KCG’s market making struggles outside of US equities

Market making revenues outside of US equities has declined 60% since the first quarter of 2016.

KCG’s market making business outside of US equities steadily declined in 2016, with revenues plummeting 60% in the fourth quarter, compared to the first quarter.

Revenues for market making outside of US equities stood at just $17 million in the fourth quarter of 2016 in comparison to $43 million in the first quarter of the year.

Speaking on its quarterly earnings call Daniel Coleman, chief executive officer at KCG, explained the non-US equities market making is a “concern and focus for the management team.”

He said upon review, KCG decided to shut its market making for corporate bonds as it continues to “assess another product”.

He then explained the drop in revenues included a ‘shuttering’ of the options market making business, although KCG still trades options.

“I do think it was worth calling out given the drop and also given the strategic importance of market making outside of US equities to bounce off tough trading in US equities like we saw in September and October,” he explained.

When questioned about KCG’s expectations now the market making segment has been scaled back, Coleman argued the business “hasn’t been reduced that much”.

“We did review our businesses and chose to shut corporate bond trading partly because the perspective return on capital in the amount of investment just didn't make sense,” he said.

Coleman outlined KCG’s goal is to build-out stronger products in the rates and FX space, as well as expanding in Europe and Asia.

In the fourth quarter in 2016, the US equities market making business managed to make up some lost revenues from the quarter prior.

US equities market making revenues reached $148 million in the final period of 2016, as Coleman explained: “KCG's core market making in US equities largely returned to performing as it has since prior to September 2016.”