Saved By Zero? Virtu’s 30 Quarters of Payments For Order Flow

“The idea of the song is how great it is to get back to zero.” – Cy Curnin, The Fixx frontman, in reference to the Buddhist mantra, Śūnyatā

Today, Amazon announced that it would be launching cashierless grocery stores in 2020. Immediately, a thought-bubble arose above my head and played a scene from the Illinois Tollway when my E-ZPass battery went dead, and I spent a half hour – the lane I was in all backed up with frustrated travelers – pushing buttons in the vain attempt to cause a person to show up. Just send me a bill for the busted tollgate next time…

No, thank you.

I don’t want to scan and bag my own groceries…

I don’t want to go fill my own plate at restaurants…

And, I don’t want to trade in a market that has been sanitized of all intermediaries with a pulse…  Because that’s where we’re headed; the exact wrong and utterly Simpletonian outline of a “free market,” where all levers conspire to deliver the lowest possible observable cost. Meanwhile – according to the first law of thermodynamics – the real costs are inevitably reallocated; disguised behind a curtain of intangibility; too murky to be measured to the satisfaction of a sound bite or bullet point.

And, the true pillars of a free market – capital formation and price discovery – fade into the archives of nostalgia, as we continue to forget what we were fighting for, once upon a time…

Anyway, the poetry of physics now aside, the chart below is one that we’ve published before, but not for a year. And, there’s been some notable changes:

The Q3-2019 figure is an all-time high for the Virtu lineage (which was started by KCG). Though not shown, the 9-month figure for 2019 is also an all-time high, as you might imagine – and well on its way to approaching $100 million for 2019, which would also be an all-time high…

Now, as this – and other – expenses are rising, and competition continues to heat up (and various firms, one by desperate one, throw in the towel on the matter), what part of the following pictures are going to get better for this or any other market making firm? Yes, there is a path to being successful in this space, but few will be able to afford that journey. Because it’s likely they would have needed to execute on that vision several yesterdays ago…

UPDATE: As I return to fixx a few typos inadvertently left behind during the fog of a late night Feed post, CNBC is the first to report – and the FT further fleshed out this morning – that Charles Schwab is in talks to acquire TD Ameritrade for $25 billion; a union that is expected to establish a $5 trillion wealth management Goliath – which, by the way, might not be the best omen for anyone not named David.

In his own words, Charles Schwab stated last month that “consolidation in the brokering sector was a logical conclusion”…

Good luck out there, folks.

Until nexxt time…

By | 2019-11-21T11:28:15+00:00 November 20th, 2019|Alphacution Feed|

About the Author:

Paul Rowady is the Director of Research for Alphacution Research Conservatory, the first digitally-oriented 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 with specific expertise in strategy research, risk management, and techno-operational development. Contact: feedback@alphacution.com; Follow: @alphacution.