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Ranking of Select US Option Market Makers

"The book of nature is written in the language of mathematics." - Galileo Galilei As we prepare to turn the page on a new year, and consider what we may want to accomplish during that year, derivatives are on the priority list. Why? Options are important for many reasons from risk management to computational rigor and signal generation. And, if you had been paying close enough attention over the course of this year, you might have noticed that each of our case studies have touched, in one way or another, on options. Now, given that Alphacution is committed to its research providing new pictures to ponder, I wanted to drop the following chart on you with little additional commentary for this go 'round - except to say that the plan right now is to dedicate a full case study to the key players in options trading during 2020. Stay tuned... Until next time...

By |2020-08-17T07:14:02-04:00December 5th, 2019|For Subscribers|
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Balyasny’s Book: Hiding in Plain Sight

“Even though the transformation of energy, in all of its various forms, is the very basis of all economic activity, only a tiny fraction of economists have even studied thermodynamics. And only a handful of individuals inside the profession have attempted to redefine economic theory and practice based on the energy laws.” - Jeremy Rifkin, The Third Industrial Revolution With this Feed post, Alphacution adds Balyasny Asset Management, LLC (BAM) to its growing roster of modelled trading firms. BAM is a multi-strategy multi-manager investment firm who is often compared to the likes of Millennium, Point72, and Citadel. We might go a bit further to add Two Sigma and AQR Capital Management to a broader description of other large hedge fund managers that operate in the active management zone of our ecosystem map. To more specifically define BAM's core strategy genre as statistical arbitrage is likely to go a bit too far on the active and automated strategy spectrum, as its material reliance on fundamental analysis would more accurately put it [...]

By |2020-08-17T07:14:02-04:00December 1st, 2019|For Subscribers|
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Citadel Punks Blackstone – Part 2

"What is to give light must endure burning." - Viktor Frankl “The backbone of surprise is fusing speed with secrecy.” – Carl von Clausewitz   UPDATE 11/21/2019 (bottom of post) Why is it coming out now, apparently months after the talks took place, that Blackstone inquired about buying a stake in Citadel? There are a few reasons we can think of for monetizing coveted equity - or, at least showing enough leg to solicit an updated "mark" on the assets - but, the most likely one has been the same for years: Ken wants to become an investment bank. Ok, so what does Citadel need to become an investment bank that it doesn't already have? Well, given leadership - and, occasional dominance - in listed equity-linked markets by Citadel, the next beachhead for investment banks-in-training is fixed income. And, Citadel-like prowess in fixed income may require lots of technology and smart folk, but the one thing it definitely needs is balance sheet. The next question, then, is: Do you build [...]

By |2020-10-05T16:23:58-04:00November 21st, 2019|For Subscribers|
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Saved By Zero? Virtu’s 30 Quarters of Payments For Order Flow

"The idea of the song is how great it is to get back to zero." - Cy Curnin, The Fixx frontman, in reference to the Buddhist mantra, Śūnyatā Today, Amazon announced that it would be launching cashierless grocery stores in 2020. Immediately, a thought-bubble arose above my head and played a scene from the Illinois Tollway when my E-ZPass battery went dead, and I spent a half hour - the lane I was in all backed up with frustrated travelers - pushing buttons in the vain attempt to cause a person to show up. Just send me a bill for the busted tollgate next time... No, thank you. I don't want to scan and bag my own groceries... I don't want to go fill my own plate at restaurants... And, I don't want to trade in a market that has been sanitized of all intermediaries with a pulse...  Because that's where we're headed; the exact wrong and utterly Simpletonian outline of a "free market," where all levers conspire to deliver [...]

By |2020-08-17T07:14:02-04:00November 20th, 2019|For Subscribers|
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Tower Research Capital: The Joy of Spoofing

On November 7, 2019, the U.S. CFTC (Commodity Futures Trading Commission) announced that it was ordering proprietary trading firm, Tower Research Capital, LLC (TRC), to pay $64.7 million in restitution, disgorgement and penalties for what amounts to the "largest total monetary relief ever ordered in a spoofing case." Apparently, this is all due to activity in equity index futures (at least) between March 2012 and December 2013. Now, this is one of those slippery - and potentially toxic - topics where someone ends up getting pissed off by whatever I say next. But, hey, it's Thanksgiving season, the Arctic blast has arrived 3 months early, and someone's likely to get pissed off anyway... Actually, this is a topic I have much to say about, and maybe even more questions than answers. For instance, why is so much of the spoofing / layering litigation on the futures side? (Is there no spoofing in equities? Or, just harder to find?) And, why does it take so long? We're nearly six years past [...]

By |2020-08-17T07:14:02-04:00November 14th, 2019|For Subscribers|
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Adding Merrill Lynch to Bulge Broker Equities Analysis

As we approach the completion of our initial bulge broker analysis in equities - leaving Citi, Barclays and BNP Paribas modeling among some of the remaining work to be done - today's addition to the thread is none other than the masthead for what used to be known as the "Thundering Herd": Merrill Lynch Pierce Fenner & Smith. Kudos to those of you who acknowledge the oft-forgotten role played by Messrs. Pierce, Fenner & Smith. Anyway, we add this one to the rankings at an unusual time, given that - now over a decade since their shotgun wedding - Bank of America has spent some time and energy in 2019 rebranding all but a few of the Herd's remaining jewels. One impact of this effort will now place BofA Securities, LLC as the group's institutional broker-dealer arm. To wit, from the bank's latest 13F report: "Effective May 13, 2019, the U.S. brokerage operations of Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S), an indirect wholly-owned subsidiary of Bank of America [...]

By |2020-08-17T07:14:02-04:00November 13th, 2019|For Subscribers|
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Virtu Financial: Q3 2019 Update #1

“Making mountains out of molehills sells more books than a study of molehills." - Cliff Asness With Virtu's Q3 2019 earnings out this past Monday (Nov 5), but the Q3 2019 13F report coming out next week, we are going to keep most of our powder dry for this one. However, since much of what we are trying to do here is convert new information into new "shapes" - and therefore, take the occasional opportunity to conserve our words - we offer a couple updated pictures. You might draw your own conclusions... One thing's for sure, the concentration of market making and trading related revenue has been notably diluted since the closing of the ITG acquisition in March (2019). More coming over the next couple weeks...

By |2020-10-05T16:27:10-04:00November 7th, 2019|For Subscribers|
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More Bridgewater Associates: Modeling Ray Dalio’s Modeling

"Treat your life like a game." - Ray Dalio   In many ways, aspects of this research are like playing a game of "Name That Tune." With a few snippets of data, we try to figure out what's going on with a trading or investment strategy - and by extension, the business strategy, too. Certainly, boosting the signal of a snippet or two of data can be done with contextual evidence; other snippets of data from neighboring strategies and players that help improve the accuracy of our interpretations. And yes, by now, this is all starting to sound a little rudimentary. "Of course. Obviously. Sure, that's been well known for a while..." But, though it now seems like years, it's only been eleven months since publishing our first "Hiding in Plain Sight" post. It's an understatement to say that we've learned a ton in that time because certain components of the landscape - a spectrum of strategies; zones and emerging rankings of competitors among them can now be seen with [...]

By |2020-10-05T16:30:58-04:00October 30th, 2019|For Subscribers|
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HSBC: Considers More Towel Throwing in US Equities

"The Adviser integrates information, computing power and human skill to attempt to systematically extract alpha." - Two Sigma Advisors, LP brochure On October 17, 2019, Bloomberg reports that "HSBC Considers Equity Pullback in London, New York, Germany." We used this as a catalyst to add to our ongoing bank-owned broker-dealer modeling. Here's a review of Alphacution's prior analysis in this space: Alphacution has begun to assemble a composite model on bank-owned broker-dealer operations. Before now, we have conducted the first phase of modeling for: Goldman Sachs & Co. Morgan Stanley & Co. Deutsche Bank Securities, Inc. UBS Securities, LLC Credit Suisse Securities (USA), LLC J. P. Morgan Securities, LLC - formerly known as Bear Stearns & Co. Among the notable players remaining, we still need to add Bank America / Merrill, Citigroup, Barclays, BNP Paribas and likely Nomura, too. In time, we could expand further from there... However, given this latest news referenced at the opening, we now add SocGen's and HSBC's broker-dealer arms, SG Americas Securities, LLC and HSBC [...]

By |2020-10-14T22:31:03-04:00October 23rd, 2019|For Subscribers|
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