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.

Optiver, IMC, and a Shout Out to AmsterdamTrader

It has been almost exactly 2 years since "Jack" - the mastermind behind the Amsterdamtrader blog that chronicled a ton of insider's knowledge about the high-frequency trading and market making world from about 2009 thru 2016 - posted his closing submission. Despite that, I still wanted to pause for a minute to give props where they are due. The contents of the Amsterdamtrader still sit out there in the blogosphere, open for any particular puzzle solver to stumble onto. It was here that I found several missing pieces to Alphacution's modeling puzzle belonging to Optiver and IMC. Here's a first sample (or two) of what has come of that discovery: Alphacution typically looks through a technology lens to see how various players operate around the global financial landscape - and what those findings may foreshadow for other players in neighboring regions of the ecosystem. Often labeled "technical leverage," we are quantifying - wherever possible - the impacts of technology in and around the trading and investment management arena. In practice, [...]

By |2020-10-14T21:49:37-04:00January 10th, 2019|For Subscribers|
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Citadel Securities’ Book: Hiding in Plain Sight (Teaser #2)

Image Credit: Liu Bolin “The problems are solved, not by giving new information, but by arranging what we have known since long.” – Ludwig Wittgenstein It is said that the best way to eat an elephant is one bite at a time. And, since the aggregated 13F filings of Citadel Securities represent such an elephant-sized trove of delicacies - not to mention the contextual value it brings relative to so many other players - we are only going to chew on a couple new bites for right now. First, we recently made a splash about the product composition of the US "stock" market, and the fact that it's mostly made up of derived products, in the post, US Stock Market is Made of These! More specifically, it should come as no surprise that the product class with the highest growth (since we started our indexing in Q1 2010) is ETFs - followed predictably by ETF options (see chart below). So, one factoid that may be worth further contemplation is the point at [...]

By |2020-10-14T21:49:48-04:00January 9th, 2019|For Subscribers|
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The Incredible Disappearing Financial Advisor?

"Tug on anything at all and you'll find it connected to everything else in the Universe..." - John Muir One of our favorite trends to track around here is the pace of change in workflow automation for trading and investment management processes. It is likely the one monumental driver of change that few are paying attention to (as a measure of success) - and even fewer are developing methods to quantify... So, several months ago, when FINRA (the Financial Industry Regulatory Authority) published its very first "industry snapshot" - the eponymous 2018 FINRA Industry Snapshot - we decided to see if we could use it to enhance any of the components of the broader financial ecosystem that we had previously modeled. After all, Alphacution's initial asset manager study (April 2018) had already highlighted a very healthy 7.3% 11-year CAGR in assets under management growth since 2005 for the sample of 60 large managers in that study (see below)… ... and, we had already made some fairly clear rumblings prior to [...]

By |2020-10-05T21:25:08-04:00January 8th, 2019|Open|
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US Stock Market is Made of These!

"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 (~1500) "The real voyage of discovery consists, not in seeking new landscapes, but in having new eyes." - Marcel Proust (1923) In August 2018, I did what I rarely do anymore: Cut an article out of a newspaper. The title and topic caught my eye, and eventually became the catalyst for some of the analysis presented here. Amongst all the digital gear, I still needed a physical marker to remind me... "The Stock Market Is Shrinking. That's a Problem For Everyone." (Jeff Sommer, New York Times, 8/4/2018) It turns out that if you search on a title like this, the story comes up several times over the past couple years. Forbes actually did a similar story after the NYT did the one above. Barron's did one before that, in mid-2017. In any case, the articles from 2018 are both based on a report by Rene Stulz of [...]

By |2020-08-17T07:14:05-04:00January 3rd, 2019|For Subscribers|
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Flow Traders’ Book: Hiding in Plain Sight

Image Credit: Liu Bolin “The problems are solved, not by giving new information, but by arranging what we have known since long.” – Ludwig Wittgenstein Launching ourselves right into a new year with a continuation of our curiosity with all the delicious clues lying around in plain sight, we give you a morsel of Flow Traders' book. Perhaps not the precise bromide for your hangover, but one that may end up tickling your intellect and soothing a need for a creative distraction at the same time... In the chart below, we present the shape of Flow's long portfolio value for the 28 quarterly snapshots beginning 12/31/2011. (For a little background on why we present this chart without the numbers, see our recent example on Citadel.) As of now, Alphacution interprets an upward sloping long portfolio value as a sign of success from either position count scaling and/or average position size scaling. Now, since I've already had the debate with a few of the high-speed, market-making types (on the potential illusions of 13F [...]

By |2020-10-14T21:49:57-04:00January 2nd, 2019|For Subscribers|
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Open Access Library Archive

The purpose of the Open Access libraries, and the solicitation to register for access to that library, was to openly share certain research output as examples of what could be found in the Premium Access Library, and to assess levels of interest in various themes. The Open Access libraries originally contained traditionally-formatted reports (i.e. - PDF documents) and various exhibits (i.e. - Powerpoint slides). The Open Exhibit Library was an assembly of all the exhibits that had been published in the various Feed posts. For technical and administrative reasons, Alphacution has temporarily discontinued updates to these libraries until such time as the functionality and security of the various site components can be enhanced for ease of maintenance and navigation. For those of you who have registered to access these components of Alphacution's research archive via our original login functionality, we have assembled those documents that were made available for download as follows. For the foreseeable future, additional document downloads will be found in specific Feed posts: 1) Executive Summary: The [...]

By |2020-10-05T21:24:57-04:00December 31st, 2018|Open|
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What Is The US Stock Market Really Made Of?

Our recent foray into an analysis of the SEC's Form 13F reporting continues to bear fruit; arguably more fruit than can unreasonably be consumed at even the most festive holiday feasts. And yet, we must soldier on, if for no other reason but curiosity... Here's the quick setup for this one: Each quarter, the US Securities and Exchange Commission (SEC) publishes its list of equity and equity-linked securities for which certain asset managers (with aggregate holdings valued greater than $100 million) must report their gross notional long positions. (For more background, refer back to "Goldman Sachs' Book: Hiding in Plain Sight.") For all intents and purposes, this comprehensive list IS the quarterly rolling contents of the US "stock" market. In early 2010, this was a list containing nearly 15,000 unique CUSIP numbers. So, it occurred to us take a closer look at how these contents - from plain vanilla equities to convertible preferred's to options and, yes, to exchange traded funds (ETFs), among other product types - have migrated over [...]

By |2020-08-17T07:14:05-04:00December 28th, 2018|For Subscribers|
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Top 10 Stories of 2018

“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 2018 was a truly fascinating one here at Alphacution, thanks to you... A little over three years into this project - and a ton of diverse, experimental research on the impacts of technology within the global financial services ecosystem - and, in many ways, we have only just begun to hit our stride. This is mainly because of something you and me now have in common: It seems that I have finally figured out how to strike the chords that you want to hear... In 2018, our newsletter grew to be distributed to nearly 20,000 capital markets executives; mainly including those stakeholders related to the most advanced trading strategies and trading operations in the world. For each of the last 15 newsletters, average distribution was ~16,400 and average opens were ~5,500 (or, over 33%). This audience includes most of the founders, CEOs, senior executives [...]

By |2020-10-05T21:24:43-04:00December 27th, 2018|Open|
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Citadel Securities’ Book: Hiding in Plain Sight (Teaser #1)

Image Credit: Liu Bolin “The problems are solved, not by giving new information, but by arranging what we have known since long.” – Ludwig Wittgenstein Like discovering a secret doorway into a long-forgotten section of the Great Library of Alexandria, our recent focus on the data contained in the SEC's Form 13F has been nothing short of captivating. Yes, one interpretation of these reports - the most common interpretation - is that these reports merely represent a fleeting and illusory fragment of an asset manager's holdings. However, if you were hunting for puzzle pieces (to reverse-engineer the inner workings of a complex system) in the equivalent of a sensory deprivation chamber, and then someone lit a match for a split second, the amount of information you could collect off the back of that spark would be profound. In other words, the findings so far from this foray of ours into the 13F analysis has been quite valuable. As we will begin to demonstrate, even fragments of position- and portfolio-level attribution data can [...]

By |2020-10-14T21:50:14-04:00December 20th, 2018|For Subscribers|
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Digging Liquidnet With ITG’s Shovel

"Not that the story need be long, but it will take a long while to make it short." - Henry David Thoreau With the help of our ITG modeling - and a recently discovered S-1 filing for Liquidnet from 2008 - we present the following storyboard. Though some of you will miss the lyrical wordsmithing, this one is presented without the usual auditory accompaniment. Perhaps this will help lubricate some questions from the audience... Using data from our ITG model, and some old financial data from Liquidnet's S-1 filing in 2008, we were able to leverage current headcount and contextual revenue per employee (RPE) estimates to update the current revenue estimate for Liquidnet. This is one small example of the benefit of Alphacution's "Sudoku Puzzle" modeling methodology. As always, if you value this work: Like it, share it, comment on it – or discuss amongst your colleagues –  and then send us feedback@alphacution.com. As our “feedback loop” becomes more vibrant – given input from clients and other members of our [...]

By |2020-08-17T07:14:06-04:00December 19th, 2018|For Subscribers|
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