Not in Amsterdam. Euronext LIFFE moved a few servers in the weekend. Changed a few wires. Trading in index futures and options has been halted for most part of the day. An attempt to re-open around 11:00 failed miserably. No AEX futures and options until 15:00. Here’s the official explanation what happened.

In the meantime the market recovered completely. Investors with long index puts missed their opportunity to take profits. Anyone with long puts or short calls should head for the VEB to reach a settlement with Euronext. Again. This is going to cost ‘em some serious money.

Sad thing is they will never learn. Trading outage is business as usual with Euronext. Miscalculating settlement prices happend less than a year ago, twice. Heads would roll in any real company. It’s time to adjust the pricing models to include a new greek variable. Risk of Euronext failure.

Scrocca was the new co-sponsor for the event last year, together with Eurex and KBC Clearing. This year the sponsorship is a little different. And a little difficult. KBC Clearing left the business altogether. Scrocca appeared not in the mood for sponsoring another year. Only the Germans from Eurex stay on board. Additional sponsors may contact Bennington, as always organizing the event.

Good news is the tournament is being held, with or without additional sponsors. Always good to keep a healthy tradition in place. Everything remains the same. Indoor playing rules, seven-a-side teams and the same location on the grounds of FC Abcoude. Sign up here.

The past winners:

• 2011 – IMC
• 2010 – 323 Trading
• 2009 – KBC Bank
• 2008 – Eurex
• 2007 – Euronext
• 2006 – Market Wizards
• 2005 – Fortis
• 2004 – IMC
• 2003 – Optiver

Optiver

Last year the cup was won by IMC. The first company every to win the title twice. Let’s hope Optiver will change focus from silly cricket to football again and be a contender for the title again. They can use some winning feeling.

After settling with the CFTC the firm lost a more expensive case against the Dutch tax authorities, 32 million. Details here (nl). That’s 46 million in a week in legal settlements. Looks good for their rival Tibra. For years under attack after Optiver accused them of stealing software. Optivers’ lawyers aren’t in the winning mood. On the other hand, that 14 million CFTC penalty is good for some profit in the books.

Update

Messed up other important dates with the tournament. Yes, tournament will be held on 16th of June. For the VDM regulars here, some news on Hans Kroon’s brother Jimmy.  On Quotenet, so in Dutch. Hat tip to RDD  in the comments.

Optiver has traded certain contracts which settle at the closing price (TAS contracts). The firm has manipulated this closing price with their specially designed piece of software, the Hammer. Smart name. But even worse than the name were their quotes on a taped line. My favorite shared wisdom in the legal files remains:

“You should milk it for right now because you never know how long it’s going to last”. 

The key suspects have left the firm (fired). Christopher Dowson, Randal Meijer and Bastiaan van Kempen are banned anyway from trading commodities in the US for eight, four and two years. They couldn’t care less, I suppose.

Optiver on the other hand, is limited from trading in some contracts. Or can’t trade those TAS contracts anymore. The penalty is more or less the same as the provisions in their books.

Coming up next is another networking event, but this time aimed at the present and the future. FOW Events will host the European Equity Options Trading Conference. It will be held this Friday the 20th of April in the Hilton Hotel in Amsterdam. See here for the list of speakers.

With all regulatory impact, the danger of financial transaction tax, exchanges trying to join forces and MTF’s like TOM seriously to take off this year – there is enough to talk about. A lot more than the official name (“equity options”) suggests. Interesting speakers such as Mark Spanbroek, Willem Meijer and Harold Duineveld.

AMX failed

It’s still early to call, but it certainly looks like the AMX options have failed. Markets are wide and trading is completely absent. To ignite trading a different incentive for liquidity providers should be in place. Providing a tight and liquid market should be rewarded with some cash. All Options is working and taking a risk for nothing.

A good year for Flow Traders

The leading ETF trader had a good year. The Dutch office earned 30,5 million. Results of their offices in the US and Asia are unknown – for the company as a whole not much can be said with certainty. But looks good. Also for other firms, it was a volatile trading year with the European crisis and Fukushima.

]]> http://www.amsterdamtrader.com/2012/04/european-equity-options-conference.html/feed 28 http://www.amsterdamtrader.com/2012/04/amx-and-ziggo-options-at-risk.html http://www.amsterdamtrader.com/2012/04/amx-and-ziggo-options-at-risk.html#comments Mon, 02 Apr 2012 20:18:56 +0000 Jack http://www.amsterdamtrader.com/?p=1315 The game has changed, old tricks don’t work anymore. Not for Euronext Liffe, that is. Steadily introducing new options on stocks may have worked in the past, but is currently facing strong headwinds. Don’t expect much enthusiasm for quoting the new Ziggo options.

Market conditions have seen better days. Currently the number of serious market makers is small. Sure enough, all of them want to quote the major stock options and indices. Royal Dutch, ING, AEX. But spending resources on providing liquidity in Ziggo options is another thing. You don’t get paid to take on this risk.

In other words, it wouldn’t surprise me if the introductions of AMX index options and Ziggo options will fail due to lack of interest of market makers. Today, in the second week IMC had to quote the FMX futures, the market was 12 euro wide. And today was the deadline for the market makers to sign in for quoting AMX options.

Euronext Liffe should try something new. Slash the transaction fees and make sure the retail investors benefit.

Update

As expected, none of the large market makers signed for quoting all series as Primary Market Maker (PMM) in these midcap options. Euronext had to call the regular market maker for help : All Options is going to do it. Good for them, hope it will turn out as a succesful product. IMC will be the competitive market maker. Rest of the market couldn’t see any upside potential and stay on the sideline.

Trading starts thuesday the 10th.

For a liquid options market, there needs to be a good market in the futures. This future market in the AMX index will open monday. It remains to be seen wether or not any contracts will trade, as there’s only one market maker ready to quote the futures. All Options, usually available to help Euronext in illiquid derivatives, didn’t return the calls.

Only IMC

Only IMC signed for quoting the futures. The firm who recently acquired a stake in TOM, will probably be asked to quote tight the first days. Because the coming week the option market makers will have to decide to take on the quoting obligations. Without market makers, no market will take off.

BATS

The main contender as an exchange in the cash market, BATS, went public today. The owner of Chi-X had a bad day. A computer glitch at their own exchange blocked BATS’ own IPO.

No time to lose. Introduction of the AMX futures (FMX) will start 26th of March. The option market will open April 10th. As usual, there well be a dozen of competitive market makers and three primary market makers. I’m confident Optiver, Leopark and Caerus will sign for quoting as PMM.

Most of the components of the index have options traded on them. Still, the liquidity may be an issue. Euronext decided to have the market makers quote for a minimum of just five lots.

The rationale for AMX options and futures is simple. Retail investors are fond of the midcap stocks. Enough room for fantasy in stocks such as AMG, Pharming and Aalberts to name but a few. Maybe it could work for the index too.

The other reason is to create a small line of defense against TOM. An index is a registered trademark. TOM can’t legally launch options and futures on the AEX and AMX. Well, they can. And they will, someday. But it would ignite a legal battle in court between TOM and Euronext – which could eventually buy a little time for the old exchange.

Quoting futures. The dividend futures are deserted. Nobody is interested in making a market in these contracts. Even SIG has left the building. Tomorrow, March 9th, is the last day to sign up for quoting the futures. Without futures, there won’t be any option market. Curious who would like to be liquidity provider in the FMX.

The professional market isn’t very interested in the AMX index. Index linked products of any importance do not exist. No ETF’s or warrants of any size. Total assets under management linked to the AMX index is a very, very tiny 26 million. If the AMX options would be hit, the next index options and futures will be the small cap index. For real increase of trading volumes, the transactions fees will have to be axed.

• Source (pdf)

Update – Fee incentive program

Without a liquid market in the futures, there’s not viable option market these days. Remember the good old days with the Top 5 options, an index of 5 largecap stocks? The spreads have changed over the years.

Anyway, Euronext is feeling insecure about market maker support for the AMX options and futures. Liquidity providers will get a fee holiday until October 31th. The rest of the market will have a 50% discount in the fees. That should also reach the retail traders.

There’s a lot of room for more cuts in transaction fees in regular option classes. This time the incentive didn’t come as a surprise. The deadline for signing for liquidity provider for the FMX futures ended last friday. Not much enthusiasm among the market makers, apparently.

• Fee incentive program (pdf)

This means a whole new battlefield with new trading tactics. After ten years of talking, the new tick size adjustment will come into effect on March 8th. That’s a regular thursday, a little more than a week from now.

The reason for this unusual speed of action from the exchange is the new competitor TOM. The contender will start with one cent tick size. The new liquidity providers who have committed themselves to the quoting obligations for the next twelve months didn’t have a say in this.

As a goody for the market makers the quote size in all those option classes will be reduced to 10 lots. That’s weird. Nobody would want to quote for 10 lots, and the depth of the market wouldn’t benefit from this adjustment. Apparently Euronext Liffe isn’t too confident about their own systems. A tick size of one cent means massive price updates. Means technical problems. Like we’ve seen before. The message is clear. Quote for baby size, you won’t get hurt when we screw up.

Wrong decision

I’ve said it before, and will say it again. The transaction fees are too high. For investors and in lesser extent for market makers, the fees are outrageous. Nobody will benefit from a cent better execution, when transaction fees eat your profits.

• Source (pdf)

Rick Santorum is a Republican presidential candidate in the USA. Depending on the outcome of the primary election, he could eventually be running against Obama later this year. I’m used to skip intro and tune in when the real action starts in the States. However, this silly Santorum reached the Dutch press last week – something about the elderly murdered by numbers in this country. The story backfired at him.

His religious conservative views can be characterized as opposed to abortion, euthanasia and even against something as commonplace as birth control. Father of eight children himself. And supporting God, Jezus and families. In addition, he’s also terribly worried about gay sex. In short, not the kind of guy people in Amsterdam take very seriously.

Liquid Capital was founded in 2000 in London by Chris and Gregg Siepman. Having worked for several firms earlier (Saratoga, Paine Webber), they succeeded in building a worldwide market maker. Their positions now and then profit from the pain God causes by natural disasters. Last year the Japan tsunami landed nicely on their Japanese long vega positions.

Apart from the weekly church donations, it was time to thank the Lord in other ways. This is where Santorum enters the picture. The brothers decided to support the Christian Conservative by sending him $50.000. Alas, the American law prohibits the fundraising in politics by foreign individuals or companies. Thanks but no thanks, the fundraising committee returned the cash. Guess the American brothers will have to send the cash personally. Less tax friendly. But well timed natural disasters don’t come for free.

As everyone in de business knows, All Options lost their shirt in 2010. Majority of staff axed,  and the firm retreated to their small office on the Herengracht. Full scale cost cutting. The numbers are in for the personal holdings of the man who flew to close to the sun. Allard Jakobs lost EUR 67,8 million in 2010.

300k per day

His other investments fared better, so All Options lost even more. Say 70 million. That’s a very impressive EUR 300.000 per day (and the weekends are for free). The company was loaded with overhead. Too many oversized offices and too many cash burning folks occupying the desks. But you don’t lose 70 million on overhead. Derivative positions must have been a costly affair.

Tax

But there’s more. A provision has been taken for a tax claim worth € 38,5 million. And this may not be enough. Details are unknown, but the firm has an office in Curaçao. You don’t start a trading desk in the Caribbean for the weather, the proximity hosting or the well educated locals.  A less exotic possibility is a messing around with dividends and short stocks in Germany.

The underdog again

I always fancy the underdog. And hey, All Option is one of the underdogs again. The only way is up. While the tagline “a leading European derivatives trading house” is misleading, Allard Jakobs remains the comeback kid of the market. So don’t be surprised if he hits the jackpot again sooner or later.

• source : Quote (Dutch)