What's Behind Virtu's 22% Gain After Year-Long IPO Delay

NEW YORK (TheStreet) -- Just over a year ago, Michael Lewis's expose on high-frequency trading, Flash Boys, was sparking debate on Capitol Hill and Wall Street, prompting critics to claim that markets are rigged.

Virtu Financial, a high-frequency trading firm planning to go public at the time, backtracked amid increased scrutiny from regulators and politicians. Today, however, the company has successfully completed its initial public offering and climbed 22% since shares began trading on April 15. Total revenue increased 52% to $645 million in the three years through 2014, and four of seven analysts surveyed by Bloomberg have a buy rating on the stock.

Investors appear impressed by the New York City-based electronic market maker's ability to tap into markets across a broad swath of industries in 34 countries. Virtu's business model is essentially to quickly buy and sell a range of securities and take advantage of the small resulting changes in bid-ask spreads, the prices at which buyers and sellers simultaneously are willing to make trades.

"What is unique about Virtu is that they are diversified across asset classes and geography," said Richard Repetto, an equities analyst with Sandler O'Neill. "They are able to take advantage of many different markets with different instruments."

Virtu's chairman, Vincent Viola, is no stranger to multiple asset classes. As a former chairman of the New York Mercantile Exchange, he distinguished himself as an expert in both electronic trading expert and the esoteric derivatives and strategies that are routine in commodities trading.

Virtu's main strategy to capture price volatility is not its ability to trade quickly, but the ability to access market turbulence with such a broad scope, CEO Douglas Cifu said on the company's first earnings call in May.

"As we've repeatedly said, the core strength of this firm is the diversification," he said. "We're there to capture those periods of episodic volumes and volatility where they may arrive."
 

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