Virtu Financial has made an unsolicited offer to buy its rival, KCG Holdings, in a deal that could create one of the largest global high-frequency trading firms.
KCG confirmed receipt of the offer to purchase all outstanding shares for KCG’s common stock for $18.50-$20.00 per share, which would amount to around $1.3 billion.
Both firms have seen revenues drop across trading and market making business units due to low volatility and decreased trading volumes.
In November, after Virtu announced a 25% reduction in its net trading income, CEO, Doug Cifu said: “opportunities for most market participants and for market makers were limited by the depressed global volumes and realised volatility.”
Similarly, KCG’s market making business outside of US equities has struggled over the last year. Speaking on its quarterly earnings call Daniel Coleman, CEO at KCG, explained the non-US equities market making is a “concern and focus for the management team.”
The deal between Virtu and KCG could create a global powerhouse for market making and high-frequency trading. Both operate in the same markets, although use slightly different methods.
“We’ve made some progress, but it’s going slower than expected.
“If you had asked me three years ago what a swaps execution facility (SEF) would look like now and how many would be successful, I would have said there would be more electronic trading, liquidity and swaps executed on SEFs – but that hasn’t happened,” he said.
KCG said its board of directors is reviewing the offer with its financial and legal advisors.