Q3 2024 Virtu Financial Inc Earnings Call
Operator: Good day, and thank you for standing by.
Good day, and thank you for standing by.
Operator: Welcome to the Virtu Financial, 2020 for a third quarter results conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and succession. To ask a question during this session, you need to press star 11 on your telephone. You would be in here in automated message, advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded.
Speaker Change: Welcome to the Virtu financial 2024 third quarter results conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one one on your telephone you would be in here in the auto media message advising your.
Hana is raised.
Speaker Change: To withdraw your question. Please press star one again.
Speaker Change: Please be advised that today's conference is being recorded I would now like to hand, the conference over to your first speaker today.
Operator: I would now like to hand a conference over to you for a speaker today.
Andrew Smith: Andrew Smith, Head of Investor Relations. Please go ahead.
Speaker Change: Andrew Smith head of Investor Relations. Please go ahead.
Andrew Smith: Thank you, Anton.
Andrew Smith: Good morning, everyone. Thank you for joining us. Our third quarter results will release this morning and are available on our website.
Andrew Smith: Thank you Anton and good morning, everyone. Thank you for joining us.
Andrew Smith: Our third quarter results were released this morning and are available on our website.
Andrew Smith: With us on this morning's call, we have Mr. Douglas Cifu, our Chief Executive Officer, Mr. Joseph Miluso, our Co-President and Co-Chief Operating Officer, and Ms. Cindy Lee, our Chief Financial Officer. We will begin with prepared remarks and then take your questions.
Speaker Change: With us on this morning's call, we havent, Mr. Douglas <unk>, our Chief Executive Officer, Mr. Joseph <unk>, our co President and co Chief operating Officer, and MS. Cindy Lee Our Chief Financial Officer, We will begin with prepared remarks, and then take your questions.
Andrew Smith: First, a few reminders. Today's call may include forward-looking statements, which represent Virtu's current belief regarding future events and are therefore subject to risk, 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 is important to note that any forward-looking statements made on the 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.
Speaker Change: First a few reminders today's call may include forward looking statements, which represent <unk> 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 these forward looking statements.
Andrew Smith: We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report Form 10-K and other public filings.
Andrew Smith: During today's call, in addition to GAT measures, we may refer to certain non-GAT measures, including adjusted net trading income, adjusted net income, adjusted EBITDA, and adjusted EBITDA margin. These non-GAT measures should be considered as supplemental to, and not as superior to, financial measures as reported in accordance with GAT. We direct listeners to consult the investor portion of our website, where you'll find additional supplemental information referred to on this call, as well as reconciliation of non-GAT measures to the equivalent GAT term in the earnings materials and with an explanation of why we deemed this information to be meaningful, as well as how management uses these measures.
Andrew Smith: And with that, I'd like to turn the call over to Doug.
Douglas Cifu: Good morning, and thank you, Andrew. This morning, we reported our third quarter results. With a quarter-ended September 30th, HER2 earned 82 cents of adjusted EPS on $6.1 million per day of adjusted net trading income. We generated a 55% EBITDA margin and $215 million of EBITDA, both on an adjusted basis. We delivered strong performance this quarter in both our customer and non-customer market-making businesses. We continued to progress our growth initiatives with strong performances in crypto options and ETF lots. Our businesses performed well against headline volatility and volume metrics across the globe. Our HER2 execution services business was flat quarter over quarter, which we count as a solid performance given the muted environment for institutional volumes.
Speaker Change: Continue to progress our growth initiatives with strong performances in crypto options and ETF block, our businesses performed well against headline volatility and volume metrics across the globe.
Speaker Change: Virtu execution services business was flat quarter over quarter, which we count as a solid performance given the muted environment for institutional volumes, we will talk more about <unk> in a minute.
Douglas Cifu: We will talk more about VES in a minute. Overall, these results are expressed especially impressive, considering that global volumes remain quite low.
Speaker Change: Overall these results are expressed especially impressive considering that global volumes remained quite low U S equity share volume of notional turnover were down, 4% and 1% respectively versus the second quarter volumes and notional in Europe were down, 20% and 9% versus the second quarter with volumes in Asia Pacific were up about four.
Douglas Cifu: U.S. equity share volume and notional turnover were down 4% and 1%, respectively, versus the second quarter. Volumes and notional in Europe were down 20% and 9% versus the second quarter; whereas volumes in Asia-Pacific were up about 4%. The beginning of this quarter, again, with Virtu Execution Services, are business performed very well. Adjusted net trading income was essentially flat from the second quarter, delivering $100 million of anti, or $1.6 million per day. I spoke last quarter about how Virtu's scaled operations afforded the unique ability to continually invest in our global multi-acid class platform to meet client needs.
Speaker Change: <unk>.
Speaker Change: Beginning this quarter again with Virtu execution services, our business performed very well adjusted net trading income was essentially flat from the second quarter, delivering $100 million of anti or $1.6 million per day.
Speaker Change: This performance combined with a similar with a similar result in the second quarter represents the highest levels of daily adjusted net trading income since the second quarter 2022, when volumes were 10% higher and volatility with 61% higher.
Speaker Change: I spoke last quarter about how virtu scaled operations afford us the unique ability to continually invest in our global multi asset class platform to meet client's needs. We have evidence that our multi year investments are yielding positive results as demonstrated through third party validation.
Douglas Cifu: We have evidence that our multi-year investments are yielding positive results, as demonstrated through third-party validation and recent client successes. A major contributor to this is what we are calling Virtu Technology Solutions, a trading and data analytics infrastructure offering for growing mid-size and or major regional broker-dealers. VTS allows us to distribute our scale technology efficiently and strategically to other brokers, empowering them with leading technology to better serve their clients in a cost-effective manner. Along with our global suite of multi-acid class, enabled product and solutions, we expect to continue growing our VES business long-term. In addition to our VTS offering, we expect our growth to be fueled by our flagship products and solutions, including industry standard data analytics, data analytics platform, global workflow and execution management systems, or Triton, and our world class of trading algos.
Speaker Change: And recent client successes.
Speaker Change: A major contributor to this is what we are calling Virtu technology solutions are trading in dental it data analytics infrastructure offering for growing mid sized <unk> major regional broker dealers VTS allows us to distribute our scale technology efficiently and strategically to other brokers.
Speaker Change: Empowering them with leading technology to better serve their clients in a cost effective manner.
Speaker Change: Along with our go global suite of multi asset class enabled product and solutions, we expect to continue growing our <unk> business long term.
Douglas Cifu: Our multi-acid class EMS platform Triton covers equities, fixed income, FX, and derivatives, and our next generation algos integrate machine learning techniques to further align our client's investment decisions with their implementation results. Additionally, we are focused on increasing our reach in regions and markets previously under-penetrated by Virtu, such as the Middle East, India, and Japan, as well as expanding into new client segments in existing markets to efficiently address opportunities to offer technology solutions. In the past few months, we've seen several client wins in VES as we increase and expand our client relations. These wins include adoption of our new switcher algos, developed with machine learning and allows Virtu to increase its position on broker trade rankings across global clients.
Douglas Cifu: We've seen increasing adoption of VTS, as I mentioned earlier, and while in the still early days, our new agency fixed income RFQ offering is in production and growing. The senior hires we made to help us address this important opportunity have been in place for most of 2024 now and are leading key efforts to broaden the distribution of our offerings. I have mentioned before, we are as excited about the future of this business as always. As always, our VES business has anchored in long-term partnerships, and our revolving offerings are driven by client demand and built on our global multi-afted class scalable technology.
Douglas Cifu: Turning to market-making, our business performed very well in the third quarter, with our customer and non-customer market-making businesses both delivering a solid quarter. We continue to improve our team's cross-desk internalization enhancements to help us manage risks and to explore ways to reduce our trading costs and address more of the opportunities we see in the market. Our Asia and US equity segments showed particularly strong performance this quarter. For our customer market-making business, the market's opportunities as measured through July and August, 605 reports suggest an elevated opportunity of about 9% compared to the second quarter; however. Based on preliminary 605 reports for September, the opportunity declined significantly in September, reducing the quarter-over-quarter increase in quoted spread to a low single-digit percentage.
Speaker Change: Delivering a solid quarter we.
Speaker Change: We continue to improve our teams cross desk internalization enhancements to help us manage risk and to explore ways to reduce our trading costs and address more of the opportunities we see in the market.
Speaker Change: Our Asia and U S equity segment showed particularly strong performance this quarter for.
Speaker Change: For our customer market, making business the market opportunities as measured through July and August 605 reports suggests an elevated opportunity of about 9% compared to the second quarter. However, based on preliminary 605 reports for September the opportunity declined significantly in September reducing the <unk>.
Speaker Change: Order over quarter increase in quoted spread to a low single digit percentage.
Douglas Cifu: As we expand the products and markets we trade, we remain very well positioned to capitalize on our future volatility and opportunities. We continue to deliver success in new areas where we had no presence, only a short few years ago. Our organic growth initiatives generated $632,000 per day in adjusted net-training income this quarter, contributing about 10% of our ante.
Speaker Change: As we expand the products and markets, we trade, we remain very well positioned to capitalize on future volatility and opportunities. We continue to deliver success in new areas, where we had no presence owing a short few years ago, our organic growth initiatives generated $632000 per day in <unk>.
Speaker Change: Adjusted net trading income this quarter contributing about 10% of orienting.
Douglas Cifu: I will highlight results from the standout performance this quarter. Building our global options capabilities continues to be a top priority. Our growing options business delivered a strong performance in the quarter. In addition to our US cash equity options, we are leveraging our growing capabilities and options to target global opportunities by optimizing the broker we're using, increasing our local data center footprints, and streamlining our technical integrations within local markets. We continue to grow in ETF block by onboarding new clients and broadening our distribution. In addition, our growing symbol and underlier coverage capabilities have opened the door for broader relationships with ETF issuers and fund managers, enabling us to service their regular trading and rebalance execution needs.
Speaker Change: I will highlight results from our standout performance this corner.
Speaker Change: Building, our global options capabilities continues to be a top priority.
Speaker Change: Our growing options business delivered a strong performance in the quarter.
Speaker Change: In addition to our U S cash cash equity options, we are leveraging our growing capabilities and options to target global opportunities by optimizing the brokers, we're using increasing our local data center footprint and streamlining our technical integrations within local markets.
Speaker Change: We continue to grow in ETF block by Onboarding, new clients and broadening our distribution. In addition, our growing symbol and underlie our coverage capabilities have opened the door for broader relationships with ETF issuers and fund managers, enabling us to service their regular trading and rebalanced execution needs are.
Douglas Cifu: Our crypto market-making business continues to pace. Spot-bidcoin ETF volumes were up about 2% compared to Q2, and new Spot Ethereum ETFs are trading about 50-60% as many shares as the Spot Bitcoin ETFs. US options on crypto ETFs are getting closer to launching, and it is a natural extension of our crypto and options market-making abilities to support these exciting products. We continue to expand our crypto market-making efforts by supporting new listed products and softly adding new exchanges and tokens. As we grow, we continue to build out our cross-product internalization capabilities, which allow us to be more competitive, keep more of the spread, and reduce trading fees.
Joseph Molluso: With that, I will turn it over to Jeff. Thank you, Doug. I'll just pick up on the market environment this quarter, which was mixed and very similar to the prior quarter. Compared to the lows of the second quarter, realized volatility of the S&P 500 was up about 52%. However, it's important to note it's only up about half as much if you exclude the significant volatility in the first week of August.
Joseph Molluso: U.S. equity volumes were down 4% and U.S. Option volumes were up almost 7%. Retail activity indicators in the U.S. were also mixed. The IBKR equity share volume was down 6% versus the second quarter. And the 605 spread opportunity to August was up 9%, but as Doug noted, the preliminary 605 report for September suggests that the full quarter of a quarter change will be in the low single digits. A global equity volume was also mixed with the realized volatility of Euro stocks index up 28% and the NICA up 168% in fixed markets. FX volumes were mixed; energy volumes were up 5%, while high yield credit volumes were down 3% versus the second quarter.
Joseph Molluso: At September 30th, 2024, our total trading capital, which is on slide 14 in the supplement, stood at 1.8 billion. Our incremental returns on capital, as you can see, remain excellent on a long-term basis, demonstrating our service-oriented model and our ability to use our capital services. To that end, in the third quarter, we use the portion of our free cash flow to repurchase 1.7 million shares at an average price of 2880 per share. To date, we have repurchased 49 million shares at an average price of $25.24 cents per share. The quarter-end share count was 161 million shares outstanding, bringing our buybacks on target to fit within the ranges we have set forth publicly.
Speaker Change: We're a long term basis.
Speaker Change: Demonstrating our service oriented model and our ability to use our capital to invest.
Speaker Change: To that end in the third quarter, we used a portion of our free cash flow to repurchase one 7 million shares at an average price of 28 80 per share.
Speaker Change: To date, we have repurchased 49 million shares at an average price of $25 24 per share the quarter end share count was 161 million shares outstanding, bringing our buybacks on targets that fit within the ranges we have set forth publicly.
Joseph Molluso: Since we initiated our share repurchase program, we have repurchased 18.8% of the fully diluted shares of Vertu that's net after new issuances. Our share repurchase program year-to-date is within the guidelines we publish. Results from the market-related businesses like ours will always vary with volumes of volatility, but slides eight and nine illustrate the sustained earnings power of our business and the positive operating leverage we enjoy from prudent capital management, as well as our growth initiatives and the cumulative impact of the share repurchases. From the expense side, our adjusted cash operating expenses were 173 million in the third quarter. Our run rate cash up-ex is up about 5% year-over-year, consistent with the prior guidance.
Speaker Change: We initiated our share repurchase program, we have repurchased 18, 8% of the fully diluted shares of Virtu, that's net after new issuances.
Speaker Change: Our share repurchase program year to date is within the guidelines we've published.
Speaker Change: Results from the market related businesses like ours will always vary with volumes and volatility, but slides eight and nine illustrate the sustained earnings power of our business and the positive operating leverage we enjoy from prudent capital management as well as our growth initiatives and the cumulative impact of the share repurchases.
Speaker Change: On the expense side.
Speaker Change: Our adjusted cash operating expenses were 173 million in the third quarter, our run rate cash Opex is up about 5% year over year consistent with the prior guidance, our cash compensation ratio was 23% and our total compensation ratio was 28% for the quarter compared to 22.
Joseph Molluso: Our cash compensation ratio was 23%, and our total compensation ratio was 28% for the quarter, compared to 26% and 32%, respectively, for the full year of 2023. We expect cash operating expenses to remain within the recent historical range, and we expect the cash compensation ratio to also remain within historical marks.
Speaker Change: 6% and 32% respectively for the full year of 2023.
Speaker Change: We expect cash operating expenses to remain within the recent historical range.
Speaker Change: And we expect the cash compensation ratio to also remain within historical norms.
Joseph Molluso: Regarding our total cash operating expenses, going forward, we continue to assume low single-digit overall increases in non-compensation expense, and with that, to conclude the prepared remarks, I will turn over to our Chief Financial Officer, Cindy Wish.
Speaker Change: Regarding our total cash operating expenses going forward, we continue to assume a.
Speaker Change: Low single digit overall increases in non compensation expense.
Cindy Lee: Cindy? Thank you, Joe.
Cindy Lee: Good morning, everyone. On slide three of our supplemental materials, we provided a summary of our quarterly performance. For the third quarter of 2024, our adjusted net trading income for ANTI, which represents our trading gains net of direct trading expenses, totaled $388 million, worth $6.1 million per day. Marketing adjusted net trading income was $288 million, worth $4.5 million per day. Exclusion services adjusted net trading income was $100 million, worth $1.6 million per day. Our third quarter 2024 normalized adjusted EPS was 82 cents. Adjusted EBITOP was $215 million for the third quarter 2024, and our adjusted EBITOP margin was 55.4%.
Cindy Lee: On slide 11, we provided a summary of our operating expense results. For the third quarter 2024, we recorded $190 million of adjusted operating expenses. We continue to maintain an efficient cost structure and discipline expense management, which has helped us to control our operating expenses during the inflationary environment. Financing interest expense was $24 million per day for the third quarter 2024. With the benefit of our recent refinance and an interest rate swap contract that we entered in the prior years, our blended interest rate was approximately 7.3% for our long-term debt in aggregate. We remain committed to our 24 cents per quarter dividend, and combined with our shared refreshments program, demonstrates our continued commitment to return capital to our shareholders.
Operator: Now, I would like to turn the call over to the operator for Q&A.
Operator: Thank you.
Operator: At this time, we will conduct a question and a succession. As a reminder, to ask a question, you need to press star 111 on your telephone and wait for your name to be announced. To withdraw your question, please press star 111 again. Please stand by while I compile the Q&A roster.
Patrick Moley: The first question comes from Patrick Moly from Piper Sandler. Please go ahead.
Operator: Okay.
Operator: One more for our next question.
Kenneth Worthington: Our question comes from Ken Worthington from JP Morgan. Please go ahead.
Speaker Change: Our question comes from Ken Worthington from J P. Morgan. Please go ahead.
Kenneth Worthington: Hi, good morning. Thanks for taking the question. Maybe first we're seeing a proliferation of brokers offering retail investors access to options and now futures. This seems to play directly into the business model of Vertu.
Ken Worthington: Hi, good morning, Thanks for taking the question.
Ken Worthington: Maybe first we're seeing a proliferation of brokers offering retail investors access to options now futures are this seems to play directly into the business model of or to our futures products developing the same payment for order process that we see in equities and how is the <unk>.
Douglas Cifu: Our futures products developing the same payment for order process that we see in equities, and how is the attractiveness of futures trading for Vertu versus say options and equities just based on a profitability basis? Yes, thanks, Ken. It's a keen observation. Obviously, we've been following that closely. As you suggested, it's an exciting opportunity for us. I think it's very complimentary to what we do in our existing cash equities wholesale business in that we have connectivity and relationships with all of the aforementioned retail broker-dealers. We've been in the prior night, and now Vertu have been doing business with these firms for, in some cases, 20, 30 years, and they're very, very confident in our ability to provide a fish and two sided liquidity to these clients' needs.
Ken Worthington: Tractive newness of futures trading for virtue versus say options and equities you know just based on a profitability basis.
Speaker Change: Yeah. Thanks, Ken it's a keen observation obviously, we've been following that.
Speaker Change: Mostly and I think.
Speaker Change: As you suggested is an exciting opportunity for us I mean, I think it's very complementary to what we do in our existing cash equities.
Speaker Change: Wholesale business and that we have connectivity and relationships with all of the aforementioned.
Speaker Change: Retail broker dealers, we have been.
Speaker Change: Prior night, and now Virtu had been doing business with these firms.
Speaker Change: For in some cases 2030 years and are very very confident in our ability to provide.
Speaker Change: Efficient two sided liquidity to these clients needs I think certainly you know if you have active day traders that are looking for more intra day leverage perhaps the futures products and derivative products are more attractive we see that with our retail offerings in our retail.
Douglas Cifu: I think certainly if you have active day traders that are looking for more intraday leverage, perhaps the futures products and derivative products are more attractive. We see that with our retail offerings and our retail clients in Asia, in particular. I would say in Japan in particular, which is a very active CFD market. We think it's complimentary. We're excited about it. We don't think it's going to cannibalize.
Speaker Change: Clients in Asia in particular, I would say in Japan in particular, where there's a very active cfd market. So.
Speaker Change: We think it's complementary we're excited about it we don't think it's going to cannibalize.
Douglas Cifu: The cash equity business is probably a different sleeve, if you will, of retail investor that's more of an active day trader as opposed to a more casual retail trader, for lack of a better description. So it's an exciting opportunity for us. to continue to partner with these great retail firms that we've had great long-term relationships with. And I think it's underappreciated that that really is a customer service business in part. Obviously, price matters a lot, but we get scored by all of our retail brokers on uptime and customer service, and all of those things. And so, it is very much a white glove business for us.
Speaker Change: The cash equities business with its probably a different sleeve. If you will of retail investor that's more of an active day trader as opposed to a.
Douglas Cifu: And that goes back, you know, the 2030 years, the folks that we inherited, the wonderful folks that we inherited from that capital that continue to provide that service to these customers. So, as they expand offerings, that's great for Virtu.
Kenneth Worthington: Okay, great. Just a modeling question: brokerage costs were at the highest level since COVID. We've definitely seen some bigger activity quarter since then with low brokerage costs.
Douglas Cifu: So, was there anything about the mix of business that threw brokerage costs higher this quarter? And how do we think about the go forward? Yeah, now it's a great; it's a great observation, it's a great question. It's one of the quirks, unfortunately, of the Section 31 fees. You probably know how they work. Actually, they are a transaction tax. They shouldn't call them Section 31 fees. They are a transaction tax. And they're sort of measured; they're very lumpy because they're measured in the rears by statute. And the theory is they're supposed to fund the FCC. So, yes, we are funding the agency that then goes and tries to do bad things to the market, ironically.
Douglas Cifu: But that rate changes twice a year. And so, it's not as smooth as it otherwise would be. So, if you, you know, you can kind of go back and history and smooth it out and see what a normalized Section 31 fee would be. And I suppose, in a perfect world, you know, that, you know, if they had like a more normalized one, you wouldn't see the ups and downs within our, within our adjusted debt trading, you know. They got on top of that. You know, we started to pay some cap fees; unfortunately, as well, which were not hugely significant in the quarter, but they kind of started up in earnest in September.
Operator: So, those are the two items. Great.
Operator: Thank you.
Operator: Thanks, Ben.
Operator: Thank you.
Operator: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
Operator: One moment for our next question.
Craig Siegenthaler: Our next question comes from Craig Siegent Dollar from Bank of America. Please go ahead.
Douglas Cifu: Good morning, Doug. Hope everyone's doing well. Our question is on your organic growth businesses. So, in the quarter, we monitored three big positive drivers: the Ethereum ETF launches, strong ETF volumes, and also record index option activities. So, we were a little surprised to see a sequential decline in ANTI. So, I was wondering if you could talk about what drove this. Yeah. It's a good question. Thank you, Craig. I think, you know, the biggest driver was probably within crypto, where we saw a pretty significant drop off in Bitcoin ETF ADV. Andrew's telling me he was down about 11% quarter-over-quarter.
Speaker Change: It's a good question and thank you Craig I think you know that.
Speaker Change: The biggest driver was probably within crypto, where we saw a pretty significant drop off in <unk>.
Speaker Change: Bitcoin Etfs Adv, Andrew is telling me was down about 11% quarter over quarter. So there's that and I think you know within the index options family, obviously volume is important but we obviously internally measure spread of those.
Douglas Cifu: So, there's that. And I think, you know, within the index options family, obviously, buy is important. But, you know, we obviously internally measure spread of those products, and spread with down quarter-over-quarter as well. So, that's the opportunity set for a market maker, as you know. So, it's not just, you know, X times Y equals Z. And in this instance, the Y decrease. So, those are the two big drivers of it. Again, nothing alarming from our perspective. We continue to perform a community to grow. And certainly, you know, we're optimistic as we continue to expand those businesses, particularly in options where we now have a meaningful Asian options business, which is now contributing daily adjusted net trading income.
Speaker Change: <unk> and spread was down quarter over quarter as well. So that's the opportunity set for a market maker as you know so it's not just you have X times Y equals Z and in this instance, the Y decrease so those are the two big drivers of it again nothing alarming from our perspective, we continue to perform and continue to grow.
Speaker Change: And certainly you know we're optimistic.
Speaker Change: As we continue to expand those businesses, particularly in options, where we now have a meaningful Asian options business, which is now contributing daily.
Speaker Change: Adjusted net trading income and we're guardedly optimistic as we continue to grow that business, particularly in Japan, and India and the investments that we've made in those areas will pay off in future quarters.
Douglas Cifu: And we're, you know, guardedly optimistic as we continue to grow that business, particularly in Japan and India, and the investments that we've made in those areas will pay off in future quarter. Thanks, Doug.
Douglas Cifu: And just for my follow-up, we now have a final SEC equity market structure proposal. So I wanted to see if you could give us your updated view on the RIG NMS amendments on the market at large and how it will impact Virtu. And then can you give us a sense of how big your on-exchange market making business is to help us size up the risk? You know, specifically we're roughly looking for how much income you're receiving from on-exchange rebates. Thank you. Yeah, yeah, great. It's a great question. Obviously, you know, we followed it closely, filed comment letters.
Speaker Change: Thanks, Doug and just for my follow up we now have a final FCC equity market structure proposal. So I wanted to see if you could give us your updated view on the Reg NMS amendments.
Speaker Change: The market at large and how it'll impact for two and then can you give us a sense of how big year on exchange market, making business is to help us size up the risk specifically, we're roughly looking for how much income youre receiving from on exchange rebates. Thank you yeah, yeah, great. That's a great question and obviously we.
Speaker Change: Following closely file comment letters and you know our overall view is that the final.
Douglas Cifu: And you know, our overall view is that the final proposal, the final rule, if you will, which I don't think, but there's been one litigation filed. I don't know if it's going to be final, final. We'll see how it works out on the courts. But we think it's a bad result for the market. I have said many times we are not a rebate rating firm. We are a net pair of exchange holding fees. So reduction of the rebate won't impact us from an adjusted net training income perspective. I always kind of scratched my head at, you know, people suggesting, hey, we just collect rebates.
Speaker Change: A final rule, if you will which I don't think Theres been one litigation filed I don't know if it was gonna be final final, we'll see how it works out in the courts, but we think it's a bad result for the market.
Douglas Cifu: Nothing wrong with that. We just never figured out the way to become a net rebate trading firm as a market maker. You know, there's a suggestion because obviously the quoted spread is going to be reduced in a significant and not a lot of names. I think what paired with the liquidity incentives, either rebates being to get me reduced down to 10 mils. We think that maybe some spreads will now, but a lot of them will actually widen because people underestimate the value, if you will, that those rebates provide to the marketplace. You may have nominally tighter spreads in some names, but to the extent institutional investors want to access any meaningful liquidity, they'll be forced to go out a number of ticks.
Douglas Cifu: And so the net effect is, and this is why a lot of our institutional clients are very, very happy that you'll see more trades going through multiple price levels, which creates more volatility. And we think larger orders will actually have increased transaction costs. So whatever compromise our friends at the SEC built that they were crafting, we don't think that they got right. And we think there's going to be a lot of unintended consequences. I mean, net net to the firm, there's some positives in terms of, you know, our ability because we on the retail wholesale side, as I've said many times, we don't internalize 100% of the orders we received.
Douglas Cifu: We still are obligated to price improve and pay payment for order flow. So on some of those orders, our ability to access liquidity at a cheaper price because spread tabernaro is a strong net positive to the firm. But again, overall, for our institutional clients, we think the proposal is going to ultimately end up being a net negative. And if the intent was, which I think it was, to drive more liquidity to exchanges and away from dark markets, I think it has failed. I think the result of this will be that there will be less liquidity driven to exchanges, and it's yet another example.
Operator: just like Mrs. II, of regulators trying to pick winners and losers and whiffing and actually having the opposite result. Thank you, Doug. Thank you. One moment for our next question.
Christopher Allen: Our next question comes from Chris Allen from City. Please go ahead.
Christopher Allen: Good morning, everyone. I wanted to dig in a little bit on options. Just wondering, obviously you talked about the APAC opportunity. Just wondering, hey, how is the progress going in the U.S. options marked specifically, which is obviously a competitive marketplace. And then how would you frame the opportunity set moving forward in terms of international versus U.S. as a greater opportunity set international? Yeah.
Douglas Cifu: Thanks, Chris. It's a really good question. I mean, the 800 pounder real obviously elephant in the room, what other bad analogy can I use is becoming a retail options wholesaler. It remains in our medium to long-term plans. We've made investments, and we ramped up on exchange trading in a number of symbols. You know, as you're aware, all those transactions, unlike in cash equities, happen. Even on options exchanges, has been a further proliferation. I've lost count of having the options exchanges. There are, I think, rupture 18 or maybe 19. I can't quite remember. So that's an opportunity.
Douglas Cifu: So that's certainly in the medium to long-term plans, and we've expanded our symbol range. I think there are parts of the world, particularly in Asia. I mentioned India, Korea, Japan. You know, some of the smaller countries like Malaysia, et cetera, have small options businesses as well. But we think that's an opportunity. So we build capability out there. You know, again, it's for two 101 blocking and tackling. It's understanding the market is finding the right local broker partner. It's setting up a data center. It's tuning our connectivity to the exchange. Every marketplace is different. Every marketplace has a nuance.
Speaker Change: Strange every marketplace is different every marketplace has a nuance it's getting people on the ground in Mumbai that understand the ins and outs of how the technology of the various exchanges work there.
Douglas Cifu: It's getting people on the ground in Mumbai that understand the ins and outs of how the technology of the various exchanges work there. You know, it's stuff we've been doing for the last 16 years exceptionally well here at Bertu. It's kind of the last inch of the market, and that's what we're really, really good at. And so, you know, of course, we'll fluctuate up and down. But long term, we've made the investments. We're committed to it. We've been successful. It's a, you know, margin. That's typical to the rest of our, you know, proprietary non-customer trading businesses.
Speaker Change: We've been doing for the last 16 years exceptionally well here at Virtu, It's kind of you know the last inch of the market and that's what we're really really good at and so you know a quarters will fluctuate up and down but long term. We've made the investments we're committed to what we've been successful. It's a you know.
Speaker Change: Margin.
Speaker Change: That's typical to the rest of our proprietary non customer trading businesses. So we're very very pleased with the results and it's just another example of what global scale.
Douglas Cifu: So we're very, very pleased with the results. And it's just another example of what global scale. And having a large label global firm with great trading and fish structure provides to you. So meeting for long term, continue to be optimistic about it.
Speaker Change: And having a large global global firm with great trading infrastructure provides to you so medium to long term continue to be optimistic about it.
Douglas Cifu: Thanks. And it's one of a revisit Ken's question earlier. Just on retail futures activity. Is there a wholesale market-making opportunity? Was that more of an on-exchange opportunity? And then how are you thinking about the income opportunity from players such as Robin Hood adding index index options? Ford. Yeah, I mean, the index options is obviously really, really exciting to ask because that's kind of right. No wheelhouse and Robin Hood is a terrific, I mean, it's a terrific firm and a great partner of ours. And we do a lot of really great, interesting things with them. You know, futures are a little, you know, more different because those need to be executed.
Speaker Change: Thanks, and just wanted to revisit Ken's question earlier.
Speaker Change: Just on the retail futures activity is there a wholesale market, making opportunity was that more of an on exchange opportunity.
Speaker Change: And then how are you thinking about the incremental opportunity from players such as Robinhood, adding index index options moving forward.
Speaker Change: Yeah, I mean, the index options is obviously really really exciting for us because that's kind of right now wheelhouse and robinhood is a terrific terrific firm.
Speaker Change: And a great partner of ours, and we do a lot of really great interesting things with them futures, a little more different because those need to be executed.
Douglas Cifu: It's a different marketplace. It's the executed, you know, on the CME or one of the futures exchanges. It would have many concerns that really compete. As I said earlier in an answer to the question that I think can ask, you know, we think this is a different subgroup, if you will, within their client base. It's more of an active trader that wants to get a little more leverage. Again, you know, anything that kind of expands the pie and expands interest and gets more eyeballs, if you will, at our retail broker partners. Ultimately, it is a good thing for the firm.
Speaker Change: It's a different marketplaces to be executed.
Speaker Change: On the CME or one of the futures exchanges.
Speaker Change: And we don't have any concern that really competes as I said earlier in an answer in an answer to the question that I think Ken asked.
Speaker Change: We think this is a different.
Speaker Change: Subgroup, if you will within their client base, that's more of an active trader that once they get a little more leverage.
Operator: Thanks, guys. Thanks, Chris.
Operator: Thank you.
Operator: One moment for our next question.
Patrick Moley: Our next question comes from Patrick Moly from Piper Sandler. Please go ahead.
Patrick Moley: Yeah, good morning. Thanks for the question. Sorry about the disconnect earlier. I just had one on a regulatory question. The latest implementation or phase of the OCC intraday margin rule that they propose the thing that addressing some of the perceived risk around zero DTE. Just wondering if this is something that's on your radar at all and what impact you expected to have on trading volumes, not only zero DTE, but, you know, possibly across other asset classes as well, if margin goes up across the industry. Thanks.
Douglas Cifu: Wow, your Patrick, you're really trying to dive deep here and get me on one. I love it. Good thing the guys prepare me for all this stuff. Look, we’ve looked at it. We think it's very unlikely to have any direct impact to Vertu or the FINRA capital rules already stipulate that members maintain capital adequacy to settle all positions, and based on our understanding. The new margin changes for the zero data options are effectively just moving up delivery times. It's really just a timing difference. We don't think it's an overall capital difference. I mean, Joe, you've looked this more closely.
Joseph Molluso: Would you agree with that? Yeah, I mean, we obviously have a, we're not direct members. We clear through a third party. So we think it's manageable.
Operator: Okay, great. Thanks for the color. Thanks, Patrick. Thank you.
Operator: One moment for our next question.
Dan Fannon: Our next question comes from Dan Fanon from Jeffries. Please go ahead.
Operator: Thanks.
Joseph Molluso: Good morning, guys. Question on just slide eight. I know this is you guys had this framework for some time, but given you've strung together three quarters in a row, you know, pretty strong results, how we think about the buyback. Do you become valuation sensitive at all, or is it just more of an output based upon what A and T.I. is doing? You know, I think it's just an incremental investment question. I appreciate that our stock has gone up, and so it's we're buying back less shares than every target amount here. You know, we made a strategic decision when we embarked on this journey.
Joseph Molluso: I think in that fourth quarter of 2020. that we were going to set these targets, and that we were going to just dollar cost average our stock, given how volatile it's been. And we look at this as an investment, right? So our stock is in the low 30s now. We've bought back almost 20% of the company at $25. We compare; we're shareholders, and we want to create value, right? So we look at this as a value creation exercise. And if there was an incremental opportunity that's in front of us, whether organic or inorganic, where we thought the value exceeded buying back our shares at 30, we would pivot.
Joseph Molluso: But for the near term and the mid term, this is what we see in front of us, and we're going to continue executing on it. It doesn't mean that we're not excited about the growth opportunities, but we're adequately capitalized, we're adequately resourced, and so we're going to continue at these levels to meet these targets.
Joseph Molluso: I expect in 2024, when it's all set and done, obviously it depends on where we come out in a net training income, but at these run rate levels of net training income, I expect that we're going to be at the high end of the guidance. Great, that's helpful.
Joseph Molluso: And then just also on expenses, you guys have been pretty consistent in your messaging there, just thinking, you know, given, again, a good backdrop for you year-to-date, as we think about the fourth quarter, the cash, conferences, comprehensive ratio, dynamic, just a little bit of color there and any other seasonal expenses that we might be should be thinking of. Yeah, I mean, COP is in seasonal; we try to accrue because we try to accrue appropriately. I mean, we have to accrue appropriately. And, you know, COP, getting compensation right is a huge priority for us. We've always been within this COP ratio, and I think when we are in an environment that's not as robust or even, you know, sort of middle of the road like we've been in, we try to take care of people and compensate them well even in the down years.
Joseph Molluso: And I think, you know, that's allowed us to kind of, you know, maintain where we are. We've fired an enormous amount of people in the past three years. We've significantly upgraded our talent, you know, and we will, you know, continue to do that. And, you know, there's pressure on costs all the time. We manage our market data, you know, plant. We manage our, you know, infrastructure. We manage our overhead actively. And, you know, I think the guidance has been pretty consistent for a long time, and I think we've stayed within it, and we expect to stay within it.
Operator: Great. Thank you.
Operator: The question and answer session is now closed.
Douglas Cifu: I will now turn it over to Doug Seafood for closing remarks. Thank you, Antoine. And thank you, everybody, for joining us today. We look forward.
Douglas Cifu: Everybody enjoy the holidays and the end of the year. We look forward to speaking with you early in 2025. Have a great day.
Operator: Thank you for your participation in today's conference. This does conclude the program; you may now disconnect. Thank you very much.
Speaker Change: [music].
Operator: Thank you for watching! .
Speaker Change: [music].
Speaker Change: [music].
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