<<isn't optimark's demise good news for nite?>>
NITE had a deal with Optimark:
corporate-ir.net
There was a great deal of promise in the minds of many NITE investors in connection with this deal. It was regularly trotted out by the bulls on all boards, including RB's biggest bull, EZ:
ragingbull.altavista.com
"They worked a deal with a company called Optimark (a trading system that allows institutions to place complex “what if” trades) and Nite will become the largest shareholder, just for running trades and providing liquidity for it"
And as recently as last week:
ragingbull.altavista.com
"Hmmm...Optimark Who remembers the Optimark deal? Interesting how this deal has not been mentioned by anyone (Knight, analysts, etc) for quite a while. Knight is quietly kicking ass."
This obsession with optimark was widespread on all boards (including this one).
From the beginning I tried to expose the Optimark hype - I did so in my January response to EZ's post, and then regularly spoke up from time to time, f.ex.:
ragingbull.altavista.com
"Optimark is as yet nowhere near to being an asset to NITE, and I have tried to make this clear for a long time now. Liquidity is part of the problem, and some technical issues as well. Perhaps one day, it will all come together, but again, that's an IF.
Further, what is lost in all this hullabaloo, is what exactly does NITE get out of this? Personally, I don't see it as some giant revenue source.
I get extremely irritated when I see the mindless cheerleaders tick off a long list of NITE goodies like: "options, Easdaq, Japan, Optimark". I am afraid it raises immediate expectations, while underplays the significant obstacles that need to be navigated. Options will be important, but it will take a while to ramp up - they are expanding operations. Arbitrade needs to really branch out into stock options where their market share is miniscule (they concentrate on index options etc.). I spoke about the thinning margins, and the costs of expansion. Easdaq is a joke as yet, and a huge challenge. Japan is a distant dream, and Optimark is also a joke, but a very bad one.
Obviously, the hope is that NITE will hit a 10 with every one of them. Most realistic in the intermediate term is the options business. Easdaq I have severe reservations about - I think it will be a long hard road. Ditto for Japan. And Optimark - a real longshot, with no immediate revenue stream potential that I can see."
So, now the Optimark/NITE deal has been shown up for exactly the bad joke that I predicted it would turn out to be all along. Even worse than KP's 99 prediction of 20-25% sustainable market share for 00. And Easdaq - the first delay is in place, the first blow has been landed to the European plans, and my prediction has already come true - this is not just a matter of the 6 months delay - read the article... it is a question of what happens now that they've missed their moment of opportunity - the landscape has become much more difficult, and in fact there is a real question of Easdaq's very viability (shades of Optimark!).
As to Optimark - I pointed out the liquidity problems that NITE was not able to overcome, and the technical issues. But I also pointed out long ago, that the very reason for Optimark's existance in the first place was being erased by competition from ECNs like ISLD, and so to me, Optimark's demise was a very real prospect:
ragingbull.altavista.com
"But there are very complex conditional orders which many institutions (and some traders) would like to be able to enter and these are impossible today for MMs – that was the whole premise behind the establishment of Optimark (which was supposed to render such services). However, despite NITE’s best efforts, Optimark has serious liquidity problems. However, f.ex. ISLD, can technically be programmed to accept conditional orders, and because unlike Optimark, ISLD has liquidity, it can ironically one day fulfill the original promise of Optimark – in one fell swoop rendering Optimark dead on arrival, and capturing the business (there was great fear from market makers upon the introduction of Optimark).
The reason why the demise of Optimark is not good news for NITE, is because its demise does not result in the elimination of a competitive threat to NITE. The liquidity that would have gone to Optimark does not now somehow revert to NITE - rather it goes to certain ECNs (as I indicated in the quote above), and ATS (like ITG's POSIT) who are NITE's competitors. But it is worse than that - because the way NITE had it set up, was that they perceived the need for certain services (complex conditional orders, institutional anonymity etc.), and so, very cleverly, decided: if we are going to lose that part of the business to ATSes, how about if we get a share of it back through a liquidity deal (the basis of the Optimark deal). Well, now that business is still lost, except they are no longer getting any of it back - the deal dies with Optimark's demise. Worse still, because the flow now goes to ATSes, it enhances their liquidity further, and so strenghtens those competitors.
While it may not appear a big deal short term, this collapse has pretty negative consequences for NITE for another reason: it demonstrates that NITE is having a hard time responding to the ATS challenge. They have struck out twice now: Optimark, and BRUT. I don't believe that longer term BRUT is viable either. I realize that again, cheerleaders on the MBs will disregard this, but IMO, the handwriting is on the wall. The petty share gain is not what matters when consolidation comes. ECNs will not consolidate around BRUT, LOL! Yep, NITE is going to lose their interest in BRUT as well.
And speaking of ATS... well, that deserves its own post!
Morgan |
