Virtu Financial (VIRT)

Why do bankers (except Piper Sandler) pay sell side analysts to cover this stock? No idea.

_{The author has a relevant long position interest in the securities of Virtu Financial as at the date of this article.}

There are seven sell side analysts for VIRT. Five of them work for firms who compete directly with Virtu in the alternative trading systems (ATS) market which transacts roughly one-seventh of US equities as a combined venue. The five are the big “bulge-bracket” firms (JPM, Goldman, Morgan Stanley, UBS and BoA. The remaining two have a long standing relationship with Virtu in different ways: Jefferies - heavily involved in the recuperation and eventual sale of Knight Capital Group and Piper Sandler where the broker has regularly profiled Virtu at its corporate events. Of course, they ask the first question on analyst calls¹.

One of the delights of covering and owning companies involved in the securities industry is that research coverage of them is generally poor. In the author’s opinion, really poor. Competitor management don’t want the research analyst spending precious time and effort on them, the perception being that there is no investment banking business available other than bond issuance. Virtu and US markets are not unique; its the same around the world even in Australia where two listed direct securities industry participants - Euroz Hartleys and Bell Financial Group - routinely trade at mid-single digit P/E’s. No competitor brokers cover the shares. They usually exhibit strong “beta” - especially to corporate activity within certain areas of Australia’s equity market. Many pay generous dividends to supplement the principals’ remuneration, but pay is often “constrained’ - it’s public and people like me turn up at AGM’s with awkward questions.

On 19 March 2026, I presented VIRT at Value Spain in Madrid with the prior night’s closing price of $39.88. The presentation focused on the changing dynamics of US equity markets, the high volumes (and volatility) of Q1 2026 at the time, the beneficial commitment by Virtu of greater capital to trading rather than buy-backs and the assessment that near term earnings estimates by the sell-side were pitifully inaccurate - with one exception. We posited that quarterly earnings for Q1 should exceed $2/share on a normalised basis against a consensus estimate at the time of $1.25. We wrote up the presentation at Dynasty Trust 31 March 2026

As it happened, Q1 EPS was $2.24 - in fairness, the sell side revised up their numbers in the days preceding the report to an average $1.65. Still ridiculous! Why would the bulge bracket firms expend ANY effort other than to get competitive infomation? It was clear to anyone observing US equity markets that conditions for participants who require volumes (and volatility) in Q1 were the best ever so how could a market maker earn 11% less than the preceding quarter - especially with more committed capital??

So its clear that sell side research on the company is “compromised” in some way. That’s to our benefit. There’s a clear information gap.

Since 18 March 2026, Virtu shares have advanced to $63.07 and with the quarterly dividend have returned nearly 59% in three months.

This piece is NOT self-congratulation. It’s about questioning whether there is still value in the shares but also to note that during this time, in the dynamic world of US securities trading, much has happened. So, we focus briefly on two aspects:

• has the environment for Virtu changed in Q2 2026; and

• the rapidly evolving regulatory framework

The current environment for Virtu

^{(all statistics in this piece are sourced from Virtu (historic) and CBOE (current quarter)}

Virtu’s lifeblood is volume, preferably with added volatility. In Q1 2026, average daily volumes across the 63day period were 19.985billion shares with S&P500 realised volatility averaging 14.4% - way below the predicted VIX implied volatility average of 20.4% in that period of significant geo-political events. It’s best for Virtu if more volume is done via the trade reporting facility (TRF) i.e. off exchange in an environment dominated by Citadel, Virtu and Jane Street. In Q1, TRF averaged 48% of share volumes.

In the 55 trading days of Q2 2026 to date, average daily volume is 19.3billion shares, with an estimated 48.8% via the TRF (split 3-1 OTC versus ATS) and estimated (but fluctuating) 30days realised volatility of 14.5% from end April - about 400bp below equivalent predictive VIX, having spiked down from a significant prior premium to VIX in the month of April (remember its a historic backward looking indicator). So, the environment for Q2 todate is less than 4% weaker volume wise than Q1 with equivalent volatility.

Moreover, the first 14 (of 21) trading days of June have been astonishing, with average daily US stock volumes of 22.774billion shares a day worth an average $1.26trillion daily.

Hence, it would be surprising, if Virtu didn’t come close to replicating its Q1 earnings based on factors at work in its largest market - US equities.

Not that these competitor sell side analysts would suggest that. Despite some recent upticks in estimates, the current quarter average sits at $1.49/share - one third below Q1; we would have thought a number closer to $2 (again) intuitively makes more sense. We postulated in Madrid that the company should earn $6.50 a share for 2026; even if the prevailing environment slows up a bit in H2, we reckon $7.70ish now looks more reasonable.

Virtu will never trade at a significant multiple for reasons examined in the March quarter Dynasty Trust report - in one sense Virtu is a commodity price taker - volume and volatility on top of a fixed cost base. Hence, other than at cyclical low points, anything above low double digit P/E multiples are unlikely to be sustained for any length of time. But given the obvious barriers to entry to the business, are P/E’s of ~8x reasonable either, even in buoyant environments?

That clearly depends on your view of the structural opportunities open to businesses like these. That’s where the last three months have been of serious interest.

A changing regulatory framework: believing the HYPE?

VIRT stock’s strong total return over the past three months (18 March to 19 June) sharply contrasts with the situation for the exchange venues: CME has fallen from $309 to $246 (-19.8% total return after dividend); CBOE from $287 to $249 (-13%) and ICE from $157 to $134 (-14%) with S&P500 +13.2% over the same period.

So the venues have been hit hard whilst the partipants have soared. On 29 May the Commodity Futures Trading Commission (CFTC) approved a perpetual bitcoin contract issued by Kalshi, the $22bn valued prediction market comany. As is presently the case elsewhere in equity markets, new “technological” initiatives in one arena are assumed to be instantly successful across the board and eliminate existing “legacy” businesses in short order. See your software holdings. Hence, the sharp negative reaction in the “venue” stocks.

Perpetual futures (“perps”) are different to contracts for difference (CFD’s) which also have no expiration date and offer significant leverage - with a much larger current offering through operators such as IG Markets Group (IGG.LN). The attraction of perps is that they are peer-to-peer traded on an exchange rather than being an over the counter contract with pricing set by a market maker and hence (arguably) have less counterparty risk (remember MF Global?).

Currently, the largest participant venue for perps is Hyperliquid (HYPE) which trades as a token with a market capitalisation of ~$18billion and through a couple of ETF’s. HYPE offers perps on a variety of indices and commodities. Of course, Kalshi will be into this as well, now CFTC have “acceded”.

CFTC may have acceded, but the venues certainly have not. On 18 June CME Group sued CFTC to block the ruling effectively arguing perps were swaps. Wall St Journal 18 June 26 For the likes of Virtu, it’s just another peer-to-peer market with potential retail participation, facilitating the use of their market making skills. And of course, the transfer of IG’s skills and distribution: their London-listed shares are up 41% in three months.

The author figures that perps will happen sooner or later, perhaps with guardrails. Given that CFD’s are banned in the US, despite the counterparty differences, they represent an obvious substitute. They will require participant “market-makers” to hedge, creating yet more volume in the underlying securities and assets. All grist to the mill.

The mere creation, legal consideration and widening of perps continues the trend of market democratisation which underpins players with distribution networks (IBKR stock +40% since 18 March, HOOD up 44% and even Goldman +37%). Perhaps these moves are overly excitable; but for the “pick and shovel” provider, like Virtu, who can mine a little gold on the side, still on a single digit P/E of our estimated 2026 earnings, who’s to say there is not more to come.

Not that the sell-side brokers (bar one or two) will be telling you.

Andrew Brown

20 June 2026

^{1: “Great result Aaron”}

_{This disclaimer applies to this document and the verbal or written comments of any person presenting it. The document taken together with any such verbal or written comments, is referred to herein as the “Presentation.”}

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_{The Presentation relates to Virtu Financial but is not an offer to purchase or sell securities. The Presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any security and may not be relied upon in connection with the purchase or sale of any security. Any such offer would only be made by means of formal offering documents, the terms of which would govern in all respects. You are cautioned against using this information as the basis for making a decision to purchase any security mentioned within the Presentation. Andrew Brown is the sole Directors of East 72 Management Pty Limited (ACN 663980541) which is Corporate Authorised Representative 001300340 of Westferry Operations Pty Limited (ABN 48 103 724 072) (AFSL 302802). Andrew Brown, the sole Director of East 72 Management Pty Limited is the Responsible Manager for Westferry Operations Pty Limited. The information contained in this Presentation is of general background and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered, with or without professional advice, when deciding if an investment is appropriate.}

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