Q4 2021 Virtu Financial Inc Earnings Call
Good morning, and welcome to the Virtu Financial Conference call all participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
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Please note. This event is being recorded I would now like to turn the conference over to Andrew Smith head of Investor Relations. Please go ahead.
Thank you Kate and good morning, everyone. Thanks for joining us.
Our fourth quarter results were released this morning and are available on our website.
On this mornings call, we will have Mr. Douglas <unk>, our Chief Executive Officer, Mr. Joseph <unk>, our co President and co Chief Op Co Chief operating officer, and Mr. Sean Galvin, our Chief Financial Officer.
I will begin with prepared remarks, and then take your questions first a few reminders.
Today's call May include forward looking statements, which represent Virtus current belief regarding future events and.
And are therefore subject to risks assumptions and uncertainties, which may be outside the company's control.
Please note that our actual results and financial condition may differ materially from what is indicated in these forward looking statements. It's important to note that any forward looking statements made on this call are based upon information presently available to the company and we do not undertake to update or revise any forward looking statements as new information becomes available.
For you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report on Form 10-K , and other public filings.
During today's call in addition to GAAP measures.
In addition to GAAP results, we may refer to certain non-GAAP measures, including adjusted net trading income adjusted net income adjusted EBITDA and adjusted EBITDA margin. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures reported in accordance with GAAP.
We direct listeners to consult the investor portion of our website, where you will find supplemental information referred to on this call as well as a reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an explanation of why we deem this information to be meaningful as well as how management uses these measures and with that I'd like to turn the call over to Doug.
Thank you very much Andrew and good morning, everybody.
Morning, We reported our fourth quarter results, which reflect a 37% quarter over quarter increase in adjusted net trading income to $486 million.
Adjusted EPS of $1 19, and adjusted EBITDA of $328 million.
These results capped another strong year for Virtu, we achieved $1 9 billion and adjusted net trading income posted $4 57 in adjusted EPS and $1 3 billion of adjusted EBITDA in 2021.
<unk> enters 2022, better positioned than ever to capitalize on the secular and macro tailwind occurring around the globe as a new gen as new generations of investors into the market, new asset classes grow and mature and as central banks reprice assets and review monetary policy as the world.
Emerges from the pandemic.
Taking a look at our results while the overall market environment was better in the fourth quarter than the third quarter.
Really proud of how our results significantly outperformed the benchmark thanks to enhancements within our core market, making business is growing adoption of our execution services products and the continued success of our growth initiatives.
Our market, making business produced $5 8 million per day in the quarter, almost 50% more than that.
We achieved in the third quarter, despite volumes and volatility being 10% and 26% higher in the quarter, respectively and.
And market wide will 605 volumes being up 4% for the third quarter.
Our strong performance was driven by several factors, including both significantly.
Continued progress we have made on our efforts to improve internalization, which optimizes, how we manage risk across the FERC.
The benefits of the ongoing enhancements have become evident over the last couple of quarters and we expect that these efforts around firm wide internalization and we will continue to bear fruit for the foreseeable future.
Our execution services segment also performed well in the fourth quarter, where performance was driven by brokerage with strong U S and European contribution. Despite a number of trends in 2021, typically favor larger sell side firms, most notably the spike in new equity issuances.
Issuances, including Ipos.
In these results, we see evidence that our multiyear technology integration following the acquisition of ITG is bearing fruit in total.
<unk> contributed 25% of our total A&P in 2021.
We also made significant progress in our organic growth initiatives last quarter generating $26 million, a 13% increase over the third quarter, our option business produced a solid quarter on the back of expanded symbol and venue coverage as we increase increased our footprint.
Growing our options capabilities remains a top priority and we are investing significant resources to become a wholesaler and options to our retail partners.
Contribution from our capital markets business also set a new record in 2021 as issuers took advantage of healthy market and <unk> trading capabilities.
We recently expanded the Virtu capital markets team to help us cover more issuers across the United States and Canada.
And support the growth of this business.
I continue to be most excited about our efforts with regard to becoming a leading global market maker in crypto products, our crypto market, making continues to accelerate as we allocate more traders and technologists to our expand our activities across major venues globally.
We now trade approximately 30 products across the U S, Canada, Europe , and Asia, including the Etfs, we continue to support the launch of a U S based.
Big point ETF for crypto.
Believe that our crypto market banking will be a significant growth area for the FERC for the foreseeable future. We also believe that there is no principle reason that a spot VIX ETF has not been approved and its lack of approval is harming investors and in particular retail investors.
These organic growth initiatives increased our overall baseline performance by expanding our global addressable market in multiple dimensions across market, making and execution services and complement our persistent enhancement to our core businesses.
We are excited for 2022, and we remain focused on investing and executing on the many growth opportunities in front of us.
I also wanted to note our continued commitment to return capital to our shareholders. We purchased three 7 million shares in the fourth quarter, Joe will go through details, but I want to highlight that since we started our share repurchase program in late 2020, we have repurchased $483 million of virtue stock through the end of <unk>.
Reducing our net share count by six 4%.
We believe this method of returning cash to shareholders is an efficient use of our excess cash beyond what is necessary to support our aggressive growth initiatives.
As a supplement to our annual dividend the buyback allows us the flexibility to return more capital in quarters with outsized results and continually reset the bar for earnings.
Turning to some issues in and around our industry, we remain in continuous dialogue with clients.
All makers regulators and key industry stakeholders regarding market structure policies that provide investors with more investment choices and then make our markets more accessible and more transparent for retail investors. In fact, I believe that the recent focus on the U S retail investor has been illuminating for many who.
May not have realized how well the retail investor is served.
Our hope is that people now better understand and recognize the billions of dollars of price and size improvement, which indisputably accrue to retail investors. Thanks to competition within the current system.
Before I turn it over to Joe I would like to highlight a number of the secular tailwind as well as macro tailwind that virtu is well positioned to capture.
The first one the secular tailwind tailwind is driving growth.
As many of you are aware today's markets are evolving at a faster pace than ever thanks to unrelenting innovation the application of technology and end user demand, yes, everything readily available in the palm of their hands for little or no cost.
These factors increasingly contribute to the growth of secular tailwind, including the birth of new asset classes, New business models, such as Zero Commission trading and the continued electronic vacation of market all of which expand the long term opportunity for virtu.
The success of Zero Commission trading has fueled a new and more diverse generation of informed retail investors empowered by the ease and efficiency of accessing the market. They are significantly growing and broadening the investor base in U S equities and options.
This new level of sustained retail engagement has invigorated the competition among retail brokers, creating a virtuous feedback loop of innovation and impressive offerings public.
Public metrics, such as Pinterest customer account balanced data.
Or is that retail investors increased our cash balance by 7% in the fourth quarter and increase their investing on borrowing margin by 4%.
Compared to Q4 2020 cash balances are up 15% and investing on borrowed margin is up 28% demonstrating that retail investors are doing more than just opening trading account they are funding and using them we.
We see this as a strong positive indicators about the new level of long term retail engagement in our capital markets.
Other examples of secular tailwind included the growth and maturation of new asset classes, such as crypto products and the continued electronic vacation of existing asset classes like fixed income.
As I mentioned, a moment ago virtual also benefits from macroeconomic tailwind such as changes in global monetary policy as well as social and geopolitical uncertainty as the world hopefully begins to emerge from this terrible pandemic and finds its new normal central banks are looking to taper quantitative easing and raise rates to address.
Inflation concerns, causing the market to reprice valuations and risks.
Tuesday investment and creating a global scale technology platform.
Equally positions us to capture significant upside from volatility wherever and whenever it arises.
While it is still early January volumes and volatility might be a glimpse of what is to come that said virtuous commit commitment to disciplined expense management and scaled operation means that our success is not tied to a single trend where type of macro environment, we are well positioned for success.
Across a variety of macroeconomic environment, our efforts to expand our footprint by entering new markets and.
And products combined with our continued enhancements to our core businesses compounds the sustained growth potential for <unk> from secular and macro tailwind.
Now I'll ask Joe to fill in some more detail Joe.
Thanks, Doug.
Make some brief points before turning it over to Sean while we believe our results will continue to be somewhat variable our growth initiatives and enhancements to our core business.
<unk> the bar of our baseline performance in any environment, and we will continue to grow over the long term.
In addition, we believe the overall environment, we will continue to provide a positive backdrop.
<unk>, some cyclical and secular factors.
The following.
We are entering an inflationary period with contemplated rate increases and the FX activity, becoming a positive for our business.
We believe the enhanced retail activity.
The recent past as part of a long term secular trend.
Our organic growth initiatives, which show significant upside we will continue to benefit from the overall growth of these markets.
We're well positioned to benefit from these trends due to our attractive and diversified global footprint with connectivity to over 2000 global clients, including over 250 retail brokers and customers will continue to trade U S equities and other asset classes.
Just a bit more backdrop on the quarter.
$486 million of anti was achieved in the quarter were realized volatility was up <unk> and volumes were up globally in equities.
As you see option volumes were up 9% versus the third.
U S equity volumes were up 10%, while retail equity 605 volumes in the U S were up 4%.
Our execution services business had another steady quarter, realizing $114 million in anti or $1 $78 million per day. This is 8% better at <unk> and demonstrates how <unk> continues to contribute to our global scale and reduce quarter to quarter variability of our firm wide results.
Overall, we believe our performance in the entire second half of 2021 is worth noting.
Or is it illustrates how it supports a strong baseline performance by delivering results beyond what the market conditions would suggest.
Importantly, we enter 2022 with our large acquisitions and integrations, most recently ITG under our belt setting us up to deliver.
And enhanced and unified products suite, our global clients, we continue to reap the revenue synergy benefits of integration and the expense synergies that we've achieved.
We enter 2022 with an expense base and allows us to capture great economies of scale and invest in growth as well as to continue to use our significant excess cash to repurchase our shares.
We are continuing to provide clear guidance on our model.
What can be expected at various levels of anti.
We have updated these figures on slide seven in our supplemental materials.
Our share buyback continues and will continue in accordance with the guidance we have published in calendar 2021.
<unk> $405 million of our shares as of January 31, $483 million of share repurchases have been at an average price of $27 37.
We remain committed to returning capital to our shareholders.
<unk> program as a meaningful contributor to earnings stability over the long term and incremental to our growth plans.
Combined with our growth initiatives and enhancements to our core business.
Buybacks should help elevate our toothpaste earnings power, regardless of the environment.
Finally, I mentioned last quarter that we considered our overall debt levels to be in a sustainable nominal amount.
Recently took advantage of market conditions to refinance our long term debt at attractive levels and to extend the maturity of our term loan until 2029. Additionally, we opportunistically upsized our term loan by an additional $200 million, which we intend to use for general corporate purposes and to fund additional.
Buybacks, we remain comfortable with our overall capital.
I will now turn it over to our CFO Sean Gillen.
Thank you Joe in the fourth quarter as presented on slide three of our supplemental materials are adjusted net trading income, which represents our trading gains net of direct trading expenses totaled $486 million or $7 6 million per day, 7% higher than Q4 of 2020 and 37.
10% higher than the third quarter of 2021.
Market, making adjusted net trading income was $372 million from $5 $8 million per day, 16% higher in the year ago quarter, and 49% higher than the third quarter of 2021.
Execution services adjusted net trading income was $114 million or $1 8 million per day, which is a 16% decrease year over year, and an 8% increase from the third quarter.
Our adjusted EPS was $1 19 for the fourth quarter, 70% higher than the third quarter of 2021.
Adjusted EBITDA was $328 million for Q4 up 56% from $211 million in Q3 was down 4% from $344 million from the prior year quarter.
Our adjusted EBITDA margin was 68% for both the fourth quarter and full year.
He used to be reflective of our efficient cost structure and disciplined expense management.
Yes.
In the fourth quarter, our overall compensation expense was $103 million, bringing our total compensation expense year to $376 million, 5% decrease from 2020.
Our cash and overall compensation ratios were 17% and 21% of adjusted net trading income, respectively for the quarter, and 16% and 20% respectively for the full year.
As I previously said about our compensation ratio consistent with past practice, we accrue incentive compensation to a range of percentages earlier in the year.
Depending upon the remainder of the year, how the remainder of the year unfolds. This may result in adjustments to our compensation ratio in later quarters as we refine our specific compensation targets.
Looking forward through 2022.
Not expect a significant fluctuation in our cash compensation expense from historical levels. However, I do want to note that compensation will vary based upon our overall performance as well as our level of head count.
We believe that we've reached a relatively steady state spec.
Respect to the balance of our operating expenses, which are outlined on slide eight of our presentation.
As such we expect that our communications and data processing.
Operations, and administrative and depreciation and amortization expenses for 2022 will remain in line 2021 actual amounts.
As Joe mentioned in January we successfully refinanced our $1 6 billion of long term debt that was outstanding at year end and Upsized it to $1 8 billion.
As a result, we expect that our annual interest expense will increase proportionately or approximately $87 million per year.
On slide eight of our supplemental materials.
Our capitalization remains adequate.
We remain committed to our 24 cent quarterly dividend, which we have consistently paid over 25 quarters every environment since our IPO.
And our approximately $102 million share repurchase fourth quarter demonstrates our continued commitment to return capital to our shareholders.
I will now turn the call back over to the operator for Q&A.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the key to withdraw your question. Please press Star then two.
The first question is from rich Repetto of Piper Sandler. Please go ahead.
Yes, good morning, Doug and Joe and John Congrats on a strong quarter.
<unk>.
I guess the question is on everybody's mind is sort of.
Market conditions, even see more friendly for you in the <unk> and <unk>.
January and first quarter to date.
Comments on performance there and.
And how do you view the earnings run rate.
Seemed like like you said in the second half of 'twenty one.
<unk> seen enhanced performance.
Yeah.
Could be more consistent I guess going forward.
Yeah, Thanks, rich and good question.
As I have said in other calls we're not going to talk about.
Current periods, we obviously want to talk about the quarter and the year, but obviously if you look at the metrics.
Which we all have had and we all share and you guys publish obviously they they do they are more favorable I think the important takeaway what we're trying to emphasize here is that what youre seeing in this quarter and what you saw throughout 2021 is the impact of what we envisioned.
Frankly in 2017, when we first acquired Knight capital than in 2019, when we acquired ITG, both amazing franchises with embedded goodwill with thousands of customers.
Combined combining those platforms those great companies with the technology and the efficiency and frankly, the operating discipline that we had at legacy Virtu.
We said at the time, one plus one can equal three and that's really what you're now saying.
One plus one is equal equal equals three.
We're outperforming the metrics we continue to do that so yes, we've raised the bar with regard to our performance I mentioned in my script, the benefits of internalization and Thats both.
Because of the technology that we deploy for two but more importantly, because of the ethos that we have in virtue of this as a single firm we view ourselves as a technology firm, we don't have different depths that compete in different P&L and guarantees and all of the things that.
Trading firms and banks typically have so we're able to fully implement and fully realize the benefits of having a scaled integrated financial services firm that we think provides enormous value.
To retail and institutional investors globally and in addition, obviously as we've talked about rich we've gotten into these new asset classes, namely options in crypto we've.
We've enhanced and began to be a market maker in fixed income. So we're expanding the footprint of the firm, but really that's the theme and so as I've said.
A bunch of these calls were built we have built this firm and will continue to build this firm.
Looking at years end, not particular months or quarters.
Got it and one quick follow up.
Just on ownership and ownership changes so I know.
Many many viola.
Bought shares.
These warrants can you talk about that and any expectations of.
On the on the ownership changes.
On the ownership.
Yes sure good question, yes.
Obviously I don't speak for many he is my friend is my partner and I started the firm with them, obviously I speak to them on a daily basis, a weekly basis, we're very very close and he is.
<unk> friend and a mentor.
Member of our board.
You are correct Vinny.
Vinny during the quarter exercise on a gross basis.
Not net.
3 million warrants, which means that he and his family wrote a check for $68 million and said that money to Virtu financial So we effectively bought 3 million more shares of virtue I forgot exactly what the strike price was $22 and change those awards that were provided to him as part of providing financing.
For us and so I think from my perspective that is a huge vote of confidence by Vinnie Viola family in the long term success.
<unk>.
60.
$68 million.
Im godly amount of money right. So two actually.
Secondly, write a check for that.
He very easily could have said just give me a net issuance of whatever the $600000 Delta would have been.
In terms of shares.
Is an enormous vote of confidence.
In the.
The firm and the management and direction of of virtually any people I've always said the guy can see around corners and explore.
<unk>.
Through my 15 year relationship with him and so obviously.
We were all excited.
It continues to be incredibly supportive and he and his son Michael.
It was on our board continue to be.
Really helpful guiding hand to the firm as we continue down this path.
Got it.
Very helpful. Thanks.
Thank you rich.
The next question is from Dan Fannon of Jefferies. Please go ahead.
Thanks, Good morning.
So I wanted to follow up on your comments around internalization you highlighted that.
A couple of times now as part of the success. So is there any statistics or numbers or ways to think about that quantitatively.
And how that's evolved.
Part of your business.
Yes, it's a great question, obviously, Dan is a whole host of things that we track internally in terms of our ability to.
Internalize within the firm.
Across asset classes and within asset classes easy examples I have given us.
As we're growing our options market, making capability. It is extremely useful to those folks that all of their delta hedges are effectively dealt with within the firm. So you can.
Spend time, focusing on understanding the options market, making.
And then look at the various.
Platforms and exchanges and understand and work on your models and not have to worry about what's going to happen to your delta hedge right. Because there is another smart group of folks in the firm internally are doing that's just an easy example, but that is happening throughout the firm globally and our goal obviously.
Regard to internalization is to do two things one is obviously to ensure that we maximize our bid offer capture and the second thing is the.
The less that we route out to exchanges in order to source liquidity, then we're saving an enormous amount of cost if you look at like our gross to net.
Revenue.
Our biggest expense every quarter on a gross to net basis is the brokerage fees and commissions in the vast preponderance of that foreign exchange, an ats fee. So to the extent, we can mitigate those and improve.
Improve our capture rates, that's obviously going to drive our adjusted net trading income so I apologize for being vague, but obviously, there's a fair amount of.
State Secrets with regard to how we do this and why we do it and the and our success in it but.
It really has helped us enhance and effectively have kicked.
I'll kick the what the metrics would otherwise provide us in terms of results.
Understood I guess just to follow up though I mean in terms of the last couple of quarters has there been a meaningful step up in that or is this I mean this has been something that <unk> always been working on obviously, so the idea that this quarter or last quarter. There was that those metrics would be materially higher than say a year ago.
Sure.
Yes, yes, what youre seeing in the third and fourth quarter is an enhancement.
Through real initiatives.
That we have implemented within the FERC again, I'm not going to quantify.
And Thats why but.
Long term.
This will continue to provide and were not by any stretch of imagination.
Done in terms of.
Always trying to like a squeeze more juice from the Lemon if you will and lots of runway here within equities.
And as the firm continues to grow and to scale and it has a larger footprint. Obviously the opportunities continue to grow I mean, just think of crypto assets are denominated in the multitude of currencies right. So that's another example of internalization because obviously, we've got a very robust FX business, we've always said.
One of the reasons Virtu and the original orientation yet.
<unk> had around Virtu was to be fully global and multi asset class right. Because he recognized that every time you have to go outside the FERC to source liquidity or to hedge or to do this you are introducing incremental.
Inefficiencies effectively into the service into the market, making that you're providing so the more that you can do internally across asset classes and geographies. The more successful you are the tightened that tighter you can be on your own bid offer spread the more flow youre going to capture with the virtuous cycle right. That's always been the DNA of virtue very very different.
Then a lot of our competitor firms.
Thanks, that's very helpful and so just.
A clarification on the expenses so just make sure I understand the comp we should think about the comp ratio for 2022 being similar to 2021 is that the right or is that a dollar amount you're referring to and I believe the rest of the expenses youre, saying are going to be flat year over year. When we think about 'twenty. Two just wanted to clarify those I'd say two things one is look at the.
We updated the model on slide seven alright. So there is that cash opex total at different levels of antigen as Sean said right, our comp ratio, 17% cash comp volume, 20% comp.
So target 'twenty target those those ratios going forward more or less and then the other.
Categories that grow kind of low single digit.
Percentages.
Zero to low single digit percentages.
Any one year, so comp is going to the difference in the cash Opex total on slide seven for those different levels.
100% due to come.
Got it thank you.
Thanks, Dan.
The next question is from Chris Allen of Compass point. Please go ahead.
Good morning, guys. Thanks for taking my questions.
I guess I'm going to start out with maybe some color just on market, making in the fourth quarter clearly there is benefits on the.
Internalization thoughts within brokerage and clearing side have you been putting us on a gross basis.
Much stronger numbers than we would expect and maybe if you can give us some color what drove that whether it was wholesale.
Our on exchange in the equities or whether it was.
And then also just the non equity businesses, maybe just some color there.
The drivers there.
How things performed.
Yes.
Very good question, because obviously, we have gotten away from doing within our segments.
Detail incredible detail, but I will say.
It really was all around the firm I mean, we have.
Spent an enormous amount of time money energy over the last couple of years.
Re platforming and migrating the legacy Knight businesses, and frankly investing in our own technology euphemistically, let's call it new technologies.
Make sure that we have.
<unk> and throughput that are consistent with what are the demands of the modern market and so what youre seeing is the continued validation.
Validation of.
Those investments and that work that we have done.
It's not just.
Unlike 2021 January if you will.
We're looking at like all the MIM stocks or this or that it was really just a broad enhanced broad improvement if you will in our market making capabilities. So it was really just across the board.
605 volumes increase, but they only increased by 4% in the quarter. So.
We just have gotten better as a firm we're very proud of the investments and the time that we've made we've got an immense amount of very very talented people.
We're just improving our yield on.
Every time, we go to bat.
We're hitting more singles than we were hit before.
Got it and then maybe switching over to Crypto. Obviously you noted the continued build out there just in terms of adding heads.
Currencies were making markets.
I mean, how would you describe maybe the level of capital commitment present relative to other more mature businesses.
And how do you think about the evolutionary path moving forward.
Yeah. It's a great question I mean, it's very very early innings in terms of our involvement in crypto market, making.
But I'm very very excited about what I see.
Allocated some.
Some of our most senior and most experience.
Folks here in the United States and in Singapore and in Europe .
This is obviously a truly global business.
We think it's not the most efficient marketplace right because theres not centralized clearing but we think it's the capital required is going to be proportional to the revenue opportunities in a way that is similar to all of our other businesses. I mean, you see the amount of trading capital we have in.
Frankly, the return that we get on capital I think at the end of the year, we had over $1 billion of cash and cash equivalents. So we have plenty of capital to run this business, we don't need to do anything extraordinary we're very.
Excited about the opportunity as the as this asset class matures, you'll see more.
Standard prime brokerage and leverage off of.
Being provided by <unk>.
By third parties I'm hopeful at some point that the sell side will jump in.
With both feet to the opportunity in the same way that they are.
Our partners in other asset classes, but be that as it may.
We're going to be very very active in this business, we've got plenty of capital internally.
Two for everything that we could foreseeably due in crypto write him yes.
Yes, Chris we don't want you to takeaway that capital is going to be.
A hindrance.
To us it is.
In addition to what Doug said, we've got more liquidity than we ever have on a daily basis.
Even with our our share buyback.
<unk> got available credit lines.
If we need to.
And this kind of early days.
The market structure evolving in crypto it is an efficient, but that's also part of the attractiveness.
Thanks, Yes, I was thinking about more.
Fully deploying X amount of capital right now just because it's in early stages.
Turning to deploy a lot more moving forward, but I appreciate the color I'll get back in the queue.
Okay.
The next question is from Ken Worthington of Jpmorgan. Please go ahead.
Hi, good morning.
I wanted to follow up on crypto maybe.
Maybe three questions on it.
The press release, you are making markets in 30 years, so crypto products.
Market, making individual tokens at this point such as bitcoin.
And if so how many.
Thank you or not but I still don't really know.
Second jumped.
320 million crypto loss on the warm hope rage, either like earlier this week or late last week.
What sort of capabilities are you investing in where you think you need to invest in such as bridges to kind of grow your presence in crypto and then how do you manage the risk associated with that and then lastly.
Milestones for the coming year in terms of breakdown I think you talked about connectivity in products. How are you thinking about the build out of both as we sort of move through the year.
Okay, I think I got all those but let me try to handle one CRE autumn.
Yes, we our market, making and a handful of individuals focus today.
Bitcoin and ethereum.
We will continue to responsibly.
About half a dozen of those please don't ask me to name them all tenants because.
I got a lot of venues and a lot of symbols in my brain and them.
Not as smart and I'm older than a lot of the guys here, So I can't keep them all straight, but about half a dozen of them.
Obviously, we've been methodical about that and we try to go to the high end of the curve.
Et cetera.
I think your second question was obviously I know nothing.
Brendan with a guy that jump trading I think it's been amazing firm.
I know the founder as well I don't have any information in terms of.
What jumper did or did not do I read the same press reports.
Do I mean I think.
If you believe the fresh reports, which sounds like you do and it jumped was willing to step up in rate of $320 million check to cover losses.
I think it just.
As a validation it speaks to the value of bridges in that ecosystem from some really really intelligent.
Very very successful folks that I respect greatly.
So.
We think bridges will continue to be important to virtue down the road as we.
Expand more into <unk>.
Where what where we've built our brand on if you will is kind of risk management and my friend Joe here is the when it comes to crypto.
Crypto comp.
He is the guy that watches everything and approves everything so we're very very focused on it for now we're focused on exchange based market, making because thats, where our expertise lies is feels like when we first started virtu in 2008, a little bit like the FX World, where you had a multitude of.
Of.
Exchanges, our venues that we're starting with varying degrees of technology and so we're not using bridges, yet facilitate our on exchange market, making work sort of doing that internally in the Virtu way I think I answered all your questions.
But if there is a follow up I'm happy to try to address it better okay.
Okay.
Thank you so much.
Sure Joe.
<unk> brokerage.
Clearings brokerage clearing.
Cost.
Despite higher volumes.
Can you talk about the falling brokerage costs, and how maybe mix or other factors, maybe even internalization changed to drive this relationship a cost to volume.
Yes, I mean, Ken it's really.
You are comparing quarter over quarter.
If theres going to be a number of things in there theres going to be you guys, Doug said kind of.
How often we have to go to the exchange.
And pay exchange fees, there's going to be kind of the legacy kind of.
Terry market, making business in there.
In terms of asset class mix, so it's going to depend on a lot of different things.
In this quarter.
I wouldn't point to anything specific I think if you look at it over a number of quarters. The ratio is pretty much in line, so maybe comparing quarter to quarter for us is always a little bit.
There's always a little bit deceptive I think if you look at look at it going back over a number of quarters youre going to see a pretty consistent.
Ratio.
Great. Thank you.
The next question is from Alex Blaustein of Goldman Sachs. Please go ahead.
Hey, guys. Good morning, Thanks for taking the question I wanted to go back to some of the organic growth comments, you made and specifically zoning in on the options market, making opportunity for Virtu.
I guess, one I was hoping you could help us break out out of the 400000 or so per day and kind of organic growth revenues, how much the options business sort of contribute today and if you were to sort of dream. The dream how big do you think this business can be for you over the next two to three years, assuming volumes constant regulation constant in all that good stuff.
Yes.
Thanks, Alex I mean, obviously, we don't give breakdowns in terms of like what's what within the within our organic growth.
I have said in prior calls that like options makes up a good chunk of that it continues to make a good chunk of that if it was.
I really really good quarter for the group.
We have scratched the surface in terms of connecting to exchanges and <unk>.
And symbols that we're trading there is a whole universe, obviously live.
Names out there that we have not addressed.
In terms of like what the addressable market is and where we where we could be we think that there is any.
Need and an opportunity for more competition.
You see how hard it is for new competitors to break into the cash equity $6 five business right.
<unk>.
There is robust competition there, it's not easy to do the same thing in options, obviously, the retail brokers want more service and want.
More options no pun intended in terms of where they can.
Send their flow.
It's no secret that my friends at Citadel and Susquehanna.
Sure.
800 pound gorillas.
That industry Morgan Stanley 's in there. So it is competitive so I'm not sitting here.
In Q versus Turbo Vice right. So I'm not sitting here, saying, it's going to be easy for us to do that.
I think if we just look at.
The.
Structures, if you will that we have in terms of having.
Full.
Fully paid for Technologic technology infrastructure, we have low latency connectivity between marketplaces, obviously, we've got robust throughput in terms of all of our <unk>.
Systems, we've re engineered and re architected, our systems to be more to enable.
Quote based as opposed to order based market, making so we've done all the things that one would do to be an options market maker. We had a good amount of success already where that leaves us in what we.
How do we scale that we're going to do it in the Virtu way right be collaborative with exchanges offer value to clients that ultimately we think it can be a very meaningful part of our business.
Got it alright, Thank you and then I guess.
The second question I have for you guys was around.
Just some of the expense dynamics in the quarter and looking forward. So it looks like you issued net five 2 million shares I think it's a little over 2% of the total shares outstanding obviously your buyback overwhelms that but as I think about the annual share issuance on a go forward basis is that roughly the right amount and should we be thinking about the <unk>.
Stock based compensation that will throw through flow through the P&L on the back of that as we saw in 2021.
Yes for modeling purposes assume the stock portion.
The compensation is constant.
In terms of a ratio.
That would be a good assumption for modeling obviously.
Like anyone elsewhere, when we pay people in stock price part of their incentive comp.
The net issuance really depends on the.
The share count.
Share price.
So that will fluctuate hopefully but.
That's a good assumption going forward.
Great. Thanks, Joe.
The next question is from Michael Cyprus with Morgan Stanley . Please go ahead.
Hey, good morning, Thanks for taking the question I just wanted to circle back to Joe I guess kind of a two part question here on crypto maybe first if you could just talk about the competitive landscape for market, making and crypto and how you expect that to evolve relative to other asset classes and then could you talk about some of your.
Since that youre, making in the business to build out your crypto market, making capabilities, where youre sourcing talent and talk about some of the initiatives and steps that you're taking here in 2022 to make this a more meaningful portion of your business over time.
Yeah. Great question. Thank you. So in terms of the competitive landscape is actually a great question because there are actually a handful of.
Market, making firms in crypto that frankly don't see in other asset classes.
Firms that kind of evolved around the crypto space where early entrants.
First of all I heard too frankly.
We're doing other things they are waiting for the answer.
As we evolve.
So it's.
And.
Obviously they have.
<unk> been successful.
I would imagine right because of some of the inefficiencies in the marketplace as that market and that asset class excuse me in the exchanges begin to become more I'll say mature more professional as latencies become more.
Standardized within that asset class, it's no different Michael than any other asset class in my view that we have dealt with.
The markets are efficient inefficiencies become obvious and effectively are eliminated through firms like virtu citadel and others that are good at understanding inefficiencies in reducing the bid offer spread is reducing.
Our latest season inefficiencies between venues so that will continue to happen as I said in answer to one of the other questions. It feels like this is like when we first started her to FX in 2008.
How inefficient that marketplace was and how fractured with technologies where.
Scroll forward 14 years, and <unk> seen a much more cohesive.
More mature more integrated marketplace, that's what's going to happen in crypto.
We will be one of the change agents behind that and as that happens.
Calle efficient technologically Abel firms like Virtu, and others that are able to manage risk around the globe 24 by seven and do it in a multi currency basis will be the winners and youll see some of the smaller players that may be Nietzsche right today in crypto will.
Either merger way of fall by the wayside, because theyre not scaled enough in the marketplace just becomes too efficient. So that's what's going to happen as it has happened in every other asset class.
That I had been involved with in the 15 years or so we've been running virtue here in for years before that so I am excited about that and then I think.
That's the role that we're going to play in terms of.
Talent, what we have done is effectively move people within the firm to this asset class is theres nothing unique if you will about crypto because remember our DNA is not.
The reason why our DNA is these are widgets to us.
Whether I don't have to be.
A believer in crypto or not believe are critical frankly.
Not in my in my remit.
This is an asset class like any other asset classes are widget. They obviously are a fundamental value and they move up and down I don't know a big point is going to be 38000, 68000, and frankly I don't care.
What I do care is that we are connected to the right exchanges the rate futures exchanges in the ETF issuers and then we provide a service interconnecting all of those marketplaces and so the folks at Virtu that have done that historically for the last 12 13 14 years.
Now doing that correctly and so thats the skill set that we bring to the table, which is understanding order types understanding the technology of various venues understanding operationally how to.
Move tokens around that were really really good at and that's what the operational excellence of the technological sophistication that we bring to market places and those are the folks within virtue that we have moved into the crypto space and Thats why I am very very optimistic that we will be a meaningful player and this asset class evolves inventory.
Yeah.
Great. Thanks, just a quick follow up as you think about.
M&A and the opportunity for.
To accelerate movement into certain asset classes or geographic region, maybe you could just update us how youre thinking about that and is there any opportunity on the M&A front.
Just in terms of accelerating movement there.
Yes, it's a great question, obviously, we've been successful on them.
Two were actually three very large acquisitions, we acquired vertical Madison Tyler in 2011 that was integral to our success.
To me that the bar has been elevated right because we're a large scale firm number one number two we have this buyback program, which.
We're committed to but more importantly number three as I just indicated I mean from an organic standpoint. If you will we have all of the pieces in place to be a very large scale of the crypto market, making firm obviously, we're not connected to every exchange yet but that.
It's not simple, but obviously the API connectivity to get connected to various crypto exchanges. That's what we do right. We're connected to 250 exchanges.
Having the.
The trading strategy in order to market, we have all of those right and other asset classes. So.
Would be.
Obviously on the fiduciary we look at opportunities all the time chosen experienced M&A person from his time at Jpmorgan I was in M&A. We're always so that we're not afraid of it but like it might be a short term benefit but long term to pay a lot of value for something like that that we know we can otherwise do ourselves in the headache frankly.
Integrating affirmed technologically and culturally.
To me I think it would be highly unlikely I would never say never but would be highly unlikely that we would do something inorganic in this area.
Great. Thanks, so much.
Yes.
Again, if you have a question. Please press Star then one the next question is from Paul Goldberg of Bloomberg Intelligence. Please go ahead.
Good morning, and thank you very much for taking my question.
Circling back to the options business and I know you said.
And in the last four symbols into the ecosystem.
How should we think about per unit volume profitability of options versus the equities going forwards.
Okay.
Look it's a great question, obviously, we don't we don't comment on.
Per unit or capture rates in any of our businesses. So.
Again, not trying to avoid the question, obviously, we track it and we know it and whatnot, but in terms of.
You may want to talk to Larry at Bloomberg right the Keystone.
But in that analysis, and Larry is a brilliant guy and knows the marketplace really really well, but look I mean.
I look at Virtu as a giant mosaic right and ultimately.
Whether the capture rate is X y or Z, it's sort of almost irrelevant to me in terms of kind of how.
We grow and scale our business I think it's a significant opportunity.
The bid offer if you will in the capture rate is going to vary based on volatility I'm sure. If you.
Looked at competitive firms and you look at their capture rate in 2020 as compared to 2019, it's just to see a sea change or difference right because obviously volatility.
The hysteria 2000, twenty's going to widen bid offer spread.
<unk>.
Again, I think you should look at it and say Okay. This is a great opportunity for the firm in the same way that crypto is.
And we've got all of the pieces in place to be successful there and it's just a question of executing and historically this firm has been very good at executing.
Got it thank you very much.
Thank you.
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