Alphacution Feed

"The true sign of intelligence is not knowledge, but imagination." - Albert Einstein Ugh! So many great stories to tell, and so little time to tell them... This one will need to be largely a storyboard for now, and then hopefully we can circle back and expand the narrative a bit (or, ideally, turn this into a full blown, deep-dive case study at some point). Anyway, given the similarities we demonstrated between Flow Traders NV (FTNV) and Virtu Financial way back here, you might have guessed that we had this one in the works once the latest Virtu update showed up last week. For this update, we went the extra mile to fully update our financial modeling, our 13F position modeling, and some new modeling of the FOCUS report (X17A5) for Flow Traders US, LLC (FTUS) - the US broker-dealer affiliate of the Netherlands-based parent company. With all that to draw from, we start with the total gross portfolio value of FTUS - securities owned plus securities sold and not [...]

"I'm watching intelligence." - Jeff Daniels (May 20, 2019) Alphacution is in the process of "making a market" for intelligence about some corners of the financial ecosystem where there has historically been very very little. Most of what can be learned about the companies we focus on - market makers, prop trading firms, and quant hedge funds - is anecdotal. Hearsay. Rumor. And, of course, the occasional sensationalistic newspaper riff about gargantuan pay days and trophy purchases of real estate, art and toys that float... Sure, our friends at Hedge Fund Research and Hedge Fund Alert do a great job of keeping track of performance, key executive movements, and even develop strategy indices relating to many of the most fascinating players in this ecosystem - and yet, no one is tying the broader landscape together the way that Alphacution is doing it. Now, in most cases, these types of firms would greatly prefer to remain as quiet and invisible as possible mainly because information leakage can expedite the inevitable decay [...]

"The greatest risk is to risk nothing at all." - Leo Buscaglia If you think we are only interested in the machinations of those mythological creatures that lurk in the mysterious and complex depths of market microstructure, then you may be missing the plot here. While we do tend to wallow in the weeds from time to time in an unprecedented way, you may have noticed the steady drumbeat of the DaVinci quote that "everything connects to everything else." No, that redundancy is not laziness to find a new quote. It's a purposeful reminder that there is a feedback loop going on here where all the species of "trees" - from the Citadel and Virtu trees to the Vanguard and BlackRock trees and all the flora in between - offer clues for the evolution of the "forest." If you didn't catch it in a previously published post, the exhibit below is the latest incarnation of Alphacution's asset management ecosystem map that is intended to depict the reverberations of new information [...]

Picking up where we left off with Fidelity's unprecedented shift in total (13F) position count in late 2018, we turn to another anomoly disclosed by our modeling: In the exhibit below, Alphacution presents its position concentration analysis for the entire 25-year 13F record for Fidelity. Here, we are not only looking at the value of the Top 10 positions as a percentage of all 13F positions, but also the fully-loaded Top 10 positions, which means across all reporting entities. We also look at the largest position as a percentage of total position value and the isolated Google / Alphabet values, since Class A and Class C shares were both in the Top 10 for a while. Anyway, long story short: What does it mean when Fidelity doubles its (13F) positions from roughly 5,500 to 10,100 - which in this case is likely all US stocks positions since there is not likely to be much if any short positions - at the same time that the aggregate value of the Top [...]

"Life's just this game of inches. And, the inches we need are everywhere around us." - Al Pacino If it's any consolation, the original version of this started with a shout-out to Doug with a tribute to Duncan Keith, former defenseman for the 2010 Stanley Cup champion Chicago Blackhawks, who lost 7 puck-stopping chicklets in their series-clinching win of that year's Western Conference run for Lord Stanley's cup. Hockey stud that he was, Duncan returned to finish the game... No, instead, the modeling and charting overpowered even that gem of an opening to give you another timely tribute to our Avengers after last week's ode to Ant-Man and the Wasp... After all, we are committed to hacking your attention with Inception-like layers of metaphors to keep you entertained while serving up the latest morsel of intelligence about the trading and asset management world. Here's the gist for this one: Though it's disclosures about key attributes of  their business are quite good relative to others, Virtu - like any other public [...]

“Learn how to see. Realize that everything connects to everything else.” ― Leonardo da Vinci While it is true that we spend alot of time and energy of late exploring certain deep-in-the-weeds aspects of the trading world, if you think that we are only interested in providing intelligence about that neck of the woods then you may have lost the plot here. What is going on deep in those weeds has impacts on what appears to be the wide open spaces (where many traditional and less automated strategy managers operate). But, it also turns out, the traditional segment of the ecosystem has an impact on the cutting-edged segment, too. It's all a feedback loop - and this teaser is intended to provide a taste of ballast for the players that operate in that different, more traditional, region of our asset management ecosystem map. Fidelity is one of the largest asset managers in the world based on a long track record of success. From the vantage point of their 13F filings - [...]

“I can do this all day.” —Steve Rogers In honor of the big Avengers Endgame opening last week, I thought to pay a little tribute to Ant Man and the Wasp for this one... Like many of the trading firms we have been focusing on recently, Tower Research Capital (TRC) has a market making unit - Latour Trading - and a proprietary trading unit - Tower Research Capital Investments (TRCI), both of which are based on high-performance technologies, quantitative methods and extreme levels of workflow automation. (BTW, if you read the Citadel Securities case study summary then you might already be hip to what we are calling a nested alpha architecture. If not, now worries. We will be highly redundant about it.) Perhaps because we have been focused on some of the biggest market makers, prop firms and hedge funds in and around our structural alpha zone - plus knowing that TRC boasts a global headcount of roughly 900 folks - we were expecting to find something else in their [...]

“The problems are solved, not by giving new information, but by arranging what we have known since long.” - Ludwig Wittgenstein Who are the buy-side's smartest and most powerful players today? Alphacution is working towards a clear answer to this question. Not just a list, but a ranking of the top players in global markets today - starting with the buy-side. Chances are high that the players that earn their way onto such a list - and, rise towards the top - are going to deploy a lot of technology to create a ton of automation (and, speed) to trade a big list of names across product classes, asset classes, regions and complementary strategies. Skipping a more detailed description and justification for now about the qualifications for our "Buy-side Leaderboard," one thing's for sure: The smartest and most powerful players on the buy-side are skilled in derivatives trading. Trading options, in particular, vs. not trading options, is like the difference between 3-dimensional and 2-dimensional chess. Mathematically, it's like the difference [...]

It was a holiday shortened week last week, and a lot of folks were OOO with brain settings dialed to low intensity. So, I thought we would try this one again, keep it short, tight and appropriately entertaining: With the heavy lift of the Citadel Securities case study ink (mostly) dry, we now turn our attention to the next series of puzzles. Generally speaking, the puzzles that captivate in the immediate future include 1) the rankings of market makers, prop traders and quant players (both, buy-side and sell-side, wherever applicable) operating within our structural alpha zone, 2) the ranking of players that are dominant in options trading - the Option Gods, 3) the ranking of players that are dominant in ETF trading, and 4) the subset of these rankings where players are strong across all of these factors. NOTE: If you are not directly involved in or with the market participants and stakeholders in the structural alpha zone, change the channel at your own peril. If you think what is [...]

Image Credit: Fabian Oefner "Research is what I'm doing when I don't know what I'm doing..." - Wernher von Braun Overview It was July 18, 2018. The scene was the 8th annual CNBC- and Institutional Investor-sponsored Delivering Alpha Conference. One of the main highlights of the event is Andrew Ross Sorkin’s fireside chat-style interview with Citadel founder, Ken Griffin. Among the many topics covered, the discussion confirmed that “1 out of every 5 stocks is trading through Citadel Securities.” In complement to this claim, a Risk.net article, dated November 27, 2018, further revealed that Citadel Securities’ “total market share in US equities now exceeds the 20% it had 12 months ago and the 17% it clocked two years prior.” Assembling these disparate fragments together with a few additional clues of data lifted directly from the Citadel Securities website, it is possible to illustrate a very impressive path that culminates, in Alphacution’s estimation, at a US equities market share of between 23.5% and 25%, as of the end of [...]