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Virtu Financial has agreed a deal to buy high frequency trading rival KCG Holdings for $1.4bn in a move that will turn it into one of the biggest participants in the vast US equity market.

Virtu will pay $20 per share in cash, at the top end of an unsolicited $18-20 a share offer it made in March, in a combination that will reshape an industry under pressure from rising costs and low profitability. Following the closing of the deal, around one trade in five on the US equity market is likely to pass through Virtu’s systems. It will make Virtu the largest competitor to Citadel Securities.

The purchase will be financed through a combination of $1.65bn debt and the sale of $750m of equity, at $15.60 per share, to Temasek and GIC, two Singapore sovereign wealth funds, and PSP Investments, one of Canada’s largest pension funds. They will be joined by North Island, a private equity firm, led by Glenn Hutchins, co-founder of US private equity firm Silver Lake, and Bob Greifeld, chairman of Nasdaq.

The combination is the largest consolidation in an industry which grew rapidly around the financial crisis by automating trading and executing deals in milliseconds, but whose profits are now being squeezed by the lowest levels of market volatility in two decades. However the cost of cutting edge technology and data has continued to rise. Virtu predicts cost savings of $208m, net of pre-tax expenses, and will use the $440m of capital on KCG’s balance sheet.

As part of the acquisition, Virtu will add Mr Hutchins and Mr Greifeld as directors. JP Morgan will underwrite the debt.

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