"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 [...]
"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 [...]
"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 [...]
"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...
"You can't connect the dots looking forward, you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future." - Steve Jobs It's truly amazing what we find deep down in the weeds... The solution to any puzzle starts with the pieces that are easiest to fit into place. Translation: Solutions can start most easily where the most granular data is readily available and easiest to interpret. In this case, and though not (yet) flowing smoothly from a firehose, that means regulatory disclosures based on long positions reported by various trading and asset management firms that correspond with the quarterly-updated 13F securities list managed by the Securities and Exchanges Commission (SEC). At Alphacution, the core mission is to solve, and keep re-solving, a very large puzzle made up of many other smaller puzzles which, themselves, may contain even smaller, more detailed puzzles... Think of this like the claim made by the Kirk Lazarus character in the movie, Tropic Thunder - [...]