Optiver’s profits rebound

214 comments / March 3, 2011

It sounds like ages ago when Optiver was hammering the oil prices. It has been five years since the evil Hammer has been used in 2006, and court case is still dragging on. Here’s a perfect short official summary of the situation in 2006 to fresh up your memory. Love the quotes (“You should milk it for right now because you never know how long it’s going to last“). Anyway, the careers of the main three suspects haven’t exactly enjoyed the CFTC attention. Dowson is gone, van Kempen left the firm two years ago and recently MD Randal Meijer was given the sack. Within Optiver apart from top management nobody seems to know why. CFTC fine is expected this year.

The other expensive battlefield is continued on 31st of May, when Tibra can submit evidence they did not steal trading secrets from the ultra fast F1 trading software. Within ranks of Optiver some folks describe the F1 software as “junk”, and offices not using it and arguing about it has been the running gag of 2010.

PMM play off

There is some more colour on the play off for the primary market maker roles in Aegon, Akzo and Ahold. Optiver has been defending their pmm roles to contenders 323 and Nino. Quoting tight and for large volumes gives you a quoting quality score – and over two months the best one wins the pmm role (pmm is quoting all series, having more capacity at the exchange). The head to head game isn’t good for margins, but perfect for the competitive spirit. Here are the lucky numbers, with the winning firm bold.

Aegon : Optiver (87), Nino (84), 323 Trading (77)
Akzo : IMC (84), 323 Trading (82), Optiver (72)
Ahold : 323 Trading (83), Optiver (74)

Optiver is relegated in Akzo and Ahold, with small 323 Trading filling the gap. The benefit of the obligation to quote all option series is subject to debate, with the tiny bid-ask spread the market makers do run serious risks. It seems 323 Trading has a strategy of accumulating pmm roles, and they stick consistently to their mission. Note the large gap in the scores for Optiver, lagging far behind in two stocks. One would suspect the management forgot to tell some traders they are participating in a play off competition. Ahold isn’t too hard to quote.

140m profit in 2010

There’s some good news on Optiver as well. Last year the firm made 140 million (we need to wait till early 2012 for confirmation), with the most money earned in the Amsterdam office, followed by Chicago and third place the Sydney office. Good to learn the profits rebounded after the difficult 2009.

Consequences of exchange merger

219 comments / February 18, 2011

There has been a traditional bit of competition between derivative markets Eurex and Euronext. Mostly for the sake of tradition and maybe a little bit for the European Union (look mother, we’re playing competitors). Loaded with employees, slow to adapt and absolutely unfit to combat lean and mean contenders, the exchanges look more like a government institution. The fate of any monopolist.

After the proposed merger of NYSE Euronext and DB only one option market remains in Europe. That sounds like the fees won’t be lowered anytime soon. Maybe the option market could be centralised in one server park, which would save the small market makers some bucks in connection fees and co-location. Wouldn’t bet on it. My guess on what’s going to change : nothing. Dutch options will stay tradable on Eurex (“competition”) and the gap for a new option market stays wide open (TOM). In line with touchy politics, several systems will be kept operational at the same time.

European Style Stock Options

The weekly options on stocks have failed because of the large chunk of transaction costs for especially retail investors. Nevertheless Eurex introduced them as well. Beginning next week the Germans have another interesting idea (which will be copied by Euronext probably) – European style single stock options on a dozen blue chips. No more early exercise of calls and puts, exercising the options is only possible at maturity. The benefit of European style stock options isn’t yet clear to me. I see a lot of opportunities for messing up around ex-dividend dates, when stuck with combined positions of American and European options.

Play-off primary market makers in Aegon, Akzo and Ahold

The play off for primary market makers (PMM) in Aegon and Akzo has ended. The competition for quoting the tightest spreads was won by Optiver in Aegon (silver medal for Nino, bronze for 323). Doesn’t really come as a surprise, with superior giant Optiver beating the dwarfs Nino and 323. The bigger the surprise in Ahold and Akzo. Optiver actually lost the play off from 323 Trading in both Akzo and Ahold. Two licenses were are stake in Akzo, IMC takes the other one. Optiver loses its PMM license in both stocks.

IMC reports stable profits

149 comments / February 7, 2011

We’ve been waiting for while now, IMC has finally reported a profit of 26 million over the year 2009. It was worth the wait, as it is pretty okay compared with their peers at Optiver (2 m) and All Options (-42 m). Informal sources confirm 2010 has been even way better than 2009, posting a record year for IMC. We will have to wait another year for confirmation. Previous year (’08) the company earned 28 million.

The first to come up with the story on IMC’s profits was Quote Magazine. After all, board members Wiet Pot and Rob Defares are prominent members of the Quote 500 rich list. Both of them are doing fine, Rob getting 8 million dividend and former Goldman partner Wiet is pocketing 4.6m.

Most interesting stuff is available on page 25 of their annual report. It appears their net trading result dropped with 11% from 236 to 212 million. The transaction costs as percentage of the gross trading result fell from 27% to 20%. Still a little difficult to separate the transaction costs per activity, as there used to be a broker over there at the time (IWB) and there’s still a Rotterdam based consultancy division (Cardano). But it would be safe to say prop trading is by far the most important activity and we can ignore smaller parts.

Hire and fire

IMC has fired a few dozen traders, but hired some others too. Cheaper ones, probably. Fresh university graduates aren’t that expensive, although some trading experience within the firm could be valuable at times. Anyway, the employee headcount rose from 574 to 657. Checking the facts in more detail reveals some more juicy facts ; their department in Amsterdam got rid of 14 employees (from 336 to 322), and abroad nearly a hundred new traders have ben hired. IT and support staff have been axed, and new hires are traders.

Even with the new recruits, the total personnel costs for bonuses and salaries dropped with 24 million. Average pay per employee dropped from 216.000 to 151.000. New rookie traders could weigh on the average, but odds are management have been replacing expensive traders by cheaper ones. Finally, their stake in IEX has been sold.

For download : Annual report 2009 (pdf)

Money, speed and Aperam

37 comments / January 31, 2011

Last week there were a lot of happy folks around in the Mittal crowd, largely thanks to an anonymous big spender who apparently didn’t read the manual (or the wrong one). Some fingers point at Timber Hill or Sig, but we will never discover where to send the flowers.

Anyway, the Aperam spin-off has been trading for a few days, and this monday the options were launched as well. It isn’t easy to quote options on stocks without a trading history, and interest among market makers to act as a liquidity provider is very thin.

As little as three market making firms have signed for quoting the Aperam’s – with Caerus feeling confident to combine two roles as a Ccompetitive Market Maker (cmm) and Primary Market Maker (pmm) together. The other half of the quote depth are are Nino (cmm) and 323 (pmm). Curious wheter or not some trading will emerge in those Aperam’s.

The flash crash

The flash crash didn’t occur during European trading hours, but nevertheless it was an astonishing what-the-hell moment. Dutch television produced an interesting short documentary with the title “Speed & Money : inside the black box”. It’s available for the iPad as well, for free in the app store . It’s mainly English spoken with Dutch subtitles. If you’re waiting for a new iPad version, here’s the regular online version. For old times sake, here’s Jim Cramer again covering the flash crash.

Phanos forced to sell AFS

48 comments / January 27, 2011

Real estate firm Phanos is definitely experiencing difficulties in the struggle for survival. It didn’t pay interest on their bonds. Generally speaking not a very positive signal. That’s bad luck for FC Utrecht and their players.

Anyway, apart from sponsoring a football club and doing some real estate business – there’s a relevant angle on this news as well. Phanos is the owner of well-known broker AFS Capital Management. As indicated earlier, AFS will be sold by Phanos. Now we know why.

Mittal

Unrelated to FC Utrecht, Phanos and AFS has been the trading in options on Arcelor Mittal this Wednesday. Spin-off Aperam started trading today, and some market maker had a different vision on the valuation of front month in the money puts. Started by paying some extra for buying ‘m, and hours later paid outrageous prices against the rest of the market – for size. Scaring away all other market makers. Confidence in your prices is a good thing, but don’t exaggerate it next time. Overconfident market maker lost around a million. Expensive lesson, and painful too. Taking into account the size of the trades, it looks like a major market maker messing up. Question is.. which one?

Amsterdamtrader