Look at Virtu's purchase of KCG and what they made on the specialist business last quarter. They break it out. I think that was the last big specialist to change hands.
Almost all market makers these days are algorithms. In liquid markets they take fractions of pennies from each order. If you ever fill an order through Interactive broker smart router, you will notice you bought/sold an asset at $3.4574. In illiquid markets, market makers expand the bid and ask spread to give them a cushion. For example if you buy an option on a small cap you will notice the spreads are $1 wide on a $10 stock. Fair value is somewhere in between the bid and ask and they charge a premium to trade with them (margin of safety). Do this enough times to spread your risk and you will make lots of money. However millions and milllions are required to spread your risk out sufficiently.
Virtu Financial, Inc. Completes Acquisition of KCG Holdings, Inc. Jul 20, 2017 NEW YORK, July 20, 2017 (GLOBE NEWSWIRE) -- Virtu Financial, Inc. (NASDAQ:VIRT) today said it completed its acquisition of KCG Holdings, Inc. (NYSE:KCG) on Thursday, July 20, in a cash transaction valued at $20.00 per KCG share, or a total of approximately $1.4 billion. “The leadership of both firms have worked tirelessly to develop a seamless integration plan to apply Virtu’s leading edge technology, risk management and rigorous cost discipline to KCG’s tremendous client franchises. We are excited to combine two exceptionally talented workforces to execute and deliver on this plan,” said Douglas Cifu, Virtu Financial Inc. Chief Executive Officer. As previously announced, Mr. Cifu will continue to serve as Virtu’s Chief Executive Officer and Joseph Molluso will continue to serve as Virtu’s Chief Financial Officer. As of the close of the transaction, Virtu’s board of directors has been expanded to include two additional board members. Bob Greifeld, formerly the CEO of NASDAQ, has been appointed Chairman and will serve on the board’s newly formed Strategy Committee along with fellow new appointee Glenn Hutchins, co-founder of Silver Lake Partners. Founder and outgoing Chairman, Vincent Viola, will continue to serve on Virtu’s board of directors and Nominating and Corporate Governance Committee, and will also serve as Founder and Chairman Emeritus and on Virtu’s new Strategy Committee. About Virtu Financial, Inc. Virtu is a leading technology-enabled market maker and liquidity provider to the global financial markets. We stand ready, at any time, to buy or sell a broad range of securities and other financial instruments, and we generate revenue by buying and selling securities and other financial instruments and earning small amounts of money on individual transactions based on the difference between what buyers are willing to pay and what sellers are willing to accept, which we refer to as “bid/ask spreads,” across a large volume of transactions. We make markets by providing quotations to buyers and sellers in more than 19,000 securities and other financial instruments on more than 235 unique exchanges, markets and liquidity pools in 36 countries around the world. We believe that our broad diversification, in combination with our proprietary technology platform and low-cost structure, enables us to facilitate risk transfer between global capital markets participants by supplying liquidity and competitive pricing while at the same time earning attractive margins and returns. www.virtu.com Forward-Looking Statements Statements made in this release, which are not historical facts, including statements about Virtu’s plans, projected financial results and liquidity, strategies, focus, beliefs and expectations, are forward-looking and subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements speak only as of the date they are made and, except for Virtu’s ongoing obligations under the U.S. federal securities laws, Virtu undertakes no obligation to publicly update any forward-looking statement, whether to reflect actual results of operations; changes in financial condition; changes in expectation of results of operations and liquidity; changes in general U.S. or international economic or industry conditions; changes in estimates, expectations or assumptions; or other circumstances, conditions, developments or events arising after this release. Such forward-looking statements include, without limitation, Virtu’s beliefs, expectations, guidance, focus and/or plans regarding future events. Actual results may differ materially from such forward-looking statements for a number of reasons, including as a result of the risks described and other items in Virtu’s filings with the SEC, including Virtu’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the SEC during 2017. Additional important factors that could cause actual results to differ materially from those indicated by forward-looking statements include risks and uncertainties relating to: the parties being unable to successfully implement integration strategies or realize the anticipated benefits of the acquisition, including the possibility that the expected synergies and cost reductions from the acquisition will not be realized or will not be realized within the expected time period. Factors other than those referred to above could also cause Virtu’s results to differ materially from expected results. Additionally, the business and financial materials and any other statement or disclosure on, or made available through, Virtu’s websites or other websites referenced herein shall not be incorporated by reference into this release.
KCG sold after a "fat finger" mistake. I think Virtu made almost all of the acquisition cost back in the first quarter. Not their other businesses - just the specialist unit. Great volatility and huge volumes helped.
Why do you think that? Virtu's NTI profit went from $2.7M to $3.6M, per day, with that acquisition in December quarter(https://www.barrons.com/articles/this-crazy-market-is-great-for-virtu-financial-1518121397). Say 250 trading days is $225M more in NTI, so that acquisition won't pay for itself for years. Say 1st quarter was so awesome it doubled on volatility that is only another $56M even if tripled is $112M. Virtu's total revenue was less than $600M, last year. Virtu has EPS of $1.5 in 18' and $1.8 in 19'. If you look at slide 13 of their financials you'll see that after spending hundreds of millions on expenses that was whittled down to $47M in net income after taxes in Q4 or .22EPS.
HFT is absolutely down, but you'll see they paid a billion of the loan down in the first quarter. I think there purchase of the specialist is a bet that HFT's days are numbered. Last quarter of 17 was quiet. Nothing like 18. Somewhat shocked how little HFT made in 17.
MM make money on the bid-ask spread basically. They buy on the bid and sell on the offer. It's an obligation for them to provide liquidity on the names they are assigned. Plus, their positions are netted at OCC (talking options here of course). Before the penny pilot program, they were making much money than today.
Virtu also did a lot of cost cutting at kcg. I thought the fat finger for knight happend in 2012 and kcg sold 80percent to leucidia (holding co for Jefferies).
When I read this (fat fingers), my mind went to this story about a thread of code... A man appears to have deleted his entire company with one mistaken piece of code. By accidentally telling his computer to delete everything in his servers, hosting provider Marco Marsala has seemingly removed all trace of his company and the websites that he looks after for his customers. Mr Marsala wrote on a forum for server experts called Server Fault that he was now stuck after having accidentally run destructive code on his own computers, in a post that he has since claimed was a joke but reflected a real experience with a client. But far from advising them how to fix it, most experts informed him that he had just accidentally deleted the data of his company and its clients, and in so doing had probably destroyed his entire company with just one line of code. The problem command was "rm -rf": a basic piece of code that will delete everything it is told to. The “rm” tells the computer to remove; the r deletes everything within a given directory; and the f stands for “force”, telling the computer to ignore the usual warnings that come when deleting files.
What is a bit moronic is forgetting some basic tenets. First, you always back-up everything on a grandfather cycle. Day, week, month, year rotation. Second, you never EVER type "format c:" without confirmations. DUH!