High-Speed Trader Virtu Finds New Home for its Algorithms

High-speed trading firm Virtu Financial Inc. has found a new venue for its algorithms: a U.K.-based futures exchange that seeks to alleviate the pain caused by increased trading costs for some of the most popular derivatives.

Virtu will join Global Markets Exchange Group International LLP’s new market when it launches in April, according to a joint statement today. The high-frequency trading firm will help the fledging platform by contributing bids and offers for futures that mimic interest-rate swaps.

GMEX is pitching these futures as an alternative to the $421 trillion interest-rate swaps business, where banks and their customers have faced increased trading costs as a result of regulations passed in the wake of the 2008 financial crisis. Substituting futures for rate swaps is a strategy that has so far failed to gain traction in the U.S. If GMEX and other exchanges are successful, market makers including Virtu would supplant the dealers who facilitated transactions in the swaps market.

“The market is and will move to a futurized version of many of these products because it makes too much sense,” Doug Cifu, chief executive officer at Virtu, said in a phone interview. “Changes in business practices and the way people manage risk doesn’t happen overnight, but this is the continual evolution of markets.”

Virtu’s main business is market making, using its software to offer to buy and sell stocks and other assets. The New York-based firm executes between 2.5 million and 3.5 million trades every day across all asset classes. Some 51 percent to 52 percent of those trades are profitable, Cifu said.

American investors have been slow to adopt swap futures. At CME Group Inc.’s Chicago Board of Trade, there are only 51,636 active contracts for 10-year U.S. interest-rate swap futures, compared with 10.7 million for euro-dollar contracts, according to data compiled by Bloomberg.

Intercontinental Exchange Inc. and Eurex are also competing to win a share of the nascent market for interest-rate swap futures with their own products. Eurex is owned by Deutsche Boerse AG, which also has a stake in GMEX.

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