Twice a year Euronext is auctioning licenses for market makers in options. The market makers don’t have to pay for the right to send their quotes, they just have to fulfil their duty. The right to send quotes to the market is granted to the market makers who commit themselves to the tightest bid-ask spreads.

As these ELPS schedules are invariably set at the tightest quote settings, all market makers bid for the same conditions. The good part is that existing market makers never lose their license – as long as they are able maintain good quotes in the market. So no big changes over here. The big three (Optiver, All Options, IMC) will remain the dominant market makers. In a few places a new place for a primary market maker (pmm) will be created.

This is where the fun starts to kick in. For the new places market makers will have to fight for their right to quote. In Philips and SBM Offshore the best of the rest will have to send their tightest quotes for two consecutive months. Points are awarded for market presence, size and the tightest bid-ask spread.

Once the primary market maker license is granted, companies will have to keep on performing well or they may lose it next year. This is what’s treating Curvalue, part of the listed company Van der Moolen. It will have to defend its positions in Unilever and ING against eager beavers 323 Trading and Tibra.

The losers still can trade, though. A competitive market maker (cmm) can still send quotes, just a lot less and with less bandwidth. Because of the standard 5 cent tick size the quoting permissions are important.

The play-offs:

ING
Curvalue plays relegation battle against Tibra Trading.

PHI
Tibra and 323 compete for the new spot

UN
Curvalue plays relegation battle against 323

SBM
All Options and 323 compete for the new spot

Hard to predict who’s going to win. Curvalue seems to be in trouble, 323 is very small, Tibra still unknown and All Options may not be very serious on SBM. Time will tell.

Jack
Jack