Virtu sees trading income plummet amid 'depression' of volatility

Virtu Financial reported trading sales were down 25% in the third quarter this year.

Market maker Virtu Financial reported its net trading income in the third quarter this year dropped almost 25% to $157 million, amid a depression in market volatility over the last three months.

Overall revenues at Virtu Financial plummeted 24% in the third quarter this year to $165 million, compared to $216 million in 2015. Although, Virtu explained the third quarter results in 2015 included the stock market turmoil of 24 August, so comparing the third quarter this year to last year was a difficult task. 

Chief executive officer at Virtu, Doug Cifu, said on the firm’s earnings call that “opportunities for most market participants and for market makers were limited by the depressed global volumes and realised volatility in the third quarter.”

Cifu added that the decline in Virtu’s trading business was in-line with the broader market.

An analyst asked how the company had remained profitable in its market marking business when some competitors had made losses, to which Cifu replied it was down to Virtu’s business model.

“We’re a passive market maker, we don't do statistical arbitrage and we don't hedge with some other basket of instruments,” he said.

In August this year, JP Morgan announced it had entered into a three-year deal with Virtu Financial, to employ its proprietary trading and order routing technology to trade US government bonds.

Since the announcement of the deal, Cifu said Virtu has received inbound calls from large sell-side institutions.

“It raised a lot of eyebrows… so we've had a number of inbound calls from not surprisingly large sell-side institutions that want to understand what it's all about and there is a little bit of - if it's good for those guys, why wouldn't it be good for us as well,” he explained.

In September this year, The TRADE spoke with Cifu about the JP Morgan deal and Virtu Financial’s often misunderstood business model.

Read the full interview here