Virtu Financial, Inc. Q1 FY2022 Earnings Call

Good day, all, and thank you for joining the Virtu Financial 2022 First Quarter Results Call. My name is Louisa and I’ll be operating your call today. I now have the pleasure of handing over to your host today, Andrew Smith, Head of Investor Relations. Andrew, please go ahead.

Thank you, Louisa, and good morning, everyone. Thanks for joining us. Our first 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; and Mr. Sean Galvin, our Chief Financial Officer. They will begin with prepared remarks and then take your questions. First, a few reminders. Today’s call may include forward-looking statements, which represent Virtu’s current belief 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 condition may differ materially from what is indicated in those 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 do not undertake to update or revise any forward-looking statements as new information becomes available.

Good morning and thank you, Andrew. This morning we reported our first quarter results, which reflect a 7% quarter-over-quarter increase in adjusted net trading income to $8.1 million per day and adjusted EPS of $1.27. These results capped another strong quarter for Virtu. I’m pleased with our results for this quarter and I’m particularly pleased with the continued success of our growth initiatives and our global efforts to improve firmwide internalization. Our Market Making business produced $6.2 million per day in the quarter, 6% more than we achieved in the fourth quarter. Our diversified business saw strong performance overall and, in particular, in our noncustomer Market Making businesses. We saw particularly strong results from Asia and ETF Market Making as well as our commodities Market Making where we were able to capitalize on continued volatility in crude and other commodity products. Firmwide, our strong performance was driven by several factors, including most significantly, the continued progress we have made on our efforts to improve internalization, which optimizes how we manage opportunity and net positions across the firm. The better we internalize, the less spread we pay away to the street and the more we can save on brokerage, exchange, and clearance fees. Our global multi-asset footprint and our collaborative culture mean Virtu is uniquely positioned to achieve higher levels of inter and intra-asset internalization. As we discussed on our prior calls, we believe the benefits of these ongoing enhancements will continue to bear fruit for the foreseeable future and will continue to grow as we expand to new asset classes and geographies. Our Execution Services segment also performed well in the first quarter where performance was driven by our workflow products, particularly our AMS Triton Valor. I’m really proud of the work this team has accomplished since the acquisition of ITG. As a reminder, we focused on 2 principal objectives in our Execution Services business. First was to streamline our offering by moving clients to our new global enterprise technology, Triton Valor. And second, to focus on delivering more value to clients by building new features, which helps them scale and reduce operational risk. This quarter we’ve begun seeing results from these efforts. To date on the Triton side, we’ve migrated well over 90% of our clients to the new technology and with respect to enhancements, we’ve seen good uptick in the use of automation where traders were able to routinize busy work in a safe controlled manner. Our Capital Markets ATM business was also a meaningful contributor to our organic growth this quarter and we are optimistic for its continued expansion. We’ve added more seasoned professionals to the ATM team and we are excited for the pipeline of new business to materialize. As I mentioned on prior calls, Virtu’s unique combination of Market Making and Execution Services allows us to provide liquidity and size and scope unlike any other ATM provider. We continued to see impressive progress in our business this quarter as our stated organic growth initiatives grew to 10% of our adjusted net trading income or $821,000 per day. Within these initiatives, our growing options business delivered another solid quarter of growth on the back of expanded simple venue coverage as well as new technology deployment as we increase our footprint globally. Growing our options capabilities remains a top priority and we are investing significant resources to become a wholesaler in options to service our retail partners. As we have mentioned on prior calls, we set out a couple of years ago to build an options franchise from scratch by leveraging our infrastructure, technology and market structure expertise. Additionally, we did this in part to ultimately leverage one of Virtu’s most important and unique strategic assets, the connectivity and relationship that exists between Virtu and the nearly 250 retail brokers in the U.S. and abroad. We decided to focus initially on the handful of products that comprise a great proportion of the volumes in options. This allowed us to develop and sharpen our pricing capabilities in a hypercompetitive environment. 2021 was an important year for us as we allocated resources and built and expanded the infrastructure and risk management systems required. We began trading options in Asia and expanded our simple coverage past the initial index products to single name instruments and grew the team to fill gaps in our capabilities and accelerate our growth. In 2022, we will continue to build out this framework, expand the product set and add to our core group of talented traders and developers. Our crypto Market Making continues to progress as well as we allocate more traders and technologies to expand our activities across major venues. We now trade over 100 crypto products across the United States, Canada, Europe and Asia, including the ETFs. We continue to support the launch of the U.S.-based spot Bitcoin ETF for crypto and are working with issuers to be ready to support these funds at launch. Looking at the macro environment, most measures of volatility were up versus the fourth quarter although some broader market indices like the Russell 2000 saw significantly reduced volatility. That said, retail participation as a percentage of overall volumes was down with market-wide Rule 605 volumes down 15% to 20% from the fourth quarter although as you will see in our supplemental materials, the share volumes for retail remained strong at over 2x what they were in 2018 and 2019. To us, this indicates the long-term resilience of a retail investor has a significant presence in the market. The outbreak of war in Europe was impactful from a volatility as well as of course a humanitarian standpoint. We continue to see disruption in the macroeconomy from record inflation as well as the continued emergence from the global pandemic and issues around supply chain and other economic disruptions. Our efforts to expand our footprint by entering new markets and products combined with our continued enhancements to our core businesses compound the sustained growth potential for Virtu from secular and macro tailwinds. Virtu remains committed to disciplined expense management and scaled operations means that our success is not tied to a single trend or type of macro environment. We are well positioned to succeed in any environment as we endeavor to continually raise our baseline performance across the gamut of macroeconomic environments. Turning to some of the more recent amendments from the SEC and the impact on our industry. We have been vocal and consistent in calling for a fact and data-driven reform where warranted. We believe a data-led approach is consistent with the SEC’s mission and practice. In recent weeks, we have joined with the entire industry in challenging the SEC’s proposed amendments to various rules including REG ATFs, rules regarding share repurchases and 10b5-1 among others. While not all of these rules proposals will have an impact on Virtu, we feel it’s imperative that the SEC follow established proper processes for responsible rulemaking to ensure proposals today and in the future are good for the market. As you can see in our published comment letters, these proposals are clearly rushed, ill-advised, and statutorily impermissible because they do not follow the prescribed guidelines for rulemaking under the Administrative Procedures Act. That the SEC won’t consult with the industry in good faith and propose sensible reforms is disappointing, but sadly not unexpected. On the other hand, we applaud the CFTC and its Chairman who have taken the exact opposite approach. We remain in continuous dialogue with clients, lawmakers, regulators, and key industry stakeholders regarding market structure policies that provide investors with more information in investment choices and make our markets more accessible and more transparent for investors. Finally, as I look back on the past 2 years, I would note that we have entered a new phase of post-acquisition integration at Virtu where the benefits of our global business have become evident as the significant cash flows that our business generates are available to return capital to our shareholders. To that end, since the inception of our share repurchase program in late 2020, Virtu has repurchased $732 million of our shares at an average price of about $29. This represents 9% of our company net of normal course new share issuances for compensation purposes. I refer you all to Page 8 of our supplemental materials. We clearly lay out the earnings power of the new post-acquisition Virtu and our use of excess capital for the foreseeable future. We believe this presents a clear compelling investment story. Now I will turn it over to Joe and Sean, who will provide more detail on the quarter before taking your questions. Joe?

Thanks, Doug. Sean and I will be brief before we get to Q&A. We thought it would be a good time to review some of the measures we began to take in our communications with investors around clarity of expectations for Virtu, drivers of growth and what we believe was and continues to be a significant opportunity to create value for our shareholders by repurchasing our shares at these levels. If you look at Slide 8 in our supplemental materials, you can see a snapshot of our expectations across a range of outcomes. I would note that we have met or exceeded the guidance provided. We began presenting this information in significant detail in the middle of 2020. Revisiting it today allows us to provide an update as well as to reiterate some of the core principles. First, volatility is one of the largest drivers of our business and so investors should expect our results to be variable. However, we believe given the initiatives around growth, the reduction of variability in our expense base and the consistent application of excess cash to share repurchases; we have more clarity and confidence around the growing baseline of our anticipated results. Second, in addition to the growth we have demonstrated in new initiatives and expansion of our core businesses, we believe we are well positioned to benefit from favorable tailwinds as the global economy anticipates and reacts to an inflationary period with contemplated interest rate increases as well as continued elevated historical levels of retail activity. Third, we have made good on our promise to manage our capital structure and we believe this has created value for our shareholders. Early this quarter, we refinanced our long-term debt and now have $1.8 billion of term loan outstanding. Our leverage level we believe is acceptable at any outcome on this page, which allows us to buy back our shares at what we believe are attractive long-term values. Given our successful acquisitions in the past, we are often asked about the potential for more acquisitions. The hurdle for an M&A opportunity continues to be very high given the number and size of opportunities already on the table with options, crypto, ETF block, fixed income, and ATM. Of course we explore any opportunities. However, at the present time, we do not see any investment that competes with repurchasing Virtu shares and anticipate that this will not change going forward. Combined with our growth initiatives and enhancements to our core businesses, our continued buyback should help elevate Virtu’s base earnings power regardless of the environment.

Thank you, Joe. In the first quarter as presented on Slide 3 of our supplemental materials, our adjusted net trading income, which represents our trading gains net of direct trading expenses, totaled $505 million or $8.1 million per day, which is 7% higher than the fourth quarter of 2021. Market Making adjusted net trading income was $382 million or $6.2 million per day, 6% higher than the fourth quarter of 2021. Execution Services adjusted net trading income was $123 million or just about $2 million per day, which is a 12% increase from the fourth quarter of 2021. Our adjusted EPS was $1.27 for the first quarter, 7% higher than the fourth quarter of 2021. Adjusted EBITDA was $344 million for Q1, up 5% from $328 million in the fourth quarter. Our adjusted EBITDA margin was 68% for the first quarter, which is the same margin that we reported for the fourth quarter and full year 2021 and continues to be reflective of our efficient cost structure and disciplined expense management. For the fourth quarter, our overall compensation expense was $103 million and our cash and overall compensation ratios were 17% and 20% of adjusted net trading income, respectively. As I’ve previously said about our compensation ratios, consistent with past practice we accrued year-end compensation to a range of percentages earlier in the year. Looking forward to the remainder of 2022, we do not expect a significant fluctuation in our cash compensation expense from historical levels. However, I do want to note that compensation will vary based upon the overall performance as well as the number of employees. We believe that we have reached a relatively steady state with the balance of our operating expenses, which are outlined on Slide 9 of our presentation. As such, we expect our communication and data processing, operations and administrative and depreciation and amortization expenses for 2022 to remain in line with 2021 actual amounts. As Joe mentioned, in January we successfully refinanced the $1.6 billion of long-term debt that was outstanding at year-end and upsized that to $1.8 billion. As a result, we expect that our annual interest expense will increase proportionately to approximately $83 million per year as outlined on Slide 9 of our supplemental materials. Our capitalization remains adequate. We remain committed to our $0.24 quarterly dividend, which we have consistently paid over 25 quarters in every environment since our IPO and our approximately $287 million share repurchase in the first quarter demonstrates our continued commitment to return capital to our shareholders.

Thank you, team, for your presentation. Our first telephone question today comes from Richard Repetto of Piper Sandler.

The buyback was quite impressive at $287 million for the quarter, and it seems there were some opportunistic block repurchases from GIC. Looking ahead, should we revisit the information on Page 8? Specifically, are we going to deduct the excess buyback from Q1 when calculating future buybacks? If we consider an average of about $100 million per quarter at this NTI, does that mean we have already accounted for the $287 million? Will all the GIC buybacks be included in that total?

Rich, I get your question. I would say going forward, use the numbers in the buyback ranges on Page 8. So for the remainder of the year whatever proportion is left and however we perform, it should correspond to the level of buybacks. I’d say the level of buybacks in the first quarter were elevated for a couple of reasons. You mentioned some of the opportunistic block trades that we did. When we had the opportunity to refinance, we applied some of the excess proceeds from that refinancing to buybacks, not all of them. So that’s driven some of the excess you see in the first quarter. And then I think as you and I have spoken in the past, there’s going to be some quarter-to-quarter changeability and I think maybe in Q4 we did a little bit less on a proportionate basis and so we did a little bit more on a proportionate basis in Q1. So all those factors in the mix elevated it I would say, which we’re obviously very happy with at these levels. But going forward, I would apply the ranges on Page 8.

Thank you. Good solid results.

Our next question comes from Alex Blostein of Goldman Sachs.

So I was hoping we could spend a little bit of time on the sort of unit economics in the retail business versus the sort of the institutional business. And while I know the answer is probably going to be no, we don’t talk about it, I was hoping we could at least help delineate kind of how does the mix in the business between retail and institutional might impact NTI, right? Because what we’re I guess seeing now is retail is really strong relative to kind of pre-COVID levels, but seems to be moderating;. But volatility is high and institutional activity is really high. So helping kind of put that together would be super helpful.

Thanks for the question, Alex. And you’re right obviously, we have not broken down our results by those subunits for a reason. I would say your observation is correct. You have seen as a mix of business in U.S. equities, an uptick in institutional participation. The point we made in the script and it’s in the supplemental materials, however, is that you’ve seen a systemic change in the U.S. equities market in the sense that you have significantly more aggregate notional retail participation in U.S. equities than you did in prepandemic levels. And as I have indicated in prior calls, it wasn’t the pandemic that triggered this. The commission-free trading phenomenon that was initiated obviously by Robinhood and then challenged and met on a competitive basis by Schwab and Fidelity and the others, right? So that really has driven the opportunity, and we’ve made the case continually that that is systemic. In terms of opportunity and capture rates and whatnot, I mean the answer is obviously it depends. It depends on the macro environment and it depends on what’s happening on that particular day in the marketplace. So when there is excess volatility, bid offers tend to accelerate, people need more immediacy or desire more immediacy in their executions and you’ll see a corresponding expansion in bid offer spreads. The second thing I would say is the retail business is meaningfully different than our noncustomer Market Making segment, which I assume you’re referring to when you say institutional in the sense that in the retail business, we’re in the market continuously and we need to be in the market continuously and we have an arrangement with our 250-odd clients that when they send us market orders, they’re printed and done. So that can be very good and it also can be painful when there are retail imbalances. So again I’m not trying to avoid your question, I’m giving you the kind of it really does depend on the market conditions. Taking a step back, one of the advantages of the scale and diversity we have developed in our business was intentional. This allows us to have quarters where retail performs well, while our non-customer retail segment can excel due to fluctuations in commodities and markets in Asia and ETF blocks. The core strength of our firm lies in the diversified financial services platform we are expanding by adding more products. I’m not evading your question; I'm attempting to provide a broader context to understand how Virtu will continue to progress. I encourage you to review Page 8 for a clear overview of our business, illustrating how certain conditions interact to drive results, including the potential for buybacks using excess capital. Over the next 8 to 12 quarters, a look back at the previous 8 to 10 quarters will give you insight into the direction of this firm.

Got it. And by the way, totally unrelated, but thanks for doing the call early. There’s a ton of earnings going on today and thanks for overlapping the other calls.

We recognize your responsibilities and we try to adjust accordingly.

Our next question today comes from Ken Worthington of JP Morgan.

I want to follow up on Alex’s question and his comments about the Market Making business. Market Making revenue or NTR appears to have increased by approximately $10 million sequentially to $382 million. When considering the business in equity versus FICC, I would assume that FICC saw a sequential increase from the fourth quarter, given the volatility in the volumes we observed related to energy and FX, along with your advancements in options. This indicates that your Market Making business revenue likely decreased in the first quarter compared to the fourth quarter. So, is that correct? If the concern lies with the retail equity business you mentioned throughout the presentation, what portion of equity Market Making or Americas equity Market Making is currently associated with that 605 business compared to what remains of legacy Virtu? Following up on Alex’s question, can you help size this up? I understand this will fluctuate, but is there a split? Is it 90% retail? Clearly, it’s not 90% institutional. Please give us a clearer picture of how that equities business is divided.

Ken, it’s Joe. I’d say first off, you’re right, we don’t break it out. We provide Market Making results because of the reasons Doug said in that there is a very diversified business there that includes nonequities businesses. You’re right as well that the businesses that were up or performed well or exceeded the opportunity were more in some of the legacy FICC areas. Energy in particular obviously with the volatility around crude and crude products, we did well there. I wouldn’t draw too many conclusions therefore about customer Market Making versus equities in customer and equities outside of customer. We do have equities Market Making businesses that are not part of the 605 business. And I think Doug pointed out in his remarks that the retail participation for the 605 business remains elevated historically and is at actually very favorable levels and looks very resilient, right? So I’m not sure I want to go into 90-10 versus 80-20. We do have a diversified business outside of 605 that includes fixed income, currency commodities, equities and all the other things that you’re familiar with.

Yes. But to be clear, I mean, you can go back. Obviously we used to break this out and certainly Knight was a separate public company. I mean, it’s nowhere near 90-10; it’s much more of a balanced business, Ken. And the noncustomer Market Making subsegment, if you will, had a really, really strong quarter. The retail Market Making business performed consistent with the metrics that we track and opportunities internally. As I have said to you guys, I mentioned this in Boca and I’ve said it in prior calls, it is difficult as an outsider to look at a retail customer Market Making business and just look at volume and volatility metrics and reach conclusions. There are certainly directional days and situations where you have significant retail buying and significant retail selling. Virtu and the other market makers don’t have some magic elixir to satisfy. The market makers can lose money in those marketplaces. If you look at retail share volumes versus the fourth quarter, they dropped roughly 18%, right? So that’s kind of like an indication of what the opportunity is and that’s what we track internally along with obviously retail buy versus sell balances, which can have an impact on trading in a way that won’t impact our noncustomer Market Making business.

Our next question comes from Alex Kramm of UBS Investment Bank.

You mentioned the benefits of internalization several times at the beginning, Doug. This is not a new topic, but I'm curious about your emphasis on it. Can you share where you currently stand in this process? I assume you are continuously making improvements, but could you also provide some context on unit economics? Specifically, looking back over the last couple of years, especially since ITG joined, how much have your unit economics improved, and how much more room for improvement do you think exists beyond the ongoing enhancements? Are there any easy opportunities you still haven't explored?

Let me respond more broadly and I’ll have either Joe or Sean provide some details on the BC&E numbers since that’s where you would see the most direct impact. What doesn’t appear in the financial statements is the spread paid away. A simple example is when you have an options Market Making business that you’re trying to grow, you obviously need to perform a delta hedge and help internalize distractions to pass all those needs and opportunities to a separate group within Virtu that handles that for a living. This illustrates my point that we are one firm, and it's part of our collaborative culture. We don’t pay people separately based on debt and we don’t have guarantees. This isn’t a trading firm; it’s a financial technology firm. When you look at our overall compensation, yes, it will vary somewhat with results, but it’s not the case that people earn 50% of what they bring in. This has never been the style of this firm, and that’s part of our cultural foundation. The reason I started to emphasize it is that we’ve made two significant acquisitions. Some challenges with internalization involved consolidating broker-dealers and their equivalents outside the United States, along with some technological issues. When you’re using a single platform, Virtu operates as a series of matching engines based on our architectural setup. Once all flow is migrated into a single Virtu stack, it becomes much easier for quants, traders, and technologists to benefit from that effort. Additionally, you obviously gain more negotiating power and leverage when dealing with ATS and exchanges globally.

If you look at Page 16 of our supplement, we break down net trading income by segment. In the Market Making segment, the adjusted net trading income this quarter was $382 million, and the gross trading income was $516 million, resulting in a percentage of 74%. This is the highest level since the first and second quarters of 2020 during those frenetic times. Many factors influence this calculation, as several asset classes are included in the Market Making segment, some of which are more costly to trade in terms of the conversion from gross to net. However, when that percentage rises, like it did to 74% this quarter from 73% last quarter, and the 61% and 64% observed in the second and third quarters of 2021, it demonstrates how we convert our gross trading income to net trading income. Generally, a higher percentage is favorable, and this improvement is partly due to the reduction in brokerage and exchange fees, thanks to better fee tiers and internalization.

Our next question today comes from Dan Fannon of Jefferies.

I wanted to follow up, Doug. You’ve expressed optimism in the past about retail participation, and you mentioned earlier today the impact of zero commissions. It seems we’re beginning to see a slowdown. Could you explain your outlook on retail participation from here and whether you still feel as confident as you did before?

I review the same metrics as everyone else and we constantly engage with our clients. I observe account openings, balances, and how these factors have affected market share and notional size. We included a slide in the supplemental materials on Page 10 that illustrates this trend from the pre-zero commission period to now. You likely noted the increase during the meme stock phase, but that has certainly declined. However, the current normalized level seems to be where we are now, largely due to the growth in accounts and their sizes. Additionally, the rise of new crypto platforms has sparked overall market interest, and that momentum is expected to continue. FTX has expressed intentions to expand into equities as well. The combination of zero commissions, mobile trading, and the ease of self-directed investing is appealing, especially to younger individuals, and I believe this trend will persist. That really drives my optimism around this being a systemic shift as opposed to some secular everybody stuck in their basement pandemic shift. I mean people are now out of their basements, it doesn’t appear like we’re going to have any more stimulus checks. It doesn’t seem to be a policy that has any support in Washington, and yet we continue to see heightened participation among retail. I would also point out, Dan, that this is a global phenomenon. We have seen a significant increase in Europe in terms of retail participation and clients that are coming to us with interest. We continue to see very strong interest in Asia. And indeed in both of those regions, we see interest in 24-hour trading from those clients into U.S. equities. So I think the world will continue to become more 24-hour driven. And in the last phenomenon, which I think is important as well, the broker is innovating and creating this opportunity for fractional shares, which we have helped them to facilitate, right? So that obviously reduces the notional size. I want to buy a share of stock, but it’s $1,000. I can buy a tenth of a share for $100. So I think all of those factors drive my conclusion that this is a systemic change. Will there be fluctuations quarter-to-quarter? Yes. But I do think it really has kind of changed the playing field in a dramatic fashion.

Our next question today comes from Sean Horgan of Rosenblatt.

Just first question is on the organic business and the organic growth initiatives. Obviously doing well there growing to 10% of the overall business. So I’m just curious if we could get an update on sort of the components of that and specifically on crypto and options and how we should think about the size of each of those and the contributions towards growth going forward?

Obviously we’ve talked a lot about options and that’s been a big driver for us. With regard to crypto, I mean, in the fourth quarter we traded roughly like 30 crypto products and it was really like a nascent very new endeavor for us. It was really literally doing API connectivity work and things along those lines. Now we trade over 100. As I said in the script, I still think it’s extremely early days. It feels like circa 2008 for Virtu Financial when Vinnie and I had started the firm and we were focused on equity. So it feels like a greenfield opportunity for us. We’re going to run it and grow it the exact same way we grew Virtu organically, which is to look at the big opportunities, develop the relationships with the 8, 9, 10 key venues. On the regulatory front, we think that the SEC’s determination with regard to not approving a spot ETF is just legally and not defensible frankly. Our friends at Greenvale put a letter in this week from the Davis Law Firm, which was unbelievably compelling. So I would be floored if the SEC ultimately either on its own volition or through litigation doesn’t approve a spot crypto ETF in the next fill in the blank, it should be tomorrow but it won’t be. So I think we will continue to see opportunities grow as that marketplace evolves. We’re adding direct counterparties to roll out our V crypto solution, which again getting back to one of the core assets and the strengths of this firm, which I think people don’t value in the way that we do is we have this network of relationships built over the last 30 years with over 250 retail brokers that frankly use us for execution, trust us, know that we’ll be there and provide superior execution quality for their liquidity needs. That can’t be understated and it’s very difficult to break into that market. It’s one of the main reasons, frankly, why we bought Knight Capital in 2017 was to acquire that network effect. So I’m very optimistic and bullish that this asset class will continue to provide revenue opportunities for us. And again, the key takeaway is it really demonstrates the value of the scaled multi-asset class collegial environment that we have created here where we can add these widgets, which is effectively how we look at financial instruments, to our network at virtually zero incremental cost and drive bottom line P&L.

Okay, great. And then wanted to just get your latest thoughts on as it relates to equity market structure. So what are your expectations, if any, around tangible actions from the SEC around equity market structure specifically as it relates to PEFA? And if so, how are you thinking about timing? It seems like it’s sort of been a series of handshakes and sort of socializing that it was something that was going to happen and then it sort of seems to fall out of the conversation. So just curious what your latest thoughts are.

Yes, that is a politically incorrect softball that I will do my best to muzzle myself on and swing at, but try to be as positive and CEO-like as I possibly can. So look, we’ve seen frankly a tidal wave of proposals that have come out of the SEC on topics as varied as share buybacks and climate change disclosure and ATS reforms. In my prepared remarks I was maybe not as politically correct as I should have been, but it just seems that these are rushed, not particularly well thought out. And this isn’t just Virtu saying this. I think there was a great letter from several notable organizations that really point out the mistakes, frankly, in a lot of these proposals, just things that don’t really make a lot of sense. It’s very clear that these are not data-driven proposals, and if history is any guide and if the Administrative Procedures Act continues to be followed, which it will be, many of these proposals simply won’t ever be implemented. They have varying impacts on Virtu, and we’ll continue to be strong and positive advocates for what we believe is the right approach in these situations. We support data-driven reform, transparency, and competition, and we’re uncertain about the final outcome of the major market structure proposal. I don’t have a crystal ball, but the chair has raised various ideas, from questioning the continued viability of payment for order flow to discussing order-by-order competition and others. Again as we have said, we will continue to be collaborative. We have provided all types of Virtu specific data with regard to price improvement. We are 100% convinced that the ecosystem drives significant multibillion dollar value from Virtu and over $12 billion of price improvement as an industry. We are frequently engaged with representatives from both sides of the aisle on Capitol Hill and Senators from both sides of the aisle. We’re not political. We just want to make sure that people understand how the marketplace actually works and ignore the rhetoric and ignore the headlines and more importantly, understand how we have a fantastic, very efficient, very transparent, very, very low-cost ecosystem here in the United States, which in our opinion and in our experience is substantially better than any other marketplace for retail investors in which we transact today, which is basically the entire civilized world. So we will continue to constructively seek ways to improve our great markets, we’ll be collaborative. But ultimately, we’re going to vigorously defend what we think is the right result here and we’ll do that regulatorily. I’m happy to go and testify. We’re happy to be transparent. And if it means that various participants from the industry end up sadly in litigation for years and years with the SEC as it has happened historically in the past, we know we’ll be a participant there as well. I’m optimistic that’s not going to be the case if that makes a little sense. But unfortunately, in Washington it’s hard to look at the results and say well, that’s a sensible result and have it happen because there are different inputs called politics in Washington that we can’t control.

Our next question today comes from Chris Allen of Compass Point.

Just wanted to follow up on a comment you made earlier about investing to become a wholesaler in options. I’m just wondering where you are in the process there, what that entails and how does that change the revenue opportunity within options Market Making?

Look, I mean we have said ultimately, our end goal here is to be a significant competitor in options. It’s obvious to anybody that looks at the marketplace that there’s a significant opportunity there because retail participation in options is pervasive and significant and there are 2 significant players and there are host of others that provide services. As I just said before in answer to another question and it was in our script as well, one of the assets we have, Chris, is the relationship with the retail brokers and cash equities. And so it won’t surprise you to hear that they have implored us to getting to 605, if you will, options. Having built long-term relationships with our valued clients, we clearly benefit from the connections established by the former Knight Capital firm. Additionally, it's noteworthy that internalization in options occurs on exchange, which allows for open periodic auctions created by the various options exchanges, where wholesalers process their internalization based on the flow they receive. We are currently doing that with innovative fashion with a handful of clients. So the good news is we don’t have to go to X, Y, or Z clients and say hey, can you turn on the full spigot of 1,000 to 1,500 names and all the associated strikes, which is obviously a significant endeavor. But we can and are making the investment to test out our strategies and to begin dipping our toe in the water of internalization, if you will, with regard to customer options. So we’ll continue to do that in 2022. How aggressive we get and when do we start turning the tap I guess to the right so that more flow starts coming in, I don’t know right now. It’s obviously a significant opportunity. If you looked at some of the published statistics around rebates that are paid for options as compared to rebates that are paid for cash equities, it’s significant and so that’s a significant opportunity for us as we continue to grow this firm. There’s a lot of work to do in noncustomer options right now both here in the United States and in Asia. And so the guys have a lot on their plate right now, but I do see it as a very significant revenue opportunity in the future, Chris.

Our final telephone question today comes from Michael Cyprys of Morgan Stanley.

I wanted to ask about the Execution Services business. So I was hoping you might be able to remind us here what portion of the revenue within Execution Services relates to the recurring contractual and recurring revenue stream? And maybe you could talk a little bit about how that revenue pool is growing within the Execution Services pool compared to overall Execution Services revenue? And maybe talk about some of the initiatives that you guys have in place around growing that recurring revenue stream.

This is Joe. We don’t break that out again, but there’s a mix of revenue that has remained consistent. The old ITG used to break it out in some quarters before we acquired them. It's a great business that we like, providing a steady stream of recurring revenue. We’ve been able to grow it modestly. I think the product set that it supports complements the brokerage business. And look, if it gets to a point where the growth in here is worth us breaking out, I think we would do that. I think right now it’s a business that we like that we’ve gotten, I think we’ve made a lot more efficient around the technology and continue to do so and again remains an important part of Execution Services.

Yes. The one thing I will say is that we looked at like the analytics business for example here and some of the other workflow technologies that these are businesses that should be more automated and more platform driven and more, shall I use a loaded word, more sinking in as like Software-as-a-Service as opposed to like more of a consulting type of business. And so particularly within analytics, we now have a platform where clients can come to us and effectively pay, as you say, on a subscription basis to use our APIs and they can customize them as they see fit in order so that they can do their own analysis within their own shops. And so our larger asset managers and pension funds globally really like that a lot because they have access to our analytical tools. But also obviously on an anonymous basis, they can look at a full compendium of their competitors and understand how they are performing on a relative basis. This creates a strong impression with clients because they find the offering to be quite unique. They appreciate being able to have their own data scientist in-house. Rather than receiving reports, they can conduct their own analyses. This marks a significant evolution for the business. As Joe mentioned, it is a part of Execution Services, which is a segment of our overall business and can sometimes be overshadowed by Market Making activities. However, we are very enthusiastic about it, and it fosters strong loyalty among these high-net-worth clients.

Thank you all. That concludes today’s Virtu Financial 2022 first quarter results call. Thank you for your questions and thank you for the management team for their presentation. Have a lovely rest of your day. You may now disconnect your lines.