Virtu Financial has started signing up clients to use its outsourced trading service, as the head of the new business says the firm’s acquisition of ITG played an important part in the recent launch of the desk.
The high-speed trading firm confirmed plans to launch the outsourced trading service, known as Execution Concierge Service (ECS), earlier this year during its second quarter earnings call. ECS deploys Virtu’s multi-broker technology platform and products, combined with its high-touch trading and global client coverage.
The outsourced trading division is headed up by ITG veteran and Virtu Financial managing director, Jack Pollina, who described ECS in an interview with The TRADE as a ‘natural progression’ for Virtu Financial following its $1 billion takeover of agency broker ITG earlier this year.
“We just signed our first client and we are in negotiations to sign up our second client, with a couple dozen other prospects in the pipeline,” Pollina said. “We were able to get to market a lot quicker than some other outsourced trading providers. We have the tools and people in place already, it was just a case of realigning some of the resources like Triton, for example, and making it work for the outsourced trading business.”
He added that Virtu Financial looked at the trend towards outsourced trading services due to industry headwinds such as pressure on asset management fees, increased costs due to ongoing regulatory requirements and MiFID II’s best execution. Virtu chief executive, Doug Cifu, realised that following the merger with ITG, the firm had all the tools ready to launch an outsourced trading desk.
“That’s when he [Cifu] reached out to me and said that I should put this together,” Pollina continued. “We looked deep at the product set, particularly the legacy ITG products, and saw that with Virtu’s technology, its investment in people, and our global footprint, it all came together beautifully. That’s really how it started, so the broker neutral products and services as a result of the ITG acquisition played an important part in our decision to launch the outsourced trading desk. The resulting acknowledgement and acceptance of the buy-side has been exciting.”
While acknowledging that the outsourced trading space is highly competitive amongst larger brokers and independent providers, Pollina said that Virtu Financial differentiates itself from others in terms of less potential conflicts of interest.
“For us, it’s more about introducing the customer to the executing broker and the party that they are receiving research from,” Pollina said. “We want to be completely agnostic. We have no conflicts in any way as it relates to what we sell in research because we don’t sell research. We are also not in the business of prime brokerage, so we’re not conflicted against the bulge firms.”
Alongside the launch of ECS, Virtu Financial is also in the process of migrating clients to an upgraded version of its execution management system (EMS) Triton, which was a flagship product of ITG. The EMS has been expanded to include FX and fixed income trading capabilities for the first time, with new technology and integration with a transaction cost analysis (TCA) portal. Global head of workflow technology at Virtu Financial, Mike Loggia, told The TRADE that Triton is the engine that powers the outsourced trading desk.
“It’s a natural evolution for us in terms of how we deploy it because that engine has always powered the ex-ITG desks. Triton is something that the Virtu expressed a strong commitment to right out of the gates of the merger, and we have resourced it heavily,” Loggia said.
Virtu Financial’s Triton EMS was one of the top performers in The TRADE’s 2019 EMS Survey, having recorded the highest scores in five of 13 functional categories reviewed, including client service, ease of use, breadth of broker algorithms, timeliness for updates for broker changes and ease of integration with internal systems. However, there were two areas that buy-side respondents highlighted Triton has room for improvement; breadth of asset coverage and handling of new versions.
“What was interesting in The TRADE’s EMS Survey is that the categories where we didn’t perform as well this year, in the breadth of asset coverage and handling of new versions of the system categories, those are the two fundamental issues that we are solving for in the coming year,” Loggia added.
“We have resourced heavily and multi-asset is a key part of the expansion. We have our FX API going live next month, and we are rolling out the ability to trade fixed income, first in corporates and sovereign debt, later this quarter. We are also in the process of moving our clients to the new version of Triton, known as Triton Valor, which is completely hosted, which will provide a seamless upgrade path going forward.”