Q1 2022 Virtu Financial Inc Earnings Call
We would like to ask the question you will have the opportunity to do so at the end of the presentation. Please press star followed by one on your telephone keypad. If you wish to ask a question I know I have the pleasure of handing over to your host today, Andrew Smith head of Investor Relations. Andrew. Please go ahead.
Thank you Louise and good morning, everyone. Thanks for joining us.
Our first quarter results were released this morning and are available on our website.
On this morning's call we have Mr. Douglas.
Executive Officer.
Joseph I'll lose those are.
Co President and co Chief operating Officer, and Mr. Sean Galvin, our Chief Financial Officer.
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 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 those forward looking statements.
It is important to note that any forward looking statements made on this call are based on information presently available to the company and we do not undertake to update or revise any forward looking statements as new information becomes available.
We refer you to disclaimers in our press releases and encourage you to review the description of risk factors contained in our annual report and Form 10-K , and other public filings.
During today's call. 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 superior to financial measures prepared in accordance with GAAP we.
We direct listeners to consult the investor portion of our website, where you'll find supplemental information referred to on this call as well as the 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.
Good morning, guys. Thank you Andrew.
This morning, we reported our first quarter results, which reflect a 7% quarter over quarter increase in adjusted net trading income to $8 1 million per day, and adjusted EPS of $1 27.
These results capped another strong quarter for Virtu.
Pleased with our results for this quarter and particularly pleased with the continued success of our growth initiatives and our global efforts to improve firm wide internalization.
Our market, making business produced $6 2 million per day in the quarter, 6% more than we achieved in the fourth quarter.
Our diversified business saw a strong performance overall and in particular in our non customer market, making businesses.
We saw particularly strong results from Asia, and ETF market, making as well as our commodities market, making where we were able to capitalize on continued volatility in crude and other commodity products.
Furthermore, our strong performance was driven by several factors, including most significantly the continued progress we have made on our efforts to improve internalization, which optimizes, how we manage opportunity and net positions across the firm.
The better we internalize the less spread we pay away to the street and the more we can save on brokerage exchange and clearing fees, our global multi asset footprint and our collaborative culture means virtue is uniquely positioned to achieve higher levels of inter and intra asset internalization.
As we discussed on our prior calls we believe the benefits of these ongoing enhancements will continue to bear fruit for the foreseeable future and we will continue to grow as we expand to new asset classes and geographies.
Our execution services segment also performed well in the first quarter, where performance was driven by our workflow products, particularly our amex Triton valor.
I'm really proud of the work. This team has accomplished since the acquisition of ITG.
As a reminder, we focused on two principal objectives and our execution services business first was to streamline our offerings by moving clients to our new global Enterprise technology, Triton Valor and second to focus on delivering more value to clients by building, new features which help them scale and reduce operational risks.
This quarter, we've begun we've begun seeing results from these efforts to date on the Triton side, we've migrated well over 90% of our clients to the new technology and with respect to enhancements we've seen good uptick in the use of automation, where traders were able to routinize busy work in a safe controlled manner.
Our capital market's ATM business was also a meaningful contributor to our organic growth this quarter and we are optimistic for continued expansion.
Added more seasoned professionals to the ATM team and we are excited for the pipeline of new business to materialize as we mentioned on prior calls <unk> unique combination of market, making and execution services allows us to provide liquidity and size and scope. Unlike any other ATM provider.
We continue to see impressive progress in our business this quarter as our stated organic growth initiatives grew to 10% of our adjusted net trading income or $821000 predict.
Within these initiatives are growing options business delivered another solid quarter of growth on the backup expanded symbol and venue coverage as well as new technology deployment as we increase our footprint globally.
Growing our options capabilities remains a top priority and we are investing significant resources to become a wholesaler and options to service our retail partners.
As we have mentioned on prior calls we set out a couple of years ago to build an options franchise from scratch by leveraging our infrastructure technology and market structure expertise.
Additionally, we did this in part to ultimately leverage one of <unk>, most important and unique strategic asset that connectivity and relationships that exist between <unk> and the nearly 250 retail brokers in the U S and abroad.
We decided to focus initially on the handful of products that compromise a great proportion of the volumes in options. This allowed us to develop and sharpen our pricing capability in hyper competitive environment.
2021 was an important year for us as we allocated resources and built and expanded the infrastructure and risk management systems required we began trading options in Asia and expanded our simple Congress passed the initial index products to single name instruments and grew the team to fill gaps in our capabilities and accelerate our growth.
In 2022, we will continue to build out this framework expand the product set and add to our core group of talented traders and developers.
Our crypto market, making continues to progress as well as we allocate more traders and technologies to expand our activities across major venues. We now trade over 100 crypto products across the United States, Canada, Europe , and Asia, including the Etfs, we continue to support the launch of the U S base spot Bitcoin Etfs for crypto.
And are working with issuers to be ready to support these funds at launch.
Looking at the macro environment, most measures of volatility were up versus the fourth quarter, although some broader market indices like the Russell 2000, and saw significantly reduced volatility that said retail participation of percentage of overall volumes with that with market wide rule 605 volumes down 15% to 20% from the fourth.
Quarter.
Although as you will see in our supplemental materials the share volume some retail remains strong at over two times what they were in 2018 in 2019 to US. This indicates the long term resilience of the retail investor has a significant presence in the market.
The outbreak of war in Europe was impactful from a volatility as well as of course, the humanitarian standpoint, we continue to see disruption in the macro economy from record inflation as well as the continued emergence from the global pandemic and issues around supply chain and other economic disruptions our efforts to expand our footprint by entering new markets.
Products combined with our continued.
Hansman to our core businesses.
<unk> for sustained growth potential for virtu from secular and macro tailwind.
Virtue remains committed to disciplined expense management and scaled operations.
Means that our success is not tied to a single trend or type of macro environment. We are well positioned for success in any environment as we seek as we endeavor to continually raise our baseline performance across the gamut of macroeconomic environments.
Turning to some of the more recent amendments from the SEC and the impact on our industry, we have been vocal and consistent and calling for a fact and data driven reform where warranted. We believe a data led approach is consistent with the FCC's mission and practice and.
In recent weeks, we have joined basically the entire industry and challenging the FCC's proposed amendments to various roles, including Reg Ats rules regarding share repurchase and <unk> among others will.
While not all of these rules proposals will have an impact on virtu, we feel it is imperative that the SEC follow established proper processes for responsible rulemaking to ensure proposal today and in the future are good for the market.
As you can see in our public comment letters. These proposals are clearly rushed ill advised and statutorily impermissible because they do not follow the prescribed with guidelines for rulemaking.
The administrative procedures act that the SEC won't consult with the industry in good faith and proposed separable reforms could disappointed but sadly not unexpected.
On the other hand, we applaud the CFCC and its chairman who is taking the exact opposite approach.
We remain in continuous dialog with clients lawmakers regulators and key industry stakeholders regarding market structure policies that provide investors with more information investment choices, and then make our markets more accessible and more transparent for investors finally.
As I look back on the past three years I would note that we have entered a new phase of post acquisition integration Virtu, where the benefits of our global business have become evident as a significant cash flows of our business generate are available to return capital to our shareholders to that end since the inception of our share.
Purchase program in late 2020, virtual has repurchased $732 million of our shares at an average price of about $29.
This represents 9% of our company net of normal course, new share issuances for compensation purposes, I refer you all to page eight of our supplemental materials, we clearly lay out the earnings power of the new post acquisition Virtu and our use of excess capital for the seeable future.
We believe this presents a clear compelling investment story now.
Now I will turn it over to Joe and Sean who will provide more detail on the quarter before taking your questions Jeff.
Thanks, Doug Shawn and I will be brief before we get to Q&A.
We thought it would be a good time to review some of the measures we began to take in our communications with investors around clarity of expectations for her two drivers of growth in what we believe was and continues to be a significant opportunity to create value for our shareholders by repurchasing our.
Shares at these levels.
If you look at slide eight.
Our supplemental materials, you can see a snapshot of our expectations across a range of outcomes I.
I would note that we have met or exceeded the guidance provided we began presenting this information in significant detail in the middle of 2020.
Revisiting today allows us to provide an update as well as to really reiterate some of the core principles.
First volatility is one of the largest drivers of our business and so investors should expect our results to be variable. However, we believe given the initiatives around growth the reduction of variability in our expense base and the consistent application of excess cash to share repurchases we have.
More clarity and confidence around the growing baseline of our anticipated results second in addition to the growth we have demonstrated in new initiatives and expansion of our core businesses. We believe we are well positioned to benefit from favorable tailwind as the global economy anticipates and reacts to it.
<unk> period, we've contemplated interest rate increases as well as continued elevated historical levels of retail activity.
Third we have made good on our promise to manage our capital structure and we believe this has created value for our shareholders.
Early in this quarter, we refinanced our long term debt and now have $1 8 billion of term loan outstanding our leverage level. We believe is acceptable at any outcome on this page, which allows us to buyback our shares at what we believe are attractive long term values.
Given our successful acquisitions in the past we are often asked about the potential for more acquisitions. The hurdle for an M&A opportunity continues to be very high given the number and size of opportunities are already on the table with options crypto.
<unk> block fixed income and ATM.
Of course, we explore any opportunities however at the present time, we do not see any investment that competes with repurchasing virtue shares and anticipate that this will not change going forward.
Combined with our growth initiatives and enhancements to our core businesses. Our continued buybacks should help elevate virtues base earnings power, regardless of the environment and now I'll turn it over to Sean for some brief comments before Q&A.
Thank you Joe in the first 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 $505 million or $8 1 million per day, which is 7% higher than the fourth quarter of 2021.
Mark, making adjusted net trading income was $382 million or $6 2 million per day, 6% higher than the fourth quarter of 2021.
Execution services adjusted net trading income was $123 million or.
We're just about just about $2 million per day, which is a 12% increase from the fourth quarter of 2021.
Our adjusted EPS was $1 27 for the first quarter, 7% higher than the fourth quarter of 2021.
Adjusted EBITDA was $344 million for Q1 up 5% from $328 million in the fourth quarter.
Our adjusted EBITDA margin was 68% for the first quarter, which has the same margin that we reported for the fourth quarter and full year 2021, and continue continues to be reflective of our efficient cost structure and disciplined expense management.
For the fourth quarter, our overall compensation expense was $103 million and our cash and overall compensation ratios were 17% and 20% of adjusted net trading income respectively.
As I've previously said about our compensation ratio consistent with past practice, we accrued year end compensation to our range of percentages earlier in the year, depending upon how the remainder of the year unfolds. This may result in adjustments to our compensation ratio later in the quarters as we refer.
Our specific compensation dollars targets.
Looking forward to the remainder of 2022 and do 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 the overall performance as well as the number of employees.
We believe that we have reached a relatively steady state with the balance of our operating expenses, which are outlined on slide nine of our presentation.
As such we expect our communication and data processing opt.
Operations, and administrative and depreciation and amortization expenses for 2022 to remain in line with 2021 actual amounts.
As Joe mentioned in January we successfully refinanced the $1 6 billion of long term debt that was outstanding at year end and Upsized that to $1 8 billion.
As a result, we expect that our annual interest expense will increase proportionately to approximately $83 million per year as outlined on slide nine of our supplemental materials.
Our capitalization remains adequate.
We remain committed to our 2000 <unk>.
Quarterly dividend, which is which we have consistently paid over 25 quarters every environment since our IPO and are approximately $287 million share repurchase in the first quarter demonstrates our continued commitment to return capital to our shareholders.
I will now turn the call back to our operator for Q&A.
Thank you team for your presentation.
Wish to ask a question. Please press star followed by one on your telephone.
Pat if you wish to remove your question also about your question has been answered. Please press star followed by <unk>.
Oscar claiming limit your question to one and that all participants.
And if you wish to ask a follow up please repeat your prices.
Oh first telephone question today comes from Richard Richard repeat <unk> of Piper Sandler. Please go ahead.
Yes, good morning, Doug and Joe and John .
So.
The buyback.
Pretty impressive $287 million in the quarter and I guess.
There was some that appear there was off opportunistic block repurchases from DIC.
But going forward I guess.
Should we go back Joe I guess to that table on page eight.
In other words are we going to deduct.
The op.
Excess buyback in <unk> from future, how we calculate buybacks.
Going forward your average.
$100 million a quarter roughly at Ti.
Actually $287 million to that how are we going to count.
Ill get buybacks in there.
Yeah, Rich I get I get your question.
I would say going forward use the numbers in the buyback ranges on page eight so for.
For the remainder of the year whatever proportions left and however, we perform should correspond to the level of buybacks.
I'd say the level of buybacks in the first quarter were elevated for a couple of reasons you mentioned some of the opportunistic block trades that we did.
When we had the opportunity to refinance.
<unk>.
Slide some of the excess proceeds from that or refinancing to buybacks not all of them.
So that's that's that's driven some of the <unk> in the first quarter and then I think as you and Ive spoken in the past theres going to be some quarter to quarter.
Chain change ability and I think maybe in Q4, we did a little bit less on a proportionate basis.
And so we did a little bit more on a proportionate basis in Q1. So all of those factors in the mix elevated it I would say, which we're obviously very happy with.
At these levels, but going forward.
I would apply the ranges on page eight.
Got it thank you I'll get back in the queue good solid results.
Thank you for your question Richard.
Question comes from Alex Blaustein of Goldman Sachs. Alex you may begin.
Hey, guys. Good morning. Thanks for the question. So I was hoping we could spend a little bit of time on sort of unit economics in the retail business versus the sort of the institutional business and well.
No. The answer is probably going to be now we don't talk about it I was hoping we could at least help building need.
How does the mix in the business between retail and institutional might impact MTI alright.
Where I guess he now is retail is really strong relative to kind of pre COVID-19 levels, but it seems to be moderating.
But volatility high institutional activity is really high so helping kind of put that together would be super helpful. Thanks.
Yes. Thanks for the question Alex I appreciate it and Youre right, obviously, we have.
Not.
Broken down our results by that those units for a reason I would say your observation is correct.
You have seen as the mix of business in U S equities.
An uptick in institutional participation.
The point, we made in the script and its in the supplemental materials. However is that.
You've seen a systemic.
Change in the U S equities market in a sense that you have significantly more.
Aggregate notional retail participation.
In U S equities than you did in pre pandemic levels and I have as I have indicated in prior calls it wasn't the pandemic triggered this thing with the commission free trading phenomenon.
Initiated.
Honestly by Robinhood and then.
Challenged in.
On a competitive basis by Schwab and fidelity and the others ratings, so that really has driven the opportunity in <unk>.
This case continually that that is systemic in terms of opportunity and.
Capture rates and whatnot I mean, the answer is obviously it depends it depends on the macro environment. It depends what's happening in that particular day in the marketplace that when there is excess volatility. It offers tend to accelerate people need more immediacy or desire more immediacy in their executions.
And Youll see in a car.
Responded and expansion.
In bid offer spread.
Second thing I would say its the retail business is meaningfully different.
Our non customer market, making segment, which is I assume what you're referring to when you say institutional in the sense that.
In the retail business, we are in the market continuously and we need to be in the market continuously and we have.
An arrangement with our 250 odd clients that when they said this market or is there. They are printed had done so that can be very good and also can be painful when when there are retail and balances. So again I'm not trying to avoid your question on giving you the kind of it really does depend on the market condition and that is frankly, if you take a step back.
One of the benefits of the scale and the diversity that we have built in our business and that the potential alright.
Alright, so that we have quarters like this where retail can be strong, but our non customer retail.
Segment.
On a GAAP segment, but again, so what I'm, saying.
It can have an outsized quarter because of pockets of volatility in commodities and in Asia in an ETF block and so again more prosaic Lee the core strength of this firm is a diversified financial services platform that we have built that we are attempting to add more products and more.
It's too so again I'm not trying to.
Avoid your question I'm, just trying to as an investment thesis provide a larger framework for understanding why and how Virtu will continue to drive and again I'd point you all to page eight which I think is a very nice way of looking at our business and saying okay within the following conditions.
X times Y if an equal Z right and excess capital it can be applied to buybacks and so over the next as I've always talked about on these calls the next eight to 12 quarters. Just if you look back at the last eight to 10 quarters, you'll have a very good sense as to where this firm.
Got it alright, thank you guys and by the way totally unrelated but thanks for doing the call early Theres a ton of earnings going on today and thanks for overlapping Les on the call.
I appreciate it and recognize the responsibilities and we try to adjust accordingly, so thank you.
Thanks.
Thank you for your question. Alex next question today comes from Ken Worthington of Jpmorgan, Ken. Please go ahead.
Hi, good morning, I'm going to follow up on Alex's question and also his comments. Thank you for the time.
In the morning, it's very helpful.
So digging into the market, making business market, making revenue our NTR. It looked like it was up about $10 million sequentially to 382.
If we think about the business and in equity versus thick I would assume that FIC was up sequentially from <unk> given the volatility in the volumes, we saw coming out of energy and FX and your progress in options and it suggests that the market, making business revenue was actually down in <unk> versus <unk>.
So I guess first.
Is that right and if the issue is sort of the retail equity business, which which you guys have sort of highlighted throughout the presentation. If we look at the business today.
A portion of equity market, making or Americas equity market, making is really tied to that 606 business versus what is left of sort of legacy or two to kind of follow up on Alex's just trying to size. This I know it will change but is it are they split is it 90% retail.
Is it 90%.
Institutional but help us get a better sense of how that equities business breaks down.
Hey, Ken it's Joe.
I'd say first off you're right, we don't break it out.
Yeah.
We provide market, making results because of the reason, Doug said and that there is a.
A very diversified business there that includes <unk>.
Equities businesses.
You are right as well that.
The businesses that.
We're up four performed well or exceeds the opportunity.
We're more in some of the legacy fixed areas.
Energy in particular, obviously with the volatility.
Around crude and crude products.
We did well there.
I wouldn't draw too many conclusions therefore about.
Customer market, making versus equities and customer in equities.
Outside of customer we do have.
Equities market, making businesses that are not part of the 605.
Business.
Doug pointed out on the <unk>.
In his remarks.
Retail participation for the 605 business remains elevated historically.
Is that actually very favorable levels.
And look it looks very resilient right, so I'm not sure.
Want to go into 90 tens versus 80, <unk>, we do have a diversified business.
Outside of 605 that includes fixed income currency commodities equities.
And all the other things that you are familiar with.
Yes, but to be clear I mean, you can go back obviously, we used to break this out and certainly a night as a separate public company I mean, it's nowhere near 90 tenants much more of a balanced business, yes, Ken in the non customer.
Market, making subsegment, if you will had a really really strong quarter.
The retail market, making business performed.
Consistent with the metrics that we track and opportunities internally as I have said.
So you guys mentioned this in Boca and I've said it in prior calls it is difficult as an outsider to look at a retail customer market, making business and just look at volume and volatility metrics and reached conclusions there are certainly directional.
Yeah.
Dave in situations, where you have significant retail buying and significant retail selling at virtu and the other market makers don't have some magic elixir to satisfy the market makers.
Lose money in those marketplaces.
If you look at retail share volumes versus the fourth quarter. They dropped roughly 18% right. So that's kind of like an indication of what the opportunity is and Thats, what we track internally along with obviously.
Retail buy versus sell imbalances, which can have an impact on trading in a way that won't impact our non customer market, making business.
Okay, great. Thank you I tried.
Yeah.
Great.
<unk> effort.
Thank you.
Thank you for your question Ken.
Our next question comes from Alex Kramm of UBS investment Bank. Please go ahead.
Yeah, Hey, good morning, everyone.
Maybe.
The comments at the beginning you mentioned that several times that the benefits from internalization within the firm I'm, certainly not something new but.
But I'm curious you mentioned a few times so just thinking through here is this is this.
Are you in this process I guess I assume youre constantly improving things, but can you maybe also put into context of unit economics. If you think over the last couple of years in particular since the ITG came on like how much of your I guess unit economics has gone up and how much you still think there is room for improvements here outside maybe.
The constant improvement like any any low hanging fruit that you still haven't haven't pursued.
Yes, it's a great question, let me answer it more generally and I'll ask Joe where Sean to go through some of the <unk> numbers, just so theres a little more detail and that's obviously, where you would see the most direct impact what would not show up in our financial statements, obviously is spread paid away right.
Arms of.
The example, I always give is when you have an options market, making business youre trying to grow and you obviously need to do with Delta hedging as a hell of a lot easier it's less of a distraction frankly to pass all of those.
Needs and fill in opportunities onto a separate.
Group within Virtu that can.
Obviously, that's what they do for a living right. So that's the kind of point I've been trying to make which is hey, we are one firm. It's part of the collaborative culture. We have we don't pay people separately based on that we don't have guarantees. This is not a trading firm mistake financial.
Technology firms. So when you look at like our overall compensation.
Yes.
It will ebb.
Ebb and flow somewhat with results, but it's not like people are making 50% of what they bring in this is not that style of firm. It never has been that style of firm and so.
As part of the cultural overlay. The reason I started to emphasize it in the schedule, but for some of the results as you're exactly right. We've made these two significant acquisitions.
Some of the challenges around internalization, what you had collapsed broker dealers and the equivalent outside of the United States and some of them with technological right when youre on a single platform and you can.
Effectively virtue is a series of matching engines. If you think about architecturally how we're set up once you have migrated all of our flow into a single Virtu stack. If you will it becomes just a heck of a lot easier for the quants and the traders and the technologists.
Here to.
Realize the.
Fruits of that endeavor.
Well, you, obviously have more negotiating power in tears and things like that that you can negotiate with ats as exchanges and whatnot around the world I mean, Joe Hey color.
The color is that if you look at it.
Page 16 in our supplement we break out the net trading income by segment and if you look at just the market making segment. If you convert that adjusted net trading income.
Results for example, this quarter 382.
Just look at the gross.
Trading income of 516 alright.
That percentage is 74%.
And that's the highest level since the first and second quarter of 2020.
And those kind of frenzied, Dave So I think.
A lot goes into that calculation there are.
Multiple asset classes, obviously included.
In that market, making segment some of those asset classes are more expensive to trade from a conversion of the gross to net.
Than others, but all things being equal.
When you see that that percentage tick up I think was 74% this quarter last quarter 73, and then in the second and third quarter of 2021. It was 61%, 64%. So that's kind of how we convert.
Our gross trading income into net trading income, obviously, the higher percentage the better.
And you see that.
And Thats part of that is the fruit of this kind of reduction in brokerage clearing and exchange.
Fees from better better fee tiers.
Tears internalization et cetera.
Very good thanks, I'll jump back in the queue.
Sure. Thank you.
Okay.
Thank you for your question. Our next question today comes from Tom Seddon Jefferies. Don. Please go ahead.
Thanks, Good morning.
Doug I wanted to follow up you had mentioned in past quarters.
Your optimism around the sustainability of retail participation you mentioned earlier today, just with regards to zero commissions I guess, we're starting to see the slowdown.
Can you just kind of walk through why I guess your outlook from here in terms of what you think retail participation may or may not look like and if youre still as bullish as you were before.
Yes, great Great question and thank you for it.
I mean look at the same metrics you do and obviously, we talk to our clients all the time and look at like account opening as I look at obviously balances and then I looked at how that has ripple through.
In terms of market share and notional size and we put a slide in the supplemental materials about.
On page 10.
Tracks It from pre Zero Commission to today, and obviously you saw the upswing in the median stock period and then.
It certainly has fallen off but that to me that the new normalized level.
It is.
Where we are at now and I think a lot of that is just because of the proliferation of accounts and sizes and also I think.
You can't minimize the proliferation of political in the crypto.
Use which have driven.
Interest in markets overall and that will.
Continue to percolate through SPX has talked about becoming.
In equities.
The business as well so I think that will continue between zero commissions in mobile trading and ease of use and self directed.
Trading and participation among young people being a thing that is here to stay.
That really drives my optimism around this being a systemic shifts as opposed to some secular everybody's stuck and they are basically pandemic shift I mean people are now out of their basement doesn't appear like we're going to have any more stimulus checks seem to be a policy that has any support in Washington, and yet we continue to see heightened elavil.
Yes.
Hi participation among retail I would also point out that this is a global phenomenon.
I have seen a significant increase in Europe in terms of retail participation in clients that are coming to us with interest.
Continue to see very strong interest in Asia, and indeed in both of those regions, we see interest in 'twenty four.
Our trading from those clients into U S. Equities. So I think the world will continue to become more 24 hour driven and then the last phenomenon, which I think is important as well is.
The brokers are innovating and creating opportunity for fractional shares, which we have helped them.
To facilitate right so.
Honestly reduces the notional size I want to buy a share of textbook, but it's $1000 I could buy a 10th of a share for $100. So I think all of those factors.
Drive my conclusion that this is a systemic change will there be fluctuations to quarter to quarter, yet, but I do think it really has kind of.
Change the playing field in a dramatic fashion.
It's helpful. Thank you.
Thank you.
Thank you for your question.
Question today comes from Sean Hogan Operator, Please go ahead Sean.
Hey, guys good morning.
First question is on the organic.
Business the organic growth initiatives.
Obviously doing doing well theyre growing to 10%.
Of the overall business.
Curious, if we could get an update on sort of the components of that and so.
Specifically on crypto and options and how we should think about.
The size of each of those and the contributions towards growth going forward.
Yes, it's a great question, obviously, we've talked a lot about options and that's been a big driving force with regard to crypto I mean in the.
Fourth quarter, we traded roughly like 30 peripheral products and that we really like that makes sense.
Very.
A new endeavor for us it was really literally doing API connectivity work and things along those lines now we trade over 100 as I said in the script I still think it's extremely early days it feels like circa 2008.
For Virtu financial when Vinnie and I have started to firm and we were focused on equity. So it feels like a greenfield opportunity for us.
We're going to run it and grow it would be that same way, we grew virtual organically, which is to look at the big opportunities developer relationships.
With the eight 910 key venues.
On the regulatory front, we think that the SEC determination.
With regard to not approving a spot.
Etfs.
<unk>.
Got it.
Not defensible frankly, our friends at Great scale put a letter this week from the David spoke law firm, which was unbelievably compelling so I would be Florida, the SEC ultimately either.
This own volition or through litigation.
Doesn't approve a spot crypto ETF in the next filling the blank should be tomorrow, but it won't be.
So I think we will continue to see opportunities grow.
As.
That marketplace evolves, we're adding direct counterparties.
Two rollout RV crypto.
Solution, which again getting back to one of the core assets and strengths of this firm, which I think people don't value in a way that we do is we have this network of relationships built over the last 30 years.
With over 250 retail brokers, but frankly use us for guaranteed execution Trust us know that we will be there.
And.
Provide superior execution quality for their liquidity needs that cannot be understated and it's very difficult to break into that market is one of the main reasons frankly, why we bought Knight capital in 2017 was to acquire that network effect, So I'm very optimistic and bullish that this asset class.
We'll continue to provide revenue opportunities for us and again the key takeaway is it really demonstrates the value of this scale multi asset class collegial environment that we have created here, where we can add these widgets, which is effectively how we.
Look at financial instruments.
To our network at virtually zero incremental cost and drive bottom line P&L.
Okay, Great and then wanted to just get your latest thoughts on.
As it relates to.
Equity market structure. So what are your expectations, if any around tangible actions from the FCC around equity market structure, specifically as it relates to <unk>.
If so how are you thinking about the timing seems like.
Yes.
Been a series of head fakes.
Yes.
Socializing that it was something that was.
Going to happen and then it sort of seems to fall out of the.
Conversations just curious what your latest thoughts are.
Yes that is a politically incorrect softball, then I will do my best to Muddle my cell phone and swing at but try to be as positive.
CEO , Mike as I, possibly can so look we've seen a frankly, a tidal wave of proposals that have come out of it.
The survey on topics as varied as share buybacks and climate change disclosure and Ats reform in my prepared remarks.
Maybe not politically correct as I should have been but it just seems that these are rushed not particularly well thought out and this isn't just virtue, saying. This I mean, it was a great letter from system, whether it was a great comment letter put in by Bloomberg against Fidelity and others that just really.
Point out the.
Mistakes frankly in a lot of these proposals just things that are just don't really make a lot of sense.
Clear that these are not data driven proposals and.
History is any guide and if the administrative procedures act continues to be followed which it will be.
A lot of these proposals just frankly won't ever see the light of that with regard and they have varying impacts on virtu and we will continue to be.
And positive and advocates for what we think is the right answer in all of these situations. We believe in data driven reform, we believe in transparency, we believe in competition.
And.
Where the ultimate big market structure proposal comes out and frankly, I don't have a great.
I don't have a crystal ball.
The chair has bounced the number of.
Thoughts out there from questioning the.
Continued viability of payment for order flow to <unk>.
Paul's order by order competition and whatnot again as we have said we will continue to be collaborative we are providing all types of virtu specific data with regard to price improvement we are 100%.
Vince that the ecosystem drive significant mulch.
Multibillion dollar value from birth to over $12 billion of price improvement as an industry. We are frequently engaged with.
Representatives from both sides of the aisle on Capitol Hill, and scientists from both sides of the Ohio, We're not political we're just we just want to make sure that people understand how the marketplace actually works.
Ignore the rhetoric and ignore the headlines and more importantly understand how.
We have a fantastic very efficient very transparent.
Very very low cost ecosystem here in the United States, which in our opinion and in our experience.
Is substantially better than any of marketplace for retail investors in which we transact today, which is basically the entire civilized world. So we will continue to constructively seek ways to improve our great markets will be collaborative.
But ultimately we're going to vigorously defend what we think is the right.
Results here, and we will do that regulatory I'm happy to go and testify we're happy to be transparent and if it means that various participants in the industry and us.
Sadly in litigation for years and years with the SEC as it has happened historically in the past will be a participant there as well im optimistic thats not going to be the case because that makes little sense.
But unfortunately in Washington, it's hard to.
Look at our results and say well, that's a sensible results and have it happen because there are different inputs co politics in Washington that we can't control.
Got it thanks for taking my question.
Thank you. Our next question today comes from Chris Allen of Compass Point. Please go ahead Chris.
Good morning, guys. Thanks for taking the question.
I just wanted to follow up on a comment you made earlier about investing to become a wholesaler and options I'm just wondering where are you on the process there.
And how does that.
Uh huh.
How does it change the revenue opportunity within options market, making.
Yes, Great question, Chris and thank you for it.
Look I mean, we have said ultimately our angle here is to be a significant competitor in options.
It's obvious to anybody that looks at the marketplace that there is a significant opportunity there because.
Retail participation and options is pervasive and significant in and there are two significant players and a host of others that provide services as.
I just said before in answer to another question and it was in our script as well one of the assets. We have Chris is the relationships with the retail brokers in cash equities and so it will surprise you to hear that they have.
In Florida to getting to 605, if you will options and so having that.
Clearly a knock on benefit of the 20% to 30 year relationship.
The former Knight capital firm built with all of these.
Wonderful clients that we have and so we.
Then the other interesting thing about options as you well know is that.
Internalization put that in quotes is done on exchange, which means that there are these open periodic auctions that the various options exchanges have created the architecture around where.
The wholesalers, if you will exercise their internalization from the flow that they perceive which means that we're also that we are.
Capable as is any other options market maker participants to attend.
Attempts to participate and to attempt to.
Execute internalization on an exchange we are currently doing that with.
Innovative fashion with a handful of.
Clients so.
The good news is we don't have to go to X y or Z clients and say Hey can you turn on the spigot to.
500 names and all the associated strikes, which is obviously a significant endeavor, but we can and are making the investment to test that our strategies and to.
Begin dipping our toe in the water of.
Internalization, if you will with regard to customer options. So.
We will continue to do that in 2020 to how aggressive we get and when do we start to.
Turning to attack I guess to the right. So that more flow starts coming in I don't know right. Now is obviously a significant opportunity. If you look at some of the published statistics around rebates that are paid for options as compared to rebates that are paid for cash equities.
Significant and so that's a significant opportunity for us.
As we continue to grow this firm there is a lot of work to do in non customer options right now both here in United States and in Asia, and so the guys have a lot on their plate right now, but I do see it as a very significant revenue opportunity in the future Chris.
Great. Thanks, guys.
Thank you.
Thank you Tim.
Our first question today comes from Michael Michael Cyprus with Morgan Stanley Michael. Please go ahead.
Great. Thanks. Good morning, Thanks for taking the question I wanted to ask about the execution services business. So I was hoping you might be able to remind us here.
A portion of the revenue with an execution services relates to the recurring contractual recurring revenue stream. So maybe you could talk a little bit about how that revenue pool is growing within the execution services pool compared to overall execution services revenue maybe talk about some of the initiatives that you guys have in place around growing that recurring revenue stream.
Sure Hey, this is Joe Michael B.
Obviously, we don't break that out again.
Yes.
Yes. It is.
There is a mix of revenue there that has remained consistent I think.
The old ITG used to break it out.
In.
Some of the quarters before.
We acquired them I think it is it is a great business that we like it.
It provides a really steady stream of recurring revenue.
We've been able to grow it modestly I think the.
The product set that it supports complements.
The brokerage business.
And if if it gets to a point where the growth from here.
Work is.
Breaking out I think we would do that.
I think right now it's a business that we like that we've gotten I think we've made a lot more efficient.
Around the technology and continue to do so.
And again remains an important part of execution services, but.
From a from a presentation standpoint, right now I don't think we would you would gain much by breaking it out yes.
Yes, the one thing I will say and it's a great question is that we looked at like the analytics business for example here in.
Some of the other workflow technology that these are businesses that should be more automated and more platform driven and more shall I used a loaded word more is thinking of it as like software as a service as opposed to like more of a consulting type of business and so particularly within analytics, we now have a platform.
Where clients can come to us and effectively pay as you say on a subscription basis too.
Use our Apis and they can customize them as they see fit in order to so that they can do their own analysis within their own within their own shops, and so our larger asset managers and pension funds globally really liked that a lot because they have access to our analytical tools, but also obviously on a.
Anonymous basis, they can look at a full compendium of.
There are competitors and understand how they are performing on a relative basis, so that create a real halo effect with clients because they can say wow, that's pretty darn unique.
Have my own data scientists and my own shop as opposed to getting reports pushed asking me I can do my own work. So that's a significant evolution of the business again as Joe says is the smaller.
Part of execution services, which is a part of our overall business. So it tends to get a little overwhelmed by what happens in market, making but clearly it is something that we're very excited about and it creates a real stickiness with these clients that obviously have significant wireless a $2 million a day quarter in the first.
<unk>.
Does.
Pretty impressive.
Quarter four.
Non bulge bracket execution services business I was really really pleased with the results this quarter.
Great. Thank you.
Thanks very much.
Thank you that concludes today's virtual financial questions Keith last quarter results call. Thank you for your questions and thank you for the management team for the presentation couple of WPS. Your day you may now disconnect your lines. Thank.
Thank you.
Okay.