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.

GameStop and the New Market Kamikazes

"But how do we know when irrational exuberance has unduly escalated asset values?"Alan Greenspan By now, everyone - and I mean, EVERYONE - knows about how "GameStop (GME), [the] hedge funds’ most-hated stock, was targeted by an army of retail investors who marshaled forces against short sellers in online chat rooms. In the Reddit forum “wallstreetbets” with more than 2 million subscribers, rookie investors encouraged each other to pile into GameStop’s shares and call options, creating massive short squeezes in the stock," according to a synopsis of the saga by CNBC. In short - so we're all on the exact same page - there's been an epic short squeeze off the back of a classic pump-and-dump scheme. Period. But, what makes this particular short squeeze notable in the history of all short squeezes is that it was fueled - and ultimately, turbocharged - by leveraging social media tools, like Reddit and the Robinhood trading app - among other trading platforms like Interactive Brokers (IBKR) and Webull - and has been [...]

By |2021-02-03T12:33:49-05:00January 29th, 2021|Open|

Formula One Trading: Ranking of 25 Leading Proprietary Trading Firms and Key Affiliates

“You wanna know which ring is my favorite? The next one.”Tom Brady The detailed exhibit presented at the bottom of this Feed post is 1) featured in our just-published case study, "The Rise of Hudson River Trading," 2) an expanded version of an already somewhat outdated exhibit originally published in our "History of Jane Street" case study (below), and 3) only an excerpt of a much larger global map of entities that Alphacution has been developing to be featured in upcoming research, culminating in a comprehensive case study on the global proprietary trading community later this year... (Fingers crossed.) For now, I want to emphasize that this is not a ranking by anything other than founding year, and therefore, is simply designated as "25 Leading Prop Firms." Otherwise, it would have been more accurately - and provocatively - named, "Top 25 Prop Firms." Yes, the largest - and most dominant - players are in here. But, this list is also a bit US-centric, does not include any APAC players or [...]

By |2021-01-25T12:24:12-05:00January 24th, 2021|For Subscribers|

Case Study: The Rise of Hudson River Trading (Executive Summary)

"In playing ball, and in life, a person occasionally gets the opportunity to do something great. When that time comes, only two things matter: being prepared to seize the moment and having the courage to take your best swing."Hank Aaron ** The executive summary for Alphacution case study, "The Rise of Hudson River Trading," is also available for free download (with registration) in our Reports Library ** Introduction As if on cue, and apropos of the times, a tweet by Joe Gawronski, President of Rosenblatt Securities states that December 24, 2020 marked the first time ever that off-exchange trading represented the majority of US equity volume (50.38%): Rewinding from there to a Reuters article dated January 16, 2018 entitled “Hudson River Trading to buy rival HFT firm Sun Trading,” HRT’s co-founder and director, Jason Carroll, said in a statement, “This acquisition combines HRT’s expertise in on-exchange trading with Sun’s expertise in off-exchange trading creating a stronger, more diverse firm.” What happens between these two points in time is no accident. [...]

By |2021-02-11T19:16:45-05:00January 24th, 2021|Open|

XTX Markets: Lessons in Strategy Geometry – Part II

“Nearly all men can stand adversity, but if you want to test a man's character, give him power.”Abraham Lincoln In Part I of our Lessons in Strategy Geometry concept, we performed a comparative analysis between the shapes of 13F position rankings for HRT Financial, LLC (an affiliate of Hudson River Trading, LLC; the subject of our next deep-dive case study which is in the oven and almost fully baked, I promise), Latour Trading, LLC, and TRC Investments, LLC (both of which are affiliates of Tower Research Capital, LLC). In that introductory Feed post, our goal was mainly to point out what amounts to underlying differences in strategy, particularly given how unique the Tower "shapes" appeared to be relative to others we had modeled. We didn't go into to much detail beyond that with the idea that it would be more useful to work through possible insights step by step... So, here's a next step: Founded in 2015, XTX Markets, Ltd is one of a very short list of up-and-coming proprietary [...]

By |2021-01-14T00:54:31-05:00January 13th, 2021|For Subscribers|

Outlook 2021: The Drunk-on-Impunity Mania Arrives

"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 [...]

By |2021-01-06T23:36:37-05:00January 6th, 2021|Open|

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|

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|

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|

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|

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|