U.S. markets closed
  • S&P 500

    +40.81 (+0.80%)
  • Dow 30

    +90.99 (+0.23%)
  • Nasdaq

    +183.02 (+1.14%)
  • Russell 2000

    +21.55 (+1.05%)
  • Crude Oil

    +1.55 (+1.98%)
  • Gold

    +36.90 (+1.80%)
  • Silver

    +0.46 (+2.01%)

    +0.0032 (+0.29%)
  • 10-Yr Bond

    -0.0720 (-1.69%)

    +0.0029 (+0.23%)

    +0.0800 (+0.05%)
  • Bitcoin USD

    -675.58 (-1.08%)
  • CMC Crypto 200

    0.00 (0.00%)
  • FTSE 100

    +52.48 (+0.69%)
  • Nikkei 225

    +744.63 (+1.90%)

Virtu Financial to launch 'velvet rope' agency trading service

By John McCrank

NEW YORK, Feb 4 (Reuters) - Virtu Financial plans to launch later this year a "velvet rope" service in which it will execute trades for select institutional investors, Doug Cifu, head of the automated trading firm, said on Thursday.

The agency offering would not require any new hires or infrastructure at the firm, Cifu said on a call with analysts after Virtu reported a 37.7 percent decrease in net income to $42.9 million for the fourth quarter.

"What we have at Virtu is a technology plant that is multi-asset class, multi-currency and very low latency and very efficient and very scaled," he said. "To the extent we can use that asset and leverage that asset into what I will call related and ancillary businesses ... I'm very open to it," he said.

Virtu makes markets around the globe, continuously quoting buy and sell prices for others to trade against, profiting off the bid-offer spread, using high-frequency trading (HFT) strategies.

HFTs use sophisticated technology and algorithms to trade stocks and other assets at near-light speed and are responsible for around half of the volume in U.S. equities and Treasuries, and nearly that in spot foreign exchange.

As HFT has increased, so too have the headlines citing regulatory fines for market manipulation by bad actors using HFT strategies, as well as concerns about market instability and "phantom" liquidity. In May 2014, Michael Lewis's book "Flash Boys: A Wall Street Revolt" claimed the market is rigged in favor of HFT.

Cifu said his firm often reaches out to institutional investors to demonstrate Virtu's execution capabilities, technology and understanding of the market, in part to "debunk some of the nonsense around HFT."

One particular firm, which Cifu did not name, but which Reuters in late 2014 identified as T. Rowe Price Group, was interested in Virtu executing trades for it and the firms ran an experiment.

Rich Repetto, an analyst at Sandler O'Neill, said on the earnings call that he had spoken to T. Rowe, which indicated it had a very positive experience with Virtu.

The idea to take on clients at Virtu came when Steve Cavoli, a former electronic trading executive from Morgan Stanley with institutional knowledge of agency execution, joined in September.

"He was convinced and I became convinced that we could build what we'll call a velvet rope agency offering and offer it to a select few buy-side institutions," Cifu said.

(Reporting by John McCrank; Editing by Cynthia Osterman)