TOM and the play offs

26 comments / October 24, 2012

A small victory for The Order Machine / TOM. Conform all expectations, NYSE Euronext is forced to allow TOM as a member on their derivative exchange. Even Euronext saw the rain coming, and agreed to accept TOM as a member of the exchange. Didn’t even bother to wait for the court. The expensive legal procedures must have been some kind of delaying tactic or a warning sign to other contenders.

The keyword in this whole story is fungibility. Fungible contracts can be bought on one exchange and sold on another. Relevant matter for TOM.

On the very same day the new market maker licences at Euronext are auctioned. The primary market maker (pmm), competitive market maker (cmm) and extra competitive market maker (cmx) roles are divided again among the trading firms. Anyone can apply for cmm, but for more bandwidth the pmm roles are scarce.

Here’s the full sheet (pdf). A few play offs where firms are competing for the same PMM spot :

Ahold : Caerus, IMC, Optiver, 323

Aperam : Caerus, Nino

CSM : Caerus, 323 Trading

Fugro : Nino, 323 Trading

KPN : Caerus, 323 Trading

Randstad : Nino, 323 Trading

SBM Offshore : Nino, Leopark

Furthermore the overview suggests Caerus and IMC will battle for a cmm role in Unibail. This certainly can’t be true – there are enough vacant places in the Unibail crowd. Euronext is never very sharp on this kind of details. Speaking of vacant places. All Options is (still) the lonely trader in Unit 4, Mediq and from next week on also in the midcap index options AMX. IMC left the midcap options. Apparently these AMX options have failed to take off, unfortunately.

With lots of retail flow traded on TOM, the noble art of market making on Euronext is slowly losing importance. Anyway, this TOM should stop with using the words “search engine” in their communication (Dutch story, NRC). They don’t search at all – but keep everything on their own exchange as long as the price on Euronext isn’t better. TOM is completely ignoring the Dutch options on Eurex. Comparing prices, but not very good at it.

Quote 500

Next week the Dutch rich list will be published again. Sources say there will be more traders in the list than ever. Enough to write about next week.

Retail Matching Facility. Not much for retail.

6 comments / October 23, 2012

Difficult times for NYSE Euronext. The former monopolist recovered some percentage points in market share against BATS Chi-x, but trading volumes have declined. In the option market the serious competitor TOM is gaining speed – market share of 29% in ASML options last week (pdf). That’s a lot.

The old exchange came up with new arms to defend its market share. The Retail Matching Facility (link). Brought as a tool to give retail investors better execution in stock trades. Can’t really find the retail angle in this.

The idea is this. Market makers can quote tighter markets in stocks for retail investors only. Their bids and offers are broadcasted in the regular market, but professionals can’t trade against them.

Retail flow is nice because it has a more random character. Anyway, the best bid and offer in the market will probably be dimed with 0,1 cent on both sides. The bid-ask spread in stocks is narrow these days, at least for modest size. And retail orders are of modest size. I believe investors won’t gain much from a better execution.

Situation A

Average Joe is buying 250 shares of Royal Dutch and ready to cross the spread. He may get a 0.1 cent better execution, paying 25 cent less for his transaction. He won’t even notice, his transaction fees are much higher than the spread.

Situation B

Suppose our Average Joe is placing a bid for his 250 shares. He is the best bid in the market. A retail market offer comes in, but alas – the Retail Liquidity Provider gets filled on his bid, 0.001 better than Joe.

In other words, this RMF could make execution for retail investors more difficult when they are not ready to cross the bid-ask spread. Same goes for the rest of the market participants, who will notice the quality of the market will be harmed.

Second, a better execution may not be the best execution. Prices on other platforms may be better – as suggested by Equiduct ceo in FT Alphaville. A complicated, fragmented market with special corners for retail investors is the proposal.

I could be mistaken, but this doesn’t sound like a great deal for investors. Euronext doesn’t care at all about retail traders (check the transaction fees) – it’s another move to block the competition. Creating new barriers of entry or locking in the customers.

Old documentary on floor to screen migration

123 comments / October 14, 2012

Last post I mentioned a few local market makers which left the building. Calimero and Wintrading couldn’t earn a living anymore. Rising costs, higher risks and lower profits. Calimero never had a losing year by the way.

Back in the good old days of the open outcry trading the market maker landscape was completely different. Large firms disappeared after the migration to the screen, and some of the biggest traders turned tiny.

Anyway – found a nice professional documentary from Edwin Trommelen with a lot of attention to Wintrading and a Belgian trader from Saen Options (not the Calimero trader, who is in the still above for Saen). Was shown on national television some decade ago, but turns out it is still available on the internet. Not possible to embed it on this site, so you’ll just have to follow this link : afscheid van de vloer. It’s in Dutch and without subtitles – but it has a lot more to show than just a few shots from the pit.

It’s a good watch for non insiders too. It’s not only nostalgia and spotting yourself or your friends on television – it’s good television.

TOM

Other news. TOM, the new option exchange, traded their one millionth option contract. Good news for them. Perhaps this could fuel some price war between Euronext and TOM. Although the latter is bragging about unrealistic better execution prices for retail investors. Can’t imagine the quotes on TOM are any tighter than Euronext. Something to check on another rainy day.

Goldman Sachs and Calimero quit quoting

163 comments / September 30, 2012

In the option market, the market makers are quoting options to capture a profit from the bid-ask spread.

Apart from this, sending bids and offers to the market serves another practical goal. Euronext Liffe is charging less when you are providing liquidity to the market.

It’s not unusual for a lot of market makers to send the widest possible quotes – only quoting for the fee discount. I wondered whether all small market makers could survive in a difficult market with tight spreads and low volume. Euronext gave supplied a nice overview of the current market makers compared with one year ago (thanks).

Some new participants joined the market, and some decided to call it quits.

Exit

Never really understood why, but fact is Goldman Sachs has been registered as liquidity provider for at least a decade. Can’t imagine them interested in the small size trading in the screen. They checked out last year.

More worried about a few other firms. Calimero Trading never was in the business for world domination. Quoting in ING, RD and almost a dozen illiquid stocks (Boskalis etc). Alas, the firm with the cute name probably has shut its doors.

Another firm leaving is ABR Financial. Backed by a Russian investor, they haven’t been able to compete in the option market.

Wintrading traded all AEX options including daily’s and weekly’s. Founder Fred Winia left trading in 2002. With Rien de Vreede, Wintrading stayed a liquidity provider until this year.

Entry

Some new firms have signed for providing liquidity on Euronext Liffe.

Maven Trading is only active as liquidity provider in the AEX index options. In contrast to Wintrading, this isn’t a one man show. This British firm consists of two dozen former traders from especially Tibra, Optiver and Liquid.

Webb Traders decided to expand beyond their ETF arbitrage area to the option market. Doing ten small stocks (Vopak, Delta Lloyd etc).

Former All Options traders MMX decided to go for the Euronext options too. Over a dozen CMM licences. However, no index options.

Transfers

Comparing the list of market makers per option class can reveal strategic choices being made. Or a forced shut down of loss making units. One firm joined the action in nearly every single stock – Susquehanna (SIG).

AEX

The most popular options are the AEX index options, and the number of liquidity providers increased this year. Six new entries, of which especially Scrocca and 323 are notable. Both of them never burned their hands on index options – and quoting almost every single other stock on Euronext.

Also interesting is Timber Hill trying the weekly options while still staying away from the Daily AEX. Leopark, on the other hand, stepped out of the daily and weekly index pit.

in: EXT, The Hague Options, Maven, Susquehanna, Scrocca, 323

out: All Options, Goldman Sachs, Wintrading

ING

Checked a random largecap stock. The ING crowd welcomed EXT and MMX, while six firms threw in the towel. All Options, HOT, Hardcastle, Goldman, ABR and Calimero are gone.

All Options is leaving all the seriously traded stocks. Probably as part of a deal between Euronext and Jakobs, they remain the only liquidity provider in Mediq. Last year they have had some company from Tibra – but the Australians left Mediq. And stayed everywhere else by the way.

One stock liquidity providers

Also a major shift at Inhouse trading. In 2011 it was only providing liquidity in Fugro. This year he switched to the golden mountains of AMG. The other true specialist, Cross Options, was happy to stay only active in ING. Difficult to see the rationale of maintaining expensive fixed costs (lines, membership, software) for just one little source of revenue.

Multiple exchanges and trading venues mean more expenses. Connection lines, proximity hosting and faster software on one side, and less volume and narrow spreads on the other side. Tough times for small market makers, a serious shake out looms.

Similar to Comedy Central

4 comments / September 27, 2012

NYSE Euronext has got a twitter account. I’m a follower too, but I never noticed much interesting tweets. While it could have been a fine way to communicate about the regular trading interruptions.

Found by accident, Twitter itself brands the exchange as similar to Comedy Central. That’s money well spent, to be branded as a clown.

Amsterdamtrader