AMX and Ziggo options at risk

13 comments / April 2, 2012

The game has changed, old tricks don’t work anymore. Not for Euronext Liffe, that is. Steadily introducing new options on stocks may have worked in the past, but is currently facing strong headwinds. Don’t expect much enthusiasm for quoting the new Ziggo options.

Market conditions have seen better days. Currently the number of serious market makers is small. Sure enough, all of them want to quote the major stock options and indices. Royal Dutch, ING, AEX. But spending resources on providing liquidity in Ziggo options is another thing. You don’t get paid to take on this risk.

In other words, it wouldn’t surprise me if the introductions of AMX index options and Ziggo options will fail due to lack of interest of market makers. Today, in the second week IMC had to quote the FMX futures, the market was 12 euro wide. And today was the deadline for the market makers to sign in for quoting AMX options.

Euronext Liffe should try something new. Slash the transaction fees and make sure the retail investors benefit.

Update

As expected, none of the large market makers signed for quoting all series as Primary Market Maker (PMM) in these midcap options. Euronext had to call the regular market maker for help : All Options is going to do it. Good for them, hope it will turn out as a succesful product. IMC will be the competitive market maker. Rest of the market couldn’t see any upside potential and stay on the sideline.

Trading starts thuesday the 10th.

Only IMC wants to quote FMX futures

4 comments / March 23, 2012

In their unusual move to reduce the fees, Euronext raised the stakes. The trading in options and futures on the midcap AMX index needs to flourish. Market makers can trade for free. Their commitment may be the bottleneck.

For a liquid options market, there needs to be a good market in the futures. This future market in the AMX index will open monday. It remains to be seen wether or not any contracts will trade, as there’s only one market maker ready to quote the futures. All Options, usually available to help Euronext in illiquid derivatives, didn’t return the calls.

Only IMC

Only IMC signed for quoting the futures. The firm who recently acquired a stake in TOM, will probably be asked to quote tight the first days. Because the coming week the option market makers will have to decide to take on the quoting obligations. Without market makers, no market will take off.

BATS

The main contender as an exchange in the cash market, BATS, went public today. The owner of Chi-X had a bad day. A computer glitch at their own exchange blocked BATS’ own IPO.

Midcap options arrive at Euronext

6 comments / March 8, 2012

After sleeping decades without any competitors, Euronext Liffe started to pick up some speed in defending their option market against new entrants. The one cent tick size started today. The other major announcement was the introduction of options and futures on the AMX Midcap index.

AMX futures end of March

No time to lose. Introduction of the AMX futures (FMX) will start 26th of March. The option market will open April 10th. As usual, there well be a dozen of competitive market makers and three primary market makers. I’m confident Optiver, Leopark and Caerus will sign for quoting as PMM.

One cent tick size at Euronext Liffe

56 comments / February 28, 2012

Euronext announced today to slash the tick size in stock options, of which the underlying shares are components of the AEX index. Options with a premium lower than 5 euro will be traded in increments of 1 cent.

This means a whole new battlefield with new trading tactics. After ten years of talking, the new tick size adjustment will come into effect on March 8th. That’s a regular thursday, a little more than a week from now.

The reason for this unusual speed of action from the exchange is the new competitor TOM. The contender will start with one cent tick size. The new liquidity providers who have committed themselves to the quoting obligations for the next twelve months didn’t have a say in this.

As a goody for the market makers the quote size in all those option classes will be reduced to 10 lots. That’s weird. Nobody would want to quote for 10 lots, and the depth of the market wouldn’t benefit from this adjustment. Apparently Euronext Liffe isn’t too confident about their own systems. A tick size of one cent means massive price updates. Means technical problems. Like we’ve seen before. The message is clear. Quote for baby size, you won’t get hurt when we screw up.

Wrong decision

I’ve said it before, and will say it again. The transaction fees are too high. For investors and in lesser extent for market makers, the fees are outrageous. Nobody will benefit from a cent better execution, when transaction fees eat your profits.

Source (pdf)

Santorum doesn’t want Liquid cash

106 comments / February 26, 2012

Time for some global news. Updates on local Amsterdam pubs are dull.

Rick Santorum is a Republican presidential candidate in the USA. Depending on the outcome of the primary election, he could eventually be running against Obama later this year. I’m used to skip intro and tune in when the real action starts in the States. However, this silly Santorum reached the Dutch press last week – something about the elderly murdered by numbers in this country. The story backfired at him.

His religious conservative views can be characterized as opposed to abortion, euthanasia and even against something as commonplace as birth control. Father of eight children himself. And supporting God, Jezus and families. In addition, he’s also terribly worried about gay sex. In short, not the kind of guy people in Amsterdam take very seriously.

Liquid Capital was founded in 2000 in London by Chris and Gregg Siepman. Having worked for several firms earlier (Saratoga, Paine Webber), they succeeded in building a worldwide market maker. Their positions now and then profit from the pain God causes by natural disasters. Last year the Japan tsunami landed nicely on their Japanese long vega positions.

Apart from the weekly church donations, it was time to thank the Lord in other ways. This is where Santorum enters the picture. The brothers decided to support the Christian Conservative by sending him $50.000. Alas, the American law prohibits the fundraising in politics by foreign individuals or companies. Thanks but no thanks, the fundraising committee returned the cash. Guess the American brothers will have to send the cash personally. Less tax friendly. But well timed natural disasters don’t come for free.

Amsterdamtrader