"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 [...]
"What you do speaks so loudly that I cannot hear what you say." - Ralph Waldo Emerson On Thursday, February 20, Morgan Stanley (MS) announced its acquisition of E*Trade (ETFC) for $13 billion in a billiard move that simultaneously 1) responds to the recent move to $zero commissions in retail brokerage; 2) responds to Charles Schwab's recent announcement to acquire primary ETFC competitor TD Ameritrade; 3) boosts MS's position in coveted wealth management channels; 4a) takes greater control of coveted retail order flows - and thus, (4b) away from competitive market making firms, like Citadel Securities and Virtu; 5) takes the last of the major independent discount retailed brokerage platforms off the proverbial table - sorry, Goldman; and 6) arguably completes a dramatic arc of industry evolution and consolidation that began with Schwab's acquisition of CyBerCorp in early 2000 and Citi's acquisition of Lava Trading in 2004... As trick shots go, this one is a doozy! Given that, I wanted to extend some thoughts around recent modeling that we [...]
"Historians study the past not in order to repeat it, but in order to be liberated from it." - Yuval Noah Harari, Homo Deus: A Brief History of Tomorrow With three quarters worth of financial reports for calendar 2019 long in the bag, it is not much of a courageous leap for us to deliver an estimate for order routing revenue - otherwise more notoriously known as payment for order flow (PFOF) - for the full year. And, with the quarterly earnings season coming in the month ahead, it won't be long before we are able to test the accuracy of this estimate. In the chart below, Alphacution extends our prior analysis not only to include 2011 and 2012 but also, more relevantly, to include the year just completed; thereby extending to nine years from six our focus on five of the primary players in retail order flow for US equity markets who also disclose order routing data: TD Ameritrade (soon to be acquired by Charles Schwab); E*Trade; the [...]
"If you really look closely, most overnight successes took a long time." - Steve Jobs "Speak in extremes. It'll save you time." - David Bowie "Less than 10 bucks a month..." This statement - or, some algorithmically-sanitized equivalent - is the next destination to which we're headed in the retail brokerage saga, where in our last episode, all the major players in the space appear to sacrifice hundreds of millions of dollars of commission revenue in order to copy (and therefore, prevent) the insurgent, Robinhood, and a few roboadvisors from disrupting their incumbency with zero-commission trading (as showcased in our subtly-titled post, "Schwab and Others Confirm Status as Casinos, Purveyors of Financial Opioids"). So, that development seemed like a good opportunity to refresh some data, make some new pictures, and tell a story based on those pictures. Of course, normally among the foremost fixations on our Feed has been on who is paying and receiving on the basis of order flow, and how much. Most recently, Alphacution has detailed [...]
“Learn how to see. Realize that everything connects to everything else.” - Leonardo da Vinci "There's no such thing as a free lunch." - Milton Friedman Maybe I imagined it, but a couple weeks ago, I thought I saw an article claiming that Jack Dorsey, CEO of the world's largest kazoo - you know, the thing with the familiar harmony and enough dissonance to over-stimulate your reptilian id - was set to replicate Robinhood's free trading platform on Twitter. Sure. Why not? What could go wrong?! All businesses should aspire to thrive on the basis of frictionless impulses and whatever "dumb money" is still left on the face of the planet... Anyway, it seems that the search for that gem of strategic intelligence may have been catalyzed by recent announcements by none other than Schwab, Fidelity, E*Trade, TD Ameritrade, and Interactive Brokers - which is pretty much everyone within spitting distance of the retail brokerage universe - that they were all dropping commissions on stocks, ETFs and options to [...]
Many thanks to Oliver Renick (@OJRenick) and the team @TDANetwork for this one. We had some fun discussing the IBM-RedHat deal, and the implications for the larger cloud infrastructure and AI segments of the enterprise IT arena. Also touched on some thoughts for NVIDIA, AWS, Google and HPE. Based on our recent post, IBM Hides Watson Under a Red Hat. Link to Video here. It's a good one. Enjoy... As always, if you value this work: Like it, share it, comment on it – or discuss amongst your colleagues – and then send us email@example.com. As our “feedback loop” becomes more vibrant – given input from clients and other members of our network, especially around new questions to be answered – the value of this work will accelerate. Don’t be shy…