MiFID II sparks Virtu’s European expansion with KCG takeover

CEO at Virtu, Doug Cifu, said MiFID II means the buy-side need an execution only agency.

The onset of MiFID II played a crucial role in Virtu Financial’s $1.4 billion bid for KCG and its European expansion ambitions, according to CEO Doug Cifu.

Speaking on Virtu’s first quarter earnings call, Cifu explained MiFID II and unbundling requirements provided an opportunity to expand in Europe with the acquisition of KCG, which operates an established European market making franchise.

“Europe is one of the key motivators for us wanting to get into the agency execution business and it was obviously our experiences with order routing for our own selves and how that value proposition really translated to the agency business,” Cifu said.

“With the advent of MiFID II and unbundling, it just seems like the time is really right for a superior execution-only agency offering really to be well accepted by the buy side.”

Last year, it was reported that Virtu began talks with German asset manager Union Investment in which it would execute Union’s trades on an agency basis in Europe.

With the KCG acquisition, Virtu could accelerate these talks and even approach more European buy-side firms.

In February, Virtu said it had European buy-side firms lining up for its market making and technology services ahead of MiFID II.

“The European approach of requiring unbundling of agency services as mandated by MiFID II will only make our non-conflicted routing capabilities more attractive to the buy-side,” Cifu said at the time.

The takeover of KCG will also give Virtu an established business for European exchange traded funds (ETFs), in which KCG is a leading market maker for.

Virtu sealed the $1.4 billion takeover deal with KCG earlier this week after entering into a definitive agreement.

The deal will see Virtu extend its operating model to KCG’s wholesale market making businesses and expand the distribution of its technology and execution services to KCG’s institutional client base.

Virtu said it expects to migrate trading of the combined company onto a single technology, risk management and analytics platform.