We've seen it coming for a long time. There were many clues along the way from which to anchor a prediction. Now, the evidence is too dramatic to ignore: UBS Securities is exiting the retail equity wholesale market making business. Alphacution rolls out its case, along with other key findings...
Alphacution's analysis and modeling of Robinhood's latest financial disclosures leads to a ranking of its wholesale market makers, along with a couple important side bars...
"You cannot escape the responsibility of tomorrow by avoiding it today."Abraham Lincoln With protestors storming the U.S. Capital - some of which breaching the outer doors and freely strolling the U.S. Senate floor - as surreal and unprecedented backdrop, I sit down to organize a sketch of Alphacution's outlook for the year ahead, starting with a very wide lens: The U.S. economy - much like the rest of the other "developed world" economies - is naturally weaker than the meticulously curated employment and productivity numbers suggest. Technology adoption (from workflow automation to social media distraction), growing debt burdens, ossified resource allocation practices, cross-region labor arbitrage, deteriorating infrastructure, and other factors all converge to deteriorate "life, liberty and the pursuit of happiness" for a growing portion of the population. The COVID pandemic of 2020 - and however long it remains disruptive throughout 2021 as vaccines are being rolled out - acts as an accelerant of many of these factors. Ours is a deteriorating version of capitalism. Symptoms emblematic of the stage [...]
“Principles for the Development of a Complete Mind: Study the science of art. Study the art of science. Develop your senses - especially learn how to see. Realize that everything connects to everything else.” - Leonardo da Vinci If there ever was a time to see how things are connected to other things, it is now. This is particularly true in places where something that is "free" is interpreted to be "without cost." After all, like "free" drinks at the casino, human nature tends to regress to its most lizard-like tendencies when presented with a frictionless environment... When will we ever learn that "free" is never the best price? Anyway, without becoming distracted by a rant about the true cost of Facebook, et al, let's take a brief look at the impact of "commission-free" trading on the macrostructure of the US market ecosystem over a very short window since October 2019: Thanks, in large part, to the popularity of retail broker, Robinhood Financial, LLC ("Robinhood) - the upstart financial [...]
“That which does not kill us makes us stronger.” - Friedrich Nietzsche “We adore chaos because we love to produce order.” ― M.C. Escher One intangible cost of being the sole US publicly-traded market making firm is the required level of financial and operational transparency - and the investor relations burden - that comes with that status. In this case, that cost may be unusually high because of the relative opacity of the competitors in this sector - what Alphacution typically refers to as the structural alpha zone of its asset management ecosystem map - coupled with the unparalleled use of technology and extraordinary magnitude of wealth generated by that small group of players. To compound this dynamic, recent dramatic shifts in the landscape for retail order flow sparked by the late 2019 moves - en masse - to $zero commissions by retail-oriented brokerage platforms, and the quick follow-on consolidations of TD Ameritrade (by Charles Schwab) and E*Trade (by Morgan Stanley), and given the pandemic-fueled volatility and volumes of [...]
"What you do speaks so loudly that I cannot hear what you say." - Ralph Waldo Emerson On Thursday, February 20, Morgan Stanley (MS) announced its acquisition of E*Trade (ETFC) for $13 billion in a billiard move that simultaneously 1) responds to the recent move to $zero commissions in retail brokerage; 2) responds to Charles Schwab's recent announcement to acquire primary ETFC competitor TD Ameritrade; 3) boosts MS's position in coveted wealth management channels; 4a) takes greater control of coveted retail order flows - and thus, (4b) away from competitive market making firms, like Citadel Securities and Virtu; 5) takes the last of the major independent discount retailed brokerage platforms off the proverbial table - sorry, Goldman; and 6) arguably completes a dramatic arc of industry evolution and consolidation that began with Schwab's acquisition of CyBerCorp in early 2000 and Citi's acquisition of Lava Trading in 2004... As trick shots go, this one is a doozy! Given that, I wanted to extend some thoughts around recent modeling that we [...]
Brain drain - in this case meaning the loss of valuable human capital - is one of those silent malignancies in an organization that is difficult to measure, and the impacts from which are typically not realized until the damage has already been done. With the global banking sector - and its constituent business segments, from retail banking to wealth management to capital markets - still in the midst of unprecedented and persistent transformation, the risk of ongoing losses of intellectual capital and corporate memory that leave via the elevator each day is still quite high - or, at least, it is perceived to be so. (The knock-on effects to the supply chain are notable here, as well.) It is largely for this reason that we have been monitoring and measuring various headcount-dependent metrics in the financial services ecosystem: Interesting and telling on a per-company basis, fascinating and illuminating of broader trends on a composite basis. The former being a weaker intelligence signal, the latter being a much stronger signal. So, here's [...]
Well, it would have been the Top 10 investment banks, but @Barclays doesn't publish quarterly headcount for some reason. Maybe they will help us fix that. Anyway, for the Top 9 investment banks, total headcount is down 13% from its peak in Q3 2011. And, with at least 2 of the 9 - @Deutsche Bank and @CreditSuisse - reporting significant headcount reductions for the road ahead as part their year-end 2016 financial releases and 2017 guidance, it's not much of a stretch for us to predict that the Wonkavator is highly likely to travel further back in time than year-end 2006 (see below). I just want to let this picture dangle for a bit without much comment. We will be revisiting and significantly expanding this analysis in the weeks and months ahead as we roll into the development of our 2nd Annual Global Bank Technology Spending study. Stay tuned...
