Tower Research Capital: Keeping It Real…Tiny

“I can do this all day.” —Steve Rogers

In honor of the big Avengers Endgame opening last week, I thought to pay a little tribute to Ant Man and the Wasp for this one…

Like many of the trading firms we have been focusing on recently, Tower Research Capital (TRC) has a market making unit – Latour Trading – and a proprietary trading unit – Tower Research Capital Investments (TRCI), both of which are based on high-performance technologies, quantitative methods and extreme levels of workflow automation. (BTW, if you read the Citadel Securities case study summary then you might already be hip to what we are calling a nested alpha architecture. If not, no worries. We will be highly redundant about it.)

Perhaps because we have been focused on some of the biggest market makers, prop firms and hedge funds in and around our structural alpha zone – plus knowing that TRC boasts a global headcount of roughly 900 folks – we were expecting to find something else in their 13F data. What was found is fascinating – and definitely fruit for a standalone case study – but not what we were expecting.

Averaging about 5,000 long positions – mainly in stocks, followed by ETFs and then ADRs (and not much else, including no options) – TRC’s positions are quite small. For some reason, they were surprisingly small.

In the exhibit below, we differentiate between average (long) stock positions in shares for market making and prop trading, where average market making position is small at about 5,000 shares an average prop trading position is – well – tiny at about 1,600 shares each.

Now, this could mean that most trading activity returns to flat by the end of each session, but averaging 4,300 long stock positions – and keeping those positions small – means that none of those positions ever became very big. Otherwise, we would find a wider range of position values.

In the exhibit below, Alphacution illustrates a fascinating aspect of this strategy, whereby the market making book displays much more variance in average (long) position value over time whereas the prop trading book displays very tight parameters over the 29 quarters of this dataset with average (long) stock positions valued at $38,000 per.  Tiny…

Meaning: This type of position sizing is very much on purpose (and the short side of this book is very much likely to display the same tight parameters). And, with headcount at 900, this crew seems to be generating a lot of income without accumulating much in terms of positions. Fascinating…

Combined with Latour’s FOCUS reports and the European reporting by Tower Research Capital (Europe) Ltd, this will make for a great case study to put together in the near future.

Watch this space…

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By | 2019-10-11T10:29:04-04:00 May 1st, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, a research and strategic advisory platform uniquely focused on modeling and benchmarking the impacts of technology on global financial markets and the businesses of trading, asset management and banking. He is a 30-year veteran of the proprietary, quantitative and derivatives trading arenas. Contact:; Follow: @alphacution.