Virtu Financial, Inc. (VIRT) Q4 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the Virtu Financial Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Andrew Smith, Head of Investor Relations. Please go ahead.

Thank you, Kate. And good morning, everyone. Thanks for joining us. Our fourth quarter results were released this morning and are available on our website. On this morning's call, we will 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 these forward-looking statements. It's important to note that any forward-looking statements made on this call are based upon information presently available to the company, and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report and Form 10-K and other public filings. During today's call, in addition to GAAP measures – in addition to GAAP results, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, adjusted EBITDA and adjusted EBITDA margin. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures reported in accordance with GAAP. We direct listeners to consult the Investor portion of our website, where you'll find supplemental information referred to on this call as well as a 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 very much, Andrew, and good morning, everybody. This morning, we reported our fourth quarter results, which reflect a 37% quarter-over-quarter increase in adjusted net trading income to $486 million, adjusted EPS of $1.19 and adjusted EBITDA of $328 million. These results capped another strong year for Virtu. We achieved $1.9 billion in adjusted net trading income, posted $4.57 in adjusted EPS and $1.3 billion of adjusted EBITDA in 2021. Virtu enters 2022 better positioned than ever to capitalize on the secular and macro tailwinds occurring around the globe, as new generations of investors enter the market, new asset classes grow and mature and as central banks reprice assets and review monetary policy as the world emerges from the pandemic. Taking a look at our results, while the overall market environment was better in the fourth quarter than the third quarter, I'm incredibly proud of how our results significantly outperformed the benchmarks thanks to enhancements within our core Market Making businesses, growing adoption of our Execution Services products and the continued success of our growth initiatives. Our Market Making business produced $5.8 million per day in the quarter, almost 50% more than we achieved in the third quarter despite volumes and volatility being 10% and 26% higher in the quarter, respectively; and market-wide Rule 605 volumes being up 4% for the third quarter. 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 risk across the firm. The benefits of these ongoing enhancements have become evident over the last couple of quarters, and we expect that these efforts around firm-wide internalization will continue to bear fruit for the foreseeable future. Our Execution Services segment also performed well in the fourth quarter, where performance was driven by brokerage with strong U.S. and European contributions despite a number of trends in 2021 that typically favored larger sell-side firms, most notably the spike in new equity-linked issuances, including IPOs. In these results, we see evidence that our multiyear technology integration following the acquisition of ITG is bearing fruit. In total, VES contributed 25% of our total ANTI 2021. We also made significant progress in our organic growth initiatives last quarter, generating ANTI of $26 million, a 13% increase over the third quarter. Our options business produced a solid quarter on the back of expanded symbol and venue coverage as we increased our footprint. Growing our options capabilities remains a top priority, and we are investing significant resources to become a wholesaler and options to our retail partners. The contribution from our Virtu Capital Markets business also set a new record in 2021 as issuers took advantage of healthy markets and Virtu's trading capabilities. We recently expanded the Virtu Capital Markets team to help us cover more issuers across the United States and Canada and support the growth of this business. I continue to be most excited about our efforts with regard to becoming a leading global market maker in crypto products. Our crypto Market Making continues to accelerate as we allocate more traders and technologists to expand our activities across major venues globally. We now trade approximately 30 products across the U.S., Canada, Europe and Asia, including the ETFs. We continue to support the launch of a U.S.-based spot Bitcoin ETF for crypto. We believe that our crypto Market Making will be a significant growth area for the firm for the foreseeable future. We also believe that there is no principal reason that a spot Bitcoin ETF has not been approved and this lack of approval is harming investors and, in particular, retail investors. These organic growth initiatives increased our overall baseline performance by expanding our global addressable market in multiple dimensions across Market Making and Execution Services and complement our persistent enhancements to our core businesses. We are excited for 2022, and we remain focused on investing and executing on the many growth opportunities in front of us. I also want to note our continued commitment to return capital to our shareholders. We purchased 3.7 million shares in the fourth quarter. Joe will go through details, but I want to highlight that since we started our share repurchase program in late 2020, we have repurchased $483 million of Virtu stock through the end of January, reducing our net share count by 6.4%. We believe this method of returning cash to shareholders is an efficient use of our excess cash beyond what is necessary to support our aggressive growth initiatives. As a supplementary annual dividend, the buyback allows us the flexibility to return more capital in quarters with outsized results and continually reset the bar for earnings. Turning to some issues in and around our industry, we remain in continuous dialogue with clients, lawmakers, regulators and key industry stakeholders regarding market structure policies that provide investors with more investment choices and then make our markets more accessible and more transparent for retail investors. In fact, I believe that the recent focus on the U.S. retail investor has been illuminated from many who may not have realized how well the retail investor has served. Our hope is that people now better understand and recognize the billions of dollars of price and size improvement which indisputably accrue to retail investors, thanks to competition within the current system. Before I turn it over to Joe, I would like to highlight a number of the secular tailwinds as well as macro tailwinds that Virtu is well positioned to capture, focusing first on the secular tailwinds driving growth. As many of you are aware, today's markets are evolving at a faster pace than ever thanks to unrelenting innovation, the application of technology and end user demand to have everything readily available in the palm of their hands for little or no cost. These factors increasingly contribute to the growth of secular tailwinds, including the birth of new asset classes, new business models such as zero commission training and the continued electronification of markets all of which expands the long-term opportunity for Virtu. The success of zero commission trading has fueled a new and more diverse generation of informed retail investors empowered by the ease and efficiency of accessing the markets, they are significantly growing and broadening the investor base in U.S. equities and options. This new level of sustained retail engagement has invigorated the competition among retail brokers, creating a virtuous feedback loop of innovation and impressive offerings. Public metrics such as FINRA's customer account balance data shows that retail investors increased their cash balance by 7% in the fourth quarter and increased their investing on borrowed margin by 4%. Compared to Q4 2020, cash balances are up 15% and investing on borrowed margin is up 28%, demonstrating that retail investors are doing more than just opening trading account. They are funding and using them. We see this as a strong positive indicator about the new level of long-term retail engagement in our capital markets. Other examples of secular tailwinds included the growth and maturation of new asset classes, such as crypto products and the continued electronification of existing asset classes like fixed income. As I mentioned a moment ago, Virtu also benefits from macroeconomic tailwinds, such as changes in global monetary policy as well as social and geopolitical uncertainty. As the world hopefully begins to emerge from this terrible pandemic and finds new normal, central banks are looking to taper quantitative easing and raise rates to address inflation concerns, causing the market to reprice valuations and risks. Virtu's investment in creating a global scale technology platform uniquely positions us to capture significant upside from volatility wherever and whenever it arises. While it is still early, January volumes and volatilities might be a glimpse of what is to come. That said, Virtu's commitment 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 for success across a variety of macroeconomic environments. Our efforts to expand our footprint by entering new markets and products combined with our continued enhancements to our core businesses, compounds the sustained growth potential for Virtu from secular and macro tailwinds. Now I'll ask Joe to fill in some more details. Joe?

Thanks, Doug. I'll make some brief points before turning it over to Sean. While we believe our results will continue to be somewhat variable, our growth initiatives and enhancements to our core business are raising the bar of our baseline performance in any environment and will continue to grow over the long-term. In addition, we believe the overall environment will continue to provide a positive backdrop, including some cyclical and secular factors including the following: we are entering an inflationary period with contemplated rate increases and defense activity becoming a positive for our business. We believe the enhanced retail activity of the recent past is part of a long-term secular trend. Our organic growth initiatives, which show significant upside will continue to benefit from the overall growth of these markets. We're well positioned to benefit from these trends due to our attractive and diversified global footprint with connectivity to over 2,000 global clients, including over 250 retail brokers whose customers will continue to trade U.S. equities and other asset classes. Just a bit more backdrop on the quarter. The $486 million of ANTI was achieved in a quarter where realized volatility was up versus 3Q and volumes were up globally in equities. OCC option volumes were up 9% versus the third. U.S. equity volumes were up 10%, while retail equity 605 volumes in the U.S. were up 4%. Our Execution Services business had another steady quarter, realizing $114 million in ANTI or $1.78 million per day. This is 8% better than 3Q and demonstrates how BEF continues to contribute to our global scale and reduce the quarter-to-quarter variability of our firm-wide results. Overall, we believe Virtu's performance in the entire second half of 2021 is worth noting because it illustrates how it supports a strong baseline performance by delivering results beyond what the market conditions would suggest. Importantly, we entered 2022 with our large acquisitions and integrations, most recently ITG under our belt, setting us up to deliver and enhance and unified product suite to our global clients. We continue to reap the revenue synergy benefits of integration and the expense synergies that we have achieved. We entered 2022 with an expense base that is lean and allows us to capture great economies of scale and invest in growth as well as to continue to use our significant excess cash to repurchase our shares. We are continuing to provide clear guidance on our model and what can be expected at various levels of ANTI. We have updated these figures on Slide 7 in the supplemental materials. Our share buyback continues and will continue in accordance with the guidance we have published. In calendar 2021, we repurchased 405 million of our shares. As of January 31, the 483 million of share repurchases have been at an average price of $27.37. We remain committed to returning capital to our shareholders, and we view this repurchase program as a meaningful contributor to earnings stability over the long term and incremental to our growth plans. Combined with our growth initiatives and enhancements to our core business, our buyback should help elevate Virtu’s base earnings power regardless of the environment. Finally, I mentioned last quarter that we considered our overall debt levels to be at a sustainable nominal amount. We recently took advantage of market conditions to refinance our long-term debt at attractive levels and to extend the maturity of our term loan until 2029. Additionally, we opportunistically upsized our term loan by an additional $200 million, which we intend to use for general corporate purposes and to fund additional buybacks. We remain comfortable with our overall debt level. I will now turn it over to our CFO, Sean Galvin.

Thank you, Joe. In the fourth 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 $486 million or $7.6 million per day, 7% higher than Q4 of 2020 and 37% higher than the third quarter of 2021. Market Making adjusted net trading income was $372 million or $5.8 million per day, 16% higher from the year ago quarter and 49% higher than the third quarter of 2021. Execution Services adjusted net trading income was $114 million or $1.8 million per day, which is a 16% decrease year-over-year and an 8% increase from the third quarter. Our adjusted EPS was $1.19 for the fourth quarter, 70% higher than the third quarter of 2021. Adjusted EBITDA was $328 million for Q4, up 56% from $211 million in Q3, but down 4% from $344 million in the prior year quarter. Our adjusted EBITDA margin was 68% for both the fourth quarter and full year and continues to be reflective of our efficient cost structure and disciplined expense management. The fourth quarter, our overall compensation expense was $103 million, bringing our total compensation expense in the year to $376 million, a 5% decrease from 2020. Our cash and overall compensation ratios were 17% and 21% of adjusted net trading income, respectively, for the quarter; and 16% and 20%, respectively, for the full year. As I’ve previously said about our compensation ratio, consistent with past practice, we accrued year-end exempt compensation to a range of percentages earlier in the year. Depending upon the remainder of the year – of how the remainder of the year unfolds, this may result in adjustments to our compensation ratio in later quarters as we refine our specific compensation targets. Looking forward to 2022, we don’t expect a significant fluctuation in our cash compensation expense from historical levels. However, I do want to note that compensation will vary based upon our overall performance as well as our level of headcount. We believe that we’ve reached a relatively steady state with respect to the balance of our operating expenses, which are outlined on Slide 8 of our presentation. As such, we expect that our communications and data processing, operations and administrative and depreciation and amortization expenses for 2022 will remain in line with 2021 actual amounts. As Joe mentioned, in January, we successfully refinanced our $1.6 billion of long-term debt that was outstanding at the year-end and upsized that to $1.8 billion. As a result, we expect that our annual interest expense will increase proportionately to approximately $87 million per year, as outlined on Slide 8 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 $102 million share repurchase fourth quarter demonstrates our continued commitment to return capital to our shareholders. I’ll now turn the call back over to the operator for Q&A.

[Operator Instructions] The first question is from Rich Repetto of Piper Sandler. Please go ahead.

Yes, good morning, Doug, Joe and Sean. And congrats on a strong quarter. I guess the question is on everybody’s mind is sort of market conditions even see more friendly for you in January in the first quarter to date. Any comments on performance there and how you view like the earnings run rate, it seems like you said, in the second half of 2021, you see an enhanced performance from – that could be more consistent, I guess, going forward?

Yes. Thanks, Rich, and good question. As I have said in other calls, we’re not going to talk about current periods. We obviously want to talk about the quarter and the year. But obviously, if you look at the metrics, which we all have and we all share and you guys publish, obviously, they do – they are more favorable. I think the important takeaway and what we’re trying to emphasize here is that what you’re seeing in this quarter and what you saw throughout 2021 is the impact of what we envisioned, frankly, in 2017 when we first acquired Knight Capital then in 2019 when we acquired ITG. Both amazing franchises with embedded goodwill with thousands of customers and unique place in the financial services ecosystem combining those platforms, those great companies with the technology and the efficiency and frankly, the operating discipline that we had at legacy Virtu, we said at the time one plus one can equal three. And that’s really what you’re now saying, one plus one is equals three. We’re outperforming the metrics. We continue to do that. So yes, we raised the bar with regard to our performance. I mentioned in my script the benefits of internalization and that both because of the technology that we deploy Virtu, but more importantly, because of the ethos that we have at Virtu. This is a single firm. We view ourselves as a technology firm. We don’t have different depths that compete in different P&Ls and guarantees and all those things that trading firms and banks typically have. So, we’re able to fully implement and fully realize the benefits of having a scaled integrated financial services firm that we think provides enormous value to retail institutional investors globally. And in addition, obviously, as we’ve talked about, Rich, we’ve gotten into these new asset classes, namely options in crypto. We’ve enhanced and began to be a market maker in fixed income. So, we’re expanding the footprint of the firm. But really, that’s the theme. And so, as I’ve said in a bunch of these calls, we have built this permit we’ll continue to build this firm looking at years and not particular months or quarters.

Got it. And one quick follow-up. Just on ownership and ownership changes. So, I know Vinny Viola bought shares or exercise warrants. Can you talk about that? And any expectations of – on the ownership changes. More color on the ownership changes.

Yes. Sure. Good question. Yes. Obviously, I don’t speak for Vinny. He’s my friend. He’s my partner. I started a firm with them. I speak to them on a daily basis or a weekly basis. We’re very, very close, and he’s a great friend and a mentor and a great member of our Board. You are correct, Vinny, during the quarter, exercise on a gross basis, not net, 3 million warrants, which means that he and his family wrote a check for $68 million and send that money to Virtu Financial. So, he effectively bought three million more shares of Virtu. I forgot he’s got the strike price was $22 and change those warrants that were provided to him as part of providing financing for us. And so, I think, look, from my perspective, that is a huge vote of confidence by Vinny and Viola family and the long-term success of Virtu. $68 million is an ungodly amount of money, right? So, to actually effectively write a check for that where he very easily could have said, just give me a net issuance of whatever the $600,000 delta would have been in terms of shares is an enormous vote of confidence in the firm and the management and direction of Virtu. Vinny – people have always said the guy can see around corners and I’ve experienced that through my 15-year relationship with him. And so obviously, we were all excited that he continues to be incredibly supportive and he and his son Michael, who serves on our Board, continue to be a really helpful guiding hand to the firm as we continue down this path.

Got it. Very helpful, Doug. Thanks.

Thank you, Rich.

The next question is from Dan Fannon of Jefferies. Please go ahead.

Thanks. Good morning. So, Doug, I wanted to follow-up on your comments around internalization. You highlighted that a couple of times now as part of the success. So, is there any statistics or numbers or ways to think about that quantitatively and how that’s evolved as a part of your business?

Yes, it’s a great question. Obviously, Dan, as a whole host of things that we track internally in terms of our ability to internalize within the firm across asset classes and within asset classes. These examples I’ve given is, as we’re growing our options market making capability, it is extremely useful to those folks that all of their delta hedges are effectively dealt within the firm. So, you can spend time focusing on understanding the options Market Making and look at the various platforms and exchanges and understand and work on your models and not have to worry about what’s going to happen to your delta hedge, right, because there’s not a smart group of folks in the firm internally are doing that. That’s just an easy example. But that is happening throughout the firm globally. I mean our goal, obviously, with regard to internalization is to do two things. One is obviously to ensure that we maximize our bid offer capture. And the second thing is the flex [ph] that we route out to exchanges in order to source liquidity then we’re saving in an enormous amount of cost. If you look at like our gross to net revenue obviously our biggest expense every quarter on a gross to net base is the brokerage fees and commissions and that preponderance of that or exchange in ATS fees. So, to the extent we can mitigate those and improve our capture rates. That’s obviously going to drive our adjusted net trading income. So, I apologize for being vague, but obviously, there’s a fair amount of state secrets with regard to how we do this and why we do it and our success in it. But it really has helped us enhance in effectively out kick the what the metrics were otherwise provided in terms of results.

Understood. I guess just a follow-up, though. I mean, in terms of the last couple of quarters, as there has been a meaningful step-up in that or was this, I mean this has been something and you have always been working on, obviously. So, the idea that this quarter or last quarter, there was – that those metrics would be materially higher than, say, a year ago. Is that fair?

Yes. Yes. What you're seeing in the third and fourth quarter is an enhancement through real initiatives that we have implemented within the firm. Again, I'm not going to quantify dollars and sense, but long-term this will continue to provide. And we're not by any stretch of the imagination, done in terms of always trying to like squeeze more juice from the lemon, if you will. There's lots of runway here within equities and as the firm continues to grow into scale and has a larger footprint, obviously, the opportunities continue to grow. I mean just think of crypto assets, right? They're denominated in the multitude of currencies, right? So that's another example of internalization because obviously we've got a very robust FX business. We've always said one of the reasons Virtu and the original orientation, the idea that Vinnie had around Virtu was to be fully global and multi-asset class, right? Because he recognized that every time you have to go outside the firm to source liquidity or to hedge or to do this, you're introducing incremental inefficiencies effectively into the service into the market making that you're providing. So, the more that you can do internally across asset bases and geographies, the more successful you are, the tighter you can be on your own bid offer spread, the more flow you're going to capture, it's a virtuous cycle, right? That's always been the DNA of Virtu very, very different than a lot of our competitor firms.

That's very helpful. And so just a clarification on the expenses. So just make sure I understand the comp. We should think about the comp ratio for 2022 being similar to 2021? Is that the way or is that a dollar amount you're referring to? And I believe the rest of the expenses you're saying are going to be flat year-over-year when we think about 2022? Just want to clarify those.

I'd say two things. One is look at the – we updated the model on Slide 7, right? So, there's that cash OpEx total at different levels of anti, and as Sean said, right, our comp ratio, 17% cash comp, all in a 20% comp – so target – target those ratios going forward more or less. And then the other categories did grow kind of low single digit percentages and then zero to low single digit percentages in any one-year. So, comp has got to – the difference in the cash OpEx total on Slide 7 for those different levels is 100% due to comp.

Got it. Thank you.

Thanks Dan.

The next question is from Chris Allen of Compass Point. Please go ahead.

Good morning, guys. Thanks for taking my questions. I guess if we could start out with maybe some color just on market making in the fourth quarter. Clearly, there's benefits on the internalization side, just within brokerage and clearing side, but even putting that aside on a gross basis, much stronger numbers than we would expect. Maybe if you could give us some color what drove that, whether it was wholesale or on exchange in the equities or whether it was – and also just the non-equity businesses, maybe just some color, just what were the drivers there and how things performed?

Yes. Very good question, Chris. Obviously, we have gotten away from doing within our segment detail – incredible detail. What I will say it really was all around the firm. I mean, we have spent an enormous amount of time, money, energy over the last couple of years replatforming and migrating the legacy nice businesses and frankly investing in our own technology euphemistically, let's call it, new technologies to make sure that we have latencies and throughputs that are consistent with what the demands of the modern market. And so, what you're seeing is the continued validation of those investments and that work that we have done. It's not just – unlike 2021 January, if you will where you all we're looking at like, well, the mean stocks or this or that. It was really just a broad improvement, if you will in our market management capabilities. It was really just across the board. 605 volumes increased, but they only increased by 4% in the quarter. So, what we just have gotten better as a firm. We're very proud of the investments and the time that we've made. We've got an immense amount of very, very talented people. We're just improving our yield on every time we go to that, we're hitting more singles than we were hitting before.

Got it. And then maybe switching over to crypto, obviously, you noted the continued build out there just in terms of adding heads, different currencies you're making markets in. I mean, how – where would you describe maybe the level of capital commitment at present relative to our other more mature businesses? And what – how do you think about of the evolutionary path moving forward?

Yes. Great question. I mean it's very, very early innings in terms of our involvement in crypto market making. But I'm very, very excited about what I see. We've allocated some of our most senior and most experienced folks here in the United States and in Singapore and in Europe as this obviously a truly label business. We think it's not the most efficient marketplace, right, because it's not centralized clearing, but we think it's – the capital required is going to be proportional to the revenue opportunities in a way that is similar to all of our other businesses. I mean you see the amount of trading capital we have and frankly, the return that we get on capital. I think at the end of the year, we had over $1 billion of cash and cash equivalents. So, we have plenty of capital to run this business. We don't need to do anything extraordinary. We're very excited about the opportunity as the – as this asset class matures, you'll see more standard prime brokerage and leverage being provided by third parties. I'm hopeful at some point that the sell side will jump in with both feet to the opportunity in the same way that they are our partners and other asset classes. But be that as it may, we're going to be very, very active in this business. We've got plenty of capital internally for everything that we could foreseeably do in crypto right now.

Yes, Chris, we don't want you to take away that capital is going to be hindrance to us in this business. In addition to what Doug said, we've got more liquidity than we ever have on a daily basis. Even with our share buyback, we've got available credit lines if we need to, in this kind of early days of the market structure evolving in crypto. It is inefficient, but that's also part of the attractiveness.

Thanks. Yes, I was thinking about more only deploying x amount of capital right now just because it's in early stage, but there's a clear opportunity to play a lot more moving forward. But I appreciate that color. I'll get back in the queue.

Okay.

The next question is from Ken Worthington of JPMorgan. Please go ahead.

Hi. Good morning. I wanted to follow-up on crypto. Maybe three questions on it. You indicated in the press release that you're making markets in 30 or so crypto products, are you market making in individual tokens at this point, such as Bitcoin and Ethereum, and if so, how many? Because I think you're not, but I still don't really know? Second, Jump took a $320 million crypto loss on the wormhole bridge, either like earlier this week or late last week. What sort of capabilities are you investing in or you think you need to invest in, such as bridges to kind of grow your presence in crypto? And then how do you manage the risk associated with this? And then lastly, milestones for the coming year in terms of crypto, I think you talked about connectivity and products. How are you thinking about the build-out of both as we sort of move through the year?

Okay. I think I got all those. But let me try to handle them. I mean, yes, we are market making a handful of individual tokens today in Bitcoin and Ethereum. We will continue to responsibly about half a dozen of those – please don't ask you to name them all 10 because I got a lot of venues and a lot of symbols in my brain, and I'm not as smart like a lot of the guys here, so I can't keep them all straight, but about half a dozen of them. Obviously, we've been methodical about that and we try to go to the high end of the curve, et cetera. I think your second question was on – obviously, I know nothing. I mean I'm friendly with the guys at Jump Trading. I think it's an amazing firm. I know the founder as well. I don't have any information in terms of what Jump did or did not do. I read the same press reports you do. I mean, I think if you believe the press reports, which sounds like you do, and if Jump was willing to step up and write a $320 million check to cover losses, I think it's just a validation. It speaks to the value of bridges in that ecosystem from some really, really intelligent, very, very successful folks that I respect greatly. So, we think bridges will continue to be important to Virtu down the road as we expand more into defi what we're – we've built our brand on, if you will, is kind of risk management. And my friend, Joe here is the – when it comes to crypto, he's the crypto cop. He's the guy that watches everything and approves everything. So, we're very, very focused on it. For now, we're focused on exchange-based market making because that's where our expertise lies. It feels like when we first started Virtu in 2008, a little bit like the FX world, where you had a multitude of exchanges or venues that we're starting with varying degrees of technology. And so, we're not using bridges yet to facilitate our on-exchange market making. We're sort of doing that internally in the Virtu way. I think I answered all your questions. But if there's a follow-up, I'm happy to try to address it better, Ken.

Okay. No, that's good enough. Thank you so much. And maybe for Joe or Sean, brokerage and clearance, sorry, brokerage clearance in order book cost fell despite higher volumes in 4Q. Can you talk about the following brokerage costs and how maybe mix or other factors, maybe even internalization change to drive this relationship of cost to volume?

Yes. I mean, Ken, it's really, you're comparing quarter-over-quarter. There's going to be a number of things in there. There's going to be, as Doug said, kind of how often we have to go to the exchange and pay exchange fees, there's going to be kind of the legacy kind of proprietary market-making business in there in terms of asset class mix. So, it's going to depend on a lot of different things. I mean I think this quarter; I wouldn't point to anything specific. I think if you look at it over a number of quarters, the ratio is pretty much in line. So maybe comparing quarter-to-quarter for us is always a little bit – is always a little bit deceptive. I think if you look at it going back over a number of quarters, you're going to see a pretty consistent ratio.

That's great. Thank you.

The next question is from Alex Blostein of Goldman Sachs. Please go ahead.

Hey guys good morning. Thanks for taking the question. I want to go back to some of the organic growth comments you made and specifically zoning in on the options market making opportunity for Virtu. I guess, one, I was hoping you could help us break out, out of the $400,000 show per day in kind of organic growth revenues. How much of the options business sort of contribute today? And if you were to sort of dream the dream, how big do you think this business could be for you over the next two to three years, assuming volumes constant, regulation constant and all that good stuff.

Yes. Thanks, Alex. I mean obviously, we don't give breakdowns in terms of like what within our organic growth. I've said in prior calls that like options make sense a good chunk of that. It continues to make a good chunk of that. It was a really, really good quarter for the group. We have scratched the surface in terms of connecting to exchanges and symbols that we're trading. There's a whole universe, obviously, of names out there that we have not addressed in terms of like what the addressable market is and where we could be. We think that there's a need and an opportunity for more competition. You see how hard it is for new competitors to break into the cash equity 605 business, right? I mean there's robust competition there. It's not easy to do the same thing in options. Obviously, the retail brokers want more service and want more options, no unintended, in terms of where they can send their flow. It's no secret that my friends at Citadel and Susquehanna are the 800-pound gorillas of that industry. Morgan Stanley is in there. So, it's competitive. So, I'm not sitting here – Virtu is terrible vice, right? So, I'm not sitting here saying it's going to be easy for us to do that. I think if we just look at the structures, if you will, that we have in terms of having a fully paid for technology infrastructure. We have low latency connectivity between marketplaces. Obviously, we've got robust throughput in terms of all of our systems. We've reengineered and rearchitected our systems to be more – to enable quote-based as opposed to order-based market making. So, we've done all the things that one would do to be an options market maker. We had a good amount of success already where that leads us and how we scale that. We're going to do it in the Virtu way, right? The collaborative with exchanges, offer value to clients, and ultimately, we think it can be a very meaningful part of our business.

Got it. All right. We'll stay tuned on that, I guess. The second question I had for you guys was around just some of the expense dynamics in the quarter and looking forward. So, it looks like you issued net 5.2 million shares. I think it's a little over 2% of the total shares outstanding. Obviously, buyback overwhelms that. But as I think about the annual share issuance on a go-forward basis, is that roughly the right amount and should we be thinking about the same amount of stock-based compensation that will flow through the P&L on the back of that as we saw in 2021.

Yes. For modeling purposes, assume the stock portion of the compensation is constant in terms of a ratio, that would be a good assumption for modeling. Obviously, we are, like anyone else, where when we pay people in stock as part of their incentive comp, the net issuance really depends on the share count, the share price – so that will fluctuate hopefully. But the – that's a good assumption going forward, Alex.

Great. Thanks, Joe.

The next question is from Michael Cyprys with Morgan Stanley. Please go ahead.

Hey good morning. Thanks for taking the question. I just wanted to circle back to crypto. I guess, kind of a two-part question here on crypto. Maybe first, if you could just talk about the competitive landscape for market making and crypto and how you expect that to evolve relative to other asset classes? And then could you talk about some of your investments that you're making in the business to build out your crypto market-making capabilities, where you're sourcing talent and talk about some of the initiatives and steps that you're taking here in 2022 to make this a more meaningful portion of your business over time?

Yes. Great. Good questions. Thank you. So, in terms of the competitive landscape, it's actually a great question because there are actually a handful of market-making firms in crypto that you frankly don't see in other asset classes, firms that kind of evolved around the crypto space were early entrants as like Virtu frankly, we're doing other things and waiting for the active cost to evolve. So, it's – and obviously, they have been successful, I would imagine, right, because of some of the inefficiencies in the marketplace. As that market and that asset class, excuse me, and the exchanges begin to become more, I'll say, mature, more professional as latencies become more standardized within that asset class, it's no different, Michael, than any other asset class in my view that we have dealt with. The markets are efficient. Inefficiencies become obvious and effectively are eliminated through firms like Virtu and Citadel and others that are good at understanding inefficiencies and reducing the bid offer spread or reducing latencies and inefficiencies between venues. So that will continue to happen. As I said in answer to 1 of the other questions. It feels like this is like when we first started Virtu FX in 2008 and how inefficient that marketplace was and how fractured the technologies were. Scroll forward 14 years, and you've seen a much more cohesive, more mature, more integrated marketplace. That's what's going to happen in crypto. We will be one of the change agents behind that. And as that happens, scale efficient, technologically able firms like Virtu and others that are able to manage risk around the globe, 24/7 and do it in a multicurrency basis will be the winners, and you'll see some of the smaller players that may be niche right today in crypto will either merge away or fall by the wayside because they're not scaled enough and the marketplace just becomes too efficient. So that's what's going to happen as it has happened in every other asset class that I have been involved with in the 15 years or so we've been running Virtu here and for years before then. So, I'm excited about that, and I think that's the role that we're going to play. In terms of talent. What we have done is effectively move people within the firm to this asset class. It is nothing unique, if you will, about crypto because remember, our DNA is not to reason why. Our DNA – these are widgets to us. So, whether I don't have to be a believer in crypto or not believer in crypto, frankly, that's not in my remit. This is an asset class like any other asset classes. These are widgets. They obviously have a fundamental value when they move up and down. I don't know if Bitcoin is going to be $38,000 or $68,000 and frankly, I don't care. What I do care is that we are connected to the right exchanges, the right futures exchanges and the ETF issuers. And then we provided service interconnecting all of those marketplaces. And so, the folks at Virtu that have done that historically for the last 12, 13, 14 years are now doing that in crypto. And so that's the skill set that we bring to the table, which is understanding order types, understanding the technology of various venues, understanding operationally, how to move tokens around that we're really, really good at and that's what the operational excellence and the technological sophistication that we bring to marketplaces. And those are the folks within Virtu that we have moved into the crypto space. And that's why I'm very, very optimistic that we will be a meaningful player as this asset class evolves and matures.

Great. Thanks. Just a quick follow-up. As you think about M&A and the opportunity perhaps to accelerate movement into certain asset classes or geographic regions. Maybe you could just update us how you're thinking about that? And is there any opportunity on the M&A front for crypto, just in terms of accelerating movement there?

Yes, it's a great question. Obviously, we've been successful on two or actually three very large acquisitions. We acquired [indiscernible] in Thailand in 2011. That was integral for our success. To me, the bar has been elevated, right, because we're a large-scale firm, number one. Number two, we have this buyback program, which we're committed to. But more importantly, number three, as I just indicated, I mean, from an organic standpoint, if you will, we have all of the pieces in place to be a very large-scale of crypto market-making firm. Obviously, we're not connected to ever change yet, but that's – it's not simple, but obviously, the API connectivity to get connected to various crypto exchanges. That's what we do, right? We're connected to 250 exchanges, having the trading strategies in order to market make. We have all those right in other asset classes. So, it would be Obviously, I'm a fiduciary; we look at opportunities all the time. Joe has an experienced M&A person from his time at JPMorgan, I was an M&A lawyer at all wide so that we're not afraid of it, but like it might be a short-term benefit, but long term, to pay a lot of value for something like that, that we know we can otherwise do ourselves in the headache, frankly, integrating a firm technologically and culturally. To me, I think it would be highly unlikely, I would never say never, but we'd be highly unlikely that we would do something inorganic in the era.

Great. Thanks so much.

Thank you.

[Operator Instructions] The next question is from Paul Gulberg of Bloomberg Intelligence. Please go ahead.

Good morning and thank you very much for taking my question. A question, circling back to the options business, and I know you said about at in last or symbols into the ecosystem. How should we think about per unit of volume profitability of options versus the equities going forward?

Hey, look, it's a great question. Obviously, we don't comment on per unit or capture rates in any of our businesses. So again, I'm not trying to avoid the question. Obviously, we track it and we know it and whatnot. But in terms of you may want to talk to Larry at Bloomberg right little achieved on, put an analysis and Larry is a brilliant guy and knows the marketplace really, really well. But look, I mean, I look at Virtu as a giant mosaic, right? And ultimately, whether the capture rate is X, Y or Z, it sort of almost is irrelevant to me in terms of kind of how we grow and scale our business. I think it's a significant opportunity. The food offer, if you will, and the capture rate is going to vary based on volatility. I'm sure if you looked at competitor firms you look at their capture rate in 2020 as compared to 2019, it's just a key change of difference, right, because obviously volatility and the history of 2020, wide bid offer spread. So again, I think you should look at it and say, okay, this is a great opportunity for the firm in the same way that crypto is. And we've got all of the pieces in place to be successful there. And question of executing, historically, this firm has been very good at executing.

Got it. Thank you very much.

Thank you.

This concludes the question-and-answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.