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.

Citadel Punks Blackstone – Part 2

"What is to give light must endure burning." - Viktor Frankl “The backbone of surprise is fusing speed with secrecy.” – Carl von Clausewitz   UPDATE 11/21/2019 (bottom of post) Why is it coming out now, apparently months after the talks took place, that Blackstone inquired about buying a stake in Citadel? There are a few reasons we can think of for monetizing coveted equity - or, at least showing enough leg to solicit an updated "mark" on the assets - but, the most likely one has been the same for years: Ken wants to become an investment bank. Ok, so what does Citadel need to become an investment bank that it doesn't already have? Well, given leadership - and, occasional dominance - in listed equity-linked markets by Citadel, the next beachhead for investment banks-in-training is fixed income. And, Citadel-like prowess in fixed income may require lots of technology and smart folk, but the one thing it definitely needs is balance sheet. The next question, then, is: Do you build [...]

By | 2019-11-23T14:57:21+00:00 November 21st, 2019|Alphacution Feed|

Saved By Zero? Virtu’s 30 Quarters of Payments For Order Flow

"The idea of the song is how great it is to get back to zero." - Cy Curnin, The Fixx frontman, in reference to the Buddhist mantra, Śūnyatā Today, Amazon announced that it would be launching cashierless grocery stores in 2020. Immediately, a thought-bubble arose above my head and played a scene from the Illinois Tollway when my E-ZPass battery went dead, and I spent a half hour - the lane I was in all backed up with frustrated travelers - pushing buttons in the vain attempt to cause a person to show up. Just send me a bill for the busted tollgate next time... No, thank you. I don't want to scan and bag my own groceries... I don't want to go fill my own plate at restaurants... And, I don't want to trade in a market that has been sanitized of all intermediaries with a pulse...  Because that's where we're headed; the exact wrong and utterly Simpletonian outline of a "free market," where all levers conspire to deliver [...]

By | 2019-11-21T11:28:15+00:00 November 20th, 2019|Alphacution Feed|

Tower Research Capital: The Joy of Spoofing

On November 7, 2019, the U.S. CFTC (Commodity Futures Trading Commission) announced that it was ordering proprietary trading firm, Tower Research Capital, LLC (TRC), to pay $64.7 million in restitution, disgorgement and penalties for what amounts to the "largest total monetary relief ever ordered in a spoofing case." Apparently, this is all due to activity in equity index futures (at least) between March 2012 and December 2013. Now, this is one of those slippery - and potentially toxic - topics where someone ends up getting pissed off by whatever I say next. But, hey, it's Thanksgiving season, the Arctic blast has arrived 3 months early, and someone's likely to get pissed off anyway... Actually, this is a topic I have much to say about, and maybe even more questions than answers. For instance, why is so much of the spoofing / layering litigation on the futures side? (Is there no spoofing in equities? Or, just harder to find?) And, why does it take so long? We're nearly six years past [...]

By | 2019-11-14T00:18:49+00:00 November 14th, 2019|Alphacution Feed|

Adding Merrill Lynch to Bulge Broker Equities Analysis

As we approach the completion of our initial bulge broker analysis in equities - leaving Citi, Barclays and BNP Paribas modeling among some of the remaining work to be done - today's addition to the thread is none other than the masthead for what used to be known as the "Thundering Herd": Merrill Lynch Pierce Fenner & Smith. Kudos to those of you who acknowledge the oft-forgotten role played by Messrs. Pierce, Fenner & Smith. Anyway, we add this one to the rankings at an unusual time, given that - now over a decade since their shotgun wedding - Bank of America has spent some time and energy in 2019 rebranding all but a few of the Herd's remaining jewels. One impact of this effort will now place BofA Securities, LLC as the group's institutional broker-dealer arm. To wit, from the bank's latest 13F report: "Effective May 13, 2019, the U.S. brokerage operations of Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), an indirect wholly-owned subsidiary of Bank of America [...]

By | 2019-11-13T22:47:14+00:00 November 13th, 2019|Alphacution Feed|

Virtu Financial: Q3 2019 Update #1

“Making mountains out of molehills sells more books than a study of molehills." - Cliff Asness With Virtu's Q3 2019 earnings out this past Monday (Nov 5), but the Q3 2019 13F report coming out next week, we are going to keep most of our powder dry for this one. However, since much of what we are trying to do here is convert new information into new "shapes" - and therefore, take the occasional opportunity to conserve our words - we offer a couple updated pictures. You might draw your own conclusions... One thing's for sure, the concentration of market making and trading related revenue has been notably diluted since the closing of the ITG acquisition in March (2019). More coming over the next couple weeks... Support the Feed! Individual Subscription Options Annual Subscription : $275.00 USD - yearly Monthly Subscription : $25.00 USD - monthly Note: Business credit cards and bank accounts can be used via our PayPal payment portal. Alphacution is in the intelligence business. For those of [...]

By | 2019-11-07T00:11:06+00:00 November 7th, 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 Executive Summary: Case Study on Two Sigma Investments, LP and Affiliates In this 51-page, 61-exhibit case study on one of the most successful quantitative trading firms launched since the dawn of the 21st century  - Two Sigma Investments, LP - Alphacution presents the next in its series of unprecedented reports based on its modeling of many of the most mythological players and impactful themes operating within the current global asset management ecosystem. Of particular note, this report includes a groundbreaking comparative analysis of key strategy parameters between Two Sigma and D. E. Shaw, with additional analytical comparisons that include Millennium Management [...]

By | 2020-01-17T16:48:40+00:00 November 6th, 2019|Alphacution Feed|

Puzzle: Two Sigma and the Sons of D. E. Shaw

"The voyage of discovery is not in seeking new landscapes, but in having new eyes." - Marcel Proust I had hoped to be able to publish the executive summary to our latest case study on Two Sigma this week, however instead, here is one of the more fascinating findings from that research (that we explore in detail in that case study) in the form of a puzzle: In the chart below, Alphacution presents the average stock position by value for the 67-quarter period beginning Q4 2002 and ending Q2 2019 for the four legendary quant managers, Renaissance Technologies, Millennium Management, D. E. Shaw & Co., and Two Sigma Investments. What's fascinating here is how these four leaders, with their core strategies in equities, assembled their portfolios. Four managers with two methods for implementing position sizing; one method based on market capitalization weighting, the other based on liquidity weighting... Which manager is associated with which method? One more thing: If you think this is too deep in the weeds for where [...]

By | 2019-11-06T22:28:28+00:00 October 31st, 2019|Alphacution Feed|

More Bridgewater Associates: Modeling Ray Dalio’s Modeling

"Treat your life like a game." - Ray Dalio In many ways, aspects of this research are like playing a game of "Name That Tune." With a few snippets of data, we try to figure out what's going on with a trading or investment strategy - and by extension, the business strategy, too. Certainly, boosting the signal of a snippet or two of data can be done with contextual evidence; other snippets of data from neighboring strategies and players that help improve the accuracy of our interpretations. And yes, by now, this is all starting to sound a little rudimentary. "Of course. Obviously. Sure, that's been well known for a while..." But, though it now seems like years, it's only been eleven months since publishing our first "Hiding in Plain Sight" post. It's an understatement to say that we've learned a ton in that time because certain components of the landscape - a spectrum of strategies; zones and emerging rankings of competitors among them can now be seen with a [...]

By | 2019-10-30T23:06:40+00:00 October 30th, 2019|Alphacution Feed|

BlackRock, Bridgewater, Citadel: The Decline of Speculation at Scale

"Capitalism has defeated communism. It is now well on its way to defeating democracy." - former HBS professor, David Korten “The most important question facing humanity is this: Can we reach global empathy in time to avoid the collapse of civilization and save the Earth?” - Jeremy Rifkin, principal architect, "The Third Industrial Revolution   "...Bizarre..." and "...inscrutable..." is how one notable content aggregation platform has recently described Alphacution's work (after we maxed out their popularity scores with the articles in question - and while being the youngest research and advisory group to be competing for attention with the likes of the Wall Street Journal, Bloomberg News and the Financial Times, among many others). On that score, I'd say we're punching well above our weight class. But, with this - uh - compliment, it seems like as good a time as any to pause for a minute and perform a few extra Mark 'The Bird' Fidrych moves on the mound before making the pitch for today's (1st Mad Lib here) [...]

By | 2019-10-27T17:22:46+00:00 October 24th, 2019|Alphacution Feed|

HSBC: Considers More Towel Throwing in US Equities

"The Adviser integrates information, computing power and human skill to attempt to systematically extract alpha." - Two Sigma Advisors, LP brochure On October 17, 2019, Bloomberg reports that "HSBC Considers Equity Pullback in London, New York, Germany." We used this as a catalyst to add to our ongoing bank-owned broker-dealer modeling. Here's a review of Alphacution's prior analysis in this space: Alphacution has begun to assemble a composite model on bank-owned broker-dealer operations. Before now, we have conducted the first phase of modeling for: Goldman Sachs & Co. Morgan Stanley & Co. Deutsche Bank Securities, Inc. UBS Securities, LLC Credit Suisse Securities (USA), LLC J. P. Morgan Securities, LLC - formerly known as Bear Stearns & Co. Among the notable players remaining, we still need to add Bank America / Merrill, Citigroup, Barclays, BNP Paribas and likely Nomura, too. In time, we could expand further from there... However, given this latest news referenced at the opening, we now add SocGen's and HSBC's broker-dealer arms, SG Americas Securities, LLC and HSBC [...]

By | 2019-10-24T01:22:57+00:00 October 23rd, 2019|Alphacution Feed|