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"Don't hate the player, hate the game." - Jeff Jarrett "Don't hate the player, change the game." - Steve Harvey As we seemingly make a sharp turn from the classically-drunken "I love you, man" phase of the cycle and barrel headlong towards #peakinsanity - as if the wheels are still attached to the clown car blasting along a winding road upon which a noted hedge fund trophy hunter has just stitched a small $99 million coda onto his existing Griff-a-Lago compound (a quarter mile stretch of Florida's "Billionaire's Row" beachfront) as the latest addition to the rest of his discrete, not-compensating-for-anything display of uber-luxury real estate holdings; while some $17 trillion of European sovereign bonds have been issued with negative rates; and, the White House is 6 tweets away from causing the printing press for the global reserve currency to be moved from Mr. Powell's office into the Oval - we now have this: Hong Kong Exchange (HKex) is making an unsolicited $36.6 billion bid for LSE. Sure...  Why not? [...]

"...We are not now that strength which in old days Moved earth and heaven, that which we are, we are; One equal temper of heroic hearts, Made weak by time and fate, but strong in will To strive, to seek, to find, and not to yield." - from "Ulysses" by Alfred, Lord Tennyson "It ain't about how hard you hit, it's about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. That's how winning is done!" - Rocky Balboa The clues can be very subtle, but they are there - if you choose to pay close enough attention. We stumbled over one such clue recently. Or, did that clue somehow announce itself to us? You be the judge... Here's the setup: In January 2019, Alphacution published a post entitled, "Jump (Experiments In) Trading, LLC" wherein we note, among other highlights, that there may have been a mistake in one of their 13F filings; specifically, a report for Q4 2014. In [...]

"Research is what I'm doing when I don't know what I'm doing..." - Wernher von Braun Overview The modern capital markets era begins in the mid-1970’s with the emergence and then convergence of three critical factors: derivatives, computers and data feeds. Together, these factors symbolize the birth of the quantitative research revolution and beginnings of trade workflow automation, and therefore, propel the conception of some of the most consequential product developments, trading strategies and trading firms that the financial world has ever known. A subset of the most notable players were the pioneers in the emerging listed option market. In some ways, they were also the pioneers in quantitative research – the “first quant shops” - developing advanced capabilities in the modeling of option pricing frameworks by way of computers and mathematics. Of these, the primary leaders included Chicago’s O’Connor & Associates (OCA), founded 1977; Chicago Research & Trading (CRT), founded 1977; and Hull Trading, founded 1985. Philadelphia was strongly represented by Cooper Neff & Associates, founded 1981; [...]

< Insert inspirational employee-oriented quote here > There was a time when we dedicated a lot of effort on these pixelated pages to the impacts of technology on the bulge bracket investment banks and other major sell-side players. We even set out to tracking the aggregate headcounts of the top 9 investment banks - a Headcount Index, of sorts - as one paradoxical attempt to quantify the adoption of technology, and therefore, the implied pervasiveness of workflow automation in the post-Global Financial Crisis (GFC) era. The idea being that increasing workflow automation would ultimately yield lower headcounts. Having turned much of our attention over a year ago to the more fertile and distinguishing research territory of the secretive buy-side, it's been quite a while since we've stopped to check back on the banking community within which we started. Deutsche Bank's Monday July 8th announcement of a radical restructuring involving 18,000 layoffs that could see the entire elimination of its equity sales and trading division is the catalyst for our return [...]

"Learn how to see. Realize that everything connects to everything else." - Leonardo DaVinci Capital formation... Price discovery... These are the primary goals of market structure mechanisms. A place to gather - whether that place be a Buttonwood tree or a bank of caged servers - and a playing field framed with enough freedom for participants to discover and set asset prices based on publicly available information. Now, as most of you know, this opening salvo can go off the rails and into the complicated (and sometimes angry) weeds rather quickly. And, under most circumstances, I'd be happy to throw a few stones: There are strong arguments to be made that technology and regulation have (permanently) altered the nature of capital formation mechanisms in the digital era, which may be why private market solutions are thriving so much - and why the stock market is actually made up mainly of things other than stocks. Meanwhile, price discovery is no longer real price discovery as long as the price of money [...]

"I'm watching intelligence." - Jeff Daniels (May 20, 2019) Alphacution is in the process of "making a market" for intelligence about some corners of the financial ecosystem where there has historically been very very little. Most of what can be learned about the companies we focus on - market makers, prop trading firms, and quant hedge funds - is anecdotal. Hearsay. Rumor. And, of course, the occasional sensationalistic newspaper riff about gargantuan pay days and trophy purchases of real estate, art and toys that float... Sure, our friends at Hedge Fund Research and Hedge Fund Alert do a great job of keeping track of performance, key executive movements, and even develop strategy indices relating to many of the most fascinating players in this ecosystem - and yet, no one is tying the broader landscape together the way that Alphacution is doing it. Now, in most cases, these types of firms would greatly prefer to remain as quiet and invisible as possible mainly because information leakage can expedite the inevitable decay [...]

Image Credit: Fabian Oefner "Research is what I'm doing when I don't know what I'm doing..." - Wernher von Braun Overview It was July 18, 2018. The scene was the 8th annual CNBC- and Institutional Investor-sponsored Delivering Alpha Conference. One of the main highlights of the event is Andrew Ross Sorkin’s fireside chat-style interview with Citadel founder, Ken Griffin. Among the many topics covered, the discussion confirmed that “1 out of every 5 stocks is trading through Citadel Securities.” In complement to this claim, a Risk.net article, dated November 27, 2018, further revealed that Citadel Securities’ “total market share in US equities now exceeds the 20% it had 12 months ago and the 17% it clocked two years prior.” Assembling these disparate fragments together with a few additional clues of data lifted directly from the Citadel Securities website, it is possible to illustrate a very impressive path that culminates, in Alphacution’s estimation, at a US equities market share of between 23.5% and 25%, as of the end of [...]

"In good information visualization, there are no rules, no guidelines, no templates, no standard technologies, no stylebooks... You must simply do whatever it takes." - Edward Tufte Whether you are a consumer or purveyor of data for the application of financial markets risk transfer, there's something in here for you. Let's start with a quick trip in the Wayback Machine: In a report that I authored for TABB Group that was published in June 2011, "Quantitative Research: The World After High-Speed Saturation," one critical concept presented there that has proven itself to stand the test of time, and I expect to continue to do so for the foreseeable future, is this: "As strategies and quant directives change, the need for effective communication with stakeholders will march in parallel. Though quants are not usually known for their silver tongues, we strongly encourage them to meditate on one word: pictures. Rather than turning your backs on spreadsheets, embrace them as the best solutions for reporting, visualization, collaboration and concept development. At the [...]