Since Flow Traders became a listed company, they released quarterly figures twice. Spotted small errors in both. People make mistakes. Not such a big deal. However, the third mistake revealed on Thursday was a bit ugly.

Not so solid earnings

Wednesday the company announced Q4 earnings which were 30% lower than the previous quarter. They called it a solid quarter. The outlook for the current first quarter is also solid. That’s not good. The market started off quite volatile this year so the outlook at Flow Traders should be more upbeat. Stock dropped. See chart. Leaving the valuation analysis to other people.

Flow Traders announced a €1 dividend. Ex-dividend date on friday May 20th. That’s an expiry day. Relevant for the options listed on Flow Traders.

Juggling with dividend date

A dividend of €1 has a substantial impact on the option prices. After some serious trading and phone calls to the investor relations department, the company admitted they made a mistake. Stock goes ex-dividend on May 23th. That’s after expiry.

Of all listed companies, Flow Traders should definitely know that you can’t juggle with such dates in a press release. You can’t do that. Any trading firm knows why.

* Other news *

DB & LSE. Deja vu all over again

Groundhog Day. Deutsche Boerse to buy London Stock Exchange, again. Don’t ever believe the “merger of equals” fantasy. One may wonder if this is allowed this time. The clearing part of the deal is key.

Assume a deal will be reached. Could make sense to host both matching engines together in the same building in Frankfurt or London. A few firms would have very expensive and very fast microwave connections between Frankfurt and London.

Jane Street

Interesting read in the New York Times about Jane Street Capital. A very succesful and yet not widely known trading outfit. Link.

The post You can’t do that, Flow Traders appeared first on amsterdamtrader.

Less than twenty years ago, a trading jacket and a badge was all you need to trade at the option market. During the open outcry era, youngsters fresh from secondary school showed up in the pit.

Some did remarkable well without a university degree. They started on the trading floor aged 18. For instance, there’s this succesful hedgie, the recruiter and the husband-of-a-celebrity.

Homework at the gymnasium

Short introduction to two guys who haven’t even finished secondary school yet. Almer Staal and Joseph Haanstra from Zwolle Gymnasium decided to write a schoolpaper about high frequency trading.

The curious thing is they decided to go for some interviews for a better understanding of HFT. Don’t know how they did it, but they had coffee with almost everyone in the HFT industry. Everyone was happy to help. They even participated in the FOW Event in Amsterdam last week.

Not only Flash Boys

It’s not an academic piece of work. But it’s good. They didn’t stick to the usual documentaries and Flash Boys. They dug deeper. Most regular journalists could learn a lot from these 17 year olds.

If you’re after juicy quotes from industry captains, no luck. The quotes are gone, as are the names of people who helped them out. Although the family style photo survived. People were helpful, but didn’t have the wish to give national interviews. Can imagine.

Amsterdamtrader.com as source

More than a dozen pages from this website are used as source in their 68 pages work. At times this websites receives attention from great newspapers. However, the idea some people use the content of Amsterdamtrader for a school paper, makes me feel good about myself (seriously). Never remotely considered the possibility.

• Download school paper (2 mb) – it’s only in Dutch

Other news

Teeboom at FIA EPTA

Piebe Teeboom will be the successor of Johannah Ladd as the new secretary general at proprietary trading lobby FIA EPTA. The news was released by the lobby group two weeks ago.
Curiously, Teeboom is from the ranks of the Dutch financial watchdog, the AFM. That makes him at home in the international regulatory landscape. And all the corresponding acronyms (CRD, Emir, Mifid etc). Until April 1st he’ll maintain a low profile without interviews, as he’s still employed by the AFM.

England says no to bonus cap

The Bank of England and the FSA in Great Brittain had another look at capped bonuses. This is proposed under the European rules (capped at one year salary, with lot of restrictions).

The BOE assumed fixed pay will rise, leading to more risk for smaller firms. They told the European Banking Authority (EBA) they won’t comply with the bonus rules. The rules should be proportionate. Hundreds of firms are exempt.

Our island, our rules. In case of a Brexit, we would miss this reasonable island. Just think of Belgium and their destructive speculatietaks. 

Back to the crowd

If you’re getting sentimental of open outcry trading, there’s good news. The annual “floor trading drinks” will be organized again. Cat is currently looking for sponsors. See here for more information. Or ask Cat.

Back in the days the trading wasn’t very efficient. But everyone will agree it looked a lot more interesting. Also always worth a visit Etienne Jong’s archive with hundreds of photo’s.

The post HFT at school appeared first on amsterdamtrader.

IMC Financial Markets released their annual profits and trading income last Wednesday. The trading income rose 12% to €587 million. The net profit rose with the same percentage to €185 million. That’s €20 million more than 2014.

Rob Defares didn’t split up where most of the money was generated. But it’s no secret the US trading business has contributed most to the profit.

Some of the moves in the US have received serious attention in the press. There’s this payment-for-orderflow (PFOF) deal with broker Convergex. And of course in 2014, the move to the big board.

Average bonus €182k

IMC Financial Markets employed on average 520 people last year. The bonus pool for the employees was €95 million. On average that’s €182k per employee. This variable compensation is only 45% of the total salary costs. This means on average IMC staff earned €400k each.

However, average pay doesn’t say much when the distribution is pyramid style. The shareholders Rob Defares and Wiet Pot will receive a €130 million dividend. The Quote 500 rich list will mark them higher again.

Expected more

While a trading income of €587 million a year is amazing – more than €2 million a day – I expected a bit more. See the graph of annual profits on top of this post. 2015 was a great trading year with some heavy swings in the summer. Perhaps it’s just a sign of an overcrowded competitive market. Profits under pressure even with perfect trading conditions.

IMC traders moved to Tower Research

After the bonus day in 2014, a dozen IMC traders left the firm “with a cloud of suspicion hanging over their heads“. They surfaced last year at Spire Europe, which is a part of Tower Research. They are reportedly doing very well.

At Tower Research there’s also a second team of ex-IMC traders in the USA. They hired a trader who received one of the highest bonuses in IMC Chicago (number four on the list).

Market in Optiver’s profit 280-290

Optiver is usually a bigger fish than IMC when it comes to profits. Their figures aren’t released yet. We need some patience to compare the four most visible trading outfits. My market in Optiver’s profit in the meantime is 280 bid, at 290.

No more exchange holidays

More trading days in a year is positive for traders. We’re lucky. Between last Easter and the next one in 2017, there’s only one exchange holiday (December 26th). All other regular exchange holidays are on a Sunday. No half day trading days end of December. At least it’s easy to remember.

The post Decent profits for IMC in 2015 appeared first on amsterdamtrader.

The ETF options in the USA are soaring. While this sounds like a soundbite from ten years ago, it still holds. The volumes in ETF options have doubled in the last five years.

The option volume in the SPY (S&P 500 ETF) is massive. It accounts for nearly half of the total US options volume. Or have a look at these pie charts from Bloomberg Markets.

Source : Bloomberg Markets

Euronext says “me too!”

With this knowledge, it makes sense for Euronext to push for more volume in the ETF options in Amsterdam. There’s just a small difference with the USA. It’s another country. Nobody trades European ETF options.

There are half a dozen options listed on iShares ETF’s in Amsterdam. But it has been a failure so far. The options are quoted by Susquehanna, but are deserted ghost towns. Trading volume is absent, open interest is less than 200 in each of them. The open interest in iShares Japan options is as low as 12.

Weekly ETF options

It’s a success in the USA, let’s just introduce more maturities. Enter the weekly options on the European ETF’s. Per Friday April 22th, the weekly options on European ETF’s will be introduced. That will be another cash cow for SIG. Details from the Euronext notice on Weekly ETF options here.

Optiver having stellar results

The last quoted net profit estimate for Optiver was too low. Refreshed quote is 305 bid at 320 million. I predict 25% higher profits versus 2014. Once again Optiver seems to be growing faster than IMC.
The profits aren’t officially released yet. But there is a serious market in shares Optiver, open for Optiver partners only. The current bid is €2200 for size, which is 10% higher than a few weeks ago. Some 1,44 million outstanding shares, price/earnings multiple of 10 : you do the math. There’s a dividend announced of €130 per share.

Last summer Rob Keldoulis sold a lot of Optiver shares at €1600. Immediately afterwards it was €1700 bid. The Australian is a former Optiver partner and current CEO and founder of Vivienne Court Trading in Sydney.

DeGiro has twitter

Noticed another small flaw in DeGiro’s inhouse matching system. However, the order execution microstructure can be a complex story. Also, I don’t want to publish another negative story on DeGiro. Leave it for somebody else to find and publish.

In other words ; something positive. Since a few weeks DeGiro is active on twitter. Finally. With an account tweeting in Dutch, English and Swedish. Wonderful combination.

The post Euronext “expanding” in ETF options appeared first on amsterdamtrader.

In the fight for the most talented traders and developers, Flow Traders made a surprising move.

From now on, Flow Traders wants to be compared with the Lidl. The discount supermarket. Have to admit I never visited a Lidl store. Maybe there’s something very attractive about working there.

Recruitment portrait

It wasn’t a slip of the tongue from the investor relations or a nasty journalist. It was co-ceo Sjoerd Rietberg who wants to compare his firm with the discount supermarket. And Sjoerd (net worth €30 million) is happy about being the Lidl.

Never knew he did his shopping there. Journalists writing this kind of company portraits (nl) give companies a full say on the content.

You’re welcome

I have a lot of respect for Flow Traders and the people who work there. Even bought some share in the firm. They lack the raw speed, but they compensate this with true alpha. If management wants to be the Lidl – who am I to argue? I can help them out with spreading their new image. You’re welcome!

The post Flow Traders : “we are the Lidl” appeared first on amsterdamtrader.

Both Virtu and Flow Traders had their IPO in the last year. On May 4th both of them released disappointing first quarter earnings. Turbulent markets are good for traders. One could expect these stocks to be stable. When markets plunge, they should be fine. When markets soar, a rising tide lifting all boats. But it doesn’t work like that in the real world.

Flow Traders cut the microwave

Nothing beats the speed of light. But not all light is equal. Fiber optics is the slowest, laser networks the fastest (but hard to make economical). Connection with microwave dishes gives the fastest connections in practice.

Flow Traders had their own microwave network. If you read Alexander Laumonier’s sniper in mahwah, you know it can be a pain to build and maintain such networks. All those towers in the countryside, angry farmers and evil competitors.

Unfortunately, the propietary microwave network became a nightmare for Flow Traders. Spending millions in building the network, but the path between the dishes was too long. Making it a slow and worthless network. Buying off-the-shelf connections from Custom Connect or McKay Brothers gives a faster connection against lower prices.

They put up efforts to sell their towers and dishes. Alas, no buyers here. Though there have been talks of a sale to American buyers. Anyway, the value is written off (€2 million). Saving €1.2 million a year. Both numbers sound too high.

Trading revenue stable

The trading revenue income at Flow was almost the same as last quarter, €64,6 million. Stability is good, but not when you’re selling the story of a growth company. See the trading income graph in the presentation. Management see upward pointing lines in every chart. Other technical analysts see alternative lines.

The results from the Singapore office was much lower than last quarter. The margins came back to earth. No turmoil in China this quarter. Still, reinforcements are sent to Singapore. After a decade, Fieke Korporaal left Optiver to join Flow Traders in the far east.

Margins up in the West

The margins Flow Traders capture increased in Europe and the Americas. That’s a good thing. But it also marks the fact Flow doesn’t compete in the SPY’s of the market. They have no choice but to leave the speed contest to others. The firm had performed good – the stock suffered under sky high expectations and multiples.

Virtu in the same boat

Virtu didn’t fare much better. The stock dropped suspiciously before the figures. And after the earnings release it dropped again. The firm has half headcount of Flow Traders. Still, Virtu earns about twice the profit. Virtu is doing a lot more than straight ETF market making.  For instance, it used to earn millions in FX trading.

Currency trading slump

But the days of easy money for HFT’s in currency trading are gone. And they won’t come back. The landscape in currency trading is changing. Banks are limited in their “last look” possibilities. Last look means a bank has a short moment to contemplate execution of a trade (or say  “nah, on second thought, we’re out” – when market moves the wrong way).

To avoid using last look too often, banks don’t want to trade with smart and fast HFT’s like Virtu anymore. The volumes traded in FX markets are decreasing. And special situations like the CHF don’t occur every year. You could say everybody is earning less in the professional currency trading.

The post Virtu and Flow sink appeared first on amsterdamtrader.

The more hype for an event, the bigger the possibility of a deception. A non-event instead of an exciting trading day. The looming Brexit vote on June 23th is already the grandmother of all high volatility events. Bet this time it will be no different. The July options trade at a big premium.

Exchanges chiming in on Brexit

Another sign of Brexit craze are the exchanges. The Chicago Board of Trade introduced options in the US on the British FTSE index end of 2015. Great for folks who want to trade options in the US on the index in the UK, and pay with US Dollars.

The LSE themselves will join the party. Weekly options on the FTSE will kick off trading May 31th. Just in time. There’s one market maker committed in quoting the weekly’s. As usual, it’s SIG Susquehanna quoting options. Doesn’t matter if there’s volume or not, their systems quote everything (except for the real long tails, though). Source on the FTSE weekly options: Fow (paywall).

Euronext doesn’t dare to quote FTSE options. No license. To participate in the Brexit, weekly options on FTSE ETF’s will be launched. Nobody ever trades ETF options at Euronext. At least they give it a try. No need to repeat who’s the market maker providing liquidity here. Here’s the factsheet. The option code for the FTSE ETF will be ISF. The options will be traded in euro’s.

ATG for sale, founder to retire

Algorithmic Trading Group, ATG for friends, is partly for sale. The Hong Kong-Dutch automated stock trader trades on their five European exchange memberships and through three brokers. They use a C# platform.

Co-founder and majority owner Tom Voute (57) will be retiring in his Dutch castle. The IMC veteran will be spending more time with the family, his garden and his website.

ATG IS NOT VIRTU

ATG employs seven people and has been profitable from the start. Their algo trading is done from the Hong Kong and Leiden offices. There’s also a dormant office in the Americas, on bounty island Curacao. Net equity is €2.5 million, so we’re not talking about Virtu-like valuations.

Jokes aside, this isn’t an advertorial about a guy seeking to cash out on his shares. He wants to sell a part of his shares so another trader can take over the helm. Better yet, bring a delta1 strategy which can trade over the ATG infrastructure.

The post Brexit. Lining up for a non-event. appeared first on amsterdamtrader.

DeGiro needs cash. The discount broker is investing heavily in marketing. Advertising on TV and internet is expensive, and their balance sheet is apparently running empty. I got the hand on a confidential prospectus on a certain DeGiro offering. Showing more colour on the broker.

DeGiro figures

The broker has 100.000 clients. They have spent €7.5 million on advertising to convince people to thrust their money with DeGiro. That’s a price of €75 per customer. On average the money earned after regular costs is €150 per customer per year. On a daily basis DeGiro earns €60.000. That’s €15 million a year.

Balance sheet runs empty

Do the math. Spending 75 to earn 150 yearly is a done deal. But apparently, the balance sheet couldn’t afford more expensive advertising. Selling a stake in the firm didn’t work out. Several private capital firms turned them down (“unprofessional, no figures prepared”).

More debt may not be allowed by the regulator. Selling a stake didn’t work out. Where to look next?

HiQ closes the doors

DeGiro happens to know people with a few million to spare. Investors in HiQ have been losing money for years. Give them a small guaranteed carrot to recoup some losses, and they’ll be eager to switch.

Getting most investors out isn’t the same as closing the fund. HiQ will continue as a tiny fund. Closed to outsiders, it will probably function as a private holding for people behind DeGiro. After all, on  a smaller scale it’s a piece of cake to make a profit trading against the DeGiro retail flow. Running the fund is cheap, all infrastructure costs can be covered by DeGiro.

The proposition

The HiQ investors can switch to “acquisition financing participations”. The money will be invested in advertisements for DeGiro. That’s correct. Investors’ money will be spend on TV commercials. They keep track on the new DeGiro customers. The profit these customers make for DeGiro will be passed on to the investors.

The natural inflow of customers is set at 3000 per month. Say 4000 new customers join, all earnings on a thousand of them will flow to investors. Creative. In reality it’s only a small teaser. It’s a kind of subordinated debt instrument with a maturity of 5 years and a guaranteed profit of 180% and capped at 225%.

Like most financial firms, there are no assets to secure the debt. The profit sounds cool these days. The Rabobank certificates have a current yield of 6%. At least the shareholder in DeGiro promise not to withdraw any dividends as long as this debt hasn’t been paid off including the guaranteed profits. When the LPE (DeGiro, HiQ, Fundshare) group folds, investor lose their money.

NoT ALL PROFITS TO PARTICIPANTS

Not everything DeGiro earns on new clients is passed on to the participants. The money earned with internalizing retail flow is kept within DeGiro. Also the margin on automated currency hedge (“AutoFX”) is kept. Another odd thing is the deal is within the personal holdings of the founders.

According to spokesman Niels Klok, this is because of the capital requirements for DeGiro. Personal holdings don’t have this regulation. What happens when the marketing efforts are a failure is difficult to say. Paying back the money can be postponed forever, but no dividends for shareholders sounds like a fair guarantee.

An alternative could be to cut back in advertising, introduce two-factor authentication, stop juggling with fees and get a serious app.

• Source – prospectus (Dutch only).

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Last year I wrote “Optiver killed it in 2014”. The most succesful Dutch trading firm had a great year. But how to write a headline for their 2015 results? The latest results are nothing short of amazing.

Profits up 60%

The net profit was €395 million in 2015. That’s almost €150 million more than the previous year. That’s a growth percentage of 60%. Rival trading outfits like IMC, Virtu and Flow Traders saw only modest growth. The results for IMC Financial Markets were called “decent”.

Compare the 2015 profits for the mentioned trading firms:

Inspiring annual report

The financial report submitted at the chamber of commerce is hard to read. Looks like papers have been in the washing machine a few times (pdf, but don’t even try). Was about to believe in a farfetched conspiracy theory (deliver unreadable papers to hide company secrets).

But that’s not their style. Here’s the clear and colourful annual report. It’s a good and inspiring read. If you don’t know any better, it gives you the impression they are in the trading business for charity. Improving the market. They don’t mention the Hammer.

No hammertime, but they do mention and thank Luke McElnea. The ceo in APAC was sacked last year. I assumed disappointing profits in the region would have something to do with it. Turns out there has been another issue instead.

Optiver shares ; €2600 bid

Back to the figures. For the first time the trading result was higher than one billion (€1.2 bln). The average pay per employee was €370,000. Headcount went up from 807 to 913 people. There are currently 1.4 million shares Optiver outstanding. The current bid is €2600. That’s €1000 more per share than Rob Keldoulis received for his 30,000 shares last year.

Long term graph

Virtu was founded in 2008, Flow Traders a few years earlier. For the long term graph let’s compare Optiver and IMC. The firms haven’t always been this profitable. Optiver had a tough year back in 2009.

The post Optiver earnings amaze, again appeared first on amsterdamtrader.

Today the European Championship will kick off in France. The Netherlands decided to participate in World Cups only. Saturday the championship will host matches with the national teams of Albania, Wales, Slovakia and Liechtenstein.

More interesting teams show up in the small town of Abcoude. Eighteen teams will battle at the Financial Football Tournament. As always with great weather and sharp organization by Ferry Boekholt from Bennington.

New team from Telstra

New this edition is a team from Telstra. The brokers Lynx and DeGiro employ enough people to send two teams to the tournament. Sponsors are Eurex and Euroclear.

IMC and Euronext couldn’t assemble a team this year. Market Wizards had to attend a wedding in Belgium (cheers!). The bookmakers give Optiver, Eurex (both of them) and EEX the best odds to win the title, with Telstra as an outsider.

• Here’s the playing schedule (pdf).

GTS Europe closed

GTS stands for Global Trading Systems. You can’t make up a more generic name than this. Luckily, they are better at trading than making up company names. The HFT firm is a serious player in the business, trading 3-5% of the US cash equity market. It’s also the largest market maker on the NYSE Floor.

Europe was a bridge too far. Based in London, GTS shared an office with Tibra. Same game room. Tibra is only active in options, GTS only trading cash. Tibra can enjoy the game room all by themselves again. GTS has shut down the European office.

Jamal Tarazi leaves

The European head of the firm, Jamal Tarazi, leaves within a year. Mr Tarazi used to work for Virtu and it’s predecessor Madison Tyler. GTS says the firm remains committed to “growing” its business in the region (link, $).

Sure. That’s a remark to save the reputation. The office is closed, really (err.. update, there is confusion about it). Of course they can continue trading in Europe for a while from their US office.  Until MiFID 2 starts, that is.

Two years ago RGM left the old continent as well.

Last minute update : another source believes GTS still has 15 people in the London office. A spokesman from GTS stated the presence in Europe is still “strong”. However, he wasn’t able to say something clear like “GTS has more than ten people working in the office in Londen“.

ATG stake sold

Speaking of generic names, Algorithmic Trading Group. Recently the majority shareholder Tom Voûte announced to retire in Abcoude (popular town). There has been a lot of interest from a wide range of entities. Half of  the 87% stake in ATG is sold.

Past winners Football Tournament

This is the list of the last 12 winners.

The post Financial Football, GTS and ATG appeared first on amsterdamtrader.

ABN AMRO Clearing Bank is a household name in the trading industry. For trading firms, it clears 2.4 billion trades a year, on 90 exchanges. It’s the largest clearing bank in Europe. In fields as small sized market makers the bank has a monopoly. They would ditch the small clients if they could.

In the world, ABN Amro Clearing Bank (AACB) ranks as the number three (according to AACB). Matter of definitions, difficult to point out the number one and two. With prime brokerage business, Goldman Sachs and Morgan Stanley. With FX there’s Citi and JPM.

From CEO to CFO

Of course, AACB is part of ABN AMRO. But the CEO of the clearing bank isn’t middle management. It has more than three times more employees than Flow. The CEO announced last Friday to leave the bank. Marcel Jongmans will be CFO at Flow Traders. That’s not immediately a promotion. The pay will be a lot better. Though compensation in shares isn’t what it used to be. Stock near all-time lows.

Inside man

The curious thing is Jongmans knows everything about the other customers of AACB. Except for All Options, every Dutch trading outfit is a customer of ABN. Jongmans knows in detail what Optiver and IMC are doing in the ETF space. This raises some eyebrows. Jan Bart de Boer, the current vice-chairman of AACB, will replace Jongmans on ad interim basis. Wouldn’t surprise me if this ad interim changes into regular job as CEO for Jan Bart de Boer.

Dijkstra worth more than Rietberg

At Flow Traders the co-CEO Dennis Dijkstra will lose some of his work to Jongmans. Dennis Dijkstra and Sjoerd Rietberg are both CEO, but Dijkstra received more shares than Rietberg at the IPO. The difference is substantial. Dijkstra received around 250k shares more than Rietberg, or €7,5 million in valuation. Reasonable to expect Jongmans to take over the helm at Flow Traders in a few years time.

Euronext to introduce options on PSI-20

In the land of Euronext, there are two main equity indices to trade. The CAC-40 in Paris. The AEX in Amsterdam, not the most leading index but it comes with a liquid pack of weekly and daily options. Hardly anybody knows there’s an index in Belgium with options too. Not the most spectacular trading in these options. The current open interest is 43.

There is good news for the BEL-20. Euronext is about to launch options on the Portuguese PSI index. Promises to be even more of a ghost town than the BEL. The options will trade in Amsterdam, but the futures trade in Lisbon. Que pena! Assume no market maker will take on all the paperwork for a Portuguese membership. The plan is to introduce the PSI options on June 27th.

New IPO’s, new options

Next week other options will arrive in Amsterdam as well. Following a string of IPO’s, a set of spotlight options will start. All of them will start trading on June 21, two days before the Brexit vote.

• Philips Lighting (already available at TOM, code PLT)
• Intertrust (code ITR)
• Coca-Cola European Partners (code CCE)
• ASR Nederland (code ASR)

Euronext notice on the new spotlight options (pdf). And on the PSI (pdf).

CTC earned $300m in Q4

Rumor has it CTC, Chicago Trading Company, had a record last quarter of 2015. The firm is mainly active in the option trading business. CTC is big in the index options, where it employs around 40 people. With offices in Chicago (duh), New York and London the company has a total headcount of around 350.

The education and training program at CTC is interesting. A chap named Sheldon Natenberg is head educator and partner at the firm. For those interested, they share a recommended reading list on their website (pdf).

They have a great dealing room (see featured image on top). The rumored gross pnl of $300m is their highest ever in any quarter. Volatility in the oil price was the main driver behind the record profit.

The post Jongmans to Flow, CTC record quarter appeared first on amsterdamtrader.

Binck is a premium online broker in The Netherlands. It has a small presence in France, Italy and Belgium. It’s listed on Euronext. Once upon a time, Binck launched attacks on the sleepy old retail banks. Luring customers away from ABN Amro, Rabobank and ING.

Das war einmal. The BinckBank is stuck in a moment, and they can’t get out of it. I predict a profit warning and dividend cut.

DeGiro starts to hurt

Binck’s market is not wat it used to be. Discount broker DeGiro has single-handedly crushed the margins. DeGiro has comparable trading volume, but the contender is satisfied with smaller profits. DeGiro reported €1,3 million profit in the first quarter, while Binck came it at €8,5 million.

Order execution for the retail market is a simple thing. There’s commoditization in the business. Customers will go for the lowest price. Binck operates at a premium price.

No room for a price cuts

In order to compete with DeGiro, Binck should cut transaction costs. But the overhead leaves no room for such measures. Reducing the fees with 50% would create a loss for Binck. The infrastructure of the company is too expensive. They need a lot more flow to leverage their fixed costs, according to the conference call.

This is why Binck doesn’t even gradually lowers the fees. Recently it announced to reshuffle some fees and charge ETF positions with an extra annual fee. Doesn’t make sense. Reshuffling of fees is postponed for a few months. Investors in low cost ETF’s are allergic to annual “service fees”.

Competitor DeGiro has free transactions in ETF’s. According to Gijs Nagel, this is a marketing instrument for them. “Eventually, most people who invest in ETF’s will also do regular transactions which generate a profit for DeGiro”, he added.

Clients just sit there

In the first quarter, Binck complained about market turbulence. This would scare off investors and hurt the profits. The second quarter wasn’t much better. According to the latest Flow Traders press release, the volumes in European ETF’s were down from the first quarter.

In general, “don’t just do something – sit there” is good advice for investors. Sticking with a worldwide ETF beats other approaches, in the long run. But it hurts Binck.

Goodwill at Alex

Alex Asset Management is a crown jewel turned into problem-child. Binck released a press release during the match Wales-Belgium on Saturday night. Alex received a fine of €750k for misleading commercials. That’s adding insult to the injury. Alex Asset Management is a kind of automated trading system for retail clients. The results aren’t impressive. The fine for misleading information gives support to the claims from frustrated former clients (already claiming €4 million).

The assets under management at Alex is shrinking. The fines and disappointing results won’t help. The problem is the acquisition of Alex is still in the books for €140 million. That’s too much for a struggling unit.  If the market cap of Binck is below the bookvalue, an impairment test is required. The stock is trading way below book value, so there it is.

Dividend cut

Binck is a bank, which is an expensive privilege. I don’t know how Italian banks can still pay out dividend, but in The Netherlands you need to make a profit as a bank before you can pay dividends. With a loss resulting of shrinking earnings and an Alex impairment, Binck needs permission from the central bank to hand out dividends.

I assume they will get permission, but it won’t be much.

Profit warning likely

With shrinking earnings from Alex, a serious impairment would create a big loss of the company. The company releases figures on July 25th. A profit warning could arrive every day. It wouldn’t be such a shock to the market, the stock has already been the worst performer this year on the Amsterdam market (-44%).

Even without impairments, the base case doesn’t look good without growth. First quarter came in with adjusted earnings per share of €0,12. The second quarter will be a bit worse, maybe even falling below €0,10 adjusted EPS.  A full year adjusted EPS around €0,40 would send the stock price below €4.

Disclamer : I have short position in Binck. I bought puts and sold calls when the stock traded €5,05.

The post Shrinking Binck appeared first on amsterdamtrader.

The option exchange TOM has been gamed by a trader. The case came the light last week, after a string of suspicious trades in AEX index options. The exchange hasn’t lost any money on the (alleged) manipulation. The burden was for the market makers. It’s a bit of a complicated story for outsiders, I’m afraid.

Basic background

On the multilateral trading facility TOM (“The Order Machine“), options are listed on Dutch stocks and the AEX index. The same options are also trading on Euronext. In other words, there are usually two markets for the same option at the same time. A third option exchange, Eurex, doesn’t play a role in this story.

Stat trades

Banks like ABN AMRO and brokers like Binck are connected to TOM. There is a kind of monopoly, as all orders from these connected brokers are routed to TOM. There can be a better market on the Euronext market in an option. TOM guarantees best execution. It compares the price on their own trading platform with Euronext. TOM explains it like this.

If the client sends a market buy order in an option, and the price on Euronext is lower – it get’s executed on TOM against Euronext’s price. What happens is this:

1. TOM Broker buys the lower offer on Euronext
2. TOM Broker gives this Euronext trade to a market maker
3. TOM Broker executes the client buy order against the market maker on TOM MTF (Multilateral Trading Facility)
4. Market maker ends up with a long position on Euronext, and short position on TOM MTF in the same instrument. Matched against the same price. Market maker gets a small rebate for this service.

We call this a “stat trade“.

Opt out

The next step was to allow market makers to opt out of the automatic hedge on Euronext. Market makers can say, “if there’s a better price for the retail customer on Euronext, we are willing to trade against the customer. No matter the price on Euronext“.

This makes sense. TOM can execute everything on their own platform. Market makers get the trades, and have the possibility to decide between scratching the trade on Euronext or to keep the trade.

As a result, less volume will move to Euronext. The market maker on Euronext with tight quotes will do less trade volume on his quotes. In practice, this isn’t much of a problem for market makers. Apart from All Options, every market maker is active on both exchanges. Euronext isn’t happy.

The manipulation

Jerry gives a sharp offer in an option on Euronext. Then Jerry logs in into his Binck or ABN retail account, and gives a buy order with the same price as his own offer on Euronext. His buy order will be executed on TOM against a randomly assigned market maker. Jerry’s offer on Euronext remains untouched. Jerry quickly withdraws his offer on Euronext.

This is what happened in the AEX options on TOM. Longer dated AEX options have wider spreads. More possibility to game the opt out system. Market surveillance at TOM noted the strange trades last week. They switched off the Opt Out functionality completely.

Where is the money?

How does Jerry make money with this? He could to the same trick the other way around. Scalping a few cents profit. Alternatively, he could game the market makers and the exchange for more advanced strategies. Building a more complex option position against profitable prices.

It’s not easy to make a substantial profit with this manipulation. The fake order on Euronext can’t be too sharp – your order may be executed at a bad price. Only options with a large bid/ask spread can be used. Regular stock options have very tight option quotes, which make them almost impossible to manipulate.

Smoking gun

TOM can only suspect manipulation and report it to the regulator. For evidence, you need the full cooperation of two exchanges and at least two brokers. One of the brokers may be located in another country. Time-consuming.

But there is a smoking gun. According to an official statement from TOM, the manipulation was done while concealing the ownership of the transactions involved. The Dutch watchdog AFM is involved in the matter. Expect follow-up news from the AFM after they identified the manipulator.

Statement from TOM

This isn’t just speculation and gossip. Thursday July 7th there was an official statement from TOM – confirming the issue.

Recently we detected cross market manipulative behavior which could only take place by making use of the specifics of the TOM STAT Opt out functionality and trading access to and knowledge of the Dutch derivatives markets where options with the same contract specifications are traded (i.e. Euronext and TOM MTF). The recent case involved entering orders without a bonafide intention to trade and with the purpose of improperly influencing pricing across markets. This was done in a structured manner, potentially by one or more persons acting in concert, whilst concealing the ownership of the transactions concerned.

Small time crooks

The whole thing with concealing the ownership gives it a weird touch. After all, we’re not talking about millions here. Market makers losing money on strange trades, they will be fast to discover what’s going on. Yes, ripping a few market makers for a few thousand euro a day is possible. But it won’t last long. Concealing identity is a difficult thing to do, especially when there’s money involved.

I know the small time crooks involved will be reading this. The AFM is after you, and I guess you have a few weeks left. Take the plane to South America while you still can. Buy a new identity. Alternatively, you could stay and gamble on the Dutch court failing to understand “opt out” trades.

Disclaimer : the description of stat trades, and especially “best execution” is kept simple on purpose. 

The post TOM has been gamed appeared first on amsterdamtrader.

A lot of words were used to describe the manipulation in the option market on TOM. This market structure issue is a piece-of-cake for insiders. However, normal people can find it hard to grasp. Luckily, we have more colour. The manipulation continued on Monday morning. It was easy to detect.

In short, the kid manipulated the option quote on Euronext. And he traded against this skewed quote on TOM.  Market makers have committed themselves to have prices at least as good as on Euronext.

Bloomberg screenshots

This morning it happened in the AEX Dec 2020 600 call. You can notice the trades with the red arrow. The guy bought €8,75 and sold €9,00 – for eight contracts. That’s a profit of €200 before costs. He did three of those scalps. Earning €600, and let’s assume €120 costs. Making a net profit of €480.

That’s about the same hourly fee a lawyer will charge you. Good luck with that.

TOM Market

Here’s the TOM market in the Dec’20 600 call. The AEX on TOM is called XNL – because of trademark issues. The trades are “opt-out” trades, dependent on manipulated quotes on Euronext.

Euronext market

So let’s have a look at the Euronext market in the same option. Nothing traded at all. With the red circles I marked the bids and offers the kid has entered in the system. Maybe in an automated fashion, as the manipulated bids and offers remained in Euronext book for one second. That’s an eternity in HFT world, but for manual trading pretty fast.

It’s visible he gave a €9.00 bid for 9 contracts. And he traded with a market maker on TOM, who relied on the Euronext order book, in the same second. He pulled his bid. Then he traded the other way around in a bit more than one minute.

This happened this morning. The time in the Bloomberg screenshots is of course from another time zone.

Compliance

The market is manipulated on Euronext. But TOM’s reputation is at stake here. Market professionals understand what’s going on. Most other folks just remember there is “something wrong with TOM”.

TOM isn’t free to comment on the situation. The case is in the hands of the watchdog AFM, which means you aren’t allowed to talk about it. Compliance departments everywhere curb people talking to the press.

So, who dunnit?

With this amount of money involved and naive style of trading, it’s hard to imagine a normal person is the evil mastermind here. Given it’s summertime and the schools are out, it may be a smart kid somewhere. Still, kids don’t see this window of opportunity for fraud. You need some knowledge of the option market and market structure.

The idea to get away with something as obvious as this, is hard to imagine. It almost looks like somebody wants to be noticed.

The post Smoking gun : manipulation in TOM option market appeared first on amsterdamtrader.

Following the IPO of Flow Traders last year, quite a few people have left the company. The younger generation is chained with golden handcuffs to the firm.

The veteran staff, who were around when Roger Hodenius launched his firm, are free to go. They didn’t sign up for buying discounted shares at the IPO. They are already loaded with shares.

Two of the lucky early birds left Flow Traders to start a new venture. Not something completely different, but exactly the same. Building a liquidity provider in the ETF business.

Loaded Flow Veterans start rival

Reymon Tse and Sjak Kuipers launched the new ETF trading outfit.

Sjak Kuipers followed Roger Hodenius from Optiver to Flow Traders. Sjak Kuipers, also known as “mr champagne“, has a small fortune of approximately €30 million. It’s the guy on the front row on the right side in this picture. Nobody saw him before in a suit.

Reymon Tse net worth is €100 million, according to a modest estimate by the Dutch rich list Quote 500 (link, nl). He still owns shares in Flow Traders. With a stake of 3,3% in Flow Traders he’s the fourth biggest shareholder of the firm. Behind Roger Hodenius and Jan van Kuijk (both 14,27%) and Summit.

Reymon has a reputation of being a bit impossible difficult to work with. The AFM made an error in his first name. It’s Reymon, not Raymond.

Not quiet on the eastern front

Reymon and Sjak were directors at Flow Traders Singapore. Wasn’t the most successful unit of Flow Traders. Both guys are wealthy, which comes in handy when building a new firm. This is also bears a risk. It’s common for people to get overconfident after striking it rich (“I’ve got millions, so I must be a genius”).

The new name for their firm is still vague. The non-compete period only recently ended, people are cautious to talk about the matter. I have a clue about the shell company, but the Singapore chamber of commerce is only open for residents. Word is the new company is located in the same building as Flow Traders in Singapore.

Will it hurt Flow Traders?

The risk for Flow Traders seems limited. Having inside knowledge and a war chest sounds as a terrible combination for any new contender.  Yet, actually building a successful company from the scratch is another ballgame. The software, the low latency connections and a professional organization isn’t build on a day.

Q2 earnings on August 12th

Friday Flow Trades will release their quarterly earnings. The second quarter consisted of boring months and an exiting Brexit week. Virtu figures weren’t too great last week. Highlight was Virtu will give JP Morgan access to their infrastructure and technology for trading US Treasuries.

Flow Traders and Virtu have a few things in common. Both aren’t the fastest kids in town. Still, they are hard to compare. Flow Traders is concentrating efforts on ETF’s only, while Virtu is active in more diverse fields of trading.

Disclaimer : no position in Flow Traders, small long position in Virtu

The post Flow Traders veterans launch rival appeared first on amsterdamtrader.

Finally, some entertainment news. It was about time for some juicy gossip. After all those serious posts. This is a scoop : Roger Hodenius will marry celebrity Gigi Ravelli. Hodenius is the big man behind Flow Traders.

Loving Ibiza

The wedding will take place on Ibiza on September 24th. The place won’t come as a big surprise. The couple owns a villa on the island. A chartered airplane will fly-in the guests on Saturday.

On Sunday the 25th, everybody will be flown back to Amsterdam. Only one planeload of guests. This means the wedding will be for close friends only. I’m not on the guest list (yet).

Roger Hodenius

Roger Hodenius (1972) is the co-founder of Flow Traders. After being responsible for ETF trading at Optiver, he quit and started his own trading outfit. With a lot of success. The shares of Flow Traders trade on Euronext Amsterdam. Hodenius still owns 14,27% of Flow Traders. His estimated net worth is more than €400 million. He drives an Aston Martin DBS Volante.

Hodenius has been married before. After he was thrown out of the house in 2013, he lived for a few months in the Conservatorium Hotel.

Gigi Ravelli

Gigi Ravelli (1982) is a celebrity in The Netherlands. She starred in the popular soap opera Goede Tijden, Slechte Tijden. She acted in other television shows and movies (IMDB). Most recently she presented the tv program Campinglife. She won the “boobies of the year 2013” award.

Rumor has it she quit her acting career, because Roger Hodenius wants to stay low profile. And low profile doesn’t mix with television. Her instagram account hasn’t seen activity for three years (but is still worth checking). Roger and Gigi are together for three years.

The blonde on Ibiza

Gigi starred in the movie Loving Ibiza. See the trailer below, she’s the blonde girl. There’s some campinglife in the full movie.

The post Gigi Ravelli to marry Roger Hodenius appeared first on amsterdamtrader.

Almost precisely one year ago the Chinese market nosedived on “black monday“. Dow Jones opened 1000 points lower. The Chinese regulators were uncomfortable with the concept of free markets. The China Securities Regulatory Commission (CSRC) came up with a strange package of measures. The goal was to keep the markets from falling. Selling futures was ill-advised, trading volume dropped 99%.

IMC confirms investigation

All trading firms in Shanghai came under scrutiny. Dozens of traders, investors and journalists were arrested. Police raided offices of foreign trading firms. Everybody is scared of the unpredictable Chinese regulators. Nobody felt like giving public comments about the matter.

Until IMC confirmed to Bloomberg it is undergoing investigation by the Chinese authorities.

IMC fined with 500 million Renminbi

Sources insist IMC Financial Markets is fined with 500 million Renminbi by the Chinese authorities. That’s € 67 million – five times the annual profit of their Shanghai trading operations. A lot of money for regular high frequency trading. To put it in perspective, the profit last year for IMC was €185 million.

The status of the fine is unclear. The spokesman of IMC is Ian Bickerton. He is one of the most highly regarded public relation advisors in The Netherlands. He calls the discussions between IMC and the regulator constructive and positive. Maybe this means IMC can go into appeal.

What IMC did last summer

IMC Financial Markets has been trading in China mainland in a regular “high frequency” fashion. The CSRC turned allergic to speed trading, and sees it as market manipulation. These days it’s illegal to buy and sell the same instrument on the same day.

In other words, IMC probably hasn’t done anything wrong. When selling turns in a crime, every trade is suddenly suspicious. Another household name in the industry, Citadel, is rumored to have $300 million of assets frozen in China.

The post China still knows what IMC did last summer appeared first on amsterdamtrader.

Small news on the transfer season in the trading business. People trading jobs and houses. Big houses in Amsterdam and Chicago.

Willem Meijer to step down as ceo TOM

The tall and likable Willem Meijer announced to step down as CEO of The Order Machine, TOM. He was behind the wheel for almost seven years. Back in 2010 the plans for TOM were fuzzy. It has been a succes, TOM has broken the monopoly of Euronext on the Dutch option market.

Mr. Meijer always maintained to do the job for 5 years. It has been nearly 7 years. By request of the shareholders, he has stayed for a few more months to handle some delicate issues. Still unknown who will succeed him. Willem Meijer will probably surface at some fintech venture.

Remains to be seen how successful TOM is financial perspective. It wasn’t able to stand on it’s own feet. Money flowed from the investors to TOM in the first quarter.

Gaasbeek new MD Flow Traders Asia

Arjen Gaasbeek starts today as the new managing director of Flow Traders Asia. The Singapore office has a headcount of around 45. Former MD Jan Folkert Kunst (aka JFK) left a few months ago.

Gaasbeek started his career as market maker for Optiver. After this he worked for ABN AMRO Clearing in Australia and he was MD at trading outfit Ingensoma. Hiring Gaasbeek and Fieke Korporaal (business development) explains why Flow Traders ceo’s are upbeat about the Asia prospects.

Paul Hilgers buys Amsterdam house

Optiver CEO Paul Hilgers bought a new house in Amsterdam. For a tidy sum of €3,2 million he bought this house. Location is perfect, close to the Vondelpark. And with 372 m2 it’s big for Amsterdam standards. Good to see the CEO living in the city.

There’s just one thing missing. There’s no parking. Mr Hilgers needs to park the car in the street. H/t to Quotenet (nl).

Ivo Geijsen sells Chicago condo

Ivo Geijsen earned a few bucks with IMC Financial Markets in Chicago. The US office has been the cash cow for the firm in the last couple of years. A bonus like this made him one of the richest young employees of the country.

He’s moving back to Amsterdam. But he can’t take this condo in the Trump Tower with him. For sale for $3.8 million, a room with a view. Again, great location. Between the Loop and the Magic Mile. Walk to the office, walk to the restaurants. He paid $2.2 million for the apartment.

What mr Geijsen will do in Amsterdam at the IMC office isn’t completely clear. As head of algo trading in Chicago, he was on the frontline of the latest trading technology and strategies. The Amsterdam office is doing less spectacular stuff.

The post Trading places appeared first on Amsterdamtrader.

Why Geneva Trading bought Toji Trading is a strange story. Both firms are modest compared to the titan of the industry, but the takeover still has interesting details. The takeover was announced three months ago.

Geneva Trading not in Geneva

Geneva Trading is a Chicago based trading firm. It has an office for European operations in Dublin. The firm surfaced once on this website. It had a job opening for a nightshift trader. It’s a medium-sized firm, with a headcount around 125. Geneva Trading won’t ring a bell with most people.

Toji Trading former Bank of America traders

Even less of a household name is Toji Trading. The firm was founded in 2003 by former Bank of America traders in Asia. It has offices in Hong Kong, Singapore and Tokyo. While it also has a small presence in Chicago (and received a CME fine), the firm is mainly active in Asia.

Hanmag Incident

The interesting part of this takeover is in the details. Problems started with the HanMag incident. Sounds like a sea clash in the Vietnam war. HanMag was a South Korean future trading company, founded in 1991.

HanMag released a new trading system on December 12th of 2013. In de KOSPI options market the bank confused calls with puts. Hanmag traded 36.000 contracts against 46 counterparties. Lost $39 million in 143 seconds. That’s losing more than a quarter million per second. I never traded any KOSPI options, but this sounds like mistrades with European standards.

Optiver returned their profit of 600k. Even the founder Johann Kaemingk himself was involved in this decision. Not going for a quick buck, but involvement for the long run. The hammer wasn’t a distant memory. Smaller traders, such as Sebes Befut, didn’t return any money.

Here’s a post from the time, to refresh your memory :  a Knight in the Kospi.

Toji Trading made millions

When witnessing an explosion of trades, the first thought can be “is somebody else wrong, or are we?“. Depending on the level of faith in your developers, traders keep in mind their own firm could be messing up. In the fog of trading. Hence, it was understandable for the Toji Trading risk manager to call for a trading shut down. A bit of panic, maybe.

The senior trader in the KOSPI options book followed the orders.  He turned off his trading system. Watching the trades in the market, he must have thought “screw it, this is free money“. And he silently went back in the market. Picked up some $15 million for the company.

All your bonus are belong to us

The trader ignored the orders from the risk manager, and made $15 million. He was told he shouldn’t expect any bonus from this. The money flowed to the partners of the firm. The partners received a nice dividend. And paid taxes.

Toji sold to Geneva to pay bonus

The trader must have had a specific bonus contract. He sued the company, in the United States. Amazingly, he won the case against Toji Trading. He could successfully claim a bonus of around $10 million. The money already left the company, and the partners already paid taxes.

Toji Trading was sold on June 15th 2016 to Geneva Trading (press release). At least a part of the takeover sum will flow to the former KOSPI trader. Selling the firm was the only way to collect enough money to pay a bonus to a former employee.

The post Why Geneva Trading bought Toji appeared first on Amsterdamtrader.

Hans Pieterse will be the new CEO of the option exchange TOM. When Willem Meijer announced to step down, the speculation about his successor began. Interesting to see Hans Pieterse returning to the industry. He’s an expert in the derivative trading industry, has a great network and rich experience as manager.

Optiver veteran, loaded

Hans Pieterse is a long time Optiver veteran. Nicknamed “Lampje“, he joined Optiver in the early nineties. Not a co-founder, but definitely a shareholder. He was Managing Director of Optiver Europe and head of market structure. As an early shareholder and a career of 20 years with the firm, Pieterse is loaded (50 million bid).

Hans Pieterse is still shareholder of Optiver. This could be seen as a small conflict of interest, with respect to the other shareholders of TOM. However, as Hans Pieterse is widely respected in the industry. The other shareholders (IMC, Nasdaq, ABN AMRO) are probably fine with his ownership of Optiver shares.

Resigned after exit of Van der Kruk

Officially, Pieterse left Optiver in March 2015. Optiver’s CEO Paul Hilgers was refreshing the management at the firm. The old guard were shown the door. Also the CEO of Optiver Europe, Edwin “Joop” van der Kruk, had to go. Hans Pieterse resigned, because he “didn’t have the commitment to go through a process of change at Optiver following the departure of Edwin“. Full quotes in FOW($).

Edwin van der Kruk was succeeded by Jan Bomaars. Bomaars earlier worked 21 years for Goldman Sachs. The CEO position for Optiver APAC in Sydney is still vacant, after the departure of Luke McElnea.

Fenix One

Small other news. The rebels from Flow Traders in Singapore, Sjak Kuipers en Reymond Tse, are building a new firm. But the name was secret. Suddenly, it appears the name of their ETF trading company is Fenix One. And of course, they are hiring.

ABN AMRO Clearing CEO

The CEO of ABN AMRO Clearing, Marcel Jongmans, switched to Flow Traders. It’s difficult to find out who will succeed Jongmans. At first, Jan Bart de Boer seemed a likely candidate to take over the helm at AACB. But that’s definitely not going to happen. Probably, it’s going to be someone from outside the bank.

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