Alphacution Feed

Riffs Ep 4 – What Do Hedge Fund Managers Spend on Technology?

Set aside some time to watch Alphacution Riffs Ep 4 wherein we walk through the foundational hypothesis; key highlights; an extraordinary case study involving Citadel, Millennium Management, Point72 and Vanguard (teaser); and, the strategy behind the release of our latest - and, most impactful - study to date, "The Context Machine: Estimating Asset Manager Technology Spending" (April 2018). And, for those of you with a slightly longer attention span, stick around for another "public service announcement" at the end of this one (starting around 11:17) - as we did in the Director's Cut for  Ep 3 - Proprietary Trading, Extreme Automation. The urge to provide value to the human capital component (i.e. - you, me, and everyone in our audience and beyond) - which is actually coming to life as a direct result of our technology focus - seems to be gaining momentum... Enjoy... And, as always, if you value this work: Like it, share it, comment on it - or discuss amongst yourselves -  and then send us feedback@alphacution.com. [...]

By | 2018-04-18T00:22:11-04:00 April 17th, 2018|Alphacution Feed, Video|
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Alphacution Riffs Ep 3 – Proprietary Trading, Extreme Automation

This episode of Riffs represents a case study on proprietary trading (including market-making and high-frequency trading) - using our ongoing analysis of Virtu Financial, including its recent acquisition of KCG Holdings. Here, we begin to frame our broader research on what asset managers - including hedge funds - spend on technology as well as the migration of automation along the entire strategy spectrum. More details about the publication of Alphacution's asset manager technology spending study - "The Context Machine" - coming up in Episode 4. Enjoy... Director's Cut with "Public Service Announcement":  

By | 2018-04-21T15:08:14-04:00 April 11th, 2018|Alphacution Feed, Video|
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Amazon, Google and the Threat of the Digital Frontier

What happens when a company is smart enough, productive enough and wealthy enough to succeed in any business? One thing's for sure: the roster of incumbents and would-be competitors threatened by that kind of company becomes an extremely long list. This is a threat like none other before because never before has a type of company been able to be so disruptive in so many places simultaneously... In unprecedented fashion, the digital era has given rise to a few companies whose dominance symbolize such traits. This story is not particularly new, nor are the names of these digital darlings cause for surprise. Management consulting powerhouses, like McKinsey and Accenture, have been detailing the possible threats of Amazon or Google or Apple on the banking industry for the past three years, particularly since the launch of Apple Pay. All the major media outlets, like Bloomberg, and industry specialist reports, like American Banker, have been watching this story unfold as if they were slowly eating from an endless tub of buttery popcorn. [...]

By | 2018-04-11T00:03:40-04:00 April 11th, 2018|Alphacution Feed|
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Alphacution Riffs Ep 2 – Measuring the Pace of Automation

Episode 2 of our new video series, Alphacution Riffs, picks up where Episode 1 left off - and begins to describe our research mission, modeling methodology and research workflow. We also begin to lay the foundation for our "T-Greeks" benchmarking framework that focuses on measuring and comparing "return on technology" (RoT) - otherwise known as "technical leverage" - for banks and asset managers. Here, we describe how much of our core research effort is currently built on the basis of just 3 simple data points collected for a model library that currently represents 200 large banks, asset managers, hedge funds, and even certain proprietary trading groups, among others - more than 250+ FSI-related companies in all - and how each of those models covers several years, with many of our core models beginning in 2005. With these 3 data points and our 360-degree modeling strategy, we can move beyond the benefits of various market-sizing exercises to more impactful benchmarking exercises. This tutorial is important for our clients and broader network [...]

By | 2018-04-25T22:01:21-04:00 March 28th, 2018|Alphacution Feed, Video|
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Virtu Financial: More Acquisitions on the Way, If…

When we launched our first trading program at Quantlab in the late 90's, we didn't have direct market access yet. We generated an order list (overnight) that was worked throughout the subsequent market session at the discretion of an algo-equipped executing broker; some of whom now roam the halls at Jefferies / Leucadia. This was the era when 1- to 3-day portfolio turnover was considered fast - SOES bandits were still a thing - and Schwab would soon acquire electronic trading pioneer, CyBerCorp, from Philip Berber - a short drive down the road from our Houston headquarters in Austin, TX. Of course, everyone had nicknames then - as I suspect they still do now. Ed Bosarge, founder of what eventually became Quantlab (after at least 3 prior related incarnations that began for me around 1996), was known as Dr. Evil. Let's just say it's a hair-raising story about a swashbuckling pioneer of applied math involving a hideous toupee... I was known as Mr. Bigglesworth - or, "Bigsy" for short. No [...]

By | 2018-10-31T16:48:33-04:00 March 27th, 2018|Alphacution Feed|
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Nasdaq and the Case of the Missing Market Data

In late April 2017, we noticed a new string of dominoes falling at the fast, automated end of the trading spectrum: With Virtu about to gobble up KCG - not to mention additional consolidations of principal trading groups like RGM Advisors (to DRW), Timber Hill (to Two Sigma) and Chopper Trading (to DRW), among others - it seemed pretty clear that one of the next dominos to fall would be in the direct-feed market data space. The question was: To what degree? (See: "Nasdaq Under Virtu Market Data Axe," April 28, 2017) And yet, when we went back to look - via updating our Nasdaq model - this picture showed up: As Paul Harvey used to say: "...And now the rest of the story..." Obviously this trajectory is the opposite of what was expected. Better yet, in a dictionary somewhere is this chart - at least, of late - next to the words, "fairly smooth sailing" or "strong growth." Over the last few years, data products (and the growth in [...]

By | 2018-03-27T21:44:23-04:00 March 22nd, 2018|Alphacution Feed|
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Alphacution Riffs Ep 1 – Technology Strategy is Business Strategy

Alphacution is proud to launch its video series, Alphacution Riffs.  Not only bringing our clients new levels of intelligence - by quantifying and modeling and benchmarking the critical interplay between technology capital and human capital - for their digital transformations, we are "eating at our own kitchen" by leveraging tools and methods of the era to help make our research - and seemingly complex topics - much easier to understand. The digital media landscape is a jungle - and we are not trying to compete in a popularity contest. However, in order to be successful, we do need to consistently identify our best audience and then consistently grab a slice of their attention. Therefore, if you find the visual interpretation of what we are doing with traditionally dry and sometimes in-the-weeds research - like the website stylings and now the video series with its combined Rock n' Roll and Silicon Valley sensibility - to be a bit different, please know that it is entirely on purpose. Sure, it would be [...]

By | 2018-04-21T15:10:30-04:00 March 14th, 2018|Alphacution Feed, Video|
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“Quote Stuffing” and the Collective Intellect

~ This post is a continuation of Decay of Knowledge, Rise of Tech Debt ~ Unless you are among the short list of folks with detailed understanding at the crossroads of financial market microstructure and highly-automated trading, the term quote stuffing might not ring a bell. But, since the concept behind this loaded term is germane to the points I want to make here, it is worth taking a moment to wrap your head around the basics. The parallels between the kinds of shenanigans that go on inside financial market microstructure and the emerging study of the "attention economy" or an "attention market" are fascinating. First discovered by Nanex in 2010 (shortly after the Flash Crash), quote stuffing is an automated trading technique that is used to flood trading infrastructure - namely, "matching engines" and the surrounding connectivity - with quotes that are then quickly cancelled. The goal of this strategy is to spike data flows to a point that surpasses the bandwidth capacity of the target trading infrastructure. This [...]

By | 2019-10-01T23:01:51-04:00 March 13th, 2018|Alphacution Feed|
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The State of Speed: A Virtu-KCG Post-Mortem

When the deal between Virtu Financial and KCG Holdings was announced in March 2017, we offered the following read of the motivations behind the announcement: Average daily adjusted net trading revenue for Q4-2016 has returned to levels not seen since late 2013 / early 2014. Chances are quite high that persistent low volatility during Q1-2017 has caused these figure to fall back to pre-2013 levels. A situation like that needs a good distraction; something that can change the narrative and allow for lots of financial restructuring and restatements.  Voila! Try to take out one of your nearest competitors… Now, with the deal completed as of July 2017, and Virtu now reporting full year 2017 highlights, we took some time to update and combine our Virtu and KCG models. Here's what's notable about this latest update: The combined financials show some signs of improvement (or, at least, stabilization), however, the market landscape has continued to deteriorate: Over the 28-year life of CBOE's volatility index (VIX) - aka the "fear gauge" - 2017 [...]

By | 2018-03-25T16:18:31-04:00 February 8th, 2018|Alphacution Feed|
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Decay of Knowledge, Rise of Tech Debt

Has (information) technology made us smarter? And, are there costs that counteract - if not, neutralize - the perceived benefits of technology? Given the intangible and elusive nature of the impacts, plausible answers to increasingly common questions like these usually defy placement into an analytical framework. This post is our attempt to begin to overcome such impediments and be as objective as possible about the full range of impacts from technology, whether the use case be personal or institutional. The Digital Attention Crisis Our hypothesis on the decay of knowledge and the rise of "tech debts" is based on the idea that knowledge decay in the digital era is influenced by the following chain of logic: The capacity of (human) attention is, at best, inelastic - both individually and collectively; The proliferation of technology into all aspects of our lives represents an increasing source of distraction, noise, and "overhead" - collectively known herein as technology debts; The payment of tech debts is likely to increase in tandem with the increasing [...]

By | 2018-03-14T15:36:06-04:00 January 22nd, 2018|Alphacution Feed|
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