OPTIVER PROFIT BENEFITS FROM MARKET VOLATILITY
- By Philip Stafford in London
Optiver Holding, the high-frequency trading and market-making firm, more than doubled pre-tax profit for 2011 as it benefited from market volatility and regulatory changes.
The Dutch group said total trading income for the year to December 31 rose from €377.5m to €622.8m, its highest level since 2008. Net trading income rose 75 per cent to €487.4m, while pre-tax profits climbed from €109.8m to €256.3m, according to its annual report, published on Wednesday.
Improved profits at one of the world's largest market-makers in options by revenues could add further fuel to the debate over the controversial practice of high-frequency trading. Optiver attributed some of its growth to a global regulatory push to move more over-the-counter derivatives trading onto exchanges.
High-frequency traders use computer algorithms to generate large numbers of orders in fractions of seconds, or use other automated trading methods to trade in and out of stocks, options and futures.
Proponents argue it creates better, more efficient prices on markets by exploiting publicly-available information, but critics say it can damage market quality by hurting investor confidence, removing liquidity from the market or even destabilise markets with its speed.
"The exact implications of computerised trading are not well understood," Amsterdam-based Optiver told shareholders. A few weeks after the figures were compiled in March, Optiver was forced to pay $14m to help settle a charge from US regulators that it had manipulated oil futures contracts on the New York Mercantile Exchange in 2007.
The privately-owned group said improved profits came from its expansion around the world and market volatility, particularly last August when sovereign debt fears roiled markets. It also cited the mandate from G20 countries to move more OTC trades onto electronic trading venues to safeguard against systemic risk as a key factor.
"Uncertainty in the markets and potential extensive maturity periods for derivative trades meant financial institutions were reluctant to trade OTC," it told shareholders. "Regulators push to move OTC trades on exchange in order to reduce long-term counterparty risk. These centrally-cleared exchange traded derivatives are a good alternative for financial institutions to counteract their risk exposure."
Staff are entitled to a share of profits totalling €110.6m, compared with €37.3m a year ago.
However, it warned that "2012 promises to be a tough year looking at the current state of the world economy and the effect it seems to be having on the trading volumes across the world."
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