About Paul Rowady

Paul Rowady is the Director of Research for Alphacution Research Conservatory, the first digitally-oriented research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas with specific expertise in strategy research, risk management, and techno-operational development. Contact:; Follow: @alphacution.

Virtu Financial: The Frying Pan and the Fire

"If you are not growing, you are dying." - Tony Robbins On August 8, Virtu reported Q2 earnings and the stock (VIRT) fell 18%. Non-GAAP EPS came in lower than Street estimates. In addition to the costs of integrating the ITG acquisition, disappointing results in the market making segment were blamed on lower volatility and trading volumes. Now, here's what you're never going to hear from the company: The Frying Pan: Both the market making and execution businesses are under significant spread and fee pressure. If there isn't an ongoing arms race for speed - which there still is - then there's intense competition around execution costs. Payments for order flow continue to rise as a result. And, some are exiting the equities brokerage business... 2. The Fire: They claim to be diversified. They try to become more diversified. And yet, they remain grossly over-weighted to equities and ETFs. The increased balance sheet that resulted from the KCG acquisition has not been lightened up, now 2 years later, despite the [...]

By | 2019-08-22T00:42:54+00:00 August 22nd, 2019|Alphacution Feed|

Alphacution Download Library

"The true sign of intelligence is not knowledge but imagination." - Albert Einstein The following downloadable content represent samples of premium research from Alphacution's ongoing mission to measure, model and benchmark the evolutionary impacts of technology on global financial markets and the trading, asset management, and banking businesses they serve. Inquiries on how to establish enterprise subscriptions and access the complete library of premium content should be directed to UPDATED Executive Summary: Case Study on Susquehanna International Group, LLP In this 55-page, 64-exhibit case study on one of the most legendary proprietary option trading firms of all time - Susquehanna International Group, LLP - Alphacution publishes the next installment in its unprecedented Hiding in Plain Sight series that leverages an assembly of publicly-available data and a growing library of models based on some of the most impactful market participants in the global asset management ecosystem today. The complete case study is available to premium subscribers or via individual report purchase. Executive Summary: Deconstructing Citadel Securities In this 55-page, [...]

By | 2019-08-22T00:54:33+00:00 August 22nd, 2019|Alphacution Feed|

Goldman, Morgan, Deutsche: Comparing Bank-Owned Broker-Dealers in Equities

"You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future." - Steve Jobs In a Feed post entitled, "Remembering Deutsche Bank: A Market Macro-Structure Canary?," Alphacution hinted that our modeling of Deutsche Bank Securities, Inc. (DBSI) was really a "first step towards quantifying the ongoing battle between and among bank and non-bank broker-dealers (BDs) and market makers..." Well, perhaps this post is the second step. So, let's briefly revisit why measuring and comparing various BDs at the center of the market ecosystem - otherwise known as the structural alpha zone - might be important: By now, many of you are familiar with Alphacution's asset management ecosystem map and our core hypothesis that since the capacity of alpha is finite, dominant players that operate in closest proximity to sources of liquidity ultimately impact the capacity of residual alpha that is available to be harvested in neighboring sectors of the map, namely the active [...]

By | 2019-08-08T20:48:24+00:00 August 7th, 2019|Alphacution Feed|

According to D. E. Shaw: Strategy Reverse-Engineering Risk

"If you can't join them, beat them." - Mort Sahl In accordance with Rule 24b-2 of the Securities Exchange Act of 1934 (the "Act"), D. E. Shaw & Co., L.P., on behalf of D. E. Shaw & Co., Inc. and their affiliates (collectively, the "Firm"), hereby requests confidential treatment of the information contained in the enclosed Form 13F for the quarter ended September 30, 1998 (the "Form 13F"). Such request is made pursuant to Section 13(f)(3) of the Act, which allows the Securities and Exchange Commission (the "Commission") to prevent or delay public disclosure of information contained in the Schedule 13F. The Firm believes that the information contained in the enclosed Form 13F falls under Exemption 4 of the Freedom of Information Act ("FOIA"), which states that "trade secrets and commercial or financial information obtained from a person that is privileged or confidential" may be withheld from disclosure. In addition, in accordance with Rule 24b-2 of the Act and with Interpretive Release No. 65 under the Freedom of Information Act, [...]

By | 2019-08-09T09:42:12+00:00 August 6th, 2019|Alphacution Feed|

Susquehanna International Group Case Study: Overview and Executive Summary Available for Download

"Research is what I'm doing when I don't know what I'm doing..." - Wernher von Braun Overview The modern capital markets era begins in the mid-1970’s with the emergence and then convergence of three critical factors: derivatives, computers and data feeds. Together, these factors symbolize the birth of the quantitative research revolution and beginnings of trade workflow automation, and therefore, propel the conception of some of the most consequential product developments, trading strategies and trading firms that the financial world has ever known. A subset of the most notable players were the pioneers in the emerging listed option market. In some ways, they were also the pioneers in quantitative research – the “first quant shops” - developing advanced capabilities in the modeling of option pricing frameworks by way of computers and mathematics. Of these, the primary leaders included Chicago’s O’Connor & Associates (OCA), founded 1977; Chicago Research & Trading (CRT), founded 1977; and Hull Trading, founded 1985. Philadelphia was strongly represented by Cooper Neff & Associates, founded 1981; [...]

By | 2019-08-03T10:17:23+00:00 July 31st, 2019|Alphacution Feed|

Ranking Strategy Speed for Top Quants, Market Makers

"When we try to pick out anything by itself, we find it hitched to everything else in the Universe." - John Muir, Mountaineer It's one thing to build models and share insights about specific players in the trading and asset management universe. It's an entirely different thing to perform comparative analysis of that specific modeling to develop various rankings of a community of players. This latter point is precisely where the accumulation of Alphacution's modeling and research is now taking us, and that new level of insight is, frankly, a bit mindblowing. Our previous Feed post that illuminated an apparent anomaly with Jane Street's stock selection strategy was one of our first examples. For this one, we look at a ranking of average stock positions by shares for a selection of leading quant hedge fund managers, market makers and proprietary trading firms.  Now, what's truly fascinating here is if you consider these players in order of average stock position (by shares) you realize that what you are simultaneously looking at [...]

By | 2019-07-29T09:47:18+00:00 July 25th, 2019|Alphacution Feed|

Looking for Anomolies: Lessons from Jim Simons (Video)

“Efficient market theory is correct in that there are no gross inefficiencies, but we look at anomalies that may be small in size and brief in time.” - Jim Simons, Founder, Renaissance Technologies Somewhere along the serendipitous journey, I had the good fortune to spend a flash of time with Jim Simons and a few key members of his team at Renaissance - see Jim Simons, Godfather of the Quants: Hiding in Plain Sight. He is certainly one of the great minds of the modern financial markets era - even if he might confess himself to be as or more lucky than smart - and among a short list of the most successful pioneers of the quantitative trading revolution. Now, one of the most amazing aspects about being in the presence of great minds is that they can shed significant pearls of wisdom so effortlessly, as if in passing. There's no drum roll or squadron of trumpets that precedes the statement of insight. It simply comes out - mixed with [...]

By | 2019-07-24T23:18:40+00:00 July 24th, 2019|Alphacution Feed|

Jane Street’s Twist on Stock Selection

"The real voyage of discovery consists not in seeking new landscapes but in having new eyes." - Marcel Proust Here's a quickie that's likely to raise a few eyebrows, if you're looking through the right lens: One of the greatest dividends that's just now starting to come from Alphacution's expanding library of models is the one that results from comparing a bunch of legendary trading firms with one another. In this case, what we are able to do is use the aggregate value of product class exposures along with total product class positions through time to determine the weighted average implied price of that product class. The obvious product class to look at in this way first is cash equities. In the chart below, Alphacution presents the various time series' of average implied stock prices for each of a selection of some of the most legendary trading firms and hedge funds of all time, including our latest modeling on D. E. Shaw, Bridgewater, Susquehanna, Citadel, Millennium and Renaissance Technologies. Here, [...]

By | 2019-07-17T23:11:34+00:00 July 17th, 2019|Alphacution Feed|

The Legend of David E. Shaw: Hiding in Plain Sight

“Generations of human beings were transformed into machines in the relentless pursuit of material wealth: We lived to work.”  - Jeremy Rifkin, The Third Industrial Revolution Founded in 1988 by former Columbia University computer science professor, David Shaw, above a bookstore in New York's Union Square, The DE Shaw Group is now reported to manage over $50 billion in assets. LCH Investments ranks it as the fourth-highest grossing hedge fund group of all time; among the ranks of the likes of Soros, Bridgewater, and Citadel. It is for reasons like these - and many others - that we have been eager to add comprehensive modeling of the available regulatory data for the main reporting entity, D. E. Shaw & Co., Inc., to our expanding library, and moreover, to our evolving understanding of the global market ecosystem. And, like most - maybe all - of the legendary players, this one is worthy of a deeper case study. We will get there in time. For now, the following are a few highlights [...]

By | 2019-07-17T22:39:45+00:00 July 17th, 2019|Alphacution Feed|

Remembering Deutsche Bank: A Market Macro-Structure Canary?

"I don't want to sell anything, buy anything, or process anything as a career. I don't want to sell anything bought or processed, or buy anything sold or processed, or process anything sold, bought, or processed, or repair anything sold, bought, or processed." - John Cusack as Lloyd Dobler, "Say Anything" Few others have captured our attention here at Alphacution like Deutsche Bank (DB). This phenomenon comes as a result of the collision of two facts: 1) a bulge bracket bank in an ongoing state of radical transformation which 2) has simultaneously provided a consistent level of financial and operational transparency to fuel one of Alphacution's most detailed and illuminating sell-side models. This model - along with our vision of the evolving landscape - has supported the production of a series of content along two inter-related themes: technical infrastructure outsourcing and the strategic communications around headcount shrinkage. Links to each of our DB articles can be found below, and now that some of our predictions are mostly in the rearview mirror, they may prove a more interesting read today than when they [...]

By | 2019-07-10T23:09:40+00:00 July 10th, 2019|Alphacution Feed|