Andrew Smith - IR Douglas Cifu - CEO Joseph Molluso - CFO

Richard Repetto - Sandler O'Neil Alex Blostein - Goldman Sachs Dan Fannon - Jefferies Alex Kramm - UBS Ken Worthington - JP Morgan Ben Herbert - Citigroup Kai Chung - Evercore ISI

Thanks Jack. Good morning everyone.

As you know, our second quarter results were released this morning and are available on our website. Speaking and answering your questions today are Mr.

Douglas Cifu, our Chief Executive Officer, and Mr. Joseph Molluso, our Chief Financial Officer.

They will begin with prepared remarks and then take your questions. 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 maybe outside the company's control, and our actual results and financial condition may differ materially from what is indicated in these forward-looking statements.

We refer you to disclaimers and disclosure in our press release and encourage you to review the description of risk factors contained in our Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. 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.

In addition to GAAP results, we may refer to certain non-GAAP measures and you will find a reconciliation of these non-GAAP measures to GAAP terms included in the earnings materials available on our website. Now, I would like to turn the call over to Mr.

Douglas Cifu, Virtu’s Chief Executive Officer.

Thank you, Andrew, and good morning everyone and thank you for joining us today. Our prepared remarks will be brief and focused on the supplemental materials released this morning, highlighting our second quarter results and providing an update on the integration achievements to date.

Joe Molluso, our CFO will provide more details on the quarter before we open the call to your questions. The second quarter 2018 is the third full quarter that reflects the combined operating results of Virtu and KCG, and just last week on July 20th, we market the one year anniversary of the closing of the acquisition.

I am pleased to report the continuing success of our integration as evidenced by the increase of our expense synergy targets, repayment of consolidated indebtedness and an enhanced stock repurchase plan, all of which I will discuss in more detail shortly. Looking at the second quarter’s result starting on slide 3, Virtu realized $203 million of adjusted net trading income and $0.31 of adjusted EPS.

The $203 million of adjusted net trading income we report today as it compared to the first quarter of 2018 reflects the impact of declining volumes and realized volatility that occurred during the quarter as well as more importantly declining retail participation in our Americas equity business that we experience in the second half of this quarter. Market making environment during the quarter started favorably as the volatility from the first quarter continued, but deteriorated quickly and more severely within the US retail market making business as the quarter progressed.

VIX and realized volatility were 15.3 and 12.4 for the quarter, down 12% and 37% respectively from Q1. In addition and even more striking are the monthly declines as realized volatility of the S&P declined from over 19 in March to 16.9 in April, 10 in May to 8.7 in June, representing a decline of over 55% from March to June.

As we have stated previously, these are important metrics that often service benchmark for the size of bid offer spread that market participants are willing to pay market makers to transfer risk. Further and especially notable for a large wholesale market maker like Virtu, retail participation was down meaningfully in the second quarter not only relative to the first quarter of 2018, which is to be expected, but also when compared to the fourth quarter of 2017.This decline in retail participation was an important driver of our performance in the US equities segment during the quarter as the decline in our performance, for example compared to Q4 of 2017 to this second quarter stemmed mostly from our retail market making business as our principal market making businesses performance well.

Turning to slide 4 and 5, you can a break out of our performance in market making quarter. Our market making segment generated a $176.7 million of adjusted net trading income and our execution services segment earned $26.3 million.

As noted our performance in Americas equities was impacted by the reduced volatility compared to the first quarter and most importantly by the aforementioned depressed retail participation. Adjusted net trading income per day in America’s equities was $1.91 million.

Our rest of the world equities performance was down compared to the prior quarter in line with the decline in market making opportunities as reflected by the volumes and volatility benchmarks. For example, Pan EU volume in Euro stocks volatility decline 17% and 18% respectively, and Nikkei realized an intra-day volatility decline 54% and 38% respectively compared to the prior quarter.

Our global FICC options and other segment were down compared to the first quarter of 2018, largely due to the outsize performance in the volatility complex in the first quarter. However, excluding the volatility complex, our second quarter performance within global FICC includes many bright spots that outperformed the benchmarks in particular, our global currencies business continued to perform very well despite a decline of 25% for the JP Morgan G7 FX volatility index.

Our execution services business remained a steady contributor this quarter. We continue to develop and leverage our market making technology and infrastructure to offer transparent and competitive institutional agency services.

We believe Virtu is positioned uniquely as the only firm with the ability and scale to provide institutional agency algos and routing, principal liquidity and retail wholesale execution services to the street. Our performance this quarter also highlights the benefits of our operating scale and expense discipline.

Overall, while both revenues and profitability were down sequentially from the exceptional environment we saw in the first quarter of 2018, our operating scale enabled us to earn an attractive 55.4% adjusted EBITDA margin. As I have said before, these results said Virtu can and will generate profitable results in less than ideal market operating environments as witnessed this quarter and any return to periods of enhanced volumes and volatility as experienced in the first quarter should result in superior returns as our fixed cost business model scales exceptionally well.

The important takeaways from these results are, first, overall our non-customer facing market making businesses continued to improve and performed from our prior two financial quarters. Our overall results however were negatively impacted by the significant decline in retail flows during the quarter, which adversely impacted our retail market making business.

On the expense side, we continued to overachieve. With the second quarter results, we have beaten prior guidance for the first half 2018 by approximately $29 million or 11% against prior guidance.

We will achieve ultimately around $340 million in total synergies or 44% of the combined expense base of Virtu and KCG prior to the merger. By all measures the integration is going well, and we continue to reap the benefits of our integration labors.

Revenue synergies continued to be realized in layers as the technology integration progresses. For context, I’d like to discuss a few examples of these revenue synergies and the non-linear integration opportunities that we continue to realize and discover as we combine Virtu’s execution efficiencies with KCG’s more quantitative strategies.

The first phase of the integration focused on migrating the legacy KCG non-customer principal market making businesses onto a common Virtu technology. We did this first as it allowed us to achieve real expense synergies by decommissioning redundant IT infrastructures, connectivity and market data cost.

Not only did this integration combine the trading opportunities of legacy Virtu, legacy Getgo and legacy Knight principal market making activities, it also combined the post-trading clearing operations of all three firms which prior to this integration had been on independent platforms. By integrating these businesses, we have enabled standalone trading opportunities by deploying legacy KCG and Getgo models across Virtu’s trading knowhow and global footprint.

Just to give you an update on the $14 million of annual run rate synergies we spoke about in our third quarter call last November, a portion of the $40 million came from us introducing only one of KCG’s models in Canada within a few weeks of the mergers closing last July. Since then we have continued introducing those capabilities in Canada and in other markets in Europe and in Asia, and as a result continued to improve our global principal market making capabilities.

Since our last update we have also begun realizing the benefits of something that we are uniquely positioned to provide by coordinating our execution services and market making businesses. Virtu is the only firm with the ability to provide agency trading in conjunction with liquidity provisioning from three segments of the market, each with unique time horizons, institutions, profit and retail.

Historically, KCG’s inter and intra business segment interaction was not fully optimized, and even though the combined firm reported a large percentage of the overall tape volume, many institutional clients were not fully optimized to benefit from this opportunity. To facilitate client to principal interaction we have begun publishing our own principal liquidity to Virtu’s trading algorithms for clients to opt in to receive liquidity from our single dealer platform which we call DEQ.

These actions allow Virtu’s algo clients to access our liquidity in addition to liquidity available across the market often resulting in better execution with large fills and less price impact. While it is still early days for these initiatives, we have seen great acceptance of this offering, which just makes a lot of sense.

The clients benefit because as in any bilateral relationship they get enhanced transparency and accountability as well as more control and choice over their execution. Finally we continue to make significant progress on the capital management front, as we have repaid an additional $15 million of our term loan since our last earnings call.

This brings total repayment since the acquisition to $676 million which has reduced our annual interest expense by approximately $37 million. Under the share repurchase program we announced last quarter, we have repurchased 1.4 million shares.

Additionally, our Board of Directors has authorized an additional $50 million of share repurchases. We remain very excited about our global market making and agency execution businesses going forward.

We believe we will continue to realize incremental improvements in revenue as we continue to integrate technologies and offer institutions superior execution quality through a suite of leading products while having wholesale overflow from leading retail providers. I will now turn over to Joe to review the remainder of the materials.

Joe?

Okay, thank you Doug. I will pick up on slide 6, operating expense trajectory.

Slide 6 summarizes our core operating expenses. Our core operating expenses or employee compensation and benefits, communications and data processing, overhead and depreciation and amortization.

Previously, we guided expenses based on half year targets and I’m pleased to report we have done better than our first half guidance. We outlined here the total for the first two quarters of 2018 and first half total.

As you can see, our total adjusted operating expenses were 107 million compared to 133 million in the first quarter. When you compare these total first half 2018 figures to the guidance we provided previously, we have beaten guidance by 29 million or 11% in total adjusted operating expenses.

All of the core operating expense categories contributed to this outperformance. Our headcount is currently 519 people, a significant reduction from the larger amounts in prior quarters.

We have continued to rationalize our global telco services expenditure as a result of the merger and reduce redundant technological systems and market data. As a result, we are revising our expense guidance for the second half and for the full year of 2019.

You can see, we expect the run rate for Q2 to continue in to the remainder of 2018 and 2019. Our 2019 full year guidance on adjusted operating expenses is now 422 million to 432 million, down from previous guidance of 450 million to 460 million.

As we achieve these goals, our total expense base as compared to the combined company prior to the merger will be reduced by approximately 340 million or 44% of the combined expense base. Our adjusted EBITDA margin Q1 was 65.5%.

It demonstrates the operating leverage in our model. Our Q2 expense base against our Q1 net trading income would have produced an adjusted EBITDA margin of 73%.

This continued expense discipline and the performance of our business since the merger demonstrates our ability to generate superior margins in any operating environment. Despite the challenging market making environment, our adjusted EBITDA margin was 55.4% this quarter.

Turning to slide 7, you will see a key driver of our expense base is employee compensation and benefits. While we tend to focus on cash operating expenses, we wanted to point out our total compensation to adjusted net trading income ratio in order to demonstrate how we continue to manage costs.

You will see that our total first half comp to net revenue ratio is 17.8%. This is in line historically with legacy Virtu compensation philosophy and is an important tool in managing costs.

Our compensation expense is biased towards incentive compensation and firm-wide as well as individual performance. Slide 8 reviews the capital structure and long term debt.

Since our last earnings call, we have repaid an additional $50 million of long term debt. Since the merger closing about one year ago we have repaid 676 million in total debt putting us well ahead of our targets for debt repayment that we announced at the time of the merger.

Our debt-to-adjusted EBITDA ratio at the end of the second quarter is two times which we are very comfortable with. Given the progress with regard to debt repayment, we’ve also repurchased a total of 1.4 million share for a total of 40.5 million.

As we anticipate remaining within our long term debt-to-adjusted EBITDA targets in the coming quarters, we will continue to use excess capital to repurchase shares opportunistically and as such our Board of Directors has authorized an additional 50 million of share repurchases. We have updated slide 9 to demonstrate our commitment to returning capital to shareholders over the long term.

We believe in returning excess capital to shareholders and stakeholders. When we went public we set a policy that would return at least 70% of our net income to shareholders overtime.

We view this policy over the long term and no quarter-to-quarter because of the inherent variability in our results. We set what we believe to be a fully appropriate dividend policy because of our long term confidence and sustainability of returns.

You can see that since we’ve been public we returned a total of 94% of our earnings in the form of dividends and share repurchases. Our capital return priorities remain to reduce our debt load to long term debt-to-adjusted EBITDA target 2 to 2.5 times, consider opportunistic share repurchases and maintain our payout ratio in the long term.

With that I will turn the call back to the operator, so we can begin the question-and-answer portion.

Great job on the expense side, the question on the revenue side, you talk about retail participation Doug, and if you look at, first quarter was sort of anomaly to the upside lets’ say. But when you compare 2Q to 4Q, the retail participation that seems to be dwindling and it shows up in both interactive broker shares as well as the OTC Bulletin Board volumes.

There’s a significant decline in these bulletin board volumes, but we suspect there’s a significant decline in the trading of low price stock, I guess, and it sort of makes sense intuitively. So the question here is, how sensitive is the wholesale market making operation to the low price stock and bulletin boards and stuff.

And the other thing is there anything interactive brokers also talked about some regulatory pressure on the retail brokers not to be as involved in this stuff. Can you give us any feedback on that?

Good question. We are a large OTC Bulletin Board market maker, so clearly it’s an important part of what we do, but it’s a smaller part of the overall retail segment.

I think the important takeaway, you raised a good point about OTC bulletin board involvement is that OTC is really in my view like a barometer of retail engagement. I mean people tend to like those penny stocks, and the marijuana stocks and already know whatever the flavor of the month is, and so certainly we see a lot of those.

But I think that is almost like a proxy rich for overall retail engagement which is what I referred to in my prepared remarks. And I think you’re right to look at the IBKR disclosures because they talk about darts, but they also talk about share count and obviously share count is what we as a market maker are really dependent up on.

And so if you look at the IBKR numbers comparing second quarter to fourth quarter, the share volumes were down about 15% and then actually really significantly the average number of shares per dart declined 22% from the second quarter to the fourth quarter according IBKR. And I would imagine it’s similar at the other 200 or so retail brokers that we deal with.

So as I reference in my prepared remarks the opportunity set in terms for our retail segment, in terms of interacting was just significantly lower because we just saw a lot less volume come through the pipes. Interestingly our overall 605 market share has gone up.

So we’re performing better and the response from our clients and counter parties on the 605 retail segment has been very positive, but certainly when shares per dart are going down in the overall share count is significantly lower there’s just less market making opportunity from our retail segment. And as I said in my prepared remarks and you very well know from having followed legacy KCG, the retail segment is an important and large part of what we do, and so peeling back the earning of our results and looking at our prop America is it market making and then the rest of our prop market making businesses, this was really the place where we saw the most significant decline and it’s really the biggest component if you will of the decline of our adjusted net trading income from fourth quarter to second quarter.

First quarter obviously we had a lot more volume involved till (inaudible) place so it’s a little bit of an unfair comparison.

Got it. It’s very helpful Doug.

My one follow-up would be on the expenses that you’ve done a fantastic job at. If you look at Joe the midpoint of the expense guidance or excuse the synergies, it’s up about 9% in fiscal ’19.

So I’m just trying to understand, I see on slide 6 you have given now the different line items where ranges of expected expenses, but could you just tell me, I don’t think that was provided before by line items. Like where are the big reductions coming from and it just amazed me given KCGs’, they used to have a 40% comp ratio.

So is it mostly in comp or where are these incremental synergies coming from?

Thanks Rich. You look at page 6, the format here is pretty much the same as the previous guidance where we’ve bucketed occupancy, overhead and comp and then broken out technology and D&A.

What I’ll tell you is that the employee compensation line is obviously a big driver there. When you were right to point out the 17.8% comp ratio, it was 17.5 in the first quarter, 18.3 in the second and if you look at Virtu’s result in 2015, 2016 full year, we were right in that zip code.

So we’ve been able to do that. I know legacy KCG had a comp ratio in the 40s, frankly it’s not a lot of magic, it’s a bigger revenue base with fewer people, and that’s how we’ve gotten there.

So there is also – but I said in my remarks that it’s not only compensation, the communications, data processing line is well. I think that individual line item will be, when you look at the contribution to the total synergy amount it’s going to be in the $50 million to $60 million when you look at the combined companies prior to the merger and overhead as well.

You have less people, you have less overhead, you have less market data spend, you have less occupancy expense. So it’s kind of feeds off of each other.

And depreciation as well, again we tend to focus on cash, but when you’ve got a global footprint that’s meaningfully reduced in terms of office space and everything else, you write off a lot of the stuff that was capitalized previously and written off of a long periods of time. So it is really across the board contribution.

Maybe staying on the same topic, you take a step back daily average realized vol from Q4 to 2Q I think is still more than doubled, so clearly feels like the retail participation and the sensitivity in your model to that is far greater than I think people appreciate it. So A, can you help us understand how much retail revenue have contributed to second quarter results and then from a historical perspective, when you look back, was Q4 daily trading revenues abnormally high or is 2Q abnormally low, just to kind of help us right size what the revenue run rate for the firm could be from here.

It’s a good question. Each of our quarters presents a range of outcomes and like unique opportunities, I guess it’s the right way to describe it.

The retail segment of what we do is a significant portion of our overall American equity segment, which is since we separately disclosed that is a significant part of our overall business, and so there is sensitivity to that. I would say that the fourth quarter Alex, we performed very, very well in the retail segment and our prop business particularly in the rest of the world equities and particularly in Asia and Japan performed exceptionally well.

In the second quarter and that’s why I tried to make reference to this in my prepared remarks and your comment on realized volatility is a good one, I mean there was still significantly less volatility. Our prop market making business and if we were reported just as legacy Virtu, I think would have seen a nice, steady pattern of NTI.

Our prop market making business actually in many parts of the business was up. And I pointed out currencies and in our prop US market making business we had a better quarter in the second quarter than we did in the fourth quarter.

However, and again, we’ve studied this, we’ve looked at where the retail flows come. We’ve looked at our market share, obviously we track this hour-by-hour and day-by-day here.

We really do think it was this significant decline in retail participation. And the best way that we can present that to you guy is trying to peel back the onion of the darts if you will and say okay, if you look at darts overall they maybe at some brokers, down at some other brokers.

But if you look at actually share count which is what we depend on, right because a dart can mean many different things. When you look at actual share count, that’s coming through the door an average trade size that declined significantly as evidenced by what IBKR put out.

So, I think we performed very well against the opportunity in the fourth quarter. I think the second quarter was disappointing to me because obviously we would have liked to have performed better.

I’m not trying to pass the entire buck and say, well it’s only because retail participations went down. I think we saw a growth in our prop ETF business we did better in Canada and Latin America in the second quarter as opposed to the fourth quarter.

So there’s a lot of very nice things that we can take out of the second quarter and so I think in terms of trying to model what the firm looks like going forward, I guess the second quarter and the fourth quarter are a little bit to bid ask if you will of what the quarters are going to look like. And clearly you guys should be focusing on trying to peel back the onion as we do in terms of the retail share count that we get here every day.

And then my follow-up also I guess along the revenue lines. So from here, you know you guys have been as a combine company for several quarters now.

What do you see as the best revenue growth opportunity for you guys on an organic basis over the next 12 to 24 months right? So assuming the environment remains kind of at a 2Qish kind of level, so realized valve not crazy but still pretty decent and the retail let’s say is kind of it is what it is, so where is the growth that you expect to come from?

It’s a couple of segments. I mean here in the US market share in the retail we’re very focused on.

So our 605 market share is up about 4.5% since January. So we’re pretty proud of that, and obviously we work with our customers every day to continue to grow that.

I like our ETF business domestically and in Europe a lot. I think you’ve seen the shift from active to passive.

We’ve been very good about building a what I’d call a hybrid business here which is fully technologically automated but had the relationship so we can do blocks, we can compete in RFQ etcetera. Third, I think the thing that I talked about in the call, and maybe I didn’t do a great job is really – the buzz word is internalization.

This firm is uniquely positioned because we’ve got hundreds of institutional customers that rely and trust us, we’ve got hundreds of retail clients and we’ve got a fabulous first rate prop market making business. There’s not another firm that has that ability to integrate and internalize all of that.

Save money by not riding orders out to the street and also provide revenue opportunities to us by interacting with different types of flow. So if you got an institutional customer that’s going to pay you a commission and provide price approval against a retail customer life’s real good because de-risking and reducing our capital and we’re increasing our commission base, so that’s exciting.

I think the fourth area that I continue to be very excited about is our [FIC] business. We don’t separately report it, but our FX business improved pretty significantly in the second quarter, which I’m excited about and continues to see the growth of counter parties.

I think volatilities return to the FX business which is good, and I’m the believer in the fixed income business as well in terms of streaming quotes. We began quoting for the first time on the Eris exchange interest rate swaps, but I think there’s a lot of growth opportunities there.

And then the last thing I would say is, I haven’t talked about Europe yet, but launched our SI offering and it’s really beginning to get traction in Europe. The overall non-bank SI market is only around like 2% to 3% right now.

So I think there’s significant amount of growth there, and that really plays in to the Virtu strength of having like a [BMR] platform if you will, where we can provide large size to customers and unique liquidity and kind of have a bilateral relationships. So those are like kind of Virtu one-on-one characteristics for our market place.

So those are the four or five areas that we continue to focus on organically.

I guess just to follow-up again, looking at slides 12 through 14 in terms of the market metrics. If we think about the legacy Virtu business, you mentioned it would have performed well standalone.

Is there any part to that or other segments outside of retail that you’d point to as a headwind versus just retail participation?

Europe has been a challenge, one, because the volatility has been declining there, and two, the market structure change has taken time to soak in. So what I mean by that, you know on the method two you know very well, broker crossing networks eliminated that was a big part at what we were doing and then there’s the double cap on dart pools.

You’ve seen periodic options and more of a [spoke] block type of platforms increased their market share. So certainly from fourth quarter to first quarter and to now the second quarter we’ve seen a decline in our European equities segment which is an important part of what we do.

However, as I mentioned in response to Alex’s question, the SI regime in Europe is new, it’s growing in acceptance, we’re going to be a major player in it, and so I think medium to longer term Dan, I’m comfortable with that part of the business. And we continue to be profitable there, and we’re making money there every day.

But I think that’s a segment that can grow. But it’s been an unfortunate regulatorily induced headwind by changing the market structure over there, and that’s the one area that I would point to because it’s been a little bit of a disappointment in 2018.

Got it. And just thinking about what’s been happening here thus far in the third quarter.

You mentioned the 2Q sequential change in terms of the slow down kind of throughout the quarter or really I think you said starting like mid-quarter. I guess any kind of color on July, it seems from some of the published volumes we can see its pretty quiet, but any color there would be helpful.

The published volumes I think kind of tell the story. IBKR, I would say has been published in July, and the since the months’ not over, but the regular volumes haven’t really changed much from the second part of the second quarter.

It’s still early obviously in the quarter, 4th of July etcetera, etcetera. And we’ve had – I always remember August of 2015 when I thought it was going to be a slow quarter and all of a sudden we had the August 24 event and legacy Virtu had problems with best quarters in its history.

I am optimistic guy by nature, but nothing in the share count and the volumes you’ve seen would give an indication that it’s going to be materially different from the second quarter. But again it’s very early.

Just wanted to follow-up on that comment to Dan’s question from Alex’s earlier - the other Alex. When you responded to Alex you said, like the bid ask is now 2Q and 4Q.

To me that sounds, you think that 2Q is really a low point in what we would expect on four, but then in your answer just now to Dan, it basically sounded like we’re tracking more like the second half of the 2Q. So when you look at the 3Q or 4, it sounds to me like bid ask me the right way to characterize and we could actually be running at a lower rate.

So just want to make sure that we think about this correctly and see what the confidence level is that 2Q is really kind of like the low point of what we should be expecting going forward?

I mean we are one month in to the third quarter, and we don’t break out the months. But I think what we said in our prepared remarks was that the second quarter began with some pretty good tailwinds from the first quarter and then deteriorated rapidly.

So the first few weeks here of the third quarter, you can see the published volumes, but again I don’t want to get too precise around what is the low or what is the high, where are benchmarks. I think we’re performing against the opportunities that’s out there.

So I thought I want to get in to kind --.

Well the only other color I would add in May in particular, like the second part of May was particularly a trough if you will. So that’s why Alex I made the comment and I said before.

And I think the other point is, we don’t just sit here without the ability to grow organically, right, so we’re getting better every day. The firm is a lot better than today than it was two to three months ago in terms of integration and in terms of rolling out some of the KCG strategies in to Virtu line and making the Virtu strategies more quantic, you know quant like if you will and improving.

Every day we’re enabling customers on the institutional side that want to interact with our retail clients. Every day customers in all over Europe are getting introduced to Virtu SI liquidity, and so these products and the way that we’re interacting are just getting stickier with the buy side and having more acceptance.

There’s a long sales cycle to having institutional customers say, I’m going to expose my order if you will to prop liquidity, but its happening. So even as volatility stayed kind of where it is, my confidence level is always high that this firm will continue to grow and continue to do better.

Our ETF debt here in New York I’ve seen significant improvements from what it’s doing as it’s become technologically enable. So all thesis if you will of the KCG Virtu transaction are bearing fruit in meaningful ways.

I know it’s a challenge for you guys to try to peel back the onion, and I know that can be frustrating. But at the end of the day, the firm continues to get better every day as we integrate.

And look I think we’re very proud of the way as Joe indicated that we’ve reduced the footprint and scaled the firm and have it impacted at all revenues. I would argue actually revenues have gone up.

So that’s really the model. So long term, the firm is really very well positioned for sustained growth.

And again, and I’ve said this every time I’ve spoken to people over the last three years since we’ve gone public, we’ve built this firm for a feast which is the first quarter and if you will for a famine which is quarters that look like the second quarter. We’ve been through this cycle before, but long term, this is a very sustainable firm that’s throws up a lot of cash and has significant business leverage and it will continue to be an important part of the financial ecosystem.

And yes I think that’s helpful color, I just wanted to make sure that you’re not setting yourself up for further disappointment, if you call this 2Q a low point, right. So in terms of my other question, may be more on the number side or the outlook for Joe’s part of the business.

Can you just run through, I think you mentioned some of this in your prepared remarks kind of I think the forward look in terms of balance sheet, buybacks etcetera. So, you said something about you’re comfortable with the current leverage range.

But should we assume you’re going to pay off more debt like what’s the pace and also in terms of buybacks, any updated thoughts here.

Look we’ve now got about $1 billion of long term debt remaining. I think when we announced the merger we promised 440 million of capital returned.

I think if you back out the BondPoint proceeds, I think we are 40 million away from that target. And I think that target 18 months and we’re well ahead of that.

So we’ll at least achieve that target in terms of debt repayment. And again even when we print a quarter like this, we’re still printing a 120ish million, we’re still printing a significant amounts of EBITDA.

So I think that we will very comfortably be in the two times debt-to-EBITDA metric win. So I think we’re very comfortable with that.

So then as Doug said, we still have excess capital and we still generate excess capital off of that. I think we’ve used the initial share repurchase authorization to go out and repurchase 40 million share.

We’ll be opportunistic about $40 million worth of shares, 1.4 million shares. We’ll be opportunistic about it going forward and use excess capital to continue to repurchase shares.

So that will sterilize the share creep from stock grants and also to the extent we generate excess capital that wasn’t beyond that, we’ll decide what to do with it. I think we got a bias towards share repurchases, but we’ll evaluate that with the Board and determine what the best use to capital is.

So I think from a capitalization standpoint, we are very comfortable where we are. We’ve kept the promises around the excess capital that we determine was in the business and think that even in a [quota] like this we’re generating more than enough to cover our dividend and run the business and accumulate excess cap.

Just to add to that, I think this is an important point that I wanted to make which is, when we acquired KCG we were very adamant that we’re levelling up and we’re going to be very disciplined about paying back and going to get the integration synergies etcetera. And so we’ve done the lion share of that, we’ve repaid frankly almost all of the indebtedness that we used to purchase the equity and so we’re comfortable with sort of the level of debt that we have right now.

We will probably repay a little bit more as Joe indicated. But it gives us that capacity Alex to go out there and do something else.

And I’ve said many times that I think this is an industry that is right for consolidation. We’ve no plans and arrangements right now, but it’s an industry that is right for consolidation.

You’ve seen the power of using leverage and using Virtu’s technology more importantly to generate the synergies and to create real value. We’re moving 44% to the combined expense phase, that doesn’t happen unless you have a really scalable multi-asset class, multi-currency technology that can handle all of this flow.

So we’re very excited to continue to explore those opportunities, and I think that’s – we’ve talked a lot about organic growth and that’s an important element of what this firm is going to be like over the next two, three, five years as we continue to consolidate and this market place just gets --. It’s just calling out for more scale and efficiency in the services that we’re providing.

You guys are highlighting IBKR as sort of indication of retail participation. Is there something about IBKR that makes you the better gauge of activity than firms like Ameritrade or E-trade or is it six of one and half a dozen of the other or they are sort of interchangeable.

Well I would never say my clients are interchangeable Ken, because they are all very, very important to me and the firm you highlighted, TD Ameritrade is one of our most important firms. The only reason we’ve highlighted IBKR is again, just so I’m very, very clear is they all published darts.

Our view is that you need to like peel back the onion of the dart and say okay, well what does that mean relative to shares. Like you can’t darts, you actually eat the shares that come through here and that’s how you make profit.

So in terms looking at the number of shares that are actually flowing through the retail brokers, two firms like Virtu, that’s why we point out IBKR because they’re the only firm that we’re aware of that provides retail share count, and so we point that out to you guys as a very interesting prophecy. I’d be more than happy if someone else could show me some of the other public companies that have retail share count.

We certainly would provide that to the universe, because we think that’s a really important indicator of how we’re performing quarter-to-quarter.

Just Doug wondering if you could give us an update around – thoughts on the regulatory environment, particularly in the US and maybe specifically on the excess [street pilot] may be just what you’re hearing from customers or other market participants and just based on feedback?

Good question. So obviously we’ve been very involved, we’ve submitted a comment letter all that kind of stuff, there’s been 60 to 70 different comment letters including one from a 10 grader that I read which was kind of interesting.

There’s been a lot of noise and spaghetti throwing between the various exchanges IEX and New York which we’ve kind of sat back and chuckled about. I think at the end of the day, the thing that is people are exhibiting and the lion share of the letters are in support and the exchanges are obviously opposed to.

It is that people are very frustrated with the exchanges and very frustrated with the expense if you will of executing on exchange. Exchange is providing a very significant service in terms of price discovery and all that, but at the end of the day people just want more efficiency and want to be able to execute in a manner in which they are very comfortable with, which is why a firm like Virtu, just to shift it again to Virtu, why we think we’re such an important player in the ecosystem because we can integrate all the institutional retail across in to one bucket and internalize flow in that manner.

So I think ultimately at the end of the day the lion share of the commentators and we were supportive of this, look at the access fees that are being charged and say, we should try something different. I think the most important thing and we’ve said this in the letter is that people are conflicting the issue.

When people talk about rebates and they talk about brokerage getting paid rebates for routing a customer as opposed to a rebate being paid to a market maker it is diametrically different issues. And this part of the real problem I have with the IEX story, which is they conflate the issue, I think they do it almost intentionally, right.

The broker is not routing your order to a market center that you think is in your best interest because the broker is routing at the cost of a fee rebate, than you have an issue with your broker and your broker shouldn’t do that. If you’re incentivizing a liquidity provider to provide liquidity that’s a commercial relationship between an exchange or AKS or a market center and a market maker and that’s perfectly valid and doesn’t distort, in fact I would argue it narrow spreads and enhances liquidity.

But they are two separate issues, and we are very supportive enhance 606 disclosures, make brokers tell you we’re routed. In fact we do that voluntarily.

If you look at our 606 reports, we say where we send orders and why we send them and I think that has really resonated with the buy side. So this whole debate Ben has been really good for Virtu because I think it has peeled back some of the [obligation], I’ll use that word from this whole flash boy- IEX nonsense around conflicts and HFT and rebates.

It’s really two separate complete issues. Now that we’re in both businesses, we see it very clearly and I think the SEC completely gets that.

Appreciate the perspective on how retail shakeout volume is big part of your business and all the color there needs some puts and takes. Just want to step back a little bit and just big picture, how do you think about the long term revenue outlook.

I think saw your stat that the number of publicly listed companies have declined almost 50% over the last 20% and public companies continue to buy back their shares and it looks like that trend’s going to continue with the growth of private markets. So what in your view can you do to offset those headwinds and maybe just a reminder sort of like the main revenue opportunities there?

Sure, that’s a good question. The biggest issue frankly has been the fall if you will in large price stocks.

If you think back to 2008 when Citibank was a $2 stock there was a lot more volume in the market, right, because a lot more trading. And when Amazon and Priceline and all these other high client stocks don’t do stock splits and you’ll hear the same story from the exchanges than the share count goes down.

So I don’t think it’s a question of like lack of IPOs and lack of interest because a small cap stock really isn’t going to move the dial. It’s really these bohemians in the S&P 500 that have three digit pricing and in many cases four digit prices which is just pretty extraordinary, right.

So they’re just trading a lot less shares. You only had the Berkshire Hathaway that was kind of out there as an outlier, but 10 years ago price line was, I’ll make this up a $20 stock and now it’s a $2000 stock, right.

So that has really led to a decline in share count. So the most important thing every listed company can do and the exchange all being fair, this is due a very large stock split.

They say they’ll make the stocks trade more and in my view actually it narrows the spread and enable stocks to trade more efficiently. I think high priced stocks trade a lot clunkier because there’s a lot more risk that you have to put on the bid and the offer.

So we always have their profitable pricing on that point and working hand in hand with the exchanges to encourage companies to reduce the notional price of the stock, we think that’s very important. So long term, I don’t view that as a headwind.

The other thing obviously that’s been talked about umpteen times, as you know every day in the United States three new ETS pop up. So that has increased volume and share count as well which is generally a positive because we are in that business as well.

Thank you every body for your attention and your interest in Virtu. We continue to be excited about integrating Virtu and the many growth opportunities.

We wish everybody a very safe and healthy remainder of the summer and we look forward to talking to you in the fall. Thank you.