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Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-02 · 137 added, 140 removed, 809 unchanged (26% 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 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.

The following management’s discussion and analysis covers the three and nine months ended September 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 September 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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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 June 30, 2022, options to purchase 1,633,750 shares in the aggregate were forfeited and 6,072,474 options were exercised.

Subsequent to the IPO and through September 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.

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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 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.

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2022 in the amount of $16.4 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2022 in the amount of $126.3 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 September 30, 2022;

and (iv) provision for corporate income tax in the amount of $19.4 million and $60.3 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 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 and six months ended June 30, 2022, and 2021:

(in thousands) Three Months Ended June 30, Six Months Ended June 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 and nine months ended September 30, 2022, and 2021:

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

Market Making 2022 2021 2022 2021

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Income before income taxes and noncontrolling interest $ 101,606 $ 145,099 $ 517,103 $ 769,887

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,

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

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

(in thousands) 2022 2021 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 70% and 77% of our total revenues for the six months ended June 30, 2022 and 2021, respectively.

Trading income, net, accounted for 70% and 76% of our total revenues for the nine months ended September 30, 2022 and 2021, respectively.

Interest and dividends income.

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Communication and data processing.

Communication and data processing represent primarily fixed expenses for leased equipment, equipment co-location, network lines and connectivity for our trading centers and co-location facilities.

Communication and data processing represent primarily fixed expenses for data center co-location, network lines and connectivity for our trading centers and co-location facilities.

Communications expense consists primarily of the cost of voice and data telecommunication lines supporting our business, including connectivity to data centers, exchanges, markets and liquidity pools around the world, and data processing expense consists primarily of market data subscription fees that we pay to third parties to receive price quotes and related information.

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Depreciation and amortization.

Depreciation and amortization expense results from the depreciation of fixed assets, such as computing and communications hardware, as well as amortization of leasehold improvements and capitalized in-house software development.

Depreciation and amortization expense results from the depreciation of fixed assets and leased equipment, such as computing and communications hardware, as well as amortization of leasehold improvements and capitalized in-house software development.

We depreciate our computer hardware and related software, office hardware and furniture and fixtures on a straight-line basis over a period of 3 to 7 years based on the estimated useful life of the underlying asset, and we amortize our capitalized software development costs on a straight-line basis over a period of 1.5 to 3 years, which represents the estimated useful lives of the underlying software.

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Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software represents the amortization of finite lived intangible assets acquired in connection with the acquisition of certain assets from Nyenburgh Holding B.V., Teza Technologies, the Acquisition of KCG, and the ITG Acquisition.

These assets are amortized over their useful lives, ranging from 1 to 15 years, except for certain assets which were categorized as having indefinite useful lives.

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Financing interest expense reflects interest accrued on outstanding indebtedness under our long-term borrowing arrangements.

Provision for (benefit from) income taxes

Provision for income taxes

We are subject to U.S.

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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.

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, 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.

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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 six months ended June 30, 2022, and 2021.

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

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

(in thousands) 2022 2021 2022 2021

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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 six months ended June 30, 2022, and 2021:

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

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

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

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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 and six months ended June 30, 2022, and 2021.

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

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

Three Months Ended September 30, 2022

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 238,264 $ 92,878 $ — $ 331,142

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(in thousands) Market Making Execution Services Corporate Total

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

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 873,836 $ 319,720 $ — $ 1,193,556

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 1,055,899 $ 368,404 $ — $ 1,424,303

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,

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, 2022, and 2021:

Three Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

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Adjusted Net Trading Income $ 331,142 $ 354,444 (6.6)%

Three Months Ended June 30,

Three Months Ended September 30,

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

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Average Daily Adjusted Net Trading Income $ 5,174 $ 5,538 (6.6)%

Six Months Ended June 30,

Nine Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

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Adjusted Net Trading Income $ 1,193,556 $ 1,424,303 (16.2)%

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Average Daily Adjusted Net Trading Income $ 6,349 $ 7,576 (16.2)%

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

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

Total Revenues

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,

Our total revenues increased $16.7 million, or 3.1%, to $561.0 million for the three months ended September 30, 2022, compared to $544.3 million for the three months ended September 30, 2021.

The increase was primarily due to an increase of $33.9 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 as well as increased interest rates during the three months ended September 30, 2022 compared to the same period in 2021, partially offset by a decrease of $14.9 million in Commissions, net and technology services.

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

Three Months Ended September 30,

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

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Trading income, net $ 4,887 $ 4,843 0.9%

Interest and dividends income — (24) (100.0)%

Interest and dividends income 185 — NM

Commissions, net and technology services 110,299 127,029 (13.2)%

Other, net 137 (62) NM

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

Other, net 4,228 677 524.5%

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

Total revenues from Execution Services $ 119,599 $ 132,549 (9.8)%

Other, net $ (6,441) $ 2,505 NM

Total revenues from Corporate $ (6,441) $ 2,505 NM

Trading income, net $ 397,383 $ 394,265 0.8%

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Commissions, net and technology services 120,986 135,923 (11.0)%

Other, net 41,678 11,473 263.3%

Other, net (956) 4,452 NM

Total revenues $ 561,044 $ 544,344 3.1%

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

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 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.

Trading income, net remained consistent at $397.4 million for the three months ended September 30, 2022, compared to $394.3 million for the three months ended September 30, 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 $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.

Interest and dividends income increased $33.9 million, or 349.6%, to $43.6 million for the three months ended September 30, 2022, compared to $9.7 million for the three months ended September 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.

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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 $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.

Commissions, net and technology services revenues decreased $14.9 million, or 11.0%, to $121.0 million for the three months ended September 30, 2022, compared to $135.9 million for the three months ended September 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 $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.

Other, net decreased $5.4 million, or 121.5%, to $(1.0) million for the three months ended September 30, 2022, compared to $4.5 million for the three months ended September 30, 2021.

Other, net comprises changes in the valuation on our level 3 investment, as well as other miscellaneous income including gains and losses attributable to our variable interest entities.

Refer to Note 9 "Financial Assets and Liabilities" in Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for more details on our level 3 investment.

Adjusted Net Trading Income

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.

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $23.3 million, or 6.6%, to $331.1 million for the three months ended September 30, 2022, compared to $354.4 million for the three months ended September 30, 2021.

This decrease was primarily attributable to lower Commissions, net and technology services in the Execution Services segment during the three months ended September 30, 2022 compared to the same period in 2021, as noted above, and higher Brokerage, exchange, clearing fees and payments for order flow, net as described below.

Adjusted Net Trading Income per day decreased $0.3 million, or 6.6%, to $5.2 million for the three months ended September 30, 2022, compared to $5.5 million for the three months ended September 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.

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Operating Expenses

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.

Our operating expenses increased $60.2 million, or 15.1%, to $459.4 million for the three months ended September 30, 2022, compared to $399.2 million for the three months ended September 30, 2021.

The increase in operating expenses is primarily due to an increase in Interest and dividends expense and Employee compensation and payroll taxes, 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 $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.

Brokerage exchange, clearance fees and payments for order flow, net, increased $10.0 million, or 6.3%, to $168.9 million for the three months ended September 30, 2022, compared to $158.9 million for the three months ended September 30, 2021.

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

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Communication and data processing.

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.

Communication and data processing expense decreased $2.7 million, or 4.9%, to $52.9 million for the three months ended September 30, 2022, compared to $55.6 million for the three months ended September 30, 2021.

This decrease was primarily due to decreased connectivity spending on colocation, and subscriber connections.

Employee compensation and payroll taxes.

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.

Employee compensation and payroll taxes increased $18.7 million, or 22.1%, to $103.3 million for the three months ended September 30, 2022, compared to $84.6 million for the three months ended September 30, 2021.

The increase in compensation levels was primarily attributable to an increase in incentive compensation accruals, 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 $8.4 million and $8.7 million for the three months ended September 30, 2022, and 2021, respectively.

Interest and dividends expense.

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.

Interest and dividends expense increased $35.4 million or 133.2% to $62.0 million for the three months ended September 30, 2022, compared to $26.6 million for the three months ended September 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.

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Operations and administrative.

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.

Operations and administrative expense decreased $3.9 million or 21.4% to $14.3 million for the three months ended September 30, 2022, compared to $18.2 million for the three months ended September 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.

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

Depreciation and amortization.

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

Depreciation and amortization remained consistent at $16.7 million for the three months ended September 30, 2022, compared to $16.6 million or the three months ended September 30, 2021.

Amortization of purchased intangibles and acquired capitalized software.

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.

Amortization of purchased intangibles and acquired capitalized software decreased $0.9 million, or 5.2%, to $16.1 million for the three months ended September 30, 2022, compared to $16.9 million for the three months ended September 30, 2021.

This decrease was due to certain intangible assets being fully amortized during 2021 and 2022.

Termination of office leases.

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.

Termination of office leases remained consistent at $0.4 million for the three months ended September 30, 2022, compared to $0.2 million for the three months ended September 30, 2021.

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.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees remained consistent at $1.4 million for the three months ended September 30, 2022, compared to $1.2 million for the three months ended September 30, 2021.

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.

Transaction advisory fees and expenses remained consistent at $0.1 million for the three months ended September 30, 2022, compared to $0.2 million three months ended September 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.

Financing interest expense on long-term borrowings increased $3.3 million or 16.4% to $23.5 million for the three months ended September 30, 2022, compared to $20.2 million for the three months ended September 30, 2021.The increase was 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, and the effect of higher interest rates .

Provision for income taxes

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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

Our provision for income taxes and effective tax rates were $21.7 million and 21.4% for the three months ended September 30, 2022, compared to $22.0 million and 15.1% for the three months ended September 30, 2021.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 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,

Our total revenues decreased $238.8 million, or 11.3%, to $1,867.0 million for the nine months ended September 30, 2022, compared to $2,105.9 million for the nine months ended September 30, 2021.

This decrease was primarily attributable to a decrease of $276.2 million in Trading income, net, during the nine months ended September 30, 2022 compared to the prior period.

This decrease was offset, in part, by an increase of $26.9 million in Other, net, which was driven by gains recorded on sales of various strategic investments, as well as an increase of $69.2 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 nine months ended September 30, 2022 compared to the same period in 2021.

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

Nine Months Ended September 30,

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

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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.

Trading income, net, decreased $276.2 million, or 17.4%, to $1,315.6 million for the nine months ended September 30, 2022, compared to $1,591.8 million for the nine months ended September 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.

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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.

Interest and dividends income increased $69.2 million, or 263.6%, to $95.4 million for the nine months ended September 30, 2022, compared to $26.2 million for the nine months ended September 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.

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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 $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.

Commissions, net and technology services revenues decreased $58.7 million, or 12.5%, to $412.0 million for the nine months ended September 30, 2022, compared to $470.7 million for the nine months ended September 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 $26.9 million, or 157.2%, to $44.0 million for the nine months ended September 30, 2022, compared to $17.1 million for the nine months ended September 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.

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $230.7 million, or 16.2%, to $1,193.6 million for the nine months ended September 30, 2022, compared to $1,424.3 million for the nine months ended September 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.

Adjusted Net Trading Income per day decreased $1.3 million, or 16.2%, to $6.3 million for the nine months ended September 30, 2022, compared to $7.6 million for the nine months ended September 30, 2021.

The number of trading days was 188 days for both the nine months ended September 30, 2022 and September 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.

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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.

Our operating expenses increased $13.9 million, or 1.0%, to $1,349.9 million for the nine months ended September 30, 2022, compared to $1,336.0 million for the nine months ended September 30, 2021.

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

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.

Brokerage, exchange, clearance fees and payments for order flow, net, decreased $112.7 million, or 19.1%, to $476.2 million for the nine months ended September 30, 2022, compared to $588.9 million for the nine months ended September 30, 2021.

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

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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.

Communication and data processing expense increased $4.6 million, or 2.9%, to $164.4 million for the nine months ended September 30, 2022, compared to $159.8 million for the nine months ended September 30, 2021.

This increase was primarily attributable to increased connectivity spending on 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.

Employee compensation and payroll taxes increased $32.2 million, or 11.8%, to $305.3 million for the nine months ended September 30, 2022, compared to $273.2 million for the nine months ended September 30, 2021.

The increase in compensation levels was primarily attributable to an increase in salaries, incentive compensation accruals, and 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 $25.1 million and $26.7 million for the nine months ended September 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.

Interest and dividends expense increased $77.7 million, or 102.7%, to $153.2 million for the nine months ended September 30, 2022, compared to $75.6 million for the nine months ended September 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.

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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.

Operations and administrative expense decreased $12.5 million, or 19.1%, to $53.1 million for the nine months ended September 30, 2022, compared to $65.6 million for the nine months ended September 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.

dollar on foreign exchange translation gains during the nine months ended September 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.

Depreciation and amortization increased $0.7 million, or 1.4%, to $50.5 million for the nine months ended September 30, 2022, compared to $49.8 million for the nine months ended September 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.

Amortization of purchased intangibles and acquired capitalized software decreased $4.3 million, or 8.0%, to $48.8 million for the nine months ended September 30, 2022,

compared to $53.1 million for the nine months ended September 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.

Termination of office leases was $1.7 million for the nine months ended September 30, 2022, compared to $5.1 million for the nine months ended September 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 $23.4 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.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees increased $23.5 million, or 472.7%, to $28.5 million for the nine months ended September 30, 2022, compared to $5.0 million for the nine months ended September 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.

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Transaction advisory fees and expenses.

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.

Transaction advisory fees and expenses were $1.1 million for the nine months ended September 30, 2022, compared to immaterial amounts for the nine months ended September 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 $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.

Financing interest expense on long-term borrowings increased $7.1 million, or 11.9%, to $66.9 million for the nine months ended September 30, 2022, compared to $59.8 million for the nine months ended September 30, 2021.

This increase was 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, and the effect of higher interest rates.

Provision for income taxes

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subsidiaries.

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.

Our provision for income taxes and effective tax rates were $88.4 million, and 17.1% for the nine months ended September 30, 2022, compared to a provision for income taxes of $128.6 million, and 16.7% for the nine months ended September 30, 2021.

Liquidity and Capital Resources

As of June 30, 2022, we had $810.6 million in Cash and cash equivalents.

As of September 30, 2022, we had $836.3 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 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.

As of September 30, 2022, we had borrowings under our prime brokerage credit facilities of approximately $157.6 million, borrowings under our broker dealer facilities of $168.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,824.2 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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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 the next twelve months.

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

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.

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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 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.

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.

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.

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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 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.

As of September 30, 2022, the outstanding principal balance on our broker-dealer facilities was $168.0 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 $157.6 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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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 June 30, 2022

There were no outstanding borrowings under the Acquisition Credit Agreement as of September 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 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.

As of September 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 September 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 six months ended June 30, 2022, and 2021 and 2020.

Six Months Ended June 30,

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

Nine Months Ended September 30,

Net cash provided by (used in):

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Operating Activities

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.

Net cash provided by operating activities was $290.5 million for the nine months ended September 30, 2022, compared to net cash provided by operating activities of $374.5 million for the nine months ended September 30, 2021.

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

Investing Activities

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.

Net cash used in investing activities was $11.0 million for the nine months ended September 30, 2022, compared to net cash used in investing activities of $65.4 million for the nine months ended September 30, 2021.

The decrease in cash used in investing activities for the nine months ended September 30, 2022 was primarily attributable to sales of strategic investments during the nine months ended September 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 $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.

Net cash used in financing activities was $466.5 million for the nine months ended September 30, 2022, compared to $550.3 million for the nine months ended September 30, 2021.

The cash used in financing activities for the nine months ended September 30, 2022 was primarily attributable to $316.1 million in dividends to stockholders and distributions made to noncontrolling interests and $434.5 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 $550.3 million during the same period of 2021 primarily reflects $430.6 million net dividends to stockholders and distributions to noncontrolling interests, and $320.2 million purchase of treasury stock, partially offset by an increase of $249.6 million in short-term borrowings.

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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 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.

From the inception of the program through September 30, 2022, the Company repurchased approximately 30.3 million shares of Class A Common Stock and Virtu Financial Units for approximately $854.4 million.

As of September 30, 2022, the Company has approximately of $365.6 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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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.

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

Instruments 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.

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Analytics services can be delivered either over time (when customers are provided with distinct ongoing access to analytics data) or at a point in time (when reports are only delivered to the customer on a periodic basis).

Over time performance obligations are recognized using a time-based measure of progress on a monthly basis, since the analytics products and services are continually provided to the client.

Over time performance obligations are recognized using a time-based

measure of progress on a monthly basis, since the analytics products and services are continually provided to the client.

Point in time performance obligations are recognized when the analytics reports are delivered to the client.

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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.

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.

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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 and $8.2 million of amortization expense for the three and six months ended June 30, 2022 and 2021, respectively.

Had we used a shorter estimated useful life of seven years, the Company would have recorded an additional $4.1 million and $12.3 million of amortization expense for the three and nine months ended September 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 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.

The fair value of these financial instruments at September 30, 2022 and December 31, 2021 was $4.8 billion and $4.3 billion, respectively, in long positions and $4.2 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 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.

Approximately 19.4% and 20.3% of our total revenues for the nine months ended September 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 $27.1 million and $31.6 million for the six months ended June 30, 2022 and 2021, respectively.

dollar relative to our foreign denominated earnings would have resulted in decreases in total revenues of $36.3 million and $42.7 million for the nine months ended September 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 June 30, 2022.

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.

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