Virtu Financial, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Index to Condensed Consolidated Financial Statements PAGE NUMBER Condensed Consolidated Statements of Financial Condition (Unaudited) 3 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) 5 Condensed Consolidated Statements of Changes in Equity (Unaudited) 6 Condensed Consolidated Statements of Cash Flows (Unaudited) 8 Notes to Condensed Consolidated Financial Statements (Unaudited) 10 2 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Financial Condition (Unaudited) (in thousands, except share data) June 30, 2020 December 31, 2019 Assets Cash and cash equivalents $ 670,770 $ 732,164 Cash restricted or segregated under regulations and other 77,245 41,116 Securities borrowed 1,435,777 1,928,763 Securities purchased under agreements to resell 244,242 143,032 Receivables from broker-dealers and clearing organizations 2,441,283 1,318,584 Trading assets, at fair value: Financial instruments owned 2,038,622 2,068,734 Financial instruments owned and pledged 602,971 696,956 Receivables from customers 275,506 103,531 Property, equipment and capitalized software (net of accumulated depreciation of $ 433,060 and $ 457,229 as of June 30, 2020 and December 31, 2019, respectively) 114,080 116,089 Operating lease right-of-use assets 294,531 314,526 Goodwill 1,148,926 1,148,926 Intangibles (net of accumulated amortization of $ 257,151 and $ 219,239 as of June 30, 2020 and December 31, 2019, respectively) 491,726 529,638 Deferred tax assets 195,844 214,671 Other assets ($ 53,642 and $ 48,966 , at fair value, as of June 30, 2020 and December 31, 2019, respectively) 257,352 252,640 Total assets $ 10,288,875 $ 9,609,370 Liabilities and equity Liabilities Short-term borrowings $ 26,274 $ 73,486 Securities loaned 1,204,114 1,600,099 Securities sold under agreements to repurchase 312,568 340,742 Payables to broker-dealers and clearing organizations 1,200,212 826,750 Payables to customers 148,519 89,719 Trading liabilities, at fair value: Financial instruments sold, not yet purchased 2,753,847 2,497,958 Tax receivable agreement obligations 255,996 269,282 Accounts payable, accrued expenses and other liabilities 614,220 399,168 Operating lease liabilities 339,602 365,364 Long-term borrowings 1,732,516 1,917,866 Total liabilities 8,587,868 8,380,434 Commitments and Contingencies (Note 14) 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 — 124,654,210 and 120,435,912 shares, Outstanding — 122,475,439 and 118,257,141 shares at June 30, 2020 and December 31, 2019, respectively 1 1 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 June 30, 2020 and December 31, 2019, respectively — — Class C common stock (par value $ 0.00001 ), Authorized — 90,000,000 and 90,000,000 shares, Issued and Outstanding — 10,526,939 and 12,887,178 shares at June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, respectively 1 1 Treasury stock, at cost, 2,178,771 and 2,178,771 shares at June 30, 2020 and December 31, 2019, respectively ( 55,005 ) ( 55,005 ) Additional paid-in capital 1,128,977 1,077,398 Retained earnings (accumulated deficit) 259,873 ( 90,374 ) Accumulated other comprehensive income (loss) ( 39,567 ) ( 647 ) Total Virtu Financial Inc. stockholders' equity 1,294,280 931,374 Noncontrolling interest 406,727 297,562 3 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Financial Condition (Unaudited) (in thousands, except share data) June 30, 2020 December 31, 2019 Total equity 1,701,007 1,228,936 Total liabilities and equity $ 10,288,875 $ 9,609,370 See accompanying notes to the Condensed Consolidated Financial Statements (Unaudited). 4 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands, except share and per share data) 2020 2019 2020 2019 Revenues: Trading income, net $ 743,996 $ 205,923 $ 1,546,461 $ 463,463 Interest and dividends income 9,340 24,162 35,856 53,293 Commissions, net and technology services 147,736 145,120 318,481 220,267 Other, net 4,831 ( 104 ) 5,726 ( 1,490 ) Total revenue 905,903 375,101 1,906,524 735,533 Operating Expenses: Brokerage, exchange, clearance fees and payments for order flow, net 203,503 99,487 377,321 187,101 Communication and data processing 55,662 54,423 110,689 96,237 Employee compensation and payroll taxes 120,934 83,702 291,292 191,540 Interest and dividends expense 28,841 36,824 70,281 82,193 Operations and administrative 21,737 31,453 48,867 50,970 Depreciation and amortization 16,713 14,810 34,073 31,260 Amortization of purchased intangibles and acquired capitalized software 18,954 20,606 37,912 31,528 Termination of office leases 7 65,207 283 65,208 Debt issue cost related to debt refinancing, prepayment and commitment fees 13,195 ( 1,319 ) 17,366 7,894 Transaction advisory fees and expenses 86 1,798 274 16,907 Financing interest expense on long-term borrowings 21,736 34,689 47,406 57,478 Total operating expenses 501,368 441,680 1,035,764 818,316 Income (loss) before income taxes and noncontrolling interest 404,535 ( 66,579 ) 870,760 ( 82,783 ) Provision for (benefit from) income taxes 69,250 ( 11,094 ) 147,237 ( 13,679 ) Net income (loss) 335,285 ( 55,485 ) 723,523 ( 69,104 ) Noncontrolling interest ( 136,143 ) 25,594 ( 303,312 ) 32,540 Net income (loss) available for common stockholders $ 199,142 $ ( 29,891 ) $ 420,211 $ ( 36,564 ) Earnings (loss) per share Basic $ 1.59 $ ( 0.27 ) $ 3.39 $ ( 0.34 ) Diluted $ 1.58 $ ( 0.27 ) $ 3.38 $ ( 0.34 ) Weighted average common shares outstanding Basic 121,527,673 112,828,240 120,642,415 110,076,375 Diluted 122,238,905 112,828,240 121,013,689 110,076,375 Net income (loss) $ 335,285 $ ( 55,485 ) $ 723,523 $ ( 69,104 ) Other comprehensive income (loss) Foreign exchange translation adjustment, net of taxes 6,444 884 ( 3,952 ) ( 2,860 ) Net change in unrealized cash flow hedges gain (loss), net of taxes ( 9,137 ) — ( 64,739 ) — Comprehensive income (loss) 332,592 ( 54,601 ) 654,832 ( 71,964 ) Less: Comprehensive income (loss) attributable to noncontrolling interest ( 135,018 ) 25,258 ( 273,541 ) 33,812 Comprehensive income (loss) attributable to common stockholders $ 197,574 $ ( 29,343 ) $ 381,291 $ ( 38,152 ) See accompanying notes to the Condensed Consolidated Financial Statements (Unaudited). 5 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Equity (Unaudited) Three and Six Months Ended June 30, 2020 and 2019 Class A Common Stock Class C Common Stock Class D Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Virtu Financial Inc. Stockholders' Equity Non-Controlling Interest Total Equity (in thousands, except share and interest data) Shares Amounts Shares Amounts Shares Amounts Shares Amounts Amounts Balance at December 31, 2019 120,435,912 $ 1 12,887,178 $ — 60,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,077,398 $ ( 90,374 ) $ ( 647 ) $ 931,374 $ 297,562 $ 1,228,936 Share based compensation 1,854,961 — — — — — — — 21,357 — — 21,357 — 21,357 Repurchase of Class C common stock — — — — — — — — — — — — — — Treasury stock purchases ( 642,869 ) — — — — — — — — ( 9,801 ) — ( 9,801 ) — ( 9,801 ) Stock options exercised 213,129 — — — — — — — 3,206 — — 3,206 — 3,206 Warrants issued — — — — — — — — 11,486 — — 11,486 — 11,486 Net income (loss) — — — — — — — — — 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 ) Distribution from Virtu Financial to non-controlling interest — — — — — — — — — — — — ( 19,165 ) ( 19,165 ) Dividends — — — — — — — — — ( 29,602 ) — ( 29,602 ) — ( 29,602 ) Issuance of common stock in connection with employee exchanges 724,327 — — — — — — — — — — — — — Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges — — ( 724,327 ) — — — — — — — — — — — Balance at March 31, 2020 122,585,460 $ 1 12,162,851 $ — 60,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,113,447 $ 91,292 $ ( 37,999 ) $ 1,111,737 $ 416,920 $ 1,528,657 Share based compensation 36,771 — — — — — — — 7,839 — — 7,839 — 7,839 Treasury stock purchases ( 8,727 ) — — — — — — — — ( 360 ) — ( 360 ) — ( 360 ) Stock option exercised 404,794 — — — — — — — 7,691 — — 7,691 — 7,691 Net income (loss) — — — — — — — — — 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 ) Distribution from Virtu Financial to non-controlling interest — — — — — — — — — — — — ( 145,211 ) ( 145,211 ) Dividends — — — — — — — — — ( 30,201 ) — ( 30,201 ) — ( 30,201 ) Issuance of common stock in connection with employee exchanges 1,635,912 — — — — — — — — — — — — — 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, 2020 124,654,210 $ 1 10,526,939 $ — 60,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,128,977 $ 259,873 $ ( 39,567 ) $ 1,294,280 $ 406,727 $ 1,701,007 6 Table of Contents Class A Common Stock Class C Common Stock Class D Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Virtu Financial Inc. Stockholders' Equity Non-Controlling Interest Total Equity (in thousands, except share and interest data) Shares Amounts Shares Amounts Shares Amounts Shares Amounts Amounts Balance at December 31, 2018 108,955,048 $ 1 13,749,886 $ — 69,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,010,468 $ 96,513 $ ( 82 ) $ 1,051,896 $ 442,803 $ 1,494,699 Share based compensation 965,421 — — — — — — — 30,764 — — 30,764 — 30,764 Repurchase of Class C common stock — — — — — — — — — — — — — — Treasury stock purchases ( 325,195 ) — — — — — — — — ( 8,805 ) — ( 8,805 ) — ( 8,805 ) Stock options exercised 86,224 — — — — — — — 859 — — 859 — 859 Net income (loss) — — — — — — — — — ( 6,673 ) — ( 6,673 ) ( 6,946 ) ( 13,619 ) Foreign exchange translation adjustment — — — — — — — — — — ( 2,136 ) ( 2,136 ) ( 1,608 ) ( 3,744 ) Distribution from Virtu Financial to non-controlling interest — — — — — — — — — — — — ( 37,196 ) ( 37,196 ) Dividends — — — — — — — — — ( 26,312 ) — ( 26,312 ) — ( 26,312 ) Issuance of common stock in connection with employee exchanges 240,000 — — — — — — — — — — — — — Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges — — ( 240,000 ) — — — — — — — — — — — Balance at March 31, 2019 109,921,498 $ 1 13,509,886 $ — 69,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,042,091 $ 54,723 $ ( 2,218 ) $ 1,039,593 $ 397,053 $ 1,436,646 Share based compensation 257,750 — — — — — — — 16,443 — — 16,443 — 16,443 Repurchase of Class C common stock — — ( 3,584 ) — — — — — — ( 96 ) — ( 96 ) — ( 96 ) Treasury stock purchases ( 90,852 ) — — — — — — — — ( 2,093 ) — ( 2,093 ) — ( 2,093 ) Stock option exercised 35,120 — — — — — — — 72 — — 72 — 72 Net income (loss) — — — — — — — — — ( 29,891 ) — ( 29,891 ) ( 25,594 ) ( 55,485 ) Foreign exchange translation adjustment — — — — — — — — — — 548 548 336 884 Distribution from Virtu Financial to non-controlling interest — — — — — — — — — — — — ( 14,891 ) ( 14,891 ) Dividends — — — — — — — — — ( 28,592 ) — ( 28,592 ) — ( 28,592 ) Issuance of common stock in connection with employee exchanges 367,900 — — — — — — — — — — — — — Issuance of Common Stock in connection with secondary offering, net of offering costs 9,000,000 — — — ( 9,000,000 ) — — — ( 375 ) — — ( 375 ) — ( 375 ) Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges — — ( 367,900 ) — — — — — — — — — — — Issuance of tax receivable agreements in connection with employee exchange — — — — — — — — ( 644 ) — — ( 644 ) — ( 644 ) Balance at June 30, 2019 119,491,416 $ 1 13,138,402 $ — 60,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,057,587 $ ( 5,949 ) $ ( 1,670 ) $ 994,965 $ 356,904 $ 1,351,869 See accompanying notes to the Condensed Consolidated Financial Statements ( Unaudited ) . 7 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, (in thousands) 2020 2019 Cash flows from operating activities Net income (loss) $ 723,523 $ ( 69,104 ) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 34,073 31,260 Amortization of purchased intangibles and acquired capitalized software 37,912 31,528 Debt issue cost related to debt refinancing and prepayment 5,486 7,894 Amortization of debt issuance costs and deferred financing fees 14,650 6,361 Termination of office leases 283 65,208 Share-based compensation 37,012 37,289 Deferred taxes 18,827 6,965 Other ( 1,153 ) ( 25,297 ) Changes in operating assets and liabilities (1) : Securities borrowed 492,986 211,539 Securities purchased under agreements to resell ( 101,210 ) ( 7,499 ) Receivables from broker-dealers and clearing organizations ( 1,122,699 ) 142,470 Trading assets, at fair value 124,097 ( 464,558 ) Receivables from customers ( 171,975 ) ( 131,953 ) Operating lease right-of-use assets 19,995 ( 258,426 ) Other assets 10,175 ( 5,804 ) Securities loaned ( 395,985 ) ( 369,351 ) Securities sold under agreements to repurchase ( 28,174 ) 13,942 Payables to broker-dealers and clearing organizations 308,723 ( 50,939 ) Payables to customers 58,800 14,884 Trading liabilities, at fair value 255,889 241,012 Operating lease liabilities ( 25,762 ) 283,087 Accounts payable, accrued expenses and other liabilities 203,804 ( 87,833 ) Net cash provided by (used in) operating activities 499,277 ( 377,325 ) Cash flows from investing activities Development of capitalized software ( 11,895 ) ( 16,628 ) Acquisition of property and equipment ( 20,082 ) ( 9,175 ) ITG Acquisition, net of cash acquired, described in Note 3 — ( 835,581 ) Investment in joint ventures ( 4,716 ) ( 3,000 ) Net cash provided by (used in) investing activities ( 36,693 ) ( 864,384 ) Cash flows from financing activities Distribution from Virtu Financial to non-controlling interest ( 164,376 ) ( 52,087 ) Dividends ( 59,803 ) ( 54,904 ) Repurchase of Class C common stock — ( 96 ) Purchase of treasury stock ( 10,161 ) ( 10,898 ) Stock options exercised 10,898 931 Short-term borrowings, net ( 49,312 ) 116,245 Proceeds from long-term borrowings — 1,492,500 Repayment of long term borrowings ( 188,556 ) ( 450,000 ) Tax receivable agreement obligations ( 13,286 ) — Debt issuance costs ( 9,301 ) ( 35,702 ) Issuance of common stock in connection with secondary offering, net of offering costs — ( 375 ) Net cash provided by (used in) financing activities ( 483,897 ) 1,005,614 Effect of exchange rate changes on cash and cash equivalents ( 3,952 ) ( 2,391 ) Net increase (decrease) in cash and cash equivalents ( 25,265 ) ( 238,486 ) Cash, cash equivalents, and restricted or segregated cash, beginning of period 773,280 736,047 Cash, cash equivalents, and restricted or segregated cash, end of period $ 748,015 $ 497,561 8 Table of Contents Six Months Ended June 30, (in thousands) 2020 2019 Supplementary disclosure of cash flow information Cash paid for interest $ 98,750 $ 90,726 Cash paid for taxes 36,451 1,746 Non-cash investing activities Share-based and accrued incentive compensation to developers relating to capitalized software 7,488 1,441 See Note 3 for a description of non-cash investing activities relating to the acquisition of KCG Non-cash financing activities Tax receivable agreement described in Note 5 — ( 644 ) (1) Net of ITG Acquisition for the three months ended March 31, 2019; see Note 3 See accompanying notes to the Condensed Consolidated Financial Statements (Unaudited). 9 Table of Contents Virtu Financial, Inc. and Subsidiaries Notes to 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 June 30, 2020, VFI owned approximately 64.1 % 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, 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. 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”). See Note 3 “ITG Acquisition” for further details. ITG was a global financial technology company. ITG's business contributes to the Company's Execution Services segment. Virtu Financial’s principal U.S. subsidiaries include Virtu Americas LLC (“VAL”) and Virtu ITG LLC (“VITG”), which are U.S. broker-dealers, and Virtu Alternet Securities LLC (“VALT”, collectively with VAL and VITG, the "broker-dealers"). As part of the Company's integration efforts, the Company has been in the process of consolidating its U.S. broker-dealers. The Company submitted applications to withdraw the SEC registrations for Virtu Financial BD LLC (“VFBD”) and Virtu Financial Capital Markets LLC (“VFCM”), which were approved in March 2020, having previously consolidated their broker-dealer activities within VAL as of December 31, 2019. To further optimize its U.S. operations, the Company consolidated VITG and VALT operations into VAL as of June 1, 2020 and submitted applications to withdraw SEC registrations for VITG and VALT broker dealers. 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 and Virtu ITG Europe Limited, each formed in Ireland; 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 two operating segments: (i) Market Making and (ii) Execution Services; and one non-operating segment: Corporate. See Note 20 “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 10 Table of Contents 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, 2019. The condensed consolidated financial statements of the Company include its equity interests in Virtu Financial and its subsidiaries. The Company operates and controls all business and affairs of Virtu Financial and its subsidiaries indirectly through its equity interest in Virtu Financial. Certain reclassifications have been made to the prior periods’ 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 this quarter, the Company has changed the presentation of its Condensed Consolidated Statements of Comprehensive Income. As a result, the Company made the following reclassifications to prior period amounts to be consistent with current period presentation. For the three and six months ended June 30, 2019, respectively, the Company reclassified $ 23.6 million and $ 47.2 million of Payments for order flow to Brokerage, exchange, clearance fees and payments for order flow, net, previously reported as Brokerage, exchange and clearance fees, net. Brokerage, exchange and clearance fees, net and Payments for order flow both represent costs associated with transacting trades. For the three and six months ended June 30, 2019, respectively, the Company reclassified $ 3.4 million and $ 5.9 million of sublease income from Other, net to Operations and administrative to net with other occupancy costs within Operations and administrative. The condensed consolidated financial statements include the accounts of the Company and its majority and wholly-owned subsidiaries. As sole managing member of Virtu Financial, the Company exerts control over the Group’s operations. The Company 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. As discussed in Note 3 “ITG Acquisition”, the Company has accounted for the ITG Acquisition under the acquisition method of accounting. Under the acquisition method of accounting, the assets and liabilities of ITG, as of the ITG Closing Date, were recorded at their respective fair values and added to the carrying value of the Company’s existing assets and liabilities. The reported financial condition, results of operations and cash flows of the Company for the periods following the ITG Acquisition reflect ITG's and the Company's balances, and reflect the impact of purchase accounting adjustments. The financial results for the six months ended June 30, 2019 comprise the Company's results for the entire applicable period and the results of ITG from the ITG Closing Date through June 30, 2019. All periods prior to the ITG Closing Date comprise solely the Company's results. 2. Summary of Significant Accounting Policies Use of Estimates The Company's condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which require management to make estimates and assumptions regarding measurements including the fair value of trading assets and liabilities, goodwill and intangibles, compensation accruals, capitalized software, income tax, tax receivable agreements, leases, litigation accruals, and other matters that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ materially from those estimates. Earnings Per Share Earnings per share (“EPS”) is calculated on both a basic and diluted basis. Basic EPS excludes dilution and is calculated by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is calculated by dividing the net income available for common stockholders by the diluted weighted average shares outstanding for that period. Diluted EPS includes the determinants of the basic EPS and, in addition, reflects the dilutive effect of shares of common stock estimated to be distributed in the future. The Company grants restricted stock awards ("RSAs") and restricted stock units (“RSUs”), certain of which entitle recipients to receive nonforfeitable dividends during the vesting period on a basis equivalent to the dividends paid to holders of 11 Table of Contents common stock. As a result, the unvested RSAs and participating unvested RSUs meet the definition of a participating security requiring the application of the two-class method. Under the two-class method, earnings available to common shareholders, including both distributed and undistributed earnings, are allocated to each class of common stock and participating securities according to dividends declared and participating rights in undistributed earnings, which may cause diluted EPS to be more dilutive than the calculation using the treasury stock method. Cash and Cash Equivalents Cash and cash equivalents include money market accounts, which are payable on demand, and short-term investments with an original maturity of less than 90 days. The Company maintains cash in bank deposit accounts that, at times, may exceed federally insured limits. The Company manages this risk by selecting financial institutions deemed highly creditworthy to minimize the risk. Cash restricted or segregated under regulations and other represents (i) special reserve bank accounts for the exclusive benefit of customers (“Special Reserve Bank Account”) maintained by VAL in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, as amended (“Customer Protection Rule”), or proprietary accounts of broker-dealers, (ii) funds on deposit for Canadian and European trade clearing and settlement activity, (iii) segregated balances under a collateral account control agreement for the benefit of certain customers in Hong Kong, and (iv) funds relating to the securitization of bank guarantees supporting certain of the Company’s foreign leases. Securities Borrowed and Securities Loaned The Company conducts securities borrowing and lending activities with external counterparties. In connection with these transactions, the Company receives or posts collateral, which comprises cash and/or securities. In accordance with substantially all of its stock borrow agreements, the Company is permitted to sell or repledge the securities received. Securities borrowed or loaned are recorded based on the amount of cash collateral advanced or received. The initial cash collateral advanced or received generally approximates or is greater than 102 % of the fair value of the underlying securities borrowed or loaned. The Company monitors the fair value of securities borrowed and loaned, and delivers or obtains additional collateral as appropriate. Receivables and payables with the same counterparty are not offset in the Condensed Consolidated Statements of Financial Condition. Interest received or paid by the Company for these transactions is recorded gross on an accrual basis under Interest and dividends income or Interest and dividends expense in the Condensed Consolidated Statements of Comprehensive Income. Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase In a repurchase agreement, securities sold under agreements to repurchase are treated as collateralized financing transactions and are recorded at contract value, plus accrued interest, which approximates fair value. It is the Company's policy that its custodian take possession of the underlying collateral securities with a fair value approximately equal to the principal amount of the repurchase transaction, including accrued interest. For reverse repurchase agreements, the Company typically requires delivery of collateral with a fair value approximately equal to the carrying value of the relevant assets in the Condensed Consolidated Statements of Financial Condition. To ensure that the fair value of the underlying collateral remains sufficient, the collateral is valued daily with additional collateral obtained or excess collateral returned, as permitted under contractual provisions. The Company does not net securities purchased under agreements to resell transactions with securities sold under agreements to repurchase transactions entered into with the same counterparty. The Company has entered into bilateral and tri-party term and overnight repurchase and other collateralized financing agreements which bear interest at negotiated rates. The Company receives cash and makes delivery of financial instruments to a custodian who monitors the market value of these instruments on a daily basis. The market value of the instruments delivered must be equal to or in excess of the principal amount loaned under the repurchase agreements plus the agreed upon margin requirement. The custodian may request additional collateral, if appropriate. Interest received or paid by the Company for these transactions is recorded gross on an accrual basis under Interest and dividends income or Interest and dividends expense in the Condensed Consolidated Statements of Comprehensive Income. 12 Table of Contents Receivables from/Payables to Broker-dealers and Clearing Organizations Receivables from and payables to broker-dealers and clearing organizations primarily represent amounts due for unsettled trades, open equity in futures transactions, securities failed to deliver or failed to receive, deposits with clearing organizations or exchanges, and balances due from or due to prime brokers in relation to the Company’s trading. Amounts receivable from broker-dealers and clearing organizations may be restricted to the extent that they serve as deposits for securities sold, not yet purchased. The Company presents its balances, including outstanding principal balances on all broker credit facilities, on a net-by-counterparty basis within receivables from and payables to broker-dealers and clearing organizations when the criteria for offsetting are met. In the normal course of business, a significant portion of the Company’s securities transactions, money balances, and security positions are transacted with several third-party brokers. The Company is subject to credit risk to the extent any broker with whom it conducts business is unable to fulfill contractual obligations on its behalf. The Company monitors the financial condition of such brokers to minimize the risk of any losses from these counterparties. Financial Instruments Owned Including Those Pledged as Collateral and Financial Instruments Sold, Not Yet Purchased Financial instruments owned and Financial instruments sold, not yet purchased relate to market making and trading activities, and include listed and other equity securities, listed equity options and fixed income securities. The Company records Financial instruments owned, Financial instruments owned and pledged, and Financial instruments sold, not yet purchased at fair value. Gains and losses arising from financial instrument transactions are recorded net on a trade-date basis in Trading income, net, in the Condensed Consolidated statements of comprehensive income. Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. The recognition of “block discounts” for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available in an active market is prohibited. The Company categorizes its financial instruments into a three level hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each financial instrument is based on the assessment of the transparency and reliability of the inputs used in the valuation of such financial instruments at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories based on inputs: Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 — Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly; or Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Transfers in or out of levels are recognized based on the beginning fair value of the period in which they occurred. Fair Value Option The fair value option election allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets and liabilities. Unrealized gains and losses on items for which the fair value option has been elected are recorded in other, net in the Condensed Consolidated Statements of Comprehensive Income. The decision to elect the fair value option is determined on an instrument by instrument basis, which must be applied to an entire instrument and is irrevocable once elected. 13 Table of Contents Derivative Instruments - Trading Derivative instruments are used for trading purposes, including economic hedges of trading instruments, are carried at fair value, and include futures, forward contracts, and options. Gains or losses on these derivative instruments are recognized currently within Trading income, net in the Condensed Consolidated Statement of Comprehensive Income. Fair values for exchange-traded derivatives, principally futures, are based on quoted market prices. Fair values for over-the-counter derivative instruments, principally forward contracts, are based on the values of the underlying financial instruments within the contract. The underlying instruments are currencies, which are actively traded. The Company presents its trading derivatives balances on a net-by-counterparty basis when the criteria for offsetting are met. Cash flows associated with such derivative activities are included in cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows. Derivative Instruments - Hedging The Company may use derivative instruments for risk management purposes, including cash flow hedges used to manage interest rate risk on long-term borrowings and net investment hedges used to manage foreign exchange risk. The Company has entered into floating-to-fixed interest rate swap agreements in order to manage interest rate risk associated with its long-term debt obligations. Additionally, the Company may seek to reduce the impact of fluctuations in foreign exchange rates on its net investment in certain non-U.S. operations through the use of foreign currency forward contracts. For interest rate swap agreements and foreign currency forward contracts designated as hedges, the Company assesses its risk management objectives and strategy, including identification of the hedging instrument, the hedged item and the risk exposure and how effectiveness is to be assessed prospectively and retrospectively. The effectiveness of the hedge is assessed based on the overall changes in the fair value of the interest rate swaps or forward contracts. For instruments that meet the criteria to be considered hedging instruments under ASC 815, any gains or losses, to the extent effective, are included in Accumulated other comprehensive income on the Condensed Consolidated Statements of Financial Condition and Other comprehensive income on the Condensed Consolidated Statements of Comprehensive Income. The ineffective portion, if any, is recorded in Other, net on the Condensed Consolidated Statements of Comprehensive Income. The Company presents its hedging derivatives balances on a net-by-counterparty basis when the criteria for offsetting are met. Balances associated with hedging derivatives are recorded within Receivables from/Payables to broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition. Cash flows associated with such derivative activities are included in cash flows from operating activities on the Condensed Consolidated Statements of Cash Flows. Client Commission Arrangements Institutional customers are permitted to allocate a portion of their gross commissions to pay for research products and other services provided by third parties and the Company’s subsidiaries. The amounts allocated for those purposes are commonly referred to as client commission arrangements. The cost of independent research and directed brokerage arrangements is accounted for on an accrual basis. Commission revenue is recorded when earned on a trade date basis. Payments relating to client commission arrangements are netted against the commission revenues. Research receivable, including prepaid research on behalf of customers and balance transfers due from other broker-dealers, net of an allowance is included in Receivables from customers and Receivables from broker-dealers and clearing organizations, while accrued research payable is included in Accounts payable, accrued expenses, and other liabilities in the Condensed Consolidated Statements of Financial Condition. Property and Equipment Property and equipment are carried at cost, less accumulated depreciation, except for the assets acquired in connection with acquisitions using the purchase accounting method, which were recorded at fair value on the respective date of acquisitions. Depreciation is provided using the straight-line method over estimated useful lives of the underlying assets. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that appreciably extend the useful life of the assets are capitalized. When property and equipment are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. Furniture, fixtures, and equipment are depreciated over three to seven years . Leasehold improvements are amortized over the lesser of the life of the improvement or the term of the lease. 14 Table of Contents Capitalized Software The Company capitalizes costs of materials, consultants, and payroll and payroll related costs for employees incurred in developing internal-use software and software to be sold, leased, or marketed. Costs incurred during the preliminary project and post-implementation stages are charged to expense. Management’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized. Capitalized software development costs and related accumulated amortization are included in Property, equipment and capitalized software in the accompanying Condensed Consolidated Statements of Financial Condition and are amortized over a period of 1.5 to 3 years, which represents the estimated useful lives of the underlying software. Leases The Company determines if an arrangement is a lease at the inception of the arrangement. Operating leases are included in Operating lease right-of use ("ROU") assets and Operating lease liabilities on the Condensed Consolidated Statements of Financial Condition. Operating lease ROU assets are assets that represent the lessee’s right to use, or control the use of, a specified asset for the lease term. Finance leases consist primarily of leases for technology and equipment and are included in Property, equipment, and capitalized software and Accounts payable, accrued expenses and other liabilities on the Condensed Consolidated Statements of Financial Condition. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. The Company uses its incremental borrowing rate, based on the information available at the commencement date of the lease, in determining the present value of future payments. The ROU assets are reduced by lease incentives and initial direct costs incurred. The Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating leases and amortization of the finance lease ROU asset is recognized on a straight-line basis over the lease term. Certain of the Company's lease agreements contain fixed lease payments that contain lease and non-lease components; for such leases, the Company accounts for the lease and non-lease components as a single lease component. The Company nets its sublease income against corresponding lease expenses within Operations and Administrative expenses on the Condensed Consolidated Statement of Comprehensive Income. Goodwill Goodwill represents the excess of the purchase price over the underlying net tangible and intangible assets of the Company’s acquisitions. Goodwill is not amortized but is assessed for impairment on an annual basis and between annual assessments whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is assessed at the reporting unit level, which is defined as an operating segment or one level below the operating segment. The Company assesses goodwill for impairment on an annual basis on July 1 and on an interim basis when certain events occur or certain circumstances exist. In the impairment assessment as of July 1, 2019, the Company assessed qualitative factors as described in ASC 350-20 for each of its reporting units for any indicators that the fair values of the reporting units were less than their carrying values. No impairment was identified. Intangible Assets The Company amortizes finite-lived intangible assets over their estimated useful lives. Finite-lived intangible assets are tested for impairment when impairment indicators are present, and if impaired, they are written down to fair value. Exchange Memberships and Stock Exchange memberships are recorded at cost or, if any other than temporary impairment in value has occurred, at a value that reflects management’s estimate of fair value. Exchange memberships acquired in connection with the Acquisition of KCG were recorded at their fair values on the dates of acquisition. Exchange stock includes shares that entitle the Company to certain trading privileges. 15 Table of Contents Trading Income, net Trading income, net is comprised of changes in the fair value of trading assets and liabilities (i.e., unrealized gains and losses) and realized gains and losses on trading assets and liabilities. Trading gains and losses on financial instruments owned and financial instruments sold, not yet purchased are recorded on the trade date and reported on a net basis in the Condensed Consolidated Statements of Comprehensive Income. Commissions, net and Technology Services Commissions, net, which primarily comprise commissions and commission equivalents earned on institutional client orders, are recorded on a trade date basis. Under a commission management program, the Company allows institutional clients to allocate a portion of their gross commissions to pay for research and other services provided by third parties. As the Company acts as an agent in these transactions, it records such expenses on a net basis within Commissions, net and technology services in the Condensed Consolidated Statements of Comprehensive Income. The Company recognizes the related revenue when the third-party research services are rendered and payments are made to the service provider. The Company provides order management software (“OMS”) and related software products and connectivity services to customers and recognizes license fee revenues and monthly connectivity fees. License fee revenues, generated for the use of the Company’s OMS and other software products, is fixed and recognized at the point in time at which the customer is able to use and benefit from the license. Connectivity revenue is variable in nature, based on the number of live connections, and is recognized over time on a monthly basis using a time-based measure of progress. The Company also provides analytics products and services to customers and recognizes subscription fees, which are fixed for the contract term, based on when the products and services are delivered. Analytics products and services may be bundled with trade execution services, in which case commissions are allocated to the analytics performance obligations using an allocation methodology. Interest and Dividends Income/Interest and Dividends Expense Interest income and interest expense are accrued in accordance with contractual rates. Interest income consists of interest earned on collateralized financing arrangements and on cash held by brokers. Interest expense includes interest expense from collateralized transactions, margin and related lines of credit. Dividends on financial instruments owned including those pledged as collateral and financial instruments sold, not yet purchased are recorded on the ex-dividend date and interest is recognized on an accrual basis. Brokerage, Exchange, Clearance Fees and Payments for Order Flow, Net Brokerage, exchange, clearance fees and payments for order flow, net, comprise the costs of executing and clearing trades and are accrued on a trade date basis in the Condensed Consolidated Statements of Comprehensive Income. These costs are net of rebates, which consist of volume discounts, credits or payments received from exchanges or other market places related to the placement and/or removal of liquidity from the order flow in the marketplace. Rebates are recorded on an accrual basis. Payments for order flow represent payments to broker-dealer clients, in the normal course of business, for directing their order flow in U.S. equities to the Company. Income Taxes The Company is subject to U.S. federal, state and local income taxes on its taxable income. The Company's subsidiaries are subject to income taxes in the respective jurisdictions (including foreign jurisdictions) in which they operate. The provision for income tax is comprised of current tax and deferred tax. Current tax represents the tax on current year tax returns, using tax rates enacted at the balance sheet date. The deferred tax assets are recognized in full and then reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be recognized. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the applicable taxing authority, including resolution of the appeals or litigation processes, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit for each such position that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Many factors are considered when evaluating and estimating the tax positions and tax benefits. Such estimates involve interpretations of regulations, rulings, case law, etc. and are inherently 16 Table of Contents complex. The Company’s estimates may require periodic adjustments and may not accurately anticipate actual outcomes as resolution of income tax treatments in individual jurisdictions typically would not be known for several years after completion of any fiscal year. Comprehensive Income Comprehensive income consists of two components: net income and other comprehensive income (“OCI”). The Company’s OCI is comprised of foreign currency translation adjustments and mark-to-market gains and losses on the Company's derivative instruments designated as hedging instruments under ASC 815. Assets and liabilities of operations having non-U.S. dollar functional currencies are translated at period-end exchange rates, and revenues and expenses are translated at weighted average exchange rates for the period. Gains and losses resulting from translating foreign currency financial statements, net of related tax effects, are reflected in Accumulated other comprehensive income, a component of stockholders’ equity. The Company's foreign subsidiaries generally use the U.S. dollar as their functional currency. The Company also has subsidiaries that utilize a functional currency other than the U.S. dollar, primarily comprising its subsidiaries domiciled in Ireland, which utilize the Euro and Pound Sterling as the functional currency, and subsidiaries domiciled in Canada, which utilize the Canadian dollar as the functional currency. The Company may use derivative instruments for risk management purposes, including cash flow hedges used to manage interest rate risk on long-term borrowings and net investment hedges used to manage foreign exchange risk. For instruments that meet the criteria to be considered hedging instruments under ASC 815, any gains or losses are included in Accumulated other comprehensive income on the Condensed Consolidated Statements of Financial Condition and Other comprehensive income on the Condensed Consolidated Statements of Comprehensive Income, to the extent they are effective. Share-Based Compensation Share-based awards issued for compensation in connection with or subsequent to the Company's initial public offering in April 2015 (the “IPO”) and certain reorganization transactions consummated in connection with the IPO (the “Reorganization Transactions”) pursuant to the Virtu Financial, Inc. 2015 Management Incentive Plan (as amended, the “Amended and Restated 2015 Management Incentive Plan”) and pursuant to the Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan, dated as of June 8, 2017 (the “Amended and Restated ITG 2007 Equity Plan”), are in the form of stock options, Class A common stock, par value $ 0.00001 per share (the “Class A Common Stock”), RSAs and RSUs, as applicable. The fair value of the stock option grants is determined through the application of the Black-Scholes-Merton model. The fair values of the Class A Common Stock and RSUs are determined based on the volume weighted average price for the three days preceding the grant. With respect to the RSUs, forfeitures are accounted for as they occur. The fair value of RSAs is determined based on the closing price as of the grant date. The fair value of share-based awards granted to employees is expensed based on the vesting conditions and is recognized on a straight-line basis over the vesting period, or, in the case of RSAs subject to performance conditions, from the date that achievement of the performance target becomes probable through the remainder of the vesting period. The Company records as treasury stock shares repurchased from its employees for the purpose of settling tax liabilities incurred upon the issuance of Class A Common Stock, the vesting of RSUs or the exercise of stock options. 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 two 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 June 30, 2020, the Company held noncontrolling interests of 10 % and 50 %, respectively, in these JVs. 17 Table of Contents 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 June 30, 2020, 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 US. As of June 30, 2020, the Company held approximately a 14.6 % noncontrolling interest in this JV. The Company's four JVs meet the criteria to be considered VIEs. In each of the JVs, the Company does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; therefore it does not have a controlling financial interest in and does not consolidate the JVs. 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 JV within Accounts payable, accrued expenses and other liabilities on the Condensed Consolidated 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 June 30, 2020: Carrying Amount Maximum Exposure to Loss VIEs' assets (in thousands) Asset Liability Equity investment $ 32,316 $ — $ 32,316 $ 186,013 The following table presents the Company’s nonconsolidated VIEs at December 31, 2019: Carrying Amount Maximum Exposure to Loss VIEs' assets (in thousands) Asset Liability Equity investment $ 28,579 $ — $ 28,579 $ 119,051 Accounting Pronouncements, Recently Adopted Fair Value Measurement - In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement , which modified the disclosure requirements on fair value measurements in ASC Topic 820, Fair Value Measurement. Disclosure requirements were eliminated for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Disclosure requirements were modified for liquidation of investments in certain entities that calculate net asset value, and for measurement uncertainty disclosures. Disclosure requirements were added for changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The Company adopted this ASU on January 1, 2020. The updated disclosures are included in Note 10 “Financial Assets and Liabilities”. Consolidation - In October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities , which modified how VIEs are assessed for consolidation purposes under ASC Topic 810, Consolidation. Under the update, indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The Company adopted this ASU on January 1, 2020, and it did not have a material impact on its condensed consolidated financial statements. Measurement of Credit Losses on Financial Instruments - In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) -Measurement of Credit Losses on Financial Instruments . This ASU amends several aspects of the measurement of credit losses on financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses model (“CECL”). Under CECL, the allowance for losses for financial assets that are measured at amortized cost reflects management’s estimate of credit losses over the remaining expected life of the financial assets. Expected credit losses for newly recognized financial assets, as well as changes to expected credit 18 Table of Contents losses during the period, would be recognized in earnings, and adoption of the ASU will generally result in earlier recognition of credit losses. Expected credit losses will be measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount, and credit losses will be generally recognized earlier than under current U.S. GAAP. The Company adopted this ASU on January 1, 2020 using the modified retrospective method of adoption. The ASU impacts only those financial instruments that are carried by the Company at amortized cost such as collateralized financing arrangements (repurchase agreements and securities borrowing/ lending transactions) and receivables from customers, broker-dealers and clearing organizations. The adoption of this ASU did not have a material impact to the Company's financial condition, results of operations or cash flows. Accounting Pronouncements, Not Yet Adopted as of June 30, 2020 Income Taxes - In December 2019, the FASB issued 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 ASU is effective for periods beginning after December 15, 2020, including interim periods within that fiscal year; early adoption is permitted. Most amendments within the ASU are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis. The Company is currently evaluating the impact of the new standard on its condensed consolidated financial statements and related disclosures. 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. The Company is evaluating the impact of the ASU, but does not expect it to have a material impact on its Condensed Consolidated Financial Statements and related disclosures. 3. ITG Acquisition Background On the ITG Closing Date, the Company completed 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 Impala Borrower LLC (the “Acquisition Borrower”), a subsidiary of the Company, entered into a Credit Agreement dated as of March 1, 2019 (as amended from time to time, 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) a senior secured first lien term loan in an aggregate principal amount of $ 1,500.0 million, 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 paid in connection with the ITG Acquisition, and (ii) a $ 50.0 million senior secured first lien revolving facility to VFH, 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. The Credit Agreement was subsequently amended as described further in Note 9 “Borrowings”. Additionally, on the ITG Closing Date, the Company’s fourth amended and restated credit agreement (as amended on January 2, 2018 and September 19, 2018, the “Fourth Amended and Restated Credit Agreement”) with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, sole lead arranger and bookrunner, was terminated. 19 Table of Contents Accounting treatment of the ITG Acquisition The ITG Acquisition has been accounted for as a business combination pursuant to ASC 805, Business Combinations by the Company using the acquisition method of accounting. Under the acquisition method, the assets and liabilities of ITG, as of the ITG Closing Date, were recorded at their respective fair values and added to the carrying value of the Company's existing assets and liabilities. The reported financial condition and results of operations of the Company for the periods following the ITG Closing Date reflect ITG's and the Company's balances and reflect the impact of purchase accounting adjustments. As the Company is the accounting acquirer, the financial results for the six months ended June 30, 2019 comprise the results of the Company for the entire applicable period and the results of ITG from the ITG Closing Date through June 30, 2019. All periods prior to the ITG Closing Date comprise solely the results of the Company. Certain former ITG management employees were terminated upon the ITG Acquisition, and as a result were paid an aggregate of $ 17.6 million pursuant to their existing employment contracts and arrangements. This amount has been recognized as an expense by the Company and is included in Employee compensation and payroll taxes in the Condensed Consolidated Statements of Comprehensive Income for the six months ended June 30, 2019. Purchase price and goodwill The aggregate cash purchase price of approximately $ 1.0 billion was determined as the sum of the fair value, at $ 30.30 per share, of ITG shares outstanding held by former ITG stockholders at closing and the fair value of certain ITG employee stock-based awards that were outstanding, and which vested at the ITG Closing Date. The purchase price was allocated to the assets acquired and liabilities assumed using their fair values at the ITG Closing Date. The Company engaged third party specialists for the purchase price allocation. Amounts allocated to intangible assets, the amortization period and goodwill were as follows: (in thousands) Amount Amortization Years Technology $ 76,000 5 Customer relationships 437,600 10 Trade names 3,600 3 Intangible assets 517,200 Goodwill 312,343 Total $ 829,543 The Company estimated the fair value of the intangible assets, which involved the use of significant estimates and assumptions with respect to the timing and amounts of revenue growth rates, customer attrition rates, future tax rates, royalty rates, contributory asset charges, discount rate and the resulting cash flows. The total Goodwill of $ 312.3 million was assigned to the Execution Services segment. Such goodwill is attributable to the expansion of product offerings and expected synergies of the combined workforce, products and technologies of the Company and ITG. Assumption of Equity Compensation Plan On the ITG Closing Date, the Company assumed 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 with the SEC a Registration Statement on Form S-8 on the ITG Closing Date to register such shares of Class A Common Stock. 20 Table of Contents Tax treatment of the ITG Acquisition The ITG Acquisition is being treated as a tax-free transaction as described in Section 351 of the Internal Revenue Code. ITG’s tax basis in its assets and liabilities therefore generally carried over to the Company following the ITG Acquisition. None of the goodwill is expected to be deductible for tax purposes. The Company recorded deferred tax assets of $ 17.6 million and deferred tax liabilities of $ 71.1 million with respect to recording ITG’s assets and liabilities under the purchase method of accounting as described above as well as recording the value of other tax attributes acquired as a result of the ITG Acquisition, as described in Note 13 “Income Taxes”. 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 June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Income (loss) before income taxes and noncontrolling interest $ 404,535 $ ( 66,579 ) $ 870,760 $ ( 82,783 ) Provision for (benefit from) income taxes 69,250 ( 11,094 ) 147,237 ( 13,679 ) Net income (loss) 335,285 ( 55,485 ) 723,523 ( 69,104 ) Noncontrolling interest ( 136,143 ) 25,594 ( 303,312 ) 32,540 Net income (loss) available for common stockholders $ 199,142 $ ( 29,891 ) $ 420,211 $ ( 36,564 ) The calculation of basic and diluted earnings per share is presented below: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except for share or per share data) 2020 2019 2020 2019 Basic earnings (loss) per share: Net income (loss) available for common stockholders $ 199,142 $ ( 29,891 ) $ 420,211 $ ( 36,564 ) Less: Dividends and undistributed earnings allocated to participating securities ( 5,506 ) ( 466 ) ( 10,793 ) ( 907 ) Net income (loss) available for common stockholders, net of dividends and undistributed earnings allocated to participating securities 193,636 ( 30,357 ) 409,418 ( 37,471 ) Weighted average shares of common stock outstanding: Class A 121,527,673 112,828,240 120,642,415 110,076,375 Basic earnings (loss) per share $ 1.59 $ ( 0.27 ) $ 3.39 $ ( 0.34 ) Three Months Ended June 30, Six Months Ended June 30, (in thousands, except for share or per share data) 2020 2019 2020 2019 Diluted earnings (loss) per share: Net income (loss) available for common stockholders, net of dividends and undistributed earnings allocated to participating securities $ 193,636 $ ( 30,357 ) $ 409,418 $ ( 37,471 ) Weighted average shares of common stock outstanding: Class A Issued and outstanding 121,527,673 112,828,240 120,642,415 110,076,375 Issuable pursuant to Amended and Restated 2015 Management Incentive Plan and Warrants issued in connection with the Founder Member Loan (1) 711,232 — 371,274 — 122,238,905 112,828,240 121,013,689 110,076,375 Diluted earnings (loss) per share $ 1.58 $ ( 0.27 ) $ 3.38 $ ( 0.34 ) (1) The dilutive impact excludes from the computation of earnings (loss) per share for the three and six months ended June 30, 2019, respectively, 669,064 and 746,392 unexercised stock options and 299,288 and 262,785 restricted stock units issuable pursuant to the Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan because the inclusion of these instruments would have been anti-dilutive. 21 Table of Contents 5. Tax Receivable Agreements In connection with the IPO and the Reorganization Transactions, the Company entered into tax receivable agreements to make payments to certain pre-IPO equity holders (“Virtu Members”) that are generally equal to 85 % of the applicable cash tax savings, if any, that the Company actually realizes as a result of favorable tax attributes that were and will continue to be available to the Company as a result of the Reorganization Transactions, exchanges of membership interests for Class A Common Stock or Class B common stock, par value $ 0.00001 per share (the “Class B Common Stock”), (an “Exchange”), and payments made under the tax receivable agreements. An Exchange during the year will give rise to favorable tax attributes that may generate cash tax savings specific to the Exchange to be realized over a specific period of time (generally 15 years). At each Exchange, management estimates the Company’s cumulative TRA obligations to be reported on the Condensed Consolidated Statement of Financial Condition, which amounted to $ 256.0 million and $ 269.3 million as of June 30, 2020 and December 31, 2019, respectively. The tax attributes are computed as the difference between the Company's basis in the partnership interest (“outside basis”) as compared to the Company’s share of the adjusted tax basis of partnership property (“inside basis”) at the time of each Exchange. The computation of inside basis requires management to make judgments in estimating the components included in the inside basis as of the date of the Exchange (i.e., cash received by the Company on hypothetical sale of assets, allocation of gain/loss to the Company at the time of the Exchange taking into account complex partnership tax rules). In addition, management estimates the period of time that may generate cash tax savings of such tax attributes and the realizability of the tax attributes. Payments will occur only after the filing of the U.S. federal and state income tax returns and realization of the cash tax savings from the favorable tax attributes. The Company made its first payment of $ 7.0 million in February 2017, its second payment of $ 12.4 million in September 2018, and its third payment of $ 13.3 million in March 2020. As a result of (i) the purchase of equity interests in Virtu Financial from certain Virtu Members in connection with the Reorganization Transactions, (ii) the purchase of non-voting common interest units in Virtu Financial (the “Virtu Financial Units”) (along with the corresponding shares of Class C common stock, par value $ 0.00001 per share (the “Class C Common Stock”)) from certain of the Virtu Members in connection with the IPO, (iii) the purchase of Virtu Financial Units (along with the corresponding shares of Class C Common Stock) and the exchange of Virtu Financial Units (along with the corresponding shares of Class C Common Stock) for shares of Class A Common Stock in connection with the secondary offerings completed in November 2015 (the “November 2015 Secondary Offering”) and September 2016 (the “September 2016 Secondary Offering”), and (iv) the purchase of Virtu Financial Units (along with corresponding shares of the Company’s Class D common stock, par value $ 0.00001 per share (the “Class D Common Stock”) in connection with the May 2018 Secondary Offering (defined below) and the May 2019 Secondary Offering (defined below, and, together with the November 2015 Secondary Offering, the September 2016 Secondary Offering, and the May 2018 Secondary Offering, the “Secondary Offerings”), payments to certain Virtu Members in respect of the purchases are expected to range from approximately $ 3.3 million to $ 20.7 million per year over the next 15 years. In connection with the employee exchanges and May 2018 Secondary Offering between the Company and TJMT Holdings LLC and the other selling stockholders, both as described in Note 17 “Capital Structure”, the Company recorded an additional deferred tax asset of $ 78.7 million and a payment liability pursuant to the tax receivable agreements of $ 79.7 million, with the $ 1.0 million difference recorded as a decrease to additional paid-in capital. In connection with the employee exchanges and May 2019 Secondary Offering between the Company and TJMT Holdings LLC and the other selling stockholders, both as described in Note 17 “Capital Structure”, the Company recorded an additional deferred tax asset of $ 49.1 million and payment liability pursuant to the tax receivable agreements of $ 54.9 million, with the $ 5.8 million difference recorded as a decrease to additional paid-in capital. As a result of the reduction in the U.S. corporate income tax rate as further described in Note 13 “Income Taxes”, the aforementioned deferred tax asset and related payment liability were subsequently reduced, and the Company recorded a reduction of its tax receivable agreement obligation of $ 86.6 million due to the change in the corporate income tax rate. At June 30, 2020 and December 31, 2019, the Company’s remaining deferred tax assets that relate to the matters described above were approximately $ 188.7 million and $ 197.6 million, respectively, and the Company’s liabilities over the next 15 years pursuant to the tax receivable agreements were approximately $ 256.0 million and $ 269.3 million, respectively. The amounts recorded as of June 30, 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. 22 Table of Contents For the tax receivable agreements discussed above, 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. 6. Goodwill and Intangible Assets The Company has two operating segments: (i) Market Making; (ii) Execution Services; and one non-operating segment: Corporate. As of June 30, 2020 and December 31, 2019, the Company’s total amount of goodwill recorded was $ 1,148.9 million. No goodwill impairment was recognized during the three and six months ended June 30, 2020 or 2019. The following table presents the details of goodwill by segment as of June 30, 2020 and December 31, 2019: (in thousands) Market Making Execution Services Corporate Total Balance as of period-end $ 755,292 $ 393,634 $ — $ 1,148,926 As of June 30, 2020 and December 31, 2019, the Company's total amount of intangible assets recorded was $ 491.7 million and $ 529.6 million, respectively. Acquired intangible assets consisted of the following as of June 30, 2020 and December 31, 2019: As of June 30, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Useful Lives (Years) Purchased technology $ 110,000 $ ( 110,000 ) $ — 1.4 to 2.5 ETF issuer relationships 950 ( 823 ) 127 9 ETF buyer relationships 950 ( 823 ) 127 9 Technology 136,000 ( 71,084 ) 64,916 1 to 6 Customer relationships 486,600 ( 70,377 ) 416,223 10 to 12 Trade name 3,600 ( 1,600 ) 2,000 3 Favorable occupancy leases 5,895 ( 2,444 ) 3,451 3 to 15 Exchange memberships 4,882 — 4,882 Indefinite $ 748,877 $ ( 257,151 ) $ 491,726 As of December 31, 2019 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Useful Lives (Years) Purchased technology $ 110,000 $ ( 110,000 ) $ — 1.4 to 2.5 ETF issuer relationships 950 ( 770 ) 180 9 ETF buyer relationships 950 ( 770 ) 180 9 Technology 136,000 ( 58,203 ) 77,797 1 to 6 Customer relationships 486,600 ( 46,456 ) 440,144 10 to 12 Trade name 3,600 ( 1,000 ) 2,600 3 Favorable occupancy leases 5,895 ( 2,040 ) 3,855 3 to 15 Exchange memberships 4,882 — 4,882 Indefinite $ 748,877 $ ( 219,239 ) $ 529,638 Amortization expense relating to finite-lived intangible assets was approximately $ 19.0 million and $ 20.6 million for the three months ended June 30, 2020 and 2019, respectively, and $ 37.9 million and $ 31.5 million for the six months ended 23 Table of Contents June 30, 2020 and 2019, respectively. This is included in Amortization of purchased intangibles and acquired capitalized software in the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company expects to record amortization expense as follows over the remaining current year and five subsequent years: (in thousands) June 30, 2020 Remainder of 2020 $ 36,341 2021 69,676 2022 64,852 2023 63,960 2024 50,845 2025 47,879 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 June 30, 2020 and December 31, 2019: (in thousands) June 30, 2020 December 31, 2019 Assets Due from prime brokers $ 834,473 $ 418,059 Deposits with clearing organizations 345,892 231,977 Net equity with futures commission merchants 198,114 267,748 Unsettled trades with clearing organization 701,596 214,618 Securities failed to deliver 348,105 178,324 Commissions and fees 13,103 7,858 Total receivables from broker-dealers and clearing organizations $ 2,441,283 $ 1,318,584 Liabilities Due to prime brokers $ 464,049 $ 511,524 Net equity with futures commission merchants 90,669 50,950 Unsettled trades with clearing organization 443,096 118,286 Securities failed to receive 200,567 144,494 Commissions and fees 1,831 1,496 Total payables to broker-dealers and clearing organizations $ 1,200,212 $ 826,750 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 $ 112.4 million and $ 134.3 million as of June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019, substantially all of the securities received as collateral have been repledged. The fair value of the collateralized transactions at June 30, 2020 and December 31, 2019 are summarized as follows: 24 Table of Contents (in thousands) June 30, 2020 December 31, 2019 Securities received as collateral: Securities borrowed $ 1,402,709 $ 1,881,005 Securities purchased under agreements to resell 244,242 142,922 $ 1,646,951 $ 2,023,927 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 June 30, 2020 and December 31, 2019 consisted of the following: (in thousands) June 30, 2020 December 31, 2019 Equities $ 575,235 $ 654,366 Exchange traded notes 27,736 42,590 $ 602,971 $ 696,956 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. June 30, 2020 (in thousands) Borrowing Outstanding Deferred Debt Issuance Cost Short-term Borrowings, net Short-term bank loans $ 26,274 $ — $ 26,274 December 31, 2019 (in thousands) Borrowing Outstanding Deferred Debt Issuance Cost Short-term Borrowings, net Broker-dealer credit facilities $ 30,000 $ ( 2,100 ) $ 27,900 Short-term bank loans 45,586 — 45,586 $ 75,586 $ ( 2,100 ) $ 73,486 Broker-Dealer Credit Facilities The Company is a party to two secured credit facilities with a financial institution to finance overnight securities positions purchased as part of its ordinary course broker-dealer market making activities. One of the facilities (the “Uncommitted Facility”) is provided on an uncommitted basis with an aggregate borrowing limit of $ 300 million, which was subsequently increased to $ 400 million in April 2020, and is collateralized by the trading and deposit account of one of the Company’s broker-dealer subsidiaries maintained at the financial institution. On November 3, 2017, the Company entered into the second credit facility (the “Committed Facility”) with the same financial institution which was subsequently amended and restated March 1, 2019 to increase the borrowing limit to $ 600 million and subsequently amended to adjust sublimits and certain other terms, including most recently on July 29, 2020. The Committed Facility consists of two 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 bears interest at the adjusted LIBOR or base rate plus 1.25 % per annum. Following the July 29, 2020 amendment, 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, a broker-dealer subsidiary of the Company 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. 25 Table of Contents On March 20, 2020, VAL, a broker-dealer subsidiary of the Company, 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 may be borrowed in one or more borrowings on or after March 20, 2020 and prior to September 20, 2020, as further described below. VAL intends to use the proceeds of the Founder Member Loans solely to finance the purchase and settlement of securities and to fund margin deposits with the National Securities Clearing Corporation and Options Clearing Corporation. 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 commitments under the Loan Agreement, 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 17 “Capital Structure”. The interest rate for the Founder Member Loans, to the extent drawn and outstanding, will be 8.0 % per annum, and the Founder Member Loans will be due on September 20, 2020. If an event of default occurs and is continuing, the Lender may increase the interest rate 2.0 % above what would otherwise be applicable on overdue amounts, and declare all Founder Member Loans immediately due and payable. VAL may prepay the Founder Member Loans in whole or in part at any time without penalty. There was no outstanding balance on this loan as of June 30, 2020. The foregoing description of the Founder Member Loan Facility does not purport to be complete and is qualified in its entirety by reference to the complete text of the Founder Member Loan Facility, which is filed as an exhibit to the Company's 2020 quarterly report on Form 10-Q for the period ended March 31, 2020 filed with Securities and Exchange Commission on May 11, 2020. 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 Statement of Financial Condition. At June 30, 2020 (in thousands) Interest Rate Financing Available Borrowing Outstanding Deferred Debt Issuance Cost Outstanding Borrowings, net Broker-dealer credit facilities: Uncommitted facility (1) 1.08 % $ 400,000 $ — $ — $ — Committed facility (2) 1.41 % 600,000 — — — Founder Member Loan Facility (3) 8.00 % 300,000 — — — $ 1,300,000 $ — $ — $ — (1) $ 0.5 million of deferred debt issuance costs are included within Other assets on the Condensed Consolidated Statement of Financial Condition (2) $ 0.9 million of deferred debt issuance costs are included within Other assets on the Condensed Consolidated Statement of Financial Condition (3) $ 6.2 million of deferred debt issuance costs are included within Other assets on the Condensed Consolidated Statement of Financial Condition At December 31, 2019 (in thousands) Interest Rate Financing Available Borrowing Outstanding Deferred Debt Issuance Cost Outstanding Borrowings, net Broker-dealer credit facilities: Uncommitted facility 2.55 % $ 200,000 $ 30,000 $ ( 2,100 ) $ 27,900 Committed facility 3.01 % 600,000 — — — $ 800,000 $ 30,000 $ ( 2,100 ) $ 27,900 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 June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Broker-dealer credit facilities: Uncommitted facility $ 131 $ 177 $ 763 $ 361 Committed facility 202 181 362 254 Demand Loan 94 — 211 — Founder Member Loan Facility $ — $ — $ — $ — $ 427 $ 358 $ 1,336 $ 615 26 Table of Contents 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 June 30, 2020, there was $ 26.3 million associated with international settlement activities outstanding under these facilities at a weighted average interest rate of approximately 3.1 %. At December 31, 2019, there was $ 45.6 million associated with international settlement activities outstanding under these facilities at a weighted average interest rate of approximately 4.5 %. These short-term bank loan balances are included within Short-term borrowings on the Condensed Consolidated Statement of Financial Condition. First Lien Revolving Facility The Company's Amended Credit Agreement (as defined below) provides for a $ 50.0 million senior secured first lien revolving facility. There were no outstanding borrowings under the facility as of June 30, 2020 or December 31, 2019. Interest expense in relation to the facility was $ 0.1 million for the three months ended June 30, 2020 and $ 0.4 million for the six months ended June 30, 2020. 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 June 30, 2020 (in thousands) Weighted Average Interest Rate Financing Available Borrowing Outstanding Prime Brokerage Credit Facilities: Prime brokerage credit facilities (1) 2.78 % $ 616,000 $ 112,412 $ 616,000 $ 112,412 At December 31, 2019 (in thousands) Weighted Average Interest Rate Financing Available Borrowing Outstanding Prime Brokerage Credit Facilities: Prime brokerage credit facilities (1) 4.22 % $ 586,000 $ 134,331 $ 586,000 $ 134,331 (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 $ 1.3 million and $ 1.8 million for the three months ended June 30, 2020 and 2019, respectively, and $ 2.6 million and $ 3.7 million for the six months ended June 30, 2020 and 2019, respectively. Long-Term Borrowings The following summarizes the Company’s long-term borrowings, net of unamortized discount and debt issuance costs, where applicable: At June 30, 2020 (in thousands) Maturity Date Interest Rate Outstanding Principal Discount Deferred Debt Issuance Cost Outstanding Borrowings, net Long-term borrowings: First Lien Term Loan Facility March 2026 3.19 % $ 1,736,512 $ ( 5,501 ) $ ( 30,660 ) $ 1,700,351 SBI bonds January 2023 5.00 % 32,428 — ( 263 ) 32,165 $ 1,768,940 $ ( 5,501 ) $ ( 30,923 ) $ 1,732,516 27 Table of Contents At December 31, 2019 (in thousands) Maturity Date Interest Rate Outstanding Principal Discount Deferred Debt Issuance Cost Outstanding Borrowings, net Long-term borrowings: First Lien Term Loan Facility March 2026 5.20 % $ 1,925,000 $ ( 6,795 ) $ ( 32,513 ) $ 1,885,692 SBI bonds January 2023 5.00 % 32,225 — ( 51 ) 32,174 $ 1,957,225 $ ( 6,795 ) $ ( 32,564 ) $ 1,917,866 Credit Agreement As described in Note 3 “ITG Acquisition”, in connection with the ITG Acquisition, Virtu Financial, VFH and the Acquisition Borrower entered into 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) 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, with approximately $ 404.5 million borrowed by VFH to repay all amounts outstanding under the Existing Term Loan Facility (as defined below) and the remaining approximately $ 1,095 million 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 (the “Amendment No. 1 Closing Date”), VFH entered into Amendment No. 1 (“Amendment No. 1”), which amended the Credit Agreement dated as of March 1, 2019 by and among VFH, Virtu Financial, the lenders party thereto, and Jefferies Finance, LLC, as administrative agent and collateral agent, 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 the Amendment No. 1 Closing Date, VFH borrowed the Incremental Term Loans and used the proceeds together with available cash to redeem all of the $ 500.0 million aggregate principal amount of the outstanding 6.750 % Senior Secured Second Lien Notes (as defined below) due 2022 issued by VFH and Orchestra Co Issuer, Inc., a Delaware corporation and indirect subsidiary of the Company (together with VFH, the “Issuers”), and paid related fees and expenses. The terms, conditions and covenants applicable to the Incremental Term Loans are the same as the terms, conditions and covenants applicable to the existing term loans under the Credit Agreement, including a maturity date of March 1, 2026. On March 2, 2020 (the “Amendment No. 2 Closing Date”), VFH entered into Amendment No. 2 (“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. On January 29, 2020, the Company entered into a five-year $ 1,000 million floating-to-fixed interest rate swap agreement. The Company also previously entered into a five-year $ 525 million floating-to-fixed interest rate swap agreement. As these two interest rate swaps meet the criteria to be considered qualifying cash flow hedges under ASC 815, they effectively fix interest payment obligations on $ 1,000 million and $ 525.0 million of principal under the First Lien Term Loan Facility at rates of 4.4 % and 4.3 % through January 2025 and September 2024, respectively, based on the interest rates set forth in the Amended Credit Agreement. 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 28 Table of Contents 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, 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. The revolving commitments will terminate on March 1, 2022. During the year ended December 31, 2019, $ 100.0 million was repaid under the First Lien Term Loan Facility. In May of 2020, an additional $ 188.5 million was repaid under this facility. As of June 30, 2020, $ 1,737 million was outstanding under the First Lien Term Loan Facility. 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. To finance the Acquisition of KCG, on June 30, 2017, Virtu Financial and VFH previously entered into the Fourth Amended and Restated Credit Agreement which, upon the closing of the Acquisition of KCG, provided for an aggregate $ 1,150.00 million of first lien secured term loans (the “Existing Term Loan Facility”). As described above, the Existing Term Loan Facility was fully terminated following its repayment in full with the proceeds of the First Lien Term Loan Facility. Senior Secured Second Lien Notes To finance the Acquisition of KCG, on June 16, 2017, Orchestra Borrower LLC (the “Escrow Issuer”), a wholly owned subsidiary of Virtu Financial, and Orchestra Co-Issuer, Inc. (the “Co-Issuer”) completed the offering of $ 500.0 million aggregate principal amount of 6.750 % Senior Secured Second Lien Notes due 2022 (the “Notes”). The Notes were issued under an Indenture, dated June 16, 2017 (the “Indenture”), among the Escrow Issuer, the Co-Issuer and U.S. Bank National Association, as trustee and collateral agent. On July 20, 2017, VFH assumed all of the obligations of the Escrow Issuer under the Indenture and the Notes. The gross proceeds from the Notes were deposited into a segregated escrow account with an escrow agent. The proceeds were released from escrow as of the KCG Closing Date and were used to finance, in part, the Acquisition of KCG, and to repay certain indebtedness of the Company and KCG. As described above, 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 in full. The Indenture was fully terminated following such redemption. 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 SBI (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 ($ 32.4 million) as of June 30, 2020 and ¥ 3.5 billion ($ 32.2 million) as of December 31, 2019. The Company recorded a gain of $ 0.1 million and a loss of $ 0.9 million during the three months ended June 30, 2020 and 2019, respectively, and a loss of $ 0.2 million and a loss of $ 0.5 million during the six months ended June 30, 2020 and 2019, respectively. 29 Table of Contents As of June 30, 2020, aggregate future required minimum principal payments based on the terms of the long-term borrowings were as follows: (in thousands) June 30, 2020 2020 $ — 2021 — 2022 — 2023 32,428 2024 — Thereafter 1,736,512 Total principal of long-term borrowings $ 1,768,940 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. There were no transfers of financial instruments between levels during the three and six months ended June 30, 2020 or 2019. 30 Table of Contents Fair value measurements for those items measured on a recurring basis are summarized below as of June 30, 2020: June 30, 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 $ 549,568 $ 1,262,683 $ — $ — $ 1,812,251 U.S. and Non-U.S. government obligations 37,033 42,874 — — 79,907 Corporate Bonds — 84,233 — — 84,233 Exchange traded notes 40,338 1,426 — — 41,764 Currency forwards — 201,365 — ( 190,354 ) 11,011 Options 9,456 — — — 9,456 636,395 1,592,581 — ( 190,354 ) 2,038,622 Financial instruments owned, pledged as collateral: Equity securities 332,703 242,532 — — 575,235 Exchange traded notes 3 27,733 — — 27,736 332,706 270,265 — — 602,971 Other Assets Equity investment — — 51,599 — 51,599 Exchange stock 2,043 — — — 2,043 2,043 — 51,599 — 53,642 Liabilities Financial instruments sold, not yet purchased, at fair value: Equity securities 1,228,425 1,157,738 — — 2,386,163 U.S. and Non-U.S. government obligations 202,492 1,435 — — 203,927 Corporate Bonds — 145,194 — — 145,194 Exchange traded notes 13 2,215 — — 2,228 Currency forwards — 190,909 — ( 190,877 ) 32 Options 16,303 — — — 16,303 $ 1,447,233 $ 1,497,491 $ — $ ( 190,877 ) $ 2,753,847 31 Table of Contents Fair value measurements for those items measured on a recurring basis are summarized below as of December 31, 2019: December 31, 2019 (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 $ 600,259 $ 1,080,518 $ — $ — $ 1,680,777 U.S. and Non-U.S. government obligations 106,690 20,847 — — 127,537 Corporate Bonds — 171,591 — — 171,591 Exchange traded notes 243 48,894 — — 49,137 Currency forwards — 242,552 — ( 211,398 ) 31,154 Options 8,538 — — — 8,538 715,730 1,564,402 — ( 211,398 ) 2,068,734 Financial instruments owned, pledged as collateral: Equity securities 362,439 291,927 — — 654,366 U.S. and Non-U.S. government obligations — — — — — Exchange traded notes 12 42,578 — — 42,590 362,451 334,505 — — 696,956 Other Assets Equity investment — — 46,245 — 46,245 Exchange stock 2,721 — — — 2,721 2,721 — 46,245 — 48,966 Liabilities Financial instruments sold, not yet purchased, at fair value: Equity securities 1,022,814 1,163,888 — — 2,186,702 U.S. and Non-U.S. government obligations 39,091 2,713 — — 41,804 Corporate Bonds — 244,700 — — 244,700 Exchange traded notes 15 21,631 — — 21,646 Currency forwards — 196,554 — ( 196,535 ) 19 Options 3,087 — — — 3,087 $ 1,065,007 $ 1,629,486 $ — $ ( 196,535 ) $ 2,497,958 SBI Investment The Company has a minority investment (the “SBI Investment”) in SBI Japannext Co., Ltd. (“SBI”), a proprietary trading system based in Tokyo. In connection with the SBI Investment, the Company issued the SBI Bonds (as described in Note 9 “Borrowings”) and used the proceeds to partially finance the transaction. The SBI Investment is included within Level 3 of the fair value hierarchy. As of June 30, 2020, the fair value of the SBI 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. 32 Table of Contents The table below presents information on the valuation techniques, significant unobservable inputs and their ranges for the SBI Investment: June 30, 2020 (in thousands) Fair Value Valuation Technique Significant Unobservable Input Range Weighted Average Equity investment $ 51,599 Discounted cash flow Estimated revenue growth ( 7.4 )% - 20.0 % 7.6 % Discount rate 14.4 % - 14.4 % 14.4 % Market Future enterprise value/ EBIDTA ratio 11.9 x - 55.7 x 15.9 x Changes in the fair value of the SBI 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 June 30, 2020 (in thousands) Balance at March 31, 2020 Purchases Total Realized and Unrealized Gains / (Losses) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2020 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2020 Assets Other assets: Equity investment $ 46,668 $ — $ 4,931 $ — $ — $ 51,599 $ 4,931 Total $ 46,668 $ — $ 4,931 $ — $ — $ 51,599 $ 4,931 Three Months Ended June 30, 2019 (in thousands) Balance at March 31, 2019 Purchases Total Realized and Unrealized Gains / (Losses) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2019 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2019 Assets Other assets: Equity investment $ 46,529 $ — $ ( 178 ) $ — $ — $ 46,351 $ ( 178 ) Total $ 46,529 $ — $ ( 178 ) $ — $ — $ 46,351 $ ( 178 ) Six Months Ended June 30, 2020 (in thousands) Balance at December 31, 2019 Purchases Total Realized and Unrealized Gains / (Losses) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2020 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2020 Assets Other assets: Equity investment $ 46,245 $ — $ 5,354 $ — $ — $ 51,599 $ 5,354 Total $ 46,245 $ — $ 5,354 $ — $ — $ 51,599 $ 5,354 33 Table of Contents Six Months Ended June 30, 2019 (in thousands) Balance at December 31, 2018 Purchases Total Realized and Unrealized Gains / (Losses) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2019 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2019 Assets Other assets: Equity investment $ 45,856 $ — $ 495 $ — $ — $ 46,351 $ 495 Total $ 45,856 $ — $ 495 $ — $ — $ 46,351 $ 495 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 Statement 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. The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of June 30, 2020: June 30, 2020 Carrying Value Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (in thousands) Fair Value (Level 1) (Level 2) (Level 3) Assets Cash and cash equivalents $ 670,770 $ 670,770 $ 670,770 $ — $ — Cash restricted or segregated under regulations and other 77,245 77,245 77,245 — — Securities borrowed 1,435,777 1,435,777 — 1,435,777 — Securities purchased under agreements to resell 244,242 244,242 — 244,242 — Receivables from broker-dealers and clearing organizations 2,441,283 2,441,283 495,079 1,946,204 — Total Assets 4,869,317 4,869,317 1,243,094 3,626,223 — Liabilities Short-term borrowings 26,274 26,274 — 26,274 — Long-term borrowings 1,732,516 1,729,869 — 1,729,869 — Securities loaned 1,204,114 1,204,114 — 1,204,114 — Securities sold under agreements to repurchase 312,568 312,568 — 312,568 — Payables to broker-dealers and clearing organizations 1,200,212 1,200,212 3,932 1,196,280 — Total Liabilities $ 4,475,684 $ 4,473,037 $ 3,932 $ 4,469,105 $ — 34 Table of Contents The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of December 31, 2019: December 31, 2019 Carrying Value Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (in thousands) Fair Value (Level 1) (Level 2) (Level 3) Assets Cash and cash equivalents $ 732,164 $ 732,164 $ 732,164 $ — $ — Cash restricted or segregated under regulations and other 41,116 41,116 41,116 — — Securities borrowed 1,928,763 1,928,763 — 1,928,763 — Securities purchased under agreements to resell 143,032 143,032 — 143,032 — Receivables from broker-dealers and clearing organizations 1,318,584 1,318,584 40,842 1,277,742 — Total Assets 4,163,659 4,163,659 814,122 3,349,537 — Liabilities Short-term borrowings 73,486 75,586 — 75,586 — Long-term borrowings 1,917,866 1,966,850 — 1,966,850 — Securities loaned 1,600,099 1,600,099 — 1,600,099 — Securities sold under agreements to repurchase 340,742 340,742 — 340,742 — Payables to broker dealer and clearing organizations 826,750 826,750 49,514 777,236 — Total Liabilities $ 4,758,943 $ 4,810,027 $ 49,514 $ 4,760,513 $ — 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. The following tables set forth the gross and net presentation of certain financial assets and financial liabilities as of June 30, 2020 and December 31, 2019: June 30, 2020 Gross Amounts of Recognized Assets Gross Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Assets Presented in the Condensed Consolidated Statement of Financial Condition Gross Amounts Not Offset in the Condensed Consolidated Statement of Financial Condition (in thousands) Financial Instruments Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Assets: Securities borrowed $ 1,435,777 $ — $ 1,435,777 $ ( 1,402,709 ) $ ( 5,369 ) $ 27,699 Securities purchased under agreements to resell 244,242 — 244,242 ( 244,242 ) — — Trading assets, at fair value: Currency forwards 201,365 ( 190,354 ) 11,011 — — 11,011 Options 9,456 — 9,456 — ( 9,455 ) 1 Total $ 1,890,840 $ ( 190,354 ) $ 1,700,486 $ ( 1,646,951 ) $ ( 14,824 ) $ 38,711 35 Table of Contents Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Liabilities Presented in the Condensed Consolidated Statement of Financial Condition Gross Amounts Not Offset in the Condensed Consolidated Statement of Financial Condition (in thousands) Financial Instruments Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Liabilities: Securities loaned $ 1,204,114 $ — $ 1,204,114 $ ( 1,190,531 ) $ ( 5,369 ) $ 8,214 Securities sold under agreements to repurchase 312,568 — 312,568 ( 312,554 ) — 14 Payable to broker-dealers and clearing organizations Interest rate swaps 68,843 — 68,843 — ( 68,369 ) 474 Trading liabilities, at fair value: Currency forwards 190,909 ( 190,877 ) 32 — — 32 Options 16,303 — 16,303 — ( 9,455 ) 6,848 Total $ 1,792,737 $ ( 190,877 ) $ 1,601,860 $ ( 1,503,085 ) $ ( 83,193 ) $ 15,582 December 31, 2019 Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Statement of Financial Condition Net Amounts of Assets Presented in the Consolidated Statement of Financial Condition Gross Amounts Not Offset in the Consolidated Statement of Financial Condition (in thousands) Financial Instruments Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Assets: Securities borrowed $ 1,928,763 $ — $ 1,928,763 $ ( 1,881,005 ) $ ( 15,280 ) $ 32,478 Securities purchased under agreements to resell 143,032 — 143,032 ( 142,922 ) — 110 Trading assets, at fair value: Currency forwards 242,552 ( 211,398 ) 31,154 — — 31,154 Options 8,538 — 8,538 ( 8,537 ) — 1 Total $ 2,322,885 $ ( 211,398 ) $ 2,111,487 $ ( 2,032,464 ) $ ( 15,280 ) $ 63,743 Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Statement of Financial Condition Net Amounts of Liabilities Presented in the Consolidated Statement of Financial Condition Gross Amounts Not Offset in the Consolidated Statement of Financial Condition (in thousands) Financial Instruments Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Liabilities: Securities loaned $ 1,600,099 $ — $ 1,600,099 $ ( 1,552,146 ) $ ( 15,281 ) $ 32,672 Securities sold under agreements to repurchase 340,742 — 340,742 ( 340,718 ) — 24 Trading liabilities, at fair value: Currency forwards 196,554 ( 196,535 ) 19 — — 19 Options 3,087 — 3,087 ( 3,087 ) — — Total $ 2,140,482 $ ( 196,535 ) $ 1,943,947 $ ( 1,895,951 ) $ ( 15,281 ) $ 32,715 36 Table of Contents 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: June 30, 2020 Remaining Contractual Maturity (in thousands) Overnight and Continuous Less than 30 days 30 - 60 days 61 - 90 Days Greater than 90 days Total Securities sold under agreements to repurchase: Equity securities $ — $ 50,000 $ 50,000 $ 150,000 $ 50,000 $ 300,000 U.S. and Non-U.S. government obligations 12,568 12,568 Total 12,568 50,000 50,000 150,000 50,000 312,568 Securities loaned: Equity securities 1,204,114 — — — — 1,204,114 Total $ 1,204,114 $ — $ — $ — $ — $ 1,204,114 December 31, 2019 Remaining Contractual Maturity (in thousands) Overnight and Continuous Less than 30 days 30 - 60 days 61 - 90 Days Greater than 90 days Total Securities sold under agreements to repurchase: Equity securities $ — $ 75,000 $ 50,000 $ 150,000 $ — $ 275,000 U.S. and Non-U.S. government obligations 65,742 — — — — 65,742 Total 65,742 75,000 50,000 150,000 — 340,742 Securities loaned: Equity securities 1,600,099 — — — — 1,600,099 Total $ 1,600,099 $ — $ — $ — $ — $ 1,600,099 11. Derivative Instruments The fair value of the Company’s derivative instruments on a gross basis consisted of the following at June 30, 2020 and December 31, 2019: (in thousands) June 30, 2020 December 31, 2019 Derivatives Assets Financial Statements Location Fair Value Notional Fair Value Notional Derivative instruments not designated as hedging instruments: Equities futures Receivables from broker-dealers and clearing organizations $ 4,006 $ 2,170,159 $ ( 1,366 ) $ 4,502,017 Commodity futures Receivables from broker-dealers and clearing organizations 495,103 6,949,099 40,656 7,758,974 Currency futures Receivables from broker-dealers and clearing organizations ( 58 ) 907,339 ( 2,860 ) 1,116,246 Fixed income futures Receivables from broker-dealers and clearing organizations ( 34 ) 15,512 47 155,697 Options Financial instruments owned 9,456 655,661 8,538 442,808 Currency forwards Financial instruments owned 201,365 24,829,993 242,552 24,369,818 Interest rate swap Other assets — — 8,976 525,000 Derivatives Liabilities Financial Statements Location Fair Value Notional Fair Value Notional Derivative instruments not designated as hedging instruments: Equities futures Payables to broker-dealers and clearing organizations $ ( 1,004 ) $ 97,216 $ 751 $ 83,803 37 Table of Contents Commodity futures Payables to broker-dealers and clearing organizations ( 2,907 ) 45,279 ( 45,175 ) 3,604,979 Currency futures Payables to broker-dealers and clearing organizations 4,192 1,735,199 ( 23,223 ) 6,594,991 Fixed income futures Payables to broker-dealers and clearing organizations — 88,070 94 190,938 Options Financial instruments sold, not yet purchased 16,303 669,130 3,087 436,422 Currency forwards Financial instruments sold, not yet purchased 190,909 24,824,765 196,554 24,346,818 Derivative instruments designated as hedging instruments: Interest rate swaps Payables to broker-dealers and clearing organizations 68,843 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 six months ended June 30, 2020 and 2019. Three Months Ended June 30, Six Months Ended June 30, (in thousands) Financial Statements Location 2020 2019 2020 2019 Derivative instruments not designated as hedging instruments: Futures Trading income, net $ 35,603 $ 83,225 $ 23,702 $ 155,610 Currency forwards Trading income, net ( 9,229 ) ( 20,869 ) 192,579 ( 45,042 ) Options Trading income, net 25,039 4,335 26,300 4,997 $ 51,413 $ 66,691 $ 242,581 $ 115,565 Derivative instruments designated as hedging instruments: Interest rate swaps (1) Other comprehensive income $ ( 9,137 ) $ — $ ( 64,739 ) $ — (1) On January 29, 2020, the Company entered into a five-year $ 1,000 million floating-to-fixed interest rate swap agreement. The Company also previously entered into a five-year $ 525 million floating-to-fixed interest rate swap agreement. As of January 1, 2020, these two interest rate swaps met the criteria to be considered qualifying cash flow hedges under ASC 815, and as such, the mark-to-market gains (losses) on the instruments were recorded within Other comprehensive income on the Condensed Consolidated Statement of Comprehensive Income for the three and six months ended June 30, 2020. 12. Revenues from Contracts with Customers Revenue Recognition The Company adopted ASC Topic 606, Revenue from Contracts with Customers, as of January 1, 2018 in the condensed consolidated financial statements by applying the modified retrospective method. The Company’s revenue recognition methods for its contracts with customers prior to the adoption of Topic 606 are consistent with its methods after the adoption of Topic 606. Commissions, net . The Company earns commission revenue by acting as an agent on behalf of customers. The Company’s performance obligations consist of trade execution and clearing services and are satisfied on the trade date; accordingly, commission revenues are recorded on the trade date. Commission revenues are paid on settlement date; therefore, a receivable is recognized as of the trade date. Under a commission management program, the Company allows institutional clients to allocate a portion of their gross commissions to pay for research and other services provided by third parties. As the Company acts as an agent in these transactions, it records such expenses on a net basis within Commissions, net and technology services in the Condensed Consolidated Statements of Comprehensive Income. Workflow technology. Through its front-end workflow solutions and network capabilities, the Company provides order and trade execution management and order routing services. 38 Table of Contents The Company provides trade order routing from its execution management system (“EMS”) to its execution services offerings, with each trade order routed through the EMS representing a separate performance obligation that is satisfied at a point in time. Commissions earned are fixed and revenue is recognized on the trade date. A portion of the commissions earned on the trade is then allocated to workflow technology based on the stand-alone selling price paid by third-party brokers for order routing. The remaining commission is allocated to commissions, net using a residual allocation approach. The Company participates in commission share arrangements, where trade orders are routed to third-party brokers from its EMS and its order management system (“OMS”). Commission share revenues from third-party brokers are generally fixed and revenue is recognized at a point in time on the trade date. The Company provides OMS and related software products and connectivity services to customers and recognizes license fee revenues and monthly connectivity fees. License fee revenues, generated for the use of the Company’s OMS and other software products, is fixed and recognized at the point in time at which the customer is able to use and benefit from the license. Connectivity revenue is variable in nature, based on the number of live connections, and is recognized over time on a monthly basis using a time-based measure of progress. Analytics. The Company provides customers with analytics products and services, including trading and portfolio analytics tools. The Company provides analytics products and services to customers and recognizes subscription fees, which are fixed for the contract term, based on when the products and services are delivered. Analytics services can be delivered either over time (when customers are provided with distinct ongoing access to analytics data) or at a point in time (when reports are only delivered to the customer on a periodic basis). Over time performance obligations are recognized using a time-based measure of progress on a monthly basis, since the analytics products and services are continually provided to the client. Point in time performance obligations are recognized when the analytics reports are delivered to the client. Analytics products and services can also be paid for through variable bundled arrangements with trade execution services. Customers agree to pay for analytics products and services with commissions generated from trade execution services, and commissions are allocated to the analytics performance obligation(s) using: (i) the commission value for each customer for the products and services it receives, which is priced using the value for similar stand-alone subscription arrangements; and (ii) a calculated ratio of the commission value for the products and services relative to the total amount of commissions generated from the customer. For these bundled commission arrangements, the allocated commissions to each analytics performance obligation are then recognized as revenue when the analytics product is delivered, either over time or at a point in time. These allocated commissions may be deferred if the allocated amount exceeds the amount recognizable based on delivery. 39 Table of Contents Disaggregation of Revenues The following tables present the Company’s revenue from contracts with customers disaggregated by the services described above, by timing of revenue recognition, reconciled to the Company’s segments, for the three and six months ended June 30, 2020 and 2019: Three Months Ended June 30, 2020 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ ( 634 ) $ 111,337 $ — $ 110,703 Workflow technology — 26,589 — 26,589 Analytics — 10,444 — 10,444 Total revenue from contracts with customers ( 634 ) 148,370 — 147,736 Other sources of revenue 759,751 ( 294 ) ( 1,290 ) 758,167 Total revenues 759,117 148,076 ( 1,290 ) 905,903 Timing of revenue recognition: Services transferred at a point in time 759,117 129,360 ( 1,290 ) 887,187 Services transferred over time — 18,716 — 18,716 Total Revenues $ 759,117 $ 148,076 $ ( 1,290 ) $ 905,903 Three Months Ended June 30, 2019 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ 4,961 $ 103,727 $ — $ 108,688 Workflow technology — 25,455 — 25,455 Analytics — 10,977 — 10,977 Total revenue from contracts with customers 4,961 140,159 — 145,120 Other sources of revenue 229,068 1,311 ( 398 ) 229,981 Total revenues 234,029 141,470 ( 398 ) 375,101 Timing of revenue recognition: Services transferred at a point in time 234,029 121,209 ( 398 ) 354,840 Services transferred over time — 20,261 — 20,261 Total revenues $ 234,029 $ 141,470 $ ( 398 ) $ 375,101 40 Table of Contents Six Months Ended June 30, 2020 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ 136 $ 242,363 $ — $ 242,499 Workflow technology — 55,332 — 55,332 Analytics — 20,650 — 20,650 Total revenue from contracts with customers 136 318,345 — 318,481 Other sources of revenue 1,589,567 ( 404 ) ( 1,120 ) 1,588,043 Total revenues 1,589,703 317,941 ( 1,120 ) 1,906,524 Timing of revenue recognition: Services transferred at a point in time 1,589,703 280,665 ( 1,120 ) 1,869,248 Services transferred over time — 37,276 — 37,276 Total revenues $ 1,589,703 $ 317,941 $ ( 1,120 ) $ 1,906,524 Six Months Ended June 30, 2019 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ 9,961 $ 161,482 $ — $ 171,443 Workflow technology — 34,327 — 34,327 Analytics — 14,497 14,497 Total revenue from contracts with customers 9,961 210,306 — 220,267 Other sources of revenue 502,313 14,214 ( 1,261 ) 515,266 Total revenues 512,274 224,520 ( 1,261 ) 735,533 Timing of revenue recognition: Services transferred at a point in time 512,274 197,470 ( 1,261 ) 708,483 Services transferred over time — 27,050 — 27,050 Total revenues $ 512,274 $ 224,520 $ ( 1,261 ) $ 735,533 Remaining Performance Obligations and Revenue Recognized from Past Performance Obligations As of June 30, 2020, the aggregate amount of the transaction price allocated to the performance obligations relating to technology services, workflow technology, and analytics revenues that are unsatisfied (or partially unsatisfied) was not material. The Company recognized $ 0.7 million and $ 0.5 million of revenue related to performance obligations satisfied in previous period for the three and six months ended June 30, 2020 and 2019, 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. 41 Table of Contents Receivables related to revenues from contracts with customers amounted to $ 59.3 million and $ 53.6 million as of June 30, 2020 and December 31, 2019, respectively. The Company did not identify any contract assets. There were no impairment losses on receivables as of June 30, 2020. 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 $ 8.1 million and $ 8.6 million as of June 30, 2020 and December 31, 2019, respectively. The Company recognized revenue of $ 7.6 million and $ 7.8 million for the three months ended June 30, 2020 and 2019, respectively, and $ 15.1 million and $ 14.9 million for the six months ended June 30, 2020 and 2019, 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. 13. 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 six months ended June 30, 2020 and 2019, 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 (benefits from) income taxes and effective tax rates were $ 69.3 million, 17.1 %, and $( 11.1 ) million, 16.7 % for the three months ended June 30, 2020 and 2019, respectively, and $ 147.2 million, 16.9 %, and $( 13.7 ) million, 16.5 %, for the six months ended June 30, 2020 and 2019, 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 June 30, 2020 and December 31, 2019 were current income tax receivables of $ 18.9 million and $ 39.3 million, respectively. The balances at June 30, 2020 and December 31, 2019 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 June 30, 2020 and December 31, 2019 were current tax liabilities of $ 71.0 million and $ 11.5 million, respectively. The balances at June 30, 2020 and December 31, 2019 primarily comprised 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 (see Note 3 “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. 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 June 30, 2020 and December 31, 2019, the Company had U.S. federal net operating loss carryforwards of $ 0.0 million and $ 91.3 million, respectively, and has recorded a deferred tax asset related to these federal net operating carryforwards of $ 0.0 million and $ 19.2 million, respectively. The Company did not record a valuation allowance against this deferred tax asset. At June 30, 2020, the Company recorded deferred income taxes related to state and local net operating losses of $ 3.7 million. These net operating losses will begin to expire in 2031. 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 June 30, 2020 and December 31, 2019 of $ 76.0 million and $ 86.3 million, respectively, and recorded a related deferred tax asset of $ 15.5 million and $ 17.9 million, respectively. A valuation allowance of $ 15.1 million and $ 15.6 million was recorded against this deferred tax asset at June 30, 2020 and December 31, 2019, 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 June 30, 2020 and December 31, 2019 of $ 239.0 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 June 30, 2020 and December 31, 2019 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 June 30, 2020 and December 31, 2019 because it is more 42 Table of Contents 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 June 30, 2020, the Company’s tax years for 2013 through 2018 and 2010 through 2018 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 2018. 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 the 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 Statement of Comprehensive Income, respectively. The Company had $ 9.0 million of unrecognized tax benefits as of June 30, 2020, 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 June 30, 2020. 14. 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. On January 29, 2019, the Company was named as a defendant in Ford v. ProShares Trust II, et al. , No. 19-cv-886. The 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 a ProShares inverse-volatility ETF. Additionally, on February 27, 2019, and March 1, 2019, the Company was named as a defendant in Bittner v. ProShares Trust II, et al. , No. 19-cv-1840, and Mareno v. ProShares Trust II, et al ., No. 19-cv-1955, respectively. The complaints were filed in federal district court in New York on behalf of putative classes, and asserted substantially similar claims against the Company and other financial institutions. On April 29, 2019, these three actions were consolidated in federal district court in New York as In re ProShares Trust II Securities Litigation , No. 19-cv-886-DLC. A consolidated amended complaint, which did not specify the amount of alleged damages, was filed in the consolidated action on June 21, 2019. Defendants moved to dismiss the consolidated amended complaint on August 2, 2019. In response, plaintiffs filed a consolidated second amended complaint on September 6, 2019, which also did not specify the amount of alleged damages. Defendants moved to dismiss the consolidated second amended complaint on September 27, 2019. The defendants’ motion to dismiss was granted on January 3, 2020, and plaintiffs subsequently filed a Notice of Appeal of the district court's ruling on the motion to dismiss on January 31, 2020 and an opening brief on May 14, 2020. The Company believes that the claims are without merit and is defending itself vigorously. 43 Table of Contents 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, 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 exchange fee structures. From time to time, the Company is the subject of requests for information and documents from the SEC, the Financial Industry Regulatory Authority and other regulators. 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 federal and foreign regulators and SROs, including the SEC and the Financial Industry Regulatory Authority. In some instances, these matters may result in a disciplinary action and/or a civil or administrative action. For example, in December 2015, the Autorité des Marchés Financiers (“AMF”) fined the Company’s European subsidiary in the amount of € 5.0 million (approximately $ 5.4 million) based on its allegations that the subsidiary of a predecessor entity engaged in price manipulation and violations of the AMF General Regulation and Euronext Market Rules. The fine was subsequently reduced in 2017 to € 3.3 million (approximately $ 3.9 million) and in 2018 was further reduced to € 3.0 million (approximately $ 3.4 million). The Company has fully reserved for the monetary penalty as of June 30, 2020 and anticipates paying the fine during the year ended December 31, 2020. 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. 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 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. 15. Leases The Company adopted ASU 2016-02 on January 1, 2019, and elected the modified retrospective method of implementation. The standard requires the recognition of right-of-use ("ROU") assets and lease liabilities for leases, which are defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Company has elected the practical expedient which allows for leases with an initial term of 12 months or less to be excluded from recognition on the Condensed Consolidated Statement of Financial Condition and for which lease expense is recognized on a straight-line basis over the lease term. Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. These leases are primarily for corporate office space, datacenters, and technology equipment. The leases have remaining 44 Table of Contents terms of 1 year to 15 years, some of which include options to extend the initial term at the Company's discretion. The lease terms used in calculating ROU assets and lease liabilities include the options to extend the initial term when the Company is reasonably certain of exercising the options. The Company's lease agreements do not contain any material residual value guarantees, restrictions or covenants. In addition to the base rental costs, the Company’s lease agreements for corporate office space generally provide for rent escalations resulting from increased assessments for operating expenses, real estate taxes and other charges. Payments for such reimbursable expenses are considered variable and are recognized as variable lease costs in the period in which the obligation for those payments was incurred. The Company also subleases certain office space and facilities to third parties. The subleases have remaining terms of 1 to 12 years. The Company recognizes sublease income on a straight-line basis over the term of the sublease within Operations and administrative expense on the Condensed Consolidated Statement of Comprehensive Income. As the implied discount rate for most of the Company's leases is not readily determinable, the Company uses its incremental borrowing rate on its secured borrowings in determining the present value of lease payments. Lease assets and liabilities are summarized as follows: (in thousands) Financial Statement Location June 30, 2020 December 31, 2019 Operating leases Operating lease right-of-use assets Operating lease right-of-use assets $ 294,531 $ 314,526 Operating lease liabilities Operating lease liabilities 339,602 365,364 Finance leases Property and equipment, at cost Property, equipment, and capitalized software, net 36,046 37,589 Accumulated depreciation Property, equipment, and capitalized software, net ( 24,903 ) ( 24,579 ) Finance lease liabilities Accounts payable, accrued expenses, and other liabilities 11,405 13,371 Weighted average remaining lease term and discount rate are as follows: June 30, 2020 December 31, 2019 Weighted average remaining lease term Operating leases 7.20 years 7.50 years Finance leases 1.64 years 1.45 years Weighted average discount rate Operating leases 5.70 % 5.70 % Finance leases 3.34 % 3.52 % 45 Table of Contents The components of lease expense were as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Operating lease cost: Fixed $ 18,452 19,288 $ 36,812 $ 34,084 Variable 2,086 1,869 4,221 3,447 Impairment of ROU Asset — 25,857 — 25,857 Total Operating lease cost 20,538 47,014 41,033 63,388 Finance lease cost: Amortization of right-of-use assets 2,983 3,082 6,170 6,052 Interest on lease liabilities 112 175 241 361 Total Finance lease cost 3,095 3,257 6,411 6,413 Sublease income 4,118 3,355 7,595 5,915 During the three months ended June 30, 2019, the Company ceased use of certain office lease premises as part of its ongoing effort to consolidate office space. For the three and six months ended June 30, 2019, the Company recognized $ 65.2 million in Termination of office leases on the Condensed Consolidated Statement of Comprehensive Income related to these premises, comprising $ 25.9 million of impairments of ROU assets, $ 37.9 million of write-offs of leasehold improvements and fixed assets, and $ 1.4 million of dilapidation charges. There was no impairment of ROU assets during the three and six months ended June 30, 2020. Future minimum lease payments under operating and finance leases with non-cancelable lease terms, as of June 30, 2020, are as follows: (in thousands) Operating Leases Finance Leases 2020 $ 38,156 $ 5,414 2021 73,381 4,833 2022 67,130 2,094 2023 64,240 127 2024 33,928 — 2025 and thereafter 141,357 — Total lease payments $ 418,192 $ 12,468 Less imputed interest ( 78,590 ) ( 1,063 ) Total lease liability $ 339,602 $ 11,405 46 Table of Contents Future minimum lease payments under operating and finance leases with non-cancelable lease terms, as of December 31, 2019, are as follows: (in thousands) Operating Leases Finance Leases 2020 76,118 10,929 2021 73,062 3,305 2022 66,850 565 2023 63,676 — 2024 32,144 — 2025 and thereafter 141,371 — Total lease payments $ 453,221 $ 14,799 Less imputed interest ( 87,857 ) ( 1,428 ) Total lease liability $ 365,364 $ 13,371 16. 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) June 30, 2020 December 31, 2019 Cash and cash equivalents $ 670,770 $ 732,164 Cash restricted or segregated under regulations and other 77,245 41,116 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 748,015 $ 773,280 17. Capital Structure The Company has four classes of authorized common stock. The Class A Common Stock and the Class C Common Stock have one 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. 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 June 30, 2020 and December 31, 2019, there were 5,559,713 and 7,919,952 Virtu Financial Units outstanding held by Employee Holdco (as defined below), respectively, and 2,360,239 and 609,984 of such Virtu Financial Units and corresponding Class C Common Stock were exchanged into Class A Common Stock, forfeited or repurchased during the six months ended June 30, 2020 and 2019, 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 16,000,000 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. 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 stockholders on June 5, 2020. 47 Table of Contents 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 . Acquisition of KCG On the KCG Closing Date, the Company completed the all-cash Acquisition of KCG. In connection with the Acquisition of KCG, the Company issued 8,012,821 shares of the Company’s Class A Common Stock to Aranda Investments Pte. Ltd. (“Aranda”), an affiliate of Temasek Holdings (Private) Limited (“Temasek”), for an aggregate purchase price of approximately $ 125.0 million and 40,064,103 shares of the Company’s Class A Common Stock to North Island Holdings I, LP (the “North Island Stockholder”) for an aggregate purchase price of approximately $ 618.7 million, in each case in accordance with terms of an investment agreement in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(a)(2) of the Securities Act. The investment agreements were filed as exhibits to the Company’s 2019 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2020. Secondary Offerings In May 2018, the Company and certain selling stockholders completed a public offering (the “May 2018 Secondary Offering”) of 17,250,000 shares of Class A Common Stock by the Company and certain selling stockholders at a purchase price per share of $ 27.16 (the offering price to the public of $ 28.00 per share minus the underwriters’ discount), which included the exercise in full by the underwriters of their option to purchase additional shares in the May 2018 Secondary Offering. The Company sold 10,518,750 shares of Class A Common Stock in the offering, the net proceeds of which were used to purchase an equivalent number of Virtu Financial Units and corresponding shares of Class D Common Stock from TJMT Holdings LLC pursuant to that certain Member Purchase Agreement, entered into on May 15, 2018 by and between the Company and TJMT Holdings LLC. The selling stockholders sold 6,731,250 shares of Class A Common Stock in the May 2018 Secondary Offering, including 2,081,250 shares of Class A Common Stock issued by the Company upon the exercise of vested stock options. In connection with the May 2018 Secondary Offering, the Company, TJMT Holdings LLC, the North Island Stockholder, Havelock Fund Investments Pte. Ltd. (“Havelock”) and Aranda entered into that certain Amendment No. 1 to the Amended and Restated Registration Rights Agreement dated April 20, 2017, by and among the Company, TJMT Holdings LLC, the North Island Stockholder, Havelock, Aranda and certain direct or indirect equityholders of the Company (the “Amended and Restated Registration Rights Agreement”) to add Mr. Vincent Viola and Mr. Michael Viola, directors of the Company, and to confirm that certain other persons (including the Company’s CEO) remain parties to the Amended and Restated Registration Rights Agreement. In May 2019, the Company completed a public offering (the “May 2019 Secondary Offering”) of 9,000,000 shares of Class A Common Stock at a purchase price per share paid by the underwriters of $ 22.00 , the proceeds of which were used to purchase an equivalent number of Virtu Financial Units and corresponding shares of Class D Common Stock from TJMT Holdings LLC pursuant to that certain Member Purchase Agreement, entered into on May 14, 2019 by and between the Company and TJMT Holdings LLC. Employee Exchanges During the six months ended June 30, 2020 and 2019, 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 2,360,239 and 609,984 units, respectively in Virtu Financial held directly or on their behalf by Virtu Employee Holdco LLC (“Employee Holdco”) on a one -for-one basis for shares of Class A Common Stock. As a result of the completion of the IPO, the Reorganization Transactions, the Secondary Offerings, employee exchanges, and the share issuance in connection with the Acquisition of KCG, the Company holds approximately a 64.1 % interest in Virtu Financial at June 30, 2020. 48 Table of Contents 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, which number of shares will be increased to 10,000,000 if, at any time during the term of the Founder Member Facility, Founder Member Loans equal to or greater than $ 100 million remain outstanding for a certain period of time specified in 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 on or after May 22, 2020, the eleventh (11th) trading day following the date on which the Company publicly announced its earnings results for the first quarter of 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, set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering. The foregoing description of the Warrant does not purport to be complete and is qualified in its entirety by reference to the complete text of the Warrant, which was filed as an exhibit to the Company's 2020 quarterly report on Form 10-Q for the period ended March 31, 2020 filed with the Securities and Exchange Commission on May 11, 2020. 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 Statement of Financial Condition and as an increase to Additional paid-in capital on the Condensed Consolidated Statement of Changes in Equity. The balance will be amortized on a straight-line basis from March 20, 2020 through September 20, 2020, the date on which the Founder Member Loan Facility expires, and recorded as expense within Debt issue cost related to debt refinancing, prepayment and commitment fees in the Condensed Consolidated Statement of Comprehensive Income. Accumulated Other Comprehensive Income (Loss) The following table presents the changes in Other Comprehensive Income (Loss) for the three and six months ended June 30, 2020 and 2019: Three Months Ended June 30, 2020 (in thousands) AOCI Beginning Balance Amounts reclassified from AOCI to income Amounts recorded in AOCI AOCI Ending Balance Net change in unrealized cash flow hedges gains (losses) (1) $ ( 31,468 ) $ 3,581 $ ( 8,823 ) $ ( 36,710 ) Foreign exchange translation adjustment ( 6,531 ) — 3,674 ( 2,857 ) Total $ ( 37,999 ) $ 3,581 $ ( 5,149 ) $ ( 39,567 ) (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 Six Months Ended June 30, 2020 (in thousands) AOCI Beginning Balance Amounts reclassified from AOCI to income Amounts recorded in AOCI AOCI Ending Balance Net change in unrealized cash flow hedges gains (losses) $ — $ 3,898 $ ( 40,608 ) $ ( 36,710 ) Foreign exchange translation adjustment ( 647 ) — ( 2,210 ) ( 2,857 ) Total $ ( 647 ) $ 3,898 $ ( 42,818 ) $ ( 39,567 ) (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 49 Table of Contents Three Months Ended June 30, 2019 (in thousands) AOCI Beginning Balance Amounts reclassified from AOCI to income Amounts recorded in AOCI AOCI Ending Balance Foreign exchange translation adjustment $ ( 2,218 ) $ — $ 548 $ ( 1,670 ) Total $ ( 2,218 ) $ — $ 548 $ ( 1,670 ) Six Months Ended June 30, 2019 (in thousands) AOCI Beginning Balance Amounts reclassified from AOCI to income Amounts recorded in AOCI AOCI Ending Balance Foreign exchange translation adjustment $ ( 82 ) $ — $ ( 1,588 ) $ ( 1,670 ) Total $ ( 82 ) $ — $ ( 1,588 ) $ ( 1,670 ) 18. Share-based Compensation Pursuant to the Amended and Restated 2015 Management Incentive Plan as described in Note 17 “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. The following table summarizes activity related to stock options for the six months ended June 30, 2020 and 2019: Options Outstanding Options Exercisable Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life Number of Options Weighted Average Exercise Price Per Share At December 31, 2018 3,486,150 $ 19.00 6.30 1,660,400 $ 19.00 Granted 156,129 13.60 4.87 156,129 13.60 Exercised ( 353,500 ) 19.00 — ( 353,500 ) 19.00 Forfeited or expired ( 40,000 ) — — — — At June 30, 2019 3,248,779 $ 18.74 5.74 3,248,779 $ 18.74 At December 31, 2019 3,233,779 $ 18.74 5.24 3,233,779 $ 18.74 Granted — — — — — Exercised ( 617,923 ) 17.64 — ( 617,923 ) 17.64 Forfeited or expired — — — — — At June 30, 2020 2,615,856 $ 19.00 4.74 2,615,856 $ 19.00 The expected life has been 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 Company recognized $ 1.4 million for the six months ended June 30, 2019 of compensation expense in relation to the stock options issued and outstanding. The stock options to purchase shares of Class A Common Stock were fully vested in 2019, and as such there was no compensation expense recognized in relation to stock options for the three and six months ended June 30, 2020. 50 Table of Contents 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 17 “Capital Structure”, subsequent to the IPO, shares of immediately vested Class A Common Stock, restricted stock units ("RSUs") and restricted stock awards ("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 six months ended June 30, 2020 and 2019, respectively, there were 852,599 and 423,393 shares of immediately vested Class A Common Stock granted as part of year-end compensation. In addition, the Company accrued compensation expense of $ 25.8 million and $ 2.5 million for the six months ended June 30, 2020 and 2019, 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. The following table summarizes activity related to the RSUs (including the Assumed Awards) and RSAs: Number of RSUs and RSAs Weighted Average Fair Value At December 31, 2018 1,378,922 $ 20.03 Granted 3,305,045 25.76 Forfeited ( 189,149 ) 20.97 Vested ( 820,287 ) 23.81 At June 30, 2019 3,674,531 $ 24.29 At December 31, 2019 2,993,489 $ 24.10 Granted (1) 3,039,940 16.76 Forfeited ( 164,476 ) 18.59 Vested ( 1,889,862 ) 20.57 At June 30, 2020 3,979,091 $ 20.39 (1) Excluded in the number of RSUs and RSAs is 400,000 participating RSAs where the grant date has not been achieved because the performance conditions have not been met. The Company recognized $ 7.8 million and $ 16.4 million for the three months ended June 30, 2020 and 2019 and $ 16.8 million and $ 39.6 million for the six months ended June 30, 2020 and 2019, respectively, of compensation expense in relation to the RSUs. As of June 30, 2020 and December 31, 2019, total unrecognized share-based compensation expense related to unvested RSUs was $ 58.4 million and $ 43.4 million, respectively, and this amount is to be recognized over a weighted average period of 1.37 and 2.0 years, respectively. Awards in which the specific performance conditions have not been met are not included in unrecognized share-based compensation expense. 51 Table of Contents 19. Regulatory Requirement U.S. Subsidiaries U.S. broker-dealer subsidiaries of the Company are subject to the SEC Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital for each of the U.S. broker-dealers as detailed in the table below. Pursuant to 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 June 30, 2020. 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. The regulatory capital and regulatory capital requirements of the U.S broker-dealer subsidiaries as of June 30, 2020 were as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Virtu Americas LLC $ 567,577 $ 5,290 $ 562,287 Virtu ITG LLC 22,904 1,000 21,904 Virtu Alternet Securities LLC 2,357 100 2,257 As of June 30, 2020, VAL had $ 44.5 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 $ 28.8 million of cash in reserve bank accounts for the benefit of proprietary accounts of brokers. Balances in special reserve bank accounts previously maintained by VITG were moved to VAL upon consolidation of the broker dealers. The balances are included within Cash restricted or segregated under regulations and other on the Condensed Consolidated Statement of Financial Condition. The regulatory capital and regulatory capital requirements of the U.S. broker-dealer subsidiaries as of December 31, 2019 were as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Virtu Americas LLC $ 257,452 $ 2,571 $ 254,881 Virtu Financial BD LLC 30,317 1,000 29,317 Virtu Financial Capital Markets LLC 3,710 1,000 2,710 Virtu ITG LLC 66,069 1,000 65,069 Virtu Alternet Securities LLC 1,931 100 1,831 As of December 31, 2019, VAL and VITG had $ 22.3 million and $ 7.4 million, respectively, 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 $ 4.5 million and $ 5.0 million, respectively, 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, the Financial Conduct Authority in the United Kingdom, the Australian Securities Exchange, the Securities and Futures Commission in Hong Kong, and the Monetary Authority of Singapore. Virtu Financial Canada ULC was admitted to membership in IIROC in March 2019. 52 Table of Contents The regulatory net capital balances and regulatory capital requirements applicable to the Company's foreign subsidiaries as of June 30, 2020 were as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Canada Virtu ITG Canada Corp $ 15,014 $ 184 $ 14,830 TriAct Canada Marketplace LP 993 184 809 Virtu Financial Canada ULC 2,096 184 1,912 Ireland Virtu ITG Europe Limited (1) 51,183 26,921 24,262 Virtu Financial Ireland Limited (1) 81,630 44,937 36,693 United Kingdom Virtu ITG UK Limited 1,201 826 375 Asia Pacific Virtu ITG Australia Limited 25,488 13,069 12,419 Virtu ITG Hong Kong Limited 1,946 544 1,402 Virtu ITG Singapore Pte Limited 1,216 72 1,144 (1) Preliminary As of June 30, 2020, Virtu ITG Europe Limited and Virtu ITG Canada Corp had $ 3.1 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. The regulatory net capital balances and regulatory capital requirements applicable to the Company's foreign subsidiaries as of December 31, 2019 were as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Canada Virtu ITG Canada Corp $ 13,029 $ 193 $ 12,836 TriAct Canada Marketplace LP 2,538 193 2,345 Virtu Financial Canada ULC 2,459 193 2,266 Ireland Virtu ITG Europe Limited 54,129 32,484 21,645 Virtu Financial Ireland Limited 78,385 43,233 35,152 United Kingdom Virtu ITG UK Limited 1,378 991 387 Asia Pacific Virtu ITG Australia Limited 24,574 8,451 16,123 Virtu ITG Hong Kong Limited 3,805 539 3,266 Virtu ITG Singapore Pte Limited 1,179 72 1,107 As of December 31, 2019, Virtu ITG Europe Limited and Virtu ITG Canada Corp had $ 1.2 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. 20. Geographic Information and Business Segments The Company operates its business in the U.S. and internationally, primarily in Europe and Asia. 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 six months ended June 30, 2020 and 2019 : 53 Table of Contents Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Revenues: United States $ 767,707 $ 270,719 $ 1,560,733 $ 559,495 Ireland 64,554 48,890 172,464 84,565 Singapore 46,818 29,707 113,862 56,545 Canada 15,107 15,088 32,064 20,300 Australia 10,200 10,591 22,078 13,893 United Kingdom 504 ( 817 ) 2,980 ( 533 ) Others 1,013 923 2,343 1,268 Total revenues $ 905,903 $ 375,101 $ 1,906,524 $ 735,533 The Company has two operating segments: (i) Market Making and (ii) Execution Services; and one non-operating segment: Corporate. The Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, 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, 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, POSIT, and MATCHNow. 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 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 June 30, 2020 and 2019 are summarized in the following table: (in thousands) Market Making Execution Services Corporate Consolidated Total 2020 Total revenue $ 759,117 $ 148,076 $ ( 1,290 ) $ 905,903 Income before income taxes and noncontrolling interest 397,596 16,454 ( 9,515 ) 404,535 2019 Total revenue 234,029 141,470 ( 398 ) 375,101 Income (loss) before income taxes and noncontrolling interest 21,962 ( 21,697 ) ( 66,844 ) ( 66,579 ) 54 Table of Contents The Company's Pre-tax earnings by segment for the six months ended June 30, 2020 and 2019 are summarized in the following table: (in thousands) Market Making Execution Services Corporate Consolidated Total 2020 Total revenue $ 1,589,703 $ 317,941 $ ( 1,120 ) $ 1,906,524 Income before income taxes and noncontrolling interest 849,142 35,850 ( 14,232 ) 870,760 2019 Total revenue 512,274 224,520 ( 1,261 ) 735,533 Income (loss) before income taxes and noncontrolling interest 69,501 ( 66,102 ) ( 86,182 ) ( 82,783 ) 21. Related Party Transactions The Company incurs expenses and maintains balances with its affiliates in the ordinary course of business. As of June 30, 2020, and December 31, 2019 the Company had net receivables from its affiliates of $ 1.6 million and $ 1.3 million, respectively. The Company has held a minority interest in SBI since 2016 (see Note 10 “Financial Assets and Liabilities”). The Company pays exchange fees to SBI for the trading activities conducted on its proprietary trading system. The Company paid $ 6.0 million and $ 2.7 million for the three months ended June 30, 2020 and 2019, respectively, and $ 9.7 million and $ 6.1 million for the six months ended June 30, 2020 and 2019, respectively, to SBI for these trading activities. The Company makes payments to two JVs (see Note 2 “Summary of Significant Accounting Policies”) 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 $ 4.7 million and $ 5.2 million for the three months ended June 30, 2020 and 2019, respectively, and $ 9.4 million and $ 10.4 million to the JVs for the six months ended June 30, 2020 and 2019, respectively. 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 $ 0.3 million and $ 0.5 million for the three months ended June 30, 2020 and 2019, respectively, and $ 0.8 million and $ 0.8 million for the six months ended June 30, 2020 and 2019, 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. The Company made payments of $ 0.2 million for the three and six months ended June 30, 2020. As described in Note 9 “Borrowings” and Note 17 “Capital Structure”, on March 20, 2020 a subsidiary of the Company entered into an agreement with the Founder Member to establish the Founder Member Facility and, upon the execution of the Founder Member Facility and in consideration of the Founder Member’s commitments thereunder, the Company delivered to the Founder Member the Warrant. The transactions were unanimously approved by the Company’s disinterested Directors. 22. 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 July 29, 2020, the Company amended the terms of its Committed Broker Dealer Facility to increase the sublimit applicable to Borrowing Base B borrowings up to $ 200 million. On August 4, 2020, the Company completed the disposition of the MatchNOW business pursuant to a previously announced agreement with Cboe Global Markets, Inc., resulting in a gain of approximately $ 56.6 million, with potential additional benefit of up to approximately $ 23.0 million, conditioned on future performance of MatchNOW. 55 Table of Contents On August 7, 2020, 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 September 15, 2020 to holders of record as of September 1, 2020. 56 Table of Contents