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By Alexander Osipovich
BIOGRAPHY
@AOSIPOVICH
ALEXANDER.OSIPOVICH@WSJ.COM
Updated Sept. 30, 2019 5:06 pm ET
Virtu Financial Inc. is among the fastest trading firms in today’s high-tech markets. These days, its stock is falling fast, too.
Shares of the New York-based high-speed trading firm fell 2% to $16.36 Monday, heir lowest close since December 2017. The company’s stock is down 36% since the beginning of this year.
The main culprit: a slide in trading volumes and volatility. High-speed traders tend to make more money when markets are swinging around wildly and investors are actively buying and selling shares.
The average number of shares traded each day in the U.S. stock market fell to 6.9 billion in the current quarter from 8.5 billion in the fourth quarter of 2018, according to a Sept. 24 research note from Sandler O’Neill + Partners. The Cboe Volatility Index—a widely watched gauge of expected U.S. stock-market volatility—fell about 25% over that period, while volumes and volatility also dropped in overseas markets, Sandler said.
Virtu Financial Inc. handles about 20% of the shares traded in U.S. equities each day. PHOTO: MICHAEL NAGLE/BLOOMBERG NEWS
Virtu handles about 20% of the shares traded in U.S. equities each day. Its core business is market-making, a strategy in which a firm buys and sells the same assets throughout the day, earning profits by collecting a small “spread” between the buy and sell price. At times of lower volatility, such spreads tend to narrow, reducing the profits available to market makers.
As the only publicly traded U.S. high-speed trading firm, Virtu offers a glimpse into the financial performance of a largely secretive industry. Flow Traders NV, an Amsterdam-based market-making firm, is down 14% since the beginning of the year.
Founded by billionaire Vincent Viola, a former oil trader, Virtu has a reputation as an efficient profit machine. Before going public in 2015, it raised eyebrows when it revealed it had lost money on just one of 1,485 trading days from 2009 to 2014.
In another blow to Virtu, the Securities and Exchange Commission on Monday fined the firm $1.5 million over regulatory violations by a dark pool, or off-exchange trading platform, called MatchIt. The violations took place before Virtu took over MatchIt as part of its acquisition of trading firm KCG Holdings in 2017. They involved an SEC rule designed to prevent trading glitches at exchanges and big dark pools, according to an SEC order detailing the fine. A Virtu spokesman declined to comment.