Virtu Financial, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Index to Condensed Consolidated Financial Statements PAGE NUMBER Condensed Consolidated Statements of Financial Condition (Unaudited) 3 Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) 5 Condensed Consolidated Statements of Changes in Equity (Unaudited) 6 Condensed Consolidated Statements of Cash Flows (Unaudited) 8 Notes to Condensed Consolidated Financial Statements (Unaudited) 10 2 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Financial Condition (Unaudited) (in thousands, except share data) June 30, 2021 December 31, 2020 Assets Cash and cash equivalents $ 848,111 $ 889,559 Cash restricted or segregated under regulations and other 67,144 117,446 Securities borrowed 1,535,297 1,425,016 Securities purchased under agreements to resell 54,555 22,866 Receivables from broker-dealers and clearing organizations 1,609,065 1,684,006 Trading assets, at fair value: Financial instruments owned 2,715,188 2,369,192 Financial instruments owned and pledged 927,158 746,539 Receivables from customers 208,247 214,478 Property, equipment and capitalized software (net of accumulated depreciation of $ 454,875 and $ 455,961 as of June 30, 2021 and December 31, 2020, respectively) 107,955 113,590 Operating lease right-of-use assets 240,194 268,864 Goodwill 1,148,926 1,148,926 Intangibles (net of accumulated amortization of $ 219,648 and $ 183,494 as of June 30, 2021 and December 31, 2020, respectively) 418,345 454,499 Deferred tax assets 180,356 193,070 Other assets ($ 81,055 and $ 68,316 , at fair value, as of June 30, 2021 and December 31, 2020, respectively) 280,870 317,747 Total assets $ 10,341,411 $ 9,965,798 Liabilities and equity Liabilities Short-term borrowings $ 214,252 $ 64,686 Securities loaned 1,142,741 948,256 Securities sold under agreements to repurchase 490,879 461,235 Payables to broker-dealers and clearing organizations 776,586 876,446 Payables to customers 127,859 118,826 Trading liabilities, at fair value: Financial instruments sold, not yet purchased 3,123,388 2,923,708 Tax receivable agreement obligations 254,660 271,165 Accounts payable, accrued expenses and other liabilities 399,074 491,818 Operating lease liabilities 286,335 315,340 Long-term borrowings 1,602,815 1,639,280 Total liabilities 8,418,589 8,110,760 Commitments and Contingencies (Note 14) Virtu Financial Inc. Stockholders' equity Class A common stock (par value $ 0.00001 ), Authorized — 1,000,000,000 and 1,000,000,000 shares, Issued — 127,725,595 and 125,627,277 shares, Outstanding — 118,475,086 and 122,012,180 shares at June 30, 2021 and December 31, 2020, respectively 1 1 Class B common stock (par value $ 0.00001 ), Authorized — 175,000,000 and 175,000,000 shares, Issued and Outstanding — 0 and 0 shares at June 30, 2021 and December 31, 2020, respectively — — Class C common stock (par value $ 0.00001 ), Authorized — 90,000,000 and 90,000,000 shares, Issued and Outstanding — 9,799,036 and 10,226,939 shares at June 30, 2021 and December 31, 2020, respectively — — Class D common stock (par value $ 0.00001 ), Authorized — 175,000,000 and 175,000,000 shares, Issued and Outstanding — 60,091,740 and 60,091,740 shares at June 30, 2021 and December 31, 2020, respectively 1 1 Treasury stock, at cost, 9,250,509 and 3,615,097 shares at June 30, 2021 and December 31, 2020, respectively ( 253,587 ) ( 88,923 ) Additional paid-in capital 1,201,890 1,160,567 Retained earnings (accumulated deficit) 648,893 422,381 Accumulated other comprehensive income (loss) ( 19,117 ) ( 25,487 ) Total Virtu Financial Inc. stockholders' equity 1,578,081 1,468,540 3 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Financial Condition (Unaudited) (in thousands, except share data) June 30, 2021 December 31, 2020 Noncontrolling interest 344,741 386,498 Total equity 1,922,822 1,855,038 Total liabilities and equity $ 10,341,411 $ 9,965,798 See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited). 4 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands, except share and per share data) 2021 2020 2021 2020 Revenues: Trading income, net $ 384,832 $ 743,996 $ 1,197,576 $ 1,546,461 Interest and dividends income 9,545 9,340 16,541 35,856 Commissions, net and technology services 143,115 147,736 334,764 318,481 Other, net 11,473 4,831 12,656 5,726 Total revenue 548,965 905,903 1,561,537 1,906,524 Operating Expenses: Brokerage, exchange, clearance fees and payments for order flow, net 170,691 203,503 430,023 377,321 Communication and data processing 52,507 55,662 104,197 110,689 Employee compensation and payroll taxes 83,849 120,934 188,620 291,292 Interest and dividends expense 24,971 28,841 48,999 70,281 Operations and administrative 21,753 21,737 47,408 48,867 Depreciation and amortization 16,349 16,713 33,127 34,073 Amortization of purchased intangibles and acquired capitalized software 18,077 18,954 36,154 37,912 Termination of office leases 3,667 7 4,888 283 Debt issue cost related to debt refinancing, prepayment and commitment fees 1,989 13,195 3,744 17,366 Transaction advisory fees and expenses ( 3 ) 86 ( 17 ) 274 Financing interest expense on long-term borrowings 20,113 21,736 39,605 47,406 Total operating expenses 413,963 501,368 936,748 1,035,764 Income before income taxes and noncontrolling interest 135,002 404,535 624,789 870,760 Provision for income taxes 26,095 69,250 106,650 147,237 Net income 108,907 335,285 518,139 723,523 Noncontrolling interest ( 45,997 ) ( 136,143 ) ( 215,824 ) ( 303,312 ) Net income available for common stockholders $ 62,910 $ 199,142 $ 302,315 $ 420,211 Earnings per share Basic $ 0.51 $ 1.59 $ 2.43 $ 3.39 Diluted $ 0.50 $ 1.58 $ 2.41 $ 3.38 Weighted average common shares outstanding Basic 119,681,845 121,527,673 120,865,624 120,642,415 Diluted 121,181,392 122,238,905 122,279,261 121,013,689 Net income $ 108,907 $ 335,285 $ 518,139 $ 723,523 Other comprehensive income Foreign exchange translation adjustment, net of taxes 66 6,444 ( 3,610 ) ( 3,952 ) Net change in unrealized cash flow hedges gain (loss), net of taxes ( 7,206 ) ( 9,137 ) 14,700 ( 64,739 ) Comprehensive income 101,767 332,592 529,229 654,832 Less: Comprehensive income attributable to noncontrolling interest ( 42,929 ) ( 135,018 ) ( 220,545 ) ( 273,541 ) Comprehensive income attributable to common stockholders $ 58,838 $ 197,574 $ 308,684 $ 381,291 See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited). 5 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Changes in Equity (Unaudited) Three and Six Months Ended June 30, 2021 and 2020 Class A Common Stock Class C Common Stock Class D Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Virtu Financial Inc. Stockholders' Equity Non-Controlling Interest Total Equity (in thousands, except share and interest data) Shares Amounts Shares Amounts Shares Amounts Shares Amounts Amounts Balance at December 31, 2020 125,627,277 $ 1 10,226,939 $ — 60,091,740 $ 1 ( 3,615,097 ) $ ( 88,923 ) $ 1,160,567 $ 422,381 $ ( 25,487 ) $ 1,468,540 $ 386,498 $ 1,855,038 Share based compensation 1,896,407 — — — — — — — 27,450 — — 27,450 — 27,450 Treasury stock purchases ( 615,794 ) — — — — — ( 2,277,409 ) ( 63,359 ) — ( 16,059 ) — ( 79,418 ) — ( 79,418 ) Stock options exercised 154,372 — — — — — — — 2,933 — — 2,933 — 2,933 Net income — — — — — — — — — 239,405 — 239,405 169,827 409,232 Foreign exchange translation adjustment — — — — — — — — — — ( 2,165 ) ( 2,165 ) ( 1,511 ) ( 3,676 ) Net change in unrealized cash flow hedges gains (losses) — — — — — — — — — — 12,607 12,607 9,299 21,906 Dividends ($ 0.24 per share of Class A common stock and participating Restricted Stock Unit and Restricted Stock Awards) and distributions from Virtu Financial to non-controlling interest — — — — — — — — — ( 30,147 ) — ( 30,147 ) ( 159,239 ) ( 189,386 ) Issuance of common stock in connection with employee exchanges 91,757 — — — — — — — — — — — — — Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges — — ( 91,757 ) — — — — — — — — — — — Balance at March 31, 2021 127,154,019 $ 1 10,135,182 $ — 60,091,740 $ 1 ( 5,892,506 ) $ ( 152,282 ) $ 1,190,950 $ 615,580 $ ( 15,045 ) $ 1,639,205 $ 404,874 $ 2,044,079 Share based compensation 32,916 — — — — — — — 7,444 — — 7,444 — 7,444 Repurchase of Class C common stock — — ( 45,622 ) — — — — — ( 1,323 ) — — ( 1,323 ) — ( 1,323 ) Treasury stock purchases ( 5,489 ) — — — — — ( 3,358,003 ) ( 101,305 ) — ( 114 ) — ( 101,419 ) — ( 101,419 ) Stock options exercised 253,625 — — — — — — — 4,819 — — 4,819 — 4,819 Net income — — — — — — — — — 62,910 — 62,910 45,997 108,907 Foreign exchange translation adjustment — — — — — — — — — — 43 43 23 66 Net change in unrealized cash flow hedges gains (losses) — — — — — — — — — — ( 4,115 ) ( 4,115 ) ( 3,091 ) ( 7,206 ) Dividends ($ 0.24 per share of Class A and Class B common stock and participating Restricted Stock Unit and Restricted Stock Awards) and distributions from Virtu Financial to non-controlling interest — — — — — — — — — ( 29,483 ) — ( 29,483 ) ( 103,062 ) ( 132,545 ) Issuance of common stock in connection with employee exchanges 290,524 — — — — — — — — — — — — — Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges — — ( 290,524 ) — — — — — — — — — — — Balance at June 30, 2021 127,725,595 $ 1 9,799,036 $ — 60,091,740 $ 1 ( 9,250,509 ) $ ( 253,587 ) $ 1,201,890 $ 648,893 $ ( 19,117 ) $ 1,578,081 $ 344,741 $ 1,922,822 6 Table of Contents Class A Common Stock Class C Common Stock Class D Common Stock Treasury Stock Additional Paid-in Capital Retained Earnings (Accumulated Deficit) Accumulated Other Comprehensive Income (Loss) Total Virtu Financial Inc. Stockholders' Equity Non-Controlling Interest Total Equity (in thousands, except share and interest data) Shares Amounts Shares Amounts Shares Amounts Shares Amounts Amounts Balance at December 31, 2019 120,435,912 $ 1 12,887,178 $ — 60,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,077,398 $ ( 90,374 ) $ ( 647 ) $ 931,374 $ 297,562 $ 1,228,936 Share based compensation 1,854,961 — — — — — — — 21,357 — — 21,357 — 21,357 Treasury stock purchases ( 642,869 ) — — — — — — — — ( 9,801 ) — ( 9,801 ) — ( 9,801 ) Stock options exercised 213,129 — — — — — — — 3,206 — — 3,206 — 3,206 Warrants issued — — — — — — — — 11,486 — — 11,486 — 11,486 Net income — — — — — — — — — 221,069 — 221,069 167,169 388,238 Foreign exchange translation adjustment — — — — — — — — — — ( 5,884 ) ( 5,884 ) ( 4,512 ) ( 10,396 ) Net change in unrealized cash flow hedges gains (losses) — — — — — — — — — — ( 31,468 ) ( 31,468 ) ( 24,134 ) ( 55,602 ) Dividends ($ 0.24 per share of Class A common stock and participating Restricted Stock Unit and Restricted Stock Awards) and distributions from Virtu Financial to non-controlling interest — — — — — — — — — ( 29,602 ) — ( 29,602 ) ( 19,165 ) ( 48,767 ) Issuance of common stock in connection with employee exchanges 724,327 — — — — — — — — — — — — — Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges — — ( 724,327 ) — — — — — — — — — — — Balance at March 31, 2020 122,585,460 $ 1 12,162,851 $ — 60,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,113,447 $ 91,292 $ ( 37,999 ) $ 1,111,737 $ 416,920 $ 1,528,657 Share based compensation 36,771 — — — — — — — 7,839 — — 7,839 — 7,839 Treasury stock purchases ( 8,727 ) — — — — — — — — ( 360 ) — ( 360 ) — ( 360 ) Stock options exercised 404,794 — — — — — — — 7,691 — — 7,691 — 7,691 Net income — — — — — — — — — 199,142 — 199,142 136,143 335,285 Foreign exchange translation adjustment — — — — — — — — — — 3,674 3,674 2,770 6,444 Net change in unrealized cash flow hedges gains (losses) — — — — — — — — — — ( 5,242 ) ( 5,242 ) ( 3,895 ) ( 9,137 ) Dividends ($ 0.24 per share of Class A and Class B common stock and participating Restricted Stock Unit and Restricted Stock Award) and distributions from Virtu Financial to non-controlling interest — — — — — — — — — ( 30,201 ) — ( 30,201 ) ( 145,211 ) ( 175,412 ) Issuance of common stock in connection with employee exchanges 1,635,912 — — — — — — — — — — — — — Repurchase of Virtu Financial Units and corresponding number of Class C common stock in connection with employee exchanges — — ( 1,635,912 ) — — — — — — — — — — — Balance at June 30, 2020 124,654,210 $ 1 10,526,939 $ — 60,091,740 $ 1 ( 2,178,771 ) $ ( 55,005 ) $ 1,128,977 $ 259,873 $ ( 39,567 ) $ 1,294,280 $ 406,727 $ 1,701,007 See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited). 7 Table of Contents Virtu Financial, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended June 30, (in thousands) 2021 2020 Cash flows from operating activities Net income $ 518,139 $ 723,523 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 33,127 34,073 Amortization of purchased intangibles and acquired capitalized software 36,154 37,912 Debt issue cost related to debt refinancing and prepayment 649 5,486 Amortization of debt issuance costs and deferred financing fees 3,547 14,650 Termination of office leases 4,888 283 Share-based compensation 25,330 37,012 Deferred taxes 12,714 18,827 Other ( 9,013 ) ( 1,153 ) Changes in operating assets and liabilities: Securities borrowed ( 110,281 ) 492,986 Securities purchased under agreements to resell ( 31,689 ) ( 101,210 ) Receivables from broker-dealers and clearing organizations 74,941 ( 1,122,699 ) Trading assets, at fair value ( 526,615 ) 124,097 Receivables from customers 6,231 ( 171,975 ) Operating lease right-of-use assets 27,472 19,995 Other assets 47,750 10,175 Securities loaned 194,485 ( 395,985 ) Securities sold under agreements to repurchase 29,644 ( 28,174 ) Payables to broker-dealers and clearing organizations ( 85,160 ) 308,723 Payables to customers 9,033 58,800 Trading liabilities, at fair value 199,680 255,889 Operating lease liabilities ( 29,005 ) ( 25,762 ) Accounts payable, accrued expenses and other liabilities ( 76,580 ) 203,804 Net cash provided by operating activities 355,441 499,277 Cash flows from investing activities Development of capitalized software ( 25,193 ) ( 11,895 ) Acquisition of property and equipment ( 12,589 ) ( 20,082 ) Investment in joint ventures ( 4,956 ) ( 4,716 ) Net cash used in investing activities ( 42,738 ) ( 36,693 ) Cash flows from financing activities Dividends to stockholders and distributions from Virtu Financial to non-controlling interest ( 321,931 ) ( 224,179 ) Repurchase of Class C common stock ( 1,323 ) — Purchase of treasury stock ( 180,837 ) ( 10,161 ) Stock options exercised 7,752 10,898 Short-term borrowings, net 151,396 ( 49,312 ) Repayment of long term borrowings ( 36,737 ) ( 188,556 ) Tax receivable agreement obligations ( 16,505 ) ( 13,286 ) Debt issuance costs ( 2,658 ) ( 9,301 ) Net cash used in financing activities ( 400,843 ) ( 483,897 ) Effect of exchange rate changes on cash and cash equivalents ( 3,610 ) ( 3,952 ) Net decrease in cash and cash equivalents ( 91,750 ) ( 25,265 ) Cash, cash equivalents, and restricted or segregated cash, beginning of period 1,007,005 773,280 Cash, cash equivalents, and restricted or segregated cash, end of period $ 915,255 $ 748,015 Supplementary disclosure of cash flow information Cash paid for interest $ 75,548 $ 98,750 Cash paid for taxes 103,083 36,451 8 Table of Contents Six Months Ended June 30, (in thousands) 2021 2020 Non-cash investing activities Share-based and accrued incentive compensation to developers relating to capitalized software 8,680 7,488 See accompanying Notes to the Condensed Consolidated Financial Statements (Unaudited). 9 Table of Contents Virtu Financial, Inc. and Subsidiaries Notes to the Condensed Consolidated Financial Statements (Unaudited) (dollars in thousands, except shares and per share amounts, unless otherwise noted) 1. Organization and Basis of Presentation Organization The accompanying condensed consolidated financial statements include the accounts and operations of Virtu Financial, Inc. (“VFI” or, collectively with its wholly owned or controlled subsidiaries, “Virtu” or the “Company”). VFI is a Delaware corporation whose primary asset is its ownership interest in Virtu Financial LLC (“Virtu Financial”). As of June 30, 2021, VFI owned approximately 63.6 % of the membership interests of Virtu Financial. VFI is the sole managing member of Virtu Financial and operates and controls all of the businesses and affairs of Virtu Financial and its subsidiaries (the “Group”). The Company is a leading financial firm that leverages cutting edge technology to deliver liquidity to the global markets and innovative, transparent trading solutions to its clients. The Company provides deep liquidity in over 25,000 financial instruments, on over 235 venues, in 36 countries worldwide to help create more efficient markets. Leveraging its global market structure expertise and scaled, multi-asset infrastructure, the Company provides its clients with a robust product suite including offerings in execution, liquidity sourcing, analytics and broker-neutral, multi-dealer platforms in workflow technology. The Company’s product offerings allow its clients to trade on hundreds of venues in over 50 countries and across multiple asset classes, including global equities, Exchange-Traded Funds ("ETFs"), foreign exchange, futures, fixed income and other commodities. The Company’s integrated, multi-asset analytics platform provides a range of pre- and post-trade services, data products and compliance tools that its clients rely upon to invest, trade and manage risk across global markets. The Company has completed two significant acquisitions over the past five years that have expanded and complemented Virtu Financial's original electronic trading and marking making business. On July 20, 2017 (the “KCG Closing Date”), the Company completed the all-cash acquisition of KCG Holdings, Inc. (“KCG”) (the “Acquisition of KCG”). On March 1, 2019 (the “ITG Closing Date”), the Company completed the acquisition of Investment Technology Group, Inc. and its subsidiaries (“ITG”) in an all-cash transaction valued at $ 30.30 per ITG share, for a total of approximately $ 1.0 billion (the “ITG Acquisition”). ITG's business contributes to the Company's Execution Services segment. Virtu Financial’s principal United States ("U.S.") subsidiary is Virtu Americas LLC (“VAL”), which is a U.S. broker-dealer. Other principal U.S. subsidiaries include Virtu Financial Global Markets LLC, a U.S. trading entity focused on futures and currencies; Virtu ITG Analytics LLC, a provider of pre- and post-trade analysis, fair value, and trade optimization services; and Virtu ITG Platforms LLC, a provider of workflow technology solutions and network connectivity services. Principal foreign subsidiaries include Virtu Financial Ireland Limited ("VFIL") and Virtu ITG Europe Limited ("VIEL"), each formed in Ireland; Virtu ITG UK Limited ("VIUK"), formed in the United Kingdom; Virtu ITG Canada Corp. and Virtu Financial Canada ULC, each formed in Canada; Virtu Financial Asia Pty Ltd. and Virtu ITG Australia Limited, each formed in Australia; Virtu ITG Hong Kong Limited, formed in Hong Kong; and Virtu Financial Singapore Pte. Ltd. and Virtu ITG Singapore Pte. Ltd., each formed in Singapore, all of which are trading entities focused on asset classes in their respective geographic regions. The Company has two operating segments: (i) Market Making and (ii) Execution Services; and one non-operating segment: Corporate. See Note 20 "Geographic Information and Business Segments" for a further discussion of the Company’s segments. Basis of Consolidation and Form of Presentation These condensed consolidated financial statements are presented in U.S. dollars, have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding financial reporting with respect to Form 10-Q and accounting standards generally accepted in the United States of America (“U.S. GAAP”) promulgated by the Financial Accounting Standards Board (“FASB”) in the Accounting Standards Codification (“ASC” or the “Codification”), and reflect all adjustments that, in the opinion of management, are normal and recurring, and that are necessary for a fair statement of the results for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in accordance with SEC rules and regulations. The condensed consolidated financial statements are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The condensed consolidated financial statements of the Company include its equity interests in Virtu Financial and its subsidiaries. As sole managing member of Virtu Financial, the Company exerts control over the Group’s operations. The Company consolidates Virtu Financial and its subsidiaries’ financial statements and records the interests in Virtu Financial that the 10 Table of Contents Company does not own as noncontrolling interests. All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior period's condensed consolidated financial statements in order to conform to the current period presentation. Such reclassifications are immaterial, individually and in the aggregate, to both current and all previously issued financial statements taken as a whole and have no effect on previously reported consolidated net income available to common stockholders. Effective for the quarter ended March 31, 2021, the Company changed the presentation of its Condensed Consolidated Statements of Changes in Equity and Condensed Consolidated Statements of Cash Flows. As a result, the Company combined $ 30.2 million of Dividends to stockholders and $ 145.2 million of Distribution from Virtu Financial to non-controlling interest, and $ 59.8 million of Dividends to stockholders and $ 164.4 million of Distribution from Virtu Financial to non-controlling interest into one line, Dividends to stockholders and distribution from Virtu Financial to non-controlling interest for the three and six months ended June 30, 2020, respectively. Dividends and distributions from Virtu Financial to non-controlling interest both represent cash payments by the Company to its equity owners which reduce Total equity. 2. Summary of Significant Accounting Policies For a detailed discussion of the Company's significant accounting policies, see Note 2 "Summary of Significant Accounting Policies" in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. Accounting Pronouncements, Recently Adopted Income Taxes - In December 2019, the FASB issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The ASU removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. The ASU also amends other aspects of the guidance relating to the accounting for franchise taxes, enacted changes in tax laws or rates, the accounting for transactions that result in a step-up in the tax basis of goodwill, and other tax-related items. The Company adopted this ASU on January 1, 2021 and it did not have a material impact on its condensed consolidated financial statements. Accounting Pronouncements, Not Yet Adopted as of June 30, 2021 Reference Rate Reform - In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting , which is designed to ease the potential burden in accounting for the transition away from LIBOR. The ASU applies to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued and replaced with alternative reference rates as a result of reference rate reform. The ASU provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The ASU is effective for all entities as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which expands the scope of Topic 848 to include derivative instruments that are affected by changes in the interest rates used for margining, discounting or contract price alignment as part of the market transition to new reference rates (the "discounting transition"). The Company is evaluating the impact of these ASUs, but does not expect it to have a material impact on its Condensed Consolidated Financial Statements and related disclosures. Convertible Instruments - In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). The ASU simplifies accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity's own equity and updates selected earnings per share ("EPS") guidance. The ASU is effective for periods beginning after December 15, 2021. The Company is currently evaluating the impact of the new standard on its Condensed Consolidated Financial Statements and related disclosures. 11 Table of Contents 3. Earnings per Share The below table contains a reconciliation of net income (loss) before noncontrolling interest to net income (loss) available for common stockholders: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Income before income taxes and noncontrolling interest $ 135,002 $ 404,535 $ 624,789 $ 870,760 Provision for income taxes 26,095 69,250 106,650 147,237 Net income 108,907 335,285 518,139 723,523 Noncontrolling interest ( 45,997 ) ( 136,143 ) ( 215,824 ) ( 303,312 ) Net income available for common stockholders $ 62,910 $ 199,142 $ 302,315 $ 420,211 The calculation of basic and diluted earnings per share is presented below: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except for share or per share data) 2021 2020 2021 2020 Basic earnings (loss) per share: Net income available for common stockholders $ 62,910 $ 199,142 $ 302,315 $ 420,211 Less: Dividends and undistributed earnings allocated to participating securities ( 1,801 ) ( 5,506 ) ( 8,113 ) ( 10,793 ) Net income available for common stockholders, net of dividends and undistributed earnings allocated to participating securities 61,109 193,636 294,202 409,418 Weighted average shares of common stock outstanding: Class A 119,681,845 121,527,673 120,865,624 120,642,415 Basic earnings (loss) per share $ 0.51 $ 1.59 $ 2.43 $ 3.39 Three Months Ended June 30, Six Months Ended June 30, (in thousands, except for share or per share data) 2021 2020 2021 2020 Diluted earnings (loss) per share: Net income available for common stockholders, net of dividends and undistributed earnings allocated to participating securities $ 61,109 $ 193,636 $ 294,202 $ 409,418 Weighted average shares of common stock outstanding: Class A Issued and outstanding 119,681,845 121,527,673 120,865,624 120,642,415 Issuable pursuant to Amended and Restated 2015 Management Incentive Plan, Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan, and Warrants issued in connection with the Founder Member Loan 1,499,547 711,232 1,413,637 371,274 121,181,392 122,238,905 122,279,261 121,013,689 Diluted earnings (loss) per share $ 0.50 $ 1.58 $ 2.41 $ 3.38 4. Tax Receivable Agreements For a detailed discussion of the Company's tax receivable agreements, see Note 7 "Tax Receivable Agreements" in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020. 12 Table of Contents For purposes of the tax receivable agreements, the cash savings realized by the Company are computed by comparing the actual income tax liability of the Company to the amount of such taxes the Company would have been required to pay had there been (i) no increase to the tax basis of the assets of Virtu Financial as a result of the purchase or exchange of Virtu Financial Units, (ii) no tax benefit from the tax basis in the intangible assets of Virtu Financial on the date of the IPO and (iii) no tax benefit as a result of the Net Operating Losses (“NOLs”) and other tax attributes of Virtu Financial. Subsequent adjustments of the tax receivable agreements obligations due to certain events (e.g., changes to the expected realization of NOLs or changes in tax rates) will be recognized within income before taxes and noncontrolling interests in the Condensed Consolidated Statements of Comprehensive Income. The Company made its first payment of $ 7.0 million in February 2017, its second payment of $ 12.4 million in September 2018, its third payment of $ 13.3 million in March 2020, and its fourth payment of $ 16.5 million in April 2021. Tax receivable payments are expected to range from approximately $ 0.9 million to $ 21.7 million per year over the next 15 years. At June 30, 2021 and December 31, 2020, the Company’s remaining deferred tax assets that relate to the matters described above were approximately $ 189.2 million and $ 199.1 million, respectively, and the Company’s liabilities over the next 15 years pursuant to the tax receivable agreements were approximately $ 254.7 million and $ 271.2 million, respectively. The amounts recorded as of June 30, 2021 and December 31, 2020 are based on best estimates available at the respective dates and may be subject to change after the filing of the Company’s U.S. federal and state income tax returns for the years in which tax savings were realized. 5. Goodwill and Intangible Assets The Company has two operating segments: (i) Market Making; (ii) Execution Services; and one non-operating segment: Corporate. As of June 30, 2021 and December 31, 2020, the Company’s total amount of goodwill recorded was $ 1,148.9 million. No goodwill impairment was recognized during the three and six months ended June 30, 2021 and 2020. The following table presents the details of goodwill by segment as of June 30, 2021 and December 31, 2020: (in thousands) Market Making Execution Services Corporate Total Balance as of period-end $ 755,292 $ 393,634 $ — $ 1,148,926 As of June 30, 2021 and December 31, 2020, the Company's total amount of intangible assets recorded was $ 418.3 million and $ 454.5 million, respectively. Acquired intangible assets consisted of the following as of June 30, 2021 and December 31, 2020: As of June 30, 2021 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Useful Lives (Years) Customer relationships $ 486,600 $ ( 118,221 ) $ 368,379 10 to 12 Technology 136,000 ( 93,534 ) 42,466 1 to 6 Favorable occupancy leases 5,895 ( 3,235 ) 2,660 3 to 15 Exchange memberships 3,998 — 3,998 Indefinite Trade name 3,600 ( 2,800 ) 800 3 ETF issuer relationships 950 ( 929 ) 21 9 ETF buyer relationships 950 ( 929 ) 21 9 $ 637,993 $ ( 219,648 ) $ 418,345 13 Table of Contents As of December 31, 2020 (in thousands) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Useful Lives (Years) Customer relationships $ 486,600 $ ( 94,299 ) $ 392,301 10 to 12 Technology 136,000 ( 82,403 ) 53,597 1 to 6 Favorable occupancy leases 5,895 ( 2,839 ) 3,056 3 to 15 Exchange memberships 3,998 — 3,998 Indefinite Trade name 3,600 ( 2,200 ) 1,400 3 ETF issuer relationships 950 ( 877 ) 73 9 ETF buyer relationships 950 ( 876 ) 74 9 $ 637,993 $ ( 183,494 ) $ 454,499 Amortization expense relating to finite-lived intangible assets was approximately $ 18.1 million and $ 19.0 million for the three months ended June 30, 2021 and 2020, respectfully, and $ 36.2 million and $ 37.9 million for the six months ended June 30, 2021 and 2020, respectively. This is included in Amortization of purchased intangibles and acquired capitalized software in the accompanying Condensed Consolidated Statements of Comprehensive Income. The Company expects to record amortization expense as follows over the remaining current year and the next five subsequent years: (in thousands) Remainder of 2021 $ 33,523 2022 64,852 2023 63,960 2024 50,845 2025 47,879 2026 47,879 6. Receivables from/Payables to Broker-Dealers and Clearing Organizations The following is a summary of receivables from and payables to brokers-dealers and clearing organizations at June 30, 2021 and December 31, 2020: (in thousands) June 30, 2021 December 31, 2020 Assets Due from prime brokers $ 484,538 $ 697,293 Deposits with clearing organizations 183,653 216,962 Net equity with futures commission merchants 228,633 248,943 Unsettled trades with clearing organizations 175,421 118,777 Securities failed to deliver 512,303 372,965 Commissions and fees 24,517 29,066 Total receivables from broker-dealers and clearing organizations $ 1,609,065 $ 1,684,006 Liabilities Due to prime brokers $ 464,947 $ 410,772 Net equity with futures commission merchants 73,734 77,257 Unsettled trades with clearing organizations 20,190 228,070 Securities failed to receive 216,497 156,804 Commissions and fees 1,218 3,543 Total payables to broker-dealers and clearing organizations $ 776,586 $ 876,446 14 Table of Contents Included as a deduction from “Due from prime brokers” and “Net equity with futures commission merchants” is the outstanding principal balance on all of the Company’s prime brokerage credit facilities (described in Note 8 "Borrowings") of approximately $ 201.8 million and $ 134.7 million as of June 30, 2021 and December 31, 2020, respectively. The loan proceeds from the credit facilities are available only to meet the initial margin requirements associated with the Company’s ordinary course futures and other trading positions, which are held in the Company’s trading accounts with an affiliate of the respective financial institutions. The credit facilities are fully collateralized by the Company’s trading accounts and deposit accounts with these financial institutions. “Securities failed to deliver” and “Securities failed to receive” include amounts with a clearing organization and other broker-dealers. 7. Collateralized Transactions The Company is permitted to sell or repledge securities received as collateral and use these securities to secure repurchase agreements, enter into securities lending transactions or deliver these securities to counterparties or clearing organizations to cover short positions. At June 30, 2021 and December 31, 2020, substantially all of the securities received as collateral have been repledged. The fair value of the collateralized transactions at June 30, 2021 and December 31, 2020 are summarized as follows: (in thousands) June 30, 2021 December 31, 2020 Securities received as collateral: Securities borrowed $ 1,480,370 $ 1,374,266 Securities purchased under agreements to resell 54,555 22,866 $ 1,534,925 $ 1,397,132 In the normal course of business, the Company pledges qualified securities with clearing organizations to satisfy daily margin and clearing fund requirements. Financial instruments owned and pledged, where the counterparty has the right to repledge, at June 30, 2021 and December 31, 2020 consisted of the following: (in thousands) June 30, 2021 December 31, 2020 Equities $ 919,440 $ 734,024 Exchange traded notes 7,718 12,515 $ 927,158 $ 746,539 8. Borrowings Short-term Borrowings, net The following summarizes the Company's short-term borrowing balances outstanding, net of related debt issuance costs, with each described in further detail below. June 30, 2021 (in thousands) Borrowing Outstanding Deferred Debt Issuance Cost Short-term Borrowings, net Broker-dealer credit facilities $ 198,000 $ ( 2,216 ) $ 195,784 Short-term bank loans 18,468 — 18,468 $ 216,468 $ ( 2,216 ) $ 214,252 December 31, 2020 (in thousands) Borrowing Outstanding Deferred Debt Issuance Cost Short-term Borrowings, net Broker-dealer credit facilities $ 36,400 $ ( 387 ) $ 36,013 Short-term bank loans 28,673 — 28,673 $ 65,073 $ ( 387 ) $ 64,686 15 Table of Contents Broker-Dealer Credit Facilities The Company is a party to two secured credit facilities with a financial institution to finance overnight securities positions purchased as part of its ordinary course broker-dealer market making activities. One of the facilities (the “Uncommitted Facility”) is provided on an uncommitted basis with an aggregate borrowing limit of $ 400 million, and is collateralized by VAL's trading and deposit account maintained at the financial institution. The second credit facility (the “Committed Facility”) with the same financial institution has a borrowing limit of $ 600 million. The Committed Facility consists of two borrowing bases: Borrowing Base A Loan is to be used to finance the purchase and settlement of securities; Borrowing Base B Loan is to be used to fund margin deposit with the National Securities Clearing Corporation. Borrowing Base A Loans are available up to $ 600 million and bear interest at the adjusted LIBOR or base rate plus 1.25 % per annum. Borrowing Base B Loans are subject to a sublimit of $ 200 million and bear interest at the adjusted LIBOR or base rate plus 2.50 % per annum. A commitment fee of 0.50 % per annum on the average daily unused portion of this facility is payable quarterly in arrears. On March 10, 2020, VAL entered into a short-term loan arrangement with Jefferies Financial Group, Inc., as lender, for a $ 20 million demand loan (the "Demand Loan") repayable no later than ninety ( 90 ) days after the date of borrowing. The Demand Loan bore interest at a rate of 10 % per annum, increased by 2.0 % with respect to any principal amounts not paid when due and payable. The Demand Loan was repaid in full as of April 17, 2020. On March 20, 2020, VAL entered into a Loan Agreement (the “Founder Member Loan Facility”) with TJMT Holdings LLC (the “Founder Member”), as lender and administrative agent, providing for unsecured term loans from time to time (the “Founder Member Loans”) in an aggregate original principal amount not to exceed $ 300 million. The Founder Member Loans were available to be borrowed in one or more borrowings on or after March 20, 2020 and prior to September 20, 2020 (the "Founder Member Loan Term"). The Founder Member Loan Facility Term expired as of September 20, 2020 without VAL having borrowed any Founder Member Loans at any time. The Founder Member is an affiliate of Mr. Vincent Viola, the Company’s founder and Chairman Emeritus. Upon the execution of and in consideration for the Lender’s (as defined in the Founder Member Loan Facility) commitments under the Founder Member Loan Facility, the Company delivered to the Founder Member a warrant to purchase shares of the Company’s Class A Common Stock. Terms of the warrant are set forth in further detail in Note 17 "Capital Structure". The following summarizes the Company’s broker-dealer credit facilities' carrying values, net of unamortized debt issuance costs, where applicable. These balances are included within Short-term borrowings on the Condensed Consolidated Statements of Financial Condition. At June 30, 2021 (in thousands) Interest Rate Financing Available Borrowing Outstanding Deferred Debt Issuance Cost Outstanding Borrowings, net Broker-dealer credit facilities: Uncommitted facility 1.25 % $ 400,000 $ 198,000 $ ( 2,216 ) $ 195,784 Committed facility 2.61 % 600,000 — — — $ 1,000,000 $ 198,000 $ ( 2,216 ) $ 195,784 At December 31, 2020 (in thousands) Interest Rate Financing Available Borrowing Outstanding Deferred Debt Issuance Cost Outstanding Borrowings, net Broker-dealer credit facilities: Uncommitted facility 1.25 % $ 400,000 $ 36,400 $ ( 387 ) $ 36,013 Committed facility 1.40 % 600,000 — — — $ 1,000,000 $ 36,400 $ ( 387 ) $ 36,013 16 Table of Contents The following summarizes interest expense for the broker-dealer facilities. Interest expense is included within Interest and dividends expense in the accompanying Condensed Consolidated Statements of Comprehensive Income. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Broker-dealer credit facilities: Uncommitted facility $ 625 $ 131 $ 1,250 $ 763 Committed facility — 202 57 362 Demand Loan — 94 — 211 $ 625 $ 427 $ 1,307 $ 1,336 Short-Term Bank Loans The Company’s international securities clearance and settlement activities are funded with operating cash or with short-term bank loans in the form of overdraft facilities. At June 30, 2021, there was $ 18.5 million associated with international settlement activities outstanding under these facilities at a weighted average interest rate of approximately 2.3 %. At December 31, 2020, there was $ 28.7 million associated with international settlement activities outstanding under these facilities at a weighted average interest rate of approximately 2.4 %. These short-term bank loan balances are included within Short-term borrowings on the Condensed Consolidated Statements of Financial Condition. Prime Brokerage Credit Facilities The Company maintains short-term credit facilities with various prime brokers and other financial institutions from which it receives execution or clearing services. The proceeds of these facilities are used to meet margin requirements associated with the products traded by the Company in the ordinary course, and amounts borrowed are collateralized by the Company’s trading accounts with the applicable financial institution. At June 30, 2021 (in thousands) Weighted Average Interest Rate Financing Available Borrowing Outstanding Prime Brokerage Credit Facilities: Prime brokerage credit facilities (1) 2.78 % $ 616,000 $ 201,791 $ 616,000 $ 201,791 At December 31, 2020 (in thousands) Weighted Average Interest Rate Financing Available Borrowing Outstanding Prime Brokerage Credit Facilities: Prime brokerage credit facilities (1) 2.77 % $ 616,000 $ 134,664 $ 616,000 $ 134,664 (1) Outstanding borrowings are included with Receivables from/Payables to broker-dealers and clearing organizations within the Condensed Consolidated Statements of Financial Condition. Interest expense in relation to the facilities was approximately $ 1.1 million and $ 1.3 million for the three months ended June 30, 2021 and 2020 , and $ 2.1 million and $ 2.6 million for the six months ended June 30, 2021 and 2020, respectively. 17 Table of Contents Long-Term Borrowings The following summarizes the Company’s long-term borrowings, net of unamortized discount and debt issuance costs, where applicable: At June 30, 2021 (in thousands) Maturity Date Interest Rate Outstanding Principal Discount Deferred Debt Issuance Cost Outstanding Borrowings, net Long-term borrowings: First Lien Term Loan Facility March 2026 3.09 % $ 1,599,774 $ ( 4,174 ) $ ( 24,255 ) $ 1,571,345 SBI bonds January 2023 5.00 % 31,500 — ( 30 ) 31,470 $ 1,631,274 $ ( 4,174 ) $ ( 24,285 ) $ 1,602,815 At December 31, 2020 (in thousands) Maturity Date Interest Rate Outstanding Principal Discount Deferred Debt Issuance Cost Outstanding Borrowings, net Long-term borrowings: First Lien Term Loan Facility March 2026 3.15 % $ 1,636,512 $ ( 4,723 ) $ ( 26,367 ) $ 1,605,422 SBI bonds January 2023 5.00 % 33,898 — ( 40 ) 33,858 $ 1,670,410 $ ( 4,723 ) $ ( 26,407 ) $ 1,639,280 Credit Agreement In connection with the ITG Acquisition, Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial ("VFH") and Impala Borrower LLC, a subsidiary of the Company (the "Acquisition Borrower") entered into a Credit Agreement (the "Credit Agreement"), with the lenders party thereto, Jefferies Finance LLC, as administrative agent and Jefferies Finance LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners. The Credit Agreement provided (i) a senior secured first lien term loan (together with the Incremental Term Loans, as defined below; the “First Lien Term Loan Facility”) in an aggregate principal amount of $ 1,500 million, drawn in its entirety on the ITG Closing Date, of which amount approximately $ 404.5 million was borrowed by VFH to repay all amounts outstanding under a previous term loan facility and the remaining approximately $ 1,095 million was borrowed by the Acquisition Borrower to finance the consideration and fees and expenses paid in connection with the ITG Acquisition, and (ii) a $ 50.0 million senior secured first lien revolving facility to VFH (the “First Lien Revolving Facility”), with a $ 5.0 million letter of credit subfacility and a $ 5.0 million swingline subfacility. After the ITG Closing Date, VFH assumed the obligations of the Acquisition Borrower in respect of the acquisition term loans. On October 9, 2019, VFH entered into an amendment (“Amendment No. 1”), which amended the Credit Agreement dated as of March 1, 2019 to, among other things, provide for $ 525.0 million in aggregate principal amount of incremental term loans (the “Incremental Term Loans”), and amend the related collateral agreement. On March 2, 2020, VFH entered into a second amendment (“Amendment No. 2”), which further amended the Credit Agreement (as amended by Amendment No. 1 and Amendment No. 2, the “Amended Credit Agreement”) to, among other things, reduce the interest rate spread over adjusted LIBOR or the alternate base rate by 0.50 % per annum and eliminated any stepdown in the spread based on VFH's first lien leverage ratio. The term loan borrowings and revolver borrowings under the Amended Credit Agreement bear interest at a per annum rate equal to, at the Company's election, either (i) the greatest of (a) the prime rate in effect, (b) the greater of (1) the federal funds effective rate and (2) the overnight bank funding rate, in each case plus 0.50 %, (c) an adjusted LIBOR rate for a Eurodollar borrowing with an interest period of one month plus 1.00 % and (d) 1.00 %, plus, in each case, 2.00 %, or (ii) the greater of (x) an adjusted LIBOR rate for the interest period in effect and (y) 0 %, plus, in each case, 3.00 %. In addition, a commitment fee accrues at a rate of 0.50 % per annum on the average daily unused amount of the First Lien Revolving Facility, with stepdowns to 0.375 % and 0.25 % per annum based on VFH’s first lien leverage ratio, and is payable quarterly in arrears. The First Lien Revolving Facility under the Amended Credit Agreement is subject to a springing net first lien leverage ratio test which may spring into effect as of the last day of a fiscal quarter if usage of the aggregate revolving commitments exceeds a specified level as of such date. VFH is also subject to contingent principal prepayments based on excess cash flow and certain other triggering events. Borrowings under the Amended Credit Agreement are guaranteed by Virtu Financial and 18 Table of Contents VFH’s material non-regulated domestic restricted subsidiaries and secured by substantially all of the assets of VFH and the guarantors, in each case, subject to certain exceptions. Under the Amended Credit Agreement, the term loans will mature on March 1, 2026. The term loans amortize in annual installments equal to 1.0 % of the original aggregate principal amount of the term loans. As of June 30, 2021, $ 1,600 million was outstanding under the First Lien Term Loan Facility. The revolving commitments will terminate on March 1, 2022. There were no outstanding borrowings under the First Lien Revolving Facility as of June 30, 2021 or December 31, 2020. The Amended Credit Agreement contains certain customary covenants and events of default, including relating to a change of control. If an event of default occurs and is continuing, the lenders under the Amended Credit Agreement will be entitled to take various actions, including the acceleration of amounts outstanding under the Amended Credit Agreement and all actions permitted to be taken by a secured creditor in respect of the collateral securing the obligations under the Amended Credit Agreement. In October 2019, the Company entered into a five-year $ 525 million floating-to-fixed interest rate swap agreement. The Company also entered into a five-year $ 1,000 million floating-to-fixed interest rate swap agreement in January 2020. As these two interest rate swaps met the criteria to be considered qualifying cash flow hedges under ASC 815 in 2020, they effectively fix interest payment obligations on $ 525.0 million and $ 1,000 million of principal under the First Lien Term Loan Facility at rates of 4.3 % and 4.4 % through September 2024 and January 2025, respectively, based on the interest rates set forth in the Amended Credit Agreement. In April 2021, each of the swap agreements described above was novated to another counterparty and amended in connection with such novation. The amendments included certain changes to collateral posting obligations, and also had the effect of increasing the effective fixed interest payment obligations to rates of 4.5 %, with respect to the earlier maturing swap arrangement, and 4.6 % with respect to the later maturing swap arrangement. SBI Bonds On July 25, 2016, VFH issued Japanese Yen Bonds (collectively the “SBI Bonds”) in the aggregate principal amount of ¥ 3.5 billion ($ 33.1 million at issuance date) to SBI Life Insurance Co., Ltd. and SBI Insurance Co., Ltd. The proceeds from the SBI Bonds were used to partially fund the investment in Japannext Co., Ltd. (as described in Note 9 "Financial Assets and Liabilities"). The SBI Bonds are guaranteed by Virtu Financial. The SBI Bonds are subject to fluctuations on the Japanese Yen currency rates relative to the Company’s reporting currency (U.S. Dollar) with the changes reflected in Other, net in the Condensed Consolidated Statements of Comprehensive Income. In December 2019, the maturity date of the SBI Bonds was extended to January 2023. The principal balance was ¥ 3.5 billion ($ 31.5 million) as of June 30, 2021 and ¥ 3.5 billion ($ 33.9 million) as of December 31, 2020. The Company recorded a gain of $ 0.1 million during both the three months ended June 30, 2021 and 2020, and a gain of $ 2.4 million and a loss of $ 0.2 million during the six months ended June 30, 2021 and 2020, respectively, due to changes in foreign currency rates. As of June 30, 2021, aggregate future required minimum principal payments based on the terms of the long-term borrowings were as follows: (in thousands) June 30, 2021 Remainder of 2021 $ — 2022 — 2023 31,500 2024 — 2025 — Thereafter 1,599,774 Total principal of long-term borrowings $ 1,631,274 19 Table of Contents 9. Financial Assets and Liabilities Financial Instruments Measured at Fair Value The fair value of equities, options, on-the-run U.S. government obligations and exchange traded notes is estimated using recently executed transactions and market price quotations in active markets and are categorized as Level 1 with the exception of inactively traded equities and certain other financial instruments, which are categorized as Level 2. The Company’s corporate bonds, derivative contracts and other U.S. and non-U.S. government obligations have been categorized as Level 2. Fair value of the Company’s derivative contracts is based on the indicative prices obtained from a number of banks and broker-dealers, as well as management’s own analyses. The indicative prices have been independently validated through the Company’s risk management systems, which are designed to check prices with information independently obtained from exchanges and venues where such financial instruments are listed or to compare prices of similar instruments with similar maturities for listed financial futures in foreign exchange. The Company prices certain financial instruments held for trading at fair value based on theoretical prices, which can differ from quoted market prices. The theoretical prices reflect price adjustments primarily caused by the fact that the Company continuously prices its financial instruments based on all available information. This information includes prices for identical and near-identical positions, as well as the prices for securities underlying the Company’s positions, on other exchanges that are open after the exchange on which the financial instruments is traded closes. The Company validates that all price adjustments can be substantiated with market inputs and checks the theoretical prices independently. Consequently, such financial instruments are classified as Level 2. 20 Table of Contents Fair value measurements for those items measured on a recurring basis are summarized below as of June 30, 2021: June 30, 2021 (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Counterparty and Cash Collateral Netting Total Fair Value Assets Financial instruments owned, at fair value: Equity securities $ 1,297,155 $ 871,701 $ — $ — $ 2,168,856 U.S. and Non-U.S. government obligations 320,911 17,896 — — 338,807 Corporate Bonds — 182,694 — — 182,694 Exchange traded notes 770 7,599 — — 8,369 Currency forwards — 305,525 — ( 294,309 ) 11,216 Options 5,246 — — — 5,246 $ 1,624,082 $ 1,385,415 $ — $ ( 294,309 ) $ 2,715,188 Financial instruments owned, pledged as collateral: Equity securities $ 669,552 $ 249,888 $ — $ — $ 919,440 Exchange traded notes 1,420 6,298 — — 7,718 $ 670,972 $ 256,186 $ — $ — $ 927,158 Other Assets Equity investment $ — $ — $ 78,313 $ — $ 78,313 Exchange stock 2,742 — — — 2,742 $ 2,742 $ — $ 78,313 $ — $ 81,055 Liabilities Financial instruments sold, not yet purchased, at fair value: Equity securities $ 1,648,578 $ 874,853 $ — $ — $ 2,523,431 U.S. and Non-U.S. government obligations 291,003 6,942 — — 297,945 Corporate Bonds — 288,200 — — 288,200 Exchange traded notes 1,096 824 — — 1,920 Currency forwards — 325,961 — ( 318,500 ) 7,461 Options 4,431 — — — 4,431 $ 1,945,108 $ 1,496,780 $ — $ ( 318,500 ) $ 3,123,388 Payables to broker dealers and clearing organizations: Interest rate swap $ — $ 47,248 $ — $ — $ 47,248 21 Table of Contents Fair value measurements for those items measured on a recurring basis are summarized below as of December 31, 2020: December 31, 2020 (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Counterparty and Cash Collateral Netting Total Fair Value Assets Financial instruments owned, at fair value: Equity securities $ 761,484 $ 1,194,105 $ — $ — $ 1,955,589 U.S. and Non-U.S. government obligations 151,723 48,059 — — 199,782 Corporate Bonds — 135,518 — — 135,518 Exchange traded notes 106 19,721 — — 19,827 Currency forwards — 341,360 — ( 291,964 ) 49,396 Options 9,080 — — — 9,080 $ 922,393 $ 1,738,763 $ — $ ( 291,964 ) $ 2,369,192 Financial instruments owned, pledged as collateral: Equity securities $ 496,943 $ 237,081 $ — $ — $ 734,024 Exchange traded notes 2 12,513 — — 12,515 $ 496,945 $ 249,594 $ — $ — $ 746,539 Other Assets Equity investment $ — $ — $ 66,030 $ — $ 66,030 Exchange stock 2,286 — — — 2,286 $ 2,286 $ — $ 66,030 $ — $ 68,316 Liabilities Financial instruments sold, not yet purchased, at fair value: Equity securities $ 1,307,082 $ 1,137,968 $ — $ — $ 2,445,050 U.S. and Non-U.S. government obligations 83,173 19,984 — — 103,157 Corporate Bonds — 358,734 — — 358,734 Exchange traded notes — 7,431 — — 7,431 Currency forwards — 292,965 — ( 292,870 ) 95 Options 9,241 — — — 9,241 $ 1,399,496 $ 1,817,082 $ — $ ( 292,870 ) $ 2,923,708 Payables to broker dealers and clearing organizations: Interest rate swap $ — $ 63,513 $ — $ — $ 63,513 JNX Investment The Company has a minority investment (the “JNX Investment”) in Japannext Co., Ltd. (“JNX”), formerly known as SBI Japannext Co., Ltd., a proprietary trading system based in Tokyo. In connection with the JNX Investment, the Company issued the SBI Bonds (as described in Note 8 "Borrowings") and used the proceeds to partially finance the transaction. The JNX Investment is included within Level 3 of the fair value hierarchy. As of June 30, 2020 and 2021, the fair value of the JNX Investment was determined using a weighted average of valuations using 1) the discounted cash flow method, an income approach; 2) a market approach based on average enterprise value/EBITDA ratios of comparable companies; and to a lesser extent 3) a transaction approach based on transaction values of comparable companies. The fair value measurement is highly sensitive to significant changes in the unobservable inputs, and significant increases (decreases) in discount rate or decreases (increases) in enterprise value/EBITDA multiples would result in a significantly lower (higher) fair value measurement. 22 Table of Contents The table below presents information on the valuation techniques, significant unobservable inputs and their ranges for the JNX Investment: June 30, 2021 (in thousands) Fair Value Valuation Technique Significant Unobservable Input Range Weighted Average Equity investment $ 78,313 Discounted cash flow Estimated revenue growth 3.0 % - 5.0 % 4.4 % Discount rate 14.4 % - 14.4 % 14.4 % Market Future enterprise value/ EBIDTA ratio 12.3 x - 22.8 x 16.3 x December 31, 2020 (in thousands) Fair Value Valuation Technique Significant Unobservable Input Range Weighted Average Equity investment $ 66,030 Discounted cash flow Estimated revenue growth ( 9.0 )% - 39.0 % 9.6 % Discount rate 14.4 % - 14.4 % 14.4 % Market Future enterprise value/ EBIDTA ratio 12.2 x - 21.9 x 13.8 x Changes in the fair value of the JNX Investment are included within Other, net in the Condensed Consolidated Statements of Comprehensive Income. The following presents the changes in the Company's Level 3 financial instruments measured at fair value on a recurring basis: Three Months Ended June 30, 2021 (in thousands) Balance at March 31, 2021 Purchases Total Realized and Unrealized Gains / (Losses) (1) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2021 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2021 Assets Other assets: Equity investment $ 66,192 $ — $ 12,121 $ — $ — $ 78,313 $ 12,121 Total $ 66,192 $ — $ 12,121 $ — $ — $ 78,313 $ 12,121 (1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 8 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the SBI Investment. Three Months Ended June 30, 2020 (in thousands) Balance at March 30, 2020 Purchases Total Realized and Unrealized Gains / (Losses) (1) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2020 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2020 Assets Other assets: Equity investment $ 46,668 $ — $ 4,931 $ — $ — $ 51,599 $ 4,931 Total $ 46,668 $ — $ 4,931 $ — $ — $ 51,599 $ 4,931 (1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 8 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the JNX Investment. 23 Table of Contents Six Months Ended June 30, 2021 (in thousands) Balance at December 31, 2020 Purchases Total Realized and Unrealized Gains / (Losses) (1) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2021 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2021 Assets Other assets: Equity investment $ 66,030 $ — $ 12,283 $ — $ — $ 78,313 $ 12,283 Total $ 66,030 $ — $ 12,283 $ — $ — $ 78,313 $ 12,283 (1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 8 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the JNX Investment. Six Months Ended June 30, 2020 (in thousands) Balance at December 31, 2019 Purchases Total Realized and Unrealized Gains / (Losses) (1) Net Transfers into (out of) Level 3 Settlement Balance at June 30, 2020 Change in Net Unrealized Gains / (Losses) on Investments still held at June 30, 2020 Assets Other assets: Equity investment $ 46,245 $ — $ 5,354 $ — $ — $ 51,599 $ 5,354 Total $ 46,245 $ — $ 5,354 $ — $ — $ 51,599 $ 5,354 (1) Total realized and unrealized gains/(losses) includes gains and losses realized on the SBI Bonds (see Note 8 "Borrowings" for more details) due to fluctuations in currency rates as well as gains and losses recognized on changes in the fair value of the JNX Investment. Financial Instruments Not Measured at Fair Value The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the Condensed Consolidated Statements of Financial Condition. The table below excludes non-financial assets and liabilities. The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 and Level 2 approximates fair value due to the relatively short-term nature of the underlying assets. The fair value of the Company’s long-term borrowings is based on quoted prices from the market for similar instruments, and is categorized as Level 2 in the fair value hierarchy. 24 Table of Contents The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of June 30, 2021: June 30, 2021 Carrying Value Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (in thousands) Fair Value (Level 1) (Level 2) (Level 3) Assets Cash and cash equivalents $ 848,111 $ 848,111 $ 848,111 $ — $ — Cash restricted or segregated under regulations and other 67,144 67,144 67,144 — — Securities borrowed 1,535,297 1,535,297 — 1,535,297 — Securities purchased under agreements to resell 54,555 54,555 — 54,555 — Receivables from broker-dealers and clearing organizations 1,609,065 1,609,065 ( 2,472 ) 1,611,537 — Receivables from customers 208,247 208,247 — 208,247 — Other assets (1) 16,549 16,549 — 16,549 — Total Assets $ 4,338,968 $ 4,338,968 $ 912,783 $ 3,426,185 $ — Liabilities Short-term borrowings $ 214,252 $ 216,468 $ — $ 216,468 $ — Long-term borrowings 1,602,815 1,627,275 — 1,627,275 — Securities loaned 1,142,741 1,142,741 — 1,142,741 — Securities sold under agreements to repurchase 490,879 490,879 — 490,879 — Payables to broker-dealers and clearing organizations (2) 776,586 776,586 1,194,439 ( 417,853 ) — Payables to customers 127,859 127,859 — 127,859 — Other liabilities (3) 7,241 7,241 — 7,241 — Total Liabilities $ 4,362,373 $ 4,389,049 $ 1,194,439 $ 3,194,610 $ — (1) Includes cash collateral and deposits, and interest and dividends receivables. (2) Payables to broker-dealers and clearing organizations include interest rate swaps carried at fair value. (3) Includes deposits, interest and dividends payable. 25 Table of Contents The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of December 31, 2020: December 31, 2020 Carrying Value Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (in thousands) Fair Value (Level 1) (Level 2) (Level 3) Assets Cash and cash equivalents $ 889,559 $ 889,559 $ 889,559 $ — $ — Cash restricted or segregated under regulations and other 117,446 117,446 117,446 — — Securities borrowed 1,425,016 1,425,016 — 1,425,016 — Securities purchased under agreements to resell 22,866 22,866 — 22,866 — Receivables from broker-dealers and clearing organizations 1,684,006 1,684,006 173,578 1,510,428 — Receivables from customers 214,478 214,478 — 214,478 — Other assets (1) 21,735 21,735 — 21,735 — Total Assets $ 4,375,106 $ 4,375,106 $ 1,180,583 $ 3,194,523 $ — Liabilities Short-term borrowings 64,686 65,073 — 65,073 — Long-term borrowings 1,639,280 1,672,456 — 1,672,456 — Securities loaned 948,256 948,256 — 948,256 — Securities sold under agreements to repurchase 461,235 461,235 — 461,235 — Payables to broker dealer and clearing organizations (2) 876,446 876,446 3,517 872,929 — Payables to customers 118,826 118,826 — 118,826 — Other liabilities (3) 9,208 9,208 — 9,208 — Total Liabilities $ 4,117,937 $ 4,151,500 $ 3,517 $ 4,147,983 $ — (1) Includes cash collateral and deposits, and interest and dividends receivables. (2) Payables to broker-dealers and clearing organizations include interest rate swaps carried at fair value. (3) Includes deposits, interest and dividends payable. Offsetting of Financial Assets and Liabilities The Company does not net securities borrowed and securities loaned, or securities purchased under agreements to resell and securities sold under agreements to repurchase. These financial instruments are presented on a gross basis in the Condensed Consolidated Statements of Financial Condition. In the tables below, the amounts of financial instruments owned that are not offset in the Condensed Consolidated Statements of Financial Condition, but could be netted against financial liabilities with specific counterparties under legally enforceable master netting agreements in the event of default, are presented to provide financial statement readers with the Company’s estimate of its net exposure to counterparties for these financial instruments. 26 Table of Contents The following tables set forth the gross and net presentation of certain financial assets and financial liabilities as of June 30, 2021 and December 31, 2020: June 30, 2021 Gross Amounts of Recognized Assets Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Assets Presented in the Condensed Consolidated Statements of Financial Condition Amounts Not Offset in the Condensed Consolidated Statements of Financial Condition (in thousands) Financial Instrument Collateral Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Assets: Securities borrowed $ 1,535,297 $ — $ 1,535,297 $ ( 1,480,370 ) $ ( 8,016 ) $ 46,911 Securities purchased under agreements to resell 54,555 — 54,555 ( 54,555 ) — — Trading assets, at fair value: Currency forwards 305,525 ( 294,309 ) 11,216 — — 11,216 Options 5,246 — 5,246 — ( 4,431 ) 815 Total $ 1,900,623 $ ( 294,309 ) $ 1,606,314 $ ( 1,534,925 ) $ ( 12,447 ) $ 58,942 Gross Amounts of Recognized Liabilities Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Liabilities Presented in the Consolidated Statement of Financial Condition Amounts Not Offset in the Condensed Consolidated Statements of Financial Condition (in thousands) Financial Instruments Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Liabilities: Securities loaned $ 1,142,741 $ — $ 1,142,741 $ ( 1,122,133 ) $ ( 13,827 ) $ 6,781 Securities sold under agreements to repurchase 490,879 — 490,879 ( 490,879 ) — — Payable to broker-dealers and clearing organizations Interest rate swaps 47,248 — 47,248 — — 47,248 Trading liabilities, at fair value: Currency forwards 325,961 ( 318,500 ) 7,461 — — 7,461 Options 4,431 — 4,431 — ( 4,431 ) — Total $ 2,011,260 $ ( 318,500 ) $ 1,692,760 $ ( 1,613,012 ) $ ( 18,258 ) $ 61,490 December 31, 2020 Gross Amounts of Recognized Assets Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Assets Presented in the Condensed Consolidated Statements of Financial Condition Amounts Not Offset in the Condensed Consolidated Statements of Financial Condition (in thousands) Financial Instrument Collateral Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Assets: Securities borrowed $ 1,425,016 $ — $ 1,425,016 $ ( 1,374,266 ) $ ( 9,686 ) $ 41,064 Securities purchased under agreements to resell 22,866 — 22,866 ( 22,866 ) — — Trading assets, at fair value: Currency forwards 341,360 ( 291,964 ) 49,396 — — 49,396 Options 9,080 — 9,080 — ( 9,080 ) — Total $ 1,798,322 $ ( 291,964 ) $ 1,506,358 $ ( 1,397,132 ) $ ( 18,766 ) $ 90,460 27 Table of Contents Gross Amounts of Recognized Assets Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Assets Presented in the Condensed Consolidated Statements of Financial Condition Amounts Not Offset in the Condensed Consolidated Statements of Financial Condition (in thousands) Financial Instrument Collateral Counterparty Netting/ Cash Collateral Net Amount Offsetting of Financial Liabilities: Securities loaned $ 948,256 $ — $ 948,256 $ ( 921,593 ) $ ( 17,800 ) $ 8,863 Securities sold under agreements to repurchase 461,235 — 461,235 ( 461,235 ) — — Interest rate swaps 63,513 — 63,513 — ( 63,162 ) 351 Trading liabilities, at fair value: Currency forwards 292,965 ( 292,870 ) 95 — — 95 Options 9,241 — 9,241 — ( 9,080 ) 161 Total $ 1,775,210 $ ( 292,870 ) $ 1,482,340 $ ( 1,382,828 ) $ ( 90,042 ) $ 9,470 The following table presents gross obligations for securities sold under agreements to repurchase and for securities lending transactions by remaining contractual maturity and the class of collateral pledged: June 30, 2021 Remaining Contractual Maturity (in thousands) Overnight and Continuous Less than 30 days 30 - 60 days 61 - 90 Days Greater than 90 days Total Securities sold under agreements to repurchase: Equity securities $ — $ 125,000 $ 50,000 $ 150,000 $ 50,000 $ 375,000 U.S. and Non-U.S. government obligations 115,879 115,879 Total $ 115,879 $ 125,000 $ 50,000 $ 150,000 $ 50,000 $ 490,879 Securities loaned: Equity securities $ 1,142,741 $ — $ — $ — $ — $ 1,142,741 Total $ 1,142,741 $ — $ — $ — $ — $ 1,142,741 December 31, 2020 Remaining Contractual Maturity (in thousands) Overnight and Continuous Less than 30 days 30 - 60 days 61 - 90 Days Greater than 90 days Total Securities sold under agreements to repurchase: Equity securities $ — $ 125,000 $ 50,000 $ 200,000 $ — $ 375,000 U.S. and Non-U.S. government obligations 86,235 86,235 Total $ 86,235 $ 125,000 $ 50,000 $ 200,000 $ — $ 461,235 Securities loaned: Equity securities $ 948,256 $ — $ — $ — $ — $ 948,256 Total $ 948,256 $ — $ — $ — $ — $ 948,256 28 Table of Contents 10. Derivative Instruments The fair value of the Company’s derivative instruments on a gross basis consisted of the following at June 30, 2021 and December 31, 2020: (in thousands) June 30, 2021 December 31, 2020 Derivatives Assets Financial Statements Location Fair Value Notional Fair Value Notional Derivative instruments not designated as hedging instruments: Equities futures Receivables from broker-dealers and clearing organizations $ 246 $ 1,657,964 $ 4,669 $ 2,208,899 Commodity futures Receivables from broker-dealers and clearing organizations ( 3,895 ) 5,121,215 173,889 6,237,389 Currency futures Receivables from broker-dealers and clearing organizations 8,301 2,122,144 ( 11,736 ) 2,823,277 Fixed income futures Receivables from broker-dealers and clearing organizations ( 120 ) 53,490 42 102,476 Options Financial instruments owned 5,246 837,330 9,080 746,723 Currency forwards Financial instruments owned 305,525 25,289,763 341,360 30,596,681 Derivatives Liabilities Financial Statements Location Fair Value Notional Fair Value Notional Derivative instruments not designated as hedging instruments: Equities futures Payables to broker-dealers and clearing organizations $ 324 $ 103,608 $ 31 $ 90,219 Commodity futures Payables to broker-dealers and clearing organizations ( 1,193,850 ) 1,797,457 ( 5,397 ) 27,287 Currency futures Payables to broker-dealers and clearing organizations 1,851 2,819,392 3,598 2,269,898 Fixed income futures Payables to broker-dealers and clearing organizations ( 2 ) 4,080 — 1,566 Options Financial instruments sold, not yet purchased 4,431 831,189 9,241 736,997 Currency forwards Financial instruments sold, not yet purchased 325,961 25,299,981 292,965 30,572,490 Derivative instruments designated as hedging instruments: Interest rate swaps Payables to broker-dealers and clearing organizations 47,248 1,525,000 63,513 1,525,000 Amounts included in receivables from and payables to broker-dealers and clearing organizations represent net variation margin on long and short futures contracts as well as amounts receivable or payable on interest rate swaps. The following table summarizes the net gain (loss) from derivative instruments not designated as hedging instruments under ASC 815, which are recorded in total revenues, and from those designated as hedging instruments under ASC 815, which are recorded in other comprehensive income in the accompanying Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020. 29 Table of Contents Three Months Ended June 30, Six Months Ended June 30, (in thousands) Financial Statements Location 2021 2020 2021 2020 Derivative instruments not designated as hedging instruments: Futures Trading income, net $ 81,471 $ 35,603 $ 128,694 $ 23,702 Currency forwards Trading income, net ( 47,034 ) ( 9,229 ) 62,355 192,579 Options Trading income, net 4,825 25,039 53,561 26,300 Interest rate swap on term loan Other, net ( 923 ) — ( 1,396 ) — $ 38,339 $ 51,413 $ 243,214 $ 242,581 Derivative instruments designated as hedging instruments: Interest rate swaps (1) Other comprehensive income $ ( 8,485 ) $ ( 9,137 ) $ 17,341 $ ( 64,739 ) $ ( 8,485 ) $ ( 9,137 ) $ 17,341 $ ( 64,739 ) (1) The Company entered into a five-year $ 1,000 million floating-to-fixed interest rate swap agreement in the first quarter of 2020 and a five-year $ 525 million floating-to-fixed interest rate swap agreement in the fourth quarter of 2019. These two interest rate swaps met the criteria to be considered qualifying cash flow hedges under ASC 815 in the first quarter of 2020, and as such, the mark-to-market gains (losses) on the instruments were recorded within Other comprehensive income on the Condensed Consolidated Statements of Comprehensive Income beginning in the first quarter of 2020. 11. Variable Interest Entities A variable interest entity (“VIE”) is an entity that lacks one or more of the following characteristics: (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The Company will be considered to have a controlling financial interest and will consolidate a VIE if it has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company has interests in two joint ventures (“JV”) that build and maintain microwave communication networks in the U.S., Europe, and Asia. The Company and its JV partners each pay monthly fees for the use of the microwave communication networks in connection with their respective trading activities, and the JVs may sell excess bandwidth that is not utilized by the JV members to third parties. As of June 30, 2021, the Company held noncontrolling interests of 10 % and 50 %, respectively, in these JVs. The Company has an interest in a JV that offers derivatives trading technology and execution services to broker-dealers, professional traders and select hedge funds. As of June 30, 2021, the Company held approximately a 10 % noncontrolling interest in this JV. The Company has an interest in a JV that is developing a member-owned equities exchange with the goal of increasing competition and transparency, while reducing fixed costs and simplifying execution of equity trading in the U.S. As of June 30, 2021, the Company held approximately a 14.1 % noncontrolling interest in this JV. The Company's four JVs meet the criteria to be considered VIEs, which it does not consolidate. The Company records its interest in each JV under the equity method of accounting and records its investment in the JVs within Other assets and its amounts payable for communication services provided by the applicable JVs within Accounts payable, accrued expenses and other liabilities on the Statements of Financial Condition. The Company records its pro-rata share of each JV's earnings or losses within Other, net and fees related to the use of communication services provided by the JVs within Communications and data processing on the Condensed Consolidated Statements of Comprehensive Income. The Company’s exposure to the obligations of these VIEs is generally limited to its interests in each respective JV, which is the carrying value of the equity investment in each JV. The following table presents the Company’s nonconsolidated VIEs at June 30, 2021: 30 Table of Contents Carrying Amount Maximum Exposure to Loss VIEs' assets (in thousands) Asset Liability Equity investment $ 24,964 $ — $ 24,964 $ 155,246 The following table presents the Company’s nonconsolidated VIEs at December 31, 2020: Carrying Amount Maximum Exposure to Loss VIEs' assets (in thousands) Asset Liability Equity investment $ 28,969 $ — $ 28,969 $ 175,547 12. Revenues from Contracts with Customers For more information on revenue recognition and the nature of services provided, see Note 2 "Summary of Significant Accounting Policies" and Note 14 "Revenues from Contracts with Customers" to the Consolidated Financial Statements of the Company's 2020 Annual Report on Form 10-K. Disaggregation of Revenues The following tables present the Company’s revenue from contracts with customers disaggregated by service, by timing of revenue recognition, reconciled to the Company’s segments, for the three and six months ended June 30, 2021 and 2020: Three Months Ended June 30, 2021 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ 9,087 $ 98,076 $ — $ 107,163 Workflow technology — 25,850 — 25,850 Analytics — 10,102 — 10,102 Total revenue from contracts with customers 9,087 134,028 — 143,115 Other sources of revenue 393,454 4,102 8,294 405,850 Total revenues $ 402,541 $ 138,130 $ 8,294 $ 548,965 Timing of revenue recognition: Services transferred at a point in time $ 402,541 $ 119,821 $ 8,294 $ 530,656 Services transferred over time — 18,309 — 18,309 Total revenues $ 402,541 $ 138,130 $ 8,294 $ 548,965 31 Table of Contents Three Months Ended June 30, 2020 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ ( 634 ) $ 111,337 $ — $ 110,703 Workflow technology — 26,589 — 26,589 Analytics — 10,444 — 10,444 Total revenue from contracts with customers ( 634 ) 148,370 — 147,736 Other sources of revenue 759,751 ( 294 ) ( 1,290 ) 758,167 Total revenues $ 759,117 $ 148,076 $ ( 1,290 ) $ 905,903 Timing of revenue recognition: Services transferred at a point in time $ 759,117 $ 129,360 $ ( 1,290 ) $ 887,187 Services transferred over time — 18,716 — 18,716 Total revenues $ 759,117 $ 148,076 $ ( 1,290 ) $ 905,903 Six Months Ended June 30, 2021 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ 23,217 $ 238,524 $ — $ 261,741 Workflow technology — 52,424 — 52,424 Analytics — 20,599 — 20,599 Total revenue from contracts with customers 23,217 311,547 — 334,764 Other sources of revenue 1,203,048 15,822 7,903 1,226,773 Total revenues $ 1,226,265 $ 327,369 $ 7,903 $ 1,561,537 Timing of revenue recognition: Services transferred at a point in time $ 1,226,265 $ 290,359 $ 7,903 $ 1,524,527 Services transferred over time — 37,010 — 37,010 Total revenues $ 1,226,265 $ 327,369 $ 7,903 $ 1,561,537 Six Months Ended June 30, 2020 (in thousands) Market Making Execution Services Corporate Total Revenues from contracts with customers: Commissions, net $ 136 $ 242,363 $ — $ 242,499 Workflow technology — 55,332 — 55,332 Analytics — 20,650 20,650 Total revenue from contracts with customers 136 318,345 — 318,481 Other sources of revenue 1,589,567 ( 404 ) ( 1,120 ) 1,588,043 Total revenues $ 1,589,703 $ 317,941 $ ( 1,120 ) $ 1,906,524 Timing of revenue recognition: Services transferred at a point in time $ 1,589,703 $ 280,665 $ ( 1,120 ) $ 1,869,248 Services transferred over time — 37,276 — 37,276 Total revenues $ 1,589,703 $ 317,941 $ ( 1,120 ) $ 1,906,524 32 Table of Contents Remaining Performance Obligations and Revenue Recognized from Past Performance Obligations As of June 30, 2021 and 2020, the aggregate amount of the transaction price allocated to the performance obligations relating to workflow technology and analytics revenues that are unsatisfied (or partially unsatisfied) was not material. The Company recognized $ 0.6 million and $ 0.7 million of revenue related to performance obligations satisfied in previous period for the three months ended June 30, 2021 and 2020, respectively. Contract Assets and Contract Liabilities The timing of the revenue recognition may differ from the timing of payment from customers. The Company records a receivable when revenue is recognized prior to payment, and when the Company has an unconditional right to payment. The Company records a contract liability when payment is received prior to the time at which the satisfaction of the service obligation occurs. Receivables related to revenues from contracts with customers amounted to $ 50.6 million and $ 57.3 million as of June 30, 2021 and December 31, 2020, respectively. The Company did not identify any contract assets. There were no impairment losses on receivables as of June 30, 2021. Deferred revenue primarily relates to deferred commissions allocated to analytics products and subscription fees billed in advance of satisfying the performance obligations. Deferred revenue related to contracts with customers was $ 12.7 million and $ 9.3 million as of June 30, 2021 and December 31, 2020, respectively. The Company recognized revenue of $ 7.2 million and $ 7.6 million for the three months ended June 30, 2021 and 2020 respectively, and $ 15.2 million and $ 15.1 million during the six months ended June 30, 2021 and 2020, respectively that had been initially recorded as deferred revenue. The Company has not identified any costs to obtain or fulfill its contracts under ASC 606. 13. Income Taxes The Company is subject to U.S. federal, state and local income tax at the rate applicable to corporations less the rate attributable to the noncontrolling interest in Virtu Financial. These noncontrolling interests are subject to U.S. taxation as partnerships. Accordingly, for the three and six months ended June 30, 2021 and 2020, the income attributable to these noncontrolling interests was reported in the Condensed Consolidated Statements of Comprehensive Income, but the related U.S. income tax expense attributable to these noncontrolling interests was not reported by the Company as it is the obligation of the individual partners. The Company’s provisions for income taxes and effective tax rates were $ 26.1 million, 19.3 %, and $ 69.3 million, 17.1 % for the three months ended June 30, 2021 and 2020, respectively, and $ 106.7 million, 17.1 % and $ 147.2 million, 16.9 % for the six months ended June 30, 2021 and 2020, respectively. Income tax expense is also affected by the differing effective tax rates in foreign, state and local jurisdictions where certain of the Company’s subsidiaries are subject to corporate taxation. Included in Other assets on the Condensed Consolidated Statements of Financial Condition at June 30, 2021 and December 31, 2020 are current income tax receivables of $ 43.0 million and $ 83.1 million, respectively. The balances at June 30, 2021 and December 31, 2020 primarily comprised income tax benefits due to the Company from federal, state, local, and foreign tax jurisdictions based on income before taxes. Included in Accounts payable, accrued expenses and other liabilities on the Condensed Consolidated Statements of Financial Condition at June 30, 2021 and December 31, 2020 are current tax liabilities of $ 17.6 million and $ 37.9 million, respectively. The balances at June 30, 2021 and December 31, 2020 primarily comprise income taxes owed to federal, state and local, and foreign tax jurisdictions based on income before taxes. Deferred income taxes arise primarily due to the amortization of the deferred tax assets recognized in connection with the IPO (see Note 4 "Tax Receivable Agreements"), the Acquisition of KCG and the ITG Acquisition, differences in the valuation of financial assets and liabilities, and other temporary differences arising from the deductibility of compensation, depreciation, and other expenses in different time periods for book and income tax return purposes. 33 Table of Contents There are no expiration dates on the deferred tax assets. The provisions of ASC 740 require that carrying amounts of deferred tax assets be reduced by a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically with appropriate consideration given to all positive and negative evidence related to the realization of the deferred tax assets. At June 30, 2021 and December 31, 2020, the Company did not have any U.S. federal net operating loss carryforwards and therefore the Company did not record a deferred tax asset related to federal net operating loss carryforwards. At June 30, 2021 and December 31, 2020, the Company recorded deferred income taxes related to state and local net operating losses of $ 0.4 million. These net operating losses will begin to expire in 2039. The Company did not record a valuation allowance against this deferred tax asset. As a result of the ITG Acquisition, the Company had non-U.S. net operating losses at June 30, 2021 and December 31, 2020 of $ 74.0 million and $ 75.1 million, respectively, and recorded a related deferred tax asset of $ 14.9 million and $ 15.2 million, respectively. A valuation allowance of $ 14.8 million and $ 15.1 million was recorded against this deferred tax asset at June 30, 2021 and December 31, 2020, respectively, as it is more likely than not that a portion of this deferred tax asset will not be realized. As a result of the Acquisition of KCG, the Company had non-U.S. net operating losses at June 30, 2021 and December 31, 2020 of $ 239.3 million and $ 239.0 million, respectively, and recorded a related deferred tax asset of $ 44.9 million and $ 44.9 million, respectively. A full valuation allowance was also recorded against this deferred tax asset at June 30, 2021 and December 31, 2020 as it is more likely than not that this deferred tax asset will not be realized. No valuation allowance against the remaining deferred taxes was recorded as of June 30, 2021 and December 31, 2020 because it is more likely than not that these deferred tax assets will be fully realized. The Company is subject to taxation in U.S. federal, state, local and foreign jurisdictions. As of June 30, 2021, the Company’s tax years for 2015 through 2019 and 2017 through 2019 were subject to examination by U.S. and non-U.S. tax authorities, respectively. As a result of the ITG Acquisition and the Acquisition of KCG, the Company assumed any ITG and KCG tax exposures. In addition, the Company is subject to state and local income tax examinations in various jurisdictions for the tax years 2013 through 2019. The final outcome of these examinations is not yet determinable. However, the Company anticipates that adjustments related to these examinations, if any, will not result in a material change to its financial condition, results of operations and cash flows. The Company’s policy for recording interest and penalties associated with audits is to record such items as a component of income or loss before income taxes and noncontrolling interest. Penalties, if any, are recorded in Operations and administrative expense and interest received or paid is recorded in Other, net or Operations and administrative expense in the Condensed Consolidated Statements of Comprehensive Income, respectively. The Company had $ 8.4 million of unrecognized tax benefits as of June 30, 2021, all of which would affect the Company’s effective tax rate if recognized. The Company has determined that there are no uncertain tax positions that would have a material impact on the Company’s financial position as of June 30, 2021. 14. Commitments, Contingencies and Guarantees Legal Proceedings In the ordinary course of business, the nature of the Company’s business subjects it to claims, lawsuits, regulatory examinations or investigations and other proceedings. The Company and its subsidiaries are subject to several of these matters at the present time. Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, particularly in regulatory examinations or investigations or other proceedings in which substantial or indeterminate judgments, settlements, disgorgements, restitution, penalties, injunctions, damages or fines are sought, or where such matters are in the early stages, the Company cannot estimate losses or ranges of losses for such matters where there is only a reasonable possibility that a loss may be incurred. In addition, there are numerous factors that result in a greater degree of complexity in class-action lawsuits as compared to other types of litigation. There can be no assurance that these legal proceedings will not have a material adverse effect on the Company’s results of operations in any future period, and a material judgment, fine or sanction could have a material adverse impact on the Company’s financial condition, results of operations and cash flows. However, it is the opinion of management, after consultation with legal counsel that, based on information currently available, the ultimate outcome of these matters will not have a material adverse impact on the business, financial condition or operating results of the Company, although they might be material to the operating results for any particular reporting period. The Company carries directors’ and officers’ liability insurance coverage and other insurance coverage for potential claims, including securities actions, against the Company and its respective directors and officers. 34 Table of Contents On November 30, 2020, the Company was named as a defendant in In re United States Oil Fund, LP Securities Litigation , No. 20-cv-4740. The consolidated amended complaint was filed in federal district court in New York on behalf of a putative class, and asserts claims against the Company and numerous other financial institutions under Section 11 of the Securities Act of 1933 in connection with trading in United States Oil Fund, LP, a crude oil ETF. The complaint also names the ETF, its sponsor, and related individuals as defendants. The complaint did not specify the amount of alleged damages. Defendants moved to dismiss the consolidated amended complaint on January 29, 2021 and plaintiffs subsequently filed its opposition to the motion on March 30, 2021. The Company believes that the claims are without merit and is defending itself vigorously. Other Legal and Regulatory Matters The Company owns subsidiaries including regulated entities that are subject to extensive oversight under federal, state and applicable international laws as well as self-regulatory organization (“SRO”) rules. Changes in market structure and the need to remain competitive require constant changes to the Company's systems, order routing and order handling procedures. The Company makes these changes while continuously endeavoring to comply with many complex laws and rules. Compliance, surveillance and trading issues common in the securities industry are monitored by, reported to, and/or reviewed in the ordinary course of business by the Company's regulators in the U.S. and abroad. As a major order flow execution destination, the Company is named from time to time in, or is asked to respond to a number of regulatory matters brought by U.S. regulators, foreign regulators, SROs, as well as actions brought by private plaintiffs, which arise from its business activities. There has recently been an increased focus by regulators on Anti-Money Laundering and sanctions compliance by broker-dealers and similar entities, as well as an enhanced interest on suspicious activity reporting and transactions involving microcap and low-priced securities. In addition, there has been an increased focus by Congress, federal and state regulators, SROs and the media on market structure issues, and in particular, the retail trading environment in the U.S. and relationships between retail broker-dealers and market making firms, high frequency trading, best execution, internalization, alternative trading system (“ATS”) manner of operations, market fragmentation and complexity, colocation, cybersecurity, access to market data feeds and remuneration arrangements, such as payment for order flow and other payment and rebate structures and arrangements. From time to time, the Company is the subject of requests for information and documents from the SEC, the Financial Industry Regulatory Authority ("FINRA"), state attorneys general, and other regulators and governmental authorities. It is the Company's practice to cooperate and comply with the requests for information and documents. The Company is currently the subject of various regulatory reviews and investigations by state, federal and foreign regulators and SROs, including the SEC and FINRA. In some instances, these matters may result in a disciplinary action and/or a civil or administrative action. Representations and Warranties; Indemnification Arrangements In the normal course of its operations, the Company enters into contracts that contain a variety of representations and warranties in addition to indemnification obligations, including indemnification obligations in connection with the Acquisition of KCG and the ITG Acquisition. The Company's maximum exposure under these arrangements is currently unknown, as any such exposure could relate to claims not yet brought or events which have not yet occurred. For example, in November 2013, KCG sold Urban Financial of America, LLC (“Urban”), the reverse mortgage origination and securitization business previously owned by Knight Capital Group, Inc., to an investor group now known as Finance of America Reverse, LLC (“FAR”). Pursuant to the terms of the Stock Purchase Agreement between KCG and FAR, Virtu has certain continuing obligations related to KCG's prior ownership of Urban and has been and, in the future may be, advised by FAR of potential claims thereunder. Consistent with standard business practices in the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and general indemnifications. The Company has also provided general indemnifications to its managers, officers, directors, employees, and agents against expenses, legal fees, judgments, fines, settlements, and other amounts actually and reasonably incurred by such persons under certain circumstances as more fully disclosed in its operating agreement. The overall maximum amount of the obligations (if any) cannot reasonably be estimated as it will depend on the facts and circumstances that give rise to any future claims. 15. Leases The Company primarily enters into lessee arrangements for corporate office space, data centers, and technology equipment. For more information on lease accounting, see Note 2 "Summary of Significant Accounting Policies" and Note 17 "Leases" to the Consolidated Financial Statements of the Company's 2020 Annual Report on Form 10-K. 35 Table of Contents Lease assets and liabilities are summarized as follows: (in thousands) Financial Statement Location June 30, 2021 December 31, 2020 Operating leases Operating lease right-of-use assets Operating lease right-of-use assets $ 240,194 $ 268,864 Operating lease liabilities Operating lease liabilities 286,335 315,340 Finance leases Property and equipment, at cost Property, equipment, and capitalized software, net 17,415 36,093 Accumulated depreciation Property, equipment, and capitalized software, net ( 9,442 ) ( 24,585 ) Finance lease liabilities Accounts payable, accrued expenses, and other liabilities 8,116 11,687 Weighted average remaining lease term and discount rate are as follows: June 30, 2021 December 31, 2020 Weighted average remaining lease term Operating leases 6.65 years 6.9 years Finance leases 1.73 years 2.0 years Weighted average discount rate Operating leases 5.66 % 5.67 % Finance leases 2.56 % 3.13 % The components of lease expense are as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Operating lease cost: Fixed $ 18,676 $ 18,452 $ 37,776 $ 36,812 Variable 1,766 2,086 3,231 4,221 Impairment of ROU Asset — — 1,198 — Total Operating lease cost $ 20,442 $ 20,538 $ 42,205 $ 41,033 Sublease income 4,425 4,118 8,868 7,595 Finance lease cost: Amortization of ROU Asset $ 1,431 $ 2,983 $ 3,564 $ 6,170 Interest on lease liabilities 59 112 133 241 Total Finance lease cost $ 1,490 $ 3,095 $ 3,697 $ 6,411 Future minimum lease payments under operating and finance leases with non-cancelable lease terms, as of June 30, 2021, are as follows: (in thousands) Operating Leases Finance Leases 2021 $ 50,494 $ 2,924 2022 68,624 4,073 2023 65,270 1,450 2024 35,717 2 2025 27,952 — 2026 and thereafter 111,444 — Total lease payments $ 359,501 $ 8,449 Less imputed interest ( 73,166 ) ( 333 ) Total lease liability $ 286,335 $ 8,116 36 Table of Contents 16. Cash The following table provides a reconciliation of cash and cash equivalents together with restricted or segregated cash as reported within the Condensed Consolidated Statements of Financial Condition to the sum of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows. (in thousands) June 30, 2021 December 31, 2020 Cash and cash equivalents $ 848,111 $ 889,559 Cash restricted or segregated under regulations and other 67,144 117,446 Total cash, cash equivalents and restricted cash shown in the statement of cash flows $ 915,255 $ 1,007,005 17. Capital Structure The Company has four classes of authorized common stock. The Class A Common Stock and the Class C Common Stock have one vote per share. The Class B Common Stock and the Class D Common Stock have 10 votes per share. Shares of the Company’s common stock generally vote together as a single class on all matters submitted to a vote of the Company’s stockholders. The Founder Member controls approximately 82.4 % of the combined voting power of our common stock as a result of its ownership of our Class C and Class D Common Stock. The Company holds approximately a 63.6 % interest in Virtu Financial at June 30, 2021. During the period prior to the Reorganization Transactions and IPO, Class A-2 profits interests and Class B interests in Virtu Financial were issued to Employee Holdco (as defined below) on behalf of certain key employees and stakeholders. In connection with the Reorganization Transactions, all Class A-2 profits interests and Class B interests were reclassified into Virtu Financial Units. As of June 30, 2021 and December 31, 2020, there were 4,831,810 and 5,259,713 Virtu Financial Units outstanding held by Employee Holdco (as defined below), respectively, and 427,903 and 2,360,239 of such Virtu Financial Units and corresponding Class C Common Stock were exchanged into Class A Common Stock, forfeited or repurchased during the six months ended June 30, 2021 and 2020, respectively. Amended and Restated 2015 Management Incentive Plan The Company’s Board of Directors and stockholders adopted the 2015 Management Incentive Plan, which became effective upon consummation of the IPO, and was subsequently amended and restated following receipt of approval from the Company’s stockholders on June 30, 2017. The Amended and Restated 2015 Management Incentive Plan provides for the grant of stock options, restricted stock units, and other awards based on an aggregate of 21,000,000 shares of Class A Common Stock, subject to additional sublimits, including limits on the total option grant to any one participant in a single year and the total performance award to any one participant in a single year. On November 13, 2020, the Company amended its form award agreement for the issuance of RSUs to provide for the continued vesting of outstanding RSU awards upon the occurrence of a qualified retirement (the "RSU Amendment"). A qualified retirement generally means a voluntary resignation by the participant (i) after five years of service, (ii) the participant attaining the age of 50 and (iii) the sum of the participant's age and service at the time of termination equaling or exceeding 65. Continued vesting is subject to the participant entering into a 2 year non-compete. The RSU Amendment was authorized and approved by the Compensation Committee of the Company's Board of Directors. As a result of the RSU Amendment, currently issued and outstanding RSUs held by the Company's employees, including its executive officers, shall be deemed to be subject to the amended terms of the form award agreement, and any future RSU awards shall also be governed by such amended terms. Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan On the ITG Closing Date, the Company assumed the Amended and Restated ITG 2007 Equity Plan and the Assumed Awards. As of the ITG Closing Date, the aggregate number of shares of Class A Common Stock subject to such Assumed Awards was 2,497,028 and the aggregate number of shares of Class A Common Stock that remained issuable pursuant to the Amended and Restated ITG 2007 Equity Plan was 1,230,406 . 37 Table of Contents Share Repurchase Program On May 4, 2021, the Company's Board of Directors authorized the expansion of the Company's share repurchase program, increasing the total authorized amount by $ 300 million to $ 470 million in Class A Common Stock and Virtu Financial Units and extending the duration of the program through May 4, 2022. The share repurchase program authorizes the Company to repurchase shares from time to time in open market transactions, privately negotiated transactions or by other means. Repurchases are also permitted to be made under Rule 10b5-1 plans. The timing and amount of repurchase transactions are determined by the Company's management based on its evaluation of market conditions, share price, cash sources, legal requirements and other factors. From the inception of the program through June 30, 2021, the Company repurchased approximately 7.1 million shares of Class A Common Stock and Virtu Financial Units for approximately $ 198.6 million. As of June 30, 2021, the Company has approximately of $ 271.4 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program. Employee Exchanges During the six months ended June 30, 2021 and 2020, pursuant to the exchange agreement by and among the Company, Virtu Financial and holders of Virtu Financial Units, certain current and former employees elected to exchange 382,281 and 2,360,239 units, respectively in Virtu Financial held directly or on their behalf by Virtu Employee Holdco LLC (“Employee Holdco”) on a one -for-one basis for shares of Class A Common Stock. Warrant Issuance On March 20, 2020, in connection with and in consideration of the Founder Member’s commitments under the Founder Member Loan Facility (as described in Note 8 "Borrowings"), the Company delivered to the Founder Member a warrant (the “Warrant”) to purchase shares of the Company’s Class A Common Stock. Pursuant to the Warrant, the Founder Member may purchase up to 3,000,000 shares of Class A Common Stock. If at any time during the term of the Founder Member Loan Facility, the Founder Member Loans equal to or greater than $ 100 million had remained outstanding for a certain period of time specified in the Warrant, the number of shares would have increased to 10,000,000 . The Founder Member Loan Facility Term expired on September 20, 2020 without the Company having borrowed any Founder Member Loans thereunder (as described in Note 8 "Borrowings"), and as a result no such increase in the number of shares which may be purchased has occurred or will occur pursuant to the terms of the Warrant. The exercise price per share of the Class A Common Stock issuable pursuant to the Warrant is $ 22.98 , which in accordance with the terms of the Warrant, is equal to the average of the volume weighted average prices of the Class A Common Stock for the ten ( 10 ) trading days following May 7, 2020, the date on which the Company publicly announced its earnings results for the first quarter of 2020. The Warrant may be exercised to purchase up to 3,000,000 shares of the Company's Class A Common Stock on any date after May 22, 2020 up to and including January 15, 2022. The Warrant and Class A Common Stock issuable pursuant to the Warrant were offered, and will be issued and sold, in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), set forth under Section 4(a)(2) of the Securities Act relating to sales by an issuer not involving any public offering. The fair value of the Warrant was determined using a Black-Scholes-Merton model, and was recorded as a debt issuance cost within Other Assets on the Condensed Consolidated Statements of Financial Condition and as an increase to Additional paid-in capital on the Condensed Consolidated Statements of Changes in Equity. The balance was amortized on a straight-line basis from March 20, 2020 through September 20, 2020, the date on which the Founder Member Loan Facility expired, and recorded as expense within Debt issue cost related to debt refinancing, prepayment and commitment fees in the Condensed Consolidated Statements of Comprehensive Income. 38 Table of Contents Accumulated Other Comprehensive Income (Loss) The following table presents the changes in Other Comprehensive Income (Loss) for the three and six months ended June 30, 2021 and 2020: Three Months Ended June 30, 2021 (in thousands) AOCI Beginning Balance Amounts recorded in AOCI Amounts reclassified from AOCI to income AOCI Ending Balance Net change in unrealized cash flow hedges gains (losses) (1) $ ( 20,837 ) $ ( 7,872 ) $ 3,757 $ ( 24,952 ) Foreign exchange translation adjustment 5,792 43 — 5,835 Total $ ( 15,045 ) $ ( 7,829 ) $ 3,757 $ ( 19,117 ) (1) Amounts reclassified from AOCI to income are included within Financing interest expense on long-term borrowings on the Condensed Consolidated Statements of Comprehensive Income. As of June 30, 2021, the Company expects approximately $ 15.0 million to be reclassified from AOCI into earnings over the next 12 months. The timing of the reclassification is based on the interest payment schedule of the long-term borrowings. Three Months Ended June 30, 2020 (in thousands) AOCI Beginning Balance Amounts recorded in AOCI Amounts reclassified from AOCI to income AOCI Ending Balance Net change in unrealized cash flow hedges gains (losses) $ ( 31,468 ) $ ( 8,823 ) $ 3,581 $ ( 36,710 ) Foreign exchange translation adjustment ( 6,531 ) 3,674 — ( 2,857 ) Total $ ( 37,999 ) $ ( 5,149 ) $ 3,581 $ ( 39,567 ) Six Months Ended June 30, 2021 (in thousands) AOCI Beginning Balance Amounts recorded in AOCI Amounts reclassified from AOCI to income AOCI Ending Balance Net change in unrealized cash flow hedges gains (losses) (1) $ ( 33,444 ) $ 1,424 $ 7,068 $ ( 24,952 ) Foreign exchange translation adjustment 7,957 ( 2,122 ) — 5,835 Total $ ( 25,487 ) $ ( 698 ) $ 7,068 $ ( 19,117 ) (1) Amounts reclassified from AOCI to income are included within Financing interest expense on long-term borrowings on the Consolidated Statements of Comprehensive Income. As of June 30, 2021, the Company expects approximately $ 15.0 million to be reclassified from AOCI into earnings over the next 12 months. The timing of the reclassification is based on the interest payment schedule of the long-term borrowings. Six Months Ended June 30, 2020 (in thousands) AOCI Beginning Balance Amounts recorded in AOCI Amounts reclassified from AOCI to income AOCI Ending Balance Net change in unrealized cash flow hedges gains (losses) $ — $ ( 40,608 ) $ 3,898 $ ( 36,710 ) Foreign exchange translation adjustment ( 647 ) ( 2,210 ) — ( 2,857 ) Total $ ( 647 ) $ ( 42,818 ) $ 3,898 $ ( 39,567 ) (1) Amounts reclassified from AOCI to income are included within Financing interest expense on long-term borrowings on the Consolidated Statements of Comprehensive Income. 18. Share-based Compensation Pursuant to the Amended and Restated 2015 Management Incentive Plan as described in Note 17 "Capital Structure", and in connection with the IPO, non-qualified stock options to purchase shares of Class A Common Stock were granted, each of which vests in equal annual installments over a period of four years from grant date and expires not later than 10 years from the date of grant. 39 Table of Contents The following table summarizes activity related to stock options for the six months ended June 30, 2021 and 2020: Options Outstanding Options Exercisable Number of Options Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Life Number of Options Weighted Average Exercise Price Per Share At December 31, 2019 3,233,779 $ 18.74 5.24 3,233,779 $ 18.74 Granted — — — — — Exercised ( 617,923 ) 17.64 — ( 617,923 ) 17.64 Forfeited or expired — — — — — At June 30, 2020 2,615,856 $ 19.00 4.74 2,615,856 $ 19.00 At December 31, 2020 2,324,152 $ 19.00 4.24 2,324,152 $ 19.00 Granted — — — — — Exercised ( 407,997 ) 19.00 — ( 407,997 ) 19.00 Forfeited or expired — — — — — At June 30, 2021 1,916,155 $ 19.00 3.74 1,916,155 $ 19.00 The expected life was determined based on an average of vesting and contractual period. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined based on historical volatilities of comparable companies. The expected dividend yield was determined based on estimated future dividend payments divided by the IPO stock price. The stock options to purchase shares of Class A Common Stock were fully vested in 2019. Amended and Restated Investment Technology Group, Inc. 2007 Omnibus Equity Compensation Plan On the ITG Closing Date, the Company assumed the Amended and Restated ITG 2007 Equity Plan and the Assumed Awards. The Assumed Awards are subject to the same terms and conditions that were applicable to them under the Amended and Restated ITG 2007 Equity Plan, except that (i) the Assumed Awards relate to shares of the Company’s Class A Common Stock, (ii) the number of shares of Class A Common Stock subject to the Assumed Awards was the result of an adjustment based upon an Exchange Ratio (as defined in the ITG Merger Agreement) and (iii) the performance share unit awards were converted into service-based vesting restricted stock unit awards that were no longer subject to any performance based vesting conditions. As of the ITG Closing Date, the aggregate number of shares of Class A Common Stock subject to such Assumed Awards was 2,497,028 and the aggregate number of shares of Class A Common Stock that remained issuable pursuant to the Amended and Restated ITG 2007 Equity Plan was 1,230,406 . The Company filed a Registration Statement on Form S-8 on the ITG Closing Date to register such shares of Class A Common Stock. Class A Common Stock, Restricted Stock Units and Restricted Stock Awards Pursuant to the Amended and Restated 2015 Management Incentive Plan as described in Note 17 "Capital Structure", subsequent to the IPO, shares of immediately vested Class A Common Stock, RSUs and RSAs were granted, with RSUs and RSAs vesting over a period of up to 4 years. The fair value of the Class A Common Stock and RSUs was determined based on a volume weighted average price and the expense is recognized on a straight-line basis over the vesting period. The fair value of the RSAs was determined based on the closing price as of the date of grant and the expense is recognized from the date that achievement of the performance target becomes probable through the remainder of the vesting period. Performance targets are based on the Company's adjusted EBITDA for certain future periods. For the six months ended June 30, 2021 and 2020, respectively, there were 633,938 and 852,599 shares of immediately vested Class A Common Stock granted as part of year-end compensation. In addition, the Company accrued compensation expense of $ 6.5 million and $ 8.7 million for the three months ended June 30, 2021 and 2020, respectively, and $ 11.5 million and $ 25.8 million for the six months ended June 30, 2021 and 2020, respectively, related to immediately vested Class A Common Stock expected to be awarded as part of year-end incentive compensation, which was included in Employee compensation and payroll taxes on the Condensed Consolidated Statements of Comprehensive Income and Accounts payable, accrued expenses and other liabilities on the Condensed Consolidated Statements of Financial Condition. 40 Table of Contents The following table summarizes activity related to RSUs (including the Assumed Awards) and RSAs for the six months ended June 30, 2021 and 2020: Number of RSUs and RSAs Weighted Average Fair Value At December 31, 2019 2,993,489 $ 24.10 Granted 3,039,940 16.76 Forfeited ( 164,476 ) 18.59 Vested ( 1,889,862 ) 20.57 At June 30, 2020 3,979,091 $ 20.39 At December 31, 2020 3,393,084 $ 21.35 Granted (1) 2,106,795 27.35 Forfeited ( 112,060 ) 22.63 Vested ( 1,929,323 ) 23.27 At June 30, 2021 3,458,496 $ 23.89 (1) Excluded in the number of RSUs and RSAs are 200,000 participating RSAs where the grant date has not been achieved because the performance conditions have not been met. The Company recognized $ 6.1 million and $ 7.8 million for the three months ended June 30, 2021 and 2020 and $ 13.9 million and $ 16.8 million for the six months ended June 30, 2021 and 2020, respectively, of compensation expense in relation to RSUs. As of June 30, 2021 and December 31, 2020, total unrecognized share-based compensation expense related to unvested RSUs was $ 55.0 million and $ 37.1 million, respectively, and this amount is to be recognized over a weighted average period of 1.2 years and 1.0 year, respectively. Awards in which the specific performance conditions have not been met are not included in unrecognized share-based compensation expense. On November 13, 2020, the Company adopted the Virtu Financial, Inc. Deferred Compensation Plan (the "DCP"). The DCP permits eligible executive officers and other employees to defer cash or equity based compensation beginning in the calendar year ending December 31, 2021, subject to certain limitations and restrictions. Deferrals may also be directed to notional investments in certain of the employee investment opportunities. No amounts have been recognized as compensation cost under the DCP as of June 30, 2021. 19. Regulatory Requirement U.S. Subsidiary The Company's U.S. broker-dealer subsidiary, VAL, is subject to the SEC Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital as detailed in the table below. Pursuant to New York Stock Exchange ("NYSE") rules, VAL was also required to maintain $ 1.0 million of capital in connection with the operation of its designated market maker (“DMM”) business as of June 30, 2021. The required amount is determined under the exchange rules as the greater of (i) $ 1 million or (ii) $ 75,000 for every 0.1 % of NYSE transaction dollar volume in each of the securities for which the Company is registered as the DMM. VAL's regulatory capital and regulatory capital requirements as of June 30, 2021 was as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Virtu Americas LLC $ 524,404 $ 2,415 $ 521,989 As of June 30, 2021, VAL had $ 57.4 million of cash in special reserve bank accounts for the benefit of customers pursuant to SEC Rule 15c3-3, Computation for Determination of Reserve Requirements, and $ 8.8 million of cash in reserve bank accounts for the benefit of proprietary accounts of brokers. The balances are included within Cash restricted or segregated under regulations and other on the Condensed Consolidated Statements of Financial Condition. VAL's regulatory capital and regulatory capital requirements as of December 31, 2020 was as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Virtu Americas LLC $ 621,253 $ 2,917 $ 618,336 41 Table of Contents As of December 31, 2020, VAL had $ 96.2 million of cash in special reserve bank accounts for the benefit of customers pursuant to SEC Rule 15c3-3, Computation for Determination of Reserve Requirements, and $ 20.4 million of cash in reserve bank accounts for the benefit of proprietary accounts of brokers. Foreign Subsidiaries The Company’s foreign subsidiaries are subject to regulatory capital requirements set by local regulatory bodies, including the Investment Industry Regulatory Organization of Canada (“IIROC”), the Central Bank of Ireland ("CBI"), the Financial Conduct Authority ("FCA") in the United Kingdom, the Australian Securities and Investments Commission ("ASIC"), the Securities and Futures Commission in Hong Kong ("SFC"), and the Monetary Authority of Singapore ("MAS"). The regulatory net capital balances and regulatory capital requirements applicable to the Company's foreign subsidiaries as of June 30, 2021 were as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Canada Virtu ITG Canada Corp $ 14,360 $ 202 $ 14,158 Virtu Financial Canada ULC 204 202 2 Ireland Virtu ITG Europe Limited 79,941 33,419 46,522 Virtu Financial Ireland Limited (1) 111,837 59,446 52,391 United Kingdom Virtu ITG UK Limited 1,119 866 253 Asia Pacific Virtu ITG Australia Limited 29,612 10,036 19,576 Virtu ITG Hong Kong Limited 4,062 540 3,522 Virtu ITG Singapore Pte Limited 837 74 763 (1) Preliminary As of June 30, 2021, Virtu ITG Europe Limited and Virtu ITG Canada Corp had $ 0.3 million and $ 0.4 million, respectively, of segregated funds on deposit for trade clearing and settlement activity, and Virtu ITG Hong Kong Ltd. had $ 30 thousand of segregated balances under a collateral account control agreement for the benefit of certain customers. The regulatory net capital balances and regulatory capital requirements applicable to the Company's foreign subsidiaries as of December 31, 2020 were as follows: (in thousands) Regulatory Capital Regulatory Capital Requirement Excess Regulatory Capital Canada Virtu ITG Canada Corp $ 12,944 $ 196 $ 12,748 Virtu Financial Canada ULC 2,486 196 2,290 Ireland Virtu ITG Europe Limited 57,459 32,106 25,353 Virtu Financial Ireland Limited 94,528 41,038 53,490 United Kingdom Virtu ITG UK Limited 1,290 910 380 Asia Pacific Virtu ITG Australia Limited 30,606 12,729 17,877 Virtu ITG Hong Kong Limited 4,290 625 3,665 Virtu ITG Singapore Pte Limited 796 76 720 As of December 31, 2020, Virtu ITG Europe Limited and Virtu ITG Canada Corp had $ 0.2 million and $ 0.4 million, respectively, of funds on deposit for trade clearing and settlement activity, and Virtu ITG Hong Kong Ltd had $ 30 thousand of segregated balances under a collateral account control agreement for the benefit of certain customers. 42 Table of Contents 20. Geographic Information and Business Segments The Company operates its business in the U.S. and internationally, primarily in Europe, Asia and Canada. Significant transactions and balances between geographic regions occur primarily as a result of certain of the Company’s subsidiaries incurring operating expenses such as employee compensation, communications and data processing and other overhead costs, for the purpose of providing execution, clearing and other support services to affiliates. Charges for transactions between regions are designed to approximate full costs. Intra-region income and expenses and related balances have been eliminated in the geographic information presented below to accurately reflect the external business conducted in each geographical region. The revenues are attributed to countries based on the locations of the subsidiaries. The following table presents total revenues by geographic area for the three and six months ended June 30, 2021 and 2020 : Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2021 2020 2021 2020 Revenues: United States $ 429,588 $ 767,707 $ 1,245,641 $ 1,560,733 Ireland 66,106 64,554 187,475 172,464 Singapore 29,420 46,818 72,268 113,862 Canada 12,938 15,107 29,968 32,064 Australia 9,218 10,200 21,885 22,078 United Kingdom 560 504 1,745 2,980 Others 1,135 1,013 2,555 2,343 Total revenues $ 548,965 $ 905,903 $ 1,561,537 $ 1,906,524 The Company has two operating segments: (i) Market Making and (ii) Execution Services; and one non-operating segment: Corporate. The Market Making segment principally consists of market making in the cash, futures and options markets across global equities, fixed income, currencies and commodities. As a market maker, the Company commits capital on a principal basis by offering to buy securities from, or sell securities to, broker-dealers, banks and institutions. The Company engages in principal trading in the Market Making segment direct to clients as well as in a supplemental capacity on exchanges, Electronic Communications Networks ("ECNs") and ATSs. The Company is an active participant on all major global equity and futures exchanges and also trades on substantially all domestic electronic options exchanges. As a complement to electronic market making, the cash trading business handles specialized orders and also transacts on the OTC Link ATS operated by OTC Markets Group Inc. The Execution Services segment comprises client-based trading and trading venues, offering execution services in global equities, options, futures and fixed income on behalf of institutions, banks and broker-dealers. The Company earns commissions and commission equivalents as an agent on behalf of clients as well as between principals to transactions; in addition, the Company will commit capital on behalf of clients as needed. Client-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities and options; (ii) institutional sales traders who offer portfolio trading and single stock sales trading which provides execution expertise for program, block and riskless principal trades in global equities and ETFs; and (iii) matching of client conditional orders in POSIT Alert and client orders in the Company's ATSs, including Virtu MatchIt, and POSIT. The Execution Services segment also includes revenues derived from providing (a) proprietary risk management and trading infrastructure technology to select third parties for a service fee, (b) workflow technology, the Company’s integrated, broker-neutral trading tools delivered across the globe including trade order and execution management and order management software applications and network connectivity and (c) trading analytics, including (1) tools enabling portfolio managers and traders to improve pre-trade, real-time and post-trade execution performance, (2) portfolio construction and optimization decisions and (3) securities valuation. The segment also includes the results of the Company's capital markets business, in which the Company act as an agent for issuers in connection with at-the-market offerings and buyback programs. The Corporate segment contains the Company's investments, principally in strategic trading-related opportunities and maintains corporate overhead expenses and all other income and expenses that are not attributable to the Company's other segments. Management evaluates the performance of its segments on a pre-tax basis. Segment assets and liabilities are not used for evaluating segment performance or in deciding how to allocate resources to segments. The Company’s total revenues and income before income taxes and noncontrolling interest (“Pre-tax earnings”) by segment for the three months ended June 30, 2021 and 2020 and are summarized in the following table: 43 Table of Contents (in thousands) Market Making Execution Services Corporate (1) Consolidated Total 2021: Total revenue $ 402,541 $ 138,130 $ 8,294 $ 548,965 Income before income taxes and noncontrolling interest 124,571 4,058 6,373 135,002 2020: Total revenue 759,117 148,076 ( 1,290 ) 905,903 Income (loss) before income taxes and noncontrolling interest 397,596 16,454 ( 9,515 ) 404,535 The Company's Pre-tax earnings by segment for the six months ended June 30, 2021 and 2020 are summarized in the following table: (in thousands) Market Making Execution Services Corporate Consolidated Total 2021 Total revenue $ 1,226,265 $ 327,369 $ 7,903 $ 1,561,537 Income (loss) before income taxes and noncontrolling interest 577,848 44,409 2,532 624,789 2020 Total revenue 1,589,703 317,941 ( 1,120 ) 1,906,524 Income (loss) before income taxes and noncontrolling interest 849,142 35,850 ( 14,232 ) 870,760 21. Related Party Transactions The Company incurs expenses and maintains balances with its affiliates in the ordinary course of business. As of June 30, 2021, and December 31, 2020 the Company had net receivables from its affiliates of $ 2.4 million and $ 2.3 million, respectively. The Company has held a minority interest in JNX since 2016 (see Note 9 "Financial Assets and Liabilities"). The Company pays exchange fees to JNX for the trading activities conducted on its proprietary trading system. The Company paid $ 3.4 million and $ 6.0 million for the three months ended June 30, 2021 and 2020, respectively, and $ 6.3 million and $ 9.7 million for the six months ended June 30, 2021 and 2020, respectively, to JNX for these trading activities. The Company makes payments to two JVs (see Note 11 "Variable Interest Entities") to fund the construction of the microwave communication networks, and to purchase microwave communication networks, which are recorded within Communications and data processing on the Condensed Consolidated Statements of Comprehensive Income. The Company made payments of $ 4.7 million both for the three months ended June 30, 2021 and 2020, and $ 9.3 million and $ 9.4 million for the six months ended June 30, 2021 and 2020, respectively, to these JVs. The Company purchases network connections services from affiliates of Level 3 Communications (“Level 3”). Temasek and its affiliates have a significant ownership interest in Level 3. The Company paid $ 0.3 million for both the three months ended June 30, 2021 and 2020, respectively, and $ 0.7 million and $ 0.8 million for the six months ended June 30, 2021 and 2020, respectively, to Level 3 for these services. The Company makes commission-sharing arrangement ("CSA") payments to affiliates of DBS Group Holdings ("DBS"). Temasek and its affiliates have a significant ownership interest in DBS. Payments for the three and six months ended June 30, 2021 were immaterial. The Company made payments of $ 0.2 million for the three and six months ended June 30, 2020. 22. Subsequent Events The Company has evaluated subsequent events for adjustment to or disclosure in its condensed consolidated financial statements through the date of this report, and has not identified any recordable or disclosable events, not otherwise reported in these condensed consolidated financial statements or the notes thereto, except for the following: 44 Table of Contents On August 4, 2021, the Company’s Board of Directors declared a dividend of $ 0.24 per share of Class A Common Stock and Class B Common Stock and per participating Restricted Stock Unit and Restricted Stock Award that will be paid on September 15, 2021 to holders of record as of September 1, 2021. 45 Table of Contents