"TOM wants the opposite of a monopoly"

9 comments / June 30, 2009

Binck and Optiver announced the introduction of their joint venture a week ago. Actually, both companies didn’t want to burn their fingers on this apparently legal deal to corner the market.They decided to hire a professional in selling the impossible message. Enter the public relations firm Carl Byoir & Associates. When you need an external public relations officer to explain what you’re doing, you are hiding something. And indeed, The Order Machine (TOM) could need to a professional to explain what Optiver’s hand is doing in Binck’s cookie jar.

TOM Does not look good

If it’s good for everyone, your grandmother could do handle the press release. But even the PR firm couldn’t make it look good. They understood that denying the obvious would be fighting an uphill battle. Tell the whole story and downplay the consequences (link, Dutch).

“Yes, it is a monopoly for Optiver.. but it’s only for two years!”
“We did not involve any other market maker.. because it may take time!”

Of course it could eventually turn out well for the market. If the other professional market participants survive an absent retail order flow for two years, they will be invited as well in The Order Machine. However, they will have to play catch up with Optiver which has been optimizing their trading software for dealing with the new market. Or the other way around, they could make TOM to fit nicely to dealing with Optiver’s proprietary trading systems.

Nobody trusts Optiver

It doesn’t look good and firms like All Options remain openly critical in the press. Nobody trusts Optiver as operator of the exchange. Perhaps the Association of Proprietary Traders (APT) will discuss the matter on their next meeting in September (check out the slick website, in Dutch).

Binck sells customerflow to Optiver

20 comments / June 23, 2009

The largest Dutch online bank Binck announced a joint-venture with market maker Optiver. All orderflow of it’s retail customers will flow directly into the books of Optiver. It will start with stocks, but the goal is to expand the operation to derivatives as well. The plans were known before, but now it seems it will be reality soon.

Optiver will make a market in all major stocks on the the joint-venture labelled TOM, which stands for The Order Machine. This is a very suitable name, as it will be just a simple machine copying the prices of the real Euronext market. The financial markets authority approved the operation.

A good thing for Binck

This joint venture is a good thing for the online bank Binck. In stead of paying transaction fees to Euronext, it can keep the money. Maybe a slight discount could be given to the customer, but there’s no competition so that’s not necessary. By selling it’s customer flow to professional market makers it’s generating extra income.

Offering a best execution by taking account different exchanges (Euronext, Deutsche Borse, Chi-X,..) was a possibility, but the company seems to focus on selling the customer flow to Optiver.

A good thing for Optiver

Copying the prices of the real market is easy as long as you’re fast enough. All trades generate a little money instead of costing a little transaction fee. Optiver can decide to stay with the resulting position or in the worst case scratch it on Euronext. It will never make a loss.
Second, it will have more information on the Euronext order book than competitors. Limit orders which won’t be executed will appear in the books of Euronext. Only Optiver knows where those limit orders are, how big they are and the chance of remaining there when the market turns. Assume a situation Optiver did a large option trade and needs to sell shares in a stock like Akzo. They’re not forced to send two sided quotes, an iceberg offer on their TOM system will do the trick.
Finally, the best thing is rival traders on Euronext are forced out of business as the major source of retail flow will vanish. Less competition means more profit for the powerhouse.

Trouble for customers and the market

Binck customers may see a slight discount on the transaction fees. As there are no costs involved for Binck and Optiver can only make money in the trades, they should be getting paid by Binck instead of paying transaction fees. Furthermore, Binck’s customers will help creating a monopoly position for Optiver. Especially on the option market the spreads will widen and a disount on the transaction fee will turn out to be a joke.

Quoting stocks will turn into a waste of time and effort for the rest of the market. Most retail orders will be filled by Optiver, so quoting the stocks will be a risk without reward. Some traders will have a hard time, some companies will quit the market altogether.

Boycot Binck
I wouldn’t like to see Optiver having a first pick on my orderflow with Binck, so I’m leaving this broker. Other brokers are cheaper anyway – just plain laziness to stay with Binck for the last years. Too bad the troubles are too abstract for most clients.

* Update 24/6
Hat tip to IEX for their own neutral coverage of the story, summary of this post and a reaction by the official spokesman of the Binck/Optiver joint venture (all three links in Dutch).

FD goes copy-paste

5 comments / June 21, 2009

In the Netherlands there’s just one financial newspaper, “Het Financieele Dagblad“, FD for short. They have one specialist on financial derivatives, mister Conijn.

Reading through the pages of the FD last week I discovered a juicy story. Something about a lawsuit between All Options and Euronext. Actually, it was the very same story published a week earlier on this website. Translated in Dutch, processed through the notorious Conijn-o-generator (usually stuff about flags) and a few small mistakes introduced. But definitely the same entire story published over here on amsterdamtrader.

A good thing about the oldskool journalists of the pen-and-paper era is they’re easy to reach. Working from nine-to-five in the office, the journalist turned out to be a very friendly chap. He immediately confessed. He was inspired by the story on Amsterdamtrader.com, although he denied straight copying a story. After all, he checked the sources to confirm everything was true so there was actually some work involved for him. Giving credits where credit’s due was a still little difficult story, but he’ll work on that.

All Options says it’s (still) not fair

24 comments / June 11, 2009

A long time ago, All Options and its owner Allard Jakobs were banned from trading on Euronext. They returned in 2005 and they certainly did it in style. They traded against the rest of the market in a tiny option class called Getronics-Old (GTO). And lost millions. Legal procedures are still ongoing, and according to the last reports it will continue to do so for the next years. Strange enough, it appears Euronext has to compensate the market maker for part of the losses.

Getronics old option contracts

Getronics used to be a Dutch IT company with normal listed options tradable on Euronext. After a claim offering, the options were split in the standard GTN options (with block size 100) and the small GTO with block size 12. So far so good. However, the stock traded at pennystock levels and the board decided to go for a reverse stock split. Seven old shares would be melted in one new Getronics share. The options would be adjusted as well, the block size would be divided by seven.

This is were the fun started to kick in, especially in the GTO options with the small block size The new blocksize would be 12/7 = 1,71. This would of course be rounded up to 2. Compared with the normal Getronics options the block size would rise 16%. A different block size has some consequences for the price.

Someone did his homework

Enter Iain Somers. A clever dude trading for his own account at a small firm (Market Wizards). He bought 1200 deep ITM puts through a broker. He paid more than parity. Most sellers were happy to take a profit, but scratched their heads and checked Euronext’s policy. This ignited a buying spree of this put. At the end of the day, most traders understood the point. All Options, however, kept on selling without asking questions. They sold exactly an astonishing amount of 76.100 deep itm puts.

That’s a lot, especially because after the adjustment in line with the Euronext rules, the price of this put increased from 16.55 to 19.35. Even with a small blocksize, that’s a 2.55 million loss for All Options.

What’s new in 2009

Four years later this story isn’t dead and buried. After losing a first encounter in court end of april 2005, All Options started new procedures. Recently court issued a preliminary statement on the matter (in dutch). The surprising opinion of the court seems to be the exchange should compensate All Options a little bit for the loss. The level of compensation is still unknown, but court ruled the exchange should have halted trading for a while and inform poor little All Options how the rules would be applied. This court decision is not the end of the procedures. It will take another four years I would guess, as appeal is possible for both parties.

Rumour round up

14 comments / June 4, 2009

Most interesting market rumours leave room for a lot of imagination, but won’t fill an entire post – decided to mix everything together.

AFS verus Phanos

The board of the most prominent Dutch broker has been sacked by the main shareholder. FC Utrecht’s shirt sponsor and real estate company Phanos decided to get rid of ceo and founder Michiel Scholten, cfo Herbert Nelissen and chief capital management Roderik Bolle. Press reported a voluntary leave, but nobody believes that. Their entertaining star-analyst Kees de Kort could stay.

All Options

A few months earlier Allard Jakobs bought 5,1 % in the listed custodian bank Kasbank. The reason for this investment remains unclear. Brass-knuckled Jakobs will be a natural fit with stiff upper lip baron Albert Röell, ceo of the Kasbank. Baron Röell coined an excellent idea today; pension funds should relieve banks from the toxic assets. However, he wonders why the Dutch government won’t return his phonecalls..

All Options – KBC

Saturday 6th of June is the annual All Options/KBC soccer tournament. IMC fired all talented soccer players few months ago and will face a difficult Saturday. Kasbank won’t show up as they’re facing a tough cricket match against Banque Insinger de Beaufort. Most bets are placed on the Germans (Eurex) to win the title, again.

Optiver versus tax

While still arguing with US lawyers on manipulating oil prices last year, they have started a lawsuit against the tax authorities in the Netherlands. Conflict this time is the valuation of the option positions. They resist mark-to-market valuation of the outstanding positions, and want to carry profits to the future to save interest. The market maker foresees an impact of 30 million. Legal battle in Haarlem will drag on for ages.

Van der Moolen

From Optiver’s tax situation it’s only a minor step to Van der Moolen. Several sources report a team of a dozen traders (or brokers) left the building in London. A civil war seems to be raging within this company according to a former employee. Casualties include at least two directors, one risk manager and one trader in Amsterdam. A comment over here suggests more trouble is ahead in other departments as well. When sorrows come, they come not single spies, but in battalions.