BearGator56
3 years ago
High-frequency trader Jump plans to execute trades for retail investors - WSJ
VIRT $26.15
Aug. 12, 2021 9:26 AM
By: Liz Kiesche, SA News Editor
One of the world's largest high-frequency trading firms is getting into the business of executing stock orders for individual investors, a sector that's become more attractive with the surge in meme-stock trading, the Wall Street Journal reports.
Executives at Jump Trading Group told the paper that the firm is establishing a retail wholesaler business. That would give online trading brokerages such as Robinhood Markets (NASDAQ:HOOD) and Charles Schwab's (NYSE:SCHW) TD Ameritrade another vendor to choose from. But it would also give Virtu Financial (NASDAQ:VIRT) another competitor.
Wholesalers usually get a small spread between the buying and selling price of stocks, oftentimes a fraction of a cent per share, the WSJ said. Most wholesalers are units of companies such as Virtu Financial and Citadel Securities trade millions of shares a day.
The firm told the WSJ it's still in the process of seeking regulatory approvals required to start the business. It made the decision to get into the wholesaling business several years ago, before the meme-stock mania, it said.
Still, the move comes at a time when the wider securities market structure, and especially payment for order flow processes, is attracting scrutiny from regulators. In June, SEC Chair Gary Gensler directed his staff to review stock market structure issues.
Doubledown22
9 years ago
Virtu Financial Inc., one of the world’s biggest high-frequency trading firms, is trying to break into China.
By Bradley Hope And Chelsey Dulaney
http://www.wsj.com/articles/virtu-financial-first-quarter-earnings-rise-nearly-49-1430903850
Updated May 6, 2015 12:40 p.m. ET
Chief Executive Officer Douglas Cifu told analysts Wednesday that Singapore’s state investment firm Temasek Holdings, which owns about 10% of Virtu, was providing the trading company with introductions to potential partners in the world’s most populous country. Virtu is also exploring the possibility of trading commodities and currencies in China, he said in an interview.
With a longtime aversion to foreign traders playing a bigger role in its markets, China has been seen by many in the proprietary trading world as a hitherto insurmountable challenge.
But China’s exchanges have cautiously been testing the waters for allowing greater involvement in trading from foreign firms. Several including the Shanghai Stock Exchange have run mock options trading experiments with several high-frequency trading firms over the past two years. Options trading hasn’t yet been approved by the China Securities Regulatory Commission, however.
Mr. Cifu said it was a big opportunity for Virtu. On some days, the Shanghai Commodities Exchange trades volume that is “within spitting distance” of the Chicago Mercantile Exchange, the biggest futures market in the world, Mr. Cifu said. “It’s a great marketplace in the abstract, but obviously there are a lot of devils in the details that you have to work out,” he said.
The pursuit of new markets—including China and India—comes as Virtu reported its best ever quarter since the firm’s founding in 2008.
Earnings rose 49% as it benefited from higher volumes and volatility during the first three months of the year. The company, which began trading on the Nasdaq Stock Market last month, had especially strong performances in its global commodities and currencies businesses.
Mr. Cifu said the firm was “consistently profitable” during the quarter, including when the Swiss franc surged after Switzerland’s central bank unexpectedly scrapped a cap on the franc’s exchange rate against the euro. Many market participants lost significant amounts of money that day.
Virtu makes markets—meaning it simultaneously offers to buy and sell securities in the hope of capturing a tiny spread between those prices—on more than 200 exchanges and other private venues around the world.
Earlier this year, T. Rowe Price Group started sending a small portion of its stock market orders to Virtu for execution, The Wall Street Journal reported last week. However, Mr. Cifu said the firm had no plans to expand into the execution business.
“We’ll see where it takes us,” he said of the pilot, which also involves agency brokerage Themis Trading LLC. “We’re very proud that a world-class investor would see fit to experiment with a firm like Virtu.”
Virtu’s reliance on ultrafast telecommunications networks and computer algorithms to do its trading has sparked criticism in the past year from some market participants and observers. T. Rowe Price is among the critics of the way the market structure can unfairly benefit such firms.
Its initial public offering was seen as an important test of how global investors view the controversy around high-speed, computerized trading. The offering priced last month at $19 a share, and Virtu’s stock closed Tuesday at $21.79.
For the quarter ended March 31, profit rose to $72.8 million from $48.9 million a year earlier. Total revenue rose 28% to $221.5 million.
In its global currencies business, net trading income more than doubled to $42.2 million, excluding certain items. Adjusted net trading income grew 15.5% in its global commodities business and 78.3% in its Asia-Pacific equities business.
Mr. Cifu said Virtu couldn’t expect the same volatility in future quarters. “The core strength of the firm is diversification” in asset classes, he said.
Write to Bradley Hope at bradley.hope@wsj.com and Chelsey Dulaney at Chelsey.Dulaney@wsj.com
DD22
Doubledown22
9 years ago
Here's the complete Seeking Alpha article on $VIRT (minus the pictures of charts etc..)that Congo Mining posted the link to in a couple of posts before this one.
Virtu Financial - A High Frequency Trading Company With A Clear Edge
Apr. 20, 2015 11:13 AM ET | 18 comments | About: Virtu Financial, Inc. (VIRT)
Disclosure: The author is long VIRT. (More...)
Summary
•Virtu is the only game in town when it come to High Frequency Trading - scarcity will be the tailwind for the stock price.
•The company's track record speaks of consistent growth and stability - trading income is up over 40% since 2011.
•Virtu's profits depend on the market volumes, meaning it will fare well in turbulent markets.
High Frequency Trading has been in the public eye since at least the Flash Crash of 2010 and the "Flash Boys" demonized the whole industry. One could argue that the HFT has made the markets more volatile and vulnarable as more and more volume is crammed into decreasing time frames. On the other hand, one could argue that the HFT industry provides a vital service of providing liquidity and thus bringing down spreads and overall costs for the other market participants.
Overview
Various estimates place HFT volumes somewhere between 50% and 80% of the total, depending on the market - lower in the Foreign Exchange and higher in the Futures and Equities.
Virtu Financial (NASDAQ:VIRT) made waves in the investment community with the revelation of its more than 1000-day long winning streak, having only one losing day over a 1238-day period in 2011 to 2013. What's more, even that was deemed to be statistically near impossible according to a mathematical study conducted by Greg Laughlin, a professor of astrophysics at the University of Santa Cruz.
Laughlin, in his calculations, relies on the fact that Virtu is profitable in 51%-52% of all trades according to Dough Cifu, the CEO of Virtu Financial. In addition, Laughlin estimated that during the observed period, Virtu made around 800,000 US Equity trades per day. Below is an excerpt from Laughlin's paper, which is a must read, where the odds of daily and weekly profitability are summed up neatly.
At Virtu's rate of equity trading, the model (taken at face value) indicates an effectively zero chance of having an unprofitable full day of trading. We can therefore conclude that Virtu's single reported losing day (out of Nd = 1,278 trading days from 2011-2014) resulted from either a technological or human-caused error.
Laughlign then goes on to point out a correlation between Virtu's past profitability and the market volumes. And as one would expect due to the nature of market making, the higher volume of the stock market is highly correlated with the company's returns.
The x-axis simultaneously represents the SPY volumes (100M shares) and Virtu's profit (Million/day). The conclusion to draw here is that the company thrives in the high volume environments - think earning seasons, unexpected news, turbulent markets.
In addition, the latest trends suggest that Virtu is aggressively moving into the FX market, reporting an increase from 14% in 2012 to 20% in 2013 in the prospectus - a market with 12% CAGR from 2004 to 2013 and daily volume of around $5.3 trillion. All this indicates an immense growth potential.
Unfortunately, the prospectus does not specify the margins for different markets, but we can assume they are in the same order of magnitude, because the FX segment growth from 2012 to 2013, left the operating margin stable at 52%.
Valuation
The company is up over 20% since the IPO, currently trading at $22.66 or 12.7x TTM P/E. Now, in my own opinion, the price has not shot sky high, because the markets remain uncertain on the fair value of the company due to its novelty in the investment landscape. It is hard to say what the fair P/E multiple for the company is because there are no other publicly-traded HFT firms out there for comparison. Yet, when considering the stability of the operating income and the future growth prospects in the high volume markets, the current stock price seems to offer a great entry point. Especially when considering that the company has managed to grow its trading income (up over 40% from 2011 to 2013) while the exchange volumes have been consistently trending down year over year, largely due to dark pools.
Source: TABB Group, MarketWatch
The risks
The Flash Crash of 2010 was a reality check for the market participants. Since then HFT has been associated with instability and is often identified as the cause of odd market moves that defy rationality.
The potential regulatory backlash remains the threat number one for Virtu's future. My personal opinion is that we first need to see a market event in at least the same magnitude as the Flash Crash of 2010 to see any regulatory push to curb the industry and even then it will take a lot of research on the part of the regulatory establishments to get to the roots of the problem and then design effective countermeasures, largely due to the ever more sophisticated algorithms devised by the brightest heads in the industry.
The takeaway
The takeaway here is that although the HFT may face regulatory hurdles in the future, it will take a huge event to get SEC on its feet. So far the evidence indicates that the HFT can exacerbate a selloff by drawing liquidity when it is the most needed, but so does every other market participant when an unexpected event drives them to chase the offer price in a panic.
Virtu is trading at extremely low valuation multiples based on its growth track record and the clear edge it possesses in its market making activities, leaving a lot of room for a multiple expansion in addition to the bottom line growth.
At this point in time, Virtu is the only available play to take a long position in the HFT industry and thus has the potential to be an extremely sought after company when investors have had some time to dig deeper into the algorithmic trading world.
I have not been so excited about a company in a long time and Virtu is definitely in the long camp. There, of course, is the chance that I might have missed some critical points in this article, so please comment below on what you think of Virtu's future growth potential and the HFT industry at large."
END OF ARTICLE
DD22
bustya666
9 years ago
How to beat HTF algos!
Taken from zerohedge.com
Now that the confusion and the initial smoke following the stunning CFTC/DOJ/FBI allegation that the entire Flash Crash was the result of just one high latency UK trader's actions has cleared, several critical things have emerged.
First: Nav Sarao not a typical massively funded, connected and lobby-protected High Frequency Trader, such as Citadel or Virtu, using countless algos across numerous fragmented markets to frontrun size order blocks, but an old-school "point and click" prop trader. This is how he described his trading style in a response to the UK regulator:
I am an old school point and click prop trader. To this day I am still using the mouse to trade. That is how I trade, that is how I always have traded, admittedly very very fast because I have always been good with reflexes and doing things quick. My trading is for the most part very short term and for very small profits, a large proportion of my profits are 1 price movements, which in the eminiSP's case would be a quarter of a tick. I have also take longer term positions In the past and my biggest day was actually made for the most part whilst I was sleeping!
I am a trader who changes his mind very very quickly, one second I am prepared to buy the limit of 2,000, the next second I may change my mind and get out. This is what is unique about my trading I trade very large but change my mind in a second. This is why MF Global had to speed up their systems for me, yes they have other hedge funds etc trading 2,000 lots, but they didn't have anyone buying 2,000 and getting out seconds later and then going short a thousand ! All this traded volume was something that MF Global's system was not prepared for and I remember at the start their system was too slow for me. And all this is done with the my hand and a mouse.
What makes me change my mind? Well it could be anything, a move in one of the other markets that I look at, a chart set up that I suddenly remember from my 11 years of trading, or simply the WAY I was filled made me doubt my position, or for the large part it is just my INTUITION.
And while nobody will ever accuse Sarao of being a fundamental trader, he worked on a time horizon that is infinitely longer than that of collocated algos: while HFTs deal in tiny oddlots on a constant basis (for fear of being actually hit or lifted thus never actually providing liquidity) Sarao held on to large lots of what in HFT terms is an eternity: seconds or longer.
My orders are 100% at risk, 100% of the time. If I want to trade 300 lots I clip 300 lots as one order, I do not trade 300 one lot trades (so that it counts as 300 orders) in order to fulfil the CME messaging policy like HFT's have to do in order to make up for their 95% of orders which are neither genuine or possibly not even tradeable. Certainly not for a guy like me who is trading from the UK and whose system is miles too slow compared to these people due to the fact my orders have to travel further than everyone else's who are trading In USA. No wonder they can manipulative (sic) on top of my orders without any risk, for even when I change my mind and decide to sell into my buy order, the manipulative orders on top of my initial buy order disappear in the 4 milliseconds It takes for my buy order to be cancelled and replaced with my sell order so that I do not trade with myself !!!!!
Second, as we first observed yesterday, the real reason Nav was picked as a scapegoat is because he threatened to expose the "mass manipulation of high frequency nerds." This was validated last night when Bloomberg reported that "the sleuth who pieced together Navinder Singh Sarao’s pattern of spoofing isn’t an FBI agent or regulator. He’s an academic whose research has taken the view that high-frequency trading is good for markets." Hence, Sarao is bad for the HFTs and should be "eliminated."
Today, we find precisely how and why Sarao was singled out: he not only exposed out the parasitic trading strategies of the real culprits behind the broken market, the massive HFT firms (such as Virtu which went public 24 hours before the Sarao charges were filed) which gave the "regulators" no choice: one of them had to be put away for good, but found a way to capitalize on the algos' stupidity, and actually make money by beating them at their own game.
As such, regulators and exchanges such as the CFTC and CME had no choice but arrest him and prevent him from trading ever again!
Here are the details from his May 29, 2014 email to a FSA regulator:
I don't like the HFT arena and have complained to the exchange numerous times about their manipulative practices, please BAN IT, Another good rule change would be to increase the maximum clip size of the market from 2,000 to 5,000 lots. This would make people more wary of putting fake orders up and down the market depth because they would be more at risk of getting hit. I have asked the exchange a few times for this, and this was then proposed, but unfortunately rejected by the other people questioned !!!!
I have traded using a basic TT for numerous years. Due to the tact that there were some individuals In the emini SP who quite remarkably seemed to know WHERE 100% OF MY ORDERS WERE RESTING, even If they were over 90% partially filled !!! and hence made a concentrated effort to manipulate around those orders so they would not get filled, I decided to pay Edge Financial to build a program for me that would help disguise my orders more effectively. Initially 1 was told that the reason these individuals knew where all my orders were was because traded so big and was as such 'the elephant in the room'. However, It is worth noting that further examination showed that their special manipulative activity occurred exactly the same if I did a 20 lot order or a 200 lot order.
In other words, precisely what we have claimed from day 1: HFTs do not provide any liquidity at all - they merely look for size orders and immediately seek to frontrun them, in the process actually soaking up market liquidity .
And while the world wonders how it is that Virtu can have 6 years of trading with just one trading day loss, Sarao not only figured out how to outmanipulate the manipulators, but how to profit from it.
Here is his explanation:
I asked Edge to design 3 more functions specifically to help try and hide my orders from these people. I do not know if this can be described as HFT, to me it is just giving me the ability to have some extra functions that my base trading software (TT) does not give me and it should be noted that I only use these functions intermittently and sometimes not at all. it is called Navtrader, but it could be called anything and I was the only one who helped design it, albeit my design ideas were 100% generated from what I had already seen other traders using already in the emini SP, Please note I believe I have only had this NavTrader since the beginning of 2013 at the very earliest.
I decided that the only way I could mask my orders, was to place them as the market changed price so that they may not be seen in the 'chaos' of a price change. So I would have my orders pending to be placed as the market went from bid to offer or offer to bid.
The 3 main functions are as follows:
JOIN : These are pending orders that will be joined anywhere requested along the order book and become active when the price changed. Remarkably, these orders were still subject to the insider trading I describe above, even when they are as small as a 50 lot!
SNAP : These are orders that are the same as JOIN but at the market best price so that they become traded almost immediately. I also have a function that lets you put in a minimum quantity so that the buy/sell SNAP order only becomes active when there is a minimum of that number of contracts on the offer/bid. This worked rather beautifully when the mass manipulator of the e-mini sp was doing his normal manipulative activity at price 1800,00 on Friday 24th January circa 12.23pm. The fake bids he had placed were being removed too quickly for me to hit If I had put a snap for 700 with 0 as minimum volume it would not have been filled because as soon the bid was more than 1 lot big the 700 would have been active. With my 699 then resting the normal forms of manipulation that occur on 100% of my orders EXCLUSIVELY would then have preceded to follow. So i put a 700 lot SNAP with a minimum volume of 6OO, et voila I got my full 70.
Doubledown22
9 years ago
Virtu Financial's Stock Market Revolution Spells Big Payoff
Apr. 14, 2015 1:31 PM ET | About: Virtu Financial (VIRT)
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
http://seekingalpha.com/article/3069676-virtu-financials-stock-market-revolution-spells-big-payoff
Summary
•Virtu Financial is a high-speed trading company that operates as a market-maker between bid and ask prices.
•The company has been extremely profitable over the past 5 years, recording only one day of trading losses.
•The current IPO price presents a favorable valuation to investors.
•The company is well positioned for future long-term growth.
•Significant risks could be highly detrimental to the company's profitability and operations.
Overview
The week of April 13 is shaping up to be a busy one for initial public offerings. Notable companies like Virtu Financial (Pending:VIRT), Etsy (Pending:ETSY), and Party City (Pending:PRTY) all plan to make their IPOs. Currently, eight companies plan to list, which could raise funds in excess of $1.1 billion given current filing information. One of the most publicized will be Virtu Financial, a high-speed, high-profit, electronic trading market maker. The publicity will be the result of much controversy. In 2014, the company announced that it had only posted one day of loses in the past five years, which, in light of Michael Lewis's book "Flash Boys," the company was criticized for unfair advantages in high-speed trading. The company actually postponed its initial attempt at an IPO until the controversy settled. Virtu is destined for a large IPO pop, and individual investors should wait until the valuation stabilizes.
Valuation
Given current pricing, the company could be valued as high as $2.6 billion given all four classes of common stock at a price of $19 per share. Only 30 million shares will have economic rights at issuance, assuming voting rights-only Class C and Class D shares are not converted. The following schedule lays out the pro forma income statement for the publicly traded corporation:
Source: Virtu S-1
The resulting company would have produced $0.81 in earnings per share. The resulting price-to-earnings ratio would be 23.5. This is in line with current comparable peers of similar size and growth trends.
The S-1 also lays out a dividend policy to pay 70-100% of earnings as quarterly dividends. The first dividend of $0.24 is slated for September 30, 2015. At $0.81 EPS, the dividend yield would be 4.2% at $19 share price. An annualized dividend of $0.24 for four quarters, or $0.96, would yield 5.1%. Virtu is well underpriced using the peer group yield. In order to yield the same dividend rate as the peer group, the stock would have to be priced just over $73 a share.
Growth
For fiscal-year 2014, Virtu posted almost 9% revenue growth year over year. Most of the growth came from net trading income from a diverse set of markets.
Source: Virtu S-1
One of Virtu's keys to future growth will not only be reaching new markets, but more importantly expanding depth across a large variety of markets.
Source: Virtu S-1
Increasing exposure and utilization in already existing markets can offer significant future growth prospects, especially as emerging markets mature.
Too good to be true?
When Virtu announced that it had only posted one day of trading losses since 2009, it expected a positive response to exceptional performance. The response was more tempered and critical of the ethics behind its high-speed trading model. Regardless, if you agree or disagree with the platform, investors should still be critical of future results.
Source: Virtu S-1
The company makes its profit by matching buy and sell orders at high speeds and profiting the spread between the orders. These proceeds create two key risks. At anytime the company can be holding a ton of assets as it is self-clearing or dependent upon clearing houses to meet its obligations. Any disruption or abrupt fault in a market could be disastrous. The second risk revolves around rules and regulations behind high-speed trading. Virtu stands to be harmed if this competitive advantage is regulated in any market it currently operates in.
Summary
Virtu looks like a great investment given the current valuation and yield, historic trading performance, and future growth outlooks. A steady 5% yield coupled with potential for almost double-digit annual growth is always very attractive. However, the risk of eminent doom exists. In a flash, the company could suffer dramatic loses or its business model could be ruled completely useless. I fear most investors will undervalue these risks and drive Virtu's trading price up following the IPO. However, if Wall Street uses more caution, individual investors might be able to pick up a good value.
DD22
Doubledown22
9 years ago
High-Frequency Trading Firm Virtu Financial Is Going Public
By Owen Davis?@of_davis?o.davis@ibtimes.comon April 06 2015 9:20 AM EDT
http://www.ibtimes.com/high-frequency-trading-firm-virtu-financial-going-public-1870438
Virtu Financial, one of the leading high-frequency trading firms in the country, is seeking to go public with an initial stock offering that values the company at $3.6 billion, according to regulatory filings.
The New York-based company, which once claimed to have lost money on only one day over three years, will offer 16.5 million shares at prices ranging between $17 and $19 a share, to raise up to $361 million. Another 2.5 million shares will be available to underwriters.
Virtu first attempted to go public last year, plans the company shelved after the publication of Michael Lewis' bestselling book "Flash Boys" exposed the world of high-frequency trading to withering criticism. It would be the first major high-frequency trading firm to sell stock on a major exchange.
Virtu, founded in 2008, is known as a market-maker, using high-powered software to simultaneously buy and sell stocks, bonds and more than 11,000 other assets over 225 exchanges. The firm's algorithms derive profits from negotiating miniscule pricing differences over millions of trades, known as spreads.
The Securities and Exchange Commission filing lists the company's 2014 revenue at $723 million, up from $664 million the year before.
The company will reportedly set its IPO for mid-April, with major underwriters including Goldman Sachs and JPMorgan. Virtu plans to be listed on the NASDAQ Stock Market under the symbol VIRT.
Doubledown22
10 years ago
Trading firm Virtu Financial plans to raise up to $100 million in IPO
NEW YORK Mon Mar 10, 2014 8:33pm EDT
http://www.reuters.com/article/2014/03/11/us-virtufinancial-ipo-idUSBREA2A01G20140311
Traders of Virtu Finalcial work at a newly renovated section of trading stations on the floor of the New York Stock Exchange, November 13, 2012.
Credit: Reuters/Chip East
Related Topics
(Reuters) - Trading firm Virtu Financial Inc, which posted only one day of trading losses over the five years ended 2013, plans to raise up to $100 million in an initial public offering, the company said in a regulatory filing on Monday.
Virtu said the IPO price was an estimate solely for the purpose of calculating the registration fee with the Securities and Exchange Commission.
The company, a market maker in equities, fixed income, currencies and commodities markets, intends to list Class A shares on Nasdaq under the symbol "VIRT." Virtu will have three other share classes.
Goldman Sachs & Co., J.P. Morgan, Sandler O'Neill + Partners LP are the underwriters for the offering, among others.
Vincent Viola, Virtu's founder and executive chairman, will control more than a majority of the combined voting power of the company's common stock after the offering.
Private equity firm Silver Lake Partners, which acquired its stake in 2011, is the other major shareholder.
Last year the company paid out $433.4 million in cash distributions to members.
Virtu said as a result of its real-time risk management strategy and technology, the company had only one losing day of trading from the beginning of 2009 through the end of 2013, a total of 1,238 trading days.
Virtu reported a net income of $182.2 million on a revenue of $623.7 million last year, an increase from earnings of $87.6 million on $581.5 million in revenue in 2012.
Virtu employs a "market neutral" strategy in which it is not dependent on the direction of any particular market. The firm aims to lock in returns through "precise and nearly instantaneous hedging," the company said.
Virtu said it expected global electronic trading to continue to grow, after experiencing a compound annual rate of 13.7 percent over the past decade, according to the World Federation of Exchanges.
(Reporting by Herbert Lash; Editing by Subhranshu Sahu)
EOM
DD22
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