Optiver, also known as Dr. Evil

With all the juicy news on the demise of Van der Moolen and its surrounding scandals, one tends to forget about the rest of the market. One of the major derivative trading firms in Amsterdam is receiving a lot of attention in the press lately. Optiver is depicted as a black sheep. While I wouldn’t trust them to team up with any retail broker, it’s hard to imagine them as crooks.

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div style=”text-align: justify;”>Back in 2007, even before the outbreak of the financial crisis, Optiver allegedly manipulated the oil price in Chicago. One year later the firm was charged with manipulating oil prices by the Commodity Futures Trading Commission. Another year later, yes – in 2009, the firm is receiving a snowball of attention. Most prominent has been the New York Times in this story by Landon Thomas.

Old news

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div style=”text-align: justify;”>Basically, it’s recycling of old news. The current climate has shed a different light on the matter. Especially the fuzz about high frequency trading (also known as HFT) makes it a whole new story. The link between high frequency trading and manipulating a liquid market remains unclear to me. As far as I know, deep pockets are more relevant than speed in “bullying” the market.
Consensus seems to be Optiver is masquerading itself as a liquidity provider, while in reality it is a proprietary trading firm. And that’s bad, according to Fund My Mutal Fund and Zerohedge.

The Hammer to fall

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div style=”text-align: justify;”>Another curious thing is the focus on the name of the software. Internally developed software can have any name, it’s not used for any marketing purposes. But the Optiver engineers have managed to create a wonderful name : the Hammer. The software of the Australian part of the firm is called F1. All this creativity reminds us of the Citigroup trading scandal which shocked the euro bond market in 2004, using software called Dr Evil.

Liquidity providing with a Hammer or Dr Evil. Bad idea.