Euronext fails in AEX options
When it comes to reliability of their systems, Euronext isn’t exactly the bank of Switzerland. Every once and a while the market is shut down or having a delayed opening – their thousands of employees can’t get the exchange work like.. well.. Eurex. Most recent challenge is broadcasting the index level, the AEX. Apart from the talking heads on television nobody really cares, as the future is usually trading and a better indication of where the market is heading.
Settlement price of weekly AEX options
Until last Friday. Last friday there was an expiration of the weekly index options, the AX5. Yes, it was the fifth friday of the month, hence the name. These popular options are cash settled at the EDSP, the Exchange Delivery Settlement Price. This is the average of 31 AEX index ticks every minute between 15:30 and 16:00.
Apparently, the rats in the basement of Euronext had a celebration party again and had a few wires for lunch. The exchange didn’t have a clue what the AEX was doing. Not really a problem, the market knows after all. The future was trading around 325.5 points, and at a discount of 1.25 index point. The expiration level would have been approximately 327.
Problem persists
However, Euronext couldn’t broadcast the AEX levels and couldn’t calculate the level. That’s clumsy, especially when there are millions at stake. What to do? Estimate the expiration level? After an hour of discussion the boys and girls at Euronext decided to send everyone an email:
“NYSE Euronext would like to remind clients that all missing index levels between 15:24:45 and 17:08:00 will not be rebroadcast nor recalculated. “
They could not fix the problem. Which is strange because even my grandmother could calculate the index level when you would give her the tick by tick trading information of the underlying 26 stocks. Available in Bloomberg. Anyway, no solution yet. Some genius at Euronext must have come up with a magnificent idea.
“Let’s extent the maturity of these AX5 options until the close of the day at 17:30, and not tell anybody about it!“.
Solution
That’s what the professionals at Euronext did. The market was up two points from the official expiration period. The options were closed since 16:00 as usual. But the positions were still there, including the risks. Nobody knew the worthless out-of-the-money calls with strike price of 328 and 329 suddenly were getting valuable. During the expiration period these calls were offered at 5 cent and valued at zero. Nobody knew the settlement price would be set hours later and two points higher at 329,17.
All involved market makers, traders and investors are either heavily fucked or pocket a lot of money by accident. When Euronext is feeling free to adjust basic contract specifications, nobody is safe anymore. This risk can’t be hedged. You tell ‘m, Walter.
What a mess. Amateurs.
Indeed a very strange story. I was lucky this time so you will not hear me complaining… (I bought 20 calls AX5 327 at 0.25 which were excercised at 2.15), but imagine you would have shorted these calls half an hour for expiration because of time decay…
With the 327 call trading around 25 cents (and decaying), I didn’t bother for the 328 and 329 strikes.
When I would have known there was even a REMOTE possibility of settlement at the close 2,5 hours later – I would have bought back those calls. Lost 20.000 euro and we are in talks with the exchange for compensation.
who bought a few thousand otm calls and then phoned his brother at the exchange to arrange a new settlement time…….?
Anybody know who the big winners/losers are of this “solution”?
Embarrassment. All over the FD as wel on 3 pages.
shocking from the exchange, traders should seek compensation
We had a flat position (lucky). But we saw the AEX not updating during expiration, we made a phone call with the Euronext observers. Around 15:38.
Guess what they said “AEX not updating? Check your own software, everything is going perfect!”
Few minutes later the mail arrived with the confirmation of broadcasting problems (broadcasting, NOT calculation problems).
And then people complaint that Exchange is not competitive enough or innovative enough .. they can’t even come up with a contingency for this sort of issue.. there has to be a competing exchange and then these people will learn to pull up their socks ..
Can someone scan and upload the article in today’s FD paper about angry traders due to the Euronext’s new special settlement procedure.
try: http://fd.nl/?service=abonnementen
cheapscate
http://fd.nl/?overlay=http%3A%2F%2Ffd.nl%2F%3Fservice%3DunRegisteredLogin&target=http%3A%2F%2Ffd.nl%2Fbeleggen%2F2011%2F08%2F02%2Fbeleggers-laken-beurs-om-expiratie1_bron_fd_krant
gratis registreren
laat maar , geen toegang tot betreffende artikel.
Word around Beursplein 5 is that Calimero Trading suffered the most.
What a mess…apart from this Euronext still cannot deliver live stock data to their BP5 traders…..3 weeks of delayed data already !
you can make multiple FT logins and each of them give 10 free articles a month or something .. 3 logins gets me all the articles i really want ..
anybody willing to post a summary for the dutch article in FD? Though i thought Jack did a very good description of the whole mess,
Optiebeleggers woest door ‘bizarre expiratie’
Carel Grol
…………………………………………………… Amsterdam
………………………………………………………
Optiebeleggers zijn woedend over
de wijze waarop Euronext de storing
van de optie-expiratie heeft
aangepakt. ‘Zo weet je nooit waar
je op wordt afgerekend.’
Particuliere belegger Laurens
Schepers uit het Twentse Borne
verwoordt het nog netjes. ‘Een
heel rare gang van zaken’, zo typeert
hij de storing. Dat is keurig
voor een man die wel enige reden
heeft om boos te zijn.
Want als de weekopties vrijdag
gewoon rond de 326,65 punten waren
geëxpireerd, dan had hij met
zijn optiestrategie geld verdiend.
‘Ik zat goed.’ Maar toen de beurs
verder steeg, om uiteindelijk te
eindigen op 329,17 punten, en
toen dat ook de expiratiekoers
werd, werkte de strategie niet
meer. Schepers kreeg een afrekening
van de bank. ‘De kosten zijn
ruim ¤6600.’
Opties zijn een instrument bij
uitstek voor speculanten, die daarmee
inspelen op de soms korte
koersfluctuaties. Zoals Schepers
zijn er in Nederland nog duizenden
particulieren die handelen in
opties, naast de gespecialiseerde
optiehuizen en de banken.
Ondanks hun diversiteit zijn
alle optiehandelaren uniform in
de afkeuring van de werkwijze van
Euronext. ‘Het is toch onvoorstelbaar
dat met alle techniek van vandaag,
het de beurs niet meer lukt
de index te berekenen?’ zegt een
optiehandelaar die, zoals vrijwel al
zijn collega’s in Amsterdam, niet
met naam genoemd wil worden.
‘Bovendien kan de index toch ook
achteraf worden berekend?’ Hij
schat dat de schade van de ‘bizarre
expiratie’ voor de hele optie-industrie
‘in de miljoenen’ loopt.
Veel optiehandelaren zijn daarbij
vooral ontstemd over het gebrek
aan informatie van de beurs.
‘Die kwam pas na de sluiting. Als
ze direct hadden gezegd: dit is de
procedure, had je daarop kunnen
inspelen.’
Een woordvoerder van de beurs
zegt dat er is teruggevallen op een
standaardprocedure. Juist dat beangstigt
handelaren. ‘Dat betekent
namelijk dat het bij de volgende
expiratie weer kan gebeuren.
Er is geen expiratie, je communiceert
niets en je gebruikt een
slotkoers. Dat kun je niet maken.’
Opties hebben een looptijd en
vaak wordt er aan het slot daarvan
nog driftig gehandeld. Handelaren
vinden het onvoorstelbaar dat voor
een product dat om vier uur afloopt,
de beurs een expiratiekoers
hanteert die meer dan anderhalf
uur later tot stand kwam. ‘Ongelooflijk
van Euronext dat dit mogelijk
is in zo’n professionele omgeving.
Op deze manier weet je dus
nooit waarop je afgerekend wordt.’
En Laurens Schepers? Hij is
boos op zijn bank, die wel de zogeheten
quotes afgaf om op te handelen.
Zijn bank verschuilt zich nu
achter de beurs, terwijl de beurs
zegt dat hij bij de bank moet zijn.
‘Op mijn opmerking aan de bank:
“Als ik bij een volgende keer om
15.55 uur nog 100.000 opties koop
voor ¤0,05 en dan uitoefen, ben ik
multimiljonair”, antwoordden ze
“Ja dat zal wel”.’ En dan, met gevoel
voor ironie: ‘Raar hè.’
Van een product dat
om vier uur afloopt,
lag de expiratiekoers
meer dan anderhalf
uur later
I remember a case in Oz where the ASX broke future spread trades after a fat-finger incident. Market makers in the future spread (as in the spread product trading, not a two legged trade) where suddenly left with only one side of the trade. Cost Trans Markets 1 or 2 mio ozzie and they lost in court. Then there is the AFS example. Who remembers the details? Anyway, you always lose.
well thanks a lot for telling us Skippy!
yaah maate, haaw abaaout a Faasters naaw ..
‘ASX broke future spread trades after a fat-finger incident. Market makers in the future spread (as in the spread product trading, not a two legged trade) where suddenly left with only one side of the trade.’
you have to be careful with fat finger trades, they can be and probably will be broken, so be careful with the hedge put on to lock-in the P&L, this was quite a headache with US players during flash crash where there were loads of broken trades .. you need to know all the rules for an exchange breaking a trade ..
zhe germans will fire all the donkeys in amsterdam and paris and migrate everything to eurex/xetra platforms. all will be good then
nein, ze djermans will move to ze UTP platform. Ze donkeys in Paris and Amsterdam already secured their positions and will not be fired. Long live the politicians for only thinking about themselves and keep NYSE inefficient and expensive!
@4:55 pm. The point here was that it was the spread contract trading, not somebody quoting one leg and hedging the other (as you correctly mentioned was the case in the flash crash). Spread traders might not even have noticed the fat finger.
could you provide more details on the actual fat finger trade and what was cancelled subsequently, i was making few assumptions about it, but you might as well present the full picture as to what actually happened ?
that fat finger trade you are referring to was on an interest rate product (bill futures??) not an equity product – so i have no idea why it is being discussed here
anyhoo – the pnl was not 1 or 2 million, but $45m – and the unfortunate loser in the trade (let’s face it – it was not his fault – was a prop firm showing a size bid in a reasonably stable futures roll) took the SFE to court and somehow lost.
and the winner in the trade??? Again not deserving – was DB. Fat finger agency order sold down the second month illiquid contract to a silly price in size.
addendum – by DB i mean Deutsche Bank, not Danny Bandari – just getting in there before all you Tibra haters get a chance
http://www.smh.com.au/business/sfe-sued-for-1m-over-cancelled-trades-20091011-gsd4.html
this was the pnl from a bunch of locals on the exchange
there were far larger losses from a number of mid-sized firms
thx, i was already searching for more info. regarding that fat finger incident.
‘lol, exchanges can be so stupid .. no wonder, they keep doing these retarted things when there is not enough competition in their turf ..
Look likes this is turning into a recurring bug. They screwed up the index calculations again today.
Who’ll be the first to find a strategy to maximize on Euronext’s stupidity?
anybody making moolah on these downticks ? Or is it all movement no money ?
“anybody making moolah on these downticks ? Or is it all movement no money ?”
[sarcasm]Yes there is no money being made by anyone. Just people losing.[/sarcasm]
”Who’ll be the first to find a strategy to maximize on Euronext’s stupidity?’
To quote einstein, ‘The difference between stupidity and genius is that genius has its limits.’
or to quote him again, “Only two things are infinite, the universe and human stupidity, and I’m not sure about the former.”
and finally one last quote “Any fool can make things bigger, more complex, and more violent. It takes a touch of genius — and a lot of courage — to move in the opposite direction.”
‘anybody making moolah on these downticks ? Or is it all movement no money ?’
if you still havent figured out, mm is long vol and long volume.. on the other side, in the investing world, yes 2 trillion has been wiped out, but with such substantial asset price movement, people with correct punts are bound to be rewarded ..
Saskia Jonker
woensdag 03 augustus 2011, 20:56
update: woensdag 03 augustus 2011, 21:13
NYSE Euronext is woensdag wederom getroffen door een storing in het handelssysteem, waardoor de juiste stand van de AEX-index niet berekend kon worden.
Na sluiting gaf het beursbedrijf een verlies van 5,7% aan op 301,75 punten voor de Amsterdamse index, terwijl die in werkelijkheid met een verlies van 2,9% op 310,69 punten was gesloten.
Het is de zesde keer in ruim een maand dat NYSE Euronext in Europa kampt met een storing. Afgelopen vrijdagmiddag kon de index ook niet worden berekend, precies op het moment dat de weekopties afliepen. Later werd bekend dat daarom de slotkoers van de AEX de expiratiekoers was geworden. Dat heeft beleggers en optiehandelaren naar schatting miljoenen gekost. Verschillende partijen overwegen een claim in te dienen.
Technisch probleem
Halverwege juli konden de standen van de Europese indices gedurende vierenhalf uur niet worden berekend op een moment dat er paniek was op de Europese beurzen. NYSE Euronext weet dat defect aan een nog onbekend technisch probleem.
Dinsdag bleek tijdens een persconferentie over de tweedekwartaalcijfers van NYSE Euronext dat de storingen worden veroorzaakt door een update van het handelssysteem. Daar is nog geen oplossing voor gevonden. Dat betekent dat op elk moment weer een storing kan plaatsvinden.
Every MM is long vol? Wow! Nobody’ short?
MM are always on the right side …
Vol. 24.1Bid – Vol. 24.15Ask
That’s 1/20 of a Volatility Point difference!! Hence > Free money!!!
#sarcastic modus off#
‘Every MM is long vol? Wow! Nobody’ short?’
i said mm is long vol, that doesnt mean that they are actually sitting long vega position, if you dont understand what it means to be long vol, just ask,
‘Vol. 24.1Bid – Vol. 24.15Ask
That’s 1/20 of a Volatility Point difference!! Hence > Free money!!!’
Vols are mean reverting and tightly range bound and very competitively priced, if you can’t join the bid or offer, leave the biz and find something which fits you better ..
and there we go again….Calculating an index price should’t be so difficult.
CashMarketsInfo
Cashmarketsinfo@nyx.com 4:44 PM
Dear customers due to an incident, index levels from all indices are currently not being calculated nor being broadcasted,. Please be aware that missing index levels will not be recalculated nor broadcasted.
Please connect to our dedicated Cash Market Status webpage.
Cash market Status webpage link: http://marketstatus.euronext.com/cash.htm
Kind regards,
European Cash Market Operations
Contacts:
Market Surveillance Equities Desk
equities.eu@nyx.com
Tel: +33 (0)1 49 27 50 10
Market Surveillance Structured Products Desk
sp.eu@nyx.com
Tel: +33 (0)1 49 27 50 30
European Technical Support
esd@nyx.comTel: +33 (0)1 49 27 50 50
‘FSA is banning spreadsheets from city, it finds that its a red flag to be wholly dependent on excel for such calculation .. firms are having to make internal software to do market data and pricing .. i thought we were a bank, not microsoft ..
‘if you still havent figured out, mm is long vol and long volume.. on the other side, in the investing world, yes 2 trillion has been wiped out, but with such substantial asset price movement, people with correct punts are bound to be rewarded ..’
Couple questions:
1.) If you’re talking about long vol (not long volume), what does vol mean? Not volume. Volatility? And if that’s the case, why is a volatility point 1 Euro/Dollar? See:
‘Vol. 24.1Bid – Vol. 24.15Ask
That’s 1/20 of a Volatility Point difference!! Hence > Free money!!!’
2.) What are punts in the above context exactly? Correct speculations? Because from time to time people on this forum are talking about puntERS, which means something like amateur investors. But that’s not what you mean, right?
Thanks in advance
The first CFTC vs Optiver mediation session gets underway in five hours. There will be a second session scheduled in the week beginning 22nd August.
@10:01 pm
1) Yes volatility. If all else is equal, to make a spread the ask vol has to be higher. Get a pricing model, fix all params and dick-about with vol.
2) Morons who cross the spread for fun and apparent profit. Could be a professional fund manager, or an ETrade day trader loser. Who cares, so long as they pay the spread.
The point of the post was to say that MMs tend to make more money during volatile periods. Not because they are explicitly long vega however. Higher realized vol tends to mean more punter / moron volume hitting any saggy-ass bid to get the fuck out, irrespective of the butt-whipping the wide spread gives them. So many tear-them-a-new-asshole moments.. good times.
Hmmm, typical market maker attitude that someone paying the spread is a moron – especially given that spreads seem to be near all time lows given the risk.
What do you expect a professional fund manager or prop trader to do? Try to set up as a market maker with all the incumbent costs and try to compete such that they earn the spread too – i.e. buy on the bid and sell on the offer?
I think you need to reconsider the meaning of competitive advantage and division of labour in an economy. Its quite pointless for a fund manager or a bank to try to compete with the likes of Optiver, IMC, Tibra when spreads are already so low and their skills lie elsewhere.
From my perspective it actually looks like market making is currently the tougher business. Historically low spreads given risk and very high fixed costs for IT systems etc. I suggest you should reevaluate who is the moron, moron.
Enjoy the buy side, loser.
Nah .. seriously, of you don’t know how much fund manager effort goes execution, into them *also not paying the spread*, so they actually track their retarded benchmarks, then I guess you’re just a stay-at-home retail punter.
So .. I guess you’re right fella. You clearly have all the answers. Keep punting away and you’ll get rich.
I’m the moron. Oh, you want a price. Ok, just a sec. What’s your shoe size?
“Its quite pointless for a fund manager or a bank to try to compete with the likes of Optiver, IMC, Tibra when spreads are already so low and ** their skills lie elsewhere ** .”
What skills are you referring to?
I mean other than marketing their crap to the public, what skills are you referring to?
I mean the glossy brochures are nice, but, tracking an index +/- a few hundred bps .. pretty lame.
And a market makers skills are what exactly?
Making a 0.25 vol spread in 200 lots in SX5E options. If I lifted in 200 by some moron then shift it up 0.125 vol, If I’m given in 200 by some moron then shift it down 0.125 vol?
Quite brilliant.
To define a punter: someone with a view who dares to act on it.
Undoubtedly the market is filled with hordes of very poor punters leaking away, however I am pretty sure any mm would lay down his job to be one of the legendary professional punters who with true vision and marketfeeling are almost always on the right side and make profits mm’s can only dream off (not even mentioning the job is way more challenging and less dull than the boring routine life of mms).
mate, if you believe in that, you’ll always be poor.
what’s not to like about turning over the same $ many times / day, whilst fucking uninformed super arrogant punter wannabes for a tick per turn?
on a risk basis, this is as close to free money as it gets.
Uninformed? About what exactly? The mid of a bid/ask spread? You are probably one of these mm’s who believe an option has a theoretical value. Try counting how many times you had to change that theoretical price this week. If you are any good you may even have made a buck this week with your “riskless” buying and selling however it can’t be more than pocketmoney to the punter who been short in size all the way (and perhaps even crossed one of your spreads).
Wonder why you call them arrogant though, pretty sure you never met one.
MM is boring period whether it makes the free money (i know for sure not even half as much and easy as 10 years ago) yes or no. You will find out in a few years.
Spreads are all going to zero. Pretty soon you will be trading with yourself and telling the regulators you are providing liquidity which leads to greater price discovery.
In these times i see the real Market Taker trading, not the wannabees MMs who only rely on their pc’s. Hell yeah!
‘what does vol mean? Not volume. Volatility?’
yes it means volatility..
‘What are punts in the above context exactly? Correct speculations? Because from time to time people on this forum are talking about puntERS, which means something like amateur investors. But that’s not what you mean, right?’
punt is more of market taking, but in short run, if market maker is not really hedged, it becomes zero sum game and so correct punter, in this case either market maker or market taker, can make money based on their ability to predict correct asset price move ..
amateur investors are indeed referred to as punters but then we are becoming too pendatic if we starting defining narrowly all the market participants ..
indeed the correct way to look at hedge funds as more liquidity providers since they usually extract most of the liquidity premiums existing in the capital markets, traditional fixed mandate asset managers as the market takers and the mm providing the execution liquidity for all the cross flows between liquidity providers and liquidity takers ..
i heard the HSI was pretty intense on firday, front month vol traded in a 300 tick range and skew went higher than nikkei. mm’s loving margin calls
‘Hmmm, typical market maker attitude that someone paying the spread is a moron – especially given that spreads seem to be near all time lows
given the risk.’
Banks and mm dont loose money making markets .. the market making business exist because making markets is profitable !
Now the spreads might seem on all time low, and this is good since mm have been earning profits way over and competing mm have opened biz, but still lower spreads doesnt mean that its become free to be able to punt. Every time you punt, the frictional costs eat in the portfolio, the churn, so unless you are good in catching meaty asset price moves, you should not be playing the game,
what’s HSI ?
‘What do you expect a professional fund manager or prop trader to do? Try to set up as a market maker with all the incumbent costs and try to compete such that they earn the spread too – i.e. buy on the bid and sell on the offer?’
as pointed above, by all means, play the game, market maker or market taker, pick your spot, there are successful people both side of aisle ..one is normal alpha and the other more of execution alpha .. i think citadel and gs does both sides of biz very well ..
‘From my perspective it actually looks like market making is currently the tougher business. Historically low spreads given risk and very high fixed costs for IT systems etc. I suggest you should reevaluate who is the moron, moron’
Hedge Funds are full of grave yard of bank mm who moved to buyside only to get crushed there .. speculation is completely different game from bank mm where sales gets you nice juicy spread to get lazy on ..
trading is very competitive biz and buyside, sell side and mm are all going to have their good times, but then the competition is going to soon catchup, so none is free lunch forever..
‘I mean other than marketing their crap to the public, what skills are you referring to?’
you can’t put a price on right sales pitch and marketing efforts .. GSAM is good example of ordinary returns but glossy cover generating above average compensation for the people working there .. i think its pretty useful skill to be able to do that ! Getting overcompensated for underperforming, nice, i’ll like to have that skill sure,
‘Spreads are all going to zero. Pretty soon you will be trading with yourself and telling the regulators you are providing liquidity which leads to greater price discovery.’
i recall IT developer telling me that soon it’ll soon be all automated trading where computers and robots will be trading against each other .. the difference between a trader and an IT developer couldn’t have been more obvious than at that moment ..
“i heard the HSI was pretty intense on firday, front month vol traded in a 300 tick range and skew went higher than nikkei. mm’s loving margin calls”
depends on your tick size. front month vol went from low 20’s to mid 30’s intraday. skew did get well bid too.
there was even a time when there were no quotes at all in second month, fair bit of panic out there. not sure what you mean by mm’s loving margin calls though
will be interesting to see how things open up next week after the s&p downgrade. for some reason a lot of people still care about what the ratings agencies have to say.
so the rating agencies pass toxic debt as AAA and decide to downgrade the growing debt a few days after the debt ceiling bill has been passed one year before presidential elections ?
“i recall IT developer telling me that soon it’ll soon be all automated trading where computers and robots will be trading against each other .. the difference between a trader and an IT developer couldn’t have been more obvious than at that moment ..”
It’s indeed a strange relationship. I would never advise a young person to embark on an IT career, esp trading related. Bad trade of a lifetime. Much better off to get a small job on the revenue side early in their career, and work from there. IT upside will always be capped & developers will always be misguided bitches, & treated as such.
‘so the rating agencies pass toxic debt as AAA and decide to downgrade the growing debt a few days after the debt ceiling bill has been passed one year before presidential elections ?’
because they got housing so wrong, they are now trying to overcompensate .. they should have not done that this weekend .. there is strong negative feedback from equity markets into real economy .. we already lost 4.3 trillion in this correction .. thats enough wealth destruction for this quarter, give markets time to adjust to new normal and then shower them with more bad news .. you dont want lehman style collapse, its too extreme .. thankfully both US and European govts are being extremely careful of the lessons learnt from the crisis and are trying to make sure that there isnt a repeat of what happened in 2008-09
Same problem in the dailies today?
what ? Euronext couldnt calculate the index again ?!
yep, it happened again
from 15:30-15:45 nothing strange
from 15:45-16:00 they couldn’t calculate
Can someone tell me what banks DO NOT have their dealingroom in Amsterdam.
RBS, ABN – Amsterdam
But:
Rabobank’s dealingroom is in Utrecht
van Lanschot’s dealingroom is in Den Bosch
any others?
ING?
SNS?
NIBC?
Kempen?
Aegon?
Alex?
Binck?
Robeco?
Was there a 20 vol point move in Europe today ?
45 index vol is hard to pierce through .. so vols were expected to come off .. with stocks, 20 vol point is not unusual .. specially the financials ..
[…] than two weeks ago it messed up the calculation of the expiry levels of the weekly AEX options. All market makers were left with unhedged positions and were hardly informed at all. Some had […]
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