Paul

About Paul Rowady

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a 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. Contact: feedback@alphacution.com; Follow: @alphacution.

What Bloomberg Misses About Citadel Securities

"You can have all the transfer orders that you want, but you have to ask me nicely." - Col. Nathan R. Jessup, "A Few Good Men" On December 11, 2019, Bloomberg News editor Tom Maloney publishes an unusually illuminating article on Citadel Securities, "Ken Griffin Has Another Money Machine to Rival Hedge Fund," citing specifically that the market maker earned $3.5 billion of revenue in 2018 and "handles more than 1 of 5 shares traded in the US each year." Of note, the article includes two charts, the first of which ranking net trading revenue in 2018 for a selection of bank and non-bank market makers; and the second of which showcasing the shifting market shares of US retail equity wholesalers. Given that Alphacution has followed this and other firms in this space as closely or moreso than any others - for example, we are not aware of any other research and advisory group publishing a comprehensive case study on Citadel Securities - I wanted to add a few thoughts [...]

By | 2020-03-01T22:58:54+00:00 December 18th, 2019|Alphacution Feed|

Ranking of Select US Option Market Makers

"The book of nature is written in the language of mathematics." - Galileo Galilei As we prepare to turn the page on a new year, and consider what we may want to accomplish during that year, derivatives are on the priority list. Why? Options are important for many reasons from risk management to computational rigor and signal generation. And, if you had been paying close enough attention over the course of this year, you might have noticed that each of our case studies have touched, in one way or another, on options. Now, given that Alphacution is committed to its research providing new pictures to ponder, I wanted to drop the following chart on you with little additional commentary for this go 'round - except to say that the plan right now is to dedicate a full case study to the key players in options trading during 2020. Stay tuned... Until next time...

By | 2020-03-01T23:09:01+00:00 December 5th, 2019|Alphacution Feed|

Balyasny’s Book: Hiding in Plain Sight

“Even though the transformation of energy, in all of its various forms, is the very basis of all economic activity, only a tiny fraction of economists have even studied thermodynamics. And only a handful of individuals inside the profession have attempted to redefine economic theory and practice based on the energy laws.” - Jeremy Rifkin, The Third Industrial Revolution With this Feed post, Alphacution adds Balyasny Asset Management, LLC (BAM) to its growing roster of modelled trading firms. BAM is a multi-strategy multi-manager investment firm who is often compared to the likes of Millennium, Point72, and Citadel. We might go a bit further to add Two Sigma and AQR Capital Management to a broader description of other large hedge fund managers that operate in the active management zone of our ecosystem map. To more specifically define BAM's core strategy genre as statistical arbitrage is likely to go a bit too far on the active and automated strategy spectrum, as its material reliance on fundamental analysis would more accurately put it [...]

By | 2020-03-01T23:11:30+00:00 December 1st, 2019|Alphacution Feed|

Want Better Markets? Try a Herfindahl Kiss

"Enough is a feast." - Buddhist Proverb While many of us are ramping up to gorge ourselves on the annual tryptophan bacchanal, perhaps lubricated by an appetizer of American football where - in the likely case of far fewer of us - we will watch my hometown Detroit Lions perform their annual holiday impersonation of a major league sports franchise, and I will watch my 91-year old father behave as if they haven't been disappointing him for lo these past 53 years since the birth of Super Bowl I. Yes, it is the holiday season again and it probably borders on being little crass to talk shop on a coveted day away from whatever salt mine in which you have chosen to toil. But then again, I thought it might prove useful to offer a short bromide to accompany whatever you are feasting on today... Concentration risk, not of positions but of the increasing dominance of tech-wielding leaders on listed market inventory, is like a locomotive with no apparent mechanism [...]

By | 2020-03-02T16:55:39+00:00 November 28th, 2019|Alphacution Feed|

A Message From Citadel…

Success in any endeavor requires single-minded attention to detail and total concentration." - Willie Sutton, bank robber Alphacution has been writing untold stories about the most secretive, mythological and successful trading firms, hedge funds and asset managers in the history of the global markets ecosystem for the past couple years. What originated as our "Hiding in Plain Sight" series has come to life based on an accidental cocktail of messy data and an experiential overlay made up of a maniacal curiosity for puzzle solving, the joy of storytelling, and a potent dash of personal circumstance. Dozens of these companies have found themselves in our sights, many of them the subject of these Feed posts - some more than once - and, many of them modeled but yet to be written about. And, since there is so much secrecy around proprietary trading strategies - and rightly so - most folks have responded without responding, except for their ongoing readership, and the network effect. Yes, a small minority of our subjects have [...]

By | 2020-03-02T16:58:11+00:00 November 21st, 2019|Alphacution Feed|

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 | 2020-03-02T17:01:26+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 | 2020-03-02T17:04:02+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 | 2020-03-02T17:05:43+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 | 2020-03-02T17:07:18+00:00 November 13th, 2019|Alphacution Feed|