This is bowlingA lot of discussion in the option market of Imtech. The troubled company with a billion debt will start a rights offering worth EUR 600 million. The offering if fully guaranteed by a consortium of banks.  As the current market cap of the company is some modest EUR 200 million, the dilution will be heavy. New rights will be offered with a huge discount, as the banks want to avoid the risk as possible to be stuck with millions of Imtech shares nobody wants.


As usual, the rights will be trading at a discount and the arbitrage game is on. Sell the shares, buy the rights at a discount and lock in a profit. You won’t be able to borrow the shares as soon as the rights start trading. If you own the shares before the offering, you’ll be receiving rights. But everybody wants to own the shares, without the rights. In-the-money calls start trading at a premium. Be long the itm put and itm call – and exercise the call as soon as the rights start trading.

Short squeeze risk

Another issue is the availability of the shares. The option contracts get a huge contract size, due the recalculation options get a contract size of 400 or even 1000 instead of just 100. When options get a contract size of a 1000, the availability of shares to cover the delta may run out of supply. A short squeeze in Imtech was widely anticipated. The new shares from the offering will take some weeks to arrive.

Other rules

Euronext realized this, and decided to change the rules of the game. Instead of the fixed rulebook for right offerings – the rights will now be seen as a “spin off” company. Options will have a basket of claims and shares as underlying  (package method).  Investors unaware of the risks have been selling deep itm calls with a big premium, and can keep the profit after Euronext stepped in.

Then again, these new rules can be changed again and can only be seen as guidelines. Difficult to trade without a fixed set of rules.

UitgegrilldThe European branch of Texas based high frequency firm RGM Advisors is shutting the doors. The European office was based in London, and the firm is still a member of LSE, Liffe, Euronext and Eurex. Those memberships will be terminated.

RGM is around since 2001, and the company is named after the founders (Robinette, Gorelick, Melton). Their London office had a headcount of less than twenty, and they’re not the most well known HFT around – but their comments on leaving the old continent are interesting.

“Europe is a fragmented and expensive place to trade with limited opportunities in a low volume, low volatility environment.”

Sounds like a tourist who wants to have exactly the same food as he’s used to in his hometown. Nevertheless, the increasing burden of regulation is weighting heavy on prop trading firms. The possibility of financial transaction tax madness isn’t helping either.

If trading firms and market makers are leaving markets for more promising opportunities elsewhere, liquidity could be hurt. At Euronext some option classes only attract just one market maker. In Australia both Optiver and IMC have left the option market – leaving SIG on their own in several stocks.

Plain VanillaBig news from the clearing business. InterContinental Exchanges, ICE, has bought the majority of Holland Clearing House from ABN AMRO. The clearing house HCH has been created by ABN AMRO to clear the trades on TOM. ABN AMRO remains a minority shareholder.

End of June Euronext was spun off from ICE by an IPO. Apparently, the Atlanta based exchange didn’t sell Euronext to leave Europe. With buying Holland Clearing House it’s back in the game in Europe. It supports TOM in their battle against Euronext.

It isn’t the only US institution backing TOM. Nasdaq OMX is the biggest shareholder in TOM. It owns 25% and has an option to buy an additional 25,1% in TOM. As long as both American exchanges are committed to supporting TOM, the Dutch option market could be used as bridgehead for the rest of Europe. It makes sense to work with a new exchange without too much old expenses (buildings, employees).

Leuk dierA bright day for the Dutch football this weekend during the annual Financial Football Tournament. After Eurex (2013) and EEX (2012) it was finally online broker Lynx keeping the title in The Netherlands for a year.

As usual, the final was a close call. The game between Eurex Frankfurt and Lynx was undecided after regular time.

A penalty series was required, and after seven (!) penalties Lynx won the cup. Unsure if Karel Mercx was allowed to take a penalty. Congrats to Lynx and thanks to Bennington for organizing the event.

Duur, maar wel tennis kijkenIn the nineties, the trading in futures on the Bund was mainly concentrated in London open outcry pit of LIFFE. Suddenly, the Deutsche Terminbörse appeared with an electronic trading platform and almost overnight captured all market share in the bundfutures mid 1997. When this happened, Willem Meijer was in the fixed income business. 

Now Meijer is leading TOM, and starting next week may be a similar case of a major shift in market share. ABN AMRO will start routing all their option order flow to TOM (link, nl). Well I’m unsure of the size of ABN’s option trading flow – but this could really tilt the market in favor of TOM.

Market makers don’t really want to be active in a market where they solely trade against other market makers. Spreads could widen on Euronext, and tighten on TOM to trade against the retail investors. On the other hand, not much effort to send the same quotes to different markets.

Of course, there’s no such thing as passing through the benefits of a cheaper exchange to customers. Better execution on TOM is a fairy tale, the same market makers are sending the same prices, and markets are pretty tight – not much room for tighter margins.

Bad news for Euronext, that’s for sure. It’s a curious coincidence the options on Euronext will start trading next week, and the only interested market maker ready to provide liquidity is once again SIG (Susquehanna).

  • News from the big board, IMC is getting a lot of airtime these days as Rob and Wiet bought the Goldman specialist pit, and the take over is getting reality. Link.
  • This weekend the next edition of Financial Football will be held in Abcoude. Link.

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  • anonymous: get more candidates ? get more visibility as a MM ? I suppose that they don't make money just fro [...]
  • anonymous: how can they monetize publicity, duh? [...]
  • anonymous: good one [...]
  • Anonymous: Yeah they really need free publicity [...]
  • anonymous: Totally off topic. Alibaba, nyse live stream. Free publicity for IMC: the IMC logo all over some mon [...]
  • anonymous: talk about kicking out yanks [...]
  • anonymous: eh, why would yanks wanna waste their time amongst the fighting greeks and germans? [...]
  • anonymous: To confuse the yanks so much that they leave again. [...]
  • anonymous: then why do Europeans have to do this the difficult way? don't they have enough problems in the cont [...]
  • anonymous: In the US things are usually handled with a new basket consisting of the rights/newly issued shares [...]