{"id":225848,"date":"2025-06-16T12:34:05","date_gmt":"2025-06-16T16:34:05","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=225848"},"modified":"2025-06-16T12:33:22","modified_gmt":"2025-06-16T16:33:22","slug":"a-tumultuous-week-for-quants","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/ibkr-quant-news\/a-tumultuous-week-for-quants\/","title":{"rendered":"A Tumultuous Week for Quants?"},"content":{"rendered":"\n

Quant traders, one key to success is understanding market structure \u2013 the mathematical and regulatory underpinnings of the stock market.<\/p>\n\n\n\n

And speaking of which, the second time is a charm. Jamie Selway has been named the new head of the SEC\u2019s division of Trading and Markets<\/strong> overseeing US equity trading. He was first rumored for the position in 2017 before Brett Redfearn from JP Morgan took the role. I got to know Brett quite well and hosted him at the investor-relations profession\u2019s annual conference in 2019, the NIRI<\/a> Annual Conference.<\/p>\n\n\n\n

Like Mr. Redfearn, Mr. Selway is a market-structure guy with a Masters Degree in math from that quant kingdom, the University of Chicago. Previously, he headed electronic brokerage for industry agency-brokerage pioneer ITG (a big \u201cdark pool\u201d for institutional flows), which Virtu bought in 2019. I don\u2019t know him well but he\u2019s been a force in market-structure circles a long time.<\/p>\n\n\n\n

Now, why does this matter, traders and investors?<\/em> You want folks in key regulatory roles who understand the plumbing, the mechanics, of the equity market. Check.<\/p>\n\n\n\n

Speaking of market structure, this is a momentous week<\/strong>. War \u2013 I don\u2019t know what else you\u2019d call it \u2013 between Israel and Iran continues. What\u2019s fascinating is how things that would affect HUMANS have little bearing on machines. Friday\u2019s pullback was price-driven too, rather than war-driven. Commodity prices convulsed, especially oil. Machines read prices, not ideas or emotions or rumors. Machines react to prices. Keep that in mind. And wow, what a week of inputs into prices we\u2019ve got.<\/p>\n\n\n\n

Let\u2019s set the stage:<\/span><\/p>\n\n\n\n

An algorithm we call \u201cDemand\u201d that normalizes buying and selling in US equities to a ten-point scale is at 5.8 and still rising despite Friday\u2019s declines. But 6.0 is a top. And Demand that stalls at 6.0 often precedes falls. That could happen tomorrow or Wednesday. (For more, visit EDGE<\/a>.)<\/p>\n\n\n\n

And we measure Supply as well, using the data set for Reg SHO Rule 201, called Short Volume<\/strong>. The five-day average is 54.4%, meaning the market is meaningfully more short than long \u2013 a byproduct of Exchange Traded Funds. The \u201carbitrage mechanism\u201d keeping them aligned with stocks leads to borrowing by market-makers. It doesn\u2019t mean stocks are about to plunge. It DOES mean the market is over-supplied and a drop in Demand could suddenly deflate prices. And get this, the daily read hit 55.3% Friday, the all-time record.<\/p>\n\n\n\n

Now here\u2019s what\u2019s happening this week \u2013 a vital quantitative input we call \u201cContext\u201d \u2013 the cadence and calendar of tradeable events:<\/strong><\/p>\n\n\n\n