Virtu Financial, Inc. Q3 FY2024 earnings call

• Strong performance in customer and noncustomer market making businesses, with Asia and U.S. equity segments showing particular strength.
• Progress in growth initiatives: Solid performance in crypto options and ETF block; Virtu Execution Services was flat QoQ but considered solid given muted institutional volumes.
• Investment in Virtu Technology Solutions, a trading and data analytics infrastructure offering for broker-dealers.
• Focus on expanding reach in underpenetrated regions like Middle East, India, and Japan, and new client segments.
• Growth in options business, including U.S. cash equity options and global expansion; strong performance in ETF block with new clients and broader distribution.
• Crypto market making pace with spot Bitcoin and Ethereum ETFs, and upcoming U.S. options on crypto ETFs.

For the quarter ended September 30, 2024, Virtu's adjusted net trading income (ANTI) totaled $388 million, or $6.1 million per day. Market Making adjusted net trading income was $288 million (or $4.5 million per day), representing approximately 74% of total ANTI. Execution Services adjusted net trading income was $100 million (or $1.6 million per day), representing approximately 26% of total ANTI. The company's businesses performed well against global volatility and volume metrics, with strong performance in customer and noncustomer market making, and progress in growth initiatives like crypto options and ETF block.

• The company repurchased 1.7 million shares at an average price of $20.80 per share in the third quarter, with buybacks on target to fit within the publicly set range.
• Cash operating expenses are expected to remain within recent historical ranges, with low single-digit overall increases in non-compensation expense anticipated.
• Cash compensation ratio is expected to remain within historical marks.

• Section 31 fees are lumpy and change twice a year, impacting adjusted net trading P&L.
• Potential negative impact of regulatory proposals like Reg NMS on institutional clients' liquidity and transaction costs.
• OCC intraday margin rule for zero DTE options, though management thinks it is manageable as it is seen as a timing difference rather than a capital difference.

Q: Ken Worthington from JPMorgan asked about brokers offering retail investors access to options and futures and brokerage costs.

A: Douglas Cifu responded that it's an exciting opportunity complementary to existing business, and Section 31 fees are lumpy with transaction taxes and some cash fees starting in September.

Q: Craig Siegenthaler from Bank of America asked about organic growth businesses and sequential decline in ANTI.

A: Douglas Cifu explained the decline was driven by drop in Bitcoin ETF ADV and decrease in spread opportunity in index options.

Q: Chris Allen from Citi asked about options progress and international vs U.S. opportunity.

A: Douglas Cifu discussed investments in U.S. options market and opportunities in international markets like Asia.

Q: Patrick Moley from Piper Sandler asked about OCC intraday margin rule.

A: Douglas Cifu and Joseph Molluso stated it's manageable as it's a timing difference and they clear through a third party.

Q: Dan Fannon from Jefferies asked about buyback and expenses.

A: Joseph Molluso said buybacks are a value creation exercise and expenses are managed within historical ranges with consistent guidance.