Partners are leaving Optiver as well, and the prime suspects in the ongoing CFTC case in hammering the oil price two years ago don’t appear to be really working. Hence, Bastiaan van Kempen, Christopher Dowson and Randal Meijer could be excellent candidates for the role as CFO. As earlier noted in the comments, spokesman and legal counsel Steven Schwab has jumped ship and joined arch rival Tibra Trading. One may slightly remember another trading firm which often fired key board members.

Unfortunately the legal battles seem to take ages. No news to report yet on the CFTC or F1 case.

Alphabay, the Van der Moolen spin-off including most higher ranked managers, has been axing their headcount. Approximately half the staff has been laid off, including the general manager. Earlier some support staff were fired in an attempt to cut costs. Alphabay is sharing some facilities with the well reputed broker Aespen; the latter has told two brokers to go.

Last Thursday an interesting article in the national newspaper NRC was published on derivative trading from the trader’s perspective. Interviews with traders from Optiver and Caerus. Trying to get a hold of the text as soon as possible. Here is the piece in original pdf format, page one and page two. Of course all copyrights belong to NRC Handelsblad.

Les professionals from Quote magazine are busy compiling their Dutch top 500 rich list. It would be safe to say some of the Flow Traders will make their entrance on the list, like Roger Hodenius with an expected net worth of 60 million. His former apartment is still for sale.

A well known entrepreneur from the old days, Jan Kluft, has basically left the option trading market for a couple of years. His new activities in the pension market had a “long rho position”, and lost on the low interest rates. Sales team has been fired.

Anyway, this won’t stop Euronext in introducing even more weekly options on single stocks. The lucky winners this time are Aegon, Philips and KPN. Enter the new abbreviations AG, PH and KP. These weekly options will start September 3rd.While it’s hard to imagine a trading volume thinner than the weekly Royal Dutch options, the volume will be not worth mentioning. I’m afraid in a few months time we will be witnessing daily options in Mediq, Wavin and Draka. Introducing new classes is free of charge for Euronext.

Retail investors should stay far away from this kind of low-priced weekly stock options, as the fees will eat all their profits. It’s not the retailbrokers like Binck and Lynx who are to blame for the high transaction costs : it’s Euronext who is reluctant to cut their fee levels for investors. As long as the the transaction costs are out of proportions, the weekly single stock options will remain dead. Euronext runs a smooth operation with one department creating new option classes, and other departments make sure there won’t be any trading at all. Some people within Euronext must hate each other.

Hat tip to this site for noticing. Written by Martijn Kok: a penny stock trader who accumulated over 6% in Van der Moolen shares after the crash. Maybe better known as “Hercules”, who manipulated the stock prices in Cardio Control a decade ago.

Next point. I received an internal memo for all employees of Van der Moolen written by CEO Richard den Drijver two years ago. It’s old, but genuine and an entertaining read nevertheless. All employees must have known, their company was ruled by a clown. A few of his famous lines made it frequently to the comments.

————-

From: +Risk Management [mailto:RiskManagement@nl.vandermoolen.com]
Sent: dinsdag 25 maart 2008 16:49
To: (…)
Subject: FW: Time for Change please forward to those who did not receive it.

Dear colleagues,

On the web side off VDM, we have presented the strategic presentation 2008 which most of you have received with the press release for the year 2007 last week.

Be free to forward this text to the staff members, traders, and brokers who were not copied in.

I and Michiel as board off VDM like to share some further information about the future and the changes we need to accomplice for the next 114 years.

Time for Change

Last week we have had the yearly VDM press and annalist meeting for the year 2007.

The Board of VDM (WE) made the promise to the shareholders to be profitable in 2008.

We also explained that the VDM focus would be three business lines:

1) VDM Trading

2) VDM Institutional brokerage

3) VDM Retail Banking

Partnership’s can only work if WE (all partners/ stakeholders within VDM ) can share and benefit from the success of VDM only than those who are the WE can commit them self to the future of VDM.

First, learn to share, if you cannot share you will never learn to multiple

Important to understand who are WE? We are the stakeholders in VDM being:

Share holders, Supervisory Board, Board, Management, Support staff and Traders/Brokers.

To make the future a success we have to learn from the past

The last 5 years share holders did not make anything the stock went from high EU 30 to

low EU 3 and currently trade on the expectation of zero future earnings why?

When we look to what happened to VDM in the US (the loss of hundreds off millions of dollars). This happen when traders violate trading rules in 2003-2005 ore make serious trading mistakes it was always the shareholder who paid because there are no reclaims on bonuses paid out. When we have to defend the company for those actions and mistakes made by traders all legal bills are paid by VDM Holding again the shareholder. When we facilitate clients (loan desk US 2005) and kickbacks are paid ore other favors which lead to fines by the exchange again it is the shareholders who paid millions off dollars.

VDM is and was not alone in this and the security industry forces exchange regulated company to invest in procedures, controls, compliance and risk departments etc that is a part off working in this industry.

What we have recently seen happening in this industry with banks and brokers go bust, big position losses by traders ore the hiding off position losses to collect end year bonuses, substantial increases in trading margins and increase in cost of capital are leading to more and not less cost off working in this industry. Those off you who think cost related to work in this industry is not there problem and the only cost related to trade is the square meter around them should wake up. It my be that what you want bud this not how VDM can survive ore by the way any organization working in this industry can survive nor can it receive anymore the support of shareholders willing to support this attitude.

On top of that, VDM was and is still not operating as one organization. This put’s huge amounts of additional cost on VDM holding to monitor manage and support all the individual operations. In addition, global membership’s infrastructure and IT knowledge is not shared in other words not all the advances off working for one big organization are not yet in place.

Why not: Because too many participants/ individuals within the VDM group want to have there one ‘’small’’ operation within the organization this feels save and comfortable bud which create a lot off red tape and lost opportunities.

What can we learn from this : When WE as VDM do not work as an team ore as one company bud as individual company’s and within these individual company’s as individual operations where we even within these operations are not willing to share knowledge, support staff, risk, cost, investments and infrastructure there is no future.

I mentioned all stakeholders should participate in the success off VDM.

When we look to Europe in 2007 VDM Trading and VDM Institution Brokerage was a success. Over 2007 in Europe, we paid a total compensation to (only continued business in 2008) to traders off more then EU 40 mio of which was EU 23 mio was paid in bonuses. Contributed to share holders VDM from these European profitable operations was little more then EU 7 mio hardly a fare share of profit distribution between the stakeholders within VDM.

We as VDM Board see VDM Trading and VDM Institutional Brokerage as crucial in combination with VDM Retail Banking this because eventually all Retail bank end users eventually will directly trade with VDM trading ore use the facilities of VDM institutional brokerage. Bud this only will work if trading managers and traders are open to change and are willing to share cost off running these operations. You do not need to be a genius to understand that when the party is a success traders collect more the EU 40 moil and VDM shareholders collect little more then EU 7 mio and when something goes wrong and the party is over the shareholder have to pay (see the 100 off millions in the US ore discontinuing business EU), not an attractive proposition for anybody to invest in.

There are several solutions to make it work bud clear is WE all have to be willing to invest in this future and be willing to part of this bigger successful VDM group and be willing to see WE not as ME because than there is no future for YOU in this.

End 2007 the board agreed with the management EU and US that they would come with a proposal to distribute all cost over the entities and that they would come with a proposal before 1 April 2008 being effective

1 Jan 2008. Cost was only a part of this discussion more important is global trainee trading centers, networks (access to all global memberships), IT, support and capital. Times are changing so the Board will appoint a small task force with representatives from US en EU who will look at the total VDM organization and all it’s aspects and will talk with those responsible to have there input which will lead to decisions in Q2 2008 effective 1 Jan 2008 for the road map for the future and success for WE instead of only ME.

Regards,
——————————————
Richard den Drijver
CEO
Van der Moolen
Keizergracht 307
Amsterdam
1001 GJ

T: +31 (0)20 535 6748
F: +31 (0)20 535 6788
E: rdrijver@nl.vandermoolen.com
W: www.vandermoolen.com

The profits are down the drain, but there’s still some serious revenue generated. 263 million compared to 710 million a year earlier. The heavy overhead is ruining the party. The revenue is broadly the same as in 2006, but this time the costs are 90 million heavier.

Although financially a wasted year, they have been growing in human capital. The year ended with 650 full time employees, up from 527 in 2008. On a steady basis they seem to be expanding with a staff of 100 people every year. I always assumed Kaemingk had a few times more programmers and IT staff than traders, but it turns out 2009 was the very first year with IT personnel outnumbering the traders.

Salaries higher, bonuses evaporated

Let’s combine the increasing head count and decreasing profits to more interesting figures. The average salary was 63.230 per year – or a decent 5.250 per month. A lot more than 2008, with an average salary of 53.500 (or 4.450 per month). This is excluding the limited expenses on social security costs, pension costs and of course excluding the bonus. A total sum of 17,4 million has been paid out, which translates into a tiny 27.000 average. Compare this with the average bonus over 2008 : 179.000. The partners are included in the headcount. Unsure whether or not the board is included in the short term benefits. Looks like the average trader for Optiver didn’t pocket much last year.

Other small details. Investment in TOM has been less than a million, and Optiver is committed to investing in total 1.7 million. And well, the IT equipment is valued at 47 million. Sounds expensive. Maybe necessary when taking pride in trading on 40 exchanges. For those interested, here’s the full annual report. Comments, corrections and insights are more than welcome in the comments.

The volume wasn’t very spectacular, but during a slight sell off in a big expiration the traders have other worries on their mind. Last Fridays sell of was followed after the weekend by a new bargain sale, this time of the option volatility. Strange, after such an ugly Friday.

The ING weekly options were most in favour, trading almost a thousand lots. The pie graph doesn’t really show any real information, just comparing the low volumes in the different weekly stock options. Together the volume on the regular options is more than fifty times bigger for these three weekly stock options (1700 vs 102.000). It’s Euronexts turn to cut the fees, and this trading volume could grow bigger as a result.

Short, completely unrelated, news on Optiver. They made it to the list of top 50 Australian employers, number 35 between mostly unknown and smallish law firms and groceries. Insiders tip Kokomo Capital for next year’s edition. FT Alphaville has put some effort in explaining what Optiver has been doing wrong in their alleged market manipulation with Trade At Settlement futures (TAS) in the USA. Case is still ongoing, though.

Press is reporting the “biggest cocoa trade in fourteen years”, but it’s not that special. Back 2002 the same cacao king Anthony Ward bought 202.000 tons, just a little less compared to the current 241.000. At the time his purchase represented 5% of the world market. He made 40 million in 2002 on the trade. Three years ago Ward was quoted as the chocolate guru : “The world’s not going to run out of cocoa, but they’ll have to pay more to get the right beans”. Most press reports refer to the biggest cocoa trade in fourteen years, but haven’t done any more research. The large cocoa trade in 1996 was done by the firm Phibro, amounting 300.000 tons. In charge of the cocoa desk at the time at Phibro, was nobody else than the same Anthony Ward. Phibro lost money on this cocoa trade by the way, and was forced to unwind their positions.

Bad luck for the cacao farmers, as they have already sold their stock and don’t benefit from the price raise. Fairtrade Organizations are eager to use the public tide against financial markets for their cause. There’s good news anyway for us consumers. There’s not much cocoa in the candy bars. The Tony’s Chocolonely slave-free chocolate bars will witness a steady price level.

I’ve collected the list of the volume on Dutch stock options traded last week, and compared with the traded volume in Amsterdam. Especially in Mittal, Unilever, ING and Philips the relative volume of Eurex is very reasonable. In 2011, or perhaps in 2012, the Dutch options will be scattered around at more exchanges – as TOM trading will be a serious contender.

(I stand corrected, percentages fixed)

This smart move has a few serious consequences. Initially, it is a smack in the face of Euronext. Binck and Alex are representing more than half of the Dutch retail orders, and if ABN AMRO commits itself to TOM, a large share of trading volume on Euronext may be gone forever. It looks like a real exchange. It is quite a surprise, after the initial set-up of sharing the profits between Binck and Optiver.

Next, the new member of TOM makes it very possible for the new multilateral trading facility (MTF) to become a success. Ignoring them and continue trading solely on Euronext isn’t a viable option any more. Majority of trades with a little margin will be executed on TOM. Nobody would rely on Optiver, but with ABN joining the pack, it suddenly looks a lot brighter.

The good news is, the transaction fees will go down faster than usual. On the other hand, expenses for IT systems and connections will soar and will threaten the existence of the small trading firms. Small firms may eventually become serious market participants, like Flow Traders who started small (however, I don’t think Calimero Trading has any ambition to grow big). While joining TOM’s electronic trading pit may be free of charge and the investments in new systems will be huge. Co-hosting the servers near TOM’s exchange somewhere in Scandinavia will be both expensive and probably mandatory. While it’s not a major problem to trade on London’s Liffe Connect from your Amsterdam based systems, connecting to the Nasdaq OMX servers deep in Scandinavia will be a completely different story. Costs associated with this operation would take the small market makers out of business. It’s hard to explain your trading  listed options on a Dutch stock or index, from an Amsterdam office, against other Dutch investors or traders in the Netherlands – over a network in the Arctic polar circle. Feeling old fashioned here.

At the moment TOM Trading isn’t trading anything at all. They have the license to trade stocks and act as a multilateral trading facility, but they’re not up and running yet. Something tells me it shouldn’t be too hard to fix it for single stocks. There hasn’t been a license given for trading options. Earlier on, CEO WILLEM MEIJER suggested option trading on TOM would commence before the summer 2010. The new target is the launch date of the option trading will start before the end of this year. And no, Willem – that is not going to happen either.

All statements in the press release are intended to pressure the other market participants into joining in, which would create a better argument at the financial regulators and other supervisory authorities. A couple of weeks ago Euronext’s CEO CEES VERMAAS already suggested starting a legal court battle against TOM. It’s all in the game.

Euronext should axe the transaction costs for option trading right now. The regulators will probably have to grant permission to TOM for starting the MTF on derivatives – although to protect the Dutch landscape of market makers it should require TOM to move the servers to Amsterdam or London instead of the North Pole.

Original press release TOM Trading (pdf)

Daily numbers are unreliable and distorted, and the total option volume is interesting for other purposes. These are the trading statistics for the last week from July 5th to 9th.