Amsterdamtrader

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.

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