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 techno-operational dynamics, and the business impacts of those decisions, in and for the global financial services (FSI) ecosystem. He is a 30-year veteran of the proprietary, quantitative / automated and derivatives trading arenas with specific expertise in strategy research / implementation, risk management, and technology development. Contact:; Follow: @alphacution.

Virtu Financial: More Acquisitions on the Way, If…

When we launched our first trading program at Quantlab in the late 90's, we didn't have direct market access yet. We generated an order list (overnight) that was worked throughout the subsequent market session at the discretion of an algo-equipped executing broker; some of whom now roam the halls at Jefferies / Leucadia. This was the era when 1- to 3-day portfolio turnover was considered fast - SOES bandits were still a thing - and Schwab would soon acquire electronic trading pioneer, CyBerCorp, from Philip Berber - a short drive down the road from our Houston headquarters in Austin, TX. Of course, everyone had nicknames then - as I suspect they still do now. Ed Bosarge, founder of what eventually became Quantlab (after at least 3 prior related incarnations that began for me around 1996), was known as Dr. Evil. Let's just say it's a hair-raising story about a swashbuckling pioneer of applied math involving a hideous toupee... I was known as Mr. Bigglesworth - or, "Bigsy" for short. No [...]

By | 2018-04-25T21:44:49+00:00 March 27th, 2018|Alphacution Feed|

Nasdaq and the Case of the Missing Market Data

In late April 2017, we noticed a new string of dominoes falling at the fast, automated end of the trading spectrum: With Virtu about to gobble up KCG - not to mention additional consolidations of principal trading groups like RGM Advisors (to DRW), Timber Hill (to Two Sigma) and Chopper Trading (to DRW), among others - it seemed pretty clear that one of the next dominos to fall would be in the direct-feed market data space. The question was: To what degree? (See: "Nasdaq Under Virtu Market Data Axe," April 28, 2017) And yet, when we went back to look - via updating our Nasdaq model - this picture showed up: As Paul Harvey used to say: "...And now the rest of the story..." Obviously this trajectory is the opposite of what was expected. Better yet, in a dictionary somewhere is this chart - at least, of late - next to the words, "fairly smooth sailing" or "strong growth." Over the last few years, data products (and the growth in [...]

By | 2018-03-27T21:44:23+00:00 March 22nd, 2018|Alphacution Feed|

Alphacution Riffs Ep 1 – Technology Strategy is Business Strategy

Alphacution is proud to launch its video series, Alphacution Riffs.  Not only bringing our clients new levels of intelligence - by quantifying and modeling and benchmarking the critical interplay between technology capital and human capital - for their digital transformations, we are "eating at our own kitchen" by leveraging tools and methods of the era to help make our research - and seemingly complex topics - much easier to understand. The digital media landscape is a jungle - and we are not trying to compete in a popularity contest. However, in order to be successful, we do need to consistently identify our best audience and then consistently grab a slice of their attention. Therefore, if you find the visual interpretation of what we are doing with traditionally dry and sometimes in-the-weeds research - like the website stylings and now the video series with its combined Rock n' Roll and Silicon Valley sensibility - to be a bit different, please know that it is entirely on purpose. Sure, it would be [...]

By | 2018-04-21T15:10:30+00:00 March 14th, 2018|Alphacution Feed, Video|

“Quote Stuffing” and the Collective Intellect

~ This post is a continuation of Decay of Knowledge, Rise of Tech Debt ~ Unless you are among the short list of folks with detailed understanding at the crossroads of financial market microstructure and highly-automated trading, the term quote stuffing might not ring a bell. But, since the concept behind this loaded term is germane to the points I want to make here, it is worth taking a moment to wrap your head around the basics. The parallels between the kinds of shenanigans that go on inside financial market microstructure and the emerging study of the "attention economy" or an "attention market" are fascinating. First discovered by Nanex in 2010 (shortly after the Flash Crash), quote stuffing is an automated trading technique that is used to flood trading infrastructure - namely, "matching engines" and the surrounding connectivity - with quotes that are then quickly cancelled. The goal of this strategy is to spike data flows to a point that surpasses the bandwidth capacity of the target trading infrastructure. This [...]

By | 2018-03-14T21:58:31+00:00 March 13th, 2018|Alphacution Feed|

The State of Speed: A Virtu-KCG Post-Mortem

When the deal between Virtu Financial and KCG Holdings was announced in March 2017, we offered the following read of the motivations behind the announcement: Average daily adjusted net trading revenue for Q4-2016 has returned to levels not seen since late 2013 / early 2014. Chances are quite high that persistent low volatility during Q1-2017 has caused these figure to fall back to pre-2013 levels. A situation like that needs a good distraction; something that can change the narrative and allow for lots of financial restructuring and restatements.  Voila! Try to take out one of your nearest competitors… Now, with the deal completed as of July 2017, and Virtu now reporting full year 2017 highlights, we took some time to update and combine our Virtu and KCG models. Here's what's notable about this latest update: The combined financials show some signs of improvement (or, at least, stabilization), however, the market landscape has continued to deteriorate: Over the 28-year life of CBOE's volatility index (VIX) - aka the "fear gauge" - 2017 [...]

By | 2018-03-25T16:18:31+00:00 February 8th, 2018|Alphacution Feed|

Decay of Knowledge, Rise of Tech Debt

Has (information) technology made us smarter? And, are there costs that counteract - if not, neutralize - the perceived benefits of technology? Given the intangible and elusive nature of the impacts, plausible answers to increasingly common questions like these usually defy placement into an analytical framework. This post is our attempt to begin to overcome such impediments and be as objective as possible about the full range of impacts from technology, whether the use case be personal or institutional. The Digital Attention Crisis Our hypothesis on the decay of knowledge and the rise of "tech debts" is based on the idea that knowledge decay in the digital era is influenced by the following chain of logic: The capacity of (human) attention is, at best, inelastic - both individually and collectively; The proliferation of technology into all aspects of our lives represents an increasing source of distraction, noise, and "overhead" - collectively known herein as technology debts; The payment of tech debts is likely to increase in tandem with the increasing [...]

By | 2018-03-14T15:36:06+00:00 January 22nd, 2018|Alphacution Feed|

Bulge Bank Headcount Index – Q4/2017

Though still tracking at levels last seen in early 2007, Alphacution's index of "bulge bank" headcount - updated through year-end 2017 - continues to walk a tight rope of relative stability as it has continued to do so for most of the past 8 quarters (see exhibit below). This news also seems to track with the prevailing belief and commentary that the US economy is in relatively good shape - if not, at least, stable. As always, a look into the details - and specific banks - yields a more vivid story: For starters, and including Wells Fargo & Company (WFC), 5 of the 10 banks in this analysis are within 5% of their maximum headcount over the past 45 quarters. (Goldman Sachs and RBC are within 1%.) Meanwhile, with the index down approximately 150,000 employees from its high water mark in mid-2011, Citigroup and BAML have shrunk by 166,000 and 81,000, respectively, from their maximums. Rankings of individual bank headcount indices can be found below... WFC, the largest US [...]

By | 2018-02-28T16:29:07+00:00 January 16th, 2018|Alphacution Feed|

In Support of Digital Content…

I have wanted to add these thoughts to our Feed for a long time: Though I suspect that nothing of value seems easy to accomplish these days, being a knowledge worker and content developer seems especially difficult given that the bar for being a content developer and, at least, pretending to be a knowledge worker has never been lower. It has become all too easy to become a producer of content given the tools and interconnectivity of the digital era. This state of play is somewhat paradoxical in light of the fact that knowledge, experience and creativity are the least likely categories of work to be automated away anytime soon. So, in order for knowledge work and content development to be economically viable these days, business models and consumers of digital content are going to need to change with the times. Author and neuroscientist, Sam Harris, who hosts the intellectually-stimulating Waking Up Podcast, has made the case for supporting digital content as well as anyone I've heard. Here at Alphacution, [...]

By | 2018-03-22T13:08:43+00:00 December 12th, 2017|Alphacution Feed|

The Dawn of Operational … Beta?

If you've heard of the term operational alpha, then you likely know that it is a trending concept - similar to digital transformation - that seeks to leverage the latest digital-era tools and methods to foster increasing operational agility and resilience, particularly among asset managers. (Think: Citadel, the creator of the term - and one who arguably walks this walk as well as anyone.) Moreover, if your current job is related to implementing tools and methods that are designed to foster operational alpha, then you are likely working with or for a leading, forward-thinking player that is culturally tuned to navigate real change. The problem with alpha of any kind is that you can't really have alpha unless it is measured in relation to something else. Beta. In any case, we have some illuminating news for you: It turns out that operational alpha does have something relative to it - which makes it more than a concept. It's also a number. And, that number is based on another number that [...]

By | 2018-02-28T16:29:16+00:00 November 1st, 2017|Alphacution Feed|

Context Machine: Introducing a Techno-Operational Benchmarking Framework for Asset Managers

Executive Summary Riding the wave of the FinTech juggernaut, technology now permeates all aspects of the financial services ecosystem; front-to-back, top-to-bottom and across the entire business segment spectrum. Any lingering gaps between technology strategy and business strategy are closing; making them indistinguishable from one another. And yet, for all the promise of the revolutions in artificial intelligence, cloud and big data, such attempts are met with unforgiving challenges. Most players in this ecosystem are still using dulled intelligence tools to navigate this rapidly changing and increasingly techno-centric landscape. Finding balance between the primary engines of productivity - information technology and human capital - continues to be conducted like a game of Marco Polo. Operational alpha - a kissing cousin of terms like digital transformation and process re-engineering - is a growing theme among the pantheon of new vernacular in this space that seeks to illuminate such challenges. However, despite its descriptive elegance, operational alpha remains an emerging and elusive concept. In the midst of an evolving supply chain, solution providers [...]

By | 2018-02-28T16:29:24+00:00 October 31st, 2017|Alphacution Feed|