Docoh
Loading...

VIRT Virtu Financial

Filed: 3 Nov 21, 2:17pm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q 
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from     to     
Commission file number:  001-37352
Virtu Financial, Inc.
(Exact name of registrant as specified in its charter)
Delaware32-0420206
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
One Liberty Plaza10006
165 Broadway
New York,New York
(Address of principal executive offices)(Zip Code)
 
(212) 418-0100
(Registrant’s telephone number, including area code) 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A common stock, par value $0.00001 per shareVIRTThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting company 
  Emerging growth company 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No
Class of StockShares outstanding as of November 3, 2021
Class A common stock, par value $0.00001 per share112,339,058
Class C common stock, par value $0.00001 per share9,763,065
Class D common stock, par value $0.00001 per share60,091,740
 
1





VIRTU FINANCIAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED September 30, 2021


1

PART I

ITEM 1. FINANCIAL STATEMENTS
Index to Condensed Consolidated Financial Statements
 
2

Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Financial Condition (Unaudited)
(in thousands, except share data)September 30,
2021
December 31,
2020
Assets
Cash and cash equivalents$683,836 $889,559 
Cash restricted or segregated under regulations and other70,477 117,446 
Securities borrowed1,277,601 1,425,016 
Securities purchased under agreements to resell170,194 22,866 
Receivables from broker-dealers and clearing organizations1,452,426 1,684,006 
Trading assets, at fair value:
Financial instruments owned3,018,838 2,369,192 
Financial instruments owned and pledged959,056 746,539 
Receivables from customers414,244 214,478 
Property, equipment and capitalized software (net of accumulated depreciation of $470,524 and $455,961 as of September 30, 2021 and December 31, 2020, respectively)103,963 113,590 
Operating lease right-of-use assets247,531 268,864 
Goodwill1,148,926 1,148,926 
Intangibles (net of accumulated amortization of $236,581 and $183,494 as of September 30, 2021 and December 31, 2020, respectively)402,912 454,499 
Deferred tax assets176,279 193,070 
Other assets ($87,926 and $68,316, at fair value, as of September 30, 2021 and December 31, 2020, respectively)303,194 317,747 
Total assets$10,429,477 $9,965,798 
Liabilities and equity
Liabilities
Short-term borrowings$312,814 $64,686 
Securities loaned1,017,436 948,256 
Securities sold under agreements to repurchase583,268 461,235 
Payables to broker-dealers and clearing organizations1,094,971 876,446 
Payables to customers182,939 118,826 
Trading liabilities, at fair value:
Financial instruments sold, not yet purchased2,871,649 2,923,708 
Tax receivable agreement obligations254,660 271,165 
Accounts payable, accrued expenses and other liabilities413,998 491,818 
Operating lease liabilities292,967 315,340 
Long-term borrowings1,604,062 1,639,280 
Total liabilities8,628,764 8,110,760 
Commitments and Contingencies (Note 15)00
Virtu Financial Inc. Stockholders' equity
Class A common stock (par value $0.00001), Authorized — 1,000,000,000 and 1,000,000,000 shares, Issued — 127,872,786 and 125,627,277 shares, Outstanding — 113,220,345 and 122,012,180 shares at September 30, 2021 and December 31, 2020, respectively
Class B common stock (par value $0.00001), Authorized — 175,000,000 and 175,000,000 shares, Issued and Outstanding — 0 and 0 shares at September 30, 2021 and December 31, 2020, respectively— — 
Class C common stock (par value $0.00001), Authorized — 90,000,000 and 90,000,000 shares, Issued and Outstanding — 9,763,065 and 10,226,939 shares at September 30, 2021 and December 31, 2020, respectively— — 
Class D common stock (par value $0.00001), Authorized — 175,000,000 and 175,000,000 shares, Issued and Outstanding — 60,091,740 and 60,091,740 shares at September 30, 2021 and December 31, 2020, respectively
Treasury stock, at cost, 14,652,441 and 3,615,097 shares at September 30, 2021 and December 31, 2020, respectively(392,468)(88,923)
Additional paid-in capital1,209,064 1,160,567 
Retained earnings (accumulated deficit)690,568 422,381 
Accumulated other comprehensive income (loss)(21,838)(25,487)
Total Virtu Financial Inc. stockholders' equity1,485,328 1,468,540 
3

Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Financial Condition (Unaudited)
(in thousands, except share data)September 30,
2021
December 31,
2020
Noncontrolling interest315,385 386,498 
Total equity1,800,713 1,855,038 
Total liabilities and equity$10,429,477 $9,965,798 
See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited).
4

Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except share and per share data)2021202020212020
Revenues:
Trading income, net$394,265 $441,295 $1,591,840 $1,987,756 
Interest and dividends income9,704 10,932 26,246 46,788 
Commissions, net and technology services135,923 133,853 470,687 452,333 
Other, net4,452 70,032 17,108 75,758 
Total revenue544,344 656,112 2,105,881 2,562,635 
Operating Expenses:
Brokerage, exchange, clearance fees and payments for order flow, net158,862 196,448 588,885 573,769 
Communication and data processing55,627 51,647 159,824 162,336 
Employee compensation and payroll taxes84,552 35,798 273,172 327,091 
Interest and dividends expense26,586 27,374 75,585 97,656 
Operations and administrative18,228 24,612 65,636 73,480 
Depreciation and amortization16,636 16,656 49,764 50,728 
Amortization of purchased intangibles and acquired capitalized software16,933 18,265 53,087 56,177 
Termination of office leases238 60 5,126 343 
Debt issue cost related to debt refinancing, prepayment and commitment fees1,237 9,916 4,981 27,282 
Transaction advisory fees and expenses167 2,463 150 2,737 
Financing interest expense on long-term borrowings20,179 20,358 59,784 67,764 
Total operating expenses399,245 403,597 1,335,994 1,439,363 
Income before income taxes and noncontrolling interest145,099 252,515 769,887 1,123,272 
Provision for income taxes21,961 52,807 128,611 200,044 
Net income123,138 199,708 641,276 923,228 
Noncontrolling interest(52,631)(82,999)(268,454)(386,311)
Net income available for common stockholders$70,507 $116,709 $372,822 $536,917 
Earnings per share
Basic$0.59 $0.92 $3.04 $4.31 
Diluted$0.59 $0.92 $3.01 $4.29 
Weighted average common shares outstanding
Basic115,770,457 122,686,931 119,148,571 121,328,895 
Diluted116,623,115 123,772,005 120,373,160 121,939,839 
Net income$123,138 $199,708 $641,276 $923,228 
Other comprehensive income
Foreign exchange translation adjustment, net of taxes(7,843)7,812 (11,452)3,860 
Net change in unrealized cash flow hedges gain (loss), net of taxes3,498 314 18,197 (64,425)
Comprehensive income118,793 207,834 648,021 862,663 
Less: Comprehensive income attributable to noncontrolling interest(51,007)(86,761)(271,552)(360,302)
Comprehensive income attributable to common stockholders$67,786 $121,073 $376,469 $502,361 
 
See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited).
5

Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity (Unaudited)
Three and Nine Months Ended September 30, 2021 and 2020
Class A Common StockClass C Common StockClass D Common StockTreasury StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive Income (Loss)Total Virtu Financial Inc. Stockholders' EquityNoncontrolling InterestTotal Equity
(in thousands, except share and interest data)
SharesAmountsSharesAmountsSharesAmountsSharesAmountsAmounts
Balance at December 31, 2020125,627,277 $10,226,939 $— 60,091,740 $(3,615,097)$(88,923)$1,160,567 $422,381 $(25,487)$1,468,540 $386,498 $1,855,038 
Share based compensation1,896,407 — — — — — — — 27,450 — — 27,450 — 27,450 
Treasury stock purchases(615,794)— — — — — (2,277,409)(63,359)— (16,059)— (79,418)— (79,418)
Stock options exercised154,372 — — — — — — — 2,933 — — 2,933 — 2,933 
Net income— — — — — — — — — 239,405 — 239,405 169,827 409,232 
Foreign exchange translation adjustment— — — — — — — — — — (2,165)(2,165)(1,511)(3,676)
Net change in unrealized cash flow hedges gains (losses)— — — — — — — — — — 12,607 12,607 9,299 21,906 
Dividends ($0.24 per share of Class A common stock and participating Restricted Stock Unit and Restricted Stock Awards) and distributions from Virtu Financial to noncontrolling interest— — — — — — — — — (30,147)— (30,147)(159,239)(189,386)
Issuance of common stock in connection with employee exchanges91,757 — — — — — — — — — — — — — 
Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges— — (91,757)— — — — — — — — — — — 
Balance at March 31, 2021127,154,019 $10,135,182 $— 60,091,740 $(5,892,506)$(152,282)$1,190,950 $615,580 $(15,045)$1,639,205 $404,874 $2,044,079 
Share based compensation32,916 — — — — — — — 7,444 — — 7,444 — 7,444 
Repurchase of Class C common stock— — (45,622)— — — — — (1,323)— — (1,323)— (1,323)
Treasury stock purchases(5,489)— — — — — (3,358,003)(101,305)— (114)— (101,419)— (101,419)
Stock options exercised253,625 — — — — — — — 4,819 — — 4,819 — 4,819 
Net income— — — — — — — — — 62,910 — 62,910 45,997 108,907 
Foreign exchange translation adjustment— — — — — — — — — — 43 43 23 66 
Net change in unrealized cash flow hedges gains (losses)— — — — — — — — — — (4,115)(4,115)(3,091)(7,206)
Dividends ($0.24 per share of Class A and Class B common stock and participating Restricted Stock Unit and Restricted Stock Awards) and distributions from Virtu Financial to noncontrolling interest— — — — — — — — — (29,483)— (29,483)(103,062)(132,545)
Issuance of common stock in connection with employee exchanges290,524 — — — — — — — — — — — — — 
Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges— — (290,524)— — — — — — — — — — — 
Balance at June 30, 2021127,725,595 $9,799,036 $— 60,091,740 $(9,250,509)$(253,587)$1,201,890 $648,893 $(19,117)$1,578,081 $344,741 $1,922,822 
Share based compensation103,154 — — — — — — — 6,803 — 6,803 6,803 
Repurchase of Class C common stock— (12,980)— — — — — (370)— (370)(370)
Treasury stock purchases(17,954)— — — — — (5,401,932)(138,881)(496)— (139,377)(139,377)
Stock options exercised39,000 — — — — — — — 741 — 741 741 
Net income— — — — — — — — — 70,507 — 70,507 52,631 123,138 
Foreign exchange translation adjustment— — — — — — — — — (4,912)(4,912)(2,931)(7,843)
Net change in unrealized cash flow hedges gains (losses)— — — — — — — — — 2,191 2,191 1,307 3,498 
Dividends ($0.24 per share of Class A and Class B common stock and participating Restricted Stock Unit and Restricted Stock Award) and distributions from Virtu Financial to noncontrolling interest— — — — — — — — — (28,336)— (28,336)(80,363)(108,699)
6

Class A Common StockClass C Common StockClass D Common StockTreasury StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive Income (Loss)Total Virtu Financial Inc. Stockholders' EquityNoncontrolling InterestTotal Equity
(in thousands, except share and interest data)
SharesAmountsSharesAmountsSharesAmountsSharesAmountsAmounts
Issuance of common stock in connection with employee exchanges22,991 — — — — — — — — — — — — — 
Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges— — (22,991)— — — — — — — — — — — 
Balance at September 30, 2021127,872,786 $9,763,065 $— 60,091,740 $(14,652,441)$(392,468)$1,209,064 $690,568 $(21,838)$1,485,328 $315,385 $1,800,713 
Class A Common StockClass C Common StockClass D Common StockTreasury StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive Income (Loss)Total Virtu Financial Inc. Stockholders' EquityNoncontrolling InterestTotal Equity
(in thousands, except share and interest data)
SharesAmountsSharesAmountsSharesAmountsSharesAmountsAmounts
Balance at December 31, 2019120,435,912 $12,887,178 $— 60,091,740 $(2,178,771)$(55,005)$1,077,398 $(90,374)$(647)$931,374 $297,562 $1,228,936 
Share based compensation1,854,961 — — — — — — — 21,357 — — 21,357 — 21,357 
Treasury stock purchases(642,869)— — — — — — — — (9,801)— (9,801)— (9,801)
Stock options exercised213,129 — — — — — — — 3,206 — — 3,206 — 3,206 
Warrants issued— — — — — — — — 11,486 — — 11,486 — 11,486 
Net income— — — — — — — — — 221,069 — 221,069 167,169 388,238 
Foreign exchange translation adjustment— — — — — — — — — — (5,884)(5,884)(4,512)(10,396)
Net change in unrealized cash flow hedges gains (losses)— — — — — — — — — — (31,468)(31,468)(24,134)(55,602)
Dividends ($0.24 per share of Class A common stock and participating Restricted Stock Units and Restricted Stock Awards) and distributions from Virtu Financial to noncontrolling interest— — — — — — — — — (29,602)— (29,602)(19,165)(48,767)
Issuance of common stock in connection with employee exchanges724,327 — — — — — — — — — — — — — 
Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges— — (724,327)— — — — — — — — — — — 
Balance at March 31, 2020122,585,460 $12,162,851 $— 60,091,740 $(2,178,771)$(55,005)$1,113,447 $91,292 $(37,999)$1,111,737 $416,920 $1,528,657 
Share based compensation36,771 — — — — — — — 7,839 — — 7,839 — 7,839 
Treasury stock purchases(8,727)— — — — — — — — (360)— (360)— (360)
Stock options exercised404,794 — — — — — — — 7,691 — — 7,691 — 7,691 
Net income— — — — — — — — — 199,142 — 199,142 136,143 335,285 
Foreign exchange translation adjustment— — — — — — — — — — 3,674 3,674 2,770 6,444 
Net change in unrealized cash flow hedges gains (losses)— — — — — — — — — — (5,242)(5,242)(3,895)(9,137)
Dividends ($0.24 per share of Class A and Class B common stock and participating Restricted Stock Units and Restricted Stock Award) and distributions from Virtu Financial to noncontrolling interest— — — — — — — — — (30,201)— (30,201)(145,211)(175,412)
Issuance of common stock in connection with employee exchanges1,635,912 — — — — — — — — — — — — — 
Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges— — (1,635,912)— — — — — — — — — — — 
Balance at June 30, 2020124,654,210 $10,526,939 $— 60,091,740 $(2,178,771)$(55,005)$1,128,977 $259,873 $(39,567)$1,294,280 $406,727 $1,701,007 
Share based compensation234,981 — — — — — — — 10,568 — — 10,568 — 10,568 
Treasury stock purchases(79,570)— — — — — — — — (2,418)— (2,418)— (2,418)
7

Class A Common StockClass C Common StockClass D Common StockTreasury StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other Comprehensive Income (Loss)Total Virtu Financial Inc. Stockholders' EquityNoncontrolling InterestTotal Equity
(in thousands, except share and interest data)
SharesAmountsSharesAmountsSharesAmountsSharesAmountsAmounts
Stock options exercised189,704 — — — — — — — 3,604 — — 3,604 — 3,604 
Net income— — — — — — — — — 116,709 — 116,709 82,999 199,708 
Foreign exchange translation adjustment— — — — — — — — — — 4,213 4,213 3,599 7,812 
Net change in unrealized cash flow hedges gains (losses)— — — — — — — — — — 151 151 163 314 
Dividends ($0.24 per share of Class A and Class B common stock and participating Restricted Stock Unit and Restricted Stock Award) and distributions from Virtu Financial to noncontrolling interest— — — — — — — — — (30,347)— (30,347)(83,441)(113,788)
Issuance of common stock in connection with employee exchanges60,000 — — — — — — — — — — — — — 
Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges— — (60,000)— — — — — — — — — — — 
Balance at September 30, 2020125,059,325 $10,466,939 $— 60,091,740 $(2,178,771)$(55,005)$1,143,149 $343,817 $(35,203)$1,396,760 $410,047 $1,806,807 

See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited).
8

Virtu Financial, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 Nine Months Ended September 30,
(in thousands)20212020
Cash flows from operating activities
Net income$641,276 $923,228 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization49,764 50,728 
Amortization of purchased intangibles and acquired capitalized software53,087 56,177 
Debt issue cost related to debt refinancing and prepayment649 7,555 
Amortization of debt issuance costs and deferred financing fees5,243 24,164 
Termination of office leases5,126 343 
Share-based compensation38,260 37,510 
Deferred taxes16,791 22,204 
Gain on sale of MATCHNow— (58,652)
Other(15,093)(14,750)
Changes in operating assets and liabilities:
Securities borrowed147,415 602,920 
Securities purchased under agreements to resell(147,328)125,619 
Receivables from broker-dealers and clearing organizations231,580 (563,297)
Trading assets, at fair value(862,163)(51,507)
Receivables from customers(199,766)(73,408)
Operating lease right-of-use assets20,135 27,457 
Other assets43,898 (67,469)
Securities loaned69,180 (894,310)
Securities sold under agreements to repurchase122,033 126,253 
Payables to broker-dealers and clearing organizations236,722 (216,143)
Payables to customers64,113 52,261 
Trading liabilities, at fair value(52,059)292,177 
Operating lease liabilities(22,373)(34,738)
Accounts payable, accrued expenses and other liabilities(71,968)109,276 
Net cash provided by operating activities374,522 483,598 
Cash flows from investing activities
Development of capitalized software(30,154)(27,463)
Acquisition of property and equipment(16,326)(21,717)
Proceeds from sale of MATCHNow— 60,592 
Other investing activities(18,960)(7,968)
Net cash provided by (used in) investing activities(65,440)3,444 
Cash flows from financing activities
Dividends to stockholders and distributions from Virtu Financial to noncontrolling interest(430,630)(337,966)
Repurchase of Class C common stock(1,693)— 
Purchase of treasury stock(320,214)(12,579)
Stock options exercised8,493 14,502 
Short-term borrowings, net249,622 49,388 
Repayment of long term borrowings(36,737)(288,500)
Tax receivable agreement obligations(16,505)(13,286)
Debt issuance costs(2,658)(9,779)
Net cash used in financing activities(550,322)(598,220)
Effect of exchange rate changes on cash and cash equivalents(11,452)3,860 
Net decrease in cash and cash equivalents(252,692)(107,318)
Cash, cash equivalents, and restricted or segregated cash, beginning of period1,007,005 773,280 
Cash, cash equivalents, and restricted or segregated cash, end of period$754,313 $665,962 
Supplementary disclosure of cash flow information
9

 Nine Months Ended September 30,
(in thousands)20212020
Cash paid for interest$115,890 $137,750 
Cash paid for taxes130,565 207,387 
Non-cash investing activities
Share-based and accrued incentive compensation to developers relating to capitalized software12,935 9,672 
 
See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited).
10

Virtu Financial, Inc. and Subsidiaries
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(dollars in thousands, except shares and per share amounts, unless otherwise noted)
1. Organization and Basis of Presentation

Organization

The accompanying condensed consolidated financial statements include the accounts and operations of Virtu Financial, Inc. (“VFI” or, collectively with its wholly owned or controlled subsidiaries, “Virtu” or the “Company”). VFI is a Delaware corporation whose primary asset is its ownership interest in Virtu Financial LLC (“Virtu Financial”). As of September 30, 2021, VFI owned approximately 62.6% of the membership interests of Virtu Financial. VFI is the sole managing member of Virtu Financial and operates and controls all of the businesses and affairs of Virtu Financial and its subsidiaries (the “Group”).

The Company is a leading financial firm that leverages cutting edge technology to deliver liquidity to the global markets and innovative, transparent trading solutions to its clients. The Company provides deep liquidity in over 25,000 financial instruments, on over 235 venues, in 36 countries worldwide to help create more efficient markets. Leveraging its global market structure expertise and scaled, multi-asset infrastructure, the Company provides its clients with a robust product suite including offerings in execution, liquidity sourcing, analytics and broker-neutral, multi-dealer platforms in workflow technology. The Company’s product offerings allow its clients to trade on hundreds of venues in over 50 countries and across multiple asset classes, including global equities, Exchange-Traded Funds ("ETFs"), foreign exchange, futures, fixed income and other commodities. The Company’s integrated, multi-asset analytics platform provides a range of pre- and post-trade services, data products and compliance tools that its clients rely upon to invest, trade and manage risk across global markets.

The Company has completed 2 significant acquisitions over the past five years that have expanded and complemented Virtu Financial's original electronic trading and marking making business. On July 20, 2017 (the “KCG Closing Date”), the Company completed the all-cash acquisition of KCG Holdings, Inc. (“KCG”) (the “Acquisition of KCG”). On March 1, 2019 (the “ITG Closing Date”), the Company completed the acquisition of Investment Technology Group, Inc. and its subsidiaries (“ITG”) in an all-cash transaction valued at $30.30 per ITG share, for a total of approximately $1.0 billion (the “ITG Acquisition”). ITG's business contributes to the Company's Execution Services segment.

Virtu Financial’s principal United States ("U.S.") subsidiary is Virtu Americas LLC (“VAL”), which is a U.S. broker-dealer. Other principal U.S. subsidiaries include Virtu Financial Global Markets LLC, a U.S. trading entity focused on futures and currencies; Virtu ITG Analytics LLC, a provider of pre- and post-trade analysis, fair value, and trade optimization services; and Virtu ITG Platforms LLC, a provider of workflow technology solutions and network connectivity services. Principal foreign subsidiaries include Virtu Financial Ireland Limited ("VFIL") and Virtu ITG Europe Limited ("VIEL"), each formed in Ireland; Virtu ITG UK Limited ("VIUK"), formed in the United Kingdom; Virtu ITG Canada Corp. and Virtu Financial Canada ULC, each formed in Canada; Virtu Financial Asia Pty Ltd. and Virtu ITG Australia Limited, each formed in Australia; Virtu ITG Hong Kong Limited, formed in Hong Kong; and Virtu Financial Singapore Pte. Ltd. and Virtu ITG Singapore Pte. Ltd., each formed in Singapore, all of which are trading entities focused on asset classes in their respective geographic regions.

The Company has 2 operating segments: (i) Market Making and (ii) Execution Services; and 1 non-operating segment: Corporate. See Note 21 "Geographic Information and Business Segments" for a further discussion of the Company’s segments.

Basis of Consolidation and Form of Presentation

These condensed consolidated financial statements are presented in U.S. dollars, have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding financial reporting with respect to Form 10-Q and accounting standards generally accepted in the United States of America (“U.S. GAAP”) promulgated by the Financial Accounting Standards Board (“FASB”) in the Accounting Standards Codification (“ASC” or the “Codification”), and reflect all adjustments that, in the opinion of management, are normal and recurring, and that are necessary for a fair statement of the results for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with SEC rules and regulations. The condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The condensed consolidated financial statements of the Company include its equity interests in Virtu Financial and its subsidiaries. As sole managing member of Virtu Financial, the Company exerts control over the Group’s operations. The Company
11

consolidates Virtu Financial and its subsidiaries’ financial statements and records the interests in Virtu Financial that the Company does not own as noncontrolling interests. All intercompany accounts and transactions have been eliminated in consolidation.

Certain reclassifications have been made to the prior period's condensed consolidated financial statements in order to conform to the current period presentation. Such reclassifications are immaterial, individually and in the aggregate, to both current and all previously issued financial statements taken as a whole and have no effect on previously reported consolidated net income available to common stockholders.

Effective for the quarter ended March 31, 2021, the Company changed the presentation of its Condensed Consolidated Statements of Changes in Equity and Condensed Consolidated Statements of Cash Flows. As a result, the Company combined $30.3 million of Dividends to stockholders and $83.4 million of Distribution from Virtu Financial to noncontrolling interest, and $90.1 million of Dividends to stockholders and $247.8 million of Distribution from Virtu Financial to noncontrolling interest into one line, Dividends to stockholders and distribution from Virtu Financial to noncontrolling interest for the three and nine months ended September 30, 2020, respectively. Dividends and distributions from Virtu Financial to noncontrolling interest both represent cash payments by the Company to its equity owners which reduce Total equity.

2. Summary of Significant Accounting Policies
For a detailed discussion of the Company's significant accounting policies, see Note 2 "Summary of Significant Accounting Policies" in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

Accounting Pronouncements, Recently Adopted

Income Taxes - In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The ASU also amends other aspects of the guidance relating to the accounting for franchise taxes, enacted changes in tax laws or rates, the accounting for transactions that result in a step-up in the tax basis of goodwill, and other tax-related items. The Company adopted this ASU on January 1, 2021 and it did not have a material impact on its condensed consolidated financial statements.

Accounting Pronouncements, Not Yet Adopted as of September 30, 2021

Reference Rate Reform - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which is designed to ease the potential burden in accounting for the transition away from LIBOR. The ASU applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued and replaced with alternative reference rates as a result of reference rate reform. The ASU provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which expands the scope of Topic 848 to include derivative instruments that are affected by changes in the interest rates used for margining, discounting or contract price alignment as part of the market transition to new reference rates (the "discounting transition"). The Company is evaluating the impact of these ASUs, but does not expect it to have a material impact on its Condensed Consolidated Financial Statements and related disclosures.

Convertible Instruments - In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The ASU simplifies accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity and updates selected earnings per share ("EPS") guidance. The ASU is effective for periods beginning after December 15, 2021. The Company is currently evaluating the impact of the new standard on its Condensed Consolidated Financial Statements and related disclosures.

3. Sale of MATCHNow
In May 2020, the Company entered into a Securities Purchase Agreement ("SPA") with Cboe Global Markets, Inc. (“CBOE”) pursuant to which the Company agreed to sell 100% of the outstanding interests in TriAct Canada Marketplace LP
12

and TCM Corp., which operate an equities alternative trading system (“MATCHNow”) in Canada. Pursuant to the terms of the SPA, the Company also agreed to enter into a licensing agreement for the licensing of certain software and intellectual property used in support of MATCHNow.

On August 4, 2020 (the "MATCHNow Closing Date"), the Company completed the sale of MATCHNow to CBOE for total gross proceeds of $60.6 million in cash, with additional contingent consideration of up to approximately $23.0 million. The Company incurred one-time transaction costs including professional fees related to the sale of $2.5 million, which were recorded in Transaction advisory fees and expenses on the Condensed Consolidated Statements of Comprehensive Income. The Company recognized a gain on sale of $58.7 million, which was recorded in Other, net on the Condensed Consolidated Statements of Comprehensive Income for the year ended September 30, 2020.

A summary of the carrying value of MATCHNow and gain on sale of MATCHNow is as follows:

(in thousands)
Total sale proceeds received$60,592 
Total carrying value of MATCHNow as of MATCHNow Closing Date(1,940)
Gain on sale of MATCHNow58,652 
Transaction costs(2,453)
Gain on sale of MATCHNow, net of transaction costs$56,199 

Contingent consideration may be earned based on the future performance of MATCHNow following the MATCHNow Closing Date. Deferred payments will be assessed quarterly until December 31, 2022 and recorded in Other, net on the Condensed Consolidated Statements of Comprehensive Income when the contingency is resolved and payments become payable by CBOE.

In addition, the Company entered into a Transition Services Agreement ("TSA") with CBOE, pursuant to which the Company agreed to provide certain telecom and general and administrative services for a defined period. Income from performing services under the TSA are recorded in Other, net on the Condensed Consolidated Statements of Comprehensive Income.
With the licensing of certain software and intellectual property associated with MATCHNow, the Company performed an assessment of impairment of long-lived intangible assets acquired in connection with the ITG acquisition, of which MATCHNow technology was a component. No impairment was recognized for the three and nine months ended September 30, 2020.

4. Earnings per Share

The below table contains a reconciliation of net income (loss) before noncontrolling interest to net income (loss) available for common stockholders:
 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Income before income taxes and noncontrolling interest$145,099 $252,515 $769,887 $1,123,272 
Provision for income taxes21,961 52,807 128,611 200,044 
Net income123,138 199,708 641,276 923,228 
Noncontrolling interest(52,631)(82,999)(268,454)(386,311)
Net income available for common stockholders$70,507 $116,709 $372,822 $536,917 
13

The calculation of basic and diluted earnings per share is presented below:
 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except for share or per share data)2021202020212020
Basic earnings (loss) per share:  
Net income available for common stockholders$70,507 $116,709 $372,822 $536,917 
Less: Dividends and undistributed earnings allocated to participating securities(2,222)(3,417)(10,335)(14,210)
Net income available for common stockholders, net of dividends and undistributed earnings allocated to participating securities68,285 113,292 362,487 522,707 
Weighted average shares of common stock outstanding:
Class A115,770,457 122,686,931 119,148,571 121,328,895 
Basic earnings (loss) per share$0.59 $0.92 $3.04 $4.31 
 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands, except for share or per share data)2021202020212020
Diluted earnings (loss) per share:  
Net income available for common stockholders, net of dividends and undistributed earnings allocated to participating securities$68,285 $113,292 $362,487 $522,707 
Weighted average shares of common stock outstanding:
Class A
Issued and outstanding115,770,457 122,686,931 119,148,571 121,328,895 
Issuable pursuant to Amended and Restated 2015 Management Incentive Plan, Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan, and Warrants issued in connection with the Founder Member Loan852,657 1,085,074 1,224,589 610,944 
116,623,114 123,772,005 120,373,160 121,939,839 
Diluted earnings (loss) per share$0.59 $0.92 $3.01 $4.29 

5. Tax Receivable Agreements

For a detailed discussion of the Company's tax receivable agreements, see Note 7 "Tax Receivable Agreements" in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

For purposes of the tax receivable agreements, the cash savings realized by the Company are computed by comparing the actual income tax liability of the Company to the amount of such taxes the Company would have been required to pay had there been (i) no increase to the tax basis of the assets of Virtu Financial as a result of the purchase or exchange of Virtu Financial Units, (ii) no tax benefit from the tax basis in the intangible assets of Virtu Financial on the date of the IPO and (iii) no tax benefit as a result of the Net Operating Losses (“NOLs”) and other tax attributes of Virtu Financial. Subsequent adjustments of the tax receivable agreements obligations due to certain events (e.g., changes to the expected realization of NOLs or changes in tax rates) will be recognized within income before taxes and noncontrolling interests in the Condensed Consolidated Statements of Comprehensive Income.

 The Company made its first payment of $7.0 million in February 2017, its second payment of $12.4 million in September 2018, its third payment of $13.3 million in March 2020, and its fourth payment of $16.5 million in April 2021. Tax receivable payments are expected to range from approximately $0.9 million to $21.7 million per year over the next 15 years.

At September 30, 2021 and December 31, 2020, the Company’s remaining deferred tax assets that relate to the matters described above were approximately $184.3 million and $199.1 million, respectively, and the Company’s liabilities over the next 15 years pursuant to the tax receivable agreements were approximately $254.7 million and $271.2 million, respectively. The amounts recorded as of September 30, 2021 and December 31, 2020 are based on best estimates available at the respective dates and may be subject to change after the filing of the Company’s U.S. federal and state income tax returns for the years in which tax savings were realized.

14

6. Goodwill and Intangible Assets

The Company has 2 operating segments: (i) Market Making; (ii) Execution Services; and 1 non-operating segment: Corporate. As of September 30, 2021 and December 31, 2020, the Company’s total amount of goodwill recorded was $1,148.9 million. No goodwill impairment was recognized during the three and nine months ended September 30, 2021 and 2020.

The following table presents the details of goodwill by segment as of September 30, 2021 and December 31, 2020:
(in thousands)Market MakingExecution ServicesCorporateTotal
Balance as of period-end$755,292 $393,634 $— $1,148,926 

As of September 30, 2021 and December 31, 2020, the Company's total amount of intangible assets recorded was $402.9 million and $454.5 million, respectively. Acquired intangible assets consisted of the following as of September 30, 2021 and December 31, 2020:
 As of September 30, 2021
(in thousands)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Useful Lives
(Years) 
Customer relationships$486,600 $(130,182)$356,418 10to12
Technology136,000 (97,966)38,034 1to6
Favorable occupancy leases5,895 (3,433)2,462 3to15
Exchange memberships3,998 — 3,998 Indefinite
Trade name3,600 (3,100)500 3
ETF issuer relationships950 (950)— 9
ETF buyer relationships950 (950)— 9
Other$1,500 $— $1,500 Indefinite
 $639,493 $(236,581)$402,912 
As of December 31, 2020
(in thousands)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountUseful Lives
(Years)
Customer relationships$486,600 $(94,299)$392,301 10to12
Technology136,000 (82,403)53,597 1to6
Favorable occupancy leases5,895 (2,839)3,056 3to15
Exchange memberships3,998 — 3,998 Indefinite
Trade name3,600 (2,200)1,400 3
ETF issuer relationships950 (877)73 9
ETF buyer relationships950 (876)74 9
Other$— $— $— Indefinite
$637,993 $(183,494)$454,499 
 
Amortization expense relating to finite-lived intangible assets was approximately $16.9 million and $18.3 million for the three months ended September 30, 2021 and 2020, respectfully, and $53.1 million and $56.2 million for the nine months ended September 30, 2021 and 2020, respectively. This is included in Amortization of purchased intangibles and acquired capitalized software in the accompanying Condensed Consolidated Statements of Comprehensive Income.

15

The Company expects to record amortization expense as follows over the remaining current year and the next five subsequent years:

(in thousands)
Remainder of 2021$16,580 
202264,852 
202363,960 
202450,845 
202547,879 
202647,879 

7. Receivables from/Payables to Broker-Dealers and Clearing Organizations

The following is a summary of receivables from and payables to brokers-dealers and clearing organizations at September 30, 2021 and December 31, 2020:
(in thousands)September 30, 2021December 31, 2020
Assets
Due from prime brokers$557,316 $697,293 
Deposits with clearing organizations181,987 216,962 
Net equity with futures commission merchants239,697 248,943 
Unsettled trades with clearing organizations3,380 118,777 
Securities failed to deliver444,138 372,965 
Commissions and fees25,908 29,066 
Total receivables from broker-dealers and clearing organizations$1,452,426 $1,684,006 
Liabilities
Due to prime brokers$606,840 $410,772 
Net equity with futures commission merchants69,147 77,257 
Unsettled trades with clearing organizations113,250 228,070 
Securities failed to receive304,598 156,804 
Commissions and fees1,136 3,543 
Total payables to broker-dealers and clearing organizations$1,094,971 $876,446 

Included as a deduction from “Due from prime brokers” and “Net equity with futures commission merchants” is the outstanding principal balance on all of the Company’s prime brokerage credit facilities (described in Note 9 "Borrowings") of approximately $202.5 million and $134.7 million as of September 30, 2021 and December 31, 2020, respectively. The loan proceeds from the credit facilities are available only to meet the initial margin requirements associated with the Company’s ordinary course futures and other trading positions, which are held in the Company’s trading accounts with an affiliate of the respective financial institutions. The credit facilities are fully collateralized by the Company’s trading accounts and deposit accounts with these financial institutions. “Securities failed to deliver” and “Securities failed to receive” include amounts with a clearing organization and other broker-dealers.

8. Collateralized Transactions

The Company is permitted to sell or repledge securities received as collateral and use these securities to secure repurchase agreements, enter into securities lending transactions or deliver these securities to counterparties or clearing organizations to cover short positions. At September 30, 2021 and December 31, 2020, substantially all of the securities received as collateral have been repledged.

16

The fair value of the collateralized transactions at September 30, 2021 and December 31, 2020 are summarized as follows:
(in thousands)September 30, 2021December 31, 2020
Securities received as collateral:
Securities borrowed$1,221,032 $1,374,266 
Securities purchased under agreements to resell170,194 22,866 
 $1,391,226 $1,397,132 
In the normal course of business, the Company pledges qualified securities with clearing organizations to satisfy daily margin and clearing fund requirements.

Financial instruments owned and pledged, where the counterparty has the right to repledge, at September 30, 2021 and December 31, 2020 consisted of the following:

(in thousands)September 30, 2021December 31, 2020
Equities$947,661 $734,024 
Exchange traded notes11,395 12,515 
 $959,056 $746,539 

9. Borrowings

Short-term Borrowings, net

The following summarizes the Company's short-term borrowing balances outstanding, net of related debt issuance costs, with each described in further detail below.
September 30, 2021
(in thousands)Borrowing OutstandingDeferred Debt Issuance CostShort-term Borrowings, net
Broker-dealer credit facilities$178,000 $(1,881)$176,119 
Short-term bank loans136,695 — 136,695 
$314,695 $(1,881)$312,814 
December 31, 2020
(in thousands)Borrowing OutstandingDeferred Debt Issuance CostShort-term Borrowings, net
Broker-dealer credit facilities$36,400 $(387)$36,013 
Short-term bank loans28,673 — 28,673 
$65,073 $(387)$64,686 

Broker-Dealer Credit Facilities  

The Company is a party to 2 secured credit facilities with a financial institution to finance overnight securities positions purchased as part of its ordinary course broker-dealer market making activities. NaN of the facilities (the “Uncommitted Facility”) is provided on an uncommitted basis with an aggregate borrowing limit of $400 million, and is collateralized by VAL's trading and deposit account maintained at the financial institution. The second credit facility (the “Committed Facility”) with the same financial institution has a borrowing limit of $600 million. The Committed Facility consists of 2 borrowing bases: Borrowing Base A Loan is to be used to finance the purchase and settlement of securities; Borrowing Base B Loan is to be used to fund margin deposit with the National Securities Clearing Corporation. Borrowing Base A Loans are available up to $600 million and bear interest at the adjusted LIBOR or base rate plus 1.25% per annum. Borrowing Base B Loans are subject to a sublimit of $200 million and bear interest at the adjusted LIBOR or base rate plus 2.50% per annum. A commitment fee of 0.50% per annum on the average daily unused portion of this facility is payable quarterly in arrears.

On March 10, 2020, VAL entered into a short-term loan arrangement with Jefferies Financial Group, Inc., as lender, for a $20 million demand loan (the "Demand Loan") repayable no later than ninety (90) days after the date of borrowing. The Demand Loan bore interest at a rate of 10% per annum, increased by 2.0% with respect to any principal amounts not paid when due and payable. The Demand Loan was repaid in full as of April 17, 2020.

17

On March 20, 2020, VAL entered into a Loan Agreement (the “Founder Member Loan Facility”) with TJMT Holdings LLC (the “Founder Member”), as lender and administrative agent, providing for unsecured term loans from time to time (the “Founder Member Loans”) in an aggregate original principal amount not to exceed $300 million. The Founder Member Loans were available to be borrowed in one or more borrowings on or after March 20, 2020 and prior to September 20, 2020 (the "Founder Member Loan Term"). The Founder Member Loan Facility Term expired as of September 20, 2020 without VAL having borrowed any Founder Member Loans at any time. The Founder Member is an affiliate of Mr. Vincent Viola, the Company’s founder and Chairman Emeritus. Upon the execution of and in consideration for the Lender’s (as defined in the Founder Member Loan Facility) commitments under the Founder Member Loan Facility, the Company delivered to the Founder Member a warrant to purchase shares of the Company’s Class A Common Stock. Terms of the warrant are set forth in further detail in Note 18 "Capital Structure".

The following summarizes the Company’s broker-dealer credit facilities' carrying values, net of unamortized debt issuance costs, where applicable. These balances are included within Short-term borrowings on the Condensed Consolidated Statements of Financial Condition.

 At September 30, 2021
(in thousands)Interest RateFinancing AvailableBorrowing OutstandingDeferred Debt Issuance CostOutstanding Borrowings, net
Broker-dealer credit facilities:     
Uncommitted facility1.25%$400,000 $178,000 $(1,881)$176,119 
Committed facility2.61%600,000 — — — 
 $1,000,000 $178,000 $(1,881)$176,119 
 At December 31, 2020
(in thousands)Interest RateFinancing AvailableBorrowing OutstandingDeferred Debt Issuance CostOutstanding Borrowings, net
Broker-dealer credit facilities:     
Uncommitted facility1.25%$400,000 $36,400 $(387)$36,013 
Committed facility1.40%600,000 — — — 
 $1,000,000 $36,400 $(387)$36,013 

The following summarizes interest expense for the broker-dealer facilities. Interest expense is included within Interest and dividends expense in the accompanying Condensed Consolidated Statements of Comprehensive Income.

 Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Broker-dealer credit facilities:
Uncommitted facility$540 $244 $1,790 $1,007 
Committed facility— 71 57 433 
Demand Loan— — — 211 
 $540 $315 $1,847 $1,651 

Short-Term Bank Loans

The Company’s international securities clearance and settlement activities are funded with operating cash or with short-term bank loans in the form of overdraft facilities. At September 30, 2021, there was $136.7 million associated with international settlement activities outstanding under these facilities at a weighted average interest rate of approximately 1.2%. At December 31, 2020, there was $28.7 million associated with international settlement activities outstanding under these facilities at a weighted average interest rate of approximately 2.4%. These short-term bank loan balances are included within Short-term borrowings on the Condensed Consolidated Statements of Financial Condition.

18

Prime Brokerage Credit Facilities

The Company maintains short-term credit facilities with various prime brokers and other financial institutions from which it receives execution or clearing services. The proceeds of these facilities are used to meet margin requirements associated with the products traded by the Company in the ordinary course, and amounts borrowed are collateralized by the Company’s trading accounts with the applicable financial institution.

 At September 30, 2021
(in thousands)Weighted Average
Interest Rate
Financing
Available
Borrowing
Outstanding
Prime Brokerage Credit Facilities:   
Prime brokerage credit facilities (1)2.78%$616,000 $202,480 
 $616,000 $202,480 
 At December 31, 2020
(in thousands)Weighted Average
Interest Rate
Financing
Available
Borrowing
Outstanding
Prime Brokerage Credit Facilities:   
Prime brokerage credit facilities (1)2.77%$616,000 $134,664 
 $616,000 $134,664 
(1)   Outstanding borrowings are included with Receivables from/Payables to broker-dealers and clearing organizations within the Condensed Consolidated Statements of Financial Condition.

Interest expense in relation to the facilities was approximately $1.4 million and $1.2 million for the three months ended September 30, 2021 and 2020, and $3.5 million and $3.8 million for the nine months ended September 30, 2021 and 2020, respectively.

Long-Term Borrowings

The following summarizes the Company’s long-term borrowings, net of unamortized discount and debt issuance costs, where applicable:

  At September 30, 2021
(in thousands)Maturity
Date
Interest
Rate
Outstanding PrincipalDiscountDeferred Debt Issuance CostOutstanding Borrowings, net
Long-term borrowings:      
  First Lien Term Loan FacilityMarch 20263.08%$1,599,774 $(3,949)$(23,187)$1,572,638 
  SBI bondsJanuary 20235.00%31,450 — (26)31,424 
 $1,631,224 $(3,949)$(23,213)$1,604,062 
  At December 31, 2020
(in thousands)Maturity
Date
Interest
Rate
Outstanding PrincipalDiscountDeferred Debt Issuance CostOutstanding Borrowings, net
Long-term borrowings:      
  First Lien Term Loan FacilityMarch 20263.15%$1,636,512 $(4,723)$(26,367)$1,605,422 
  SBI bondsJanuary 20235.00%33,898 — (40)33,858 
$1,670,410 $(4,723)$(26,407)$1,639,280 

Credit Agreement

In connection with the ITG Acquisition, Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial ("VFH") and Impala Borrower LLC, a subsidiary of the Company (the "Acquisition Borrower") entered into a Credit Agreement (the "Credit Agreement"), with the lenders party thereto, Jefferies Finance LLC, as administrative agent and Jefferies Finance LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners.

19

The Credit Agreement provided (i) a senior secured first lien term loan (together with the Incremental Term Loans, as defined below; the “First Lien Term Loan Facility”) in an aggregate principal amount of $1,500 million, drawn in its entirety on the ITG Closing Date, of which amount approximately $404.5 million was borrowed by VFH to repay all amounts outstanding under a previous term loan facility and the remaining approximately $1,095 million was borrowed by the Acquisition Borrower to finance the consideration and fees and expenses paid in connection with the ITG Acquisition, and (ii) a $50.0 million senior secured first lien revolving facility to VFH (the “First Lien Revolving Facility”), with a $5.0 million letter of credit subfacility and a $5.0 million swingline subfacility. After the ITG Closing Date, VFH assumed the obligations of the Acquisition Borrower in respect of the acquisition term loans.

On October 9, 2019, VFH entered into an amendment (“Amendment No. 1”), which amended the Credit Agreement dated as of March 1, 2019 to, among other things, provide for $525.0 million in aggregate principal amount of incremental term loans (the “Incremental Term Loans”), and amend the related collateral agreement.

On March 2, 2020, VFH entered into a second amendment (“Amendment No. 2”), which further amended the Credit Agreement (as amended by Amendment No. 1 and Amendment No. 2, the “Amended Credit Agreement”) to, among other things, reduce the interest rate spread over adjusted LIBOR or the alternate base rate by 0.50% per annum and eliminated any stepdown in the spread based on VFH's first lien leverage ratio. The term loan borrowings and revolver borrowings under the Amended Credit Agreement bear interest at a per annum rate equal to, at the Company's election, either (i) the greatest of (a) the prime rate in effect, (b) the greater of (1) the federal funds effective rate and (2) the overnight bank funding rate, in each case plus 0.50%, (c) an adjusted LIBOR rate for a Eurodollar borrowing with an interest period of one month plus 1.00% and (d) 1.00%, plus, in each case, 2.00%, or (ii) the greater of (x) an adjusted LIBOR rate for the interest period in effect and (y) 0%, plus, in each case, 3.00%. In addition, a commitment fee accrues at a rate of 0.50% per annum on the average daily unused amount of the First Lien Revolving Facility, with stepdowns to 0.375% and 0.25% per annum based on VFH’s first lien leverage ratio, and is payable quarterly in arrears.

The First Lien Revolving Facility under the Amended Credit Agreement is subject to a springing net first lien leverage ratio test which may spring into effect as of the last day of a fiscal quarter if usage of the aggregate revolving commitments exceeds a specified level as of such date. VFH is also subject to contingent principal prepayments based on excess cash flow and certain other triggering events. Borrowings under the Amended Credit Agreement are guaranteed by Virtu Financial and VFH’s material non-regulated domestic restricted subsidiaries and secured by substantially all of the assets of VFH and the guarantors, in each case, subject to certain exceptions.

Under the Amended Credit Agreement, the term loans will mature on March 1, 2026. The term loans amortize in annual installments equal to 1.0% of the original aggregate principal amount of the term loans. As of September 30, 2021, $1,600 million was outstanding under the First Lien Term Loan Facility. The revolving commitments will terminate on March 1, 2022. There were no outstanding borrowings under the First Lien Revolving Facility as of September 30, 2021 or December 31, 2020.

The Amended Credit Agreement contains certain customary covenants and events of default, including relating to a change of control. If an event of default occurs and is continuing, the lenders under the Amended Credit Agreement will be entitled to take various actions, including the acceleration of amounts outstanding under the Amended Credit Agreement and all actions permitted to be taken by a secured creditor in respect of the collateral securing the obligations under the Amended Credit Agreement.

In October 2019, the Company entered into a five-year $525 million floating-to-fixed interest rate swap agreement. The Company also entered into a five-year $1,000 million floating-to-fixed interest rate swap agreement in January 2020. As these two interest rate swaps met the criteria to be considered qualifying cash flow hedges under ASC 815 in 2020, they effectively fix interest payment obligations on $525.0 million and $1,000 million of principal under the First Lien Term Loan Facility at rates of 4.3% and 4.4% through September 2024 and January 2025, respectively, based on the interest rates set forth in the Amended Credit Agreement. In April 2021, each of the swap agreements described above was novated to another counterparty and amended in connection with such novation. The amendments included certain changes to collateral posting obligations, and also had the effect of increasing the effective fixed interest payment obligations to rates of 4.5%, with respect to the earlier maturing swap arrangement, and 4.6% with respect to the later maturing swap arrangement.
20


SBI Bonds

On July 25, 2016, VFH issued Japanese Yen Bonds (collectively the “SBI Bonds”) in the aggregate principal amount of ¥3.5 billion ($33.1 million at issuance date) to SBI Life Insurance Co., Ltd. and SBI Insurance Co., Ltd. The proceeds from the SBI Bonds were used to partially fund the investment in Japannext Co., Ltd. (as described in Note 10 "Financial Assets and Liabilities"). The SBI Bonds are guaranteed by Virtu Financial. The SBI Bonds are subject to fluctuations on the Japanese Yen currency rates relative to the Company’s reporting currency (U.S. Dollar) with the changes reflected in Other, net in the Condensed Consolidated Statements of Comprehensive Income. In December 2019, the maturity date of the SBI Bonds was extended to January 2023. The principal balance was ¥3.5 billion ($31.5 million) as of September 30, 2021 and ¥3.5 billion ($33.9 million) as of December 31, 2020. The Company had a gain of $0.1 million and a loss of $0.8 million during the three months ended September 30, 2021, and 2020, respectively, and a gain of $2.4 million and a loss of $1.0 million during the nine months ended September 30, 2021 and 2020, respectively, due to changes in foreign currency rates.

As of September 30, 2021, aggregate future required minimum principal payments based on the terms of the long-term borrowings were as follows:

(in thousands)September 30, 2021
Remainder of 2021$— 
2022— 
202331,450 
2024— 
2025— 
Thereafter1,599,774 
Total principal of long-term borrowings$1,631,224 

10. Financial Assets and Liabilities

Financial Instruments Measured at Fair Value

The fair value of equities, options, on-the-run U.S. government obligations and exchange traded notes is estimated using recently executed transactions and market price quotations in active markets and are categorized as Level 1 with the exception of inactively traded equities and certain other financial instruments, which are categorized as Level 2. The Company’s corporate bonds, derivative contracts and other U.S. and non-U.S. government obligations have been categorized as Level 2. Fair value of the Company’s derivative contracts is based on the indicative prices obtained from a number of banks and broker-dealers, as well as management’s own analyses. The indicative prices have been independently validated through the Company’s risk management systems, which are designed to check prices with information independently obtained from exchanges and venues where such financial instruments are listed or to compare prices of similar instruments with similar maturities for listed financial futures in foreign exchange.

The Company prices certain financial instruments held for trading at fair value based on theoretical prices, which can differ from quoted market prices. The theoretical prices reflect price adjustments primarily caused by the fact that the Company continuously prices its financial instruments based on all available information. This information includes prices for identical and near-identical positions, as well as the prices for securities underlying the Company’s positions, on other exchanges that are open after the exchange on which the financial instruments is traded closes. The Company validates that all price adjustments can be substantiated with market inputs and checks the theoretical prices independently. Consequently, such financial instruments are classified as Level 2.

21

Fair value measurements for those items measured on a recurring basis are summarized below as of September 30, 2021:
 September 30, 2021
(in thousands)Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Counterparty and Cash Collateral Netting Total Fair Value 
Assets     
Financial instruments owned, at fair value:     
Equity securities$436,245 $2,117,572 $— $— $2,553,817 
U.S. and Non-U.S. government obligations216,125 19,947 — — 236,072 
Corporate Bonds— 201,086 — — 201,086 
Exchange traded notes427 8,285 — — 8,712 
Currency forwards— 311,230 — (300,399)10,831 
Options8,320 — — — 8,320 
 $661,117 $2,658,120 $— $(300,399)$3,018,838 
Financial instruments owned, pledged as collateral:
Equity securities$576,478 $371,183 $— $— $947,661 
Exchange traded notes5,389 6,006 — — 11,395 
 $581,867 $377,189 $— $— $959,056 
Other Assets
Equity investment$— $— $85,317 $— $85,317 
Exchange stock2,609 — — — 2,609 
 $2,609 $— $85,317 $— $87,926 
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equity securities$1,336,070 $825,070 $— $— $2,161,140 
U.S. and Non-U.S. government obligations285,997 12,747 — — 298,744 
Corporate Bonds— 349,299 — — 349,299 
Exchange traded notes835 4,750 — — 5,585 
Currency forwards— 316,352 — (308,611)7,741 
Options49,140 — — — 49,140 
 $1,672,042 $1,508,218 $— $(308,611)$2,871,649 
Payables to broker dealers and clearing organizations:
Interest rate swap$— $43,608 $— $— $43,608 

22

Fair value measurements for those items measured on a recurring basis are summarized below as of December 31, 2020:

 December 31, 2020
(in thousands)Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Counterparty and Cash Collateral Netting Total Fair Value 
Assets     
Financial instruments owned, at fair value:     
Equity securities$761,484 $1,194,105 $— $— $1,955,589 
U.S. and Non-U.S. government obligations151,723 48,059 — — 199,782 
Corporate Bonds— 135,518 — — 135,518 
Exchange traded notes106 19,721 — — 19,827 
Currency forwards— 341,360 — (291,964)49,396 
Options9,080 — — — 9,080 
$922,393 $1,738,763 $— $(291,964)$2,369,192 
Financial instruments owned, pledged as collateral:
Equity securities$496,943 $237,081 $— $— $734,024 
Exchange traded notes12,513 — — 12,515 
$496,945 $249,594 $— $— $746,539 
Other Assets
Equity investment$— $— $66,030 $— $66,030 
Exchange stock2,286 — — — 2,286 
$2,286 $— $66,030 $— $68,316 
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equity securities$1,307,082 $1,137,968 $— $— $2,445,050 
U.S. and Non-U.S. government obligations83,173 19,984 — — 103,157 
Corporate Bonds— 358,734 — — 358,734 
Exchange traded notes— 7,431 — — 7,431 
Currency forwards— 292,965 — (292,870)95 
Options9,241 — — — 9,241 
 $1,399,496 $1,817,082 $— $(292,870)$2,923,708 
Payables to broker dealers and clearing organizations:
Interest rate swap$— $63,513 $— $— $63,513 

JNX Investment

The Company has a minority investment (the “JNX Investment”) in Japannext Co., Ltd. (“JNX”), formerly known as SBI Japannext Co., Ltd., a proprietary trading system based in Tokyo. In connection with the JNX Investment, the Company issued the SBI Bonds (as described in Note 9 "Borrowings") and used the proceeds to partially finance the transaction. The JNX Investment is included within Level 3 of the fair value hierarchy. As of September 30, 2020 and 2021, the fair value of the JNX Investment was determined using a weighted average of valuations using 1) the discounted cash flow method, an income approach; 2) a market approach based on average enterprise value/EBITDA ratios of comparable companies; and to a lesser extent 3) a transaction approach based on transaction values of comparable companies. The fair value measurement is highly sensitive to significant changes in the unobservable inputs, and significant increases (decreases) in discount rate or decreases (increases) in enterprise value/EBITDA multiples would result in a significantly lower (higher) fair value measurement.

23

The table below presents information on the valuation techniques, significant unobservable inputs and their ranges for the JNX Investment:

September 30, 2021
(in thousands)Fair ValueValuation TechniqueSignificant Unobservable InputRangeWeighted Average
Equity investment$85,317 Discounted cash flowEstimated revenue growth2.4% - 22.7%8.5 %
Discount rate14.4% - 14.4%14.4 %
MarketFuture enterprise value/ EBIDTA ratio9.8x - 44.5x17.2x

December 31, 2020
(in thousands)Fair ValueValuation TechniqueSignificant Unobservable InputRangeWeighted Average
Equity investment$66,030 Discounted cash flowEstimated revenue growth(9.0)% - 39.0%9.6 %
Discount rate14.4% - 14.4%14.4 %
MarketFuture enterprise value/ EBIDTA ratio12.2x - 21.9x13.8x

Changes in the fair value of the JNX Investment are included within Other, net in the Condensed Consolidated Statements of Comprehensive Income.

The following presents the changes in the Company's Level 3 financial instruments measured at fair value on a recurring basis:
Three Months Ended September 30, 2021
(in thousands)Balance at June 30, 2021PurchasesTotal Realized and Unrealized Gains / (Losses) (1)Net Transfers into (out of) Level 3SettlementBalance at September 30, 2021Change in Net Unrealized Gains / (Losses) on Investments still held at September 30, 2021
Assets
Other assets:
Equity investment$78,313 $— $7,004 $— $— $85,317 $7,004 
Total$78,313 $— $7,004 $— $— $85,317 $7,004 
(1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 9 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the JNX Investment.
Three Months Ended September 30, 2020
(in thousands)Balance at June 30, 2020PurchasesTotal Realized and Unrealized Gains / (Losses) (1)Net Transfers into (out of) Level 3SettlementBalance at September 30, 2020Change in Net Unrealized Gains / (Losses) on Investments still held at September 30, 2020
Assets
Other assets:
Equity investment$51,599 $— $13,104 $— $— $64,703 $13,104 
Total$51,599 $— $13,104 $— $— $64,703 $13,104 
(1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 9 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the JNX Investment.
24

Nine Months Ended September 30, 2021
(in thousands)Balance at December 31, 2020PurchasesTotal Realized and Unrealized Gains / (Losses) (1)Net Transfers into (out of) Level 3SettlementBalance at September 30, 2021Change in Net Unrealized Gains / (Losses) on Investments still held at September 30, 2021
Assets
Other assets:
Equity investment$66,030 $— $19,287 $— $— $85,317 $19,287 
Total$66,030 $— $19,287 $— $— $85,317 $19,287 
(1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 9 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the JNX Investment.
Nine Months Ended September 30, 2020
(in thousands)Balance at December 31, 2019PurchasesTotal Realized and Unrealized Gains / (Losses) (1)Net Transfers into (out of) Level 3SettlementBalance at September 30, 2020Change in Net Unrealized Gains / (Losses) on Investments still held at September 30, 2020
Assets
Other assets:
Equity investment$46,245 $— $18,458 $— $— $64,703 $18,458 
Total$46,245 $— $18,458 $— $— $64,703 $18,458 
(1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 9 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the JNX Investment.

Financial Instruments Not Measured at Fair Value

The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the Condensed Consolidated Statements of Financial Condition. The table below excludes non-financial assets and liabilities. The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 and Level 2 approximates fair value due to the relatively short-term nature of the underlying assets. The fair value of the Company’s long-term borrowings is based on quoted prices from the market for similar instruments, and is categorized as Level 2 in the fair value hierarchy.

25

The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of September 30, 2021:
 September 30, 2021
 Carrying Value Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
 (in thousands)
Fair Value(Level 1) (Level 2) (Level 3) 
Assets     
Cash and cash equivalents$683,836 $683,836 $683,836 $— $— 
Cash restricted or segregated under regulations and other70,477 70,477 70,477 — — 
Securities borrowed1,277,601 1,277,601 — 1,277,601 — 
Securities purchased under agreements to resell170,194 170,194 — 170,194 — 
Receivables from broker-dealers and clearing organizations1,452,426 1,452,426 415 1,452,011 — 
Receivables from customers414,244 414,244 — 414,244 — 
Other assets (1)14,427 14,427 — 14,427 — 
Total Assets$4,083,205 $4,083,205 $754,728 $3,328,477 $— 
Liabilities
Short-term borrowings$312,814 $314,695 $— $314,695 $— 
Long-term borrowings1,604,062 1,629,224 — 1,629,224 — 
Securities loaned1,017,436 1,017,436 — 1,017,436 — 
Securities sold under agreements to repurchase583,268 583,268 — 583,268 — 
Payables to broker-dealers and clearing organizations (2)1,094,971 1,094,971 532,533 562,438 — 
Payables to customers182,939 182,939 — 182,939 — 
Other liabilities (3)8,904 8,904 — 8,904 — 
Total Liabilities$4,804,394 $4,831,437 $532,533 $4,298,904 $— 
(1) Includes cash collateral and deposits, and interest and dividends receivables.
(2) Payables to broker-dealers and clearing organizations include interest rate swaps carried at fair value.
(3) Includes deposits, interest and dividends payable.
26


The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of December 31, 2020:
 December 31, 2020
 Carrying Value Quoted Prices in Active Markets for Identical AssetsSignificant Other Observable InputsSignificant Unobservable Inputs
 (in thousands)
Fair Value(Level 1) (Level 2) (Level 3) 
Assets     
Cash and cash equivalents$889,559 $889,559 $889,559 $— $— 
Cash restricted or segregated under regulations and other117,446 117,446 117,446 — — 
Securities borrowed1,425,016 1,425,016 — 1,425,016 — 
Securities purchased under agreements to resell22,866 22,866 — 22,866 — 
Receivables from broker-dealers and clearing organizations1,684,006 1,684,006 173,578 1,510,428 — 
Receivables from customers214,478 214,478 — 214,478 — 
Other assets (1)21,735 21,735 — 21,735 — 
Total Assets$4,375,106 $4,375,106 $1,180,583 $3,194,523 $— 
Liabilities
Short-term borrowings64,686 65,073 — 65,073 — 
Long-term borrowings1,639,280 1,672,456 — 1,672,456 — 
Securities loaned948,256 948,256 — 948,256 — 
Securities sold under agreements to repurchase461,235 461,235 — 461,235 — 
Payables to broker dealer and clearing organizations (2)876,446 876,446 3,517 872,929 — 
Payables to customers118,826 118,826 — 118,826 — 
Other liabilities (3)9,208 9,208 — 9,208 — 
Total Liabilities$4,117,937 $4,151,500 $3,517 $4,147,983 $— 
(1) Includes cash collateral and deposits, and interest and dividends receivables.
(2) Payables to broker-dealers and clearing organizations include interest rate swaps carried at fair value.
(3) Includes deposits, interest and dividends payable.

Offsetting of Financial Assets and Liabilities

The Company does not net securities borrowed and securities loaned, or securities purchased under agreements to resell and securities sold under agreements to repurchase. These financial instruments are presented on a gross basis in the Condensed Consolidated Statements of Financial Condition. In the tables below, the amounts of financial instruments owned that are not offset in the Condensed Consolidated Statements of Financial Condition, but could be netted against financial liabilities with specific counterparties under legally enforceable master netting agreements in the event of default, are presented to provide financial statement readers with the Company’s estimate of its net exposure to counterparties for these financial instruments.

27

The following tables set forth the gross and net presentation of certain financial assets and financial liabilities as of September 30, 2021 and December 31, 2020:

 September 30, 2021
 Gross Amounts of Recognized AssetsAmounts Offset in the Condensed Consolidated Statement of Financial ConditionNet Amounts of Assets Presented in the Condensed Consolidated Statements of Financial ConditionAmounts Not Offset in the Condensed Consolidated Statements of Financial Condition 
 
(in thousands)Financial Instrument CollateralCounterparty Netting/ Cash CollateralNet Amount
Offsetting of Financial Assets:                        
Securities borrowed$1,277,601 $— $1,277,601 $(1,221,032)$(8,097)$48,472 
Securities purchased under agreements to resell170,194 — 170,194 (170,194)— — 
Trading assets, at fair value:
Currency forwards311,230 (300,399)10,831 — — 10,831 
Options8,320 — 8,320 — (8,320)— 
Total$1,767,345 $(300,399)$1,466,946 $(1,391,226)$(16,417)$59,303 
 Gross Amounts of Recognized LiabilitiesAmounts Offset in the Condensed Consolidated Statement of Financial ConditionNet Amounts of Liabilities Presented in the Consolidated Statement of Financial ConditionAmounts Not Offset in the Condensed Consolidated Statements of Financial Condition 
  
(in thousands)Financial Instruments Counterparty Netting/ Cash CollateralNet Amount 
Offsetting of Financial Liabilities:                     
Securities loaned$1,017,436 $— $1,017,436 $(995,181)$(12,655)$9,600 
Securities sold under agreements to repurchase583,268 — 583,268 (583,268)— — 
Payable to broker-dealers and clearing organizations
Interest rate swaps43,608 — 43,608 — — 43,608 
Trading liabilities, at fair value:
Currency forwards316,352 (308,611)7,741 — — 7,741 
Options49,140 — 49,140 — (8,320)40,820 
Total$2,009,804 $(308,611)$1,701,193 $(1,578,449)$(20,975)$101,769 

 December 31, 2020
 Gross Amounts of Recognized AssetsAmounts Offset in the Condensed Consolidated Statement of Financial ConditionNet Amounts of Assets Presented in the Condensed Consolidated Statements of Financial ConditionAmounts Not Offset in the Condensed Consolidated Statements of Financial Condition
 
(in thousands)Financial Instrument CollateralCounterparty Netting/ Cash CollateralNet Amount
Offsetting of Financial Assets:                        
Securities borrowed$1,425,016 $— $1,425,016 $(1,374,266)$(9,686)$41,064 
Securities purchased under agreements to resell22,866 — 22,866 (22,866)— — 
Trading assets, at fair value:
Currency forwards341,360 (291,964)49,396 — — 49,396 
Options9,080 — 9,080 — (9,080)— 
Total$1,798,322 $(291,964)$1,506,358 $(1,397,132)$(18,766)$90,460 

28

Gross Amounts of Recognized AssetsAmounts Offset in the Condensed Consolidated Statement of Financial ConditionNet Amounts of Assets Presented in the Condensed Consolidated Statements of Financial ConditionAmounts Not Offset in the Condensed Consolidated Statements of Financial Condition
(in thousands)Financial Instrument CollateralCounterparty Netting/ Cash CollateralNet Amount
Offsetting of Financial Liabilities:                     
Securities loaned$948,256 $— $948,256 $(921,593)$(17,800)$8,863 
Securities sold under agreements to repurchase461,235 — 461,235 (461,235)— — 
Interest rate swaps63,513 — 63,513 — (63,162)351 
Trading liabilities, at fair value:
Currency forwards292,965 (292,870)95 — — 95 
Options9,241 — 9,241 — (9,080)161 
Total$1,775,210 $(292,870)$1,482,340 $(1,382,828)$(90,042)$9,470 
The following table presents gross obligations for securities sold under agreements to repurchase and for securities lending transactions by remaining contractual maturity and the class of collateral pledged:

 September 30, 2021
Remaining Contractual Maturity
(in thousands)Overnight and ContinuousLess than 30 days30 - 60
days
61 - 90
Days
Greater than 90
days
Total
Securities sold under agreements to repurchase:
Equity securities$— $125,000 $50,000 $160,000 $50,000 $385,000 
U.S. and Non-U.S. government obligations198,268 — — — 0198,268 
Total$198,268 $125,000 $50,000 $160,000 $50,000 $583,268 
Securities loaned:
Equity securities$1,017,436 $— $— $— $— $1,017,436 
Total$1,017,436 $— $— $— $— $1,017,436 

 December 31, 2020
 Remaining Contractual Maturity
(in thousands)Overnight and ContinuousLess than 30 days30 - 60
days
61 - 90
Days
Greater than 90
days
Total
Securities sold under agreements to repurchase:     
Equity securities$— $125,000 $50,000 $200,000 $— $375,000 
U.S. and Non-U.S. government obligations86,235 — — — — 86,235 
Total$86,235 $125,000 $50,000 $200,000 $— $461,235 
Securities loaned:
Equity securities948,256 — — — — 948,256 
Total$948,256 $— $— $— $— $948,256 

29

11. Derivative Instruments

The fair value of the Company’s derivative instruments on a gross basis consisted of the following at September 30, 2021 and December 31, 2020:

(in thousands) September 30, 2021December 31, 2020
Derivatives AssetsFinancial Statements LocationFair ValueNotionalFair ValueNotional
Derivative instruments not designated as hedging instruments:    
Equities futuresReceivables from broker-dealers and clearing organizations$(753)$1,371,507 $4,669 $2,208,899 
Commodity futuresReceivables from broker-dealers and clearing organizations(217)137,010 173,889 6,237,389 
Currency futuresReceivables from broker-dealers and clearing organizations1,964 847,313 (11,736)2,823,277 
Fixed income futuresReceivables from broker-dealers and clearing organizations158 16,292 42 102,476 
OptionsFinancial instruments owned8,320 934,627 9,080 746,723 
Currency forwardsFinancial instruments owned311,230 28,029,260 341,360 30,596,681 
Derivatives LiabilitiesFinancial Statements LocationFair ValueNotionalFair ValueNotional
Derivative instruments not designated as hedging instruments:    
Equities futuresPayables to broker-dealers and clearing organizations$1,240 $398,517 $31 $90,219 
Commodity futuresPayables to broker-dealers and clearing organizations(533,414)9,633,999 (5,397)27,287 
Currency futuresPayables to broker-dealers and clearing organizations(6,057)2,664,776 3,598 2,269,898 
Fixed income futuresPayables to broker-dealers and clearing organizations97 51,091 — 1,566 
OptionsFinancial instruments sold, not yet purchased49,140 936,594 9,241 736,997 
Currency forwardsFinancial instruments sold, not yet purchased316,352 28,031,821 292,965 30,572,490 
Derivative instruments designated as hedging instruments:
Interest rate swapsPayables to broker-dealers and clearing organizations43,608 1,525,000 63,513 1,525,000 

Amounts included in receivables from and payables to broker-dealers and clearing organizations represent net variation margin on long and short futures contracts as well as amounts receivable or payable on interest rate swaps.

The following table summarizes the net gain (loss) from derivative instruments not designated as hedging instruments under ASC 815, which are recorded in total revenues, and from those designated as hedging instruments under ASC 815, which are recorded in other comprehensive income in the accompanying Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020.
30

  Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)Financial Statements Location2021202020212020
Derivative instruments not designated as hedging instruments:  
FuturesTrading income, net$84,875 $(12,262)$213,569 $11,440 
Currency forwardsTrading income, net(49,599)62,465 12,756 255,044 
OptionsTrading income, net9,455 35,343 63,016 61,643 
Interest rate swap on term loanOther, net(474)(1,417)(1,397)(1,417)
$44,257 $84,129 $287,944 $326,710 
Derivative instruments designated as hedging instruments:
Interest rate swaps (1)Other comprehensive income$4,112 $314 $21,453 $(64,425)
$4,112 $314 $21,453 $(64,425)
(1) The Company entered into a five-year $1,000 million floating-to-fixed interest rate swap agreement in the first quarter of 2020 and a five-year $525 million floating-to-fixed interest rate swap agreement in the fourth quarter of 2019. These 2 interest rate swaps met the criteria to be considered qualifying cash flow hedges under ASC 815 in the first quarter of 2020, and as such, the mark-to-market gains (losses) on the instruments were recorded within Other comprehensive income on the Condensed Consolidated Statements of Comprehensive Income beginning in the first quarter of 2020.

12. Variable Interest Entities
A variable interest entity (“VIE”) is an entity that lacks one or more of the following characteristics: (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity.

The Company will be considered to have a controlling financial interest and will consolidate a VIE if it has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company has interests in 2 joint ventures (“JV”) that build and maintain microwave communication networks in the U.S., Europe, and Asia. The Company and its JV partners each pay monthly fees for the use of the microwave communication networks in connection with their respective trading activities, and the JVs may sell excess bandwidth that is not utilized by the JV members to third parties. As of September 30, 2021, the Company held noncontrolling interests of 10% and 50%, respectively, in these JVs.

The Company has an interest in a JV that offers derivatives trading technology and execution services to broker-dealers, professional traders and select hedge funds. As of September 30, 2021, the Company held approximately a 10% noncontrolling interest in this JV.

The Company has an interest in a JV that is developing a member-owned equities exchange with the goal of increasing competition and transparency, while reducing fixed costs and simplifying execution of equity trading in the U.S. As of September 30, 2021, the Company held approximately a 14.1% noncontrolling interest in this JV.

The Company's 4 JVs meet the criteria to be considered VIEs, which it does not consolidate. The Company records its interest in each JV under the equity method of accounting and records its investment in the JVs within Other assets and its amounts payable for communication services provided by the applicable JVs within Accounts payable, accrued expenses and other liabilities on the Statements of Financial Condition. The Company records its pro-rata share of each JV's earnings or losses within Other, net and fees related to the use of communication services provided by the JVs within Communications and data processing on the Condensed Consolidated Statements of Comprehensive Income.

The Company’s exposure to the obligations of these VIEs is generally limited to its interests in each respective JV, which is the carrying value of the equity investment in each JV.

The following table presents the Company’s nonconsolidated VIEs at September 30, 2021:

31

 Carrying AmountMaximum Exposure to LossVIEs' assets
(in thousands)AssetLiability
Equity investment$30,388 $— $30,388 $154,789 

The following table presents the Company’s nonconsolidated VIEs at December 31, 2020: 

Carrying AmountMaximum Exposure to LossVIEs' assets
(in thousands)AssetLiability
Equity investment$28,969 $— $28,969 $175,547 

13. Revenues from Contracts with Customers

For more information on revenue recognition and the nature of services provided, see Note 2 "Summary of Significant Accounting Policies" and Note 14 "Revenues from Contracts with Customers" to the Consolidated Financial Statements of the Company's 2020 Annual Report on Form 10-K.

Disaggregation of Revenues

The following tables present the Company’s revenue from contracts with customers disaggregated by service, by timing of revenue recognition, reconciled to the Company’s segments, for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, 2021
(in thousands)Market MakingExecution ServicesCorporateTotal
Revenues from contracts with customers:
Commissions, net$8,894 $93,474 $— $102,368 
Workflow technology— 23,149 — 23,149 
Analytics— 10,406 — 10,406 
Total revenue from contracts with customers8,894 127,029 — 135,923 
Other sources of revenue400,396 5,520 2,505 408,421 
Total revenues$409,290 $132,549 $2,505 $544,344 
Timing of revenue recognition:
Services transferred at a point in time$409,290 $114,010 $2,505 $525,805 
Services transferred over time— 18,539 — 18,539 
Total revenues$409,290 $132,549 $2,505 $544,344 
32

Three Months Ended September 30, 2020
(in thousands)Market MakingExecution ServicesCorporateTotal
Revenues from contracts with customers:
Commissions, net$9,391 $91,460 $— $100,851 
Workflow technology— 23,044 — 23,044 
Analytics— 9,958 — 9,958 
Total revenue from contracts with customers9,391 124,462 — 133,853 
Other sources of revenue465,207 58,218 (1,166)522,259 
Total revenues$474,598 $182,680 $(1,166)$656,112 
Timing of revenue recognition:
Services transferred at a point in time$474,598 $164,018 $(1,166)$637,450 
Services transferred over time— 18,662 — 18,662 
Total revenues$474,598 $182,680 $(1,166)$656,112 
Nine Months Ended September 30, 2021
(in thousands)Market MakingExecution ServicesCorporateTotal
Revenues from contracts with customers:
Commissions, net$32,111 $332,000 $— $364,111 
Workflow technology— 75,572 — 75,572 
Analytics— 31,004 — 31,004 
Total revenue from contracts with customers32,111 438,576 — 470,687 
Other sources of revenue1,603,444 21,342 10,408 1,635,194 
Total revenues$1,635,555 $459,918 $10,408 $2,105,881 
Timing of revenue recognition:
Services transferred at a point in time$1,635,555 $404,371 $10,408 $2,050,334 
Services transferred over time— 55,547 — 55,547 
Total revenues$1,635,555 $459,918 $10,408 $2,105,881 
Nine Months Ended September 30, 2020
(in thousands)Market MakingExecution ServicesCorporateTotal
Revenues from contracts with customers:
Commissions, net$9,526 $333,823 $— $343,349 
Workflow technology— 78,376 — 78,376 
Analytics— 30,608 030,608 
Total revenue from contracts with customers9,526 442,807 — 452,333 
Other sources of revenue2,054,774 57,814 (2,286)2,110,302 
Total revenues$2,064,300 $500,621 $(2,286)$2,562,635 
Timing of revenue recognition:
Services transferred at a point in time$2,064,300 $444,683 $(2,286)$2,506,697 
Services transferred over time— 55,938 — 55,938 
Total revenues$2,064,300 $500,621 $(2,286)$2,562,635 
33


Remaining Performance Obligations and Revenue Recognized from Past Performance Obligations

As of September 30, 2021 and 2020, the aggregate amount of the transaction price allocated to the performance obligations relating to workflow technology and analytics revenues that are unsatisfied (or partially unsatisfied) was not material.

The Company recognized $0.5 million and $0.6 million of revenue related to performance obligations satisfied in previous period for the three months ended September 30, 2021 and 2020, respectively.

Contract Assets and Contract Liabilities

The timing of the revenue recognition may differ from the timing of payment from customers. The Company records a receivable when revenue is recognized prior to payment, and when the Company has an unconditional right to payment. The Company records a contract liability when payment is received prior to the time at which the satisfaction of the service obligation occurs.

Receivables related to revenues from contracts with customers amounted to $49.1 million and $57.3 million as of September 30, 2021 and December 31, 2020, respectively. The Company did not identify any contract assets. There were no impairment losses on receivables as of September 30, 2021.

Deferred revenue primarily relates to deferred commissions allocated to analytics products and subscription fees billed in advance of satisfying the performance obligations. Deferred revenue related to contracts with customers was $10.0 million and $9.3 million as of September 30, 2021 and December 31, 2020, respectively. The Company recognized revenue of $9.2 million and $8.6 million for the three months ended September 30, 2021 and 2020 respectively, and $24.4 million and $23.6 million during the nine months ended September 30, 2021 and 2020, respectively that had been initially recorded as deferred revenue.

The Company has not identified any costs to obtain or fulfill its contracts under ASC 606.

14. Income Taxes

The Company is subject to U.S. federal, state and local income tax at the rate applicable to corporations less the rate attributable to the noncontrolling interest in Virtu Financial. These noncontrolling interests are subject to U.S. taxation as partnerships. Accordingly, for the three and nine months ended September 30, 2021 and 2020, the income attributable to these noncontrolling interests was reported in the Condensed Consolidated Statements of Comprehensive Income, but the related U.S. income tax expense attributable to these noncontrolling interests was not reported by the Company as it is the obligation of the individual partners. The Company’s provisions for income taxes and effective tax rates were $22.0 million, 15.1%, and $52.8 million, 20.9% for the three months ended September 30, 2021 and 2020, respectively, and $128.6 million, 16.7% and $200.0 million, 17.8% for the nine months ended September 30, 2021 and 2020, respectively. Income tax expense is also affected by the differing effective tax rates in foreign, state and local jurisdictions where certain of the Company’s subsidiaries are subject to corporate taxation.

Included in Other assets on the Condensed Consolidated Statements of Financial Condition at September 30, 2021 and December 31, 2020 are current income tax receivables of $49.8 million and $83.1 million, respectively. The balances at September 30, 2021 and December 31, 2020 primarily comprised income tax benefits due to the Company from federal, state, local, and foreign tax jurisdictions based on income before taxes. Included in Accounts payable, accrued expenses and other liabilities on the Condensed Consolidated Statements of Financial Condition at September 30, 2021 and December 31, 2020 are current tax liabilities of $12.6 million and $37.9 million, respectively. The balances at September 30, 2021 and December 31, 2020 primarily comprise income taxes owed to federal, state and local, and foreign tax jurisdictions based on income before taxes.

Deferred income taxes arise primarily due to the amortization of the deferred tax assets recognized in connection with the IPO (see Note 5 "Tax Receivable Agreements"), the Acquisition of KCG and the ITG Acquisition, differences in the valuation of financial assets and liabilities, and other temporary differences arising from the deductibility of compensation, depreciation, and other expenses in different time periods for book and income tax return purposes.

34

There are no expiration dates on the deferred tax assets. The provisions of ASC 740 require that carrying amounts of deferred tax assets be reduced by a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically with appropriate consideration given to all positive and negative evidence related to the realization of the deferred tax assets. At September 30, 2021 and December 31, 2020, the Company did not have any U.S. federal net operating loss carryforwards and therefore the Company did not record a deferred tax asset related to federal net operating loss carryforwards. At September 30, 2021 and December 31, 2020, the Company recorded deferred income taxes related to state and local net operating losses of $0.4 million. These net operating losses will begin to expire in 2039. The Company did not record a valuation allowance against this deferred tax asset.

As a result of the ITG Acquisition, the Company had non-U.S. net operating losses at September 30, 2021 and December 31, 2020 of $71.6 million and $75.1 million, respectively, and recorded a related deferred tax asset of $14.3 million and $15.2 million, respectively. A valuation allowance of $14.3 million and $15.1 million was recorded against this deferred tax asset at September 30, 2021 and December 31, 2020, respectively, as it is more likely than not that a portion of this deferred tax asset will not be realized. As a result of the Acquisition of KCG, the Company had non-U.S. net operating losses at September 30, 2021 and December 31, 2020 of $239.3 million and $239.0 million, respectively, and recorded a related deferred tax asset of $44.9 million and $44.9 million, respectively. A full valuation allowance was also recorded against this deferred tax asset at September 30, 2021 and December 31, 2020 as it is more likely than not that this deferred tax asset will not be realized.

No valuation allowance against the remaining deferred taxes was recorded as of September 30, 2021 and December 31, 2020 because it is more likely than not that these deferred tax assets will be fully realized.

The Company is subject to taxation in U.S. federal, state, local and foreign jurisdictions. As of September 30, 2021, the Company’s tax years for 2015 through 2019 and 2017 through 2019 were subject to examination by U.S. and non-U.S. tax authorities, respectively. As a result of the ITG Acquisition and the Acquisition of KCG, the Company assumed any ITG and KCG tax exposures. In addition, the Company is subject to state and local income tax examinations in various jurisdictions for the tax years 2013 through 2019. The final outcome of these examinations is not yet determinable. However, the Company anticipates that adjustments related to these examinations, if any, will not result in a material change to its financial condition, results of operations and cash flows.

The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income or loss before income taxes and noncontrolling interest. Penalties, if any, are recorded in Operations and administrative expense and interest received or paid is recorded in Other, net or Operations and administrative expense in the Condensed Consolidated Statements of Comprehensive Income, respectively.

The Company had $8.3 million of unrecognized tax benefits as of September 30, 2021, all of which would affect the Company’s effective tax rate if recognized. The Company has determined that there are no uncertain tax positions that would have a material impact on the Company’s financial position as of September 30, 2021.

15. Commitments, Contingencies and Guarantees

Legal Proceedings

In the ordinary course of business, the nature of the Company’s business subjects it to claims, lawsuits, regulatory examinations or investigations and other proceedings. The Company and its subsidiaries are subject to several of these matters at the present time.  Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, particularly in regulatory examinations or investigations or other proceedings in which substantial or indeterminate judgments, settlements, disgorgements, restitution, penalties, injunctions, damages or fines are sought, or where such matters are in the early stages, the Company cannot estimate losses or ranges of losses for such matters where there is only a reasonable possibility that a loss may be incurred. In addition, there are numerous factors that result in a greater degree of complexity in class-action lawsuits as compared to other types of litigation. There can be no assurance that these legal proceedings will not have a material adverse effect on the Company’s results of operations in any future period, and a material judgment, fine or sanction could have a material adverse impact on the Company’s financial condition, results of operations and cash flows. However, it is the opinion of management, after consultation with legal counsel that, based on information currently available, the ultimate outcome of these matters will not have a material adverse impact on the business, financial condition or operating results of the Company, although they might be material to the operating results for any particular reporting period. The Company carries directors’ and officers’ liability insurance coverage and other insurance coverage for potential claims, including securities actions, against the Company and its respective directors and officers.
35


On November 30, 2020, the Company was named as a defendant in In re United States Oil Fund, LP Securities Litigation, No. 20-cv-4740. The consolidated amended complaint was filed in federal district court in New York on behalf of a putative class, and asserts claims against the Company and numerous other financial institutions under Section 11 of the Securities Act of 1933 in connection with trading in United States Oil Fund, LP, a crude oil ETF. The complaint also names the ETF, its sponsor, and related individuals as defendants. The complaint did not specify the amount of alleged damages. Defendants moved to dismiss the consolidated amended complaint on January 29, 2021 and plaintiffs subsequently filed its opposition to the motion on March 30, 2021. The Company believes that the claims are without merit and is defending itself vigorously.

On August 31, 2021, the Company was named as a defendant in Alers v. Robinhood Financial, LLC et al No. 21-cv-61848. The complaint was filed in federal district court in Florida on behalf of a putative class, and asserts claims against the Company and numerous other financial institutions alleging a breach of fiduciary duty by Robinhood and aiding and abetting thereof by the Company and other market making firms. The complaint did not specify the amount of alleged damages. The Company believes that the claims are without merit and is defending itself vigorously. In October 2021, Robinhood and the market-maker defendants moved to transfer the case to the Northern District of California, or in the alternative, to dismiss the complaint.

Other Legal and Regulatory Matters

The Company owns subsidiaries including regulated entities that are subject to extensive oversight under federal, state and applicable international laws as well as self-regulatory organization (“SRO”) rules. Changes in market structure and the need to remain competitive require constant changes to the Company's systems, order routing and order handling procedures. The Company makes these changes while continuously endeavoring to comply with many complex laws and rules. Compliance, surveillance and trading issues common in the securities industry are monitored by, reported to, and/or reviewed in the ordinary course of business by the Company's regulators in the U.S. and abroad. As a major order flow execution destination, the Company is named from time to time in, or is asked to respond to a number of regulatory matters brought by U.S. regulators, foreign regulators, SROs, as well as actions brought by private plaintiffs, which arise from its business activities. There has recently been an increased focus by regulators on Anti-Money Laundering and sanctions compliance by broker-dealers and similar entities, as well as an enhanced interest on suspicious activity reporting and transactions involving microcap and low-priced securities. In addition, there has been an increased focus by Congress, federal and state regulators, SROs and the media on market structure issues, and in particular, the retail trading environment in the U.S. and relationships between retail broker-dealers and market making firms, high frequency trading, best execution, internalization, alternative trading system (“ATS”) manner of operations, market fragmentation and complexity, colocation, cybersecurity, access to market data feeds and remuneration arrangements, such as payment for order flow and other payment and rebate structures and arrangements. From time to time, the Company is the subject of requests for information and documents from the SEC, the Financial Industry Regulatory Authority ("FINRA"), state attorneys general, and other regulators and governmental authorities. It is the Company's practice to cooperate and comply with the requests for information and documents.

The Company is currently the subject of various regulatory reviews and investigations by state, federal and foreign regulators and SROs, including the SEC and FINRA. In some instances, these matters may result in a disciplinary action and/or a civil or administrative action.

Representations and Warranties; Indemnification Arrangements

In the normal course of its operations, the Company enters into contracts that contain a variety of representations and warranties in addition to indemnification obligations, including indemnification obligations in connection with the Acquisition of KCG and the ITG Acquisition. The Company's maximum exposure under these arrangements is currently unknown, as any such exposure could relate to claims not yet brought or events which have not yet occurred. For example, in November 2013, KCG sold Urban Financial of America, LLC (“Urban”), the reverse mortgage origination and securitization business previously owned by Knight Capital Group, Inc., to an investor group now known as Finance of America Reverse, LLC (“FAR”). Pursuant to the terms of the Stock Purchase Agreement between KCG and FAR, Virtu has certain continuing obligations related to KCG's prior ownership of Urban and has been and, in the future may be, advised by FAR of potential claims thereunder.

Consistent with standard business practices in the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and general indemnifications. The Company has also provided general indemnifications to its managers, officers, directors, employees, and agents against expenses, legal fees, judgments, fines, settlements, and other amounts actually and reasonably incurred by such persons under certain circumstances as more fully
36

disclosed in its operating agreement. The overall maximum amount of the obligations (if any) cannot reasonably be estimated as it will depend on the facts and circumstances that give rise to any future claims.

16. Leases

The Company primarily enters into lessee arrangements for corporate office space, data centers, and technology equipment. For more information on lease accounting, see Note 2 "Summary of Significant Accounting Policies" and Note 17 "Leases" to the Consolidated Financial Statements of the Company's 2020 Annual Report on Form 10-K.

Lease assets and liabilities are summarized as follows:

(in thousands)Financial Statement LocationSeptember 30, 2021December 31, 2020
Operating leases
Operating lease right-of-use assetsOperating lease right-of-use assets$247,531 $268,864 
Operating lease liabilitiesOperating lease liabilities292,967 315,340 
Finance leases
Property and equipment, at costProperty, equipment, and capitalized software, net18,479 36,093 
Accumulated depreciationProperty, equipment, and capitalized software, net(10,902)(24,585)
Finance lease liabilitiesAccounts payable, accrued expenses, and other liabilities7,705 11,687 

Weighted average remaining lease term and discount rate are as follows:

September 30, 2021December 31, 2020
Weighted average remaining lease term
Operating leases6.68 years6.9 years
Finance leases1.74 years2.0 years
Weighted average discount rate
Operating leases5.49 %5.67 %
Finance leases2.41 %3.13 %

The components of lease expense are as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Operating lease cost:
Fixed$18,994 $18,521 $56,772 $55,333 
Variable1,913 2,393 5,144 6,614 
Impairment of ROU Asset— — 1,198 — 
Total Operating lease cost$20,907 $20,914 $63,114 $61,947 
Sublease income4,537 4,399 13,404 11,994 
Finance lease cost:
Amortization of ROU Asset$1,460 $2,668 $5,024 $8,838 
Interest on lease liabilities50 97 183 339 
Total Finance lease cost$1,510 $2,765 $5,207 $9,177 
37


Future minimum lease payments under operating and finance leases with non-cancelable lease terms, as of September 30, 2021, are as follows:

(in thousands)Operating LeasesFinance Leases
2021$17,078 $1,468 
202269,887 4,441 
202368,128 1,818 
202439,614 247 
202531,859 — 
2026 and thereafter127,472 — 
Total lease payments$354,038 $7,974 
Less imputed interest(61,071)(269)
Total lease liability$292,967 $7,705 

17. Cash

The following table provides a reconciliation of cash and cash equivalents together with restricted or segregated cash
as reported within the Condensed Consolidated Statements of Financial Condition to the sum of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows.

(in thousands)September 30, 2021December 31, 2020
Cash and cash equivalents$683,836 $889,559 
Cash restricted or segregated under regulations and other70,477 117,446 
Total cash, cash equivalents and restricted cash shown in the statement of cash flows$754,313 $1,007,005 

18. Capital Structure

The Company has 4 classes of authorized common stock. The Class A Common Stock and the Class C Common Stock have 1 vote per share. The Class B Common Stock and the Class D Common Stock have 10 votes per share. Shares of the Company’s common stock generally vote together as a single class on all matters submitted to a vote of the Company’s stockholders. The Founder Member controls approximately 83.0% of the combined voting power of our common stock as a result of its ownership of our Class C and Class D Common Stock. The Company holds approximately a 62.6% interest in Virtu Financial at September 30, 2021.

During the period prior to the Reorganization Transactions and IPO, Class A-2 profits interests and Class B interests in Virtu Financial were issued to Employee Holdco (as defined below) on behalf of certain key employees and stakeholders. In connection with the Reorganization Transactions, all Class A-2 profits interests and Class B interests were reclassified into Virtu Financial Units. As of September 30, 2021 and December 31, 2020, there were 4,795,839 and 5,259,713 Virtu Financial Units outstanding held by Employee Holdco (as defined below), respectively, and 463,874 and 2,420,239 of such Virtu Financial Units and corresponding Class C Common Stock were exchanged into Class A Common Stock, forfeited or repurchased during the nine months ended September 30, 2021 and 2020, respectively.

Amended and Restated 2015 Management Incentive Plan

The Company’s Board of Directors and stockholders adopted the 2015 Management Incentive Plan, which became effective upon consummation of the IPO, and was subsequently amended and restated following receipt of approval from the Company’s stockholders on June 30, 2017. The Amended and Restated 2015 Management Incentive Plan provides for the grant of stock options, restricted stock units, and other awards based on an aggregate of 21,000,000 shares of Class A Common Stock, subject to additional sublimits, including limits on the total option grant to any one participant in a single year and the total performance award to any one participant in a single year.

38

On November 13, 2020, the Company amended its form award agreement for the issuance of RSUs to provide for the continued vesting of outstanding RSU awards upon the occurrence of a qualified retirement (the "RSU Amendment"). A qualified retirement generally means a voluntary resignation by the participant (i) after five years of service, (ii) the participant attaining the age of 50 and (iii) the sum of the participant's age and service at the time of termination equaling or exceeding 65. Continued vesting is subject to the participant entering into a 2 year non-compete. The RSU Amendment was authorized and approved by the Compensation Committee of the Company's Board of Directors. As a result of the RSU Amendment, currently issued and outstanding RSUs held by the Company's employees, including its executive officers, shall be deemed to be subject to the amended terms of the form award agreement, and any future RSU awards shall also be governed by such amended terms.

Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan

On the ITG Closing Date, the Company assumed the Amended and Restated ITG 2007 Equity Plan and the Assumed Awards. As of the ITG Closing Date, the aggregate number of shares of Class A Common Stock subject to such Assumed Awards was 2,497,028 and the aggregate number of shares of Class A Common Stock that remained issuable pursuant to the Amended and Restated ITG 2007 Equity Plan was 1,230,406.

Share Repurchase Program

On May 4, 2021, the Company's Board of Directors authorized the expansion of the Company's share repurchase program, increasing the total authorized amount by $300 million to $470 million in Class A Common Stock and Virtu Financial Units and extending the duration of the program through May 4, 2022. The share repurchase program authorizes the Company to repurchase shares from time to time in open market transactions, privately negotiated transactions or by other means. Repurchases are also permitted to be made under Rule 10b5-1 plans. The timing and amount of repurchase transactions are determined by the Company's management based on its evaluation of market conditions, share price, cash sources, legal requirements and other factors. From the inception of the program through September 30, 2021, the Company repurchased approximately 12.5 million shares of Class A Common Stock and Virtu Financial Units for approximately $337.5 million. As of September 30, 2021, the Company has approximately $132.5 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

Employee Exchanges

During the nine months ended September 30, 2021 and 2020, pursuant to the exchange agreement by and among the Company, Virtu Financial and holders of Virtu Financial Units, certain current and former employees elected to exchange 405,272 and 2,420,239 units, respectively in Virtu Financial held directly or on their behalf by Virtu Employee Holdco LLC (“Employee Holdco”) on a 1-for-one basis for shares of Class A Common Stock.

Warrant Issuance

On March 20, 2020, in connection with and in consideration of the Founder Member’s commitments under the Founder Member Loan Facility (as described in Note 9 "Borrowings"), the Company delivered to the Founder Member a warrant (the “Warrant”) to purchase shares of the Company’s Class A Common Stock. Pursuant to the Warrant, the Founder Member may purchase up to 3,000,000 shares of Class A Common Stock. If at any time during the term of the Founder Member Loan Facility, the Founder Member Loans equal to or greater than $100 million had remained outstanding for a certain period of time specified in the Warrant, the number of shares would have increased to 10,000,000. The Founder Member Loan Facility Term expired on September 20, 2020 without the Company having borrowed any Founder Member Loans thereunder (as described in Note 9 "Borrowings"), and as a result no such increase in the number of shares which may be purchased has occurred or will occur pursuant to the terms of the Warrant. The exercise price per share of the Class A Common Stock issuable pursuant to the Warrant is $22.98, which in accordance with the terms of the Warrant, is equal to the average of the volume weighted average prices of the Class A Common Stock for the ten (10) trading days following May 7, 2020, the date on which the Company publicly announced its earnings results for the first quarter of 2020. The Warrant may be exercised to purchase up to 3,000,000 shares of the Company's Class A Common Stock on any date after May 22, 2020 up to and including January 15, 2022. The Warrant and Class A Common Stock issuable pursuant to the Warrant were offered, and will be issued and sold, in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering.

The fair value of the Warrant was determined using a Black-Scholes-Merton model, and was recorded as a debt issuance cost within Other Assets on the Condensed Consolidated Statements of Financial Condition and as an increase to Additional paid-in capital on the Condensed Consolidated Statements of Changes in Equity. The balance was amortized on a straight-line basis from March 20, 2020 through September 20, 2020, the date on which the Founder Member Loan Facility
39

expired, and recorded as expense within Debt issue cost related to debt refinancing, prepayment and commitment fees in the Condensed Consolidated Statements of Comprehensive Income.

Accumulated Other Comprehensive Income (Loss)

The following table presents the changes in Other Comprehensive Income (Loss) for the three and nine months ended September 30, 2021 and 2020:
Three Months Ended September 30, 2021
(in thousands)AOCI Beginning BalanceAmounts recorded
in AOCI
Amounts reclassified from AOCI to incomeAOCI Ending Balance
Net change in unrealized cash flow hedges gains (losses) (1)$(24,952)$(1,612)$3,803 $(22,761)
Foreign exchange translation adjustment5,835 (4,912)— 923 
Total$(19,117)$(6,524)$3,803 $(21,838)
(1) Amounts reclassified from AOCI to income are included within Financing interest expense on long-term borrowings on the Condensed Consolidated Statements of Comprehensive Income. As of September 30, 2021, the Company expects approximately $15.0 million to be reclassified from AOCI into earnings over the next 12 months. The timing of the reclassification is based on the interest payment schedule of the long-term borrowings.
Three Months Ended September 30, 2020
(in thousands)AOCI Beginning BalanceAmounts recorded
in AOCI
Amounts reclassified from AOCI to incomeAOCI Ending Balance
Net change in unrealized cash flow hedges gains (losses)$(36,710)$(1,797)$1,948 $(36,559)
Foreign exchange translation adjustment(2,857)4,213 — 1,356 
Total$(39,567)$2,416 $1,948 $(35,203)

Nine Months Ended September 30, 2021
(in thousands)AOCI Beginning BalanceAmounts recorded
in AOCI
Amounts reclassified from AOCI to incomeAOCI Ending Balance
Net change in unrealized cash flow hedges gains (losses) (1)$(33,444)$(83)$10,766 $(22,761)
Foreign exchange translation adjustment7,957 (7,034)— 923 
Total$(25,487)$(7,117)$10,766 $(21,838)
(1) Amounts reclassified from AOCI to income are included within Financing interest expense on long-term borrowings on the Consolidated Statements of Comprehensive Income. As of September 30, 2021, the Company expects approximately $15.0 million to be reclassified from AOCI into earnings over the next 12 months. The timing of the reclassification is based on the interest payment schedule of the long-term borrowings.
Nine Months Ended September 30, 2020
(in thousands)AOCI Beginning BalanceAmounts recorded
in AOCI
Amounts reclassified from AOCI to incomeAOCI Ending Balance
Net change in unrealized cash flow hedges gains (losses)$— $(42,405)$5,846 $(36,559)
Foreign exchange translation adjustment(647)2,003 — 1,356 
Total$(647)$(40,402)$5,846 $(35,203)
(1) Amounts reclassified from AOCI to income are included within Financing interest expense on long-term borrowings on the Consolidated Statements of Comprehensive Income.

19. Share-based Compensation

Pursuant to the Amended and Restated 2015 Management Incentive Plan as described in Note 18 "Capital Structure", and in connection with the IPO, non-qualified stock options to purchase shares of Class A Common Stock were granted, each of which vests in equal annual installments over a period of four years from grant date and expires not later than 10 years from the date of grant.

40

The following table summarizes activity related to stock options for the nine months ended September 30, 2021 and 2020:

 Options OutstandingOptions Exercisable
 Number of OptionsWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual LifeNumber of OptionsWeighted Average Exercise Price
Per Share
At December 31, 20193,233,779 $18.74 5.243,233,779 $18.74 
Granted— — — — — 
Exercised(807,627)17.96 — (807,627)17.96 
Forfeited or expired— — — — — 
At September 30, 20202,426,152 $19.00 4.492,426,152 $19.00 
At December 31, 20202,324,152 $19.00 4.242,324,152 $19.00 
Granted— — — — — 
Exercised(446,997)19.00 — (446,997)19.00 
Forfeited or expired— — — — — 
At September 30, 20211,877,155 $19.00 3.491,877,155 $19.00 

The expected life was determined based on an average of vesting and contractual period. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined based on historical volatilities of comparable companies. The expected dividend yield was determined based on estimated future dividend payments divided by the IPO stock price. The stock options to purchase shares of Class A Common Stock were fully vested in 2019.

Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan

On the ITG Closing Date, the Company assumed the Amended and Restated ITG 2007 Equity Plan and the Assumed Awards. The Assumed Awards are subject to the same terms and conditions that were applicable to them under the Amended and Restated ITG 2007 Equity Plan, except that (i) the Assumed Awards relate to shares of the Company’s Class A Common Stock, (ii) the number of shares of Class A Common Stock subject to the Assumed Awards was the result of an adjustment based upon an Exchange Ratio (as defined in the ITG Merger Agreement) and (iii) the performance share unit awards were converted into service-based vesting restricted stock unit awards that were no longer subject to any performance based vesting conditions. As of the ITG Closing Date, the aggregate number of shares of Class A Common Stock subject to such Assumed Awards was 2,497,028 and the aggregate number of shares of Class A Common Stock that remained issuable pursuant to the Amended and Restated ITG 2007 Equity Plan was 1,230,406. The Company filed a Registration Statement on Form S-8 on the ITG Closing Date to register such shares of Class A Common Stock.

Class A Common Stock, Restricted Stock Units and Restricted Stock Awards

Pursuant to the Amended and Restated 2015 Management Incentive Plan as described in Note 18 "Capital Structure", subsequent to the IPO, shares of immediately vested Class A Common Stock, RSUs and RSAs were granted, with RSUs and RSAs vesting over a period of up to 4 years. The fair value of the Class A Common Stock and RSUs was determined based on a volume weighted average price and the expense is recognized on a straight-line basis over the vesting period. The fair value of the RSAs was determined based on the closing price as of the date of grant and the expense is recognized from the date that achievement of the performance target becomes probable through the remainder of the vesting period. Performance targets are based on the Company's adjusted EBITDA for certain future periods. For the nine months ended September 30, 2021 and 2020, respectively, there were 633,938 and 967,526 shares of immediately vested Class A Common Stock granted as part of year-end compensation. In addition, the Company accrued compensation expense of $6.3 million for the three months ended September 30, 2021 and reduced accrued compensation expense by $11.4 million for the three months ended September 30, 2020, and accrued compensation expense of $17.7 million and $14.4 million for the nine months ended September 30, 2021 and 2020, respectively, related to immediately vested Class A Common Stock expected to be awarded as part of year-end incentive compensation, which was included in Employee compensation and payroll taxes on the Condensed Consolidated Statements of Comprehensive Income and Accounts payable, accrued expenses and other liabilities on the Condensed Consolidated Statements of Financial Condition. 

41

The following table summarizes activity related to RSUs (including the Assumed Awards) and RSAs for the nine months ended September 30, 2021 and 2020:
Number of RSUs and RSAsWeighted
Average Fair Value 
At December 31, 20192,993,489 $24.10 
Granted3,300,894 17.15 
Forfeited(391,223)17.90 
Vested(2,124,843)20.40 
At September 30, 20203,778,317 $20.77 
At December 31, 20203,393,084 $21.35 
Granted (1)2,442,953 27.06 
Forfeited(191,296)22.97 
Vested(2,032,477)23.27 
At September 30, 20213,612,264 $24.05 
(1) Excluded in the number of RSUs and RSAs are 350,000 participating RSAs where the grant date has not been achieved because the performance conditions have not been met.

The Company recognized $6.7 million and $9.0 million for the three months ended September 30, 2021 and 2020 and $20.5 million and $25.8 million for the nine months ended September 30, 2021 and 2020, respectively, of compensation expense in relation to RSUs. As of September 30, 2021 and December 31, 2020, total unrecognized share-based compensation expense related to unvested RSUs was $51.4 million and $37.1 million, respectively, and this amount is to be recognized over a weighted average period of 1.1 years and 1.0 year, respectively. Awards in which the specific performance conditions have not been met are not included in unrecognized share-based compensation expense.

On November 13, 2020, the Company adopted the Virtu Financial, Inc. Deferred Compensation Plan (the "DCP"). The DCP permits eligible executive officers and other employees to defer cash or equity based compensation beginning in the calendar year ending December 31, 2021, subject to certain limitations and restrictions. Deferrals may also be directed to notional investments in certain of the employee investment opportunities. No amounts have been recognized as compensation cost under the DCP as of September 30, 2021.

20. Regulatory Requirement

U.S. Subsidiary

The Company's U.S. broker-dealer subsidiary, VAL, is subject to the SEC Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital as detailed in the table below. Pursuant to New York Stock Exchange ("NYSE") rules, VAL was also required to maintain $1.0 million of capital in connection with the operation of its designated market maker (“DMM”) business as of September 30, 2021. The required amount is determined under the exchange rules as the greater of (i) $1 million or (ii) $75,000 for every 0.1% of NYSE transaction dollar volume in each of the securities for which the Company is registered as the DMM.

VAL's regulatory capital and regulatory capital requirements as of September 30, 2021 was as follows:
(in thousands)Regulatory CapitalRegulatory Capital RequirementExcess Regulatory Capital
Virtu Americas LLC$484,482 $1,725 $482,757 

As of September 30, 2021, VAL had $60.9 million of cash in special reserve bank accounts for the benefit of customers pursuant to SEC Rule 15c3-3, Computation for Determination of Reserve Requirements, and $8.8 million of cash in reserve bank accounts for the benefit of proprietary accounts of brokers. The balances are included within Cash restricted or segregated under regulations and other on the Condensed Consolidated Statements of Financial Condition.

VAL's regulatory capital and regulatory capital requirements as of December 31, 2020 was as follows:
(in thousands)Regulatory CapitalRegulatory Capital RequirementExcess Regulatory Capital
Virtu Americas LLC$621,253 $2,917 $618,336 

42

As of December 31, 2020, VAL had $96.2 million of cash in special reserve bank accounts for the benefit of customers pursuant to SEC Rule 15c3-3, Computation for Determination of Reserve Requirements, and $20.4 million of cash in reserve bank accounts for the benefit of proprietary accounts of brokers.

Foreign Subsidiaries    

The Company’s foreign subsidiaries are subject to regulatory capital requirements set by local regulatory bodies, including the Investment Industry Regulatory Organization of Canada (“IIROC”), the Central Bank of Ireland ("CBI"), the Financial Conduct Authority ("FCA") in the United Kingdom, the Australian Securities and Investments Commission ("ASIC"), the Securities and Futures Commission in Hong Kong ("SFC"), and the Monetary Authority of Singapore ("MAS").

The regulatory net capital balances and regulatory capital requirements applicable to the Company's foreign subsidiaries as of September 30, 2021 were as follows:
(in thousands)Regulatory CapitalRegulatory Capital RequirementExcess Regulatory Capital
Canada
Virtu ITG Canada Corp$16,911 $197 $16,714 
Virtu Financial Canada ULC200 197 
Ireland
Virtu ITG Europe Limited (1)78,066 32,636 45,430 
Virtu Financial Ireland Limited (1)109,229 58,083 51,146 
United Kingdom
Virtu ITG UK Limited1,057 846 211 
Asia Pacific
Virtu ITG Australia Limited30,717 8,776 21,941 
Virtu ITG Hong Kong Limited2,902 513 2,389 
Virtu ITG Singapore Pte Limited845 74 771 
(1) Preliminary
As of September 30, 2021, Virtu ITG Europe Limited and Virtu ITG Canada Corp had $0.2 million and $0.4 million, respectively, of segregated funds on deposit for trade clearing and settlement activity, and Virtu ITG Hong Kong Ltd. had $30 thousand of segregated balances under a collateral account control agreement for the benefit of certain customers.

The regulatory net capital balances and regulatory capital requirements applicable to the Company's foreign subsidiaries as of December 31, 2020 were as follows:
(in thousands)Regulatory CapitalRegulatory Capital RequirementExcess Regulatory Capital
Canada
Virtu ITG Canada Corp$12,944 $196 $12,748 
Virtu Financial Canada ULC2,486 196 2,290 
Ireland
Virtu ITG Europe Limited57,459 32,106 25,353 
Virtu Financial Ireland Limited94,528 41,038 53,490 
United Kingdom
Virtu ITG UK Limited1,290 910 380 
Asia Pacific
Virtu ITG Australia Limited30,606 12,729 17,877 
Virtu ITG Hong Kong Limited4,290 625 3,665 
Virtu ITG Singapore Pte Limited796 76 720 

As of December 31, 2020, Virtu ITG Europe Limited and Virtu ITG Canada Corp had $0.2 million and $0.4 million, respectively, of funds on deposit for trade clearing and settlement activity, and Virtu ITG Hong Kong Ltd had $30 thousand of segregated balances under a collateral account control agreement for the benefit of certain customers.

43

21. Geographic Information and Business Segments

The Company operates its business in the U.S. and internationally, primarily in Europe, Asia and Canada. Significant transactions and balances between geographic regions occur primarily as a result of certain of the Company’s subsidiaries incurring operating expenses such as employee compensation, communications and data processing and other overhead costs, for the purpose of providing execution, clearing and other support services to affiliates. Charges for transactions between regions are designed to approximate full costs. Intra-region income and expenses and related balances have been eliminated in the geographic information presented below to accurately reflect the external business conducted in each geographical region. The revenues are attributed to countries based on the locations of the subsidiaries. The following table presents total revenues by geographic area for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Revenues:
United States$433,013 $484,594 $1,678,650 $2,045,330 
Ireland55,137 61,320 242,614 233,783 
Singapore30,696 26,630 102,965 140,492 
Canada13,955 71,268 43,924 103,331 
Australia9,982 10,107 31,868 32,186 
United Kingdom— 964 1,745 3,944 
Others1,561 1,229 4,115 3,569 
Total revenues$544,344 $656,112 $2,105,881 $2,562,635 

The Company has 2 operating segments: (i) Market Making and (ii) Execution Services; and 1 non-operating segment: Corporate.

The Market Making segment principally consists of market making in the cash, futures and options markets across global equities, fixed income, currencies and commodities. As a market maker, the Company commits capital on a principal basis by offering to buy securities from, or sell securities to, broker-dealers, banks and institutions. The Company engages in principal trading in the Market Making segment direct to clients as well as in a supplemental capacity on exchanges, Electronic Communications Networks ("ECNs") and ATSs. The Company is an active participant on all major global equity and futures exchanges and also trades on substantially all domestic electronic options exchanges. As a complement to electronic market making, the cash trading business handles specialized orders and also transacts on the OTC Link ATS operated by OTC Markets Group Inc. 

The Execution Services segment comprises client-based trading and trading venues, offering execution services in global equities, options, futures and fixed income on behalf of institutions, banks and broker-dealers. The Company earns commissions and commission equivalents as an agent on behalf of clients as well as between principals to transactions; in addition, the Company will commit capital on behalf of clients as needed. Client-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities and options; (ii) institutional sales traders who offer portfolio trading and single stock sales trading which provides execution expertise for program, block and riskless principal trades in global equities and ETFs; and (iii) matching of client conditional orders in POSIT Alert and client orders in the Company's ATSs, including Virtu MatchIt, and POSIT. The Execution Services segment also includes revenues derived from providing (a) proprietary risk management and trading infrastructure technology to select third parties for a service fee, (b) workflow technology, the Company’s integrated, broker-neutral trading tools delivered across the globe including trade order and execution management and order management software applications and network connectivity and (c) trading analytics, including (1) tools enabling portfolio managers and traders to improve pre-trade, real-time and post-trade execution performance, (2) portfolio construction and optimization decisions and (3) securities valuation. The segment also includes the results of the Company's capital markets business, in which the Company act as an agent for issuers in connection with at-the-market offerings and buyback programs.

The Corporate segment contains the Company's investments, principally in strategic trading-related opportunities and maintains corporate overhead expenses and all other income and expenses that are not attributable to the Company's other segments.

Management evaluates the performance of its segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. The Company’s total revenues and income before income taxes and noncontrolling interest (“Pre-tax earnings”) by segment for the three months ended September 30, 2021 and 2020 and are summarized in the following table:
44


(in thousands)Market
Making
Execution
Services
CorporateConsolidated
Total
2021:    
Total revenue$409,290 $132,549 $2,505 $544,344 
Income before income taxes and noncontrolling interest135,875 7,532 1,692 145,099 
2020:
Total revenue474,598 182,680 (1,166)656,112 
Income (loss) before income taxes and noncontrolling interest161,732 102,029 (11,246)252,515 
The Company's Pre-tax earnings by segment for the nine months ended September 30, 2021 and 2020 are summarized in the following table:
(in thousands)Market MakingExecution ServicesCorporateConsolidated Total
2021
Total revenue$1,635,555 $459,918 $10,408 $2,105,881 
Income (loss) before income taxes and noncontrolling interest713,723 51,941 4,223 769,887 
2020
Total revenue2,064,300 500,621 (2,286)2,562,635 
Income (loss) before income taxes and noncontrolling interest1,010,871 137,879 (25,478)1,123,272 
22. Related Party Transactions

The Company incurs expenses and maintains balances with its affiliates in the ordinary course of business. As of September 30, 2021, and December 31, 2020 the Company had net payables to its affiliates of $0.8 million and net receivables from its affiliates of $2.3 million, respectively.

The Company has held a minority interest in JNX since 2016 (see Note 10 "Financial Assets and Liabilities"). The Company pays exchange fees to JNX for the trading activities conducted on its proprietary trading system. The Company paid $2.9 million and $4.1 million for the three months ended September 30, 2021 and 2020, respectively, and $9.1 million and $13.8 million for the nine months ended September 30, 2021 and 2020, respectively, to JNX for these trading activities.

The Company makes payments to 2 JVs (see Note 12 "Variable Interest Entities") to fund the construction of the microwave communication networks, and to purchase microwave communication networks, which are recorded within Communications and data processing on the Condensed Consolidated Statements of Comprehensive Income. The Company made payments of $10.5 million and $4.7 million the three months ended September 30, 2021 and 2020, respectively, and $19.9 million and $14.0 million for the nine months ended September 30, 2021 and 2020, respectively, to these JVs.

The Company purchases network connections services from affiliates of Level 3 Communications (“Level 3”). Temasek and its affiliates have a significant ownership interest in Level 3. The Company paid $0.5 million and $0.4 million for the three months ended September 30, 2021 and 2020, respectively, and $1.2 million for both the nine months ended September 30, 2021 and 2020, respectively, to Level 3 for these services.

The Company makes commission-sharing arrangement ("CSA") payments to affiliates of DBS Group Holdings ("DBS"). Temasek and its affiliates have a significant ownership interest in DBS. Payments for the three and nine months ended September 30, 2021 were immaterial. The Company made payments of $13.0 thousand and $0.2 million for the three and nine months ended September 30, 2020, respectively.

Ordinal Holdings I, LP is a stockholder in the Company with board representation. On August 12, 2021, the Company entered into a Purchase Agreement with Ordinal Holdings I, LP to repurchase 1.5 million shares of the Company's Class A common stock for $39.2 million in accordance with the Company's previously disclosed share repurchase program. See Note 18 "Capital Structure" for a further discussion of the Company's share repurchase program.

45

23. Subsequent Events

The Company has evaluated subsequent events for adjustment to or disclosure in its condensed consolidated financial statements through the date of this report, and has not identified any recordable or disclosable events, not otherwise reported in these condensed consolidated financial statements or the notes thereto, except for the following: 

On November 3, 2021, the Company’s Board of Directors declared a dividend of $0.24 per share of Class A Common Stock and Class B Common Stock and per participating Restricted Stock Unit and Restricted Stock Award that will be paid on December 15, 2021 to holders of record as of December 1, 2021.

On November 3, 2021, the Company's Board of Directors authorized the expansion of the Company's current share repurchase program, increasing the total authorized amount by $750 million to $1,220 million and extended the duration through November 3, 2023. Since the inception of the program through November 3, 2021, the company repurchased approximately 13.4 million shares of Class A Common Stock and Virtu Financial Units for approximately $361.4 million. As of November 3, 2021, the Company has approximately $858.6 million remaining capacity for future purchase of shares of Class A Common Stock and Virtu Financial Units under the program.
46

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following management’s discussion and analysis covers the three and nine months ended September 30, 2021 and 2020 and should be read in conjunction with the consolidated financial statements of Virtu Financial, Inc. (the “Company”) for the period ended September 30, 2021, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2020, which are included in Items 8 and 7, respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. This management's discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed below. Unless otherwise stated, all amounts are presented in thousands of dollars.
 
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. You should not place undue reliance on forward-looking statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “project” or, in each case, their negative, or other variations or comparable terminology and expressions. These statements are based on assumptions that we have made in light of our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the circumstances. As you read and consider this Quarterly Report on Form 10-Q, you should understand that forward-looking statements are not guarantees of performance or results and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q. By their nature, forward-looking statements involve known and unknown risks and uncertainties, including those described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q, because they relate to events and depend on circumstances that may or may not occur in the future. Although we believe that the forward-looking statements contained in this Quarterly Report on Form 10-Q are based on reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (“SEC”) on February 25, 2021 (the “2020 Form 10-K”), could affect our actual financial results or results of operations and cash flows, and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:
the continuing impacts of COVID-19 and the governmental and other responses thereto, including but not limited to the risk of employees and executives contracting COVID-19 and the deployment of our business continuity plan pursuant to which a significant number of our employees currently work remotely and our return to office plan, each of which may increase operational risk, as well as increases in market, counterparty and other forms of operational risk;
volatility in levels of overall trading activity;
dependence upon trading counterparties and clearing houses performing their obligations to us;
failures of our customized trading platform;
risks inherent to the electronic market making business and trading generally;
increased competition in market making activities and execution services;
dependence on continued access to sources of liquidity;
risks associated with self-clearing and other operational elements of our business, including but limited to risks related to funding and liquidity;
obligations to comply with applicable regulatory capital requirements;
litigation or other legal and regulatory-based liabilities;
changes in laws, rules or regulations, including proposed legislation that would impose taxes on certain financial transactions in the European Union, the U.S. (and certain states therein) and other jurisdictions and other potential changes which could increase our corporate or other tax obligations in one or more jurisdictions;
obligations to comply with laws and regulations applicable to our operations in the U.S. and abroad;
47

enhanced media and regulatory scrutiny and its impact upon public perception of us or of companies in our industry;
need to maintain and continue developing proprietary technologies;
the effect of the Acquisition of KCG and ITG Acquisition (as defined below) on ongoing business operations generally, including our ability to achieve cost-saving synergies related to these historical acquisitions, and the assumption of potential liabilities and risks relating to these historical acquisitions, and the significant costs and significant indebtedness that we have incurred in connection therewith;
capacity constraints, system failures, and delays;
dependence on third-party infrastructure or systems;
use of open source software;
failure to protect or enforce our intellectual property rights in our proprietary technology;
failure to protect confidential and proprietary information;
failure to protect our systems from internal or external cyber threats that could result in damage to our computer systems, business interruption, loss of data or other consequences;
risks associated with international operations and expansion, including failed acquisitions or dispositions;
the effects of and changes in economic conditions (such as volatility in the financial markets, inflation, monetary conditions and foreign currency and exchange rate fluctuations, foreign currency controls and/or government mandated pricing controls, as well as in trade, monetary, fiscal and tax policies in international markets), political conditions (such as military actions and terrorist activities), and other global events such as fires, natural disasters, pandemics or extreme weather;
risks associated with potential growth and associated corporate actions;
inability to access, or delay in accessing the capital markets to sell shares or raise additional capital;
loss of key executives and failure to recruit and retain qualified personnel; and
risks associated with losing access to a significant exchange or other trading venue.

Our forward-looking statements made herein are made only as of the date of this Quarterly Report on Form 10-Q. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.

Unless the context otherwise requires, the terms "we," "us," "our," "Virtu" and the "Company" refer to Virtu Financial, Inc., a Delaware corporation, and its consolidated subsidiaries and the term "Virtu Financial" refers to Virtu Financial LLC, a Delaware limited liability company and a consolidated subsidiary of ours.
Impact of the COVID-19 Pandemic

 For a discussion on the potential impacts of the COVID-19 outbreak on our business, see Part I Item 1A “Risk Factors” of our Annual Report on Form 10-K.
48


Overview

We are a leading financial services firm that leverages cutting edge technology to deliver liquidity to the global markets and innovative, transparent trading solutions to our clients. Leveraging our global market structure expertise and scaled, multi-asset technology infrastructure, we provide our clients with a robust product suite including offerings in execution, liquidity sourcing, analytics and broker-neutral, multi-dealer platforms in workflow technology. Our product offerings allow our clients to trade on hundreds of venues across over 50 countries and in multiple asset classes, including global equities, ETFs, foreign exchange, futures, fixed income and other commodities. Our integrated, multi-asset analytics platform provides a range of pre- and post-trade services, data products and compliance tools that our clients rely upon to invest, trade and manage risk across global markets. We believe that our broad diversification, in combination with our proprietary technology platform and low-cost structure gives us the scale necessary to grow our business around the globe as we service clients and facilitate risk transfer between global capital markets participants by providing liquidity, while at the same time earning attractive margins and returns.

Technology and operational efficiency are at the core of our business, and our focus on technology is a key element of our success. We have developed a proprietary, multi-asset, multi-currency technology platform that is highly reliable, scalable and modular, and we integrate directly with exchanges, liquidity centers, and our clients. Our market data, order routing, transaction processing, risk management and market surveillance technology modules manage our market making and execution services activities in an efficient manner and enable us to scale our activities globally across additional securities and other financial instruments and asset classes without significant incremental costs or third-party licensing or processing fees.

We believe that technology-enabled market makers and execution services providers like Virtu serve an important role in maintaining and enhancing the overall health and efficiency of the global capital markets by ensuring that market participants have an efficient means to invest, transfer risk and analyze the quality of executions. We believe that market participants benefit from the increased liquidity, lower overall trading costs and execution transparency that Virtu provides.

Our execution services and client solutions products are designed to be transparent, because we believe transparency makes markets more efficient and helps investors make better, more informed decisions. We use the latest technology to create and deliver liquidity to global markets and innovative trading solutions and analytics tools to our clients. We interact directly with hundreds of retail brokers, Registered Investment Advisors, private client networks, sell-side brokers, and buy-side institutions.

We have two operating segments: Market Making and Execution Services, and one non-operating segment: Corporate. Our management allocates resources, assesses performance and manages our business according to these segments.

Market Making

We leverage cutting edge technology to provide competitive and deep liquidity that helps to create more efficient markets around the world. As a market maker and liquidity provider, we stand ready, at any time, to buy or sell a broad range of securities, and we generate profits by buying and selling large volumes of securities and other financial instruments and earning small bid/ask spreads. Our market structure expertise, broad diversification, and scalable execution technology enable us to provide competitive bids and offers in over 25,000 securities and other financial instruments, on over 235 venues, in 36 countries worldwide. We use the latest technology to create and deliver liquidity to the global markets and automate our market making, risk controls, and post-trade processes. As a market maker, we interact directly with hundreds of retail brokers, Registered Investment Advisors, private client networks, sell-side brokers, and buy-side institutions.

We believe the overall level of volumes and realized volatility in the various markets we serve have the greatest impact on our market making businesses. Increases in market volatility can cause bid/ask spreads to widen as market participants are more willing to pay market makers like us to transact immediately and as a result, market makers' capture rate per notional amount transacted increases.

49

Execution Services

We offer client execution services and trading venues that provide transparent trading in global equities, ETFs, fixed income, currencies, and commodities to institutions, banks and broker-dealers. We generally earn commissions when transacting as an agent for our clients. Client-based, execution-only trading within this segment is done through a variety of access points including: (a) algorithmic trading and order routing; (b) institutional sales traders who offer portfolio trading and single stock sales trading which provides execution expertise for program, block and riskless principal trades in global equities and ETFs; and (c) matching of client conditional orders in POSIT Alert and in our ATSs, including Virtu MatchIt and POSIT. We also earn revenues (a) by providing our proprietary technology and infrastructure to select third parties for a service fee, (b) through workflow technology and our integrated, broker-neutral trading tools delivered across the globe, including order and execution management systems and order management software applications and network connectivity and (c) through trading analytics, including (1) tools enabling portfolio managers and traders to improve pre-trade, real-time and post-trade execution performance, (2) portfolio construction and optimization decisions and (3) securities valuation. The segment also includes the results of our capital markets business, in which we act as an agent for issuers in connection with at-the-market offerings and buyback programs.

Corporate

Our Corporate segment contains investments principally in strategic financial services-oriented opportunities and maintains corporate overhead expenses and all other income and expenses that are not attributable to our other segments.

Acquisition of ITG and KCG

On March 1, 2019, the "ITG Closing Date", we announced the completion of Investment Technology Group, Inc. and its subsidiaries ("ITG") in an all-cash transaction valued at $30.30 per ITG share, for a total of approximately $1.0 billion (the "ITG Acquisition"). In connection with the ITG Acquisition, Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial ("VFH"), and Imapala Borrower LLC (the "Acquisition Borrower"), a subsidiary of the Company, entered into a Credit Agreement (the "Credit Agreement"), with the lenders party thereto, Jefferies Finance LLC, as administrative agent and Jefferies Finance LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners. The Credit Agreement provided (i) the First Lien Term Loan Facility (as defined below) in an aggregate principal amount of $1.5 billion, drawn in its entirety on the ITG Closing Date, with approximately $404.5 million borrowed by VFH to repay all amounts outstanding under its existing term loan facility and the remaining approximately $1,095.0 million borrowed by the Acquisition Borrower to finance the consideration and fees and expenses to be paid in connection with the ITG Acquisition, and (ii) the First Lien Revolving Facility (as defined below), with a $5.0 million letter of credit subfacility and a $5.0 million swingline subfacility. After the closing of the ITG Acquisition, VFH assumed the obligations of the Acquisition Borrower in respect of the acquisition term loans. Additionally, on the ITG Closing Date, the Company’s fourth amended and restated credit agreement, dated as of June 30, 2017 (as amended on January 2, 2018 and September 19, 2018, the “Fourth Amended and Restated Credit Agreement”) was terminated.

As described below, the Credit Agreement was amended on October 9, 2019, on which date VFH borrowed an additional $525.0 million of incremental first lien term loans, the proceeds of which were used together with cash on hand to redeem the Notes (as defined below). The Indenture (as defined below) was fully terminated following such redemption. The Credit Agreement was further amended on March 2, 2020 to, among other things, reduce the interest rate spread over LIBOR or the applicable benchmark by 0.50%.

On July 20, 2017 (the “KCG Closing Date”), the Company completed the all-cash acquisition of KCG Holdings, Inc. (“KCG”) (the “Acquisition of KCG”).

50

Amended and Restated 2015 Management Incentive Plan

The Company’s Board of Directors and stockholders adopted the 2015 Management Incentive Plan, which became effective upon consummation of the Company's IPO and was subsequently amended and restated following receipt of approval from the Company’s stockholders on June 30, 2017 (the “Amended and Restated 2015 Management Incentive Plan”). The Amended and Restated 2015 Management Incentive Plan provides for the grant of stock options, restricted stock units, and other awards based on an aggregate of 16,000,000 shares of Class A Common Stock, par value $0.00001 per share (the “Class A Common Stock”), subject to additional sublimits, including limits on the total option grant to any one participant in a single year and the total performance award to any one participant in a single year. On April 23, 2020, the Company’s Board of Directors adopted an amendment to the Company’s Amended and Restated 2015 Management Incentive Plan in order to increase the number of shares of the Company’s Class A Common Stock reserved for issuance, and in respect of which awards may be granted under the Amended and Restated 2015 Plan from 16,000,000 shares of Class A Common Stock to an aggregate of 21,000,000 shares of Class A Common Stock and the amendment was approved by the Company’s shareholders at the Company's annual meeting of shareholders on June 5, 2020.

In connection with the IPO, non-qualified stock options to purchase 9,228,000 shares were granted at the IPO per share price, each of which vests in equal annual installments over a period of four years from the grant date and expires not later than 10 years from the grant date. Subsequent to the IPO and through September 30, 2021, options to purchase 1,628,750 shares in the aggregate were forfeited and 5,722,095 options were exercised. The fair value of the stock option grants was determined through the application of the Black-Scholes-Merton model and was recognized on a straight-line basis over the vesting period. In connection with and subsequent to the IPO, 1,677,318 shares of immediately vested Class A Common Stock and 2,620,051 restricted stock units were granted, which vest over a period of up to 4 years and are settled in shares of Class A Common Stock. The fair value of the Class A Common Stock and restricted stock units was determined based on the volume weighted average price for the three days preceding the grant, and with respect to the restricted stock units is recognized on a straight-line basis over the vesting period.

Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan

On the ITG Closing Date, the Company assumed the Amended and Restated ITG 2007 Omnibus Equity Compensation Plan, dated as of June 8, 2017 (the “Amended and Restated ITG 2007 Equity Plan”) and certain stock option awards, restricted stock unit awards, deferred stock unit awards and performance stock unit awards granted under the Amended and Restated ITG 2007 Equity Plan (the “Assumed Awards”). The Assumed Awards are subject to the same terms and conditions that were applicable to them under the Amended and Restated ITG 2007 Equity Plan, except that (i) the Assumed Awards relate to shares of the Company’s Class A Common Stock, (ii) the number of shares of Class A Common Stock subject to the Assumed Awards was the result of an adjustment based upon an Exchange Ratio (as defined in the Agreement and Plan of Merger by and between the Company, Impala Merger Sub, Inc., a Delaware corporation and an indirect wholly owned subsidiary of the Company, and ITG, dated as of November 6, 2018, the “ITG Merger Agreement”) and (iii) the performance share unit awards were converted into service-based vesting restricted stock unit awards that were no longer subject to any performance based vesting conditions. As of the ITG Closing Date, the aggregate number of shares of Class A Common Stock subject to such Assumed Awards was 2,497,028 and the aggregate number of shares of Class A Common Stock that remained issuable pursuant to the Amended and Restated ITG 2007 Equity Plan was 1,230,406. The Company filed a Registration Statement on Form S-8 on the ITG Closing Date to register such shares of Class A Common Stock.

Parent Company Financial Information

There are no material differences between our condensed consolidated financial statements and the financial statements of Virtu Financial except as follows: (i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2021 in the amount of $60.1 million; (ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2021 in the amount of $167.5 million and tax receivable agreement obligation in the amount of $254.7 million, in each case as described in greater detail in Note 5 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q; (iii) a portion of the member's equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of September 30, 2021; and (iv) provision for corporate income tax in the amount of $17.7 million and $97.5 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021, respectively.

51

Components of Our Results of Operations

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and nine months ended September 30, 2021 and 2020:

(in thousands)Three Months Ended September 30,Nine Months Ended September 30,
Market Making2021202020212020
Total revenue$409,290 $474,598 $1,635,555 $2,064,300 
Total operating expenses273,415 312,866 921,832 1,053,429 
Income before income taxes and noncontrolling interest135,875 161,732 713,723 1,010,871 
Execution Services
Total revenue132,549 182,680 459,918 500,621 
Total operating expenses125,017 80,651 407,977 362,742 
Income before income taxes and noncontrolling interest7,532 102,029 51,941 137,879 
Corporate
Total revenue2,505 (1,166)10,408 (2,286)
Total operating expenses813 10,080 6,185 23,192 
Income before income taxes and noncontrolling interest1,692 (11,246)4,223 (25,478)
Consolidated
Total revenue544,344 656,112 2,105,881 2,562,635 
Total operating expenses399,245 403,597 1,335,994 1,439,363 
Income before income taxes and noncontrolling interest$145,099 $252,515 $769,887 $1,123,272 

The following table shows our results of operations for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,Nine Months Ended September 30,
(in thousands)2021202020212020
Revenues:
Trading income, net$394,265 $441,295 $1,591,840 $1,987,756 
Interest and dividends income9,704 10,932 26,246 46,788 
Commissions, net and technology services135,923 133,853 470,687 452,333 
Other, net4,452 70,032 17,108 75,758 
Total revenue544,344 656,112 2,105,881 2,562,635 
Operating Expenses:
Brokerage, exchange, clearance fees and payments for order flow, net158,862 196,448 588,885 573,769 
Communication and data processing55,627 51,647 159,824 162,336 
Employee compensation and payroll taxes84,552 35,798 273,172 327,091 
Interest and dividends expense26,586 27,374 75,585 97,656 
Operations and administrative18,228 24,612 65,636 73,480 
Depreciation and amortization16,636 16,656 49,764 50,728 
Amortization of purchased intangibles and acquired capitalized software16,933 18,265 53,087 56,177 
Termination of office leases238 60 5,126 343 
Debt issue cost related to debt refinancing, prepayment and commitment fees1,237 9,916 4,981 27,282 
Transaction advisory fees and expenses167 2,463 150 2,737 
Financing interest expense on long-term borrowings20,179 20,358 59,784 67,764 
Total operating expenses399,245 403,597 1,335,994 1,439,363 
Income before income taxes and noncontrolling interest145,099 252,515 769,887 1,123,272 
Provision for income taxes21,961 52,807 128,611 200,044 
Net income$123,138 $199,708 $641,276 $923,228 
52

Total Revenues

Revenues are generated through market marking activities, commissions and fees on execution services activities, which include recurring subscriptions on workflow technology and analytic products. The majority of our revenues are generated through market making activities, which are recorded as Trading income, net and Interest and dividends income. Commissions and fees are derived from commissions charged for trade executions in client execution services. We earn commissions and commission equivalents, as well as, in certain cases, contingent fees based on client revenues, which represent variable consideration. The services offered under these contracts have the same pattern of transfer; accordingly, they are being measured and recognized as a single performance obligation. The performance obligation is satisfied over time, and accordingly, revenue is recognized as time passes. Variable consideration has not been included in the transaction price as the amount of consideration is contingent on factors outside our control.

Recurring revenues are primarily derived from workflow technology connectivity fees generated for matching client orders, and analytics services to select third parties. Revenues from connectivity fees are recognized and billed to clients on a monthly basis. Revenues from commissions attributable to analytic products under bundled arrangements are recognized over the course of the year as the performance obligations for those analytics products are satisfied.

Trading income, net. Trading income, net represents revenue earned from bid/ask spreads. Trading income is generated in the normal course of our market making activities and is typically proportional to the level of trading activity, or volumes, and bid/ask spreads in the asset classes we serve. Our trading income is highly diversified by asset class and geography and is comprised of small amounts earned on millions of trades on various exchanges. Our trading income, net, results from gains and losses associated with trading strategies, which are designed to capture small bid ask spreads, while hedging risks. Trading income, net, accounted for 76% and 78% of our total revenues for the nine months ended September 30, 2021 and 2020, respectively.

Interest and dividends income. Our market making activities require us to hold securities on a regular basis, and we generate revenues in the form of interest and dividends income from these securities. Interest is also earned on securities borrowed from other market participants pursuant to collateralized financing arrangements and on cash held by brokers. Dividend income arises from holding market making positions over dates on which dividends are paid to shareholders of record.

Commissions, net and technology services. We earn revenues on transactions for which we charge explicit commissions or commission equivalents, which include the majority of our institutional client orders. Commissions and fees are primarily affected by changes in our equities, fixed income and futures transaction volumes with institutional clients, which vary based on client relationships; changes in commission rates; client experience on the various platforms; level of volume based fees from providing liquidity to other trading venues; and the level of our soft dollar and commission recapture activity. Client commission fees are charged for client trades executed by us on behalf of third-party broker-dealers and other financial institutions. Revenue is recognized on a trade date basis, which is the point at which the performance obligation to the customer is satisfied, based on the trade being executed. In addition, we offer workflow technology and analytics services to select third parties. Revenues are derived from fees generated by matching sell-side and buy-side clients orders, and from analytic products delivered to the clients.

Technology licensing fees are charged for the licensing of our proprietary technology and the provision of related services, including hosting, management and support. These fees include an up-front component and a recurring fee for the releva