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IB is Refco 2.0!
- Thread starter bsparkyman
- Start date
The options mm is where the equities were 10 years ago. Remember this great story of Knight at the height of the equity boom?
Quote from OldTrader:
Here's a link to the letter on IBs website. Notice the last paragraph. It indicates there may have been 31,000,000 shares dumped right on the close, which skewed the multiplier.
http://www.interactivebrokers.com/download/Eurex_letter_070627.pdf
I think the increased incidence of option losses reflects the increased incidence of deals. Alot of information is floating around out there, some of which in undoubtedly being used improperly.
I don't think any of this creates a "credibility" issue. I don't think IB is unique in having these "option problems". And certainly, how do you turn it into a negative that Peterffy ponied up the $37mm? Your post almost makes it sound like damned if you do, damned if you don't.
For disclosure purposes, I don't own any stock. LOL.
OldTrader
This particular loss wasn't deal related. Not much you can do about info leaks other than scale back, widen spreads, etc. Rather, this looks to be a manipulation -- but, I maintain that it was a risk whichCOULD have been identified with proper scrutiny of the exchange rules on how the options are adjusted, and, in a better scenario, that should've led to a scaling back ahead of the ex-dividend date.
I do confess to always being a stickler when it comes to market rules, liquidity, and other micromechanics. Even on small trades, you can still get caught up in the rip tide if you don't know to watch for it.
It appears that Thomas Peterffy purchased the loss so that he can personally prosecute those who caused it. He is going after them and that is much easier to do, when personally, rather than corporately - you don't have to file everything with SEC/Edgar. And of course, there are the "German secrecy laws".
I wouldn't bet against TP recovering the 37M plus damages on this one. It looks like someone broke German law.
http://edgar.sec.gov/Archives/edgar/data/1381197/000110465907052475/a07-18092_1ex10d1.htm
I wouldn't bet against TP recovering the 37M plus damages on this one. It looks like someone broke German law.
http://edgar.sec.gov/Archives/edgar/data/1381197/000110465907052475/a07-18092_1ex10d1.htm
Quote from edgar.sec.gov/IBKR filing 7/5/2007:
On May 3, 2007, Altana AG, a stock in which the Seller is a Registered Market Maker, declared a special cash dividend of EUR 33.00, which amounted to about 74% of the companyâs value. On the Deutsche Boerse Exchangeâs XETRA trading system, closing stock prices are determined by a dayâs end auction. At the closing auction, 31 million Altana shares, which amounted to 44% of the true float, traded at an artificial price that was approximately 25% below the regular trading sessionâs final price ex dividend. The Seller believes that this artificial price was set by buyers and sellers who unlawfully colluded to manipulate Altanaâs option prices.
The closing auction price of the Altana shares was used by the EUREX, to calculate a new set of contract parameters for the outstanding options. Since the Altana closing stock price was artificial, its dependent option strike prices and contract multiplier were also artificial and not calculated to reflect values corresponding to the change in the value of the underlying stock. Accordingly, on May 4, 2007 and thereafter, the Sellerâs market making options positions were affected by the artificial closing price of May 3 and were mispriced. As a result of this manipulation, the Seller suffered a position loss over the ensuing trading days amounting to approximately the amount of the Purchase Price. The Seller has been advised that other Altana market makers suffered substantial losses as a result of this manipulation.
The Seller has reported this manipulation to, and met with, the German Federal Financial Supervisory Authority, the Bafin, and the Bafin has undertaken an official investigation of the matter. The progress of the investigation is subject to the German secrecy laws. On completion of the investigation, the Seller believes that it will have a number of claims, choses in action, judgments and remedies against those who participated in the market manipulation. The Seller has also filed a petition with the EUREX to change its rules so that a manipulation of this sort will not happen again.
Options market makers gladly take your money when typically 80% of options expired worthless. It is interesting how they resort to lawsuits when they lose a position eventhough they are the ones setting the pricing of options. It seems like a lack of hedging on their part in this and prior cases (hint, buy or sell the underlying stock if you have too large a position in naked options). If you can't even manipulate the options prices (by setting the price as a market maker) and make money, you shouldn't be in the trade. Get over it Peterffy and IB. That said, so far IB does not appear to be another Refco.The activity happened in shares of German company Altana (nyse: AAA - news - people ), which had declared a special dividend early in May to coincide with the sale of its pharmaceuticals division. On the ex-dividend date, 31 million shares, or about 44% of Altana's outstanding shares, crossed the electronic Xetra market. The price dropped 25%, pushing the price of the related options "into the money." Interactive Brokers, as a market maker for Altana, ended up on the wrong side of those trades, to the tune of $37 million.
Altana's shares recovered the next day, shooting up 64% after those who sold the previous day to avoid the taxes on the dividend payment bought up shares.
Interactive Brokers claims traders "unlawfully colluded" to manipulate the stock.
It's not the first time Interactive has claimed market manipulation is costing it money. In May, after its highly anticipated initial public offering, the firm announced a $25 million loss as a result of being on the wrong end of trades. The trading activity suggested some were taking advantage of non-public information in advance of major corporate announcements.
Several other options market making firms, including closely held Peak6 in Chicago and Goldman Sachs (nyse: GS - news - people ) in New York, have complained that possible manipulation is cutting into revenues. There are a limited group of such firms, but they control about 44% of trading, according to Options Clearing Corp. As the name implies, options market makers arrange orderly trading in options between buyers and sellers. When a client goes to sell and there is a lack of buyers, the market maker puts his own firm's capital at risk to make the trade. When a customer wants to buy and there are no sellers, the market maker pulls from his own firm's inventory.
....
Interactive Brokers went public in May in a Dutch auction IPO, pricing at $30.01, and closing at more than $31 on its first day of trading. It is now trading around $25. Chief Executive Thomas Peterffy, who founded the firm in 1977, owns about 85% of it, but plans to reduce that stake by 12.5% each year for the next several years.
I have compiled a video that I took of some irrate shareholders storming TP's home up in Stamford. Luckily, TP was in Manhattan at the time. The police came and just watched because they had gotten in on the IPO too through Sharebuilder.com.
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<embed src="http://www.liveleak.com/player.swf" width="450" height="370" type="application/x-shockwave-flash" pluginspage="http://www.macromedia.com/go/getflashplayer" flashvars="autostart=false&token=3f0_1183505098" scale="showall" name="index"></embed>
The claim that IB is another Refco is, I think, one that could only be made by a person who is not only ignorant, but who is also so extremely ignorant, that he doesn't have the ability to recognize his own ignorance. The person promoting this claim, and who started this thread, either had some improper motive for damaging IB's reputation, or he is just simply a fool.
IB Chairman Peterffy's act of covering IB's loss, in this situation, is ground for praise, not criticism and not suspicion. It short-circuits any conceivable accusation that IB's possible negligence harmed its shareholders.
IB Chairman Peterffy's act of covering IB's loss, in this situation, is ground for praise, not criticism and not suspicion. It short-circuits any conceivable accusation that IB's possible negligence harmed its shareholders.