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Item 2. Management’s Discussion and Analysis

2021-05-07 compared with 2020-11-06 · 165 added, 408 removed, 539 unchanged (52% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - IN PROGRESS

The following management’s discussion and analysis covers the three and nine months ended September 30, 2020 and 2019 and should be read in conjunction with the condensed consolidated financial statements of Virtu Financial, Inc.

(the “Company”) for the period ended September 30, 2020, which are included in Part I, Item I of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2019, which are included in Items 8 and 7, respectively, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis covers the three months ended March 31, 2021 and 2020 and should be read in conjunction with the consolidated financial statements of Virtu Financial, Inc.

(the “Company”) for the period ended March 31, 2021, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2020, which are included in Items 8 and 7, respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

This management's discussion and analysis contains forward-looking statements that involve risks and uncertainties.

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Although we believe that the forward-looking statements contained in this Quarterly Report on Form 10-Q are based on reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the Securities and Exchange Commission ("SEC") on February 25, 2021 (the "2020 Form 10-K"), could affect our actual financial results or results of operations and cash flows, and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

• the continuing impacts of COVID-19 and the governmental and other responses thereto, including but not limited to the 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;

• 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 certain states therein) 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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All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this Quarterly Report on Form 10-Q.

Basis of Preparation

Our condensed consolidated financial statements for the three and nine months ended September 30, 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 Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q, we have accounted for the ITG Acquisition under the acquisition method of accounting.

Under the acquisition method of accounting, the assets and liabilities of Investment Technology Group, Inc.

("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.

The financial results for the nine months ended September 30, 2019 comprise our results for the entire applicable period and the results of ITG from the ITG Closing Date through September 30, 2019.

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 II Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q.

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

Impact of the COVID-19 Pandemic

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

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 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 Holdings, Inc.

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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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.

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.

Acquisition of ITG and KCG

On March 1, 2019, the "ITG Closing Date", we announced the completion of Investment Technology Group, Inc.

and its subsidiaries ("ITG") in an all-cash transaction valued at $30.30 per ITG share, for a total of approximately $1.0 billion (the "ITG Acquisition").

In connection with the ITG Acquisition, Virtu Financial, VFH, 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.

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

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

(“KCG”) (the “Acquisition of KCG”).

Amended and Restated 2015 Management Incentive Plan

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

Subsequent to the IPO and through September 30, 2020, options to purchase 1,628,750 shares in the aggregate were forfeited and 5,173,098 options were exercised.

Subsequent to the IPO and through March 31, 2021, options to purchase 1,628,750 shares in the aggregate were forfeited and 5,429,470 options were exercised.

The fair value of the stock option grants was determined through the application of the Black-Scholes-Merton model and was recognized on a straight-line basis over the vesting period.

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There are no material differences between our condensed consolidated financial statements and the financial statements of Virtu Financial except as follows:

(i) cash and cash equivalents reflected on our Condensed Consolidated Statement of Financial Condition as of September 30, 2020 in the amount of $0.1 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statement of Financial Condition as of September 30, 2020 in the amount of $176.2 million and tax receivable agreement obligation in the amount of $256.0 million, in each case as described in greater detail in Note 6 “Tax Receivable Agreements” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) current income tax receivable within Other Assets on the Condensed Consolidated Statement of Financial Condition as of September 30, 2020 in the amount of $85.5 million, (iv) a portion of the member's equity of Virtu Financial is represented as non-controlling interest on our Condensed Consolidated Statement of Financial Condition as of September 30, 2020;

and (v) provision for corporate income tax in the amount of $32.1 million and $152.8 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020, respectively.

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of March 31, 2021 in the amount of $163.0 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of March 31, 2021 in the amount of $175.4 million and tax receivable agreement obligation in the amount of $271.2 million, in each case as described in greater detail in Note 4 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member's equity of Virtu Financial is represented as non-controlling interest on our Condensed Consolidated Statements of Financial Condition as of March 31, 2021;

and (iv) provision for corporate income tax in the amount of $62.4 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2021.

Components of Our Results of Operations

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and nine months ended September 30, 2020 and 2019:

(in thousands) Three Months Ended September 30, Nine Months Ended September 30,

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three months ended March 31, 2021 and 2020:

(in thousands) Three Months Ended March 31,

Market Making 2021 2020

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Total operating expenses 148,888 150,469

Income (loss) before income taxes and noncontrolling interest 102,029 (29,202) 137,879 (95,303)

Income before income taxes and noncontrolling interest 40,351 19,395

Total revenue (391) 171

Total operating expenses 3,450 4,887

Income (loss) before income taxes and noncontrolling interest (11,246) (7,001) (25,478) (93,183)

Income before income taxes and noncontrolling interest (3,841) (4,716)

Total revenue 1,012,572 1,000,621

Total operating expenses 522,785 534,396

Income (loss) before income taxes and noncontrolling interest $ 252,515 $ (5,828) $ 1,123,272 $ (88,610)

The following table shows our results of operations for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

Income before income taxes and noncontrolling interest $ 489,787 $ 466,225

The following table shows our results of operations for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(in thousands) 2021 2020

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Total operating expenses 522,785 534,396

Income (loss) before income taxes and noncontrolling interest 252,515 (5,828) 1,123,272 (88,610)

Provision for (benefit from) income taxes 52,807 (644) 200,044 (14,322)

Net income (loss) $ 199,708 $ (5,184) $ 923,228 $ (74,288)

Income before income taxes and noncontrolling interest 489,787 466,225

Provision for income taxes 80,555 77,987

Net income $ 409,232 $ 388,238

Total Revenues

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

Trading income, net, accounted for 78% and 61% of our total revenues for the nine months ended September 30, 2020 and 2019, respectively.

Trading income, net, accounted for 80% and 80% of our total revenues for the three months ended March 31, 2021 and 2020, respectively.

Interest and dividends income.

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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.

We have a noncontrolling 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 transaction.

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

Operating Expenses

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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.

Transaction advisory fees and expenses primarily reflect professional fees incurred by us in connection with one or more acquisitions or dispositions.

Financing interest expense on long-term borrowings.

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GAAP measure.

The following table reconciles the Condensed Consolidated Statements of Comprehensive Income to arrive at Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, and Operating Margins for the three and nine months ended September 30, 2020 and 2019.

Three Months Ended September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands) 2021 2020

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Reconciliation of Net Income to EBITDA and Adjusted EBITDA

Net income (loss) $ 199,708 $ (5,184) $ 923,228 $ (74,288)

Net income $ 409,232 $ 388,238

Financing interest expense on long-term borrowings 19,492 25,670

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Amortization of purchased intangibles and acquired capitalized software 18,077 18,958

Provision for (benefit from) income taxes 52,807 (644) 200,044 (14,322)

Provision for income taxes 80,555 77,987

EBITDA $ 545,889 $ 532,384

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Termination of office leases 1,221 276

Gain on sale of MATCHNow (58,652) — (58,652) —

Other 2,831 6,910

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(3) Calculated by dividing Adjusted EBITDA by Adjusted Net Trading Income.

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 three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended

September 30,

Three Months Ended March 31,

(in thousands, except share and per share data) 2021 2020

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Net income (loss) $ 409,232 $ 388,238

Provision for (benefit from) income taxes 52,807 (644) 200,044 (14,322)

Provision for income taxes 80,555 77,987

Income (loss) before income taxes 489,787 466,225

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Termination of office leases 1,221 276

Gain on sale of MATCHNow (58,652) — (58,652) —

Other 2,831 6,910

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(1) Reflects U.S.

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

federal, state, and local income tax rate applicable to corporations of approximately 24% for 2021 and 2020.

(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 three and nine months ended September 30, 2020 and 2019 as well as warrants issued in connection with the Founder Member Loan during the three and nine months ended September 30, 2020.

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, 2020

(in thousands) Market Making Execution Services Corporate Total

Trading income, net $ 441,829 $ (534) $ — $ 441,295

Commissions, net and technology services 9,391 124,462 — 133,853

Interest and dividends income 10,763 169 — 10,932

Brokerage, exchange, clearance fees and payments for order flow, net (177,758) (18,690) — (196,448)

Interest and dividends expense (26,990) (384) — (27,374)

Adjusted Net Trading Income $ 257,235 $ 105,023 $ — $ 362,258

Three Months Ended September 30, 2019

(in thousands) Market Making Execution Services Corporate Total

Trading income, net $ 219,535 $ 613 $ — $ 220,148

Commissions, net and technology services 7,252 132,375 — 139,627

Interest and dividends income 22,617 735 — 23,352

Brokerage, exchange, clearance fees and payments for order flow, net (73,463) (25,326) — (98,789)

Interest and dividends expense (34,222) (324) — (34,546)

Adjusted Net Trading Income $ 141,719 $ 108,073 $ — $ 249,792

Nine Months Ended September 30, 2020

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 three months ended March 31, 2021 and 2020 as well as warrants issued in connection with the Founder Member Loan during the three months ended March 31, 2020.

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31, 2021

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 575,123 $ 152,906 $ — $ 728,029

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 652,275 $ 132,193 $ — $ 784,468

The following tables reconcile our Market Making segment Trading income, net to Adjusted Net Trading Income by category for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, 2020

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

Trading income, net $ 385,594 $ 56,235 $ — $ 441,829

Commissions, net and technology services 9,391 — — 9,391

Brokerage, exchange, clearance fees and payments for order flow, net (169,279) (8,479) — (177,758)

Interest and dividends, net (14,114) (2,113) — (16,227)

Adjusted Net Trading Income $ 211,592 $ 45,643 $ — $ 257,235

Three Months Ended September 30, 2019

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

Trading income, net $ 166,031 $ 52,126 $ 1,378 $ 219,535

Commissions, net and technology services 7,252 — — 7,252

Brokerage, exchange, clearance fees and payments for order flow, net (61,903) (10,024) (1,536) (73,463)

Interest and dividends, net (8,889) (2,754) 38 (11,605)

Adjusted Net Trading Income $ 102,491 $ 39,348 $ (120) $ 141,719

Nine Months Ended September 30, 2020

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

Trading income, net $ 1,754,309 $ 234,867 $ — $ 1,989,176

Commissions, net and technology services 9,526 — — 9,526

Brokerage, exchange, clearance fees and payments for order flow, net (462,201) (25,033) — (487,234)

Interest and dividends, net (44,264) (5,582) — (49,846)

Adjusted Net Trading Income $ 1,257,370 $ 204,252 $ — $ 1,461,622

Nine Months Ended September 30, 2019

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

Trading income, net $ 537,708 $ 143,042 $ (526) $ 680,224

Commissions, net and technology services 17,241 (28) — 17,213

Brokerage, exchange, clearance fees and payments for order flow, net (173,494) (30,736) 570 (203,660)

Interest and dividends, net (31,816) (8,497) (160) (40,473)

Adjusted Net Trading Income $ 349,639 $ 103,781 $ (116) $ 453,304

The following table shows our Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income by asset class for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30,

Adjusted Net Trading Income by Category:

2020 2019 % Change

Market Making:

Global Equities $ 211,592 $ 102,491 106.4%

Global FICC, Options and Other 45,643 39,348 16.0%

Unallocated(1) — (120) NM

Total Market Making 257,235 141,719 81.5%

Execution Services 105,023 108,073 (2.8)%

Adjusted Net Trading Income $ 362,258 $ 249,792 45.0%

Three Months Ended September 30,

Average Daily Adjusted Net Trading Income by Category:

2020 2019 % Change

Market Making:

Global Equities $ 3,306 $ 1,601 106.5%

Global FICC, Options and Other 713 615 16.0%

Unallocated(1) — (2) NM

Total Market Making 4,019 2,214 81.5%

Execution Services 1,641 1,689 (2.8)%

Average Daily Adjusted Net Trading Income $ 5,660 $ 3,903 45.0%

Nine Months Ended September 30,

Adjusted Net Trading Income by Category:

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Adjusted Net Trading Income by Segment (in thousands):

2021 2020 % Change

Market Making $ 575,123 $ 652,275 (11.8)%

Global Equities $ 1,257,370 $ 349,639 259.6%

Global FICC, Options and Other 204,252 103,781 96.8%

Unallocated(1) — (116) NM

Total Market Making 1,461,622 453,304 222.4%

Execution Services 152,906 132,193 15.7%

Corporate — — NM

Adjusted Net Trading Income $ 728,029 $ 784,468 (7.2)%

Nine Months Ended September 30,

Average Daily Adjusted Net Trading Income by Category:

Three Months Ended March 31,

Average Daily Adjusted Net Trading Income by Segment (in thousands):

2021 2020 % Change

Market Making $ 9,428 $ 10,521 (10.4)%

Global Equities $ 6,653 $ 1,850 259.6%

Global FICC, Options and Other 1,081 549 96.8%

Unallocated(1) — (1) NM

Total Market Making 7,733 2,398 222.5%

Execution Services 2,507 2,132 17.6%

Corporate — — NM

Average Daily Adjusted Net Trading Income $ 11,935 $ 12,653 (5.7)%

(1) Under our methodology for recording “trading income, net” in our Condensed Consolidated Statements of Comprehensive Income from Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q, 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.

By contrast, when we calculate Adjusted Net Trading Income by category, we do so

on a daily basis, and as a result prices used in recognizing revenues may differ.

Because we provide liquidity on a global basis, across asset classes and time zones, the timing of any particular Adjusted Net Trading Income calculation may defer or accelerate the amount in a particular category from one day to another, and, at the end of a reporting period, from one reporting period to another.

The purpose of the Unallocated category is to ensure that Adjusted Net Trading Income by category sums to total Adjusted Net Trading Income, which can be reconciled to Trading Income, net, calculated in accordance with U.S.

We do not allocate any resulting differences based on the timing of revenue recognition.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Total Revenues

Our total revenues increased $273.8 million, or 71.6%, to $656.1 million for the three months ended September 30, 2020, compared to $382.3 million for the three months ended September 30, 2019.

The increase was primarily driven by an increase of $221.1 million in Trading income, net, which was driven by higher market volatility and trading volumes from the continued impacts of the COVID-19 pandemic during the three months ended September 30, 2020 compared to the prior period.

There was a significant increase in Other, net of $70.8 million, which was primarily due to the gain on the sale of MATCHNow.

On August 4, 2020, we completed the sale of MATCHNow to Cboe Global Markets, Inc.("CBOE") for total gross proceeds of $60.6 million in cash and recognized a gain on sale of $58.7 million, which is recorded in Other, net (see Note 4 "Sale of MATCHNow" of Part I Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q).

The following table shows total revenues by segment for the three months ended September 30, 2020 and 2019.

Three Months Ended September 30,

Our total revenues increased $12.0 million, or 1.2%, to $1,012.6 million for the three months ended March 31, 2021, compared to $1,000.6 million for the three months ended March 31, 2020.

This increase was primarily attributable to revenues earned by Execution Services.

The following table shows the total revenues by segment for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

(in thousands, except for percentage) 2021 2020 % Change

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Interest and dividends income 6,901 26,433 (73.9)%

Commissions, net and technology services 9,391 7,252 29.5%

Commissions, net and technology services 14,130 769 NM

Other, net 1,412 721 95.8%

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Commissions, net and technology services 177,519 169,975 4.4%

Other, net 58,583 82 71,342.7%

Other, net 162 3 NM

Total revenues from Execution Services 189,239 169,864 11.4%

Other, net (1,166) (1,267) (8.0)

Total revenues from Corporate (1,166) (1,267) (8.0)

Trading income, net 441,295 220,148 100.5%

Interest and dividends income 10,932 23,352 (53.2)%

Commissions, net and technology services 133,853 139,627 (4.1)%

Other, net (391) 171 NM

Total revenues $ 656,112 $ 382,340 71.6%

Trading income, net.

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

Trading income, net increased $221.1 million, or 100.5%, to $441.3 million for the three months ended September 30, 2020, compared to $220.1 million for the three months ended September 30, 2019.

The increase was primarily driven by the higher market volatility and trading volumes across global markets and major asset categories during the three months ended September 30, 2020 compared to the same period in 2019.

Average daily realized volatility of the S&P 500 Index increased 14.7% during the period as compared to the prior period, while average daily U.S.

equity consolidated volumes increased 43.5%.

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 is described below.

Interest and dividends income.

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

Interest and dividends income decreased $12.4 million, or 53.2%, to $10.9 million for the three months ended September 30, 2020, compared to $23.4 million for the three months ended September 30, 2019.

This decrease was primarily attributable to the lower interest income earned on cash collateral posted as part of securities borrowing transactions driven by lower interest rates as well as a slight reduction in balances compared to the same period in 2019.

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.

Commissions, net and technology services.

Commissions, net and technology services revenues were primarily earned by our Execution Services segment.

Commissions, net and technology services revenues decreased $5.8 million, or 4.1%, to $133.9 million for the three months ended September 30, 2020, compared to $139.6 million for the three months ended September 30, 2019.

The decrease was primarily attributable to a reduction in commissions associated with the previously registered U.S.

broker dealer, Virtu Alternet Securities, whose SEC registration was withdrawn in August 2020, as well as the loss of revenues associated with MATCHNow, which was sold to CBOE on August 4, 2020.

Other, net was $70.0 million for the three months ended September 30, 2020, compared to a loss of $(0.8) million for the three months ended September 30, 2019.

The increase was primarily due to a $58.7 million gain recognized on the sale of MATCHNow, as discussed in Note 4 "Sale of MATCHNow" of Part I Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q.

In addition, we recognized a $12.3 million gain on the minority investment in SBI Japannext (see Note 11 "Financial Assets and Liabilities" of Part I Item I "Financial Statements" of this Quarterly Report on Form 10-Q for details on the SBI Investment).

Adjusted Net Trading Income

Adjusted Net Trading Income increased $112.5 million, or 45.0%, to $362.3 million for the three months ended September 30, 2020, compared to $249.8 million for the three months ended September 30, 2019.

This increase was primarily attributable to higher Trading income, net in the Market Making segment driven by higher market volatility and trading volumes across major asset categories during the three months ended September 30, 2019 compared to the same period in 2019.

In the Market Making segment, Global Equities increased by $109.1 million, or 106.4%, and Global FICC, Options and Other increased by $6.3 million, or 16.0%, for the three months ended September 30, 2020.

Adjusted Net Trading Income per day increased $1.8 million, or 45.0%, to $5.7 million for the three months ended September 30, 2020, compared to $3.9 million for the three months ended September 30, 2019.

There were 64 trading days for both the three months ended September 30, 2020 and 2019.

Adjusted Net Trading Income is a non-GAAP measure.

For a full description of Adjusted Net Trading Income and a reconciliation of Adjusted Net Trading Income to trading income, net, see “Non-GAAP Financial Measures and Other Items” in this Item 2.

“Management's Discussion and Analysis of Financial Condition and Results of Operations”.

Operating Expenses

Our operating expenses increased $15.4 million, or 4.0%, to $403.6 million for the three months ended September 30, 2020, compared to $388.2 million for the three months ended September 30, 2019.

The increase in operating expenses is primarily due to an increase in brokerage, exchange, clearance fees and payments for order flow, net driven by higher market volatility and trading volumes partially offset by decreases in employee compensation and payroll taxes and other operating expenses 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 $97.7 million, or 98.9%, to $196.4 million for the three months ended September 30, 2020, compared to $98.8 million for the three months ended September 30, 2019.

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

The increase in payments for order flow was driven by the increases 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 past quarter compared to the prior period.

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

Communication and data processing.

Communication and data processing expense decreased $8.1 million, or 13.6%, to $51.6 million for the three months ended September 30, 2020, compared to $59.8 million for the three months ended September 30, 2019.

This decrease was primarily due to reductions in connectivity connections as a result of an on-going effort to consolidate various communication and data processing subscriptions.

Employee compensation and payroll taxes.

Employee compensation and payroll taxes decreased $54.8 million, or 60.5%, to $35.8 million for the three months ended September 30, 2020, compared to $90.6 million for the three months ended September 30, 2019.

The decrease in compensation levels was primarily attributable to a reduction in accrued incentive compensation in the third quarter, which is recorded at management’s discretion and is generally accrued in connection with the overall level of profitability on a year-to-date basis, as well as the anticipated mix of cash and stock-based awards.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $8.7 million and $8.6 million for the three months ended September 30, 2020, and 2019, respectively.

Interest and dividends expense.

Interest and dividends expense decreased $7.2 million, or 20.8%, to $27.4 million for the three months ended September 30, 2020, compared to $34.5 million for the three months ended September 30, 2019.

This decrease was primarily attributable to lower interest expense incurred on cash collateral received as part of securities lending transactions, as well as a reduction in securities lending transactions for the period compared to the same period during the prior year.

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

Operations and administrative.

Operations and administrative expense decreased $0.7 million, or 2.8%, to $24.6 million for the three months ended September 30, 2020, compared to $25.3 million for the three months ended September 30, 2019.

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

Depreciation and amortization.

Depreciation and amortization decreased $0.9 million, or 5.4%, to $16.7 million for the three months ended September 30, 2020, compared to $17.6 million for the three months ended September 30, 2019.

This decrease was primarily attributable to certain assets being fully depreciated partially offset by an increase in capital expenditures on telecommunication, networking and other assets.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software decreased $0.6 million, or 3.4%, to $18.3 million for the three months ended September 30, 2020, compared to $18.9 million for the three months ended September 30, 2019.

This decrease was due to certain technology intangible assets acquired in connection with the KCG Acquisition being fully amortized.

Termination of office leases.

Termination of office leases decreased $1.2 million, or 95.3%, to $0.1 million for the three months ended September 30, 2020, compared to $1.3 million for the three months ended September 30, 2019.

The decrease in 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 for certain abandoned office space as part of the effort to integrate and consolidate office space in connection with the ITG Acquisition.

There were minimal expenses incurred on termination of office leases for the three months ended September 30, 2019.

Debt issue cost related to debt refinancing and prepayment.

Expense from debt issue costs related to debt refinancing, prepayment and commitment fees was $9.9 million for the three months ended September 30, 2020.

There were no debt issue costs related to debt refinancing and prepayment for the three months ended September 30, 2019 as there were no refinancings or repayments during this period.

The increase was primarily driven by the amortization of debt issue costs related to the Founder Member Loan Facility (as described in Note 10 “Borrowings” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q), in addition to debt issue costs related to the $100.0 million prepayment made during the three months ended September 30, 2020.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses decreased $4.7 million, or 65.6% to $2.5 million for the three months ended September 30, 2020, compared to $7.2 million during the three months ended September 30, 2019.

The decrease was due to professional fees incurred in 2019 as a result of the ITG Acquisition.

For the three months ended September 30, 2020, we incurred one-time transaction costs of $2.5 million in relation to the sale of MATCHNow, as discussed in Note 4 "Sale of MATCHNow" of Part I Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q.

Financing interest expense on long-term borrowings.

Financing interest expense on long-term borrowings decreased $13.8 million, or 40.5%, to $20.4 million for the three months ended September 30, 2020, compared to $34.2 million for the three months ended September 30, 2019.

This decrease was primarily attributable to the decrease in outstanding principal as a result of the prepayment on the First Lien Term Loan Facility in the second and third quarter of 2020.

Provision for (benefit from) income taxes

We incur corporate tax at the U.S.

federal income tax rate on our taxable income, as adjusted for noncontrolling interest in Virtu Financial.

Our income tax expense reflects such U.S.

federal income tax as well as taxes payable by certain of our non-U.S.

subsidiaries.

Our provision for (benefit from) income taxes was $52.8 million for the three months ended September 30, 2020, compared to $(0.6) million for the three months ended September 30, 2019.

The change was primarily due to the income before income taxes and noncontrolling interest for the three months ended September 30, 2020, compared to a loss before income taxes and noncontrolling interest for the three months ended September 30, 2019.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Total Revenues

Our total revenues increased $1,444.8 million, or 129.2%, to $2,562.6 million for the nine months ended September 30, 2020, compared to $1,117.9 million for the nine months ended September 30, 2019.

This increase was primarily attributable to an increase in Trading income, net, of $1,304.1 million, which was driven by higher market volatility and trading volumes during the first three quarters of 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 September 30, 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 the past nine months 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 nine months ended September 30, 2020 and 2019.

Nine Months Ended September 30,

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

Market Making

Total revenues from Corporate (391) 171 NM

Trading income, net 812,743 802,466 1.3%

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Commissions, net and technology services 191,649 170,744 12.2%

Other, net 19,382 235 NM

Total revenues from Market Making 2,064,300 762,076 170.9%

Execution Services

Trading income, net (1,420) 3,387 NM

Interest and dividends income 572 12,241 (95.3)%

Commissions, net and technology services 442,807 342,681 29.2%

Other, net 58,662 16 NM

Total revenues from Execution Services 500,621 358,325 39.7%

Other, net 1,183 895 32.2%

Total revenues from Corporate (2,286) (2,528) (9.6)%

Trading income, net 1,987,756 683,611 190.8%

Interest and dividends income 46,788 76,645 (39.0)%

Commissions, net and technology services 452,333 359,894 25.7%

Other, net 75,758 (2,277) NM

Total revenues $ 1,012,572 $ 1,000,621 1.2%

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

Trading income, net, increased $1,304.1 million, or 190.8%, to $1,987.8 million for the nine months ended September 30, 2020, compared to $683.6 million for the nine months ended September 30, 2019.

The increase was primarily driven by the higher market volatility and trading volumes across global markets and major asset categories during the nine months ended September 30, 2020 compared to the same period in the prior year.

Average daily realized volatility of the S&P 500 Index increased 165.2% compared to the prior period, while average daily U.S.

Trading income, net, increased $10.3 million, or 1.3%, to $812.7 million for the three months ended March 31, 2021, compared to $802.5 million for the three months ended March 31, 2020.

The increase was primarily driven by a combination of higher trading volumes in U.S.

equities and lower market volatility during the three months ended March 31, 2021 compared to the first quarter of 2020 at the onset of the COVID-19 pandemic.

Average daily realized volatility of the S&P 500 Index decreased 72.4% compared to the prior period, while average daily U.S.

equity consolidated volumes increased 33.5%.

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

Interest and dividends income decreased $29.9 million, or 39.0%, to $46.8 million for the nine months ended September 30, 2020, compared to $76.6 million for the nine months ended September 30, 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.

Interest and dividends income decreased $19.5 million, or 73.6%, to $7.0 million for the three months ended March 31, 2021, compared to $26.5 million for the three months ended March 31, 2020.

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 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 were primarily earned by our Execution Services segment.

Commissions, net and technology services revenues increased $92.4 million, or 25.7%, to $452.3 million for the nine months ended September 30, 2020, compared to $359.9 million for the nine months ended September 30, 2019.

The increase was primarily attributable to the results of ITG for the full first quarter of 2020 compared to the results of ITG from the ITG Closing Date through March 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 $78.0 million, or 3,427.1%, to $75.8 million for the nine months ended September 30, 2020, compared to $(2.3) million for the nine months ended September 30, 2019.

The increase was primarily due to a $58.7 million gain recognized on the sale of MATCHNow (see Note 4 "Sale of MATCHNow" of Part I Item 1 "Financial Statements" of this Quarterly Report on Form 10-Q).

In addition, we recognized a $17.4 million gain on the minority investment in SBI Japannext (see Note 11 "Financial Assets and Liability" of Part I Item I "Financial Statements" of this Quarterly Report on Form 10-Q for details on the SBI Investment).

Commissions, net and technology services revenues increased $20.9 million, or 12.2%, to $191.6 million for the three months ended March 31, 2021, compared to $170.7 million for the three months ended March 31, 2020.

The increase was primarily attributable to higher trading volumes in U.S.

Other, net increased $0.3 million to $1.2 million for the three months ended March 31, 2021, compared to $0.9 million for the three months ended March 31, 2020.

The increase was primarily due to a $2.5 million gain on the minority investment in JNX (see Note 12 "Financial Assets and Liabilities" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for details on the JNX Investment).

Adjusted Net Trading Income

Adjusted Net Trading Income increased $1,097.9 million, or 153.0%, to $1,815.5 million for the nine months ended September 30, 2020, compared to $717.5 million for the nine months ended September 30, 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 nine months ended September 30, 2020 compared to the prior period.

Average daily realized volatility of the S&P 500 Index and average daily CVIX realized volatility increased 165.2% and 101.1%, respectively, compared to the prior period, while average daily U.S.

Adjusted Net Trading Income decreased $56.4 million, or 7.2%, to $728.0 million for the three months ended March 31, 2021, compared to $784.5 million for the three months ended March 31, 2020.

This decrease was primarily attributable to higher Brokerage, exchange, clearance fees and payments for order flow, net (described below) incurred by Market Making and higher Commissions, net and technology services earned by Execution Services, driven by higher trading volumes despite lower volatility during the three months ended March 31, 2021 compared to the prior period.

Average daily realized volatility of the S&P 500 Index and average daily CVIX realized volatility decreased 72.4% and 78.1%, respectively, compared to the prior period, while average daily U.S.

equity consolidated volumes increased 33.5%.

There were increases in Trading income, net in Global Equities of $907.7 million, and in Global FICC, Options and Other of $100.5 million, from the Market Making segment.

There was also an increase of $89.6 million, or 33.9%, 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 first quarter of 2020 compared to the results of ITG from the ITG Closing Date through March 31, 2019.

Adjusted Net Trading Income per day increased $5.8 million, or 153.0%, to $9.6 million for the nine months ended September 30, 2020, compared to $3.8 million for the nine months ended September 30, 2019.

The number of trading days was 189 for both the nine months ended September 30, 2020 and 2019, respectively.

Adjusted Net Trading Income per day decreased $0.7 million, or 5.7%, to $11.9 million for the three months ended March 31, 2021, compared to $12.7 million for the three months ended March 31, 2020.

The number of trading days was 61 days for the three months ended March 31, 2021 and 62 days for the three months ended March 31, 2020, respectively.

Adjusted Net Trading Income is a non-GAAP measure.

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Operating Expenses

Our operating expenses increased $232.9 million, or 19.3%, to $1,439.4 million for the nine months ended September 30, 2020, compared to $1,206.5 million for the nine months ended September 30, 2019.

The increase in operating expenses was primarily due to higher trading related expenses as a result of the increases in volumes traded during the nine months ended September 30, 2020 compared to the prior period.

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

Our operating expenses decreased $11.6 million, or 2.2%, to $522.8 million for the three months ended March 31, 2021, compared to $534.4 million for the three months ended March 31, 2020.

The decrease in operating expenses was primarily due to lower employee compensation and payroll taxes and interest and dividends expense, offset by an increase in Brokerage, exchange, clearance fees and payments for order flow, net compared to the same period in the prior year, 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 $287.9 million, or 100.7%, to $573.8 million for the nine months ended September 30, 2020, compared to $285.9 million for the nine months ended September 30, 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 past nine months compared to the same period during the prior year.

Brokerage, exchange, clearance fees and payments for order flow, net, increased $85.5 million, or 49.2%, to $259.3 million for the three months ended March 31, 2021, compared to $173.8 million for the three months ended March 31, 2020.

This increase was primarily attributable to increases in volumes from our broker-dealer clients eligible for payments for order flow, driven by higher participation of retail investors in the market during the quarter 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 $6.3 million, or 4.1%, to $162.3 million for the nine months ended September 30, 2020, compared to $156.0 million for the nine months ended September 30, 2019.

This increase was primarily attributatble to the results of ITG for the full first quarter in 2020 compared to the results of ITG from the ITG Closing Date through March 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.

Communication and data processing expense decreased $3.3 million, or 6.1%, to $51.7 million for the three months ended March 31, 2021, compared to $55.0 million for the three months ended March 31, 2020.

This decrease was primarily attributable to reductions in connectivity connections as a result of an on-going effort to consolidate various communication and data processing services and subscriptions.

Employee compensation and payroll taxes.

Employee compensation and payroll taxes increased $45.0 million, or 15.9%, to $327.1 million for the nine months ended September 30, 2020, compared to $282.1 million for the nine months ended September 30, 2019.

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 $28.1 million and $25.3 million for the nine months ended September 30, 2020 and 2019, respectively.

Employee compensation and payroll taxes decreased $65.6 million, or 38.5%, to $104.8 million for the three months ended March 31, 2021, compared to $170.4 million for the three months ended March 31, 2020.

The decrease in compensation levels was primarily attributable to higher incentive compensation in the first quarter of 2020, which is recorded at management’s discretion and is generally accrued in connection with the overall level of profitability, as well 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 $9.2 million and $7.8 million for the three months ended March 31, 2021 and 2020, respectively.

Interest and dividends expense.

Interest and dividends expense decreased $19.1 million, or 16.3%, to $97.7 million for the nine months ended September 30, 2020, compared to $116.7 million for the nine months ended September 30, 2019.

Interest and dividends expense decreased $17.4 million, or 42.0%, to $24.0 million for the three months ended March 31, 2021, compared to $41.4 million for the three months ended March 31, 2020.

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

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Operations and administrative.

Operations and administrative expense decreased $2.8 million, or 3.7%, to $73.5 million for the nine months ended September 30, 2020, compared to $76.3 million for the nine months ended September 30, 2019.

Operations and administrative expense decreased $1.5 million, or 5.4%, to $25.7 million for the three months ended March 31, 2021, compared to $27.1 million for the three months ended March 31, 2020.

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 $1.9 million, or 3.8%, to $50.7 million for the nine months ended September 30, 2020, compared to $48.9 million for the nine months ended September 30, 2019.

This increase was primarily attributable to depreciation and amortization of additional assets resulting from the ITG acquisition for the full first quarter 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.

Depreciation and amortization decreased $0.6 million, or 3.4%, to $16.8 million for the three months ended March 31, 2021, compared to $17.4 million for the three months ended March 31, 2020.

This decrease was primarily attributable to certain assets being fully depreciated in 2020.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software increased $5.7 million, or 11.4%, to $56.2 million for the nine months ended September 30, 2020, compared to $50.4 million for the nine months ended September 30, 2019.

This increase was due to the amortization of intangible assets acquired in connection with the ITG Acquisition for a full three quarters in 2020 versus the period from the ITG Closing Date through September 30, 2019.

Amortization of purchased intangibles and acquired capitalized software decreased $0.9 million, or 4.6%, to $18.1 million for the three months ended March 31, 2021, compared to $19.0 million for the three months ended March 31, 2020.

This decrease was primarily attributable to certain intangible assets being fully amortized in 2020.

Termination of office leases.

Termination of office leases was $0.3 million for the nine months ended September 30, 2020, compared to $66.5 million for the nine months ended September 30, 2019.

Termination of office leases was $1.2 million for the three months ended March 31, 2021, compared to $0.3 million for the three months ended March 31, 2020.

Expense from termination of office leases was due to the impairment of operating lease right-of-use assets 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 increased $19.4 million, or 245.6%, to $27.3 million for the nine months

ended September 30, 2020, compared to $7.9 million for the nine months ended September 30, 2019.

This was primarily driven by amortization of debt issue costs related to the Founder Member Loan Facility (see Note 10 “Borrowings” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q), which expired as of September 20, 2020 , in addition to debt issue costs related to a $288.5 million prepayment made during the nine months ended September 30, 2020.

The amount for the nine months ended September 30, 2019 mainly reflects costs incurred related to the termination of the Existing Term Loan Facility (as defined below) in the first quarter of 2019.

Expense from debt issue costs related to debt refinancing, prepayment and commitment fees decreased $2.4 million, or 57.9%, to $1.8 million for the three months ended March 31, 2021, compared to $4.2 million for the three months ended March 31, 2020.

The amount for the three months ended March 31, 2020 was primarily driven by the amortization of debt issue costs related to the addition of the Founder Member Loan Facility in March 2020, which expired as of September 20, 2020, as well as costs incurred related to Amendment No.

2 to the Credit Agreement (as defined below).

See Note 8 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for additional details.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses decreased $21.3 million, or 88.6%, to $2.7 million for the nine months ended September 30, 2020, compared to $24.1 million for the nine months ended September 30, 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 increases related to the one-time transaction costs incurred as a result of the sale of MATCHNow.

Transaction advisory fees and expenses were immaterial for the three months ended March 31, 2021, compared to $0.2 million for the three months ended March 31, 2020.

These expenses were primarily incurred in prior years related to the ITG Acquisition and Acquisition of KCG, for which we incurred significant transaction advisory fees.

Financing interest expense on long term borrowings.

Financing interest expense on long-term borrowings decreased $23.9 million, or 26.1%, to $67.8 million for the nine months ended September 30, 2020, compared to $91.7 million for the nine months ended September 30, 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 10 “Borrowings” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

Provision for (benefit from) income taxes

Financing interest expense on long-term borrowings decreased $6.2 million, or 24.1%, to $19.5 million for the three months ended March 31, 2021, compared to $25.7 million for the three months ended March 31, 2020.

This decrease was primarily attributable to a decrease in outstanding principal as a result of $288.5 million in prepayments made during the year ended December 31, 2020, in addition to lower interest rates, as discussed in Note 8 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

Provision for income taxes

We incur corporate tax at the U.S.

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subsidiaries.

Our provision for income taxes was $200.0 million for the nine months ended September 30, 2020, compared to a benefit from income taxes of $(14.3) million for the nine months ended September 30, 2019.

The change was primarily due to the income before income taxes and noncontrolling interest for the nine months ended September 30, 2020, compared to a loss before taxes during the prior year period.

Our provision for income taxes was $80.6 million for the three months ended March 31, 2021, compared to a provision for income taxes of $78.0 million for the three months ended March 31, 2020.

Liquidity and Capital Resources

As of September 30, 2020, we had $567.7 million in Cash and cash equivalents.

As of March 31, 2021, we had $899.0 million in Cash and cash equivalents.

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 September 30, 2020, we had borrowings under our prime brokerage credit facilities of approximately $163.6 million, borrowings under our broker dealer facilities of $78.0 million, short-term bank overdrafts of $47.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,669.7 million.

As of September 30, 2020, our regulatory capital requirements for Virtu Americas LLC, our domestic U.S.

broker-dealer subsidiary, was $2.5 million.

As of March 31, 2021, we had borrowings under our prime brokerage credit facilities of approximately $204.4 million, borrowings under our broker dealer facilities of $178.0 million, short-term bank overdrafts of $65.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,666.7 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 Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

As a result of the substantially elevated volume and volatility environment during the quarter 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 equivalent period in the prior year.

This increase in our activity and our customers’ activity together with the extraordinary volatility during certain periods within the quarter has driven our short-term liquidity needs significantly higher as compared to prior periods, though these levels declined meaningfully during the second and third quarter 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 10 “Borrowings” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

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.

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 8 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

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.

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.

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Our principal U.S.

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

subsidiary is subject to separate regulation and capital requirements in the U.S.

and other jurisdictions.

Virtu Americas LLC is a registered U.S.

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

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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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 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 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.

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.

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 IIROC.

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.

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

See Note 19 "Regulatory Requirement" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of regulatory capital requirements of our regulated subsidiaries.

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See Note 8 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for details on our various credit facilities.

As of September 30, 2020, the outstanding principal balance on our broker-dealer facilities was $78.0 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 $163.6 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statement of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

As of March 31, 2021, the outstanding principal balance on our broker-dealer facilities was $178.0 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 $204.4 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

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.

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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.

Upon the execution of and in consideration for the Lender’s commitments under the Founder Member Loan Facility, the Company delivered to the Founder Member a warrant to purchase shares of the Company’s Class A Common Stock, 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.

The number of shares would have been increased to 10,000,000 if, at any time during the term of the Founder Member Facility, Founder Member Loans equal to or greater than $100 million remained outstanding for a certain period of time specified in the Warrant, however as indicated above, no borrowings were made during the term of the Founder Member Loan Facility and therefore there was no such increase of shares issuable pursuant to the terms of the Warrant.

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

The 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.

The foregoing descriptions of the Founder Member Loan Facility and the Warrant do not purport to be complete and are qualified in its entirety by reference to the complete text of the Founder Member Loan Facility and the Warrant, which are filed as exhibits to the Company's quarterly report on Form 10-Q for the period ending March 31, 2020, filed with the Securities and Exchange Commission on May 11, 2020.

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 subfacility.

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 No.

1 Closing Date”), VFH entered into Amendment No.

1 (“Amendment No.

1”), which amended the Credit Agreement dated as of March 1, 2019, by and among VFH, Virtu Financial, the lenders party thereto, and Jefferies Finance, LLC, as administrative agent and collateral agent, to, among other things, provide for $525.0 million in aggregate principal amount of incremental term loans (the “Incremental Term Loans”), and amend the related collateral agreement.

On the Amendment No.

1 Closing Date, VFH borrowed the Incremental Term Loans and used the proceeds together with available cash to redeem all of the $500.0 million aggregate principal amount of the outstanding 6.750% Senior Secured Second Lien Notes (as defined below) due 2022 issued by VFH and Orchestra Co Issuer, Inc., a Delaware corporation and indirect subsidiary of the Company (together with VFH, the “Issuers”), and 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.

On March 2, 2020 (the “Amendment No.

2 Closing Date”), VFH entered into Amendment No.

2 (“Amendment No.

On October 9, 2019, VFH entered into an amendment (“Amendment No.

1”), which amended the Credit Agreement dated as of March 1, 2019, to, among other things, provide for $525.0 million in aggregate principal amount of incremental term loans (the “Incremental Term Loans”), and amend the related collateral agreement.

On March 2, 2020, VFH entered into a second amendment (“Amendment No.

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

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

On January 29, 2020, the Company entered into a five-year $1,000 million floating-to-fixed interest rate swap agreement.

The Company also previously entered into a five-year $525 million floating-to-fixed interest rate swap agreement in the fourth quarter of 2019.

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 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.

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 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.

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

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

The revolving commitments will terminate on March 1, 2022.

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

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

To finance the Acquisition of KCG, on June 30, 2017, Virtu Financial and VFH previously entered into the Fourth Amended and Restated Credit Agreement which, upon the closing of the Acquisition of KCG, provided for an aggregate $1.15 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 Amended Credit Agreement as of September 30, 2020.

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 met 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.

We were in compliance with all applicable covenants under the Amended Credit Agreement as of March 31, 2021.

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.

The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2020 and 2019.

Nine Months Ended September 30,

The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2021 and 2020.

Three Months Ended March 31,

Net cash provided by (used in):

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Effect of exchange rate changes on cash and cash equivalents (3,676) (10,396)

Net increase (decrease) in cash and cash equivalents $ (107,318) $ (341,228)

Net increase in cash and cash equivalents $ 14,828 $ 31,921

Operating Activities

Net cash provided by operating activities was $483.6 million for the nine months ended September 30, 2020, compared to net cash used in operating activities of $346.2 million for the nine months ended September 30, 2019.

The increase in net cash provided by operating activities was primarily attributable to increases in trading income, net for the nine months ended September 30, 2020 compared to the prior period.

Net cash provided by operating activities was $133.9 million for the three months ended March 31, 2021, compared to net cash used in operating activities of $218.7 million for the three months ended March 31, 2020.

The increase in net cash provided by operating activities was primarily attributable to increases in net receivables from broker-dealers and clearing organizations and net receivables from customers for the three months ended March 31, 2020 compared to the current period.

Investing Activities

Net cash provided by investing activities was $3.4 million for the nine months ended September 30, 2020, compared to net cash used in investing activities of $882.8 million for the nine months ended September 30, 2019.

The decrease in cash provided by investing activities for the nine months ended September 30, 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 I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q), partially offset by $60.6 million cash provided by the sale of MATCHNow in the third quarter of 2020 (see Note 4 "Sale of MATCHNow" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q).

Net cash used in investing activities was $25.6 million for the three months ended March 31, 2021, compared to net cash used in investing activities of $20.0 million for the three months ended March 31, 2020.

The increase in cash used in investing activities for the three months ended March 31, 2021 was primarily attributable to a decrease in acquisition of property and equipment, partially offset by an increase in capitalized development costs.

Financing Activities

Net cash used in financing activities was $598.2 million for the nine months ended September 30, 2020, while net cash provided by financing activities was $897.8 million for the nine months ended September 30, 2019.

The cash used in financing activities for the nine months ended September 30, 2020 was primarily attributable to a $288.5 million prepayment on our long-term borrowings and by distributions made to noncontrolling interests of $247.8 million.

The cash provided by financing activities of $897.8 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.

Secondary Offerings

In May 2018, the Company and certain selling stockholders completed a public offering (the “May 2018 Secondary Offering”) of 17,250,000 shares of Class A Common Stock by the Company and certain selling stockholders at a purchase price per share of $27.16 (the offering price to the public of $28.00 per share minus the underwriters’ discount), which included the exercise in full by the underwriters of their option to purchase additional shares in the May 2018 Secondary Offering.

The Company sold 10,518,750 shares of Class A Common Stock in the offering, the net proceeds of which were used to purchase an equivalent number of Virtu Financial Units and corresponding shares of Class D Common Stock from TJMT Holdings LLC pursuant to that certain Member Purchase Agreement, entered into on May 15, 2018 by and between the Company and TJMT Holdings LLC.

The selling stockholders sold 6,731,250 shares of Class A Common Stock in the May 2018 Secondary Offering, including 2,081,250 shares of Class A Common Stock issued by the Company upon the exercise of vested stock options.

In connection with the May 2018 Secondary Offering, the Company, TJMT Holdings LLC, 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.

Vincent Viola and Mr.

Michael Viola, directors of the Company, and to confirm that certain other persons (including the Company’s CEO) remain parties to the Amended and Restated Registration Rights Agreement.

In May 2019, the Company completed a public offering (the “May 2019 Secondary Offering”) of 9,000,000 shares of Class A Common Stock at a purchase price per share paid by the underwriters of $22.00, the net proceeds of which were used to purchase an equivalent number of Virtu Financial Units and corresponding shares of Class D Common Stock from TJMT Holdings LLC pursuant to that certain Member Purchase Agreement, entered into on May 14, 2019 by and between the Company and TJMT Holdings LLC.

Net cash used in financing activities was $89.7 million for the three months ended March 31, 2021, while net cash provided by financing activities was $281.0 million for the three months ended March 31, 2020.

The cash used in financing activities for the three months ended March 31, 2021 was primarily attributable to $159.2 million in distributions made to noncontrolling interests and $63.4 million in repurchases of Class A Common Stock and Virtu Financial Units under the share repurchase program (described below).

The cash provided by financing activities of $281.0 million during the same period of 2020 primarily reflects net proceeds from short-term borrowings to increase available short-term liquidity during a period of heightened volatility at the onset of the COVID-19 pandemic.

Share Repurchase Program

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.

The authorized amount was subsequently increased by $70 million on February 11, 2021, for a total authorization of $170 million.

From the inception of the program through March 31, 2021, the Company repurchased approximately 3.7 million shares of Class A Common Stock and Virtu Financial Units for approximately $97.3 million.

As of March 31, 2021, the Company has approximately of $72.7 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have current or future effects on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

We believe inflation has not had a material effect on our financial condition as of September 30, 2020, and December 31, 2019, or on our results of operations and cash flows for the three and nine months ended September 30, 2020 and 2019.

As of March 31, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have current or future effects on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

We believe inflation has not had a material effect on our financial condition as of March 31, 2021, and December 31, 2020, or on our results of operations and cash flows for the three months ended March 31, 2021 and 2020.

Critical Accounting Policies and Estimates

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Critical accounting policies are those that are the most important portrayal of our financial condition, results of operations and cash flows, and that require our most difficult, subjective and complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain.

While our significant accounting policies are described in more detail in the notes to our condensed consolidated financial statements, our most critical accounting policies are discussed below.

While our significant accounting policies are described in more detail in Note 2 "Summary of Significant Accounting Policies" in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020, our most critical accounting policies are discussed below.

In applying such policies, we must use some amounts that are based upon our informed judgments and best estimates.

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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 Condensed Consolidated Statements of Comprehensive Income.

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

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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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.

With respect to the RSUs, we account for forfeitures as

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 restricted stock units or the exercise of stock options.

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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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-Q

Item 2. Management’s Discussion and Analysis