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Virtu CEO stands by business model; 'terrible environment for market-makers'

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Virtu CEO stands by business model; 'terrible environment for market-makers'

Virtu Financial Inc. executives stood by the company's business model after posting year-over-year declines in the second quarter.

The company reported second-quarter adjusted net trading income of $74.0 million, the lowest Virtu has reported since going public. Virtu has struggled in what CEO Douglas Cifu called a "terrible environment for market-makers," which the executive said had a direct impact on the company's second-quarter earnings.

Still, Cifu remains confident that Virtu can withstand current headwinds resulting from historically low volatility levels and chatter about the demise of electronic market-making.

"I absolutely reject the proposition that electronic market-making is somehow going to the wayside," Cifu said on a second-quarter earnings call with analysts. "We built this firm for a feast and a famine."

Market-makers have had to battle for trading revenues as volatility has hit unusual lows in 2017. As measured by CBOE's VIX index, volatility is down 28.13% in 2017, largely thanks to central banks' global interest rate policies and regulatory uncertainty, Cifu said. Still, he said, volatility should return to the markets eventually, and Virtu's model of providing bids and offers to the market will never be broken.

"Despite what people might think, natural buyers and sellers don't meet mystically in some room somewhere without the market having to pay bid-offer spread," he said. "There will always be a need for firms that provide that service."

The company's depressed earnings report came just weeks after Virtu completed its acquisition of fellow market-making company KCG Holdings, which has historically focused on retail clients. Since the deal was announced, Virtu has slashed about 345 jobs from both legacy KCG and Virtu and closed operations in various European and Asian offices, Cifu said, adding that the leaner KCG will allow Virtu to grow its businesses as it looks to tap into the end-client market.

"The idea was to combine the core strengths of Virtu: efficiency, technology, understanding of market structuring, making a price and bring it to the end-user," he said. "KCG has been doing this for two decades."