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Item 1A. Risk Factors

2021-02-25 compared with 2020-02-28 · 342 added, 278 removed, 358 unchanged (63% of the section changed)

Risks Related to Our Business

Because our revenues and profitability depend on trading volume and volatility in the markets in which we operate, they are subject to factors beyond our control, are prone to significant fluctuations and are difficult to predict.

Risk Factors Summary

The summary of risks below provides an overview of the principal risks we are exposed to in the normal course of our business activities.

This summary does not contain all of the information that may be important to you, and you should read the more detailed discussion of risks that follows this summary.

Business and Operations

• The COVID-19 pandemic could adversely affect our business, results of operations and financial condition.

• Our revenues and profitability depend on trading volume and volatility in the markets in which we operate and therefore are subject to factors beyond our control, are prone to significant fluctuations and are difficult to predict.

• We are dependent upon our trading counterparties and clearing houses to perform their obligations to us.

• We may incur losses in our market making activities and our execution services businesses due to failures of our customized trading platform, due to market risk or from a lack of perfect information.

• The valuation of the securities we hold at any particular time may result in large and occasionally anomalous swings in the value of our positions and in our earnings in any period.

• We face substantial competition and other competitive dynamics which could harm our financial performance.

• Our market making business is concentrated in U.S.

accordingly, our operating results may be negatively impacted by changes that affect the U.S.

equity markets.

• We could lose significant sources of revenues if we lose any of our larger clients or sources of order flow or lose access to an important exchange or other trading venue.

• We are subject to liquidity risk in our operations.

• Self‑clearing and other elements of our trade processing expose us to operational, financial and liquidity risks.

• We have a substantial amount of indebtedness, which could negatively impact our business and financial condition, and may limit our flexibility in operating our business.

• We depend on our technology and our results may be negatively impacted if we cannot remain competitive.

• Our reliance on our computer systems and software could expose us to material financial and reputational harm if any of our computer systems or software were subject to any material disruption or corruption.

• We could be the target of a significant cyber-attack, threat or incident that impairs internal systems, results in adverse consequences to information our system process, store or transmit or causes reputation damages as a consequence.

• Our business may be harmed by computer and communication systems malfunctions, failures and delays.

• Failure or poor performance of third‑party software, infrastructure or systems could adversely affect our business.

• The use of open source software may expose us to additional risks.

• We may not be able to protect our intellectual property rights or may be prevented from using intellectual property necessary for our business.

• Fluctuations in currency exchange rates could negatively impact our earnings.

• We may incur material losses on foreign exchange transactions entered into on behalf of clients and be exposed to material liquidity risk due to counterparty defaults or errors.

• We may experience risks associated with future growth or expansion of our operations or acquisitions, strategic investments or dispositions of businesses, and we may never realize the anticipated benefits of such activities.

• Our future efforts to sell shares of our common stock or raise additional capital may be inhibited by regulations.

• We are dependent on the continued service of certain key executives, the loss or diminished performance of whom could have a material adverse effect on our business and our success depends, in part, on our ability to identify, recruit and retain skilled management and technical personnel.

• We may incur losses as a result of unforeseen or catastrophic events, including the emergence of another pandemic, social unrest, terrorist attacks, extreme weather events or other natural disasters.

Historical Acquisitions

• Significant costs and significant indebtedness were incurred in connection with the consummation of our historical acquisitions and significant costs have been and will be incurred in connection with the integration of KCG and ITG into our business, including legal, accounting, financial advisory and other costs.

• Integrating KCG's and ITG’s business into our business may divert management’s attention away from operations, and we may also encounter significant difficulties in integrating these businesses.

• We may not realize the anticipated synergies, cost reductions and growth opportunities from our historical acquisitions.

• In connection with our historical acquisitions, the Company will be subject to business uncertainties and potential liabilities that could materially and adversely affect our business.

Legal and Regulatory

• Regulatory and legal uncertainties could harm our business.

• Non‑compliance with applicable laws or regulatory requirements could subject us to sanctions and could negatively impact our reputation, prospects, revenues and earnings.

• We are subject to risks relating to litigation and potential securities law liability.

• Proposed legislation in the European Union, the U.S.

and other jurisdictions that would impose taxes on certain financial transactions could have a material adverse effect on our business and financial results.

• We are exposed to risks associated with our international operations and expansion and failure to comply with laws and regulations applicable to such operations may increase costs, reduce profits, limit growth or subject us to liability.

• Brexit may negatively impact the global economy, financial markets and our business.

Organization and Structure

• We are a holding company and our principal asset is our 64.1% of equity interest in Virtu Financial, and we are accordingly dependent upon distributions from Virtu Financial to pay dividends, if any, taxes and other expenses.

• We are controlled by the Founder Post‑IPO Member, whose interests in our business may be different than yours, and certain statutory provisions afforded to stockholders are not applicable to us.

• We may be unable to remain in compliance with the covenants contained in our Credit Agreement and our obligation to comply with these covenants may adversely affect our ability to operate our business.

• We are exempt from certain corporate governance requirements since we are a “controlled company” within the meaning of the NASDAQ rules, and as a result our stockholders do not have the protections afforded by these corporate governance requirements.

• We are required to pay the Virtu Post‑IPO Members and the Investor Post‑IPO Stockholders for certain tax benefits we may claim, and the amounts we may pay could be significant.

Class A Common Stock

• Substantial future sales of shares of our Class A common stock in the public market could cause our stock price to fall.

• Failure to establish and maintain effective internal control over financial reporting could have a material adverse effect on our business, financial condition, results of operations and cash flows, and stock price.

• We intend to pay regular dividends to our stockholders, but our ability to do so may be limited by our holding company structure, contractual restrictions and regulatory requirements.

• Provisions in our charter documents and certain rules imposed by regulatory authorities may delay or prevent our acquisition by a third party.

• Our stock price may be volatile.

• We incur increased costs as a result of being a public company.

• Our stock price and trading volume could decline as a result of inaccurate or unfavorable research, or the cessation of research coverage, about us or our business published by securities or industry analysts.

• Our reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates.

Risks Related to Our Business and Operations

The COVID-19 pandemic could adversely affect our business, results of operations and financial condition.

The ongoing coronavirus (COVID-19) pandemic has caused significant disruption in the international and United States economies and financial markets, and has caused, among other matters, illness, death, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity, travel, and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.

The full impact this virus may have on the global financial markets and the overall economy is not currently known.

Impacts to our business could be widespread and global, and material impacts may be possible, including the following:

• Employees, including our senior executives, contracting COVID-19;

• Reductions in our operating effectiveness or efficiency or increases in risk as a result of the implementation of our business continuity plan (BCP), under which a significant number of our employees work from home, and potential disruptions or adverse impacts as and when we implement a return to office policy for certain employees;

• Unprecedented volatility in global financial markets, which may increase the risk or potential magnitude of operational errors;

• Increases in liquidity needs, including but not limited to margin funding requirements with clearinghouses or prime brokers, for our business and challenges obtaining sufficient liquidity sources to meet such needs or requirements;

• Potential decreases in demand for our products and services, which would negatively impact our liquidity position and our results;

• Adverse impacts on our clients, counterparties, vendors and other business partners on whom we rely for order flow, funding, and critical technological or operational services and the potential increase in risk of counterparty default or insolvency event;

• Closures of our offices or the offices of our clients;

• Travel restrictions limiting our ability to collaborate internally and engage with current and potential clients and counterparties externally.

We are taking precautions to protect the safety and well-being of our employees, customers and business partners.

However, we cannot be certain that the steps we have taken or will take will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employee's ability to perform their functions.

The further spread of the COVID-19 outbreak may materially disrupt financial activity generally and in the areas in which we operate.

Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries' business, operations, consolidated financial condition, and consolidated results of operations.

Our revenues and profitability depend on trading volume and volatility in the markets in which we operate, and therefore are subject to factors beyond our control, are prone to significant fluctuations and are difficult to predict.

Our revenues and profitability depend in part on the level of trading activity of securities, derivatives and other financial products on exchanges and in other trading venues in the U.S.

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Given the concentration of counterparty performance risk that is concentrated in central clearing parties, any failure by a clearing house to properly manage a default could lead to a systemic market failure.

If our trading counterparties do not meet their obligations to

us, or if any central clearing parties fail to properly manage defaults by market participants, we could suffer a material adverse effect on our business, financial condition, results of operations and cash flows.

We may incur losses in our market making activities and our execution services businesses in the event of failures of our customized trading platform.

If our trading counterparties do not meet their obligations to us, or if any central clearing parties fail to properly manage defaults by market participants, we could suffer a material adverse effect on our business, financial condition, results of operations and cash flows.

We may incur losses in our market making activities and our execution services businesses due to failures of our customized trading platform, due to market risk or from a lack of perfect information.

The success of our business is substantially dependent on the accuracy and performance of our customized trading platform, which evaluates and monitors the risks inherent in our market making strategies and execution services business, assimilates market data and reevaluates our outstanding quotes and positions continuously throughout the trading day.

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Flaws in our strategies, order management system, risk management processes, latencies or inaccuracies in the market data that we use to generate our quotes, or human error in managing risk parameters or other strategy inputs, may lead to unexpected and unprofitable trades, which may result in material trading losses and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may incur material trading losses from our market making activities.

A significant portion of our revenues are derived from our trading as principal in our role as a formal or registered market maker and liquidity provider on various exchanges and markets, as well as direct to customer market making.

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However, competitive forces often require us to match or improve upon the quotes that other market makers display, thereby narrowing bid/ask spreads, and to hold long or short positions in securities, futures or other financial instruments.

We cannot assure you that we will be able to manage these risks successfully or that we will not experience significant losses from such activities, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may at times trade with others who have information that may be more accurate or complete than the information we have, and as a result we may accumulate unfavorable positions preceding large price movements in a given instrument.

We cannot assure you that we will be able to

manage these risks successfully or that we will not experience significant losses from such activities, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Our risk management activities related to our on exchange market making strategies utilize a four‑pronged approach, consisting of strategy lockdowns, centralized strategy monitoring, aggregate exposure monitoring and operational controls.

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Such swings may be especially pronounced on the last business day of each calendar quarter, as the discrepancy in official closing prices resulting from the asynchronous closing times may cause us to recognize a gain or loss in one quarter which would be substantially offset by a corresponding loss or gain in the following quarter.

We are exposed to losses due to lack of perfect information.

As a market maker, we provide liquidity by consistently buying securities from sellers and selling securities to buyers.

Should the frequency or magnitude of these events increase, our losses would likely increase correspondingly, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We face substantial competition and are subject to other competitive dynamics which could harm our financial performance.

We face substantial competition and other competitive dynamics which could harm our financial performance.

Revenues from our market making activities depend on our ability to offer to buy and sell financial instruments at prices that are attractive and represent the best bid and/or offer in a given instrument at a given time.

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equity markets is directly affected by factors beyond our control, including U.S.

economic and political conditions, broad trends in business and finance, legislative and regulatory changes and changes in volume and price levels of U.S.

economic and political

conditions, broad trends in business and finance, legislative and regulatory changes and changes in volume and price levels of U.S.

equity transactions.

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equity markets, we may experience a material adverse effect on our business, financial condition and operating results.

We could lose significant sources of revenues if we lose any of our larger clients.

We could lose significant sources of revenues if we lose any of our larger clients or sources of order flow or lose access to an important exchange or other trading venue.

At times, a limited number of clients could account for a significant portion of our order flow, revenues and profitability, and we expect a large portion of the future demand for, and profitability from, our trade execution services to remain concentrated within a limited number of clients.

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None of these clients is currently contractually obligated to utilize us for trade execution services and, accordingly, these clients may direct their trade execution activities to other execution providers or market centers at any time.

Some of these clients have grown organically or acquired market makers and specialist firms to internalize order flow or will have entered into strategic relationships with competitors.

There can be no assurance that we will be able to retain these significant clients or that such clients will maintain or increase their demand for our trade execution

Some of these clients have grown organically or acquired market makers and specialist firms to internalize order flow or have entered into strategic relationships with competitors.

There can be no assurance that we will be able to retain these significant clients or that such clients will maintain or increase their demand for our trade execution services.

Further, the continued integration of legacy systems and the development of new systems could result in disruptions to our ongoing businesses and relationships or cause issues with standards, controls, procedures and policies that adversely affect our ability to maintain relationships with customers, or to solicit new customers.

Further, changes in applicable laws, regulations or rules could adversely impact our relationship with any such client or opportunities to interact with order flows from such clients.

The loss, or a significant reduction, of demand for our services from any of these clients could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Similarly, changes in applicable laws, regulations or rules promulgated by exchanges could conceivably prevent us from providing liquidity to an exchange or other trading venue where we provide liquidity today.

Though our revenues are diversified across exchanges and other trading venues, asset classes and geographies, the loss of access to one or more significant exchanges and other trading venues for any reason could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to liquidity risk in our operations.

We require liquidity to fund various ongoing obligations, including operating expenses, capital expenditures, debt service and dividend payments.

Our main sources of liquidity are cash flow from the operations of our subsidiaries, our broker‑dealer revolving credit facility (described under “Item 7.

We require liquidity to fund various ongoing obligations, including operating expenses, margin requirements, capital expenditures, debt service and dividend payments.

Our main sources of liquidity are cash flow from the operations of our subsidiaries, our broker‑dealer revolving credit facilities (described under “Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Long-Term Borrowings”), margin financing provided by our prime brokers and cash on hand.

Our liquidity could be materially impaired by a number of factors, including reduced business activity due to a market downturn, adverse regulatory action or a downgrade of our credit rating.

Our liquidity could be materially impaired by a number of factors, including increased funding requirements for margin or settlement with central clearinghouses, prime brokers or counterparties, reduced business activity due to a market downturn, adverse regulatory action or a downgrade of our credit rating.

If our business activities decrease or we are unable to borrow additional funds in the future on terms that are acceptable to us, or at all, we could suffer a material adverse effect on our business, financial condition, results of operations and cash flows.

Self‑clearing and other elements of our trade processing operations expose us to significant operational, financial and liquidity risks.

We currently self‑clear substantially all of our domestic equity trades and may expand our self‑clearing operations internationally and across product offerings and asset classes in the future.

We currently self‑clear a substantial portion of our domestic equity trades and may expand our self‑clearing operations internationally and across product offerings and asset classes in the future.

Self‑clearing exposes our business to operational risks, including business disruption, operational inefficiencies, liquidity, financing risks, counterparty performance risk and potentially increased expenses and lost revenue opportunities.

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Any such delay, disruption or failure could negatively impact our ability to effect transactions and manage our exposure to risk and could have a material adverse effect on our business, financial condition, results of operations cash flows.

We have a substantial amount of indebtedness, which could negatively impact our business and financial condition, and our debt agreements contain restrictions that will limit our flexibility in operating our business.

We are a highly leveraged company.

In connection with our operation of our client execution services business, we are required to finance certain of our clients’ unsettled positions from time to time and we could be held responsible for the defaults of our clients.

Default by our clients may also give rise to our incurring penalties imposed by execution venues, regulatory authorities and clearing and settlement organizations.

Although we regularly review our credit exposure, default risk may arise from events or

circumstances that may be difficult to detect or foresee.

In addition, concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions that could in turn adversely affect us.

Additionally, elevated levels of volume and volatility, which have and may continue to result in material increases in our trading activities both in our market making segment and in our execution services segment, have previously and may in the future result in significantly increased margin requirements with the National Securities Clearing Corporation (“NSCC”), the Options Clearing Corporation (“OCC”), as well as certain prime brokers, clearing brokers, and other counterparties.

In order to manage these increased daily funding obligations, we have taken and may continue to have to take measures to increase available short-term liquidity and to reduce our short term funding requirements, which may require us to depend on additional sources of liquidity and upon the availability of third parties for services such as trade clearing, and have required and may continue to require us to limit certain of our activities in certain asset classes or products.

If such sources of short-term liquidity or third-party services are not available, or if we encounter challenges obtaining such short-term liquidity or third-party services on terms favorable to us or at all, then our business, financial condition and results of operations may be adversely impacted.

We have a substantial amount of indebtedness, which could negatively impact our business and financial condition, and may limit our flexibility in operating our business.

As of December 31, 2020, we had an aggregate of $1,670.4 million outstanding indebtedness under our long-term borrowings.

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We do not know whether we will be able to take any of such actions on a timely basis, on terms satisfactory to us or at all.

Additionally, we are party to an uncommitted facility (the “Uncommitted Facility”), subject to a maximum borrowing limit of $200 million, which was subsequently increased to $300 million in January 2020, under which we had $30.0 million of borrowings outstanding as of December 31, 2019 .

Additionally, we are party to an uncommitted facility (the “Uncommitted Facility”), subject to a maximum borrowing limit of $400.0 million, under which we had $36.4 million of borrowings outstanding as of December 31, 2020.

We are also a party to a $600.0 million broker-dealer revolving credit facility (the “Committed Facility”) under which we had no borrowings outstanding as of December 31, 2020.

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We may be unable to remain in compliance with covenants contained in the Credit Agreement, and our obligation to comply with these covenants may adversely affect our ability to operate our business.

A failure to comply with the covenants under the Credit Agreement or any of our other future indebtedness could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

A failure to comply with the covenants under the Credit Agreement or any of our other future indebtedness could result in an event of default, which, if not cured or

waived, could have a material adverse effect on our business, financial condition, results of operations and cash flows.

If any such event of default has occurred and is continuing, the lenders under our Credit Agreement, among other things:

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Rising interest rates could also limit our ability to refinance existing debt when it matures or cause us to pay higher interest rates upon refinancing.

Regulatory and legal uncertainties could harm our business.

Securities and derivatives businesses are heavily regulated.

Firms in the financial services industry have been subject to an increasingly regulated environment over recent years, and penalties and fines sought by regulatory authorities have increased considerably.

In addition, following recent news media attention to electronic trading and market structure, the regulatory and enforcement environment has created uncertainty with respect to various types of transactions that historically had been entered into by financial services firms and that were generally believed to be permissible and appropriate.

“High frequency” and other forms of low latency or electronic trading strategies continue to be the focus of extensive regulatory scrutiny by federal, state and foreign regulators and SROs, and such scrutiny is likely to continue.

In addition, certain market participants, SROs, government officials and regulators have requested that the U.S.

Congress, the SEC, and the CFTC propose and adopt additional laws and rules, including rules relating to additional registration requirements, restrictions on co‑location, order‑to‑execution ratios, minimum quote life for orders, incremental messaging fees to be imposed by exchanges for “excessive” order placements and/or cancellations, further transaction taxes,

tick sizes, changes to maker/taker rebates programs, and other market structure proposals.

For example, the SEC's Rule 613 in respect of consolidated audit trail imposes new reporting requirements and additional costs on U.S.

broker-dealers.

In December 2018, the SEC approved a Transaction Fee Pilot for NMS Securities which will create three groups of securities that will be subject to restrictions on access fees and rebates.

Finally, the SEC has proposed amendments to regulations that would require our registered broker‑dealer that is not currently a FINRA member to become a member of FINRA, which, if adopted as proposed, would subject the broker‑dealer to FINRA’s rules and require payment of additional fees per trade that could adversely affect our profits given that we seek to make small profits on individual trades.

Additionally, the CFTC has proposed the adoption of Regulation Automated Trading, which would, among other requirements, require registration by direct market participants, mandate the use of certain types of risk controls, and require the maintenance of a source code repository in accordance with certain specifications.

Any or all of these proposals or additional proposals may be adopted by the SEC, CFTC or other U.S.

or foreign legislative or regulatory bodies, and news media attention to electronic trading and market structure could increase the likelihood of adoption.

These potential market structure and regulatory changes could cause a change in the manner in which we make markets, impose additional costs and expenses on our business or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, the financial services industry is heavily regulated in many foreign countries.

The varying compliance requirements of these different regulatory jurisdictions and other factors may limit our ability to conduct business or expand internationally.

For example, MiFID, which was implemented in November 2007, has been replaced by MiFID II/Markets in Financial Investments Regulation (“MiFIR”), which was adopted by the European Parliament on April 15, 2014 and by the Council on May 13, 2014, entered into force on July 2, 2014, and became effective on January 3, 2018.

MiFID II requires certain types of firms, including Virtu Financial Ireland Limited, to post firm quotes at competitive prices and supplements previous requirements with regard to investment firms’ risk controls related to the safe operation of electronic systems.

MiFID II also imposes additional requirements on market structure, such as the introduction of a harmonized tick size regime, the introduction of new trading venues known as Organized Trading Facilities, and the promulgation of a new bilateral trading arrangement called the Systematic Internaliser regime, new open access provisions, market making requirements and various other pre‑ and post‑trade risk management requirements.

The MiFID II regime is currently under review, with European Union authorities considering making further changes to the regime.

Various consultation papers have been published on different aspects of the MiFID II regime, including, on February 4, 2020, an ESMA Consultation Paper entitled “MiFID II/MiFIR Review Report on the Transparency Regime for Equity and Equity-like Instruments, the Double Volume Cap Mechanism and the Trading Obligations for Shares” and, on February 17, 2020, a European Commission public consultation on the review of the MiFIDII/MiFIR regulatory framework.

Each of these and other proposals may impose technological and compliance costs on us.

Any of these laws, rules or regulations, as well as changes in legislation or regulation and changes in market customs and practices could have a material adverse effect on our business, financial condition, results of operations and cash flows.

These risks may be enhanced by recent scrutiny of electronic trading and market structure from regulators, lawmakers and the financial news media.

In addition, we maintain borrowing facilities with banks, prime brokers and Futures Commission Merchants (“FCMs”), and we obtain uncommitted margin financing from our prime brokers and FCMs, which are in many cases affiliated with banks.

In response to the financial crisis, the Basel Committee on Banking Supervision issued a new, more stringent capital and liquidity framework known as Basel III, which national banking regulators have been implementing in the various jurisdictions in which our lenders may be incorporated.

As these rules are implemented and impose more stringent capital and liquidity requirements, certain of our lenders may revise the terms of our borrowing facilities or margin financing arrangements, reduce the amount of financing they provide, or cease providing us financing, each of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Non‑compliance with applicable laws or regulatory requirements could negatively impact our reputation, prospects, revenues and earnings.

Our subsidiaries are subject to regulations in the U.S., and our foreign subsidiaries are subject to regulations abroad, in each case covering all aspects of their business.

Regulatory bodies that exercise or may exercise authority over us include, without limitation, in the U.S., the SEC, FINRA, the Chicago Stock Exchange, the Chicago Mercantile Exchange, the Intercontinental Exchange, the CFTC, the NFA Exchanges and the various state securities regulators;

in the European Union, the European Securities and Markets Authority (“ESMA”);

in Ireland, the Central Bank of Ireland;

in Switzerland, the Swiss Financial Market Supervisory Authority;

in France, the Autorité des Marchés Financiers (“AMF”);

in the United Kingdom, the FCA;

in Hong Kong, the SFC;

in Australia, the Australian Securities and Investment Commission;

in Canada, the Investment Industry Regulatory Organization of Canada and various Canadian provincial securities commissions;

in Singapore, the Monetary Authority of Singapore and the Singapore Exchange;

and in Japan, the Financial Services Agency and the Japan

Securities Dealers Association.

Our mode of operation and profitability may be directly affected by additional legislation and changes in rules promulgated by various domestic and foreign government agencies and SROs that oversee our businesses, as well as by changes in the interpretation or enforcement of existing laws and rules, including the potential imposition of additional capital and margin requirements and/or transaction taxes.

While we endeavor to deliver required annual filings in all jurisdictions in a timely manner, we cannot guarantee that we will meet every applicable filing deadline globally.

Noncompliance with applicable laws or regulations could result in sanctions being levied against us, including fines, penalties, judgments, disgorgement, restitution and censures, suspension or expulsion from a certain jurisdiction, SRO or market or the revocation or limitation of licenses.

Noncompliance with applicable laws or regulations could also negatively impact our reputation, prospects, revenues and earnings.

In addition, changes in current laws or regulations or in governmental policies could negatively impact our operations, revenues and earnings.

Domestic and foreign stock exchanges, other SROs and state and foreign securities commissions can censure, fine, impose undertakings, issue cease‑and‑desist orders and suspend or expel a broker‑dealer or other market participant or any of its officers or employees.

Our ability to comply with all applicable laws and rules is largely dependent on our internal systems to ensure compliance, as well as our ability to attract and retain qualified compliance personnel.

We could be subject to disciplinary or other actions in the future due to claimed noncompliance, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We have been, are currently, and may in the future be, the subject of one or more regulatory or SRO enforcement actions, including but not limited to targeted and routine regulatory inquiries and investigations involving Regulation NMS, Regulation SHO, Regulation SCI, market access rules, capital requirements and other domestic and foreign securities rules and regulations.

We and other broker-dealers and trading firms have also been the subject of requests for information and documents from the SEC and other regulators.

We have cooperated and complied with these requests for information and documents.

Our business or reputation could be negatively impacted if it were determined that disciplinary or other enforcement actions were required.

For example, in December 2015, the enforcement committee of the AMF fined our European subsidiary in the amount of €5.0 million (approximately $5.4 million) based on its conclusion that the subsidiary engaged in price manipulation and violations of the AMF General Regulation and Euronext Market Rules.

In 2017, the fine was reduced to €3.3 million (approximately $3.9 million) and in 2018 was reduced to €3.0 million (approximately $3.4 million).

The relevant trading activities were conducted on or around 2009, prior to our acquisition of that subsidiary from Madison Tyler Holdings, which acquisition was consummated in 2011.

To continue to operate and to expand our services internationally, we will have to comply with the regulatory controls of each country in which we conduct or intend to conduct business, the requirements of which may not be clearly defined.

The varying compliance requirements of these different regulatory jurisdictions, which are often unclear, may limit our ability to continue existing international operations and further expand internationally.

Failure to comply with applicable regulatory capital requirements could subject us to sanctions imposed by the SEC, FINRA and other SROs or regulatory bodies.

Certain of our subsidiaries are subject to regulatory capital rules of the SEC, FINRA, other SROs and foreign regulators.

These rules, which specify minimum capital requirements for our regulated subsidiaries, are designed to measure the general financial integrity and liquidity of a broker‑dealer and require that at least a minimum part of its assets be kept in relatively liquid form.

In general, net capital is defined as net worth (assets minus liabilities), plus qualifying subordinated borrowings, less certain mandatory deductions that result from, among other things, excluding assets that are not readily convertible into cash and from valuing conservatively certain other assets.

Among these deductions are adjustments, commonly called haircuts, which reflect the possibility of a decline in the market value of an asset before disposition, and non‑allowable assets.

Failure to maintain the required minimum capital may subject our regulated subsidiaries to a fine, requirement to cease conducting business, suspension, revocation of registration or expulsion by the applicable regulatory authorities, reputational harm and ultimately could require the relevant entity’s liquidation.

Events relating to capital adequacy could give rise to regulatory actions that could limit business expansion or require business reduction.

SEC and SRO net capital rules prohibit payments of dividends, redemptions of stock, prepayments of subordinated indebtedness and the making of any unsecured advances or loans to a stockholder, employee or affiliate, in certain circumstances, including if such payment would reduce the firm’s net capital below required levels.

Similar issues and risks arise in connection with the capital adequacy requirements of foreign regulators.

A change in the net capital rules, the imposition of new rules or any unusually large charges against net capital could limit our operations that require the intensive use of capital and also could restrict our ability to withdraw capital from our broker‑dealer subsidiaries.

A significant operating loss or any unusually large charge against net capital could negatively impact our ability to expand or even maintain our present levels of business.

Similar issues and risks arise in connection with

the capital adequacy requirements of foreign regulators.

Any of these results could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to risks relating to litigation and potential securities law liability.

We are exposed to substantial risks of liability under federal and state securities laws and other federal and state laws and court decisions, as well as rules and regulations promulgated by the SEC, the CFTC, state securities regulators, SROs and foreign regulatory agencies.

These risks may be enhanced by recent scrutiny of electronic trading and market structure from regulators, lawmakers and the financial news media.

We are also subject to the risk of litigation and claims that may be without merit.

At present and from time to time, we, our past and present officers, directors and employees are and may be named in legal actions, regulatory investigations and proceedings, arbitrations and administrative claims and may be subject to claims alleging the violations of laws, rules and regulations, some of which may ultimately result in the payment of fines, awards, judgments and settlements.

We could incur significant legal expenses in defending ourselves against and resolving lawsuits or claims even if we believe them to be meritless.

An adverse resolution of any current or future lawsuits or claims against us could result in a negative perception of our Company and cause the market price of our common stock to decline or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

Proposed legislation in the European Union, the U.S.

and other jurisdictions that would impose taxes on certain financial transactions could have a material adverse effect on our business and financial results.

On September 28, 2011, the former president of the European Commission officially presented a plan to create a new financial transactions tax which in February 2013 was formally presented for consideration by the European Commission under an enhanced cooperation procedure among 11 European Union Member States (Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia) for the purposes of a financial transaction tax among those Member States (the “EU Financial Transaction Tax”).

The EU Financial Transaction Tax was initially intended to be implemented within those 11 European Union Member States in January 2014.

In 2016, Estonia, one of the original members, withdrew its support for the proposal.

As of December 31, 2019 such tax has not yet been implemented within the European Union although draft legislative proposals are currently under consideration.

Similarly, in 2013, U.S.

Representative Peter DeFazio and former Senator Thomas Harkin introduced proposed legislation, a bill entitled the “Wall Street Trading and Speculators Tax Act,” which would have, subject to certain exceptions, imposed an excise tax on the purchase of a security, including equities, bonds, debentures, other debt and interests in derivative financial instruments, if the purchase occurred or was cleared on a trading facility in the U.S.

and the purchaser or seller is a U.S.

More recently, in late 2018 and 2019 U.S.

legislators, including U.S.

Senators Kirsten Gillibrand and Brian Schatz, as well as potential Democratic candidates for the 2020 U.S.

Presidential election, have announced proposals or plans that include a financial transaction fee.

These proposed transaction taxes would apply to certain aspects of our business and transactions in which we are involved.

Any such tax would increase our cost of doing business to the extent that (i) the tax is regularly applicable to transactions in the markets in which we operate, (ii) the tax does not include exceptions for market makers or market making activities that is broad enough to cover our activities or (iii) we are unable to widen our bid/ask spreads in the markets in which such a tax would be applicable to compensate for its imposition.

Furthermore, the proposed taxes may reduce or negatively impact trading volume and transactions on which we are dependent for revenues.

While it is difficult to assess the impact the proposed taxes could have on us, if either transaction tax is implemented or any similar tax is implemented in any other jurisdiction in which we operate, our business, financial condition, results of operations and cash flows could suffer a material adverse effect, and could be impacted to a greater degree than other market participants.

We depend on our technology, and our future results may be negatively impacted if we cannot remain technologically competitive.

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The widespread adoption of new internet, networking or telecommunications technologies or other technological changes could require us to incur substantial expenditures to modify or adapt our services or infrastructure.

We may not be able to anticipate or respond adequately or in a cost‑efficient and competitive manner to technological advancements (including advancements related to low‑latency technologies, execution

and messaging speeds) or changing industry standards.

If any of these risks materialize, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

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While we have not suffered a material breach of our cybersecurity, any actual or perceived breach of our cybersecurity could damage our reputation, expose us to a risk of loss or litigation and possible liability, require us to expend significant capital and other resources to alleviate problems caused by such breaches and otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

A failure in our computer systems and software, operations, capacity constraints, malfunctions and delays, as well as human error or malfeasance, could harm our business.

Our business may be harmed by computer and communication systems malfunctions, failures and delays.

Our business activities are heavily dependent on the integrity and performance of the computer and communications systems supporting them.

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Third parties may initiate litigation against us without warning, or may send us letters or other communications that make allegations without initiating litigation.

We may elect not to respond to these letters or other communications if we believe they are without merit, or we may attempt to resolve these disputes out of court by negotiating a license, but in either case it is possible that such disputes will ultimately result in litigation.

We may elect not to respond to these letters or other communications if we believe they are without merit, or we may attempt to resolve these disputes out of court by

negotiating a license, but in either case it is possible that such disputes will ultimately result in litigation.

Any such claims could interfere with our ability to use technology or intellectual property that is material to the operation of our business.

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Any of the foregoing could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are exposed to risks associated with our international operations and expansion and failure to comply with laws and regulations applicable to our international operations may increase costs, reduce profits, limit growth or subject us to broader liability.

We are exposed to risks and uncertainties inherent in doing business in international markets, particularly in the heavily regulated broker‑dealer industry.

Such risks and uncertainties include political, economic and financial instability, unexpected changes in regulatory requirements, tariffs and other trade barriers, exchange rate fluctuations, applicable currency controls, the imposition of restrictions on currency conversion or the transfer of funds, limitations on our ability to repatriate non‑U.S.

earnings in a tax efficient manner and difficulties in staffing and managing foreign operations, including reliance on local experts.

Such restrictions generally include those by imposed by the Foreign Corrupt Practices Act (the “FCPA”) and trade sanctions administered by the Office of Foreign Assets Control (“OFAC”).

The FCPA is intended to prohibit bribery of foreign officials and requires companies whose securities are listed in the U.S.

to keep books and records that accurately and fairly reflect those companies’ transactions and to devise and maintain an adequate system of internal accounting controls.

OFAC administers and enforces economic and trade sanctions based on U.S.

foreign policy and national security goals against designated foreign states, organizations and individuals.

Though we have policies in place designed to comply with applicable OFAC sanctions, rules and regulations as well as the FCPA and equivalent laws and rules of other jurisdictions, if we fail to comply with these laws and regulations, we could be exposed to claims for damages, financial penalties, reputational harm, incarceration of employees and restrictions on our operations and cash flows.

In addition, the varying compliance requirements of these different regulatory jurisdictions and other factors may limit our ability to successfully conduct or expand our business internationally and may increase our costs of investment.

Expansion into international locations involves substantial operational and execution risk.

We may not be able to manage these costs or risks effectively.

The results of the United Kingdom’s referendum on withdrawal from the European Union may negatively impact the global economy, financial markets and our business.

In June 2016, UK voters approved a referendum to withdraw the UK's membership from the EU, which is commonly referred to as “Brexit”.

In March 2017, the UK government initiated the exit process under Article 50 of the Treaty of the European Union, commencing a period of up to two years for the UK and the other EU member states to negotiate the terms of the withdrawal, such period ending on March 29, 2019 unless extended.

Following extensions to that period, a Withdrawal Agreement and Political Declaration were reached between the U.K.

On January 23, 2020, the European Union (Withdrawal Agreement) Act 2020 received Royal Assent in the U.K., and on January 31, 2020 the U.K.

left the E.U.

Pursuant to the terms of the Withdrawal Agreement.

are in a transition period which is currently set to end as of December 31, 2020.

During the transition period, the current rules on trade, travel, and business for the U.K.

continue to apply, with new U.K.

regimes set to take effect on January 1, 2021.

We presently access the E.U.

markets primarily through our Irish regulated subsidiaries and have a U.K.

subsidiary, which is an authorized and regulated investment firm with permission to operate a U.K.

MTF, and we therefore do not expect any impact on our access to E.U.

markets as a result of Brexit.

However, it is not possible at this point in time to predict fully the effects of the end of the U.K.’s transition period with the E.U., including with respect to volatility in exchange rates and interest rates and potential material changes to the regulatory regime applicable to our activities in the U.K.

or the potential impact of interacting with U.K.-based market participants.

Poor future relations between the U.K.

could adversely affect European or worldwide political, fiscal, regulatory, economic or market conditions and could contribute to instability in global political institutions, regulatory agencies and financial markets.

For example, depending on the terms of the future relationship between the E.U.

and the U.K., the U.K.

could also lose access to the single E.U.

market and to the global trade deals negotiated by the E.U.

on behalf of its members.

Disruptions and uncertainty caused by these events may also cause our clients to closely monitor their costs and reduce their spending budget on our services.

Any of these effects of the U.K.’s departure from the E.U., and others we cannot anticipate or that may evolve over time, could adversely affect our business, results of operations and financial condition.

Fluctuations in currency exchange rates could negatively impact our earnings.

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As a part of our business strategy, we may make acquisitions or significant investments in and/or disposals of businesses.

Any such future acquisitions, investments and/or dispositions would be accompanied by risks such as assessment of values for acquired businesses, intangible assets and technologies, difficulties in assimilating the operations and personnel of acquired companies or businesses, diversion of our management’s attention from ongoing business concerns, our potential inability to maximize our financial and strategic position through the successful incorporation or disposition of operations, maintenance of uniform standards, controls, procedures and policies and the impairment of existing relationships with

employees, contractors, suppliers and customers as a result of the integration of new management personnel and cost‑saving initiatives.

We cannot guarantee that we will be able to successfully integrate any company or business that we might acquire in the future, and our failure to do so could harm our current business.

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While we would seek protection, for example, through warranties and indemnities in the case of acquisitions, significant liabilities may not be identified in due diligence or come to light after the expiration of warranty or indemnity periods.

Additionally, while we would seek to limit our ongoing exposure, for example, through liability caps and period limits on warranties and indemnities in the case of disposals, some warranties and indemnities may give rise to unexpected and significant liabilities.

Additionally, while we would seek to limit our ongoing exposure, for example, through liability caps and

period limits on warranties and indemnities in the case of disposals, some warranties and indemnities may give rise to unexpected and significant liabilities.

If we fail to realize any such anticipated benefits, or if we experience any such unanticipated or unidentified effects in connection with any future acquisitions, investments or dispositions, we could suffer a material adverse effect on our business, financial condition, results of operations and cash flows.

Finally, strategic investments may involve additional risks associated with holding a minority or non-controlling position in an illiquid business or asset.

Our future efforts to sell shares of our common stock or raise additional capital may be delayed or prohibited by regulations.

Our future efforts to sell shares of our common stock or raise additional capital may be inhibited by regulations.

As certain of our subsidiaries are members of FINRA and other SROs, we are subject to certain regulations regarding changes in ownership or control and material changes in operations.

For example, FINRA’s NASD Rule 1017 generally provides that FINRA approval must be obtained in connection with certain change of ownership or control transactions, such as a transaction that results in a single entity or person owning 25% or more our equity.

Similarly, Virtu Financial Ireland Limited,Virtu ITG Europe Limited and Virtu ITG UK Limited, our regulated subsidiaries in the Ireland and the U.K., are subject to change in control regulations promulgated by the Central Bank of Ireland and/or the FCA, and other registered or regulated foreign subsidiaries may be subject to similar regulations in applicable jurisdictions.

For example, FINRA Rule 1017 generally provides that FINRA approval must be obtained in connection with certain change of ownership or control transactions, such as a transaction that results in a single entity or person owning 25% or more our equity.

Similarly, VFIL, VIEL and VIUK, our regulated subsidiaries in Ireland and the U.K., are subject to change in control regulations promulgated by the CBI and/or the FCA, and other registered or regulated foreign subsidiaries may be subject to similar regulations in applicable jurisdictions.

As a result of these regulations, our future efforts to sell shares of our common stock or raise additional capital may be delayed or prohibited.

We may be subject to similar restrictions in other jurisdictions in which we operate.

We are dependent on the continued service of certain key executives, the loss or diminished performance of whom could have a material adverse effect on our business.

Our performance is substantially dependent on the performance of our senior management, including Douglas Cifu, our Chief Executive Officer and Alexander Ioffe, our Chief Financial Officer.

We are dependent on the continued service of certain key executives, the loss or diminished performance of whom could have a material adverse effect on our business, and our success depends in part on our ability to identify, recruit and retain skilled management and technical personnel.

Our performance is substantially dependent on the performance of our senior management, including Douglas Cifu, our Chief Executive Officer, Joseph Molluso, our Co-President and Co-Chief Operating Officer, Brett Fairclough, our Co-President and Co-Chief Operating Officer and Sean Galvin, our Chief Financial Officer.

In connection with and subsequent to the IPO, we have entered into employment and other related agreements with certain members of our senior management team that restrict their ability to compete with us should they decide to leave our Company.

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We cannot guarantee that these or other permitted outside activities will not impact his performance as Chief Executive Officer.

Our success depends, in part, on our ability to identify, recruit and retain skilled management and technical personnel.

If we fail to recruit and retain suitable candidates or if our relationship with our employees changes or deteriorates, it could have a material adverse effect on our business.

Our future success depends, in part, upon our continued ability to identify, attract, hire and retain highly qualified personnel, including skilled technical, management, product and technology, trading, sales and marketing personnel, all of whom are in high demand and are often subject to competing offers.

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A loss of qualified employees, or an inability to attract, retain and motivate additional highly skilled employees in the future, could have a material adverse effect on our business.

We could lose significant sources of revenues if we were to lose access to an important exchange or other trading venue.

Changes in applicable laws, regulations or rules promulgated by exchanges could conceivably prevent us from providing liquidity to an exchange or other trading venue where we provide liquidity today.

In connection with the Acquisition of KCG, we have assumed potential liabilities relating to KCG’s business.

In connection with the Acquisition of KCG, we have assumed potential regulatory, litigation and other liabilities relating to KCG’s business.

For example, KCG is currently the subject of various regulatory reviews and investigations by federal, state and foreign regulators and SROs, including the SEC, FINRA and the FCA.

In some instances, these matters may rise to a disciplinary action and/or a civil or administrative action, penalties, fines, judgments, censures and settlements.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of another pandemic, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as the Ebola or Zika viruses, COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses.

Risks Related to our Historical Acquisitions

Significant costs and significant indebtedness were incurred in connection with the consummation of our historical acquisitions and significant costs have been and will be incurred in connection with the integration of KCG and ITG into our business, including legal, accounting, financial advisory and other costs.

We expect to incur and have incurred significant costs in connection with integrating the operations, products and personnel of KCG and ITG into our business, in addition to costs related directly to completing the Acquisition of KCG and ITG Acquisition.

These costs may include:

• employee retention, redeployment, relocation or severance;

• integration of information systems;

• combination of corporate and administrative functions;

• potential or pending litigation or other proceedings related to the Acquisition of KCG and the ITG Acquisition.

The costs related to our historical acquisitions could be higher than currently estimated, depending on how difficult it will be to integrate our business with that of KCG and ITG, and the expected cost reductions and synergies may not be achieved.

In addition, we may incur additional of non-recurring costs associated with combining the operations of KCG and ITG with ours, which cannot be estimated accurately at this time.

While we have incurred a significant amount of transaction fees and other costs related to the consummation of our historical acquisitions, additional unanticipated costs may be incurred.

Any expected elimination of duplicative costs, as well as the expected realization of other cost reductions, efficiencies and synergies related to the integration of our operations with those of KCG and ITG, that may offset incremental transaction and transaction-related costs over time, may not be achieved as projected, or at all.

Integrating KCG's and ITG’s business into our business may divert management’s attention away from operations, and we may also encounter significant difficulties in integrating these businesses.

The Acquisition of KCG and the ITG Acquisition involves the integration of multiple companies that have previously operated independently.

The success of these acquisitions and their anticipated financial and operational benefits, including increased revenues, synergies and cost reductions, will depend in part on our ability to successfully combine and integrate KCG and ITG’s businesses into ours, and there can be no assurance regarding when or the extent to which we will be able to realize these increased revenues, synergies, cost reductions or other benefits.

These benefits may not be achieved within the anticipated time frame, or at all.

Successful integration of KCG and ITG’s operations, products and personnel may place a significant burden on management and other internal resources.

The diversion of management’s attention, and any difficulties encountered in the transition and integration process, could harm our business, prospects, results of operations, financial condition and/or cash flows.

In addition, the overall integration of the businesses may result in material unanticipated problems, expenses, liabilities, and competitive responses.

The difficulties of combining the operations of the companies include, among others:

• difficulties in achieving anticipated cost reductions, synergies, business opportunities and growth prospects from the combination;

• difficulties in the integration of operations and systems;

• difficulties in conforming standards, controls, procedures and accounting and other policies and compensation structures between the two companies;

• difficulties in the assimilation of employees and the integration of the companies’ different organizational structure;

• difficulties in managing the expanded operations of a larger and more complex company with increased international operations;

• challenges in integrating the business culture of each company;

• challenges in attracting and retaining key personnel;

• difficulties in replacing numerous systems, including those involving management information, purchasing, accounting and finance, sales, billing, employee benefits, payroll, data privacy and security and regulatory compliance, many of which may be dissimilar.

These factors could result in increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially impact our business, prospects, results of operations, financial condition and/or cash flows.

We may not realize the anticipated synergies, cost reductions and growth opportunities from our historical acquisitions.

The benefits that we expect to achieve as a result of the Acquisition of KCG and ITG Acquisition will depend, in part, on the ability of the combined company to realize anticipated growth opportunities, net cost reductions and synergies.

Our success in realizing these growth opportunities, cost reductions and synergies, and the timing of this realization, depends on the successful integration of our historical business and operations and the historical business and operations of both KCG and ITG.

Even if we are able to integrate these businesses and operations successfully, the integration may not result in the realization of the full benefits of the growth opportunities, cost reductions and synergies that we currently expect from this integration within the anticipated time frame or at all.

For example, we may be unable to eliminate duplicative costs.

Moreover, we may incur substantial expenses in connection with the integration of our business and KCG's and ITG’s businesses.

While we anticipate that certain expenses will be incurred, such expenses are difficult to estimate accurately and may exceed current estimates.

Accordingly, the benefits from our historical acquisitions may be offset by costs or delays incurred in integrating the businesses.

The projected net cost reductions and synergies described in our press release and supplemental materials announcing each of the Acquisition of KCG and ITG Acquisition are based on a number of assumptions relating to our business, KCG's business and ITG’s business.

Those assumptions may be inaccurate, and, as a result, our projected cost reductions and synergies may be inaccurate, and our business, prospects, results of operations, financial condition and/or cash flows could be materially and adversely affected.

In connection with our historical acquisitions, the Company will be subject to business uncertainties and potential liabilities that could materially and adversely affect our business.

Uncertainty about the effect of the Acquisition of KCG and ITG Acquisition on employees, customers and suppliers may have both a material and adverse effect on both the Company and ITG.

These uncertainties may impair both the Company's ability to attract, retain and motivate key personnel for a period of time after the close of these acquisitions, and could cause customers, suppliers and others who deal with the Company to seek to change existing business relationships.

If key employees depart because of issues related to the uncertainty and difficulty of integration or a desire not to remain with us after these acquisitions, or if customers, suppliers or others seek to change their dealings with us as a result of these acquisitions, our business could be materially and adversely impacted.

In connection with the Acquisition of KCG and ITG Acquisition, we assumed potential liabilities, indemnification obligations, and other risks relating to KCG's and ITG’s business, including but not limited to those liabilities and risks arising from or related to pending, threatened or potential litigation or regulatory matters.

For example, legacy KCG and ITG entities are currently the subject of various regulatory reviews and investigations by federal, state and foreign regulators and SROs, including the SEC and FINRA.

In some instances, these matters may ultimately result in a disciplinary action and/or a civil or administrative action, penalties, fines, judgments, censures and settlements.

To the extent we have not identified such liabilities or miscalculated their potential financial impact, these liabilities could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as the Ebola or Zika viruses, the 2019 novel coronavirus (COVID-19), or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses.

Legal and Regulatory Risks

Regulatory and legal uncertainties could harm our business.

Securities and derivatives businesses are heavily regulated.

In addition, following recent news congressional, regulatory and news media attention to U.S.

equities market structure, the regulatory and enforcement environment has created uncertainty with respect to various types of transactions that historically had been entered into by financial services firms and that were generally believed to be permissible and appropriate.

The retail trading environment in the U.S., relationships between broker-dealers and market making firms, short selling and “high frequency” and other forms of low latency or electronic trading strategies continue to be the focus of extensive regulatory scrutiny by federal, state and foreign regulators and SROs, and such scrutiny is likely to continue.

Our market making and trading activities are characterized by substantial volumes, an emphasis on technology and certain other characteristics that are also commonly associated with high frequency trading and we engage in direct-to-client market making services across multiple asset classes primarily to sell-side clients including global, national and regional broker-dealers and banks and in the context of our market making and trading activities, we are party to various remuneration and rebate arrangements, including payment for order flow, profit-sharing relationships, and exchange fee and rebate structures.

In addition, certain market participants, SROs, government officials and regulators have requested that the U.S.

For example, the SEC's Rule 613 in

respect of consolidated audit trail imposes new reporting requirements and additional costs on U.S.

broker-dealers.

Regulators may propose other market structure changes, particularly considering the continued media, congressional and regulatory scrutiny of high frequency trading, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow, profit-sharing relationships, and exchange fee and rebate structures.

Any or all of these proposals or additional proposals may be adopted by the SEC, CFTC or other U.S.

or foreign legislative or regulatory bodies, and news media attention to electronic trading and market structure could increase the likelihood of adoption.

These potential market structure and regulatory changes could cause a change in the manner in which we make markets, lmit, restrict or otherwise adversely affect our ability to interact with certain order flow, impose additional costs and expenses on our business or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

In addition, the financial services industry is heavily regulated in many foreign countries.

The varying compliance requirements of these different regulatory jurisdictions and other factors may limit our ability to conduct business or expand internationally.

MiFID II requires certain types of firms, including VFIL, to post firm quotes at competitive prices and supplements previous requirements with regard to investment firms’ risk controls related to the safe operation of electronic systems.

The MiFID II regime is currently under review, with European Union authorities considering making further changes to the regime.

Various consultation papers have been published on different aspects of the MiFID II regime, including, on February 4, 2020, an ESMA Consultation Paper entitled “MiFID II/MiFIR Review Report on the Transparency Regime for Equity and Equity-like Instruments, the Double Volume Cap Mechanism and the Trading Obligations for Shares”, on February 17, 2020, a European Commission public consultation on the review of the MiFIDII/MiFIR regulatory framework and on December 18, 2020 an ESMA Consultation Paper entitled “MiFID II/MiFIR review report on Algorithmic Trading”.

Each of these and other proposals may impose technological and compliance costs on us.

These risks may be enhanced by recent scrutiny of electronic trading and market structure from regulators, lawmakers and the financial news media.

In response to the 2008 financial crisis, the Basel Committee on Banking Supervision issued a new, more stringent capital and liquidity framework known as Basel III, which national banking regulators have been implementing in the various jurisdictions in which our lenders may be incorporated.

In the E.U., on December 25, 2019, a Regulation on the prudential requirements for Investment Firms (“IFR”) and a Directive on the prudential supervision of investments firms (“IFD”) entered into force.

The IFR and IFD introduce new prudential requirements for investment firms, classifying them into different categories depending on the firm’s asset size and types of activity.

The main provisions of the IFR and IFD are due to apply from the end of June 2021.

As these rules are implemented and in certain cases impose more stringent capital and liquidity requirements, certain of our lenders may revise the terms of our borrowing facilities or margin financing arrangements, reduce the amount of financing they provide, or cease providing us financing, each of which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Non‑compliance with applicable laws or regulatory requirements could subject us to sanctions and could negatively impact our reputation, prospects, revenues and earnings.

Our subsidiaries are subject to regulations in the U.S., and our foreign subsidiaries are subject to regulations abroad, in each case covering all aspects of their business.

Regulatory bodies that exercise or may exercise authority over us include, without limitation, in the U.S., the SEC, FINRA, the Chicago Mercantile Exchange, the Intercontinental Exchange, the CFTC, the NFA Exchanges and the various state securities regulators;

in the European Union, the European Securities and Markets Authority (“ESMA”);

in Ireland, the CBI;

in Switzerland, the Swiss Financial Market Supervisory Authority;

in France, the Autorité des Marchés Financiers (“AMF”);

in the United Kingdom, the FCA;

in Hong Kong, the SFC;

in Australia, the ASIC;

in Canada, the IIROC and various Canadian provincial securities commissions;

in Singapore, the MAS and the Singapore Exchange;

and in Japan, the Financial Services Agency and the Japan Securities Dealers Association.

Our mode of operation and profitability may be directly affected by additional legislation and changes in rules promulgated by various domestic and

foreign government agencies and SROs that oversee our businesses, as well as by changes in the interpretation or enforcement of existing laws and rules, including the potential imposition of additional capital and margin requirements and/or transaction taxes.