DeGiro ignores the elephant

16 comments / September 29, 2015

Elephant in the roomDeGiro’s response to the previous post on matching client flow to their own hedgefund was a 3 page long pdf. While ignoring the big elephant in the room, they had some valid points too. And some nonsense.

Counterparty risk

Valid points first. When your broker collapses, your position in derivatives isn’t secured nor guaranteed. Whether the transactions are executed on exchange or matched inhouse, this doesn’t really matter. When your broker goes down, you’re screwed with derivative positions. This applies to any broker, not only DeGiro.

The Central Counter Party (CCP) is safeguarding firms higher in the hierarchy, such as ABN Amro Clearing. Therefore the CCP protects you against “risk through the chain” impacting your broker. So, DeGiro is just as safe as any other broker? Not so fast. DeGiro is closely tied to their hedge fund. If the hedge fund collapses with a bang, so will DeGiro.

The elephant in the room

The main point remains client orders are sent to DeGiro’s hedge fund. DeGiro argues hedge fund HiQ is just a regular client. And clients match with clients – so retail customers match with HiQ. Anyone believing HiQ is a regular client just like any other, is believing in fairy tales (and/or working for the AFM).

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DeGiro : clients as counterparty for hedgefund

79 comments / September 17, 2015

DeGiro logoThis is shocking news. The discount broker DeGiro has been executing client option orders against their own hedge fund, HiQ. These option trades have been matched inhouse, which means the retail clients effectively have traded over-the-counter options against DeGiro.

And these “OTC” options means you run counterparty risk, the options are only guaranteed by DeGiro instead of a Central Counterparty like Clearnet (used by Euronext).

This internalizing happened without clearly informing clients. Retail investors are unaware they may have done option trades against DeGiro instead of safely cleared by LCH.Clearnet on Euronext. There’s no opt out possibility. This can be devastating for the markets, and implies a lot of extra risk for investors. Finally, this seems to be the “catch” for the low fees at DeGiro.

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Webb traders keep the bells ringing

WEBB Traders’ opening bell

2 comments / September 16, 2015

imgresJust two months ago Flow Traders was invited for the opening bell ceremony at Euronext. Was quite a puzzle to find out who’s who at the balcony – but with linkedin and a little help from my friends it worked. This monday Sjoerd and Dennis from Flow Traders rang the bell again, after the options on Flow Traders shares started trading (well, trading..). Susquehanna committed itself to quoting options Flow Traders (code FLW).

WEBB Traders

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IMC allegedly mishandled opening at NYSE

7 comments / September 11, 2015

kkrThe market tumbled on August 24, after the “black monday” in China. The Dow Jones dropped 1089 points intraday. Usually the “designated market makers” (DMM) at the Big Board take care of a fair and orderly market. In times of turbulence, there’s a fast market rule where the market makers can duck the regular trading rules – the rarely used “NYSE rule 48”.

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ING option trader jailed for 16 months

6 comments / September 2, 2015

A few years ago the CME issued a trading ban to a Dutchman, a certain Bob de W., a former trader from ING Bank. In illiquid products on the CME he traded against his own orders. Pocketing € 350k, effectively stealing from his employer ING.

I wrote a small post at the time. Given the US practice of using full names of suspects, the full name of Bob was easy to spot in the corresponding CME ban. Decided to postpone publications until the judge has spoken. And this week, he finally did.

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