Virtu Financial

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Virtu Financial
Private
Industry Financial services
Founded 2008
Founder Vincent Viola
Headquarters New York City, U.S.
Key people
Vincent Viola (Executive Chairman)
Products High-frequency trading, market making
Number of employees
151
Subsidiaries Madison Tyler
Website www.virtu.com

Virtu Financial is one of the largest high-frequency trading (HFT) and market making firms. It provides quotations and trades in equities, commodities, currencies, options, fixed income, and other securities on various exchanges, markets, and dark pools.[1] Virtu uses proprietary high-frequency trading strategies to trade large volumes of securities. On March 10, 2014, Virtu Financial filed for its initial public offering,[2] yet repeatedly delayed its IPO.[3] Reuters reported in November 2014 that sources say the HFT firm hopes to go public in the spring of 2015.[4]

Organization[edit]

Based in New York City, Virtu was founded by Vincent Viola, a former chairman of the New York Mercantile Exchange and current owner of the Florida Panthers.[5] Virtu was ranked as one of the five largest high-frequency traders of equities in Europe in 2011.[6]

The company suggested standards for electronic firms that call themselves market makers. Virtu believes market makers should be obligated to quote at or near the inside of the national best bid and offer throughout the day and quote at various price points in a number of different securities.[7]

In November 2014, Reuters reported that Chris Concannon, president and chief operating officer at Virtu Financial, will succeed William O'Brien as president of BATS Global Markets, a trading venue that was founded by high-frequency traders.[8]

Virtu has offices in New York (headquarters), Austin, Dublin, and Singapore.[9] It expanded its European headquarters to Dublin in September, 2013.[10] Virtu Financial Ireland Limited is regulated by the Central Bank of Ireland.

Operating subsidiaries[edit]

In May 2011, Virtu merged with proprietary trading firm Madison Tyler based in Santa Monica, California[11][12] with the backing of Silver Lake Partners, a technology focused private equity firm.[13] Vincent Viola co-founded Madison Tyler with David Salomon, a former arbitrage trader at Goldman Sachs.

Virtu acquired a market-making unit that handles NYSE Amex stocks from Cohen Capital Group LLC in December 2011. The purchase made Virtu the largest overseer of trading in shares listed on Amex, known as the American Stock Exchange before NYSE Euronext bought it for $260 million in 2008. The deal gave Virtu a designated market-maker license for New York Stock Exchange companies. With the acquisition, some of the companies Virtu was able to trade and support included New Gold Inc., Northern Oil & Gas Inc., and the American depositary receipts of British American Tobacco Plc.[14]

In September 2012, Virtu acquired the exchange-traded fund (ETF) market maker assets of Nyenburgh Holding B.V., a high-frequency trader in European ETFs.[9]

IPO plans[edit]

Virtu Financial initially planned to go public in the first week of April 2014, then postponed its initial public offering by at least a week. At the time, prospective investors advised to wait and "let the storm pass", a reference to recent scrutiny concerning HFT practices. Later in April 2014, the company decided to further postpone the IPO without specifying a new date, making the timing of a potential public offering unknown.[3] In its IPO plans, Virtu sought a valuation of about $3 billion. The IPO had been reported to make Vincent Viola the first high-frequency trading billionaire.[15] While Virtu declined to comment, Reuters reported in November 2014 that sources say Virtu Financial hopes to go public in the spring of 2015.[4]

Trading activity[edit]

Virtu operates on more than 210 exchanges, markets and dark pools in 30 countries.[2] Some of these exchanges include NYSE Euronext, NASDAQ and the Chicago Mercantile Exchange. The company is a designated market maker on the NYSE and NYSE Amex. Virtu makes markets by providing quotations to buyers and sellers in more than 10,000 securities and other financial instruments.[2]

On August 28, 2014, Virtu Financial, along with London-based GSA Capital, executed the first trades on ParFX Prime, a foreign exchange trading platform. Unlike most exchanges and trading venues, ParFX's matching engine does not adhere to the principle of price-time priority. Instead, ParFX subjects all orders to random pauses of about 20 to 80 milliseconds, trying to provide a more level playing field.[16]

When filing for its IPO in March 2014, it was disclosed that during five years Virtu Financial made profit 1,277 out of 1,278 days, losing money just one day.[17]

Gregory Laughlin, astrophysicist and department chairman at the University of California, Santa Cruz, researched Virtu's trading activity.[18] In the debate about its near-perfect trading record,[17] Virtu said that it wins 51 percent or 52 percent of its trades, leading most people to figure the remainder are losses.[18] In his research, Laughlin showed that "the number of its trades that break even are about the same as its losses" which means the HFT firm's per-trade losing percentage is only 24 instead of 48, indicating Virtu assumes little market risk.[18]

Investigations[edit]

In April 2014, New York Attorney General Eric Schneiderman sent Virtu a letter seeking information on its HFT practices, asking about special arrangements with dark pools and exchanges, the company's trading strategies and whether Virtu practices latency arbitrage, a high-frequency activity considered to be front running.[19]

In July 2014, Reuters reported the Securities and Exchange Commission (SEC) was seeking information on ten HFT firms with broker-dealer licenses, including Virtu Financial, as part of an ongoing investigation into high-frequency trading strategies.[20] The SEC's probe focuses on abuse of order types and abusive trading like layering or spoofing, a tactic intended to create a false impression of liquidity to trick investors into buying or selling a stock at unfavorable prices.[20]

John McCrank of Reuters noted that scrutiny around high-frequency trading intensified after the release of Michael Lewis' best-selling book Flash Boys: A Wall Street Revolt in March 2014.[20]

References[edit]

  1. ^ "Company Overview of Virtu Financial, Inc.". investing.businessweek.com. Business Week. Retrieved 1 July 2014. 
  2. ^ a b c "Virtu Financial, Inc. S-1". www.sec.gov. SEC. 
  3. ^ a b Alden, William (April 17, 2014). "Virtu Financial Said to Shelve I.P.O. Plans". DealBook, published by The New York Times. Retrieved October 30, 2014. 
  4. ^ a b "Virtu aiming for spring 2015 IPO, say sources". Reuters Pe Hub. 14 November 2014. 
  5. ^ Man Vs. Machine: Seven Major Players in High-Frequency Trading. CNBC, September 13, 2010
  6. ^ Europe’s top 10 high-frequency kingmakers. Dow Jones Financial News, October 3, 2011
  7. ^ McCrank, John (4 June 2014). "Virtu CEO urges strict standards for electronic firms that are market makers". Reuters. Retrieved 1 July 2014. 
  8. ^ McCrank, John (November 4, 2014). "BATS appoints Chris Concannon as its new president". Reuters. Retrieved November 28, 2014. 
  9. ^ a b "Virtu Financial Acquires Amsterdam ETF Market Maker, Nyenburgh Holding B.V.". PR Newswire. 14 September 2012. Retrieved 1 July 2014. 
  10. ^ "Virtu Financial, LLC press release". IDA Ireland, Virtu Financial. 19 September 2013. Retrieved 1 July 2014. 
  11. ^ Two large US proprietary trading firms to merge. Financial Times, May 28, 2011
  12. ^ Alliance Healthcare, Virtu Financial Offer New Deals. Wall Street Journal, June 11, 2011
  13. ^ Silver Lake Backs Virtu/Madison Tyler Merger. Mergers and Acquisitions, June 1, 2011
  14. ^ Mehta, Nina (13 December 2011). "High-Frequency Firm Virtu Buys Cohen Capital’s Amex Unit". Business Week. Retrieved 1 July 2014. 
  15. ^ Hope, Bradley; Demos, Telis (March 11, 2014). "Virtu IPO Poised to Make a (Multi-) Billionaire of Vinnie Viola". MoneyBeat, published by The Wall Street Journal. Retrieved November 13, 2014. 
  16. ^ "Leading buy-side firms complete first trades on ParFX as Prime Service Goes Live". www.parfx.com. ParFX. 
  17. ^ a b Mamudi, Sam (4 June 2014). "Virtu Touting Near-Perfect Record of Profits Backfired, CEO Says". Bloomberg. Retrieved 1 July 2014. 
  18. ^ a b c Lash, Herbert (13 November 2014). "Astrophysicist sheds light on Virtu's high win-loss trading ratio". Reuters. 
  19. ^ Celarier, Michelle (April 18, 2014). "Schneiderman to probe Virtu’s HFT practices". New York Post. Retrieved November 1, 2014. 
  20. ^ a b c McCrank, John (July 17, 2014). "Exclusive: SEC targets 10 firms in high frequency trading probe - SEC document". Reuters. Retrieved November 13, 2014. 

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