Return of the trading jackets at Beursplein 5

10 comments / October 2, 2011

You’ve got to give them credit for this – the public relations department at Euronext is doing a great job. Confronted with a problem (empty trading floor), solving the problem (new tenants) and presenting the affair as great news ; “traders returning in numbers to Beursplein 5“.

Royal princes Maxima will sound the opening bell this monday, and the new inhabitants will hit the closing bell. A lot of attention from the press. Too bad the markets will probably go south tomorrow. There’s just one little thing which caught my attention in this good-news-show. The trading jackets. They are back.

Trading Jackets

Of course, in the good old days it was great to watch and news shows loved them. But asking the brokers and traders to wear the colorful trading jackets again in their own little offices on the trading floor is silly. Even when it’s limited to special occasions – it’s not a museum.

The good old days aren’t coming back. No matter the tradition and history, trading these days is a technological battleground and Euronext is under siege from different corners. It is loosing ground in trading volumes to Chi-X and TOM will try to do the same with derivatives. And last but not least – Euronext is hurting itself with unreliable systems and regular breakdowns. Smaller problems – which don’t harm trading – are persistent too.

Day One Trader

If you want nostalgia, buy a book. I enjoyed reading Day One Trader, a story of John Sussex who has been bringing up memories of the early days of the open outcry on LIFFE in London. Coming from a humble background in Basildon (yes, how ironic) and a true Hammers fan – he has a lot of good stories to share. He met the Queen and the exchange building had an invasion of anarchist protesters. A trader with a background as former member of the infamous Inter City Firm kicked them out of the building (and into the hospital). If open outcry trading has got your interest, it’s a good read. See here for more on youtube.

Occupy Beursplein

Too bad the protesters gave up so easily last time. Spending just one night in front of a closed exchange building in the weekend isn’t really Tahir-like. Noticed some 700 protesters arrested in New York. Thing is, if they look like this Goethe girl here on the right this protest movement could attract more folks.

No doubt she could get the crowd to go for the exchange building. Don’t have clue what their wishes are, but they couldn’t be worse than the silly Financial Transaction Tax. Luckily the UK and The Netherlands will veto this idea anyway – but it’s strange some people seriously coined this idea and put efforts in place to schedule it for 2014.

Market share in Sweden

43 comments / September 29, 2011

In the world of Euronext and Eurex the market shares of individual market makers are well hidden secrets. The only detailed information the exchange is willing to give you is your own market share. And all right, they exchange is willing to tell you how you rank among the rest. But if you’re number two, they won’t tell you who is number one. Or number three. In addition, Euronext is giving information on the market volume traded on massquotes, and your rank in there as well. Difference is you can see the other market maker’s market share in quote traded volume – but without identifying these firms.

The folks in Scandinavia take a different approach. The whole list of market makers is shown with the corresponding percentages. That is exactly what we’ve been looking for. Unsure to which extent the ranking is comparable to the whole market – but at least it gives us a clue. Apart from the derivative market shares there is another interesting goldmine available at the NasdaqOMX – the market share in stocks. Monthly, and yearly.

The NasdaqOMX covers five of those Scandinavian countries, but the only seriously traded derivatives are the Swedish index options. Other indices and stock options bear similarity with the Belgian market. The trading fun is in the Swedish index pit.

Optiver king of the Swedish index..

Market share alone won’t make you any money, but in terms of market share nobody comes close to Optiver. Broadly speaking Optiver has got an astonishing market share of 25%. Not just for one month, this is a steady result. Second and third in line are two vikings, but on the fourth spot we find Timber Hill. Didn’t trade as much as usual in August, which doesn’t count for Optiver’s long term buddies from Tibra. The Australians increased their market share substantially in a year.

Few places lower there’s Kyte and IMC – trading a lot less with a decent 5% but in another playing field compared with Optiver. At least they are playing, something which can’t be said on All Options. They completely walked of the pitch. Probably putting resources at work to defend their top spot in Ten Cate, Brunel and Mediq.

Please note the market share is calculated a little different. It’s not the number of contracts, but the traded value of the options. Doesn’t change much anyway. On average 50.000 contracts a day trade in the Swedish index.

..but IMC trading more stocks

The Scandinavian stock options seem to be dead, but that won’t stop several market makers from hedging their delta’s anyway. These are a few familiar and interesting names from the list of market share in the Nordic cash market.

Impossible to say anything specific on the kind of strategies at work – endless possibilities (of which of course also straightforward delta hedging on Eurex options on stocks like Nokia). Tibra isn’t a member of the cash market yet – checked the list twice.

For more details have a look at the source. Excel files from the north – market share in derivatives and cash.

Euronext compensating for mess

20 comments / September 25, 2011

Apart from the usual issues with our fragile currency and defaulting Mediterranean nations, there was surprising news from Euronext – the troubled exchange which is experiencing great difficulty in basic operations. The Dutch retail investor association VEB launched a compensation procedure for the great mess up of July 29th.

The expiration procedure of the Weekly AEX options, the AX5 was settled 2,5 points too high. All retail investors will be fully compensated for losses due to this “technical error”. That’s great news. Investors with long calls (or short puts) got away with some unexpected profit in the first place, and those with long puts (or short calls) are getting compensated for unexpected losses.

Total amount of compensation is estimated at 500k. Quite a modest amount to be honest. The damage for investors results from an outright delta gamble (in-the-money options) and from those worthless out-of-the-money calls which suddenly settled seriously in-the-money. Unclear whether or not professional market makers will be compensated and are included in the estimate.

What about August 9?

Of course, Euronext denies any wrongdoing and refers to the compensation as a “goodwill payment”. Another open question is one of the other “technical errors” – August 9th was messed up in similar way. The error was 1 point, and I guess open interest the daily options is a lot smaller.

The quotation marks on the “technical errors” are on purpose – the inability to calculate index levels is an organizational problem. Euronext is a corporation with thousands of employees, but one with a simple spreadsheet to calculate an index level couldn’t be found.

The procedure of the Exchange Delivery Settlement Price (EDSP) calculation is changed, too. Basically the exchange isn’t sure whether or not they are delivering the correct settlement price – they decided to introduce Provisional EDSP. Market makers will check the calculation every day, and have the right to call for a recalculation. More details and rules here (pdf).

Golf with Eurex

13 comments / September 11, 2011

Only a couple of years ago the world of trading was easy. The banks and hedge funds traded OTC against each other and everything smaller such as market makers traded the regular way.

A few years and a few banks later, things have changed a little. Apart from offering regular block trading, Eurex is also offering off-exchange trade matching under certain conditions. While it’s probably quite straightforward stuff, it isn’t exactly my field of expertise. That’s why Eurex decided to organize an event to answer any questions on the matter.

Thursday, September 22 there will be an event hosted by Eurex in Amstelveen after market close. The good thing is you can work on your golf swing at the same time, as it will be held in the Swingaway Golfcentrum. It looks like it’s brand new and will open its doors for the public one day later. The bad thing is it’s Amstelveen – an upper class suburb of Amsterdam. A shuttle bus could be arranged for you, but I suppose you call a cab.

Anyway, event starts at 18:00 and apart from playing golf and a small Q & A session on the Eurex OTC trade entry systems it’s an excellent event for having a few drinks with all the familiar faces from the industry. You can register here, if you work for a trading, brokerage or clearing firm that is.

Case closed in Getronics for All Options

9 comments / September 3, 2011

Many traders will remember the great trade in Getronics options early 2005. A smart fella found a loophole in Euronext’s Corporate Actions Policy with regard to a reverse stock split in penny stock Getronics.

Contract size 12

Some options existed with a tiny block size of 12, called the GTO (Getronics Old) class. A left-over of an earlier claim issue. In a 7-1 reverse stock split the exercise prices would be adjusted as well as the block size. And 12 divided by 7 gives 1,7 – and was rounded up to an underlying block size of 2. This made a lot of difference on the price levels of especially the deep in-the-money puts.

Iain did his homework

Iain Somers did his homework, checked the rules and bought a pack. Rest of the market realized what was going on and started buying too. There was only one firm selling to the rest of the market. All Options reasoned an option could never be worth more than parity. Well, it can. Sold 71.000 puts and lost 2.5 million. After years and years of procedures between Euronext and All Options the show has come to an end now. At first court ruled in favor of Euronext, then a little bit of both and finally Euronext won.

Different legal world

Apart from the loss on the trade, the costs for lawyers will have been very high. It’s not very complicated stuff for insiders, but that doesn’t count for the rest of the world. The final (Dutch) ruling doesn’t really get the essence of delta neutral trading or the difference between calls and puts I guess :

“4.3 All Options heeft (voor eigen rekening) opties zoals hierboven bedoeld geschreven en verkocht. Hiertegenover hield zij geen aandelen in Getronics die, bij uitoefening van de opties, aan de rechthebbende konden worden geleverd.”

The court is confused. It says All Options sold the options, and All Options didn’t hedge it with a long stock position in Getronics. Stocks which could be delivered to the owner of the options on assignment. Back to school, dear judge. You don’t sell puts and hedge it with long stocks. Court confuses calls with puts. Quite basic stuff. This confusion doesn’t really have an impact on the course of events ; but it’s strange anyway.

Amsterdamtrader