Mar 9, 2017

End of an Era

Interactive Brokers Group, owner of Timber Hill, announced that they will be phasing out their options market operations (link). This is a really a pivotal announcement, that one of the oldest and most established derivatives market making operators is calling it quits. Other options market makers are not doing great either - earlier KCG announced that they are 'shuttering' their options market making business, and from what I hear other firms PL (DB, MS, Citadel) have been stagnant in the last 4-5 years.

IB mentioned that they are not exiting proprietary trading completely " The Company intends to continue conducting certain trading activities in stocks and related instruments." but I really don't understand what exactly are they going to do. Is there a special dividend in the near future for IBKR? Another part of the announcement is re-balancing of GLOBAL with almost doubling of USD share. Is this a good move to be purchasing dollars at multi-year highs? Only time will tell ...

KCG will also continue options trading, although not market making, and I have not hears of any other players exiting the field.

What does it mean for the market? Will spreads widen, or skews become more volatile? Will other market makers step in and profit from the gap? Or maybe there was really no gap - maybe Timber Hill will disappear with a whimper? If you have any predictions please share them in the comments!

2 comments:

  1. Interesting. Does this mean that they no longer wish to remain in the market because "sophisticated, professional synthesizers of short-term fundamental, technical and big data" are dominating the order flows at this point? What do you think is the primary driver of this decision? Refusing to "internalizing" the retail orders doesn't really sound convincing to me. My guess is that both the spread will widen and skew become more volatile.

    ReplyDelete
  2. Interesting. Does this mean that they no longer wish to remain in the market because "sophisticated, professional synthesizers of short-term fundamental, technical and big data" are dominating the order flows at this point? What do you think is the primary driver of this decision? Refusing to "internalizing" the retail orders doesn't really sound convincing to me. My guess is that both the spread will widen and skew become more volatile.

    ReplyDelete