VIRT - NASDAQ

Hello and welcome to the Virtu Financial 2023 Fourth Quarter Results. My name is Alex, and I'll be coordinating the call today. [Operator Instructions] I'll now hand it over to your host, Andrew Smith of Invest Relations. Please go ahead.

Thank you, Alex, and good morning, everyone. Thank you for joining us. Our fourth quarter results were released this morning and are available on our website. With us today 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 Ms. Cindy Lee, our Deputy Chief Financial Officer. We'll 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 maybe outside the company's control. Please note that our actual results and financial conditions may differ materially from what is indicated in these 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, update, or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report, Form 10-K, and other public filings. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures including adjusted net trading income, adjusted net income, adjusted EBITDA, and adjusted EBITDA margins. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP. We direct listeners to consult the investor portion of our website, where you'll find additional 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 metrics. And with that, I'd like to turn the call over to Doug.

Thank you, Andrew, and good morning, everyone. Thank you for joining us this morning. In my remarks today, I will focus on Virtu's fourth quarter 2023 financial and business performance and strategic initiatives. Following my remarks, Joe and Cindy will provide additional details on our results. Looking at our full year and fourth quarter 2023 results, which are summarized on Slide 2 of supplemental material, we generated $4.8 million and $4.14 million of adjusted net trading income per day for the full year 2023 and the fourth quarter 2023, respectively. We reported normalized adjusted EPS of $0.27 for the fourth quarter and $1.84 for the full year of 2023. Slide 3 highlights that our market making segment earned an average of $2.7 million per day in adjusted net trading income in the quarter, while our execution services business delivered $1.5 million per day, an increase of 4% per day over the prior quarter. This quarter's performance reflects a significant reduction in opportunity, particularly for our customer market making business compared to the prior quarter, driven by a combination of reduced addressable volumes and spreads as evidenced by an especially weak two-month stretch of volatility to the end of the year. We have seen episodic periods of softer volumes and volatility in the past, most recently in the fourth quarter of 2022, and today we are better positioned than ever from an expense capital structure and trading capabilities perspective to convert opportunity into ANTI in any environment. As we have said before, our disciplined focus on expense management and building operating leverage means Virtu remains uniquely ready to deliver results in any environment. While it remains very early in 2024, we have seen improvement in the overall market conditions and market making opportunities so far in January, particularly around crypto products, as I will address later in my remarks. As we said previously, while market share alone is limited as a gauge of performance, we would like to note that our market share in the wholesale market making business remains within historic ranges. We are confident that our growth initiatives combined with our efforts to enhance our spread capture rates through greater internalization, thanks to our global scale and diversity, will yield benefits in any environment. Our non-customer market making business, which provides liquidity across asset classes globally, performed well in the quarter relative to the opportunity. Our organic growth initiatives, including our expansion to options market making, continue to expand and perform well making meaningful progress every quarter. In the fourth quarter, we generated $423,000 per day of organic growth, which represents 10% of ANTI in the period. We remain very optimistic about the opportunities across all our growth initiatives, and we are excited for these initiatives to reach new heights in 2024. On the execution services side, our adjusted net trading income averaged $1.5 million per day in the fourth quarter, which was up by about 4% from the third quarter. We continue to see incremental and impressive results despite the general softening in the market opportunity for VES. In addition to general wallet compression, institutional activity remains slow as investors reacted and adjusted to the sustained higher rate environment. Despite these challenges, VES performed in line with this opportunity quarter-over-quarter as well as the full year 2023. We have incremental growth plans outside the United States, which are materializing as we transition resources from a multi-year integration of technology across a long tail of clients towards expanding our footprint. To this end, in 2023, VES leveraged our investments and enhancements to accomplish key growth milestones, including winning the revamps to be the fixed income EMS for a world-class asset manager in Europe, as well as successfully deploying Virtu's Triton Valor execution management system, trading analytics, POSIT Alert, and global equity execution algorithms, one of the largest asset managers in Asia. Most importantly, overall productivity and profitability within the VES segment has grown significantly since we began the technology rebuild and modernization and streamlining the business. We are very excited about the growth opportunities in 2024 for VES. Taking a step back, I look at our 2023 results and despite the recent softness we believe our strategic focus in areas of growth align us for long-term success as we expand our addressable market by adding more asset classes and offerings to our suite of products. Our focus on enhancing our core businesses and the continued success of our growth initiatives positions us well for any macro environment, including significant spikes in volatility and volumes that typically accompany increasing global tensions and economic uncertainty, change in monetary policy, and elections. We continue to hire and make investments in our business. It is worth noting that of our current employees only 36% of them were at Virtu prior to 2019. This means that we have made significant multi-year investment in new traders, developers, and quants, which we expect to continue to bear fruit in the near to medium term. And, as you would expect, we remain disciplined as ever around costs throughout the year, which enabled us to realize a 47% adjusted EBITDA margin. Touching briefly on our growth initiatives in Options 2023 was another impressive year for us as we continued to expand our capabilities despite the declining opportunities set in general. In 2023, the Options team exceeded expectations as its capability and capacity to address opportunities increased globally. As I mentioned on our last call, we saw a meaningful uptake in our crypto market making business at the end of the third quarter, which persisted into the fourth quarter. It's probably no surprise that our crypto market making is off to a record start in 2024 as a result of the elevated interest in new opportunities related to the recently approved Spot Bitcoin ETFs in the United States. As I'm sure you will know, on January 10th, the SEC approved 11 Spot Bitcoin ETFs for trading, and as a global 24/7 market maker, Virtu was among the first trades in these products when they began trading at 4:00 a.m. on the first day. We proudly act as an authorized participant for all 11 issuers. While it's only been a few weeks since the Spot Bitcoin ETFs were approved, the ETFs have presented significant market making opportunities. It's worth noting that these initial 11 Bitcoin ETFs are just the first wave of crypto ETFs that the market expects to be approved, so expect there will be many more coming. Issuers have already filed applications with the SEC to list Spot Ethereum ETFs as well as a number of novel-crypto related ETFs. Additionally, while crypto ETFs may not interest all investors, we're also seeing an uptick in general retail trading activity across all NMS securities, coinciding with the launch of Spot Bitcoin ETFs, which suggests that retail investors are curious. To bring it full circle and highlight how these ETFs benefit several of our organic growth initiatives, we've already seen significant opportunities for our ETF Block business as new and existing clients approach us to transact in Bitcoin ETFs, and we are optimistic about the options market making opportunities that await once options are listed on these ETFs. Our ETF Block business had a respectable year as well, and we continue to expand our offerings to cover more products and more regions, including crypto ETFs, as I just mentioned, and fixed income ETFs, which is especially helpful for our rates trading, where we continue to make key hires as well as paying corporate credits. And last, but certainly not least, our Virtu Capital Markets business saw increased activity in the fourth quarter as financing activity began to return to the market, and a number of issuers used our at the money service to raise primary capital. I'll now turn it over to Joe and Cindy, who will provide additional details about the quarter. Joe?

Thank you, Doug. Just briefly turning to capital and expenses. On expenses, we ended the year with cash operating expenses of $643 million. That's 5.4% ahead of last year. We think this is a solid performance in this environment, and given the investments we're making to grow the business. Our cash compensation ratio is 26% for 2023. This is at the upper end of our historical range, consistent with Virtu's history we will manage discretionary compensation and headcount to drive profitability, while retaining and recruiting world-class talent. We believe we have achieved this outcome on expenses, particularly on compensation, by being prudently aggressive in hiring and maintaining compensation at levels that are best-in-class while keeping overall headcount relatively flat. Other non-compensation expenses were up slightly in line with our expectations. So, on communications and data processing, we were up 5% in 2023 owing to investment in building out new businesses and price increases for infrastructure and market data. Our other expenses in 2023 were up a bit due to favorable FX adjustments in the prior year and a little bit of increase in professional fees. On the capital management slide in the supplement on Slide 12, you can see that our trading capital has remained within a range of $1.7 billion to $2 billion for this year. We remain very well capitalized from a trading capital and long-term debt standpoint, as well as from a liquidity standpoint, meaning we possess adequate resources necessary to capitalize on upside revenue opportunities from increased volumes and volatility as and when they appear. In fact, we were able to enter the crypto ETF market in early 2024 without a material increase to our overall capital base because of our operational efficiency and available liquidity. We maintain our public $0.96 annual dividend, which we have paid steadily now for eight years, despite variable results over the long-term. We believe overall that our dividend is quite sustainable over the long-term, as it has been for the past eight years, and we do not anticipate changes to the status quo, including our continued buyback program. In addition, we repurchased 2.4 million shares in the fourth quarter for approximately $44 million. Our period end share count is now down to 162.7 million shares. And at this point we have repurchased net of new issuances 17.7% of our company in the three plus years since beginning our program. And with that, I will turn it over to Cindy to review the financial details briefly before we open up the call to your questions.

Thank you, Joe. Good morning everyone. On Slide 3 of our supplemental material, we provided a summary of our quarterly performance. For the fourth quarter of 2023 our adjusted net trading income, or NT, which represents our trading gains, net of direct trading expenses, totaled $261 million or $4.1 million per day. Market Making adjusted net trading income was $168 million or $2.7 million per day. Execution Services adjusted net trading income was $93 million, or $1.5 million per day Our fourth quarter 2023 normalized adjusted EPS was $0.27. Adjusted EBITDA was $99 million for the fourth quarter, 2023. And our adjusted EBITDA margin was 38%. On Slide 8, we provided a summary of our operating expenses results. For the fourth quarter, 2023, we recorded $178 million of adjusted operating expenses. We continue to maintain an efficient cost structure and disciplined expense management, which has helped us to control our operating expenses during the inflationary environment. We remain committed to our $0.24 per quarter dividend and combined with our share repurchase program, demonstrate our continued commitment to return capital to our shareholders. Now I would like to turn the call over to the operator for the Q&A.

Thank you. [Operator Instructions] Thank you. Our first question for today comes from Ken Worthington of JPMorgan. Your line is now open. Please go ahead.

Hi. Good morning. Thanks for taking the question. I guess I wanted to kick off the call with more questions around the cryptocurrency opportunity. So, first, the cryptocurrency market has rebounded, rebounded in 4Q significantly, a bit more in 1Q, at the same time, role has expanded with the AP on the bitcoin ETFs. So how did the economics change for Virtu as the number of activities you participate in expands? So you started with being a market maker in crypto spot and a market maker in crypto companies and miners, and now you are both a market maker in bitcoin ETFs as well as the AP on these same crypto ETFs. So does your position in one area make the other areas more profitable? And I guess the ultimate punch line here is how much bigger is the crypto revenue opportunity for Virtu today versus other initiatives like options, ETF block and fixed income in the near term growth in crypto broadly?

Yes, thank you. Good morning. That's a great question. And to give you credit, you've been asking about crypto for two years. So I finally have a great answer for you. And thanks in large measure to some of these forced regulatory changes in the United States. I mean, this has become, I don't want to be too dramatic, but a bit of a transformational moment for Virtu with regard to this asset class, certainly, and we've seen the results already in the first quarter where we're generating meaningful six-figure daily P&L from this asset class. And I think you kind of really hit the nail on the head. It really is the perfect type of asset class and the perfect storm, if you will, for Virtu, because it combines a lot of our skills around being a multi asset class, regardless of form of a product, and a multi-geographic market mix. So what do I mean by that? As you know, we have been, as you noted historically, a market maker in Spot Bitcoin and Futures Bitcoin. But throwing in ETFs and creating all of the volume and all the transactions and transformation, if you will, that people are making, moving from the Grayscale ETF over to the other 10 products, et cetera, means that somebody needs to price and take the risk with regard to that transfer. And so that provided a significant market making opportunity for us. But as you note, because we are a Spot Bitcoin market maker, not only are we acting as an AP with regard to the cash creation and redemption of the ETFs, but we can also act as a dealer, if you will, through one of our affiliates in Singapore, where we can provide the coins directly to the issuers to the extent they need to satisfy their obligations to have coins in their trust. We're also excited, Ken, because there is going to be, as I mentioned in my prepared remarks, there is going to be Ethereum ETFs, there is going to be short, and long, and leveraged, and other products, and there's going to be all kinds of different manifestations around people of interest. And we're really in the early innings here, because you have a marketplace where you have some of our large clients whose names you know very well, who are saying, we're not going to actually allow clients to trade these NMS securities. And then we have other of our clients that are at the forefront of it. And I'm not going to name names, but you can kind of figure out who they are. And then we have other institutions like the one you work for, where the CEO is saying very negative things, but then on the other hand, you're acting as an authorized participant, right? So there is all kinds of confusion in the marketplace as to what this asset class means. To bring it full circle, I think, what we really need is a coherent, regulatory framework in the United States. We have not had that because this current SEC and the legislative body have not been able to get their act together. Once that happens, we will have a regularized system where you have global platforms that provide access to spot, you will have ETFs around the world, you'll have futures exchanges, you'll have custody, health clearing, you'll have analytics, and it will look and feel an awful lot like a – Prime Brokers, the Coinbases of the world, and Hidden Road and others, and then you'll have great platforms like EDX, the one that we started with Citadel, and Fidelity and Schwab, which has now recently announced that it's going to go international and whatnot. And so you'll have this large, regularized, asset class that fits very, very well into our model of being a cross border and multi-asset class, if you will, market making firm. So we're very, very excited about where we are. In terms of the scope of the opportunity in the addressable market, I think, it will just continue to grow as this asset class becomes more regularized and more institutionalized, and you see more institutional money flow into it. And again, I am very, very excited that we made the investments we did a couple of years ago to be prepared for this moment in time. So I hope that answers your question. But the first couple of weeks have been very exciting within the firm.

Excellent. Thank you so much.

Thank you, Ken.

Thank you. Our next question comes from Patrick Moley of Piper Sandler. Your line is now open. Please go ahead.

Yes, good morning. Thanks for taking the questions. So, I think this quarter there was obviously a disconnect between what the industry volume and volatility metrics showed, and your results. But I think at least in the fourth quarter, if we looked at the 605 reports, it did show that the opportunity in the fourth quarter was the lowest that had been in a while. So, I appreciate the comments on the crypto opportunity, but I guess just as we sit here today, I guess my question is how do you think analysts and investors can do a better job of tracking your overall opportunity quarter-to-quarter? Thanks.

Yes, it's a great question, and obviously, we have continued to frustrate you all and investors for the last eight years, and it’s really a challenge to try to explain the various parts of our business. I mean, really the best way to do it is to look at the 605 reports and the 605 metrics. As a footnote, we have been on the forefront of asking for, we actually submitted a request, I think it was four years ago, for the SEC to update and modernize the 605 reporting to permit exactly this type of granular review and granular understanding of what it exactly we see within this sub segment, if you will, of the U.S. equities market. But if you track our 605 reports and look at what quoted spread was during the period, you’ll see that there was meaningful contraction in quoted spread and quoted spread effectively. That’s the theoretical, if you will maximum opportunity we have to collect bid offer spread order – for 605 orders that come through to Virtu Financial. And you can look at it by broker and you can look at it by wholesalers. So during the quarter, there was meaningful contraction. So this quarter’s results, as I made it very clear in my remarks are really attributable to that performance by our customer Market Making business during the quarter. The non-customer Market Making business and Virtu Execution Services outperform metrics and certainly performed in line with your all expectations. That is the yin and the yang of that business. It tends to be less predictable and certainly not always correlated with marketplace volumes and volatility. The other comment I will make is that you did see within this quarter, if you look on a more granular level at the marketplace, TCV, there was a significant increase in sub dollar stock trading in the quarter. I think it was roughly about 18% in December, for example, and there was a sub dollar name that on a particular day traded over 1 billion shares, just anecdotally, that tends to distort overall market volumes. Clearly, those stocks tend to be, there’s less opportunity because the spread is dramatically smaller, and they tend to be a lot more toxic in the way that they’re trained. As a footnote, a lot of those companies, in our view shouldn’t be listed public companies. We’ve talked to FINRA and the SEC about it. Frankly, I think NASDAQ could do a better job in policing some of those companies that shouldn’t be listed public companies, and frankly, should be trading OTC. So I do think that that distorts some of the marketplace funds. I’m not using that as an excuse, trying to provide a little more granularity, but it really does come back down to within our 605 business, what was the opportunity expressed as quoted spread at the moment in time when we received those orders? And so that’s probably a good way for you guys to kind of slice and dice it. I think it will get better when the 605 reform happens, which should be the first proposal that comes out of the SEC. And for what it’s worth, quoted spread is up over 10% in January thus far from the 605 lines. And some of that I think is correlated to, as I mentioned in my prepared remarks, some of the excitement and enthusiasm around these Bitcoin, ETFs. So rambling answer, I hope I gave you enough clarity around what you all could look at in the future.

Yes. That was great. Thank you.

Thanks, Pat.

Thank you. Our next question for today comes from Chris Allen of Citi. Your line is now open. Please go ahead.

Good morning, guys. Thanks for taking the question. I wanted to dig in a little bit on the organic growth initiatives. A little surprised to see a sequential decline in the fourth quarter. Crypto activity was much better in 4Q relative to 3Q. Index options activity was up sequentially. And you noted the capital markets activity was stronger after, I think you had a decent 3Q as well. So maybe can you just give us some color just in terms of the different moving parts where you’re seeing? I mean, obviously you’ve seen tailwinds in crypto, maybe [indiscernible] for options and capital markets activity from here.

Yes, yes, very fair question. And obviously, we talk – we track the internal metrics with regard to options and ETF block, which were the major, which are and were during the fourth quarter, certainly the major components of our growth initiative. Crypto contributed, but we hadn’t seen the explosion, which obviously we’ve seen, as I mentioned with the launch of the Bitcoin, ETFs as of January 11, I think it was in the – in this quarter. The short answer is that with regard particularly to options Market Making, the opportunity in terms of like what the spread was – excuse me, what the spread was per contract declined significantly in the fourth quarter. And so that really explains a lot of what you’re seeing in terms of the sequential decline. Internally, we track all these metrics. And as I said in my prepared remarks, we were very, very happy with the performance of the options desk and the block ETF desk during the quarter. One of the highlights of the year was our expansion into Asia, where we are now actively and profitable as an options market maker in both the Japanese and the Indian markets. And we think there’s only an opportunity to grow there. So I get your frustration, which we share around the absolute dollar value, if you will, but in terms of what our market share was in the addressable index product for the options business, it continues to grow and continue to be competitive. It’s just again those organic growth initiatives are subject to the same market forces, if you will around volumes, but more – much more importantly, volatility and effectively quoted spread with regard to the options contracts as all of our other asset classes.

Thanks, guys.

Thank you. Our next question for today comes from Dan Fannon of Jefferies. Dan, your line is now open. Please go ahead.

Thanks. Good morning. My question is on kind of expenses and leverage of the model. I think, Joe, you’ve talked about managing to a comp ratio and then to the dollar amount as the year progressed, starting out with the ratio and then to a dollar amount for the full year. And if I look at the full year, comp is modestly up and revenues are down. And so just want to understand, I think going forward in an environment is this kind of the floor if revenues don’t get better, we can see this is kind of a floor for cash compensation and just – also just any outlook for expenses as we think about next year more broadly.

Yes, sure. Dan, it’s Joe. I don’t know if I call it floor, I’d say, I kind of go back to Doug’s remarks around the overhaul of our employee base in terms of upgrading of the talent, in terms of something like 60% of the people who are here today were not here when we acquired ITG. So we’ve been upgrading and investing. We’re always asked, well, what are you investing in, in terms of the growth initiatives? I mean this is our investment. And I think if you look at comp going from 315 to 320 in a year, like 2023 overall, with a significant upgrade in talent, we’re happy with that outcome. We don’t worry about the ratio being 26% on a cash basis. So there’s no relation around that. I wouldn’t expect it to get too high – too much higher than that over the long-term, but I think we are happy where it came out in terms of what it means about the talent that’s available will be hired. It’s a much better recruiting environment in the past six months to a year than it has been in the past few years. And I think…

And prospectively just thinking about the other expenses, yes.

Yes, sure. On other expenses, on communications and data processing, again, we’ve had some build outs that we’ve had to do. We have experienced price increases on market data and infrastructure, and it’s up. I’ve always guided low-to-mid single-digit expense fixed cost increases, I think, we’re right there. So on communications and data processing, again, when you think about the interest in global infrastructure that we manage and the market data plan that we are subject to, again, I think we’re really pleased with this outcome. We actively – we realize there’s going to be price increases and investments we need to make. So we actively manage market data, especially to make sure we prune where we can. And then operations and administrative stuff, I think, 2022 was low, because we had some favorable foreign exchange adjustments in terms of euro, in terms of pound sterling, in terms of the expenses in our non-U.S. subsidiary. So I think that kind of revert in all of us in 2023, but I would expect that number to be the run rate going forward for ops and admin.

Thank you.

Thank you. Our next question comes from Alex Blostein of Goldman Sachs. Your line is now open. Please go ahead.

Hey, guys, good morning. Thank you for the question. I wanted to just dig into the capital structure a little bit and similar to the question I had for you last quarter, I think. But the debt to EBITDA continues to creep up a little bit and it’s a function, obviously, some challenges on the EBITDA front, but it also looks like the debt costs have increased this quarter, I guess, with a new swap. So I guess A, maybe just confirm that and kind of talk through the impact on P&L from that. But also as you think about the uses of cash flow, if interest expenses higher going forward, what are the thoughts about deleveraging and paying down debt versus buybacks?

Yes. Just to take those in order, the new swap that we put on will be from a P&L standpoint accretive, right? So we did not do that. From a GAAP P&L standpoint, it will be accretive. All we did was kind of pull forward some of the built in gain that we had in a very attractive swap instrument that was put on several years ago that was an enormous benefit to Virtu and that was going to unwind in a few months. So what we did is we just pulled that forward, use that to reduce debt, and the cash interest expense run rate was going to go up anyway, right? So we kind of were to do an accretive deal, reduce debt by a little bit and then also kind of cap the interest expense going forward. The instrument – the underlying instrument that we have as our outstanding loan is SOFR plus 300, we expect in a Fed easing environment and we expect with the loan market coming back that we will have opportunity to reduce cost on that over the next couple of years. So we’re really happy with that. We price this in a way that we anticipate some Fed easing and we anticipate being able to tighten the spread as well. So, yes, the run rate looks like it’s a little bit higher. That was going to happen anyway. We’re going to be able to reduce it. And we were able to kind of monetize the swap to trim the debt. So we’re very comfortable with the $1.70 billion, $1.50 billion and we’re happy with the deal we did.

Got you. So no change in terms of the pay down of the loan versus buybacks, kind of same trajectory?

No, that’s right. That’s right. We trimmed it a little bit here with the monetization of the swap. We felt that was appropriate. But in terms of the cash flow we generate at different levels of net trading income, we’ve got that chart here, as we do almost every quarter. So you should expect that to continue.

Got you. All right. Thank you.

Sure.

Thank you. Our next question comes from Michael Cyprys of Morgan Stanley. Your line is now open. Please go ahead.

Great. Thank you. Good morning. Thanks for taking the question. I was hoping you could maybe update us on your fixed income market making initiatives, maybe elaborate on how much that’s contributing today. How would you sort of size your participation and presence in fixed income markets today? Maybe you could talk about some of the steps that you’re taking and corporate credit and treasuries for that to become more meaningful over time versus, say, fixed income ETFs.

Yes, great question. The analogy I would make is the trajectory I hope is going to be similar to what we experienced in options. So, as I’ve said on prior calls, we’ve done a lot of, I’ll loosely just call it, groundwork around technology and integration with the various RFQ vendors, Tradeweb, MarketAxess, Bloomberg, et cetera, Trumid. We’ve developed the internal ability to quote extensively, and we have the – an ongoing sales wide distribution effort in order to give us branches, counterparties. I think the thing in terms of like priorities and kind of where I see Virtu of being able to add value and where I’d be able to see growth in the same way. We did in options, where we spent a year or two developing the infrastructure and technology, we used internal people, we hired folks from the outside, we’re in the process of doing that. And in options, we went to the big index family. If I look at the marketplace and I say to myself, okay, where convert to add value, what looks and feels more like what we do? The obvious answer is rates, particularly with what the SEC has done with regard to centralized clearing of treasuries, which is going to come online in 2025, and you already see significant interest around gross margin in between treasury futures and, et cetera. And so that will look more like a Virtu style business, the plus CUSIPs and certainly the further electronification of fixed income in general. So I think we’re going to focus more on rates initially, but at the same time continue to put emphasis onto our credit business, where we have counterparties and we are actively quoting mostly investment grade products and whatnot that tie very nicely into our fixed income ETF desk and the custom creation redemptions that one needs to do on that desk. So very, very early stage in terms of contribution de minimis at this point, but in the same way that it was sort of 2019 in options, where we started to develop the wherewithal hired folks built the technology infrastructure. That’s kind of where we’re at right now. And optimistic, as I always am, that we’ll see that business take off. I’m particularly enthused about some of the market structure issues or considerations that we’ve seen in rates, again, with regard to centralized clearing and the prime brokers being more willing to deal with firms of our type and provide us leverage and allow us access. So I think that’s just going to become a much more competitive marketplace where the domination, if you will, by the big dealers will continue to wane. Non-traditional liquidity providers like the Jane Streets and the Citadels, and hopefully the Flow Traders and us can garner significant market share. So again, it’s a growth initiative for us, de minimis contribution in 2023. Will it be meaningful in 2024? Probably not, real meaningful, given kind of the competitive nature of the market and the size of the rest of the firm. But it’s certainly an investment that we’re very focused on, Michael. So thank you for the question.

Great. Thanks so much.

Thank you. We have another question from Craig Siegenthaler of Bank of America. Your line is now open. Please go ahead.

Craig?

Sorry, Craig, you might be on mute. Your line is now open.

[Indiscernible] maybe he dropped off.

My apologies. [Operator Instructions]

Okay, well, sounds like we have no further questions. Obviously, Craig, if you do have a question, you can follow up with me, Joe or Andrew after the call. I want to thank everybody for joining us today, and we look forward to speaking with you in some point in mid-April. Thank you, everybody. Have a great day.