TOM, the parasite exchange
Fresh e-mail from my broker Alex tonight, highlighting all the tremendous benefits TOM will have for Jack the retail investor.
Just in time, because my investment portfolio has seen better days. Alas, no such positive thing. Retail investors won’t see a penny and market makers are forced to leave Euronext for Tom. Liquidity providers on Euronext are running a showroom operation.
1. The fees for trading options at Alex and Binck aren’t lowered. The money saved with matching retail option trades on TOM instead of Euronext is not passed on to clients. Only when a better market exists on Tom, investors would be better off. That’s a hypothetical situation, as the quotes on TOM won’t be any tighter than Euronext. See next point why the market spread on TOM will be wide.
2. All retail trades will be matched on TOM. When there’s a better price on Euronext, your order get executed on TOM against the Euronext prices. Some kind of a copy paste procedure. This means the option orders from Binck and Alex customers will never reach the Euronext markets again.
This time Euronext has got a point. Euronext is running a showroom for the option market with the liquidity providers as salesmen. Customers are forced to do their transactions somewhere else. Assume, for sake of the argument, Euronext decided to call it a day and stop the whole option market – could TOM just continue with their lean organization? Guess not.
All market makers will be forced to connect to the TOM MTF, based somewhere in Scandinavia, to be able to compete for retail orders. The responsibility for price discovery stays at home at Euronext. The consequences of this TOM MTF are far reaching, think about it for a while. To be continued.
Link (Dutch, including a video).
is there a difference to TOM and what Interactive Brokers run for its retail punters ?
If you’re so concerned about the trading costs, why not trade on IB?
Alex: options EUR 3 with a minimum of EUR 11
IB: options EUR 2 or EUR 1.10 on Eurex
Alex: shares: EUR 9.50 + 0.15%
IB: shares 0.1%, min EUR 4 max EUR 29
I guess that for anyone trading on Binck or Alex costs are not the main consideration.
klote TOM; ik zeg meteen mijn rekening op
that will teach them ;-p
If you’re so concerned about the trading costs, why not trade on IB?’
If you are doing option delta hedging, the tick sizes are lot bigger compared to costs, so even though Chi-X might be cheaper alternative, but you always are likely to get a tick better on LSE and that comfortably takes care of larger trading costs on LSE,
What does LSE have to do with this?
The logic remains same, it’s probably less to do with trading cost and more with the execution of one tick better,
Wouldn’t that be another reason then to trade through IB instead of Alex? Lower trading costs, and you can choose which exchange to route the order to.
‘the tick sizes are lot bigger compared to costs’
Alex charges 0.15%, or e.g. 3.5 cent per share of Royal Dutch. Tick size is 0.1 cent. I’d say trading costs are a lot bigger than tick size.
It is not about the costs for retail investing, it’s about the order flow routed to TOM while profiting as a free rider from the liquidity providers at Euronext.
And from the whole market responsibility at Euronext.
Point 1 in Jack’s story was exactly about the costs for retail investors.
I don’t think this has much to do with free riding (but feel free to disagree): when the best price is on Euronext the Alex transaction will be completed on TOM, but they’d probably hedge the trade immediately on Euronext, so Euronext still gets that volume. If the prices are identical, the trade goes to the venue with the lowest trading costs (for Alex, that is).
Euronext could of course lower its trading costs or start with 1 cent tick sizes in options everywhere. That would make it a lot harder for TOM to have the best price. At the moment the five cent tick size is a joke: that only benefits the market makers, not the retail investors. That of course makes TOM so interesting for Optiver and IMC. They always have priority over Euronext at a certain price but the smaller the tick size, the less valuable that priority becomes, since the volumes per tick decrease.
I agree that this isn’t good for Euronext or the market makers but that’s what a free market can do. There’s no one stopping market makers from joining TOM. Everyone here seems to love a free market, until it takes away the cosy position they’re in and it starts to hurt in their wallet…
Free markets for what I BUY, not for what I SELL.
‘I’d say trading costs are a lot bigger than tick size.’
calm down buddy, i dont disagree with you .. thats why i used the word probably .. ”it’s probably less to do with trading cost and more with the execution of one tick better,’ .. for large sizes/volumes, chix vs lse, lse was hands down winner, even though it was obviously expensive ..
‘Everyone here seems to love a free market, until it takes away the cosy position they’re in and it starts to hurt in their wallet…’
yeah, good old, heads i win, tails you loose, the inconsistencies/flip-flopping are huge ..
Free markets reduce costs. If I am a cost, then fuck free markets. Competition’s a bitch. Gotta get some of that regulation stuff, to bar those other fuckers from competing fairly. Sell it as “for market stability” or some such shit. Good times for me, not you.
Question is wether Binck can sell their customers “Mercedes” but “built in Scandinavia” as all retail investors believe the are trading Euronext and not the Tom Exchange, future will tell if investors accept this. In the mean time Euronext should create some new products and protect their trademarks before launch. Why introduce options on Mediq or Aperam or Ten Cate instead of the Euronext Africa 20 Index ? Or the Euronext Eastern Europe Stars 25 index, or the Euronext India Index, Or the Euronext Gold companies Index or the Euronext Russia top 10 index… I can name many products that Investors would love to trade on Euronext if properly quoted and promoted..
If TOM are creating their own options, how about counter-party risk then ? Are these options cleared the normal way ? Nothing more than warrants then, but issued by a small counterparty like Binck ?
Dutch state cleares the options ? ABN_AMRO?
From the link in the story:
“De CCP is in het geval van TOM Holland Clearing House (HCH). Dit is een 100% dochter van ABN AMRO Clearing Bank. De CCP sluit een optiecontract af met de Clearing Participant (voor BinckBank is dit ABN AMRO Clearing Bank) en de Clearing Participant sluit een vergelijkbaar contract met BinckBank af. BinckBank heeft als broker op haar beurt weer een verplichting naar u als klant. Zo ontstaat er een keten van (optie) contracten voor de optieorder van de belegger. ”
So counterparty is ABN AMRO Clearing Bank. Difference with warrant is that you’ll have to post collateral with the clearing when you’re short. Warrant issuers don’t post collateral.
Do you think Euronext will just let go this 35% of their turnover ? What can they do against it ?
Off-topic :
Hi guys. Do you think that it is worth applying at IMC for the “junior trader” position, without any programming knowledge or experience ( just some basic VBA) ? Is is crucial to have programming skills in order to apply for a market-marker?
Programming skills will only hold you back, and ultimately may ruin your career.
@Do you think Euronext will just let go this 35% of their turnover ? What can they do against it ?
They can start their own retail broker firm and offer Binck clients a fee holiday…
😉
[…] the light of the current TOM discussion it’s a little bit a spoiled party, but Euronext Liffe will introduce new flavors of liquidity […]
‘Is is crucial to have programming skills in order to apply for a market-marker’
No, simple and straight, but the problem is that there are tonnes of wannabes like you joining IMC .. from a senior trader perspective when they have to pick you or the other junior trader to be kicked out, they’ll end up keeping the one that can program atleast and fire the other .. it’s harder to prove you are a good trader,
‘Good times for me, not you.’
it’s actually good times for me, bad times for you,
‘all retail investors believe the are trading Euronext and not the Tom Exchange’
Dude u missed the whole plot, retail don’t care about ‘trading’, they are getting their high from punting, go to a casino and you’ll see the light of the day,
Hi Guys,
do not forget mijnbroker!!! options EUR 1,70 no minimum.
Ik vind het allemaal maar vreemd. TOM is juist opgericht met lagere fees in het achterhoofd en minder met best execution. Het heeft een beetje een vies geurtje. Je verkoopt aan de klant een zogenaamde betere executieprijs maar het fee-voordeel steek je in je zak. Of moeten retailklanten betalen voor de investering die Binck en co hebben gedaan in TOM? Want winst hebben ze nog niet gemaakt.
Ik denk ook dat het de gemiddelde klant niet kan schelen waar de order uitgevoerd wordt. Zolang de fee en de prijs maar correct zijn. In die zin bieden zowel TOM als Euronext nog niet het beloofde Walhalla.
ENX moet z’n fees maar verlagen en moet maar eens gaan nadenken hoe ze echt competitief kunnen zijn. Ik bedoel, het is niet dat ze niet wisten dat TOM zou beginnen. Het enige dat ze hebben gedaan is onnozele optieseries lanceren en TOM voor de rechter gedaagd. Echt sterk is dat niet.
@12:17am Whereas there is zero upside in proving you are a good programmer. All that gets you is more programming.
‘Whereas there is zero upside in proving you are a good programmer. All that gets you is more programming.’
No you need to play your cards right .. you need to ask the trading desk or research desk if you can work in their team and use your programming skills for trading/research/product … if you are not getting what you want, be ready to pack your bags and go work for a competing firm .. its capitalism .. you don’t like it, you can leave .. nobody likes whining baby ..
‘accidental developer’
There is nothing accidental, you choose to stay in your current position, if you don’t like it, do something about it, stop bitching pls ..
‘Ik vind het allemaal maar vreemd. TOM is juist opgericht met lagere fees in het achterhoofd en minder met best execution. Het heeft een beetje een vies geurtje. Je verkoopt aan de klant een zogenaamde betere executieprijs maar het fee-voordeel steek je in je zak. Of moeten retailklanten betalen voor de investering die Binck en co hebben gedaan in TOM? Want winst hebben ze nog niet gemaakt.
Ik denk ook dat het de gemiddelde klant niet kan schelen waar de order uitgevoerd wordt. Zolang de fee en de prijs maar correct zijn. In die zin bieden zowel TOM als Euronext nog niet het beloofde Walhalla.’
There are whole bunch of players in the game, everyone is trying to play their own part .. regulator doesn’t want more risk/exchanges, so they are happy with one, they are too lazy to bother having another one .. exchange doesn’t want competition .. Optiver wants another exchange since it needs lower trading cost .. retail are happy punting really, they get screwed from everyone around them but because of gambling high, they keep coming back .. now optiver/binck creates TOM and they want to just beat euronext … they don’t have to better the exchange, just beat it by little bit .. either on execution or trading cost .. they are private company serving its own private interest .. they are not here to make markets function better .. this is what somebody in market structure team would do on day to day basis for the trading company .. I am pretty sure IMC doesn’t give much emphasis on Market Structure team and that’s why Optiver beat IMC to it ..
‘Het enige dat ze hebben gedaan is onnozele optieseries lanceren en TOM voor de rechter gedaagd. Echt sterk is dat niet.’
They have been a monopoly and without actually building up barriers themselves, now there is a competition, they are too slow/bloated to know how to act .. nothing unexpected in their response..
I wonder what will happen the next time Euronext miscalculates the settlement prices. Will “TOM options” apply the same erroneous levels?
* Tom creates their own options, cleared by Holland Clearing House. So the dutch tax payer is end-responsible.
* A client can never leave Tom and go to another party, as that other party does not accept Tom-options.
* How about the strategy market? Is that treated the same?
* The guarantee of best price execution is difficult to check for a retailer and impossible to check for the AFM. Moreover what is the correct time seen in the light of the mayor delays that NYSE Euronext is having in optionmarket.
Will “TOM options” apply the same erroneous levels?
Probably depends on the positions of Optiver
Let a trader know you can code, and you’re his bitch. Just sayin, hide those skills, they’ll only fuck you long term. Answering the IMC junior’s question, that’s all.
‘Let a trader know you can code, and you’re his bitch’
You are his bitch any which ways, isn’t that obvious to you ?!
‘Just sayin, hide those skills, they’ll only fuck you long term. Answering the IMC junior’s question, that’s all.’
With all due respect, you definitely don’t know what you are talking about, so kindly don’t try answering a question when all you really wanna do is complaint about your own sucky choices in life ..
‘The guarantee of best price execution is difficult to check for a retailer and impossible to check for the AFM. Moreover what is the correct time seen in the light of the mayor delays that NYSE Euronext is having in optionmarket.’
This is what happened for uptick rule in short selling .. with multiple trading facility in US, it wasn’t possible to check anymore where the last tick was .. though CS’s dark pool crossfinder ensures the execution is not worse compared to LSE .. but who is checking,
‘Probably depends on the positions of Optiver’
Its reasonable to assume that Tom would be at an arm’s length from optiver’s aex trader .. they could obv confirm with Optiver or IMC, and hopefully the answer be same from both parties,
@10:05pm Apologies fella. Good luck with whatever you’re doing. I’ve seen enough to be comfy about whether I know what I’m talking about. Your view is no cost to me.
so much for transparency. What (Optiver) they always complained about are they doing themselves now. I guess the money is just too good…..
‘I’ve seen enough to be comfy about whether I know what I’m talking about. ’
Makes sense that you are stuck in a job you don’t like, you are too comfy there to try for something better,
‘Your view is no cost to me.’
If there is an alternative view to get out of your sucky job, you atleast try taking it into consideration to try head in right direction, but seems you are comfy enough to just crib and not actually do about it .. don’t want to generalize, but totally predictable .. these IT types .. plain coding, no initiative, no risk .. and of course no reward .. and then they complain about being trader’s bitches, what do you expect, free lunch, on wall street >?
‘What (Optiver) they always complained about are they doing themselves now. I guess the money is just too good’
It’s not hypocrisy.. its business .. as a client you want the exchange to charge lower, but as an exchange you want to charge higher .. they are now the exchange so its expected .. Pricing 101, next topic pls,
@2:28am Understood & I get the alternative. Predictable tech attitude is all of the problem. Appreciate your thoughts n info.
Binck doesn’t have a choice but to move all its options trading of Euronext. Basically they are admitting that:
a) the TOM option is not the same as a Euronext option so that
b) only TOM options will get sold to Binck punters.
The interesting thing is that all of a sudden, the ABN may find itself exposed to a shitload more counterparty risk because ABN is going to be the counterparty to all the options trades on TOM and in order to set off what they can’t match internally, they will have to cover themselves on Euronext…
Whoa… really confusing: Binck and Optiver set up an MTF driving all of the Binck retail flow off of Euronext and the ABN ends up ‘owning’ all the trades. And you ask why their prices aren’t low?
Very confusing indeed, it seems.
ABN doesn’t “own” the trades, they act as clearer. Counterparty risk is minimal, that’s what margin is for.
Say a retail customer buys an option from a market maker. The only counterparty exposure ABN has is if the margin they hold proves insufficient to cover the loss in the event of either the retail customer or market maker going bankrupt. That risk would exist if the trade matches through Euronext anyway and, given that these trades are all likely to be retail size, is fairly trivial.
‘Predictable tech attitude is all of the problem’
No man .. let me repeat it once more .. don’t put it on others .. its not the general ‘tech attitude’ which is causing your inertia .. its your very own personal attitude which is the problem .. work on yourself, motivate yourself and stop finding other people to blame for your comfy and sucky choices ..
‘And you ask why their prices aren’t low?’
Which prices are you talking about ?
[…] pretty unclear how TOM will handle the retail order flow in options. Another issue unsolved are the index options. The AEX […]
Despite all the complaining about TOM, it is now already having the desired effect: Euronext is lowering the fees.
http://fd.nl/beleggen/281297-1110/forse-verlaging-tarieven-amsterdamse-optiebeurs
[…] business as a true monopolist it’s a giant leap for Euronext. It’s way too late to stop TOM from launching their derivatives exchange. The cut won’t make a difference, but at least they […]
‘http://fd.nl/beleggen/281297-1110/forse-verlaging-tarieven-amsterdamse-optiebeurs’
translation as following
Sharp reduction in tariffs Amsterdam Options Exchange
The Amsterdam Options Exchange NYSE Euronext, the rates that it charges for trading by private investors sharply reduced. By 46% to 20% and trading in options trading in index futures.
More on this topic
The fee changes are intended to trade on the central market, and in addition the option trading even more attractive to private investors, “let the market know.
The decision to do this comes on the eve of the launch of the competing options exchange TOM BinckBank securities house Optiver and ABN Amro. Tom wants to begin offering this quarter of the first option series on its own platform. The last time the stock options, the rates down is bijstelde years ago, to be precise in 2006 for the index options and individual equity in 2004 for the options. During the same period, the cost of stock trading is further decreased pressure from competitive grants.
The cost on NYSE Liffe Amsterdam, including Amsterdam Options Exchange is officially known, range from 75 euro cents per euro contract to 40 cents per option contract and a 97 euro cents to 77 euro cents per contract. The average size of a transaction from a private investor is 10 contracts.
The rates for market makers, securities houses who undertake constant prices be adjusted to issue.
Those who have additional obligations (….) incentive to get a tight set in the central order book, as we lower the fees, “said a spokesman for the Amsterdam stock exchange. Benefit from tighter price other investors as part culinary honor active on the options exchange.
also nice to know that optiver will be taking in all the profits of retailers forgetting to exercise their calls prior to div…
good for optiver, bad for retailers,
didn’t think about that yet, but that should give optiver a nice extra income.
Met ingang van 8 maart 2012 wordt de premiegrens verhoogd van € 0,50 naar € 5,00 voor de 25 optiefondsen waarvan de onderliggende aandelen samen de AEX-index vormen.