Virtu Financial - Q4 2023

Transcript

Operator (participant)

Hello, and welcome to the Virtu Financial 2023 Q4 Results. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star one on your telephone keypad. If you'd like to remove your question, you may press star two. I'll now hand it over to your host, Andrew Smith, of Investor Relations. Please go ahead.

Andrew Smith (SVP of Global Business Development and Corporate Strategy)

Thank you, Alex, and good morning, everyone. Thank you for joining us. Our Q4 results were released this morning and are available on our website. With us today on this morning's call, we have Mr. Douglas Cifu, our Chief Executive Officer, Mr. Joseph Molluso, our Co-President and Co-Chief Operating Officer, and Ms. Cindy Lee, our Deputy Chief Financial Officer. We will begin with prepared remarks and then take your questions. First, a few reminders. Today's call may include forward-looking statements, which represent Virtu's current belief regarding future events and are therefore subject to risks, assumptions, and uncertainties, which may be outside the company's control. Please note that our actual results and financial conditions may differ materially from what is indicated in these forward-looking statements.

It is important to note that any forward-looking statements made on this call are based on information presently available to the company, and we do not undertake to update or revise any forward-looking statements as new information becomes available. We refer you to disclaimers in our press release and encourage you to review the description of risk factors contained in our annual report, Form 10-K, and other public filings. During today's call, in addition to GAAP measures, we may refer to certain non-GAAP measures, including Adjusted Net Trading Income, adjusted net income, Adjusted EBITDA, and adjusted EBITDA margin. These non-GAAP measures should be considered as supplemental to, and not as superior to, financial measures as reported in accordance with GAAP.

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

Doug Cifu (CEO)

Thank you, Andrew, and good morning, everyone. Thank you for joining us this morning. In my remarks today, I will focus on Virtu's Q4 2023 financial and business performance and strategic initiatives. Following my remarks, Joe and Cindy will provide additional details on our results. Looking at our full year and Q4 2023 results, which are summarized on slide 2 of the supplemental material, we generated $4.8 million and $4.14 million of adjusted net trading income per day for the full year of 2023 and the Q4 of 2023, respectively. We reported normalized adjusted EPS of $0.27 for the Q4 and $1.84 for the full year of 2023.

Slide three highlights that our market-making segment earned an average of $2.7 million per day in adjusted net trading income in the quarter, while our execution services business delivered $1.5 million per day, an increase of 4% per day over the prior quarter. This quarter's performance reflects a significant reduction in opportunity, particularly for our customer market-making business compared to the prior quarter, driven by a combination of reduced addressable volumes and spreads, as evidenced by an especially weak two-month stretch of volatility to the end of the year. We have seen episodic periods of softer volumes and volatility in the past, most recently in the Q4 of 2022, and today, we are better positioned than ever from an expense, capital structure, and trading capabilities perspective to convert opportunity into ANTI in any environment.

As we have said before, our disciplined focus on expense management and building operating leverage means Virtu remains uniquely ready to deliver results in any environment. While it remains very early in 2024, we have seen improvement in the overall market conditions and market-making opportunities so far in January, particularly around crypto products, as I will address later in my remarks. As we've said previously, while market share alone is limited as a gauge of performance, we would like to note that our market share in the wholesale market-making business remains within historic ranges. We are confident that our growth initiatives, combined with our efforts to enhance our spread capture rate through greater internalization, thanks to our global scale and diversity, will yield benefits in any environment. Our non-customer market-making business, which provides liquidity across asset classes globally, performed well in the quarter relative to the opportunity.

Our organic growth initiatives, including our expansion to options market-making, continue to expand and perform well, making meaningful progress every quarter. In the Q4, we generated $43,000 per day from organic growth, which represents 10% of ANTI in the period. We remain very optimistic about the opportunities across all our growth initiatives, and we are excited for these initiatives to reach new heights in 2024. On the execution services side, our adjusted net trading income averaged $1.5 million per day in the Q4, which was up by about 4% from the Q3. We continue to see incremental and impressive results despite the general softening in the market opportunity for VES. In addition to general wallet compression, institutional activity remained slow as investors reacted and adjusted to the sustained higher rate environment.

Despite these challenges, VES performed in line with its opportunity quarter-over-quarter, as well as the full year, 2023. We have incremental growth plans outside the United States, which are materializing as we transition resources from a multi-year integration of technology across a long tail of clients towards expanding our footprint. To this end, in 2023, VES leveraged our investments and enhancements to accomplish key growth milestones, including winning the remit to be the fixed income EMS for a world-class asset manager in Europe, as well as successfully deploying Virtu's Triton Valor Execution Management System, trading analytics, POSIT Alert and global equity execution algorithms as one of the largest asset managers in Asia. Most important, overall productivity and profitability within the VES segment has grown significantly since we began the technology rebuild and modernization, and streamlining the business.

We are very excited about the growth opportunities in 2024 for VES. Taking a step back, I look at our 2023 results, and despite the recent softness, we believe our strategic focus in areas of growth align us for long-term success as we expand our addressable market by adding more asset classes and offerings to our suite of products. Our focus on enhancing our core businesses and the continued success of our growth initiatives positions us well for any macro environment, including significant spikes in volatility and volumes that typically accompany increasing global tensions and economic uncertainty, change in monetary policy, and elections. We continue to hire and make investments in our business. It is worth noting that of our current employees, only 36% of them were at Virtu prior to 2019.

This means that we have made a significant multi-year investment in new traders, developers, and quants, which we expect to continue to bear fruit in the near to medium term. And as you would expect, we remained disciplined as ever around costs throughout the year, which enabled us to realize a 47% adjusted EBITDA margin. Touching briefly on our growth initiatives. In options, 2023 was another impressive year for us as we continued to expand our capabilities despite the declining opportunity set in general. In 2023, the options team exceeded expectations as its capability and capacity to address opportunities increased globally. As I mentioned on our last call, we saw a meaningful uptick in our crypto market-making business at the end of the Q3, which persisted into the Q4.

It's probably no surprise that our crypto market making is off to a record start in 2024 as a result of the elevated interest in new opportunities related to the recently approved Spot Bitcoin ETF in the United States. As I'm sure you well know, on January tenth, the SEC approved 11 Spot Bitcoin ETFs for trading, and as a global 24/7 market maker, Virtu was among the first trades in these products when they began trading at 4:00 A.M. on the first day. We proudly act as an authorized participant for all 11 issuers. While it's only been a few weeks since the Spot Bitcoin ETFs were approved, the ETFs have presented significant market-making opportunities.

It's worth noting that these initial 11 Bitcoin ETFs are just the first wave of crypto ETFs that the market expects to be approved, so expect there will be many more coming. Issuers have already filed applications with the SEC to list Spot Ethereum ETFs, as well as a number of novel crypto-related ETFs. Additionally, while crypto ETFs may not interest all investors, we're also seeing an uptick in general retail trading activity across all NMS securities, coinciding with the launch of Spot Bitcoin ETFs, which suggests that retail investors are curious.

To bring it full circle and highlight how these ETFs benefit several of our organic growth initiatives, we've already seen significant opportunities for our ETF block business as new and existing clients approach us to transact in Bitcoin ETFs, and we are optimistic about the options market-making opportunities that await once options are listed on these ETFs. Our ETF block business had a respectable year as well, and we continue to expand our offerings to cover more products in more regions, including crypto ETFs, as I just mentioned, and fixed income ETFs, which is especially helpful for our rates trading, where we continue to make key hires as well as in corporate credit.

And last, but certainly not least, our Virtu Capital Markets business saw increased activity in the Q4 as financing activity began to return to the market, and a number of issuers used our At-The-Money service to raise primary capital. I'll now turn it over to Joe and Cindy, who will provide additional details about the quarter. Joe?

Joe Molluso (Co-President and Co-COO)

Thank you, Doug. Just briefly turning to capital and expenses. On expenses, we ended the year with cash operating expenses, $643 million. That's 5.4% ahead of last year. We think this is a solid performance in this environment and given the investments we are making to grow the business. Our cash compensation ratio is 26% for 2023. This is at the upper end of our historical range. Consistent with Virtu's history, we will manage discretionary compensation and headcount to drive profitability while retaining and recruiting world-class talent. We believe we have achieved this outcome, on expenses, particularly on compensation, by being prudently aggressive in hiring and maintaining compensation at levels that are best in class, while keeping overall headcount relatively flat. Other non-compensation expenses were up slightly in line with our expectations.

On communications and data processing, we were up 5% in 2023, owing to investment in building out new businesses and price increases for infrastructure and market data. Our other expenses in 2023 were up a bit due to favorable FX adjustments in the prior year and a little bit of increase in professional fees. On the capital management slide, in the supplement on slide 12, you can see that our trading capital has remained within a range of $1.7 billion-$2 billion for this year.

We remain very well capitalized from a trading capital and long-term debt standpoint as well as from a liquidity standpoint, meaning we possess adequate resources necessary to capitalize on upside revenue opportunities from increased volumes and volatility as and when they appear. In fact, we're able to enter the crypto ETF market in early 2024 without a material increase to our overall capital base because of our operational efficiency and available liquidity. We maintain our public $0.96 annual dividend, which we have paid steadily now for eight years, despite variable results over the long term. We believe overall that our dividend is quite sustainable over the long term, as it has been for the past eight years, and we do not anticipate changes to the status quo, including our continued buyback program. In addition, we repurchased 2.4 million shares in the Q4, for approximately $44 million.

Our period-end share count is now down to 162.7 million shares. And at this point, we have repurchased, net of new issuances, 17.7% of our company in the 3+ years since beginning our program. And with that, I will turn it over to Cindy to review the financial details briefly before we open up the call to your questions.

Cindy Lee (CFO)

Thank you, Joe. Good morning, everyone. On slide 3 of our supplemental material, we provided a summary of our quarterly performance. For the Q4 of 2023, our adjusted net trading income, or ANT, which represents our trading gains, net of direct trading expenses, totaled $261 million, or $4.1 million per day. Market making adjusted net trading income was $168 million, or $2.7 million per day. Execution services adjusted net trading income was $93 million, or $1.5 million per day. Our Q4, 2023, normalized adjusted EPS was $0.27. Adjusted EBITDA was $99 million for the Q4 of 2023, and our adjusted EBITDA margin was 38%. On slide 8, we provided a summary of our operating expenses results.

For the Q4 of 2023, we recorded $178 million of adjusted operating expenses. We continue to maintain an efficient cost structure and disciplined expense management, which has helped us to control our operating expenses during the inflationary environment. We remain committed to our $0.24 per quarter dividend, and combined with our share repurchase program, demonstrates our continued commitment to return capital to our shareholders. Now, I would like to turn the call over to the operator for the Q&A.

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad. If you'd like to remove your question, you may press star followed by two. Please limit yourself to one question. Thank you. Our first question for today comes from Ken Worthington of JPMorgan. Your line is now open. Please go ahead.

Ken Worthington (Senior Equity Research Analyst)

Hi, good morning. Thanks for taking the question. I guess I want to kick off the call with more questions around the cryptocurrency opportunity. So first, the cryptocurrency market, you know, has rebounded in Q4 significantly, a bit more in Q1. At the same time, role has expanded with the AP on the Bitcoin ETFs. So how did the economics change for Virtu as the number of activities you participate in expands? So you started with, like, being a market maker in crypto spot and a market maker in crypto companies and miners, and now you're both a market maker in Bitcoin ETFs as well as the AP on these same crypto ETFs. So does your position in one area make the other areas more profitable?

And I guess the ultimate punchline here is, how much bigger is the crypto revenue opportunity for Virtu today versus other initiatives like options, ETF, block, and fixed income in the near term growth in crypto, probably?

Doug Cifu (CEO)

Yeah. Thank you. Good morning. That's a great question, and to give you credit, you've been asking about crypto for two years, so I finally have a, like, a great answer for you, and thanks in large measure to some of these forced regulatory changes in the United States. I mean, this has become- I don't want to be too dramatic, but a bit of a transformational moment for Virtu with regard to this asset class, certainly, and we've seen the results already in the Q1, where we're generating meaningful, you know, six-figure daily, you know, PNLs from this asset class. And I think you kind of really hit the nail on the head.

It really is the perfect type of asset class and the perfect storm, if you will, for Virtu, because it combines a lot of our skills around being a multi-asset class, regardless of form of a product and a multi-geographic market maker. So what I mean by that is, you know, you know, we have been, as you noted, historically, a market maker in spot Bitcoin and futures Bitcoin, but throwing in ETFs and creating all of the volume and all the transactions and transformation, if you will, that people are making, you know, moving from the Grayscale ETF over to the, to the other 10 products, et cetera, means that somebody needs to price and take the risk with regard to that transference. So that provided a significant market-making opportunity for us.

But as you note, because we are a spot Bitcoin market maker, not only are we acting as an AP with regard to the cash creation and redemption of the ETF, but we can also act as a dealer, if you will, through one of our affiliates in Singapore, where we can provide the Bitcoins directly to the issuers, to the extent, you know, they need to, you know, satisfy their obligations to have Bitcoins in their trust. We're also excited, Ken, because there's gonna be, as I mentioned in my prepared remarks, there's gonna be Ethereum ETFs. There's gonna be short and long, and leveraged, and other products, and there's gonna be all kinds of different manifestations around people of interest.

And we're really in the early innings here, because you have a marketplace where you have some of our large clients whose names you know very well, who are saying, we're not going to actually allow clients to trade these ETF securities. And then we have other of our clients that are at the forefront of it, and I'm not gonna name names, but you can kind of figure out who they are. And then we have other institutions, like the one you work for, where the CEO is saying very negative things, but then on the other hand, you're acting as an authorized participant, right? So there's all kinds of confusion in the marketplace as to what this asset class means. To bring it full circle, I think what we really need is a coherent regulatory framework in the United States.

We have not had that because this current SEC and the legislative bodies have not been able to get their act together. Once that happens, we will have a regularized system where you have, you know, global platforms that provide access to spots, you'll have ETFs around the world, you'll have futures exchanges, you'll have custody, you'll have clearing, you'll have analytics, and it will look and feel and, you know, an awful lot like a regularized system. You'll have prime brokers, you know, Coinbase of the world, and Hidden Road and others. And then you'll have great platforms like EDX Markets, the one that we started with Citadel, and Fidelity and Schwab, which has now recently announced that it's gonna go international and whatnot.

And so you'll have this large, regularized asset class that fits very, very well into our model of being a cross-border and, and multi-asset class, if you will, market-making firm. So we're very, very excited about where we are. In terms of the scope of the opportunity and the addressable market, I, I think it will just continue to grow as, as this asset class becomes more regularized and more institutionalized, and you see more institutional money flow into it. And again, I'm very, very excited that we made the investments we did a couple of years ago, to be prepared for this moment in time. So, I hope that answers your question, but, you know, the first couple of weeks have been very exciting within the firm.

Ken Worthington (Senior Equity Research Analyst)

Excellent. Thank you so much.

Doug Cifu (CEO)

Thank you, Ken.

Operator (participant)

Thank you. Our next question comes from Patrick Moley of Piper Sandler. Your line is now open. Please go ahead.

Patrick Moley (Director and Senior Research Analyst)

Yes, good morning. Thanks for taking the question. So, you know, I think this quarter there was obviously a disconnect between what the industry volume and volatility metrics showed in your results. But I think, you know, at least in the Q4, if we looked at the 605 reports, it did show that the opportunity in the Q4 was the lowest it had been in a while. So, you know, I appreciate the comments on the crypto opportunity. But I guess just as we sit here today, I guess my question is: How do you think analysts and investors can do a better job of tracking your overall opportunity quarter-to-quarter? Thanks.

Doug Cifu (CEO)

Yeah, it's a great question, and obviously, we have continued to frustrate you all and investors for the last eight years, and it's really a challenge to try to explain the various parts of our business. I mean, really, the best way to do it is to look at the 605 reports and the 605 metrics. As a footnote, we have been on the forefront of asking for- we actually submitted a request, I think it was four years ago, for the SEC to update and modernize the 605 reporting to permit exactly this type of granular review and granular understanding of what it exactly we see within this subset segment, if you will, of the U.S. equities market.

But if you track our 605 reports and look at, like, what quoted spread was during the period, you'll see that there was, you know, meaningful contraction in quoted spread. And quoted spread, effectively, is that's the theoretical, if you will, maximum opportunity we have to collect bid-offer spread net order for 605 orders that come through to Virtu Financial. And you can look at it by broker, and you can look at it by wholesaler. So during the quarter, it was meaningful contraction. So this quarter's results, as I made it very clear in my remarks, are really attributable to, you know, that performance by our customer market-making business during the quarter. The non-customer market-making business and Virtu Execution Services outperforming metrics and certainly, you know, performed in line with your role expectations.

That is the yin and the yang of that business. It tends to be less predictable and certainly not always correlated with marketplace volumes and volatility. The other comment I will make is that you did see within this quarter, if you look at a more granular level at the marketplace, TCV, there was a significant increase in sub-dollar stock trading in the quarter. I think it was roughly about 18%-

Joe Molluso (Co-President and Co-COO)

18% in December.

Doug Cifu (CEO)

Yeah, in December, for example, and it was, you know, a sub-dollar name that on a particular day, traded over a billion shares, just, you know, anecdotally. You know, that tends to distort overall market volumes. Clearly, those stocks tend to be, there's less opportunity for the spreads, you know, dramatically smaller, and they tend to be a lot more toxic in the way that they're traded.

As a footnote, a lot of those companies, in our view, shouldn't be listed public companies. We've talked to FINRA and the SEC about it. Frankly, I think Nasdaq could do a better job in policing some of those companies that shouldn't be listed public companies, and frankly, should be trading OTC. So I do, I do think that that distorts some of the marketplace funds. I'm not using that as an excuse to try to provide a little more granularity, but it really does come back down to, within our 605 business, what was the opportunity expressed as, as quoted spread, at the moment in time when we received those orders? And so that's probably a good way for you guys to kind of slice and dice it.

I think it will get better when the Rule 605 reform happens, which should be the first proposal that comes out of the SEC. And, you know, for what it's worth, quoted spread is up, you know, over 10% in January thus far from the Rule 605 bugs. And some of that, I think, is correlated to, as I mentioned in my prepared remarks, some of the excitement and enthusiasm around these Bitcoin ETFs. So rambling answer, I hope I gave you enough clarity around, what you all can look at in the future.

Patrick Moley (Director and Senior Research Analyst)

Yeah, that was great. Thank you.

Doug Cifu (CEO)

Thanks, Patrick.

Operator (participant)

Thank you. Our next question for today comes from Chris Allen of Citi. Your line is now open, please go ahead.

Chris Allen (Managing Director and Senior Equity Research Analyst)

Hey, morning, guys. Thanks for taking the question. I wanted to dig in a little bit on the organic growth initiatives. A little surprised to see a sequential decline in the Q4. Crypto activity was much better in Q4 relative to Q3. Index options activity was up sequentially, and you noted the capital markets activity was stronger after, I think you had a decent Q3 as well. So maybe if you just give us some color just in terms of the different moving parts, where you're seeing, I mean, obviously, you're seeing tailwinds in crypto and maybe outlook for options and capital markets activity from here.

Doug Cifu (CEO)

Yeah, very fair question, and obviously, you know, it's, we tracked the internal metrics with regard to options and ETF block, which were the major, which are and were during the Q4, certainly the major component, components of our growth initiative. You know, crypto contributed, but we hadn't seen the explosion, which obviously we've seen, as I mentioned, with the launch of the Bitcoin ETF as of January eleventh, I think it was, in this quarter. The short answer is that with regard particularly to options market making, the opportunity in terms of, like, how the, excuse me, what the spread was, per contract, declined significantly in the Q4. And so that really explains a lot of what you're seeing in terms of the sequential decline.

Internally, we track all these metrics, and as I said in my prepared remarks, we're very, very happy with the performance of the options desk and the block ETF desk during the quarter. You know, one of the highlights of the year was our expansion into Asia, where we are now actively and profitable as an options market maker in both the Japanese and the Indian markets, and we think there's only an opportunity to grow there. So I get your frustration, which we share around the absolute dollar value, if you will. But in terms of, like, what our market share was in the addressable index products for the options business, it continues to grow, it continues to be competitive.

It's just, again, those organic growth initiatives are subject to the same market forces, if you will, around volumes, but more, much more importantly, volatility and effectively quoting spread with regard to the options contracts as all of our other asset classes.

Chris Allen (Managing Director and Senior Equity Research Analyst)

Thanks, guys.

Operator (participant)

Thank you. Our next question for today comes from Dan Fannon of Jefferies. Dan, the line is now open. Please go ahead.

Dan Fannon (Managing Director and Senior Research Analyst)

Thanks. Good morning. My question's on kind of expenses and leverage in the model. I think, Joe, you've talked about managing to a comp ratio and then to the dollar amount as the year progressed, starting out with the ratio and then to a dollar amount for the full year. And if I look at the full year, comp is modestly up, but revenues were down. And so just wanna understand, I think, you know, going forward in an environment, is this kind of the floor if revenues don't get better? We can see this as kind of a floor for cash compensation and, you know, just also just any outlook for expenses as we think about next year more broadly.

Joe Molluso (Co-President and Co-COO)

Yeah, sure, Dan. It's Joe. I, you know, I don't know if I'd call it floor. I'd say, you know, I kind of go back to Doug's remarks around the overhaul of our, you know, employee base in terms of, you know, upgrading the talent, in terms of, something like 60% of the people who are here today were not here when we acquired ITG. So we've been, you know, upgrading and investing, and we're always asked: "Well, what are you investing in, in terms of the growth initiatives?" I mean, this is our investment, and I think if you look at, you know, comp going from $315 to $320, in a year like 2023 overall, with a significant upgrade in talent, you know, we're happy with that outcome. You know, we don't worry about the ratio being, you know, 26% on a cash basis.

So there's no religion around that. You know, I, I wouldn't, you know, expect it to get, you know, too high, too much higher than that, over the long term. But I think we are happy where it came out in terms of, you know, what it means about the talent that's available and what we find. It's a much better recruiting environment, you know, in the past, you know, six months to a year than it has been in the past few years. And I think-

Dan Fannon (Managing Director and Senior Research Analyst)

Prospectively, just thinking about the other expenses?

Doug Cifu (CEO)

Yeah.

Joe Molluso (Co-President and Co-COO)

Yeah, sure. On other expenses, I mean, on communications and data processing, again, you know, we've had some buildouts that we've had to do. We have, you know, experienced price increases on market data and infrastructure. You know, and it's up, you know, I've always guided, you know, low- to mid-single-digit expense fixed-cost increases, and I think we're right there. So in communications and data processing, again, you know, when you think about the global infrastructure that we manage and the market data plant that we are, you know, subject to, again, I think we're really pleased with this outcome.

We actively, you know, we realize there's going to be price increases and investments we need to make, so we actively manage market data, especially to, you know, to make sure we prune where we can. And then, you know, operations and administrative stuff, I think 2022 was low because we had some favorable foreign exchange adjustments in terms of euro, in terms of pound sterling, in terms of the expenses in our non-U.S. subsidiaries. So, I think, you know, that kind of reverting on us in 2023. But I would expect, you know, that number to be the run rate going forward for those, you know, for ops and admin.

Dan Fannon (Managing Director and Senior Research Analyst)

Great. Thank you.

Operator (participant)

Thank you. Our next question comes from Alex Blostein of Goldman Sachs. Your line is now open. Please go ahead.

Alex Blostein (Managing Director and Senior Equity Analyst)

Hey, guys. Good morning. Thank you for the question. I wanted to just dig into the capital structure a little bit, and similar to the question I had for you last quarter, I think. But the debt to EBITDA continues to creep up a little bit, and it's a function, obviously, you know, some challenges on the EBITDA front. But it also looks like the debt costs have increased this quarter, I guess, with a new swap. So I guess, A, maybe just confirm that and kind of talk through the impact on P&L from that. But also, as you think about the uses of cash flow, if interest expense is higher going forward, what are the thoughts about deleveraging and paying down debt versus buybacks?

Joe Molluso (Co-President and Co-COO)

Yeah, just to take those in order, you, the new swap that we put on will be from a P&L standpoint accretive, right? So we did not do that from a GAAP P&L standpoint. It will be accretive. All we did was kind of pull forward some of the built-in gain that we had in a very attractive, you know, swap instrument that was put on several years ago, that was an enormous benefit to Virtu, and that was, you know, going to unwind in a few months. So what we did is we just pulled that forward, used that to reduce debt, and you know, the cash interest expense run rate was going to go up anyway, right?

So we kind of were able to, you know, do an accretive deal, you know, reduce debt by a little bit, and then also kind of cap the interest expense going forward. You know, the instrument, the underlying instrument that we have as our outstanding loan is SOFR +300. We expect in a, you know, Fed easing environment, and we expect with the loan market coming back, that we will have opportunity to reduce costs on that, you know, over the next couple of years. So we're really happy with that. We price this in a way that we anticipate, you know, some Fed easing, and we anticipate being able to tighten the spread as well. So yes, the run rate looks like it's a little bit higher.

That was going to happen anyway. We're going to be able to reduce it, and we were able to kind of monetize the swap to, to trim the debt. So we're very comfortable with the, you know, $1.75 billion, and we're happy with the, with the deal we did.

Alex Blostein (Managing Director and Senior Equity Analyst)

Gotcha. So no change in terms of the paydown of the loan versus buybacks, kind of, kind of same trajectory?

Joe Molluso (Co-President and Co-COO)

No, that's right. That's right. We used- yeah, we, we trimmed it a little bit here with, with the monetization of the swap. We, we felt that was appropriate. But in terms of, you know, the, the cash flow we generate at different levels of net trading income, we've got that chart here, as we do almost every quarter, so you should expect that to continue.

Alex Blostein (Managing Director and Senior Equity Analyst)

Gotcha. All right. Thank you.

Joe Molluso (Co-President and Co-COO)

Sure.

Operator (participant)

Thank you. Our next question comes from Michael Cyprys of Morgan Stanley. Your line is now open. Please go ahead.

Michael Cyprys (Equity Analyst)

Great, thank you. Good morning. Thanks for taking the question. I was hoping you could maybe update us on your fixed income market making initiatives, maybe elaborate on how much that's contributing today. How would you sort of size your participation and presence in fixed income markets today? Maybe you could talk about some of the steps that you're taking in corporate credit and treasuries for that to become more meaningful over time versus, say, fixed income ETFs?

Doug Cifu (CEO)

Yeah, great question. The analogy I would make is the trajectory, I hope, is going to be similar to what we experienced in options. So as I've said on prior calls, we've done a lot of, I'll loosely just call it groundwork around technology and integration with the various RFQ vendors. You know, Tradeweb, MarketAxess, Bloomberg, et cetera, Trumid. We've developed the internal ability to quote extensively, and we have you know, an ongoing sales/distribution effort in order to give us grant us categories.

I think the thing in terms of, like, priorities and kind of where I see Virtu being able to add value and where I be able to see growth, in the same way we did in options, where we spent a year or two developing the infrastructure and technology. We used internal people, we hired folks from the outside. We're in the process of doing that. And in options, we went to the big index family. If I look at the marketplace, and I say to myself, "Okay, where, where can Virtu add value?

What looks and feels more like what we do?" You know, the obvious answer is rates, particularly with what the SEC has done with regard to centralized clearing of treasuries, which is going to come online in 2025, and you already see significant interest around cross-margining between, you know, treasury futures and et cetera. And so that will look more like, you know, a Virtu-style business with less CUSIPs and certainly the further electronification of fixed income in general. So I think we're gonna focus more on rates initially, but at the same time, continue to, you know, put emphasis into our credit business, where we have, you know, categories and we have- we are actively quoting, you know, mostly investment-grade products and whatnot that tie very nicely into our fixed income ETF desk and the, you know, custom creation redemptions that one needs to do on that desk.

So very, very early stage in terms of contribution, you know, de minimis at this point. But in the same way that it was, you know, sort of 2019 in options, where we started to develop the wherewithal, hired folks, built the technology infrastructure, that's kind of where we're at right now. And I'm, you know, optimistic, as I always am, that we'll see that business take off.

I'm particularly enthused about some of the market structure issues, or considerations, that we've seen in rates, again, with regard to centralized clearing and prime brokers being, you know, more willing to deal with firms of our type and provide us leverage and allow us access. So I think that's just going to become a much more competitive marketplace, where, you know, the domination, if you will, by the big dealers will continue to wane. Nontraditional liquidity providers, like Jane Street and Citadel Securities, and hopefully, you know, Flow Traders and us, you know, can garner significant market share. So again, it's a growth initiative for us. You know, de minimis contribution in 2023. Will it be meaningful in 2024?

Probably not real meaningful, given, you know, kind of the competitive nature of the market and the size of the rest of the firm, but it's certainly an investment that we're very focused on, Michael. So thank you for the question.

Michael Cyprys (Equity Analyst)

Great. Thanks so much.

Operator (participant)

Thank you. We have another question from Craig Siegenthaler of Bank of America. Your line is now open. Please go ahead.

Doug Cifu (CEO)

Craig?

Operator (participant)

Sorry, Craig, you might be on mute. Your line is now open.

Doug Cifu (CEO)

Don't hear from operators. Maybe we- yeah, maybe he dropped off.

Operator (participant)

My apologies. As a reminder, if you'd like to ask a question, you can press star followed by one on your telephone keypad.

Doug Cifu (CEO)

Okay, well, sounds like we have no further questions. Obviously, Craig, if you do have a question, you can follow up with me, Joe, or Andrew after the call. I want to thank everybody for joining us today, and we look forward to speaking with you in some point in mid-April. Thank you, everybody. Have a great day.

Operator (participant)

Thank you for joining today's call. You may now disconnect your lines.