Virtu Financial

Trading Strategy Secrets: Hiding in Plain Sight

"Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom."Viktor Frankl Alphacution's exploration to tease insight from the available data - to make the data dance - continues to expand. Sometimes this is due to weaving a new and unfamiliar data source. And, sometimes it's due to seeing something entirely new in a familiar dataset. A challenge in the process is the growing sense that we can never quite tell all the fascinating nuggets of the stories we discover. Be that as it may, the fact that data can be electrified to dance about the most consequential and mythological players in the capital markets ecosystem after they have expended so much energy to remain secretive makes this journey that much more thrilling. What follows here is a concentrated example of our expanding capabilities... Today's story takes advantage of Virtu Financial's latest Q3 2020 earnings-related data dump. Virtu is a regular topic on the [...]

By |2020-11-17T18:09:30-05:00November 11th, 2020|For Subscribers|

Citadel Securities Picks Fight With SEC Over Crystal Ball

"If you are not paying for the product, then you are the product."The Social Dilemma In a rare display of miscalculation, Citadel may have overplayed its hand... Here's the setup: According to Bloomberg, "Citadel Securities LLC has sued the U.S. Securities and Exchange Commission (SEC) over the regulator’s approval of an order type introduced by stock-exchange operator IEX Group Inc." Approved by the SEC in August and launched on October 1, IEX's discretionary limit order type - or, "D-Limit" - is essentially a mechanism designed to protect liquidity providers from potential adverse selection by latency arbitrage strategies - otherwise known in less polite company as getting "picked off" on the basis of stale quotes. In a comment letter, dated April 23, 2020, Citadel Securities expresses its objection to IEX's proposal, in part, because it "will broadly and indiscriminately affect myriad liquidity takers, including retail and institutional investors as well as market makers in equities and related asset classes, such as ETFs, options, and futures." (Hold that thought for a minute...) Now, [...]

By |2020-10-28T23:55:05-04:00October 28th, 2020|For Subscribers|

Wholesale Market Makers: Adding Price Improvement to the PFOF Analysis

"The difficulty lies not so much in developing new ideas as in escaping from old ones." John Maynard Keynes Just because the rule requires “market centers that trade National Market System (NMS) securities to make available standardized, monthly reports containing statistical information about covered order executions that are free and readily accessible to the public" does not mean that that information is lounging around under a bank of Klieg lights in an easily consumable format. Like a lot of raw regulatory data, you need to know where to look while simultaneously in possession of a decoder ring... Meanwhile, there is a dramatic falling of US equity market dominoes that began a year ago with an industry-wide move to zero-commission retail brokerage models. This move became exacerbated in March by a convergence of pandemic-related forces that has resulted in a gusher of unprecedented profitability for a short list of leading proprietary trading firms that are otherwise known in the light of day as wholesale market makers. At the intersection where [...]

By |2020-10-27T20:10:25-04:00October 9th, 2020|For Subscribers|

Stranded, As Virtu Bids Farewell to Madison Tyler

“We don’t receive wisdom; we must discover it for ourselves after a journey that no one can take for us.” – Marcel Proust With pandemic-era factors being historically and paradoxically hospitable for market volumes and volatility, those players that stand in closest proximity to the sources of listed liquidity have experienced an unexpected windfall so far in 2020. Today, with market making revenue for the past two consecutive quarters at all-time highs and seeming to bend a long-term downward trend in a new upward direction, VIRT stock found its own all-time high… For the remainder of this story, we need to refresh your perspective with a little context: Founded in 2008, Virtu is the youngest of a dozen leading proprietary trading and market making firms in the world: What is most unique about Virtu, however, in the context of this group is that it has grown primarily by acquiring other people’s trading strategies – typically by outright acquisition of other companies – from the beginning. By comparison, all the others on this roster have [...]

By |2020-10-02T16:02:53-04:00September 9th, 2020|For Subscribers|

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 |2020-10-14T21:46:52-04:00July 9th, 2020|For Subscribers|

Trick Shot: Robinhood Underwrites MEMX

“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 [...]

By |2020-10-14T21:47:06-04:00June 18th, 2020|For Subscribers|

Virtu Financial: Master Exploder, Part II

"Empty your mind, be formless, shapeless — like water." - Bruce Lee   In "Master Exploder, Part I," we presented a first pass at Virtu's Q1 2020 earnings release given the impacts of unprecedented volatility in March. If you're tracking closely - or merely fascinated by - this neck of the woods, be sure to check in on that one, and the one on Flow Traders' Q1 earnings that preceded. Both releases presented outstanding, one-of-a-kind results. As noted in the last Virtu post, we were waiting for some additional data to come out before wrapping our thoughts on the Q1 impacts, both specifically and more generally. After some of that additional data has come out, here we are - and the results are oddly surprising (as in, not what was expected). In the chart, below, Alphacution presents the components of net trading income (NTI). This is a rolling, quarterly view of the composition of NTI that we have updated from time to time here on the Feed. You may recognize [...]

By |2020-10-14T21:39:52-04:00May 21st, 2020|For Subscribers|

Virtu Financial: Master Exploder, Part I

"As you think, so shall you become." - Bruce Lee   Like a one-legged man in an ass kicking contest, sometimes the scenario is grim. And yet sometimes, the tailwinds converge in your favor - like a three-legged man in an ass kicking contest - and the scenario presents itself very much to the contrary... Historically, Alphacution has not been shy about pointing out the former. Who can forget "Virtu Financial: The Frying Pan and the Fire" from August 2019; a favorite of @Dougielarge, for sure? But, to give credit where credit is due, this story is quintessentially about the latter scenario: Today (May 7), Virtu Financial reported Q1 2020 earnings and, given an extra appetizer of preview from the company on March 20, it was - to borrow a riff from Tenacious D - "The. Best. Quarter. Ever. Period!" Now, it's no secret to anybody on the planet why a strong Q1 was to be expected from Virtu because nearly everyone on the planet is directly impacted by the [...]

By |2020-10-14T21:40:04-04:00May 7th, 2020|For Subscribers|

Blast Off: First Look at Q1 First Responders

"It is action, not rest, that constitutes our pleasure." - John Adams   Amidst the doom and uncertainty of any unfolding saga, there are always bright spots, if you know where to look. After all, every problem can be an opportunity in disguise. And so, besides the uptick in all things online relative to most things not online during a pandemic lockdown, the expectation has been that there would be some bright spots for listed market first responders - the market makers and high-turnover arbitrageurs - given the unprecedented volatility that erupted in global markets in late February. This week, Alphacution has begun to confirm some of those expectations as critical data necessary to fill in the picture of what actually happened below the unprecedented volatility headlines began flowing... To create the proper gravity of perspective, let's start with average daily volume (ADV) in US cash equity markets for March arriving at more than 15.6 billion shares. This is an all-time high and a level not even remotely approximated since the [...]

By |2020-10-05T16:04:51-04:00April 23rd, 2020|For Subscribers|

Marketquake: The Volatility of Volatility

“To develop a complete mind: Study the art of science; study the science of art. Learn how to see. Realize that everything connects to everything else” – Leonardo da Vinci If there was ever a moment in time when we realized just how much everything connects to everything else - a quote (and concept) I have been using to repeatedly bludgeon you lo these many past months - now would be that moment. However, so as not to jump on the singularly overcrowded bandwagon of doom that is the current events flow of content (for now), I'd like to walk through a storyboard of related significance. That sadly familiar aroma in the air is fear; a specific vintage of which has not washed over the market ecosystem since 2008. Many are coming to the conclusion that if the virus doesn't take us down, the arsenal of preventative measures just might - and therefore, one way or another, we are likely entering a period of financial stress (to put it as [...]

By |2020-10-14T22:24:36-04:00March 19th, 2020|Open|