Alphacution contributor, Stanislav Dolgopolov, provides a detailed review of potential regulatory issues - including payment for order flow (PFOF), the multiplicity of roles of off-exchange market makers, and their informational advantages, among others - that may receive new scrutiny in the aftermath of the GameStop congressional hearings.
In Part I of Alphacution’s case study on payment for order flow (PFOF), we focused mainly on the rates paid by wholesale market makers to retail brokers under a full range of securities categories and order type scenarios. In this 22-page, 20-exhibit deck, Alphacution presents PART II of its upcoming comprehensive case study, The Robinhood Effect, with a focus on a concept called broker personas. Alphacution’s working hypothesis on this topic is that each retail broker – in fact, all order flow intermediaries – have a unique persona. This persona – a unique pattern formed by order type distributions – is a distillation of client trading behaviors. In this presentation, Alphacution demonstrates that broker personas are partly due to investor demographics and, more interestingly, partly due to broker influence. Furthermore, when we broaden our perspective to consider that retail brokers are now compensated for trade flows largely by their wholesaler counterparts, we see a clearer picture of how desired outcomes could be manufactured…
2020 will be remembered for many reasons. In the context of Alphacution’s ongoing research focus, we want to remember 2020 as the first full year of enhanced transparency into the mechanics and impacts of the long-held practice of payment for order flow (PFOF). In this 23-page, 20-exhibit deck, Alphacution presents PART I of its upcoming comprehensive case study, Payment For Order Flow 2020, with a focus on order routing rate heatmaps.
Today - February 26, 2021 - at 12:13pm ET - in what appears to be a well-managed front run of press collaboration, the Wall Street Journal published "Robinhood in Talks to Settle Finra Probes Into Options-Trading Practices, Outages" based on a filing that says the company is also being examined by the SEC, states. Here are the key parts of that filing - and then some...
"But how do we know when irrational exuberance has unduly escalated asset values?"Alan Greenspan By now, everyone - and I mean, EVERYONE - knows about how "GameStop (GME), [the] hedge funds’ most-hated stock, was targeted by an army of retail investors who marshaled forces against short sellers in online chat rooms. In the Reddit forum “wallstreetbets” with more than 2 million subscribers, rookie investors encouraged each other to pile into GameStop’s shares and call options, creating massive short squeezes in the stock," according to a synopsis of the saga by CNBC. In short - so we're all on the exact same page - there's been an epic short squeeze off the back of a classic pump-and-dump scheme. Period. But, what makes this particular short squeeze notable in the history of all short squeezes is that it was fueled - and ultimately, turbocharged - by leveraging social media tools, like Reddit and the Robinhood trading app - among other trading platforms like Interactive Brokers (IBKR) and Webull - and has been [...]
"In playing ball, and in life, a person occasionally gets the opportunity to do something great. When that time comes, only two things matter: being prepared to seize the moment and having the courage to take your best swing."Hank Aaron ** The executive summary for Alphacution case study, "The Rise of Hudson River Trading," is also available for free download (with registration) in our Reports Library ** Introduction As if on cue, and apropos of the times, a tweet by Joe Gawronski, President of Rosenblatt Securities states that December 24, 2020 marked the first time ever that off-exchange trading represented the majority of US equity volume (50.38%): Rewinding from there to a Reuters article dated January 16, 2018 entitled “Hudson River Trading to buy rival HFT firm Sun Trading,” HRT’s co-founder and director, Jason Carroll, said in a statement, “This acquisition combines HRT’s expertise in on-exchange trading with Sun’s expertise in off-exchange trading creating a stronger, more diverse firm.” What happens between these two points in time is no accident. [...]
"You cannot escape the responsibility of tomorrow by avoiding it today."Abraham Lincoln With protestors storming the U.S. Capital - some of which breaching the outer doors and freely strolling the U.S. Senate floor - as surreal and unprecedented backdrop, I sit down to organize a sketch of Alphacution's outlook for the year ahead, starting with a very wide lens: The U.S. economy - much like the rest of the other "developed world" economies - is naturally weaker than the meticulously curated employment and productivity numbers suggest. Technology adoption (from workflow automation to social media distraction), growing debt burdens, ossified resource allocation practices, cross-region labor arbitrage, deteriorating infrastructure, and other factors all converge to deteriorate "life, liberty and the pursuit of happiness" for a growing portion of the population. The COVID pandemic of 2020 - and however long it remains disruptive throughout 2021 as vaccines are being rolled out - acts as an accelerant of many of these factors. Ours is a deteriorating version of capitalism. Symptoms emblematic of the stage [...]
"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. You have to trust in something - your gut, destiny, life, karma, whatever." Steve Jobs I was going to start out by saying that it's been a pivotal year for Alphacution. Problem is, I said the same things at this time last year. So, I supposed that means it's been a good coupla years. The pandemic, volatility, subsequent lockdown - and some luck in timing - drove a lot of attention towards Alphacution's content in 2020. Clearly, Robinhood and payments for order flow (PFOF) were top themes for the year. Our Feed post on Robinhood and trailing stop orders led the year in page views, and represented like no other before it what it looks like when a story goes viral. Not to be outdone, the timely post on the downfall of Ronin Capital also attracted a ton of attention. In fact, if [...]
In light of current events, we bring this one back from the Alphacution archives. Welcome to - uh - Throwback Monday? < This is a test. This station is conducting a test of the Emergency Broadcast System. This is only a test.> I had been in this room before. It was the early post-Dodd Frank days. Maybe February 2012. I had authored a study on the impacts of new regulations on collateral and initial margin requirements for OTC derivatives (OTCDs). The study had been commissioned and was being promoted by the World Federation of Exchanges (WFE). Largely as a result of my global initial margin estimate of US$ 2 trillion for OTCDs, it had made a big splash. On the back of this, the event invites and media came knocking. My friend, John McPartland – “McP” to those who knew him longer than 15 minutes – invited me to present at a monthly luncheon for Chicago financial muckety-mucks. Now, it was good to be back. For this night’s event - [...]
It's been a long time coming... And now, after a few years of digging for data, modeling that data, creating pictures of that modeling, publishing snippets of insight around those pictures, growing our network to the point where several thousand of you are regular consumers of our output, and ultimately earning enterprise subscriptions and other engagements from many of the top trading firms in the world and other key ecosystem stakeholders, Alphacution is formally moving to a subscription model.