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.

Virtu Financial: Master Exploder, Part I

"As you think, so shall you become." - Bruce Lee   Like a one-legged man in an ass kicking contest, sometimes the scenario is grim. And yet sometimes, the tailwinds converge in your favor - like a three-legged man in an ass kicking contest - and the scenario presents itself very much to the contrary... Historically, Alphacution has not been shy about pointing out the former. Who can forget "Virtu Financial: The Frying Pan and the Fire" from August 2019; a favorite of @Dougielarge, for sure? But, to give credit where credit is due, this story is quintessentially about the latter scenario: Today (May 7), Virtu Financial reported Q1 2020 earnings and, given an extra appetizer of preview from the company on March 20, it was - to borrow a riff from Tenacious D - "The. Best. Quarter. Ever. Period!" Now, it's no secret to anybody on the planet why a strong Q1 was to be expected from Virtu because nearly everyone on the planet is directly impacted by the [...]

By |2020-10-14T21:40:04-04:00May 7th, 2020|For Subscribers|
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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|
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Blast Off: First Look at Q1 First Responders

"It is action, not rest, that constitutes our pleasure." - John Adams   Amidst the doom and uncertainty of any unfolding saga, there are always bright spots, if you know where to look. After all, every problem can be an opportunity in disguise. And so, besides the uptick in all things online relative to most things not online during a pandemic lockdown, the expectation has been that there would be some bright spots for listed market first responders - the market makers and high-turnover arbitrageurs - given the unprecedented volatility that erupted in global markets in late February. This week, Alphacution has begun to confirm some of those expectations as critical data necessary to fill in the picture of what actually happened below the unprecedented volatility headlines began flowing... To create the proper gravity of perspective, let's start with average daily volume (ADV) in US cash equity markets for March arriving at more than 15.6 billion shares. This is an all-time high and a level not even remotely approximated since the [...]

By |2020-10-05T16:04:51-04:00April 23rd, 2020|For Subscribers|
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Going Hyperbolic: Fed Battles Volatility, Everything Else…

"The struggle itself towards the heights is enough to fill a man's heart. One must imagine Sisyphus happy." - Albert Camus "Captain Jack will get you high tonight And take you to your special island Captain Jack will get you by tonight Just a little push, and you'll be smilin'." - Billy Joel   This one has a long fuse, but you might enjoy the customary overallocation of pictures as we get into it: In a March 22nd note entitled "The Great Leverage Unwind" published by Guggenheim Investments, Global CIO Scott Minerd estimates the impact of the COVID-19 pandemic like this:  "...we would need to see about $4.5 trillion of quantitative easing (QE) before everything was resolved. This is in addition to emergency lending through the discount window, dealer repo operations, central bank liquidity swaps, and the Commercial Paper Funding Facility, Primary Dealer Credit Facility, and Money Market Mutual Fund Liquidity Facility. That would take the Fed’s balance sheet to at least $9 trillion, or about 40 percent of last [...]

By |2020-10-05T21:35:19-04:00April 16th, 2020|Open|
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“We” Were Wrong About Jane Street

"Two wrongs may not make a right, but a thousand wrongs make a writer." - Dennis Miller "If you're not making mistakes, then you're not doing anything." - John Wooden   In my last in-person meeting of the B.C. (Before Coronavirus) era, a noted Chicago hedge-fund-slash-market-making C-suiter told me: "You're just making this stuff up..." Answer: "Well, yes - yes I am. Based on an interpretation of an assembly of data supplied by you - and others..." There is no roadmap here, other than the one that is constantly being course-corrected in my head. No textbook. No lexicon. No Ivy League curricula to provide structure or Council of Elders to guide. Just the kind of seemingly unending puzzle-solving exercise to soothe a delusional level of puzzle-solving desire... And, the feedback loop supplied by you - Feed readers, subscribers and clients, alike - that informs a faint sense of navigation. With that, "we" are just making stuff up: Inventing language and pictures - and the stories that seem to fit well [...]

By |2020-10-05T16:07:36-04:00April 15th, 2020|For Subscribers|
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Hacking the Matrix: A New Era in Risk Perception

"Our comforting conviction that the world makes sense rests on a secure foundation: our almost unlimited ability to ignore our ignorance." - Daniel Kahneman Chances are, "global pandemic" wasn't in your bag of quantamental factors; at least not by any name other than slippage.  But now that that cat is out of that bag - and, rightly or wrongly, the wheels of a response strategy have largely been set in motion - the least we should do against a backdrop of historically significant uncertainty (aka - risk) is widen our lens as to the new spectrum of future market contagions that have suddenly become more probable... Of particular note, keep your eye on a little thing that isn't widely discussed in polite society: the Fed's balance sheet. As of April 1, the chart below illustrates over a century of total assets for the US Federal Reserve system - ironically, since around the time of the last global pandemic (in 1918). What you are seeing there at the recent end of [...]

By |2020-10-14T22:20:45-04:00April 8th, 2020|Open|
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Ports in the Storm: US Options Exchange Rankings

 “It’s not bragging if you can back it up.” – Muhammad Ali   While so many seem to be pleasuring themselves with the Tiger King, some of us continue to geek out with the latest data. Now, with March so freshly in the review mirror, certain monthly and quarterly data updates are going to be among our first chances to benchmark the significance of what has just happened in capital markets. We started with a focused comparison of the volatility patterns of the GFC period to the unfolding CVP period here and here, and then detailed the first trading casualties of that volatility here, here and here. Below, is our latest visual of that volatility comparison, where we are beginning to break down the components of volatility represented by the gap and range... Among the more fascinating aspects of this perspective is the illustration that there have been 8 volatility spikes with intraday ranges greater than 20 VIX points since January 2008, and the greatest of these occurred on February [...]

By |2020-10-05T16:10:56-04:00April 2nd, 2020|For Subscribers|
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Parplus Impersonates LTCM, Drags Ronin Down

"Knowing is not enough; we must apply. Willing is not enough; we must do." - Johann Wolfgang von Goethe   With a name like Parplus, it's difficult not to take the bait. Not quite as fruitful as Lev Parnas' company, Fraud Guarantee, but ripe nonetheless, given the circumstances... For instance, we may never know if the advice - as recounted by Carl Spackler - of the Dalai Lama ever entered Jim Carney's mind: Gunga galunga. And, we may never know for sure whether the Parplus crew received total consciousness as the reality of the situation became clear. In fact, we may never know - as the Arnold Palmer story goes - what par actually was for this hole... But, one thing's for sure: It all happened fast... Here's the setup: Seeking to satisfy some of the hunger for yield enhancement solutions (and, ideally, some downside protection) - typically offered of late in the form of structured notes, "smart beta" products, and other clever overlay strategies - Parplus Partners was established [...]

By |2020-08-17T07:14:01-04:00March 30th, 2020|For Subscribers|
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ABN AMRO Clearing: Source of $200 Million Mystery Loss Revealed

“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   In an article published today (March 26) by Risk.net based on a statement also released today from ABN AMRO (below), new details about the demise of Ronin Capital emerge - along with that of a "mysterious second default."  According to Risk.net, a spokesperson for ABN AMRO has repeatedly suggested Ronin was not the source - a US client - of the $200 million (net) loss. It's just a matter of time now before we learn of another potential victim of this latest volatility spike... ++++++ Update 9:59PM NYC: Well, that was fast! The source of $200 million loss revealed by Risk.net as New York-based Parplus Partners, an equity volatility hedge fund with close ties to Ronin... Until next time, stay safe out there...

By |2020-08-17T07:14:01-04:00March 26th, 2020|For Subscribers|
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