a lot more.
Timberhill is a seriously a great company. They have the worst traders and the best technology.
Technology which has made 1 billion dollars in revenue consistently.
The traders pretty much are there to supervise (check if the machine is on or off).
I also doubt their claim saying High Frequency traders are stealing money from them.
THEY ARE THE BIGGEST AND BEST HIGH FREQUENCY OPTION MARKET MAKERS.
Timber use a massive global correlation matrix where every product in every asset class is in some way linked…the company’s track record is second to none so you’d be extremely foolish to write them off on the basis of this article, sure they get the wrong side of things sometimes when the machine just sees edge and blasts away (like with Altana) but they were one of the pioneering electronic trading firms…dont even mention All options in the same breath
Everyone here is talking about Atana from time to time. Do you mean the 2007 event? AO won and Timber Hill lost on that one?
Re: THEY ARE THE BIGGEST AND BEST HIGH FREQUENCY OPTION MARKET MAKERS
i have serious reservations in calling them Market Makers in traditional sense .. their edge, i think all of it, comes from the retail flow .. a traditional market maker like Optiver gets edge from actually quoting on the exchange .. actual quotes are lot more tricky than being CMM like Timber Hill, getting edge from customer flow, hedging it off with actual market makers and getting rebates for all their retail/hedging flow ..
then you have no idea what you’re talking about…Don’t get me wrong, not a big Timbagay fan….but you’re talking bullsht
October 1st, 2010 at 2:28 pm
Re: THEY ARE THE BIGGEST AND BEST HIGH FREQUENCY OPTION MARKET MAKERS
Their business model does have the element of directly trading for the customer flow (something optiver is moving into with TOM)
However they are traditional Market Makers as well albeit with great technology.
They actually do quote on the exchange not only as CMM’s . They are PMM’s on the ISE. Which means they have to consistently provide quotes on the exchange 100% of the time, else they have a penalty on the rebates.
All TimberHill ever did was making money on deltas, even on the floor, so they shouldn’t complain now they get beat at their own game.
Re: then you have no idea what you’re talking about
well i haven’t worked at TH or interacted with anyone who did .. so i am purely speculating abt their biz model .. thats a reasonable guess i came up with .. sounds bullshit to u, fair enuf .. can we hear something more intelligent from u ?
Re: THEY ARE THE BIGGEST AND BEST HIGH FREQUENCY OPTION MARKET MAKERS
So they are PMM in ICE .. is there any reason why they decided not to be in Euronext/Eurex ? Is it coz its easier being just CMM or there is no CMM concept in ICE, its only PMM thats available there ?
//Just like Optiver the profits collapsed// – how do you know Optiver’s profits ?
Jack,
can you give us the link to the original articel you based this piece on, I would like to read the whole story. Tx
RE: So they are PMM in ICE .. is there any reason why they decided not to be in Euronext/Eurex ? Is it coz its easier being just CMM or there is no CMM concept in ICE, its only PMM thats available there ?
They definately are on the Eurex as Market Makers
http://www.eurexchange.com/documents/lists/market_makers/results_en.html
Secondly it is the ISE not the ICE that Timberhill is a PMM.
RE: October 2nd, 2010 at 4:42 pm
http://online.wsj.com/article/BT-CO-20100929-713442.html
This is the article
tx Daxpunter for the link, but unfortunately I don’t have a WSJ subscription. Could you maybe paste the article here?
tx again
RE:
//Just like Optiver the profits collapsed// – how do you know Optiver’s profits ?
http://www.amsterdamtrader.com/2010/07/optivers-profits-in-free-fall.html
Re: Secondly it is the ISE not the ICE that Timberhill is a PMM
yah sure its ISE not ICE and yah sure they are market makers in Eurex .. in eurex there is no CMM vs PMM, u are just somebody fulfilling obligations, so i am sure Timberhill are not that active on the quotes ..
but it still doesnt answer the main bulk of their edge in the market .. a global correlation matrix n stuff cant be that profitable, cud it ?
what happened in the altana trade?
correct me if wrong, thats what i understand of the story ..
Altana paid a super dividend of 75%.. on the day before the stock was to go ex AO bought whole lot of calls; now next day when the options were repriced/restructured, the multiplier was 10times of number of shares in each option, AO exercised all these american calls asking for delivery of 10times the shares options they had brought day before .. TH/GS on the other side of trade had to go buy these shares in market causing a massive squeeze in the price .. apparently Altana hd just 15% free float, so shares in market were scantily available for purchase to deliver.. i think the stock had doubled or something .. AO booked 230mn profit on their position .. TH lost 37mn and alleged that market particpants had lost 500mn because of this unexpected squeeze ..
have to correct you, apparently you don’t know so in the future don’t put effort in typing
well an incorrect effort is better than a prick jerking himself off in the public ..
sorry, i forgot another twist in the earlier part of story .. again its an understanding very likely incorrect ..
because this was 75% superdividend, so lot of fund managers holding the stock wanted to avoid paying the dividend tax and pay the favorable capital tax .. so in the closing auction on the day before stock going ex, the uncross price was like10-15% lower than last traded price and the uncross volume was comparable to free float volume.. this massively affected the revised strike price for the new option class that was beneficial for the AO position .. not sure of the exact details but if somebody cud care to elaborate rather than waving their small penis around, that wud be appreciated by the newbies ..
http://www.interactivebrokers.com/download/Eurex_letter_070627.pdf
That should explain the situation. The multiplayer was much higher, so market makers short the calls had to buy shares to cover their risk. Plus the people selling just before the dividend to avoid taxes came in the market again to buy. Massive upward pressure and with the massive move the gamma of those calls did the rest.
I am not an insider , but this is what I understand of the situation.
gr.DCT
Lol…
I just hope for another Altana. Still enough idiots around who have no clu what happened and will fall for it again.
And let me tell you: Timber could have hedged the multiplier as with lower closing prices you would have to buy more shares as multiplier go up thus being long gamma in the auction.
Timber just had no f*%king idea and did not hege that extra exposure on close. They learnt 2 days later they were off massively in delta when the share had gone up 80%, because smart Allard was buying along wth the guys who evaded tax by selling cum div and buying back ex div having more than 8 tax-euros leeway.
So all the big clumsy and slow banks and Timbers got taken out as they only employ monkeys and did not even know the next day, what kind of steam engine had hit and destroyed them.
Everybody liked TimberHill on the Amsterdam Trading Floor. They gave presents to us every day !
Re: I just hope for another Altana. Still enough idiots around who have no clu what happened and will fall for it again.
here we go with another clown getting his teeny tiny weener out in the open to have it exercise with the good old right hand .. this fucking never ceases to amaze..
so if u done wanking, maybe u can come back to ur senses and realise that option market making is nothing but child’s play .. there is a theoretical value and u make market around it … and if u dont know what that fucking theoretical value is then u make it really wide and of course u aggressively retrieve on any position that might start building up ..
u dont even have to fucking use ur head .. just retrieve aggressively and if some moron hasnt put that basic concept in this trading algorithm then get with others and fuck the shit out of that market maker.. of course since u prefer jacking off urself, so maybe u shud just keep doing that and stay out of the whole shit..
so being on the right side of the trade doesn’t sound much different from a fucking monkey work , does it ..
Re: what kind of steam engine had hit and destroyed them
haha, look at GS/TH and now look at AO ..
Timber (IB): 5 billion dollars in equity.
AO: on life support.
Thomas Peterffy: floated the first 10% of his company, InteractiveBrokers, on the day of the Altana dividend (at twice the current share price). Billionaire. Regarded as a pioneer in the industry.
Allard Jakobs: had visions of world domination, yet few have heared of him and his company outside of Holland. Laughing-stock of the Amsterdam trading community, constant butt of jokes on this blog (and quotenet).
“AO destroyed TH”? What are you smoking?! Seriously!
Let’s not forget that “smart Allard” just about lost his shirt on the R-adjustment (or should I say Euronext’s rounding) of Getronics options about two years before Altana. To his credit, he did learn from his mistake. Which is more than can be said about the way AO has been run post-Altana.
trader jack pls stop moderating the comments man .. arent u tired of it already ?
has AO got their 4 mil back from euronext, i think thats the sum they lost in that rounding off ? i think it was some dude in Market Wizards which first started the trade before other market makers joined in against AO ..
It was apparently Peterffy who made EUR 4mio from the rounding in Getronics after the split.
IB said they are moving away from MM earlier in the year – and TH is the main MM arm of IB – so this is no surprise, they just have to make up a valid reason to change tack as they are a floated company.
No big suprises – overall IB’s dropped 95% mm revenues in 2009, and this year their quarterly showed a decline again.
Everyone knows MM is slim, this just confirms it. Best markets to be in are FX, FI, and commodities – discounting structured derivs or other bank constructs.
When did Ebbo quit AO…..???????
wats Ebbo’s actual/full name ?
i think the US mm like Jane street run FX/FI/commodities team .. of course getting into juicy OTC IR/Credit derivatives is whole another game since then they’ll be competing with BB requiring a whole mass of teams to support the OTC trading book ..
Who are the best market makers in UK Stock Options?
“Thomas Peterffy: floated the first 10% of his company, InteractiveBrokers, on the day of the Altana dividend (at twice the current share price). ”
“they just have to make up a valid reason to change tack as they are a floated company. ”
Can someone please tell me what “floating” means?
floating – when the company lists its shares on an exchange
TH raped and banged retail and small market makers for years – now they are complaining about the mean HF guys… Ha Ha Ha – why don’t they go HF? Market taking is way to go… If the quote machine loses but the HF strategy wins well may be time to learn how HF works..
does anyone know what date the optiver v tibra decision is announced? i heard it was in october some time?
october 22nd i think
I wouldn’t be surprised if IB shut down or sold off TH… loss making divisions don’t last long in listed companies… any takers??
See news about the internalisation of flow by the banks… with those order matching systems upstream of exchanges, there’s fuck all a prop shop can do. HFT or no.
“I wouldn’t be surprised if IB shut down or sold off TH… loss making divisions don’t last long in listed companies… any takers??”
are you joking man? Haven’t we established above that TH made IB billions in the past? TH are the kings of screen trading. They may adapt but will not shut down
https://www.comcourts.gov.au/file/Federal/P/NSD681/2009/actions
If people are really interested in these various court proceedings, then go and spend half an hour actually reading the documents. Originally, Optiver were told to file their expert evidence by 1st March 2010. When Optiver failed to meet that deadline they applied for an extension and were given until the 30th of September 2010.
Given that Optiver spent about 12 months compiling their evidence, Tibra is surely going to be allowed a similar length of time to respond. After they file a response, then there might actually have a hearing, and after all that, they might get around to a result.
So, no, there will not be a result on the 22nd of October, it’s just a directions hearing.
P.S. Optiver vs CFTC, on the other hand, will most likely be decided this month.
$50m bid for Optiver vs CFTC.
What happened to the “tell me about new comments” tick box?
$200m bid for Optiver vs CFTC …. is anyone offering at $250m?
I’m offered at $250m
yours 200, offered on
Re: https://www.comcourts.gov.au/file/Federal/P/NSD681/2009/actions
thanks for the summary, its quite possible for us to read the documents for ourselves, but being an online community it saves everyone time if the person reading the doc first posts a summary .. people dont need to be selfish abt these sort of things .. just post watever u think is of interest to the community ..
what are u offering moron, both of u are anon, who is going to settle/clear u two dodos…
“Optiver vs CFTC, on the other hand, will most likely be decided this month”
Not quite true. The defendants (Optiver, Dowson, van Kempen and Meijer) must enter a plea by November 15th. The US legal system is pretty slow over the holiday season, so the trial may not be until early next year.
I’m offered at $150m.
Re: https://www.comcourts.gov.au/file/Federal/P/NSD681/2009/actions
I didn’t quite understand your comment (“selfish”?). All I was doing was responding to an earlier question: “Does anyone know when it will be resolved”, and the Nonny Mouse that responded clearly DIDN’T KNOW JACK.
Re: https://www.comcourts.gov.au/file/Federal/P/NSD681/2009/actions
dont worry abt all the little words .. of late there have lot of jerk-offs telling people that they are wrong, but then not detail as to what is correct ? thats slightly selfish .. just come out and tell the community what u know, or just go fuck off
Exactly as predicted!! Haha!
http://www.emii.com/Articles/2682889/Derivatives/Derivatives-Articles/IBG-May-Curb-Options-Market-Maker-Role.aspx
its pointing to the same WSJ article as earlier, whats new ?
http://www.ft.com/cms/s/0/f9d1a74a-d6f3-11df-aaab-00144feabdc0.html
http://www.computerworlduk.com/news/security/3244186/norwegian-traders-convicted-for-outsmarting-us-stock-broker-algorithm/
http://investors.interactivebrokers.com/download/Q3_10_earnings_release.pdf
what was the trick they used to beat timberhill ?
Market Making
Market Making segment income before income taxes was $103.9 million in the quarter ended September 30, 2010, an increase of 39% from the same period last year. Pre-tax profit margin was 61% in this quarter, up from 50% in the same period last year. Foreign exchange effects of keeping Group equity in a basket of major currencies we call the GLOBAL are reflected in the market making segment and had a positive impact on trading gains in this quarter. The market making environment was challenging in the third quarter, with lower volatility and continued tight bid/offer spreads. Actual volatility declined relative to implied volatility, increasing the cost of hedging. Market Making options contract volume increased 7% compared to the same period last year and decreased 12% sequentially, which decrease was less than the general decline in industry volumes in North America and Europe.
Timber Hill´s business model is heavily related to the cluelessness of their retail clients. It´s very easy to dump risk on a retail client base. The latency observed in their retail execution platform ( milliseconds ) is enough to screw their clients some cents here and there, which adds up to several hundred million a year. Don´t let yourself fool by Interactive Brokers – they are just waiting for the next available retail “fool”….
Nonsense. Sure, IB make good money through their brokerage, but their prop trading has been around – and very lucrative at that – LONG before the brokerage business gained critical mass. Or do you honestly believe that IB’s retail (brokerage) clients account for 15% of the exchange traded options volume in the US (IB’s market share)?Study the facts first then come up with a better excuse why they continue to make money in options trading and you don’t.
2010 results are in … http://finance.yahoo.com/news/Interactive-Brokers-Group-bw-3722649852.html?x=0&.v=1
Net income attributable to non-controlling interests is more than net income ? anybody has more color ?
They paid a hefty dividend through its foreign subsidiaries on which US taxes were due, resulting in a paper loss for Q4 (i.e. net income < 0 hence the above mentioned inequality). Otherwise they were profitable but their market making business is suffering.
Re: They paid a hefty dividend through its foreign subsidiaries on which US taxes were due, resulting in a paper loss for Q4
Can u explain this bit more, its not clear, thx,
A substantial amount of retained earnings from their European operation (1 billion, from memory) were moved to the US parent company to facilitate a large dividend payout to IBKR shareholders in Q4 (the company is reducing its working capital). These earnings were then taxed in the US – a loss of sorts for the company that exceeded the regular profit for the year 2010. That’s why IBKR is showing a loss for 2010. It’s an accounting / tax issue, their operations continue to be profitable. I hope this clears it up.
yah, taxes and disembursement to holding entities distort the Net Income; Income before income taxes is good indicator for the biz’s profitability