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

Good morning, and thank you for joining the Virtu Financial 2022 Third Quarter Results. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly. And now I will turn the call over to Andrew Smith.

Thank you, Rita, and good morning, everyone. Thank you for joining us. Our third quarter results were released this morning and are available on our website. On this morning's call, we have Mr. Douglas Cifu, our Chief Executive Officer; Mr. Joseph Molluso, our Co-President and Co-Chief Operating Officer; Mr. Sean Galvin, our Chief Financial Officer; and Ms. Cindy Lee, our Deputy Financial Officer. We will begin with prepared remarks and take your questions. First, a few reminders. Today's call may include forward-looking statements, which represent Virtu's current beliefs regarding future events and are therefore subject to risks, assumptions and uncertainties, which may be outside the company's control. Please note that our actual results and financial conditions may differ materially from what is indicated in these forward-looking statements. It is important to note that any forward-looking statements made on this call are based on information presently available to the company, and we should not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclosures in our press release and encourage you to review the description of risk factors contained in our annual report, Form 10-K and other public filings. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA and adjusted EBITDA margins. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP. We direct listeners to consult the Investor Relations portion of our website, where you'll find additional supplemental information referred to on this call as well as reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an explanation of why we deem this information to be meaningful as well as how management uses these measures. And with that, I'd like to turn the call over to Doug.

Thank you, Andrew, and good morning, everyone. This morning, we reported our third quarter results. For the quarter ended September 30, we generated $0.61 of adjusted EPS and $5.2 million per day of adjusted net trading income, bringing our year-to-date results to $2.61 per share and an average adjusted net trading income of $6.3 million per day. Our business performed well against the opportunity presented for both Market Making and institutional flows with both exceeding our internal opportunity benchmarks. Our results enabled us to consistently return capital to our shareholders through our ongoing share repurchases. As of today, we have repurchased a total of 31.1 million shares or over $870 million in aggregate, and at current levels, we will continue to be aggressive in repurchasing our shares with about $350 million of remaining capacity. Our investments in our growth initiatives continue to return impressive results, accounting for 10% of our adjusted net trading income for the quarter, up from 7% in 2020 and 2021. Options remains significant long-term growth driver for us, not just in the U.S. or even just in equities. Our scaled approach to everything means we're already finding ways to deploy what we are learning in U.S. equity options to opportunities and options abroad and in other asset classes. Speaking of scale, as we grow in options, that will add to our competitive scale in other asset classes, even wholesale equities, as well as the potential to present lateral opportunities for us to add options capabilities to our global execution services footprint, including Algo's workflow and analytics based on client demand. For now, being competitive in options requires significant investment in technology and people to ensure that we have adequate capacity to meet our goals. We continue to make methodical progress in expanding our symbol universe and increasing our interactions with order flow from options drivers. Our growth in options year-to-date is especially impressive given the market-wide options volumes is relatively flat for the same period. Our growth initiatives to expand to crypto market making has continued to progress since we spoke last quarter. Our growing crypto desk remains focused on developing connectivity and technology to a growing number of the top crypto venues as we work to expand the opportunity that we can address in Bitcoin, Ethereum and other top cryptocurrencies across various forms, including spot as well as ETFs futures. EDX markets, our venture with Citadel, Fidelity, Schwab, Sequoia and Paradigm to develop a crypto ecosystem to serve the interest of global investors is proceeding nicely. Our global ETF block initiative also continues to contribute to our results as we focus on growing our footprint in the fixed income ETF universe in conjunction with key investments we are making to become a dealer in the market for corporate bonds. Before I turn it over for the financial review, I'd like to speak about market structure, what's currently being considered by the SEC and our reference to provide facts and data to the public discourse. We believe a positive element of the advocacy work we're conducting is creating a broader understanding of the extraordinary value that the current competitive ecosystem provides to retail investors. There are a number of points worth highlighting about the market structure. First, I want to be very clear that while there is still no official proposals from the SEC, it would likely be years before certain ideas are proposed, adopted and become rules and then are finally made effective. Virtu remains publicly supportive of several of the ideas discussed by Chair Gensler in his June 8 speech specifically. We agree that. Exchange should be able to display now more quotes, specifically halfpenny quotes for tick-constrained symbols; odd lot quotes should be included in the SIP; and disclosures and retail execution quality reports, Rule 605, should be modernized as we requested in our official petition for rule making, which we submitted over a year ago. That said, historically, SEC rules, proposals with the potential for substantial market impacts have followed a deliberate multiyear process of content release, roundtables and other forms of industry engagement designed to solicit broad and substantive feedback on a particular marketplace theme. These processes help ensure that any final proposals ultimately borne out of the exercise are responsive to actual marketplace challenges and enjoy broad and diverse support across a range of market participants. Effective and efficient rulemaking is a methodical process. Doing it right takes time and benefit from the experienced folks at the SEC being involved. This is why the SEC documented its own process -- processes, procedures and requirements for rule made. Unfortunately, as was recently reported by the SEC's own Inspector General, the current share in his political appointees tend to preference speed over accuracy, and as the SEC's Inspector General stated lack of the resources to keep up with their self-appointed agenda, potentially at the risk of adherence to the agency's own processes and ultimately the rule of law. The SEC's unchecked speed and lack of resources is especially worrisome to a broad range of market participants and investors, including hundreds of our clients, given that the SEC has assigned itself an ambitious agenda with numerous interrelated market structure reforms that if enacted could significantly and permanently alter our efficient, accessible and resilient financial markets. Despite the industry's general agreement around where the SEC should focus its efforts, the Chair's repeated misstatement of facts regarding retail order routing practices and payment order flow provides little comfort that the staff are empowered to actually listen to industry feedback or are incorporating readily available data into the decision-making processes, but are instead engaged in as a prominent [ wise type ] commentator noted this week in regulations by hypothesis. We support Schwab's comment in its recent white paper that the U.S. equity markets are "the deepest most liquid and most efficient in the world, which allows investors to enjoy narrower spreads, low transaction costs and fast execution speed." We'd also echo Schwab's concern that the SEC's "call for reform are obscuring the benefits of the current ecosystem to retail investors," and further, we are alarmed by the current SEC's comments that reflected diversions from the SEC's long-standing goals of enhancing and protecting the retail investor experience. We will remain earnest in our endeavors to engage the SEC in hopes they embrace the constructive engagement that the industry continues to offer to advance policies that enhance transparency, competition and that promote investor choice and superior execution quality rather than the current SEC's obviously politically motivated agenda. I will now turn the call over to Joe.

Thank you, Doug. Based on the guidance we have previously provided, we are on pace to meet or exceed our target buybacks and financial earnings ranges for the year. Given the opportunistic refinancing we completed back in the first quarter, we would anticipate share repurchases that correspond to the previously shared public buyback ranges for the foreseeable future. As was mentioned above, we have generated an average of $6.3 million per day in adjusted net trading income through September 30, totaling $2.61 in adjusted EPS and $733 million (sic) [ $734 million ] in adjusted EBITDA, both on target with the ranges provided. As we said in the past, we believe the range of outcomes are sustainable through the cycle as these levels are a result of significant growth we have achieved to date to raise our baseline performance over the years, both organically and through acquisitions. Consistent with our ethos of disciplined expense management, we have successfully held costs in line despite the worst inflation since the 1970s, producing a 61% EBITDA margin year-to-date. As Doug mentioned, we remain committed to returning capital to our shareholders, both through our current quarterly dividend and the share repurchase program. Since inception of the share repurchase program, we have repurchased 12.2% of Virtu shares, and that's net of new shares issued for employee compensation. We have a long-term perspective and we'll continue to repurchase our shares in the quarters with the ranges that we have previously shared. Touching on the performance of our segments. Market Making performed as expected. Broad measures of overall and retail volumes versus the second quarter were down materially. Average realized and implied volatility were down 25% and 10% respectively. U.S. equity share volumes and notional value trading were down 13% and 22% respectively. Average daily shares at IBKR, which is a proxy for retail activity, were down 9%. Rule 605 share volume in the third quarter was down 5%. All in all, our diversified Market Making business performed well against this environment. Our Execution Services business also performed in line with the market opportunity this quarter, realizing $93 million in adjusted net trading income. It's important to note that in a quarter such as this, the multiyear integration of the ex-ITG platform, in particular, that we recently completed allows us to maintain, invest in and provide critical services to clients in a less and robust environment. We have overhauled and replatformed this technology in the Algo product suite, reduced costs dramatically and retained our broad blue-chip client base. And now I'll turn it to Sean to wrap up the discussion.

Thank you, Joe. In the third quarter, as presented on Slide 2 of our supplemental materials, our adjusted net trading income which represents our trading gain, net of trading expenses totaled $331 million or $5.2 million per day, which is 7% lower than Q3 2021 and 10% below the second quarter. Market Making adjusted net trading income was $238 million or $3.7 million per day, 4% lower than the year ago quarter and 9% below the second quarter. Execution Services adjusted net trading income was $93 million or $1.5 million per day, which is a 12% decrease year-over-year and a 13% decrease from the second quarter. Adjusted EPS was $0.61 for the third quarter. For the third quarter, our overall compensation expense was $103 million, which is up slightly from the second quarter. Our Q3 cash and overall compensation ratios were 25% and 31% of adjusted net trading income respectively, and were 21% and 25% year-to-date. Adjusted EBITDA was $181 million for Q3, which was down 14% from both the prior year quarter and the second quarter of 2022. Our adjusted EBITDA margin was 55% for the third quarter, which is down 4 points from the second quarter, but continues to be reflective of our efficient cost structure and disciplined expense management. Our capitalization remains adequate and our long-term debt was $1.8 billion at quarter end, which reflects a debt-to-trailing EBITDA ratio of 1.7x. Financing interest expense was $23 million for the third quarter of 2022 compared to $20 million for the prior year third quarter. We remain committed to our $0.24 per quarter dividend which we have consistently paid over 29 quarters in every environment since our IPO and our approximately $432 million share repurchase year-to-date demonstrates our continued commitment to return capital to our shareholders. I will now turn the call back over to the operator for Q&A.

[Operator Instructions] The first question from the phone line is coming from Rich Repetto of Piper Sandler.

So I guess the first question is, you pointed investors towards looking at normalized earnings. And just trying to understand, over the last 8 quarters, you've averaged over $1 in EPS per quarter. The last couple of quarters has been a little bit lower. But I guess what's your view on what normalized earnings are? Is the recent quarters more sort of a trend of what retail flow should be like going forward? Or do you still expect the outsized quarters just from sort of event-driven volatility?

Rich, it's Joe. Look, I think the answer to that question is that the slide that we put in, we don't have it in this quarter because it was just so repetitive, so I wouldn't read anything into it. But you're right, I mean through the cycle, we think we're going to wind up on that page, right? We had $6 million on that page as the lowest number. And I think we are $6.3 million year-to-date. I wouldn't read anything into the last 2 quarters as a view on the future in terms of retail participation, in terms of the institutional business, in terms of the prop business. It's just part of the cycle, right? And I think that we -- our long-term goal is to continue to kind of move down that page, move from 6% to 6.5%, 7% up the chart by growing the business and by buying back shares. We bought back an eighth of the company here in the past 20 months or so. And I think that's incredibly powerful. The buyback ranges that are in that slide, again, we didn't repeat it here, but you guys should use those as the future state looking at where we are. And we're interested in continuing to growing through that. It's nothing more than that.

Got it. I guess my one follow-up will be on regulation. And Doug, you're pretty forceful in your prepared remarks. So I guess just on -- now that it appears with some media reporting that a ban on payment for order flow is off the table. But 2 things being like tick sizes and this order-by-order competition. Could you just address like you are in favor of some tick size adjustments. But could you just comment on those 2 aspects. I think those are still cluttering down the line.

Right. Thank you for the question. As I indicated in my prepared remarks, there are -- we've been very front-footed and we put a rule-making proposal in over a year ago on a number of topics that we would be very supportive of, that I think has universal or near universal support around the industry. Obviously, some of the nuances need to be addressed and there was a SIFMA roundtable on September 13, ironically held in Washington D.C. that the entire industry was there other than the SEC, which they probably should have been there. And I think there was universal support for odd lot -- including the odd lots in the SIP, whether or not they're protecting the quotes or not, TBD enhancements, the 605 disclosure, so that investors can understand the impact of size improvement and perhaps further disclosure around the amounts of rebates that are being paid to some brokers with regard to tick size. I think it's very important. Again, this is something, I think, that the Chair obviously states which is that today, ATSs and exchanges can execute at sub-penny prices. There's no restrictions on that. So there are retail liquidity programs on national securities exchanges right now, where executions can and do occur at sub-penny prices. So in terms of a level playing field, there's no reason that 1 of the 17 national securities exchanges can't encourage executions of retail orders, marketable orders at sub-penny prices, and these -- they happen today. What we did discuss of SIP which we are in favor of, there are a number of stocks that -- and the CBOE put out a great report on this that if you look at the penny quoting size, there's ample liquidity at either side of the touch and a significant demand for midpoint executions are actually done either in dark pools or on exchanges. And so those tick-constrained names is probably useful for as many quotes to be displayed on national securities exchange. So overall, there's a number of things along those lines which -- that we are in favor. In terms of payment for order flow and what the Chair refers to as order-by-order execution without any detail, we've been very front-footed on that, that there's just a fundamental lack of understanding by the Chair as to how the entire ecosystem works, that there is competition for every order, and it's very, very wholesome between 8 or 9 different wholesalers and that the benefit, the size improvement and the aggregate amount of price improvement is so overwhelming and so data-driven, I mean, the facts are out there. If you look at the Schwab white paper, they talk about $120 billion of price improvement over the next 10 years and essentially by aggregating the responsibility of the wholesale and to effectively take any order that comes to the wholesaler, you would be doing a significant damage to that ecosystem in our view, and frankly, in the view of all the wholesalers. So today, investors have choices. They can send their orders to a retail broker that accepts payment for order flow. There are hundreds that do not. They can send orders to a retail broker that uses wholesalers, ATSs and exchanges. There are retail brokers that say we're not going to send orders to wholesalers rolling to international securities exchanges. So in my view, and I think in the view of people that appreciate and want competition in free market, all the things that the Chair wants are out there. If an ATS or an exchange wants to create an option, there are a couple out there, create an option. If the retail broker state that they will get better execution or best execution by sending their orders to an option, they will do so. When regulators and this Chair in particular start talking about picking winners and losers in the marketplace, that's where I think they go sideways. That's not -- that regulation by innuendo and hypothesis and not by allowing free market competition to work, and that's why we will continue to be one data-driven and very, very front-footed, and frankly, very outspoken on this issue because we just don't think it's consistent with how market should work. If the Chair really thinks that the markets would be better with an option, then introduce a pilot program, say, okay, 100 names, 10 names, 20 names, 50 names, whatever that needs to be sent to an auction for 6 months, collective data, deep execution quality will improve. It won't, right? But otherwise, changing an entire market structure or attempting to change the entire market structure, frankly, just through hypothesis because some academician said it might make sense. To me, it's not only non-sensible but it's not consistent with the policies and procedures of the SEC, and certainly wouldn't stand much under The Administrative Procedures Act. And it's not just Virtu saying that, dozens of firms are back with that same sentiment.

We now have Chris Allen from Citi.

I want to talk a little bit about expenses. And just some of the different -- the adjusted OpEx lines. Cash comp ratio is up to 25% which is high relative to prior quarters. But on an absolute dollars basis, looks like it's pretty kind of steady. Just wondering if that's being driven by the adjusted cash comp ratio? We -- should we be thinking about it from a percentage perspective or just in terms of the run rate from a dollars perspective moving forward? And then just in some of the other lines, where are you from a scale perspective, looking at G&A specifically? Any factors that are going to deviate or drive the run rate higher from here? Are you fully build out and you have capacity in areas like options and things like that? Or do you need to build out further?

Yes. Thanks, Chris. On comp, it's a really simple story. We have been accruing flat. And during the third quarter, we're going to look at the year-to-date ratio, right? So the flat accrual kind of generated 21% cash comp ratio year-to-date, and we're very comfortable there. So if you look historically, that's right in the zone and you shouldn't expect too much of a deviation from that and depending on where we come out on revenues, obviously. But we've always oscillated between kind of the high teens and the low 20s on a cash comp ratio, and we shouldn't deviate from that too much. So I wouldn't expect it to be a higher number in this quarter. This quarter is just a consequence of net trading income, in Q1, we're at 17%, Q2 we're at 22%. So we're kind of 21% year-to-date. In terms of your other question, the good thing about the growth initiatives is, I think a lot of the investment is kind of done and behind us. I mean we're -- the comms and data processing line, I think we're in the right kind of accrual range there, it was 56 in Q1, 56 in Q2, 50 -- 53 in the third quarter. You should see things pretty similar going forward. So I wouldn't expect any surprises on the OpEx. And ops and administration kind of fluctuates. There are some things that are causing that to go up like everything else, things that we paid for like insurance and rates go up and there are some things that kind of help us in there. We've got foreign subsidiaries and paid bills in different currencies and some dollar exchange rates helped a little bit there. But there's not too much noise and I wouldn't read too much into it. I think when I look at our quarterly expenses in the past 4, 6, 8 quarters, when I think about the inflationary environment we're in, I think that's a pretty good story there in terms of holding the line.

Cool, maybe just a quick follow-up on just options. Just wondering where you are and your capabilities there from an infrastructure perspective. Is everything fully developed, your quoting system fully developed? Is it now just basically blocking and tackling in terms of adding symbols or is there more to be done in terms of building out your capabilities there?

Yes, it's a great question. It's kind of a hard one to answer. I don't think you ever really fully developed and fully done with anything, I mean even within U.S. equities, which obviously we've been in for 15 years. I'm not trying to be a punk and not answer the question, but -- so yes, there's continuing development work in options. We have a very robust infrastructure that allows us to quote frankly any and hopefully be profitable, which we are in all the options contracts in the United States. We're connected to the options venues. But obviously, Chris, as you said, there's a lot of blocking and tackling that needs to go on to very new and different asset class for us. We've made some great strides in terms of the symbology where being -- that we are competitive in and in taking the first step towards taking "I guess retail order flow," as you can call it, by taking options off of -- contracts off of options drivers which is kind of putting your toe in the water, and as well, having a quoting and execution infrastructure in Asia, which we do right now. The good news is, as I indicated in my prepared remarks, it's very easy to -- once we have built out that scale which we have to pivot to options that -- other than equities as their underlying delta because as you well know, we have connectivity and excellence and a lot of experience in commodities and FX, et cetera. So in terms of where we are, it's very early and maybe we're in the second inning in terms of opportunity. The good news is that from a scale, infrastructure, relationship with the exchanges and making sure that we are capable of expanding, we're in the kind of very late stages. But as I said, there's always work to be done, but I'm very, very happy with the progress that the group has made globally.

We now have Ken Worthington with JPMorgan.

The Virtu new initiatives have been about 10% of NTI for the last 3 quarters. Why has this been so stable this year as you kind of continue to build out the options in crypto initiatives rather than showing either sort of steady or episodic growth so far this year? And maybe you can highlight the major milestones you see for the crypto and options build out over the next 2 or 3 quarters or so.

Ken, it's Joe. I think the 10% number really is a function of -- is where we come out overall in net trading income. It has been pretty steady. There's -- they're new initiatives in that they're greenfield and that they were only a handful of years ago. We generated nothing from these businesses. And now we're generating this quarter $0.5 million a day. But they are subject to the same kind of volatility that the rest of our business is. So I wouldn't read anything into the 10%. I mean I think Doug just went through some of the milestones in options in terms of building the business of scale and going for a broader set of symbols. In crypto, I think it's still kind of early days. It's probably even earlier innings than what Doug mentioned in terms of options. We're connected to multiple venues. We are trading in multiple coin. And we are doing things in Virtu ways kind of being very incremental around it.

Okay. I guess maybe just to follow up on that. If you're having success in these build-outs, I would think that they would be a bigger part of your franchise over time. They don't seem to be. Is this maybe pricing where you're building the business, but it's not necessarily translating proportionally into earnings right now or NTI right now, but it will in the coming quarters? Like I guess I'm just trying to connect those dots and I...

So yes, I wouldn't read too much into the percentages really. You're comparing greenfield businesses that are growing, yet are still subscale to more developed fully scaled businesses. And I think that's kind of the 2 moving pieces that kind of caused these percentages to drop out. So...

And I think the other point and the good news is that like our non-growth initiatives. So I guess you would say our more mature noncustomer businesses had a really nice quarter, Joe. I mean they outperformed our metrics. So relative -- so if the numerator isn't improving, but the denominator is improving that's probably good news as well, right? So the denominator, our noncore business, which we don't break out outperformed the metrics. The growth initiatives have expanded, but they are obviously subject, as Joe indicated, to market conditions as well, right? So the fact that they kept pace with the rest of the business, which is -- which did well, outperformed our internal metrics and that's the part of it.

Yes. I think another way to say is, obviously, if you use an exaggerated example of the -- if the nonorganic readiness has declined or deteriorated the percentage of ANTI would be a lot higher, but that wouldn't be a good thing.

Correct. We would have denominators like decline, then you all would be even more unhappy.

We now have Daniel Fannon with Jefferies.

Just a question, Joe, on the buyback. Obviously, just the quarter to date -- I mean, sorry, year-to-date numbers, I think, tracking close to $430 million. And I wanted to just go back to the normal sensitivity tables. You're tracking obviously well above that. I think you mentioned the debt pay down as a reason. But -- as we think about the fourth quarter and beyond, where do you think -- where is the normalized level should we be referring to? I guess just not matching up with the ANTI numbers.

Yes. That is a very good question, actually. I think the year-to-date number is well above that range because of the financing we did in Q1 and took the opportunity to dedicate some of those excess proceeds to the buyback. I think in the future, you should refer to those buyback ranges that correspond to the ANTI per day and hold us to kind of be within those ranges. And I think going forward, especially we'll be talking more, hopefully, to the midpoint or higher in those ranges, but that's the way to look at it.

Understood. I guess, just even for this quarter -- you did that in the first quarter, but obviously, even this quarter, your number is quite higher. So if we just annualize the ANTI for 3Q versus what you bought back, so is that benefit of the financing done and that still pulled through this quarter as well?

So a little bit. We also had some realizations from some of these investments that we had done as part of kind of the market structure initiatives where we get pulled in and use some of those proceeds. We did this transaction with MarketAxess with RFQ-hub, and Eris did a transaction. So some of those proceeds helped along the way. Again, our view is we have more than adequate capital to run the firm. We have a debt level in place that's sustainable through any cycle and that's on that range and everything else will be returned to the shareholders. So you got 2 factors this year. You got those -- the investment proceeds like I'd mentioned, you've got the debt refinancing proceeds. But going forward, you can use those public buyback ranges.

[Operator Instructions] Our next question comes from Alex Blostein with Goldman Sachs.

Maybe a little bit of a bigger picture question, Doug, for you, just around the market quality. We continue to hear liquidity concerns in sort of various pockets of financial ecosystem. You guys obviously participated in many different asset classes around the world. Any different areas of concern you see from just a market structure and a market quality perspective? Any particular asset class that you highlight in light of those, are you augmenting your sort of trading and behaving activity?

Yes. Thank you. It's actually a great question. I think within global equities, there's -- in most insurance, there's adequate liquidity. Certainly, as you go out, the skew to stocks that maybe institutional investors, for the most part, are not that interested in, again, to continue to beat this very, very dead horse, absent wholesalers and the obligations we have to our retail clients, there candidly would not be adequate liquidity. I mean a lot of our institutional clients come to me and say, this narrative that retail institutions can interact is poppycock because we are not interested in stock that's under $5 that trades 200,000 shares a day. So when those orders come down the pipe, the Virtu, Citadel, Susquehanna will overall have to take them and provide liquidity. In terms of a more macro view, we echo and share some of the concerns in the fixed income market, now with just active charges, but off-the-run treasuries, where there's just not the same level of big dealer participation. I think that is wholly regulatorily driven. And so bad facts make bad law, end up in bad results, and then the government scratches their head and says, how come banks aren't holding the inventory well, because you told them not to, and you charge them a lot for it. So that's, unfortunately, an offshoot of the financial crisis and maybe unintended consequence of that is that the treasury market has had some creepiness in it. One of the reasons that we have gotten into in such -- for us, such large scale, fixed income ETFs and now credit trading is that there's an opportunity for non-dealer -- non-big dealers, if you will, to be significant market makers there. I would not have thought 5 years ago that Virtu would be a "dealer" on MarketAxess, which we now are. I would not have thought that Virtu would have the ability to price and create and redeem on bespoke basis fixed income ETFs, which we now do. And it's obvious that Jane Street and other great firms have stepped into the void created by this regulatory environment. So that's a great opportunity for us. Because I think there's -- and it's greenfield, as I said, we weren't doing this even 3 years ago in any meaningful size. It's only because of our acquisition of KCG that we saw this opportunity. So I think credit is probably the one area to answer your question more directly, where we see pockets of liquidity and the need for incremental liquidity providers. We're never ever going to replace the large dealers. We're not Goldman, we're not JPMorgan, and we don't want to be. Those are very, very different and wonderful institutions, but there is a need for nonbank liquidity providers like Virtu and the dozen or other -- dozen or so of other firms that can do that. And look, it leverages our core strengths in terms of pricing ETFs, distributing those prices to the embedded client base that we have. It's the same great clients that we have in retail and in other areas that are looking for prices. And so it's just another incremental benefit to the scale that we have, and it's not just here in the United States, we are building out and have a fairly robust ETF block, I guess, you would call it desk in London and in Dublin. It's one of the benefits of our ITG acquisition because ITG had an agency, ETF pricing business. And so we were well known. They were well known to institutional clients, pension funds in Europe. And so that's a great opportunity for us as well. Again, driven largely through this regulatorily induced vacuum of liquidity that the big dealers have faced because of capital charges, both for Doug and Frank. You know the rest of the narrative.

Got it. Super helpful. My second question, a little bit more on [ NTI ] but I guess, I was hoping you could unpack the dynamic between trading revenues and sort of cost of trading this quarter, particularly on the Market Making side. I guess we can look at some of the disclosure you guys have in the back, the trading income, I think, is flattish quarter-over-quarter, but BC&E and payment for order flow was up, I want to say, in the teens, again, sequentially. Typically, these 2 kind of move together. So maybe just give us a sense of kind of what's been driving the divergence this quarter. Is it just higher margin requirements and maybe higher interest rates charged by the FCMs and prime brokers? And how should we think about it against that relationship going forward?

It's not the latter. It's just more of what you were kind of alluding to before and former. It's just mix of business. It's just mix of business between the stock market making, the customer market making and the execution services.

Okay. Within asset classes, right? Because on the execution services, I think it was fairly consistent, but the divergence was largely on the market maker?

Correct. Exactly. And that's just mix of business.

We have no further questions on the line. So I'd like to hand it back to Doug for any final remarks.

Thank you so much, and thank you, everybody, for participating today. We hope you all enjoy the end of your year, and we look forward to chatting with you in late January or early February. Thank you. Have a great day.

Thank you all for joining. That does conclude today's call. Please enjoy your day. You may now disconnect your lines.