It has been almost exactly two years Optiver and Binck announced the birth of little TOM. This venture would initially channel all retail order flow from broker Binck straight into the books of Optiver – and profits to be shared among both parents.

This plan would be devastating for the derivative market and all its participants – and TOM changed plans. When TOM decided to become something better for the market. ABN AMRO joined the partnership, and suddenly a tiny new exchange was born. First for stocks, and after some experimenting in derivatives too. A license to trade options was required, and it was finally granted today by the Authority for Financial Markets (AFM). Trading in options will commence in the fourth quarter this year – and only in a limited number of option series according to their press release.

Earlier on CEO Willem Meijer predicted full option trading on TOM would start in the “summer of 2010”, but building an alternative option market isn’t that simple.  There are some complicated issues with the open interest and (early) exercises, the clearing matter and some details for the queueing logic are still unknown. Another curious aspect of the TOM MTF is the physical location of the exchange. Dutch retail clients of a Dutch broker, are trading options on Dutch stocks against Dutch market makers – but this will be happening in Sweden. Small market makers will burn a lot of money when going for the co-located solutions (having your servers located in proximity of the exchange). This Scandinavian part of the deal has got something to do with a partnership with Nasdaq OMX.

Anyway, it’s great the monopoly of Euronext is finally broken. The transaction fees in the current option market are outrageous  for retail investors. Especially in the low priced stock options trading doesn’t make any sense. Great, a one cent spread – but you need stellar returns to make a profit. Euronext’s fees effectively block trading with options under 10 cent. TOM will challenge these prices. Although this won’t happen in the AEX index – as it’s a trademark name.

Jack
Jack