Virtu Financial: The Frying Pan and the Fire View Larger Image “If you are not growing, you are dying.” – Tony Robbins On August 8, Virtu reported Q2 earnings and the stock (VIRT) fell 18%. Non-GAAP EPS came in lower than Street estimates. In addition to the costs of integrating the ITG acquisition, disappointing results in the market making segment were blamed on lower volatility and trading volumes. Now, here’s what you’re never going to hear from the company: The Frying Pan: Both the market making and execution businesses are under significant spread and fee pressure. If there isn’t an ongoing arms race for speed – which there still is – then there’s intense competition around execution costs. Payments for order flow continue to rise as a result. And, some are exiting the equities brokerage business… 2. The Fire: They claim to be diversified. They try to become more diversified. And yet, they remain grossly over-weighted to equities and ETFs. The increased balance sheet that resulted from the KCG acquisition has not been lightened up, now 2 years later, despite the difficult landscape… Maybe Virtu is trading, in part, with itself; moving positions from the former KCG broker dealer (now Virtu Americas, LLC) to the long-standing Virtu broker-dealer, Virtu Financial D, LLC. This would certainly explain the lack of balance sheet shrinkage. And, despite being designated as non-hedging income, net trading income (NTI) from futures trading produces a correlation of -0.87 with that of cash securities NTI (i.e. – equities). So, I guess this is non-non-hedging income. There is no options NTI to speak of, which is a long-term competitive disadvantage… Yes, low volatility and low trading volumes are culprits, but the company is never going to say that other players in the market – bigger, faster and smarter players – are eating their lunch, which has now likely been twice-cooked; sautéed in a pan and seared over an open fire… Support the Feed! Individual Subscription Options Note: Business credit cards and bank accounts can be used via our PayPal payment portal. Alphacution is in the intelligence business. For those of you who are eager to derive greater value from this work and apply that intelligence to your own business interests, Alphacution is offering unaffiliated individual subscription options priced at $275 per year or $25 per month, cancellable at any time. Both of these options include a rebate on purchases of deeper, more substantive reports and case studies. In other words, the entire value of an individual subscription paid up to the point of purchasing a single report will be deducted from the purchase of that report. (Rebates not to exceed the maximum value of an annual subscription.) Enterprise subscription packages for individuals affiliated with trading firms and custom content/service engagement options are available upon request at info@alphacution.com. Now, for those of you who don’t expect to take advantage of the offers outlined above but want to continue to enjoy the insights, intelligence and occassional entertainment that remain openly available on the Feed, I want to make this specific plea: Free doesn’t mean there are no costs. In fact, in this case, there have been extraordinary costs in the accumulation of experience and sight, meticulous curation and assembly of data, and creative visualization of and storytelling around our findings. So, if you value quality content – here or anywhere else – then you need to find a way to support that content at some level simply because you want it to continue to exist. Our post, In Support of Digital Content – which was adapted from other notable digital era content developers – makes a more expansive case for this perspective. Bottom line: Your efforts to support via one-time or recurring contributions will help guard against this content needing to move from the currently preferred audience-driven model (for its level of independence) to a sponsorship-driven model (which can be found on most other industry media outlets).