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Optiver – Best European ETF Market-Maker


Optiver is one of the world's largest liquidity providers, operating across time zones employing over 1,000 staff spread across the globe. The four main trading hubs of Chicago, Sydney, Shanghai and the firm's home town of Amsterdam are complemented by representation in London, Hong Kong and Taipei. The firm has been improving the markets since it was founded and it has evolved from its roots as a floor trading firm to become a technology driven power house. Maarten Botman (pictured), head of ETF Trading in Amsterdam, and Matthew Riley, London based UK Institutional Trading, explain that the firm has been trading ETFs since 2005.

The initial foray into ETF trading was to profit from an arbitrage strategy in the product on a proprietary basis but they soon realised that the move from price taker to price maker would better suit the culture and goals of the firm. Botman says: "As a market maker, the whole focus of the company is to be a liquidity provider adding depth to the market and tightening prices for all market participants."

Established in 1986, Optiver now has over 30 years of track record as a successful and competitive market maker. Unlike the new generation of HFT trading firms, Optiver's advanced risk management systems allow them to run substantial overnight positions, subject to their strict risk management protocols, allowing them to be a major player both on screen and in the wholesale market. The firm has set up the trading desk to allow specialists in each area to deal with screen trading, research and analysis, product expansion and wholesale trading.

The rapid growth of the ETF market in Europe over the last few years has seen Optiver commit substantial firm capital to tightening spreads on screens and supporting institutional size trades on a request for quote basis. Botman notes that "When we started in Holland the average investment capital of retailers or small institutional counterparties was half a per cent in ETFs and it was a matter of educating people. ETF providers have done a tremendous job in explaining what their products can do."

Increased liquidity in the product has led to tighter trading spreads and Riley also comments on the competition between providers which has reduced management fees, "Low basis point management fees mean that ETFs are an efficient way to access new markets for a traditional equity fundº especially those who have launched multi-asset portfolios, an ETF also allows them to trade something that fits into their existing back office and risk management systems", he believes that there may be further improvements to come for the investor in this area.

The universe of ETP product continues to expand and the rise of smart beta as a concept and a brand was one of the most notable developments of 2016. Their appeal to the retail investor is clear where they seek to control risk to the downside though Botman notes that this risk control normally comes at the cost of less participation in the upside. Socially responsible investing has also made some in roads and it remains to be seen what new products 2017 will bring, be it from incumbent providers or from new entrants who maybe expected to come to the market this year. 

An ETF product is fast becoming an `must have' for the traditional fund managers and Botman and Riley both expect to see new players coming to the market despite the fact that among the existing providers there will no doubt be some consolidation among incumbents as they look to buy greater market share or dominate certain product areas. According to Botman, the rapid growth of ETFs is destined to continue "What we have seen in Holland is people moving from derivatives to ETFs as more and more money is drawn towards the sector." 

Riley also expects that the changing margin rules on OTC swaps will help boost ETF demand.

The expected growth in the ETF market will come in both in breadth and depth as issuers increase the range of assets covered and seek to customise exposure to particular asset price movements. Increasing complication in the reference basket will see challenges for market makers but Optiver is well placed in its market presence and as an AP with most issuers. They are already making markets in all of the equities in the Stoxx Europe 600 alongside 50 futures across the European exchanges and the significant balance sheet of the firm deployed across the European delta one space means institutional sized ETF trades can be taken down easily. Optiver is committed to their mission to improve the market and welcomes competition as they actively look to build market share by offering the tightest spreads.

Looking beyond the delta one businesses, Optiver is also a cross product market maker for listed options in both the equity and interest rate markets. They use their proprietary cross market spread trading technology to optimise their hedge on any individual trade allowing them to make the best prices possible. This holistic approach means the firm is adaptable and nimble. As the market approaches a MiFID II environment the increased focus on transparency and best execution will benefit the institutional investor and those liquidity providers like Optiver who seek to deliver consistent, competitive and fair prices.

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