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Office space for rent at Beursplein 5 (update)

31 comments / November 9, 2010

The news didn’t hit the wires as a big surprise. All Options is seriously cutting its headcount, and will retreat to their office at the Herengracht 433. They will leave the large trading floor at Beursplein 5. This trading floor needs to be filled with other traders by Euronext. After all, the daily opening ceremony of the market in front of a deserted trading floor has the charm of a EDL protest march in a grassland outside the western city limits. Good to keep everything under control, but a little silly anyway.

Speaking of the western city limits, there’s basically only one large option firm suitable for filling the gap All Options left on Beursplein. Scrocca is a well-run firm with only one minor problem – trading from an isolated office near Sloterdijk – with the nearest bar/restaurant being the Burger King. No doubt some of their traders would love migrating back to the city center. However, Scrocca isn’t interested in relocation to the Beursplein.

Other firms are either to big and currently in brand new buildings in the southern business district (Optiver, IMC) or just too small (323 Trading) to fit on the trading floor. Another possibility would be to join more firms together on the floor, there are a few medium sized firms like Calimero, EXT, Klinkenberg, Leopark, Nino and Caerus in smaller offices in the same exchange building. But this possibility has a few drawbacks. Firms like Caerus developing their own advanced software would never agree to run the risk of sharing their tricks with competitors.

Euronext hasn’t got the right cards at the moment to demand a high rent – but at least someone should trade on the floor. Or pretend to be trading at least, as there isn’t much volume and volatility in the market this year. Maybe some unemployed former traders should be lured into the job of pretending to trade during the opening ceremony and at times RTL Z is broadcasting.

Update 1 : as a commenter points out – even bigger and far richer than Scrocca is the successful arbitrage firm Flow Traders. Although not located as remote as halfway Castricum, their centre-eastside office could use a little upgrade.

Update 2 : the rent for the trading floor is 50.000 euro per month. A smart bargainer could negotiate a lower fee for the coming years, as the contract for All Options runs for two more years. Without a new firm for this location, All Options would have to take a loss of 1,2 million euro for the rent of an empty office.

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AFS to pay for own mistrade, finally

50 comments / October 31, 2010

These days the margins in the derivative trading are very tight. Once upon a time, during the last days of the open outcry trading, the broker AFS made small mistake. With an order for 250 future rolls the broker messed up badly with a negative value of the future spread, instead of receiving 2.30, they paid 2.30. Shit happens, all traders will recognize the trouble with negative values. In the current trading environment, AFS would have lost 5 cent, as there’s always a liquid and deep market in the future roll. Back in 2001 however, they really paid 4,60 too much. That’s some 175.000 euro – and they were lucky as AFS traded 57 lots against their own client, leaving 193 future rolls executed against a terrible price. AOT didn’t want to cancel the trade, and the other counterparty (IDE) offered to settle the trade at even money.

There has been a long and probably expensive legal clash between AFS and Euronext. In 2006 the court judged AFS to pay for their own mistake. A higher court ruled last year both parties should split the bill, as Euronext should have had fair mistrade regulations, and their orde system was even worse than their website. This week the highest court decided to put all the blame back at AFS. Bad luck.

Legal details over here (Dutch).

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Liquidity provider auction and Win/Win

782 comments / October 21, 2010

Around a week ago the latest auction of the Euronext liquidity provider schemes (ELPS) was held . The coming year the liquidity providers for liquid stock options like Royal Dutch, Mittal and Aegon and a dozen of small stocks have been selected. There hasn’t been much movement – didn’t notice anything particular at first glance. The main interesting stuff is in the play-off competition, where 323 Trading is the contender. 323 Trading is collecting a lot of PMM schemes, and is challenging Optiver and Nino in Aegon and fighting against Optiver and IMC in Akzo.

All Options still in the game

Few months ago All Options declared to cut back in quoting obligations, as market making would be “dead”. In reality they will remain the proud provider of liquidity in options like Draka (pmm) and Vopak for the next twelve months. Their bark is worse than their bite.

The official outcome of the liquidity provider auction is downloadable here on pdf.

Win/Win

One more thing. Saturday the 23th the movie Win/Win will be on Dutch national television. Even if you have seen the movie already in the cinema, this is the best opportunity to show your family and friends what a derivative trader is actually doing. If you spot technical errors – blame All Options as they have been training the actors for a day. After this weekend you can watch the movie on internet for two weeks (the movie is in Dutch language).

Win/Win – 23 october 2010 – Ned 3 – 21:57

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Bonuses at bankrupt VDM

251 comments / October 11, 2010

Former option traders for Curvalue/VDM pocket bonuses over the trading year of 2009.

The bankrupt trading firm Van der Moolen will start paying significant bonuses to their former option market makers in Amsterdam. These former Curvalue traders are rewarded for their profits in 2009.  I always figured a bankrupt firm won’t pay out anything anymore – as it’s usually a little short on cash. When a golden treasure is found in the basement, there will be a long queue of companies and people waiting for payment.

Not this time. After the bankruptcy, Van der Moolen received 32 million EUR from a tax ruling. There are dozens of creditors at the door, but right behind the fee for the liquidators themselves are the market makers demanding their bonus. It may be hard to understand, but I understood this correct due to the nature of their labour-contracts. They are the only former traders from the company getting bonuses over 2009.

It wasn’t a terrific year for trading, but in eight months the traders earned a result of 4 million euro. In midst of a sinking ship, with ongoing conflicts with management on bonus agreements and traders leaving to start their own firm – that’s a significant amount. It contributed a net profit of 1,5 million to the company’s after all costs – which seems okay comparing it with Optiver’s 6 million profit over a full year in an ongoing operation. I understood the bonus deal at Curvalue/VDM was 40% of the nett result, but with salaries being paid out from this bonus pool. After subtracting all costs including salaries, an estimate of 400.000 euro was left for the group of option traders. It’s petty cash for a whole group, but keep in mind the circumstances.

However, there was a slight problem. While the total bonus amount of 400k was clear, dividing the money among 25 traders is a whole other ball game. Each trader has the right to start legal procedures trying to obtain a bigger share of the bonuspie, blocking payment to the rest for years. In a extraordinary version of the classic prisoners dilemma, all individual traders had to agree on their cut. Somehow they managed to agree, everyone from the highest bonus (over 100k) to the lowest (zero) agreed and on the division.

Socialists and shareholders will love it, greedy derivatives traders who have gotten rich in the past years by pocketing a huge bonus every year will receive a little additional cash. On the other hand, these option traders contributed around 1,5 million of clean profit to the company and they have a bonus deal on paper.  You can’t really blame them for the board burning the balance sheet with expensive expeditions.

The court in Amsterdam has approved the preferred status of the bonuses last thursday.

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The great RBS Discounter swindle

36 comments / October 5, 2010

Knollen voor citroenenRBS is selling short puts as expensive special products.

The old profession of market making may be dead, according to All Options’ spokesman, but with a little creativity it’s fairly easy for banks to invent something new. Let’s have a small look what Royal Bank of Scotland is bringing us for fancy structured products.

The rocket scientists at RBS have invented a basic option construction (“short atm put”) and labelled it with a fancy name (“discounter”). As of October 4th, they are actually selling this structured product to the retail investors. The marketing department didn’t only create the name Discounter, but also the wonderful slogan (“buy shares against a discounted price”). The product isn’t just comparable with a short put position, it is exactly the same thing. When the underlying share price goes up, you pocket the short put premium. If the prices drop, you’ll end up with buying the shares (and still get the option premium of course). You could also call it covered call writing.

First of all, the retail investors are fooled into buying repackaged crap – there’s an adequate Dutch saying for that (selling turnips as lemons). Apart from trying to sell retail investors ordinary short puts, this RBS product is daylight robbery. They are charging an outrageous 2 percent fee per year, for basically nothing. Retail investors hand over their hard earned cash into the greedy hands of RBS, and RBS is charging them for it. Selling a bond to the bank and having to pay for it. If RBS goes bankrupt, you’ll lose a part of your investment. Nothing wrong with structured products, you always end up overpaying but as long as it’s tricky or impossible to do-it-yourself it’s fine with me. This one, however, is a bridge too far.

We’ve recently had a lot of attention for financial institutions cheating on their customers, but they haven’t learned their lesson and prove unreliable. Cheating clients and getting away with it, at least for the time being. Investors should just buy the shares, and sell the at-the-money call if they wish to replicate this product. Stay away from the “discount” swindle.

In the mean time, all market makers should try to get rid of their premium. The market will continue to float sideways, according to RBS markets chief Jean-Paul van Oudheusden (link, Dutch). Sure.

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