The high-frequency trading firm that’s about to go public only had one day of trading losses in five years

Virtu’s IPO may be one reason bosses CEO Douglas Cifu (with light hair) and founder Vincent Viola are so giddy.
Virtu’s IPO may be one reason bosses CEO Douglas Cifu (with light hair) and founder Vincent Viola are so giddy.
Image: AP Photo/Omar Vega
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New York based high-frequency trading firm Virtu Financial is slated to go public, having filed the required regulatory disclosures today. The firm, which was co-founded 12 years ago by chairman Vincent Viola—who recently bought the National Hockey League’s Florida Panthers—reported profits of $184 million in 2013, 108% higher than the prior year.

Virtu is just one of a number of so-called electronic market makers which have devoured the business of matching investor buy-and-sell orders and collecting a profit based on the discrepancy between the two. Humans—such as the New York Stock Exchange’s specialists—once had the job. But in recent years, high-frequency trading such as Virtu have gobbled up the business. These companies are known for using super-charged computers and sophisticated algorithms to quickly take advantage of small price changes.

While markets have been growing increasingly more electronic for decades, electronic-trading emerged as a potential risk to market stability following the May 6, 2010 “flash crash,” when a breakdown in computerized trading systems sent US stocks down 10% in moments. The episode—along with a number of other electronic trading glitches, such as Facebook’s botched 2012 IPO—have repeatedly been blamed for undermining investor confidence in US markets.

According to the Financial Times, a successful IPO would make Virtu, essentially, the first electronic trading firm to go public. (There are publicly traded firms such as Nasdaq OMX have large electronic trading operations.) And while The Wall Street Journal reported that Virtu could go public as early as next month, a scott-free offering is by no means guaranteed. (When a computerized stock exchange by the name of BATS tried to go public on its own exchange in 2012, hilarity ensued.)

At any rate, in its SEC filing Virtu took pains to stress the many levels of risk management that will enable it to avoid issues that have plagued electronic traders such as Knight Capital, whose haywire trading algorithm nearly sent the company into bankruptcy back in 2012. (Knight ultimately merged with another electronic outfit.) Virtu even pointed out that the company had recorded only a single day of trading losses in the 1,238 trading days that comprise the period between Jan. 1, 2009 and and Dec. 31, 2013, attributing that track record to its “real-time risk management strategy and technology.”