Paul

"Design is not just what it looks like and feels like. Design is how it works." - Steve Jobs In the lead up to the publication of our next case study on legendary derivatives trading powerhouse Susquehanna International Group (SIG), I wanted to provide context on how the proverbial sausage is actually made: Maybe it is true of most firms across most industries, but what we have found in the trading business is that companies tend to become more complex as they mature, particularly if they have enjoyed outsized success. Whether incubated internally or bolted on from the outside, the portfolio of legal entities tends to expand - although not always in linear fashion - as these firms grow and diversify their strategy mix (which in many cases is accompanied with a parallel expansion of legal entities). And, while we expect to discover new levels of complexity when we get to the point of modeling some of the sell-side entities most relevant to the global markets ecosystem - with Goldman [...]

"When everything seems to be going against you, remember that the airplane takes off against the wind, not with it." - Henry Ford Please forgive me for trying to squeeze just one more reference to HBO's hit series out of the tube, but it turns out that "GoT" is not the only G.O.T. In our current mission to focus on those notable players who thrive in closest proximity to the sources of market liquidity (in order to quantify their impact on the broader asset management ecosystem), we finally found time to explore and model the other G.O.T - Group One Trading, LP (GOT). Now, for those of you who are just joining the thread, you might consider starting with our piece on the Top 100 Players in US Listed Market Structure where we place GOT as a member - and for the exceedingly ambitious, you might rewind further to our study, The Context Machine: Estimating Asset Manager Technology Spending, which ultimately supports the hypothesis that defines our ecosystem mapping framework that has [...]

If you're not failing, then you're not pushing your limits, and if you're not pushing your limits then you're not maximizing you're potential." - Ray Dalio When we first exposed our initial thoughts on this legendary hedge fund manager in Bridgewater Associates: Modeling Ray Dalio's Modeling, the key finding was that their investment strategy was impersonating that of a macro manager (which historically relied largely on futures) by using ETFs to shoulder the primary market factors. In the chart below, Alphacution presents an illustration of the portion of 13F market value represented by a very short list of ETFs: Now, having expanded our modeling template (over several other trading firms) to include more analytics - and with the benefit of a couple more 13F reports to update our existing Bridgewater model, there are more key findings to share: First, the market value of 13F securities reached an all-time high for the 54-quarter period beginning Q4 2005 and ending Q1 2019. This should come as no surprise given widespread media accounts [...]

"If we knew what it was we were doing, it wouldn't be called research, would it?" - Albert Einstein For this one we need to go all the way back to the first time we illustrated the fact that KCG's market making operation - the artist fka GETCO (or, Octeg for the uber-insiders) - was more sensitive to volatility than Virtu's market making operation, as illustrated below: Now, I know we've spent an inordinate amount of time on these names and related topics, but I'm going to beg your indulgence on this one because the findings are uniquely cool - and I'll keep it fairly short: Specific sensitivities to volatility by different trading platforms notwithstanding, the condition that yields the greatest potential for outperformance of these market making strategies tends to occur when realized volatility exceeds implied volatility. It turns out that since these strategies are actually not set up to predict volatility very well they are therefore designed to remain in a defensive posture along with the prevailing vol [...]

Picking up where we left off with Fidelity's unprecedented shift in total (13F) position count in late 2018, we turn to another anomaly disclosed by our modeling: In the exhibit below, Alphacution presents its position concentration analysis for the entire 25-year 13F record for Fidelity. Here, we are not only looking at the value of the Top 10 positions as a percentage of all 13F positions, but also the fully-loaded Top 10 positions, which means across all reporting entities. We also look at the largest position as a percentage of total position value and the isolated Google / Alphabet values, since Class A and Class C shares were both in the Top 10 for a while. Anyway, long story short: What does it mean when Fidelity doubles its (13F) positions from roughly 5,500 to 10,100 - which in this case is likely all US stocks positions since there is not likely to be much if any short positions - at the same time that the aggregate value of the Top [...]