Virtu

The Evolving Value of 13F Reporting: Building a Macro-Structure Cockpit

“The Initial Mystery that attends any journey is: how did the traveler reach his starting point in the first place?” - Louise Bogan, poet and author After 40 years, the Securities and Exchange Commission (SEC) announced on July 10, 2020 that it had proposed to amend Form 13F to update the reporting threshold for institutional investment managers and make other targeted changes. The proposal would "raise the reporting threshold to $3.5 billion, reflecting proportionally the same market value of U.S. equities that the current threshold - $100 million - represented in 1975, the time of the statutory directive." Furthermore, the new threshold is expected to "retain disclosure of over 90% of the dollar value of the holdings data currently reported while eliminating the Form 13F filing requirement and its attendant costs for the nearly 90% of filers that are smaller managers." Now, those of you who have been following Alphacution's work know that we have leveraged 13F data in ways that no one else has ever replicated, and therefore, has become a [...]

By | 2020-08-01T18:00:02-04:00 July 30th, 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|

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 | 2020-06-18T00:20:58-04:00 June 18th, 2020|Alphacution Feed|

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 | 2020-05-22T00:25:15-04:00 May 21st, 2020|Alphacution Feed|

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 | 2020-05-08T00:01:48-04:00 May 7th, 2020|Alphacution Feed|

Virtu’s Optionality? Some Good News…

“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 [...]

By | 2020-03-12T22:36:47-04:00 March 12th, 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|

What Bloomberg Misses About Citadel Securities

"You can have all the transfer orders that you want, but you have to ask me nicely." - Col. Nathan R. Jessup, "A Few Good Men" On December 11, 2019, Bloomberg News editor Tom Maloney publishes an unusually illuminating article on Citadel Securities, "Ken Griffin Has Another Money Machine to Rival Hedge Fund," citing specifically that the market maker earned $3.5 billion of revenue in 2018 and "handles more than 1 of 5 shares traded in the US each year." Of note, the article includes two charts, the first of which ranking net trading revenue in 2018 for a selection of bank and non-bank market makers; and the second of which showcasing the shifting market shares of US retail equity wholesalers. Given that Alphacution has followed this and other firms in this space as closely or moreso than any others - for example, we are not aware of any other research and advisory group publishing a comprehensive case study on Citadel Securities - I wanted to add a few thoughts [...]

By | 2020-03-01T22:58:54-05:00 December 18th, 2019|Alphacution Feed|

Virtu, ITG: Much More Than Meets The Eye…

"The real voyage of discovery consists, not in seeking new landscapes, but in having new eyes." - Marcel Proust (1923) “Develop your senses — especially learn how to see. Realize that everything connects to everything else.” — Leonardo Da Vinci (~1500) If you  - like the precious thousands of other professionals, mostly notably from the high-performance end of the global trading spectrum, who will venture this way - have come this far in search of Alphacution's unique brand of irreverent spin on Virtu's 3rd quarter earnings announcement, then you are about to miss most of the intelligence that is on offer from the growing portfolio of evidence that we are assembling here. Yes, our modeling and charting and narratives surrounding this latest catalyst from Virtu - along with its and others' exploits in this rare corner of the financial world - can be found here and throughout our Feed. But, for those who choose to stretch their go-to frame of perspective, there is much more going on here than initially meets the eye... What is actually going on [...]

By | 2018-11-15T00:10:58-05:00 November 15th, 2018|Alphacution Feed|

Robinhood and Payments for Order Flow

It was a recent father-son (and dog) road trip. Several hours in the car, on our way to support daughter / sister, Emma, at her final regatta of the season. Head of the Hooch in Chattanooga, Tennessee. And, an opportunity for some undistracted conversation. Among the many topics was our ongoing debate about how to trade Tesla (TSLA). Eddie has proven himself to be fairly decent scalper of this volatile name, so I usually ask how he is positioned and the levels he thinks are meaningful. Anyway, it turns out, he is trading on the Robinhood platform - no more than a few shares at a time - and paying zero commissions which, of course, improves his net profitability. This is the main attraction on top of the fact that he can toggle between trading stocks, playing video games, watching YouTube, Instagramming with his friends and listening to music all on the same device. (No wonder he is always wiped out!) So, this got me to thinking about some of [...]

By | 2020-03-01T21:53:43-05:00 November 14th, 2018|Alphacution Feed|