Comments on posts on websites are highly appreciated. Mostly short views and opinions on other market makers and trading in general, it’s fun to read and now and then carry valuable clues of how trading firms are doing. Yesterday evening a comment was written on the proposed deal between market maker Optiver and broker Binck. It’s actually way better than the original post and deserves more exposure ; so here it is. Credits to the anonymous writer.
“If the Binck flow will be exclusively routed to Optiver, I have also no doubt that the now widened quotes on Euronext, merely copied by Optiver, would further improve Optiver’s P/L.

The argument then surfaces whether this would seriously damage the market. The, in recent months, shrunken institutional flow combined with the reduction of Dutch retail flow by internalizing, will do more than just damage the market. There is the risk of killing the competition altogether, cascading into a further deterioration of pricing.

I do not get your conclusion that ‘transaction costs would come down and clients would benefit’. With now equal or wider spreads and mor importantly exclusivity, why would broker fees be lowered? If you are already the (or close to) cheapest in the market, you sit on it until someone breaks you. What force could in the short term make them reduce commissions?

I am also not so sure whether the ‘probably legal’ argument will fly. Being a systematic internalizer requires a firm to be counterparty to every trade. Clearly, Binck is not. Optiver is, or perhaps, and even worse, a new platform owned by both.

Perhaps on its direct merits and in the competition spirit of MiFID, the NMA see this development as market forces at play. In my view, a shortsighted approach which bypasses the importance of retail in the Dutch model.

So, it appears that we are stuck with two possible solutions.

Either the AFM would come to the rescue on the basis that this set-up is illegal i.e. not compliant with MiFID. This would require guts and a deep understanding of the dynamics of its own(derivative) market.

Or, a combined effort of the large remaining market makers and flow providers to copy and improve Optiver’s initiative: Find a ready to use platform, add a chapter to its rule book, passport that licence into the Dutch market, copy Optiver’s (with a slight improvement)pricing and off you go!

Not a solution perhaps, but certainly an ‘easy win’ and possible deterrent, Euronext could come to its own rescue and drop the fee for client transactions to the prop level.”