Paul

It's a holiday shortened week and a lot of folks are OOO with brain settings dialed to low intensity. So, we will keep this one short, tight and appropriately entertaining: With the heavy lift of the Citadel Securities case study ink (mostly) dry, we now turn our attention to the next series of puzzles. Generally speaking, the puzzles that captivate in the immediate future include 1) the rankings of market makers, prop traders and quant players (both, buy-side and sell-side, wherever applicable) operating within our structural alpha zone, 2) the ranking of players that are dominant in options trading - the Option Gods, 3) the ranking of players that are dominant in ETF trading, and 4) the subset of these rankings where players are strong across all of these factors. NOTE: If you are not directly involved in or with the market participants and stakeholders in the structural alpha zone, change the channel at your own peril. If you think what is going on here in close proximity to the [...]

"There is no avoiding pain, especially if you’re going after ambitious goals." - Ray Dalio The dominoes started falling years ago. It is only now - last week, on 4 April, to be precise - that we receive a new perspective on the data. Here's the setup: Quantitative methods and automated trade workflows started to shift the consumption of market data from eyeballs to servers way back in the 1990's. As automation of front-office (i.e. - signal generation) and middle-office (i.e. - trade execution) increased, the shift of market data consumption from eyeballs to servers increased as well. When the austerity regimes of the post-GFC period hit in 2010 and after, the convergence with the quantitative migration caused the shift in market data consumption to accelerate. Lower-cost cloud-based offerings for less-intensive use cases only exacerbated this shift. Those market data solution providers that were more heavily weighted to equity markets and revenue concentrations to the sell-side were hit the hardest. We can see these dynamics play out in the Eikon [...]

"Learn how to see. Realize that everything connects to everything else." - Leonardo da Vinci Given our ongoing fascination with 13F reports and the undulating list of 13F securities, which recently gave rise to our post, US Stock Market: Made of These, we have now turned to our old friends - and the data they curate - at the World Federation of Exchanges (WFE) to 1) corroborate some of our findings from the 13F dataset, and perhaps much more importantly, 2) assign a more global perspective to our ongoing analysis. So, with that said, here are a few tasty tidbits to chew one while we bake this research into a more comprehensive meal behind the scenes: In the Exhibit below, Alphacution presents aggregate global stock listings for the full sample of 192 months beginning January 2003 and ending December 2018. Today that figure stands at ~52,000 stock listing among the WFE member exchanges. Meanwhile, the portion of global stock listings in the Americas region - which includes US, Canada, Latam [...]

"Don't let the noise of others' opinions drown out your inner voice." - Steve Jobs "There is no real substitute for common sense - except for good luck, which is a great substitute for everything." - James Harris Simons It was the late 90's, a time when the moniker of "Godfather of the Quants" may have still been open for debate. Edward Thorpe, of Princeton / Newport Partners and among the first mathematicians to study patterns in financial markets, was still active. And, the protagonists for the fascinating tale about beating a Vegas roulette wheel with custom made computers embedded in their shoes (and told in the book, the Eudaemonic Pie), Doyne Farmer and Norman Packard, were still active at the Prediction Company, a unit of UBS O'Connor (which, BTW, was later sold to Millennium in 2013 and ultimately shut down in 2018 with a 27-year stat arb strategy track record including only one down year). And yet, today, the legacy that seems to remain the strongest is that of [...]

The latest figures on order routing revenue are easy to find. With the exception of Robinhood Financial - the new, no commission, retail-focused trading app for stocks and cryptocurrencies - order routing revenue is clearly disclosed by the incumbent trading platforms; namely, TD Ameritrade, Schwab, E*Trade and to a lesser extent, Interactive Brokers. However, in any case, something seems to be heating up as aggregate payments for order flow (PFOF) breaks from the range of the previous five years (2013-2017) to grow 42.3% for 2018, see exhibit below: Now, as for identifying the other side of this ledger - those who make the payments for order flow - that continues to be a bit more opaque. We know who should be on that roster because they are also likely to be a subset of our Top 100 Players in US Listed Market Structure ranking. But that doesn't mean the PFOF figures are dangling from easy-to-find places. To the contrary, they are likely comingled with other figures and obfuscated by aggregated [...]

Image Credit: Fabian Oefner "The voyage of discovery is not in seeking new landscapes but in having new eyes." - Marcel Proust “Learn how to see. Realize that everything connects to everything else.” - Leonardo DaVinci In my mind, memories of the childhood home are dominated by those of vast spaces. A colossal stairway, a living room like a grand ballroom, the front and back yards both like baseball stadiums. My father is there - like a giant sitting at the head of the kitchen table - savoring his freshly unscrolled newspaper. And yet, upon visiting this place as an adult, it presents itself as your basic 3-bedroom layout - barely 2,000 square feet - with postage stamp yards. It turns out, my memories are somehow locked in when I was the size of a toddler. Perhaps, you share the experience of this illusionary twist of perspective... Recently, listed markets have started to mimic this duality of perspective for me. There was a time when the totality of stocks and [...]