Virtu Celebrates Another Year Without a Single Day of Losses

Feb 26 2015 | 10:05am ET

By Sam Mamudi and Leslie Picker (Bloomberg) -- High-frequency trading firm Virtu Financial Inc. reported another year without a single day of losses, extending a near-perfect streak stretching back to 2009 that contrasts with dwindling profits at competitors.

Virtu made money every day in 2014, generating revenue of $723 million and net income of $190 million, according to financial statements filed with regulators Friday. The 148- employee company, which uses computerized strategies to buy and sell everything from stocks to currencies, has had only one losing day in its six years of operation.

To fans of Michael Lewis, whose 2014 book “Flash Boys” argued high-frequency traders are rigging markets, such an unblemished track record is a sign of unfair advantages. Virtu’s retort, given in June by Chief Executive Officer Doug Cifu, is that the sheer volume of trades the company makes helps ensure it makes money.

Virtu last year announced it wanted to publicly sell shares, but shelved that plans amid the uproar spurred by Lewis’s book. The company may go through with an initial public offering later this year, according to two people familiar with the matter, who asked to not be identified because the process is private.

Industry Profits

Revenue rose 8.8 percent at Virtu in 2014 versus the prior year, and net income climbed 4.3 percent, according to Friday’s filing with the U.S. Securities and Exchange Commission. Companies employing the high-frequency trading strategies earn about $1.3 billion annually in U.S. equities, down from more than $7 billion in 2009, according to a March report from research firm Tabb Group. Virtu trades more than just U.S. stocks, with its operations extending into foreign exchange, commodities, options and fixed-income products.

The company strategies are “designed to lock in returns through precise hedging in the primary instrument or in one or more economically equivalent instruments, as we seek to eliminate the price risk in any positions held,” Virtu said Friday. “The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing trading day during a period of 1,485 trading days.”

On average, Virtu completed 5.3 million trades a day last year, with 49 percent of the transactions making money, according to the document.

‘Law of Large Numbers’

“Over a million times day, we’re not making money,” Cifu said at an industry conference in June. “But when you add up the volume of instruments that we trade, the tens of thousands of strategies that we trade in all the different marketplaces, it’s simply the law of large numbers, and, as a result, yes, we are profitable every day.”

Lewis’s book portrayed the stock market as an unfair playing field where insiders, particularly high-frequency traders, take advantage of everyday investors using questionable methods. Warren Buffett, the world’s second-richest person, has also criticized Virtu’s industry.

“Michael Lewis is far from an expert on market structure,” Cifu said last year. “If you ask Warren Buffett how many national securities exchanges there are, he will look at you probably and say, ‘What’s a national securities exchange?’ The man’s a brilliant investor. I don’t pretend to tell him about Heinz Ketchup. He shouldn’t be talking about market structure.”

Virtu makes markets in more than 11,000 securities and other financial products, trading on more than 225 exchanges in 34 countries, according to Friday’s document. The company competes with firms such as KCG Holdings Inc. as well as New York Stock Exchange market makers.

Copyright 2015 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

In Depth

PAAMCO: Will Inflation Deflate the Asset Bubble?

Jan 30 2018 | 9:49pm ET

As the U.S. shifts from monetary stimulus to fiscal stimulus, market pricing should...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Boost Hedge Fund Marketing ROI By Raising Your ROO

Feb 14 2018 | 9:57pm ET

Tasked with delivering returns on client capital, a common dilemma for many alternative...