Clowns at Flow Traders to prison

79 comments / August 26, 2013

Flow Traders US caught two former employees with stealing source code. Three people are being charged.

Okay, have to admit the prison part is a little exaggerated. But the three alleged source code thieves definitely look pretty silly. Sending lines of algo code home with your mail address doesn’t look like a criminal masterplan. The code thieves may even end up in jail for years.

It looks like Flow Traders installed some tracking system on their internet for employees, and caught the Vuu/Lu couple and another guy, Glen Cressman, who had nothing to do with both other suspects.

Their attorneys claim everybody is innocent, because they didn’t use their stolen source code yet. Doesn’t sound very convincing.

Anyway, here’s full story.

McNally, Den Drijver and Kroon still on the run

27 comments / August 19, 2013

Not only ASR Verzekeringen is searching for Richard den Drijver and his buddy Hans Kroon. The VEB is about to put a price on their heads.

The main target, Den Drijver, is said to be hiding in Switzerland or living with his in-laws in Morocco. A recent development is the search for James McNally, who may or may not be living in the same cave as Den Drijver and Kroon.

Contact the VEB for any information on their whereabouts. Link (Dutch). This advertisement appeared in newspapers last week. Glad to help out.

TOM and statistics

15 comments / August 18, 2013

The alternative options exchange TOM is gaining speed. Last thursday the ten millionth option contract traded and market share climbed to 28% percent of the combined Euronext / TOM volume. However, it’s striking both exchanges agreed on ignoring the big elephant in the room.

Increasing market share

First, the good news. Over time, clients of Binck will be closing their positions on Euronext and every new position will be traded on TOM. This will result in some five percent more market share for TOM. In addition, some new brokers will be connected soon. The shareholder ABN AMRO will connect in a few months, and also Interactive Brokers will probably join in (including Lynx). Their market maker Timber Hill recently signed up as liquidity provider. With these new brokers, the rival exchange Euronext will be overtaken in market share. Last week’s market share was 33% for the index options and 26% for the stock options (link – pdf)

Don’t mention the Germans

The bad news. Euronext and TOM have agreed to ignore the German exchange Eurex – it will make their market shares looking better with leaving the third exchange out of the equation. Dutch options can be traded on the Eurex for nearly a decade.

The flow traded on Eurex is often bigger than TOM. Checked a few stocks for last week’s turn over.

It’s obvious Euronext is still the biggest exchange in the stock options on Dutch large caps. In ING and Royal Dutch Shell it’s doing 65% of the total market. However, in options on Arcelor Mittal, most of the flow is executed outside of Euronext. TOM is reporting a market share of 29% in Mittal options, overstating the true market share with 10 percentage points.

With Eurex doing comparable or even more volume than TOM, this brings us to the question whether the clients really do get the best execution. The “TOM Smart Execution” which would compare prices faster “than the blink of an eye” between markets apparently only works for two markets. If TOM’s mission is serious about giving the best execution for clients – they have no choice but to add Eurex.

Finally, it’s about time to cut the fees for retail option trading, almost 3 euro’s doesn’t make sense. With Lynx buying Todays, there may be renewed price competition.

On more thing. For those who don’t use twitter, possible to stay tuned for updates via Facebook as well. Will be bringing an interesting scoop in a few weeks.

Update

Thanks to @exTweets, a more in depth analysis of the market share in Dutch single stock options by TAGaudit, in Best Execution – Spring 2013. Page 86.

Michael Lewis on Goldman Sachs

33 comments / August 9, 2013

Four years ago, I wrote a small post about a Russian programmer called Sergey Aleynikov. He allegedly has stolen some of Goldman’s HFT source code.

He switched from Goldman to a Chicago based hedge fund. Arrested and prosecuted for taking some source code with him, he was sentenced to eight years in federal prison. Unbelievable.

Michael Lewis, author of Liar’s Poker, has done some research and investigated the matter for Vanity Fair. Conclusion is Goldman Sachs has gone too far. The FBI nor the Jury had any clue what Aleynikov had done, exactly. Worse, now Goldman is chasing him again. Doesn’t make them look pretty.

It’s definitely a good read for the weekend :

Michael Lewis: Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer?

Euronext confirms 1 cent tick size AEX

4 comments / August 7, 2013

Told you so, my sources are always right. Euronext confirms the introduction of the 1 cent tick size increment in the AEX index options. Every option below the threshold of 1.50 can be traded with 1 cent tick size. This will mostly be relevant for the options with short maturities, mainly the weekly and daily options.

Kick off will be October 4 2013.

Lower tick size increments, will have more quote updates as consequence. That’s interesting, as the old exchange has seen great difficulty keeping systems running smoothly in the index options. Lags in the price feed have been a pain for several market makers (link).

Strategies

The root of the problem seems to be the strategies. Spreads, strangles and straddles are checked against implied prices of the single legs in the market. This way you can never pay more / receive less in a strategy than trading the single legs.

This functionality must have been eating capacity. It will be switched off on September 27th. Not necessarily a good thing. For example, you will be able to buy a strangle for 20 cent, with both legs on the offer at 5 cent (hence, implied offer is 10 cent). Retail investors will miss protection, as well as market makers with fat fingers.

Second measure to solve the capacity puzzle is to give market makers more messages per second to update their prices.

Source (pdf)

Amsterdamtrader