Euronext fails in AEX options

77 comments / August 1, 2011

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.

Who is Frank Vogel?

44 comments / July 31, 2011

Interesting story in Quote magazine this month on the dividend double dipping cowboy Frank Vogel. A macher with a lot of bravoure. Made a fortune for Fortis Global Securities Lending and Arbitrage (GSLA) at the turn of the century and pocketed millions of bonus as well. Was shown the door as the bank felt his kingdom inside the bank was too risky in multiple ways.

To make a long story short, the family man built his own arbitrage firm GSFS and tried to join forces with a market maker in search for credit lines and infrastructure. He started a revenue sharing agreement with Van der Moolen, and eventually agreed to sell half of his new company to VDM for a tidy sum of 43 million. Good negotiator.

Would be an understatement to say he isn’t exactly a “no comment” kind of guy. He surfaces a little bit as a victim of all financial institutions and people hating him for unknown reasons – couldn’t help thinking “Is it because I is black?“. Some nice statements from the profile in Quote:

Frank Vogel as CEO of Van der Moolen

VDM agreed to buy a stake of 49.9% in his firm GSFS – and a part of the deal was that Frank Vogel was to succeed Den Drijver as the new CEO. Can’t really picture him running a listed company, he hasn’t made any friends in the world of finance. On the other hand, nobody could perform worse than Richard den Drijver. Besides, Frank Vogel’s lawyer was already on the supervisory board (RvC). Deal was off after Hans Kroon and De Nederlandsche Bank (DNB) blocked it. After this he could see the bankruptcy coming five months before the fact, and tried to take over some parts like the former Curvalue unit. Again – DNB blocked this option. According to Frank Vogel, that is.

Frank Vogel to save VDM

Also according to Frank Vogel, the fall of VDM was avoidable as the proceeds from his trades arrived a few days before the declaration of bankruptcy in September. The whole Van der Moolen bankruptcy is a kind of legalized robbery, only executed to fill the pockets of the liquidator and the investigators – according to the man with an estimated net worth of 20 million.

Liquidators

Made a few calls to those alleged bunch of thieves, the liquidators. Situation is slightly different. First of all, Frank is messing up the dates. VDM was declared bankrupt on september 9, announcement of tax reclaim arrived a week later on September 16th. That would have saved the firm, but arrived too late.

Second, the company Van der Moolen could really have been saved by Frank Vogel, making a serious bid for the tax claims in the preceding weeks. He would have hit the jackpot too, buying the claims at a nice discount. He did not, guess he wasn’t so sure after all in about being right at the time.

It’s the liquidator’s job to receive and keep the cash from the German tax authorities, and with GSFS as the principal party they are working together for the same goal. Whether both like it or not. With all the money arriving for Frank Vogel, it would have been very kind of him to pay them some compliments – but it’s true they are only in it for the money. Liquidators replied with a smile to my questions, and don’t worry at all about the hardline quotes in Quote magazine ; “we know where we stand with Frank. He is probably terribly sorry for what he said”.

VEB

In the meantime, shareholder association VEB is going after Richard den Drijver for malpractice. See their 40 page long letter to court (pdf). Strange side note ; the VEB letter contains all private information on people supporting their claim with passports and private addresses. Including the famous Hercules, owning more than 5% of VDM shares in the last days of 2009.

Optiver financial and legal reports

63 comments / July 24, 2011

During rainy weekends my favorite pastime is reading financial statements. Especially those from market makers such as Optiver. Firm has released their key figures to the press earlier, but here are the core financial statements (pdf). No surprises in terms of profitability, but it’s worth a closer look at employee compensation.

Modest compensation for employees

Headcount is down with 10% to 584 employees. The average compensation for them was 157.000, including an average bonus of 63.000. While that’s enough to make a living, compared with the annual profit it’s pretty disappointing. Traders are subtantially better rewarded elsewhere. Compare the figures with IMC – which is earning less than Optiver in trading revenues except for 2009.

Hammer case and Tibra trouble

There is finally some more color on the legal cases running. In two weeks the mediation talks will be held with CFTC on August 5th, and the everlasting problems with Tibra will continue in june 2012. Court will be hosting this event for eight long weeks. Provisions for the infamous Hammer incident remain the same at a level of 13 million. As I understood the CFTC agreement will be followed by a mirrored class action and finally there is a criminal investigation going on by the Department of Justice.

Another small note on something completely different. Comments below can be rated with a fast and easy thumbs up or down system. A major technical breakthrough.

Optiver tops the Dutch ranking again

85 comments / July 10, 2011

Optiver’s chief Jelle Elzinga made a phonecall to the journalists from Financieele Dagblad. Even before releasing the official figures on the firm’s results on 2010 – he was happy to share the information with them. That’s new. Trading firms dialing the journalist phone number, instead of other way around. Jelle was in my voicemail too, but he forgot to call Quote.

The good news is Optiver is doing fine again after a troubled 2009 with basically zero profit. Didn’t come as a surprise though. Company earned 75 million, 69 million more than 2009. That’s a tenfold improvement, but still incomparable with earlier years (228m in ’08, 179m in ’07 and 96 m in ’06). The headcount was down 10% to 580 and the rest of the interview is marketing. Unknown which activity in which market has been most profitable. The CFTC will be cheerful Optiver will be more than able to pay the fine.

For a better picture , here’s a 3 year overview of results compared with IMC. It’s clear 2009 was an anomaly with IMC beating Optiver. Everything is back to normal again.

When it comes to the number of traders and other employees, IMC is still the winning firm:

Of course, the most interesting thing for the company is the contribution to the net profit per employee. The average contribution per employee to the net income would also be worth mentioning – but let’s save it for a rainy day.

Eclipse expanding. Again.

177 comments / July 4, 2011

Once upon a time, all market makers in Amsterdam received calls on their cell phone from headhunters. Jobs offered at a mysterious firm. A market maker from the pacific, Eclipse. At the time it was a rather unknown company, founded by the former head of trading of Optiver Pacific. Too cut a long story short, Eclipse hired some former IMC traders and failed earning a dime in Europe. Believed they lasted less than a year, in the former Optiver building in the city center.

A little bit of history repeating perhaps – as Eclipse is opening offices again in Sydney and in Stamford, Connecticut. Can’t really understand the rationale behind the new American office, as I understood this one is basically for developers. Scores of technical developers available in the USA – but right in the middle of hedge fund mecca they won’t show up for typical Hong Kong wages.

Amsterdamtrader