Infinium sued by former employees

39 comments / January 11, 2014

High Frequency Trading firms are usually shy about their business, except when filing for an IPO or even better when forced to appear in court. Not everyone in the industry will be familiar with Infinium Capital, but the diversified HFT firm is a Chicago household name. According to Larry Tabb the firm ranked in the top 25 HFT traders.

Sued by 31 former employees

Infinium is sued by 31 former employees, who claim they have been tricked into investing in the company while the the management knew about financial stress and were selling their equity themselves. The group of former employees swapped loans into equity for a total sum of USD 4 million. Ten months later everything was gone, especially after senior class of equity was introduced without their knowledge. People lost as little as 5k to as much as 600k.

For full details read the 30 page plaintiff, it’s a good read (and a searchable pdf).

Anyway, after reading the plaintiff Infinium looks like a horrible employer. One could say Infinium makes even IMC Chicago look like a great place to work. Nevertheless, not to smart to put all your eggs in one basket, investing heavily in your employer isn’t exactly a hedged bet. I assume more people are hurt in this Employee Capital Pool program, but stay out of the lawsuit as they remain employed with the firm.

Way before the troubles started, Infinium ranked fourth in the Best place to Work in the local ChicagoBusiness.com website in 2009. In 2010 the firm had a software glitch with a brand new algo, creating a spike in oil futures – losing USD 1 million in a few seconds. Not the most expensive glitch, but hard to understand why such a new algo messing up like this (more details: BusinessInsider)

Back to the plaintiff. More nice inside information on HFT. Fast fiber lines, microwave communications, 10 millisecond latency, co-located server racks, double power back up systems : expensive. The firm has more or less fixed monthly costs of USD seven million (page 21). That hurts when revenues drop.

Red flags

The are a number of red flags for trading firms. The most important one is building new state of the art dealingrooms with expensive design. However, organizing these kind of silly flash mobs is an excellent warning sign too. Management getting too comfortable about the business.

Hilgers new boss of Optiver

61 comments / December 27, 2013

Paul Hilgers will be the new CEO of Optiver, replacing Jelle Elzinga who announced this summer to retire on January 1st 2014. The German Hilgers is currently head of Optiver Australia. He previously worked for Van der Moolen in Amsterdam and Fortis Clearing in Sydney. Johan Kaemingk will stay in the board but will focus on risk management.

Hilgers started playing in the Dutch orange jersey twenty-five years ago. He started as market maker for AOT (Amsterdam Options Traders) in Germany in 1992, trading the German and Swiss option markets. From 1997 to 2003 he was Managing Director for Van der Moolen Germany, but moved to the head office in Amsterdam.

He stayed there for two years till 2004. He wasn’t afraid to make some bold decisions and fired some traders. Hence, not everybody has sweet memories (nl) about him – but then again, when you want to stay friends with everyone you shouldn’t become a manager.

After leaving Van der Moolen he joined Fortis Clearing Asia Pacific, before he finally switched to Optiver in 2007. Optiver has a reputation for only hiring fresh graduates, but at this level they seem to have other priorities. He was promoted to CEO of Optiver Asia Pacific in 2010. Hilgers completed Harvard in 2012.

Canard – almost

This year I almost published a canard on the matter, suggesting Australian head of trading Baydon Fischer would be the next boss in Amsterdam. After all, he sold his five bedroom five badroom residence in Sydney and he was about to be promoted within Optiver to a high position outside Australia. Connecting some dots created a scoop, but turned out he moved to China instead of Amsterdam. And besides, his Facebook pictures didn’t make it a likely successor of Mr Correct, Jelle Elzinga. Irony is I even checked it with Paul Hilgers (who gave a friendly no-comment, of course).

CEO CookOff

Still unknown whether he will stay with CEO CookOff 2014. Hope it was this TV show which arranged this professional portrait for him, a boyband like celebrity picture. At least it’s a lot better than this mugshot in 2011.

It’s a small world after all

49 comments / December 20, 2013

Former director of the AEX Optiebeurs, Alan van Griethuysen, joined the alternative derivative exchange TOM. The news was announced today by the Twitter account of @TheOrderMachine. Usually a rather slow and dull twitter account – TOM is as internet savvy as my grandmother – but this time they brought some news. In their hurry they even posted his cell phone number. Not too smart, they didn’t even bother to take the unblurred screenshot offline.

Alan van Griethuysen started to work for the AEX Optiebeurs from November 1979, when the famous Tjerk Westerterp was still at the helm. Van Griethuysen became the director of the AEX Optiebeurs in the 2000, and was executive director at Euronext Liffe. The exchange became an international political battlefield, and he lost his job in 2012. Working for three decades at the derivative exchange, and excellent in maintaining his network : he knows everybody in the business.

Anyway – from now on he’ll be working for TOM as freelancer on business development. Good catch for TOM, as they certainly could use some more knowledge of running a derivative exchange. Copy/paste every press release from Euronext Liffe is definitely cheap, but can’t be considered the most viable business model. Maybe we’ll even witness new option products on TOM.

A Knight in the Kospi

43 comments / December 13, 2013

Algo gone wild again in the Kospi index options in Seoul yesterday. The Korean broker Hanmag Securities confused calls with puts and did so in an automated matter. Their prop desk placed a program order right after market open.

The story is : selling for a few KRW per contract, while buying for a few thousand KRW. Comparable with Knight Trading, however it lasted only for a few minutes. Impacted strikes were the 215-250 calls and the 270-287.50 puts.

Estimated losses are above 40 million USD. Firms pocketing the money will most likely be the foreign liquidity providers, given the nature of their business (in other words : not delta punting). Jump, Optiver, IMC, SIG, Virtu and some smaller firms will have had a fine day. Other firms with a nice end of the year result could be Ingensoma, ARK (former Tibra traders) and Quiet Light. Rumor has it Getco left the Kospi a month ago.

Hanmag requested the KRX for an Error Trade Bail-out, but this was rejected as it didn't meet the error trade requirements. My knowledge of the Korean mistrade regulations is fairly limited, but given the fact the trades have been executed against unrealistic prices this puzzles me.

There is a Korean fund (350 million USD, financed by Korean brokers over the years) against systematic risk of collapsing brokers. There are no clients involved, so this probably won't be of any help.

Without a white knight, the firm is history. The losses are most likely bigger than their total equity of 19.8 billion KRW. Firm is (was..) privately held, so somebody must be having a really bad day. It has always been a bad idea to use a red tent as company logo.

Update

See also the Korea Times on the matter, especially for the numbers. They have no clue about the difference between exercising options and executing trades. Anyway : 46 counterparties and 36.100 trades.

Update January 13

Optiver returned $600k trading profits to Hanmag Securities. Other firms returned money as well. At the same time, the exchange will introduce a “kill switch” in February. A mistrade regulation would be all they need, just copy paste a form of any other derivatives exchange. Five minutes work.

Egyptian options in Amsterdam

34 comments / December 4, 2013

The force of the pyramids strikes Amsterdam. Euronext Liffe will list options on OCI NV, an Egyptian company active in the production of fertilizers and the construction business. To my surprise this company, with current headquarters in Geleen, employs 75.000 people worldwide.

Not tiny small cap, it’s a component of the AMX index and next year it will likely be included in the AEX index. Market cap is over 6 billion euros, but 57% of the shares are held by the Egyptian Sawiri family. OCI stands for Orascom Construction Industries, and I’m not sure why they left the Cairo exchange for Amsterdam. Can imagine you will get fed up with the tear gas every day.

New selection procedure

The selection procedure for market makers (here) has been changed. Instead of an auction for the tightest quotes, the spreads are defined by Euronext Liffe. Take it or leave it. All Options and Caerus/Webb will quote it, perhaps with 323 and Scrocca.

According to UBS, after this December expiration two new stocks will join the AMX index. Accell Group and Grontmij – expect options on these stocks soon.

Update

Thanks to @margefreek I noticed these OCI shares may be a little different from other less liquid shares. Turnover is extremely tiny with today less than 10k traded. Next to the Egyptian family, another major investor is Bill Gates. Bid ask spread in the stock is medieval. Don’t rule out the possibility no market maker will sign for quoting these options.

Amsterdamtrader