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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-03 · 285 added, 299 removed, 537 unchanged (52% of the section changed)

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

The following management’s discussion and analysis covers the three and nine months ended September 30, 2021 and 2020 and should be read in conjunction with the consolidated financial statements of Virtu Financial, Inc.

(the “Company”) for the period ended September 30, 2021, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2020, which are included in Items 8 and 7, respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

The following management’s discussion and analysis covers the three months ended March 31, 2022 and 2021 and should be read in conjunction with the condensed consolidated financial statements of Virtu Financial, Inc.

(the Company") for the period ended March 31, 2022, which are in Part 1, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2021, which are included in Items 8 and 7 respectively, of the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

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

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As you read and consider this Quarterly Report on Form 10-Q, you should understand that forward-looking statements are not guarantees of performance or results and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from those made in or suggested by the forward-looking statements contained in this Quarterly Report on Form 10-Q.

By their nature, forward-looking statements involve known and unknown risks and uncertainties, including those described under the heading “Risk Factors” in this Quarterly Report on Form 10-Q, because they relate to events and depend on circumstances that may or may not occur in the future.

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

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

By their nature, forward-looking statements involve known and unknown risks and uncertainties, including those described under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission ("SEC") on February 18, 2022 (the "2021 Form 10-K"), because they relate to events and depend on circumstances that may or may not occur in the future.

Although we believe that the forward-looking statements contained in this Quarterly Report on Form 10-Q are based on reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” in our 2021 Form 10-K, could affect our actual financial results or results of operations and cash flows, and could cause actual results to differ materially from those in such forward-looking statements, including but not limited to:

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

• volatility in levels of overall trading activity;

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• risks inherent to the electronic market making business and trading generally;

• enhanced regulatory, congressional, and media scrutiny, including attention to electronic trading, wholesale market making and off-exchange trading, payment for order flow, and other market structure topics and both the impact of potential changes in regulation or law which could have an adverse effect on our business as well as the potential impact upon public perception of us or of companies in our industry;

• increased competition in market making activities and execution services;

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

• enhanced media and regulatory scrutiny and its impact upon public perception of us or of companies in our industry;

• need to maintain and continue developing proprietary technologies;

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

• the effect of the Acquisition of KCG and the ITG Acquisition (as defined below) on ongoing business operations generally, including the assumption of potential liabilities and risks relating to these historical acquisitions;

• capacity constraints, system failures, and delays;

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• failure to protect confidential and proprietary information;

• failure to protect our systems from internal or external cyber threats that could result in damage to our computer systems, business interruption, loss of data or other consequences;

• failure to protect our systems from internal or external cyber threats that could result in damage to our computer systems, business interruption, loss of data, monetary payment demands or other consequences;

• risks associated with international operations and expansion, including failed acquisitions or dispositions;

• the effects of and changes in economic conditions (such as volatility in the financial markets, inflation, monetary conditions and foreign currency and exchange rate fluctuations, foreign currency controls and/or government mandated pricing controls, as well as in trade, monetary, fiscal and tax policies in international markets), political conditions (such as military actions and terrorist activities), and other global events such as fires, natural disasters, pandemics or extreme weather;

• risks associated with potential growth and associated corporate actions;

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

Impact of the COVID-19 Pandemic

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

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

Leveraging our global market structure expertise and scaled, multi-asset technology infrastructure, we provide our clients with a robust product suite including offerings in execution, liquidity sourcing, analytics and broker-neutral, multi-dealer platforms in workflow technology.

Our product offerings allow our clients to trade on hundreds of venues across over 50 countries and in multiple asset classes, including global equities, ETFs, foreign exchange, futures, fixed income and other commodities.

Our integrated, multi-asset analytics platform provides a range of pre- and post-trade services, data products and compliance tools that our clients rely upon to invest, trade and manage risk across global markets.

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Technology and operational efficiency are at the core of our business, and our focus on technology is a key element of our success.

We have developed a proprietary, multi-asset, multi-currency technology platform that is highly reliable, scalable and modular, and we integrate directly with exchanges, liquidity centers, and our clients.

We have developed a proprietary, multi-asset, multi-currency technology platform that is highly reliable, scalable

and modular, and we integrate directly with exchanges, liquidity centers, and our clients.

Our market data, order routing, transaction processing, risk management and market surveillance technology modules manage our market making and execution services activities in an efficient manner and enable us to scale our activities globally across additional securities and other financial instruments and asset classes without significant incremental costs or third-party licensing or processing fees.

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We leverage cutting edge technology to provide competitive and deep liquidity that helps to create more efficient markets around the world.

As a market maker and liquidity provider, we stand ready, at any time, to buy or sell a broad range of securities, and we generate profits by buying and selling large volumes of securities and other financial instruments and earning small bid/ask spreads.

As a market maker and liquidity provider, we stand ready, at any time, to buy or sell a broad range of securities and other financial instruments, and we generate profits by buying and selling large volumes of securities and other financial instruments and earning small bid/ask spreads.

Our market structure expertise, broad diversification, and scalable execution technology enable us to provide competitive bids and offers in over 25,000 securities and other financial instruments, on over 235 venues, in 36 countries worldwide.

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

Acquisition of ITG and KCG

Acquisition of ITG

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

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

In connection with the ITG Acquisition, Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial ("VFH"), and Imapala Borrower LLC (the "Acquisition Borrower"), a subsidiary of the Company, 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) the First Lien Term Loan Facility (as defined below) in an aggregate principal amount of $1.5 billion, drawn in its entirety on the ITG Closing Date, with approximately $404.5 million borrowed by VFH to repay all amounts outstanding under its existing term loan facility and the remaining approximately $1,095.0 million borrowed by the Acquisition Borrower to finance the consideration and fees and expenses to be paid in connection with the ITG Acquisition, and (ii) the First Lien Revolving Facility (as defined below), with a $5.0 million letter of credit subfacility and a $5.0 million swingline subfacility.

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

Additionally, on the ITG Closing Date, the Company’s fourth amended and restated credit agreement, dated as of June 30, 2017 (as amended on January 2, 2018 and September 19, 2018, the “Fourth Amended and Restated Credit Agreement”) was terminated.

As described below, the Credit Agreement was amended on October 9, 2019, on which date VFH borrowed an additional $525.0 million of incremental first lien term loans, the proceeds of which were used together with cash on hand to redeem the Notes (as defined below).

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

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

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

(“KCG”) (the “Acquisition of KCG”).

and its subsidiaries ("ITG") in an all-cash transaction (the "ITG Acquisition").

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 (the "Acquisition Borrower"), a subsidiary of the Company, entered into the Credit Agreement, with the lenders party thereto, Jefferies Finance LLC, as administrative agent and Jefferies Finance LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners (the "Acquisition Credit Agreement").

The Acquisition Credit Agreement provided (i) a senior secured first lien term loan (together with the Acquisition Incremental Term Loans, as defined below;

the "Acquisition First Lien Term Loan Facility") in an aggregate principal amount of $1,500.0 million, drawn in its entirety on the ITG Closing Date, of which approximately $404.5 million was borrowed by VFH to repay all amounts outstanding under a previous term loan facility and the remaining approximately $1,095.0 million borrowed by the Acquisition Borrower to finance the consideration and fees and expenses paid in connection with the ITG Acquisition, and (ii) a $50.0 million senior secured first lien revolving facility to VFH (the "Acquisition 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 Acquisition 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 “Acquisition 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 Acquisition 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 step-down in the spread based on VFH's first lien leverage ratio.

There were no outstanding borrowings under the Acquisition Credit Agreement as of March 31, 2022.

On January 13, 2022 (the "Credit Agreement Closing Date"), VFH and Virtu Financial entered into the Credit Agreement, with the lenders party thereto, JPMorgan Chase Bank, N.A.

as administrative agent and JPMorgan Chase bank, N.A., Goldman Sachs Bank USA, RBC Capital Markets, Barclays Bank plc, Jefferies Finance LLC, BMO Capital Markets Corp., and CIBC World Markets Corp., as joint lead arrangers and bookrunners (the “Credit Agreement”).

The Credit Agreement provides (i) a senior secured first lien term loan in an aggregate principal amount of $1,800.0 million, drawn in its entirety on the Credit Agreement Closing Date, the proceeds of which were used by VFH to repay all amounts outstanding under the Acquisition Credit Agreement, to pay fees and expenses in connection therewith, to fund share repurchases under the Company’s repurchase program and for general corporate purposes, and (ii) a $250.0 million senior secured first lien revolving facility to VFH, with a $20.0 million letter of credit subfacility and a $20.0 million swingline subfacility.

Amended and Restated 2015 Management Incentive Plan

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

On April 22, 2022, the Company’s Board of Directors adopted another amendment to the Company’s Amended and Restated 2015 Management Incentive Plan in order to increase the number of shares of the Company’s Class A Common Stock reserved for issuance, and in respect of which awards may be granted under the Amended and Restated 2015 Plan from 21,000,000 shares of Class A Common Stock to an aggregate of 26,000,000 shares of Class A Common Stock and the amendment is subject to the approval of the Company’s shareholders at the Company’s annual meeting of shareholders on June 2, 2022.

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

Subsequent to the IPO and through September 30, 2021, options to purchase 1,628,750 shares in the aggregate were forfeited and 5,722,095 options were exercised.

Subsequent to the IPO and through March 31, 2022, options to purchase 1,633,750 shares in the aggregate were forfeited and 6,050,474 options were exercised.

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

In connection with and subsequent to the IPO, 1,677,318 shares of immediately vested Class A Common Stock and 2,620,051 restricted stock units were granted, which vest over a period of up to 4 years and are settled in shares of Class A Common Stock.

Common Stock.

The fair value of the Class A Common Stock and restricted stock units was determined based on the volume weighted average price for the three days preceding the grant, and with respect to the restricted stock units is recognized on a straight-line basis over the vesting period.

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

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2021 in the amount of $60.1 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2021 in the amount of $167.5 million and tax receivable agreement obligation in the amount of $254.7 million, in each case as described in greater detail in Note 5 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member's equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of September 30, 2021;

and (iv) provision for corporate income tax in the amount of $17.7 million and $97.5 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021, respectively.

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of March 31, 2022 in the amount of $30.0 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of March 31, 2022 in the amount of $137.4 million and tax receivable agreement obligation in the amount of $237.9 million, in each case as described in greater detail in Note 4 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member's equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of March 31, 2022;

and (iv) provision for corporate income tax in the amount of $27.1 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022.

Components of Our Results of Operations

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and nine months ended September 30, 2021 and 2020:

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

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three months ended March 31, 2022, and 2021:

(in thousands) Three Months Ended March 31,

Market Making 2022 2021

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Income before income taxes and noncontrolling interest $ 241,711 $ 489,787

The following table shows our results of operations for the three and nine months ended September 30, 2021 and 2020:

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

The following table shows our results of operations for the three months ended March 31, 2022, and 2021:

Three Months Ended March 31,

(in thousands) 2022 2021

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

Trading income, net, accounted for 76% and 78% of our total revenues for the nine months ended September 30, 2021 and 2020, respectively.

Trading income, net, accounted for 74% and 80% of our total revenues for the three months ended March 31, 2022 and 2021, respectively.

Interest and dividends income.

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Interest is also earned on securities borrowed from other market participants pursuant to collateralized financing arrangements and on cash held by brokers.

Dividend income arises from holding market making positions over dates on which dividends are paid to shareholders of record.

Dividends income arises from holding market making positions over dates on which dividends are paid to shareholders of record.

Commissions, net and technology services.

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

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

Other, net can also include gains on sales of businesses, revenues from service agreements related to the sale of businesses.

Operating Expenses

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Termination of office leases.

Termination of office leases represents the write-off expense related to certain office space we ceased use of as part of the effort to integrate and consolidate office space in connection with the Acquisition of KCG and the ITG Acquisition.

Termination of office leases represents the write-off expense related to certain office space we ceased use of as part of the effort to integrate and consolidate office space.

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

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

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

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

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

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

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

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

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

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

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Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, Normalized Adjusted Net Income, Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted EPS, and Operating Margins (collectively, the “Company's Non-GAAP Measures”) are non-GAAP financial measures used by management in evaluating operating performance and in making strategic decisions.

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

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

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• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and our EBITDA-based measures do not reflect any cash requirement for such replacements or improvements;

• they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

• they are not adjusted for all non-cash income or expense items that are reflected in our consolidated statements of cash flows;

• they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

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GAAP measure.

The following table reconciles the Condensed Consolidated Statements of Comprehensive Income to arrive at Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, and Operating Margins for the three and nine months ended September 30, 2021 and 2020.

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

Three Months Ended March 31,

(in thousands) 2022 2021

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Severance 2,001 2,020

Reserve for legal matters 7,379 3,907

Transaction advisory fees and expenses 422 (14)

Termination of office leases 707 1,221

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

Other (3,117) (1,076)

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

The following table reconciles Net Income to arrive at Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted Net Income and Normalized Adjusted EPS for the three and nine months ended September 30, 2021 and 2020:

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

Three Months Ended March 31,

(in thousands, except share and per share data) 2022 2021

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Debt issue cost related to debt refinancing, prepayment, and commitment fees 25,684 1,755

Reserve for legal matters 7,379 3,907

Severance 2,001 2,020

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Termination of office leases 707 1,221

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

Other (3,117) (1,076)

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(1) Reflects U.S.

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

federal, state, and local income tax rate applicable to corporations of approximately 24% for all periods presented.

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

Includes additional shares from dilutive impact of options, restricted stock units and restricted stock awards outstanding under the Amended and Restated 2015 Management Incentive Plan and the Amended and Restated ITG 2007 Equity Plan during the three and nine months ended September 30, 2021 and 2020 as well as warrants issued in connection with the Founder Member Loan during the three and nine months ended September 30, 2020.

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30, 2021

(in thousands) Market Making Execution Services Corporate Total

Trading income, net $ 389,422 $ 4,843 $ — $ 394,265

Commissions, net and technology services 8,894 127,029 — 135,923

Interest and dividends income 9,704 — — 9,704

Brokerage, exchange, clearance fees and payments for order flow, net (134,849) (24,013) — (158,862)

Interest and dividends expense (24,469) (2,117) — (26,586)

Adjusted Net Trading Income $ 248,702 $ 105,742 $ — $ 354,444

Three Months Ended September 30, 2020

(in thousands) Market Making Execution Services Corporate Total

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

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

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

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

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

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

Nine Months Ended September 30, 2021

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three months ended March 31, 2022, and 2021:

Three Months Ended March 31, 2022

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 381,846 $ 123,209 $ — $ 505,055

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

(in thousands) Market Making Execution Services Corporate Total

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

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

2021 2020 % Change

Market Making $ 248,702 $ 257,235 (3.3)%

Execution Services 105,742 105,023 0.7%

Adjusted Net Trading Income $ 354,444 $ 362,258 (2.2)%

Three Months Ended September 30,

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

2021 2020 % Change

Market Making $ 3,886 $ 4,019 (3.3)%

Execution Services 1,652 1,641 0.7%

Average Daily Adjusted Net Trading Income $ 5,538 $ 5,660 (2.2)%

Nine Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

2021 2020 % Change

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three months ended March 31, 2022, and 2021:

(in thousands, except %) 2022 2021

Adjusted Net Trading Income by Segment:

Total Average Daily % Total Average Daily %

Market Making $ 381,846 $ 6,159 75.6 % $ 575,123 $ 9,428 79.0 %

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Adjusted Net Trading Income $ 505,055 $ 8,146 100.0 % $ 728,029 $ 11,935 100.0 %

Nine Months Ended September 30,

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

2021 2020 % Change

Market Making $ 5,616 $ 7,733 (27.4)%

Execution Services 1,960 1,872 4.7%

Average Daily Adjusted Net Trading Income $ 7,576 $ 9,605 (21.1)%

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Total Revenues

Our total revenues decreased $111.8 million, or 17.0%, to $544.3 million for the three months ended September 30, 2021, compared to $656.1 million for the three months ended September 30, 2020.

The decrease was primarily driven by a decrease of $47.0 million in Trading income, net, which was driven by lower market volatility across global markets and major asset categories during the three months ended September 30, 2021 compared to the same period in 2020, which experienced elevated levels of market volatility and trading volumes largely due to the impacts of the COVID-19 pandemic and the governmental and other responses thereto.

Additionally, Other, net declined $65.6 million primarily attributable to the sale of MATCHNow on August 4, 2020.

The following table shows total revenues by segment for the three months ended September 30, 2021 and 2020.

Three Months Ended September 30,

Our total revenues decreased $311.3 million, or 30.7%, to $701.3 million for the three months ended March 31, 2022, compared to $1,012.6 million for the three months ended March 31, 2021.

The decrease was primarily driven by a decrease of $290.4 million in Trading income, net, which was driven by lower market volumes across global markets and major asset categories as well as a decrease of $37.0 million in Commissions, net and technology services driven lower by decreased market volumes during the three months ended March 31, 2022 compared to the same period in 2021, which experienced elevated levels of market volatility and trading volumes largely due to the impacts of the COVID-19 pandemic and the governmental and other responses thereto.

The following table shows total revenues by segment for the three months ended March 31, 2022 and 2021.

Three Months Ended March 31,

(in thousands, except for percentage) 2022 2021 % Change

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Execution Services

Trading income, net $ 4,843 $ (534) NM

Trading income, net $ 5,949 $ 11,462 (48.1)%

Interest and dividends income 29 96 (69.8)%

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

Trading income, net decreased $47.0 million, or 10.7%, to $394.3 million for the three months ended September 30, 2021, compared to $441.3 million for the three months ended September 30, 2020.

The decrease was primarily driven by the lower market volatility across global markets and major asset categories during the three months ended September 30, 2021 compared to the same period in 2020, which experienced elevated levels of market volatility largely due to the impacts of the COVID-19 and the governmental and other responses thereto.

Average daily realized volatility of the S&P 500 Index decreased 34.6% during the period as compared to the prior period, while average daily U.S.

equity consolidated volumes decreased 1.8%.

Trading income, net decreased $290.4 million, or 35.7%, to $522.3 million for the three months ended March 31, 2022, compared to $812.7 million for the three months ended March 31, 2021.

The decrease was primarily driven by the lower market volumes across global markets and major asset categories during the three months ended March 31, 2022 compared to the same period in 2021, which experienced elevated levels of market volumes and volatility due to the impacts of COVID-19 and the governmental and other responses thereto.

Average daily U.S.

equity consolidated volumes decreased 12.1% in the period compared to the prior period.

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

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

Interest and dividends income decreased $1.2 million, or 11.2%, to $9.7 million for the three months ended September 30, 2021, compared to $10.9 million for the three months ended September 30, 2020.

This decrease was primarily attributable to the lower interest income earned on cash collateral posted as part of securities borrowing transactions as well as a reduction in securities borrowing transactions for the period compared to the same period during the prior year.

Interest and dividends income increased $14.0 million, or 200.3%, to $21.0 million for the three months ended March 31, 2022, compared to $7.0 million for the three months ended March 31, 2021.

This increase was primarily attributable to the higher interest income earned on cash collateral posted as part of securities borrowing transactions for the period compared to the same period during the prior year.

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

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

Commissions, net and technology services revenues remained fairly consistent, increasing $2.1 million, or 1.5%, to $135.9 million for the three months ended September 30, 2021, compared to $133.9 million for the three months ended September 30, 2020.

Other, net decreased $65.6 million, or 93.6%, to $4.5 million for the three months ended September 30, 2021, compared to $70.0 million for the three months ended September 30, 2020.

The decrease was primarily due to a $56.2 million gain recorded on the sale of MATCHNow in the third quarter of 2020 (see Note 3 "Sale of MATCHNow" of Part I Item I "Financial Statements" of this Quarterly Report on Form 10-Q for details on the MATCHNow Sale).

Commissions, net and technology services revenues decreased $37.0 million, or 19.3%, to $154.7 million for the three months ended March 31, 2022, compared to $191.6 million for the three months ended March 31, 2021.

The decrease was primarily driven by lower market volumes during the three months ended March 31, 2022 compared to the same period in 2021.

The average daily U.S.

equity consolidated volume decreased 12.1% during the period compared to the prior period.

Other, net increased $2.1 million, or 178.0%, to $3.3 million for the three months ended March 31, 2022, compared to $1.2 million for the three months ended March 31, 2021.

The increase was primarily due to a $5.2 million unrealized gain on the minority investment in JNX (see Note 9 "Financial Assets and Liabilities" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for details on the JNX Investment).

Adjusted Net Trading Income

Adjusted Net Trading Income decreased $7.8 million, or 2.2%, to $354.4 million for the three months ended September 30, 2021, compared to $362.3 million for the three months ended September 30, 2020.

This decrease was primarily attributable to lower Trading income, net in the Market Making segment driven by lower market volatility across major asset categories during the three months ended September 30, 2021 compared to the same period in 2020.

Average daily realized volatility of the S&P 500 Index and average daily CVIX realized volatility decreased 34.6% and 59.1%, respectively, compared to the prior period, while average daily U.S.

Adjusted Net Trading Income decreased $223.0 million, or 30.6%, to $505.1 million for the three months ended March 31, 2022, compared to $728.0 million for the three months ended March 31, 2021.

This decrease was primarily attributable to lower Trading income, net in the Market Making segment driven by lower market volumes across major asset categories during the three months ended March 31, 2022 compared to the same period in 2021.

Average daily U.S.

equity consolidated volumes decreased 12.1%.

Adjusted Net Trading Income per day decreased $0.1 million, or 2.2%, to $5.5 million for the three months ended September 30, 2021, compared to $5.7 million for the three months ended September 30, 2020.

There were 64 trading days for both the three months ended September 30, 2021 and 2020.

Adjusted Net Trading Income per day decreased $3.8 million, or 31.7%, to $8.1 million for the three months ended March 31, 2022, compared to $11.9 million for the three months ended March 31, 2021.

There were 62 trading days for the three months ended March 31, 2022 and 61 trading days for the three months ended March 31, 2021.

Adjusted Net Trading Income is a non-GAAP measure.

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Operating Expenses

Our operating expenses decreased $4.4 million, or 1.1%, to $399.2 million for the three months ended September 30, 2021, compared to $403.6 million for the three months ended September 30, 2020.

The decrease in operating expenses is primarily due to a decrease in brokerage, exchange, clearance fees and payments for order flow, net and debt issue cost related to debt refinancing, prepayment and commitment fees, partially offset by an increase in employee compensation and payroll taxes and other operating expenses described in more detail below.

Our operating expenses decreased $63.2 million, or 12.1%, to $459.6 million for the three months ended March 31, 2022, compared to $522.8 million for the three months ended March 31, 2021.

The decrease in operating expenses is primarily due to a decrease in Brokerage, exchange, clearance fees and payments for order flow, net, partially offset by an increase in Interest and dividends expense, and Debt issue cost related to debt refinancing, prepayment and commitment fees described in more detail below.

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

Brokerage exchange, clearance fees and payments for order flow, net, decreased $37.6 million, or 19.1%, to $158.9 million for the three months ended September 30, 2021, compared to $196.4 million for the three months ended September 30, 2020.

This decrease was primarily attributable to the decrease in market volatility during the three months ended September 30, 2021 compared to the same period in 2020.

Brokerage exchange, clearance fees and payments for order flow, net, decreased $109.0 million, or 42.0%, to $150.4 million for the three months ended March 31, 2022, compared to $259.3 million for the three months ended March 31, 2021.

This decrease was primarily attributable to the decrease in market volumes during the three months ended March 31, 2022 compared to the same period in 2021.

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

Communication and data processing.

Communication and data processing expense increased $4.0 million, or 7.7%, to $55.6 million for the three months ended September 30, 2021, compared to $51.6 million for the three months ended September 30, 2020.

Communication and data processing expense increased $4.1 million, or 8.0%, to $55.8 million for the three months ended March 31, 2022, compared to $51.7 million for the three months ended March 31, 2021.

This increase was primarily due to increased connectivity spending on colocation, subscriber connections and trading membership fees.

Employee compensation and payroll taxes.

Employee compensation and payroll taxes increased $48.8 million, or 136.2%, to $84.6 million for the three months ended September 30, 2021, compared to $35.8 million for the three months ended September 30, 2020.

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

We have capitalized and therefore excluded employee compensation and benefits related to software development of $8.7 million for both the three months ended September 30, 2021, and 2020.

Employee compensation and payroll taxes decreased $1.3 million, or 1.2%, to $103.5 million for the three months ended March 31, 2022, compared to $104.8 million for the three months ended March 31, 2021.

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

We have capitalized and therefore excluded employee compensation and benefits related to software development of $8.5 million and $9.2 million for the three months ended March 31, 2022, and 2021, respectively.

Interest and dividends expense.

Interest and dividends expense decreased $0.8 million or 2.9% to $26.6 million for the three months ended September 30, 2021, compared to $27.4 million for the three months ended September 30, 2020.

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

Interest and dividends expense increased $18.5 million or 77.0% to $42.5 million for the three months ended March 31, 2022, compared to $24.0 million for the three months ended March 31, 2021.

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

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

Operations and administrative.

Operations and administrative expense decreased $6.4 million or 25.9%, to $18.2 million for the three months ended September 30, 2021, compared to $24.6 million for the three months ended September 30, 2020.

This decrease was driven primarily by increased subleasing, combined with on-going efforts to consolidate office premises and professional services after the ITG Acquisition.

Operations and administrative expense remained consistent at $25.2 million for the three months ended March 31, 2022, compared to $25.7 million for the three months ended March 31, 2021.

Depreciation and amortization.

Depreciation and amortization remained consistent at $16.6 million for the three months ended September 30, 2021, compared to $16.7 million for the three months ended September 30, 2020.

Depreciation and amortization remained consistent at $17.5 million for the three months ended March 31, 2022, compared to $16.8 million for the three months ended March 31, 2021.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software decreased $1.3 million, or 7.3%, to $16.9 million for the three months ended September 30, 2021, compared to $18.3 million for the three months ended September 30, 2020.

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

Amortization of purchased intangibles and acquired capitalized software decreased $1.6 million, or 8.8%, to $16.5 million for the three months ended March 31, 2022, compared to $18.1 million for the three months ended March 31, 2021.

This decrease was due to certain intangible assets being fully amortized.

Termination of office leases.

Termination of office leases remained consistent at $0.2 million for the three months ended September 30, 2021, compared to $0.1 million for the three months ended September 30, 2020.

These expenses are related to the impairment of leasehold improvements and fixed assets for certain abandoned office space as part of the effort to integrate and consolidate office space in connection with the Acquisition of KCG and the ITG Acquisition.

Termination of office leases remained consistent at $0.7 million for the three months ended March 31, 2022, compared to $1.2 million for the three months ended March 31, 2021.

These expenses are related to the impairment of leasehold improvements and fixed assets for certain abandoned office space.

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

Expense from debt issue costs related to debt refinancing, prepayment and commitment fees decreased $8.7 million, or 87.5%, to $1.2 million for the three months ended September 30, 2021, compared to $9.9 million for the three months ended September 30, 2020.

The decrease was primarily driven by the prepayment of $100.0 million made during the third quarter of 2020.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses decreased $2.3 million, or 93.2%, to $0.2 million for the three months ended September 30, 2021, compared to $2.5 million during the three months ended September 30, 2020.

These expenses were primarily incurred in the prior period related to the sale of MATCHNow, as discussed in Note 3 "Sale of MATCHNow" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

Financing interest expense on long-term borrowings.

Financing interest expense on long-term borrowings remained consistent at $20.2 million for the three months ended September 30, 2021, compared to $20.4 million for the three months ended September 30, 2020.

Provision for income taxes

We incur corporate tax at the U.S.

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

Our income tax expense reflects such U.S.

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

subsidiaries.

Our provision for income taxes and effective tax rates were $22.0 million, 15.1% for the three months ended September 30, 2021, compared to $52.8 million, 20.9% for the three months ended September 30, 2020.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Total Revenues

Our total revenues decreased $456.8 million, or 17.8%, to $2,105.9 million for the nine months ended September 30, 2021, compared to $2,562.6 million for the nine months ended September 30, 2020.

This decrease was primarily attributable to a decrease of $395.9 million in Trading income, net, which was primarily driven by lower market volatility during the nine months ended September 30, 2021 compared to the prior period.

Additionally, Other, net declined $58.7 million primarily attributable to the sale of MATCHNow on August 4, 2020.

The following table shows the total revenues by segment for the nine months ended September 30, 2021 and 2020.

Nine Months Ended September 30,

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

Market Making

Trading income, net $ 1,571,347 $ 1,989,176 (21.0)%

Interest and dividends income 26,174 46,216 (43.4)%

Commissions, net and technology services 32,111 9,526 237.1%

Other, net 5,923 19,382 (69.4)%

Total revenues from Market Making $ 1,635,555 $ 2,064,300 (20.8)%

Execution Services

Trading income, net $ 20,493 $ (1,420) NM

Interest and dividends income 72 572 (87.4)%

Commissions, net and technology services 438,576 442,807 (1.0)%

Other, net 777 58,662 (99)%

Total revenues from Execution Services $ 459,918 $ 500,621 (8.1)%

Other, net $ 10,408 $ (2,286) NM

Total revenues from Corporate $ 10,408 $ (2,286) NM

Trading income, net $ 1,591,840 $ 1,987,756 (19.9)%

Interest and dividends income 26,246 46,788 (43.9)%

Commissions, net and technology services 470,687 452,333 4.1%

Other, net 17,108 75,758 (77.4)%

Total revenues $ 2,105,881 $ 2,562,635 (17.8)%

Trading income, net.

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

Trading income, net, decreased $395.9 million, or 19.9%, to $1,591.8 million for the nine months ended September 30, 2021, compared to $1,987.8 million for the nine months ended September 30, 2020.

The decrease was primarily driven by lower market volatility during the nine months ended September 30, 2021 compared to the same period of 2020, which experienced elevated levels of market volatility and trading volumes largely due to the impacts of the COVID-19 and the governmental and other responses thereto.

Average daily realized volatility of the S&P 500 Index decreased 55.4% compared to the prior period, and the average daily realized volatility of the CVIX decreased 64.4% compared to prior period.

Interest and dividends income.

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

Interest and dividends income decreased $20.5 million, or 43.9%, to $26.2 million for the nine months ended September 30, 2021, compared to $46.8 million for the nine months ended September 30, 2020.

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

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

Commissions, net and technology services.

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

Commissions, net and technology services revenues increased $18.4 million, or 4.1%, to $470.7 million for the nine months ended September 30, 2021, compared to $452.3 million for the nine months ended September 30, 2020.

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

Average daily U.S.

equities consolidated volumes increased 11.1% compared to prior period.

As indicated above, rather than analyzing commissions, net and technology services in isolation, we evaluate it in the broader context of our Adjusted Net Trading Income.

Other, net decreased $58.7 million, or 77.4%, to $17.1 million for the nine months ended September 30, 2021, compared to $75.8 million for the nine months ended September 30, 2020.

The decrease was primarily due to a $56.2 million gain recorded on the sale of MATCHNow in the third quarter 2020 (see Note 3 "Sale of MATCHNow" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for details on the MATCHNow sale).

Adjusted Net Trading Income

Adjusted Net Trading Income decreased $391.1 million, or 21.5%, to $1,424.3 million for the nine months ended September 30, 2021, compared to $1,815.5 million for the nine months ended September 30, 2020.

This decrease was primarily attributable to lower Trading Income, net (described above), driven by lower market volatility during the nine months ended September 30, 2021 compared to the prior period, and higher Brokerage, exchange, clearance fees and payments for order flow, net (described below) incurred by Market Making.

Average daily realized volatility of the S&P 500 Index and average daily CVIX realized volatility decreased 55.4% and 64.4%, respectively, compared to the prior period, while average daily U.S.

equity consolidated volumes increased 11.1%.

Adjusted Net Trading Income per day decreased $2.0 million, or 21.1%, to $7.6 million for the nine months ended September 30, 2021, compared to $9.6 million for the nine months ended September 30, 2020.

The number of trading days was 188 days for the nine months ended September 30, 2021 and 189 days for the nine months ended September 30, 2020.

Adjusted Net Trading Income is a non-GAAP measure.

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

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

Operating Expenses

Our operating expenses decreased $103.4 million, or 7.2%, to $1,336.0 million for the nine months ended September 30, 2021, compared to $1,439.4 million for the nine months ended September 30, 2020.

The decrease in operating expenses was primarily due to lower employee compensation and payroll taxes, interest and dividends expense, and debt issue cost related to debt refinancing, prepayment, and commitment fees, offset by an increase in Brokerage, exchange, clearance fees and payments for order flow, net compared to the same period in the prior year, described in more detail below.

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

Brokerage, exchange, clearance fees and payments for order flow, net, increased $15.1 million, or 2.6%, to $588.9 million for the nine months ended September 30, 2021, compared to $573.8 million for the nine months ended September 30, 2020.

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

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

Communication and data processing.

Communication and data processing expense decreased $2.5 million, or 1.5%, to $159.8 million for the nine months ended September 30, 2021, compared to $162.3 million for the nine months ended September 30, 2020.

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

Employee compensation and payroll taxes.

Employee compensation and payroll taxes decreased $53.9 million, or 16.5%, to $273.2 million for the nine months ended September 30, 2021, compared to $327.1 million for the nine months ended September 30, 2020.

The decrease in compensation levels was primarily attributable to a reduction in accrued incentive compensation in the current period, relative to the prior period, which is recorded at management’s discretion and is generally accrued in connection with the overall level of profitability, as well as a result of one-time cash bonuses awarded in the first quarter of 2020 to certain employees to mitigate the effects of the COVID-19 pandemic.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $26.7 million and $28.1 million for the nine months ended September 30, 2021 and 2020, respectively.

Interest and dividends expense.

Interest and dividends expense decreased $22.1 million, or 22.6%, to $75.6 million for the nine months ended September 30, 2021, compared to $97.7 million for the nine months ended September 30, 2020.

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

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

Operations and administrative.

Operations and administrative expense decreased $7.8 million, or 10.7%, to $65.6 million for the nine months ended September 30, 2021, compared to $73.5 million for the nine months ended September 30, 2020.

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

Depreciation and amortization.

Depreciation and amortization decreased $1.0 million, or 1.9%, to $49.8 million for the nine months ended September 30, 2021, compared to $50.7 million for the nine months ended September 30, 2020.

This decrease was primarily attributable to certain assets being fully depreciated in 2020 partially offset by an increase in capital expenditures on telecommunication, networking, and other assets.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software decreased $3.1 million, or 5.5%, to $53.1 million for the nine months ended September 30, 2021, compared to $56.2 million for the nine months ended September 30, 2020.

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

Termination of office leases.

Termination of office leases was $5.1 million for the nine months ended September 30, 2021, compared to $0.3 million for the nine months ended September 30, 2020.

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

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

Expense from debt issue costs related to debt refinancing, prepayment and commitment fees decreased $22.3 million, or 81.7%, to $5.0 million for the nine months ended September 30, 2021, compared to $27.3 million for the nine months ended September 30, 2020.

The amount for the nine months ended September 30, 2020 was primarily driven by the amortization of debt issue costs related to the addition of the Founder Member Loan Facility in March 2020, which expired as of September 20, 2020, costs incurred related to Amendment No.

2 to the Credit Agreement (as defined below), and the prepayment of $288.5 million made during the the nine months ended September 30, 2020.

See Note 9 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for additional details.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees increased $23.9 million, or 1,363.5%, to $25.7 million for the three months ended March 31, 2022, compared to $1.8 million for the three months ended March 31, 2021.

The increase was primarily driven by the acceleration of deferred debt issuance costs as a result of refinancing our long-term debt transaction in January 2022, as described in further detail below.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses decreased $2.6 million, or 94.5%, to $0.2 million for the nine months ended September 30, 2021, compared to $2.7 million for the nine months ended September 30, 2020.

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

Transaction advisory fees and expenses remained consistent at $0.4 million for the three months ended March 31, 2022, compared to immaterial amounts incurred during the three months ended March 31, 2021.

These expenses were primarily incurred in relation to our strategic investment portfolio.

Financing interest expense on long-term borrowings.

Financing interest expense on long-term borrowings decreased $8.0 million, or 11.8%, to $59.8 million for the nine months ended September 30, 2021, compared to $67.8 million for the nine months ended September 30, 2020.

This decrease was primarily attributable to a decrease in outstanding principal as a result of prepayments made during the nine months ended September 30, 2020, as discussed in Note 9 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q, in addition to lower interest rates.

Financing interest expense on long-term borrowings remained consistent at $21.3 million for the three months ended March 31, 2022, compared to $19.5 million for the three months ended March 31, 2021.

Provision for income taxes

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subsidiaries.

Our provision for income taxes and effective tax rates were $128.6 million, 16.7% for the nine months ended September 30, 2021, compared to a provision for income taxes of $200.0 million, 17.8% for the nine months ended September 30, 2020.

Our provision for income taxes and effective tax rates were $41.8 million and 17.3% for the three months ended March 31, 2022, compared to $80.6 million and 16.4% for the three months ended March 31, 2021.

Liquidity and Capital Resources

As of September 30, 2021, we had $683.8 million in Cash and cash equivalents.

As of March 31, 2022, we had $564.9 million in Cash and cash equivalents.

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

As of September 30, 2021, we had borrowings under our prime brokerage credit facilities of approximately $202.5 million, borrowings under our broker dealer facilities of $178.0 million, short-term bank overdrafts of $136.7 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,631.2 million.

As of March 31, 2022, we had borrowings under our prime brokerage credit facilities of approximately $314.3 million, borrowings under our broker dealer facilities of $142.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,828.8 million.

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

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For purposes of providing additional liquidity, we maintain a committed credit facility and an uncommitted credit facility for our wholly-owned broker-dealer subsidiary, as discussed in Note 8 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

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

Short-term Liquidity and Capital Resources

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

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

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

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

Certain of our cash balances are insured by the Federal Deposit Insurance Corporation, generally up to $250,000 per account but without a cap under certain conditions.

From time to time these cash balances may exceed insured limits, but we select financial institutions deemed highly credit worthy to minimize risk.

From time to time these cash balances may exceed insured

limits, but we select financial institutions deemed highly credit worthy to minimize risk.

We consider highly liquid investments with original maturities of less than three months, when acquired, to be cash equivalents.

Long-term Liquidity and Capital Resources

Our principal demand for funds beyond the next twelve months will be payments on our long-term debt, operating lease payments, common stock repurchases under our share repurchase program, and dividend payments.

Based on our current level of operations, we believe our cash flow from operations, and ability to raise funding, notably the refinancing of our term loan in January 2022, will be sufficient to fund capital demands.

Our long-term debt was rated Ba3, B+, and BB- by Moody's Investors Service, S&P Global Ratings, and Fitch Ratings, respectively, with all firms giving an outlook of Stable.

Tax Receivable Agreements

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

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 5 "Tax Receivable Agreements" to the condensed consolidated financial statements included in Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q are expected to range from approximately $0.9 million to $21.7 million per year over the next 15 years.

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 4 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q are expected to range from approximately $0.4 million to $22.0 million per year over the next 15 years.

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

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

We made our first payment of $7.0 million in February 2017, our second payment of $12.4 million in September 2018, our third payment of $13.3 million in March 2020, and our fourth payment of $16.5 million in April 2021.

We made our first payment of $7.0 million in February 2017, our second payment of $12.4 million in September 2018, our third payment of $13.3 million in March 2020, our fourth payment of $16.5 million in April 2021, and our fifth payment of $21.3 million in March 2022.

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

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

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

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

Regulatory Capital Requirements

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Our Canadian subsidiaries, Virtu ITG Canada Corp.

and Virtu Financial Canada ULC, are subject to regulatory capital requirements and periodic requirements to report their regulatory capital and submit other regulatory reports set forth by the the Investment Industry Regulatory Organization of Canada.

and Virtu Financial Canada ULC, are subject to regulatory capital requirements and periodic requirements to report their regulatory capital and submit other regulatory reports set forth by the Investment Industry Regulatory Organization of Canada.

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

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

from their regulatory capital.

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

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

As of September 30, 2021, the outstanding principal balance on our broker-dealer facilities was $178.0 million and the outstanding aggregate short-term credit facilities with various prime brokers and other financial institutions from which the Company receives execution or clearing services was approximately $202.5 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

On March 10, 2020, a broker-dealer subsidiary of the Company entered into a short-term loan arrangement with Jefferies Financial Group, Inc., as lender, for a $20 million demand loan (the "Demand Loan") repayable no later than ninety (90) days after the date of borrowing.

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.

As of March 31, 2022, the outstanding principal balance on our broker-dealer facilities was $142.0 million and the outstanding aggregate short-term credit facilities with various prime brokers and other financial institutions from which the Company receives execution or clearing services was approximately $314.3 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

On March 20, 2020, a broker-dealer subsidiary of the Company entered into a loan agreement (the “Founder Member Loan Facility”) with TJMT Holdings LLC (the “Founder Member”), as lender and administrative agent, providing for unsecured term loans from time to time (the “Founder Member Loans”) in an aggregate original principal amount not to exceed $300 million.

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

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

Pursuant to the Warrant, the Founder Member was entitled to purchase up to 3,000,000 shares of Class A Common Stock on or after May 22, 2020 up to and including January 15, 2022.

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

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

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

The exercise price per share of the Class A Common Stock issuable pursuant to the Warrant was $22.98.

The Warrant was exercised on December 17, 2021 for the full 3,000,000 shares of the Company's Class A Common Stock.

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

Credit Agreement

In connection with the ITG Acquisition, Virtu Financial, VFH and the Acquisition Borrower entered into the Credit Agreement, with the lenders party thereto, Jefferies Finance LLC, as administrative agent and Jefferies Finance LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners.

The Credit Agreement provided (i) a senior secured first lien term loan (the “First Lien Term Loan Facility”) in an aggregate principal amount of $1,500 million, drawn in its entirety on the ITG Closing Date, of which 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 sub-facility and a $5.0 million swing-line sub-facility.

On January 13, 2022 (the “Credit Agreement Closing Date”), Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial (“VFH”), entered into the Credit Agreement, with the lenders party thereto, JPMorgan Chase Bank, N.A.

On the Credit Agreement Closing Date, VFH and Virtu Financial entered into the Credit Agreement.

In connection with the ITG Acquisition, Virtu Financial, VFH and the Acquisition Borrower entered into the Acquisition 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 Acquisition Credit Agreement provided (i) the Acquisition First Lien Term Loan Facility in an aggregate principal amount of $1,500.0 million, drawn in its entirety on the ITG Closing Date, of which approximately $404.5 million was borrowed by VFH to repay all amounts outstanding under 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 the Acquisition First Lien Revolving Facility, with a $5.0 million letter of credit subfacility and a $5.0 million swing-line 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.

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

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

The revolving commitments will terminate on March 1, 2022.

The First Lien Revolving Facility under the Amended Credit Agreement is subject to a springing net first lien leverage ratio which may spring into effect as of the last day of a fiscal quarter if usage of the aggregate revolving commitments exceeds a specified level as of such date.

On October 9, 2019, VFH entered into Amendment No.

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

On March 2, 2020, VFH entered into Amendment No.

2, which further amended the Acquisition 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 step-down in the spread based on VFH's first lien leverage ratio.

There were no outstanding borrowings under the Acquisition Credit Agreement as of March 31, 2022

The term loan borrowings and revolver borrowings under the 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 term SOFR rate with an interest period of one month plus 1.00% and (d)(1) in the case of term loan borrowings, 1.50% and (2) in the case of revolver borrowings, 1.00%, plus, (x) in the case of term loan borrowings, 2.00% and (y) in the case of revolver borrowings, 1.50% or (ii) the greater of (a) an adjusted term SOFR rate for the interest period in effect and (b) (1) in the case of term loan borrowings, 0.50% and (2) in the case of revolver borrowings, 0.00%, plus, (x) in the case of term loan borrowings, 3.00% and (y) in the case of revolver borrowings, 2.50%.

In addition, a commitment fee accrues at a rate of 0.50% per annum on the average daily unused amount of the revolving facility, with step-downs to 0.375% and 0.25% per annum based on VFH’s first lien leverage ratio, and is payable quarterly in arrears.

The revolving facility under the Credit Agreement is subject to a springing net first lien leverage ratio which may spring into effect as of the last day of a fiscal quarter if usage of the aggregate revolving commitments exceeds a specified level as of such date.

VFH is also subject to contingent principal prepayments based on excess cash flow and certain other triggering events.

Borrowings under the Credit Agreement are guaranteed by Virtu Financial and VFH’s material non-regulated domestic restricted subsidiaries and secured by substantially all of the assets of VFH and the guarantors, in each case, subject to certain exceptions.

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

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

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

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

These two interest rate swaps met the criteria to be considered and were designated as qualifying cash flow hedges under ASC 815 in the first quarter of 2020, and they effectively fix interest payment obligations on $525.0 million and $1,000.0 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.

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

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

Under the Credit Agreement, the term loans will mature on January 13, 2029.

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

The revolving commitments will terminate on January 13, 2025.

As of March 31, 2022, $1,800.0 million was outstanding under the term loans.

We were in compliance with all applicable covenants under the Credit Agreement as of March 31, 2022.

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

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

These two interest rate swaps met the criteria to be considered and were designated as qualifying cash flow hedges under ASC 815 in the first quarter of 2020, and they effectively fixed interest payment obligations on $525.0 million and $1,000.0 million of principal under the Acquisition 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 Acquisition 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.

We were in compliance with all applicable covenants under the Amended Credit Agreement as of September 30, 2021.

In January 2022, in order to align the swap agreements with the Credit Agreement, the Company amended each of the swap agreements to align the floating rate term of such swap agreements to SOFR.

The effective fixed interest payment obligations remained at 4.5%, with respect to the earlier maturing swap arrangement, and 4.6% with respect to the later maturing swap arrangement.

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

The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2021 and 2020.

Nine Months Ended September 30,

The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2022, and 2021 and 2020.

Three Months Ended March 31,

Net cash provided by (used in):

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Effect of exchange rate changes on cash and cash equivalents (5,168) (3,676)

Net decrease in cash and cash equivalents $ (252,692) $ (107,318)

Net increase in cash and cash equivalents $ (508,265) $ 14,828

Operating Activities

Net cash provided by operating activities was $374.5 million for the nine months ended September 30, 2021, compared to net cash provided by operating activities of $483.6 million for the nine months ended September 30, 2020.

The decrease in net cash provided by operating activities was primarily attributable to lower revenues, and an increase in trading assets, at fair value, for the nine months ended September 30, 2021 compared to the prior period.

Net cash used in operating activities was $255.2 million for the three months ended March 31, 2022, compared to net cash provided by operating activities of $133.9 million for the three months ended March 31, 2021.

The decrease in net cash provided by operating activities was primarily attributable to an increase in Securities borrowed, an increase in Receivables from broker dealers and clearing organizations, and an increase in Trading assets, at fair value partially offset by an increase in Trading liabilities, at fair value for the three months ended March 31, 2022 compared to the prior period.

Investing Activities

Net cash used in investing activities was $65.4 million for the nine months ended September 30, 2021, compared to net cash provided by investing activities of $3.4 million for the nine months ended September 30, 2020.

The increase in cash used in investing activities for the nine months ended September 30, 2021 was primarily attributable to an increase in contributions to our strategic investments in the current period, offset by the sale of MATCHNow in the prior period.

Net cash used in investing activities was $35.0 million for the three months ended March 31, 2022, compared to net cash used in investing activities of $25.6 million for the three months ended March 31, 2021.

The increase in cash used in investing activities for the three months ended March 31, 2022 was primarily attributable to an increase in Acquisition of property and equipment during the three months ended March 31, 2022 as compared to the prior period.

Financing Activities

Net cash used in financing activities was $550.3 million for the nine months ended September 30, 2021, while net cash used in financing activities was $598.2 million for the nine months ended September 30, 2020.

The cash used in financing activities for the nine months ended September 30, 2021 was primarily attributable to $430.6 million in dividends to stockholders and distributions made to noncontrolling interests and $320.2 million in purchases of treasury stock, partially offset by the proceeds of $249.6 million of short term borrowings.

The cash used in financing activities of $598.2 million during the same period of 2020 primarily reflects net dividends to stockholders and distributions to noncontrolling interests and repayment of long term borrowings.

Net cash used in financing activities was $212.9 million for the three months ended March 31, 2022, while net cash used in financing activities was $89.7 million for the three months ended March 31, 2021.

The cash used in financing activities for the three months ended March 31, 2022 was primarily attributable to $125.8 million in dividends to stockholders and distributions made to noncontrolling interests and $305.6 million in purchases of treasury stock, partially offset by the net proceeds of $202.2 million from the issuance of the new term loan and repayment of the existing term loan in January 2022.

The cash used in financing activities of $89.7 million during the same period of 2020 primarily reflects net dividends to stockholders and distributions to noncontrolling interests, and purchase of treasury stock, partially offset by an increase in short-term borrowings.

Share Repurchase Program

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

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

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

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

On February 11, 2021, the Company's Board of Directors authorized the expansion of the Company's share repurchase program, increasing the total authorized amount by $70.0 million to $170.0 million in Class A Common Stock and Virtu Financial Units up to December 31, 2021.

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.

On November 3, 2021, the Company's Board of Directors authorized the expansion of the Company's current share repurchase program, increasing the total authorized amount by $750 million to $1,220 million and extended the duration through November 3, 2023.

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.

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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 September 30, 2021, the Company repurchased approximately 12.5 million shares of Class A Common Stock and Virtu Financial Units for approximately $337.5 million.

As of September 30, 2021, the Company has approximately of $132.5 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K, that have or are reasonably likely to have current or future effects on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

We believe inflation has not had a material effect on our financial condition as of September 30, 2021, and December 31, 2020, or on our results of operations and cash flows for the three and nine months ended September 30, 2021 and 2020.

From the inception of the program through March 31, 2022, the Company repurchased approximately 25.1 million shares of Class A Common Stock and Virtu Financial Units for approximately $726.3 million.

As of March 31, 2022, the Company has approximately of $493.7 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

Critical Accounting Policies and Estimates

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

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

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

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

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The fair values for substantially all of our financial instruments owned and financial instruments sold but not yet purchased are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy.

Instruments categorized within level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable.

categorized within level 3 of the fair value hierarchy are those which require one or more significant inputs that are not observable.

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

See Note 10 "Financial Assets and Liabilities" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for further information about fair value measurements.

Due to the relative immateriality of our financial instruments classified as level 3, we do not believe that a significant change to the inputs underlying the fair value of our level 3 financial instruments would have a material impact on our consolidated financial statements See Note 9 "Financial Assets and Liabilities" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for further information about fair value measurements.

Revenue Recognition

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The fair value of share-based awards granted to employees is expensed based on the vesting conditions and is recognized on a straight-line basis over the vesting period, or, in the case of RSAs subject to performance conditions, from the date that achievement becomes probable through the remainder of the vesting period.

The assessment of the performance condition becomes certain within the year of grant.

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

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We recognize the tax benefit from an uncertain tax position in accordance with ASC 740, Income Taxes, only if it is more likely than not that the tax position will be sustained on examination by the applicable taxing authority, including resolution of the appeals or litigation processes, based on the technical merits of the position.

The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit for each such position that has a greater than fifty percent likelihood of being realized

upon ultimate resolution.

Many factors are considered when evaluating and estimating the tax positions and tax benefits.

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Our estimates may require periodic adjustments and may not accurately anticipate actual outcomes as resolution of income tax treatments in individual jurisdictions typically would not be known for several years after completion of any fiscal year.

We believe the judgments and estimates discussed above are reasonable.

However, if actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

Tax Receivable Agreements

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if the fair value of the reporting unit is less than its carrying value, a goodwill impairment loss is recorded, equal to the excess of the reporting unit’s carrying amount over its fair value (not to exceed the total goodwill allocated to that reporting unit).

Our estimate of goodwill impairment, if indicated based on results of the qualitative assessment, is highly dependent on our estimate of a reporting unit’s fair value.

We assess goodwill for impairment on an annual basis as of July 1st and on an interim basis when certain events or circumstances exist.

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

Our largest finite-lived intangible asset is customer relationships, which is being amortized over an estimated useful life of ten years.

used a shorter estimated useful life of seven years, the Company would have recorded an additional $4.1 million of amortization expense for the for the three months ended March 31, 2022 and 2021.

We test finite-lived intangible assets for impairment when impairment indicators are present, and if impaired, they are written down to fair value.

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For a discussion of recently issued accounting developments and their impact or potential impact on our condensed consolidated financial statements, see Note 2 "Summary of Significant Accounting Policies" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks in the ordinary course of business.

The risks primarily relate to changes in the value of financial instruments due to factors such as market prices, interest rates, and currency rates.

Our on-exchange market making activities are not dependent on the direction of any particular market and are designed to minimize capital at risk at any given time by limiting the notional size of our positions.

Our on-exchange market making strategies involve continuously quoting two-sided markets in various financial instruments with the intention of profiting by capturing the spread between the bid and offer price.

If another market participant executes against the strategy’s bid or offer by crossing the spread, the strategy will attempt to lock in a return by either exiting the position or hedging in one or more different correlated instruments that represent economically equivalent value to the primary instrument.

Such primary or hedging instruments include but are not limited to securities and derivatives such as:

common shares, exchange traded products, American Depositary Receipts (“ADRs”), options, bonds, futures, spot currencies and commodities.

Substantially all of the financial instruments we trade are liquid and can be liquidated within a short time frame at low cost.

Our customer market making activities involve the taking of position risks.

The risks at any point in time are limited by the notional size of positions as well as other factors.

The overall portfolio risks are quantified using internal risk models and monitored by the Company's Chief Risk Officer, the independent risk group and senior management.

We use various proprietary risk management tools in managing our market risk on a continuous basis (including intraday).

In order to minimize the likelihood of unintended activities by our market making strategies, if our risk management system detects a trading strategy generating revenues outside of our preset limits, it will freeze, or “lockdown”, that strategy and alert risk management personnel and management.

For working capital purposes, we invest in money market funds and maintain interest and non-interest bearing balances at banks and in our trading accounts with clearing brokers, which are classified as Cash and cash equivalents and Receivables from broker-dealers and clearing organizations, respectively, on the Condensed Consolidated Statements of Financial Condition.

These financial instruments do not have maturity dates;

the balances are short-term, which helps to mitigate our market risks.

We also invest our working capital in short-term U.S.

government securities, which are included in Financial instruments owned on the Condensed Consolidated Statements of Financial Condition.

Our cash and cash equivalents held in foreign currencies are subject to the exposure of foreign currency fluctuations.

These balances are monitored daily and are hedged or reduced when appropriate and therefore not material to our overall cash position.

In the normal course of business, we maintain inventories of exchange-listed and other equity securities, and to a lesser extent, fixed income securities and listed equity options.

The fair value of these financial instruments at March 31, 2022 and December 31, 2021 was $6.0 billion and $4.3 billion, respectively, in long positions and $5.1 billion and $3.5 billion, respectively, in short positions.

We also enter into futures contracts, which are recorded on our Condensed Consolidated Statements of Financial Condition within Receivable from brokers, dealers and clearing organizations or Payable to brokers, dealers and clearing organizations as applicable.

We calculate daily the potential losses that might arise from a series of different stress events.

These include both single factor and multi factor shocks to asset prices based off both historical events and hypothetical scenarios.

The stress calculations include a full recalculation of any option positions, non-linear positions and leverage.

Senior management and the independent risk group carefully monitor the highest stress scenarios to help mitigate the risk of exposure to extreme events.

The purchase and sale of futures contracts requires margin deposits with a Futures Commission Merchant (“FCM”).

The Commodity Exchange Act requires an FCM to segregate all customer transactions and assets from the FCM’s proprietary activities.

A customer’s cash and other equity deposited with an FCM are considered commingled with all other customer funds subject to the FCM’s segregation requirements.

In the event of an FCM’s insolvency, recovery may be limited to the Company’s pro rata share of segregated customer funds available.

It is possible that the recovery amount could be less than the total cash and other equity deposited.

Interest Rate Risk, Derivative Instruments

In the normal course of business, we utilize derivative financial instruments in connection with our proprietary trading activities.

We carry our trading derivative instruments at fair value with gains and losses included in Trading income, net, in the accompanying Condensed Consolidated Statements of Comprehensive Income.

Fair value of derivatives that are freely tradable and listed on a national exchange is determined at their last sale price as of the last business day of the period.

Since gains and losses are included in earnings, we have elected not to separately disclose gains and losses on derivative instruments, but instead to disclose gains and losses within trading revenue for both derivative and non-derivative instruments.

We also use derivative instruments for risk management purposes, including cash flow hedges used to manage interest rate risk on long-term borrowings and net investment hedges used to manage foreign exchange risk.

We have entered into floating-to-fixed interest rate swap agreements in order to manage interest rate risk associated with our long-term debt obligations.

Additionally, we may seek to reduce the impact of fluctuations in foreign exchange rates on our net investment in certain non-U.S.

operations through the use of foreign currency forward contracts.

For interest rate swap agreements and foreign currency forward contracts designated as hedges, we assess our risk management objectives and strategy, including identification of the hedging instrument, the hedged item and the risk exposure and how effectiveness is to be assessed prospectively and retrospectively.

The effectiveness of the hedge is assessed based on the overall changes in the fair value of the interest rate swaps or forward contracts.

For instruments that meet the criteria to be considered hedging instruments under ASC 815, any gains or losses, to the extent effective, are included in Accumulated other comprehensive income on the Condensed Consolidated Statements of Financial Condition and Other comprehensive income on the Condensed Consolidated Statements of Comprehensive Income.

The ineffective portion, if any, is recorded in Other, net on the Condensed Consolidated Statements of Comprehensive Income.

Futures Contracts .

As part of our proprietary market making trading strategies, we use futures contracts to gain exposure to changes in values of various indices, commodities, interest rates or foreign currencies.

A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date.

Upon entering into a futures contract, we are required to pledge to the broker an amount of cash, U.S.

government securities or other assets equal to a certain percentage of the contract amount.

Subsequent payments, known as variation margin, are made or received by us each day, depending on the daily fluctuations in the fair values of the underlying securities.

We recognize a gain or loss equal to the daily variation margin.

Due from Broker-Dealers and Clearing Organizations .

Management periodically evaluates our counterparty credit exposures to various brokers and clearing organizations with a view to limiting potential losses resulting from counterparty insolvency.

Foreign Currency Risk

As a result of our international market making and execution services activities and accumulated earnings in our foreign subsidiaries, our income and net worth are subject to fluctuation in foreign exchange rates.

While we generate revenues in several currencies, the majority of our operating expenses are denominated in U.S.

Therefore, depreciation in these other currencies against the U.S.

dollar would negatively impact revenue upon translation to the U.S.

The impact of any translation of our foreign denominated earnings to the U.S.

dollar is mitigated, however, through the impact of daily hedging practices that are employed by the company.

Approximately 21.6% and 19.4% of our total revenues for the three months ended March 31, 2022 and 2021, respectively, were denominated in non-U.S.

dollar currencies.

We estimate that a hypothetical 10% adverse change in the value of the U.S.

dollar relative to our foreign denominated earnings would have resulted in decreases in total revenues of $15.2 million and $19.7 million for the three months ended March 31, 2022 and 2021, respectively.

Assets and liabilities of subsidiaries with non-U.S.

dollar functional currencies are translated into U.S.

dollars at period-end exchange rates.

Income, expense and cash flow items are translated at average exchange rates prevailing during the period.

The resulting currency translation adjustments are recorded as foreign exchange translation adjustment in our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Changes in Equity.

Our primary currency translation exposures historically relate to net investments in subsidiaries having functional currencies denominated in the Euro, Pound Sterling, and Canadian dollar.

Financial Instruments with Off Balance Sheet Risk

We enter into various transactions involving derivatives and other off-balance sheet financial instruments.

These financial instruments include futures, forward contracts, swaps, and exchange-traded options.

These derivative financial instruments are used to conduct trading activities and manage market risks and are, therefore, subject to varying degrees of market and credit risk.

Derivative transactions are entered into for trading purposes or to economically hedge other positions or transactions.

Futures and forward contracts provide for delayed delivery of the underlying instrument.

In situations where we write listed options, we receive a premium in exchange for giving the buyer the right to buy or sell the security at a future date at a contracted price.

The contractual or notional amounts related to these financial instruments reflect the volume and activity and do not necessarily reflect the amounts at risk.

Futures contracts are executed on an exchange, and cash settlement is made on a daily basis for market movements, typically with a central clearing house as the counterparty.

Accordingly, futures contracts generally do not have credit risk.

The credit risk for forward contracts, options, and swaps is limited to the unrealized market valuation gains recorded in the Condensed Consolidated Statements of Financial Condition.

Market risk is substantially dependent upon the value of the underlying financial instruments and is affected by market forces, such as volatility and changes in interest and foreign exchange rates.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of March 31, 2022.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2022, our disclosure controls and procedures were effective to ensure information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake.

Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes to Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the three months ended March 31, 2022 that has or is reasonably likely to materially affect, our internal control over financial reporting.

LEGAL PROCEEDINGS

The information required by this item is set forth in the “Legal Proceedings” section in Note 14 "Commitments, Contingencies and Guarantees" to the Company’s condensed consolidated financial statements included in Part I Item 1 “Financial Statements”, which is incorporated by reference herein.

There have been no material changes to the Risk Factors described in Part I Item 1A.

“Risk Factors” in our 2021 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis