Alphacution Feed

Gamification and the Future of (Alternative) Data

"In good information visualization, there are no rules, no guidelines, no templates, no standard technologies, no stylebooks... You must simply do whatever it takes." - Edward Tufte Whether you are a consumer or purveyor of data for the application of financial markets risk transfer, there's something in here for you. Let's start with a quick trip in the Wayback Machine: In a report that I authored for TABB Group that was published in June 2011, "Quantitative Research: The World After High-Speed Saturation," one critical concept presented there that has proven itself to stand the test of time, and I expect to continue to do so for the foreseeable future, is this: "As strategies and quant directives change, the need for effective communication with stakeholders will march in parallel. Though quants are not usually known for their silver tongues, we strongly encourage them to meditate on one word: pictures. Rather than turning your backs on spreadsheets, embrace them as the best solutions for reporting, visualization, collaboration and concept development. At the [...]

By | 2019-04-11T00:26:38+00:00 April 11th, 2019|Alphacution Feed|

Alphacution Download Library

"The true sign of intelligence is not knowledge but imagination." - Albert Einstein The following downloadable content represent premium selections of output from Alphacution's ongoing research 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. Executive Summary: Deconstructing Citadel Securities In this 55-page, 45-exhibit case study on market making powerhouse, Citadel Securities, Alphacution continues to expand its Hiding in Plain Sight series to explore the unique trading engines and business strategies of the most successful, noteworthy - and mythological - asset managers in the world by presenting its latest storyboard based an assembly of data that lies open to the public. Full report available to premium subscribers or via individual report purchase. The Complete Case Study on Spot Trading In this 32-page, 38-exhibit case study on the proprietary option trading firm, Spot Trading, that closed in late 2017, Alphacution showcases the information and insights that can be harvested from a cache of [...]

By | 2019-04-26T11:06:53+00:00 April 10th, 2019|Alphacution Feed|

Tradeweb Completes IPO, MarketAxess No Longer Lonely…

"There is no avoiding pain, especially if you’re going after ambitious goals." - Ray Dalio The dominoes started falling years ago. It is only now - last week, on 4 April, to be precise - that we receive a new perspective on the data. Here's the setup: Quantitative methods and automated trade workflows started to shift the consumption of market data from eyeballs to servers way back in the 1990's. As automation of front-office (i.e. - signal generation) and middle-office (i.e. - trade execution) increased, the shift of market data consumption from eyeballs to servers increased as well. When the austerity regimes of the post-GFC period hit in 2010 and after, the convergence with the quantitative migration caused the shift in market data consumption to accelerate. Lower-cost cloud-based offerings for less-intensive use cases only exacerbated this shift. Those market data solution providers that were more heavily weighted to equity markets and revenue concentrations to the sell-side were hit the hardest. We can see these dynamics play out in the Eikon [...]

By | 2019-04-10T23:14:14+00:00 April 10th, 2019|Alphacution Feed|

The Global Stock Market: More of These, Less of Those

"Learn how to see. Realize that everything connects to everything else." - Leonardo da Vinci Given our ongoing fascination with 13F reports and the undulating list of 13F securities, which recently gave rise to our post, US Stock Market: Made of These, we have now turned to our old friends - and the data they curate - at the World Federation of Exchanges (WFE) to 1) corroborate some of our findings from the 13F dataset, and perhaps much more importantly, 2) assign a more global perspective to our ongoing analysis. So, with that said, here are a few tasty tidbits to chew one while we bake this research into a more comprehensive meal behind the scenes: In the Exhibit below, Alphacution presents aggregate global stock listings for the full sample of 192 months beginning January 2003 and ending December 2018. Today that figure stands at ~52,000 stock listing among the WFE member exchanges. Meanwhile, the portion of global stock listings in the Americas region - which includes US, Canada, Latam [...]

By | 2019-04-04T01:09:30+00:00 April 4th, 2019|Alphacution Feed|

Jim Simons, Godfather of the Quants: Hiding in Plain Sight

"Don't let the noise of others' opinions drown out your inner voice." - Steve Jobs "There is no real substitute for common sense - except for good luck, which is a great substitute for everything." - James Harris Simons It was the late 90's, a time when the moniker of "Godfather of the Quants" may have still been open for debate. Edward Thorpe, of Princeton / Newport Partners and among the first mathematicians to study patterns in financial markets, was still active. And, the protagonists for the fascinating tale about beating a Vegas roulette wheel with custom made computers embedded in their shoes (and told in the book, the Eudaemonic Pie), Doyne Farmer and Norman Packard, were still active at the Prediction Company, a unit of UBS O'Connor (which, BTW, was later sold to Millennium in 2013 and ultimately shut down in 2018 with a 27-year stat arb strategy track record including only one down year). And yet, today, the legacy that seems to remain the strongest is that of [...]

By | 2019-04-04T00:29:46+00:00 April 3rd, 2019|Alphacution Feed|

Citadel’s Secret Special Sauce (Updated)

As excerpted from the case study, Deconstructing Citadel Securities Alphacution believes that Citadel’s core competitive advantage – its secret sauce – can be found on display every day, out in the open, and is not related to a specific product, asset class, region or even a specific trading strategy or temporal wave of theoretical alpha. No, the thing that makes Citadel so unique is its focus on process. You just need to know what to watch for. Everything this company does has first been disassembled and deconstructed down to its smallest, atomic parts and then reassembled with a maniacal sensitivity to details, best-practices and processing – whether that be a decision-making process or a data management process or a strategy launch process. In all activities front-to-back, this team seeks opportunities for efficiency and to catalog incremental intelligence at every step. And though the company has developed a stellar reputation for the application of technology to its workflows, it is only by virtue of the additional ingredients of culture and excellence [...]

By | 2019-04-04T00:27:04+00:00 March 30th, 2019|Alphacution Feed|

Robinhood: Payments for Order Flow 2018, Up 227%

The latest figures on order routing revenue are easy to find. With the exception of Robinhood Financial - the new, no commission, retail-focused trading app for stocks and cryptocurrencies - order routing revenue is clearly disclosed by the incumbent trading platforms; namely, TD Ameritrade, Schwab, E*Trade and to a lesser extent, Interactive Brokers. However, in any case, something seems to be heating up as aggregate payments for order flow (PFOF) breaks from the range of the previous five years (2013-2017) to grow 42.3% for 2018, see exhibit below: Now, as for identifying the other side of this ledger - those who make the payments for order flow - that continues to be a bit more opaque. We know who should be on that roster because they are also likely to be a subset of our Top 100 Players in US Listed Market Structure ranking. But that doesn't mean the PFOF figures are dangling from easy-to-find places. To the contrary, they are likely comingled with other figures and obfuscated by aggregated [...]

By | 2019-04-03T21:42:39+00:00 March 29th, 2019|Alphacution Feed|

Citadel Securities: Estimated 2018 Revenue

"Above all else, show the data." - Edward Tufte "Torture the data, and it will confess to anything." - Ronald Coase   While a lot of folks are allowing their attention to be hacked by the latest tweet, squirrel or AI-vowel combo to float by - and the entire landscape begins to suffer from an increasing left-brain imbalance - let's not forget the value of authorship. You know, the thing that reminds you that your "AI" is still just a bunch of nested if-then statements - and can't possibly solve the puzzle you are about to solve for the distant foreseeable future. That kind of "AI" is a snob that can only function on data that is somehow cleaner than reality... Turns out, there remains a ton of valuable data lying around - as I have been saying on our Feed lately - hiding in plain sight. And, it turns out, that that data has been disclosed in small, hard-to-reach, chunks precisely because it's quite valuable once distilled properly, like [...]

By | 2019-04-11T23:13:13+00:00 March 27th, 2019|Alphacution Feed|

Deconstructing Citadel and Why It Matters

Image Credit: Fabian Oefner "The voyage of discovery is not in seeking new landscapes but in having new eyes." - Marcel Proust “Learn how to see. Realize that everything connects to everything else.” - Leonardo DaVinci In my mind, memories of the childhood home are dominated by those of vast spaces. A colossal stairway, a living room like a grand ballroom, the front and back yards both like baseball stadiums. My father is there - like a giant sitting at the head of the kitchen table - savoring his freshly unscrolled newspaper. And yet, upon visiting this place as an adult, it presents itself as your basic 3-bedroom layout - barely 2,000 square feet - with postage stamp yards. It turns out, my memories are somehow locked in when I was the size of a toddler. Perhaps, you share the experience of this illusionary twist of perspective... Recently, listed markets have started to mimic this duality of perspective for me. There was a time when the totality of stocks and [...]

By | 2019-04-03T21:04:19+00:00 March 21st, 2019|Alphacution Feed|

Meanwhile, High Above the Grand Havana Room with Izzy Englander

Image Credit: John Rowady, Havana, Cuba "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. You have to trust in something - your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life." - Steve Jobs There was a time, years ago, when I had a cigar attached to some part of my body pretty much 24/7. Like a disgustingly satisfying man-binky, if I wasn't smoking it, I was definitely chewing on it - and it didn't matter where I was. Polite company or public spaces did not deter the guile to sneak a chomp on the soggy end of a previously-lit robusto. And then, Cigar Aficionado magazine came along and ruined my enjoyment with the oncoming herd of the impending fad. Now, this is not to suggest that there aren't occasions - usually a golf outing or as an accompaniment to a fine bourbon - that [...]

By | 2019-04-03T21:02:49+00:00 March 14th, 2019|Alphacution Feed|