Two Sigma Securities

Q2 PFOF Craziness: Robinhood Becomes Parody of E*Trade Commercial, Competes with TikTok for Attention…

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." - Ludwig von Mises, economist Someday, sufficiently far into the future, when we have somehow broken free of the illusion, we are going to look back on this chapter in world history and wonder how we had entered into such a collective state of insanity in parallel with such profound technological advancement... The Fed has all but said that it will prevent markets from declining (and plug whatever economic holes it needs to plug and lubricate whatever financial gears it needs to lubricate), no matter how much money it needs to print, debts and deficits be damned. This is not a characteristic of free markets, nor is it a feature of a capitalist system... And so, as if gleefully hurling [...]

By | 2020-08-07T00:38:44-04:00 August 6th, 2020|Alphacution Feed|

From Citadel Securities to Tastyworks: The New Economics of Liquidity, Part 1

"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 [...]

By | 2020-07-10T00:16:18-04:00 July 9th, 2020|Alphacution Feed|

Barclays Succumbs, Flips Options to GTS

"Sometimes it is the people no one imagines anything of who do the things that no one can imagine." - Alan Turing One by one, those willing to stand and make markets in options are - uh - taking a knee. Back in December (2019), Barclays became the latest in a long string of players - big and nots-so-big - to punt their options trading business to a willing buyer before any more value evaporated. So, we thought to take a closer look at what patterns or signals might exist, if any, to detect moves like this. Here's the setup: It turns out that in a Feed post entitled, "Goldman Sachs and the Long Arc of Hull Trading," we have some useful benchmarking to draw from to frame Barclays' ultimate decision. In the chart, below, Alphacution presents total 13F options position counts for parent entity, Goldman Sachs Group, Inc., over the 45-quarter period beginning Q2 2008. Note: The vast majority of these position reside in the broker-dealer entity, Goldman Sachs [...]

By | 2020-03-01T22:22:17-05:00 February 5th, 2020|Alphacution Feed|

Implications: 2019 Payments For Order Flow Flat vs. 2018

"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 [...]

By | 2020-03-01T22:37:59-05:00 January 15th, 2020|Alphacution Feed|

Ranking of Select US Option Market Makers

"The book of nature is written in the language of mathematics." - Galileo Galilei As we prepare to turn the page on a new year, and consider what we may want to accomplish during that year, derivatives are on the priority list. Why? Options are important for many reasons from risk management to computational rigor and signal generation. And, if you had been paying close enough attention over the course of this year, you might have noticed that each of our case studies have touched, in one way or another, on options. Now, given that Alphacution is committed to its research providing new pictures to ponder, I wanted to drop the following chart on you with little additional commentary for this go 'round - except to say that the plan right now is to dedicate a full case study to the key players in options trading during 2020. Stay tuned... Until next time...

By | 2020-03-01T23:09:01-05:00 December 5th, 2019|Alphacution Feed|