Buy-side warming to Virtu Financial’s SI, chief says

Virtu Financial CEO Doug Cifu outlines growth of its systematic internaliser and targets further growth of the service in Europe.

Virtu Financial’s systematic internaliser (SI) has gained ground in Europe with the market maker’s chief executive highlighting significant opportunity for further growth in the future.

Speaking on the firm’s second quarter earnings call, Doug Cifu told investors and analysts that despite the non-bank SI market being relatively small compared to the wider market, the buy-side in Europe is beginning to become more comfortable using the service.

“Every day customers all over Europe are getting introduced to Virtu SI liquidity, and so these products and the way that we’re interacting are just getting stickier with the buy-side and gaining more acceptance,” Cifu said.

Virtu Financial registered its SI service in Europe through its business division in Dublin prior to MiFID II which came into force on 3 January this year.

The SI regime has proved to be controversial ahead of, and during, the implementation of MiFID II, with buy-siders raising various concerns about their lack of transparency, often leading them to steer clear of the service.

The venue type has also been the subject of regulatory scrutiny following the introduction of MiFID II, with market participants and major exchange groups urging the EU financial watchdog to enforce the tick size regime for all SIs.  

Cifu added that its SI in Europe is one of the four or five areas that Virtu Financial will continue to focus on growing in the future.

“The overall non-bank SI market is only around like 2% to 3% right now,” he said. “So I think there’s significant amount of growth there, and that really plays in to the Virtu strength of having a platform where we can provide large size to customers and unique liquidity and kind of have a bilateral relationships.”

A recent report authored by TABB Group found that non-bank SIs, or SIs operated by market making firms like Virtu Financial and others like Citadel Securities and Sun Trading, traded close to €30 billion in the first quarter this year.

TABB Group explained that non-bank SIs face numerous challenges ahead in terms of winning over the buy-side and improving their connections with brokers.

Virtu Financial reported a surge in revenues from $145 million in the second quarter last year to $328 million in the same period this year. However, shares in Virtu dropped following the publication of its second quarter results, driven by a decline in the firm’s core wholesale market making operation.