Virtu Is Letting Outsiders Use Its High-Powered Systems

  • Virtu's technology traded for T. Rowe Price as an experiment
  • Represents a departure from Virtu's market-making roots

Virtu Financial Inc. will offer to trade on behalf of a handful of investors in the second quarter of this year, giving the asset managers access to the high-frequency firm’s powerful trading computers.

The company, one of the biggest market makers in the world, has already tested its service with T. Rowe Price Group Inc., according to Virtu Chief Executive Officer Doug Cifu. Virtu will not act as a counterparty for the transactions. Instead, it will seek to execute the trades on an agency basis.

“If there’s an opportunity to use the assets that we have to generate incremental revenue, I’m going to do that,” Cifu said in a conference call on Thursday. “We’re not going to add any employees. We’re not going to add additional infrastructure.”

The new service allows Virtu to expand beyond its original market-making business of using electronic strategies to buy and sell stocks and other financial instruments. The revenue of market makers ebbs and flows with volumes on exchanges. The New York-based firm had 148 employees at the end of last year and made $10.6 million in revenue from technology services in 2015.

Virtu announced the initiative as it released fourth-quarter results that showed a drop in trading profit, driving its shares down as much as 10 percent.

“There was a general softness and lack of volume and volatility in the fourth quarter,” Cifu said. “I’m encouraged by what we’re seeing in January.”

Overall trading income fell 18 percent to $107 million in the last three months of 2015 from a year earlier, according to the statement on Thursday. Currency-trading profit dropped 48 percent to $20.3 million, while earnings from fixed income and options declined 51 percent to $7.1 million. For the entire year, Virtu’s trading income rose 15 percent to $501 million.

The company hired Stephen Cavoli, previously of Morgan Stanley’s electronic trading group, last year. Cavoli helped convince Cifu that the market maker could offer its trading technology to a “select few” investors.

T. Rowe Price said the service was “very positively received,” according to Rich Repetto, an exchange and brokerage analyst at Sandler O’Neill & Partners LP, who was on the conference call. The money manager oversees $763 billion.

Virtu set aside $5.4 million for legal costs related to a fine from France’s regulator for alleged market manipulation in 2009. The company plans to appeal and has yet to pay the fine, Cifu said.

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