Virtu Financial: When Life Imitates Art

“Life’s just this game of inches. And, the inches we need are everywhere around us.” – Al Pacino

If it’s any consolation, the original version of this started with a shout-out to Doug with a tribute to Duncan Keith, former defenseman for the 2010 Stanley Cup champion Chicago Blackhawks, who lost 7 puck-stopping chicklets in their series-clinching win of that year’s Western Conference run for Lord Stanley’s cup. Hockey stud that he was, Duncan returned to finish the game…

No, instead, the modeling and charting overpowered even that gem of an opening to give you another timely tribute to our Avengers after last week’s ode to Ant-Man and the Wasp… After all, we are committed to hacking your attention with Inception-like layers of metaphors to keep you entertained while serving up the latest morsel of intelligence about the trading and asset management world.

Here’s the gist for this one:

Though it’s disclosures about key attributes of  their business are quite good relative to others, Virtu – like any other public company – is under no obligation to provide a view on matters that is beyond what the disclosure rules require, which is often a 2-3 year window of financials (and sometimes 5 years). All public companies are given a chance to put a favorable spin on the numbers, in part, by limiting the perspective to a reasonably short window of time – which means, in the case of companies that have been highly acquisitive, no one is going to go back and piece together the history of the various companies before they were acquired and then back through to the present beyond a minimally-required point.

So, we thought it would be fascinating to perform that analysis – and, upon doing so, we were reminded of Thanos and his Infinity Stone-bejeweled gauntlet that gave rise to the disappearance of 50% of the souls in the MCU, which is kinda like the chart below.

Here, we are presenting estimated total headcount figures as if all the acquired companies – namely, Virtu + GETCO + Knight Capital Group + ITG – were bolted together in 2010 and then progressed forward from then until now:

For the first 6 years we observe relative stability, with aggregate headcount of ~3,000. However, in the past 2 years, we observe an eerily Thanos-like reduction of about 50%. Now, this exercise is not unique to Virtu. As many players in this ecosystem face headwinds, similar patterns of – uh – efficiency do emerge. It’s just that we don’t always get a chance to see the data behind those patterns. Hey, but that’s part of the price of making a fortune by selling shares to the public, no? Plus, this team has displayed some Duncan Keith-like grit and deftness in navigating those headwinds out in the open while many others have been able to navigate with much less transparency. Pick your poison…

Anyway, the reason we are highlighting the shape of the aggregate headcount curve is that it has been – and usually is – an effective lever by which to manage earnings because compensation is usually the biggest expense line. That and, for example, the market data line – which seems to be the top rationale for the recently announced launch of MEMX – are common methods by which challenged revenues can be converted into the same – or better – levels of earnings.

Here’s that picture:

That’s 21 quarters of market making and brokerage – a majority of total revenues averaging 62.9% and 24.9%, respectively, over the period – that continues to face headwinds. And, though the alliance with MarketAxess related to multi-asset ETFs and fixed income products is a creative one that should bear fruit over time, we don’t know how much protection that represents in the near term if you still need to figure out how to stop pucks with your face.

Watch this space…

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By | 2019-05-29T14:03:21-04:00 May 8th, 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.