Virtu Financial has signed a
three year deal with JP Morgan to provide technology and market access to the
dealer-to-dealer US Treasury market.
“I am very pleased to
announce that we have partnered with JP Morgan on an initiative to marry our
proprietary systems and order routing with JP Morgan’s trading experience
through a technology and trading partnership in the dealer to dealer US
Treasuries market,” says Douglas Cifu, CEO of Virtu Financial. “We have a
longstanding relationship with JP Morgan on many fronts. JP Morgan has been a
key business partner of Virtu since our founding and has supported our business
in many areas.
“Our collaboration in
trading and technology is a natural progression of this very important
relationship,” he continues. “We believe this agreement will be a win-win for
both parties where JP Morgan can benefit from applying Virtu’s technology to
certain markets and Virtu can benefit from leveraging its existing
technological footprint to serve banks like JP Morgan.”
During an analysts’
call to discuss Virtu’s second quarter results, Cifu pointed out that JPM is
the firm’s prime broker and provides other clearing services – the two firms
also signed an agreement earlier this year that made Virtu JPM’s designated
market maker on the New York Stock Exchange. Noting the new agreement was “a
natural evolution” of the relationship, Cifu also argued the deal was a
“validation” of Virtu’s strategy to partner with financial institutions “to
allow them to be more nimble in the market”.
The revenue model for
the agreement is a mix of a subscription and revenue sharing, the firm says,
declining to go into further details.
Cifu also noted
during the call that there was an appetite on both sides to make the
arrangement work and that it could be expanded beyond Treasuries.
The JPM agreement came as Virtu
announced a small decline in adjusted net trading income for Q2 and H1 2016.
Overall revenue was $102.1
million in Q2 and $219.6 million for the first half – representing a 3.4% and
13.6% decline compared to the same periods in 2015.
Whilst the equities business saw
improved revenues, commodities and foreign exchange suffered a decline. FX
adjusted net revenue was $16.9 million in Q2 and $37.4 million for the first half
– a 31.6% and 44.1% decline, respectively, on a year-on-year basis.
“Overall, I am
pleased with our operating performance in Q2,” says Cifu. “Our business
responded well to the challenge of low volumes and volatility, which
characterised most of the quarter as well as the positive impact of Brexit at
the tail end of the period.“
Although he declined
to cite specific data, Cifu noted on the analysts’ call that Brexit had a
positive impact on the firm’s business in that it led to “quite strong”
trading days and “above average” net trading income. He further added, however,
that the impact of Brexit did not change the overall performance in Q2.