Here’s a transcript of a video interview of CNBC and Virtu Financial CEO in mid 2022, Transcript provided by the internet of stuff;
Douglas A. Cifu (Virtu Financial CEO): Fundamentally at Virtu to and every market participant says we welcome competition. We’re not anti-lit exchanges and today indeed broker dealers, retail broker dealers are free to send their orders to exchanges, to ATSs or Dark Pools or to wholesalers. There’s no obligation for them to send it to Virtu and Citadel. We provide a service, we provide guaranteed execution, we provide meaningful price improvement, 12 billion dollars last year, a meaningful price improvement. So, we welcome competition from lit exchanges and we’ve put in proposals to say that lit exchanges should be put on a more fair level playing field with wholesalers, we welcome that because Bob, we’re not internalizing all these orders, it costs us tens and tens of millions and hundreds of millions of dollars to source price improved liquidity on exchanges and provide that back to our clients.
Bob (Reporter for CNBC): Well, one of the things you’ve said for years is you do provide price improvement. You do actually help improve, you get a better price for it. Can you explain briefly how you do that because Chair Gensler has been very skeptical about that?
Douglas: Well, I’m not sure he’s been so skeptical about it. I think some of the data and he spoke about it today the need for a reform of Rule 605. So, essentially, the rule is antiquated, it doesn’t really cover the amount of what we call size improvement and we’ve been very upfront and very transparent about providing that level of data. So, what that means is, in the 8000 names to the extent there’s not liquidity on a lit exchange, fundamentally the wholesalers are providing infinite liquidity at the NBBO or the inside price. So, if we get an order for a thousand shares in Reg NMS stock that no one’s ever heard of.
Douglas: And there’s 200 shares on NASDAQ and New York, we fill out a thousand shares at that inside price, that’s meaningful liquidity. 55% of the orders that we received, Bob, we provide size improvement. In a complete, you know as he calls it an auction environment, who’s going to provide that? The liquidity fairy? I mean it just doesn’t exist.
The very last piece. Virtu provides ‘size improvement’.
In an ‘Auction environment’, who is going to provide the liquidity? The liquidity fairy?
In a non auction environment, such as the current one, who provides the Liquidity? Well currently it’s Citadel and Virtu and maybe a few smaller named companies. What do they even mean by saying an ‘Auction environment’? You mean like a competitive market? I digress…
So Virtu Financial CEO indirectly implied that Market Makers are providing the same function of Liquidity fairies in different market environments.
“We provide a service, we provide guaranteed execution, we provide meaningful price improvement, 12 billion dollars last year, a meaningful price improvement.”
“there’s not liquidity on a lit exchange, fundamentally the wholesalers are providing infinite liquidity at the NBBO or the inside price. So, if we get an order for a thousand shares in Reg NMS stock that no one’s ever heard of. And there’s 200 shares on NASDAQ and New York, we fill out a thousand shares at that inside price”
-and couple that with the rest of the statements means that Virtu actively takes the other side of the trade. Apparently that’s actually industry standard for the purpose of a Market Maker. To provide ‘guaranteed execution’ of trades.
“we provide guaranteed execution”
You know, to internalize trades at an ‘inside price’.
Care to explain what an ‘inside price’ is? Is it different from the NBBO? Is it an internalized different price that is adjustable by the Internalizer? An internal market that they’re allowed to manipulate due to shorting practices?
That’s apparently providing liquidity.
Providing liquidity where there is none.
Also, it’s not just ‘some’ liquidity. Apparently it’s infinite. . .
“fundamentally the wholesalers are providing infinite liquidity”
yea real “meaningful liquidity” alright
So, infinite liquidity? Doesn’t that just mean they can decide which price they want to anchor the underlying equity for? Wouldn’t that mean the price is fake? Where does ‘infinite’ liquidity fall in the supply-and-demand curve?
Per their words, that sounds like a Liquidity Fairy to me.
*POOF* and there’s some liquidity to take the other side of the trade.
If there’s a thousand orders to buy something for $10 a pop, and the Liquidity fairy decides to provide liquidity for $10 a pop. Then the price is $10 a pop. But if the liquidity fairy decides to not entertain $10 a pop, then the price could go until supply meets demand equilibrium. Which means people might decide to buy more for say, $12 a pop.
The same can be said with sell orders too. If a thousand sellers want to sell something for $10 a pop, but there’s no buyers. Then there’s no trade. out comes a Liquidity Fairy to buy up all those things for $10 a pop. All of this is to provide quicker service?
The point of a market is to have Buyers and Sellers meet. In the electronic world, it happens pretty fast. What’s the point of a Market Maker in providing liquidity? Shouldn’t market makers, idk, make the market and not make the trades too? Seems like a fusion of interests. Maybe I’m just wrong about all this, sure seems sus. Kind of sounds like a skim trader just gobbling up all the buy and sell orders and determining which direction the price should go to make the most profit. . .
So, can you explain to me how that isn’t market manipulation? How that’s not price anchoring? Well, could someone explain how this isn’t just basically a convoluted strategy to front run trades? Is this price improvement? They spend an awful lot of millions to do this, am I to believe it’s for an altruistic nature? Or are they profit driven and incentivized to provide such a ‘service’ and that’s why they offer ‘rebates’ for routing order flow to them? That whole PFOF thing.
Is it a confession or a brag? Both? lmao.
You can choose to be upset, or whatever. I choose to laugh and enjoy the show.
Anyways, some people are making memes;
Dank memes, it’s how the comedy becomes more and more divine.
Take it for what you want.
If you know anything about fundamental market structures from a classical economist perspective, you’d know a thing or two about supply, demand, and volume. Thus liquidity of volume and supply is a very intrinsic piece of price and value. Infinite liquidity and supply sorts of fucks with the thing we call ‘price’.
The term ‘price improvement’ implies that prices are changing because of this. Meditate or contemplatively ponder what ‘price’ is being improved from what to what, and even more so ‘why’. It takes a fundamental or even classical understanding/perspective to connect the above dots and realize the fancy game being played.
But I’m not gonna hold your hand forever, either click the hyperlink above or connect the dots yourself, you Sunshine, you.
Just uh, don’t forget that all these numbers on a screen are just a small part of life.
So don’t get so absorbed in this ‘finance’ stuff, unless of course you want to. Me? I still care, but I also live life too. lmao. Do both silly, and just laugh and enjoy the show. It’s a part of the riiiidddee.
*Not Valid Financial, Legal, Life, or Any Advice
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[…] pay your Broker millions for your trade data and the handling of trade routing? Yea, all to help ‘improve your price’ like a good liquidity fairy. All of this is in a scheme known as ‘payment for order flow’ or […]