Good day all, and thank you for joining the VIRTU Financial 2022 first quarter results call. My name's Louisa, and I'll be operating your call today. If you would like to ask a question, you will have the opportunity to do so at the end of the presentation. Please press star followed by one on your telephone keypad if you wish to ask a question. I now have the pleasure of handing over to your host today, Andrew Smith, Head of Investor Relations. Andrew, please go ahead.
Thank you, Louisa, and good morning, everyone. Thanks for joining us. Our first quarter results were released this morning and are available on our website. On this morning's call, we have Mr. Douglas Cifu, our Chief Executive Officer, Mr. Joseph Molluso, our Co-President and Co-Chief Operating Officer, and Mr. Sean Galvin, our Chief Financial Officer. They will begin with prepared remarks and then take your questions. First, a few reminders. 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. Please note that our actual results and financial condition may differ materially from what is indicated in those 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 disclaimers in our press releases and encourage you to review the description of risk factors contained in our annual report on Form 10-K and other public filings. During today's call, in addition to GAAP results, we may refer to certain non-GAAP measures, including adjusted net trading income, adjusted net income, Adjusted EBITDA, and Adjusted EBITDA margins. These non-GAAP measures should be considered as supplemental to and not superior to financial measures prepared in accordance with GAAP.
We direct listeners to consult the investor portion of our website where you'll find supplemental information referred to on this call, as well as reconciliation of non-GAAP measures to the equivalent GAAP terms in the earnings materials with an explanation of why we deem this information to be meaningful, as well as how management uses these measures. With that, I'd like to turn the call over to Doug.
Good morning, and thank you, Andrew. This morning, we reported our first quarter results, which reflect a 7% quarter-over-quarter increase in adjusted net trading income to $8.1 million per day and adjusted EPS of $1.27. These results cap another strong quarter for VIRTU. I'm pleased with our results for this quarter, and particularly pleased with the continued success of our growth initiatives and our global efforts to improve firm-wide internalization. Our market-making business produced $6.2 million per day in the quarter, 6% more than we achieved in the fourth quarter. Our diversified business saw strong performance overall, and in particular, in our non-customer market-making businesses. We saw particularly strong results from Asia and ETF market making, as well as our commodities market making, where we were able to capitalize on continued volatility in crude and other commodity products.
Firm-wide, our strong performance was driven by several factors, including, most significantly, the continued progress we have made on our efforts to improve internalization, which optimizes how we manage opportunity and net positions across the firm. The better we internalize, the less spread we pay away to the street and the more we can save on brokerage, exchange, and clearing fees. Our global multi-asset footprint and our collaborative culture means VIRTU is uniquely positioned to achieve higher levels of inter and intra-asset internalization. As we discussed on our prior calls, we believe the benefits of these ongoing enhancements will continue to bear fruit for the foreseeable future and will continue to grow as we expand to new asset classes and geographies. Our execution services segment also performed well in the first quarter, where performance was driven by our workflow products, particularly our EMS, Triton Valor.
I'm really proud of the work this team has accomplished since the acquisition of ITG. As a reminder, we focused on two principal objectives in our execution services business. First was to streamline our offering by moving clients to our new global enterprise technology, Triton Valor. Second, to focus on delivering more value to clients by building new features which help them scale and reduce operational risk. This quarter, we've begun seeing results from these efforts. To date, on the Triton side, we've migrated well over 90% of our clients to the new technology. With respect to enhancements, we've seen good uptick in the use of automation, where traders are able to routinize busy work in a safe, controlled manner.
Our capital markets ATM business was also a meaningful contributor to our organic growth this quarter, and we are optimistic for its continued expansion. We've added more seasoned professionals to the ATM team, and we are excited for the pipeline of new business to materialize. As we mentioned on prior calls, VIRTU's unique combination of market making execution services allows us to provide liquidity and size and scope unlike any other ATM provider. We continue to see impressive progress in our business this quarter as our stated organic growth initiatives grew to 10% of our Adjusted Net Trading Income or $821,000 per day. Within these initiatives, our growing options business delivered another solid quarter of growth on the back of expanded symbol and venue coverage, as well as new technology deployment as we increase our footprint globally.
Growing our options capabilities remains a top priority, and we are investing significant resources to become a wholesaler in options to service our retail partners. As we have mentioned on prior calls, we set out a couple years ago to build an options franchise from scratch by leveraging our infrastructure, technology, and market structure expertise. Additionally, we did this in part to ultimately leverage one of VIRTU's most important and unique strategic assets, the connectivity and relationships that exist between VIRTU and the nearly 250 retail brokers in the U.S. and abroad. We decided to focus initially on the handful of products that comprised a great proportion of the volumes in options. This allowed us to develop and sharpen our pricing capabilities in hyper-competitive environments. 2021 was an important year for us.
As we allocated resources and built and expanded the infrastructure and risk management systems required, we began trading options in Asia and expanded our symbol coverage past the initial index products to single name instruments and grew the team to fill gaps in our capabilities and accelerate our growth. In 2022, we will continue to build out this framework, expand the product set, and add to our core group of talented traders and developers. Our crypto market making continues to progress as well as we allocate more traders and technologists to expand our activities across major venues. We now trade over 100 crypto products across the United States, Canada, Europe, and Asia, including the ETFs. We continue to support the launch of the U.S. based spot Bitcoin ETF for crypto and are working with issuers to be ready to support these funds at launch.
Looking at the macro environment, most measures of volatility were up versus the fourth quarter, although some broader market indices like the Russell 2000 saw significantly reduced volatility. That said, retail participation or percentage of overall volumes was down, with market-wide Rule 605 volumes down 15%-20% from the fourth quarter. Although, as you will see in our supplemental materials, the share volumes from retail remained strong at over 2x what they were in 2018 and 2019. To us, this indicates the long-term resilience of the retail investor as a significant presence in the market. The outbreak of war in Europe was impactful from a volatility standpoint as well as, of course, a humanitarian standpoint.
We continue to see disruption in the macro economy from record inflation, as well as the continued emergence from the global pandemic and issues around supply chain and other economic disruptions. Our efforts to expand our footprint by entering new markets and products, combined with our continued enhancements to our core businesses, compounds the sustained growth potential for VIRTU from secular and macro tailwinds. VIRTU remains committed to disciplined expense management and scaled operations. Means that our success is not tied to a single trend or type of macro environment. We are well-positioned to success in any environment as we endeavor to continually raise our baseline performance across the gamut of macroeconomic environments. Turning to some of the more recent amendments from the SEC, and the impact on our industry, we have been vocal and consistent in calling for fact and data-driven reform where warranted.
We believe a data-led approach is consistent with the SEC's mission and practice. In recent weeks, we have joined basically the entire industry in challenging the SEC's proposed amendments to various rules, including Reg ATS, rules regarding share repurchase and 10b5-1, among others. While not all of these rules proposals will have an impact on VIRTU, we feel it's imperative that the SEC follow established proper processes for responsible rulemaking to ensure proposals today and in the future are good for the market. As you can see in our published comment letters, these proposals are clearly rushed, ill-advised, and statutorily impermissible because they do not follow the prescribed guidelines for rulemaking under the Administrative Procedure Act. That the SEC won't consult with the industry in good faith and propose sensible reforms is disappointing but sadly not unexpected.
On the other hand, we applaud the CFTC and its chairman who has taken the exact opposite approach. We remain in continuous dialogue with clients, lawmakers, regulators, and key industry stakeholders regarding market structure policies that provide investors with more information and investment choices, and that make our markets more accessible and more transparent for investors. Finally, as I look back on the past two years, I would note that we have entered a new phase of post-acquisition integration VIRTU, where the benefits of our global business have become evident as the significant cash flows of our business are available to return capital to our shareholders. To that end, since the inception of our share repurchase program in late 2020, VIRTU has repurchased $732 million of our shares at an average price of about $29.
This represents 9% of our company net of normal course new share issuances for compensation purposes. I refer you all to page 8 of our supplemental materials. We clearly lay out the earnings power of the new post-acquisition VIRTU and our use of excess capital for the foreseeable future. We believe this presents a clear, compelling investment story. Now I will turn it over to Joe and Sean, who will provide more detail on the quarter before taking your questions. Joe?
Thanks, Doug. Sean and I will be brief before we get to Q&A. We thought it would be a good time to review some of the measures we began to take in our communications, with investors around clarity of expectations for VIRTU, drivers of growth, and what we believe was and continues to be a significant opportunity to create value for our shareholders by repurchasing our shares at these levels. If you look at slide 8 in our supplemental materials, you can see a snapshot of our expectations across a range of outcomes. I would note that we have met or exceeded the guidance provided. We began presenting this information in significant detail in the middle of 2020. Revisiting today allows us to provide an update as well as to reiterate some of the core principles.
First, volatility is one of the largest drivers of our business, and so investors should expect our results to be variable. However, we believe, given the initiatives around growth, the reduction of variability in our expense base and the consistent application of excess cash to share repurchases, we have more clarity and confidence around the growing baseline of our anticipated results. Second, in addition to the growth we have demonstrated in new initiatives and expansion of our core businesses, we believe we're well-positioned to benefit from favorable tailwinds as the global economy anticipates and reacts to an inflationary period with contemplated interest rate increases as well as continued elevated historical levels of retail activity. Third, we have made good on our promise to manage our capital structure, and we believe this has created value for our shareholders.
Early in this quarter, we refinanced our long-term debt and now have $1.8 billion of term loan outstanding. A leverage level we believe is acceptable at any outcome on this page, which allows us to buy back our shares at what we believe are attractive long-term values. Given our successful acquisitions in the past, we are often asked about the potential for more acquisitions. The hurdle for an M&A opportunity continues to be very high, given the number and size of opportunities already on the table with options, crypto, ETF blocks, fixed income and ATM. Of course, we explore any opportunities. However, at the present time, we do not see any investment that competes with repurchasing VIRTU shares and anticipate that this will not change going forward.
Combined with our growth initiatives and enhancements to our core businesses, our continued buyback should help elevate VIRTU's base earnings power regardless of the environment. Now I'll turn it over to Sean for some brief comments before Q&A.
Thank you, Joe. In the first quarter, as presented on slide 3 of our supplemental materials, our Adjusted Net Trading Income, which represents our trading gains, net of direct trading expenses, totaled $505 million or $8.1 million per day, which is 7% higher than the fourth quarter of 2021. Market Making Adjusted Net Trading Income was $382 million or $6.2 million per day, 6% higher than the fourth quarter of 2021. Execution Services Adjusted Net Trading Income was $123 million or just about $2 million per day, which is a 12% increase from the fourth quarter of 2021. Our Adjusted EPS was $1.27 for the first quarter, 7% higher than the fourth quarter of 2021.
Adjusted EBITDA was $344 million for Q1, up 5% from $328 million in the fourth quarter. Our adjusted EBITDA margin was 68% for the first quarter, which is the same margin that we reported for the fourth quarter and full year 2021 and continues to be reflective of our efficient cost structure and disciplined expense management. For the fourth quarter, our overall compensation expense was $103 million, and our cash and overall compensation ratios were 17% and 20% of our adjusted net trading income, respectively. As I previously said about our compensation ratio, consistent with past practice, we accrue year-end compensation to a range of percentages earlier in the year.
Depending upon how the remainder of the year unfolds, this may result in adjustments to our compensation ratio later in the quarters as we refine our specific compensation dollar targets. Looking forward to the remainder of 2022, we do not expect a significant fluctuation in our cash compensation expense from historical levels. However, I do want to note that compensation will vary based upon the overall performance as well as the number of employees. We believe that we have reached a relatively steady state with the balance of our operating expenses, which are outlined in slide 9 of our presentation. As such, we expect our communication and data processing, operations and administrative, and depreciation and amortization expenses for 2022 to remain in line with 2021 actual amounts.
As Joe mentioned, in January, we successfully refinanced the $1.6 billion of long-term debt that was outstanding at year-end and upsized that to $1.8 billion. As a result, we expect that our annual interest expense will increase proportionately to approximately $83 million per year, as outlined on slide 9 of our supplemental materials. Our capitalization remains adequate. We remain committed to our $0.24 Quarterly dividend, which we have consistently paid over 25 quarters in every environment since our IPO, and our approximately $287 million share repurchase in the first quarter demonstrates our continued commitment to return capital to our shareholders. I will now turn the call back to our operator for Q&A.
Thank you, team, for your presentation. If you wish to ask a question, please press star followed by one on your telephone keypad. If you wish to remove your question or feel like your question has been answered, please press star followed by two. We ask you to kindly limit your question to one to allow all participants to ask their question. If you wish to ask a follow-up, please repeat the process. Our first telephone question today comes from Richard Repetto of Piper Sandler. Richard, please go ahead.
Yeah. Good morning, Doug and Joe and Sean. The buyback, you know, pretty impressive, you know, $287 million in the quarter. I guess, yeah, you know, there was some opportunistic, you know, block repurchases from GIC. Going forward, I guess, should we go back, you know, Joe, I guess to the table on page 8? In other words, are we gonna deduct the excess buyback in Q1 from future how we calculate buybacks going forward? You know, if you average $100 million a quarter roughly at this NTI, you know, would you actually. Are we $287 million through that? Are we gonna count all the GIC buybacks in there?
Rich, I get your question. I would say going forward, use the numbers in the buyback ranges on page 8. You know, for the remainder of the year, whatever proportions left and however we perform, you know, it should correspond to the level of buybacks. I say the level of buybacks in the first quarter were elevated for a couple of reasons. You mentioned some of the opportunistic, you know, block trades that we did when we had the opportunity to refinance. We applied some of the excess proceeds from that refinancing to buybacks, not all of them. That's driven some of the excess you see in the first quarter.
I think as you and I have spoken in the past, there's gonna be some quarter to quarter changeability. I think maybe in Q4, we did a little bit less on a proportionate basis, and we did a little bit more on a proportionate basis in Q1. All those factors in the mix elevated it, I would say, which we're obviously very happy with at these levels. Going forward, I would apply the ranges on page 8.
Got it. Thank you. I'll get back in the queue. Good solid results.
Thank you for your question, Richard. Our next question comes from Alex Blostein of Goldman Sachs. Alex, you may begin.
Hey, guys. Good morning. Thanks for the question. I was hoping we could spend a little bit of time on the sort of unit economics in the retail business versus the sort of the institutional business. While I know the answer is probably going to be, "No, we don't talk about it," I was hoping we could at least help delineate kind of how does the mix in the business between retail and institutional might impact NTI, right? Because what we're, I guess, seeing now is retail is really strong relative to kind of pre-COVID levels, but seems to be moderating. But volatility is high and institutional activity is really high. Helping kind of putting that together would be super helpful. Thanks.
Yeah. Thanks for the question, Alex. I appreciate it. You know, you're right. Obviously, we have not broken down our results by, you know, those subunits for a reason. I would say your observation is correct. You have seen as a mix of business in U.S. equities an uptick in institutional participation. The point we made in the script, and it's in the supplemental materials, however, is that you've seen a systemic change in the U.S. equities market in the sense that you have, you know, significantly more aggregate notional retail participation in U.S. equities than you did in pre-pandemic levels.
I have, as I've indicated in prior calls, it wasn't the pandemic that triggered this, it was the commission-free trading phenomena that was initiated, obviously by Robinhood and then challenged and met on a competitive basis by Schwab and Fidelity and the others, right? That really has driven the opportunity, and we've made the case continually that that is systemic. In terms of opportunity and capture rates and whatnot, I mean, the answer is obviously it depends. It depends on the macro environment. It depends what's happening in that particular day in the marketplace. When there's excess volatility, bid offers tend to accelerate. People need more immediacy or desire more immediacy in their executions, and you'll see, you know, a corresponding expansion in bid-offer spreads.
The second thing I would say is the retail business is meaningfully different than our non-customer market making segment, which is I assume what you're referring to when you say institutional in the sense that in the retail business, you know, we're in the market continuously, and we need to be in the market continuously. We have, you know, an arrangement with our 250-odd clients that when they send us market orders, they're printed and done. That can be very good, and it also can be painful when there are retail imbalances. Again, I'm not trying to avoid your question. I'm giving you the kind of. It really does depend on the market condition.
That is frankly, if you take a step back, one of the benefits of the scale and the diversity that we have built in our business, and that was intentional, right? That we have quarters like this where retail can be strong, but our non-customer retail segment, not a GAAP segment, but you understand what I'm saying, you know, can have an outsized quarter because of pockets of volatility in commodities and in Asia and in ETF blocks. Again, more prosaically, the core strength of this firm is the diversified financial services platform that we have built that we are attempting to add more products and more widgets to. Again, I'm not trying to avoid your question. I'm just trying to, as an investment thesis, provide a larger f ramework for understanding why and how VIRTU will continue to drive. Again, I point you all to page 8, which I think is a very nice way of looking at our business and saying, "Okay, within the following conditions, you know, X times Y is gonna equal Z, right? Excess capital is going to be applied to buybacks." Over the next, as I've always talked about in these calls, the next eight to 12 quarters, just if you look back at the last 8-10 quarters, you know, you'll have a very good sense as to where this firm is headed.
Got it. All right. Thank you, guys. By the way, totally unrelated, but thanks for doing the call early. There's a ton of earnings going on today, and thanks for overlapping less other calls. Appreciate it.
We recognize your responsibilities, and we try to adjust accordingly. Thank you.
Thanks.
Thank you for your question, Alex. Our next question today comes from Ken Worthington of J.P. Morgan. Ken, please go ahead.
Hi. Good morning. I'm gonna follow up on Alex's question and also his comment. Thank you for the time in the morning. It's very helpful. Digging into the market making business. Market making revenue or NTI looked like it was up about $10 million sequentially to the $382. If we think about the business in equity versus FICC, I would assume that FICC was up sequentially from 4Q, given the volatility in the volumes we saw coming out of energy and FX and your progress and options. It suggests the market making business revenue was actually down in 1Q versus 4Q. I guess first, is that right?
If the issue is sort of the retail equity business, which you guys have sort of highlighted throughout the presentation, if we look at the business today, what portion of equity market making or America's equity market making is really tied to that 606 business versus what is left of sort of legacy VIRTU? To kind of follow up on Alex's just trying to size this, and I know it will change, but are they split? Is it 90% retail? Is it 90%—it's clearly not 90% institutional, but help us get a better sense of how that equities business breaks down.
Hey, Ken, it's Joe. I'd say first off, you're right. We don't break it out. You know, we provide market-making results because of the reasons, you know, Doug said and that there's a very diversified business there that includes non-equities businesses. You're right as well that the businesses that were up or performed well or exceeded the opportunity were more in some of the legacy FICC areas, energy in particular. You know, obviously with the volatility around crude and crude products, we did well there. You know, I wouldn't draw too many conclusions, therefore, about you know, customer market making versus you know, equities in customer and equities outside of customer.
We do have equities market making businesses that are not part of the 605 business. You know, I think Doug pointed out in his remarks that the retail participation for the 605 business remains elevated historically and is at actually very favorable levels, and you know, looks very resilient, right? I'm not sure I'd you know, wanna go into 90-10s versus 80-20s. We do have a diversified business with you know, outside of 605 that includes fixed income, currency, commodities, equities, you know, and all the other things that you're familiar with.
Yeah. To be clear, I mean, you can go back. Obviously, we used to break this out, and certainly Knight Capital was a separate public company. I mean, it's nowhere near 90-10. It's much more of a balanced business.
Yes.
Ken. The non-customer market-making sub-segment, if you will, had a really strong quarter. You know, the retail market-making business, you know, performed consistent with the metrics that we track and opportunities internally. As I have said to you guys, I mentioned this in Boca, and I've said it in prior calls, it is difficult as an outsider to look at a retail customer market-making business and just look at volume and volatility metrics and reach conclusions. There are certainly directional, you know, days and situations where you have significant retail buying and significant retail selling. VIRTU and the other market makers don't have some magic elixir to, you know, satisfy. The market makers can lose money in those marketplaces. If you look at retail share volumes versus the fourth quarter, they dropped roughly 18%, right?
that's kind of like an indication of what the opportunity is, and that's what we track internally, along with obviously, retail buy versus sell imbalances, which can have an impact on trading in a way that won't impact our non-customer market-making business.
Okay, great. Thank you. I tried.
Great. You get an E, an E for effort.
Thank you.
Thank you for your question, Ken. Our next question comes from Alex Kramm of UBS Investment Bank. Alex, please go ahead.
Yeah. Hey, good morning, everyone. Maybe the comment at the beginning, you mentioned it several times, Doug, the benefits from internalization within the firm. Certainly not something new, but curious, you mentioned a few times. Just thinking through here, is this where you are in this process, I guess? I assume you're constantly improving things, but can you maybe also put in the context of unit economics if you think over the last couple of years, in particular since ITG came on, like how much of your unit economics has gone up? And how much you still think there is room for improvements here outside maybe the constant improvement? Like, any low-hanging fruit that you still haven't pursued?
Yes. It's a great question. Let me answer it more generally, and I'll ask either Joe or Sean to go through some of the BC&E numbers just so there's a little more detail, and that's obviously where you would see the most direct impact. What would not show up in the financial statements, obviously, is, you know, spreads fade away, right? Like, in terms of, you know, the easy example I always give is, you know, when you have an option market-making business you're trying to grow and you obviously need to, you know, do a delta hedge, it's a hell of a lot easier, it's less of a distraction, frankly, to pass all those, needs and fills and opportunities on to a separate, group within VIRTU that can, you know, that obviously that's what they do for a living, right?
That's the kind of point I've been trying to make, which is, "Hey, we are one firm. It's part of the collaborative culture we have. We don't pay people separately based on desks. We don't have guarantees. This is not a trading firm, it's a financial technology firm." When you look at, like, our overall compensation, yeah, you know, it'll ebb and flow somewhat with results, but it's not like people are making, you know, 50% of what they bring in. This is not that style of firm. It never has been that style of firm. That's part of the cultural overlay. The reason I started to emphasize it, and these guys will go through some of the results, is you're exactly right. We've made these two significant acquisitions.
Some of the challenges around internalization was, you know, you had to collapse broker-dealers and the equivalents outside of the United States, and some of it was technological, right? When you're on a single platform, VIRTU is a series of matching engines. If you think about architecturally how we're set up, once you have migrated all of the flow into a single VIRTU stack, if you will, it becomes just a heck of a lot easier for the quants and the traders and the technologists here to realize the fruits of that endeavor. As well, you obviously have more negotiating power in tiers and things like that that you can negotiate with ATSs, exchanges, and whatnot around the world. I mean, Joe, I don't know if you wanna add any color.
The color is that if you look at, I think page 16 in our supplement, we break out the net trading income, you know, by segment. If you look at just the market making segment, if you convert the adjusted net trading income results, for example, this quarter, you know, $382 million, and just look at the gross trading income of $516 million, right? That percentage is 74%. That's the highest level since, you know, first and second quarter of 2020, in those kind of frenzied days. I think a lot goes into that calculation. There are multiple asset classes obviously included in that market-making segment. Some of those asset classes are more expensive to trade from a, you know, conversion of the gross to net than others.
All things being equal, when you see that percentage tick up, I think it was 74% this quarter, last quarter was 73%, and then in the second and third quarter of 2021 it was 61% and 64%. That's kind of how we convert our gross trading income into net trading income. Obviously, the higher percentage, the better. You see that, you know, and that's part of that is the fruit of this kind of, you know, reduction in brokerage, clearance and exchange fees, you know, from better fee tiers, internalization, et cetera.
Very good. Thanks. I'll jump back in the queue.
Sure. Thank you.
Thank you for your question. Our next question today comes from Dan Fannon of Jefferies. Dan, please go ahead.
Thanks. Good morning. I guess, Doug, I wanted to follow up. You've mentioned in past quarters, you know, your optimism around the sustainability of retail participation, and you mentioned earlier today just with regards to zero commissions. I guess we're starting to see the slowdown. You know, can you just kinda walk through, you know, why you don't, I guess, your outlook from here in terms of what you think retail participation may or may not look like, and if you're still as bullish as you were before?
Yeah. Great question, and thank you for it. Look, I mean, I look at the same metrics you do, and obviously we talk to our clients all the time. I look at, like, account openings. I look at, obviously, balances. Then I look at how that has rippled through in terms of market share and notional size. You know, we put a slide in the supplemental materials about on page 10, that kind of tracks it from pre-zero commission to today. Obviously you saw the upswing in the meme stock period, and then it certainly has fallen off. But to me, the new normalized level is where we are at now, and I think a lot of that is just because of the proliferation of accounts and sizes.
I think you can't minimize the proliferation of, like, all the new crypto venues which have driven interest in markets overall, and that will, you know, continue to percolate through. You know, FTX has talked about becoming, you know, an equities business as well. I think that will continue between zero commissions and mobile trading and ease of use and self-directed trading and participation among young people being a thing that is here to stay. That really drives my optimism around this being a systemic shift as opposed to some secular, everybody's stuck in their basement pandemic shift. I mean, people are now out of their basements. Doesn't appear like we're gonna have any more stimulus checks.
That doesn't seem to be a policy that has any support in Washington, and yet we continue to see heightened participation among retail. I would also point out, Dan, that this is a global phenomenon. We have seen a significant increase in Europe in terms of retail participation and clients that are coming to us with interest. We continue to see very strong interest in Asia. Indeed, in both of those regions, we see interest in 24-hour trading from those clients into U.S. equities. I think the world will continue to become more 24-hour driven. Then the last phenomenon, which I think is important as well, is the brokers innovating and creating this opportunity for fractional shares, which we have helped them to facilitate, right? That, you know, obviously reduces the notional size.
I want to buy a share of Tesla, but it's $1,000. I can buy a 1/10 of a share for $100. I'll say I think all of those factors drive my conclusion that this is a systemic change. Will there be fluctuations quarter to quarter? Yes. I do think it really has kind of changed the playing field in a dramatic fashion.
Helpful. Thank you.
Thank you.
Thank you for your question. Our next question today comes from Sean Horgan of Rosenblatt. Please go ahead, Sean.
Hey, guys. Good morning. Just first question is on the organic business and the organic growth initiatives. Obviously doing well there, growing to 10% of the overall business. I'm just curious if we could get an update on sort of the components of that and, you know, specifically on crypto and options and how we should think about the size of each of those and the contributions towards growth going forward.
Yeah, it's a great question. Obviously, we've talked a lot about options, and that's been a big driving force. With regard to crypto, I mean, in the fourth quarter, we traded roughly, like, 30 crypto products, and it was really like a nascent, very, you know, new endeavor for us. It was really literally, you know, doing the API connectivity work and things along those lines. Now we trade over 100, as I said in the script. I still think it's extremely early days. It feels like circa 2008 for VIRTU Financial when Vini and I had started the firm and we were focused on equity. It feels like a greenfield opportunity for us.
You know, we're gonna run it and grow it the exact same way we grew VIRTU organically, which is to look at the big opportunities, develop the relationships with the eight, nine, t en key venues. On the regulatory front, we think that the SEC's determination with regard to not approving a spot ETF is just legally and, you know, not defensible, frankly. Our friends at Grayscale put a letter in this week from the Davis Polk law firm, which was unbelievably compelling. I would be floored if the SEC ultimately either on its own volition or through litigation doesn't approve a spot crypto ETF in the next fill in the blank. It should be tomorrow, but it won't be. I think we will continue to see opportunities grow as that marketplace evolves.
We're adding direct counterparties to roll out our vCrypto solution, which again, getting back to one of the core assets and strengths of this firm, which I think people don't value in the way that we do, is we have this network of relationships built over the last 30 years with over 250 retail brokers that frankly use us for guaranteed execution, trust us, know that we'll be there and, you know, provide superior execution quality for their liquidity needs. That can't be understated, and it's very difficult to break into that market. It's one of the main reasons, frankly, why we bought Knight Capital in 2017, was to acquire that network effect. I'm very optimistic and bullish that this asset class will, you know, continue to provide revenue opportunities for us.
The key takeaway is it really demonstrates the value of this scaled, multi-asset class, collegial environment that we have created here, where we can add these widgets, which is effectively how we look at financial instruments, to our network at virtually zero incremental cost and drive bottom-line P&L.
Okay, great. Wanted to just get your latest thoughts on, as it relates to, equity market structure. What are your expectations, if any, around tangible actions from the SEC around equity market structure, specifically as it relates to PFOF? And if so, how are you thinking about timing? It seems like, you know, it's sort of been a series of head fakes and, you know, sort of socializing that it was something that was going to happen, and then it sort of seems to fall out of the conversation. Just curious what your latest thoughts are.
Yeah, that is a politically incorrect softball that I will do my best to muzzle myself on and swing at, but try to be as positive and CEO-like as I possibly can. Look, we've seen frankly a tidal wave of proposals that have come out of out of the SEC on topics as varied as share buybacks and climate change disclosure and ATS reform. In my prepared remarks, you know, I was maybe not as politically correct as I should have been, but it just seems that these are rushed not particularly well thought out. This isn't just VIRTU saying this.
I mean, there was a great letter from Sysco, there was a great comment letter put in by Bloomberg, and Fidelity, and others that just really point out the mistakes, frankly, in a lot of these proposals, just things that don't really make a lot of sense. It's very clear that these are not data-driven proposals. You know, if history is any guide, and if the Administrative Procedure Act continues to be followed, which it will be, you know, a lot of these proposals just frankly won't ever see the light of day. They have varying impacts on VIRTU and will continue to be, you know, zealous and positive and advocates for what we think is the right answer in all of these situations. We believe in data-driven reform, we believe in transparency, we believe in competition.
And where the ultimate big market structure proposal comes out, frankly, I don't have a crystal ball. I think the chair has bounced a number of thoughts out there from, you know, questioning the continued viability of payment for order flow to what he calls order-by-order competition and whatnot. Again, as we have said, we will continue to be collaborative. We have provided all types of VIRTU-specific data with regard to price improvement. We are 100% convinced that the ecosystem drives significant, you know, multi-billion dollar value from VIRTU and, you know, over $12 billion of price improvement as an industry. We are frequently engaged with representatives from both sides of the aisle on Capitol Hill and Senators from both sides of the aisle.
We're not political, we're just wanna make sure that people understand how the marketplace actually works, and ignore the rhetoric, and ignore the headlines, and more importantly, understand how we have a fantastic, very efficient, very transparent, very, very low cost ecosystem here in the United States, which in our opinion and in our experience is substantially better than any marketplace for retail investors in which we transact today, which is basically the entire civilized world. We will continue to constructively seek ways to improve our great markets. We'll be collaborative, but ultimately, we're gonna vigorously defend what we think is the right result here, and we'll do that regulatorily. I'm happy to go and testify. We're happy to be transparent.
If it means that various participants from the industry end up, sadly in litigation for years and years with the SEC, as it has happened historically in the past, we know we'll be a participant there as well. I'm optimistic that's not gonna be the case because that makes little sense. Unfortunately in Washington, it's hard to look at a result and say, "Well, that's a sensible result," and have it happen, because there are different inputs called politics in Washington that we can't control.
Got it. Thanks for taking my question.
Thank you. Our next question today comes from Chris Allen of Compass Point. Please go ahead, Chris.
Morning, guys. Thanks for taking the question. Just wanted to follow up on a comment you made earlier about investing to become a wholesaler in options. I'm just wondering where you are in the process there, what that entails, and well, how does that change the revenue opportunity within options market making?
Yeah. Great question, Chris, and thank you for it. Look, I mean, we have said ultimately our end goal here is to be a significant competitor in options. You know, it's obvious to everybody that looks at the marketplace that there's a significant opportunity there because retail participation in options is pervasive and significant and there are, you know, two significant players there and a host of others that provide services. As I just said before in answer to another question, and it was in our script as well, you know, one of the assets we have, Chris, is the relationship with the retail brokers in cash equities. So it won't surprise you to hear that they have, you know, implored us to get into 605, if you will, options.
Having that as it's clearly a knock-on benefit of the 20- to 30-year relationships that the former Knight Capital firm built with all of these wonderful clients that we have. The other interesting thing about options, as you well know, is that "internalization" is done on exchange. Which means that there are these open periodic auctions that the various options exchanges have created the architecture around, where the wholesalers, if you will, exercise their internalization from the flow that they receive. Which means that we are capable, as is any other options market maker participant, to attempt to participate and execute internalization on an exchange.
We are currently doing that in a beta fashion with a handful of clients. The good news is we don't have to go to X, Y, or Z client and say, "Hey, can you turn on the full spigot of 1,000 to 1,500 names and all the associated strikes?" Which is obviously a significant endeavor, but we can and are making the investment to test out our strategies and to begin dipping our toe in the water of internalization, if you will, with regard to customer options. We'll continue to do that in 2022. How aggressive we get and when do we start, you know, turning the tap, I guess, to the right so that more flow starts coming in, I don't know right now. It's obviously a significant opportunity.
If you look at some of the published statistics around rebates that are paid for options as compared to rebates that are paid for cash equities, it's significant. That's a significant opportunity for us as we continue to grow this firm. There's a lot of work to do in non-customer options right now, both here in the United States and in Asia. The guys have a lot on their plate right now, but I do see it as a very significant revenue opportunity in the future, Chris.
Great. Thanks, guys.
Thank you.
Thank you. Our final telephone question today comes from Michael Cyprys of Morgan Stanley. Michael, please go ahead.
Great. Thanks. Good morning. Thanks for taking the question. I wanted to ask about the execution services business. I was hoping you might be able to remind us here, what portion of the revenue within execution services relates to the recurring revenue stream. Maybe you could talk a little bit about how that revenue pool is growing within the execution services pool compared to overall execution services revenue, and maybe talk about some of the initiatives that you guys have in place around growing that recurring revenue stream.
Sure. Hey, this is Joe, Michael. Obviously, we don't break that out again. You know, it is. There's a mix of revenue there that has remained consistent. I think the old ITG used to break it out in you know, some of the quarters before we acquired them. You know, I think it is a great business that we like. It provides a really steady stream of recurring revenue. We've been able to grow it modestly. I think the you know, the product set that it supports complements the brokerage business. You know, look, if it gets to a point where you know, the growth in here is worth us breaking out, I think we would do that.
You know, I think right now it's a business that we like, that we've made a lot more efficient around the technology and continue to do so. You know, again, remains an important part of execution services. But you know, from a presentation standpoint right now, I don't think we would gain much by breaking it out.
Yeah. The one thing I will say, and it's a great question, is that we looked at, like, the analytics business, for example, here and some of the other workflow technologies, and said these are businesses that should be more automated and more platform-driven and more, shall I use a loaded word, more as thinking in as like software as a service, as opposed to, like, more of a consulting kind of business. Particularly within analytics, we now have a platform where clients can come to us and effectively pay, as you say, on a subscription basis to use our APIs, and they can customize them as they see fit in order so that they can do their own analysis within their own shops.
Our larger asset managers and pension funds globally really like that a lot because they have access to our analytical tools, but also obviously on an anonymous basis, they can look at a full compendium of their competitors and understand how they are performing on a relative basis. That creates a real halo effect with clients because they can say, "Wow, that's pretty darn unique. I can have my own data scientist in my own shop. As opposed to getting reports pushed out to me, I can do my own work." That's a significant evolution of the business. Again, as Joe says, it's a small, you know, it's a part of execution services, which is a part of our overall business, so it tends to get a little overwhelmed by what happens in market making.
Clearly it is something that we're very excited about, and it creates a real stickiness with these clients that obviously have significant wallets. You know, a $2 million a day quarter in the first quarter was a pretty impressive quarter for a, you know, a non-bulge bracket execution services business. I was really, really pleased with the results this quarter.
Great. Thank you.
Thanks very much.
Thank you all. That concludes today's VIRTU Financial 2022 first quarter results call. Thank you for your questions, and thank you for the management team for their presentation. Have a lovely rest of your day. You may now disconnect your lines.
Thank you.