Bloomberg News

High-Frequency Firm Virtu Buys Cohen Capital’s Amex Unit

December 13, 2011

(Updates with comments from Crosthwait, Concannon and Lee starting in fourth paragraph.)

Dec. 12 (Bloomberg) -- Virtu Financial LLC, the automated trading firm founded by former New York Mercantile Exchange Chairman Vincent Viola, acquired a market-making unit that handles NYSE Amex stocks from Cohen Capital Group LLC.

The purchase makes New York-based Virtu the largest overseer of trading in shares listed on Amex, known as the American Stock Exchange before NYSE Euronext bought it for $260 million in 2008, the statement said. Financial details weren’t disclosed. While the deal also gives Virtu a designated market- maker license for New York Stock Exchange companies, Cohen Capital Group doesn’t represent any NYSE-listed shares.

Virtu is the latest high-frequency trading firm to become a primary market maker on a NYSE Euronext venue. Getco LLC in Chicago agreed in November to buy Bank of America Corp.’s designated market-maker business on NYSE, making it the second- largest firm after Barclays Plc handling stocks listed on the world’s biggest exchange. Knight Capital Group Inc. took over the NYSE business of Kellogg Group LLC a year ago.

“In today’s electronic, fast-paced world where knowledge of market structure and technology infrastructure are key, both Getco and Virtu have a real competitive advantage,” Alison Crosthwait, Toronto-based managing director of global trading strategy at Instinet Inc., said in a phone interview. It makes sense that “some of these older-school firms would sell to newer-school firms that can do it better,” she said.

Virtu Investors

Virtu acquired automated trading firm Madison Tyler Holdings LLC in July, according to Chris Concannon, a partner at Virtu and former executive at Nasdaq OMX Group Inc. Private- equity company Silver Lake Partners LP invested in Virtu around that time, he said in a phone interview. Silver Lake previously invested in TD Ameritrade Holding Corp., Interactive Data Corp., Instinet Group Inc., Island ECN Inc. and Nasdaq OMX.

Virtu is taking over trading responsibility for about 170 companies and 80 closed-end funds listed on NYSE Amex, the statement said. The switch begins today. Other NYSE Amex market makers include Brendan E. Cryan & Co., 101-year-old J. Streicher & Co. and Knight, according to NYSE’s website.

“This acquisition is consistent with Virtu’s primary business objective of providing highly efficient, fully obligated, customized liquidity to investors across all markets,” Viola, chairman and chief executive officer of Virtu, said in the statement. Viola was chairman of Nymex, now part of Chicago-based CME Group Inc., from 2001 to 2004, and co-founded of Madison Tyler. “We are excited about playing an important part of the NYSE and NYSE Amex marketplace,” he said.

Nasdaq, Bats

Virtu is a market maker on stock exchanges run by Nasdaq OMX and Bats Global Markets Inc. and other platforms. The company makes markets in U.S., European and Asian equities, financial futures, fixed income, currencies, options, energy products, metals and other commodities around the world. Concannon declined to comment on Virtu’s expansion plans.

“The listed companies that we’ll be trading range from small- to higher-liquidity companies,” Concannon said. “What’s attractive about this acquisition is the diverse names that we will be trading and supporting.”

Some of the companies are New Gold Inc., Northern Oil & Gas Inc., and the American depositary receipts of British American Tobacco Plc, he said. NYSE Amex lists 516 issues, according to NYSE Euronext spokesman Richard Adamonis.

Island ECN

Concannon was responsible for transaction services at Nasdaq OMX, NYSE Euronext’s main U.S. rival, until he left in 2009. Before joining Nasdaq in 2003 he was at Instinet Group. Earlier he held positions at Island, an alternative venue that challenged Nasdaq and Instinet before merging with the New York- based brokerage firm. Nasdaq bought the resulting Inet trading platform in 2005.

Connannon was a lawyer at the Securities and Exchange Commission in the mid-1990s and earlier worked at the American Stock Exchange as a legislative analyst.

Virtu is already one of about 10 supplemental liquidity providers trading NYSE stocks. The exchange gives the firms a higher rebate than other users get if they supply bids or offers at the best national price at least 10 percent of the day in their assigned stocks. Units of Goldman Sachs Group Inc., Bank of America Corp., Barclays Plc, Tradebot Systems Inc. and Citadel LLC are SLPs. Unlike DMMs, the firms don’t have to make markets by providing both bids and offers simultaneously.

The main market makers get better pricing than SLPs and other users for meeting higher quoting requirements. They also oversee the opening and closing auctions of their stocks.

Market Makers

Concannon said Virtu will compete with other designated market makers to be selected by issuers for new listings on NYSE. The firm will remain a market maker in exchange-traded funds and stocks on Nasdaq, Bats and other exchanges, he said.

“This is a natural progression” for high-frequency trading firms, Sang Lee, managing partner at Aite Group LLC in Boston, said in a phone interview. “The larger automated trading firms are looking at this model of liquidity provision. Some are asking themselves if they want to be an unregulated liquidity provider forever or enter businesses that are more regulated.”

The operation Virtu acquired was already automated since market makers of all sizes must employ advanced technology to trade equities, Concannon said. Virtu will enhance the current DMM business on NYSE Amex with its own systems, he added.

Virtu gained approximately 10 trading floor personnel as part of the purchase of Cohen Capital Group, Concannon said. They will continue to run and support the floor business, which begins operating as Virtu Financial today.

“This DMM business has done a wonderful job making markets in these listed names,” Concannon said. “We expect to continue that and improve upon it.”

--Editors: Chris Nagi, Michael Regan

To contact the reporter on this story: Nina Mehta in New York at nmehta24@bloomberg.net.

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net.


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