amsterdamtrader

Quote magazine and the comments over here have been a lot faster in reporting the free fall of Optiver’s profits. After a long series of steep rising profits, the company made a lousy 6.3 million EUR. To put it in perspective, that’s peanuts compared with 2008 (228m), 2007 (179) and also 2006 (99) and 2005 (41) were a lot better.

The profits are down the drain, but there’s still some serious revenue generated. 263 million compared to 710 million a year earlier. The heavy overhead is ruining the party. The revenue is broadly the same as in 2006, but this time the costs are 90 million heavier.

Although financially a wasted year, they have been growing in human capital. The year ended with 650 full time employees, up from 527 in 2008. On a steady basis they seem to be expanding with a staff of 100 people every year. I always assumed Kaemingk had a few times more programmers and IT staff than traders, but it turns out 2009 was the very first year with IT personnel outnumbering the traders.

Salaries higher, bonuses evaporated

Let’s combine the increasing head count and decreasing profits to more interesting figures. The average salary was 63.230 per year – or a decent 5.250 per month. A lot more than 2008, with an average salary of 53.500 (or 4.450 per month). This is excluding the limited expenses on social security costs, pension costs and of course excluding the bonus. A total sum of 17,4 million has been paid out, which translates into a tiny 27.000 average. Compare this with the average bonus over 2008 : 179.000. The partners are included in the headcount. Unsure whether or not the board is included in the short term benefits. Looks like the average trader for Optiver didn’t pocket much last year.

Other small details. Investment in TOM has been less than a million, and Optiver is committed to investing in total 1.7 million. And well, the IT equipment is valued at 47 million. Sounds expensive. Maybe necessary when taking pride in trading on 40 exchanges. For those interested, here’s the full annual report. Comments, corrections and insights are more than welcome in the comments.

One may have missed it easily, but last Friday during the July expiration three new classes have been introduced. The weekly options on Arcelor Mittal, ING and Royal Dutch. All innovations are usually received with a warm welcome by Amsterdam traders, as long as it is options on something liquid. The dividendfutures are still waiting for their very first trade.

The volume wasn’t very spectacular, but during a slight sell off in a big expiration the traders have other worries on their mind. Last Fridays sell of was followed after the weekend by a new bargain sale, this time of the option volatility. Strange, after such an ugly Friday.

The ING weekly options were most in favour, trading almost a thousand lots. The pie graph doesn’t really show any real information, just comparing the low volumes in the different weekly stock options. Together the volume on the regular options is more than fifty times bigger for these three weekly stock options (1700 vs 102.000). It’s Euronexts turn to cut the fees, and this trading volume could grow bigger as a result.

Short, completely unrelated, news on Optiver. They made it to the list of top 50 Australian employers, number 35 between mostly unknown and smallish law firms and groceries. Insiders tip Kokomo Capital for next year’s edition. FT Alphaville has put some effort in explaining what Optiver has been doing wrong in their alleged market manipulation with Trade At Settlement futures (TAS) in the USA. Case is still ongoing, though.

Apart from the usual options and futures, Euronext LIFFE is also happy to accommodate trading in commodities. It turns out a certain Anthony Ward (50) bought all the cocoa in Europe. Last Friday, his hedge fund Armajaro opted for physical delivery with the expiring July futures. For as little as EUR 800 million you can have all the cocoa stored in warehouses in Amsterdam and in several minor cities such as Antwerp, Felixstowe, Hamburg and Rotterdam. I’m no expert on cocoa beans, or to be specific how long you can preserve the quality of the beans, but Ward sure knows what he’s doing. The ex-Chairman of European Cocoa Association isn’t doing this for the first time in his life.

Press is reporting the “biggest cocoa trade in fourteen years”, but it’s not that special. Back 2002 the same cacao king Anthony Ward bought 202.000 tons, just a little less compared to the current 241.000. At the time his purchase represented 5% of the world market. He made 40 million in 2002 on the trade. Three years ago Ward was quoted as the chocolate guru : “The world’s not going to run out of cocoa, but they’ll have to pay more to get the right beans”. Most press reports refer to the biggest cocoa trade in fourteen years, but haven’t done any more research. The large cocoa trade in 1996 was done by the firm Phibro, amounting 300.000 tons. In charge of the cocoa desk at the time at Phibro, was nobody else than the same Anthony Ward. Phibro lost money on this cocoa trade by the way, and was forced to unwind their positions.

Bad luck for the cacao farmers, as they have already sold their stock and don’t benefit from the price raise. Fairtrade Organizations are eager to use the public tide against financial markets for their cause. There’s good news anyway for us consumers. There’s not much cocoa in the candy bars. The Tony’s Chocolonely slave-free chocolate bars will witness a steady price level.

A few days ago I listed the most traded stock options last week on Euronext. For several years, the German rival derivatives exchange Eurex has tried to capture market share from Amsterdam. While it never has been a cut throat threat to Euronext, mainly due to retail investors kept at the Dutch home market by their brokers, Eurex never gave up and in some option classes it it participating for over 20%.

I’ve collected the list of the volume on Dutch stock options traded last week, and compared with the traded volume in Amsterdam. Especially in Mittal, Unilever, ING and Philips the relative volume of Eurex is very reasonable. In 2011, or perhaps in 2012, the Dutch options will be scattered around at more exchanges – as TOM trading will be a serious contender.

(I stand corrected, percentages fixed)

Breaking news from The Order Machine, or TOM for friends: Founders Optiver and Binck invited another firm to join the party. ABN AMRO Bank is acquiring a 25% stake in TOM and the new powerful shareholder will join the board. Currently, ABN AMRO is already acting as clearing member for trades on TOM. The press release explicitly states the bank may route its order flow to TOM as well.

This smart move has a few serious consequences. Initially, it is a smack in the face of Euronext. Binck and Alex are representing more than half of the Dutch retail orders, and if ABN AMRO commits itself to TOM, a large share of trading volume on Euronext may be gone forever. It looks like a real exchange. It is quite a surprise, after the initial set-up of sharing the profits between Binck and Optiver.

Next, the new member of TOM makes it very possible for the new multilateral trading facility (MTF) to become a success. Ignoring them and continue trading solely on Euronext isn’t a viable option any more. Majority of trades with a little margin will be executed on TOM. Nobody would rely on Optiver, but with ABN joining the pack, it suddenly looks a lot brighter.

The good news is, the transaction fees will go down faster than usual. On the other hand, expenses for IT systems and connections will soar and will threaten the existence of the small trading firms. Small firms may eventually become serious market participants, like Flow Traders who started small (however, I don’t think Calimero Trading has any ambition to grow big). While joining TOM’s electronic trading pit may be free of charge and the investments in new systems will be huge. Co-hosting the servers near TOM’s exchange somewhere in Scandinavia will be both expensive and probably mandatory. While it’s not a major problem to trade on London’s Liffe Connect from your Amsterdam based systems, connecting to the Nasdaq OMX servers deep in Scandinavia will be a completely different story. Costs associated with this operation would take the small market makers out of business. It’s hard to explain your trading  listed options on a Dutch stock or index, from an Amsterdam office, against other Dutch investors or traders in the Netherlands – over a network in the Arctic polar circle. Feeling old fashioned here.

At the moment TOM Trading isn’t trading anything at all. They have the license to trade stocks and act as a multilateral trading facility, but they’re not up and running yet. Something tells me it shouldn’t be too hard to fix it for single stocks. There hasn’t been a license given for trading options. Earlier on, CEO WILLEM MEIJER suggested option trading on TOM would commence before the summer 2010. The new target is the launch date of the option trading will start before the end of this year. And no, Willem – that is not going to happen either.

All statements in the press release are intended to pressure the other market participants into joining in, which would create a better argument at the financial regulators and other supervisory authorities. A couple of weeks ago Euronext’s CEO CEES VERMAAS already suggested starting a legal court battle against TOM. It’s all in the game.

Euronext should axe the transaction costs for option trading right now. The regulators will probably have to grant permission to TOM for starting the MTF on derivatives – although to protect the Dutch landscape of market makers it should require TOM to move the servers to Amsterdam or London instead of the North Pole.

Original press release TOM Trading (pdf)