Trader Profile: Optiver
Proprietary trading firms typically are introverted entities, with sometimes not even a website to describe themselves. Optiver is moving to separate itself from this norm, increasingly welcoming outreach opportunities with exchanges, regulators, buy- and sell-side firms, and attendees at industry conferences.
For a prop shop, which trades its own money, opening or stepping up dialogue with brokers, trading platforms, rule makers and market observers such as academics and financial journalists can promote understanding of what is needed to maintain fair competition in liquid, transparent markets. Optiver seeks to ensure internal and external safety nets for the trading desk, through risk and compliance, to the post-trade clearing stage.
Recent technology-related disruptions across trading venues and involving multiple firms have highlighted automated trading risk as a pressing industry issue, supporting Optiver’s risk-averse strategic mindset, company executives told Markets Media in a April 29 interview from their Chicago office.
According to Optiver U.S. Chief Executive Sebastiaan Koeling and Head of Market Structure Patrick Hickey, the company dedicates resources to develop and implement standardized frameworks across all channels to establish and lobby for safety checks and technology security.
“Our vision is to make markets more efficient, by providing continuous bids and offers at competitive prices in a wide range of products, on a large number of markets,” Koeling said. Optiver, which has offices in Amsterdam, Chicago, and Sydney, operates 24 hours per day and risks only its own capital, Koeling and Hickey noted.
Intermediation of time, place, and form can enhance liquidity, improve price discovery, mitigate volatility, and reduce transaction costs; Optiver sees these services as its role in the ever more complex and integrated global trading environment.
Founded in Amsterdam in 1986, Optiver is a liquidity provider. The firm’s recent advocacy initiatives have focused on centrally cleared markets and the attendant reduction in counterparty risk, as well as thought leadership on the issue of automated trading risk.
As a market maker, Optiver deploys a high-frequency methodology to access electronic order flows. However, the firm cannot be neatly characterized as a high-frequency trader, as it is also a significant participant in upstairs ‘call-around’ markets.
Optiver builds nearly all of its technology platforms and systems in-house, although they do buy some products from tech vendors to assist with smaller pieces of the puzzle. The firm uses “purely our own technologies and our own traders,” Hickey said.
Optiver’s global staff of almost 700 is comprised of about 40% traders, 40% information technologists, and 20% operations personnel. Executives said the firm prides itself on being nimble with its intellectual capital and moving people, tools, and trading expertise to align with market activity.
Global reach of Optiver spans more than 50 exchanges and trading platforms, where the firms makes markets in a diverse range of securities including equity and index options, exchange-traded funds (ETFs), commodity futures, currencies, warrants, contracts for difference (CFDs), and interest-rate options.
As the first four letters of its name suggests, Optiver’s roots lie in options trading. The name Optiver is a combination of two Dutch words: optie, meaning option, and verhandelaar, meaning trader.
Optiver was founded 27 years ago by current chief executive Johann Kaemingk, who cut his teeth trading equity options on the Netherlands Stock Index. The firm has units in the U.S., Europe, and Asia-Pacific, each with its own CEO and head of trading.
Internal focus is on the core principles of best technological infrastructure, including reliable and low-latency performance; cooperation and connectivity among business operations, IT and trading groups; knowledge and ability to correctly price financial instruments; and real-time risk management.
In the U.S., Optiver is a leading electronic market maker for the Nasdaq 100, Russell 2000 and E-mini S&P 500 contracts, as well as Treasury options on the Chicago Mercantile Exchange. Across the Atlantic, the firm is a key liquidity provider for ETF trading in Paris, Amsterdam, Germany, and London, as well as bond markets in Germany and Italy.
Optiver trades options via major U.S. exchange operators such as Chicago Board Options Exchange, NYSE Euronext, Nasdaq OMX, and International Securities Exchange. The firm has a growing presence in single-stock options, its executives noted.
In a sign that floor traders still have a role in finding liquidity in options markets, Optiver recently placed two traders on the CBOE floor to trade options on the S&P 500 index (SPX). Optiver hasn’t traded a contract on the floor in Europe since 2003, according to executives.
In Europe, Optiver is one of the three most active on-screen market makers in single-stock and equity-index derivatives at Eurex, Liffe, and IDEM. The firm played an active role in shifting an important over-the-counter market to screen-based, more transparent trading by supporting the Xetra bond in Germany, executives noted. Optiver also make markets at London Stock Exchange, Deutsche Borse, and Borsa Italiana.
Optiver’s activities in Asia-Pacific are managed out of its Asia headquarters in Sydney, where the firm employs 200. The firm also has offices in Hong Kong, Taipei, and Shanghai, and makes markets on major cash and derivatives exchanges in the region including Korea Exchange, Hong Kong Exchanges and Clearing, Australian Securities Exchange, Singapore Exchange, Taifex, Tokyo Stock Exchange, and Osaka Securities Exchange, where it is a top-3 market maker in Nikkei options.
For Optiver, previous significant strategic initiatives included a developmental role (with a 25% market share) of the 2007 development of Chi-X Europe. The largest pan-European Multilateral Trading Facility is now part of Bats Global Markets.
In 2010, ‘The Order Machine’ was pioneered as a joint initiative becoming a retail broker and MTF for best execution in cash equities and derivatives market in Europe, with Optiver achieving a 15% market share of traded derivatives product.