DeGiro trashes TOM
Online broker DeGiro surprised everybody today. On national television they came with the news TOM’s smart order router (SOR) doesn’t work very well. In fact, the guaranteed “best execution” proved to be fake. To make things worse, apparently a HFT firm has seen enough time to benefit from the trades.
Research paper
The Dutch pdf can be found here – the Smart Order Router has been tested. English version will arrive today (Update: here). In illiquid stocks with high stock prices (Unibail. Solvay etc) a large order was send to the SOR. Similar to Michael Lewis’ Flash Boys the orders arrived at one exchange, after which the HFT traders were given enough time to trade on the other exchanges.
See pages 8 – 10 for interesting details and Bloomberg screenshots. The SOR managed to lose the best offer in the market on Euronext because it started lifting on TOM and Chi-X. It looks like they lifted the second best offer on Chi-x before lifting the lower offer on Eur0next. HFT firm made a quick buck by selling 113.30 on Chi-X and subsequently lifting 113.25 on Euronext. Does not look good.
Willem Meijer (TOM) loses his cool
TOM and Binck would have a lot of explanation to do, one would assume. I know Willem Meijer as a cool, calm and collected guy. No such thing. Instead of a mea culpa and let’s fix it – they are making a lot of noise. Still in denial.
- It accuses DeGiro of market manipulation (seriously?).
- “The large orders in illiquid stocks aren’t common so that’s why the SOR doesn’t work” (lol whut?!)
- “The screenshots from Bloomberg are delayed with a few seconds.” (doesn’t matter in quiet stocks, does it?)
I would say the examples from DeGiro are exactly situations were the smart routing could prove it works at all. Nobody needs a smart order routing for 1000 shares of ING.
AFM starts investigating
Anyway, the finance watchdog AFM has started an investigation into TOM’s stock routing system. Meanwhile, TOM and Binck should be thankful they’re not living in the United States. Ripping off customers for few years wouldn’t only hurt your reputation in the US.
Statistics
This whole clusterfuck by TOM puts some other statistics in another perspective. In september over 80% of the stock orders have been executed on TOM or Chi-X. Not strange at when you lose all bids and offers on Euronext to the HFT traders. And the average saving per order? Never believed them anyway..
Mooi stukje, Sjaak. Makker.
Hi Jack! Who wrote this piece of art?
It must be remarked that Binck has no prop trading activities for their own account (not since they kicked out the guys who went on to set up DeGiro anyway). As such, Binck’s interest in facilitating flash trading – as implicitly alleged by DeGiro – is zero.
Binck’s smart order router works in the same manner as you would expect with any of the large U.S. brokers when trading on U.S. exchanges. The question arises why the claims of DeGiro of market manipulation have not caused similar inquiries in the U.S.
The crucial observation that appears lost on DeGiro is that Smart Order Routing is not a guarantee towards the client that he/she will get the absolute best execution. SOR constitutes a best effort basis to that goal and that is exactly what Binck executed. The fact that there are other market participants – “flash traders” – who may thwart such attempts in particular circumstances, is not something that the broker can be blamed for.
DeGiro’s test results are heavily skewed by the fact that DeGiro set up their test in a stupid if not deceitful manner. As they point out on page 130 of their report, their round-trip time to TOM is 3 ms. However their round-trip time to Euronext is 17 ms. This means that – one-way- out of two orders sent to TOM and Euronext at exactly the same time, the one to TOM would reach its destination 7 ms sooner than the one headed for Euronext.
What DeGiro did – and this is the poor design on DeGiro’s part – is they gave their order to Euronext a headstart of ONLY 4 ms compared to their TOM order.
In other words, the only party responsible for giving flash traders their window of opportunity of 3 ms – as (correctly) observed by DeGiro – is DeGiro THEMSELVES.
We must assume DeGiro read Michael Lewis’s Flash Boys. In particular, the chapters on IEX and Thor. The test results would be different – and would support that TOM’s SOR is fair – IF DeGiro had conducted test scenarios that took into account the known difference in their round-trip times. Instead DeGiro set up their orders in such a manner that they knew they would create an opportunity for flash traders to change the order book situation on Euronext BEFORE DeGiro’s OWN order would reach that exchange. That is hardly a fair experiment and I am starting to see some merit in Binck’s counterclaims of market manipulation.
Now the average mom and pop investor will only read the headline. They didn’t understand Flash Boys either. But the people behind TOM (which is partly owned by Optiver) aren’t stupid. They will make the same observations as I do. And then some. They will have a field day picking apart DeGiro. Something about deep pockets on one side and a company (the Hiq parent) that is losing a LOT of money as it is on the other. That is never a good position to start a fight.
Apart from the above considerations, the tests conducted by DeGiro were poorly designed in that their conclusions are based on the knowledge that they were sending orders to TOM and to Euronext (more or less) simultaneously, but holding it against TOM’s SOR that the SOR did not know that (another) large order was about to hit Euronext. Well duh! Again, if you conduct the same tests as DeGiro did on U.S. markets with your favorite U.S. brokers, you could charge all of the big players with “market manipulation”. When can we expect DeGiro to make such accusations?
The fact that in the US the router will be found fair doesnt imply nothing can be wrong with the current market structure in the US or Europe. I would propose a legal requirement of routing first to the biggest offer as we all know you are going to lose the other offers.
“Instead DeGiro set up their orders in such a manner that they knew they would create an opportunity for flash traders to change the order book situation on Euronext BEFORE DeGiro’s OWN order would reach that exchange. That is hardly a fair experiment and I am starting to see some merit in Binck’s counterclaims of market manipulation.”
sorry, this is bullshit. They send orders to TOM SOR and that’s all. SOR fucks up. Clear case.
Mmm, interesting fight. We will see what happens now.
There used to be platforms to trade (like AEX Exchange) which were independent of the parties trading on it.
I allready had my doubts by also letting new platforms to trade like TOM that are not independent, but partly owned by parties as Optiver (highest technology and probably also HFT and flash trading) that are also trading on it. Let the specialists decide what is going on here…
Is it possible that Market Makers (not Optiver) have had a difficult time since the start of TOM???
All SORs that I know of “fuck up” in this manner. Haven’t you read Flash Boys? Why single out Binck / TOM?
Binck/TOM promise best execution. That’s why. Execution on DeGiro is better (Euronext).
I am 100% sure that large ececutions on TOM are worse for clients, as well in Cash as Derivatives ! The winners are the market makers like Optiver, stealing money from the end-client.
I believe SOR works for options. Although it does not take into account Eurex.
als die gastjes van Degiro zo zeker zijn van hun zaak, hadden ze kunnen volstaan hun zaak aan te brengen bij de AFM.
daarvoor in de plaats hebben ze een ‘vertrouwelijk’ document op hun website geplaatst, de pers erbij gehaald en schreeuwen ze van de daken dat Binck de markt manipuleert. De woordkeuze ‘vertrouwelijk’ suggereert dat Degiro zich er heel goed van bewust was dat ze deze kwestie met terughoudendheid moesten aanpakken. dat hebben ze echter niet gedaan.
gevolg is dat het aandeel Binck vandaag 5% lager noteert. toeval?
dat wordt pijnlijk als de AFM de beschuldigingen van Degiro niet zal blijken te steunen. de koersval heet dan nl markt manipulatie. schoppen tegen een niet-beursgenoteerde concurrent is niet hetzelfde als schoppen tegen een beursgenoteerde concurrent.
in een persbericht heeft Binck vandaag al gerefereerd aan het ‘vertrouwelijke’ rapport dat gewoon op de website van Degiro staat. voer voor juristen, waar Binck er genoeg van heeft.
daarnaast schopt Degiro uiteindelijk met name tegen TOM en diens Smart Order Router. dat is vermoedelijk tegen het zere been van TOM-aandeelhouder ABN die een essentiele rol vervult in het bestaan van Degiro.
“goed bezig jongens!”
Do they promise best execution for every order? Don’t think this is the case. Most retail orders are small and not executed over more than one market. So you will get the best price when executed on one platform. When you send your order direct to Euronext you will only get the best price on Euronext. Not on other markets. BTW do not forget that in the Euronext configuration you can set up to trade against the MM you prefer when that MM has the same price as the one on top in the book. So if that Giro as an arrangement with other MM…….
“BTW do not forget that in the Euronext configuration you can set up to trade against the MM you prefer when that MM has the same price as the one on top in the book. So if that Giro as an arrangement with other MM…”
Bullshit.
Natuurlijk zoekt DeGiro zoveel mogelijk publiciteit. Concurrent maakt er een zootje van, Binck is onbetrouwbaar.
Conclusie : kom naar DeGiro, twijfelaars!
Ze hebben nog gelijk ook.
People are thinking about the issues, that’s a good start, next
What’s new? Every well respected financial markets professional understands and knows that MTFs like Chi-X (equities) and TOM (derivatives) are owned and controlled by HFT firms with ‘order to trade radio’s’ above 1k.
It’s all about market impact, DeGiro showed this with relatively small orders in mid/small caps names, but is is a fact of life for institutional firms with the real big tickets, they prefer to trade blocks away from the market in the dark…
define ‘order to trade radio’s’ above 1k
Strange binck isn’t reacting properly. Admit they are wrong, fix the problem, done.
Where is joopie?
it’s called ego, we all are constantly trained to believe every thing we do is right, the other person has no right to point out anything wrong and of course our defense is to be defensive, welcome to the real organizations, where do they get all that ego
Is Binck showing agregated prices as stated by Degiro? Can’t remember but don’t think so.
Also why the .. they do not simple enter a proper price? Is best execution for every order? No it is not. Best execution is also not about price only but also about overall costs and risk. But sure interesting they take out type of ordering nobody should do. I do not read anything about the best prices Degiro misses on BATS and TOM because they do not do smart routing at all.
Dude, lifting 2000 shares in Solvay is perfectly fine. Not a market order, just the first two levels. (113.25 and 113.30). A limit order. If you think you shouldn’t do it, you are probably IT staff..
Of course SOR doesn’t work either for the investors in ING, RD etc ; but hard to prove because stock moves more, more different orders giving noise and obscuring the image.
Solvay ; clear case, clear evidence
What is different between this model and the model that IKBR has with Timberhill ???
The big difference is that IBKR does not sell flow to Timber Hill and it is stated on their regulatory reports that orders will only be sent to an exchange where Timber Hill is quoting if the market they are making is at the NBBO. If you read the 606 reports, you’ll see that this is true (full disclosure – I have an account with IB and am a trader and would consider myself well versed in this area). To save you some time, I pulled this from the IB 606 report:
1. IB’s Order Routing System: IB does not sell its order flow to another broker to handle and route. Instead, IB has built a real-time, high-speed Best Execution Order Routing System (SmartRoutingSM), which is designed to optimize execution price, speed and total cost of execution for stocks and options. IB constantly changes and enhances the SmartRouting system to adapt to changes in markets, new exchanges, new trading rules, etc. IB’s SmartRouting system continually scans competing market centers and automatically seeks to route orders to the best market, taking into account factors such as quote size, quote price, exchange or ATS transaction fees or rebates and the availability of price improvement (execution at a better price than the National Best Bid or Offer (NBBO). The IB SmartRouting system continually reevaluates market conditions and prices for pending IB customer orders and dynamically re-routes orders as necessary.
https://www.interactivebrokers.com.hk/download/3Q_2014_IB_ORDER_ROUTING_REPORT.pdf
along with your full disclosure, you should consider putting a full disclaimer, even though you might be billy big balls trader, there might be somethings you might not have full understanding or worse still lack full knowledge of, have some humility while making these confident claims
yo Jack, cowboy, the website reverted to the ‘new format’ when posting a comment, why don’t you try ‘test’ post and troubleshoot this motha’fucka, this is the problem with migrations, you get 1+1 problem free
why the need for the format change?
Suppose a lay out which adapts to smaller screens
Cheers, Good read. Dont mind the narrow minded disgruntled jerk at 2:57
what’s narrow minded or disgruntled about an advice for putting a disclaimer on infallibility?
test. end of test
test. einde test.
test. yes, this new format sux, so does Jack, end test.
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