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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-28 · 249 added, 266 removed, 549 unchanged (48% of the section changed)

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Although we believe that the forward-looking statements contained in this Annual Report on Form 10-K are based on reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in this Annual Report on Form 10-K, could affect our actual financial results or results of operations and cash flows, and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

reduced levels of overall trading activity;

• the continuing impacts of COVID-19 and the governmental and other responses thereto, including but not limited to the risk of employees and executives contracting COVID-19 and the deployment of our business continuity plan pursuant to which a significant number of our employees currently work remotely and our return to office plan, each of which may increase operational risk, as well as increases in market, counterparty and other forms of operational risk;

• volatility in levels of overall trading activity;

• dependence upon trading counterparties and clearing houses performing their obligations to us;

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• dependence on continued access to sources of liquidity;

risks associated with self‑clearing and other operational elements of our business;

• risks associated with self-clearing and other operational elements of our business, including but limited to risks related to funding and liquidity;

• obligations to comply with applicable regulatory capital requirements;

• litigation or other legal and regulatory-based liabilities;

proposed legislation that would impose taxes on certain financial transactions in the European Union, the U.S.

and other jurisdictions;

• changes in laws, rules or regulations, including proposed legislation that would impose taxes on certain financial transactions in the European Union, the U.S.

(and certain states therein) and other jurisdictions and other potential changes which could increase our corporate or other tax obligations in one or more jurisdictions;

• obligations to comply with laws and regulations applicable to our operations in the U.S.

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• need to maintain and continue developing proprietary technologies;

the effect of the ITG Acquisition (as defined below) on existing business relationships, operating results, and ongoing business operations generally;

the significant costs and significant indebtedness that we have incurred in connection with the ITG Acquisition, and the integration of ITG (as defined below) into our business;

the risk that we may encounter significant difficulties or delays in integrating the ITG business with ours and that the anticipated benefits, cost savings and synergies or capital release may not be achieved;

the assumption of potential liabilities and risks relating to ITG's business;

• the effect of the Acquisition of KCG and ITG Acquisition (as defined below) on ongoing business operations generally, including our ability to achieve cost-saving synergies related to these historical acquisitions, and the assumption of potential liabilities and risks relating to these historical acquisitions, and the significant costs and significant indebtedness that we have incurred in connection therewith;

• capacity constraints, system failures, and delays;

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Our forward-looking statements made herein are made only as of the date of this Annual Report on Form 10-K.

We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any

such statements are based.

All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Annual Report on Form 10-K.

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Our consolidated financial statements for the years ended December 31, 2020 and 2019 reflect our operations and those of our consolidated subsidiaries.

As discussed in Note 1 “Organization and Basis of Presentation” and in Note 3 “ITG Acquisition” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K , we have 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 (as defined below), were recorded at their respective fair values and added to the carrying value of our existing assets and liabilities.

As discussed in Note 1 "Organization and Basis of Presentation" and in Note 3 "ITG Acquisition" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, we have 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 March 1, 2019 (the "ITG Closing Date"), were recorded at their respective fair values and added to the carrying value of our existing assets and liabilities.

Our reported financial condition, results of operations and cash flows for the periods following the ITG Closing Date reflect ITG's and our balances, and reflect the impact of purchase accounting adjustments, including revised amortization and depreciation expense for acquired assets.

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All periods prior to the ITG Closing Date comprise our results without the results of ITG.

Recent Developments

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets.

On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

The spread of COVID-19 has caused, among other matters, illness, death, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market volatility and instability.

The United States now has the world’s most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of infected individuals.

Similar impacts have been experienced in every country in which we do business.

The Company has been impacted in various ways by the COVID-19 outbreak, including experiencing elevated levels of trading volumes and market volatility in the markets in which we operate during certain periods, which contributed positively to our results, and increases in short term funding requirements with clearing houses and counterparties as a consequence of these elevated trading volumes and market volatility.

The Company also implemented its business continuity plan, including remote work arrangements for the majority of our employees during this pandemic.

We will continue to monitor the impact of COVID-19, but at the date of this report it is too early to determine the full impact this virus may have on the global financial markets and the overall economy, as well as our business.

Should this emerging macro-economic risk continue for an extended period, there could be an adverse material financial impact to the Company's businesses and investments, including a material reduction in the Company's results of operations.

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

We are a leading financial services firm that leverages cutting edge technology to deliver liquidity to the global markets and innovative, transparent trading solutions to our clients.

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We believe that market participants benefit from the increased liquidity, lower overall trading costs and execution transparency that Virtu provides.

Our execution services and client solutions products are transparent, because we believe transparency makes markets more efficient and helps investors make better, more informed decisions.

Our execution services and client solutions products are designed to be transparent, because we believe transparency makes markets more efficient and helps investors make better, more informed decisions.

We use the latest technology to create and deliver liquidity to global markets and innovative trading solutions and analytics tools to our clients.

We interact directly with hundreds of retail brokers, Registered Investment Advisors, private client networks, sell-side brokers, and buy-side institutions.

On July 20, 2017, the KCG Closing Date, the Company completed the all-cash Acquisition of KCG.

KCG was a leading independent securities firm offering clients a range of services designed to address trading needs across asset classes, product types and geographies.

As described below, we completed the ITG Acquisition on the ITG Closing Date.

ITG was a global financial technology company that offered a suite of trading and financial technology products to help leading brokers and asset managers improve returns for investors around the world.

ITG empowered traders and investors to reduce the end-to-end cost of implementing investments via liquidity, execution, analytics and workflow technology solutions.

We have two operating segments:

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Execution Services

We offer agency execution services and trading venues that provide transparent trading in global equities, ETFs, fixed income, currencies, and commodities to institutions, banks and broker-dealers.

We offer client execution services and trading venues that provide transparent trading in global equities, ETFs, fixed income, currencies, and commodities to institutions, banks and broker-dealers.

We generally earn commissions when transacting as an agent for our clients.

Agency-based, execution-only trading within this segment is done through a variety of access points including:

Client-based, execution-only trading within this segment is done through a variety of access points including:

(a) algorithmic trading and order routing;

(b) institutional sales traders who offer portfolio trading and single stock sales trading which provides execution expertise for program, block and riskless principal trades in global equities and ETFs;

and (c) matching of client conditional orders in POSIT Alert and in our ATSs, including Virtu MatchIt, POSIT and MATCHNow.

and (c) matching of client conditional orders in POSIT Alert and in our ATSs, including Virtu MatchIt and POSIT.

We also earn revenues (a) by providing our proprietary technology and infrastructure to select third parties for a service fee, (b) through workflow technology and our integrated, broker-neutral trading tools delivered across the globe, including order and execution management systems and order management software applications and network connectivity and (c) through trading analytics, including (1) tools enabling portfolio managers and traders to improve pre-trade, real-time and post-trade execution performance, (2) portfolio construction and optimization decisions and (3) securities valuation.

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

Acquisition of Investment Technology Group, Inc.

Acquisition of ITG

On March 1, 2019, the ITG Closing Date, we announced the completion of the ITG Acquisition, a cash transaction valued at $30.30 per ITG share, or a total of approximately $1.0 billion.

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) the First Lien Term Loan Facility (as defined below) in an aggregate principal amount of $1.5 billion, drawn in its entirety on the ITG Closing Date, with approximately $404.5 million borrowed by VFH to repay all amounts outstanding under its existing term loan facility and the remaining approximately $1,095.0 million borrowed by the Acquisition Borrower to finance the consideration and fees and expenses to be paid in connection with the ITG Acquisition, and (ii) the First Lien Revolving Facility, 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.

The Credit Agreement provided (i) the First Lien Term Loan Facility (as defined below) in an aggregate principal amount of $1.5 billion, drawn in its entirety on the ITG Closing Date, with approximately $404.5 million borrowed by VFH to repay all amounts outstanding under its existing term loan facility and the remaining approximately $1,095.0 million borrowed by the Acquisition Borrower to finance the consideration and fees and expenses to be paid in connection with the ITG Acquisition, and (ii) the First Lien Revolving Facility (as defined below), with a $5.0 million letter of credit subfacility and a $5.0 million swingline subfacility.

After the closing of the ITG Acquisition, VFH assumed the obligations of the Acquisition Borrower in respect of the acquisition term loans.

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The Indenture (as defined below) was fully terminated following such redemption.

The Credit Agreement was further amended on March 2, 2020 to, among other things, reduce the interest rate spread over LIBOR or the applicable benchmark by 0.50%.

Amended and Restated 2015 Management Incentive Plan

The Company’s Board of Directors and stockholders adopted the 2015 Management Incentive Plan, which became effective upon consummation of the Company's IPO and was subsequently amended and restated following receipt of approval from the Company’s stockholders on June 30, 2017 (the “Amended and Restated 2015 Management Incentive Plan”).

The Amended and Restated 2015 Management Incentive Plan provides for the grant of stock options, restricted stock units, and other awards based on an aggregate of 16,000,000 shares of Class A Common Stock, 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.

The Amended and Restated 2015 Management Incentive Plan provides for the grant of stock options, restricted stock units, and other awards based on an aggregate of 16,000,000 shares of Class A common stock, par value $0.00001 per share (the “Class A Common Stock”), subject to additional sublimits, including limits on the total option grant to any one participant in a single year and the total performance award to any one participant in a single year.

On April 23, 2020, the Company’s Board of Directors adopted an amendment to the Company’s Amended and Restated 2015 Management Incentive Plan in order to increase the number of shares of the Company’s Class A Common Stock reserved for issuance, and in respect of which awards may be granted under the Amended and Restated 2015 Plan from 16,000,000 shares of Class A Common Stock to an aggregate of 21,000,000 shares of Class A Common Stock and the amendment was approved by the Company’s shareholders at the Company's annual meeting of shareholders on June 5, 2020.

In connection with the IPO, non-qualified stock options to purchase 9,228,000 shares were granted at the IPO per share price, each of which vests in equal annual installments over a period of four years from the grant date and expires not later than 10 years from the grant date.

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The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the years ended December 31, 2020, 2019 and 2018:

(in thousands)

Years Ended December 31,

(in thousands) Years Ended December 31,

Market Making 2020 2019 2018

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Commissions, net and technology services 600,510 498,544 184,339

Other, net 83,454 (2,146) 340,189

Total revenue 3,239,331 1,517,492 1,878,718

Operating Expenses:

Brokerage, exchange and clearance fees, net

Brokerage, exchange, clearance fees and payments for order flow, net 758,843 386,888 376,424

Communication and data processing 213,750 209,393 176,120

Employee compensation and payroll taxes 393,536 383,713 215,556

Payments for order flow

Interest and dividends expense 125,649 158,039 141,814

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Termination of office leases 9,608 66,452 23,357

Debt issue cost related to debt refinancing and prepayment

Debt issue cost related to debt refinancing, prepayment and commitment fees 28,879 41,132 11,727

Transaction advisory fees and expenses 2,941 26,117 11,487

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The majority of our revenues are generated through market making activities, which are recorded as Trading income, net and Interest and dividends income.

Commissions and fees are derived from commissions charged for trade executions in agency execution services.

Commissions and fees are derived from commissions charged for trade executions in client execution services.

We earn commissions and commission equivalents, as well as, in certain cases, contingent fees based on client revenues, which represent variable consideration.

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Trading income, net represents revenue earned from bid/ask spreads.

Trading income is generated in the normal course of our market making activities and is typically proportional to the level of trading activity, or volumes, in the asset classes we serve and bid/ask spreads.

Trading income is generated in the normal course of our market making activities and is typically proportional to the level of trading activity, or volumes, and bid/ask spreads in the asset classes we serve.

Our trading income is highly diversified by asset class and geography and is comprised of small amounts earned on millions of trades on various exchanges, primarily in the following two categories:

Global Equities and Global FICC, Options and Other.

(i) Global Equities and (ii) Global FICC, Options and Other.

Our trading income, net, results from gains and losses associated with trading strategies, which are designed to capture small bid-ask spreads, while hedging risks.

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and the level of our soft dollar and commission recapture activity.

Agency commission fees are charged for agency trades executed by us on behalf of third party broker-dealers and other financial institutions.

Client commission fees are charged for client trades executed by us on behalf of third-party broker-dealers and other financial institutions.

Revenue is recognized on a trade date basis, which is the point at which the performance obligation to the customer is satisfied, based on the trade being executed.

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We record our pro-rata share of each JV’s earnings or losses within other, net, while fees related to the use of communication services provided by the JVs are recorded within communications and data processing.

As a result of the Acquisition of KCG and the ITG Acquisition and consequent streamlining of operations, we have subleased certain office space that is not needed for Virtu operations.

Sublease income is recorded on a straight-line basis over the life of the sublease.

In addition, we record gains or losses on certain one-time transactions, including the sale of our BondPoint business (“BondPoint”) to Intercontinental Exchange (“ICE”) in 2018, within Other, net (see Note 4 “Sale of BondPoint” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K ).

We have a minority investment (the “SBI Investment”) in SBI, a proprietary trading system based in Tokyo.

In connection with the investment, we issued bonds to certain affiliates of SBI and used the proceeds to partially finance the

We have a noncontrolling investment (the “JNX Investment”) in JNX, a proprietary trading system based in Tokyo.

In connection with the investment, we issued bonds to certain affiliates of JNX and used the proceeds to partially finance the transaction.

Revenues or losses are recognized due to the changes in fair value of the investment or fluctuations in Japanese Yen conversion rates within Other, net.

Other, net also includes gains on sales of businesses, revenues from service agreements related to the sale of MATCHNow, and the gain or loss on the ineffective portion of derivatives used as cash flow hedging instruments.

Operating Expenses

Brokerage, exchange and clearance fees, net.

Brokerage, exchange and clearance fees are our most significant expenses, which include the direct expenses of executing and clearing transactions that we consummate in the course of our market making activities.

Brokerage, exchange and clearance fees primarily consist of fees charged by third parties for executing, processing and settling trades.

Brokerage, exchange, clearance fees and payments for order flow, net.

Brokerage, exchange, clearance fees and payments for order flow are our most significant expenses, which include the direct expenses of executing and clearing transactions that we consummate in the course of our market making activities.

Brokerage, exchange, clearance fees and payments for order flow primarily consist of fees charged by third parties for executing, processing and settling trades.

These fees generally increase and decrease in direct correlation with the level of our trading activity.

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Clearance fees are paid to clearing houses and clearing agents.

Rebates based on volume discounts, credits or payments received from exchanges or other marketplaces are netted against brokerage, exchange and clearance fees.

Payments for order flow.

Payments for order flow represent payments to broker-dealer clients, in the normal course of business, for directing their order flow to us primarily in U.S.

Payments for order flow will fluctuate as we modify our rates and as the portion of our clients that do not accept payments for order flow varies.

Payments for order flow also fluctuate based on U.S.

equity share and option volumes we interact with and the mix of market and limit customer orders.

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.

Rebates based on volume discounts, credits or payments received from exchanges or other marketplaces are netted against brokerage, exchange, clearance fees and payments for order flow.

Communication and data processing.

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Employee compensation and payroll taxes include employee salaries, cash and non-cash incentive compensation, employee benefits, payroll taxes, severance and other employee related costs.

Employee compensation and payroll taxes also includes non-cash compensation expenses with respect to the stock options and restricted stock units granted in connection with and subsequent to the IPO pursuant to the Amended and Restated 2015 Management Incentive Plan and stock options and restricted stock units granted pursuant to the Amended and Restated ITG 2007 Equity Plan.

Employee compensation and payroll taxes also includes non-cash compensation expenses with respect to restricted stock units and restricted stock awards granted in connection with and subsequent to the IPO pursuant to the Amended and Restated 2015 Management Incentive Plan and Class A Common Stock underlying certain awards assumed pursuant to the Amended and Restated ITG 2007 Equity Plan.

Interest and dividends expense.

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The aggregate write-off amount includes the impairment of operating lease right-of-use assets, leasehold improvements and fixed assets, and dilapidation charges.

Debt issue costs related to debt refinancing and prepayment.

As a result of the refinancing or early termination of our long-term borrowings, we accelerate the capitalized debt issue costs and the discount on the term loan that would otherwise be

amortized or accreted over the life of the term loan.

Premium paid in connection with retiring outstanding bonds is also included in this category.

Debt issue costs related to debt refinancing, prepayment and commitment fees.

As a result of the refinancing or early termination of our long-term borrowings, we accelerate the capitalized debt issue costs and the discount on the term loan that would otherwise be amortized or accreted over the life of the term loan.

Premium paid in connection with retiring outstanding bonds, and commitment fees paid for lines of credit are also included in this category.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses primarily reflect professional fees incurred by us in connection with the ITG Acquisition in 2019 and with the sale of BondPoint in 2018.

Charges related to share based compensation at IPO.

At the consummation of the IPO and through the years ended December 31, 2019 , we recognized non-cash compensation expenses in respect of the vesting of outstanding Virtu Financial Interests, net of capitalization and amortization of costs attributable to employees incurred in development of software for internal use, as defined and discussed in Note 19 “Share-based Compensation” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .

Transaction advisory fees and expenses primarily reflect professional fees incurred by us in connection with the ITG Acquisition in 2019 and the sale of BondPoint in 2018.

Financing interest expense on long-term borrowings.

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In performing this assessment with respect to each jurisdiction, we review all available evidence, including actual and expected future earnings, capital gains, and investment in such jurisdiction, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.

See Note 14 “Income Taxes” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information.

See Note 15 "Income Taxes" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional information.

Non-GAAP Financial Measures and Other Items

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GAAP (“Non-GAAP”) financial measures of financial performance:

“Adjusted Net Trading Income”, which is the amount of revenue we generate from our market making activities, or Trading income, net, plus Commissions, net and technology services, plus Interest and dividends income, less direct costs associated with those revenues, including Brokerage, exchange and clearance fees, net, Payments for order flow, and Interest and dividends expense.

• “Adjusted Net Trading Income”, which is the amount of revenue we generate from our market making activities, or Trading income, net, plus Commissions, net and technology services, plus Interest and dividends income, less direct costs associated with those revenues, including Brokerage, exchange, clearance fees and payments for order flow, net, and Interest and dividends expense.

Management believes that this measurement is useful for comparing general operating performance from period to period.

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Our presentation of Adjusted Net Trading Income should not be construed as an indication that our future results will be unaffected by revenues or expenses that are not directly associated with our market making activities.

“EBITDA”, which measures our operating performance by adjusting net income to exclude Financing interest expense on long-term borrowings, Debt issue cost related to debt refinancing, Depreciation and amortization, Amortization of purchased intangibles and acquired capitalized software, and Income tax expense, and “Adjusted EBITDA”, which measures our operating performance by further adjusting EBITDA to exclude severance, reserve for legal matters, transaction advisory fees and expenses, termination of office leases, acquisition related retention bonus, connectivity early termination, trading related settlement income, gain on sale of businesses, other, net, write-down of assets, and charges related to share based compensation.

“Normalized Adjusted Net Income”, “Normalized Adjusted Net Income before income taxes”, “Normalized provision for income taxes”, and “Normalized Adjusted EPS”, which we calculate by adjusting Net Income to

exclude certain items including IPO-related adjustments and other non-cash items, assuming that all vested and unvested Virtu Financial Units have been exchanged for Class A Common Stock, and applying an effective tax rate, which was between approximately 23% and 24% beginning January 1, 2018.

• “EBITDA”, which measures our operating performance by adjusting net income to exclude Financing interest expense on long-term borrowings, Debt issue cost related to debt refinancing, prepayment, and commitment fees, Depreciation and amortization, Amortization of purchased intangibles and acquired capitalized software, and Income tax expense, and “Adjusted EBITDA”, which measures our operating performance by further adjusting EBITDA to exclude severance, transaction advisory fees and expenses, termination of office leases, charges related to share based compensation and other expenses, which includes reserves for legal matters, COVID-19 one-time costs and donations and Other, net.

• “Normalized Adjusted Net Income”, “Normalized Adjusted Net Income before income taxes”, “Normalized provision for income taxes”, and “Normalized Adjusted EPS”, which we calculate by adjusting Net Income to exclude certain items including IPO-related adjustments and other non-cash items, assuming that all vested and unvested Virtu Financial Units have been exchanged for Class A Common Stock, and applying an effective tax rate, which was approximately 24%.

• Operating Margins, which are calculated by dividing net income, EBITDA, and Adjusted EBITDA by Adjusted Net Trading Income.

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Additional information provided regarding the breakdown of total Adjusted Net Trading Income by category is also a non-GAAP financial measure but is not used by the Company in evaluating operating performance and in making strategic decisions.

In addition, these non-GAAP financial measures or similar non-GAAP financial measures are used by research analysts, investment bankers and lenders to assess our operating performance.

In addition, the Company's Non-GAAP Measures or similar non-GAAP financial measures are used by research analysts, investment bankers and lenders to assess our operating performance.

Management believes that the presentation of the Company's Non-GAAP Measures provides useful information to investors regarding our results of operations and cash flows because they assist both investors and management in analyzing and benchmarking the performance and value of our business.

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Other companies may define Adjusted Net Trading Income, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS, and Operating Margins differently, and as a result the Company's Non-GAAP Measures may not be directly comparable to those of other companies.

Although we use these non-GAAP measures as financial measures to assess the performance of our business, such use is limited because they do not include certain material costs necessary to operate our business.

Although we use the Company's Non-GAAP Measures as financial measures to assess the performance of our business, such use is limited because they do not include certain material costs necessary to operate our business.

The Company's Non-GAAP Measures should be considered in addition to, and not as a substitute for, Net Income in accordance with U.S.

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The following table reconciles the Consolidated Statements of Comprehensive Income to arrive at Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, and Operating Margins for the years ended December 31, 2020, 2019 and 2018.

For the Years Ended December 31,

Years Ended December 31,

(in thousands) 2020 2019 2018

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Commissions, net and technology services 600,510 498,544 184,339

Brokerage, exchange and clearance fees, net

Payments for order flow

Brokerage, exchange, clearance fees and payments for order flow, net (758,843) (386,888) (376,424)

Interest and dividends expense (125,649) (158,039) (141,814)

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Financing interest expense on long-term borrowings 87,735 121,859 71,800

Debt issue cost related to debt refinancing and prepayment

Debt issue cost related to debt refinancing, prepayment, and commitment fees 28,879 41,132 11,727

Depreciation and amortization 66,741 65,644 61,154

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Provision for (benefit from) income taxes 261,924 (12,277) 76,171

Reserve for legal matters

EBITDA $ 1,640,446 $ 183,248 $ 867,167

Severance 10,286 102,768 10,974

Transaction advisory fees and expenses 2,941 26,117 11,487

Termination of office leases 9,608 66,452 23,357

Acquisition related retention bonus

Connectivity early termination

Trading related settlement income

Gain on sale of business (58,652) — (335,210)

Write-down of assets

Other (16,418) 2,651 7,342

Share based compensation 59,838 50,627 29,065

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The following table reconciles Net Income to arrive at Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted Net Income and Normalized Adjusted EPS for the years ended December 31, 2020, 2019 and 2018:

For the Years Ended December 31,

Years Ended December 31,

(in thousands, except share and per share data) 2020 2019 2018

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Amortization of purchased intangibles and acquired capitalized software 74,254 70,595 26,123

Financing interest expense related to KCG transaction

Debt issue cost related to debt refinancing

Reserve for legal matters

Debt issue cost related to debt refinancing, prepayment, and commitment fees 28,879 41,132 11,727

Severance 10,286 102,768 10,974

Transaction advisory fees and expenses 2,941 26,117 11,487

Termination of office leases 9,608 66,452 23,357

Connectivity early termination

Gain on sale of business (58,652) — (335,210)

Write-down of assets

Acquisition related retention bonus

Trading related settlement income

Other (16,418) 2,651 7,342

Share based compensation 59,838 50,627 29,065

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(1) Reflects U.S.

federal, state, and local income tax rate applicable to corporations of approximately 24% for 2019 and 23% for 2018.

Assumes that (1) holders of all vested and unvested non-vesting Virtu Financial Units (together with corresponding shares of the Company's Class C Common Stock) have exercised their right to exchange such Virtu Financial Units for shares of Class A Common Stock on a one-for-one basis, (2) holders of all Virtu Financial Units (together with corresponding shares of the Company's Class D Common Stock) have exercised their right to exchange such Virtu Financial Units for shares of the Company's Class B Common Stock on a one-for-one basis, and subsequently exercised their right to convert the shares of Class B Common Stock into shares of Class A Common Stock on a one-for-one basis.

Includes additional shares from dilutive impact of options and restricted stock units outstanding under the Amended and Restated 2015 Management Incentive Plan and the Amended and Restated ITG 2007 Equity Plan during the years ended December 31, 2018 and 2017.

federal, state, and local income tax rate applicable to corporations of approximately 24% for 2020, 24% for 2019 and 23% for 2018.

(2) Assumes that (1) holders of all vested and unvested non-vesting Virtu Financial Units (together with corresponding shares of the Company's Class C common stock, par value $0.00001 per share (the “Class C Common Stock”)) have exercised their right to exchange such Virtu Financial Units for shares of Class A Common Stock on a one-for-one basis, (2) holders of all Virtu Financial Units (together with corresponding shares of the Company's Class D common stock, par value $0.00001 per share (the “Class D Common Stock”)) have exercised their right to exchange such Virtu Financial Units for shares of the Company's Class B common stock, par value $0.00001 per share (the “Class B Common Stock”) on a one-for-one basis, and subsequently exercised their right to convert the shares of Class B Common Stock into shares of Class A Common Stock on a one-for-one basis.

Includes additional shares from dilutive impact of options, restricted stock units and restricted stock awards outstanding under the Amended and Restated 2015 Management Incentive Plan and the Amended and Restated ITG 2007 Equity Plan during the years ended December 31, 2020, 2019 and 2018 as well as warrants issued in connection with the Founder Member Loan during the year ended December 31, 2020.

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the years ended December 31, 2020, 2019 and 2018:

Year Ended December 31, 2020

Market Making

Execution Services

(in thousands) Market Making Execution Services Corporate Total

Trading income, net $ 2,455,182 $ 38,066 $ — $ 2,493,248

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Interest and dividends income 61,485 634 — 62,119

Brokerage, exchange and clearance fees, net

Payments for order flow

Brokerage, exchange, clearance fees and payments for order flow, net (662,994) (95,849) — (758,843)

Interest and dividends expense (123,715) (1,934) — (125,649)

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Year Ended December 31, 2019

Market Making

Execution Services

(in thousands) Market Making Execution Services Corporate Total

Trading income, net $ 908,328 $ 3,988 $ — $ 912,316

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Interest and dividends income 96,197 12,581 — 108,778

Brokerage, exchange and clearance fees, net

Payments for order flow

Brokerage, exchange, clearance fees and payments for order flow, net (277,668) (109,220) — (386,888)

Interest and dividends expense (145,782) (12,257) — (158,039)

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Year Ended December 31, 2018

Market Making

Execution Services

Market Making Execution Services Corporate Total

Trading income, net $ 1,265,866 $ 816 $ — $ 1,266,682

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Interest and dividends income 86,741 705 62 87,508

Brokerage, exchange and clearance fees, net

Payments for order flow

Brokerage, exchange, clearance fees and payments for order flow, net (317,365) (59,059) — (376,424)

Interest and dividends expense (140,120) (1,694) — (141,814)

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Year Ended December 31, 2020

Global Equities

Global FICC, Options and Other

Total Market Making

(in thousands) Global Equities Global FICC, Options and Other Unallocated Total Market Making

Trading income, net $ 2,182,234 $ 272,948 $ — $ 2,455,182

Commissions, net and technology services 52,453 — — 52,453

Brokerage, exchange and clearance fees, net

Payments for order flow

Brokerage, exchange, clearance fees and payments for order flow, net (631,354) (31,640) — (662,994)

Interest and dividends, net (54,557) (7,673) — (62,230)

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Year Ended December 31, 2019

Global Equities

Global FICC, Options and Other

Total Market Making

(in thousands) Global Equities Global FICC, Options and Other Unallocated Total Market Making

Trading income, net $ 730,215 $ 178,639 $ (526) $ 908,328

Commissions, net and technology services 23,554 (28) — 23,526

Brokerage, exchange and clearance fees, net

Payments for order flow

Brokerage, exchange, clearance fees and payments for order flow, net (238,590) (39,648) 570 (277,668)

Interest and dividends, net (39,335) (10,090) (160) (49,585)

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Year Ended December 31, 2018

Global Equities

Global FICC, Options and Other

Total Market Making

Global Equities Global FICC, Options and Other Unallocated Total Market Making

Trading income, net $ 1,013,728 $ 250,521 $ 1,617 $ 1,265,866

Commissions, net and technology services 28,583 230 — 28,813

Brokerage, exchange and clearance fees, net

Payments for order flow

Brokerage, exchange, clearance fees and payments for order flow, net (257,061) (56,633) (3,671) (317,365)

Interest and dividends, net (40,548) (11,326) (1,505) (53,379)

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Adjusted Net Trading Income by Category:

Average Daily

Total Average Daily % Total Average Daily % Total Average Daily %

Market Making:

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Execution Services 488,974 1,933 21.5 % 370,110 1,463 38.0 % 96,294 384 9.4 %

Corporate — — — % — — — % 62 — — %

Adjusted Net Trading Income $ 2,271,385 $ 8,978 100.0 % $ 974,711 $ 3,853 100.0 % $ 1,020,291 $ 4,065 100.0 %

(1) Under our methodology for recording “trading income, net” in our Consolidated Statements of Comprehensive Income from Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K , we recognize revenues based on the exit price of assets and liabilities in accordance with applicable U.S.

(1) Under our methodology for recording “trading income, net” in our Consolidated Statements of Comprehensive Income from Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, we recognize revenues based on the exit price of assets and liabilities in accordance with applicable U.S.

GAAP rules, and when we calculate Adjusted Net Trading Income for corresponding reporting periods, we start with trading income, net, so calculated.

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Total Revenues

Our total revenues decreased $348.6 million , or 18.6% , to $1,530.1 million for the year ended December 31, 2019 , compared to $1,878.7 million for the year ended December 31, 2018 .

This decrease was primarily attributable to a decrease in Trading income, net, of $354.4 million , which was primarily attributable to the lower volatility and lower trading volumes during 2019 compared to 2018.

A decrease in Other, net, of $329.7 million was primarily due to gain on the sale of BondPoint to ICE of $337.6 million recognized in January 2018.

These decreases were partially offset by an increase in Commissions, net and technology services of $314.2 million which was primarily attributable to the results of ITG from the ITG Closing Date through December 31, 2019 .

Our total revenues increased $1,721.8 million, or 113.5%, to $3,239.3 million for the year ended December 31, 2020, compared to $1,517.5 million for the year ended December 31, 2019.

This increase was primarily attributable to an increase in Trading income, net, of $1,580.9 million, which was driven by higher market volatility and trading volumes during 2020 compared to 2019, from the impacts of COVID-19 and the governmental and other responses thereto.

In addition, 2020 included the results of ITG for the full first quarter of 2020 compared to the results of ITG from the ITG Closing Date through December 31, 2019 in the prior year.

Though our total revenues increased during the period, Commissions, net and technology services within the Execution Services segment did not have the same relative increase in part because we selectively limited our client trading business during certain periods throughout 2020 due to the extraordinary volume and volatility during the period and the operational challenges caused directly or indirectly by COVID-19, including working remotely and increases in short term liquidity requirements.

The following table shows the total revenues by segment for the years ended December 31, 2020 and 2019.

Years Ended December 31,

(in thousands, except for percentage)

(in thousands, except for percentage) 2020 2019 % Change

Market Making

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Commissions, net and technology services 52,453 23,526 123.0%

Other, net 24,222 43 NM

Total revenues from Market Making 2,593,342 1,028,094 152.2%

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Commissions, net and technology services 548,057 475,018 15.4%

Other, net 63,386 149 NM

Total revenues from Execution Services 650,143 491,736 32.2%

Trading income, net

Interest and dividends income

Commissions, net and technology services

Other, net (4,154) (2,338) 77.7%

Total revenues from Corporate (4,154) (2,338) 77.7%

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Commissions, net and technology services 600,510 498,544 20.5%

Other, net 83,454 (2,146) NM

Total revenues $ 3,239,331 $ 1,517,492 113.5%

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Trading income, net was primarily earned by our Market Making segment.

Trading income, net, decreased $354.4 million , or 28.0% , to $912.3 million for the year ended December 31, 2019 , compared to $1,266.7 million for the year ended December 31, 2018 .

The decrease was primarily driven by the lower of volatility and lower trading volume across major asset categories during the year ended December 31, 2019 compared to the prior period.

Average daily realized volatility and average daily implied volatility of the S&P 500 Index the decreased 21.5% and 7.4%, respectively, compared to the prior period, while average daily U.S.

OTC equity volumes decreased 30.0%.

Rather than analyzing trading income, net, in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income, together with Interest and dividends income, Interest and dividends expense, Commissions, net and technology services, Payments for order flow, and Brokerage, exchange and clearance fees, net, each of which are described below.

Trading income, net, increased $1,580.9 million, or 173.3%, to $2,493.2 million for the year ended December 31, 2020, compared to $912.3 million for the year ended December 31, 2019.

The increase was primarily driven by the higher market volatility and trading volumes across global markets and major asset categories during the year ended December 31, 2020 compared to the same period in the prior year.

Average daily realized volatility of the S&P 500 Index increased 145.4% compared to the prior period, while average daily U.S.

equity consolidated volumes increased 55.4%.

Rather than analyzing trading income, net, in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income, together with Interest and dividends income, Interest and dividends expense, Commissions, net and technology services and Brokerage, exchange, clearance fees and payments for order flow, net, each of which are described below.

Interest and dividends income.

Interest and dividends income was primarily earned by our Market Making segment.

Interest and dividends income increased $21.3 million , or 24.3% , to $108.8 million for the year ended December 31, 2019 , compared to $87.5 million for the year ended December 31, 2018 .

This increase was primarily attributable to the higher interest income earned on cash collateral posted as part of securities loaned transactions.

Interest and dividends income decreased $46.7 million, or 42.9%, to $62.1 million for the year ended December 31, 2020, compared to $108.8 million for the year ended December 31, 2019.

This decrease was primarily attributable to lower interest income earned on cash collateral posted as part of securities borrowed transactions driven by lower interest rates and lower balances compared to the prior period.

As indicated above, rather than analyzing interest and dividends income in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

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Commissions, net and technology services revenues increased $102.0 million, or 20.5%, to $600.5 million for the year ended December 31, 2020, compared to $498.5 million for the year ended December 31, 2019.

The increase was primarily attributable to the ITG Acquisition, as ITG's entire business is included in our Execution Services segment.

The ITG Acquisition brought recurring connectivity revenues generated from workflow technology and subscription revenues from analytics services to Commissions, net and technology services during the period from the ITG Closing Date through December 31, 2019 .

Other, net decreased $329.7 million , or 96.9% , to $10.4 million for the year ended December 31, 2019 , compared to $340.2 million for the year ended December 31, 2018 .

The decrease was primarily due to the one-time transaction gain of $337.6 million on the sale of BondPoint to ICE in January 2018.

The increase was primarily attributable to the results of ITG for the full year 2020 compared to the results of ITG from the ITG Closing Date through December 31, 2019.

The ITG Acquisition brought recurring connectivity revenues generated from workflow technology and subscription revenues from analytics services to Commissions, net and technology services.

Other, net increased $85.6 million to $83.5 million for the year ended December 31, 2020, compared to $(2.1) million for the year ended December 31, 2019.

The increase was primarily due to a $58.7 million gain recognized on the sale of MATCHNow (see Note 5 "Sale of MATCHNow" of Part II Item 8 “Financial Statements and Supplementary Data” of

this Annual Report on Form 10-K).

In addition, we recognized a $17.4 million gain on the minority investment in JNX (see Note 12 "Financial Assets and Liabilities" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for details on the JNX Investment).

Adjusted Net Trading Income

Adjusted Net Trading Income decreased $45.6 million , or 4.5% , to $974.7 million for the year ended December 31, 2019 , compared to $1,020.3 million for the year ended December 31, 2018 .

This decrease was primarily attributable to lower Trading income, net, driven by the lower volatility and lower trading volumes across major asset categories during the year ended December 31, 2019 compared to the prior period.

Average daily realized volatility and average daily implied volatility of the S&P 500 Index the decreased 21.5% and 7.4%, respectively, compared to the prior period, while average daily U.S.

OTC equity volumes decreased 30.0%.

The decrease in Trading income, net was partially offset by an increase in Commissions, net and technology services as a result of the ITG Acquisition.

There were decreases in Trading income, net in Global Equities of $268.9 million , and in Global FICC, Options and Other of $53.9 million , from the Market Making segment.

These decreases were partially offset by an increase of $273.8 million , or 284.4% , in the Execution Services segment.

Adjusted Net Trading Income per day decreased $0.3 million , or 7.0% , to $3.8 million for the year ended December 31, 2019 , compared to $4.1 million for the year ended December 31, 2018 .

The number of trading days was 253 and 251 for the years ended December 31, 2019 and 2018 , respectively.

Adjusted Net Trading Income increased $1,296.7 million, or 133.0%, to $2,271.4 million for the year ended December 31, 2020, compared to $974.7 million for the year ended December 31, 2019.

This increase was primarily attributable to higher Trading income, net, driven by higher market volatility and trading volumes across major asset categories during the year ended December 31, 2020 compared to the prior period.

Average daily realized volatility of the S&P 500 Index and average daily CVIX realized volatility increased 145.4% and 86.5%, respectively, compared to the prior period, while average daily U.S.

equity consolidated volumes increased 55.4%.

There were increases in Trading income, net in Global Equities of $1,072.9 million, and in Global FICC, Options and Other of $104.8 million, from the Market Making segment.

There was also an increase of $118.9 million, or 32.1%, in the Execution Services segment primarily driven by the increase in Commissions, net and technology services that was primarily attributable to the results of ITG for the full year of 2020 compared to the results of ITG from the ITG Closing Date through December 31, 2019.

Adjusted Net Trading Income per day increased $5.1 million, or 133.0%, to $9.0 million for the year ended December 31, 2020, compared to $3.9 million for the year ended December 31, 2019.

The number of trading days was 253 for both the year ended December 31, 2020 and 2019, respectively.

Adjusted Net Trading Income is a non-GAAP measure.

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Our operating expenses increased $223.0 million, or 13.7%, to $1,856.5 million for the year ended December 31, 2020, compared to $1,633.5 million for the year ended December 31, 2019.

The increase in operating expenses was primarily due to the ITG Acquisition, which caused an overall increase in expenses in multiple expense categories as described in more detail below.

Brokerage, exchange and clearance fees, net.

Brokerage exchange and clearance fees, net, decreased $17.0 million , or 5.6% , to $284.8 million for the year ended December 31, 2019 , compared to $301.8 million for the year ended December 31, 2018 .

This decrease was primarily attributable to a decrease in volume we traded in Global Equities instruments and other asset categories, partially offset by increases due to the ITG Acquisition.

As indicated above, rather than analyzing brokerage, exchange and clearance fees, net, in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

The increase in operating expenses was primarily due to higher trading related expenses as a result of the increases in volumes traded during the year ended December 31, 2020 compared to the prior period.

Additionally, the results of ITG for the full year of 2020 compared to the results of ITG from the ITG Closing Date through December 31, 2019 caused an overall increase in expenses in multiple expense categories as described in more detail below.

Brokerage, exchange, clearance fees and payments for order flow, net.

Brokerage, exchange, clearance fees and payments for order flow, net, increased $372.0 million, or 96.1%, to $758.8 million for the year ended December 31, 2020, compared to $386.9 million for the year ended December 31, 2019.

This increase was primarily attributable to an increase in payments for order flow and increases in volumes we traded in Global Equities instruments and other asset categories.

The increase in payments for order flow was primarily attributable to the increase in volumes from our broker-dealer clients eligible for payments for order flow, driven by high participation of retail investors in the market during the year compared to the prior year.

We evaluate this category, representing direct costs associated with transacting our business, in the broader context of our Adjusted Net Trading Income.

Communication and data processing.

Communication and data processing expense increased $4.4 million, or 2.1%, to $213.8 million for the year ended December 31, 2020, compared to $209.4 million for the year ended December 31, 2019.

This increase was primarily due to the additional connectivity and market data service subscriptions acquired as part of the ITG Acquisition.

This increase was primarily attributable to the results of ITG for the full year of 2020 compared to the results of ITG from the ITG Closing Date through December 31, 2019, as well as additional telecommunication and networking services from activating our back-up facilities and enabling the majority of our employees to work from home.

The increase was partially offset by reductions in connectivity connections as a result of an on-going effort to consolidate various communication and data processing subscriptions.

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Employee compensation and payroll taxes increased $9.8 million, or 2.6%, to $393.5 million for the year ended December 31, 2020, compared to $383.7 million for the year ended December 31, 2019.

The increase in compensation levels was primarily attributable to the increases in headcount subsequent to the ITG Acquisition as well as an increase in severance expense of $91.8 million, primarily attributable to the ITG Acquisition.

Incentive compensation is recorded at management’s discretion and is generally accrued in connection with the overall level of profitability.

The increase in compensation levels was primarily attributable to increased incentive compensation, which is recorded at management’s discretion and is generally accrued in connection with the overall level of profitability.

Furthermore, we incurred additional compensation expense as a result of one-time cash bonuses awarded to certain employees to mitigate the effects of the COVID-19 pandemic.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $37.0 million and $32.5 million for the years ended December 31, 2020 and 2019, respectively.

Payments for order flow.

Payments for order flow increased $27.5 million , or 36.8% , to $102.1 million for the year ended December 31, 2019 , compared to $74.6 million for the year ended December 31, 2018 .

The increase was primarily attributable to the increase in volumes from our broker-dealer clients eligible for payments for order flow, including new counterparties onboarded during 2019.

Payments for order flow also fluctuate based on U.S.

equity share and option volumes, our profitability and the mix of market orders, limit orders, and customer mix.

As indicated above, rather than analyzing payments for order flow in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

Interest and dividends expense.

Interest and dividends expense increased $16.2 million , or 11.4% , to $158.0 million for the year ended December 31, 2019 , compared to $141.8 million for the year ended December 31, 2018 .

This increase was primarily attributable to higher interest expense incurred on cash collateral received as part of securities lending transactions, as

well as increased interest expense resulting from the ITG Acquisition.

As indicated above, rather than analyzing interest and dividends expense in isolation, we generally evaluate it in the broader context of our Adjusted Net Trading Income.

Interest and dividends expense decreased $32.4 million, or 20.5%, to $125.6 million for the year ended December 31, 2020, compared to $158.0 million for the year ended December 31, 2019.

This decrease was primarily attributable to lower interest expense incurred on cash collateral received as part of securities lending transactions.

indicated above, rather than analyzing interest and dividends expense in isolation, we generally evaluate it in the broader context of our Adjusted Net Trading Income.

Operations and administrative.

Operations and administrative expense increased $49.5 million , or 74.1% , to $116.2 million for the year ended December 31, 2019 , compared to $66.8 million for the year ended December 31, 2018 .

The increase was primarily attributable to the additional occupancy, professional and consulting expenses resulting from the ITG Acquisition, offset by on-going efforts to consolidate office premises and professional services.

Operations and administrative expense decreased $9.1 million, or 8.8%, to $94.6 million for the year ended December 31, 2020, compared to $103.6 million for the year ended December 31, 2019.

The decrease was primarily attributable to decreases in travel and entertainment due to the on-going effects of the COVID-19 pandemic as well the on-going efforts to consolidate office premises and professional services after the ITG Acquisition.

Depreciation and amortization.

Depreciation and amortization increased $1.1 million, or 1.7%, to $66.7 million for the year ended December 31, 2020, compared to $65.6 million for the year ended December 31, 2019.

This increase was primarily attributable to depreciation and amortization of additional assets resulting from the ITG Acquisition.

The overall increase was partially offset by the decrease in depreciation and amortization as a result of assets being written-off as part of the cessation of use of certain leased office space (see “Termination of office leases” below).

This increase was primarily attributable to depreciation and amortization of additional assets resulting from the ITG acquisition for the full year of 2020 compared to the prior period which excluded depreciation and amortization on ITG assets prior to the ITG Closing Date, partially offset by certain assets being fully depreciated in 2020.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software increased $3.7 million, or 5.2%, to $74.3 million for the year ended December 31, 2020, compared to $70.6 million for the year ended December 31, 2019.

This increase was due to the amortization of intangible assets acquired in connection with the ITG Acquisition.

This increase was due to the amortization of intangible assets acquired in connection with the ITG Acquisition for the full year of 2020 compared to amortization from the ITG Closing Date through December 31, 2019 in the prior year.

Termination of office leases.

Termination of office leases increased $43.1 million , or 184.5% , to $66.5 million for the year ended December 31, 2019 , compared to $23.4 million year ended December 31, 2018 .

The increase in termination of office leases was due to the impairment of operating lease right-of-use assets and write-off of leasehold improvements and fixed assets for certain abandoned office space as part of the effort to integrate and consolidate office space in connection with the ITG Acquisition.

Debt issue costs related to debt refinancing and prepayment.

Expense from debt issue costs related to debt refinancing and prepayment increased $29.4 million , or 250.7% , to $41.1 million for the year ended December 31, 2019 , compared to $11.7 million for the year ended December 31, 2018 .

The amount for the year ended December 31, 2019 mainly reflects costs incurred related to the termination of the Existing Term Loan Facility (as defined below) in the first quarter of 2019, and costs incurred related to Amendment No.

1 to the Credit Agreement (as defined below) in the fourth quarter that provided for $525.0 million of incremental term loans.

The amount for the year ended December 31, 2018 reflects the accelerated amortization of debt issuance costs due to prepayments of $384.8 million on long term borrowings in the year ended December 31, 2018 .

Termination of office leases was $9.6 million for the year ended December 31, 2020, compared to $66.5 million for the year ended December 31, 2019.

Expense from termination of office leases was due to the impairment of operating lease right-of-use assets and leasehold improvements and fixed assets incurred in 2019 and 2020 for certain abandoned office space as part of the efforts to integrate and consolidate office space in connection with the ITG Acquisition.

Debt issue costs related to debt refinancing, prepayment and commitment fees.

Expense from debt issue costs related to debt refinancing, prepayment and commitment fees decreased $12.3 million, or 29.8%, to $28.9 million for the year ended December 31, 2020, compared to $41.1 million for the year ended December 31, 2019.

The amount for the year ended December 31, 2019 was primarily driven by costs incurred related to the termination of the Previous Term Loan Facility (as defined below) in the first quarter of 2019, and costs incurred related to Amendment No.

1 to the Credit Agreement (as defined below) in the fourth quarter of 2019 that provided for $525.0 million of incremental term loans.

The amount for the year ended December 31, 2020 mainly reflects amortization of debt issue costs related to the Founder Member Loan Facility (see Note 11 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K), which expired as of September 20, 2020, in addition to debt issue costs that were accelerated as a result of $288.5 million in prepayments made during the year ended December 31, 2020.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses increased $14.6 million , or 127.4% , to $26.1 million for the year ended December 31, 2019 , compared to $11.5 million for the year ended December 31, 2018 .

The increase was primarily attributable to the ITG Acquisition, for which we incurred significantly higher transaction advisory fees than those incurred in connection with the sale of BondPoint in January 2018.

Transaction advisory fees and expenses decreased $23.2 million, or 88.7%, to $2.9 million for the year ended December 31, 2020, compared to $26.1 million for the year ended December 31, 2019.

The decrease was primarily attributable to the ITG Acquisition, for which we incurred significant transaction advisory fees during 2019.

The decrease was partially offset by one-time transaction costs incurred as a result of the sale of MATCHNow.

Financing interest expense on long term borrowings.

Financing interest expense on long-term borrowings increased $50.1 million , or 69.7% , to $121.9 million for the year ended December 31, 2019 , compared to $71.8 million for the year ended December 31, 2018 .

This increase was primarily attributable to the increase in outstanding principal as a result of the First Lien Term Loan Facility and the Incremental Term Loans as discussed in Note 10 “Borrowings” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .

Financing interest expense on long-term borrowings decreased $34.1 million, or 28.0%, to $87.7 million for the year ended December 31, 2020, compared to $121.9 million for the year ended December 31, 2019.

This decrease was primarily attributable to a decrease in outstanding principal as a result of the First Lien Term Loan Facility and the Incremental Term Loans in addition to lower interest rates as discussed in Note 11 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Provision for (benefit from) income taxes

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subsidiaries.

Our benefit from income taxes was $12.3 million for the year ended December 31, 2019 , compared to a provision for income taxes of $76.2 million for the year ended December 31, 2018 .

The change was primarily due to a loss before income taxes and noncontrolling interest for the year ended December 31, 2019.

Our provision for income taxes was $261.9 million for the year ended December 31, 2020, compared to a benefit from income taxes of $12.3 million for the year ended December 31, 2019.

The change was primarily due to the income before income taxes and noncontrolling interest for the year ended December 31, 2020, compared to a loss before taxes during the prior year period.

Year Ended December 31, 2019 Compared to Year Ended December 31, 2018

For discussion around our results of operations for the year ended December 31, 2017 and for a comparison of our results of operations for the year ended December 31, 2018 and year ended December 31, 2017, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal year ended December 31, 2018, filed with the SEC on March 1, 2019.

For discussion around our results of operations for the year ended December 31, 2018 and for a comparison of our results of operations for the year ended December 31, 2019 and year ended December 31, 2018, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal year ended December 31, 2019, filed with the SEC on February 28, 2020.

Liquidity and Capital Resources

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This balance is maintained primarily to support operating activities for capital expenditures and for short-term access to liquidity, and for other general corporate purposes.

As of December 31, 2019 , we had borrowings under our short-term credit facilities of approximately $134.3 million , borrowing under broker dealer facilities of $30.0 million , short-term bank overdrafts of $45.6 million , and long-term debt outstanding in an aggregate principal amount of approximately $1,957.2 million .

As of December 31, 2019 , our regulatory capital requirements for domestic U.S.

broker-dealer subsidiaries were $ 5.7 million , in aggregate.

As of December 31, 2020, we had borrowings under our prime brokerage credit facilities of approximately $134.7 million, borrowings under our broker dealer facilities of $36.4 million, short-term bank overdrafts of $28.7 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,670.4 million.

The majority of our trading assets consist of exchange-listed marketable securities, which are marked-to-market daily, and collateralized receivables from broker-dealers and clearing organizations arising from proprietary securities transactions.

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These margin facilities are secured by securities in accounts held at the prime brokers.

For purposes of providing additional liquidity, we maintain a committed credit facility and an uncommitted credit facility for our wholly-owned broker-dealer subsidiaries, as discussed in Note 10 “Borrowings” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .

Based on our current level of operations, we believe our cash flows from operations, available cash and cash equivalents, and available borrowings under our broker-dealer credit facilities will be adequate to meet our future liquidity needs for more than the next twelve months.

For purposes of providing additional liquidity, we maintain a committed credit facility and an uncommitted credit facility for our wholly-owned broker-dealer subsidiary, as discussed in Note 11 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

As a result of the substantially elevated volume and volatility environment during the year attributable largely to the COVID-19 pandemic and governmental and other responses thereto, our trading activities both in our market making segment and in our execution services segment increased materially relative to the prior year.

This increase in our activity and our customers’ activity together with the extraordinary volatility during certain periods within the year has driven our short-term liquidity needs significantly higher as compared to prior periods, though these levels declined meaningfully during the year relative to their peaks in the first quarter of 2020.

In order to manage these increased daily funding obligations, we have taken steps to increase available short-term liquidity and to reduce our short term funding requirements.

Increases to our available short-term liquidity included entering into the Founder Member Loan Facility (as defined below, and which expired in the third quarter of 2020), the Demand Loan (as defined below, which was fully repaid during the second quarter of 2020) and certain changes to the Committed Broker Dealer Facility, each of which are described in further detail below as well as in Note 11 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Steps taken to reduce our short-term funding requirements have included arranging for select clients trades to be cleared by another large financial institution, reducing limits on daily client trading activity on a client-by-client basis and selectively reducing our market making activities in certain asset classes or products.

Based on our current level of operations and following the steps taken as detailed above, we believe our cash flows from operations, available cash and cash equivalents, and available borrowings under our broker-dealer credit facilities will be adequate to meet our future liquidity needs for more than the next twelve months.

We anticipate that our primary upcoming cash and liquidity needs will be increased margin requirements from increased trading activities in markets where we currently provide liquidity and in new markets into which we plan to expand.

We manage and monitor our margin and liquidity needs on a real-time basis and can adjust our requirements both intra-day and inter-day, as required.

We do not believe that the impacts of COVID-19 or the governmental and other responses thereto to date have adversely impacted our long-term financial condition or long-term capital requirements.

We expect our principal sources of future liquidity to come from cash flows provided by operating activities and financing activities.

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We will retain the remaining 15% of any such cash tax savings.

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 6 “Tax Receivable Agreements” to the Consolidated financial statements included in Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K are expected to range from approximately $3.3 million to $20.7 million per year over the next 15 years .

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 7 "Tax Receivable Agreements" to the consolidated financial statements included in Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K are expected to range from approximately $0.9 million to $21.7 million per year over the next 15 years.

Such payments will occur only after we have filed our U.S.

federal and state income tax returns and realized the cash tax savings from the favorable tax attributes.

We made our first payment of $7.0 million in February 2017 and our second payment of $12.4 million in September 2018.

We made our first payment of $7.0 million in February 2017, our second payment of $12.4 million in September 2018, and our third payment of $13.3 million in March 2020.

Future payments under the tax receivable agreements in respect of subsequent exchanges would be in addition to these amounts.

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However, if the payments under the tax receivable agreements are accelerated, we may be required to raise additional debt or equity to fund such payments.

To the extent that we are unable to make payments under the tax receivable agreements

for any reason (including because our Credit Agreement restricts the ability of our subsidiaries to make distributions to us) such payments will be deferred and will accrue interest until paid.

To the extent that we are unable to make payments under the tax receivable agreements for any reason (including because our Amended Credit Agreement restricts the ability of our subsidiaries to make distributions to us) such payments will be deferred and will accrue interest until paid.

Regulatory Capital Requirements

Certain of our operating subsidiaries are subject to separate regulation and capital requirements in the United States and other jurisdictions.

Virtu Americas LLC, Virtu Financial BD LLC, Virtu Financial Capital Markets LLC, Virtu ITG LLC, and Virtu Alternet Securities LLC, the latter two of which became our subsidiaries following the ITG Acquisition, are registered U.S.

broker-dealers, and their primary regulators include the SEC, the Chicago Stock Exchange and FINRA.

Our principal U.S.

subsidiary is subject to separate regulation and capital requirements in the United States and other jurisdictions.

Virtu Americas LLC is a registered U.S.

broker-dealer, and its primary regulators include the SEC and FINRA.

The SEC and FINRA impose rules that require notification when regulatory capital falls below certain pre-defined criteria.

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If a firm fails to maintain the required regulatory capital, it may be subject to suspension or revocation of registration by the applicable regulatory agency, and suspension or expulsion by these regulators could ultimately lead to the firm’s liquidation.

Additionally, certain applicable rules impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to and/or approval from the SEC, the Chicago Stock Exchange and FINRA for certain capital withdrawals.

Virtu Americas LLC is also subject to rules set forth by NYSE and is required to maintain a certain level of capital in connection with the operation of its designated market maker business.

Our Canadian subsidiaries, Virtu ITG Canada Corp, TriAct Canada Marketplace LP, and Virtu Financial Canada ULC, are subject to regulatory capital requirements and periodic requirements to report their regulatory capital and submit other regulatory reports set forth by the Investment Industry Regulatory Organization of Canada.

Virtu Financial Ireland Limited and Virtu ITG Europe Limited are regulated by the Central Bank of Ireland as Investment Firms and in accordance with European Union law are required to maintain a minimum amount of regulatory capital based upon their positions, financial conditions, and other factors.

In addition to periodic requirements to report their regulatory capital and submit other regulatory reports, Virtu Financial Ireland Limited and Virtu ITG Europe Limited are required to obtain consent prior to receiving capital contributions or making capital distributions from their regulatory capital.

Our Canadian subsidiaries, Virtu ITG Canada Corp.

and Virtu Financial Canada ULC, are subject to regulatory capital requirements and periodic requirements to report their regulatory capital and submit other regulatory reports set forth by the IIIROC.

VFIL and VIEL are regulated by the CBI as Investment Firms and in accordance with European Union law are required to maintain a minimum amount of regulatory capital based upon their positions, financial conditions, and other factors.

In addition to periodic requirements to report their regulatory capital and submit other regulatory reports, VFIL and VIEL are required to obtain consent prior to receiving capital contributions or making capital distributions from their regulatory capital.

Failure to comply with their regulatory capital requirements could result in regulatory sanction or revocation of their regulatory license.

Virtu ITG UK Limited is regulated by the Financial Conduct Authority in the United Kingdom and is subject to similar prudential capital requirements.

Virtu ITG Australia Limited, Virtu ITG Hong Kong Limited, and Virtu ITG Singapore Pte Limited are also subject to local regulatory capital requirements and are regulated by the Australian Securities Exchange, the Securities and Futures Commission, and the Monetary Authority of Singapore, respectively.

See Note 21 “Regulatory Requirement” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a discussion of regulatory capital requirements of our regulated subsidiaries.

Short-Term Borrowings

VIUK is regulated by the FCA in the United Kingdom and is subject to similar prudential capital requirements.

See Note 22 "Regulatory Requirement" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a discussion of regulatory capital requirements of our regulated subsidiaries.

Broker Dealer Credit Facilities, Short-Term Bank Loans, and Prime Brokerage Credit Facilities

We maintain various broker-dealer facilities and short-term credit facilities as part of our daily trading operations.

See Note 10 “Borrowings” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for details on our various credit facilities.

As of December 31, 2019 , the outstanding principal balance on our broker-dealer facilities was $30.0 million , and the outstanding aggregate short-term credit facilities with various prime brokers and other financial institutions from which the Company receives execution or clearing services was approximately $134.3 million , which was netted within Receivables from broker-dealers and clearing organizations on the Consolidated Statement of Financial Condition of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .

See Note 11 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for details on our various credit facilities.

As of December 31, 2020, the outstanding principal balance on our broker-dealer facilities was $36.4 million and the outstanding aggregate short-term credit facilities with various prime brokers and other financial institutions from which the Company receives execution or clearing services was approximately $134.7 million, which was netted within Receivables from broker-dealers and clearing organizations on the Consolidated Statements of Financial Condition of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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.

On March 20, 2020, 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 were available to be borrowed in one or more borrowings on or after March 20, 2020 and prior to September 20, 2020, though no borrowings were made during such period, which is now expired.

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, as described below.

On March 20, 2020, in connection with and in consideration of the Founder Member’s commitments under the Founder Member Loan Facility, the Company delivered to the Founder Member a warrant (the “Warrant”) to purchase shares of the Company’s Class A Common Stock.

Pursuant to the Warrant, the Founder Member may purchase up to 3,000,000 shares of Class A Common Stock.

If at any time during the term of the Founder Member Facility, the Founder Member Loans equal to or greater than $100 million had remained outstanding for a certain period of time specified in the Warrant, the number of shares would have increased to 10,000,000.

The exercise price per share of the Class A Common Stock issuable pursuant to the Warrant is $22.98, and the Warrant may be exercised to purchase up to 3,000,000 shares of the Company's Class A Common Stock on or after May 22, 2020 up to and including January 15, 2022.

The Warrant and Class A Common Stock issuable pursuant to the Warrant were offered, and will be issued and sold, in reliance on the exemption from the registration requirements of the Securities Act, set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering.

Credit Agreement

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 (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

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

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 Closing Date”), VFH entered into Amendment No.

1 (“Amendment No.

On October 9, 2019 (the “Amendment No.

1 Closing Date”), VFH entered into an amendment (“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 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 pay 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.

The Company also previously entered into a five-year $525 million floating to fixed interest rate swap agreement that effectively fixes interest payment obligations on $525.0 million of principal under the First Lien Term Loan Facility at 4.8% through September 2024.

During the year ended December 31, 2019, $100.0 million was repaid under the First Lien Term Loan Facility.

As of December 31, 2019, $1,925 million was outstanding under the First Lien Term Loan Facility.

On January 29, 2020, the Company entered into a five-year $1,000 million floating to fixed interest rate swap agreement that effectively fixes interest payment obligations on $1,000 million of principal under the First Lien Term Loan Facility at 4.9% through January 2025.

The term loan borrowings and revolver borrowings under the Credit Agreement bear interest at a per annum rate equal to, at our election, either (i) the greatest of (a) the prime rate in effect, (b) the greater of (i) the federal funds effective rate and (ii) the overnight bank funding rate, in each case plus 0.5%, (c) an adjusted LIBOR rate for a Eurodollar borrowing with an interest period of one month plus 1% and (d) 1.00%, plus, in each case, 2.50%, with a stepdown to 2.25% based on VFH's first lien leverage ratio, or (ii) the greater of (x) an adjusted LIBOR rate for the interest period in effect and (y) 0%, plus, in each case, 3.50%, with a stepdown to 3.25% based on VFH’s first lien leverage ratio.

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.

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 a second amendment (“Amendment No.

2”), which further amended the Credit Agreement (as amended by Amendment No.

1 and Amendment No.

2, the “Amended Credit Agreement”) to, among other things, reduce the interest rate spread over adjusted LIBOR or the alternate base rate by 0.50% per annum and eliminated any stepdown in the spread based on VFH's first lien leverage ratio.

The term loan borrowings and revolver borrowings under the Amended Credit Agreement bear interest at a per annum rate equal to, at the Company's election, either (i) the greatest of (a) the prime rate in effect, (b) the greater of (1) the federal funds effective rate and (2) the overnight bank funding rate, in each case plus 0.50%, (c) an adjusted LIBOR rate for a Eurodollar borrowing with an interest period of one month plus 1.00% and (d) 1.00%, plus, in each case, 2.00%, or (ii) the greater of (x) an adjusted LIBOR rate for the interest period in effect and (y) 0%, plus, in each case, 3.00%.

In addition, a commitment fee accrues at a rate of 0.50% per annum on the average daily unused amount of the First Lien Revolving Facility, with stepdowns to 0.375% and 0.25% per annum based on VFH’s first lien leverage ratio, and is payable quarterly in arrears.

The First Lien Revolving Facility under the Credit Agreement is subject to a springing net first lien leverage ratio 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 Credit Agreement are guaranteed by Virtu Financial and VFH’s material non-regulated domestic restricted subsidiaries and secured by substantially all of the assets of VFH and the guarantors, in each case, subject to certain exceptions.

Under the Credit Agreement, term loans will mature on March 1, 2026.

Under the Amended Credit Agreement, the term loans will mature on March 1, 2026.

The term loans amortize in annual installments equal to 1.0% of the original aggregate principal amount of the term loans.

The revolving commitments will terminate on March 1, 2022.

The 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 Credit Agreement will be entitled to take various actions, including the acceleration of amounts outstanding under the Credit Agreement and all actions permitted to be taken by a secured creditor in respect of the collateral securing the obligations under the 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 $1.15 billion 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.

We were in compliance with all applicable covenants under the Credit Agreement as of December 31, 2019 .

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.

The Indenture was fully terminated following such redemption.

The First Lien Revolving Facility under the Amended Credit Agreement is subject to a springing net first lien leverage ratio 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.

The Amended Credit Agreement contains certain customary covenants and events of default, including relating to a change of control.

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

In October 2019, we entered into a five-year $525.0 million floating-to-fixed interest rate swap agreement.

In January 2020, we entered into a five-year $1,000.0 million floating-to-fixed interest rate swap agreement.

These two interest rate swaps meet the criteria to be considered and were designated as qualifying cash flow hedges under ASC 815 in the first quarter of 2020, and they effectively fix interest payment obligations on $1,000.0 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.

As described above, the Previous Term Loan Facility was fully terminated following its repayment in full with the proceeds of the First Lien Term Loan Facility.

We were in compliance with all applicable covenants under the Amended Credit Agreement as of December 31, 2020.

Our main sources of liquidity are cash flow from the operations of our subsidiaries, our broker-dealer credit facilities (as described above), margin financing provided by our prime brokers and cash on hand.

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Net cash provided by (used in):

2020 2019 2018

Operating activities $ 1,060,884 $ 168,771 $ 714,595

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Effect of exchange rate changes on cash and cash equivalents 15,318 (1,475) (5,127)

Net increase (decrease) in cash and cash equivalents

Net increase in cash and cash equivalents $ 233,725 $ 37,233 $ 203,160

Operating Activities

Net cash provided by operating activities was $1,060.9 million for the year ended December 31, 2020, compared to net cash provided by operating activities of $168.8 million for the year ended December 31, 2019.

The decrease in net cash provided by operating activities was primarily attributable to a net loss for the year ended December 31, 2019 compared to net income during the prior period.

The increase in net cash provided by operating activities was primarily attributable to increases in trading income, net for the year ended December 31, 2020 compared to the prior period.

Investing Activities

Net cash used in investing activities was $899.6 million for the year ended December 31, 2019 , compared to net cash provided by investing activities of $329.2 million for the year ended December 31, 2018 .

The cash used in investing activities for the year ended December 31, 2019 was primarily attributable to the $835.6 million cash used for the ITG Acquisition on the ITG Closing Date, while the cash provided by investing activities for the year ended December 31, 2018 was primarily due to the $400.2 million proceeds received from the sale of BondPoint in January 2018.

See Note 3 “ITG Acquisition” and Note 4 “Sale of BondPoint” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .

Net cash used in investing activities was $2.6 million for the year ended December 31, 2020, compared to net cash used in investing activities of $899.6 million for the year ended December 31, 2019.

The decrease in cash used in investing activities for the year ended December 31, 2020 was primarily attributable to the $835.6 million cash used for the ITG Acquisition on the ITG Closing Date during the same period of 2019 (see Note 3 "ITG Acquisition" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K), partially offset by $60.6 million cash provided by the sale of MATCHNow in the third quarter of 2020 (see Note 5 "Sale of MATCHNow" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K).

Financing Activities

Net cash provided by financing activities was $769.6 million for the year ended December 31, 2019 , while net cash used in financing activities was $835.5 million for the year ended December 31, 2018 .

The cash provided by financing activities for the year ended December 31, 2019 was primarily attributable to $1,500.0 million of proceeds from long term borrowings and $39.9 million provided by short term borrowings primarily attributable to the increase in short-term bank loans in the form of overdrafts.

These inflows were partially offset by $400.0 million of repayments on the First Lien Term Loan Facility, $100.0 million of prepayments on the First Lien Term Loan Facility, dividends of $112.4 million, and distributions from Virtu Financial to non-controlling interests of $99.2 million.

The cash used in financing activities for the year ended December 31, 2018 was primarily attributable to repayments of long term borrowings of $500.0 million, dividends of $100.3 million, distributions from Virtu Financial to non-controlling interests of $206.9 million, and purchases of treasury stock of $66.2 million.

Net cash used in financing activities was $839.9 million for the year ended December 31, 2020, while net cash provided by financing activities was $769.6 million for the year ended December 31, 2019.

The cash used in financing activities for the year ended December 31, 2020 was primarily attributable to $288.5 million in prepayments on our long-term borrowings and by distributions made to noncontrolling interests of $363.9 million.

The cash provided by financing activities of $769.6 million during the same period of 2019 primarily reflects net proceeds from long-term borrowings associated with our entering into the Credit Agreement on the ITG Closing Date, as described above.

Share Repurchase Program

On February 8, 2018, the Company’s board of directors authorized a share repurchase program of up to $50.0 million in Class A Common Stock and Virtu Financial Units, which was expanded to $100.0 million on July 27, 2018.

Since the inception of the program, the Company repurchased approximately 2.6 million shares of Class A Common Stock and Virtu Financial Units for approximately $65.9 million .

The share repurchase program expired on September 30, 2019.

On February 8, 2018, the Company’s Board of Directors authorized a share repurchase program of up to $50.0 million

in Class A Common Stock and Virtu Financial Units, which was expanded to $100.0 million on July 27, 2018.

The Company repurchased approximately 2.6 million shares of Class A Common Stock and Virtu Financial Units for approximately $65.9 million under this program, which expired on September 30, 2019.

On November 6, 2020, the Company's Board of Directors authorized a new share repurchase program of up to $100.0 million in Class A common stock and Virtu Financial Units by December 31, 2021.

From the inception of the program through December 31, 2020, the Company repurchased approximately 1.4 million shares of Class A Common Stock and Virtu Financial Units for approximately $33.9 million.

As of December 31, 2020, the Company has approximately of $66.1 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

Secondary Offerings

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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, North Island Stockholder, Havelock Fund Investments Pte.

In connection with the May 2018 Secondary Offering, the Company, TJMT Holdings LLC, the North Island Stockholder, Havelock Fund Investments Pte.

(“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.

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 equity holders of the Company (the “Amended and Restated Registration Rights Agreement”) to add Mr.

Vincent Viola and Mr.

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Payments due by periods

(in thousands)

Less than 1 year

More than 5 years

(in thousands) Total Less than 1 year 1-3 years 3-5 years More than 5 years

Long-term debt obligations (1) $ 1,670,410 $ — $ 33,898 $ 1,636,512 $ —

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Total contractual obligations $ 2,067,608 $ 81,364 $ 171,971 $ 1,699,400 $ 114,873

Balances Consist of principal payments under the Notes, First Lien Term Loan Facility and the SBI bonds, which do not include unamortized discount, unamortized commitment fees or utilization fees, and interest accrued.

(1) Balances consist of principal payments under the First Lien Term Loan Facility and the SBI bonds, which do not include unamortized discount, unamortized commitment fees or utilization fees, and interest accrued.

The contractual obligation table above excludes contractual amounts owed under the tax receivable agreement as the ultimate amount and timing of the amounts due are not presently known.

As of December 31, 2019 , a total of $269.3 million has been recorded in amount due pursuant to tax receivable agreements in the consolidated financial statements representing management’s best estimate of the amounts currently expected to be owed under the tax receivable agreement, as savings are realized as a result of favorable tax attributes.

As of December 31, 2020, a total of $271.2 million has been recorded for amounts due pursuant to tax receivable agreements in the consolidated financial statements representing management’s best estimate of the amounts currently expected to be owed under the tax receivable agreement, as savings are realized as a result of favorable tax attributes.

Off-Balance Sheet Arrangements

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Estimating the fair value of level 3 financial instruments requires judgments to be made.

See Note 11 “Financial Assets and Liabilities” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further information about fair value measurements.

See Note 12 "Financial Assets and Liabilities" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for further information about fair value measurements.

Revenue Recognition

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As we act as an agent in these transactions, we record such expenses on a net basis within Commissions, net and technology services in the Consolidated Statements of Comprehensive Income.

The Company recognizes the related revenue when the third-party research services are rendered and payments are made.

Technology services revenues consist of fees paid by third parties for licensing of our proprietary risk management and trading infrastructure technology and provision of associated management and hosting services.

These fees include both upfront and annual recurring fees, as well as, in certain cases, contingent fees based on client revenues, which represents variable consideration.

The services offered under these contracts have the same pattern of transfer;

accordingly, they are being measured and recognized as a single performance obligation.

The performance obligation is satisfied over time, and accordingly, revenue is recognized as time passes.

Variable consideration has not been included in the transaction price as the amount of consideration is contingent on factors outside the Company’s control and thus it is not probable that a significant reversal of cumulative revenue recognized will not occur.

Recurring fees, which exclude variable consideration, are billed and collected on a monthly basis.

Workflow technology revenues consist of order and trade execution management and order routing services we provide through our front-end workflow solutions and network capabilities.

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We provide analytics products and services to customers and recognize 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).

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.

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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:

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;

a calculated ratio of the commission value for the products and services relative to the total amount of commissions generated from the customer.

(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;

(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.

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Share-based compensation transactions with employees are measured based on the fair value of equity instruments issued.

Share-based awards issued for compensation in connection with or subsequent to the Reorganization Transactions and the IPO pursuant to our Amended and Restated 2015 Management Incentive Plan, and pursuant to the Amended and Restated ITG 2007 Equity Plan, were in the form of stock options, Class A Common Stock and restricted stock units.

Share-based awards issued for compensation in connection with or subsequent to the Reorganization Transactions and the IPO pursuant to our Amended and Restated 2015 Management Incentive Plan, and assumed pursuant to the Amended and Restated ITG 2007 Equity Plan, were in the form of stock options, Class A Common Stock, restricted stock awards ("RSAs") and restricted stock units ("RSUs").

The fair value of the stock option grants is determined through the application of the Black-Scholes-Merton model.

The fair value of the Class A Common Stock and restricted stock units is determined based on the volume weighted average price for the three days preceding the grant, and with respect to the restricted stock units, a projected annual forfeiture rate.

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.

We record as treasury stock shares repurchased from employees for the purpose of settling tax liabilities incurred upon the issuance of common stock, the vesting of restricted stock units or the exercise of stock options.

The fair value of the Class A Common Stock and RSUs is determined based on the volume weighted average price for the three days preceding the grant.

With respect to the RSUs, we account for forfeitures as they occur.

The fair value of RSAs is determined based on the closing price as of the date of grant.

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 becomes probable through the remainder of the vesting period.

We record as treasury stock shares repurchased from employees for the purpose of settling tax liabilities incurred upon the issuance of common stock, the vesting of RSUs or the exercise of stock options.

We conduct our business globally through a number of separate legal entities.

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Our 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.

Tax Receivable Agreements

We are required under the tax receivable agreements entered into in connection with our IPO to make payments to certain direct or indirect equity holders of Virtu Financial that are generally equal to 85% of the applicable cash tax savings, if any, that we realize as a result of favorable tax attributes that are available to us as a result of the Reorganization Transactions, for exchanges of membership interests for Class A Common Stock or Class B Common Stock and payments made under the tax receivable agreements.

An exchange of membership interests by the Virtu Members for Class A common stock or Class B common stock (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, we estimate the cumulative tax receivable agreement obligations to be reported on the consolidated financial statements.

The tax attributes are computed as the difference between our basis in the partnership interest (“outside basis”) as compared to our share of the adjusted tax basis of partnership property (“inside basis”), at the time of each Exchange.

The computation of inside basis requires judgments in estimating the components included in the inside basis as of the date of the Exchange (such as, cash received on hypothetical sale of assets, allocation of gain/loss at the time of the Exchange taking into account complex partnership tax rules).

In addition, we estimate the period of time that may generate cash tax savings of such tax attributes and the realizability of the tax attributes.

Goodwill and Intangible Assets

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No impairment of goodwill was identified.

Valuation of intangible assets involves 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.

We amortize finite-lived intangible assets over their estimated useful lives.

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Recent Accounting Pronouncements

For a discussion of recently issued accounting developments and their impact or potential impact on our consolidated financial statements, see Note 2 “Summary of Significant Accounting Policies” of Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K .

For a discussion of recently issued accounting developments and their impact or potential impact on our consolidated financial statements, see Note 2 "Summary of Significant Accounting Policies" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis