Virtu IPO: HFTs Still Get to Print Money

The underwriters for the offering are Goldman Sachs, BMO Capital Markets, Citigroup, J.P. Morgan, Credit Suisse, Evercore, Sandler O’neill, UBS Investment Bank, Academy Securities, CIBC and Rosenblatt Securities.

Virtu is a technology-enabled market maker and liquidity provider to the global financial markets. The company is ready, at any time, to buy or sell a broad range of securities and other financial instruments. Virtu generates revenue by buying and selling securities and other financial instruments and earning small amounts of money on individual transactions based on the difference between what buyers are willing to pay and what sellers are willing to accept, referred to as “bid/ask spreads,” across a large volume of transactions.

The company markets by providing quotations to buyers and sellers in more than 11,000 securities and other financial instruments on more than 225 unique exchanges, markets and liquidity pools in 34 countries around the world.

Note that Virtu will be classified as a controlled company.

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While in most cases Virtu does not have customers in a traditional sense, it makes markets for global banks, brokers and other intermediaries, in addition to retail and institutional investors, including corporations, individuals, hedge funds, mutual funds, pension funds and other investors.

According to the filing:

Our revenue generation is driven primarily by transaction volume across a broad range of securities and other financial instruments, asset classes and geographies. We avoid the risk of long or short positions in favor of seeking to earn small bid/ask spreads on large trading volumes across thousands of securities and other financial instruments. The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing trading day during a period of 1,485 trading days. While we seek to eliminate the price risk of long or short positions, a significant percentage of our trades are not profitable. For example, for the 252 trading days of 2014, we averaged approximately 5.3 million trades per day globally across all asset classes, and we profitably exited 49% of our overall positions.

Virtu Financial will contribute the net proceeds from this offering to its subsidiaries. The company also has a broad discretion as to the application of such net proceeds to be used for working capital and general corporate purposes.

This company could be valued at well over $2 billion, but there are four classes of stock, so we will hold off on any formal valuations until the official pricing comes out.

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