Timber Hill is too slow

75 comments / September 30, 2010

Norwegians and high frequency firms take advantage of Timber Hill.

The largest market maker by turn-over volume in options on Euronext is probably the technological driven Timber Hill. It’s part of NASDAQ listed Interactive Brokers. Timber Hill is quoting everything and everywhere, using a linked global trading system.

One single trader/mechanic is responsible for quoting all Dutch options. Based in boring and tax friendly Zug, Switzerland. Trading everything with computer systems saves you from hiring traders and paying bonuses, but now and then you’ll encounter a loss when humans are smarter. Timber Hill lost 37 million dollar to All Options on the famous Altana trade. They are still angry.

As competitive market makers (cmm), Timber Hill is the largest market maker in terms of volume traded through their quotes. In the block trading market they are a lot smaller, and their traded volume through non-quote trades is unknown.

Timber Hill machinery has problems

But the machinery is having more severe problems at the moment. Just like Optiver, the profits plunged 97% to just 3,9 million dollar in the last quarter. Chairman and founder Peterffy blames high frequency traders for taking advantage of Timber Hill’s quotes in the market. The quotes can’t be updated fast enough : HFT firms arbitrage slow quotes.

Peterffy is calling for regulation, so he can’t lose on his “delta’s” anymore. If the SEC won’t rescue them, Timber Hill will leave certain option markets as a market maker. It’s way too early to call it a trend, but in a matter of weeks two firms are announcing to reconsidering their market making activities. We’ll see.

Tricked by Norwegian retail traders

On the other hand, something is definitely wrong with your trading systems if you’re tricked by some Norwegian retail traders. These Sven-Egil Larsen and Peder Velby discovered the stock quoting system in illiquid Scandinavian stocks by Timber Hill wasn’t very sophisticated. The quote robot was very, very stupid or “the person who programmed the robot is very, very stupid”. No matter how many shares being traded, Timber Hill was following all price movements. Both vikings are currently standing trial for market manipulation in Oslo. Sounds like innocent trading to me.

“Marketmaking is dead”

282 comments / September 21, 2010

The view on market making is the only result of a chaotic news story on All Options. The firm would submit a press release on a completely different strategy, because “market making is dead” – according to the official spokesman. Market making this year isn’t what it used to be, margins are thin and volumes are low. But declaring market making “dead” is a hell of a statement for a market maker.

The rest of the news is a mystery. Allard Jakobs would explain a brand new vision for the future of All Options last monday. However, he cancelled it. Bad luck for the journalist who’s left with puzzled questions. Why would a privately held firm share their strategy with the press? And what made Allard cancel his speech? Wouldn’t really feel comfortable working for All Options.

update:

We have light. Scroll down in the comments for both internal memo’s. The core point comes down to cutting costs and staff. Centralize all Amsterdam offices, trading platforms and software. Shut down Hong Kong office, quit losing products altogether and scale down broker flow. Halt grassroots efforts like algo and energy trading. The PMM licenses in difficult classes? Euronext can keep ‘m.

Alphabay’s positions sold to Liquid

78 comments / September 15, 2010

Alphabay has liquidated its derivatives positions tuesday. The total positions were cut in three portions. The AEX index positions (including options with long maturity), the Euronext stock options and the Eurex stock options were offered as separate batches. The word is Liquid Capital has taken over all the positions.

Alphabay has never been a popular firm. The former managers at Van der Moolen appeared to have outsmarted the VDM liquidators, taking over VDM’s derivative positions against a steep discount of 3,5 million. The rest of the market suggest foul play. Reliable sources suggest the 3,5 million catch has been burned completely in the past year – there’s nothing left for the partners and they may even have lost their investments.

The persistent (but yet officially unconfirmed) rumor is the remaining positions have been sold to Liquid Capital. The irony is the former head of Van der Moolen unit in Zug is responsible for the single stocks at Liquid. He would be effectively buying back a part of his own former positions. It is a small world after all. In a fair auction, KBC served as independent observer, the price won’t be spectacular.

If trading remains thin, two other spin-offs from Van der Moolen are in a very fragile position. Caerus and, to a lesser extent, WEBB would need additional capital to reach 2011. The former Alphabay director in the newspaper could be right, suggesting more firms would go belly up in this climate. Another firm by Van der Moolen traders is definitely faring way better, read the entertaining story on Briargate.

Alphabay in trouble

113 comments / September 13, 2010

Let’s face it, it hasn’t been a remarkable trading year so far. Trading is thin, and margins are decreasing. Van der Moolen spin-off Alphabay is the first victim going down and liquidating their positions. Apparently the start-up by VDM managers burned trough their cash in less than a year. Too many managers and support staff, and a lack of cash earners – is the common judgement according to insiders. The irony is Alphabay is auctioning their derivative positions, after it bought the VDM derivative positions against a huge discount in a messy situation. Sad news for the involved employees.

Optiver’s CFO to quit

75 comments / September 8, 2010

Shortly after releasing very poor results, Optiver’s chief financial officer decided to throw in the towel and leave the firm. He has been employed by Optiver for just two years, and the secretive company released a small press release on his departure. Fact is Edwin van de Ven (1964) wanted to work somewhere else. According to Optiver. Sure.

Partners are leaving Optiver as well, and the prime suspects in the ongoing CFTC case in hammering the oil price two years ago don’t appear to be really working. Hence, Bastiaan van Kempen, Christopher Dowson and Randal Meijer could be excellent candidates for the role as CFO. As earlier noted in the comments, spokesman and legal counsel Steven Schwab has jumped ship and joined arch rival Tibra Trading. One may slightly remember another trading firm which often fired key board members.

Unfortunately the legal battles seem to take ages. No news to report yet on the CFTC or F1 case.

Amsterdamtrader