CEO of Virtu: retail investors have never done better


Many are urging the SEC to consider changing the rules governing the routing of order flows, improving disclosure requirements and revamping the compensation of market participants for the services they offer, according to Doug Cifu, CEO of Virtu Financial.

However, he expressed concern that the growing intensity of calls for reform is not only based on “false narratives and unsustainable factual findings, but also masks the fact that US stock markets are the most robust. , transparent and fair to the world for all investors and for the retail trade.

On June 10, 2021, Cifu participated in a panel discussion organized by the United States Securities and Exchange Commission (SEC) regarding the structure of the wholesale market and the payment of order flow (PFOF).

He said: “The investor experience has never been better. Changing market structure, technological advancements and the introduction of intense competition have resulted in a significantly expanded product and service offering to retail investors, low-cost or no-charge transactions and, most importantly, a superior workmanship.

Cifu said the benefits of the current market structure for retail investors are quantifiable and the factual evidence to support it is striking.

“In the current model, wholesalers fill marketable orders at generally better prices than the NBBO. The combination of the price and size improvement offered by wholesalers, which we call real price improvement (real IP), translates into real dollar savings for retail investors in 2020, ”he said. he declares.

“This real real IP has benefited retail investors and is about three times more than what is reflected in data collected under Rule 605,” he added.

According to Cifu, this demonstrates a significant underestimation of the real benefits recognized by retail investors in the current market structure.

He added that another theory put forward by critics of the current market structure is that bid-offer spreads are widened by the wholesale model and in particular the segmentation that it introduced, they postulate that the spreads would narrow. mythically.

“If the executions all took place on a lead exchange, we postulate that the opposite is true, and actual data from the Commission’s tick size pilot supports this thesis,” he said.

“If the current market structure is drastically changed, investors will pay more in implied transaction costs and retail will lose much of the benefits they have achieved on the current model,” he said.

Cifu further stated that retail brokers have a legal best execution obligation, which they adhere to by writing to sites that offer the best price and the best execution size, and not those that offer the most payouts for the. order flow.

He added that retail orders also benefit from the intense competition from brokers favored by the current market structure.

“This has led to a decline in toll-free trading as wholesalers, including Virtu, absorb all enlightened trading in ATS costs, which would otherwise be passed on to the retail investor. These costs are significant and are further proof of the benefits of the wholesale model, ”Cifu said.

“In addition, brokers can take advantage of the risk management capabilities and economies of scale of wholesalers and pass the benefits on to their clients. The current build also allows brokers to compete on other factors, finding trading tools, investor training, trading interfaces and funding rates, among others, ”he said. .

“While we support data-driven reform, we are concerned that a radical overhaul of the current market structure will have unintended consequences that will really hurt retail investors,” he added.

Cifu believes the changes should focus on updating Rule 605 by improving transparency, so that existing benefits for retail investors are accurately reflected in the data reported by market participants.

“We believe the Rule 605 reports provide an incomplete picture of the quality of workmanship. We will support the collection of more comprehensive data to reflect how wholesalers offer both price and size improvement and to more accurately reflect the benchmark of visible liquidity available, ”he said.


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