The end of TOM

After about 8 years TOM will be closed down.  Launched in 2009 by ABN Amro Clearing, Optiver, IMC and Binck its main purpose was to drive down costs by offering a competitor to the dominant exchange Euronext. This goal was achieved and it created a healthy market share in options. As a stock exchange though, TOM was highly criticized by de Giro and did not attract enough flow to be successful so it shut down it's stock trading part in 2015.

By September 2016 the founders found themselves with a venue that had served itÅ› main purpose and unable to further develop a sustainable business strategy beyond that goal. The shareholders tapped Optiver veteran Hans Pieterse to attract a strategic partner to ensure a bright and profitable future. Apparently none was found, so all that is left is winding down and transferring positions to Euronext, This process will take about 1 month.

The demise of TOM shows a couple of interesting points. First, the viability of operating at lower margins; it's all good and well to drive down competition but without a long term vision it will never be more than that. Second, exchanges need healthy margins to pay for product development, innovation and tougher times ahead. Fees, and price hikes (even when already being profitable) may seem exorbitant but it's not driven merely by shareholder greed. Participants depend on exchanges to develop 'the next big thing' and that simply does not come cheap. Third; alliances have an expiry date, or more specifically an expiry moment. The financial industry will always stick to the credo 'If you want loyalty, get a dog'.  The alliance between a market maker, a broker, a clearer and a technology provider could only last as long as it was useful for all parties involved. No-one in this industry is running a charity business for the others, nor should anyone expect that.

That all leaves to wonder what Euronext will do next. It lowered fees to become competitive, it went into a strategic partnership with deGiro. WIth Binck as their 'renewed' client the latter partnership would likely be a constant point of discussion and concern. And fees?....