We've seen it coming for a long time. There were many clues along the way from which to anchor a prediction. Now, the evidence is too dramatic to ignore: UBS Securities is exiting the retail equity wholesale market making business. Alphacution rolls out its case, along with other key findings...
In this Feed post, Alphacution returns to an important question: Is there enough theoretical alpha still available for another highly successful nested alpha strategy architecture (NASA) player, like Citadel or SIG? The combo of Two Sigma Investments and Two Sigma Securities was - and still is - the focal point for this question...
Alphacution's analysis and modeling of Robinhood's latest financial disclosures leads to a ranking of its wholesale market makers, along with a couple important side bars...
Alphacution expands upon an outstanding analysis by BestEx Research on PFOF with additional context on price improvement by leading wholesale market makers.
Alphacution provides numbers, pictures and rationale for "price improvement" - in the context of captive retail order flow - having an indelible function that is different than what you have been told by those who traffic in it...
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...
This is the fuel that ignites the chaos. Without it, the New Market Kamikazes run into the friction that keeps the rubber on the road...
"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 [...]
"Words ought to be a little wild, for they are the assault of thoughts on the unthinking."John Maynard Keynes Back in the day, we called it picking up pennies in front of locomotives. Today, that locomotive is one nasty beast... Virtu is having a banner year in 2020, with 9-month net trading income (NTI) at an all-time high of nearly $2 billion. Virtu also appears to be well-positioned to benefit from periods of heightened volatility and volume in its core US cash equity strategy going forward. In other words, there is no specific need for Virtu to do anything dramatic. So, our hypothesis here is this: If there was a dramatic move to be made by Virtu that would cause a material uptick in growth potential, what could it be? Note: If you haven't already done so, our recent Feed post, "Trading Strategy Secrets: Hiding in Plain Sight" is worth reading as a detailed setup for this post... Right out of the gate it needs to be said that we [...]
"Do not go where the path may lead, go instead where there is no path and leave a trail."Ralph Waldo Emerson The juggernaut that is the Robinhood commission-free trading app has accumulated some dents and bruises over the year, along with a number of truly breathtaking successes. One of the more overexposed stories in a year engorged with superlatives, system outages, a customer suicide and, most recently, the hacking of thousands of accounts has challenged Robinhood's meteoric rise along the way. Together, these headwinds have delayed Alphacution's prediction of the timing of an oncoming IPO. All that said, one aspect of the Robinhood juggernaut - certainly among the more important aspects to its key stakeholders - is persistent growth in order routing revenue; the largest component of total revenue. After two quarters of blockbuster, pandemic-fueled numbers showcasing the inner workings of Robinhood's order flow firehose, the Q3 2020 order routing figures have recently been made public. The headline is that after the second quarter's monstrous $180.3 million in payments for [...]
