Optiver, also known as Dr. Evil

65 comments / September 6, 2009

With all the juicy news on the demise of Van der Moolen and its surrounding scandals, one tends to forget about the rest of the market. One of the major derivative trading firms in Amsterdam is receiving a lot of attention in the press lately. Optiver is depicted as a black sheep. While I wouldn’t trust them to team up with any retail broker, it’s hard to imagine them as crooks.

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div style=”text-align: justify;”>Back in 2007, even before the outbreak of the financial crisis, Optiver allegedly manipulated the oil price in Chicago. One year later the firm was charged with manipulating oil prices by the Commodity Futures Trading Commission. Another year later, yes – in 2009, the firm is receiving a snowball of attention. Most prominent has been the New York Times in this story by Landon Thomas.

Old news

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div style=”text-align: justify;”>Basically, it’s recycling of old news. The current climate has shed a different light on the matter. Especially the fuzz about high frequency trading (also known as HFT) makes it a whole new story. The link between high frequency trading and manipulating a liquid market remains unclear to me. As far as I know, deep pockets are more relevant than speed in “bullying” the market.
Consensus seems to be Optiver is masquerading itself as a liquidity provider, while in reality it is a proprietary trading firm. And that’s bad, according to Fund My Mutal Fund and Zerohedge.

The Hammer to fall

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div style=”text-align: justify;”>Another curious thing is the focus on the name of the software. Internally developed software can have any name, it’s not used for any marketing purposes. But the Optiver engineers have managed to create a wonderful name : the Hammer. The software of the Australian part of the firm is called F1. All this creativity reminds us of the Citigroup trading scandal which shocked the euro bond market in 2004, using software called Dr Evil.

Liquidity providing with a Hammer or Dr Evil. Bad idea.

Van der Moolen follow up

172 comments / August 20, 2009

Last short post on the fall of Van der Moolen ignited an explosion of comments. Between the funny jokes and vicious attacks more valuable inside information was published than any single editor could think of. This website can’t handle more than 200 comments as I discovered.

Real Madrid – Barcelona for VDM board?

The news on the ban of this website in the office of Van der Moolen seems to be true. The rumour of the dynamic duo Den Drijver and Kroon visiting the match Real Madrid – Barcelona three months ago with a hired private jet returned, but still can’t be verified. If only a small bit of the rumours are true – there could be legal action against the former chairman.

It’s summertime, not much else is happening in the market apart from some Volkswagen moves. News on Van der Moolen is supplied on a daily basis, and new developments or insights can be dropped in the comments.

Traders as underpaid millionaires

2 comments / August 15, 2009

Nobody seems to escape from the crisis. Pensionfunds are in troubled water, real estate prices drop and the government is the proud owner of banks and industries. Bank employees are struggling to keep their jobs. And the option-traders? Anyone trading for a bank is risking their job, but the pure play market makers should be doing fine unless they are stuck in heavy short vega positions or long dividends. Or short calls on Volkswagen. Turbulence creates opportunity and bonus levels should remain at pre-crisis levels.

Retire at 35

Market makers make a decent living with yearly income a few-fold times the average of their college peers. Nevertheless there are a few shadow sides of the job. Traders can be compared with professional soccer players. Start young, make a truckload of money and retire at the age of, well.. 35. Experience can’t compensate their lack of speed, eager beavers ready to take over. Never met a trader over 40.

Similar to soccer players there’s only very limited management necessary. There’s a coach (manager) for every dozen traders and maybe two more clerks for the risk management. Nobody knows how football players end up in their forties, but apart from the occasional coach they probably spend their days training seven year old kids on the pitch. No such opportunity for traders.

Wasted for society

Former traders are wasted for the society. A serious job in hierarchical organizations, making long hours without any serious bonus incentive doesn’t match the profile of the former derivative trader. Apart from that, who needs thorough knowledge of volatility smiles, straddle swaps and jellyrolls? With this lack of a promising career path it makes sense both football players and traders make at least threefold the normal post-university salary. They have to earn their pension money in only a third of the usual career timespan.

Sinking ship Van Der Moolen

205 comments / August 10, 2009

Most commenters haven’t been very optimistic on Van der Moolen’s chance of survival, and neither has this website in general. Can’t remember writing anything positive on VDM (don’t blame me for that). But every trader in Amsterdam will share the feeling a true icon from the past is gone.

However, the company used to be a very insignificant player in the market after the turn of the last century. The attention may be a little bit too much for a tiny small-cap. After all, it hasn’t got many employees, clients or suppliers. Just a history and an exchange listing.

When all evening newspapers open with the news of VDM’s demise, there isn’t much room for Amsterdamtrader.com for many new valuable insights.

Just three strange little things.

1. The company is a bleeder because of a truckload of overhead costs, and desperately in need of cash. The sale of units is considered. But what’s left after money generating units are sold?

2. If the company is going down because of lousy management (as has been reported), there could be a case for legal action against them. The former ceo Richard den Drijver won’t win the popularity contest in the ranks of the traders. The fact the supervisory board decided the firm isn’t going to meet it’s short term obligations shortly after getting rid of the one-man-board indicates there’s something really wrong.

3. Silly reasons for going bankruptcy. Relocating to a new office sounds a little odd for going down. A share repurchase is absolutely a hilarious reason to go out of business.

At least there’s one positive sign. The company managed to keep a secret. The share price was even going up in the week before the announcement.

Traders leaving Van der Moolen

60 comments / August 2, 2009

The Financieele Dagblad this weekend opened with a story on the frontpage of traders leaving the firm in vast numbers. A third of the derivative traders left the company in Amsterdam as a cut in their bonus deal wasn’t acceptable for them. Their London office saw ten traders leaving the firm two months ago for the same reason. Reading through the comments earlier on this website the news was whispering in the air for some time.

More than just bonus cut

In public opinion receiving a bonus while working in the financial industry is esteemed at the same moral level as molesting little children : evil. Leaving your company because the bonus isn’t sufficient is even worse. Guess there’s a little more going on than just a simple bonus deal. Comments are open for suggestions.