Virtu Financial

Virtu Financial: Musical Chairs

"No good opera plot can be sensible, for people do not sing when they are feeling sensible." - Frank Zappa   On Tuesday, February 11, Virtu reported Q4 and full-year 2019 financials. What follows are a few thoughts and charts on the latest data: Net trading income came in at $228.7 million for Q4 - not great, not terrible - based on a QoQ uptick in core equities; some weakness in global FICC, options and other (whatever that is) relative to Q3 2019; and, flat execution services revenue relative to Q3 and Q2 2019 (basically since the ITG acquisition closed last March). The chart below visualizes an historical quarterly decomposition of net trading revenue components relative to the ratio of SPX realized to implied volatility for the 24 quarters beginning Q1 2014 and ending Q4 2019 to emphasize the importance of unexpected volatility spikes in the grand scheme of profitability for market making and execution firms. When the other components of Q4 2019 NTI became available, we will circle back [...]

By | 2020-03-12T17:25:33+00:00 February 13th, 2020|Alphacution Feed|

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 [...]

By | 2020-03-02T17:04:02+00:00 November 20th, 2019|Alphacution Feed|

Virtu Financial: Q3 2019 Update #1

“Making mountains out of molehills sells more books than a study of molehills." - Cliff Asness With Virtu's Q3 2019 earnings out this past Monday (Nov 5), but the Q3 2019 13F report coming out next week, we are going to keep most of our powder dry for this one. However, since much of what we are trying to do here is convert new information into new "shapes" - and therefore, take the occasional opportunity to conserve our words - we offer a couple updated pictures. You might draw your own conclusions... One thing's for sure, the concentration of market making and trading related revenue has been notably diluted since the closing of the ITG acquisition in March (2019). More coming over the next couple weeks... Support the Feed! Individual Subscription Options Annual Subscription : $275.00 USD - yearly Monthly Subscription : $25.00 USD - monthly Note: Business credit cards and bank accounts can be used via our PayPal payment portal. Alphacution is in the intelligence business. For those of [...]

By | 2020-03-02T17:08:18+00:00 November 7th, 2019|Alphacution Feed|

@VirtuFinancial: Yes, There Are More Acquisitions on the Way!

No problem can be solved from the same level of consciousness that created it. - Albert Einstein On October 4, news broke on all the major market news outlets that - after feasting on a meal formerly known as KCG Holdings, Inc. (KCG) in 2017, which itself was a combo platter made up of GETCO and Knight Capital - Virtu Financial, Inc. (Virtu) was returning to the all-you-can-eat buffet to consider the total consumption of multinational agency brokerage and financial markets technology firm, Investment Technology Group, Inc. (ITG). Of course, this news generated a chuckle around here because it seemed that it was not too long ago that someone was predicting that this kind of pairing would make sense for Virtu - if conditions were such that they needed to bolt something else onto their expanded frame. Oh, wait a sec, that was us... To wit, from Alphacution's post "Virtu Financial: More Acquisitions on the Way, If..." (March 27, 2018): "One other notable move for significant growth for a firm [...]

By | 2018-11-01T18:53:18+00:00 October 31st, 2018|Alphacution Feed|

Technical Leverage in Context

Alphacution defines technical leverage as the difference between revenue per employee (RPE) and technology spending per employee. In the parlance of our T-Greeks benchmarking framework, this difference is also known as T-Spread. I stumbled over the chart below - 50 companies in the S&P 500 with the highest RPE rankings for 2016 - recently and thought it would be notable to add to the knowledgebase. Since our modeling and analysis currently focuses exclusively on companies related to the financial services sector, much of what we find in this exhibit provides illuminating context. Source: Craft Clearly, energy and healthcare companies dominate the RPE metric, with 3 companies producing astonishing RPE levels greater than $5 million. Only 3 companies from the Financials sector (2 insurance - Aflac, XL Group; and, 1 exchange - CME Group) make this list. From our own modeling, the highest RPE we have found to date is Virtu Financial - a high-frequency trading firm - with a 2016 RPE of $2.8 million. Among the world's major banking groups, Goldman Sachs [...]

By | 2018-02-28T16:31:53+00:00 June 20th, 2017|Alphacution Feed|

Done Deal: Virtu Financial + KCG Holdings

We've moved a major step towards a done deal here. Good news is that this remains far from a done story. Easy access to financial and operational data about the outer extremes of technical leverage in the global financial services sector provides great fodder for a story that will continue to inform and fascinate. Along those lines, and in addition to the updated deal news, both parties disclosed results from the most recent quarter today. With that, I thought it would be timely to update our ongoing analysis to see if the evidence confirms or alters the findings we have been showcasing to date. Here's where we started a little over a month ago on March 15 when Virtu made its unsolicited bid for KCG:  "In the chart below, average daily adjusted net trading revenue for Q4-2016 returns to levels not seen since late 2013 / early 2014. Chances are quite high that persistent low volatility during Q1-2017 ... has caused these figures to fall back to pre-2013 levels." And then there is this additional comment: [...]

By | 2018-02-28T16:32:49+00:00 April 21st, 2017|Alphacution Feed|

Virtu and KCG: A Tale of Technical Leverage?

Here's an update from the initial post on March 15, 2017... The first wave of commentary is in, and the consensus seems to be that the unsolicited bid by Virtu for KCG is all "about the little guy." In other words, this deal is all about the position of a wholesaler relative to retail order flow. Maybe so. There is also some suggestion that these firms are not competitors; that, in fact, they may be complementary. Ok, I guess. But, widen your interpretation of the situation a bit and consider this: According to the 2016 Virtu 10-K, it is disclosed that, "We make markets by providing quotations to buyers and sellers in more than 12,000 securities and other financial instruments on more than 235 unique exchanges, markets and liquidity pools in 36 countries around the world." The notable liquidity venues are as follows, (and notice the part about "major private liquidity pools.") Since #HFT and narratives about highly-automated trading strategies are crowded topics among capital markets punditry, Alphacution has not followed the nuances close enough to know for sure whether the sponsor [...]

By | 2018-03-21T16:41:32+00:00 March 21st, 2017|Alphacution Feed|

@VirtuFinancial Pulls the Trigger on @KCG: Here’s Why…

@VirtuFinancial bid for KCG Holdings (@KCGHQ) today. Here's why: In the chart below, average daily adjusted net trading revenue for Q4-2016 returns to levels not seen since late 2013 / early 2014. Chances are quite high that persistent low volatility during Q1-2017 - which has only a dozen trading days left in it - 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... Problem is, it won't work - even if the deal gets done. The cultures of Virtu and GETCO - the parts that are likely to fit together the most logically - won't mesh. Knowing the founders and leadership, they are as different as New York and Chicago, as different as right and left. Stay tuned...  

By | 2018-02-28T16:33:28+00:00 March 15th, 2017|Alphacution Feed|

@VirtuFinancial: Valor #HFT Morghulis

If you read Part 1 to this post (from December 15, 2016) then you know that at least as of the end of 2015, financial reports from HFT bellwether Virtu Financial illustrated strong and even increasing profitability. Our surprise from these impressive figures came from the countervailing hypothesis that HFT was already well past its prime (given the evidence of prop shop closings and consolidations over the past 5 years or so). Apparently, Virtu didn’t get that memo. However, upon closer inspection of the most recent quarterly reports – which as of now yields details over 11 quarters starting in calendar Q1 2014 (March) and ending in calendar Q3 2016 (September) – even this bellwether may have seen its best days. Exhibit 1 (below) is one perspective of what this recent turn of fortune looks like: Some translation: After spiking in Q4-2014 and peaking in Q1-2015 at an annualized (adjusted net trading) revenue per employee (RPE) of over $4.1 million, trading revenue as of the end of Q3-2016 has returned to somewhat less [...]

By | 2018-02-28T16:34:09+00:00 January 12th, 2017|Alphacution Feed|