Virtu Financial - Earnings Call - Q4 2020

Transcript

Operator (participant)

Good day and welcome to the Virtu Financial 2020 Fourth Quarter Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star and one. Please note that this event is being recorded. I would now like to turn the conference over to Deborah Belevan, Head of Investor Relations. Please go ahead.

Deborah Belevan (SVP Investor Relations and Communications)

Thank you, Operator, and good morning, everyone. Thanks for joining us. Our fourth quarter and full year results were released this morning and are available on our website. On this morning's call, we'll have Mr. Douglas Cifu, our CEO, Mr. Joe Molluso, our Co-President and Chief Operating Officer, and Sean Galvin, our Chief Financial Officer. They'll begin with some prepared remarks, and then we'll take your questions. After just a few reminders, today's call may include forward-looking statements which represent Virtu's current belief regarding future events and therefore subject to risk, assumptions, and uncertainties which may be outside the company's control. Please note that our actual results and financial condition may differ materially from what's indicated in these forward-looking statements.

It's 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 the 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, we'll refer to both GAAP and non-GAAP results. In addition to GAAP results, we may refer to certain non-GAAP measures, including Adjusted Net Trading Income, Adjusted Net Income, Adjusted EBITDA, and Adjusted EBITDA margins. Non-GAAP measures should be considered as a supplement to and not as superior to financial measures prepared in accordance with GAAP.

We direct listeners to consult the investor portion of our website where you'll find supplemental information referred to on this call, as well as reconciliations of non-GAAP measures to the equivalent GAAP in terms of earnings materials, with an explanation of why we deem this information to be meaningful, as well as how management uses these measures. And with that, I'd like to turn the call over to Doug.

Douglas Cifu (CEO)

Thank you, Debbie. Good morning, everyone, and thanks for joining us to review our fourth quarter and full year results. I'll begin today's discussion by touching upon the highlights of our performance, as well as some commentary on the recent market activity, and then Joe and Sean will provide more color on our detailed results and outlook. We'll keep our comments brief so we have plenty of time for Q&A. The fourth quarter capped an extraordinary year for Virtu. We successfully navigated the volatile markets created by the global pandemic, delivering record results for our shareholders, remaining ready to service our global client base, and taking care of our approximately 1,000 employees. I'm incredibly proud of our entire team that continues to step up and deliver amidst unprecedented market conditions. For the full year, we achieved record revenues and profitability.

Our full year normalized adjusted earnings per share totaled $5.76, and our adjusted net trading income came in at $2.3 billion, or $9 million per day. I'm particularly proud that we maintained our discipline around costs, even in a year where we paused some merger-related cost reduction efforts, and we were able to achieve an impressive 73% adjusted EBITDA margin. We used our substantial cash flow this year to reduce our long-term debt by $289 million and initiated a share repurchase program. I am pleased to announce that the $100 million share repurchase program that our board approved last quarter has been increased to $170 million, of which we have already executed $15 million. This is in line with our comments last quarter that we were going to direct excess cash flow to return capital to shareholders in the form of buybacks.

Going forward, we expect to continue this trend, balancing debt reduction, share buybacks, and reinvestment in our business. We've successfully executed against the opportunities presented in the fourth quarter as we outperformed the prior quarter, as well as the overall market environment, realizing $456 million in adjusted net trading income, or $7.1 million per day, and $1.18 in normalized adjusted EPS. For the fourth quarter and full year, both our market-making and Execution Services segments delivered solid performance. Starting with market-making, our customer wholesale and non-customer businesses performed exceedingly well in Q4 and in 2020. Our continuous enhancements to our trading strategies, technology, and asset class expansion delivered substantial returns by improving our yield on the opportunities presented this quarter, which included better-than-average volumes and levels of volatility that remained persistently elevated relative to prior years.

On the customer side, in 2020, we executed over 1.27 billion orders for our wholesale customers, which included providing approximately $1.3 billion in price improvement to retail investors. We provide wholesale market-making services to retail investors across over 200 platforms, ranging from retail and private client businesses of banks and global financial institutions to online retail firms, which provide immediate execution at or better than the National Best Bid and Offer in over 8,000 listed securities in the United States. In addition, our non-customer market-making business delivered stellar results in 2020. We saw strong performance in a number of categories in the fourth quarter, in particular around our new options desk and the ETF block business, more on that later, as well as our European and APAC equities businesses.

2020 also marked the first full year of operations for our expanded Virtu Execution Services, or VES, business following the merger with ITG. I'm pleased to report that the fourth quarter saw record results for our VES segment with $135 million in adjusted net trading income. We saw strong growth across all regions, delivering a 29% increase in adjusted net trading income versus Q3. This business, led by Steve Cavoli, really hit its stride in the fourth quarter. As we expected when we acquired ITG, marrying Virtu's technological capabilities with ITG's strong suite of workflow, analytics, and brokerage service products has led to increased client engagement across the board. In addition, VES provides a stabilizing force, reducing overall quarter-to-quarter variability in our results.

As we grow this business and prioritize cross-selling to existing clients, it's important to note that today, over one-third of our clients utilize multiple products or are engaged in multiple regions, which drives more value for these clients and a relatively steadier revenue base for us. The impressive results of our VES business aren't immediately apparent in a year where our market-making results are so substantial, but the VES business is a steady revenue stream that balances our naturally more volatile market-making business. With 2020 in the rearview, 2021 is off to an impressive start. Based on preliminary results, our quarter-to-date 2021 performance remains robust and comparable to the record daily average we achieved in 2020. Finally, touching on the markets in the beginning of the year, total U.S. equity volume in January averaged 15.7 billion shares. Notional volume was 621 billion per day.

We continue to be there for our clients and provided $134 million in price improvement in January alone. Naturally, we don't expect this level of activity to persist throughout the entire year, but we are encouraged so far by the start of the year. Now, I will turn the call over to Joe, who will review some of our growth initiatives and progress versus our strategic plan. Joe?

Joseph Molluso (Co-President and COO)

All right. Thanks, Doug. I'll review some of our growth initiatives as well as a recap of our strategic overview that we presented with the third quarter results back in November. If you look at slide seven in the supplemental materials, you'll see that in 2020, we realized $166 million, or 7% of adjusted net trading income from these initiatives. While results in these businesses will be volatile, it's important to note that these businesses did not exist a few years ago. We made substantial progress this year in options, and we will be continuing to expand our symbol and venue coverage and the scope of our business in 2021, having spent 2020 building out our core options infrastructure. Our ETF block business has also been a success story.

We have expanded our customer-facing presence, resulting in meaningful growth in net revenues, as well as providing us additional opportunities to grow into corporate bonds as a market maker. It's an effort already underway and one that we expect to contribute to revenues in 2021. Importantly, our Virtu Capital Markets business is an example of how we leverage the capabilities of our VES business to offer execution services to a new segment of the market and grow revenues. In late 2019, we identified an opportunity to execute at-the-market offerings by hiring a small group experienced in this area. Together with the execution and routing capabilities of VES, this business bore fruit for us in 2020, and we expect it to continue to do so in 2021. Discussing further our strategic plan that we outlined in detail in the quarter, I wanted to point out slide 12 in the supplemental materials.

We outlined a specific operating expense plan as well as a grid that noted the potential levels of free cash Virtu would be able to devote to share repurchases at various levels of performance. This plan was meant to convey several things. First, to be specific about cost guidance as we head into 2021, when we expect to conclude the integrations of the large acquisitions we have undertaken. Second, to make clear that after the substantial deleveraging in 2020, our current overall debt levels represent a permanent capital structure regardless of the overall environment. And third, to be specific about a plan that, through various market environments, should result in our ability to generate substantial free cash flow devoted to returning to shareholders.

Consistent with this plan and assessing where we are as we approach the midpoint of the first quarter, we are able to increase our share buyback plan by an additional $70 million. Now, I will turn the call over to our CFO, Sean Galvin, who will provide further detail on our results.

Sean Galvin (CFO)

Thank you, Joe. In the fourth quarter, adjusted net trading income, which represents our trading gains net of direct trading expenses, totaled $456 million, or $7.1 million per day, which is 75% higher than the year-ago quarter. Market-making adjusted net trading income was $321 million, or $5 million per day, 109% higher than the year-ago quarter. Execution services adjusted net trading income was $135 million, or $2.1 million per day, a 26% decrease year-over-year. The full year, adjusted net trading income totaled $2.27 billion, or $9 million per day, 131% higher than 2019. Market-making adjusted net trading income was $1.18 billion, or $7 million per day, 192% higher than the prior year. Execution services adjusted net trading income was $489 million, or $1.9 million per day, a 31% increase over 2019.

Turning to expenses for the full year, our cash and overall compensation ratios were 14.1% and 16.7% of adjusted net trading income, respectively, which are in line with our prior guidance. Adjusted EBITDA came in at $344 million for Q4, 200% higher than the prior year quarter, and $1.65 billion for the full year, 282% higher than 2019. We delivered an adjusted EBITDA margin of 75.4% for the fourth quarter by continuing to successfully leverage our efficient cost structure. As Doug mentioned, we have been diligent in paying down our debt, making $388 million in prepayments since the ITG acquisition in 2019, and have reduced our debt to $1.67 billion. Financing interest expense has decreased by $24 million, to $68 million for 2020, compared to $92 million for 2019.

We remain committed to our $0.24 quarterly dividend, which we have consistently paid over 22 quarters in every environment since our IPO, and our just-announced $70 million increase to our existing $100 million share buyback authorization fully demonstrates our continued commitment to return capital to shareholders. I will now turn the call back over to the operators for Q&A.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press * then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. At this time, we'll pause momentarily to assemble the roster. The first question today will come from Rich Repetto with Piper Sandler. Please go ahead.

Rich Repetto (Analyst)

Yeah. Good morning, Doug, and Joe, and Sean. First, congrats on the super quarter here. I guess the first question, Doug, is the question that all the investors are asking. If you look at the last two quarters, 4Q and 3Q, and you look at the market metrics, the volatility and volumes, and this is all on slide five, that they look very similar. But when you look at the results and the NTIs were up 25% quarter over quarter, and I get execution services, and Steve did a great job, but they showed significant improvement. And your earnings, the leverage was up. Your earnings were up 45% quarter to quarter. So how do you explain to investors the differences in the outperformance? What really worked, I guess, in 4Q versus 3Q?

Douglas Cifu (CEO)

Yeah. Yeah. Thanks, Rich. It's a good question. I mean, I think, look, I mean, clearly, the environment continued to be attractive in the fourth quarter. You're right. The third quarter compared to the fourth quarter, there are some differences. If you look at the Interactive Brokers' retail engagement, for example, in Q4 as compared to 3Q, which is the only public metric available with respect to how retail is engaging the marketplace, you'll see an increase. And you can also measure TRF volumes relative to exchange volumes. And so certainly, you see some positive trends there. As well, we continue to improve and get qualitatively better. I mean, it's hard, obviously, to measure and separate out sometimes the alpha from the beta, if you will. And we tried to do that with some of the growth initiatives and whatnot.

But within the existing "legacy" businesses, there have been, as I said in my prepared remarks, we continue to invest in technology and in strategies and whatnot. This is an organic business that you have to always be investing in and getting better. So I just think the firm qualitatively has improved significantly in 2020. And you saw that certainly in the fourth quarter. And you mentioned it, but it's worth that I mentioned it in my prepared remarks. I was really, really happy with the performance of the execution services segment in this quarter. I mean, there's been a lot written about the combination with ITG. Was it going to work? Will clients react to an HFT firm merging with an institutional business? And the marketplace has resoundingly said yes.

The unique nature of this firm where we can marry a market maker that has both technology but also access to a significant Central Risk Book, right, and make that available in a fully disclosed, efficient manner to our institutional clients is unique. Clients understand the story. More importantly, they see it in their performance. We now have hundreds of institutional investors that are utilizing Virtu both as an agency broker but also as a place to source meaningful liquidity that might not otherwise be as robust and as available as they could find in other places. That story and that performance really is resonating with our clients.

Rich Repetto (Analyst)

Got it. Thanks. I got one follow-up. There's been a lot of attention and speculation on payment for order flow from the media and from, etc., from lawmakers. But if you had—and you sort of got into this a bit in the prepared remarks—but if you had to explain payment for order flow to, say, someone who's not as familiar with it, what points would you stress and really want them, I guess, to understand? And do you think there's any potential changes to payment for order flow coming?

Douglas Cifu (CEO)

Yeah. No, it's a great question. Obviously, it's front of mind, and we've tried very much to be front-footed in talking to clients and regulators and lawmakers about this over the years and indeed more recently. I think the issue is really there's a misunderstanding with regard to what the term payment for order flow means, and people use it synonymously with wholesale market making, and frankly, that's a mistake, which leads to confusion and misinformation. Wholesaling, by its nature, is a business, which we and a bunch of other firms are engaged in, where we are providing immediate execution on over 8,000 Reg NMS listed securities, as well as meaningful price and size improvements to every marketable order that comes in. So retail flow comes in, and by its nature, it's a little more balanced.

Because of our ability to offer price improvement that is better than the National Best Bid and Offer, retail investors are benefited from us providing that service to the tune, from a Virtu perspective, of about $1.3 billion. We estimate, as an industry, in 2020, that Virtu, Citadel, Susquehanna, Two Sigma, and the other firms, UBS, that provide this wholesaling service, provided $3.6 billion of price improvement. Nothing to do with payment for order flow, but literal price improvement off of the National Best Bid and Offer. If you are a retail investor, you're able today to pay no commission, send an order of up to 9,999 shares, right, and receive either the NBBO or, in many instances, better than the NBBO on that entire order.

There are a lot of institutional clients that are maybe listening that I've talked to that would happily take that deal, right? They're sending similarly sized orders in similar names, and they're paying us a commission, and they'd be thrilled if we get the touch, right? So retail investors, if you just take a step back at the ecosystem and what we and our competitors have developed in partnership with the over 200-odd trading platforms, etc., it's an unbelievable ecosystem that we all should be very proud of. And regulators and policymakers and folks that study the market that look at that say, and really look at the data, right, and avoid the histrionics, if you will, look at that and say, "Well, that's a great system," right? Like, really, who is not benefiting from that system? And we're putting risk capital up to provide that service.

We get paid through internalizing, if you will, and realizing the bid-offer spread as best we can. Some days, we don't make any money in that business, right, because flow can be sharp and unidirectional and whatnot. On balance, we do. We've been at that business for over 20 years and invested billions of dollars in technology to make that work. Now, some retail brokers charge the wholesale market makers a fee. That's called payment for order flow, right, for executing the order flow. As I've said before, there's about a dozen or so firms that do that of the 200 retail brokers, platforms, etc., that we connect to. As a general matter, we're agnostic, Rich, as to whether or not a broker charges that or not.

We look at that as really the same as any other fee, right, or charge that we're going to have from connecting to any other kind of exchange, financial intermediary, bank broker. We're connected to hundreds of venues and banks and brokers around the world. And a lot of times, we're paying for order flow, right? In this instance, it's with a handful of retail brokers. The important statistic is that we provided, excuse me, over three and a half times, three and a half times price improvement, if you will, to PFOF, right? So the vast preponderance of what we're doing as a service in the industry is providing price improvement. And then finally, all of the retail brokers that require payment for order flow do it at a standardized rate.

And so really, the competition between us and our competitive wholesalers is 100% based on what level of execution quality or price improvement can we provide back to their end users, right? So in terms of the ecosystem and who's ultimately benefiting, it really is the retail investor.

Rich Repetto (Analyst)

Got it. Thanks for the explanation, Doug, and congrats on the great quarter.

Douglas Cifu (CEO)

Thank you very much.

Operator (participant)

The next question will come from Dan Fannon with Jefferies. Please go ahead.

Dan Fannon (Analyst)

Thanks. Good morning. So I wanted to tease out a bit more of the strength of the fourth quarter and what we've seen to start the year. Obviously, overall, as we look at that slide, it didn't change much, but retail participation is up. And then you have the trading of kind of single or low-priced stocks and SPACs that are becoming a much larger part of the market. So could you talk to some of these other factors and maybe isolate some of the more specific things that are really incrementally different in this market?

Douglas Cifu (CEO)

Yeah. Yeah. Great question, Rich, to ask. Yeah. As I mentioned, and you just alluded to, obviously, when you have U.S. equity volumes that are 12 billion, I think yesterday was close to 15 billion, right? That's just an enormous flow that's coming through our system. And it's not just in U.S. equities. And you'll see it in Canada and in Asia, right, where there's just enormous engagement in the marketplace. And so all of that kind of, it's not just from our retail partners that we're experiencing all of this incremental flow and incremental engagement. I think it's really part and parcel of, certainly, the United States, the Fed policy around zero rates and the stimulus in the economy. And you see that globally where folks are really engaged. And when you have zero interest rates, the equities market becomes a place where there's more trading and more interest.

And so that just is, candidly, a great environment for a market maker to be participating in. And so it's not just the legacy Knight wholesaling business that's experiencing this. The legacy Virtu and the old Getco businesses, which candidly have nothing to do with retail workflow, are off to fantastic starts in 2021 as well. And all of that leads to the result you see. Again, I'll emphasize it. I just mentioned the answer to Rich's question, but our execution services business is off to a better start of 2021, significantly better than what it did in the fourth quarter. And the fourth quarter, I thought, was fantastic. It was up 29% from the third quarter. So it's not just one thing, but we are certainly clicking on all cylinders here. And I'm very, very optimistic that that's going to continue for the remainder of 2021.

Dan Fannon (Analyst)

Great, and then just as a follow-up on options, market making, and you talked about 2020 being kind of laying the groundwork and the infrastructure and now increasing symbols in the rollout this year, so it's a contributor in terms of net positive, in terms of the revenue and ANTI in 2020. So I guess what number, in terms of the market and what you're participating in today versus what you think you can be in terms of activity levels or just the broader securities that you can actually trade as you think about 2021, how should we think about that rollout?

Douglas Cifu (CEO)

Yeah. Yeah. It's a great question. I mean, we are very, very early innings in that business, right? I mean, we, frankly, did not really even have a business in 2019. So I'm very proud of the strides that we made in 2020. I've said numerous times on these calls, it required an entire infrastructure build, right? It's a very, very different DNA to be a market maker in options than it is in cash equities, not from an understanding of the marketplace perspective, but just simply from the vast nature of the symbology and the quotes that you're going to have, right? It's a quote-level business as opposed to an order-level business, right? So it's very, very different. So we're kind of building the car, if you will, as it's going down the road and at the same time making money in typical kind of Virtu fashion.

I'm very impressed and happy with the results that we had thus far. We have barely scratched the surface. We are focusing, as you would imagine, in the high-value targets, obviously, the index products, right, which trade significant volume. There are a thousand or so individual names in the U.S. that have options. We are trading but a handful of those right now. We are in the process of scaling that business. To use a baseball analogy, which everyone likes to, we're in the dugout. We have our cleats on. Maybe we're in the on-deck circle. We've swung a little bit, and we're just getting up to bat. There's a lot of room here. There's a number of firms that are great entrenched incumbent providers of liquidity. We don't have any aspirations to be number one anytime soon.

But certainly, we can be in the mix, and we're beginning to see positive results in a true kind of Virtu fashion. So it's a very profitable business, but it's one that we continue to invest in, and we're excited about the growth prospects for it.

Dan Fannon (Analyst)

Thank you for your response.

Douglas Cifu (CEO)

Yep. Thanks.

Operator (participant)

Our next question will come from Ken Worthington with JPMorgan. Please go ahead.

Ken Worthington (Analyst)

Hi. Good morning. You highlighted a $2 base earnings run rate, and it wasn't that long ago when we were seeing sort of $1 of earnings. So can you talk about what's giving you comfort that that $2 run rate is really the right number? And I'm sure it's a combination of new business, greater efficiency, and maybe some other things that have changed in terms of mix. But bring those together to help us get the confidence that the $2 number is the right number.

Douglas Cifu (CEO)

Yeah. Actually, I want you to try to answer that first, then I'll jump in.

Joseph Molluso (Co-President and COO)

Yeah. Sure, Ken. Look, we put out that grid in the third quarter that showed here are the different levels of net trading income, what we can earn in terms of EPS, and then what we can earn in terms of what we can do in terms of share buybacks. I think we have confidence in it, to answer your question, because when we look at the history of Virtu plus KCG plus ITG, and we look at it across multiple environments, you maybe go back to when Virtu went public in 2015, and then you look at the peaks and the troughs, and then you look at our operating expense guidance, which we feel pretty confident about and we historically have been very good at. I have a hard time coming up with a trough scenario that doesn't get us too far through the long term, right?

That's why we highlight the fact that we generate a lot of cash flow. We'll leverage appropriately. The excess cash that we're going to be generating from we've got $170 million authorized today. In the future, again, we need our board to authorize it, but I would expect that if we generate excess cash, we're going to be returning it to the shareholders in one form or another. That's the reason why we have confidence, is that if you look at where the trough was, it was in the year 2019 where we acquired, made a major acquisition, and that the volatility and volume levels were at multi-year lows. I feel pretty confident that's trough, but I also feel pretty confident that we're going to meet our expense guidance.

When you put all that stuff together, not even counting the growth, Ken, not even counting some of the stuff that we've got on the table in terms of growth, just looking at the firm as it is, I feel confident in that number.

Douglas Cifu (CEO)

For once, I will actually be pithier than Joe Molluso. I'm not known for pith. We're confident. I'm confident because we're doing it. We're doing it. I mean, we had a fabulous fourth quarter. I see significant improvement internally. Obviously, the growth initiatives, Ken, are great. We've always been religious about expense management. And I think we are, we obviously have always had religion around our balance sheet and returning capital. So all of the components are there. We started on this journey in 2017 to expand the footprint of what we thought could be a fully integrated global financial services firm that did a lot of things really well and some things we hadn't even started, and we were going to start those and build the firm organically and really be a differentiated, different kind of player in the marketplace.

And you're beginning to see the fruits of that labor, I guess, is the right way to put it, against a backdrop that's very positive. So I feel really excited that we found incremental ways to scale using the infrastructure and the platform that we have. And it's always, always been the Virtu model that Vinny and I envisioned when we started on this journey about 13 years ago.

Ken Worthington (Analyst)

Perfect. And then maybe to follow up on Rich's question, since payment for order flow, unfortunately, is a topic du jour, maybe one way to approach it, if payment for order flow were regulated out of existence tomorrow, not my base case, but it keeps coming up, what do you think would be the impact on your earnings and maybe participation in the wholesale market? So maybe if we go through that scenario, it might give us, or investors, comfort that this may not be that big a deal for you, even if it went away.

Douglas Cifu (CEO)

Yeah. Candidly, I don't think there'd be any direct impact to Virtu, right? I mean, we would continue to be the wholesaler that we are. Presumably, there'd be more of a shift to price improvement. And the vast preponderance of our clients, including some of the largest names that you know today, don't charge for payment for order flow. So from a Virtu perspective, there wouldn't be any change. I think the wholesaling business is a remarkable business. I didn't really understand it until we bought Knight. And now, obviously, now that I'm on the inside, it's just incredible what these guys at Knight had built over the prior 20 years before we got here.

I think, actually, though, from a policy perspective, and this is why regulators and people that have studied it and looked at the data, including most recently the FTC and whatnot, that have looked at it, understand that the payment for order flow or the rebate, if you will, is important for innovation. I mean, you've seen incredible innovation in this industry in the last couple of years through zero commissions and what that has meant in terms of democratizing the marketplace. I think the focus really should be now in this next generation, now that you have all these incremental people accessing the market. I think that's a great thing. I'm a big believer in transparency and democratization of marketplaces. That's what Virtu has always been about.

I think if we focus now on education and disclosure and things along those lines that can make the marketplace even better, I think that's really the solution, not just irrationally "banning" something because we think it's bad or it distorts the marketplace. I've never seen a shred of data that validates that assertion. I understand people have emotional reactions to the name and whatnot. It's no different than the firestorm of innuendo that was created in 2014 with the publication of the book Flash Boys. But when people really took the time working with us and other great market participants to peel back the onion, it was kind of a big nothing. Really, there was nothing there. There was a lot of smoke. There was zero fire. A guy sold a lot of books, and the marketplace didn't really change at all, right? Same thing here.

I think when people look at what the marketplace has done and what has been created for retail investors in this country where they can literally on a smartphone or a laptop or an iPad, whatever it is, push a button and buy 1,000 shares of Tesla, right? We're better than the National Best Bid and Offer for zero. Why would you change that? No reason.

Ken Worthington (Analyst)

Thank you. And just a tiny follow-up. Says that if this payment for order flow, if that disappeared, would that drive more volume to the lit markets, or do you really think price improvement just keeps it the status quo?

Douglas Cifu (CEO)

I think it would keep the status quo. It's not just the price improvement. Remember, it's a service. It's a service. We're there as a guaranteed execution. Trust me, things go wrong. And when they go wrong, they end up on Virtu and the other wholesalers' balance sheet, right? We are providing a guaranteed execution to hundreds of market participants. And if we have an issue, an error, if we've mispriced something, if there's an outage of Wi-Fi in New Jersey, God forbid, things along those lines, we still make good on those prices, right? So we stand behind the service that we're offering to our end users. And some days, that's painful. And when the market is unidirectional in a name and 80% of retail investors are buying or selling something, that is painful. But we're still there. We're still there. We're always in the marketplace, right?

So people need to differentiate. It's not just this is not the easiest business where we're just kind of clipping coupons. I wish that that were the case. That's not the case. So it's both price improvement, right, which is meaningful, $3.6 billion, right, that came out of the bid offer and back to investors. That's meaningful. And secondly, literally, the billions of orders that not just this firm, but all of our competitors' firms serviced in 2020. It's just remarkable, the ecosystem. And we stood up in a time of incredible pressure and pandemic and work from home, and not one of us flinched from our obligations to our end users. I'm very proud of what we all, as an industry, did in 2020.

Ken Worthington (Analyst)

Awesome. Thank you.

Operator (participant)

Our next question will come from Alex Blostein with Goldman Sachs. Please go ahead.

Alex Blostein (Managing Director)

Hey, good morning, guys. Sorry. Same topic for maybe a couple more minutes. So I mean, given your comments around just the significance and how robust the retail trading backdrop has been, I know it's difficult to separate the market-making activity, kind of what's legacy Virtu and kind of the legacy market maker versus what's retail-related, but I was hoping you can help assign sort of the percentage of market-making revenues that's more directly related to retail trading for you guys. And then just building on the last discussion, if we were to see an environment where retail brokers either decide to start more kind of internalization on their own or route to exchanges more because 50% of the volume is off-exchange, and some people would argue that that's a negative for price discovery, how would your model need to respond to that?

Kind of, how would you adapt to prevent revenue attrition?

Douglas Cifu (CEO)

Yeah. Yeah. I think there's a couple of responses to that. First of all, the notion of off-exchange trading growing is obviously factually correct in terms of share count. If you look at the notional size, right, of what's traded off-exchange, it's actually significantly lower than the share count. So I think it was like 41-ish%, if you will, of trading notionally is off of an exchange, right? Remember, you can have low-priced names that trade a billion shares in a day, and that distorts again, there's a lot of mistaken information out there that would distort the TRF count. That's the first thing. The second thing is the TRF is not just wholesalers, right? It's a big bank, excuse me, doing an institutional block. It's a dark pool, right?

So it's not just "retail 605 club." And just taking a step back, again, maybe it's my libertarian view of free markets, but people send orders to places where they think they get better execution and better service, right? So from my perspective, if folks want to send orders to a bank and to a broker or to a wholesaler or whatnot, that's their prerogative, and we should be encouraging that. There's plenty of execution and volume that happens on an exchange, and there's no magic number and no study I've ever seen that demonstrates, okay, if it all of a sudden tips from 49.51 to 51.49, the universe begins to spin in the other direction. That's just what I think that is, right? Mistaken information, let's put it that way.

So from that perspective, I think I feel very good about where we're at and kind of how the ecosystem will sustain itself. The point I would like to make, though, is we don't separate our businesses, and we're not going to separately disclose what's this and what's that. Because even internally, if you will, it's really an amalgamation, right? The legacy Knight business and the "retail" business do also trade in dark pools and exchanges and all around the world and other marketplaces, right, Alex? So it's not as simple as saying, okay, X and Y is related to the flow we get from brokers.

And indeed, the reason the strategies are successful is because we have this enormous kind of cornucopia of orders that we're getting from retail brokers, but we're also getting from other broker-dealers, right, in our Link business, and we're also executing on an exchange or in a dark pool, and those all get kind of thrown into our Central Risk Book. So it's not as simple as sort of separating it out. Really, what we're seeing is the backdrop, excuse me, of increased volumes and activity in the marketplace, right, together with the improvements we have made, right? It's not a coincidence that when Knight and Virtu combine, right, we've seen over the last couple of years through some great hard work and wonderful people here, we've seen improvements in our strategies and our performance. And so against that backdrop, we will continue to see measurable improvement internally.

And a lot of times, that does get kind of lost in the beta, if you will, of the marketplace. But overall, we're not sitting here reliant, if you will, on a single client or two. It's really the entire business wrapped together.

Alex Blostein (Managing Director)

Okay. I gotcha. All right. Maybe shifting gears a little bit. Joe, one for you. I wanted to dig into a little bit on stock-based comp dynamic. It's up materially year over year. Obviously, revenues are supporting that. But just curious how you guys are thinking about stock-based compensation going forward. What is the annual share creep from equity-based compensation? And when it comes to the buyback, is the goal to neutralize that equity-based comp share creep, or we could actually see a decline in the share count?

Sean Galvin (CFO)

Yeah. I'll start there. And then between me and Sean, I think we can handle the stock-based comp question. On the buyback, look, we've executed half of the original authorization. So we've already bought back $50 million worth at about $24 a share. And we are going to look to be in the market on a continuous basis, right? We've got an additional authorization for $70 million just based on how things are going so far to be consistent with what we told you we were going to do. And I think it's important that we be in the market on a continuous basis and look at it over the long term, which is kind of what we've always done. So I think that's part one, right? So I would love to actually have the share count go down.

In terms of the RSU grants and our stock-based comp itself, you should see that on a continuous basis going forward. Looks like, I think, the third quarter more or less. The fourth quarter, we had a true-up because we changed a feature in one of our plans to just make it consistent. So we had a little bit of a catch-up there from prior quarters. We didn't bother breaking it out as a separate item because it's added back already. But we just added a retirement feature that caused a little bit of a catch-up. Sean, is there anything else there?

No, I think the other thing I would point out is our comp is up year over year. So a portion of our stock-based comp is expensed in the current year. So there is a portion that vests immediately, and as we've had great success in our business in 2020, our overall comp, both from an equity standpoint and from a cash standpoint, is up year over year versus 2019, so that is certainly one of the components why 2020 exceeds 2019.

Alex Blostein (Managing Director)

Great. Thanks for the detail.

Douglas Cifu (CEO)

Thank you.

Operator (participant)

And our next question will come from Chris Allen with Compass Point. Please go ahead.

Christopher Allen (Analyst)

Hey, morning, guys. Great quarter, and I appreciate the granularity on the expense and buyback outcomes for next year. I did want to follow up just on Doug's response around focus on education and disclosure. I'm just wondering what the regulatory focus has been since the recent issues in GameStop and other stocks. Are they looking at capital levels just at the broker-dealers, or are they also focused on capital levels of the market makers? Do you think potential solutions are just suitability requirements around options and margin lending? Just any thoughts around that would be helpful.

Douglas Cifu (CEO)

Yeah. Sure. Good question, Chris. Obviously, we're in constant contact with regulators because that's what we do. We are proactive in terms of talking to FINRA and the SEC because we want to be good actors and transparent. From our perspective, we have about $1 billion or more or so in our broker-dealer. This type of situation doesn't really impact us because as a market maker, we can control our positions, right? So at the end of the day, we're ending flat, or maybe we'll be notionally long or short various names, but certainly we can control our own positions as a market maker. So it's a much different scenario. In our institutional business, where obviously clients are sending us orders, we have a hybrid approach there. We don't self-clear all of that business, right?

We have three very large partners that we work with here in the United States where we've effectively outsourced, as a correspondent clearer, a bunch of our clearing of that business. Because there, obviously, we could get large blocks of orders. Institutional clients weren't really trading those names inside, so it had no real impact of any sort on our capital during this time period. The reason I mention education and suitability is because I think those are appropriate topics, right, and there's been a lot written about this influx of new investors, traders, whatever you want to call them, and there obviously are concerns some of these products on the option side can be a little more complicated than just buying 100 shares of X, Y, and Z, that kind of thing.

So I think that's certainly within the purview of regulators to ascertain whether or not there's been appropriate education. And indeed, all of our clients that provide these services are saying the exact same thing. So I think there's unanimity of interest and concern around it. I think a lot of the clients we have have wonderful tools on their website. I've gone and looked at a bunch of them. I've actually learned some things by playing around on various websites and things like that. So I think there's a lot of great information out there. I think as an industry, we can always get better, and I certainly think that will be a focus of regulators.

Christopher Allen (Analyst)

Thanks. And just to beat a dead horse on the regulatory front, but the pushbacks we get on the stock and its payment for order flow, one of the outcomes specifically is just the potential for a big broker to start up an internalizer and just maybe some of the challenges that would come with that. We think that's probably an outcome regulators do not want, but they call on that. Then any updated thoughts on FTT?

Douglas Cifu (CEO)

Yeah.

Christopher Allen (Analyst)

It's obviously in the headlines now. Thanks.

Douglas Cifu (CEO)

Yeah. Yeah. Sure. It's a great question. Here's what I would say, and I kind of answered it in response to a prior question. There's a huge misunderstanding out there that somehow if we had a flow from one broker, X, Y, Z, that somehow magically we would make a lot of money. It's actually not the case. The reason the Knight business that we inherited at Virtu and the wholesaling business is so successful is because of this giant client base that we have, both here, Canada, Europe, and even some Asian clients that send us this Frontier front-door retail. So if you're a single retail broker and you think you can internalize your own flow, my gut instinct and from my experience of seeing how we react and respond is that you'll make a huge investment, and you will be sorely disappointed.

The reason this business is successful and has been successful is because the guys that designed it a long time ago, right, and the people that have run it long before we even got here were smart enough to realize that it wasn't just getting the one broker. That's why it was called Knight of the Round Table. You needed the whole round table. And when you got the whole round table and the table kept getting bigger and bigger, then you could build a profitable business. You become the marketplace, Chris. That's the important distinction that I think the folks on the outside don't understand. So when I hear and I talk to investors about, "Oh, so-and-so is going to internalize their flow," I say to myself, "Okay, one, that's going to be a nine-figure-plus investment to actually make that happen. Two, it's going to take years.

Three, it's going to be not successful because of the reason I just articulated. And then four, it creates conflicts and other issues with regulators. Why would you want to bother, right? Do what you do really well. We're good at that. You're really good at something else. We can work collaboratively in business together." And that's kind of how the ecosystem has evolved.

Christopher Allen (Analyst)

Great question. Thanks. And any thoughts on the transaction tax, which I assign low probability to, but just coming up in the headlines on that different?

Douglas Cifu (CEO)

Yeah. Well, you can imagine I have a lot of thoughts, Chris, and I will try to be mature about how I respond to it. I mean, the state transaction taxes are. I understand the pressures of these governments around their deficits and whatnot. And obviously, as a former New Yorker who now has a residence in New Jersey, I certainly get it. I will tell you that the notion of a transaction tax in New York is. I'll use the word foolish because I know what we would do. I would shut this office, and we have an office now in Short Hills, New Jersey. We're going to have an office in Florida, and we would just leave the state of New York. We would never pay a penny of the New York state transaction tax. And Stacey Cunningham, God bless her, said the same thing.

She would just move the New York Stock Exchange so state transaction taxes, I think, are foolish, and they just don't make any sense, and the governor of Texas, who I was honored enough to meet earlier this year in terms of their interest in having exchanges in that state, has made it very clear. In fact, you'll see in their legislative docket this year that they will, as a state, state it is their intention to ban any type of transaction tax. In addition, they have a constitutional amendment against income taxes for those that are curious so that doesn't make any sense. On a federal level, obviously, you have the same type of folks that have been railing against Wall Street at least for the dozen years or so I've been doing this, and every year, you have the same proposals on a transaction tax.

Certainly, given the recent events in the marketplace and given the backdrop of the pandemic, there's been an increased hue and cry on that. But again, it's from the same types of folks that I would loosely describe on the left of the political spectrum. Those folks that are either somewhere in the middle, right, that look at data and understand what the impacts of a transaction tax are. There's empirical evidence all around the world. Sweden did this, and I think it was 1994 to their derivatives market. They shut the lights out on Friday. Transaction tax came in Monday. And guess what? Their derivatives market moved to London, right? And goodbye, Swedish derivatives market. And the transaction tax generated essentially zero revenue. So people that look at data are smart enough to realize that that is the case.

The market makers and the big banks aren't going to pay the transaction tax. It's just going to get pushed back to the pensioners and to the 401(k) folks. And all it's going to do is just clobber the U.S. financial system, which is in nobody's interest, right? This is a great place for raising capital. Are there adjustments that need to be made to the market? Reforms, of course, people can look at that. But ultimately, slowing down the market and taxing it and forcing those of us to flee to other jurisdictions and moving liquidity outside of the United States to Europe or to some other jurisdiction is really in nobody's best interest.

Christopher Allen (Analyst)

Thanks a lot, guys.

Douglas Cifu (CEO)

Thank you.

Operator (participant)

Our next question will come from Gautam Sawant with Evercore ISI. Please go ahead.

Guatam Sawant (Analyst)

Hi. Thanks. Just wanted to get your perspective on how the industry market structure functioned during quarter Q4 around the volatility. I know there were reports of some market participants experiencing some glitches. How did your system perform? And then following that, I know your trading capital was up a bit during the quarter. Can you just remind us what you think the right level of capital is to operate from here given the heightened level of volatility?

Douglas Cifu (CEO)

Yeah. Great. Great question. Yeah. Certainly, I mentioned this before in answer to another question. I would say going back to 2015 and the events of August 24th, the industry got together and gave the New York Stock Exchange, BlackRock, Nasdaq, a lot of really good market participants got together and improved the infrastructure, Limit Up-Limit Down, volatility halts, all those kinds of things. So I think there was a good improvement there. The exchange has invested a lot of money, and their service has been great, and their technology is fantastic. And I'll throw Cboe into that as well. I don't want to leave those guys out, right? So that part of the ecosystem worked well. We at Virtu have had to make the same investments, right?

As retail volumes have increased, as we've increased our market share, as new participants have come in, we've had to invest in our systems to make sure that we can stand up every day and perform our service. Are we 100% perfect? No. Have we had glitches here, there, and everywhere? Of course. Every market participant has them periodically. We make good on them. We have a standard operating procedure on how we recover, and none of them have had any material impact on what we do, and our clients understand that, right? And that's why they want to have a multitude of service providers so that if we're having an issue, they can adjust flow to somebody else and vice versa. It happens. Unfortunately, it happens periodically in the marketplace. In terms of capital, I'm going to ask either Joe or Sean to answer that question.

Joe, you want to jump on it?

Joseph Molluso (Co-President and COO)

Yeah. Sure. You note where the capital that we show here in the materials is at a high point. That's not surprising given the time of year and given the performance in the fourth quarter. The answer to your question is that we're in a better position from a capital standpoint and from a liquidity standpoint to meet our daily obligations than we ever have been, that this is more than enough capital than we need to run the firm with an appropriate buffer. And we've got access to holding company unsecured borrowings. We've got more unsecured borrowings to meet margin calls at our broker-dealer than we ever had before. We've got extremely high levels of capital on our broker-dealer. We spent early part of 2020 consolidating the broker-dealer. So I think we're very well capitalized, and we have access to more than adequate liquidity.

So we're in very good shape.

Guatam Sawant (Analyst)

Thank you. And just one quick question. I didn't see, but did you guys disclose your Rule 605 market share and how's that trending in the current quarter?

Douglas Cifu (CEO)

No, we didn't put it in. I mean, I've said this many times before. I think there's an undue fascination, I'll say that, with our 605 market share. Yeah, I look at it, but it will go up. It will go down. It probably went up in January. My guess is it'll go up a little bit in February. It went down a little bit in December. We're always going to be in that kind of sweet spot hovering around like 30-ish%. I'm very, very comfortable there. We have different shares with different brokers. Just some of that is just history. Some of that is performance. Some of that is just our preference, their preference, that kind of thing. So I wouldn't read, frankly, too much into it.

I know people like to kind of amalgamate it and kind of draw conclusions, most of which I kind of scratch my head about, to be candid with you. If we wanted to have 10% more market share, could we do that? Yeah, it would probably not make a lot of economic sense. I'm all about trying to find that right balance. It's a little bit of art and science as a firm between market share and profitability and providing good price improvement and service in the retail segment to our clients.

Guatam Sawant (Analyst)

Thank you.

Douglas Cifu (CEO)

Thank you.

Operator (participant)

And our next question will come from Alex Kramm with UBS. Please go ahead.

Alex kramm (Senior Equity Research Analyst)

Yeah. Hey. Good morning, everyone. Just shifting gears to the execution services business, can you actually give us an update on how the conversations are going with new and existing clients? Are you leading on execution quality? Are you talking about, "Hey, we can create certain names"? And what is really the pushback that you may be getting from, I think you said, 41 or 50 top institutions? What is it that you're not providing, or how do you get new clients? Is it because you're not providing capital? How can you have a bigger addressable market as you think about this business more holistically?

Douglas Cifu (CEO)

Yeah. Yeah. I thought 41 out of 50 was pretty good, Alex, but anyhow. Look, I mean, taking a step back, I think when we bought ITG, there was a lot of noise about, "Oh, the HFT firm," and a bunch of our competitors, I'm sure, sold against us because of that. That's always a failing proposition. If you're not selling something positively, I don't think you're really selling. You're just kind of making noise. But there were definitely ITG clients that said, "We're going to turn off when we want to see." And there were clients that probably didn't even say that, but said, "We're just going to click the mouse less to you guys and kind of see how this all goes. We want to see how the performance goes.

We want to see if you're really going to invest in technologies." And so we did what we do at Virtu. We put our heads down. We worked. Steve Cavoli has done an amazing job. We have migrated the lion's share of U.S. and European ITG algo clients to the Virtu Frontier multi-country single algo stack. No other firm in the world has what we have in terms of a single algo stack that literally is ubiquitous around the world and in every marketplace in which it currently works, right? And we built the same thing in Canada and Asia. Now we have that product to go sell to clients. And so we've seen a pickup of people just trying the product and saying, "Wow, this is a great product.

It's really performant, and we're going to use it." And on top of that, as I mentioned in my remarks, in the United States, we have this. People are very fascinated with retail, retail, retail. How can I get access to that as an institutional investor? The answer is 1-800-Virtu, right? So opt in to having your orders interact fully disclosed with our market maker, right? And you'll see that you get significant fills. Yes, when we bought ITG, I had no idea that people actually published their market share. That's how naive I was on Bloomberg. And if you go to the Bloomberg market share report, you can see in a lot of names that people have interest in, in just about every name, Virtu will be the number one broker. Why is that?

Because we have a large business of wholesaling, of non-customer market-making institutions, and that's attractive to people. So it's literally the blocking tackling, Alex, of going to clients. And we certainly are focusing on the top 50, right? Ones that we don't have, but more importantly, ones that we have to say, "You know what? We do this for you in the U.S. Can we do it for you in Europe?" Or, "Will you give our EMS product a try because you're already using our algos?" Or, "Will you use commission management? Can you quote an RFQ-hub?" There's a whole multitude of things that we're trying to cross-sell. So we're really seeing that growth. It was a 29% increase in Q4. And Q1, as I said before, is significantly ahead of where we were in Q4 in execution service. I'm very jacked up about that business.

Alex kramm (Senior Equity Research Analyst)

Okay. Great. Thanks, and then just a quick one. You talk a lot about share buybacks, but in terms of capital allocation, how do you feel about your debt levels? I know that the ratios look pretty good right now, but you've obviously been in a very, very sweet environment. So, that can certainly turn the other way, right? Would you think about the leveraging a little bit more so you have a little bit more firepower for the tougher times or for potential deals or whatever it may be? Or is this a good level to assume from here?

Joseph Molluso (Co-President and COO)

Yeah. No, Alex. I think I said in the remarks, we consider this a permanent capital structure for the same reason why we're confident around the base level of earnings of $2 a share. It's the same reason why we're confident this is a permanent capital structure because when you look at historical troughs, you come out three to one, and we're comfortable there, right? This is all about kind of looking at the business through the long term, right? There is nothing that we need to do with the overall debt level to take it down, to kind of batten down the hatches for a poor environment. Our cost base and our capital structure would do very well in a poor environment.

Alex kramm (Senior Equity Research Analyst)

Makes sense. Thank you.

Joseph Molluso (Co-President and COO)

We want to focus on returning capital to shareholders.

Ken Worthington (Analyst)

All right. Thanks again.

Joseph Molluso (Co-President and COO)

Yeah. Thank you.

Operator (participant)

Our next question will come from Ken Hill with Loop Capital. Please go ahead.

Kenneth Hill (Equity Research, Managing Director)

Yeah. Thanks. Good morning. Just one more on the capital front. I know on slide seven, you guys have a lot of great organic growth initiatives there, and you're making a lot of progress. Any of those that you think could get a boost from an M&A type activity there? And can you also remind us maybe what the criteria you guys look at internally for transactions and how the markets kind of appears to you right now? Thanks.

Douglas Cifu (CEO)

Yeah. Yeah. Look, it's a fair question. Obviously, we did two large acquisitions. I think the hurdle for an acquisition is really high at this firm. I mean, I'm 100% convinced, based on everything that I've seen and my experience, that we can grow an options business and a block ETF business organically. We're doing it. We're doing it. Are there competitive firms out there that are in this business? Of course. Do I want to pay a lot of money to go buy one and then go through, frankly, the aggravation and years of trying to integrate them into Virtu culturally and technologically? No, I really don't. But I know that I can do it organically with people that I know and I trust. And we've got the stadium built, so I don't need technology from anybody. I just need time. Just need time.

And that's what we're going to have. And we have the benefit of having advanced business to support that. And indeed, these businesses are profitable on their own. So the criteria for M&A is it has to be really creative. It has to be really attractive. It has to be something that's not going to give me and the rest of the management team a giant headache. And based on everything I saw in 2020, nothing even came close to that level. We're kind of matured as a firm where we have this very large stadium and this very large opportunity set in front of us that we know we can build organically. What do I need to overpay somebody for that privilege?

Kenneth Hill (Equity Research, Managing Director)

Got it. Thank you.

Operator (participant)

Our next question will come from Michael Cyprys with Morgan Stanley. Please go ahead.

Michael Cyprys (Equity Analyst)

Thanks for taking the question. Just hoping you could dig in a little bit on the FX and options business. So the revenue is down a little bit there in the quarter. Just hoping you can elaborate on some of the moving pieces from third quarter into the fourth quarter, any color you could share on that part of the business here in Q1.

Douglas Cifu (CEO)

Yeah. It was really, if you just look at the opportunity metrics, I'm trying to find them in the supplemental materials. Joe will point them out to you. But if you look in particular at volatility in the currency market, it was down like 50%. It's down like 50%. So it's really just if you understand kind of our businesses and the drivers of each of them, you can really just all the information is right there for you. So it's really just driven by on page five, if you look at realized volatility in the FX market, it was down 50%. So it kind of says it all right there.

Kenneth Hill (Equity Research, Managing Director)

Okay. And I guess how would you sort of disaggregate or provide any sort of color on the, say, top three contributors to that revenue line as we think about looking at which metrics will be driving it? Are you suggesting that FX is the biggest component there? What would be the top three? How would you sort of rank them? And how would that evolve?

Joseph Molluso (Co-President and COO)

In the past, we thought it was important to consolidate this as FX options and other. It's going to fluctuate, Michael. And that's why we consolidated in FX, which a lot of companies do. So that's a category. We look at it. It includes energy. It includes foreign exchange. It includes commodities. And those things are going to fluctuate over time. And I couldn't give you a one, two, three. It includes all those asset classes, and we're going to report it as FX.

Kenneth Hill (Equity Research, Managing Director)

Got it. Okay. And then just a quick follow-up just on the back of the capital on the balance sheet. I recall you guys were looking to free up, I think it was about $100 million of capital with merging the broker-dealers. This was maybe a year or so ago. I'm just curious how that progressed and if there's anything incremental at this point that could be released.

Joseph Molluso (Co-President and COO)

No. We've done all of the capital release from the mechanics of merging broker-dealers. So we operate principally out of one broker-dealer, and we are pretty efficient about capital. That entity, as Doug said, has got over $1 billion of total capital now. And it's not our entire business, but it's a good portion of our business. And as I said, from the beginning of the year, we've enhanced our liquidity meaningfully, right, just by having the operations in one broker-dealer as an enhancement. As I said, we've got holding company lines. We've got lines at the broker-dealer. And as Doug mentioned, we've outsourced a good portion of the clearing for the business where the requirements are less predictable, and you kind of need to accommodate clients that could generate an unpredictable large margin call. And that's been outsourced, as Doug said, to three large financial institutions.

So we feel like we've done a lot of optimization around that and realized a lot of the benefits. But the excess cash flow, the real answer to the question you're asking is look at the grid we gave you in the third quarter at various levels of adjusted trading income and hold us to that in terms of how much excess cash should be generated because that's really the entire company. That's not just the broker-dealer. That's operating out of Europe, operating out of Asia-Pacific, our non-broker-dealer business in the U.S. in terms of futures and FX and other.

Kenneth Hill (Equity Research, Managing Director)

Great. Thanks so much.

Joseph Molluso (Co-President and COO)

Thank you.

Operator (participant)

This will conclude our question and answer session. I'd like to turn the conference back over to Doug Cifu for any closing remarks.

Douglas Cifu (CEO)

Thank you very much. I just want to thank the senior management team here for doing a great job and for all of our employees, and we look forward to speaking with you guys at the end of the first quarter. Thank you, everybody. Stay safe.

Operator (participant)

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.