Leveraging numbers and narrative, Alphacution builds a higher-dimension analysis of market structure mechanics on top of Bloomberg Opinion's Matt Levine's recent manifesto on payment for order flow (PFOF). Disclaimer: No unsolicited elbows were thrown during the creation of this Feed post...
"What's really happening here is that instead of people becoming engaged in finance when they're 40, 50, 60 or whatever, they're finally starting to learn that - hey - this is really cool. And so, we have an entire generation now which is not only going to support capitalism, it's going to accelerate the growth in free markets and [provide] massive amounts of liquidity so that everybody out there is going to benefit. This is the best thing to happen to the global economy in three or four decades. Getting millennials engaged in finance is transformational."Tom Sosnoff, co-founder, Tastytrade; on CNBC Squawk Box, January 29, 2021 in response to a question about the "democratization of finance" and the status of capitalism With all the craziness this week around GameStop, Robinhood and the whole STONKS meme, an event from last week is at risk of being swept under the rug. So, I wanted to add this one to the Feed as a marker before we lose the thread entirely. Here's the [...]
"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 [...]
“Name of the game? Move the money from your client’s pocket into your pocket. Number one rule of Wall Street: Nobody knows if the stock is going up, down, sideways or in … circles. It’s all a fugazi…“ – Mr. Hanna, Wolf of Wall Street On Monday, August 10 at exactly 11am EDT (you know, after the opening bell was safely in the rearview mirror), Robinhood Markets, Inc. – the anti-incumbency insurgent trading app platform and self-proclaimed democratizer of all things financial – set out to dominate the week’s financial news cycle by enticing media powerhouse, Bloomberg, to drop a news bomb into an ecosystem already negligently over-stimulated on the topic: “Robinhood Blows Past Rivals in Record Retail Trading Year.“ One piece of data was exclusively revealed to Bloomberg at the center of this story: 4.31 million daily average revenue trades – commonly known as DARTs (and generally defined as customer orders executed divided by trading days) – were recorded in June with the additional explanation that “the firm is revealing the data for the first time, [...]
"Just when I thought I was out, they pull me back in." - Michael Corleone, The Godfather: Part III Chicken or egg? For today's story, we know which one came first. However, we may never know for sure which one was the more prominent cause of the recent sustained spike in US stock volumes: A frictionless environment brought on by a zero-commission framework or a high-volatility market brought on by a once-in-a-century global pandemic? Granted, there may be additional factors at play here. Like the gamification of market interfaces as substitution for a sports apocalypse. People need something to do. And, when confined for extended periods, they will naturally choose paths of least resistance, especially those that entertain, are addictive and tickle financial desires... This is what one of those paths looks like; notably since March 2020: Now, I made a point last week, in "Robinhood's Trailing Stop Orders: Extreme Profitability, By Design," to say that we would try to avoid seeming redundant in our topical choices, at least [...]
"They make it so easy." - Richard Dobatse, Robinhood user (via New York Times) "A fool and his money are soon parted." - Thomas Tusser, poet Imagine if you knew, ahead of time, exactly what bait to use? Not only which bait to attract and influence the behavior of specific customers, but how to package the output of those behaviors - into an additional form of bait - in such a way as to leverage US listed market structure and maximize the probability of financial windfall. If so, chances are, you would share some of the vision that the founders of retail trading app and rising zeitgeist symbol, Robinhood, did circa 2013... Now, the fact that Alphacution has been beating this drum for four weeks in a row (starting here, here and then here) is unintentional and unrehearsed. Certainly, we much prefer that our riffs come with a level of variety - and we will return to that variety shortly. However, as we have been grinding the numbers around order [...]
"The real voyage of discovery consists, not in seeking new landscapes, but in having new eyes." - Marcel Proust The data contained in the revised SEC Rule 606 reporting has landed like a transparency bomb for those few of us who try to make sense of complex - and historically opaque - market structure issues; perhaps even more so for those fewer of us that are able to triangulate on the strategic movements of the various players by weaving additional insight from multiple datasets. Add the moves of the largest retail brokerage platforms, in particular, to a zero-commission paradigm off the back of the controversially-successful Robinhood platform, and we have a potent cocktail made of disruption and intrigue. For those of you that have been following along recently, Alphacution has toggled widely between intense fixation on these themes - with our latest Robinhood-related Feed posts, "Phenomenon: On This Score, Robinhood Now Exceeds E*Trade, Others" and "Trick Shot: Robinhood Underwrites MEMX" and our recent contributions to the July 8 New York Times [...]
"It is a mistake to look too far ahead. Only one link of the chain of destiny can be handled at a time." - Winston Churchill The holidays, with all of its gift-giving elves, came early this year with new data; data that I have been crunching non-stop for the past week - and will likely continue to crunch in the week ahead. The exercise has yielded one "I-shit-you-not" revelation after another after another, almost as if such a trove could not exist in the public domain lying around for free. However, rather than fully unwrap any of these gifts right hear and right now (and go through the instructions in detail), I'm just going to set this one down under the tree for the weekend... Until next time...
“Principles for the Development of a Complete Mind: 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 If there ever was a time to see how things are connected to other things, it is now. This is particularly true in places where something that is "free" is interpreted to be "without cost." After all, like "free" drinks at the casino, human nature tends to regress to its most lizard-like tendencies when presented with a frictionless environment... When will we ever learn that "free" is never the best price? Anyway, without becoming distracted by a rant about the true cost of Facebook, et al, let's take a brief look at the impact of "commission-free" trading on the macrostructure of the US market ecosystem over a very short window since October 2019: Thanks, in large part, to the popularity of retail broker, Robinhood Financial, LLC ("Robinhood) - the upstart financial [...]
“That which does not kill us makes us stronger.” - Friedrich Nietzsche “We adore chaos because we love to produce order.” ― M.C. Escher One intangible cost of being the sole US publicly-traded market making firm is the required level of financial and operational transparency - and the investor relations burden - that comes with that status. In this case, that cost may be unusually high because of the relative opacity of the competitors in this sector - what Alphacution typically refers to as the structural alpha zone of its asset management ecosystem map - coupled with the unparalleled use of technology and extraordinary magnitude of wealth generated by that small group of players. To compound this dynamic, recent dramatic shifts in the landscape for retail order flow sparked by the late 2019 moves - en masse - to $zero commissions by retail-oriented brokerage platforms, and the quick follow-on consolidations of TD Ameritrade (by Charles Schwab) and E*Trade (by Morgan Stanley), and given the pandemic-fueled volatility and volumes of [...]