Alan van Griethuysen began his career at the European Options Exchange, which merged with the Amsterdam Stock Exchange in 1997. Griethuysen was Deputy Director of the derivatives market, responsible for the floor to screen migration of the Amsterdam options and futures products from 1998 to December 2002.
After the merger that formed Euronext, he was promoted to Executive Director of derivative markets. The acquisition of LIFFE saw him appointed Executive Director of Sales in 2003, and when NYSE Euronext was created, he became responsible for strategic development of the Asian market. In April 2009 he was appointed Regional Business Head. In his current position of Executive Director, he is responsible for Benelux (Belgium, Netherlands and Luxembourg), Germany, Scandinavia, Switzerland, Asia, and also for Business Intelligence and Dutch & Belgium Retail Services. He spoke with Sarah Rudolph of JLN about the history of the Amsterdam Options Exchange and what led to its success.
Q: I was looking at the book you kindly sent us about the Amsterdam Options Exchange, “The Options Exchange at 30” by Frits Beutick, for which you wrote the introduction. The exchange has a long and interesting history. Can you go over the path the exchange took from its beginning in 1978 to its current partnership in NYSE Euronext?
A: We started our market on April 4, 1978, as an association called the European Options Exchange. Over the years, we always kept the letters EOE, but eventually we changed the name to EOE Optiebeurs.
When we started up, we were the first options exchange in Europe. We also offered foreign options classes, in German, Belgian, French, and English names, but in those days if the market makers wanted to hedge in those options they were faced with foreign transaction costs. So those classes didn’t really succeed, and we ended up focusing on the Dutch blue chip names.
In 1997, all the Amsterdam exchanges and clearing organizations –for options, equities and commodities — merged into what was called Amsterdam Exchanges. (The AEX is the Amsterdam index; it stands for Amsterdam Exchanges Index.)
Three years later we merged into Euronext, the first cross border initiative between exchanges in Europe. Euronext covered Amsterdam, Brussels and Paris. We later bought the Lisbon exchange and acquired LIFFE. For branding our names on the derivatives side we were called Euronext-Liffe. Euronext merger with NYSE in 2007, and the brand name for all derivatives in Europe became NYSE-Liffe. The Amsterdam Options Exchange is part of NYSE Liffe.
Q: In your introduction to the book, you wrote that the Amsterdam Options Exchange was the first exchange in the world to introduce long-term options contracts (up to five years). How did this come about?
A: Like all the markets in the beginning, we started off with 3, 6, and 9-month options. We were always looking for new products and innovation to stimulate trading in our products. In those days, the first generation after the Second World War were selling their businesses and suddenly acquiring some money. They started investing that money, buying shares. Our CEO at the time came up with the idea to start with 5-year options so these people could protect themselves from market downturns. The professionals were uncertain about 5-year options, however – for example, how do you calculate the premium on such long-dated options? What happens with interest rates over time? The clearing members were very cautious. It was the retail investors who really made the long-term options successful in the beginning. In today’s derivatives markets there is still much appetite for short terms, although 6% of our volume is in the long term options.
Q: Was the transition from floor to screen at the exchange a smooth one?
A: Yes and no. By the time we went from floor to screen we had about 1,000 traders on the floor. Convincing them [to move to screen trading] was quite a challenge. Also, because we had such a large retail market share, we had to be sure that if we moved to the screen we would have continuous quoting and pricing. Amsterdam was one of the last exchanges in Europe to move from floor to screen for that reason — we had to develop a market model that would guarantee continuous prices.
It was quite a challenge, but we developed a model in which market makers felt confident to make a market in all the series. We went from floor- to screen-trading and still guarantee to all our retail customers (25% of our market) that they can always see our prices. Quotes are the shopping window of an exchange.
Q: The exchange’s educational efforts seem to have been a big part of its success, especially in drawing retail traders. How did the educational programs get started, and what current programs are going on?
A: What happened was that when we started the options exchange in Amsterdam, we were a pilot program from the stock exchange. (They financed the whole thing, but we were an individual association, not a department of the stock exchange.) The stock exchange was looking for a vehicle to bring back volume in the cash markets. They saw Chicago’s success and started an options exchange.
At the stock exchange, the members did most of the education. But no one knew what an option was, so the exchange itself had to educate traders. And in those days the banks were not very supportive of the options exchange, so they did not educate customers on options.
We formed a retail team, which was responsible for all the education. We went out in the country advertising and explaining how retail investors could use options. Eventually they went to the banks asking to trade options. But the banks preferred their clients to put their money into a savings account!” Retail traders said, if I can’t trade options through my bank, I’ll go to a specialized broker. And they moved their portfolios elsewhere. The big banks didn’t like that, so they eventually became active and supportive in the options market as well.
Step by step, the market grew. We still have the retail team and still conduct sessions throughout the country. We go to many universities and secondary schools. We don’t sell a certain product; we only want to educate.
Q: The exchange did some unusual early efforts in publicity, including sponsoring a show horse jumping exhibition on the trading floor. Were those efforts a success?
A: Yes, we did quite a bit of sponsorship. In the early days we sponsored a premier league football team and the national tennis tournaments. We sponsored horse jumping. We didn’t own the horses, but we gave a salary to the jockey and they would change the horse’s name. The first horse we sponsored was named, “Optiebeurs One,” the second “Optiebeurs Two” and so on. So whenever there was show jumping on television, that was our marketing. And it was very successful. After five years we really began to profit as an exchange and developed a good balance between retail traders, liquidity providers, and institutional investors. Currently our market is 1/3 professionals on the central market, 1/3 retail, and 1/3 the professional market.
Q: The Amsterdam options exchange initially learned a lot of the business from the Chicago Board Options Exchange, didn’t it? Are there ways in which Amsterdam exchange deviated from the CBOE model?
A: The big difference I remember is that with open outcry we used the CBOE model, but we chose the trade matching model of the P-Coast. If I remember correctly, on the CBOE the members did trade matching themselves and then got an out-trade report the next day. At P-Coast the matching was done by the exchange itself, and at end of the day all trades were matched in the clearing system so out-trades were greatly reduced.
It’s important that if you look at the Pacific exchange in those days, they were at the end of the US market timewise, so it was very important that they were clean at the end of the day.
Q: What is the percentage of international trading that takes place on the exchange? Do U.S. citizens access your markets?
A: Yes, about 45% of our daily volume comes from foreign market participants. Especially when we moved from floor to screen, because that made it easier for international institutions to trade our markets.
Also, the way NYSE Euronext is structured, we have cross memberships which can be traded all on one platform. So people who might not have thought of trading the Paris market, for example, it makes it easier for them to try trading those products. Lately we have had U.S. participants as well.
Q: What are the exchange’s most popular products?
A: In Amsterdam, equity options and equity index options are most popular. In equity options, we have maturities from one week up to 5 years, depending on how liquid the blue chip is. We just introduced weekly options on the blue chips. The index [AEX] is also very popular with retail traders. And we offer daily options, which expire every day.
If you look at the Amsterdam index, our total average daily volume is about 105,000 contracts. 24% is in daily options, 12% is in weekly options and 64% in other maturities. Daily options in Netherlands are very popular; the average daily volume in dailies is around 500,000 contracts We also have a future on the index, that trades about 40,000 contracts ADV.