Back
Experienced  · 

Risk and reward within a dynamic trading firm: Insights from Optiver’s CRO Europe

Wouter Frans

In business, risk management is often thought of as a of back-office support function—the department generally responsible for steering a company away from pitfalls and worse-case scenarios with cautionary, arms-length advice. Not at Optiver. In our high-stakes trading firm environment, it’s a core discipline that directly impacts the success of daily trading operations.

As Optiver Europe’s Chief Risk Officer (CRO), I’d like to bring you inside the distinct challenges and rewards of risk management that are specific to our environment.

As a university student 10 years ago, I participated in an event co-sponsored by Optiver: the Traders Trophy, one of 13 national competitions that culminated in a worldwide final where students and recent grads took part in a high-tech stock-trading simulation, diving into the world of international stock exchanges, profits and risks. That engaging look into trading and financial markets sparked my interest in Optiver early on.

I joined Optiver as Junior Risk Analyst, was later promoted to Head of Market Risk, and then to my current role of CRO. As Optiver also supports office transfers, I got to spend some time working in our Chicago office along the way—an invaluable professional experience.

The pivotal role of Optiver’s Risk team in navigating the intricacies of our business means every day is interesting, and every day is different. Whereas traders focus on their particular trading desk, Risk gets to take a helicopter view, looking in more detail at the total risk picture of all trading desks combined—and even more broadly at the risk profile of the organisation as a whole. Having this broader overview allows you to bring in different perspectives to challenge the trading positions and setup accordingly.

There are various risks inherent to trading—they come with the business. Since managing the risks linked to Optiver’s operations is a fairly broad task, we distill them into three main risk areas as the infographic below illustrates: Trading Risk Management (TRM), Automated Trading Risk (ATR), and Operational Risk Management (ORM). I’d like to focus here specifically on TRM, and the key role they play in our successful daily trading operations.

TRM focus on four main pillars. Via automated tooling, they manage the first pillar: Core monitoring to cover the daily risk management of the trading book, with adherence to the limit framework that’s tied to our capital and funding requirements. But even more importantly, TRM discuss the firm’s positions with Trading to provide input regarding the different opportunities and risks that they observe.

Under the pillar of Position, Markets and Events, TRM review the economic calendar in more detail with Trading, to anticipate any potential consequences. Additionally they actively discuss specific events that may occur, in order to assess together any pricing and position impact.Within the Modelling and Framework pillar, Risk works closely together with Research on assessing the impact of pricing model updates on the risk model, and how any change in methodologies could assist both Trading and Risk to draw a better risk profile and further improve decision-making.

The Regulatory capital pillar has taken a more prominent role over the years, consciously evaluating whether the risk/returns of certain trading desks and strategies make sense in light of our capital base, and how to optimise our capital and funding allocation in the most effective way across the trading floor.

To achieve all this, TRM have a broad team of analysts with diverse backgrounds and different specialisations across asset classes and topics. Next to the ever-important quantitative profiles such as people with either a finance background or a particular strength for numbers, we have former traders in the team, as well as people with a strong affinity for technology and scripting. Given this variety, the team can add different perspectives to the problems we’re trying to solve, and equally act as a sparring partner for Trading. The latter is also what makes this role so exciting.

Ultimately the goal of both teams is the same, i.e., contributing to the success of Optiver. While doing that and “thinking along” with the business, the Risk team needs to ensure thatOptiver stays in control via appropriate supervision, with Trading decisions made in a balanced and risk-minded way. To ensure a close partnership that yields the best result, the Risk team is also directly located on the trading floor, which facilitates easier communication and decision-making. The direct accessibility created by sitting only a few desks away from one another is very important in a fast-paced trading setup, where quick decision-making is key.

Having trading experience across different asset classes within the Risk team gives us a better understanding of the markets, allowing us to see where the focus points need to be to improve the risk framework.

Within Risk, we can draw on quite a broad toolkit, ranging from default option greeks to macro analysis, from stress testing to scenario analysis, and from beta scenarios to liquidity assessment to tenor points—all of which result in limit-setting, but also in being able to assess opportunities that may arise, generated by trading.

To support the setup, Risk has a dedicated Risk Technology team that covers core infrastructure and risk-tooling through the technical expertise (think Python) within the Risk team, allowing us to directly develop scripts and risk dashboards. The latter has a direct impact, as you can see your risk analysis or methodology development in production, which will be consumed across the whole trading floor via dashboards.

Many of these methodology improvement projects are also run jointly between Trading, Risk and Research.

At Optiver, Risk is not an afterthought. It operates at the core of the trading floor and features prominently in the minds of both Trading and senior management.

Every six weeks, we convene a risk committee where senior members of Trading and Risk meet with our CEO to establish the default appetite. This close interaction and the “thinking-along” approach with Trading are quite unique, making the Risk role at Optiver both challenging and interesting. No two days are the same and every day offers new and exciting problem-solving opportunities.

If you can see your own skills further strengthening our Risk team, contact Sophia de Rosnay ([email protected]) to get more information. We’d love to hear from you.

ExperiencedLife at Optiver
Insights

Related Articles

  • Experienced, Meet the team

    A finance role unlike others

    As a leading proprietary trading firm, Optiver works to make markets more efficient, transparent and stable across the globe. While our commitment to provide liquidity is continuous and our aim is to be a stabilising force, financial markets and our operations are dynamic. For the Finance Team, this requires continuous improvements in finance processes to stay aligned with evolving market conditions and business strategies.

    Learn more
    Europe, Global
  • Competition, Experienced

    Advent of Code 2023: Clean Code Challenge

    In December last year, Optiver proudly entered its third year as a sponsor of Advent of Code. This annual event, structured like an advent calendar, offers tech enthusiasts from around the world the chance to test and showcase their creative programming skills with a new festive-themed puzzle each day. Our sponsorship reinforces our commitment to fostering technical innovation and a culture of continuous learning.

    Learn more
    Europe, Global
  • Nicolas_Infrastructure_as_code
    Series
    Experienced, Life at Optiver

    Navigating Infrastructure as Code (IaC) in a non-cloud trading environment

    In the high-performance landscape of algorithmic trading, technological infrastructure isn't just important—it's critical. While Infrastructure as Code (IaC) is a well-established practice in cloud-based solutions, its application in non-cloud environments presents unique challenges, especially in latency-sensitive environments like ours at Optiver.

    Learn more
    Global
  • Experienced, Life at Optiver

    Navigating performance challenges as a C# Software Engineer at Optiver

    When we think of market making, we often associate it with low-latency C++ applications. However, many other technologies and programming languages play a crucial role in establishing Optiver as a leading global trading firm, among them being C#. At Optiver, our success is largely attributed to our people. While trading is heavily automated, it is […]

    Learn more
    Global
  • Application Engineer Optiver London office
    Experienced, Meet the team

    A day in the life of an Application Engineer

    The role of an Application Engineer (AE) is crucial to Optiver’s trading operations. The team sits directly alongside the traders, working to safeguard our trading systems. Their role is a balancing act – ensuring an orderly production environment while guaranteeing profitability and sustainable growth. They must navigate the complexity of scaling a distributed system handling […]

    Learn more