Andrew Smith - IR Douglas Cifu - CEO Joseph Molluso - CFO

Rich Repetto - Sandler O'Neill Ken Worthington - JP Morgan Ashley Serrao - Credit Suisse William Katz - Citigroup Christopher Allen - Buckingham

Good day, ladies and gentlemen, and welcome to the Virtu Financial Conference Call announcing 2016 Third Quarter Results. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Andrew Smith, Head of Investor Relations. Sir, you may begin.

Thank you and good morning. As you know, our third quarter results were released this morning and are available on our website. 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, and our actual result and financial conditions may differ materially from what is indicated in these 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. We refer you to disclosures in our press release and encourage you to review the description risk factors containing our 10-K and other filings with the Securities and Exchange Commission. In addition to GAAP results, we may refer to certain non-GAAP measures including adjusted net trading income, adjusted EBITDA and adjusted EBITDA margin. You will find a reconciliation of these non-GAAP measures to GAAP terms included in the earnings materials with an explanation of how management uses these measures. Speaking and answering your questions this morning are Mr. Douglas Cifu, our Chief Executive Officer; and Mr. Joseph Molluso, our Chief Financial Officer. They will begin with prepared remarks and then take your questions. I'd now like to turn the call over to Doug.

Thank you, Andrew. Good morning and thank you, everybody, for joining our call this morning to discuss Virtu's third quarter results. This morning I am pleased to report that Virtu reported total revenues of $165 million, net income of $33 million and diluted earnings per share of $0.18 for the quarter. Normalized adjusted earnings were $27 million and $0.20 per share in normalized adjusted EPS. We believe our performance in this challenging environment is a testament to the resilience and durability of our model. The opportunities for most market participants and for market makers were limited by the depressed global volumes and realized volatility in the third quarter. Despite a brief initial surge of trading activities from the residual impact of the Brexit vote early in the quarter, the volume in volatility environment which is a good indicator of opportunity for the path of market major lying Virtu was [indiscernible] we have experienced since our IPO last year. We present global benchmark volume and volatility statistics on our website, but here are some facts which highlights the press volume and volatility environment of the third quarter. Realized volatility of the S&P 500 in the U.S. as expressed as a percentage of implied volatility measured by the VIX was 74%. Realized volatility was similarly muted in Europe and in foreign currency markets as well. The average intraday day volatility of the S&P 500 during the quarter was 0.69%, one of the lowest quarters on record. In August, the average intraday volatility of the S&P 500 dropped to 0.53% and in only two days of the intraday volatility rise above 1%. In fact, S&P 500's intraday volatility was so low in August that it went 17 straight days of moving less than 0.75% between the day's peak and the day's low. This…

Thank you. I will provide additional details on our results review -- some notable transactions this quarter and supplemental materials we have provided. And then we will take your questions. Our GAAP net income before attribution to non-controlling interests was $33 million which equates to $0.18 per share of diluted GAAP EPS. Consistent with our financial presentation in our quarterly and annual results since our IPO, we provide non-GAAP financial information to supplement our presentation. On a non-GAAP basis, our normalized net income was $27.3 million for the third quarter, assuming $139.7 million fully converted shares outstanding; this equates to $0.20 per share in normalized adjusted EPS. Our adjusted EBITDA which excludes the impact of stock-based compensation was $56.9 million for the quarter with a corresponding margin of 58.6%. Now let's turn to adjusted net -- adjusted net trading income in the various categories. With regard to the third quarter results, our total adjusted net trading income was $94.2 million, down versus the third quarter of 2015 which included the stock market turmoil of August 24 by 32% and 20% year-to-date versus 2015. These declines reflect the limited opportunity due to the depressed volume and volatility environment as previously mentioned. Our adjusted net trading income was down in all categories versus the third quarter of 2015. Year-to-date 2016 versus year-to-date 2016 adjusted net trading income was down in all categories except APAC equities which showed an increase of 14%. On a daily basis, adjusted net trading income was $1.473 million per day, down 32% from the same period one year ago. Year-to-date we are running at $1.661 million per day a 19% decrease from the year-to-date amount at this point last year. In general, depressed volume and volatility is the reason for these declines. For example; America's equities results were…

Thank you. [Operator Instructions] Our first question comes from the line of Rich Repetto with Sandler O’Neill. Your line is open. Sandler O’Neill: Good morning, Doug, good morning, Joe. I think the first question is, you know to differentiate in the model; certain of your peers were reported losses and you still -- you, although the net trading income was impacted, it still had what we think is around low-40% or mid-40% pre-tax margins. The public comparable talked about September being extremely weak, and again their market making results were unprofitable. So I guess the question is, can you sort of compare and contrast what you think is going on or how you stayed profitable versus some of your peers being below the line?

Sure, I mean obviously I can pretty much just obviously talk about Virtu, I did worked anywhere else but I can give you my theories on it. I mean we saw September frankly better than August and not much different than July in terms of volumes and volatility. So there is no difference between the three months, so I'm not quite sure what the competitors that you're referring to were looking at. But really what it comes down to which is business model, we're a passive market maker, we don't do statistical arbitrage, we don't hedge with some other basket of instruments. And as I always tell people, if I don't understand the hedge, and I'm not the smartest guy in the world, we don't do it. We trade ETFs against Future's, where a basic single is hitting passive market making firm, that's our model. I'm not sure that there is another firm out there that is as consistent and -- I'll say risk mitigating as Virtu. And so it really comes down to -- Rich, as you know very well, like what's the opportunity set out there in the marketplace; if there is more volumes and the realized volatility which is really just the bid offer spread that investors are willing to pay to get in and out of positions is larger then we're going to have a greater opportunity to collect that bid offer spread and be more profitable. That really doesn't change month-to-month, day-to-day and quarter-by-quarter; the way that -- where the style of which we trade. And so we don't have overnight P&Ls, we don't have hedges that blow out or go the wrong way, that kind of things. So it's a very different styled firm from others; I'm not suggesting that those other firms aren't clinical at market making firms, they just have a different way of hedging or providing that liquidity; we're a basic blocking and tackling singles hitting market making firm that will not have those levels of volatility in earnings. Sandler O’Neill: It seems like the employee -- more of a version and they acknowledged the version to the mean sort of strategies.

Yes, we don't do any of that; we don't do any of that. Sandler O’Neill: Okay. And my one follow-up would be -- thanks for -- I appreciate that clarification and showing the cash flows, and the differences between cash and the adjusted earnings. I guess the follow-up question would be; Joe, you mentioned about -- I think it was $37 million or an additional $37 million in debt refinancing, adding to cash. And I know you raised 530 and that was greater than what you had on the balance sheet prior but I thought some good was targeted towards Japannext, so is that not the case -- I see that Japannext gave you some financing as well. The $37 million in the long would have been way of asking about with that kind of…

Yes, and I'll answer it just real quick and turn over to Joe. I mean we had an obligation to offer to repay them, so we had as part of -- the agreement we had with SPI, which was the provider of the financing of the Japannext transaction. So we had to put on the cover of the 540 and raise that much and offered it, and they've turned it down which I guess is another vote of confidence in our model long-term. And so as a result, our net-debt didn't go up because we just put the excess cash on our balance sheet Rich. Joe, did I answer that correctly?

Yes. And Rich, the Japannext transaction as you know closed and they were the ones who said, we want to be feel together. They basically gave us the money to buy the stake. At the terms that they are offered, we thought it was extremely attractive and we didn't even think about that as incremental debt, right. We've got a great asset and then we -- they basically gave us the money to buy it. So as Doug said, when we did this transaction, we had to offer. So we went out -- the demand for this was too actually went out with; so that was an easy call. We keep our credit statistics the same, we lower our interest costs, we kick our surety [ph] and we actually round up with $37 million more cash. And this is a regular term loan style loan, so we can repay it at any time; so we can adjust accordingly but we're very comfortable with where we are. Sandler O’Neill: So that additional cash could be used for paying dividends or other, so I mean…

This share of corporate purposes, it's sitting at our home [ph]; it's unrestricted, we go do anything we want with it. Sandler O’Neill: Understood. Okay, thanks guys, appreciate it.

Thank you. Our next question comes from the line of Ken Worthington with JP Morgan. Your line is open.

Hi, good morning. Maybe first, we are hearing from exchanges about increases in data revenue and their anticipation that data revenue will continue to rise; it's not obvious that this is impacting for Virtu, I can't imagine that it's not; so maybe how are these costs kind of filtering through Virtu? Again, it doesn't seem material but is it material to you? And to what extent are you able to use your size and prominence maybe to push back effectively when maybe others are not?

Yes, it's a great and very, very topical and timely question, it's a little bit of a passion piece of myself. I mean look, we've done everything we can to manage our data cost, I talked about that in the script, however, the last three years we've kept it flat and a lot of that is just been through efficiencies and you're right, trying to use some of our buying power with various venues and around the world. It's not just market data cost as well, just so everybody is clear; I mean there is a hidden cost or a large cost for connectivity, ports in sessions and connections, and when you're a large market making firm like Virtu where you have a lot of connections to exchanges -- I think look, there has been a lot of press about this lately, some of it I've been quoted in, and frankly, I'm a big believer in this. I think there is going to be increased focus on market data and important session cost by -- particularly U.S. equities exchanges. The real question is, is there really a competitive marketplace for us? Do we really have a choice but to buy these proprietary market data feeds? And it's not just market makers that are saying this, that's the key thing; it's really all market participants are finally looking at this and saying you know what, in periods of low volumes and volatility, is this tax on the industry -- that frankly, we just passed along as part of a bid offer spread right, because we're going to try to maintain our profitability, is it justified given the fact that the cost of providing data in just about every other marketplace business you could think of has gone down; and is it…

Awesome, thank you. Maybe Joe, given the focus on cash and cash flow, any material pending expenditures, obligations, payments that we should be aware of over the next year apart from operating cost and dividends; just as we think about it like what are the kind of unusual costs that are cash flow expenditures that we should be anticipating as we build our cash flow models?

No, there are none. I mean we do extensive cash planning, we have a very detailed -- internally review cash sources and uses. I've laid out the worksheet here that shows cash adjusted earnings. If there is a cash item in that that we are -- is not currently payable, we always make sure we kind of reserve for things; we -- I put in supplemental materials in the index our cash and net cash number but also our capital number which for us is effectively cash because it translates into cash and trade date, settlement date cycle. So there is nothing on the horizon that -- we always have quarter where we use more cash right, we pay bonuses at the end of the year. So we've got -- we cruised through for that throughout the year but whereas nothing that is out of the ordinary that we haven't planned for or don't anticipate.

Awesome. Thank you very much.

Our next question comes from the line now with Lauren Gardner [ph] with Evercore. Your line is open.

Thanks a lot. So it sounds like the effort and the opportunity to develop additional relationship similar to the ones we have with JP Morgan and [indiscernible] are going pretty well. So I was just wondering as you guys are continuing to develop these relationships -- as a shift we've gone down -- gone through this process over the last few quarters, any change to your view, your level of conviction or timeline in terms of getting to that sort of 10% of 2015 trading income?

It's a really good question. I'm mean actually I've been very pleasantly surprised by the influx of inbound calls frankly, I mean I guess it helps a lot when we do these calls and this press reports and then there was a press report in Europe about a very large European investor that -- frankly, on his own volition decided to go and talk to a reporter and give him a nice quote about Virtu. So in a way that's kind of like a virtual salesforce I guess we have out there. Yes, I'm very, very bullish on the business, I think it's -- I think we have a unique product, I think with a miss or two and the unbundling of services that you fellows know very well. On the horizon, I think there is going to be a more and more of a trend towards firms that can provide frankly, excellent execution services. And more importantly, what we do provide is 100% full transparency about routing of orders and frankly tools that give an investor a real-time view as to where their order was sent which is I think fairly unique in the marketplace. So to answer your question, we're not going to ramp up and hire 20 salespeople and try to get a whole bunch of business next quarter because I don't think that's the right way to grow the business Warren [ph], I think the right way to grow the business is to have a great product and to invade these investors one by one to make sure that they're sticky because of the very competitive marketplace, to make sure that they feel like they're getting a good value for the services and for the price that we're providing them. And so at the end of…

Great, thank you. And then I guess I'll just touch on the other sort of big agreement you guys have -- SCI sounds like it's worth but if you guys are seeing any similar opportunities there, like the one you struck with SBI in terms of other asset classes or regions?

Yes, it's a very good question and I think the interesting thing about that agreement is, I'm sure you know who SBI is and their profile with you -- their role in the Japanese retail scene. So again I have to be a little vague about how I answer this because we have nothing to announce. But certainly, we are very encouraged by that relationship. Again, I think it's a significant knock-on effect of frankly of being a public company, of being transparent that there are institutions out there that control a significant amount of retail and/or institutional flow that want a way to make sure that their customers are satisfied with the counterparty that they can trust. And that's ultimately our business model; and that's one of the reasons why we've been very transparent about what we do; why we think we've been on the right side of a lot of these market structure issues while we believe in transparency, while we believe in being regulated and having more regulation in the world to make investors feel confident about who the counterparties that they are dealing with. So yes, are we in discussions with other large institutions about perhaps doing some -- the spoke routing or liquidity provision opportunities? Absolutely because that mean we're going to be investing in dozens of exchanges around the world if he answers probably, no to that; I think this is a unique situation where we thought we could really add a lot of value. I was in Japan just a couple weeks ago, and the level of involvement we now have in that marketplace -- given that we're a small-ish American company is fairly extraordinary, so that was a very important strategic investment and relationship for us; and certainly one of my jobs -- one of my main job as CEO is to be the guy out there beating that drum and trying to develop those relationships.

Great, really helpful. Thank you.

Our next question comes from the line of Ashley Serrao with Credit Suisse. Your line is open.

Good morning. I just first -- just wanted to clarify on the disclosure, is the unallocated net trading income the same as the trading settlement income does being backed out of results?

No, Ashley, it's not. If the unallocated is the same as it is every quarter -- there is some timing difference. The amount that we're backing out conservatively, we are -- we received a settlement from Amrex [ph] trading activity; we had no – yes, we concluded that that was just -- the trading income was the proper play to put it because it was trading related but it is not in the $0.20, I want to stress that, it is not included in that $0.20; if we include it in the $0.20, we would have been at $0.215.

Okay. And then I guess just some thoughts on the competitive landscape and how you view some of the initiatives and maybe expanding into fixed income ongoing and whether you think -- some of the various pending regulatory changes and be it increased disclosure or transparency -- how do you exactly plan to take advantage of that?

Well, it's a good question. I think as we've always said, I view increased regulation as a competitive advantage of ours and people always scratch their head when I say that. And let me give you some concrete example; so, like in Europe as you know very well -- and I was just over there, actually this week; I view misfit two [ph] as 100% a tailwind to Virtu. People talk about the German HFT law and firms need to be registering, they need to tag their algorithms; we do all those things, we've been in Ireland and regulated by the Central Bank of Ireland since 2010. We're very fortunate that's an EU jurisdiction and so we're able to passport into every one of the EU countries without limitation; and so therefore we are regulated investment firm in every one of the EU jurisdictions and we can trade there freely. When the CFTC put out a proposal suggesting that firms that have direct market access be regulated, we have been putting comment letters into that effect since 2010 and 2011. The point being that we are a firm that one, embraces regulation; and two, has the infrastructure and know how to be regulated. We've got a full compliance department here, we've been members of exchanges around the world since our founding; we've got not one but two license broker dealers, we've got investment firm I just mentioned in Europe were regulated by the Monetary Authority in Singapore, by the ASIC in Australia; you kind of get the point which is -- those are all things that benefit us. You also asked about fixed income; obviously I think the JP Morgan trading relationship is symbolic of the fact of how much that marketplace has changed, three years ago it would have…

Okay. Thank you for the color. And just a final question; just product capital match philosophy; how you're thinking about debt over time? And would you have any intention to reduce it? And also any thoughts on maybe using M&A as tool to grow?

Sure. I'll answer it first and I'll throw it over to Joe who is a little more adroit [ph] with balance sheets than I am. Look, I mean we're very comfortable with the debt level, we've had it since 2012 or 2013; our numbers always been keep it at/or around two times adjusted EBITDA which is kind of where it's at right now. I think look, we took it advantage frankly of very frothy debt capital markets; are friends at JP Morgan did a phenomenal job, we got ourselves upgraded in some of the ratings -- we've got rated by Fitch [ph]. We extending our maturity, our three more years and so that term loan is very comfortable for us; we can service it, no problem; it provides just like the prior one's did for only a 1% principal amortization per year. We've reduced our coupon with the LIBOR floor by 100 basis points and so it's was a huge win-win for us; and it's just a way -- we're just trying to obviously manage our balance sheet appropriately for the next couple years. So I don't see any reason frankly to accelerate amortization of a term loan that now got a six-year maturity to it and a very, very attractive coupon. In terms of M&A, we've always said -- that was one of the reasons why we wanted to go public. Certainly, there are firms that I'm sure are out there that are having -- they are having significant struggles and if you think about the scale that we have and the number of employees that we have -- think about competitive firms and some of them are public and you guys can look at the results but think of other competitive firms that have two or three or in many cases -- in some cases four times the number of employees that we have, and frankly, don't even trade the number of symbols and aren't in as many markets as we have. So they've got to be struggling in these marketplaces because the volumes and the volatility kind of are what they are. So we're always going to look at those opportunities. I have said many times we're only going to do things that we feel really good about from a cultural perspective, from the fit perspective in terms of where the synergies can come from; and then obviously from a financial perspective to make sure that they are accretive to all of our shareholders. Joe, what did I miss?

No, nothing. We're very comparable with where we are.

Okay, great. Thanks for taking my questions.

Our next question comes from the line of William Katz with Citigroup. Your line is open.

Hi, thanks for taking the question. This is Jack Keeler [ph] filling in for Bill. Just a question around some of the technologies there -- deals that you have; just wondering on the current base if you can kind of size how much of that revenue is performance-related or how much of that is fixed fee? And then in the current environment, does that kind of raise your appetite there or show some interest in these revenues that I'm more fixed than made sure? Just to give you kind of a base run rate -- kind of like with the exchange they are doing with market data?

That's kind of an ironic question given the answer I gave to the prior question. I mean sure, obviously look -- we're cognizant that you all and investors -- and we totally get it, are more responsive to more predictable, I'll put it; revenue sources. We're not -- I'm not militant in saying I don't want to subscription revenue, of course we do and you've seen it has grown and includes now some of our agency trading and what-not. It will soon start including the results of the JP Morgan Partnership and as we grow our agency business that that line which is roughly 2% of our revenues will throw. And I've kind of sized the opportunity; so look, I get it. I think it's attractive revenue, I think if we can do it consistent with our operating margins and how we run the firm, we're going to do it. So I said in answer to a question earlier, I'm very excited about the agency business, I think it's something that we can really differentiate ourselves and offer a product. I'm obviously over the moon about the JP Morgan relationship, I think it's fairly significant and I'm -- we're very excited about how that can grow. Are there other opportunities out that there? Absolutely. Have we've been approached by other large institutions about doing strategic things? Absolutely. And so we're going to consistent with our fiduciary obligations as just kind of common business sense; we're going to approach all those and see if they fit into the culture of this firm, the margins we demand for ourselves and can we differentiate and add value? Joe what did I missed today?

No. I think we're open to all kinds of structures. Again -- and as Doug said, we're not biased one towards the other; we've had a relationship in place for a long time which is predominantly fixed and as we had said in the last call, the JP Morgan arrangement is both fixed and variable. So they are all -- they will all be different.

All right, thanks for that. And then just as a follow-up, you've spoken about the number of opportunities that you see in the marketplace; if we remain in the volatility and low volume world, how do you kind of weigh, taking advantage of those opportunities versus maintaining your current dividend? And I guess the payout versus spending for growth dynamic? And then how much -- you've shown strong expense flex quarter-to-date; is there any more expense flex you have if you manage surviving going forward? And is there any kind of ops that you could do in comp in terms of -- have been the non-cash component?

Good question. I'll answer the first part and then I'll throw the expense part of it to Joe, he is much better at that than I am. I mean we are committed to our dividend, we've said that in our IPO. We've given supplemental disclosure that shows you the strength of the cash flows and -- bank if you will of excess cash that we've generated since our IPO. So I see no change for that; our Board is committed to it, I'm committed to it; I think there has been a lot of talk out there in the marketplace about the up-sea structure and how that's going to cause a cash surge? Actually the opposite is true; so I think if -- reason we've put the supplemental material out there to make sure that there is not misleading information out there, then you've guys really understand how the cash flows work. I mean it's a little bit of a complicated structure but the structure that takes advantage of U.S. tax code in a way that makes a lot of sense. And actually adds to the benefit or adds for the cash cushion that we have around our dividend. So I see no reason why that's going to change we're 100% committed to returning capital to our investors, it's what we've done since we've started this firm. We've got a long track record of doing it since even before the IPO. And obviously, it's something that our Board and our senior management team is very committed to. In terms of expenses; Joe, I'll ask you to answer that.

Sure, you're right, we've flexed the employee comp, you can see year-to-date and quarter-over-quarter the nominal dollar amount -- that group is down, it's down 2% versus the prior year-to-date; and then it's down 10% versus the prior quarter. Is there more flex? I think we're comfortable where we are, there is always more in terms of being able to manage the business. And the mix of cash and stock, we view our equity incentive as very important; we've always done it even before the IPO. And so it's something we're committed to. And we want to balance that with being fair and paying everyone very well and according to the market. So I think we're comfortable with where we are in terms of cash for stock as well. But as you've pointed out, there is always more that you can tweak.

Great, thanks for taking my questions.

Thank you. [Operator Instructions] Our next question comes from the line of Chris Allen with Buckingham. Your line is open.

Good morning. I'm wondering if we could talk a little bit -- just about how the fourth quarter is shaping up. I appreciate the extra disclosure and covering the dividend, I think people are just looking at it like bad environment -- our third quarter -- October was -- there has been no great shakes, it seems like November getting a little bit better just -- I've talked to investor's concerns and like -- okay, we have a couple of bad quarters even though I guess some cash cushion as you're going to gain cuts. So any color just in terms of how we're shaping up here? Maybe is October similar to kind of July or September and November is starting to look better; that's -- it's how I was thinking about looking at the numbers.

Yes, I mean you answered the question pretty well, Chris. Now if you look at the numbers, they reflect the opportunities that October was not significantly different than the third quarter. And November is shaping up a little bit better and I would point out -- this jobs report today, out and I think three or four minute, there is a little event called the U.S. Presidential Election on Tuesday. And so I'm sitting here thinking, okay, well if one candidate wins and another doesn't -- it could change the entire dynamic of what November looks like and what the fourth quarter looks like; that's the great thing about this firm, if you had asked me on January 14, 2015; what's the first quarter going to look like? I would have given you an answer that in hindsight it would have been absolutely idiotic because I didn't know the Swiss were going to be pegged their currency the next day. So sitting here today it's difficult to -- again, put a prognostication on what the fourth quarter is going to look like; certainly October was no great shakes as compared to the third quarter. And again, going back to the dividend saying, I really think that there has been way too much chatter about this; we're very comfortable with where the dividend is; the TRA, the Tax Receivables Agreement actually is a net provider of cash, not a net deficit of cash; and I understand there has been some significant misinformation about out in the marketplace. I think people need to just review the supplemental material, understand that you've got a management team and a board that is committed to capital return. As Joe said, when we went public we said we're going to distribute somewhere between 70% and 100% of our free cash flow to investors; and we're at 81% right now. So we're very comparable with where we are at. We had a quarter where we made $0.40 -- $0.41 and we distributed $0.24. So we've built this firm not for a quarter-by-quarter results, and not for quarter-by-quarter dividends, we've built this firm for the long-term and that's how we're going to continue to run it. So I see no reason to change that policy at all.

And then -- just any color just in terms of what drove the strength in commodities this quarter? I might have missed some -- on the energy side, or metal side or…

Joe, you want to answer that one? I can do it. I think it was really a combination of both Chris. I mean our commodities business has had its ups and downs and this quarter in particular, we focused on some of the precious metals and there were some real significant interest although it got lost in the greater muted volumes and volatility in third quarter, significantly interest in gold. And some of the other precious metals and as I've said, a lot of times on these calls in my travels around the world -- we're very significant market maker global dealer in gold. And so we're trading at 24 hours a day in a number of different trading centers as either an ETF or future foxhole [ph]. And I don't think aberration, I think was just really the opportunity that and we've also worked on some things in the energy complex to make our trading better there. It helps that that's probably been a little bit of a rally in crude, we can do better in a rising market; I think investors are willing to pay more bid offers spread and I think there is a lot more interest out in the longer end of the curve where we are providing liquidity out a couple years in the curve as well. So I just think it was really just a combination of those of those couple things; and yes, sure, it was definitely a bright spot in a quarter. And I think we did pretty well in Asia this quarter as well and I think that's driven by some of these opportunities that we have with SBI and with other great strategic partners that we've done business within Asia.

And then last one for me and it's kind of bigger picture question. And thoughts just in terms of how the shift towards passive investing in this particular equities has an impact on volatility and spreads from an overall industry perspective?

Yes, it's a great question. I've done a lot of thinking and reading about it and clearly there are a lot smarter people than me that focus on that. I see it as a positive and a negative. First, I think the positives are obviously ETF is an opportunity for us but somebody's got to be a market maker and they need an authorized participant, they need an LMM whether it's in Asia or Europe or in the United States; and we've got a scaled business that automated in price -- in an automated fashion and trade literally thousands of ETFs with zero incremental dollars; we're not a relationship business so we don't need to go out and single digit move some asset management to trade a new ETF. We're going to be there on the bid and the offer electronically. So that trend is a good thing. You can make the argument Chris on the other side is when you move from passive managed funds, is there less turn over in the marketplace because portfolio managers are actively managing positions and they're paying good offer for us to turnover their portfolios. So I think some data on that. Again, I'm a big believer in the growth of EPS. There has been a lot of great research by you all and other shops in terms of what the growth, the proliferation of EPS will mean. That's a great trend for Virtu. I think in the long term, there's a move towards more transparency and electronification of those markets particularly in Europe, I think again, it's going to be a drive of that and we are all set up for that and I think in the long term our market share in Europe will grow just because of the pie that is traded electronically as compared to the slice of the pie that's traded OTC. We'll shift more towards electronic, so I like all those trends.

Thanks.

Thank you. And we have a follow-up from the line of Rich Repetto with Sandler O’Neill. Your line is open.

I am good, guys. My question has been answered. Thank you.

All right. Best question I got today, Rich.

Thank you. And we have another follow-up from the line of Ashley Serrao with Credit Suisse. Your line is open.

Hi, guys, again. I know you encouraged us to look at net trading income, but when we look at the components that get there, it just feels like the net interest income cost has been increasing so far this year and especially probably the highest has been the while this quarter. Just curious if you could give us some color there and just any thoughts on the sensitivity of that line to high interest rates.

That has absolutely nothing to do with interest rates. It's really just our cost of borrowing short positions than whatnot. Joe is going to pull up the data. It has absolutely nothing to do with interest rates whatsoever. It just had to do with the mix of portfolios of securities that we're borrowing. It's really just like the trading.

Yes. We consider the cost of financing in how we trade. If it goes up, it doesn't mean that there's more unprofitable trades at all. In fact it generally means that the cost of financing is probably helping. We encourage you to look at it just in the trading for a reason, because that's the number that matters.

Right.

The individual components are really less important.

Right. It's really absolutely nothing into that because to Joe's point, what that reflects is if we're going to go long in ETF and short the components, we're going to understand what the borrowing cost of all those components are before we put on that position. So we're not incurring that interest cost unless it's a profitable trade.

And expect it.

And we hold this to T plus three and then we settle the position. It's just 100% reflective of the opportunities in the trading during the period. Absolutely zero to do with interest rate cost. Frankly, I don't think you should focus on that at all.

All right. Thank you for the clarification.

Thank you. I'm showing no further questions at this time.

Great. Well, thank you, everybody for your interest in Virtu and the very instructive questions. We look forward to speaking with you at the end of the year and thank you again for your time and consideration.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.