What changed in this filing

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Item 1A. Risk Factors

2022-02-18 compared with 2021-02-25 · 111 added, 120 removed, 580 unchanged (28% of the section changed)

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

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

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

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

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

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

Historical Acquisitions

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

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

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

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

• We may be subject to increased risks or business disruption, incur losses or suffer reputational harm in relation to or as a result of climate change.

• Cryptocurrency is an emerging asset class that carries unique risk, including the risk of financial loss.

Legal and Regulatory

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

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

• Brexit continues to pose a risk of negatively impacting the global economy, financial markets and our business.

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

Organization and Structure

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

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

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

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

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

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

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

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

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

We continue to monitor the development of existing, and emergence of new, COVID-19 variants and take designed precautions to protect the safety and well-being of our employees, customers and business partners.

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

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

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

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

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These factors can also increase the potential for losses on securities or other financial instruments held in inventory and failures of buyers and sellers to fulfill their obligations and settle their trades, as well as claims and litigation.

Declines in the trading activity of institutional or “buy-side” market participants may result in lower revenue and/or diminished opportunities for us to earn commissions from execution activities.

Declines in the trading activity of institutional or “buy-side” market participants

may result in lower revenue and/or diminished opportunities for us to earn commissions from execution activities.

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

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

We cannot assure you that we will be able to

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

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

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

In particular, messages that leave our trading environment first must pass through a series of preset risk controls or “lockdowns” that are intended to minimize the likelihood of unintended activities.

particular, messages that leave our trading environment first must pass through a series of preset risk controls or “lockdowns” that are intended to minimize the likelihood of unintended activities.

In certain cases, this layer of risk management, which adds a layer of latency to our process, may limit our ability to profit from acute volatility in the markets.

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equity markets.

A majority of our market making revenue for 2020 was derived from our market making in U.S.

The majority of our market making revenue for 2021 was derived from our market making in U.S.

The level of activity in the U.S.

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

economic and political

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

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

equity transactions.

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

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

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

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

Recent regulatory attention on U.S.

equities market structure, including the practice of wholesale market making and other forms of off exchange trading, may increase the likelihood of such a proposed change or change and is discussed in further detail in “Item 1A.

Risk Factors—Legal and Regulatory Risks.

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

We are subject to liquidity risk in our operations.

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

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

circumstances that may be difficult to detect or foresee.

Although we regularly review our credit exposure, default risk may arise from events or circumstances that may be difficult to detect or foresee.

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

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

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

As of December 31, 2021, we had an aggregate of $1,630.5 million outstanding indebtedness under our long-term borrowings, which was subsequently increased to $1.8 billion in connection with a refinancing transaction entered into on January 13, 2022 which is discussed in further detail in Note 26 “Subsequent Events” of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

If we cannot generate sufficient cash flow from operations to service our debt, we may need to refinance our debt, dispose of assets or issue equity to obtain necessary funds.

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Also, certain of our non-guarantor subsidiaries are party to various short-term credit facilities with various prime brokers and other financial institutions in an aggregate amount of $616.0 million under which we had $177.1 million in borrowings outstanding at December 31, 2021.

The credit agreement entered into on March 1, 2019 by and among Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial (“VFH”), Impala Borrower LLC (the “Acquisition Borrower”), a subsidiary of the Company, the lenders party thereto and Jeffries Finance LLC, as administrative agent (as amended on October 9, 2019 and as further amended from time to time, the “Credit Agreement”) contains, and any other existing or future indebtedness of ours may contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our and our restricted subsidiaries’ ability to, among other things:

The credit agreement entered into on March 1, 2019 by and among Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial (“VFH”), Impala Borrower LLC (the “Acquisition Borrower”), a subsidiary of the Company, the lenders party thereto and Jefferies Finance LLC, as administrative agent (as amended on October 9, 2019 and as further amended from time to time, the “Acquisition Credit Agreement”) contained, and the credit agreement entered into on January 13, 2022 by and among VFH, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the “Credit Agreement”), and any other existing or future indebtedness of ours may contain, a number of covenants that impose significant operating and financial restrictions on us, including restrictions on our and our restricted subsidiaries’ ability to, among other things:

• incur additional debt, guarantee indebtedness or issue certain preferred equity interests;

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

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

Our business relies on technology and automation to perform significant functions within our firm.

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Though we take steps to mitigate the various cyber threats and devote significant resources to maintain and update our systems and networks, we may be unable to anticipate attacks or to implement adequate preventative measures.

Our cybersecurity measures may not detect or prevent all attempts to compromise our systems, including denial‑of‑service attacks, viruses, malicious software, break‑ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our systems or that we otherwise maintain.

Our cybersecurity measures may not detect or prevent all attempts to compromise our systems, including denial‑of‑service attacks, viruses, malicious software, ransomware, break‑ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by our systems or that we otherwise maintain.

Furthermore, we may have little or no oversight with respect to security measures employed by third-party service providers, which may ultimately prove to be ineffective at countering threats.

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unauthorized access to and misappropriation of information or data, including confidential or proprietary information about ourselves, third parties with whom we do business or our proprietary systems;

viruses, worms, spyware or other malware being placed in our systems and intellectual property;

viruses, worms, spyware, ransomware, or other malware being placed in our systems and intellectual property;

deletion or modification of client information;

or a denial‑of‑service or other interruptions to our business operations.

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

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

Any actual or perceived breach of our cybersecurity could damage our reputation, expose us to a risk of loss or litigation and possible liability, require us to expend significant capital and other resources to alleviate problems caused by such breaches and otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.

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

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

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

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

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

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

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

Risks Related to our Historical Acquisitions

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

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

These costs may include:

• employee retention, redeployment, relocation or severance;

• integration of information systems;

• combination of corporate and administrative functions;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

• difficulties in the integration of operations and systems;

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

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

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

• challenges in integrating the business culture of each company;

• challenges in attracting and retaining key personnel;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Although we have employed efforts to develop, implement and maintain reasonable disaster recovery and business continuity plans, we cannot guarantee that our systems will fully recover after a significant business disruption in a timely fashion or at all.

Our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which we are located.

This may include a disruption involving electrical, satellite, undersea cable or other communications, internet, transportation or other services facilities used by us, our employees or third parties with which we conduct business.

If we are prevented from using any of our current trading operations, or if our business

continuity operations do not work effectively, we may not have complete business continuity, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We may be subject to increased risks or business disruption, incur losses or suffer reputational harm in relation to or as a result of climate change.

Climate change could manifest as a financial risk to us either through changes in the physical climate or from the process of transitioning to a low-carbon economy, including changes in climate policy or in the regulation of financial institutions with respect to risks posed by climate change.

Potential events or disruptions of this nature include significant rainfall, flooding, increased frequency or intensity of wildfires, prolonged drought, rising sea levels and rising heat index.

Additionally, our reputation and client relationships may be damaged as a result of our involvement, or our clients’ involvement, in certain industries or projects associated with causing or exacerbating climate change, as well as any decisions we make to continue to conduct or change our activities in response to considerations relating to climate change.

New regulations or guidance relating to climate change, as well as the perspectives of shareholders, employees and other stakeholders regarding climate change, may affect whether and on what terms and conditions we engage in certain activities or offer certain products.

Cryptocurrency is an emerging asset class that carries unique risk, including the risk of financial loss.

The value of cryptocurrencies is based in part on market adoption and future expectations, which may or may not be realized.

As a result, the prices of cryptocurrencies are highly speculative.

Due to this highly volatile nature, prices of cryptocurrencies have been subject to dramatic fluctuations which may impact our balance sheet.

For example, if the price of the cryptocurrencies we hold in inventory drops below the price we paid to acquire this inventory, we could incur a loss.

Moreover, if our systems fail at managing our inventory or customer orders, we could be left with excess inventory that increases our exposure to the volatility of the price of cryptocurrencies.

Further, because cryptocurrency is a new and emerging asset class with unique electronic exposure, there is a high degree of fraud, theft, cyberattacks and other forms of risk in the cryptocurrency space.

While the Company employs a variety of controls to mitigate risk of loss and theft in the cryptocurrency positions we maintain, it is possible, for example, for electronic wallet keys to become lost or stolen, for blockchains to experience detrimental changes, such as forks, or for our cryptocurrency exchange and custodian partners to experience cybersecurity incidents.

In the event of such events, we could experience financial loss, we could lose customers and clients as a result of reputational damage, and we may face regulatory or legal consequences.

Although we maintain insurance, there can be no assurance that liabilities or losses we may incur will be covered under such policies or that the amount of insurance will be adequate.

Legal and Regulatory Risks

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Congress, the SEC, and the CFTC propose and adopt additional laws and rules, including rules relating to additional registration requirements, restrictions on co‑location, order‑to‑execution ratios, minimum quote life for orders, incremental messaging fees to be imposed by exchanges for “excessive” order placements and/or cancellations, further transaction taxes, tick sizes, changes to maker/taker rebates programs, and other market structure proposals.

For example, the SEC's Rule 613 in

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

broker-dealers.

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

For example, the Committee on

Financial Services of the U.S.

House of Representatives held hearings on the events surrounding the January 2021 market volatility and disruptions surrounding Gamestop and other “meme” stocks at which various members of Congress expressed their concerns about various market practices, including payment for order flow .

Regulators may propose other market structure changes, particularly considering the continued regulatory, congressional and media scrutiny of U.S.

equities market structure, the retail trading environment in the U.S., wholesaling market making and the relationships between retail broker-dealers and market making firms, including but not limited to payment for order flow arrangements, other remuneration arrangements such as profit-sharing relationships and exchange fee and rebate structures, ATSs and off-exchange trading more generally, high frequency trading, short selling, market fragmentation, colocation, and access to market data feeds.

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

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

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

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

Additionally, the regulatory and legal status and classification of various cryptocurrencies and other digital assets is subject to substantial uncertainty.

For example, a given digital asset could be considered a security, a commodity or currency, or some combination thereof, and therefore may be subject to rules and regulations promulgated by federal regulators, including but not limited to the SEC, the CFTC, the Department of Treasury, in addition to state regulators.

While our participation in this asset class has been limited thus far, changes in this regulatory environment, including changing interpretations and the implementation of new or varying regulatory requirements by the government, may significantly affect or change the manner in which we currently conduct some aspects of our business or may significantly impact or limit our ability to increase our participation.

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

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

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

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

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

In its communication on “The European economic and financial system:

fostering openness, strength and resilience” of January 19, 2021, the European Commission confirmed its intention to propose to make changes with a view to improving simplifying and further harmonizing capital markets’ transparency as part of the review of the MiFID II and MiFIR framework.

On November 25, 2021, the European Commission published a “Proposal for a Directive of the European Parliament and of the Council amending Directive 2014/65/EU on markets in financial instruments” which is currently under comment from the E.U.

Member States.

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

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In the E.U., on December 24, 2019, a Regulation on the prudential requirements for Investment Firms (“IFR”) and a Directive on the prudential supervision of investments firms (“IFD”) entered into force.

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

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

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

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

The main provisions of the IFR and IFD were applicable from the end of June 2021.

Certain Level 2 texts are still outstanding which are required to provide clarity on certain provisions in the IFR/IFD.

As these rules are implemented and in certain cases impose more stringent capital and liquidity

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

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

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

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

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

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

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

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

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

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

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

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

alleging the violations of laws, rules and regulations, some of which may ultimately result in the payment of fines, awards, judgments and settlements.

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

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

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

As of December 31, 2020 such tax has not yet been implemented within the European Union although draft legislative proposals are currently under consideration.

As of December 31, 2021 such tax has not yet been implemented.

On October 15, 2020, the Spanish Government published Law 5/2020 on the Spanish Financial Transaction Tax (“Spanish FTT”).

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Presidential election and the Democratic majorities in Congress may lead to additional proposals or plans.

At the state level, the state of New Jersey has considered a bill in the state legislature providing for a financial transaction tax on trades processed on any server located in New Jersey, with other states, including New York, discussing similar measures.

At the state level recently, the state of New Jersey has considered a bill in the state legislature providing for a financial transaction tax on trades processed on any server located in New Jersey, with other states, including New York, discussing similar measures.

Discussions in New York have included a proposed bill which would reestablish a stock transfer tax by repealing a rebate previously implemented and applied to such tax since 1981.

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

foreign policy and national security goals against

designated foreign states, organizations and individuals.

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

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

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

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

Brexit continues to pose a risk of negatively impacting the global economy, financial markets and our business.

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

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based subsidiaries and branch offices.

branch offices currently utilize the U.K.

FCA’s temporary permission regime and may continue to do so in the future.

subsidiary is an investment firm authorized and regulated by the FCA with permission to operate a U.K.

branch offices of VIEL and VFIL currently utilize the U.K.

FCA’s Temporary Permission Regime and are therefore deemed to be authorized and regulated by the FCA.

The Temporary Permissions Regime is due to come to an end at the end of 2022.

During the course of 2022, VIEL and VFIL will go through an authorization process with the FCA to secure the appropriate authorizations under the prevailing U.K.

regulatory framework to ensure the long-term operational footprint of VIEL and VFIL’s branches in the U.K..

subsidiary, VIUK, is an investment firm authorized and regulated by the FCA with permission to operate a U.K.

Poor future relations between the U.K.

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

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

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

Risks Related to Our Organization and Structure

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We have no independent means of generating revenue.

As the sole managing member of Virtu Financial, we cause Virtu Financial to make distributions to its equityholders, including the Founder Post-IPO Member, Virtu Employee Holdco, certain current and former members of management of the Company and their affiliates (the “Management Members”) and us, in amounts sufficient to fund dividends to our stockholders in accordance with our dividend policy and, as further described below, to cover all applicable taxes payable by us and any payments we are obligated to make under the tax receivable agreements we entered into as part of the Reorganization Transactions, but we are limited in our ability to cause Virtu Financial to make these and other distributions to us (including for purposes of paying corporate and other overhead expenses and dividends) under our Credit Agreement governing our First Lien Term Loan Facility (as defined below).

In addition, certain laws and regulations may result in restrictions on Virtu Financial’s ability to make distributions to its equityholders (including us), or the ability of its subsidiaries to make distributions to it.

As the sole managing member of Virtu Financial, we cause Virtu Financial to make distributions to its equity holders, including the Founder Post-IPO Member, Virtu Employee Holdco, certain current and former members of management of the Company and their affiliates (the “Management Members”) and us, in amounts sufficient to fund dividends to our stockholders in accordance with our dividend policy and, as further described below, to cover all applicable taxes payable by us and any payments we are obligated to make under the tax receivable agreements we entered into as part of the Reorganization Transactions, but we are limited in our ability to cause Virtu Financial to make these and other distributions to us (including for purposes of paying corporate and other overhead expenses and dividends) under our Credit Agreement governing our First Lien Term Loan Facility (as defined below).

In addition, certain laws and regulations may result in restrictions on Virtu Financial’s ability to make distributions to its equity holders (including us), or the ability of its subsidiaries to make distributions to it.

These include:

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To the extent that we need funds and Virtu Financial is restricted from making such distributions to us, under applicable law or regulation, as a result of covenants in our Credit Agreement, we may not be able to obtain such funds on terms acceptable to us or at all and as a result could suffer a material adverse effect on our liquidity and financial condition.

Under the Third Amended and Restated Limited Liability Company Agreement of Virtu Financial (as amended, the “Amended and Restated Virtu Financial LLC Agreement”), Virtu Financial from time to time makes pro rata distributions in cash to its equityholders, including the Founder Post‑IPO Member, the trust that holds equity interests in Virtu Financial on behalf of certain employees of ours based outside the United States, which we refer to as the “Employee Trust”, Virtu Employee Holdco and us, in amounts sufficient to cover the taxes on their allocable share of the taxable income of Virtu Financial.

As a result of (i) potential differences in the amount of net taxable income allocable to us and to Virtu Financial’s other equityholders, (ii) the lower tax rate applicable to corporations than individuals and (iii) the favorable tax benefits that we anticipate from (a) the exchange of Virtu Financial Units and corresponding shares of Class C Common Stock or Class D Common Stock, (b) payments under the tax receivable agreements and (c) future deductions attributable to the prior acquisition of interests in Virtu Financial by certain affiliates of Silver Lake Partners and Temasek, we expect that these tax distributions will be in amounts that exceed our tax liabilities.

Under the Third Amended and Restated Limited Liability Company Agreement of Virtu Financial (as amended, the “Amended and Restated Virtu Financial LLC Agreement”), Virtu Financial from time to time makes distributions in cash to its equity holders, including the Founder Post‑IPO Member, the trust that holds equity interests in Virtu Financial on behalf of certain employees of ours based outside the United States, which we refer to as the “Employee Trust”, Virtu Employee Holdco and us, in amounts sufficient to cover the taxes on their allocable share of the taxable income of Virtu Financial.

These distributions are treated as advances and may be computed based on Virtu Financial’s estimate of the net taxable income of Virtu Financial allocable to each holder of Virtu Financial Units multiplied by an assumed tax rate equal to the highest effective marginal combined U.S.

federal, state and local income tax rate prescribed for an individual or corporate resident in New York, New York (taking into account the non-deductibility of certain expenses and the character of our income), or another rate as determined by the Company in its discretion for one or more holders.

As a result of (i) potential differences in the amount of net taxable income allocable to us and to Virtu Financial’s other equity holders, (ii) the lower tax rate applicable to corporations than individuals, (iii) the favorable tax benefits that we anticipate from (a) the exchange of Virtu Financial Units and corresponding shares of Class C Common Stock or Class D Common Stock, (b) payments under the tax receivable agreements and (c) future deductions attributable to the prior acquisition of interests in Virtu Financial by certain affiliates of Silver Lake Partners and Temasek, and (vi) additional distributions of profits which may be generated by Virtu Financial and its subsidiaries to equity holders, we expect that the distributions we receive may exceed our tax liabilities, regular dividend and other obligations.

Our Board of Directors will determine the appropriate uses for any excess cash so accumulated, which may include, among other uses, the payment of obligations under the tax receivable agreements, the payment of other expenses or the repurchase of shares of common stock or Virtu Financial Units.

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The Founder Post‑IPO Member controls approximately 85.4% of the combined voting power of our common stock as a result of its ownership of our Class C and Class D Common Stock, each share of which is entitled to 1 vote and 10 votes, respectively, on all matters submitted to a vote of our stockholders.

The Founder Post‑IPO Member has the ability to substantially control our Company, including the ability to control any action requiring the general approval of our stockholders, including the election of our Board of Directors, the adoption of amendments to our certificate of incorporation and by‑laws and the approval of any merger or sale of substantially all of our assets.

amendments to our certificate of incorporation and by‑laws and the approval of any merger or sale of substantially all of our assets.

This concentration of ownership and voting power may also delay, defer or even prevent an acquisition by a third party or other change of control of our Company and may make some transactions more difficult or impossible without the support of the Founder Post‑IPO Member, even if such events are in the best interests of minority stockholders.

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In addition, the Founder Post-IPO Member’s significant ownership in us and resulting ability to effectively control us may discourage someone from making a significant equity investment in us, or could discourage transactions involving a change in control, including transactions in which you as a holder of shares of our Class A Common Stock might otherwise receive a premium for your shares over the then‑current market price.

with an interested stockholder for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as board approval of the business combination or the transaction which resulted in such stockholder becoming an interested stockholder.

We have opted out of Section 203 of the General Corporation Law of the State of Delaware (the “Delaware General Corporation Law”), which prohibits a publicly held Delaware corporation from engaging in a business combination transaction with an interested stockholder for a period of three years after the interested stockholder became such unless the transaction fits within an applicable exemption, such as board approval of the business combination or the transaction which resulted in such stockholder becoming an interested stockholder.

Therefore, the Founder Post‑IPO Member is able to transfer control of us to a third party by transferring its shares of our common stock (subject to certain restrictions and limitations), which would not require the approval of our Board of Directors or our other stockholders.

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The covenants in our Credit Agreement may negatively impact our ability to finance future operations or capital needs or to engage in other business activities.

Our Credit Agreement restricts our ability to, among other things, incur additional indebtedness, dispose of assets, guarantee debt obligations, repay other indebtedness, pay dividends, pledge assets, make investments, including in certain of our operating subsidiaries, make acquisitions or consummate mergers or consolidations and engage in certain transactions with subsidiaries and affiliates.

investments, including in certain of our operating subsidiaries, make acquisitions or consummate mergers or consolidations and engage in certain transactions with subsidiaries and affiliates.

A failure to comply with the restrictions contained in our Credit Agreement could lead to an event of default, which could result in an acceleration of our indebtedness.

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In connection with the Reorganization Transactions, we acquired equity interests in Virtu Financial from an affiliate of Silver Lake Partners (which, following a secondary offering completed in November 2015, no longer holds any equity interest in us) and the Temasek Pre-IPO Member in the Mergers.

In addition, we used a portion of the net proceeds from our IPO and our Secondary Offerings (as defined below) to purchase Virtu Financial Units and corresponding shares of Class C Common

Stock from certain Virtu Post-IPO Members, including affiliates of Silver Lake Partners (the “Silver Lake Post-IPO Members”), the Founder Post-IPO Member, and certain employees.

In addition, we used a portion of the net proceeds from our IPO and our Secondary Offerings (as defined below) to purchase Virtu Financial Units and corresponding shares of Class C Common Stock from certain Virtu Post-IPO Members, including affiliates of Silver Lake Partners (the “Silver Lake Post-IPO Members”), the Founder Post-IPO Member, and certain employees.

These acquisitions of interests in Virtu Financial, along with certain subsequent exchanges of interests in Virtu Financial by current and former employees, resulted in tax basis adjustments to the assets of Virtu Financial that were allocated to us and our subsidiaries.

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We entered into three tax receivable agreements with the Virtu Post-IPO Members and the Investor Post-IPO Stockholders (one with the Founder Post-IPO Member, the Employee Trust, Virtu Employee Holdco and other post IPO investors, other than affiliates of Silver Lake Partners and affiliates of Temasek, another with the Investor Post-IPO Stockholders and the other with the Silver Lake Post-IPO Members) that provide for the payment by us to the Virtu Post-IPO Members and the Investor Post-IPO Stockholders (or their transferees of Virtu Financial Units or other assignees) of 85% of the amount of actual cash savings, if any, in U.S.

federal, state and local income tax or franchise tax that we actually realize as a result of (i) any increase in tax basis in Virtu Financial’s assets resulting from (a) the acquisition of equity interests in Virtu Financial from an affiliate of Silver Lake Partners and Temasek, and the Temasek Pre-IPO Member in the Reorganization Transactions (which represents the unamortized portion of the increase in tax basis in Virtu Financial’s assets resulting from a prior acquisition of interests in Virtu Financial by an affiliate of Silver Lake Partners and Temasek, and the Temasek Pre-IPO Member), (b) the purchases of Virtu Financial Units (along with the corresponding shares of our Class C Common Stock or Class D Common Stock, as applicable) from certain of the Virtu Post-IPO Members using a portion of the net proceeds from the IPO or in any subsequent offering (including, without limitation, the Secondary Offerings), (c) exchanges by the Virtu Post-IPO Members of Virtu Financial Units (along with the corresponding shares of our Class C Common Stock or Class D Common Stock, as applicable) for shares of our Class A Common Stock or Class B Common Stock, as applicable, or (d) payments under the tax receivable agreements, (ii) any net operating losses available to us as a result of the Mergers and (iii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreements.

payments under the tax receivable agreements, (ii) any net operating losses available to us as a result of the Mergers and (iii) tax benefits related to imputed interest deemed arising as a result of payments made under the tax receivable agreements.

The actual increase in tax basis, as well as the amount and timing of any payments under these tax receivable agreements, will vary depending upon a number of factors, including the timing of exchanges by the Virtu Post‑IPO Members, the price of our Class A Common Stock at the time of the exchange, the extent to which such exchanges are taxable, the amount and timing of the taxable income we generate in the future and the tax rate then applicable and the portion of our payments under the tax receivable agreements constituting imputed interest.

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As a result, in such circumstances we could make payments to the Virtu Post‑IPO Members and the Investor Post‑IPO Stockholders under the tax receivable agreements that are greater than our actual cash tax savings and may not be able to recoup those payments, which could negatively impact our liquidity.

In addition, the tax receivable agreements provide that, upon certain mergers, asset sales or other forms of business combination, or certain other changes of control, our or our successor’s obligations with respect to tax benefits would be based on certain assumptions, including that we or our successor would have sufficient taxable income to fully utilize the increased

tax deductions and tax basis and other benefits covered by the tax receivable agreements.

As a result, upon a change of control, we could be required to make payments under a tax receivable agreement that are greater than the specified percentage of our actual cash tax savings, which could negatively impact our liquidity.

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If we are unable to maintain adequate internal controls over financial reporting, our business and operating results could be harmed.

Effective December 31, 2018, we are no longer an “emerging growth company”, and therefore under applicable SEC rules we must maintain internal controls over financial reporting to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the related rules of the SEC, which require, among other things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on the effectiveness of internal control over financial reporting with our Annual Report on Form 10-K.

Under applicable SEC rules we must maintain internal controls over financial reporting to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) and the related rules of the SEC, which require, among other things, our management to assess annually the effectiveness of our internal control over financial reporting and our independent registered public accounting firm to issue a report on the effectiveness of internal control over financial reporting with our Annual Report on Form 10-K.

The internal control assessment required by Section 404 of Sarbanes-Oxley may divert internal resources and we may experience higher operating expenses, higher independent auditor and consulting fees during the implementation of these changes.

Any material weaknesses or any failure to implement required

new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result in material misstatements in our consolidated financial statements.

Any material weaknesses or any failure to implement required new or improved controls or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations or result in material misstatements in our consolidated financial statements.

If our management or our independent registered public accounting firm were to conclude in their reports that our internal control over financial reporting was not effective, investors could lose confidence in our reported financial information, and the trading price of our Class A Common Stock could drop significantly.

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See Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.” However, we are a holding company, with our principal asset being our direct and indirect equity interests in Virtu Financial, and we will have no independent means of generating revenue.

Accordingly, as the sole managing member of Virtu Financial, we intend to cause, and will rely on, Virtu Financial to make distributions to its equityholders, including the Founder Post-IPO Member, the Employee Trust, Virtu Employee Holdco and us, to fund our dividends.

When Virtu Financial makes such distributions, the other equityholders of Virtu Financial will be entitled to receive equivalent distributions pro rata based on their economic interests in Virtu Financial.

Accordingly, as the sole managing member of Virtu Financial, we intend to cause, and will rely on, Virtu Financial to make distributions to its equity holders, including the Founder Post-IPO Member, the Employee Trust, Virtu Employee Holdco and us, to fund our dividends.

When Virtu Financial makes such distributions, the other equity holders of Virtu Financial will be entitled to receive equivalent distributions pro rata based on their economic interests in Virtu Financial.

In order for Virtu Financial to make distributions, it may need to receive distributions from its subsidiaries.

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See “Item 1A.

Risk Factors - Risks Related to Our Business - Failure to comply with applicable regulatory capital requirements could subject us to sanctions imposed by the SEC, FINRA and other SROs or regulatory bodies.” If Virtu Financial is unable to cause these subsidiaries to make distributions, we may not receive adequate distributions from Virtu Financial in order to fund our dividends.

Risk Factors - Risks Related to Our Business - Non-compliance with applicable laws or regulatory requirements could subject us to sanctions and could negatively impact our reputation, prospects, revenues and earnings.” If Virtu Financial is unable to cause these subsidiaries to make distributions, we may not receive adequate distributions from Virtu Financial in order to fund our dividends.

Our Board of Directors will periodically review the cash generated from our business and the capital expenditures required to finance our global growth plans and determine whether to modify the amount of regular dividends and/or declare periodic special dividends to our stockholders.

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Furthermore, in recent years the stock market has experienced significant price and volume fluctuations.

This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry.

This volatility has had a significant impact on the market

price of securities issued by many companies, including companies in our industry.

The changes frequently appear to occur without regard to the operating performance of the affected companies.

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UNRESOLVED STAFF COMMENTS

Our headquarters are located in leased office space at 1633 Broadway, New York, NY 10019.

We also lease space for our offices in the U.S., Canada, Europe, Asia and Australia.

We believe that our existing facilities are adequate to meet our current requirements.

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

What changed 10-K

Item 1A. Risk Factors