Virtu Financial, Inc. (VIRT) Earnings Call Transcript & Summary

Okay. Let's get going for everybody. Welcome to Equity Trading Research Series. We're going to be talking about retail wholesaling, main stocks, order flow payments, price improvement and fairness. We're talking with one of the lions of the industry, Doug Cifu. He is the CEO of Virtu Financial. I am Larry Tabb, Head of Market Structure Research with Bloomberg Intelligence, and we'll spend, I don't know, half hour, 45 minutes talking to Doug. You guys can ask some questions. And popping in the little Q&A box. And -- but first, I'm going to talk -- go into a couple of slides, and then we'll get Doug on pretty soon. So I'll talk a little bit about retail wholesaling, payment for order flow, price improvement. Is this fair, looking at the retail institutional marketplace? And then we'll get to Doug and talk about wholesaling and payment for order flow and price improvement, GameStop and clearing, and just better markets. And as I said, put some questions in the Q&A box, and hopefully, we can get to them. Volumes, for whatever the reason, this year, well, of course, the reason is basically COVID and just a radical resistant of the economy. But equity volumes, both on a share basis as well as a notional basis, it's just been through the roof this last year in 2020, and continue to stay pretty elevated in the 2021. We're doing basically double or 1.5x the volumes in terms of shares and 49% more in value traded this year over last year. And of course, it's all of the retail volume that's people reshuffling their portfolios, and there's a lot of reasons around it. One of the big drivers we see is just the increased movement of retail traders into the market. If you go back to even just 2019, they were roughly 15% of the market. Last year, we've kind of estimate they were 20% of the market. And with all this GameStop and meme stock trading, I think, in January, so they were 23% or so of the full market. And most of the share is coming out of the institutional side of the market. Now this is share volume. The value volume isn't as elevated because retail guys are trading less expensive stock. And this is a great view of this. This is breaking down the TRF volume by the price of the symbols. I mean, you see that hockey stick at the end that they're online, that is $1 to $5 stock. And even some pending stock has had a pretty significant increase. They've now dropped off really in the last month. So now 33.9% of the shares traded are for stocks in 1 in 5 DUCs. And that, of course, most institutional firms can't trade those names. A lot of that is retail and, I guess, some hedged fund action going on there. But its really interesting, and that ties in to basically the bulletin boards, which were trading. I think they're on part trade: 2-for-1 shares this month alone. And hopefully, we'll get to talk to Doug about some of that as well. Doug is one of the few retail wholesalers. They are retail brokers, contracting with equity execution through equity market makers, typically called wholesalers. They receive this flow on, but execute it mostly internally off exchange at prices a little bit better than the displayed on exchange to market, and they provide price improvement. And they give a little bit back to the retail broker in terms of payments order flow. Most folks think this flow doesn't all hit its -- none of it hits exchanges, but actually, some of it does, and we'll talk to Doug about what does and what doesn't hit the exchanges and how that kind of works. In terms of the retail brokers making quote a tighter spread, mostly because they're trading with clients on the retail side who are trading in smaller size. And again, markets are determined by supply and demand, and the larger the trade, the more they're going to impact the market. So if you're trading with smaller shares -- share sizes, they impact supply and demand loads, so they can quote a tighter spread. Again, I'll talk with Doug about that. One of the big issues here is that a lot of this flow does not hit exchanges. I said some of it does, but a lot of it doesn't. And we can see that they traded over the counter, has hit 47.2% of the market for January. And that's just -- at least, that's kind of -- the peak of this would be that 40%. But really, over the last couple of months and since really the last March, we've seen the OTC side elevate significantly. And again, that's a retail type thing. Now everyone's been talking about payment for order flow, that's the bottom yellow line. It basically, on the equity side, reached about $1.2 billion, I think, is our estimate for equities, or $1.3 billion. That side -- that said, very few people talk about this green line, which is price improvement, which comes -- which is the 605 data that's put up by the market makers kind of detailed us. We've been looking at the 605 staff for the top market makers. And over 2020, they provided basically $3.7 billion of price improvement. That's in terms of better prices to their clients. So there is a return there. When you look at the 2 major players, actually, there are 4 pretty significant market makers. Citadel is the largest, Virtu is second. You've got Susquehanna or G1X, Execution is 3, and Two Sigma, is really #4. But if you look at just Citadel and Virtu, they're roughly -- this goes back to December, almost 23% of the total market being traded over the counter. This is just the over-the-counter volume, not what they do on exchange. And a pitch for our dashboard. Our dashboard is BI MKTS, that's where we have all our research as the research is kind of on the top. But also if you look at the data library, you can find payment for order flow information, you can find volumes, you can find the FINRA data, you can find a lot of really stuff that we aggregate for the market. And with that, we've got a great discussion with Doug Cifu. Doug is the CEO of Virtu Financial. He's a member of their Board of Directors, who is responsible for the acquisitions of ITG and KCG Knights and the Virtu Financial IPO. And hopefully, we'll get to talk about hockey teams, as he is the Vice Chairman of the floor [indiscernible].

Do it.

Let's see, how do I stop sharing. There you are. Doug, welcome. How are you doing?

I'm great, Larry. Thanks for having me. Excited to do this. Actually, the picture you had up, I looked a lot better. So maybe...

Well, you know, it's pre-pandemic.

I had a little more hair. That was 2015, I think so.

Yes, we were all younger back then.

Yes, right.

So crazy times, man. So let's talk about the first thing. I think, it's in a lot of people's minds, the hearing last week. What's your overall take from -- the takeaway from this 5-hour, 5.5-hour meeting with regulator and the legislators?

Yes. Other than I was happy. I was in Florida and [indiscernible] yes. Putting that aside, yes. I mean, look, it's -- obviously, it's a little too early to tell, right? I mean, the Chairperson announced that there's going to be more hearings. And we're waiting reports from the SEC and FINRA, and then SEC is going to testify. So there'll be a lot more, I'll say, substance and maybe less theater. I would hope to the second and third hearings that they'll have. And we've come to expect, here in Washington, some of that really surprised me. I think there were -- and one of the reasons why -- frankly, why I wanted to do this with you today was because I think there was a lot of misunderstanding and a lot of noise around payment for order flow and a lot of confusion as to what that really means, and you've seen that propagated in popular media. Every time I turn on CNBC, it seems like one of the talking heads is confusing wholesaling and payment for order flow and whatnot. I think, as a positive, I think there was some good discussion around clearing and shortening of the settlement cycle. I know we're going to talk about that. I think that's imperative, and I think might [indiscernible] working hard on that. And I think that's good for the market. I think Robinhood has recently announced some initiatives to improve their customer support and all that kind of stuff. So I think they certainly heard the marketplace loud and clear there. And I think, people talk a little bit about educating, educating retail customers, but more importantly, educating people about how the market really works. As you said, all of this data is out there. Maybe it's not as user-friendly. Bloomberg, you guys do a great job of assimilating it all into one spot, but all the 605 and 606 data about routing and payment for order flow, it's all publicly available. And execution, quality, statistics and price improvements, all publicly available. I think, some of the folks that I've seen on CNBC are acting like this is some new thing that's just been uncovered, right? Like they just covered the Rosetta Stone, and oh my God, we can now interpret like the market. It's been part of the ecosystem, and I think, in a very positive way for more than 20 years. And the SEC and a lot of experts have looked at this concept of internalization, and indeed, payment for order flow, which I now we'll talk about at great length and have studied it. And all has concluded, with the benefit of data and the understanding of how it works, that ultimately, the customer, the end-user that the retail investor has, has benefited. The one thing that I was surprised about, like -- and again, I make a habit of not talking about politics and religion publicly, and then I try to not even do it privately, but there were a lot of folks on the left, progressives that were slamming the witnesses about like payment for order flow in the rig system. And I take -- if you take a step back, Larry, and you say, here's my phone, right? On this thing today, I don't trade, obviously, because I run a large market making firm, but any retail customer can download an app of probably a 100 different brokers and literally for nothing, can get a price streamed to them, which is a price of Tesla or some other name that they're interested in. And they can literally, with a mouse click or a push of a button, can buy 100 shares of that for nothing. And it's the exact same price or a better price that you would otherwise get on an exchange. So if you take a step back and if you were a retail customer, think of the power of that and think how much that has changed. You've been in this industry for longer than I have, Larry. I just -- I was a lawyer until 13 years ago. But think back 20 years ago or even 10 years ago. So rather than be paying $9.95 a trade, now you're paying through. I get it, the critics, look at that and say, well, someone's got to be making somewhere -- money somewhere to pay for all of that, and of course, that is the case. And we're going to talk about payment for order flow and how that's been confused in everybody's brain. But if you take a step back, I was just, frankly, shocked that -- and I know some of these Democrats on the committee because I've spoken with them. I've been to Washington a bunch. And I'm going to -- I have talked to some of them, and I will continue to talk to them and say, you understand [indiscernible] non rigged and how positive the system has become for the retail investor. And that explains a lot of the statistics that you went through in your opening. So I think, look, there's a lot of work that needs to be done here. I'm a big believer, and hopefully not playing into the histrionics of what's going on in the marketplace. But dealing with data. In fact, being really, really transparent about what we do as a firm, and more importantly, what the industry does. And that's what the 605 and the 606 statistics point to. So I think when people spend time understanding that and put inside this dogma that something must be rigged, I think they'll conclude that the ecosystem is pretty darn good.

Yes. No, I agree. I remember when I started in 1980, I worked for what's now a large bank. And I had to trade for them. It would cost $200 a trade just to get in or get out. And I didn't get a confirmation until, if I was lucky, 2 or 3 days later. And then, I'd come back and take a look at the high and low. And there were times I traded outside the high and the low for that day. It was like, how did that happen? Now I get it. Now it's free. I get a fill-in, in micro -- in seconds. And generally, I'm getting -- I'm trading better than the better offer.

Yes. And look, I mean, there are things we can do [indiscernible] we make very clear as to like what you paid. And if there was PFOF, what it was and what level of price improvement you got. I think some of the brokers do that. Obviously, I don't get those confirms, I don't see them. And I know that a lot of the brokers advertise their price improvement statistics I've seen ads on CNBC, which is to my left, from some of the big brokers where they trumpet their levels of price improvement. So I think, again, beyond, hey, Robinhood invented PFOF, it didn't, right? This has been around for a long, long time. Has it helped their business? And is it part of their business model? Of course, but that's not like some state secret that was just unearth.

Yes. So let's talk about payment for order flow a little bit. So I hit the button on my swab screen. That order then gets routed. How does that work? And how can you guys kind of execute that? And how do the mechanics work and the payment for order flow and price improvement and stuff like that work?

Sure. Sure. So let me just delineate. Let me do the sort of the easier example first. Then I'll go through. So let's just make it real simple. I'd say there's 2 types of orders. You got a nonmarketable order or you got a marketable order, right? So if you wanted to put in a nonmarketable limit order right, the market is higher or lower, you put in an order with a limit price that gets sent to your broker. Your broker then has a choice. Does it send that order to an exchange to be displayed or does it use the service, right, of the market making firm, the firms you mentioned, Virtu, Citadel, Susquehanna, Two Sigma. UBS is in the business, right?

Right.

They do a great job, right? So there's a whole multitude of competitors here. Its a very competitive market. If it's a nonmarketable limit order, as you know very well, not to be too wonky, but Rule 612, the order display rule, says, we have to reflect that order on [indiscernible] securities exchange, and we do, we do. And the exchanges compete for that, right? So people that say, "Our, retail is wholly unavailable, and it's not part of price discovery". It's just not true, right? So we are, right now, displaying, I'm sure, tens of thousands of nonmarketable limit orders from over 200 brokers on one of the 15, is it 15 these days, national securities exchanges.

16.

Yes, 16, I would say. I don't think...

You're counting long-term stock exchange, which I think, you and I trade individually more than they do.

There you go. Okay. Right. So we're displaying all that and exchanges compete for that. And they've got their -- NASDAQ has its own program, Arca. New York has the Retail Liquidity Provider program, right, all of those incentives exchanges. Cboe has its own program. And they're competing for that level of flow. So there's a heck of a lot of retail flow that is right now being displayed and is part of the whole price discovery mechanism, okay? Put that to the side. [indiscernible] sends an order to his broker. And he says, you know what, I see this price on my little handheld, and Tesla's, $662. I have no clue what it is. I don't trade it, right? And I want to buy that. So he says, I want to buy 100 shares or I can even, because of the power of what has been created, even buy a fractional share. But let's say, he wants to buy 100 shares of [indiscernible] his tablet. He sends the order to his broker. That broker then has a choice. The broker has negotiated with the 5 or 6 or 7 wholesalers, right, market making firms that I just described. And every single one in every single instance, that broker is sending that order to a market maker based upon the level of execution quality for price improvement we are willing to provide to that order. So believe you me, these brokers do a really good job of playing each other -- us -- against each other, right? So we're competing every day with Citadel, which is an amazing firm. You saw Ken Griffin. He is a once in a lifetime type of leader and entrepreneur, right? He's created this great firm. They're one of our biggest competitors. And so we're competing with them every day. Can we provide more price improvement to orders from brokers, A, B and C and D? Okay?

And is that -- does that happen on the order basis or does that happen kind of like a weekly basis? Does it mean like Robinhood or somebody say, okay, well, last week, you did well? I'll give you more flow this week and -- How does that work?

The answer is every broker has its own manner in which it will allocate flow. Every single -- but the important point is, and this is completely lost last week, every single one of them are sending orders based on price improvement, okay. There are some that take payment for order flow, and we're going to talk about that. But in terms of they're making their routing decisions, they're sending it based on price improvement. That's the key metric. And some will be daily, weekly, monthly, right? And it's done by some will break it up by ADV or by this or that or the other thing. And obviously, over the years, we've worked with the brokers, we understand how they are doing their wheel or the routing decisions. And we're going to make business judgments, right, as to how -- what level of price improvement do we want to give to broker A, B or C right? And it's a little bit of games there. We're competing against Citadel, Susquehanna, Jane Street, Two Sigma, UBS, they are all doing the exact same thing. So we're kind of fighting to see how much money can we provide back and still be profitable and keep the lights on here, right? So it's a very, very competitive business. And again, the important point is, every single one of those routing decisions is made by the broker by looking at kind of price improvement that we're providing, right? So in that case, right, Larry sends it to broker A. I'm not going to use names right because I love all my customers. I'm the Switzerland of liquidity providing, Larry. So I don't make qualitative judgments. And when that order gets sent to the Virtu environment, right, for those 100 shares of whatever stock it was, at that moment in time, there was a national best bid or national best offer for that stock, right? Our deal with our broker is, we are in 90-whatever percent, and this is all publicly disclosed, right, by broker, we're going to give you a price that it's at or better than what the national best offer was in that instance, okay? So sooner [indiscernible] environment, you're done. Now we, as the market maker, have a decision to make, right? Do we take that out of inventory? Do we internalize that, right? And we like to do that, right because that's where we think we're going to make that bid offer spread that you described in your preamble or if we're at a risk or for whatever reason, our strategy say, we don't want to internalize that order more often than not we are, we go to an exchange or to some other liquidity source, whether it's a dark pool, whether it's another broker or whether it's an exchange, and we're filling that order for the customer. And we're price improving it and sending it back to the customer, okay? The retail broker and then back to Larry Tabb. So either way, heads you win, tails you win, right. Heads, sometimes I win if I internalize and I've made the right decision. A lot of times, like this morning, when the retail imbalance was very sharply towards the sell, it was a struggle this morning, right? It's not always rainbows and unicorns here at Virtu. But every time you're always winning because you're getting that fill. I'm either taking out of inventory, right? And price improving it, or I'm going to an exchange and I'm pricing improving because at the end of the day, I've got this big bucket of orders I've got from brokers, A, B and C. And if I don't provide X, Y and Z, a price improvement, they're going to say, "Hey, you guys are falling behind. We're going to take share away from you, and we're going to give it to Citadel, Susquehanna, whomever else". Right? So we're always competing for that. It's all fully disclosed. It's all out there in statistics. Maybe we can do a better job as an industry of making that more ascertainable by folks that are experts like yourself. But at the end of the day, that's how it works. That's how it works. Now I'm happy to...

So how does that...

So we could talk about payment for order flow in a second. Yes.

Yes. No. So in doing that, I guess, there's a tremendous investment in technology, infrastructure and basically connectivity to basically [indiscernible]

Yes. Look, I mean, I said this -- I've always said [indiscernible] -- and I said it in our preamble, and I understand people who are listening, we have spent literally billions of dollars over the last 12 years building, as Vinnie would call it, the stadium, the infrastructure of what Virtu is. We're connected to 250 different markets in every conceivable asset class, right? A lot of that investment in understanding how markets work and indeed, the picture in the stadium of the U.S. equity market we use for other things, right? So it's only that scale and that investment that enables us to provide that level of service. The other point I should make, by the way, is that it really is a service, right? If that order comes to our environment, then we have an issue, right? Like the gap, we have a server that goes down, a switch that craps out for whatever reason, and these things happen. The client is still done, right? And the famous example -- I probably shouldn't talk about that because my Chairman was the CEO of NASDAQ at the time. But when the Facebook IPO happened, there was a big -- the retail brokers got made whole by the market makers. That's why, Knight and Citadel were so unhappy about the situation, right? So we are providing a real service and a real guaranteed execution back to the customer. It's only because we have this infrastructure that we've built, this understanding of market structure and unbelievably talented people that we're able to make a margin on that business.

That's a really good point. When I talk with folks like you and some of the other retail guys, they talk about routing flow to the wholesalers because they do stand behind that execution of service. Why don't you talk a little bit about some of those services you provided, that if they routed their orders directly to the exchange, I mean, a necessary gap?

Yes. look, if you take a step back, I mean, the complaint about the U.S. equity market structure and by no means that I designed it, right? I was humbling a lawyer in 2005 when Reg NMS came into being, and I had no clue about any of this stuff. But if you look at the U.S. equity market structure, one of the big complaints is it's byzantine and it's very fractured. It's hard to get liquidity and it's really expensive to connect all these different venues, right? You've -- 16 apparently, national securities Exchanges, let's call it. 40 ATS is and a whole bunch of other brokers that like to send order back and forth to each other, right? That's an unbelievable exercise and incredibly difficult. That's our business. That's really all we do at Virtu Financial, right? Understanding those markets, spending the money, writing the APIs, buying the latest gear, right? That's all we do. If you're a broker, right? Again, I'm not going to use names. But if you're a a new style broker, like the one that -- I'll just say, Robinhood, the testified, right? Why would you want to go through the hundreds and hundreds of millions of dollars of expense to do that, right? It's the last inch of the marketplace as opposed to the asset gathering part, which is having, I suppose, a great application and having good customers. All the other things, providing margin financing, having good stock loan desk, all the other things that I would imagine, a retail or wealth management style broker would have, all of those things they're good at, we're good at that last inch of the marketplace, and that's where we spend our time. So if you think about it, Larry, it's really not inconsistent with the notion of outsourcing, right, to use a buzzword, that service, right, to a number of companies, I've listed them, right, that are really competitive for your business, and you don't have to pay anything for it. right? Putting aside PFOF, we actually are paying for the 180-ish or so brokers that don't take a rebate or payment for order flow. They're getting that service for free. They're not paying a commission like an institutional customer and they know they're getting great execution because we're giving them all the statistics so they can measure it. And if we're not doing a good job, it's a bit of a mouse click business, right? They can send more flow to my friends at Citadel, who do a great job and doing a better job than Virtu. They're going to get that flow. So it's really a win-win ultimately. And ultimately, every one of those routing decisions is made by the retail broker based on the execution quality and the level of service that we're providing back. It's a standard service business.

Interesting. So this whole idea that XYZ brokers creating bells and whistles and stuff because they want PFOF and they want to get more compensation from you and pushing their folks into riskier investments, is there credence in that or are they just trying to build a business?

Look, obviously, where you stand depends upon where you sit. You see where I sit, right? Here I am running Virtu. So I don't think there's any credence to that. I think there are firms and it's not just Robinhood. There are a number of firms that have decided that, that is part of their business plan. They've built amazing interfaces that have brought a whole new category of people that are interested in trading, investing, speculating, whatever you want to call it, into the marketplace. I personally think that's a good thing. I'm a big believer in democratizing things. That's what Virtu is all about. I wouldn't be sitting there having this conversation with you if it wasn't for democratization of marketplaces and collapsing of bid offer spreads, and reduction of commissions. That's all Virtu is about, right? When Vinnie and I started this firm, we didn't have a single customer. No one knew who the hell I was, some people know who Vinnie was, right? And ultimately, we were successful because we worked really hard and we kept our costs low. We didn't believe our own BS, and we [indiscernible] all Virtu was about in the beginning, right? We moved upstream through the acquisition, as you noted, of KCG and now of ITG because we thought we could bring that service and that scale to a customer's segment of the marketplace, and indeed, it has proven successful. But at the end of the day, this is really about reducing the friction cost of the marketplace. And I think that's what the new entrants have done, right? And so they -- certainly, they -- a big part of their business model is getting rebated, right, which happens all over the marketplace, right? It's not just renewing equities. It happens in FX and other marketplace [indiscernible] paying for customer order flow because they think they can make money off that. But at the end of the day, the thing that kind of hurt me the most in the hearing was, if you still think about the retail customer, right, Larry Tabb is sitting up in his [indiscernible] house and Cape Cod. He's got his tablet. He wants to buy 100 shares of a $40 stock, let's say. It's $4,000, right? So -- and you see the price at $40, you're happy to pay $4,000. You're not paying a commission, you're not paying $8.95 or $4.95. Your total cost then is $4,000, right? If there -- if your broker happens to take payment for workflow, the rate is -- for some brokers, it's 10 mills, right? So that's $0.10 per 100. So for the 100 shares, Larry, your broker put a diamond in his or her pocket and Larry paid $4,000. If all of that came back in price improvement, Larry would have paid $3,999.90 for that same 100 shares. I'm not belittling it, right? It's money -- I watch every penny here at Virtu, but the next tick of that stock from $40 to $40.01 on that 100 shares, you made $1, right? So you're okay. So Larry is not investing because he's worried about that dime. Larry is buying it at $40 because presumably, Larry, I'm just picking on you, things have flown at $16.50, right? So the friction of that dime is going to be in the noise. And that dime is effectively paying for Larry's broker to pay for all the market data that's getting exchanges, that's being piped through the phone to build that interface, to provide for all of that innovation. And so that's kind of what hurt me the most, which is that all of that bid offer spread effectively that's being returned back in the form of payment for order flow, which really has really enabled this democratization and creation of these wonderful businesses that really have, I think, have helped ultimately Wall Street. Are there some excesses and challenges and things that need to be addressed? Of course. But ultimately, at the end of the day, we have a much better marketplace than we did, even 5 or 10 years ago.

I wouldn't disagree with that. Internally, there are a couple of things I want to bring up market data. But before we get the market data, this movement in the OTC side of the business up to 47% or so of the marketplace.

Yes.

Does that worry you because to a certain extent, you kind of need a viable price discovery market to kind of do your job. Do you think we'll ever get to like 50%, 60%, 70% of the market just being out in the dark?

I want to be careful how I answer this because if I sound very cavalier about like I don't worry about things, then people will be smits of it. And obviously, we benefit from increases in off exchange trading. I do want to point out that non-exchange trading is not just retail. And obviously, you know this. It's ATS, its...

ATS is...

It's block to in big banks. It's brokers trading back and forth. We have a feed with Citibank and Citibank has one with Virtu, and we do that with JPMorgan and Barclays. And -- so that's all of it's a confluence of that. I think the most important thing in my philosophy in running this firm has always been about we want to give people choice, okay? I'm going to get through some statistics. But ultimately, when someone is sending an order to a place, whether it's an exchange, whether it's in ATS, whether it's a bank or whether it's a wholesaler like Virtu, it's because they have that choice. And we don't want governments and regulators interfering choices. I don't think because I think the marketplace generally works, and the market always finds its level, right. So that's my fundamental backstop, which is be really careful when you're trying to intervene in the marketplace. There's a lot of benefits, obviously, to have an exchange in mid-markets. And they get well compensated, as you know, in my Jihad on market data, right? So the exchanges have a real purpose. And they continue to get their flow and they will continue to be competitive for that. But ultimately, don't limit investors' choices, okay? I think if you peel back the onion on a lot of the data, when people talking about 47%, I think you got to look at notional. You had it in your preamble, which is there has been this explosion in -- of interest in low price names, both in terms of NMS stocks and OTC stocks, right? So again, I want to be careful how to say this because I really don't want to be disparaging people that are trying to make a point and trying to run a business and whatnot. But I think a lot of the -- it's either exchange is trying to talk their own book, which I get, I talk my own book all day. That's why we're having this conversation or it is folks that are representing or want to represent institutional holders that are trying to [indiscernible] ] institutional holders or not getting access to price discovery and liquidity because of this retail explosion. I don't think that, that is factionally correct and supported by the data. I think the data you showed would show that there are -- there has been this exclusion of interest, right? There's been an 83% increase in less than $5 stock from -- on the TSX from last year, okay? Those are generally not names that large institutions are [indiscernible] of long-term investments. Typically, these are things that are very interesting to retail. And I think people -- retail investors just like lower-priced names because they can buy more of them. And they think that when they increase a tick or two, right, they can day trade, they can flip them. [indiscernible] theory that anyone's ever explained to me. So I think when you separate out the wheat from the chaff in terms of what the data really shows, there really has not been a huge surge in off exchange in those $5 and beyond type of names. And if you're an institutional customer and [indiscernible] comes to public service announcement, Larry, nothing is for free. And you're using the right broker like a Virtu Financial that understands the marketplace has superior algorithm [indiscernible] also has access to all the liquidity sources, including our own, right? So we're going to allow that institutional order to interact with the market maker, and we're going to allow that institutional order, obviously, fully disclosed to interact with Citadel and other places, right, because I think that's part of what the new marketplace [indiscernible] those institutional customers still can get excellent liquidity and great execution. That's kind of part of the model, which is to bring both sides of the business together. So I've kind of gone full circle on here, but I think I answered the question in terms of do I really think of the hindrance of the price discovery? No, I don't. I don't think the data really supports it.

And so maybe we're just looking at the market wrong. Everybody else looks at it in terms of notional around the globe. We look at it in terms of the shares traded. Maybe we should be looking at in terms of value traded.

Yes. And I think if we should charge institutional customers based on notional, we'd make more money as brokers too, Larry, like in Europe, but I don't think that was going to pass either, yes.

Yes, I don't think so. That's clear. Let's talk about GameStop, and then we can open it up for a couple of questions. What's your take on this GameStop/Meme stock trend? And should we be worried about all these stocks trading way above or below their fair value?

Yes. Look, again, I try very hard not to have religion about these things, right? I mean, we didn't -- as a country and as a market, we didn't invent speculation, people talk about the Tulip crisis in the -- I guess it was the 1600s in Amsterdam, right? So speculation in these bubbles have been around for a long, long time. I think the important things are, and the SEC will look at this is [indiscernible] I used to be a lawyer. I understand like 10b-5 violations [indiscernible]. On that surface, it doesn't appear that, that's the case, but the SEC and FINRA will look into all of that, understand what happened there. I think -- and that's a bigger question than like Robinhood or whatnot. It's just -- was there any manipulation of the marketplace going. I don't have a clue. I have no ability to understand that. I can tell you, with 100% certainty based on, obviously, the testimony I saw and what I know about how the [indiscernible] of the market [indiscernible] that there was no collusion between Citadel, Melvin and Robinhood to somehow shut them down. All of that was, I think, the bunk of [indiscernible] testimony of the principle. But more importantly, it was obvious to me as someone who understands how the clearing system work, what happened? I mean, Robinhood had [indiscernible] that were incredibly one way in very volatile stock or a clearing member, a very proud clearing member the NSCC. I know how they margin, and I know when volatility spikes because we've lived this year at Virtu, right, and calls go up. And if you're not prepared for that, there's only one way to satisfy that risk, which is to derisk it by turning off trading or reducing your position, right? When you want to [indiscernible] a market making firm, that's a lot easier. We just skew the trading or we could trade out our position to reduce our overnight margin. When you run an institutional tail business. You don't have that luxury because clients are going to do what they're going to do, right? So [indiscernible] into an almost an intangible position and did the only thing that it could possibly do to ameliorate that margin call. So I think at the end of the day, as long as they're -- just to come back to your question, look, the point is, there are disclosures as long as there's enough education, these aren't like complex options, presumably that people are buying, they're buying and selling a security right? I don't talk about fundamental value of any company other than my own. And obviously, I think it's horribly undervalued, and that's my job. But putting aside those other businesses, at the end of the day, right, you have consenting adults right, who are fully informed as to the risk of what they're doing. I don't think it's the marketplace is job, assuming they're educated and whatnot, and they've been properly margined and all that kind of stuff and they've checked all the boxes and they're adults. I don't think it's the marketplace's job to prevent those things from happening, Larry. I really don't.

Yes. This is very different than kind of a pump and dump scheme where I own this shell company and the sales guy goes and sells it to Graham, folks who don't understand. And this is really a diversified group of people that really know what they're getting into. You said that's kind of the real difference between that and some of the [indiscernible] system?

Yes. We all saw that movie. It was Boiler Room, right? I forgot who was in it, right? So this is not -- I don't think this was that. I mean, I've seen no evidence of that. And I think, look, I mean, obviously -- and this is all public, I mean, Robinhood raised billions of dollars in a matter of like 24, 48 hours. Obviously, there's some very well capitalized people who see the value of their business model or a client of ours, a very important client of ours, and we continue to service them throughout that episode and proudly have significant market share with them all publicly disclosed, and we're going to continue to do our best to provide good quality service to their end users.

Sounds good. I'm going to take a couple of questions from the audience here. There's a couple of questions on payment for order flow versus folks who take payment for order flow and those who don't. And if my execution is through somebody who takes more payment for order flow, is my execution going to be worse than someone doesn't? How do you kind of approach that? And then, does that then mean that if my firm takes payment for order flow, then I'm not getting best execution? Or how does that...

No. No. I think the answer to that is no. And let me give you the best analogy I can think of. I saw a Congressman Sherman ask Ken Griffin that question. And I scratched my head, thinking. How would I answer that question? And I probably couldn't have done it in the 20 seconds that he was allotted before. He got excoriated for wanting to be a Senator who is filibustering. Look, here's how I would look at it. One of the things I really love about living and suburb is on Saturday morning, going out and getting gas for my car. Don't ask me why I like to do that. I'm sure maybe you've experienced that, too. You go out, you got a couple of coffee, you got to the gas station. I live in Short Hills, New Jersey. There's 3 gas stations that compete with each other on price. And my wife always used to go there because it's going to be $0.10 less the gallon than the Exxon I go to, that's closer to my house. Why do I go to the Exxon close to my house? Because I know the guy. It's full service, always in New Jersey, they pump. I know I'm paying a little bit more, but it's all publicly disclosed. Its all out there. And they got one of those great freezes where you can open up and you can get yourself like a little strawberry short baker and ice cream, and I do that occasionally, right? So I'm willing to pay $0.10 more gallon to go get gasoline over there, right? It's no different. Everybody's got [indiscernible] with their real estate -- excuse me, with their retail brokers. It's all fully disclosed. Everybody is going to get a price, it's even better than the gas station, Larry, because everybody knows, you're not going to pay more than $2 a gallon. Maybe 1 store has at $1.95 a gallon. My store happens to charge $2 a gallon, but I like it because I can go in there and talk to my friend and I can get my little strawberry shortcake every now and then and throw the wrap away and my wife doesn't know and everybody is happy, right? So it's the same thing with your retail broker. There are hundreds of different choices. Do you get -- might you get a slightly better price because a broker is passing back the entire portion of the price and [indiscernible]? Yes, you might. But maybe they're charging you more for margin or maybe their stock loan costs them more or maybe you don't like their interface or maybe it was harder to sign up for that. I don't know. It's not my business. But ultimately, we -- every single one of those brokers is giving you at or better than what's displayed on an exchange. If not, it's explaining to you why and what percentage of those orders are not. So if you want the absolute best price, then research around, and that's what those brokers are competing on. If you like, the interface better, if you want a lower margin rate, if you like the customer service desk, if you like, the fact that your 401(k) is there, then maybe you go trade there. Those are choices that investors have, right? But again, boiling it back, nobody is sending an order to Virtu or Citadel into our other competitors based on the amount of payment for order flow we're providing. And every single one of those brokers has a fixed amount, right, that it's either a formula or a set amount that you're paying in the beginning of the day. They're not adjusting it during the day. And if the spread has widened a lot or if we make or lose money, we're still making that rebate paying. And again, that rebate is paying for all of the infrastructure that, that broker has that it has to deal with, right? So again, it's a small price that's getting sucked into the ecosystem out of the bid offer spread that's enabling all of this innovation and participation in the marketplace. I would argue that's a small price to pay. And rather than having to [indiscernible] the consumer pay it, you got firms like Virtu and Citadel, ultimately paying and helping [indiscernible] all of that innovation. Why is that a bad thing?

Yes. when do you look at price improvement and stuff like that, are you using more of the direct feeds for using kind of the SIP or both, or how does that work?

Yes. I mean, as a general matter, we're using both. I mean, like the standard in the industry and now since the SIP has been -- I'll try to use polite words sped up and kind of harmonized. As a general matter, we're using the SIP, but every broker will use whatever it chooses to use, and we will conform to whatever standards or whatever rules that they want to put in place. And again, every broker is different in terms of how they are looking at their execution quality statistics. And again, it's all publicly disclosed. I'm not going to name brokers, but if you go to broker A, B and C and type in like 606 statistics and price improvement statistics, if you're really interested in that kind of stuff, you can go see how much price improvement you're getting and off of what? And how many orders are improved off of the NBBO? And what percentage of price improvement? You said the number, it's $3.7 billion, was effectively taken out of the bid offer spread in the universe in 2020 and put into the pockets of retail investors. Period end of story, right? No other country in the world has an ecosystem that does anything close to that.

Yes. Let's do one last question or two, and we'll wrap it up. There are some talks about intelligent ticks and maybe some market day rules that get odd lots on the tape. Is this a good thing?

Yes. I mean, as a general matter, we put in a letter supporting that. I mean, again, there's one of -- there's an urban legend that somehow Virtu, Citadel and all these other firms make a ton of money off of odd lots. It's actually not true. The brokers are smart enough to figure out that even though it's not covered by the current order protection rules, they still will measure our execution quality on odd lots, right? So these are large sophisticated institutions, right? So we're competing again with those aforementioned 4, 5, 6 wholesalers based on the amount of execution quality provided odd lot. So when I see those kinds of things out there in the ecosystem, I get a little frustrated, but I decided not to go on Twitter and deal with it publicly. But I know all of that is factored into the ecosystem, right? So at the end of the day, [indiscernible] -- it was a big proponent having competitive consolidators. Virtu wants to be in that mix. I've publicly said, I think we can do it as well or better and, frankly, a lot cheaper than the current consolidator. So it's something that we would look to do on our own or do in partnership, Larry, assuming that, that litigation, which I imagine is going to be going for a long time between [indiscernible] changes ultimately gets resolved. I mean, I used to be a lawyer. I read the complaints and whatnot out of the fence, I find myself, but it's America and anybody can sue anybody for anything.

Yes, it's kind of crazy. So let's wrap this up a little bit. Tell us about your wonderful panthers. And what's the story with hotdogs? You've got this thing going on with Feltman's.

Yes. Well, it's a great thing because since Feltman's became the sponsor of the Florida Panthers, we're in first place. So there's obviously a strong correlation between hotdogs and hockey. I made a mistake a long time ago going on Twitter. I thought, oh, okay, I'd be a good guy engaged with hockey fans. And then ultimately, that got a little rotten. So I kind of pulled back from that. Then I did a little bit of market structure. And when I do that, then sometimes we get [indiscernible] haters come after me. So I've decided , the one area, which nobody can disagree with me on is hotdogs because I say I'm a hotdog influencer and I really know hotdogs. And the great thing is Feltman's is really quick to -- Charles Feltman, created the hotdog. He came over here from Germany, great immigrant story. He's the first guy to put sausage in a bun. And one of his employees was a guy named Nathan, something or other, and he basically pull the recipe and opened up a competitor across the street. It's a good analogy here for what's happened in the market. And Mr. Feltman was charging a diamond and Nathan was charging a nickel. And you guess would happen to Mr. Feltman, you never heard of him, right? So cost does matter, scale does matter. But ultimately, it's a great hotdog, a Great American, a great West Pointer name of Joe Quinn, who loves hotdogs, decided he wanted to bring them back and [indiscernible] he bought the brand and [indiscernible] to my partner, Vinnie Viola and West point or Vinnie [indiscernible] Joe. And I just love the hotdog. It's [indiscernible] I'm like a Kardashian of girl's meat. I understand, I'm an influence, that's the most important thing for me on a Saturday or being at a hockey game. So everybody go out and get yourself a Feltman's. Larry, your package is on its way. The mustard is a 10 as well.

That's awesome. Okay, Doug. I want to thank you for doing this. This Is great.

Thank you, Larry.

Anything you want to get off your chest that you haven't talked about?

I got plenty of stuff I want to go from now. I'm a happy guy. I run a great firm. I got about 1,000 wonderful employees here. And Virtu is having -- as we publicly announced before, we're in the midst of another really successful year providing, we think, a great service to the marketplace. So I'm a very blessed guy, nothing at all to be angry about.

Now with that, Doug, thanks. I thank Doug Cifu, the CEO of Virtu Financial for chat up with me for about 45 minutes, maybe a little longer. I want to thank everybody and the community for listening. We had a lot of great questions here. Sorry, I was not -- we weren't able to get to all of them. We got a fair amount. And with that, I'm Larry Tabb, Head of Market Structure Research for Bloomberg, and thanks for joining us.

Thank you.

You take good care, Doug.