It has been for a while now since the tick size in Euronext’s options have been lowered to 1 cent in the options with lower premiums. This “premium based tick size” is into effect since June 2009 and expanded per April ’10. The profit margins have been under unprecedented pressure. On the other side of the Atlantic exchanges have introduced the penny increments in option pricing a few years earlier.
Today another victim has announced to throw in the towel when it comes to market making. LaBranche, once the main competitor of the late Van der Moolen as powerful specialist on the NYSE big board, has given up it’s role as liquidity provider on the CBOE. Earlier it headed for the exit at several other derivative exchanges. Last year the company lost $13 million in market making, the second consecutive year in losses. The official explanation : too tight spreads in the markets. Larger firms with focus on the electronic trading spirit take a larger chunk of the pie, while smaller traders which rely more on human trading skills are squeezed out.
Low tech in trouble
This news must sound recognizable for most market participants. IMC is making very decent profits as electronic market maker, and similar firms like Tibra and Optiver will have moved along with the market as well. The low-tech market makers will face a difficult time. There’s a tremendous challenge for LaBranche to find a way back to profits in the field of derivatives. They will return, smaller and more electronic. Maybe..
Transaction costs remain high
There’s just one thing which is hard to grasp. A large difference between Euronext Europe and its American counterparts is the transaction costs. The profit margins have been squeezed, but the transaction fees haven’t dropped by Euronext. Lower fees for investors as well as for market makers would stimulate trading in the low priced options. As one commenter has put it before : when do “they finally realise volume*cost is what they have to maximize, muppets“.
Online broker Binck/Alex has started a new “Facebook-kind of” community website for retail investors in the Netherlands and Belgium. A possible competitor for the established IEX – which is partly owned by IMC. Wish shares all the best, but their chef should quit comparing their site with Facebook (or even Hyves). Really, if shares.nl looks like Facebook, then Amsterdamtrader.com is the Holy Bible.
Rumor has it AFS Group will move away from their main shareholder Phanos. The real estate company owns the majority of the shares in the broker since november 2007. Change in ownership won’t mean much for the running business at the Oudezijds Voorburgwal.