(Bloomberg) — Virtu Financial Inc.s shares dropped after the automated trader revealed that its profits from currency markets have fallen for two successive quarters.
While making markets in American equities earned the company $45.8 million in the three months through Sept. 30, a 76 percent jump from a year earlier, income from foreign exchange slid 7.6 percent to $23.3 million, according to a statement on Wednesday. New York-based Virtus shares also fell last quarter when it posted earnings that disappointed investors.
FX is supposed to be one of the biggest drivers of growth for the company, Ashley Serrao, an analyst at Credit Suisse Group AG, wrote in a note to clients. We view outperformance in cash equities as idiosyncratic in light of volatility and are generally less constructive here given more mature markets.
Virtu earned $42.2 million from currency trading in the first quarter, followed by $24.7 million in the three months through June.
Currency trading dropped at Virtu in the third quarter, as it did at some electronic platforms. Average daily volume on Hotspot, the currency venue owned by Bats Global Markets Inc., fell to $25.9 billion from $30.3 billion a year earlier. The daily volume of foreign-exchange derivatives on CME Group Inc.s market, however, rose 7.5 percent to 854,505 contracts in the same period.
“There was a decreased demand for pricing in the foreign- exchange market and certainly that was reflected in what you saw in our quarter,” Doug Cifu, Virtus chief executive officer, said in a conference call.
The stock slid 4.5 percent to $23.97 at 12 p.m. in New York. It had fallen as much as 9.2 percent in the morning, the biggest decline since the company last reported earnings on Aug. 5. The shares traded at a record of $25.26 as recently as Oct. 26.
The initial selloff in Virtus shares was excessive, according to Chris Allen, an analyst at Evercore ISI.
We continue to believe Virtu is well positioned for what we see as a longer-term uptrend in volatility across many asset classes, Allen wrote in a note to clients. Albeit we expect the longer-term trend to be jagged.
Virtus equities business profited from a summer of turbulence in global stock markets. A measure of volatility, known as the VIX, spiked in August as a bear market in Chinese stocks savaged share prices around the world. The Chicago Board Options Exchange Volatility Index rose to 40.7 on Aug.24, its highest level since 2011.
Overall trading profit at the electronic market maker increased 34 percent to $138.6 million in the third quarter. The company raised$314 million in its April initial public offering. Virtus Amsterdam rival, Flow Traders BV, listed in July.
