Paul

About Paul Rowady

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact: feedback@alphacution.com; Follow: @alphacution.

Alphacution’s Top Stories for 2020

"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." Steve Jobs I was going to start out by saying that it's been a pivotal year for Alphacution. Problem is, I said the same things at this time last year. So, I supposed that means it's been a good coupla years. The pandemic, volatility, subsequent lockdown - and some luck in timing - drove a lot of attention towards Alphacution's content in 2020. Clearly, Robinhood and payments for order flow (PFOF) were top themes for the year. Our Feed post on Robinhood and trailing stop orders led the year in page views, and represented like no other before it what it looks like when a story goes viral. Not to be outdone, the timely post on the downfall of Ronin Capital also attracted a ton of attention. In fact, if [...]

By |2021-01-04T15:32:41-05:00December 31st, 2020|Open|
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Cutler Group’s Book: Hiding in Plain Sight

“For last year’s words belong to last year’s language, and next year’s words await another voice.”T. S. Eliot As we were riffing along with our recent Feed post on HAP Trading, I would've sworn than I had already shared a few words on another unique player from the option market making corner of the world, San Francisco-based Cutler Group, LP. Turns out, I had not... With the upcoming publication of a deep-dive case study on Hudson River Trading imminent, Alphacution is going to spend much of the first part of 2021 in option land, cranking out its first multi-player comparative case study on option market makers. So, I don't want to burn too much dry powder here. However, I do want have a standalone post on Cutler in the archives as reference for those who don't yet have access to the case study content... Anyway, in the charts that follow, Alphacution presents a few of its most basic analytics from its modeling of 13F data related to Cutler, with comparison [...]

By |2021-01-04T15:34:43-05:00December 30th, 2020|For Subscribers|
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Alphacution Joins Lex Sokolin’s “FinTech Blueprint” Podcast

From Lex Sokolin: "Check out the fantastic podcast conversation from last week here: Understanding Robinhood, Derivatives, and Market Makers with Paul Rowady of Alphacution. In this conversation, we talk with Paul Rowady, who is the Director of Research for Alphacution Research Conservatory. Paul has a deep background in capital markets, derivatives, and the macro structure of the industry. He has been uncovering the transformation of that structure with data driven analyses, making visible the economics of market makers like Citadel and retail order flow aggregators like Robinhood. This is a rich discussion of what trading stocks is really like." Originally published November 6, 2020

By |2021-03-11T18:43:02-05:00December 28th, 2020|Podcasts|
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According to D. E. Shaw, RenTech and Other Legends: Hindsight is Not 2020

"Quality means doing it right when no one is looking."Henry Ford I couldn't find the exact reference, but sometime between about 2010 and 2015 I wrote (for TABB Group) that when the market regime eventually shifted from the core drivers of the long, low volatility period of the post-GFC era, many quant models would become disoriented and their performance would suffer. This is simply because the behavioral cues of the new chapter would not be embedded in the historical market data of the prior period upon which those models had been trained. Well, that scenario finally played out this year... So, instead of following the well-worn tradition of preparing a lengthy "Year in Review" post on market highlights and lowlights as we bring this historically bizarre and disorienting year to a close, I thought to let a series of illustrations from some of the world's most legendary players show you symbols for how their year appears to have gone (through Q3 2020) and, by implication, how broad groupings of strategies [...]

By |2020-12-23T21:35:10-05:00December 22nd, 2020|For Subscribers|
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Billions of Orders, Trillions of Shares: Comparing NYSE Arca and IEX

"The big question is whether you are going to be able to say a hearty yes to your adventure."Joseph Campbell The intensifying war between that which happens in the dark and that which happens in the light has finally moved equities exchanges fully within Alphacution's cross hairs. Given our belief that leading market makers and other sophisticated, technology-wielding trading firms are disrupting every stakeholder group in the ecosystem, it should come as no surprise to most of our readers that we would eventually arrive here. Since we are committed to following a trail of data - and harvesting insights based on that data - the arc of themes found here on the Feed are biased more to a combination of a somewhat serendipitous and a somewhat informed journey of old-school research than merely targeted at what appears to be popular in the moment. Besides, sometimes we get lucky and serendipity turns out to be prophetic... We don't know what we'll find until we find it, but we trust that something [...]

By |2020-12-21T22:19:55-05:00December 21st, 2020|For Subscribers|
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Hudson River Trading vs. Tower Research Capital: Lessons in Strategy Geometry – Part I

"Nature uses only the longest threads to weave her patterns, so that each small piece of her fabric reveals the organization of the entire tapestry."Richard Feynman As a brief prelude to our upcoming case study on Hudson River Trading (HRT), I wanted to tease with some unusual findings: Alphacution has occasionally toyed with understanding the "shape" made by a simple ranking of 13F positions by value, particularly for a selection of leading market making and other proprietary trading firms; typically those with high 13F position counts. Because of the preponderance of portfolio hedging or just because of high position value concentration in the top positions, the common "L" shape yielded no obvious insight. (As reference, we demonstrated this finding early on (in 2018) in our Feed post, "Goldman Sachs' Book: Hiding in Plain Sight.") However, shifting to a log scale ranking created a more interesting shape even though our analysis remains incomplete and interpretations remain elusive. To date, we know that the slope at the beginning of the curve often [...]

By |2021-01-01T18:18:17-05:00December 11th, 2020|For Subscribers|
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Walleye Trading’s Book: Hiding in Plain Sight

“There is an old saying: If you want to hide the treasure, put it in plain sight. Then no one will see it.”Larry Dossey By now, avid readers of Alphacution know the joke: We have taken that which had previously been hiding in plain sight about the most secretive and mysterious players in the world of trading, and shed some light on them. Hence, today's title image metaphor is a well lit and colorful chameleon set against a black background. While much more in this zone of the ecosystem is no longer hiding from us, there are many fascinating discoveries yet to be made... Related to this idea, there's a super-cycle of research and development going on in the background at Alphacution, much of it currently about option markets. At the risk of redundancy, the options markets - in particular, those with skills for trading in option and other derivatives markets - hold a special key to the evolution of listed markets, and those who are most likely to remain [...]

By |2020-12-10T23:41:08-05:00December 10th, 2020|For Subscribers|
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Susquehanna Securities and the Hidden Stat Arb Strategy

"The mind is not a vessel to be filled but a fire to be kindled.."Plutarch The comment has been made here before, likely more than once: As we go along the path of our research, our ability to see - to interpret the data, and the shapes that are formed from that data - tends to improve. This is not only true of newer shapes forged from amalgamations of newer data - and additional sources - but of older shapes, as well. Recently, I stumbled over a series of charts first published in July 2019 in the Feed post, "Ranking Strategy Speed for Top Quants, Market Makers," which remains among our more fascinating discoveries. Therein, we compared average stock position sizing for a list of notable trading and hedge fund firms, from Renaissance Technologies (RenTech), D. E. Shaw, and Two Sigma to Jane Street, Hudson River Trading (HRT), and Tower Research Capital (TRC). Citadel Securities and Susquehanna Securities were in the mix, as well. The rankings were roughly delineated between [...]

By |2023-08-24T13:22:06-04:00December 1st, 2020|For Subscribers|
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HAP Trading’s Book: Hiding in Plain Sight

"It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change, that lives within the means available and works cooperatively against common threats."Charles Darwin Consider that the capital markets are like an evolving ecosystem wherein the players - from market makers to hedge funds to the largest asset managers, among others - are like various species of creature. Depending on environment conditions and levels of adaptability, some species thrive and some don't... On the extinction front, just today Bloomberg reported that York Capital Management's founder, Jamie Dinan, announced that he would be existing the firm's hedge fund strategies thus joining other high-profile hedge fund exits for the year, including John Paulson of Paulson & Co and Louis Bacon of Moore Capital Management and a growing list of legends and luminaries who have already retreated from the hedge fund business. In parallel, this event strengthens Alphacution's core thesis about the finite capacity of alpha, the [...]

By |2020-12-03T20:38:56-05:00November 24th, 2020|For Subscribers|
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