Citadel

Cheap Volatility: A Lesson In Market Structure Mechanics

"The world breaks everyone, and afterward, some are strong at the broken places." - Ernest Hemingway   Alphacution has always been fascinated by the players. Unlike the world of sport, market players have unique potential to influence the field of play, and thus create a feedback loop that influences other players, and so on causing market ecosystem evolution. In this game, the rulemakers and overseers - the referees - are typically playing catch up... This is not to suggest that markets don't have naturally occurring limits in addition to those that are imposed by referees. They do. There are always capacity constraints, given performance requirements and performance expectations; and so, we are further fascinated by how players navigate - how they survive, thrive and scale (or not) - relative to the inevitability of market limitations, many of which are currently not well understood. Throughout these digital pages, Alphacution has plotted a journey to fill this unmet need for understanding -  presenting the output of our fascinations - the stories of [...]

By |2020-10-05T16:03:25-04:00May 1st, 2020|Open|

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 |2020-10-05T21:31:35-04:00November 21st, 2019|Open|

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 |2020-10-05T16:23:58-04:00November 21st, 2019|For Subscribers|

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 |2020-10-05T21:30:09-04:00October 24th, 2019|Open|

(UPDATED) Citadel Punks Blackstone

"What is to give light must endure burning." - Viktor Frankl “The backbone of surprise is fusing speed with secrecy.” – Carl von Clausewitz 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 a balance sheet or buy a [...]

By |2020-10-14T22:33:36-04:00October 17th, 2019|For Subscribers|

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 |2020-10-14T21:48:58-04:00March 30th, 2019|For Subscribers|

Virtu, ITG: Much More Than Meets The Eye…

"The real voyage of discovery consists, not in seeking new landscapes, but in having new eyes." - Marcel Proust (1923) “Develop your senses — especially learn how to see. Realize that everything connects to everything else.” — Leonardo Da Vinci (~1500) If you  - like the precious thousands of other professionals, mostly notably from the high-performance end of the global trading spectrum, who will venture this way - have come this far in search of Alphacution's unique brand of irreverent spin on Virtu's 3rd quarter earnings announcement, then you are about to miss most of the intelligence that is on offer from the growing portfolio of evidence that we are assembling here. Yes, our modeling and charting and narratives surrounding this latest catalyst from Virtu - along with its and others' exploits in this rare corner of the financial world - can be found here and throughout our Feed. But, for those who choose to stretch their go-to frame of perspective, there is much more going on here than initially meets the eye... What is actually going on [...]

By |2020-10-14T21:44:34-04:00November 15th, 2018|For Subscribers|

When Market Makers Ate Their Own…

Right out of the gate, this story might emit a whiff of last year's news. Maybe. But, that sense would only last until you realize that this is also a template for improving predictions about future events. And, that kind of predictive power relies upon the bet that more markets and opportunities are becoming winner-take-all in the digital era... (Hint: As the functioning of markets - and other economic opportunities - become more "digital," a single leader can emerge in that market. This is how we end up with the "FANG's" - Facebook, Amazon, Netflix and Google. It's also how US equity markets end up with ~80% lit market-making flows being split between Virtu and Citadel. Here are some facts to fill in the background: In the three years beginning 2006, the Timber Hill market making unit of Interactive Brokers Group (IB) had an annual revenue run rate of around $1 billion, peaking at over $1.3 billion in 2008. By 2017, Timber Hill's revenue run rate had declined 94% to [...]

By |2020-10-14T21:51:05-04:00July 18th, 2018|For Subscribers|

What Does Citadel* Spend on Technology?

Take a deep breath... Focus your attention... Now, consider that there are only about five people on the face of the planet who actually know the answer to our opening question - What does Citadel spend on technology?  Moreover, someone would likely need to hold one of these folks at gunpoint for that executive to spill those beans. The same scenario plays out for a firm like Millennium or DRW or Jump Trading or Two Sigma or IMC or any other privately-held manager. Only a hand full of the most senior people at any one of these mythological shops actually knows the answer to the question: What does [manager name here] spend on technology? Now, if we took one giant step further into the realm of absurdity, and wanted to know what any two or more of these players spend on technology - essentially attempting to answer the question: What does any Manager X spend on technology? - then the odds become significantly more improbable. What are the odds that [...]

By |2020-10-14T21:51:26-04:00April 18th, 2018|For Subscribers|

Riffs Ep 4 – What Do Hedge Fund Managers Spend on Technology?

Set aside some time to watch Alphacution Riffs Ep 4 wherein we walk through the foundational hypothesis; key highlights; an extraordinary case study involving Citadel, Millennium Management, Point72 and Vanguard (teaser); and, the strategy behind the release of our latest - and, most impactful - study to date, "The Context Machine: Estimating Asset Manager Technology Spending" (April 2018). And, for those of you with a slightly longer attention span, stick around for another "public service announcement" at the end of this one (starting around 11:17) - as we did in the Director's Cut for  Ep 3 - Proprietary Trading, Extreme Automation. The urge to provide value to the human capital component (i.e. - you, me, and everyone in our audience and beyond) - which is actually coming to life as a direct result of our technology focus - seems to be gaining momentum... Enjoy... And, as always, if you value this work: Like it, share it, comment on it - or discuss amongst yourselves -  and then send us feedback@alphacution.com. [...]

By |2020-10-05T21:19:41-04:00April 17th, 2018|Video|