Ladies and gentlemen, welcome to the Virtu Financial 2022 4th Quarter Results Call. My name is Glenn and I'll be the moderator for today's call. If you would like to ask a question during the presentation, you may do so by pressing star one on a telephone keypad. I will now hand you over to your host, Andrew Smith, Head of Investor Relations. Andrew, please go ahead.
Thank you, Glenn. Good morning, everyone. Thank you for joining us. Our fourth 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 Ms. Cindy Lee, our Deputy Chief Financial Officer. We 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 conditions may differ materially from what is indicated in these 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 release and encourage you to review the description of risk factors contained in our annual report, Form 10-K and other public filings. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures, including Adjusted Net Trading Income, Adjusted Net Income, Adjusted EBITDA, and Adjusted EBITDA Margin. These non-GAAP measures should be considered as supplemental to and not as superior to financial measures as reported in accordance with GAAP.
We direct listeners to consult the investor portion of our website, where you'll find additional supplemental information referred to on this call, as well as a reconciliation of non-GAAP measures to the equivalent GAAP term in the earnings materials with an exhibition of why this information, why management deems this information to be meaningful, as well as how we use these measures. With that, I'd like to turn the call over to Doug.
Thank you, Andrew, and good morning, everyone. Thank you for joining us today. In my remarks today, I will focus on Virtu's fourth quarter and full year 2022 financial and business performance, 2022 milestones, and the progress we've made toward our key strategic initiatives and goals. Following my remarks, Joe and Cindy will provide additional details on our performance. Turning to our full year and fourth quarter results, which are summarized on slide two, we generated $5.8 million of Adjusted Net Trading Income per day in 2022, including $4.4 million per day in the fourth quarter. Total Adjusted EPS was $3 per share for the full year, including $0.37 in the fourth quarter.
Our market making segment, which earned an average of $4.2 million per day in Adjusted Net Trading Income for 2022, comprises our customer wholesale business, where we receive flow from 250+ retail platforms, as well as our non-customer or proprietary market making business. In the fourth quarter, our customer market making business witnessed decreased opportunity as the overall spread opportunity and retail participation ebbed, and the quality of the flow we received from our retail customers was significantly less desirable. As we have noted before, parts of our market-making business can be more variable than our other businesses and, as a consequence, should be viewed over the long term in conjunction with the significant cash flow it generates.
We remain extremely bullish on the long-term value of our customer business, which has proven to be durable and profitable over the past 20+ years. Our non-customer business, which provides liquidity across asset classes globally, experienced a strong quarter as well as a strong overall year, as our ongoing investments in our growth initiatives, particularly around options market making, continue to perform well. While the integration of our businesses and increased internalization means that efforts to improve one market making business often generates benefits across our entire market making segment, this quarter's market making results were driven by improvements that we deployed to existing strategies in both our customer and non-customer market making businesses. For our customer market making business, although the opportunity was down in the fourth quarter, we performed in line or even better than our own internal metrics projected.
We have historical capture rate metrics and these didn't deteriorate. We continue to focus on ways to improve and capture more of every opportunity in every environment. While market share alone is often not a helpful gauge of performance, it's worth noting that our market share in the wholesale business remains within historic ranges. A couple of significant bright spots in our thriving non-customer business include energy and natural gas specifically, as well as our continued growth in options globally. To give you some additional perspective, our non-customer market making business was flat year-over-year from 21 to 22 and up 11% from the third to the fourth quarter of 2022. Turning to our execution services segment, our Adjusted Net Trading Income was $1.4 million per day in the fourth quarter, essentially flat from the third quarter.
For the full year, VES delivered $1.6 million per day or 28% of our total ante. In general, VES results include revenue that is more recurring in nature compared to the inherently more variable market-making businesses. Given the contraction of the buy-side execution wallet and declining institutional engagement, particularly in Europe, we believe our execution services segment performed in line with the opportunity this quarter and the full year. We are bullish as well about VES's progress and the opportunities ahead. We have built our global multi-asset execution business as part of the acquisitions of KCG and ITG, we continue to onboard new clients to our highly scalable technology platform. We're excited about the growth opportunities the future holds from cross-selling across regions, products, and assets, as well as adding more subscription revenue to VES's platform.
In the very early days of 2023, we are seeing some modest enhanced opportunity in our customer market making business. Our efforts to improve our capture rates are beginning to bear fruit. Overall, we are pleased at how we performed against the opportunities the market has given us in 2022. How we have deployed new businesses that are in the infancy or non-existent only a few years ago. Our performance in the fourth quarter, full year 2022, in the start of 2023 is the result of the ongoing investments we are making in people, technology, integration, deploying strategies to new products, and ongoing innovation to expand our abilities to address more opportunities, become more efficient, and capture incremental revenue from each existing opportunity.
As always, we remain relentlessly focused on cost and realized a 59% Adjusted EBITDA Margin for the full year and a 46% Adjusted EBITDA Margin in the fourth quarter. Reviewing some of our growth initiatives. In options, our business had a record year in 2022 as we've expanded across venues as well as across asset classes and geographies. We remain very pleased with our decision to focus our early efforts and options in the most liquid issues as we build our footings. In the U.S., market-wide options volumes were up 5.5% in 2022, while Ante, from our growing options business, was up over 100% for the second consecutive year. Given the size of this growing global cross-asset opportunity, we consider ourselves in the early innings of a multi-year effort.
In block ETF, we continue to make progress, and our Adjusted Net Trading Income in 2022 was up despite lower opportunity overall. Closely related to our ETF block desk is our growing investment to build our fixed income business. In the same way that our growing options business complements our global equities market making activities, success in our fixed income business enhances our ETF block desk. In addition to our growing investments and resource allocation, we continue to actively hire and develop talent to help us realize these and other opportunities. Crypto. I previously talked about crypto as a growth initiative, and notwithstanding the industry turmoil kicked off by the FTX bankruptcy and continuing today, we continue to view crypto as a long-term growth opportunity.
In the aftermath of recent events, I'm proud to say that we managed the risk around the events of this quarter as you would expect from Virtu. Although we had an approximate eight-figure fiat and coin balances deployed across several venues, where when the FTX news broke, we acted quickly and did not realize any material losses. Finally, I know you will have some questions on the SEC's latest proposals. In short, the proposals did not include anything new as compared to the rhetoric which proceeded, and our position remains the same and is consistent with the broader industry as well as numerous academics and commentators. Today's retail investor receives immediate, competitive, and commission-free executions on over 10,000 securities.
Main Street investors enjoy this level of service thanks to a myriad of offerings from hundreds of retail brokers who leverage an intensely competitive landscape of wholesale execution service providers like Virtu and many, many others. It is more clear than ever that the SEC's proposal would directly hurt individual investors and reduce their engagement in our capital markets. In addition to a less transparent and less fair landscape for the average retail investor, on top of increased costs and worse execution quality, the SEC's proposals would also harm liquidity and re-increase costs for institutional investors and issuers. Further, and importantly, the haphazard rulemaking, lack of any real engagement with stakeholders, and abbreviated comment period has resulted in a proposal that is internally inconsistent, theoretical analysis that ignores empirical evidence, and an experimental approach that disregards the likely cost to everyday investors.
It is extremely unlikely to withstand any degree of scrutiny in the upcoming process, which could take several years. Sadly, as we have noted before, we believe the proposal is a politically motivated solution in search of a problem. As I have mentioned several times, these proposed rules, while they would be terrible for the average retail investor, would not necessarily be terrible for scale wholesalers like Virtu. Remember, today's wholesalers like Virtu are service providers that compete for business by immediately filling all orders we accept and by providing price improvement as part of our commitment to our retail broker customers. Under the SEC proposal to mandate auctions, we would be able to, and in fact, we would be required to send flow we do not internalize to an exchange retail auction.
Today, we incur significant fees, including payment for order flow, price improvement, and exchange SEC and other transaction fees on orders we do not internalize. These costs would be dramatically reduced under the proposal. We also internalize tens of thousands of orders daily in small and midcap-listed companies as part of the overall wholesale service we offer to our clients, but this savings would come at the expense of retail investors. The preliminary analysis of the trade-off suggests that the exchanges and wholesalers may stand to benefit under key aspects of this plan, and at worst-
We will be in a neutral position. I'm sure we will discuss these issues further in the Q&A to follow. For now, Joe will provide some additional details about the quarter. Joseph?
Thank you. Doug touched on options and ETF block in particular as drivers of our growth initiatives. I'll review some of the growth information we provide, as well as review where we stack up vs the grid of expected outcomes for Virtu. Finally, discuss in-expenses and capital overall. On growth initiatives constituted $602,000 per day on average in the fourth quarter and $665,000 per day overall in 2022. These numbers were 11% and 14% of our global ante respectively. Ante from options grew dramatically as well, doubling its contribution. While we maintained our presence in the crypto markets in the fourth quarter, we did, like many others, significantly reduce our activity.
We remain bullish on crypto as a growth area in the future, and we remain excited about EDX, our joint venture. We view many of the challenges facing the crypto space as validation of EDX's best-in-class custody clearing and settlement model. On expenses, we ended the year with cash operating expenses that were flat year-over-year at $609 million. We consider this a significant accomplishment given the most inflationary environment in decades and the marketplace for talent, especially early in the year, becoming intense. Our cash compensation ratio is at 21.5% for 2022, right in the range of where we would expect it to be in a year such as this. Other expenses remain relatively constant. The outlook on expenses is more of the same.
You can expect our compensation ratios to fluctuate within the ranges you see on slide 8 in the supplemental materials and a continuation of the trend for our other major expense categories. You will note a marked increase in operations and administrative expense in the fourth quarter. This is due a foreign exchange valuation swing related to our foreign subsidiaries that increased this expense by $9 million this quarter. For the full year, however, the FX translation was an overall benefit to Virtu of $9 million. We generally don't call these amounts out because they tend to be small, but given the strength of the dollar vs the euro and pound sterling this year, it was a significant benefit overall. Additionally, we estimate the amount of revenue that was reduced, revenue we earned in pounds and euro and translated into dollars, was approximately $10 million.
These amounts largely offset and did not significantly impact earnings. In terms of expense guidance for 2023, we would expect our cash operating expenses to remain relatively flat to up 1%-2%. On capital and debt, we manage our capital as efficiently as our expenses. You can see our trading capital remained relatively constant throughout the year. We maintained our public $0.96 annual dividend, which we have paid steadily now for seven years. You can see on slide 6 that this payout has remained steady despite the volatile results over the long term. In addition, we repurchased $45 million in our own stock in the fourth quarter. For the full year, we repurchased $460 million in stock, representing 16.2 million shares.
Our period end share count is now 171.8 million shares. We have repurchased net almost 13% of our company in the two years since beginning our share repurchase program. We remain committed to both our public dividend payout as well as our share buyback program, consistent with the ranges we have provided in the past. We were very pleased to have refinanced our long-term debt in January before interest rates really took off. As of year-end, we have $1.8 billion in maturities termed out to 2029. All but $275 million is subject to a rate cap. Our total debt at a blended rate of 4.95% pretax interest represents a favorable outcome to us.
With that, I'll turn it over to Cindy to review the financial details before opening the call to your questions.
Thank you, Joe. Good morning, everyone. On slide 3 of our supplemental materials, we provided a summary of our quarterly performance. For the fourth quarter 2022, our Adjusted Net Trading Income, which represents our trading gains, net of direct trading expenses, totaled $274 million or $4.4 million per day, which is a 43% decrease year-over-year. Market making Adjusted Net Trading Income was $185 million or $2.9 million per day. Execution services Adjusted Net Trading Income was $89 million or $1.4 million per day. Our fourth quarter 2022 normalized Adjusted EPS was $0.37, and our full year 2022 normalized Adjusted EPS was $3.
Adjusted EBITDA was $125 million for the fourth quarter 2022, and $859 million for the full year, which was a decrease of 62% and 34% compared to prior year respectively. Our full year Adjusted EBITDA Margin was 59%, which is down from 68% in 2021. On slide 8, we provided a summary of our operating expense results. For the fourth quarter 2022, we recorded $185 million of adjusted operating expenses, which was a 6% decrease year-over-year. The full year 2022 operating expenses were $675 million, which was $2 million lower compared to 2021. We continue to maintain an efficient cost structure and disciplined expense management, which has helped us to control our operating expenses during the inflationary environment.
Financing ex-financing interest expense was $25 million for the fourth quarter 2022 compared to $20 million in the prior year fourth quarter. With the benefit of the interest rate swap contract we entered in prior years, we were able to keep a blended interest rate around 4.95% for the long-term debt in aggregate. Our capitalization remained adequate. We repurchased 2.1 million shares, or $45 million in Q4 2022, and 16.2 million shares, or $460 million in full year 2022. Since the inception of our share repurchase program, we have bought back a total of 32.8 million shares, which is $910 million to date. We remain committed to our $0.24 per quarter dividend.
The combination of our dividend policy and share repurchase program demonstrate our continued commitment to return capital to our shareholders. I would like to turn the call over to the operator for Q&A.
Thank you. Ladies and gentlemen, if you would like to ask a question, you can press star four by one on your telephone keypad now. When preparing to ask your question, please ensure your phone is muted locally. We have our first question comes from Rich Repetto, from Piper Sandler. Rich, your line is now open.
Yeah, good morning, Doug and Joe and Cindy. I guess first the question is on the retail flow. I know you do a lot of analytics, Doug, and you mentioned that you performed in line with the opportunity. I guess just to understand the opportunity a little bit better, if there's any one or two things that you could have changed about the nature of the retail flow. you know, your peers also in the channel checks, reported much of the same, but if there was one or two things to change about the order flow that would improve profitably, what might they be?
Yeah, thank you. It's a great question, Rich, and I appreciate it very much. I think, as we've been, you know, very upfront about it, obviously a lot of these metrics are public in terms of the aggregate number of shares that we receive, and then obviously our Rule 605 metrics. What we do here is we measure within that subsegment of our business, basically the spread or the bid offer in all of the orders that we receive at the time that we receive them. You know, think of that, if you will, as the opportunity set. Historically, it's started to break down over the last couple quarters, that spread some or that opportunity correlated very linearly with volatility.
You know, the higher the volatility, higher spread some was in the retail customer flow that you received. For reasons that, you know, I would just be speculating, that correlation has broken down over the last quarter and a half, and it was particularly egregious, if you will, in the fourth quarter. The opportunity was, you know, vastly different than the volatility would otherwise. The opportunity within customer market making was vastly different than the volatility would otherwise have projected. We measure that. We obviously measure our market, our market share and how we're being competitive against the other seven or eight wholesalers. All of those metrics check out.
We obviously have invested and continue to invest tens and tens of millions of dollars in technology to improve and to capture more flow and to increase our ability to monetize flow. At the end of the day, we are somewhat beholden, particularly in that business, to the orders that we're receiving. As we have said, and we obviously, there's been quarters where spread sum has widened, you know, significantly, and we've had outsized quarters. That business, which is a sub-segment obviously of our market making segment, by definition, will be much more volatile. This is, you know, unfortunately a quarter where we see decreased opportunity and therefore, you know, we're disappointing, if you will, you guys, and we get that. There have been other quarters where we've surprised to the upside.
What we have always said, and what we will continue to say is we love that business. We think it's a great business. We provide terrific service to 250 retail brokers. Over the long haul, it's been incredibly profitable, and Knight ran it for the last 20 years, and we continue to run it. We love the business. It's just a business that can be a bit challenging in the context of a public company that needs to report quarter by quarter.
Okay. That's very, very helpful, Doug. Appreciate it. Thank you.
Thank you.
Thank you, Rich. We have our next question, comes from Chris Allen from Citi. Chris, your line is now open.
Morning, everyone. Just to kind of follow up on Rich's question. I know you can only speculate on the reasons, but maybe you could give us some speculations on the reason for the opportunity set diminishing. Maybe it's increasing sophistication of retail investors, or is it flow mix between the retail brokers? Also you mentioned enhanced opportunity in customer market making in January with efforts to improve the capture rate bearing some fruit. Maybe you could give us some color just on what efforts those are.
Yeah, sure. Look, look, I mean, the easiest and most, I think, on point answer is that, you know, in the retail business, the whole idea behind the retail business, which, you know, smarter guys than me created 30-odd years ago, was that you're gonna have smaller orders, Chris, that are typically not correlated with the wider market. As a market maker, you can absorb those orders, excuse me, internalize them, price improve them, and give a retail investor as compared to an institutional investor that will have much larger desires and enhanced experience, better service, et cetera. You kinda get that.
In the quarter, you know, and it might be the mix of, as you say, you know, the mix of the business may be, you know, more institutional investors were sliding into, you know, quote-unquote, retail brokers, et cetera. In the quarter, you have more flow that tended to be more correlated with the larger marketplace, and that makes it more of a challenge for a market maker. We don't have some magic elixir in terms of, you know, if a stock continues to go up during the day, as I've said many times, that is the yin and the yang of being a market maker. Under the current ecosystem construction, we don't have a choice. We need to take all the flow that comes our way, small, medium, and large, regardless of what the stock is doing.
Many times, that results in negative selection and a negative P&L, you know, with regard to that stock for a day, a week, a month, whatever it is. That's probably the best answer I can give you. What I can tell you, since 2017, when we first acquired the Knight customer business, we've seen quarters like this, when we've seen quarters where the opposite is true, where the flow is a lot softer, the spread sum is significantly larger, and we've had outsized quarters. Again, I repeat the mantra, which is, we look at this business over an incredibly long period of time, and we've tended to be very bullish about it. In terms of, you know, enhancements and investments we've made to increase our monetization of the flow. It's what we've talked about historically.
Obviously, we've done a lot of the re-platforming and migrating all of this flow to the, to the legacy Virtu infrastructure, which is lower latent and more performant. In as well, we've enhanced significantly, the internalization opportunities for that flow, right? Internalizing it against both our own non-customer market making flow, but also making it available to our institutional investors who are very, very keen to get access to it. All of those things, we've made significant progress. Frankly, it has borne considerable fruit in this quarter and prior quarters. Again, we are somewhat beholden to the, you know, to the outside world and the opportunities presented.
Got it. Just a quick one. Just on the FX, the $9 million in the quarter offset by the $10 million in revenues. The $10 million revenues that spread over the year, did that occur this quarter?
No. That. The way it's working, Chris, is, you know, that the option admin 29 this quarter was $9 million higher than it would've otherwise been if not for this FX reval. That's because the pound and the sterling, you know, started the year, you know, the pound started the year at 1.35. It ended at 1.19, and then it, in the second and third quarter, I think it went all the way down to, like, 1.10 or below, and then came all the way back up. For the full year, for the full year, the FX reval was a $10 million benefit, which was offset by revenue. Okay? It's a wash in terms of impact to earnings.
Got it. Thanks, guys.
Each quarter, obviously, you know, for it to be a benefit for the full year of 10 coming into the fourth quarter, it was a benefit a lot higher than, you know, because... Than 10, because a negative 9 brought it down to 10 this quarter. You know, for the full year, it's a wash, and the quarterly ups and downs basically offset in revenue. You know, on a full year basis, it's a wash.
Thanks, guys.
Yeah. Thank you.
Thank you, Chris. We have our next question comes from Alex Kramm from UBS. Alex, your line is now open.
Yeah. Hey, good morning. Thanks, everyone. Yeah, I think, Doug, you made a comment very briefly at the end of your prepared remarks about, you know, what you're seeing so far this year. I think I heard that, maybe you can flush it out a little bit. Sounds like on the institutional side, also if you look at the public volumes, things have started surprisingly slow, obviously, that never really speaks to your opportunity set. Maybe you can-
Yeah.
talk a little bit about what you're seeing, and how that compares, obviously, to the fourth quarter. Thanks.
Yeah. Yep, yep. Yeah, you never cease to miss the little kernel when I give a little update. I thank you, Alex, for noticing that, and kudos to you. Obviously, since we had a challenged quarter in the fourth quarter for customer market making, I wanted to give some color. Look, it's obviously, I mean, today's January whatever, so it's obviously early in the quarter. We have seen an improvement in the opportunity set within our customer market making business. It's, you know, not been dramatic, but it certainly is meaningfully better than what we saw in the fourth quarter, which is terrific. As you say, the rest of the business in terms of, you know, you can then look at kind of what institutional and overall marketplace volumes are.
I'm very happy with the way that we've started the year. I will say, obviously caution everybody, right? It's early in the quarter, that's really based on, you know, I guess, 15 or so trading days. I wanted to give some indication, obviously, that we see some improvement in the customer market making business. As well, we're seeing, you know, improvements in our commodities and energies business and in Asian equities, where we've had some nice wins early in the quarter. You know, again, we've seen some improvements in our internalization, you know, opportunities in our, on our execution, with regard to internalizing flow. Very, you know, continue to be very bullish and excited about 2023.
The early indications are that, you know, we're gonna see some improvements so far.
Excellent. maybe just one very quick one for Joe, if that's okay.
Yeah.
On the debt, I think the trailing EBITDA debt to EBITDA is 2.1 x. Obviously if I annualize the fourth quarter, I think you're somewhere in the mid to high 3s. Can you just remind us in terms of any sort of covenants, again, hopefully things improve here, but I know people are gonna ask again if we stay in this environment, if there's any issues we should be aware of?
No, we have no. We are, you know, covenant light to the max.
There is 0 maintenance covenant-
Yeah
in our long-term debt.
You know.
Yeah.
We got rid of the cash sweep as well, right? When we have a, when we have an outsized quarter, the next time we have an outsized quarter, we're going to, you know, obviously dedicate all of it to, you know, compounding value by buying back our stock. The maturities are termed out to 2029. You know, that 3 times+ is not an issue.
All right. Fantastic. Thanks for clarifying.
Thank you.
Thank you, Alex. We have our next question comes from Dan Fannon from Jefferies. Dan, your line is now open.
Thanks. Good morning. Doug, I wanted to follow up on the comments about the core, or I should say legacy market making business. If you could repeat the numbers of what you said. I think flat year-over-year. That also includes some of these new initiatives. Wanted to think about what, you know, how that business has trended maybe over a longer period. You know, I guess maybe thinking about it prospectively, what is, you know, how does that? You just gave some context around the start of the year for the customer market making business, but also maybe talk about that business and how the prospects of that look from here.
Yeah, it's a great question. Obviously, you know, we get that question a lot, you know, given the fact that we only report a single segment. I thought it was important in the context of this quarter, Dan, to give just a little more of a hint of, if you will, how that business did. Yeah, what I said in the script was that it was flat from 21 to 22 and up 11% in the 3rd to 4th quarter, which I thought was significant, right? We've been doing a lot of work during the year to improve. Look, I mean, that is, the beauty of that business is it is truly scaled and global, and it's multi-asset class.
It's a little bit the analogy I always use is it's a little bit of like a water balloon or a water bed. You sit on. I don't know if you remember the water bed. I don't know if you're old enough. I remember them from the 70s and the 80s, right? You sit on one side of it, and it feels great, and then all of a sudden, there's a. Especially because I'm a heavier guy, there's a, you know, it. There's a bowl where, you know, water moves to the other side, and you push that and it kind of goes back and forth, right? You kind of get it. There's always gonna be ebbs and flows in that business.
you know, we have weeks, months, quarters where our energy business is doing quite well, then natural gas will go through a period like it did over the last couple of years, where there's frankly no volatility and the price is pretty consistent and the opportunity set within natural gas and energy declines significantly. Then it comes back, which it has done more recently. So overall, you know, obviously we look at that business on the individual asset classes and geographies, and we've fully integrated it with some of the, you know, intelligence and the quant expertise of the Knight business. And we now internalize options into equities and commodities. you get how we work. Over the last, you know, we track it obviously from when we acquired Knight in 2017.
From 2018 through 2022, we've seen significant overall improvement in that business. Have there been challenges in various sub-asset classes? Of course. Have we introduced options and helped grow the business? Yes. The important thing is that capture rates overall in most of those segments have improved. We've maintained our market share, and we continue to be very excited about the quote-unquote legacy businesses. It's not easy to continue to be relevant and highly profitable in those businesses. There is a, you know, a conga line of firms that used to be in these businesses that are no longer there. It's really about disciplined execution of improving technology, of hiring, you know, wonderful people and maintaining an expense base that makes a lot of sense.
As Vinnie Viola said, everything goes into the bid and offer, right? If you manage your firm in a scaled, efficient way, you can continue to be profitable and successful, even as bid offer spreads widen and then narrow and widen and narrow. We've always said that we built this highly scaled firm to do incredibly well in times of feast, but when there's famines, we still do fairly well as well. I'm very, very happy with the progress of that business, and I wanted to give a little more color just in the context of this quarter.
Understood. That's helpful. I guess just thinking about, the comments around expenses and knowing that comp can fluctuate, but the more fixed costs being flat, what does that say about your, I guess, your prospects or how you're thinking about the revenue environment for 2023? Do we think about it similarly to kind of what it's been in more recent periods? Is that how we should think about that expense relationship with, you know, the revenue backdrop?
No, that's a good question. It doesn't imply that. It does not imply that. It implies that if we had a similar year, I would expect expenses to be flat. I don't. You know, I provide that guidance to just simplify things just because, you know, we are in, you know, multiple years now, you know, where we've kind of met or exceeded expense guidance. I kinda feel like we can provide that number. If the environment is markedly better, you know, the cash compensation figure is the one that, you know, fluctuates a little bit. And there's enough history now you can see the cash compensation ratios for four years, you know, in a year where we're, you know, up in the 2020 and 2021 ranges.
you know, I would expect comp ratios, you know, and at those levels, and then, you know, this year, the comp ratio cash comp is 21.5%. There's flexibility in the compensation ratio. A great portion of our compensation is discretionary. you know, so that's just a guidance based on the current environment, but it does not assume that the environment's gonna continue.
Understood. Thank you.
Thanks.
Thank you, Dan. We have our next question comes from Ken Worthington from JP Morgan. Ken, your line is now open.
Hi, good morning. Wanted to flush out crypto and options a bit more. In terms of your build-out roadmap for those two asset classes, where are you in the build-out, and at what point do you think you'll be fully built out? At what point are you going to be in a position, if you're not already, to kinda win the same sort of 606 contracts you have with retail brokers, in equities today?
Yeah, it's a great question. We began this journey in options, I'll say two years ago, but really, you know, 18 months ago. It took a lot of building, and the building continues, but we had to basically reconstitute the way we approach the market as I've described before, quote-based market as opposed to an order-based market, excuse me. As you know, there is, you know, a plethora of options venues in the United States. I'm embarrassed to say, I think there's 17 options exchanges, but I'm not sure, and every day just seems to be adding one. Just having connectivity to each of those and understanding the market structure of each of those, some are price-time, some are pro rata, as you know, has been a bit of a challenge.
To use the baseball analogy everybody seems to use on these calls, you know, we're in the very early innings of that process. We have the infrastructure built. We have hired and moved of some legacy Virtu people, and so we have a very, very talented team, both in the United States and around the world. I think there's a lot of runway left. I think, you know, to throw out a number, just kinda looking at where we are in the opportunity, I think we could increase that business, Ken, by somewhere by three to four to even five times what we did in 2022. I think, you know, really what we've done heretofore in 2021 and 2022 is, I'll just say just, although it's a significant opportunity, but just the index family.
We are dabbling in single name options, and the beauty, if you will, of the options market is that you can participate in quote-unquote retail options without having to take all the retail flow. We are now doing that. We have the functionality for options, which leads to the last part of your question as to when do we roll out into being a more of a wholesale market maker in options. The answer is, I'm not sure sitting here today. We know that it's on the horizon. I'm not gonna rush it because we had a fantastic year in 2022 in options. I'm very happy. There's a lot of opportunities in Asia. We're now market making the Nikkei and the Nifty 50 options family in India. If you look at the volumes in India, for example, they're extraordinarily large.
There's a lot of opportunity there. As we built the legacy Virtu firm, Vinny and I and a bunch of great people from 2008, you know, call it to 2011, 2012, 2013, we'll use that as a playbook for how we build out this global business. I continue to be very, very bullish with the opportunity, and we'll prioritize the 605 business relative to other opportunities. You know, we have not lacked for opportunity and work thus far. I continue to be very optimistic about our ability to be a meaningful participant in that marketplace.
Thank you for that. Does it look like, is there a possibility or a likelihood that 2023 can be the year that you're ready to kind of roll this out? Or is it much more likely that the options business getting to where you want it to be in terms of that wholesaling business, is more of a 2024, 2025, you know, timeline?
Yeah. I mean, I would never say never. I'm not sure sitting here today where we're gonna have our priorities. I will point out that in, you know, looking at the opportunity data in 2022, if you look at, like, the dramatic increase in options, it really was in the index family. Not to denigrate the other business or single name, that's really where the opportunity is. As, you know, you go where the opportunity takes you and, as I said, there's plenty of opportunity there. It's something that's on the horizon. Is it within our plans in the next couple three quarters? No. I would never say definitively one way or the other, which, you know, where we're gonna head.
Maybe lastly, is crypto further ahead or further behind the options business? It feels like crypto is a bit more simple.
Yeah.
Maybe that's not the case.
No, no, it's a great observation, actually. I mean, crypto, you know, I don't wanna say it's simple, right? Because obviously there's a lot of coins, and there's a lot of venues, and obviously there's a lot of fraud and criminality, right? There's a lot of complications there that you don't see in a highly regulated environment like options. Yeah, it's obviously more order-based. It feels a lot more like the FX world, where you have, you have spot FX, you have forwards and futures, and then you have ETFs, or at least, in the United States, you don't have ETFs, thanks to the chair of the SEC, but, in other jurisdictions, you do. That infrastructure, we have set up.
Obviously, to state the obvious, the criminality at FTX and the shutdown of that venue means that we're not making markets there. Indeed, we pulled back from most, if not all, of the spot venues. So we continue to be a market maker in futures and in ETFs. I'll put a plug in for Jamil and the guys at EDX 'cause we think that that is the great, you know, will be a great solution, particularly, you know, to the Wild West unregulated marketplace, you know. Having e-execution quality that feels and acts like equities with best execution and then ultimately with, you know, disclosed custodial and if you will, centralized clearing, that's really gonna be the key to exploding, or having investors have real confidence in digital assets.
I think EDX, Jamil and the team there really have the right solution, and we're very proud and honored to be an investor in that platform.
Great. Thank you very much.
Thank you, Ken. The next question comes from Michael Cyprys from Morgan Stanley. Michael, your line is now open.
Great. Thanks. Good morning. maybe just sticking with the options topic. If we look across the industry, volumes continuing to be very robust for options. Just curious your views on that. Why has that held up so well, particularly compared to cash equities, and how durable do you think that is? Do you see any prospects for volumes on the options side to compress meaningfully from here if we look out three, five years from now? How meaningfully higher or lower do you think options could be across the industry?
Yeah, it's actually a great question, and it's very perceptive. I think, like, in a way, actually, you've seen somewhat of a shift of retail or day trading, if you will, from cash equities to options. That's always been the case. But, you know, there's been a lot of innovation by my friends at the Cboe, excuse me. There's been good education by brokers. There's now daily contracts, right? As opposed to weekly expirations. And that innovation, I think, has driven some of the volume. And, you know, you get more leverage, and there's more opportunity, if you will, if you're a day trader or retail investor in options. So I... You know, again, it's hard to prognosticate. It's more of a macroeconomic question as to where that goes, right?
If the economy rebounds, we don't have record inflation, there continues to be job growth, people are optimistic, et cetera, then I think you'll see, you know, a continued increase in volumes and opportunities there. The thing that was interesting to me, I said it in response to Ken Worthington's last question, was that you saw an explosion of interest in the Index family, that's really where the opportunity was in 2022. We kinda got lucky, if you will, Michael Cyprys, in that we had targeted that as our first place to go as opposed to single name. I think that was up, like, 40-ish% in 2022, the volumes there were, while single names were actually down pretty dramatically.
rs that want to get exposure to broader indices and are making shorter term investment decisions on those look at that family of options now. As I said, that offers even daily exposure, weekly or monthly, and say, "Oh, that's a good place to go." And that's kind of really right in our wheelhouse because it's a, you know, it's a complicated trading dynamic. Obviously, you have to have a volatility curve that makes sense. You have to have low latency. You have to understand the setups in Chicago and New York and all of that. And you have to have the ability to provide a delta hedge that makes sense and it is acute and priced well and whatnot. That kind of plays very well into the multi-object market-making firm that we built at Virtu
Our investments in the options infrastructure and our ability to be a participant in a quote environment as opposed to an order-based environment have really bore fruit in 2022. If you're sensing enthusiasm in my voice, you are very perceptive because I continue to be very enthused about that business longer term.
Great. Well, given that enthusiasm, maybe just a follow-up question on the same topic here of options. Maybe a little bit more drilling in on the single name side. How many tickers are you making markets in today on the single name side? How does that compare to a year ago? What hurdles do you face in expanding that to more tickers? How do you think about overcoming that, and what are some of the actions you guys might be able to take?
It's a great question. I mean, the answer is dozens today. It's, you know, we clearly have the capability to do it. To be blunt, there's a lot more risk in that side of the business as opposed to an index side. I mean, obviously, index options is volatility. You could screw up your curve, you could have an operational issue, so you can lose money. You know, corporate actions and things along those lines make it much more challenging to be a single object market maker in options, particularly if you're gonna be. It goes back to my much earlier comments on the service nature of the wholesaling business. As an options wholesaler, you don't get to pick and choose.
Hats off to, you know, the incumbents, Citadel, Susquehanna, and a handful of others that have built the risk infrastructure to be a two-sided market maker in, you know, 1,000 different single object names with a multitude of strikes, a lot of which, you know, won't trade a lot. There's still a lot. You know, you don't have the ability to pick and choose, and so there's still a lot of risk in that business. You know, this is an obvious answer, but we're focused on the most valuable opportunity and the most addressable opportunity first, and that's what we've done.
I don't mean to not give an answer, It's hard for me to sit here today and say, "Okay, well, we're gonna be, you know, 98% complete with that, and therefore, we can shift our focus." We're gonna do everything at once, the way we've always kind of built Virtu. The opportunities there are so meaningful and so significant as they are overseas in the Asian markets I mentioned before, that we see in. You know, there's you know, three, four, five times the opportunity in the index family, that there is in single name.
While I think that's a business that we will get into, and obviously, our broker partners would like us to be in that business, right now, you know, we're focused on the blocking and tackling, and thankfully, it was highly profitable for us in 2022.
Great. Thanks for taking my question.
Thank you very much.
Thank you, Michael. We have a follow-up question from Rich Repetto from Piper Sandler. Rich, your line is now open.
Thank you. Doug, with all this talk on auction, I just, I have to get back and ask a question about. With the SEC proposal, I took a hard look at the options market structure, and one of the things that sort of popped out was, it's different. Like these Citadel and the Susquehannas that you mentioned that are big in options are also besides getting flow, they also are market makers on the exchanges and then this whole thing about directed order flow. I guess the question is, do you think that that is important to progress in options to be a, you know, a primary market maker or do a designated market maker, whatever each exchange calls it?
Certainly the model that Citadel and Susquehanna has, and how easy or hard could it be if you went that route, Could you get those, same sorta designations if you decide to go that route?
Look, it's a great question, and obviously, we've studied it and we know we have a lot of friends at the Cboe. We do a lot of business with them and other exchanges where being a, as you say, a designated market maker is important. You know, wholesalers, in the options world, you know, will always be the main responders to auctions. Others are in-invited in. Certainly if... No, not if, when we become part of that marketplace, you know, we will need to acquire bins, if you will, and become a designated market maker. I have every degree of confidence that we will be able to do that. We've got a pretty good brand name. We've been really good business partners with global exchanges for now for 15 years, and we've always lived up to our obligations.
I don't have a concern that we will be able to do the business development part of this business, and we already have done that, right? These exchanges and other counterparties want a participant and want a firm like Virtu to be an active participant in it. That being said, you know, you don't wave a magic wand to become a meaningful market maker. You know, Citadel and Susquehanna are amazingly competitive, excellent firms that have been doing this for 20-30 years. I'm not arrogant enough to suggest that we're gonna come in there like, you know, guns blazing and take away the market share. We're not going to, right? We're gonna be a complement to those firms. We're gonna hopefully add value to the ecosystem as we are today in the index family.
I think that there is room for competition as there is in cash equities wholesaling. I mean, one of the complete falsehoods that the chair of the SEC has propagated is that somehow that this is a duopoly between Virtu and Citadel. It's just factually inaccurate. There's a great firm called Jane Street that started in the wholesale cash equities market two years ago and now has, you know, 13%, 14% of the, of the market order, you know, of the marketplace. You know, Gensler is just, again, exaggerated. I'll be nice and not said lied, but exaggerated that part of the marketplace. These markets are extremely competitive, and the important thing is that we are providing a service, a service to retail brokers. You saw it this week, Rich, with the New York Stock Exchange, right?
When the phone rang, based on the news reports I've seen and based on our experience, there really wasn't somebody on the other end of the line picking up saying, "You know what? We're gonna make this right for you, and we're gonna make sure that your clients' orders were priced and executed a price that made sense." That's the big lie about our business. You know, he describes it as rents in the industry. These aren't rents. We're providing a service, a very meaningful service. In fact, a bundle of services, and being compensated for that service through our own efforts with a portion of the bid-offer spread, right? He either doesn't understand that or doesn't want to understand that. That's what the data and the narrative will prove.
Ultimately, that's not going to change, and that's why it's so important that firms like Virtu, Citadel, Susquehanna continue to provide that service in cash equities. As I've indicated, we intend to do that in options as well. If I could leave you with one thought, that's the most important distinction I think that the chair of the SEC has either intentionally or otherwise omitted in all of his political narrative around this marketplace.
Got it, Doug. Thank you for the waterbed analogy earlier. I get it, and it left a vivid image in my, in my mind. Thanks.
Yeah. Rich, I probably shouldn't comment since this is a public call. We can talk about that later.
Thanks.
Thank you.
Thank you, Richard. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad now.
Okay, looks like we have no other questions in the queue, operator. I appreciate everybody joining us for the fourth quarter call, and we will be back sometime in April, I would imagine, with our first quarter results, and I look forward to engaging with everybody then. Thank you very much. Have a great day.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.