U.S. Markets closed

Virtu Falls on Trading Profit Worries; Tradeweb Also Drops

Felice Maranz

(Bloomberg) -- Shares of Virtu Financial Inc. plummeted 18% on Thursday to the lowest since December 2017 after reporting results that raised questions about volatility and the profitability of trading. Tradeweb Markets Inc. also fell 3.5% to the lowest since early July, despite its better-than-expected earnings.

Virtu’s second-quarter profit missed the lowest analyst estimate, while CEO Douglas Cifu on the company’s conference call said that “market volume in this quarter presented one of the lowest market making opportunities in many years,” including “significantly less retail engagement.”

Cifu also said he hoped President Trump would keep tweeting -- which can spur volatility -- as “that’s a good thing for our business.” August, which has featured an increase in U.S.-China trade tensions after Trump tweeted about higher tariffs, has seen a “material increase” in volatility after July’s market conditions were similar to those in the second quarter, Cifu said.

Virtu’s trading activity fell in a “muted environment,” though August has so far been better, Jefferies’ analyst Daniel Fannon wrote in a note. Compass Point’s Chris Allen wrote that “we were expecting a soft quarter, but even in that context results were disappointing.”

Shares of Tradeweb, an electronic trading platform that trades Treasuries, bonds and derivatives, initially rose after its second-quarter revenue and adjusted earnings per share topped analysts’ estimates. Yet, the stock erased the gain to fall as much as 5% by mid-morning.

On his conference call, Tradeweb CEO Lee Olesky said the company reported record results amid “a challenging environment for trading in a market characterized by low volatility.”

“Wholesale and institutional channels are much more active in volatile movements and we expect to continue to see that,” Olesky said on the call. Retail brokers, however “tend to be less inclined to buy bonds at the same clip as other sectors during bouts of volatility.”

Citi analyst Ben Herbert noted that Tradeweb’s July equities average daily volume of $5.3 billion missed his estimate of $6.4 billion. Overall, he found “not much to dislike” in the results.

Retail broker clients account for only about 10% to 12% of revenue, according to Tradeweb. Equities accounts for 4% to 5% of total revenue, the company said.

Exchange stocks, including Intercontinental Exchange Inc., Cboe Global Markets Inc. and CME Group Inc. underperformed financial stocks as a whole on Thursday, as did trading-sensitive Goldman Sachs Group Inc. In Canada, though, Toronto Stock Exchange parent TMX Group rose to a record high.

The worst performer -- and only decliner -- in the S&P 500 Financials Index early Thursday afternoon was Charles Schwab Corp., which extended losses for a second day after Fidelity said it would automatically direct investors’ cash into higher yielding options.

(Adds size of retail and equities business in seventh paragraph. A previous version of this story corrected an analyst name and details of the results.)

To contact the reporter on this story: Felice Maranz in New York at fmaranz@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch

For more articles like this, please visit us at bloomberg.com

©2019 Bloomberg L.P.