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.

Goldman Sachs and the Long Arc of Hull Trading

"And the men who hold high places - should be the ones who start - to mold a new reality - closer to the heart." - Rush, "Farewell to Kings" Strap yourself in for this one, as we take a fascinating and detailed walk through some of Alphacution's recent modeling on one of the long-standing Kings of Wall Street; a story that is on the one hand, not widely known and on the other, not typically spoken of... It was among the most exciting one-two punches of financial markets deals from the late 1990's and very early 2000's; one where Wall Street - much like other financial centers across Europe had done in prior years - had reached out, once again, to LaSalle Street for their unique prowess in derivatives trading. (Alphacution detailed the roster of leading players who were part of this wave of acquisitions in a Feed post focused on Susquehanna International Group - SIG.) In this case, the mighty Goldman Sachs had reached out to acquire Blair [...]

By |2020-10-14T22:45:13-04:00September 26th, 2019|For Subscribers|
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Adding J. P. Morgan Securities to Bank-Owned Broker-Dealer Modeling

"The world is changing, and we recognize that a synergistic combination might be in the best interest of shareholders..." - James E. Cayne Alphacution has modeled the bank-owned broker-dealer operations for the following: Goldman Sachs & Co. Morgan Stanley & Co. Deutsche Bank Securities, Inc. UBS Securities, LLC Credit Suisse Securities (USA), LLC We now add J. P. Morgan Securities, LLC - formerly known as Bear Stearns & Co... Here's a brief summary of what that analysis shows, so far: Relative to the other five bank-owned broker dealers in our sample to date, J. P Morgan Securities ranks as the largest by total assets, as of year-end 2018: Relative to the other five bank-owned broker dealers in our sample to date, J. P Morgan Securities also ranks as the largest by a measure of gross cash equities - as in, equity securities owned plus equity securities sold, but not yet purchased - as of year-end 2018: Relative to the other five bank-owned broker dealers in our sample to date, J. [...]

By |2020-10-14T22:48:23-04:00September 25th, 2019|For Subscribers|
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(UPDATED) Two Sigma Investments: How To Build A Nested Alpha Strategy Architecture

"Education is all a matter of building bridges." - Ralph Ellison How trading firms, hedge funds and asset managers scale - as in, scale assets under management (AUM) or proprietary capital, headcount, data, technologies, and other operational ingredients to support a growing mix of market strategies when their initial market strategies reach boundaries of performance, liquidity, inventory or competitive challenges - is a significant point of fascination here at Alphacution. This is because scaling - real, sustainable scaling - requires simultaneous and interdependent success in both operational and trading strategies. Scaling also becomes a critical issue to measure and monitor from a market macrostructure perspective if you believe the hypothesis that the capacity of alpha is finite, as we introduced in the Feed post, "The Privatization of Alpha." Because if you believe that there are no constraints on the capacity of outperformance - or, "alpha" - then there is no need to pay attention to how various asset managers scale their strategies and their overall businesses. In this scenario, there [...]

By |2020-12-01T19:54:05-05:00September 18th, 2019|For Subscribers|
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(UPDATED) Blackstone Polishes Turd, LSE Bites, And Then…

"Don't hate the player, hate the game." - Jeff Jarrett "Don't hate the player, change the game." - Steve Harvey As we seemingly make a sharp turn from the classically-drunken "I love you, man" phase of the cycle and barrel headlong towards #peakinsanity - as if the wheels are still attached to the clown car blasting along a winding road upon which a noted hedge fund trophy hunter has just stitched a small $99 million coda onto his existing Griff-a-Lago compound (a quarter mile stretch of Florida's "Billionaire's Row" beachfront) as the latest addition to the rest of his discrete, not-compensating-for-anything display of uber-luxury real estate holdings; while some $17 trillion of European sovereign bonds have been issued with negative rates; and, the White House is 6 tweets away from causing the printing press for the global reserve currency to be moved from Mr. Powell's office into the Oval - we now have this: Hong Kong Exchange (HKex) is making an unsolicited $36.6 billion bid for LSE. Sure...  Why not? [...]

By |2020-10-05T21:29:33-04:00September 12th, 2019|Open|
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Now Wrapped in Pedagogy – Wolverine Trading’s Book: Hiding in Plain Sight

“Not I, not any one else can travel that road for you. You must travel it for yourself.” ― Walt Whitman “The teacher is of course an artist, but being an artist does not mean that he or she can make the profile, can shape the students. What an educator does in teaching is to make it possible for the students to become themselves.” ― Paulo Freire We return to this post, "Wolverine Trading's Book: Hiding in Plain Sight," so soon after it was originally published, to make a critical point. Moreover, the timing of this exercise is particularly relevant given the catalyst that Alphacution was recently - and, to be fair, ever so politely - judged as lacking the level of insightfulness necessary to win an engagement that should have already been in the bag. (It ain't cash 'til it's cash...) Inherently configured as one who is typically long the challenges and short the easy road, and therefore game to make an appeal for what will eventually turn out to be [...]

By |2020-10-05T16:57:45-04:00September 11th, 2019|For Subscribers|
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Wolverine Trading’s Book: Hiding in Plain Sight

"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 With this one, we're just going to let the visuals speak for themselves, for now - and see how that goes... I lied... Except for this: We have modeled all the 13F reports we could find on Wolverine entities. With the recent post on Jump Trading in mind, notice anything missing?

By |2020-10-05T16:59:14-04:00September 5th, 2019|For Subscribers|
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Jump Trading Confirms Our Congregational Feedback Loop

"...We are not now that strength which in old days Moved earth and heaven, that which we are, we are; One equal temper of heroic hearts, Made weak by time and fate, but strong in will To strive, to seek, to find, and not to yield." - from "Ulysses" by Alfred, Lord Tennyson "It ain't about how hard you hit, it's about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That's how winning is done!" - Rocky Balboa The clues can be very subtle, but they are there - if you choose to pay close enough attention. We stumbled over one such clue recently. Or, did that clue somehow announce itself to us? You be the judge... Here's the setup: In January 2019, Alphacution published a post entitled, "Jump (Experiments In) Trading, LLC" wherein we note, among other highlights, that there may have been a mistake in one of their 13F filings; specifically, a report for Q4 2014. In [...]

By |2020-10-05T21:29:10-04:00September 4th, 2019|Open|
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Throwing in the Towel on US Equities? UBS or Credit Suisse Could Be Next…

“Turning points in human consciousness occur when new energy regimes converge with new communications revolutions, creating new economic eras.” – Jeremy Rifkin Like watching a movie in slow motion, this week Alphacution adds some incremental modeling on UBS and Credit Suisse to its recent analysis on bank-owned broker-dealers.  We start with this metaphor to emphasize the caveat that anything observed in slow motion may be prone to some illusion. So, this opening is simply fair warning - and a grain of salt. Also, for those of you who are new to the thread and want to catch up, we started with "Remembering Deutsche Bank: A Market Macro-Structure Canary?" and then followed with "Goldman, Morgan and Deutsche: Comparing Bank-Owned Broker-Dealers in Equities." Both are worth a read... (The rest of us will wait here while you do so.) Anyway, if we were to take Deutsche Bank Securities, Inc. (DBSI) as a guide, wherein 18-year lows of measures like gross cash equities - which is the sum of equities owned and equities "sold [...]

By |2020-10-05T17:02:43-04:00August 28th, 2019|For Subscribers|
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Virtu Financial: The Frying Pan and the Fire

"If you are not growing, you are dying." - Tony Robbins On August 8, Virtu reported Q2 earnings and the stock (VIRT) fell 18%. Non-GAAP EPS came in lower than Street estimates. In addition to the costs of integrating the ITG acquisition, disappointing results in the market making segment were blamed on lower volatility and trading volumes. Now, here's what you're never going to hear from the company: The Frying Pan: Both the market making and execution businesses are under significant spread and fee pressure. If there isn't an ongoing arms race for speed - which there still is - then there's intense competition around execution costs. Payments for order flow continue to rise as a result. And, some are exiting the equities brokerage business... 2. The Fire: They claim to be diversified. They try to become more diversified. And yet, they remain grossly over-weighted to equities and ETFs. The increased balance sheet that resulted from the KCG acquisition has not been lightened up, now 2 years later, despite [...]

By |2020-10-14T21:43:52-04:00August 22nd, 2019|For Subscribers|
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Goldman, Morgan, Deutsche: Comparing Bank-Owned Broker-Dealers in Equities

"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." - Steve Jobs In a Feed post entitled, "Remembering Deutsche Bank: A Market Macro-Structure Canary?," Alphacution hinted that our modeling of Deutsche Bank Securities, Inc. (DBSI) was really a "first step towards quantifying the ongoing battle between and among bank and non-bank broker-dealers (BDs) and market makers..." Well, perhaps this post is the second step. So, let's briefly revisit why measuring and comparing various BDs at the center of the market ecosystem - otherwise known as the structural alpha zone - might be important: By now, many of you are familiar with Alphacution's asset management ecosystem map and our core hypothesis that since the capacity of alpha is finite, dominant players that operate in closest proximity to sources of liquidity ultimately impact the capacity of residual alpha that is available to be harvested in neighboring sectors of the map, namely the active [...]

By |2020-10-05T17:06:07-04:00August 7th, 2019|For Subscribers|
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