Alphacution Riffs Ep 3 – Proprietary Trading, Extreme Automation
This episode of Riffs represents a case study on proprietary trading (including market-making and high-frequency trading) - using our ongoing analysis of Virtu Financial, including its recent acquisition of KCG Holdings. Here, we begin to frame our broader research on what asset managers - including hedge funds - spend on technology as well as the migration of automation along the entire strategy spectrum. More details about the publication of Alphacution's asset manager technology spending study - "The Context [...]
Amazon, Google and the Threat of the Digital Frontier
What happens when a company is smart enough, productive enough and wealthy enough to succeed in any business? One thing's for sure: the roster of incumbents and would-be competitors threatened by that kind of company becomes an extremely long list. This is a threat like none other before because never before has a type of company been able to be so disruptive in so many places simultaneously... In unprecedented fashion, the digital era has given rise to a [...]
Alphacution Riffs Ep 2 – Measuring the Pace of Automation
Episode 2 of our new video series, Alphacution Riffs, picks up where Episode 1 left off - and begins to describe our research mission, modeling methodology and research workflow. We also begin to lay the foundation for our "T-Greeks" benchmarking framework that focuses on measuring and comparing "return on technology" (RoT) - otherwise known as "technical leverage" - for banks and asset managers. Here, we describe how much of our core research effort is currently built on the [...]
Virtu Financial: More Acquisitions on the Way, If…
When we launched our first trading program at Quantlab in the late 90's, we didn't have direct market access yet. We generated an order list (overnight) that was worked throughout the subsequent market session at the discretion of an algo-equipped executing broker; some of whom now roam the halls at Jefferies / Leucadia. This was the era when 1- to 3-day portfolio turnover was considered fast - SOES bandits were still a thing - and Schwab would soon [...]
Nasdaq and the Case of the Missing Market Data
In late April 2017, we noticed a new string of dominoes falling at the fast, automated end of the trading spectrum: With Virtu about to gobble up KCG - not to mention additional consolidations of principal trading groups like RGM Advisors (to DRW), Timber Hill (to Two Sigma) and Chopper Trading (to DRW), among others - it seemed pretty clear that one of the next dominos to fall would be in the direct-feed market data space. The question [...]
Alphacution Riffs Ep 1 – Technology Strategy is Business Strategy
Alphacution is proud to launch its video series, Alphacution Riffs. Not only bringing our clients new levels of intelligence - by quantifying and modeling and benchmarking the critical interplay between technology capital and human capital - for their digital transformations, we are "eating at our own kitchen" by leveraging tools and methods of the era to help make our research - and seemingly complex topics - much easier to understand. The digital media landscape is a jungle - [...]
“Quote Stuffing” and the Collective Intellect
~ This post is a continuation of Decay of Knowledge, Rise of Tech Debt ~ Unless you are among the short list of folks with detailed understanding at the crossroads of financial market microstructure and highly-automated trading, the term quote stuffing might not ring a bell. But, since the concept behind this loaded term is germane to the points I want to make here, it is worth taking a moment to wrap your head around the basics. The [...]
The State of Speed: A Virtu-KCG Post-Mortem
When the deal between Virtu Financial and KCG Holdings was announced in March 2017, we offered the following read of the motivations behind the announcement: Average daily adjusted net trading revenue for Q4-2016 has returned to levels not seen since late 2013 / early 2014. Chances are quite high that persistent low volatility during Q1-2017 has caused these figure to fall back to pre-2013 levels. A situation like that needs a good distraction; something that can change the narrative [...]
Decay of Knowledge, Rise of Tech Debt
Has (information) technology made us smarter? And, are there costs that counteract - if not, neutralize - the perceived benefits of technology? Given the intangible and elusive nature of the impacts, plausible answers to increasingly common questions like these usually defy placement into an analytical framework. This post is our attempt to begin to overcome such impediments and be as objective as possible about the full range of impacts from technology, whether the use case be personal or [...]
Bulge Bank Headcount Index – Q4/2017
Though still tracking at levels last seen in early 2007, Alphacution's index of "bulge bank" headcount - updated through year-end 2017 - continues to walk a tight rope of relative stability as it has continued to do so for most of the past 8 quarters (see exhibit below). This news also seems to track with the prevailing belief and commentary that the US economy is in relatively good shape - if not, at least, stable. As always, a [...]
