Tibra’s profits -31% to 39 million

137 comments / January 25, 2011

Tibra is always a little different from the other major market makers. First of all, they represent the only significant Australian market maker – and second they have another book year for their yearly report. Their trading year ends on the 30th of June, which makes it slightly difficult to compare them with their peers. Over the year 2008/2009 Tibra performed quite well, but they had the benefit of the turbulent trading period of the second half of 2008.

The last report over 2009/2010 files a drop in the net profit with 68% to EUR 18 million. That’s quite reasonable compared with the performance of their former friends at Optiver. The trading revenue have been slightly lower than previous year, but key responsible for the drop in profits appears to be the sharply raised costs.

As all derivative traders are familiar with, there’s a legal battle going on between Optiver and Tibra with respect to intellectual property of their fast trading software. Bhandari and his friend are accused of taking the source code of Optiver’s F1 trading software with them as they walked out the door in Sydney. The only winners are a battalion of lawyers and legal advisors for both parties. Maybe they are responsible for the new loss in the income statement “service fees” amounting 29 million AUD (21 m EUR). Somehow this service fees and the administrative costs (19 m EUR) appear colossal.

More key figures. Total number of employees is 252, with on average 150k EUR income each. Trading revenue dropped with 21% from EUR 154m to 121m. Their high profile founder Dinesh “Danny” Bhandari resigned in May 2010 after four years. But that’s very old news.

Downloadable Tibra’s Financial Statement and Reports, from the Australian Securities & Investments Commission (pdf). More insight on the report can be left in the comments.

Update: Service Fees seem to be an Australian tax item, as a commenter points out (thanks). Hence the firm is a lot more profitable than at first glance. Adjusted the post title – although the truth is somewhere in the middle.

New games at Euronext

26 comments / January 21, 2011

Last post I mentioned a new Dutch community site for retail investors. It’s looking allright but is still seriously lacking critical mass. Anyway, the site is launched by online broker Binck/Alex and although they are evolving into a straight competitor of Euronext’s stock trading platform – the relationship between them is fine. In this column there’s some interesting news to be read (Dutch).

Ideas from the product development department remain there most of the time, but one of the following ideas may seriously make it to your screens:

Extended trading hours for daily AEX options until 18:15. The future remains open for trading until 22:00 anyway, so there’s hardly any barrier to block trading in the options. Maybe it brings some extra flow, and other professional traders could hedge some risks after the regular close. Forcing liquidity providers to keep on quoting another 45 minutes could be another story.
Future contracts on the AMX Midkap index. Point of discussion is which block size should be used. Margin requirements would be killing with a similar block size like the AEX. With a tradable future contract – options on the AMX are just a small step.
The outrageous transaction fees effectively prevent real trading in the weekly single stock options. While cutting fees to competitive levels is a bridge too far for Euronext, considered is expanding the contract size from 100 to 1000 underlying stocks.
Introduction of futures on gold. Not as easy as it seems. Physical delivery is the common style in the rest of the world, instead of cash settlement.

TOM

In the meantime the trading of shares is slowly getting more fragmented. Chi-X is doing great volumes, and the other contender TOM is gaining a little bit of significance. Their market share is something like one percent of Euronext, but in some typical retail stocks (SNS, BAM, Wavin, Logica) TOM is doing a lot more – up to 4% (pdf). This week they managed to get a day with 4% in ING and even 8% in SNS.

Dobber

Finally, there’s some good news to report as well. Quotenet reports Jan Dobber (Optiver) managed to find a bid for his house in Bloemendaal. For sale as of May 2009, he had to cut price from 3.2 million to 2.3 million. No need to feel pity about the price drop. He bought it for as little as 1 million back in 1998.

Trading floor

After All Options left the big trading floor in the exchange building, the area must have looked empty and deserted. Smaller firms currently trading from an office in the exchange building will move to parts of the trading floor. Leopark as well as Klinkenberg will trade from there for at least three months.

Timber Hill

A commenter submitted a link to the released earnings of Interactive Brokers. Their market making unit Timber Hill did a lot worse than 2009, with revenues dropping 73% due to low volatility and tight spreads. No indications of Norwegian retail traders fooling their system this time.

Market maker LaBranche calls it quits

54 comments / January 14, 2011

It has been for a while now since the tick size in Euronext’s options have been lowered to 1 cent in the options with lower premiums. This “premium based tick size” is into effect since June 2009 and expanded per April ’10. The profit margins have been under unprecedented pressure. On the other side of the Atlantic exchanges have introduced the penny increments in option pricing a few years earlier.

LaBranche quits

Today another victim has announced to throw in the towel when it comes to market making. LaBranche, once the main competitor of the late Van der Moolen as powerful specialist on the NYSE big board, has given up it’s role as liquidity provider on the CBOE. Earlier it headed for the exit at several other derivative exchanges. Last year the company lost $13 million in market making, the second consecutive year in losses. The official explanation : too tight spreads in the markets. Larger firms with focus on the electronic trading spirit take a larger chunk of the pie, while smaller traders which rely more on human trading skills are squeezed out.

Low tech in trouble

This news must sound recognizable for most market participants. IMC is making very decent profits as electronic market maker, and similar firms like Tibra and Optiver will have moved along with the market as well. The low-tech market makers will face a difficult time. There’s a tremendous challenge for LaBranche to find a way back to profits in the field of derivatives. They will return, smaller and more electronic. Maybe..

Transaction costs remain high

There’s just one thing which is hard to grasp. A large difference between Euronext Europe and its American counterparts is the transaction costs. The profit margins have been squeezed, but the transaction fees haven’t dropped by Euronext. Lower fees for investors as well as for market makers would stimulate trading in the low priced options. As one commenter has put it before : when do “they finally realise volume*cost is what they have to maximize, muppets“.

Shares.nl launched

Online broker Binck/Alex has started a new “Facebook-kind of” community website for retail investors in the Netherlands and Belgium. A possible competitor for the established IEX – which is partly owned by IMC. Wish shares all the best, but their chef should quit comparing their site with Facebook (or even Hyves). Really, if shares.nl looks like Facebook, then Amsterdamtrader.com is the Holy Bible.

Rumor has it AFS Group will move away from their main shareholder Phanos. The real estate company owns the majority of the shares in the broker since november 2007. Change in ownership won’t mean much for the running business at the Oudezijds Voorburgwal.

Forget 2010, let’s go 2011

80 comments / January 5, 2011

We’ve been trading 2011 options for a while now, and it’s a good thing we’re finally moving on to the new year and leaving 2010 behind us. It wasn’t a great year for many firms, with most well-known casualties All Options and Alphabay. The first is seriously downsizing in both office space and headcount, and Alphabay was forced to pull their quotes altogether within a year.

Brokers in vulnerable position

Operating against unmistakably lower costs are the voice brokerages like Aespen, AFS, IWb and Amstel. A coffee machine, a phone line and a couple of smooth talking brokers is all you need (and a few rounds of beer now and then). But wholesale trading is thin, and spreads on the screen are tight enough at times to bypass the brokers altogether. Although we all know brokers are always lying to the traders – joking aside, I hope all brokers will manage to survive.

IMC posting record profits

Another firm which hasn’t been very popular in the comments is IMC. Agreed, reducing your workforce on bonus-day doesn’t help much winning the popularity contest. Nevertheless, we’re all in for the money (and the thrill of the game) and that’s a distinct point of difference between IMC and All Options last year. IMC got rid of a few dozen traders because they were made redundant as their famous electronic trading systems do actually function properly. Their 52.000 square feet office space in Chicago’s Sears tower is filled with rocket scientists and other quants. Their new style of (semi) automatic trading in options has been ignited over there, and most of the revenues have come from the USA as well – and a portion in Amsterdam too. Ignore negative comments on IMC’s profits – they did fine. Actually, they have been doing better than ever before. Former record year amounted around 60 million euros, my market for IMC in 2010 would be 70 bid at 90. Beating the 100 million hurdle in a year like this sounds too far-fetched.

Expected developments in 2011

Apart from a possible new wave of jobcuts at IMC, there are some serious matters expected.

Whether or not the new bonus regulations will apply to market makers as well – news expected soon
Court ruling on allegedly stolen trading software between Optiver versus Tibra
Sanction for Optiver imposed by the CFTC for whacking the oil price back in 2007
Official investigation in the Van der Moolen bankruptcy case

Almost forgot – best wishes to all of you, and for the Amsterdam traders and brokers don’t forget to visit the NYSE Euronext New Year drinks this Friday in Krasnapolsky. Euronext is an expensive and slow government-like company, but there’s nothing wrong with their receptions. Cheers.

All Options lost 43m in ’09, paid 28m for Saen

62 comments / December 29, 2010

Dull trading lately, moving on to 2011 in a very slow pace. Not much happening apart from some spikes in the futures. Just between enjoying the Christmas dinners and showing off with fireworks next friday, there is some small news. Well, it ain’t exactly news as it won’t be a surprise to most readers and Quote was faster to report.

Here’s the full annual report for All Options over the year 2009 in pdf (large). It feels like Allard Jakobs bought Saen Options years ago, but the deal was actually closed in 2009 and therefore integrated in this annual report. We all know what happened afterwards, scores of jobs axed in cost-cutting measures and the departure from the prestigious former trading pit at the Beursplein as a trading floor. This year will likely be even worse than 2009.

Financial analysis isn’t my field of expertise, so correct me if I’m wrong. First of all, the trading revenue dropped from 51 mio to a little short of 20 mio. Some years are better than others, but this decreasing revenue is accompanied with a heavier burden of costs. Unsure why exactly the general and administrative expenses ballooned – the IT expenses more than doubled to 11.7 mio. The total bonus was crystal clear, exactly zero.

As mentioned, 2009 was the first year for the annual report to incorporate Saen Options and states how much was paid to Ron Meijer for his firm. The trading software AtomPro was valued at 4,5 mio, and the total purchase for Saen turned out to be 28 mio – of which 8,5 mio as goodwill for the traders and the expected synergies. Judging in hindsight is easy, two years later.

For download ; the annual statement in 48 pages (pdf).