Traders are still in the dark about when the ASX’s key options trading service will resume, as the prolonged outage puts millions of dollars of investment at risk.
The tailor made combinations (TMC) service, which allows brokers to enter multiple options orders that work together to achieve the best price and reduce risk, remains suspended two weeks after the ASX suffered a full-day trading outage on November 16.
Managing director of Sydney investment firm MF & Co Asset Management Henry Fung said the TMC outage means retail traders are being forced to participate in the market at “obscene risk”.
“A fundamental part of the market is broken,” Mr Fung said.
Options allow investors to buy bundles of shares that must be sold on an agreed date. Risk is reduced by combining and staggering options contracts, through what is known as “legs”.
ASX’s TMC service automates these transactions and settles the trade at the opportune time but the outage has forced traders to make these decisions on the fly as the market moves, losing money for clients.
“It’s an amount of risk that we don’t want or we never wanted in the first place,” Mr Fung said.
Without the TMC service, traders also lose money as market makers have to manually process multiple transactions, clipping a fee each time. “The market makers are taking us to town,” Mr Fung added.
An options trader employed by a large Melbourne firm, who spoke on the condition of anonymity because he was not authorised to speak to the media, said there will be “a big problem” if the TMC service is not back up within the next two weeks which could cost Australian investors “tens of millions of dollars”.
“I’ve been in the options market for 20 years, this is a pretty unbelievable state of affairs that we find ourselves in,” he said. “The big question is how long is the ASX happy to have clients losing money before they fix the problem?”
“It doesn’t sit well with me and I think most advisers are in the same position.”
Meanwhile, derivatives trader Chris Pedersen said purchasing securities through combinations, or spreads, should be a seamless function of the market. “This is truly the backbone feature of the options market,” he said. “If you can’t execute the little things, how can you do the big things?”
An ASX spokesman said the TMC functionality was “at the heart of the software issue” that caused the November 16 outage and would remain closed until a “detailed investigation” is completed.
“ASX is working closely with its software vendor NASDAQ to resolve the issue,” the spokesman said.
“We have been in communication with our trading participants, clearing participants, and market makers since the market outage.”
Large investors can still use the TMC service as they pass the “special size threshold” – 100 or more contracts. “This excludes pretty much everyone except for institutions from executing correctly into the market without obscene risk and slippage,” Mr Fung said. “And we have been given no ETA on the fix.”
The TMC service was last suspended in 2011 in a move that “hobbled” the options market and prompted fury after nine days.
The ASX is being investigated by the Australian Securities and Investments Commission for potentially breaching its license obligations to run a fair and transparent market after suffering its third major outage in nine years.
Source: Thanks smh.com