Virtu’s $1.15bn revenue becomes $704m on its adjusted net-trading measure

Virtu Financial reported third-quarter 2026 total revenue of $1.154 billion and adjusted net trading income of $703.967 million. Those figures are often placed side by side as though the second were simply the first after expenses. The company’s own reconciliation shows a more specific construction. Adjusted net trading income starts with $820.198 million of trading income, adds $172.226 million of commissions and technology services and $151.155 million of interest and dividend income, then subtracts $242.063 million of brokerage, exchange, clearance fees and payments for order flow and $197.549 million of interest and dividend expense. The calculation lands exactly on $703.967 million.[1]

That bridge matters because the $449.973 million difference between total revenue and adjusted net trading income is not one homogeneous cost bucket. Total revenue also contains $10.361 million of other net revenue, while the adjusted measure brings in selected direct expenses that are presented below revenue in the GAAP statement. A simple subtraction therefore mixes omitted revenue with included expenses. Describing the entire gap as ‘transaction costs’ or ‘cost of revenue’ would misstate the metric. Virtu defines adjusted net trading income as a non-GAAP measure designed to place core revenue streams beside directly associated costs.[1]

The exact reconciliation

The arithmetic is independently reproducible: $820.198 million plus $172.226 million plus $151.155 million, less $242.063 million and $197.549 million, equals $703.967 million. Virtu reported the rounded amount as $704.0 million, up 50.7% from $467.0 million in the prior-year quarter. Total revenue rose 39.9% to $1.154 billion and net income rose to $282.5 million from $149.1 million. The adjusted measure therefore grew faster than total revenue, but that does not mean every direct cost declined. The underlying expense lines increased materially.[1]

Brokerage, exchange, clearance fees and payments for order flow rose from $178.256 million to $242.063 million, an increase of 35.8%. Interest and dividend expense rose from $165.691 million to $197.549 million, an increase of 19.2%. Those costs were absorbed by much faster growth in trading income, which increased 55.0% to $820.198 million. The economic story is therefore one of greater gross opportunity and higher direct costs, with the revenue increase large enough to expand the adjusted net result.[1]

Why the total-revenue comparison can mislead

Virtu’s GAAP total revenue includes trading income, interest and dividend income, commissions and technology services, and other net revenue. It does not net the direct trading and financing expenses used in the adjusted measure. Adjusted net trading income crosses the income statement: it selects revenue lines and subtracts selected expenses. The $1.154 billion and $704.0 million figures answer different questions. The first is a GAAP top-line measure. The second is management’s attempt to show core revenue after direct brokerage, exchange, clearance, order-flow and financing costs.[1]

This structure makes peer comparisons difficult. Another market maker may present net trading revenue after certain exchange fees, may classify payments for order flow differently, or may not combine financing income and expense in the same non-GAAP measure. Virtu itself warns that other companies may define similar measures differently. A ranking based on ‘adjusted net trading income’ is meaningful only after each firm’s reconciliation is normalised. The exact bridge is therefore more valuable than the label.[1]

Market making generated most of the adjusted result

Virtu’s segment table assigns $578.809 million of adjusted net trading income to Market Making and $125.158 million to Execution Services. Market Making therefore represented 82.22% of the total and Execution Services 17.78%. The segment mix shows that the quarter’s economics were still dominated by principal market-making activity across equities, fixed income, currencies, cryptocurrencies, commodities and derivatives, even though the execution and technology business made a meaningful contribution.[1]

The segment bridge also shows why the expense lines should not be read only at consolidated level. Market Making carried most of the interest and dividend expense and most of the brokerage, exchange and clearance cost. Execution Services generated the majority of commissions and technology-services revenue. Combining the segments is appropriate for the consolidated measure, but it can obscure which costs are structurally attached to capital-intensive market making and which revenues come from agency execution or technology. Investors assessing cyclicality need both views.[1]

The measure is disclosed, but it has limits

Virtu plainly identifies adjusted net trading income as non-GAAP and explains why management considers it useful. The reconciliation is not concealed, and the company states that the measure omits material costs required to operate the business. It should not be portrayed as an attempt to replace net income. The more legitimate analytical question is how much of the adjusted measure ultimately converts into operating profit and cash after compensation, technology, occupancy, depreciation, financing on long-term debt, taxes and other expenses not included in the bridge.[1]

For the quarter, adjusted EBITDA was $437.9 million and net income was $282.5 million. Those lower measures capture additional cost layers and accounting items. The difference between adjusted net trading income and adjusted EBITDA is not itself a complete cost reconciliation because adjusted EBITDA applies further adjustments, but it demonstrates why $704.0 million cannot be treated as distributable earnings. A financial model that uses the measure as revenue must separately include the costs below it; a model that starts with GAAP revenue must avoid subtracting the selected direct costs twice.[1]

What the bridge says about order-flow and financing costs

The combined direct deductions were $439.612 million. That amount is substantial, but it spans different economic functions. Brokerage, exchange and clearance fees reflect access to markets and execution infrastructure; payments for order flow relate to the economics of sourced retail flow; interest and dividend expense reflects financing and securities positions. Aggregating them is appropriate for the company’s defined measure, but it does not support a conclusion about customer execution quality or the net economics of any one channel. Those questions require order-level, venue and product data not provided in the quarterly release.[1]

The order-flow component is especially sensitive. Virtu reports it net within a broader expense caption, so the release does not isolate the gross amount paid for order flow in the reconciliation table. It would be wrong to describe all $242.063 million as PFOF. The line includes brokerage, exchange and clearance fees as well. A policy or conduct analysis needs the component figure, the associated revenue and execution-quality evidence. This accounting bridge can identify scale, not allocate the amount to a regulatory question.[1]

What future disclosures could test the quarter

The durability of the result depends on trading opportunity, volatility, market share, financing conditions and direct costs. A future quarter with lower trading income but sticky exchange and financing expense could compress the adjusted measure quickly. Conversely, continued growth in execution services could diversify the segment mix. More granular disclosure of gross order-flow payments, exchange rebates, net financing by asset class and revenue capture relative to market volumes would allow the adjusted result to be linked more directly to operating drivers.[1]

The present finding is a source-control correction. Virtu’s $1.154 billion of total revenue does not mechanically become $704.0 million by subtracting one cost category. The company constructs adjusted net trading income from three selected income lines and two selected direct-expense lines, while excluding other net revenue. The exact $703.967 million result can be reproduced from the table. That bridge is the appropriate basis for analysis, not a loose $450 million ‘cost gap’ inferred from two headline numbers.[1]

That precision changes the interpretation without diminishing the quarter. Trading income grew strongly enough to outweigh higher direct costs, adjusted net trading income rose 50.7%, and net income increased materially. The non-GAAP metric is useful when kept inside its definition and dangerous when treated as a universal net-revenue measure. The next step for any comparison is to preserve the selected inputs, the costs excluded below the measure and the segment mix that generated it.[1]

A peer comparison should therefore rebuild the same bridge for every firm rather than align labels. One market maker may present net trading revenue after exchange and liquidity costs; another may leave those costs below revenue; a third may include interest or order-flow payments in a different line. Virtu’s reconciliation is useful because it makes the selected additions and deductions visible. The remaining analytical work is to keep below-measure operating costs—compensation, technology, depreciation and financing—outside adjusted net trading income when assessing profitability. That discipline preserves the metric’s value without allowing a non-GAAP subtotal to become a substitute for cash generation or statutory earnings.[1]

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