For the second time in seven days Euronext fails at calculating correct expiry levels.
Nobody is perfect. Organizations aren’t perfect either. However, when organizations fail consistently in performing simple yet important routine tasks – there’s something seriously wrong. Of course I’m referring to Euronext. Sometimes a little slow and always overcharging their customers, but previously it had a reputation of being reliable.
Less than two weeks ago it messed up the calculation of the expiry levels of the weekly AEX options. All market makers were left with unhedged positions and were hardly informed at all. Some had unexpected profits, some experienced unexpected losses. Retail investors didn’t have a clue what was going on either.
Fastforward seven trading days later. Volatile markets and Euronext can’t even handle heavy trading – they even shut down the market in warrants, turbo’s and speeders. During the expiration procedure of the daily options (the A9) the AEX index level wasn’t broadcasted between 15:45 and 15:55. Euronext notified market participants after the expiration procedure was finished (16:00).
Market services decided to recalculate the missing index levels. Shouldn’t be that hard after all, my grandmother can do it. The whizz kids came up with an expiry level of 283,33 – which was wrong. The true expiry level should have been one index point lower. After regular market close the official expiry level was adjusted to 283,28. Painful. Every call in the A9 is settled one euro too high, and every put one euro too low. And it seems Euronext doesn’t even know it.
As one trader describes it:
“Look, as liquidity provider we have the obligation to quote the options until 16:00. Therefore we calculate the AEX index levels ourselves on a continuous basis. That’s easy and very straightforward. We know what we are doing, and the expiry level should have been something like 282,34. For example our final quote in the 282 call was 30 – 40 cent. That was market consensus. The clowns at Euronext probably made calculation errors – so the 282 call ended at 1.28. Last time when they blew it in the AX5, we were lucky and made a lot of money. Today we lost a little because of Euronext. The problem is we can’t rely on the exchange anymore – neither can retail investors. “