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.

Simplex Trading: Against the Odds

“When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.”Henry Ford On occasion, we have framed the world's leading proprietary trading firms with the following graphic: And, as many of you know, this is the terrain upon which we have focused a notable component of our attention to date - and likely where we will place a disproportionate share of our attention going forward. This is partly due to the fact that this group bears out-sized responsibility for a quiet cascade of impacts throughout the global markets ecosystem, and partly because there are so few others that have managed to marry such scale with such creativity. This dynamic is made more notable by the idea that winner-take-all market dynamics that tend to reinforce an "incumbency of incumbents" make such an ascension less likely than the previous unlikeliness from all the yesterdays before... That said, based on our ongoing surveillance of the broader landscape, there are always exceptions. If you watch [...]

By |2020-10-16T23:50:57-04:00October 16th, 2020|For Subscribers|
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Alphacution Adopts Subscription Model

It's been a long time coming... And now, after a few years of digging for data, modeling that data, creating pictures of that modeling, publishing snippets of insight around those pictures, growing our network to the point where several thousand of you are regular consumers of our output, and ultimately earning enterprise subscriptions and other engagements from many of the top trading firms in the world and other key ecosystem stakeholders, Alphacution is formally moving to a subscription model.

By |2021-09-29T14:41:03-04:00October 16th, 2020|Open|
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Wholesale Market Makers: Adding Price Improvement to the PFOF Analysis

"The difficulty lies not so much in developing new ideas as in escaping from old ones." John Maynard Keynes Just because the rule requires “market centers that trade National Market System (NMS) securities to make available standardized, monthly reports containing statistical information about covered order executions that are free and readily accessible to the public" does not mean that that information is lounging around under a bank of Klieg lights in an easily consumable format. Like a lot of raw regulatory data, you need to know where to look while simultaneously in possession of a decoder ring... Meanwhile, there is a dramatic falling of US equity market dominoes that began a year ago with an industry-wide move to zero-commission retail brokerage models. This move became exacerbated in March by a convergence of pandemic-related forces that has resulted in a gusher of unprecedented profitability for a short list of leading proprietary trading firms that are otherwise known in the light of day as wholesale market makers. At the intersection where [...]

By |2020-10-27T20:10:25-04:00October 9th, 2020|For Subscribers|
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Alphacution Joins First Episode of DTCC’s “Advancing Financial Markets. Together.” Podcast

"My wife says, 'If you've got time to lean, you've got time to clean.' So, if I'm exhibiting any sloth-like behavior, she puts a rake or a broom in my hand pretty fast..." - Tim Lind, Managing Director, DTCC Data Services For the first episode in its podcast series, "Advancing Financial Markets. Together." Alphacution's Director of Research, Paul Rowady joins the Depository Trust & Clearing Corporation's (DTCC) Managing Director, Data Services, Tim Lind and Executive Director, Marketing and Communications, Bari Trontz for a spirited and illuminating discussion entitled, "Passive vs. Active Strategies: How Data Can Help Keep Your Investments in Shape."

By |2020-12-03T21:10:21-05:00October 7th, 2020|Podcasts|
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Alphacution Press: Wall Street Journal on Susquehanna, ByteDance, TikTok

“No matter the outcome of the struggle between China and the U.S. over video-sharing app TikTok, an unlikely winner will be a secretive trading firm based outside of Philadelphia.” – by Wall Street Journal reporters Rolfe Winkler, Jing Yang and Alexander Osipovich. Alphacution contributes analysis to Wall Street Journal story on legendary option-trading powerhouse, Susquehanna International Group’s ownership interest in ByteDance, the Beijing-based owner of video-sharing social media app, TikTok, “Secretive High-Speed Trading Firm Hits Jackpot With TikTok” (October 1, 2020). Additional related analysis on share of option markets in Alphacution’s Feed post, “Runaway Concentration Risks is US Option Markets.”

By |2020-12-03T20:46:43-05:00October 2nd, 2020|Press|
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The Fourth Exchange

“Nothing vast enters the life of mortals without a curse.” – Sophocles With a geyser of attention-snatching news as our normal daily backdrop, one could easily be forgiven for missing a signal from a collection of recent market structure clues. Individually, most of these have been on the radar of those that follow capital markets closely. And then there are others that are much deeper down in the weeds. Taken together, however, they paint of picture of increasing levels of market complexity coupled with increasing dependencies on fewer dominant players. Here’s the evidence: By now, most of you know that the launch of Long-Term Stock Exchange (LTSE), the launch of Members Exchange (MEMX), and the launch of MIAX Pearl equities exchange – all of which going live this month – bring the total number of US equities exchanges to 16. Now, considering that 33 alternative trading systems (ATSs) and at least another 12 internalizing broker-dealers (including wholesale market makers, single dealer platforms (SDPs) and central risk books) executed trades in NMS (national market system) stocks in 2019, US equity market fragmentation continues to [...]

By |2020-10-02T16:22:22-04:00September 29th, 2020|For Subscribers|
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Runaway Concentration Risks in US Option Markets

“The future is a choice between utopia and oblivion. Whether it is to be utopia or oblivion will be a touch and go relay race right up to the final moment…” – Buckminster Fuller On September 23rd, the Financial Times reported, “Citigroup halts market making in retail options” in an apparent response to the challenges brought about by the era of zero-commission retail trading; an era that is swiftly nearing its one year anniversary. Among the more notable impacts of this Citi news, the fact that Morgan Stanley now remains as the sole major Wall Street bank still standing as an intermediary for retail option flows ranks high. Truth be told, it ranks second only to a backdrop of creeping concentration as bulge players like Citi and Barclays before them and Goldman before them and others before them – including those that have been winding down their cash equities businesses – have punted on their options businesses because it has become so mind-numbingly complicated and expensive to make money in [...]

By |2020-10-02T16:17:22-04:00September 23rd, 2020|For Subscribers|
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SoftBank: Nasdaq Whale Files First 13F Report

“Entrepreneurship, you will only understand it if you experience it for yourself. It’s not something I can explain in words.” – Masayoshi Son On September 4, the Financial Times was first to report that “SoftBank is the ‘Nasdaq Whale’ that has bought billions of dollars’ worth of US equity derivatives in a series of trades that stoked the fevered rally in big tech stocks…” Since then, a consistent drumbeat of other articles and podcasts have been published; some of them tying SoftBank in with Robinhood and other retail brokers as leading factors that may explain the (concentrated) run-up in US equities from the March lows to the early September highs. For those of you who don’t speak options as a first or second language, the logic of SoftBank’s potential impact on cash equity markets based on equity derivatives positions goes like this: Derivative markets are zero sum. For every unit long there is a unit short. Customers, like SoftBank, typically buy options – outright or via spreads – to be long deltas of the underlying security. Market [...]

By |2020-10-05T21:37:00-04:00September 17th, 2020|Open|
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Stranded, As Virtu Bids Farewell to Madison Tyler

“We don’t receive wisdom; we must discover it for ourselves after a journey that no one can take for us.” – Marcel Proust With pandemic-era factors being historically and paradoxically hospitable for market volumes and volatility, those players that stand in closest proximity to the sources of listed liquidity have experienced an unexpected windfall so far in 2020. Today, with market making revenue for the past two consecutive quarters at all-time highs and seeming to bend a long-term downward trend in a new upward direction, VIRT stock found its own all-time high… For the remainder of this story, we need to refresh your perspective with a little context: Founded in 2008, Virtu is the youngest of a dozen leading proprietary trading and market making firms in the world: What is most unique about Virtu, however, in the context of this group is that it has grown primarily by acquiring other people’s trading strategies – typically by outright acquisition of other companies – from the beginning. By comparison, all the others on this roster have [...]

By |2020-10-02T16:02:53-04:00September 9th, 2020|For Subscribers|
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ETF War Games

“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 Market making in individual stocks has become so competitive that most hyperactive strategies – the ones that reside in Alphacution’s structural alpha zone – have turned to increasingly rely on some form of ETF arbitrage. This competitive dynamic is exacerbated by factors such as liquidity fragmentation, liquidity internalization, payments for order flow (PFOF), and the winner-take-all impacts of process automation (aka – scaling via technology). For those proprietary trading firms with few, if any, options positions in their portfolio, cash ETF position concentrations (based on total 13F position counts) are represented as follows: When we isolate the leading order flow wholesalers and consider aggregate cash ETF positions as a percentage of 13F gross value, one of the clues that rises to the surface (in concert with the findings in the prior chart) is the prominence G1 Execution Services (G1X), a unit of legendary derivatives powerhouse, Susquehanna [...]

By |2020-10-02T15:50:55-04:00September 2nd, 2020|For Subscribers|
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