technical leverage

Alphacution Riffs Ep 1 – Technology Strategy is Business Strategy

Alphacution is proud to launch its video series, Alphacution Riffs.  Not only bringing our clients new levels of intelligence - by quantifying and modeling and benchmarking the critical interplay between technology capital and human capital - for their digital transformations, we are "eating at our own kitchen" by leveraging tools and methods of the era to help make our research - and seemingly complex topics - much easier to understand. The digital media landscape is a jungle - and we are not trying to compete in a popularity contest. However, in order to be successful, we do need to consistently identify our best audience and then consistently grab a slice of their attention. Therefore, if you find the visual interpretation of what we are doing with traditionally dry and sometimes in-the-weeds research - like the website stylings and now the video series with its combined Rock n' Roll and Silicon Valley sensibility - to be a bit different, please know that it is entirely on purpose. Sure, it would be [...]

By | 2018-03-19T16:55:14+00:00 March 14th, 2018|Alphacution Feed, Video|

Context Machine: Introducing a Techno-Operational Benchmarking Framework for Asset Managers

Executive Summary Riding the wave of the FinTech juggernaut, technology now permeates all aspects of the financial services ecosystem; front-to-back, top-to-bottom and across the entire business segment spectrum. Any lingering gaps between technology strategy and business strategy are closing; making them indistinguishable from one another. And yet, for all the promise of the revolutions in artificial intelligence, cloud and big data, such attempts are met with unforgiving challenges. Most players in this ecosystem are still using dulled intelligence tools to navigate this rapidly changing and increasingly techno-centric landscape. Finding balance between the primary engines of productivity - information technology and human capital - continues to be conducted like a game of Marco Polo. Operational alpha - a kissing cousin of terms like digital transformation and process re-engineering - is a growing theme among the pantheon of new vernacular in this space that seeks to illuminate such challenges. However, despite its descriptive elegance, operational alpha remains an emerging and elusive concept. In the midst of an evolving supply chain, solution providers [...]

By | 2018-02-28T16:29:24+00:00 October 31st, 2017|Alphacution Feed|

Man or Machine: Who Are The Real Trading Champions?

Despite dramatic changes to the fortunes of quantitative trading strategies of late, they still represent the extremes of "technology leverage" in the global markets ecosystem. This means that due to a high level of workflow automation, these types of firms generate more output - as measured by revenue per employee (RPE) - than any others in the industry. Or, so we thought... In the context of its broader research mission, Alphacution has been focused - perhaps even a little obsessed - on modeling, measuring and benchmarking the interplay between the two primary engines of productivity within the global financial services ecosystem: technology capital and human capital. The value of this research - something we call "navigational intelligence" - is to help technology buyers understand where they fit amongst the constellation of peers and competitors, and for solution sellers to understand the needs and spending patterns of their clients. Until recently, high frequency trading and market-making operations - like those found at Virtu Financial and its newly acquired KCG Holdings - [...]

By | 2018-02-28T16:31:28+00:00 September 20th, 2017|Alphacution Feed|

Technical Leverage in Context

Alphacution defines technical leverage as the difference between revenue per employee (RPE) and technology spending per employee. In the parlance of our T-Greeks benchmarking framework, this difference is also known as T-Spread. I stumbled over the chart below - 50 companies in the S&P 500 with the highest RPE rankings for 2016 - recently and thought it would be notable to add to the knowledgebase. Since our modeling and analysis currently focuses exclusively on companies related to the financial services sector, much of what we find in this exhibit provides illuminating context. Source: Craft Clearly, energy and healthcare companies dominate the RPE metric, with 3 companies producing astonishing RPE levels greater than $5 million. Only 3 companies from the Financials sector (2 insurance - Aflac, XL Group; and, 1 exchange - CME Group) make this list. From our own modeling, the highest RPE we have found to date is Virtu Financial - a high-frequency trading firm - with a 2016 RPE of $2.8 million. Among the world's major banking groups, Goldman Sachs [...]

By | 2018-02-28T16:31:53+00:00 June 20th, 2017|Alphacution Feed|

Deconstructing Hewlett Packard: More Clues to Indigenous Productivity

Remember the game show, Name That Tune? (Look it up...) What if I told you that the basic rubric from that game show - naming a song in fewer notes than your opponent - was useful for predicting all kinds facts about trading and other financial businesses. Tell me your trading strategy and AUM, I can tell you how many employees you have. You are an investment bank with 30,000 employees, I can guess your total technology budget. The list of triangulations like this are actually quite long... Seem strange? Here's some insight: As many of you know, Alphacution is studying the engines of productivity for the full spectrum of financial services firms - and many of their supply chain counterparts - by measuring, modeling and analyzing technology spending patterns and other operational data. Though still relatively early in the game, this research mission has already given birth to a standardized benchmarking framework - "T-Greeks" - that allows us to quantify consensus behaviors within a community of similar entities and determine who is leading or [...]

By | 2018-02-28T16:32:26+00:00 May 16th, 2017|Alphacution Feed|

Nasdaq: Under Virtu Market Data Axe

A quick math assignment: @Nasdaq earned $540 million in information services (aka - #marketdata) revenue in 2016, up 5.5% over 2015 (and, not to put to fine a point on it, but this growth is slowing as 2015 v. 2014  was +8.2%). @KCGHQ spent $148 million on communications and data processing in 2016. @VirtuFinancial is on its way to acquiring KCG - and is on record with a strategy to ultimately consolidate both operations onto a single, unified trading platform. No doubt, this is not lip service. What is the impact on Nasdaq - and other exchanges - whose revenue growth has become so dependent on market data sales? If you are ambitious, here's some additional intelligence that you could use in the analysis: (We have more in the can if you need it.) BTW, you have to guess that all #HFT leaders have really spiffy axes, no?

By | 2018-02-28T16:32:34+00:00 April 28th, 2017|Alphacution Feed|

Done Deal: Virtu Financial + KCG Holdings

We've moved a major step towards a done deal here. Good news is that this remains far from a done story. Easy access to financial and operational data about the outer extremes of technical leverage in the global financial services sector provides great fodder for a story that will continue to inform and fascinate. Along those lines, and in addition to the updated deal news, both parties disclosed results from the most recent quarter today. With that, I thought it would be timely to update our ongoing analysis to see if the evidence confirms or alters the findings we have been showcasing to date. Here's where we started a little over a month ago on March 15 when Virtu made its unsolicited bid for KCG:  "In the chart below, average daily adjusted net trading revenue for Q4-2016 returns to levels not seen since late 2013 / early 2014. Chances are quite high that persistent low volatility during Q1-2017 ... has caused these figures to fall back to pre-2013 levels." And then there is this additional comment: [...]

By | 2018-02-28T16:32:49+00:00 April 21st, 2017|Alphacution Feed|

Unmet Need: Benchmarking Returns on FinTech Investments (w/ Webinar Playback)

Having a hunch is one thing. Quantifying that hunch is another thing entirely. Since its launch, Alphacution's primary hunch - and a factor that drives its mission - has been that measuring the impact of information technology investments within the financial services ecosystem is 1) super important, and 2) not something that firms currently do very often. Of course, we are  nearly 2 years into an ambitious modeling and framework development exercise based on far more than hunches. There has been a steady flow of evidence and support. Early adoption and consumption of our output by marquee clients and a growing network of prospects, seasoned advisors and friends provides ongoing resources and intellectual nourishment to keep building. However, on the back of our first webinar - hosted by partner, Aite Group - it was gratifying to ask direct questions to and receive direct answers from a broad and diverse audience. While helping to further galvanize the initial hypothesis, this evidence also speaks clearly to the vast spectrum of players in the financial services ecosystem who potentially [...]

By | 2018-02-28T16:33:09+00:00 April 18th, 2017|Alphacution Feed|

Virtu and KCG: A Tale of Technical Leverage?

Here's an update from the initial post on March 15, 2017... The first wave of commentary is in, and the consensus seems to be that the unsolicited bid by Virtu for KCG is all "about the little guy." In other words, this deal is all about the position of a wholesaler relative to retail order flow. Maybe so. There is also some suggestion that these firms are not competitors; that, in fact, they may be complementary. Ok, I guess. But, widen your interpretation of the situation a bit and consider this: According to the 2016 Virtu 10-K, it is disclosed that, "We make markets by providing quotations to buyers and sellers in more than 12,000 securities and other financial instruments on more than 235 unique exchanges, markets and liquidity pools in 36 countries around the world." The notable liquidity venues are as follows, (and notice the part about "major private liquidity pools.") Since #HFT and narratives about highly-automated trading strategies are crowded topics among capital markets punditry, Alphacution has not followed the nuances close enough to know for sure whether the sponsor [...]

By | 2018-03-21T16:41:32+00:00 March 21st, 2017|Alphacution Feed|

Financial Technology Impacts: YOU are in Darkness – And, THIS is a Flashlight.

Disclaimer: Opinions and a grain or two of salty language contained herein are solely those of the author. Save your time. Just, pick up the flashlight now. Ok. Here's some bait: Chances are quite high that you are searching for answers in the darkness (amidst the chaos). And the tools that you have at your disposal - typically in the form of 5,000 or 10,000 word salads with few pictures and fewer numbers from a "pedigreed" purveyor of guidance - actually do not emit much light. The good news is that you need not toil in darkness any longer. There is a flashlight at your disposal - and, unlike a normal flashlight, this one is designed to grow in luminosity and enhance your enlightenment at the same time. Now, you can continue to deny that this is your reality - and continue as you are - or, you can check out the flashlight. Still skeptical? Here's more of the pitch: I have been successfully solving complex puzzles for a very long time. The puzzle that fascinates me and tickles my curiosity most right [...]

By | 2018-02-28T16:33:35+00:00 March 15th, 2017|Alphacution Feed|