Q3 2022 Virtu Financial Inc Earnings Call
Can I buy.
Good morning.
Thank you for joining devote chief financial 2022 surgical to results.
At this time, all participants have been placed in a listen only mode.
At the end of the company's prepared remarks, we will conduct a question answer session.
Please note that this conference call is being recorded and will be available on the company's website for replay shortly.
Now I would tend to correlate with you Andrew Smith.
Thank you, Greg and good morning, everyone and thank you for joining our third quarter results were released this morning and are available on.
On this morning's call we have Mr. Douglas <unk>, our Chief Executive Officer, Mr. Joseph <unk>, our co President and co Chief operating Officer, Mr. Sean Galvin, our Chief Financial Officer, and Mr. <unk>, Our Deputy Chief Financial Officer, we will begin with prepared remarks and 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 conditions 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 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 disclosures 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, we may refer to certain non-GAAP measures, including adjusted net trading income adjusted net income adjusted EBITDA and adjusted EBITDA margins.
GAAP measure should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP.
Listeners to consult the Investor relations portion of our website, where you will find additional 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 the 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 Andrew and good morning, everyone. This morning, we reported our third quarter results for the quarter ended September 30, we generated 61 of adjusted EPS of $5 2 million per day of adjusted net trading income.
Bringing our year to date results to $2 61 per share and an average adjusted net trading income of $6 3 million per day.
Our business performed well against the opportunity presented for both market, making in institutional flows with both exceeding our internal opportunity benchmarks.
Our results enabled us to consistently return capital to our shareholders through our ongoing share repurchases as of today, we have repurchased a total of $31 1 million shares or over $870 million in aggregate at current levels. We will continue to be aggressive in repurchasing our shares with about 300.
$50 million of remaining capacity.
Our investments in our growth initiatives continue to return impressive results accounted for 10% of our adjusted net trading income for the quarter up from 7% in 2020 and 2021.
Options remain significant long term growth driver for us not just in the U S or even just in equities are scaled approached everything beings, we're already finding ways to deploy what we're learning in U S equity options to opportunities and options abroad and in other asset classes.
Speaking of scale as we grow and options that will add to our competitive scale in other asset classes, even wholesale equities as well as the potential to present lateral opportunities for us to add options capabilities to our global execution services footprint, including Alagoas workflow and analytics based on client demand.
For now being competitive and options require significant investment in technology and people to ensure that we have adequate capacity to meet our goals. We continue to make methodical progress with expanding our simple universe and increasing our interactions with order flow from options routers.
Our growth in options year to date is especially impressive given the market wide options volumes is relatively flat for the same period.
Our growth initiatives to expand into crypto market, making has continued to progress since we spoke last quarter, our growing crypto desk remains focused on developing connectivity and technology to a growing number of the top bristow venues as we work to expand the opportunity that we can address with bitcoin CRM and other top crypto currencies across various <unk>.
<unk> forms including spot as well as Etfs in futures.
<unk> markets, our adventure with Citadel Fidelity Schwab's acquired paradigm to develop a crypto ecosystem to serve the interest of global investors is proceeding nicely.
Our global ETF Block initiative also continues to contribute to our results as we focus on growing our footprint in the fixed income ETF universe in conjunction with keen investments, we're making to become a dealer in the market for corporate bonds.
Before I turn it over for the financial review I'd like to speak about market structure. What's currently being concerned about are yet to see a reference to provide facts and data to the public discourse.
We believe a positive element of the advocacy work, we're conducting it is creating a broad a broader understanding of the extraordinary value that the current competitive ecosystem provides to retail investors.
There are a number of points worth highlighting about the market structure first I wanted to be very clear that while there is still no official proposals from the FCC.
It would likely be years before certain ideas or proposed adopted become rules that are finally made effective.
Mercury remained publicly supportive of several of the idea as discussed by chair gas Flaring is June eight speech, specifically, we agreed that exchange should be able to display now more quotes specifically half penny quotes for ticked constrained symbols potluck votes should be included in the Sip and disclosures and retail execution quality reports rule 605.
Shouldn't be modernized as we requested an artificial petition for rule, making which we submitted over a year ago.
That said historically FTC rule proposals with the potential for substantial market impact has followed a deliberate multiyear process a concept release round tables and other forms of industry engagement designed to solicit broad and substantive feedback on a particular marketplace theme.
These processes help ensure that any final proposals ultimately borne out of the exercise are responsive to actual marketplace challenges and enjoyed broad and diverse support across a range of market participants.
Effective and efficient rulemaking is a methodical process doing it right. It takes time and benefits from the experienced folks at the FCC being involved there.
This is why these documents has its own process processes procedures and requirements for rulemaking.
Unfortunately.
As was recently reported by the FCC's one Inspector General the current share is political appointees tenant preference speed over accuracy and ask the SEC sees Inspector General stated lack the resources to keep up with their self appointed agenda potentially at the risk of adherence to the agencies owned.
Processes and ultimately the rule of law.
The SEC unchecked speed and lack of resources is especially worrisome to a broad range of market participants and investors, including Congress of our claim.
Given that the FCC has assigned itself an ambitious agenda with numerous interrelated mark construction reforms that isn't that could significantly and permanently alter our efficient acceptable and resilient financial markets.
Despite the industry General agreement about around where do you think you should focus its effort to the chair for the chairs repeated mid statement of facts regarding retail border routing practices and payment workflow provide little comfort that the staff are empowered to actually listen to industry feedback or are incorporating readily available.
<unk> data into the decision to make some decision making processes, but are instead engaged in as a prominent <unk>.
Imitator noted this week and regulation by hypothesis.
We support swaps comment and its recent white paper, that's a U S equity markets are the deepest most liquid and most efficient in the world, which allows investors to enjoy narrow spreads low transaction costs and factoring in.
Execution speedy close.
We also echo swaps concerns that the FCC's quote calls for reform are obscuring the benefits of the current ecosystem to retail investors and further we are alarmed by the current FCC is comments that reflect the diversions from the FCC's long standing goal of enhancing and protecting the retail investor experience.
We'll remain Ernest and our endeavors to engage the FTC and homestay embraced the constructive engagement at the industry continues to offer to advance policies that enhanced transparency competition and that promotion and that promote investor choice.
And superior execution quality, rather than the current mpc's, obviously politically motivated agenda.
I will now turn the call over to Jeff.
Thank you Doug.
Based on the guidance. We have previously provided we are on pace to meet or exceed our targeted buybacks and financial earnings ranges for the year.
Given the opportunistic refinancing we completed back in the first quarter, we would anticipate share repurchases.
Corresponding to the previously shared public buyback ranges for the foreseeable future.
As was mentioned above.
We have generated an average of $6 3 million per day in adjusted net trading income through September 30.
Totaling $2 61.
Adjusted EPS and $733 million and adjusted EBITDA.
On target with the ranges provided.
As we said in the past we believe the range of outcomes are sustainable through the cycle. As these levels are a result of significant growth. We have achieved to date to raise our baseline performance over the years, both organically and through acquisitions.
Consistent with our ethos of disciplined expense management.
We have successfully helped costs in line despite the worst inflation since the 19 seventies, producing a 61% EBITDA margin year to date.
As Doug mentioned, we remain committed to returning capital to our shareholders both through our current quarterly dividend and the share repurchase program since inception of the share repurchase program, we have repurchased 12, 2% a virtue shares and that's net of new shares issued for employee compensation.
We have a long term perspective, and we'll continue to repurchase our shares in the quarters with the ranges that we have previously shared.
Touching on the performance of our segments market, making performed as expected broad measures, but overall in retail volumes versus the second quarter were down materially.
Average realized and implied volatility was down 25% and 10% respectively U S equity share volumes notional value traded was down 13% and 22% respectively.
Average daily shares came on which is a proxy for retail activity were down 9%.
605 share volume in the third quarter was down 5% overall, our diversified market, making business performed well in this environment.
Our execution services business also performed in line with the market opportunity this quarter, realizing $93 million and adjusted net trading income.
<unk> should note that quarters, such as this multi year integration of the <unk> platform in particular that we recently completed it allows us to maintain and invest in and provide critical services to clients in a less than robust environment.
We have overhauled and re platform is technology and the algo product suite reduce cost dramatically and retained our broad blue chip client base.
And now I'll turn it to Sean to wrap up the discussion.
Thank you Chuck in the third quarter as presented on slide two of our supplemental material. Our adjusted net trading income, which represents our trading gains net of trading sensors totaled $331 million or $5 2 million per day, which is 7% lower than Q3, 2021 and 10.
Were sent below the second quarter.
Market, making adjusted net trading income was $238 million or $3 $7 million per day, 4% lower than the year ago quarter, and 9% below the second quarter.
Execution services adjusted net trading income was $93 million or $1 5 million per day, which is a 12% decrease year over year and a 13% decrease from the second quarter.
Our adjusted EPS was <unk> 61 for the third quarter.
For the third quarter, our overall compensation expense was $103 million, which is up slightly from the second quarter.
Our Q3 cash and overall compensation ratios were 25% from 31% of adjusted net trading income, respectively, and were 21% and 25% year to date.
Adjusted EBITDA was $181 million for Q3, which was down 14% from both the prior year quarter and second quarter of 2022.
Our adjusted EBITDA margin was 55% for the third quarter, which is down four points in the second quarter, but continues to be reflective over our efficient cost structure and disciplined expense management.
Our capitalization remains adequate and our long term debt was $108 billion at quarter end, which reflects the debt to trailing EBITDA ratio of one seven times.
Financing interest expense was $23 million for third quarter of 2022 compared to $20 million for the prior year third quarter.
We remain committed to our 24 cents per quarter dividend, which we have consistently paid over 29 quarters in every environment since our IPO and are approximately $432 million share repurchase year to date demonstrates our continued commitment to return capital to our shareholders.
Now ill turn the call back over to the operator for Q&A.
Thank you.
If you would like to ask a question.
Please ask your question.
And then the number one on your telephone keypad.
So of course for a moment to compile the Q&A wingstop.
The first question from the phone line comes from Rich Repetto with Piper Sandler Your line is open.
Yes, good morning, Doug Good morning, Joe So I guess the first question as you pointed investors towards looking at normalized earnings.
And just trying to understand.
Over the last eight quarters, you add would you do with them.
EPS.
EPS per quarter.
Last couple of quarters.
A little bit lower but I guess, what's your view on what normalized earnings.
Or in the recent quarters more sort of a trend of what retail flow it.
It would be like going forward or do you still expect the.
The outsized quarters, just from sort of event driven volatility.
Hey, rich it's Joe.
Look I think the answer to that question is that.
Slide that we put in.
We are having this quarters because it was just so repetitive so don't read anything into it.
But youre right I mean through the cycle.
We think we're going to wind up on that page right. We had $6 million on that page is the lowest number.
And I think were $6 three year to date.
I wouldn't read anything into the last two quarters.
You on the future in terms of retail participation and Jim in terms of the institutional business in terms of the prop business.
It's just part of the cycle right because I think that we are a long term goal is to continue to kind of move.
<unk> moved from.
Six to 657.
The off the chart.
By growing the business.
And by buying back shares we bought back.
In April the company here in the past.
20 months, or so and I think that's incredibly powerful.
Back ranges that are in that and that's why again, we didnt repeat here, but you guys should use those as.
As a as a future state.
Sure.
And we're going to just going to continue to growing through that it's nothing more than that.
Got it thanks. Thanks.
Thanks, Joe.
Yes, my one follow up will be done.
Regulation, Doug Youre pretty.
Fourth pillar.
Prepared remarks, so I guess just on <unk>.
Now that it appears weeks the media reporting that.
A ban on payment for order flow is off the table.
Things being like pick sizes.
And this order by order competition could you just address like you aren't in favor some tick size adjustments.
But could you just comment on those two aspects of it.
Those are still going down the line.
Right. Thank you for the question as I indicated in my prepared remarks. There are you know we've been very front footed and.
We put a rulemaking proposal in over a year ago on a number of topics that we would be very supportive of that I think have.
Universal or near Universal support around the industry, obviously, some of the nuances need to be addressed and that there was a simple a roundtable on September 13th.
Ironically held in Washington D C that the entire industry was out other than the SEC, which are they probably should have been there and I think there was universal.
Port four odd lot, including the odd lot sip, whether or not to protect the quotes are not.
TBD.
Enhancements to 605 disclosures so that investors can understand.
The impact of size improvement then perhaps further disclosure around the amount of rebates that are being paid for some brokers with regard to.
Check sizes I think it's very important and again this is something I think that the chair a few states, which is that today Acs is and exchanges can execute at sub penny prices, there's no restrictions.
Friction on that so there are retail liquidity programs.
National Securities exchanges, right now or executions can and do occur at sub heading priced it. So in terms of a level playing field. There is no reason that one of the 17 National Securities exchanges can't encourage executions of retail orders Martin waters at sub Penny Frac within visa happened today what.
We did discuss it definitely on which we are in favor of there are a number of.
Stocks that CBOE you put out a great report on this is that if you look at the Penny.
<unk> size, there's ample liquidity at either side of the touch and there's a significant amount of midpoint executions are actually done.
Either in dark pools or on exchanges and so those take constrained names, it's probably useful for you now.
We have plenty quotes to be displayed on national Securities Exchange. So we're all there theres a number of things along those lines that we are in favor of in terms of you know.
Payment for order flow and what the chair refers to an order by order execution without any detail we've been very front footed on that that there was a.
Just a fundamental lack of understanding by the chair is to have the entire ecosystem works.
That there is competition for every order and its very very wholesome and between eight or nine different wholesalers.
And that the benefits of size improvement and the aggregate amount of price improvement.
Is so overwhelming and so.
Data driven I mean, the facts are out there if you look at the Schwab White paper.
Talking about 120 billion of <unk>.
Price improvement over the next 10 years and essentially by Apple.
Aggregating the responsibility of the wholesaler to effectively take any word that comes to the wholesaler.
It would be doing a significant damage to that ecosystem in our view and frankly in the view of all the wholesaler. So today investors have choices.
Since then their orders to a retail broker that accept payment for order flow. There are hundreds of that do not they consent orders to a retail broker that use of wholesalers ACF is in exchanges there are retail brokers that.
Saying, we're not going to send orders to wholesale enrolling national Securities exchange. So.
In my view and I think in the view of people that appreciate it.
Competition in free market all of the all of the things that the share once are out there it's been Acs or an exchange wants to create an auction. There are a couple out there create an option if the retail broker state that they will get better execution or best execution by extending their orders to an option. They will do so when regulator.
In this chair in particular start talking about picking winners and losers in the marketplace, that's where I think they go sideways, that's not that regulation by innuendo hypothesis, but not by allowing a free market for competition to work and Thats why we will continue to be one data driven and the very very front footed and frankly very outspoken.
This issue because we just don't think it's consistent.
With kind of market should work if the chair really think that the markets would be better with an auction.
And then.
Doing a pilot program.
Okay 100, named pending 29, 50 names whatever it needs to be sent to an auction six months collected data and deep execution quality will improve it wrong.
But otherwise.
Changing an entire market structure or attempting to change the entire market structure frankly, just through hypothesis, because some academicians that it might make sense to me is not only nonsensical, but it's not consistent with the policies and procedures with the FTC and certainly wouldn't stand muster under the administrative procedures act such as Virtu, saying that.
Dozens of firms going back to the bad things that same sentiment.
Yes.
That's very helpful. Thanks, Doug.
Yes, thanks rich.
Yeah.
Thanks Alan.
All right.
Good morning, guys and thanks for taking my question.
I wanted to talk a little bit about expenses and just some of the different are they just not that swans cash comps.
Desktop or ratios up to 25%.
Which is high relative to prior quarters, but.
On an absolute dollars basis looks like its pretty steady just wondering if that's being driven by adjusted cash from operation, we should be thinking about it from a percentage perspective or just in terms of the run rate from a dollars perspective moving forward and then just on some of the other lines where are you from a scale perspective.
Looking at G&A, specifically any factor.
D var <unk> dropped the run rate higher from here or are you fully built out.
And you get the capacity in areas like options and things like that you need to build up further.
Yes.
Thanks, Chris.
Yeah.
Comp.
Really simple story, we have been accruing flat.
And in the third quarter, we're going to look at the year to date ratio alright sort of flat accrual kind of generate a 21% cash comp ratio year to date.
And we're very comfortable there so.
If you look historically.
Right in the zone.
And you Shouldnt expect too.
Too much of a deviation from that.
Depending on where we come out in revenues obviously.
But we've always oscillated between kind of a high teens in the low twenties.
<unk> comp ratio and we shouldn't deviate from that too.
Too much so I wouldn't I wouldn't expect it to be higher.
A higher number in this quarter and this quarter just a consequence of.
Of that trading and probably in Q1, we were at 17% in Q2 were 22% so.
21%.
Year to date.
In terms of your other question.
Good thing about the growth initiatives is like a lot of the investment is kind of done.
And behind Us.
The community the comms and data processing line.
I think we're in.
The right kind of accrual range. There. It was 56 in Q1 56 in Q2.
53.
<unk> third quarter, you should see things pretty similar going forward. So I wouldn't expect any any surprises on the.
On the Opex.
So the administration kind of fluctuates.
There are some things that are causing that to go up like it would be.
Else things.
Things that we pay for life insurance and as rates go up and there.
There are some things that kind of helps us in there we've got foreign subsidiaries to pay bills.
In different currencies and some dollar exchange rates helped a little bit there, but there's not too much noise and I wouldnt.
I wouldn't read too much too much into it but I think.
When I look at our quarterly expenses in the past.
468 quarters, and I think about the inflationary environment we're in.
I think.
That's a pretty good story there in terms of holding the line.
Cool and maybe just a quick follow up on just options.
Wondering where you are indicating that capability there from an infrastructure perspective.
Is everything fully develops you're quoting system fluid world.
Moving now.
<unk>.
Basically blocking and tackling in terms of adding symbols of this or is there more to done it would be done in terms of building capabilities there.
Yes, it's a great question, it's kind of a hard one to answer I don't think you ever really fully developed and fully done with anything.
Even within U S equities, which obviously we've been in for 15 years I am not trying to be a pump to not answer the question but.
So yes, there is continuing development work and options, we have a very robust infrastructure that allows us to quote.
Frankly any.
Hopefully be profitable, which we are in.
All the options.
Our contracts in the United States were connected to the options venues, but obviously, Chris as you said, there's a lot of blocking and tackling as they go on converting new and different asset class for us.
Made some great strides in terms of the symbology were being that we are competitive in <unk> and in taking the first step towards taking quote unquote I guess retail order flow I guess, you can call it by taking.
Options off of our contracts off of options routers, which is kind of.
Putting your toe in the water and its well have.
A quoting and execution infrastructure in Asia, which we do right now.
You know the good news is as I indicated in my prepared remarks if.
It's very easy to once we have built at scale, which we have to pivot to options that other than equity that their underlying.
Delta.
Because as you well know, we have connectivity and excellence and a lot of experience in commodities and FX et cetera.
No.
In terms of where we are it's.
Very early inning, maybe we're in the second inning in terms of.
Opportunity.
The good news is that from a <unk>.
Scale infrastructure.
Our relationship with the exchanges and making sure that we are.
Capable of expanding we're in the very late stages, but as I said.
There's always work to be done, but I'm very very happy with the progress that the group has made a globally.
Great. Thanks, guys.
Thank you Chris.
Yeah.
Thank you Chris.
Ken Worthington with JP Morgan. Please go ahead.
Hi, great. Thank you for taking the questions and good morning.
Yes.
Virtue, new initiatives have been about 10% of MTI for the last three quarters.
Why has this been so stable this year as you kind of continue to build out the options and crypto initiatives.
Rather than showing either sort of steady or episodic growth. So far this year and maybe you can highlight the major milestones you see four.
The crypto and options build out over the next two or three quarters or so thanks.
Okay.
Hey, Ken It's Joe I think.
The 10% number really.
As a function of is where we come out overall in net trading income.
It has been pretty steady.
There is there is there are new initiatives that they are greenfield in that they were holding a handful years ago.
We generated nothing from these businesses.
Now, we're generating this quarter a half a million dollars a day.
But they are subject to the same kind of volatility that the rest of our businesses. So I wouldn't I wouldn't read anything into the 10%.
I think Doug just went through some of the milestones.
Options in terms of.
You're building a business of scale.
Going forward for a broader set of symbols.
Crypto I think it's still kind of early days, it's probably even earlier innings than.
Then what Doug mentioned in terms of in terms of auctions, we're connected to multiple venues we are trading.
Coin.
And.
We are doing things there are two ways to kind of being very incremental rebate.
Okay, I guess, maybe just to follow up on that if you're if you're if you are having success in these build outs I would think that they would be a bigger part of your of your franchise over time, but they don't seem to be.
Is this maybe pricing where you're building the business, but it's not necessarily translating.
Proportionately into earnings right now are in Ti right now but.
It will in the coming quarters like I guess I'm, just trying to connect those dots and I feel like.
I wouldn't read too much into the into the percentages really youre comparing greenfield businesses.
Is that or that are growing yet are still sub scale.
Two more developed fully scaled businesses.
And I think that's kind of the two moving pieces.
These percentages to drop out so I mean, I think the other point is the good news is that like our <unk>.
Non growth initiatives. So I guess, you would say are more mature non customer business has had a writing really nice quarter joke I mean, they outperformed our metrics so relative so it's the.
The numerator is improving but the denominator is improving that's probably good news as well.
So the denominator of our non core business, which we don't break out.
Outperformed the metrics the growth initiatives.
Have expanded but they're obviously subject.
Joe indicated to market conditions as well.
So the fact that they kept pace with the rest of the business, which is which did well.
Outperformed our internal metrics and that's about.
Said another way to say it obviously is usually exaggerate an example of that.
Non organic readiness is.
Declines or deteriorated.
The percentage of anything would be a lot higher but that wouldn't be a good thing right. We would have denominator like.
Declines in you all would be even more on that.
Okay, great. Thank you very much.
Thank you Youre welcome.
Uh huh.
From Jefferies.
Please go ahead.
Alright. Thanks. Good morning, just a question Joe on the buyback, obviously, just the quarter to date or year to date numbers I think tracking close to $430 million.
And I wanted to just go back to the normal sensitivity tables, youre tracking obviously, well above that I think you mentioned the debt pay down is the reason, but as we think about the fourth quarter and beyond where do you think where is the normalized level.
You're referring to.
Yes, its just not matching up with the NPI numbers.
Yes that is a very good question and actually I think the.
The year to date number is well above that range because of the financing we did in.
In Q1.
<unk> took that opportunity.
To dedicate some of those excess proceeds to the to the buyback I think in the future you should refer to those those buyback ranges that correspond to the A&D per day.
And hold us to just kind of being within those ranges I think going forward, especially where we'll do it we'll be talking more hopefully to the midpoint or higher of those ranges but.
Yes.
The way to look at.
Understood I guess, so just even for this quarter.
Youre tracking you did that in the first quarter, but obviously, even this quarter your numbers quite higher so.
If we just annualize the guide for <unk> versus what you bought back so is that benefit of the refinancing.
The financing done.
Still pulled through this quarter as well.
So a little bit you know, we also had some realizations from from some of these investments that we had done.
As part of kind of market structure initiatives, where we get we get pulled in.
And in.
Do you use some of those proceeds we did this transaction.
Market access with our Q hub.
Erez did did a transaction so some of those proceeds helped along the way, but again our view is we have more than adequate capital to run the firm we have a.
Debt level in place are sustainable through any cycle.
And that's all in that range and everything else.
He will be returned to the shareholders. So.
You got two factors. This year you got those investment proceeds like I had mentioned that you've got.
You've got the debt the debt refinancing proceeds but going forward.
Those public buyback ranges.
Understood Okay. Thanks.
Yeah.
Sure.
Thank you thank.
If you would like to ask any further question. Please press Star then one on the telephone keypad.
Our next question comes from.
Joseph Please.
Goldman Sachs.
Your line is now.
Hey, guys. Good morning, everybody. Thanks for the question maybe.
Maybe a little bit of a bigger picture question for you just around the market quality.
We continue to hear liquidity concerns and sort of various pockets of financial ecosystem you guys, obviously participate.
And many different asset classes around the world any different areas of concern we see from just a market structure in the market quality perspective, any particular asset class would you highlight in light of those argue.
<unk> in Europe that are trading in the gaming activity.
Yeah. Thank you it's actually a great question I think within <unk>.
Global equities.
There is in most instruments with adequate liquidity certainly as you go out.
The skew to stop that maybe institutional investors for the most part are not that interested in again to continue to beat this very very dead horse absent wholesalers.
And the obligations, we have to our retail clients.
There candidly would not be adequate liquidity I mean, a lot of our institutional clients come to me and say you know this narrative that retail institutions can interact is poppycock, because we're not interested in.
Our stock that's under $5 that trade 200000 shares a day. So we are.
When those orders come down the pipe the Virtu Citadel Susquehanna and the world has to take them and provide liquidity in terms of a more macro view.
We echo and share some of the concerns in the fixed income market now with just active chart reviews, but off the run treasuries were.
There's just not the same level of big dealer participation.
That is wholly regulatory driven and so backpacks make bad law and end up in backlog and then the government scratching their heads tackling banks are holding inventory wealth, because she told them not to and you charge them a lot for it so that you know.
Unfortunately, an offshoot of the financial crisis, and maybe the unintended consequence of that is that in the treasury market has been has had some craziness in it one of the reasons that we have gotten into in such.
For us, it's such a large scale fixed income Etfs and now credit trading.
Is that there is an opportunity for non dealer non big dealers if you will.
To be significant market makers, there I would not have thought five years ago that virtu would be.
Quote unquote dealer on market access, which we now are I would not have thought that <unk> would have.
The ability to price.
And create redeem on a bespoke basis fixed income Etfs, which we now do and it's obvious that Jane Street and other great firms have stepped into the void created by this regulatory environment. So that's a great opportunity for us because I think there is.
And its greenfield as I said, we weren't doing this even three years ago in any meaningful size is only because of our acquisition of KCG that we saw this opportunity. So I think credit is probably the one area to answer your question more directly where we see in our <unk>.
Market of liquidity and the need for incremental liquidity providers.
We're never ever going to replace the large dealers were not Goldman were not JP Morgan and we don't want to be those are very very different and wonderful institutions, but there is a need for non bank liquidity providers.
Like are too in the definitely rather doesn't so are other firms that can do that and look it leverages our core strengths in terms of price and Etfs distributing.
Those prices to the embedded client base that we have the same great.
Great clients that we have in retail and in other areas that are looking for prices and so it's just another incremental benefit to the scale that we have and it's not just here in the United States. We are building out and have a fairly robust.
Block I guess, you would call it that.
First in London, and Dublin, It's one of the benefits of our ITG acquisition, because ITG had an agency.
ETF pricing business and so we work well known they were well known to institutional clients pension funds in Europe , and so that's a great opportunity for us as well again driven largely through this regulatory induced vacuum of.
Liquidity.
That's a big dealers have faced because of capital charges Volcker Dodd, Frank and the rest of the narrative.
Got it.
Super helpful. Thanks for that my second question, a little bit more nitpicky, but I guess I was hoping you could unpack the dynamic between trading revenues and sort of cost of trading this quarter, particularly on the market making side.
Yes, we can look at some of this quarter you've got some of the back the trading income was flattish quarter over quarter.
But <unk> and inventory flow was up.
Say in the teens again sequentially typically leads to kind of move together. So maybe just give us some sense of kind of what's been driving the divergence in this quarter is it just higher margin requirements and maybe higher interest rates charged by the <unk> and prime brokers.
How should we think about against that relationship going forward.
No it's not it's not.
The latter is just more of what you were kind of alluding to before and former it's just mix of business.
It's just mix of business between.
Can you just drop market, making the customer market, making and execution services.
Yes.
Within asset classes on the execution services I think it was fairly consistent but the divergence was working on the market maker.
Right exactly.
Just mix of business.
Got it okay. Thanks very much.
Thank you.
Thank you.
Yes.
We have no further questions on the lines I would like to hand, it back to Doug for any final remarks.
Thank you so much and thank you everybody for participating today.
We hope you all enjoy the end of year and we look forward to chatting with you in late January early February . Thank you have a great day.
Yes.
Thank you for joining that does conclude today's call.
Please enjoy your day you may now disconnect your lines.