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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 247 added, 120 removed, 702 unchanged (34% 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 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.

The following management’s discussion and analysis covers the three and six months ended June 30, 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 June 30, 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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• need to maintain and continue developing proprietary technologies;

• 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;

• the effect of the Acquisition of KCG and the ITG Acquisition (each 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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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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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.

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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.

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 was approved by 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 March 31, 2022, options to purchase 1,633,750 shares in the aggregate were forfeited and 6,050,474 options were exercised.

Subsequent to the IPO and through June 30, 2022, options to purchase 1,633,750 shares in the aggregate were forfeited and 6,072,474 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.

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.

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.

Amended and Restated Investment Technology Group, Inc.

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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 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.

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of June 30, 2022 in the amount of $13.2 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of June 30, 2022 in the amount of $133.4 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 June 30, 2022;

and (iv) provision for corporate income tax in the amount of $13.7 million and $40.8 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022, respectively.

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 months ended March 31, 2022, and 2021:

(in thousands) Three Months Ended March 31,

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 six months ended June 30, 2022, and 2021:

(in thousands) Three Months Ended June 30, Six Months Ended June 30,

Market Making 2022 2021 2022 2021

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Income before income taxes and noncontrolling interest $ 173,784 $ 135,002 $ 415,494 $ 624,789

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

Three Months Ended March 31,

The following table shows our results of operations for the three and six months ended June 30, 2022, and 2021:

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

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

Our trading income is highly diversified by asset class and geography and is comprised of small amounts earned on millions of trades on various exchanges.

Our trading income is highly diversified by asset class and geography and comprises of small amounts earned on millions of trades on various exchanges.

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

Trading income, net, accounted for 70% and 77% of our total revenues for the six months ended June 30, 2022 and 2021, respectively.

Interest and dividends income.

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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.

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

Operating Expenses

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We are subject to U.S.

federal, state and local income tax at the rate applicable to corporations less the rate attributable to the noncontrolling interest in Virtu Financial.

federal, state and local, and foreign income tax at the rate applicable to corporations less the rate attributable to the noncontrolling interest in Virtu Financial.

Our effective tax rate is subject to significant variation due to several factors, including variability in our pre-tax and taxable income and loss and the jurisdictions to which they relate, changes in how we do business, acquisitions and investments, audit-related developments, tax law developments (including changes in statutes, regulations, case law, and administrative practices), and relative changes of expenses or losses for which tax benefits are not recognized.

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

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

We also disclose Adjusted Net Trading Income by segment, including daily averages.

Management believes that Adjusted Net Trading Income is useful for comparing general operating performance from period to period.

Although we use Adjusted Net Trading Income as a financial measure to assess the performance of our business, the use of Adjusted Net Trading Income is limited because it does not include certain material costs that are necessary to operate our business.

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• “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%.

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

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

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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 months ended March 31, 2022, and 2021.

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(in thousands) 2022 2021 2022 2021

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Severance 757 1,020 2,759 3,039

Reserve for legal matters 7,379 3,907

Transaction advisory fees and expenses 558 (3) 980 (17)

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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 months ended March 31, 2022, and 2021:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

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

Reconciliation of Net Income to Normalized Adjusted Net Income

Net income (loss) $ 199,925 $ 409,232

Net income $ 148,896 $ 108,907 $ 348,820 $ 518,139

Provision for income taxes 24,888 26,095 66,674 106,650

Income (loss) before income taxes 241,711 489,787

Income before income taxes 173,784 135,002 415,494 624,789

Amortization of purchased intangibles and acquired capitalized software 16,277 18,077 32,757 36,154

Debt issue cost related to debt refinancing, prepayment, and commitment fees 1,437 1,989 27,121 3,744

Reserve for legal matters 7,379 3,907

Severance 757 1,020 2,759 3,039

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(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 months ended March 31, 2022, and 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

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three and six months ended June 30, 2022, and 2021:

Three Months Ended June 30, 2022

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 253,724 $ 103,634 $ — $ 357,358

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 232,074 $ 109,756 $ — $ 341,830

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 %

Six Months Ended June 30, 2022

(in thousands) Market Making Execution Services Corporate Total

Trading income, net $ 906,621 $ 11,614 $ — $ 918,235

Commissions, net and technology services 20,194 270,801 — 290,995

Interest and dividends income 51,775 29 — 51,804

Brokerage, exchange, clearance fees and payments for order flow, net (254,636) (52,730) — (307,366)

Interest and dividends expense (88,382) (2,872) — (91,254)

Adjusted Net Trading Income $ 635,572 $ 226,842 $ — $ 862,414

Six Months Ended June 30, 2021

(in thousands) Market Making Execution Services Corporate Total

Trading income, net $ 1,181,926 $ 15,650 $ — $ 1,197,576

Commissions, net and technology services 23,217 311,547 — 334,764

Interest and dividends income 16,469 72 — 16,541

Brokerage, exchange, clearance fees and payments for order flow, net (367,978) (62,045) — (430,023)

Interest and dividends expense (46,436) (2,563) — (48,999)

Adjusted Net Trading Income $ 807,198 $ 262,661 $ — $ 1,069,859

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three and six months ended June 30, 2022, and 2021:

Three Months Ended June 30,

Adjusted Net Trading Income by Segment (in thousands):

2022 2021 % Change

Market Making $ 253,724 $ 232,074 9.3%

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Adjusted Net Trading Income $ 357,358 $ 341,830 4.5%

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

Three Months Ended June 30,

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

2022 2021 % Change

Market Making $ 4,092 $ 3,684 11.1%

Execution Services 1,672 1,742 (4.0)%

Average Daily Adjusted Net Trading Income $ 5,764 $ 5,426 6.2%

Six Months Ended June 30,

Adjusted Net Trading Income by Segment (in thousands):

2022 2021 % Change

Market Making $ 635,572 $ 807,198 (21.3)%

Execution Services 226,842 262,661 (13.6)%

Adjusted Net Trading Income $ 862,414 $ 1,069,859 (19.4)%

Six Months Ended June 30,

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

2022 2021 % Change

Market Making $ 5,126 $ 6,510 (21.3)%

Execution Services 1,829 2,118 (13.6)%

Average Daily Adjusted Net Trading Income $ 6,955 $ 8,628 (19.4)%

Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021

Total Revenues

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,

Our total revenues increased $55.8 million, or 10.2%, to $604.7 million for the three months ended June 30, 2022, compared to $549.0 million for the three months ended June 30, 2021.

The increase was primarily due to by an increase of $30.2 million in Other, net, which was driven by gains recorded on sales of various strategic investments, as well as an increase of $21.2 million in Interest and dividends income which is largely driven by the level of trading assets held over periods when dividends are paid, and the levels of stock borrowing and trading asset financing during the three months ended June 30, 2022 compared to the same period in 2021.

Trading income, net increased 2.9% to $395.9 million from $384.8 million for the three months ended June 30, 2022 and 2021, respectively.

The following table shows total revenues by segment for the three months ended June 30, 2022 and 2021.

Three Months Ended June 30,

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

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Commissions, net and technology services 125,195 134,028 (6.6)%

Other, net 160 162 (1.2)%

Total revenues from Execution Services $ 151,745 $ 189,239 (19.8)%

Other, net 137 (62) NM

Total revenues from Corporate $ 2,956 $ (391) NM

Total revenues from Execution Services $ 130,997 $ 138,130 (5.2)%

Other, net $ 41,146 $ 8,294 396.1%

Total revenues from Corporate $ 41,146 $ 8,294 396.1%

Trading income, net $ 395,928 $ 384,832 2.9%

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

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.

Trading income, net increased $11.1 million, or 3%, to $395.9 million for the three months ended June 30, 2022, compared to $384.8 million for the three months ended June 30, 2021.

The increase was primarily driven by the higher market volumes and volatility across global markets and major asset categories during the three months ended June 30, 2022 compared to the same period in 2021.

Average daily U.S.

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

equity consolidated volumes increased 19%, average daily realized volatility of the S&P 500 Index increased 155%, and average daily CVIX volatility increased 120% in the period compared to the prior period, driven by macroeconomic conditions, including increased inflation, uncertainty around geopolitical developments in eastern Europe, and the governmental and other responses thereto.

There was also one less trading day in the three months ended June 30, 2022 than the same period in 2021.

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 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.

Interest and dividends income increased $21.2 million, or 222.6%, to $30.8 million for the three months ended June 30, 2022, compared to $9.5 million for the three months ended June 30, 2021.

This increase was primarily attributable to the higher dividends earned on market making trading assets held over periods when dividends are paid along with an increase in interest income earned on cash collateral posted as part of securities borrowing transactions and interest earned on balances maintained at prime brokers, both of which benefited from higher interest rates 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 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).

Commissions, net and technology services revenues decreased $6.8 million, or 4.7%, to $136.3 million for the three months ended June 30, 2022, compared to $143.1 million for the three months ended June 30, 2021.

There was one less trading day in the three months ended June 30, 2022 than the same period in 2021.

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.

Other, net increased $30.2 million, or 263.3%, to $41.7 million for the three months ended June 30, 2022, compared to $11.5 million for the three months ended June 30, 2021.

The increase was primarily due to gains recognized during the 2022 period on sales of investments in our strategic investments portfolio.

Adjusted Net Trading Income

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 $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.

Adjusted Net Trading Income, which is a non-GAAP measure, increased $15.5 million, or 4.5%, to $357.4 million for the three months ended June 30, 2022, compared to $341.8 million for the three months ended June 30, 2021.

This increase was primarily attributable to higher Trading income, net in the Market Making segment driven by higher market volumes and volatility across major asset categories during the three months ended June 30, 2022 compared to the same period in 2021, as noted above, and lower Brokerage, exchange, clearing fees and payments for order flow, net as described below.

Adjusted Net Trading Income per day increased $0.3 million, or 6.2%, to $5.8 million for the three months ended June 30, 2022, compared to $5.4 million for the three months ended June 30, 2021.

Although average Adjusted Net Trading Income per day increased, there was one less trading day in the three months ended June 30, 2022 than the same period in 2021.

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.

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Operating Expenses

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.

Our operating expenses increased $17.0 million, or 4.1%, to $431.0 million for the three months ended June 30, 2022, compared to $414.0 million for the three months ended June 30, 2021.

The increase in operating expenses is primarily due to an increase in Employee compensation and payroll taxes, and Interest and dividends expense, partially offset by decreases in Brokerage, exchange, clearance fees and payments for order flow, net, and Operations and administrative, 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 $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.

Brokerage exchange, clearance fees and payments for order flow, net, decreased $13.7 million, or 8.0%, to $157.0 million for the three months ended June 30, 2022, compared to $170.7 million for the three months ended June 30, 2021.

These costs vary period to period based upon the level and composition of our trading activities.

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 $4.1 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.

Communication and data processing expense increased $3.2 million, or 6.1%, to $55.7 million for the three months ended June 30, 2022, compared to $52.5 million for the three months ended June 30, 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 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.

Employee compensation and payroll taxes increased $14.8 million, or 17.6%, to $98.6 million for the three months ended June 30, 2022, compared to $83.8 million for the three months ended June 30, 2021.

The increase in compensation levels was primarily attributable to an increase in salaries and an increase in share-based compensation related to prior year incentive awards and the portion of anticipated current year incentive awards that is accrued in the current period.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $8.3 million and $8.9 million for the three months ended June 30, 2022, and 2021, respectively.

Interest and dividends expense.

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.

Interest and dividends expense increased $23.7 million or 95.1% to $48.7 million for the three months ended June 30, 2022, compared to $25.0 million for the three months ended June 30, 2021.

This increase was primarily attributable to higher dividend expense with respect to securities sold, not yet purchased and higher interest expense incurred on cash collateral received as part of securities lending transactions and higher financing costs with respect to trading assets driven by higher interest rates.

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 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.

Operations and administrative expense decreased $8.2 million or 37.6% to $13.6 million for the three months ended June 30, 2022, compared to $21.8 million for the three months ended June 30, 2021.

This decrease was primarily driven by the beneficial effect of a strong U.S.

dollar on foreign exchange translation gains during the three months ended June 30, 2022.

Depreciation and amortization.

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.

Depreciation and amortization remained consistent at $16.3 million both for the three months ended June 30, 2022, and June 30, 2021.

Amortization of purchased intangibles and acquired capitalized software.

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.

Amortization of purchased intangibles and acquired capitalized software decreased $1.8 million, or 10.0%, to $16.3 million for the three months ended June 30, 2022, compared to $18.1 million for the three months ended June 30, 2021.

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

Termination of office leases.

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.

Termination of office leases decreased $3.0 million or 81.5% to $0.7 million for the three months ended June 30, 2022, compared to $3.7 million for the three months ended June 30, 2021.

The expenses incurred during the period ended June 30, 2021 primarily related to the effort to integrate and consolidate office space in connection with the ITG Acquisition.

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

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees decreased $0.6 million, or 27.8%, to $1.4 million for the three months ended June 30, 2022, compared to $2.0 million for the three months ended June 30, 2021.

The decrease 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 remained consistent at $0.6 million for the three months ended June 30, 2022, compared to immaterial amounts incurred during the three months ended June 30, 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 increased $2.0 million or 9.8% to $22.1 million for the three months ended June 30, 2022, compared to $20.1 million for the three months ended June 30, 2021.The increase was primarily attributable to the increase in outstanding principal as a result of refinancing our long-term debt transaction in January 2022, as described in further detail below.

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 $24.9 million and 14.3% for the three months ended June 30, 2022, compared to $26.1 million and 19.3% for the three months ended June 30, 2021.

Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021

Total Revenues

Our total revenues decreased $255.5 million, or 16.4%, to $1,306.0 million for the six months ended June 30, 2022, compared to $1,561.5 million for the six months ended June 30, 2021.

This decrease was primarily attributable to a decrease of $279.3 million in Trading income, net, which was primarily driven by lower market volatility during the six months ended June 30, 2022 compared to the prior period.

This decrease was offset, in part, by an increase of $32.3 million in Other, net, which was driven by gains recorded on sales of various strategic investments, as well as an increase of $35.3 million in Interest and dividends income which is largely driven by the level of trading assets held over periods when dividends are paid, and the levels of stock borrowing and trading asset financing during the six months ended June 30, 2022 compared to the same period in 2021.

The following table shows the total revenues by segment for the six months ended June 30, 2022 and 2021.

Six Months Ended June 30,

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

Market Making

Trading income, net $ 906,621 $ 1,181,926 (23.3)%

Interest and dividends income 51,775 16,469 214.4%

Commissions, net and technology services 20,194 23,217 (13.0)%

Other, net 568 4,653 (87.8)%

Total revenues from Market Making $ 979,158 $ 1,226,265 (20.2)%

Execution Services

Trading income, net $ 11,614 $ 15,650 (25.8)

Interest and dividends income 29 72 (59.7)%

Commissions, net and technology services 270,801 311,547 (13.1)%

Other, net 298 100 198%

Total revenues from Execution Services $ 282,742 $ 327,369 (13.6)%

Other, net $ 44,100 $ 7,903 458.0%

Total revenues from Corporate $ 44,100 $ 7,903 458.0%

Trading income, net $ 918,235 $ 1,197,576 (23.3)%

Interest and dividends income 51,804 16,541 213.2%

Commissions, net and technology services 290,995 334,764 (13.1)%

Other, net 44,966 12,656 255.3%

Total revenues $ 1,306,000 $ 1,561,537 (16.4)%

Trading income, net.

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

Trading income, net, decreased $279.3 million, or 23.3%, to $918.2 million for the six months ended June 30, 2022, compared to $1,197.6 million for the six months ended June 30, 2021.

The decrease was largely a result of lower trading income in the first quarter of 2022, driven by lower market volumes as compared to the same period in 2021.

Interest and dividends income.

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

Interest and dividends income increased $35.3 million, or 213.2%, to $51.8 million for the six months ended June 30, 2022, compared to $16.5 million for the six months ended June 30, 2021.

This increase was primarily attributable to higher dividends earned on market making trading assets held over periods when dividends are paid, along with an increase in interest income earned on cash collateral posted as part of securities borrowed transactions, both of which benefited from higher interest rates for the period compared to the prior period.

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

Commissions, net and technology services.

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

Commissions, net and technology services revenues decreased $43.8 million, or 13.1%, to $291.0 million for the six months ended June 30, 2022, compared to $334.8 million for the six months ended June 30, 2021.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.

Other, net increased $32.3 million, or 255.3%, to $45.0 million for the six months ended June 30, 2022, compared to $12.7 million for the six months ended June 30, 2021.

The increase was primarily due to gains recognized during the 2022 period from sales of investments in our strategic investments portfolio.

Adjusted Net Trading Income

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $207.4 million, or 19.4%, to $862.4 million for the six months ended June 30, 2022, compared to $1,069.9 million for the six months ended June 30, 2021.

This decrease was primarily attributable to lower Trading Income, net as noted above, partially offset by lower Brokerage, exchange, clearance fees and payments for order flow, net as described below, incurred by Market Making.

Adjusted Net Trading Income per day decreased $1.6 million, or 19.4%, to $7.0 million for the six months ended June 30, 2022, compared to $8.6 million for the six months ended June 30, 2021.

The number of trading days was 124 days for both the six months ended June 30, 2022 and June 30, 2021.

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 $46.2 million, or 4.9%, to $890.5 million for the six months ended June 30, 2022, compared to $936.7 million for the six months ended June 30, 2021.

The decrease in operating expenses was primarily due to lower Brokerage, exchange, clearance fees and payments for order flow, net, partially offset by increases in Debt issue cost related to debt refinancing, prepayment, and commitment fees, and Interest and dividends expense.

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

Brokerage, exchange, clearance fees and payments for order flow, net, decreased $122.7 million, or 28.5%, to $307.4 million for the six months ended June 30, 2022, compared to $430.0 million for the six months ended June 30, 2021.

These costs vary period to period based upon the level and composition of our trading activities.

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

Communication and data processing.

Communication and data processing expense increased $7.3 million, or 7.0%, to $111.5 million for the six months ended June 30, 2022, compared to $104.2 million for the six months ended June 30, 2021.

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

Employee compensation and payroll taxes.

Employee compensation and payroll taxes increased $13.5 million, or 7.1%, to $202.1 million for the six months ended June 30, 2022, compared to $188.6 million for the six months ended June 30, 2021.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $16.7 million and $18.0 million for the six months ended June 30, 2022 and 2021, respectively.

Interest and dividends expense.

Interest and dividends expense increased $42.3 million, or 86.2%, to $91.3 million for the six months ended June 30, 2022, compared to $49.0 million for the six months ended June 30, 2021.

This increase was primarily attributable to higher dividend expense with respect to securities sold, not yet purchased and higher interest expense incurred on cash collateral received driven by higher interest rates, as well as an increase 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 $8.6 million, or 18.2%, to $38.8 million for the six months ended June 30, 2022, compared to $47.4 million for the six months ended June 30, 2021.

The decrease was primarily driven by the beneficial effect of a strong U.S.

dollar on foreign exchange translation gains during the six months ended June 30, 2022.

Depreciation and amortization.

Depreciation and amortization increased $0.7 million, or 2.1%, to $33.8 million for the six months ended June 30, 2022, compared to $33.1 million for the six months ended June 30, 2021.

This increase was primarily attributable to 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 $3.4 million, or 9.4%, to $32.8 million for the six months ended June 30, 2022, compared to $36.2 million for the six months ended June 30, 2021.

This decrease was primarily attributable to certain intangible assets being fully amortized in 2021.

Termination of office leases.

Termination of office leases was $1.4 million for the six months ended June 30, 2022, compared to $4.9 million for the six months ended June 30, 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 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.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees increased $23.4 million, or 624.4%, to $27.1 million for the six months ended June 30, 2022, compared to $3.7 million for the six months ended June 30, 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.

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

Transaction advisory fees and expenses.

Transaction advisory fees and expenses 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.

Transaction advisory fees and expenses were $1.0 million for the six months ended June 30, 2022, compared to immaterial amounts for the six months ended June 30, 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 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.

Financing interest expense on long-term borrowings increased $3.8 million, or 9.6%, to $43.4 million for the six months ended June 30, 2022, compared to $39.6 million for the six months ended June 30, 2021.

This increase was primarily attributable to the increase in outstanding principal as a result of refinancing our long-term debt in January 2022, as described in further detail below.

Provision for income taxes

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subsidiaries.

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.

Our provision for income taxes and effective tax rates were $66.7 million, and 16.0% for the six months ended June 30, 2022, compared to a provision for income taxes of $106.7 million, and 17.1% for the six months ended June 30, 2021.

Liquidity and Capital Resources

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

As of June 30, 2022, we had $810.6 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 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.

As of June 30, 2022, we had borrowings under our prime brokerage credit facilities of approximately $218.4 million, borrowings under our broker dealer facilities of $158.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,825.8 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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These margin facilities are secured by securities in accounts held at the prime brokers.

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

For purposes of providing additional liquidity, we maintain a committed credit facility and an uncommitted credit facility for our wholly-owned U.S.

broker-dealer subsidiary, as discussed in Note 8 "Borrowings" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

Short-term Liquidity and Capital Resources

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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.

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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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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, our fourth payment of $16.5 million in April 2021, and our fifth payment of $21.3 million in March 2022.

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

conditions, and other factors.

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 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.

As of June 30, 2022, the outstanding principal balance on our broker-dealer facilities was $158.0 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 $218.4 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

On March 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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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.

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) the $50 million 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.

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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

There were no outstanding borrowings under the Acquisition Credit Agreement as of June 30, 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%.

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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.

As of June 30, 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 June 30, 2022.

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

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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 three months ended March 31, 2022, and 2021 and 2020.

Three Months Ended March 31,

The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2022, and 2021 and 2020.

Six Months Ended June 30,

Net cash provided by (used in):

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Effect of exchange rate changes on cash and cash equivalents (24,978) (3,610)

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

Net decrease in cash and cash equivalents $ (271,183) $ (91,750)

Operating Activities

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.

Net cash provided by operating activities was $57.6 million for the six months ended June 30, 2022, compared to net cash provided by operating activities of $355.4 million for the six months ended June 30, 2021.

The decrease in net cash provided by operating activities was primarily attributable to lower net income, as well as increased in operating assets, net of operating liabilities, related to our trading activities for the six months ended June 30, 2022 compared to the prior period.

Investing Activities

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.

Net cash provided by investing activities was $4.0 million for the six months ended June 30, 2022, compared to net cash used in investing activities of $42.7 million for the six months ended June 30, 2021.

The increase in cash provided by investing activities for the six months ended June 30, 2022 was primarily attributable to sales of strategic investments during the six months ended June 30, 2022 as compared to the prior period, offset by cash used for the acquisition of property and equipment, and capitalized software for both periods.

Financing Activities

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.

Net cash used in financing activities was $307.8 million for the six months ended June 30, 2022, while net cash used in financing activities was $400.8 million for the six months ended June 30, 2021.

The cash used in financing activities for the six months ended June 30, 2022 was primarily attributable to $228.8 million in dividends to stockholders and distributions made to noncontrolling interests and $353.1 million in purchases of treasury stock, partially offset by the net proceeds of $200.2 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 $400.8 million during the same period of 2021 primarily reflects $321.9 million net dividends to stockholders and distributions to noncontrolling interests, and $180.8 million purchase of treasury stock, partially offset by an increase of $151.4 million in short-term borrowings.

Share Repurchase Program

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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 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.

From the inception of the program through June 30, 2022, the Company repurchased approximately 26.8 million shares of Class A Common Stock and Virtu Financial Units for approximately $773.8 million.

As of June 30, 2022, the Company has approximately of $446.2 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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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.

used a shorter estimated useful life of seven years, the Company would have recorded an additional $4.1 million and $8.2 million of amortization expense for the three and six months ended June 30, 2022 and 2021, respectively.

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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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.

The fair value of these financial instruments at June 30, 2022 and December 31, 2021 was $5.2 billion and $4.3 billion, respectively, in long positions and $4.5 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.

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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.

Approximately 20.7% and 20.2% of our total revenues for the six months ended June 30, 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.

dollar relative to our foreign denominated earnings would have resulted in decreases in total revenues of $27.1 million and $31.6 million for the six months ended June 30, 2022 and 2021, respectively.

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

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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.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 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.

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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.

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 June 30, 2022 that has or is reasonably likely to materially affect, our internal control over financial reporting.

LEGAL PROCEEDINGS

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis