VIRT - NASDAQ

Good day, all, and thank you for joining the Virtu Financial 2022 First Quarter Results Call. My name is Louisa and I’ll be operating your call today. [Operator Instructions] I now have the pleasure of handing over to your host today, Andrew Smith, Head of Investor Relations. Andrew, please go ahead.

Thank you, Louisa, and good morning, everyone. Thanks for joining us. Our first quarter results were released this morning and are available on our website. On this morning’s call, we have Mr. Douglas Cifu, our Chief Executive Officer; Mr. Joseph Molluso, our Co-President and Co-Chief Operating Officer; and Mr. Sean Galvin, our Chief Financial Officer. They will begin with prepared remarks and then take your questions. First, a few reminders. Today’s call may include forward-looking statements, which represent Virtu’s current belief regarding future events and are, therefore, subject to risks, assumptions and uncertainties, which may be outside the company’s control. Please note that our actual results and financial condition may differ materially from what is indicated in those forward-looking statements. It is important to note that any forward-looking statements made on this call are based on information presently available to the company and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press releases and encourage you to review the description of risk factors contained in our annual report and Form 10-K and other public filings. During today’s call, in addition to GAAP results, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA and adjusted EBITDA margin. These non-GAAP measures should be considered as supplemental to and not superior to financial measures prepared in accordance with GAAP. We direct listeners to consult the Investor portion of our website where you’ll find supplemental information referred to on this call as well as a reconciliation of non-GAAP measures to the equivalent GAAP terms in the earnings materials with an explanation of why we deem this information to be meaningful as well as how management uses these measures. And with that, I’d like to turn the call over to Doug.

Good morning and thank you, Andrew. This morning we reported our first quarter results, which reflect a 7% quarter-over-quarter increase in adjusted net trading income to $8.1 million per day and adjusted EPS of $1.27. These results capped another strong quarter for Virtu. I’m pleased with our results for this quarter and I’m particularly pleased with the continued success of our growth initiatives and our global efforts to improve firmwide internalization. Our Market Making business produced $6.2 million per day in the quarter, 6% more than we achieved in the fourth quarter. Our diversified business saw strong performance overall and, in particular, in our noncustomer Market Making businesses. We saw particularly strong results from Asia and ETF Market Making as well as our commodities Market Making where we were able to capitalize on continued volatility in crude and other commodity products. Firmwide, our strong performance was driven by several factors, including most significantly, the continued progress we have made on our efforts to improve internalization, which optimizes how we manage opportunity and net positions across the firm. The better we internalize, the less spread we pay away to the Street and the more we can save on brokerage, exchange and clearance fees. Our global multi-asset footprint and our collaborative culture means Virtu is uniquely positioned to achieve higher levels of inter and intra asset internalization. As we discussed on our prior calls, we believe the benefits of these ongoing enhancements will continue to bear fruit for the foreseeable future and will continue to grow as we expand to new asset classes and geographies. Our Execution Services segment also performed well in the first quarter where performance was driven by our workflow products, particularly our AMS Triton Valor. I’m really proud of the work this team has accomplished since the acquisition of ITG. As a reminder, we focused on 2 principal objectives in our Execution Services business. First was to streamline our offering by moving clients to our new global enterprise technology, Triton Valor. And second, to focus on delivering more value to clients by building new features, which helps them scale and reduce operational risk. This quarter we’ve begun seeing results from these efforts. To date on the Triton side, we’ve migrated well over 90% of our clients to the new technology and with respect to enhancements, we’ve seen good uptick in the use of automation where traders were able to routinize busy work in a safe controlled manner. Our Capital Markets ATM business was also a meaningful contributor to our organic growth this quarter and we are optimistic for its continued expansion. We’ve added more seasoned professionals to the ATM team and we are excited for the pipeline of new business to materialize. As I mentioned on prior calls, Virtu’s unique combination of Market Making and Execution Services allows us to provide liquidity and size and scope unlike any other ATM provider. We continued to see impressive progress in our business this quarter as our stated organic growth initiatives grew to 10% of our adjusted net trading income or $821,000 per day. Within these initiatives, our growing options business delivered another solid quarter of growth on the back of expanded simple venue coverage as well as new technology deployment as we increase our footprint globally. Growing our options capabilities remains a top priority and we are investing significant resources to become a wholesaler in options to service our retail partners. As we have mentioned on prior calls, we set out a couple of years ago to build an options franchise from scratch by leveraging our infrastructure, technology and market structure expertise. Additionally, we did this in part to ultimately leverage one of Virtu’s most important and unique strategic assets, the connectivity and relationship that exists between Virtu and the nearly 250 retail brokers in the U.S. and abroad. We decided to focus initially on the handful of products that compromise a great proportion of the volumes in options. This allowed us to develop and sharpen our pricing capabilities in hypercompetitive environment. 2021 was an important year for us as we allocated resources and built and expanded the infrastructure and risk management systems required, we began trading options in Asia and expanded on our simple coverage past the initial index products to single name instruments and grew the team to fill gaps in our capabilities and accelerate our growth. In 2022 we will continue to build out this framework, expand the product set and add to our core group of talented traders and developers. Our crypto Market Making continues to progress as well as we allocate more traders and technologies to expand our activities across major venues. We now trade over 100 crypto products across the United States, Canada, Europe and Asia, including the ETFs. We continue to support the launch of the U.S.-based spot Bitcoin ETF for crypto and are working with issuers to be ready to support these funds at launch. Looking at the macro environment. Most measures of volatility were up versus the fourth quarter although some broader market indices like the Russell 2000 saw significantly reduced volatility. That said, retail participation as a percentage of overall volumes was down with market-wide Rule 605 volumes down 15% to 20% from the fourth quarter although as you will see in our supplemental materials, the share volumes for retail remained strong at over 2x what they were in 2018 and 2019. To us, this indicates the long-term resilience of a retail investor has a significant presence in the market. The outbreak of war in Europe was impactful from a volatility as well as of course a humanitarian standpoint. We continue to see disruption in the macroeconomy from record inflation as well as the continued emergence from the global pandemic and issues around supply chain and other economic disruptions. Our efforts to expand our footprint by entering new markets and products combined with our continued enhancements to our core businesses compounds the sustained growth potential for Virtu from secular and macro tailwinds. Virtu remains committed to disciplined expense management and scaled operations means that our success is not tied to a single trend or type of macro environment. We are well positioned to success in any environment as we seek -- as we endeavor to continually raise our baseline performance across the gamut of macroeconomic environments. Turning to some of the more recent amendments from the SEC and the impact on our industry. We have been vocal and consistent in calling for a fact and data-driven reform where warranted. We believe a data-led approach is consistent with the SEC’s mission and practice. In recent weeks, we have joined with the entire industry in challenging the SEC’s proposed amendments to various rules including REG ATFs, rules regarding share repurchase and 10b5-1 among others. While not all of these rules proposals will have an impact on Virtu, we feel it’s imperative that the SEC follow established proper processes for responsible rule making to ensure proposals today and in the future are good for the market. As you can see in our published comment letters, these proposals are clearly rushed, ill-advised and statutorily impermissible because they do not follow the prescribed guidelines for rule making under the Administrative Procedures Act. That the SEC won’t consult with the industry in good faith and propose sensible reforms is disappointing, but sadly not unexpected. On the other hand, we applaud the CFTC and its Chairman who have taken the exact opposite approach. We remain in continuous dialogue with clients, lawmakers, regulators and key industry stakeholders regarding market structure policies that provide investors with more information in investment choices and they make our markets more accessible and more transparent for investors. Finally, as I look back on the past 2 years, I would note that we have entered a new phase of post-acquisition integration Virtu where the benefits of our global business have become evident as the significant cash flows that our business generates are available to return capital to our shareholders. To that end, since the inception of our share repurchase program in late 2020, Virtu has repurchased $732 million of our shares at an average price of about $29. This represents 9% of our company net of normal course new share issuances for compensation purposes. I refer you all to Page 8 of our supplemental materials. We clearly lay out the earnings power of the new post-acquisition Virtu and our use of excess capital for the foreseeable future. We believe this presents a clear compelling investment story. Now I will turn it over to Joe and Sean, who will provide more detail on the quarter before taking your questions. Joe?

Thanks, Doug. Sean and I will be brief before we get to Q&A. We thought it would be a good time to review some of the measures we began to take in our communications with investors around clarity of expectations for Virtu, drivers of growth and what we believe was and continues to be a significant opportunity to create value for our shareholders by repurchasing our shares at these levels. If you look at Slide 8 in our supplemental materials, you can see a snapshot of our expectations across a range of outcomes. I would note that we have met or exceeded the guidance provided. We began presenting this information in significant detail in the middle of 2020. Revisiting it today allows us to provide an update as well as to reiterate some of the core principles. First, volatility is one of the largest drivers of our business and so investors should expect our results to be variable. However, we believe given the initiatives around growth, the reduction of variability in our expense base and the consistent application of excess cash to share repurchases; we have more clarity and confidence around the growing baseline of our anticipated results. Second, in addition to the growth we have demonstrated in new initiatives and expansion of our core businesses, we believe we are well positioned to benefit from favorable tailwinds as the global economy anticipates and reacts to an inflationary period with contemplated interest rate increases as well as continued elevated historical levels of retail activity. Third, we have made good on our promise to manage our capital structure and we believe this has created value for our shareholders. Early this quarter, we refinanced our long-term debt and now have $1.8 billion of term loan outstanding. Our leverage level we believe is acceptable at any outcome on this page, which allows us to buy back our shares at what we believe are attractive long-term values. Given our successful acquisitions in the past, we are often asked about the potential for more acquisitions. The hurdle for an M&A opportunity continues to be very high given the number and size of opportunities already on the table with options, crypto, ETF block, fixed income and ATM. Of course we explore any opportunities. However, at the present time, we do not see any investment that competes with repurchasing Virtu shares and anticipate that this will not change going forward. Combined with our growth initiatives and enhancements to our core businesses, our continued buyback should help elevate Virtu’s base earnings power regardless of the environment. And now I’ll turn it over to Sean for some brief comments before Q&A.

Thank you, Joe. In the first quarter as presented on Slide 3 of our supplemental materials, our adjusted net trading income, which represents our trading gains net of direct trading expenses, totaled $505 million or $8.1 million per day, which is 7% higher than the fourth quarter of 2021. Market Making adjusted net trading income was $382 million or $6.2 million per day, 6% higher than the fourth quarter of 2021. Execution Services adjusted net trading income was $123 million or just about $2 million per day, which is a 12% increase from the fourth quarter of 2021. Our adjusted EPS was $1.27 for the first quarter, 7% higher than the fourth quarter of 2021. Adjusted EBITDA was $344 million for Q1, up 5% from $328 million in the fourth quarter. Our adjusted EBITDA margin was 68% for the first quarter, which is the same margin that we reported for the fourth quarter and full year 2021 and continues to be reflective of our efficient cost structure and disciplined expense management. For the fourth quarter, our overall compensation expense was $103 million and our cash and overall compensation ratios were 17% and 20% of adjusted net trading income, respectively. As I’ve previously said about our compensation ratios, consistent with past practice we accrued year-end compensation to a range of percentages earlier in the year. Depending upon how the remainder of the year unfolds, this may result in adjustments to our compensation ratio later in the quarters as we refine our specific compensation dollar targets. Looking forward to the remainder of 2022, we do not expect a significant fluctuation in our cash compensation expense from historical levels. However, I do want to note that compensation will vary based upon the overall performance as well as the number of employees. We believe that we have reached a relatively steady state with the balance of our operating expenses, which are outlined on Slide 9 of our presentation. As such, we expect our communication and data processing, operations and administrative and depreciation and amortization expenses for 2022 to remain in line with 2021 actual amounts. As Joe mentioned, in January we successfully refinanced the $1.6 billion of long-term debt that was outstanding at year-end and upsized that to $1.8 billion. As a result, we expect that our annual interest expense will increase proportionately to approximately $83 million per year as outlined on Slide 9 of our supplemental materials. Our capitalization remains adequate. We remain committed to our $0.24 quarterly dividend, which is -- which we have consistently paid over 25 quarters in every environment since our IPO and our approximately $287 million share repurchase in the first quarter demonstrates our continued commitment to return capital to our shareholders. We’ll now turn the call back to our operator for Q&A.

Thank you, team, for your presentation. [Operator Instructions] Our first telephone question today comes from Richard Repetto of Piper Sandler.

So the buyback, pretty impressive $287 million in the quarter and I guess there was some -- it appeared there was opportunistic block repurchases from GIC. But going forward, I guess, should we go back, Joe, I guess to the table on Page 8? In other words, are we going to deduct the excess buyback in 1Q from future how we calculate buybacks going forward? If you average $100 million a quarter roughly at this NTI, would you actually -- are we $287 million through that? Are we going to count all the GIC buybacks in there?

Rich, I get your question. I would say going forward, use the numbers in the buyback ranges on Page 8. So for the remainder of the year whatever proportion is left and however we perform, it should correspond to the level of buybacks. I’d say the level of buybacks in the first quarter were elevated for a couple of reasons. You mentioned some of the opportunistic block trades that we did. When we had the opportunity to refinance, we applied some of the excess proceeds from that refinancing to buybacks, not all of them. So that’s driven some of the excess you see in the first quarter. And then I think as you and I have spoken in the past, there’s going to be some quarter-to-quarter changeability and I think maybe in Q4 we did a little bit less on a proportionate basis and so we did a little bit more on a proportionate basis in Q1. So all those factors in the mix elevated it I would say, which we’re obviously very happy with at these levels. But going forward, I would apply the ranges on Page 8.

Thank you. Good solid results.

Our next question comes from Alex Blostein of Goldman Sachs.

So I was hoping we could spend a little bit of time on the sort of unit economics in the retail business versus the sort of the institutional business. And while I know the answer is probably going to be no, we don’t talk about it, I was hoping we could at least help delineate kind of how does the mix in the business between retail and institutional might impact NTI, right? Because what we’re I guess seeing now is retail is really strong relative to kind of pre-COVID levels, but seems to be moderating;. But volatility is high and institutional activity is really high. So helping kind of put that together would be super helpful.

Thanks for the question, Alex. And you’re right obviously, we have not broken down our results by those subunits for a reason. I would say your observation is correct. You have seen as a mix of business in U.S. equities, an uptick in institutional participation. The point we made in the script and it’s in the supplemental materials, however, is that you’ve seen a systemic change in the U.S. equities market in the sense that you have significantly more aggregate notional retail participation in U.S. equities than you did in prepandemic levels. And as I’ve indicated in prior calls, it wasn’t the pandemic that triggered this. The commission free trading phenomenon that was initiated obviously by [Robin Hood] and then challenged and met on a competitive basis by Schwab and Fidelity and the others, right? So that really has driven the opportunity and we’ve made the case continually that that is systemic. In terms of opportunity and capture rates and whatnot, I mean the answer is obviously it depends. It depends on the macro environment and it depends on what’s happening on that particular day in the marketplace. So when there is excess volatility, bid offers tend to accelerate, people need more immediacy or desire more immediacy in their executions and you’ll see a corresponding expansion in bid offer spreads. The second thing I would say is the retail business is meaningfully different than our noncustomer Market Making segment, which I assume you’re referring to when you say institutional in the sense that in the retail business, we’re in the market continuously and we need to be in the market continuously and we have an arrangement with our 250-odd clients that when they send us market orders, they’re printed and done. So that can be very good and it also can be painful when there are retail and balances. So again I’m not trying to avoid your question, I’m giving you the kind of it really does depend on the market conditions. And that is, frankly if you take a step back, one of the benefits of the scale and the diversity that we have built in our business and that was intentional, right? So that we have quarters like this where retail can be strong, but our noncustomer retail segment not a GAAP segment, but you understand what I’m saying, can have an outsized quarter because of pockets of volatility in commodities and in Asia and in ETF block. And so again more prosaically, the core strength of this firm is the diversified financial services platform that we have built that we are attempting to add more products and more widgets to. So again I’m not trying to avoid your question. I’m just trying to as an investment thesis provide a larger framework for understanding why and how Virtu will continue to drive. And again I point you all to the Page 8, which I think is a very nice way of looking at our business and saying okay, within the following conditions, x times y can equal z, right, and excess capital can be applied to buybacks. And so over the next -- as I’ve always talked about in these calls, the next 8 to 12 quarters, just if you look back at the last 8 to 10 quarters, you’ll have a very good sense as to where this firm is headed.

Got it. And by the way, totally unrelated, but thanks for doing the call early. There’s a ton of earnings going on today and thanks for overlapping the other calls.

We recognize your responsibilities and we try to adjust accordingly.

Our next question today comes from Ken Worthington of JP Morgan.

I’m going to follow up on Alex’s question and also his comments. So digging into the Market Making business. Market Making revenue or NTR looked like it was up about $10 million sequentially to the $382 million. If we think about the business in equity versus FICC, I would assume that FICC was up sequentially from 4Q given the volatility in the volumes we saw coming out of energy and FX and your progress in options and it suggests that your Market Making business revenue was actually down in 1Q versus 4Q. So I guess first, is that right and if the issue is sort of the retail equity business, which you guys have sort of highlighted throughout the presentation? If we look at the business today, what portion of equity Market Making or Americas equity Market Making is really tied to that 606 business versus what is left of sort of legacy Virtu? To kind of follow up on Alex’s, just trying to size this and I know it will change, but is it -- are they split? Is it 90% retail? Is it 90% -- it’s clearly not 90% institutional. But help us get a better sense of how that equities business breaks down.

Ken, it’s Joe. I’d say first off, you’re right, we don’t break it out. We provide Market Making results because of the reasons Doug said in that there is a very diversified business there that includes nonequities businesses. You’re right as well that the businesses that were up or performed well or exceeded the opportunity were more in some of the legacy FICC areas. Energy in particular obviously with the volatility around crude and crude products, we did well there. I wouldn’t draw too many conclusions therefore about customer Market Making versus equities in customer and equities outside of customer. We do have equities Market Making businesses that are not part of the 605 business. And I think Doug pointed out on the -- in his remarks that the retail participation for the 605 business remains elevated historically and is at actually very favorable levels and looks very resilient, right? So I’m not sure I want to go into 90-10 versus 80-20. We do have a diversified business outside of 605 that includes fixed income, currency commodities, equities and all the other things that you’re familiar with.

Yes. But to be clear, I mean, you can go back. Obviously we used to break this out and certainly Knight was a separate public company. I mean, it’s nowhere near 90-10, it’s much more of a balanced business, Ken. And the noncustomer Market Making subsegment, if you will, had a really, really strong quarter. The retail Market Making business performed consistent with the metrics that we track and opportunities internally. As I have said to you guys, I mentioned this in Boca and I’ve said it in prior calls, it is difficult as an outsider to look at a retail customer Market Making business and just look at volume and volatility metrics and reach conclusions. There are certainly directional days and situations where you have significant retail buying and significant retail selling. Virtu and the other market makers don’t have some magic elixir to satisfy. The market makers can lose money in those marketplaces. If you look at retail share volumes versus the fourth quarter, they dropped roughly 18%, right? So that’s kind of like an indication of what the opportunity is and that’s what we track internally along with obviously retail buy versus sell balances, which can have an impact on trading in a way that won’t impact our noncustomer Market Making business.

Our next question comes from Alex Kramm of UBS Investment Bank.

Maybe the comments at the beginning, you mentioned it several times, Doug, the benefits from internalization within the firm. Certainly not something new, but curious you mentioned a few times. So just thinking through here, is this -- where are you in this process I guess? I assume you’re constantly improving things, but can you maybe also put into context unit economics? If you think over the last couple of years in particular since ITG came on like how much of your, I guess, unit economics has gone up and how much do you still think there is room for improvements here outside maybe the constant improvement? Like any low-hanging fruit that you still haven’t pursued?

Let me answer it more generally and I’ll ask either Joe or Sean to go through some of the BC&E numbers just so there’s a little more detail and that’s obviously where you would see the most direct impact. What would not show up in the financial statements obviously is spread paid away, right? Like in terms of -- the easy example I always give is when you have an options Market Making business you’re trying to grow and you obviously need to do a delta hedge and to help [indiscernible] distraction, frankly, to pass all those needs and fills and opportunities on to a separate group within Virtu that can -- obviously that’s what they do for a living, right? So that’s the kind of point I’ve been trying to make, which is hey, we are one firm. It’s part of the collaborative culture we have. We don’t pay people separately based on debt. We don’t have guarantees. This is not a trading firm. It’s a financial technology firm so when you look at like our overall compensation, yes, it’ll ebb and flow somewhat with results, but it’s not like people are making 50% of what they bring in. This is not that style of firm. It never has been that style of firm. And so that’s part of the cultural overlay. The reason I started to emphasize it, and these guys will go through some of the results, is you’re exactly right. We’ve made these 2 significant acquisitions. Some of the challenges around internalization was you had to collapse broker-dealers and the equivalent outside of the United States and some of it was technological, right? When you’re on a single platform and you can -- effectively Virtu is a series of matching engines if you think about architecturally how we’re set up. Once you have migrated all flow into a single Virtu stack, if you will, it becomes just a heck of a lot easier for the quants and the traders and the technologists here to realize the fruits of that endeavor. As well you obviously have more negotiating power and tiers and things like that that you can negotiate with ATS and exchanges and whatnot around the world. Joe, I don’t know if you want to add any color?

The color is that if you look at Page 16 in our supplement, we break out the net trading income by segment. And if you look at just the Market Making segment, if you convert the adjusted net trading income results for example this quarter $382 million and just look at the gross trading income of $516 million, that percentage is 74% and that’s the highest level since first and second quarter of 2020 in those kind of frenzy days. So I think a lot goes into that calculation. There are multiple asset classes obviously included in that Market Making segment. Some of those asset classes are more expensive to trade from a conversion of the gross to net than others. But all things being equal, when you see that percentage tick up; I think it was 74% this quarter, last quarter of 73% and then in the second and third quarter of 2021 it was 61% and 64%. So that’s kind of how we convert our gross trading income into net trading income. Obviously the higher percentage, the better. And you see that and that’s -- part of that is the fruit of this kind of reduction in brokerage and exchange fees from better fee tiers, internalization, et cetera.

Our next question today comes from Dan Fannon of Jefferies.

I guess, Doug, I wanted to follow up. You’ve mentioned in past quarters your optimism around the sustainability of retail participation and you mentioned earlier today just with regards to 0 commissions. I guess we’re starting to see the slowdown. Are there -- can you just kind of walk through why you don’t -- I guess your outlook from here in terms of what you think retail participation may or may not look like and if you’re still as bullish as you were before?

Look, I mean I look at the same metrics you do and obviously we talk to our clients all the time. I look at like account opening, I look at obviously balances and then I look at how that has rippled through in terms of market share and notional size. We put a slide in the supplemental materials about -- on Page 10 that kind of track this from pre-0 commission to today. Obviously you saw the upswing in the mean stock period and then it certainly has fallen off. But to me, the new normalized level is where we are at now and I think a lot of that is just because of the proliferation of accounts and sizes. And also I think you can’t minimize the proliferation of like all the new crypto venues, which have driven interest in markets overall and that will continue to percolate through. FTX has talked about becoming an equities business as well. So I think that will continue between 0 commissions and mobile trading and ease of use in self-directed trading and participation among young people being a thing that is here to stay. That really drives my optimism around this being a systemic shift as opposed to some secular everybody stuck in their basement pandemic shift. I mean people are now out of their basements, doesn’t appear like we’re going to have any more stimulus checks. It doesn’t seem to be a policy that has any support in Washington and yet we continue to see heightened participation among retail. I would also point out, Dan, that this is a global phenomenon. We have seen a significant increase in Europe in terms of retail participation and clients that are coming to us with interest. We continue to see very strong interest in Asia. And indeed in both of those regions, we see interest in 24-hour trading from those clients into U.S. equities. So I think the world will continue to become more 24-hour driven. And in the last phenomenon, which I think is important as well, the broker is innovating and creating this opportunity for fractional shares, which we have helped them to facilitate, right? So that obviously reduces the notional size. I want to buy a share of [indiscernible], but it’s $1,000. I can buy a tenth of a share for $100. So I think all of those factors drive my conclusion that this is a systemic change. Will there be fluctuations to quarter-to-quarter? Yes. But I do think it really has kind of changed the playing field in a dramatic fashion.

Our next question today comes from Sean Horgan of Rosenblatt.

Just first question is on the organic business and the organic growth initiatives. Obviously doing well there growing to 10% of the overall business. So I’m just curious if we could get an update on sort of the components of that and specifically on crypto and options and how we should think about the size of each of those and the contributions towards growth going forward?

Obviously we’ve talked a lot about options and that’s been a big driver for us. With regard to crypto, I mean, in the fourth quarter we traded roughly like 30 crypto products and it was really like a nascent very new endeavor for us. It was really literally doing API connectivity work and things along those lines. Now we trade over 100. As I said in the script, I still think it’s extremely early days. It feels like circa 2008 for Virtu Financial when Vinnie and I had started the firm and we were focused on equity. So it feels like a greenfield opportunity for us. We’re going to run it and grow it the exact same way we grew Virtu organically, which is to look at the big opportunities, develop the relationships with the 8, 9, 10 key venues. On the regulatory front, we think that the SEC’s determination with regard to not approving a spot ETF is just legally and not defensible frankly. Our friends at [Greenvale] put a letter in this week from the Davis Law Firm, which was unbelievably compelling. So I would be floored if the SEC ultimately either on his own volition or through litigation doesn’t approve a spot crypto ETF in the next fill in the blank, it should be tomorrow but it won’t be. So I think we will continue to see opportunities grow as that marketplace evolves. We’re adding direct counterparties to roll out our V crypto solution, which again getting back to one of the core assets and the strengths of this firm, which I think people don’t value in the way that we do is we have this network of relationships built over the last 30 years with over 250 retail brokers that frankly use us for [indiscernible] execution, trust us, know that we’ll be there and provide superior execution quality for their liquidity needs. That can’t be understated and it’s very difficult to break into that market. It’s one of the main reasons, frankly, why we bought Knight Capital in 2017 was to acquire that network effect. So I’m very optimistic and bullish that this asset class will continue to provide revenue opportunities for us. And again, the key takeaway is it really demonstrates the value of the scaled multi-asset class collegial environment that we have created here where we can add these widgets, which is effectively how we look at financial instruments, to our network at virtually 0 incremental cost and drive bottom line P&L.

Okay, great. And then wanted to just get your latest thoughts on as it relates to equity market structure. So what are your expectations, if any, around tangible actions from the SEC around equity market structure specifically as it relates to PEFA? And if so, how are you thinking about timing? It seems like it’s sort of been a series of handshakes and sort of socializing that it was something that was going to happen and then it sort of seems to fall out of the conversation. So just curious what your latest thoughts are.

Yes, that is a politically incorrect softball that I will do my best to muzzle myself on and swing at, but try to be as positive and CEO like as I possibly can. So look, we’ve seen frankly a tidal wave of proposals that have come out of the SEC on topics as varied as share buybacks and climate change disclosure and ATS reforms. In my prepared remarks I was maybe not as politically correct as I should have been, but it just seems that these are rushed, not particularly well thought out. And this isn’t just Virtu saying this. I think there was a great letter from [indiscernible] and there was a great comment letter put in by Bloomberg and Fidelity and others that just really point out the mistakes, frankly, in a lot of these proposals, just things that are just -- don’t really make a lot of sense. It’s very clear that these are not data-driven proposals and if history is any guide and if the Administrative Procedures Act continues to be followed, which it will be, a lot of these proposals just frankly won’t ever see the light of day. With regard -- and they have varying impacts on Virtu and we’ll continue to be zealous and positive and advocates for what we think is the right answer in all of these situations. We believe in data-driven reform, we believe in transparency, we believe in competition and where the ultimate big market structure proposal comes out. Frankly, I don’t have a great -- I don’t have a crystal ball. And I think the chair has bounced the number of thoughts out there from questioning the continued viability of payment for order flow to what he calls order-by-order competition and whatnot. Again as we have said, we will continue to be collaborative. We have provided all types of Virtu specific data with regard to price improvement. We are 100% convinced that the ecosystem drives significant multibillion dollar value from Virtu and over $12 billion of price improvement as an industry. We are frequently engaged with representatives from both sides of the aisle on Capitol Hill and Senators from both sides of the aisle. We’re not political. We just want to make sure that people understand how the marketplace actually works and ignore the rhetoric and ignore the headlines and more importantly, understand how we have a fantastic, very efficient, very transparent, very, very low-cost ecosystem here in the United States, which in our opinion and in our experience is substantially better than any other marketplace for retail investors in which we transact today, which is basically the entire civilized world. So we will continue to constructively seek ways to improve our great markets, we’ll be collaborative. But ultimately, we’re going to vigorously defend what we think is the right result here and we’ll do that regulatorily. I’m happy to go and testify. We’re happy to be transparent. And if it means that various participants from the industry end up sadly in litigation for years and years with the SEC as it has happened historically in the past, we know we’ll be a participant there as well. I’m optimistic that’s not going to be the case if that makes a little sense. But unfortunately, in Washington it’s hard to look at the results and say well, that’s a sensible result and have it happen because there are different inputs called politics in Washington that we can’t control.

Our next question today comes from Chris Allen of Compass Point.

Just wanted to follow up on a comment you made earlier about investing to become a wholesaler in options. I’m just wondering where you are in the process there, what that entails and how does that change the revenue opportunity within options Market Making?

Look, I mean we have said ultimately, our end goal here is to be a significant competitor in options. It’s obvious to anybody that looks at the marketplace that there’s a significant opportunity there because retail participation in options is pervasive and significant and there are 2 significant players and there are host of others that provide services. As I just said before in answer to another question and it was in our script as well, one of the assets we have, Chris, is the relationship with the retail brokers and cash equities. And so it won’t surprise you to hear that they have implored us to getting to 605, if you will, options. And so having that, it’s clearly a knock-on benefit of the 20- to 30-year relationships that the former Knight Capital firm built with all of these wonderful clients that we have. And so we are -- and the other interesting thing about options, as you well know, is that "internalization" is done on exchange, which means that there are these open periodic auctions that the various options exchanges have created the architecture around where the wholesalers, if you will, exercise their internalization from the flow that they receive. Which means that we are capable as is any other options Market Maker participant to attempt to participate and to attempt to execute internalization on an exchange. We are currently doing that with innovative fashion with a handful of clients. So the good news is we don’t have to go to X, Y or

Our final telephone question today comes from Michael Cyprys of Morgan Stanley.

I wanted to ask about the Execution Services business. So I was hoping you might be able to remind us here what portion of the revenue within Execution Services relates to the recurring contractual and recurring revenue stream? And maybe you could talk a little bit about how that revenue pool is growing within the Execution Services pool compared to overall Execution Services revenue? And maybe talk about some of the initiatives that you guys have in place around growing that recurring revenue stream.

This is Joe, Michael. Obviously we don’t break that out again and it is -- there’s a mix of revenue there that has remained consistent. I think the old ITG used to break it out in some of the quarters before we acquired them. I think it is a great business that we like. It provides a really steady stream of recurring revenue. We’ve been able to grow it modestly. I think the product set that it supports complements the brokerage business. And look, if it gets to a point where the growth in here is worth us breaking out, I think we would do that. I think right now it’s a business that we like that we’ve gotten, I think we’ve made a lot more efficient around the technology and continue to do so and again remains an important part of Execution Services. But from a presentation standpoint right now, I don’t think we would gain much by breaking it out.

Yes. The one thing I will say is that we looked at like the analytics business for example here and some of the other workflow technologies that these are businesses that should be more automated and more platform driven and more, shall I use a loaded word, more sinking in as like Software-as-a-Service as opposed to like more of a consulting type of business. And so particularly within analytics, we now have a platform where clients can come to us and effectively pay, as you say, on a subscription basis to use our APIs and they can customize them as they see fit in order so that they can do their own analysis within their own shops. And so our larger asset managers and pension funds globally really like that a lot because they have access to our analytical tools. But also obviously on an anonymous basis, they can look at a full compendium of their competitors and understand how they are performing on a relative basis. So that creates a real halo effect with clients because they can say wow, that’s pretty darn unique. I can have my own data scientist in my own shop. As opposed to getting reports pushed out to me, I can do my own work. So that’s a significant evolution of the business. Again, as Joe says, it’s a smaller -- it’s a part of Execution Services, which is a part of our overall business so it tends to get a little overwhelmed by what happens in Market Making. But clearly it is something that we’re very excited about and it creates a real stickiness with these clients that obviously have significant wealth. A $2 million a day quarter in the first quarter was a pretty impressive quarter for a non-bulge bracket Execution Services business. So I was really, really pleased with the results this quarter.