Liquidity Provider Van der Moolen Files Bankruptcy Due To Lack Of Liquidity

In a sign of HFT's encroaching dominance in the market, and the changing equity market liquidity provisioning landscape, Dutch specialist firm Van der Moolen earlier filed for protection from creditors, the European equivalent of a chapter 11 filing. As expected, the monopoly of the "very few" is starting to eat the peripheral players. As the AP reports:

Van der Moolen, once one of the larger "specialists" on the NYSE, ran
into trouble this decade as electronic trading platforms took over
their role.

And for those unfamiliar with the specialist role, here is all you need to know:

Specialists provide liquidity and act as brokers for stocks, bonds and
other securities. Van der Moolen sold its loss-making specialist
operations in the U.S. to Lehman Brothers for $0 in December 2007.

The company was founded on July 1, 1892, by F.J. van der Moolen as a stockbroker, according to the Amsterdam Stock Exchange. It became the No. 4 market maker on the New York Stock Exchange in 2001 after buying specialists including Cohen, Duffy, McGowan & Co. and Scavone, McKenna, Cloud & Co.

Or at least they did until the rampaging advent of HFT and, in more recent days, the creation of such artificial constructs as the SLP.

As to the reason of the filing, Bloomberg had this to say:

Van der Moolen took the step because of slumping revenue, costs related to moving offices, and 30 million euros ($42.6 million) of treasury share purchases in 2008 that had a “too severe” impact on its reserves. The company reported today a first-half loss 8.7 million euros and a 73 percent plunge in sales from a year earlier.

Whether last week's odd market dislocation had anything to do with Van der Moolen's implosion is unknown. One thing is certain: Van der Moolen is merely the first. Liquidity providers are starting to really feel the pain from "alternative liquidity vendors" - expect many more news on comparable small to mid-sized operations, whether in the traditional specialist context or the more modern, HFT M/N quant reincarnation. One merely needs to look at the BGI's market neutral sorry performance YTD, or just look at the HSKAX, which at last check was back to 2006 levels (while collecting 2/20 for the past 3 years mind you), to see what is really going on in the liquidity provisioning arena. In the meantime the ultimate beneficiary, Goldman Sachs, is sitting pretty, aware that there is no chance of it ever being the target of an anti-trust DOJ campaign for having become the liquidity provisioning monopolist (and benefiting quite prettily from this). Or is there?

Comments

[morph366]

I'm sure you meant it ironically but a liquidity provisioning monopolist is an oxymoron.

[buzzsaw99]

It's hard to compete against those who employ gubbermint backed infinite leverage to manipulate markets, and whose losses are shuffled onto the fed's balance sheet. As for the hedge fund investors, do you know when your fund will get a margin call? GS does.

[Anonymous]

Td,

any slp updates?

Txs.

[Assetman]

I would like to know this as well.  Is the SEC going to allow a comment period on SLP this time?  Or is there a chance that someone like Chuck Schumer will send another kind letter to Ms. Schapiro?

[Sqworl]

Digg..The principals were caught up in Specialist fraud under Grasso!

[e1even1]

acquitted by juries.

[Milton]

DOJ --- anti-trust?  Did you mean to say RICO?

[ewmayer]

A better headline would have been "Van der Moolen runs out of Van der Moolah."