TOM MTF soldDutch alternative derivative exchange TOM is for sale. The shareholders agreed to sell the business. It wasn’t a well-kept secret. The rumour has been making rounds for a few weeks. Hans Pieterse is appointed with a mandate to sell it. It’s an interesting case (press release).

Too many captains

There are a lot of shareholders. First, there’s retail broker Binck. From the clearing side, there’s ABN AMRO Clearing. Market makers Optiver and IMC Financial Markets have a stake. Finally, there’s NASDAQ  as technology provider. NASDAQ has an option to buy 50,1% of TOM. The former CEO Willem Meijer still owns 1,1%. Each shareholder on the ship has their own strategic priorities.


Foreign expansion

That’s five large shareholders, from four different fields. And each of them had a different vision of the future strategy of the exchange. It must have been frustrating, as the shareholders couldn’t agree on the strategy. NASDAQ is in the mood for foreign expansion. Other shareholders don’t feel the need for this. Expansion comes at a price. The current setup already requires the shareholders invest extra money to keep it running.

Word is ABN AMRO Clearing has been told to divest, and Optiver and Binck want out.

Costly exchange

The exchange lost money every quarter. Even with monthly trading volumes well above one million option contracts, the bottom line remains negative. Last year (2015), the loss amounted to €2,6 million. A part may be explained by the high legal costs. The never-ending legal battle with Euronext doesn’t come cheap. And it’s not over yet, Euronext is preparing a claim.

Succesful competition

The arrival of a new contender didn’t go unnoticed. Euronext used to have a monopoly, and responded with lowering fees. The fees are cut with 60%. TOM gained a market share of 40% in the Dutch option market. The future market failed, all AEX FTI Futures stayed at Euronext.

Unfortunately, Binck’s retail clients didn’t benefit. Binck paid lower fees, but didn’t change the fee schedule for their own clients.

Power position for DeGiro

The TOM MTF exchange has one weak spot. It’s dependent on just one broker for the order flow (Binck). That’s an unhealthy situation. DeGiro isn’t connected to TOM. Instead, the DeGiro decided to go into a partnership with Euronext.

Executing retail option transactions at Euronext is €0,10 more expensive. DeGiro does around 700.000 option contracts per month, at this premium price. That’s €70k DeGiro could save by switching to TOM, every month. The idea is Euronext is paying DeGiro a similar amount, under the cloak of “information services for investors”.

If DeGiro moves to TOM, Euronext will lose the battle. They can’t allow that to happen. In the current situation, TOM remains dependent on Binck. Euronext is keen on keeping their rival isolated.

NASDAQ not exercising the option

The NASDAQ has the option to buy 50,1% of TOM. They are reluctant to exercise the option, as long as the exchange is too dependent on Binck. I wouldn’t be comfortable, being dependent on Binck. The broker keeps losing ground. NASDAQ’s option expires next year.

Other buyers

InterContinental Exchange (ICE) has spun off European exchanges back in 2014. Wouldn’t be a likely buyer. CME Europe under management of CEO Cees Vermaas could be an option. But a retail oriented option exchange doesn’t seem a natural fit.

Euronext could buy TOM and regain monopoly in the business. In a few years time, they could raise the prices again. That would be odd. A competition review from Brussels would be required.

Focus on Binck

AXECO is handling the sale of TOM. It will be interesting to see who surfaces as ultimate buyer. Any interested entity will spend a lot of time analysing Binck. And DeGiro (over here, next week more news on DeGiro).

Dress up

In the meantime, TOM is dressing up to look like an attractive target. A lot of people have been fired or decided to leave. The price tag is hard to estimate. Binck has valued the exchange at €4,7 million.

Jack
Jack