By order of the court, TOM and Binck are explicitly having a disclaimer on their website. It has been proven the execution for option orders isn’t always the best at TOM.

This situation was a clear case with orders in stocks. DeGiro created clear examples where stock trading at Euronext could give better executions. I always maintained there’s not much wrong with options on TOM – apart from the statistics. So what’s the big deal here?

Fragmented market

In a fragmented market, it’s difficult to get your option orders executed at the best price. Assume the spread in a certain option is 1,00 – 1,10. The same market on TOM as well as on Euronext. The same market makers are quoting on both exchanges.

Let’s say a client at Binck enters a buy order : 1,02 bid. The market on TOM improves to 1,02 at 1,10. Euronext stays the same 1,00 – 1,10. But what happens when a 1,02 offer comes in on Euronext?

  • The 1,02 bid on TOM will be pulled.
  • The router waits for confirmation the order on TOM is cancelled.
  • A 1,02 bid will be sent to Euronext.
  • It should trade with the 1,02 offer there.

Alas. No such thing. The 1,02 offer on Euronext will be long gone. A fast market maker will have lifted the offer. With systems created for speed, they will certainly be a lot faster than TOM and they don’t need to wait for cancellations elsewhere. An electronic eye will have lifted the incoming 1,02 offer on Euronext in a few milliseconds. Client order from TOM will get no execution.

Disclaimer not very relevant

Does it matter? Not really. It’s a split market, which means sometimes executions will be better on TOM. And sometimes on Euronext. No broker or exchange can guarantee best execution.

Second, retail investors shouldn’t aim to be market makers. Sometimes you can earn a penny with such a 1,02 bid getting filled – but usually you won’t trade at all like this. If you really want to buy an option, you’ll have to pay a bit more than the mid price.

Third, in the real world the spreads are very tight. Apart from the fact that usually it doesn’t make sense to try to be a market maker – there’s often not much room at all between the bid and offer. The market in liquid options is more like 1,04 – 1,07.

Humiliation for Binck

Anyway, it’s a humiliating disclaimer for Binck. It was only a month or two ago when they repeated again their empty threat to sue DeGiro. They probably won’t mention the whole thing every again.

Other small news

Small other news. Haven’t heard much about Criterion lately – but Gert de Rover‘s firm has become a member of the London Stock Exchange as off August 3rd. They are expanding. Good sign.

Last but not least, this weekend will be another party for the financial sector. The guy with the highest bonus from IMC Chicago will get married – with Bridget from the HR department. I was surprised to be on the guest list.