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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-18 · 144 added, 166 removed, 583 unchanged (35% 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 years ended December 31, 2021, 2020 and 2019 and should be read in conjunction with the audited consolidated financial statements of Virtu Financial, Inc.

(the “Company”).

The following management’s discussion and analysis covers the years ended December 31, 2022, and 2021 should be read in conjunction with the audited Consolidated Financial Statements and accompanying notes for the year ended December 31, 2022, which are included in Item 8, of the this Annual Report on Form 10-K.

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

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Unless otherwise stated, all amounts are presented in thousands of dollars.

For discussion around our results of operations for the year ended December 31, 2020 and for a comparison of our results of operations for the year ended December 31, 2021 and year ended December 31, 2020, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal year ended December 31, 2021, filed with the SEC on February 18, 2022.

Forward-Looking Statements

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

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

• recent SEC proposals focused on equity markets may, if adopted, materially change U.S.

equity market structure, including by reducing overall trading volumes, reducing off-exchange trading and market making opportunities, requiring additional tools, platforms and services to register as an ATS or exchange, and generally increasing the implicit and explicit cost as well as the complexity of the U.S.

equities eco-system for all participants, all of which have an adverse effect on our business;

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

• increased competition in market making activities and execution services;

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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;

• capacity constraints, system failures, and delays;

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

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

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

• risks associated with potential growth and associated corporate actions;

• risks associated with new and emerging asset classes and eco-systems in which we may participate, including digital assets, including risks related to volatility in the underlying assets, regulatory uncertainty, evolving industry practices and standards around custody, clearing and settlement, and other risks inherent in a new and evolving asset class;

• inability to access, or delay in accessing, the capital markets to sell shares or raise additional capital;

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Our Consolidated Financial Statements for the years ended December 31, 2022 and 2021 reflect our operations and those of our consolidated subsidiaries.

As discussed in Note 1 "Organization and Basis of Presentation" and in Note 3 "ITG Acquisition" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, we have accounted for the ITG Acquisition under the acquisition method of accounting.

Under the acquisition method of accounting, the assets and liabilities of ITG, as of March 1, 2019 (the "ITG Closing Date"), were recorded at their respective fair values and added to the carrying value of our existing assets and liabilities.

Our reported financial condition, results of operations and cash flows for the periods following the ITG Closing Date reflect ITG's and our balances, and reflect the impact of purchase accounting adjustments, including revised amortization and depreciation expense for acquired assets.

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

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

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

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

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

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As a market maker, we interact directly with hundreds of retail brokers, Registered Investment Advisors, private client networks, sell-side brokers, and buy-side institutions.

We believe the overall level of volumes and realized volatility in the various markets we serve have the greatest impact on our market making businesses.

Increases in market volatility can cause bid/ask spreads to widen as market participants are more willing to pay market makers like us to transact immediately and as a result, market makers' capture rate per notional amount transacted increases.

We believe the overall level of volumes and realized volatility as well as the attractiveness of the order flow we interact with and the level of retail participation in the various markets we serve have the greatest impact on the financial performance of our market making businesses.

Execution Services

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Acquisition of ITG

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

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

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

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

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

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

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

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

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

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

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

The proceeds of the Credit Agreement were used to pay off the Acquisition Credit Agreement.

A further description of the Credit Agreement is set forth below in Note 26 “Subsequent Events” of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

In connection with the ITG Acquisition, Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial ("VFH"), and Impala Borrower LLC (the "Acquisition Borrower"), a subsidiary of the Company, entered into a credit agreement, with the lenders party thereto, Jefferies Finance LLC, as administrative agent and Jefferies Finance LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners (the "Acquisition Credit Agreement").

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

the "Acquisition First Lien Term Loan Facility") in an aggregate principal amount of $1,500.0 million, drawn in its entirety on the ITG Closing Date, of which approximately $404.5 million was borrowed by VFH to repay all amounts outstanding under a previous term loan facility and the remaining approximately $1,095.0 million borrowed by the Acquisition Borrower to finance the consideration and fees and expenses paid in connection with the ITG Acquisition, and (ii) a $50.0 million senior secured first lien revolving facility to VFH (the "Acquisition First Lien Revolving Facility"), with a $5.0 million letter of credit subfacility and a $5.0 million swingline subfacility.

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

On October 9, 2019, VFH entered into an amendment (“Amendment No.

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

On March 2, 2020, VFH entered into a second amendment (“Amendment No.

2”), which further amended the Acquisition Credit Agreement to, among other things, reduce the interest rate spread over adjusted LIBOR or the alternate base rate by 0.50% per annum and eliminated any step-down in the spread based on VFH's first lien leverage ratio.

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

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

Amended and Restated 2015 Management Incentive Plan

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The Amended and Restated 2015 Management Incentive Plan provides for the grant of stock options, restricted stock units, and other awards based on an aggregate of 16,000,000 shares of Class A Common Stock, par value $0.00001 per share (the “Class A Common Stock”), subject to additional sublimits, including limits on the total option grant to any one participant in a single year and the total performance award to any one participant in a single year.

On 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.

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.

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 to an aggregate of 21,000,000 shares of Class A Common Stock.

On April 22, 2022, the Company’s Board of Directors adopted another amendment to the Company’s Amended and Restated 2015 Management Incentive Plan to increase the number of shares 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 vested in equal annual installments over a period of four years from the grant date and expire not later than 10 years from the grant date.

Subsequent to the IPO and through December 31, 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.

Amended and Restated Investment Technology Group, Inc.

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The Assumed Awards are subject to the same terms and conditions that were applicable to them under the Amended and Restated ITG 2007 Equity Plan, except that (i) the Assumed Awards relate to shares of the Company’s Class A Common Stock, (ii) the number of shares of Class A Common Stock subject to the Assumed Awards was the result of an adjustment based upon an Exchange Ratio (as defined in the Agreement and Plan of Merger by and between the Company, Impala Merger Sub, Inc., a Delaware corporation and an indirect wholly owned subsidiary of the Company, and ITG, dated as of November 6, 2018, the “ITG Merger Agreement”) and (iii) the performance share unit awards were converted into service-based vesting restricted stock unit awards that were no longer subject to any performance based vesting conditions.

As of the ITG Closing Date, the aggregate number of shares of Class A Common Stock subject to such Assumed Awards was 2,497,028 and the aggregate number of shares of Class A Common Stock that remained issuable pursuant to the Amended and Restated ITG 2007 Equity Plan was 1,230,406.

The Company filed a Registration Statement on Form S-8 on the ITG Closing Date to register such shares of Class A Common Stock.

Components of Our Results of Operations

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Total operating expenses 472,899 530,196 475,526

Income (loss) before income taxes and noncontrolling interest 70,019 174,617 (126,931)

Income before income taxes and noncontrolling interest 41,342 70,019 174,617

Total revenue 37,732 8,224 (4,154)

Total operating expenses 2,835 7,307 28,939

Income (loss) before income taxes and noncontrolling interest 917 (33,093) (98,241)

Income before income taxes and noncontrolling interest 34,897 917 (33,093)

Total revenue 2,364,812 2,811,485 3,239,331

Total operating expenses 1,808,014 1,814,581 1,856,494

Income (loss) before income taxes and noncontrolling interest $ 996,904 $ 1,382,837 $ (115,982)

Income before income taxes and noncontrolling interest $ 556,798 $ 996,904 $ 1,382,837

The following table shows our results of operations for the years ended December 31, 2022, 2021, and 2020:

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Total operating expenses 1,808,014 1,814,581 1,856,494

Income (loss) before income taxes and noncontrolling interest 996,904 1,382,837 (115,982)

Provision for (benefit from) income taxes 169,670 261,924 (12,277)

Net income (loss) $ 827,234 $ 1,120,913 $ (103,705)

Income before income taxes and noncontrolling interest 556,798 996,904 1,382,837

Provision for income taxes 88,466 169,670 261,924

Net income $ 468,332 $ 827,234 $ 1,120,913

Total Revenues

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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 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.

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

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

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

Operating Expenses

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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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Employee compensation and payroll taxes include employee salaries, cash and non-cash incentive compensation, employee benefits, payroll taxes, severance and other employee related costs.

Employee compensation and payroll taxes also includes non-cash compensation expenses with respect to restricted stock units and restricted stock awards granted in connection with and subsequent to the IPO pursuant to the Amended and Restated 2015 Management Incentive Plan and Class A Common Stock underlying certain awards assumed pursuant to the Amended and Restated ITG 2007 Equity Plan.

Employee compensation and payroll taxes also includes non-cash compensation expenses with respect to restricted stock units and restricted stock awards pursuant to the Amended and Restated 2015 Management Incentive Plan and Class A Common Stock underlying certain awards assumed pursuant to the Amended and Restated ITG 2007 Equity Plan.

Interest and dividends expense.

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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.

Amortization of purchased intangibles and acquired capitalized software represents the amortization of finite lived intangible assets acquired in connection with 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.

Termination of office leases.

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

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

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

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

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

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

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

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

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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.

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

operations are also subject to foreign income tax at the applicable corporate rates.

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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For example, the impact of discrete items and non-deductible expenses on our effective tax rate is greater when our pre-tax income is lower.

Our effective tax rate may also be impacted by changes in the portion of income that is attributable to the noncontrolling interest.

We regularly assess whether it is more likely than not that we will realize our deferred tax assets in each taxing jurisdiction in which we operate.

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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.

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

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

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

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

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Reconciliation of Net Income to EBITDA and Adjusted EBITDA

Net income (loss) $ 827,234 $ 1,120,913 $ (103,705)

Net income $ 468,332 $ 827,234 $ 1,120,913

Financing interest expense on long-term borrowings 92,035 79,969 87,735

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Amortization of purchased intangibles and acquired capitalized software 64,837 69,668 74,254

Provision for (benefit from) income taxes 169,670 261,924 (12,277)

Provision for income taxes 88,466 169,670 261,924

EBITDA $ 809,957 $ 1,220,947 $ 1,640,446

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Reconciliation of Net Income to Normalized Adjusted Net Income

Net income (loss) $ 827,234 $ 1,120,913 $ (103,705)

Provision for (benefit from) income taxes 169,670 261,924 (12,277)

Income (loss) before income taxes 996,904 1,382,837 (115,982)

Net income $ 468,332 $ 827,234 $ 1,120,913

Provision for income taxes 88,466 169,670 261,924

Income before income taxes 556,798 996,904 1,382,837

Amortization of purchased intangibles and acquired capitalized software 64,837 69,668 74,254

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(1) Reflects U.S.

federal, state, and local income tax rate applicable to corporations of approximately 24% for 2021, 2020, and 2019.

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

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

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Market Making:

Market Making $ 1,058,474 $ 4,217 72.1 % $ 1,427,552 $ 5,665 74.7 % $ 1,782,411 $ 7,045 78.5 %

Execution Services 409,161 1,630 27.9 % 482,377 1,914 25.3 % 488,974 1,933 21.5 %

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Our total revenues decreased $446.7 million, or 15.9%, to $2,364.8 million for the year ended December 31, 2022, compared to $2,811.5 million for the year ended December 31, 2021.

This decrease was primarily attributable to a decrease of $388.1 million in Trading income, net, which was primarily driven by lower market volatility during the year ended December 31, 2021 compared to the prior period.

Additionally, Other, net declined $67.0 million primarily attributable to the sale of MATCHNow on August 4, 2020.

This decrease was primarily attributable to a decrease of

$476.3 million in Trading income, net, during the year ended December 31, 2022 compared to the prior period.

This decrease was offset, in part, by an increase of $30.5 million in Other, net, which was driven by gains recorded on sales of various strategic investments in 2022, as well as an increase of $83.7 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 year ended December 31, 2022 compared to the same period in 2021.

The following table shows the total revenues by segment for the years ended December 31, 2022 and 2021.

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Total revenues from Execution Services $ 514,241 $ 600,215 (14.3)%

Other, net $ 8,224 $ (4,154) NM

Total revenues from Corporate $ 8,224 $ (4,154) NM

Other, net $ 37,732 $ 8,224 358.8%

Total revenues from Corporate $ 37,732 $ 8,224 358.8%

Trading income, net $ 1,628,898 $ 2,105,194 (22.6)%

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Trading income, net, decreased $476.3 million, or 22.6%, to $1,628.9 million for the year ended December 31, 2022, compared to $2,105.2 million for the year ended December 31, 2021.

The decrease was primarily driven by lower market volatility during the year ended December 31, 2021 compared to 2020, which experienced elevated levels of market volatility and trading volumes largely due to the impacts of COVID-19 and the governmental and other responses thereto.

Average daily realized volatility of the S&P 500 Index decreased 57.27.2% compared to the prior period, and the average daily realized volatility of the CVIX decreased 611.22 compared to prior period.

The decrease was largely a result of the decreased opportunity in our customer market making trading as a result of lower spread opportunity and decreased quality of the order flow with which we interact.

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 are described below.

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Interest and dividends income increased $83.7 million, or 111.1%, to $159.1 million for the year ended December 31, 2022, compared to $75.4 million for the year ended December 31, 2021.

This increase was primarily attributable to higher interest income earned on cash collateral posted as part of securities borrowed transactions driven by higher interest rates for the period compared to the prior period.

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.

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

Commissions, net and technology services revenues increased $14.0 million, or 2.3%, to $614.5 million for the year ended December 31, 2021, compared to $600.5 million for the year ended December 31, 2020.

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

Average daily U.S.

equities consolidated volumes increased 4.4% compared to prior period.

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

Other, net decreased $67.0 million, or 80.3%, to $16.4 million for the year ended December 31, 2021, compared to $83.5 million for the year ended December 31, 2020.

The decrease was primarily due to a $56.2 million gain recorded on the sale of MATCHNow in the third quarter 2020 (see Note 4 "Sale of MATCHNow" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for details on the MATCHNow sale).

Commissions, net and technology services revenues decreased $84.6 million, or 13.8%, to $529.8 million for the year ended December 31, 2022, compared to $614.5 million for the year ended December 31, 2021.

This decrease was driven by the reduction of institutional investors commissions available, and declining institutional engagement,

both of which result in lower commission income.

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

Other, net increased $30.5 million, or 186.0%, to $46.9 million for the year ended December 31, 2022, compared to $16.4 million for the year ended December 31, 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 decreased $361.5 million, or 15.9%, to $1,909.9 million for the year ended December 31, 2021, compared to $2,271.4 million for the year ended December 31, 2020.

This decrease was primarily attributable to lower Trading Income, net (described above), driven by lower market volatility during the year ended December 31, 2021 compared to the prior period, partially offset by lower Brokerage, exchange, clearance fees and payments for order flow, net (described below) incurred by Market Making.

Average daily realized volatility of the S&P 500 Index and average daily CVIX realized volatility decreased 57.272% and 61.212%, respectively, compared to the prior period, while average daily U.S.

equity consolidated volumes increased 4.44.4%.

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $442.3 million, or 23.2%, to $1,467.6 million for the year ended December 31, 2022, compared to $1,909.9 million for the year ended December 31, 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 $1.8 million, or 23.7%, to $5.8 million for the year ended December 31, 2022, compared to $7.6 million for the year ended December 31, 2021.

The number of trading days was 252 days for the year ended December 31, 2021 and 253 days for the year ended December 31, 2020.

Adjusted Net Trading Income is a non-GAAP measure.

The number of trading days was 251 days for both the year ended December 31, 2022 and December 31, 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 7.

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Our operating expenses decreased $6.6 million, or 0.4%, to $1,808.0 million for the year ended December 31, 2022, compared to $1,814.6 million for the year ended December 31, 2021.

The decrease in operating expenses was primarily due to lower Employee compensation and payroll taxes, Brokerage, exchange, clearance fees and payments for order flow, net, and Debt issue cost related to debt refinancing, prepayment, and commitment fees, offset by increases in Interest and dividends expense and Termination of office leases as compared to the prior year, described in more detail below.

The decrease was primarily driven by lower Brokerage, exchange, clearance fees and payments for order flow, net, and lower Termination of office leases, partially offset by an increase in Interest and dividends expense, Employee compensation and payroll taxes, and Financing interest expense on long term borrowings.

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

Brokerage, exchange, clearance fees and payments for order flow, net, decreased $126.3 million, or 16.9%, to $619.2 million for the year ended December 31, 2022, compared to $745.4 million for the year ended December 31, 2021.

This decrease was primarily attributable to decreases in market volatility in U.S.

equities markets offset by increases in volumes from our broker-dealer clients eligible for payments for order flow, driven by higher participation of retail investors in the market during the current year compared to the prior year.

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 decreased $1.8 million, or 0.8%, to $212.0 million for the year ended December 31, 2021, compared to $213.8 million for the year ended December 31, 2020.

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

Communication and data processing expense increased $7.5 million, or 3.5%, to $219.5 million for the year ended December 31, 2022, compared to $212.0 million for the year ended December 31, 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 decreased $17.3 million, or 4.4%, to $376.3 million for the year ended December 31, 2021, compared to $393.5 million for the year ended December 31, 2020.

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

Employee compensation and payroll taxes increased $14.7 million, or 3.9%, to $390.9 million for the year ended December 31, 2022, compared to $376.3 million for the year ended December 31, 2021.

The increase in compensation levels was primarily attributable to an increase in salaries, and share-based compensation related to prior year incentive awards.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $35.5 million and $35.8 million for the years ended December 31, 2022 and 2021, respectively.

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Interest and dividends expense increased $91.4 million, or 65.4%, to $231.1 million for the year ended December 31, 2022, compared to $139.7 million for the year ended December 31, 2021.

This increase was primarily attributable to 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.

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.

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Operations and administrative expense decreased $2.1 million, or 2.4%, to $86.1 million for the year ended December 31, 2022, compared to $88.1 million for the year ended December 31, 2021.

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

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

dollar on foreign exchange translation gains during the year ended December 31, 2022, offset in part by higher professional fees and regulatory costs, and increases in travel and entertainment expenses as COVID-19 restrictions eased.

Depreciation and amortization.

Depreciation and amortization increased $1.1 million, or 1.6%, to $67.8 million for the year ended December 31, 2021, compared to $66.7 million for the year ended December 31, 2020.

This increase was primarily attributable to an increase in capital expenditures on telecommunication, networking, and other assets.

Depreciation and amortization decreased $1.4 million, or 2.1%, to $66.4 million for the year ended December 31, 2022, compared to $67.8 million for the year ended December 31, 2021.

This decrease was primarily attributable to a decrease 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 $4.8 million, or 6.9%, to $64.8 million for the year ended December 31, 2022, compared to $69.7 million for the year ended December 31, 2021.

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

This decrease was primarily attributable to certain intangible assets being fully amortized in 2021 and early 2022.

Termination of office leases.

Termination of office leases was $7.0 million for the year ended December 31, 2022, compared to $28.1 million for the year ended December 31, 2021.

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

The 2021 expense included the impairment of the lease and leasehold improvements of our former headquarters at One Liberty Plaza.

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

Expense from debt issue costs related to debt refinancing, prepayment and commitment fees decreased $22.3 million, or 77.2%, to $6.6 million for the year ended December 31, 2021, compared to $28.9 million for the year ended December 31, 2020.

The amount for the year ended December 31, 2020 was primarily driven by the amortization of debt issue costs related to the addition of the Founder Member Loan Facility in March 2020, which expired as of September 20, 2020, costs incurred related to Amendment No.

2 to the Credit Agreement (as defined below), and the acceleration of amortization as a result of the prepayment of $288.5 million of long term borrowings made during the year ended December 31, 2020.

These expenses are related to the impairment of lease right-of-use assets, leasehold improvements and fixed assets for certain abandoned or vacated 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 $23.3 million, or 353.9%, to $29.9 million for the year ended December 31, 2022, compared to $6.6 million for the year ended December 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.

See Note 9 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for additional details.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses decreased $2.1 million, or 71.3%, to $0.8 million for the year ended December 31, 2021, compared to $2.9 million for the year ended December 31, 2020.

The expense incurred in 2020 was primarily related to the sale of MatchNOW.

See Note 4 "Sale of MATCHNow" of this Annual Report on Form 10-K for additional details.

Transaction advisory fees and expenses were $1.1 million for the year ended December 31, 2022, compared to $0.8 million for the year ended December 31, 2021.

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

Financing interest expense on long term borrowings.

Financing interest expense on long-term borrowings decreased $7.8 million, or 8.9%, to $80.0 million for the year ended December 31, 2021, compared to $87.7 million for the year ended December 31, 2020.

This decrease was primarily attributable to a decrease in outstanding principal as a result of prepayments made during the year ended December 31, 2020, as discussed in Note 10 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K, in addition to lower interest rates.

Provision for (benefit from) income taxes

Financing interest expense on long-term borrowings increased $12.1 million, or 15.1%, to $92.0 million for the year ended December 31, 2022, compared to $80.0 million for the year ended December 31, 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

We incur corporate tax at the U.S.

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subsidiaries.

Our provision for income taxes and effective tax rates were $169.7 million, 17.0% for the year ended December 31, 2021, compared to a provision for income taxes of $261.9 million, 18.9% for the year ended December 31, 2020.

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

For discussion around our results of operations for the year ended December 31, 2019 and for a comparison of our results of operations for the year ended December 31, 2020 and year ended December 31, 2019, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for fiscal year ended December 31, 2020, filed with the SEC on February 25, 2021.

Our provision for income taxes and effective tax rate was $88.5 million and 15.9% for the year ended December 31, 2022, compared to a provision for income taxes and effective tax rate of $169.7 million and 17.0% for the year ended December 31, 2021.

Liquidity and Capital Resources

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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 December 31, 2021, we had borrowings under our prime brokerage credit facilities of approximately $177.1 million, borrowings under our broker dealer facilities of $58.0 million, short-term bank overdrafts of $5.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,630.5 million.

As of December 31, 2022, we had borrowings under our prime brokerage credit facilities of approximately $212.9 million, no borrowings under our broker dealer facilities, short-term bank overdrafts of $3.9 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,826.7 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 10 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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 9 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

Short-term Liquidity and Capital Resources

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

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

Our long-term debt was rated Ba3, and BB- by Moody's Investors Service and Fitch Ratings, respectively, with both firms giving an outlook of Stable.

Based on our current level of operations, we believe our cash flow from operations, and ability to raise funding, will be sufficient to fund capital demands.

Tax Receivable Agreements

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

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 6 "Tax Receivable Agreements" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K are expected to range from approximately $0.4 million to $22.0 million per year over the next 15 years.

We expect that future payments to certain direct or indirect equity holders of Virtu Financial described in Note 5 "Tax Receivable Agreements" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K are expected to range from approximately $36.4 thousand to $22.0 million per year over the next 15 years.

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

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

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

We made our first payment of $7.0 million in February 2017, 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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However, if the payments under the tax receivable agreements are accelerated, we may be required to raise additional debt or equity to fund such payments.

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

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

Regulatory Capital Requirements

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If a firm fails to maintain the required regulatory capital, it may be subject to suspension or revocation of registration by the applicable regulatory agency, and suspension or expulsion by these regulators could ultimately lead to the firm’s liquidation.

Additionally, certain applicable rules impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and requiring prior notice to and/or approval from the SEC and FINRA for certain capital withdrawals.

Additionally, certain applicable rules impose requirements that may have the effect of prohibiting a broker-dealer from distributing or withdrawing capital and

requiring prior notice to and/or approval from the SEC and FINRA for certain capital withdrawals.

VAL is also subject to rules set forth by NYSE and is required to maintain a certain level of capital in connection with the operation of its designated market maker business.

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 Canadian subsidiaries, Virtu Canada Corp (f/k/a 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.

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Virtu ITG UK Limited is regulated by the Financial Conduct Authority in the United Kingdom and is subject to similar prudential capital requirements.

Virtu ITG Australia Limited, Virtu ITG Hong Kong Limited, and Virtu ITG Singapore Pte Limited are also subject to local regulatory capital requirements and are regulated by the Australian Securities and Investments Commission, the Securities and Futures Commission of Hong Kong, and the Monetary Authority of Singapore, respectively.

Virtu ITG Australia Limited, and Virtu ITG Hong Kong Limited are also subject to local regulatory capital requirements and are regulated by the Australian Securities and Investments Commission, the Securities and Futures Commission of Hong Kong, respectively.

Similarly, Virtu ITG Singapore Pte.

Limited and Virtu Financial Singapore Pte.

have similar regulatory requirements and are regulated by the Monetary Authority of Singapore.

See Note 21 "Regulatory Requirement" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for a discussion of regulatory capital requirements of our regulated subsidiaries.

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See Note 9 "Borrowings" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for details on our various credit facilities.

As of December 31, 2021, the outstanding principal balance on our broker-dealer facilities was $58.0 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 $177.1 million, which was netted within Receivables from broker-dealers and clearing organizations on the Consolidated Statements of Financial Condition of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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

The Demand Loan bore interest at a rate of 10% per annum, increased by 2.0% with respect to any principal amounts not paid when due and payable.

The Demand Loan was repaid in full as of April 17, 2020.

As of December 31, 2022, there was no outstanding principal balance on our broker-dealer facilities 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 $212.9 million, which was netted within Receivables from broker-dealers and clearing organizations on the Consolidated Statements of Financial Condition of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

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.

The Founder Member Loans were available to be borrowed in one or more borrowings on or after March 20, 2020 and prior to September 20, 2020, though no borrowings were made during such period, which is now expired.

The Founder Member Loans were available to be borrowed in one or more borrowings on or after March 20, 2020 and prior to September 20, 2020, though no borrowings were made.

The Founder Member is an affiliate of Mr.

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

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

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

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

Pursuant to the Warrant, the Founder Member was entitled to purchase up to 3,000,000 shares of Class A Common Stock on or after May 22, 2020 and up to and including January 15, 2022 at a price of $22.98.

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

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Credit Agreement

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

The Acquisition Credit Agreement provided (i) the First Lien Term Loan Facility (as defined below) in an aggregate principal amount of $1,500 million, drawn in its entirety on the ITG Closing Date, of which approximately $404.5 million was borrowed by VFH to repay all amounts outstanding under a previous term loan facility and the remaining approximately $1,095 million was borrowed by the Acquisition Borrower to finance the consideration and fees and expenses paid in connection with the ITG Acquisition, and (ii) a $50.0 million senior secured first lien revolving facility to VFH (the “First Lien Revolving Facility”), with a $5.0 million letter of credit sub-facility and a $5.0 million swing-line sub-facility.

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

On October 9, 2019, VFH entered into an amendment (“Amendment No.

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

On March 2, 2020, VFH entered into a second amendment (“Amendment No.

2”), which further amended the Credit Agreement (as amended by Amendment No.

1 and Amendment No.

2, the “Amended Credit Agreement”) to, among other things, reduce the interest rate spread over adjusted LIBOR or the alternate base rate by 0.50% per annum and eliminated any step-down in the spread based on VFH's first lien leverage ratio.

The term loan borrowings and revolver borrowings under the Amended Credit Agreement bear interest at a per annum rate equal to, at the Company's election, either (i) the greatest of (a)

the prime rate in effect, (b) the greater of (1) the federal funds effective rate and (2) the overnight bank funding rate, in each case plus 0.50%, (c) an adjusted LIBOR rate for a Eurodollar borrowing with an interest period of one month plus 1.00% and (d) 1.00%, plus, in each case, 2.00%, or (ii) the greater of (x) an adjusted LIBOR rate for the interest period in effect and (y) 0%, plus, in each case, 3.00%.

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

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

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

The revolving commitments will terminate on March 1, 2022.

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

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

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

The term loan borrowings and revolver borrowings under the Credit Agreement bear interest at a per annum rate equal to, at the Company’s election, either (i) the greatest of (a) the prime rate in effect, (b) the greater of (1) the federal funds effective rate and (2) the overnight bank funding rate, in each case plus 0.50%, (c) an adjusted term SOFR rate with an interest period of one month plus 1.00% and (d)(1) in the case of term loan borrowings, 1.50% and (2) in the case of revolver borrowings, 1.00%, plus, (x) in the case of term loan borrowings, 2.00% and (y) in the case of revolver borrowings, 1.50% or (ii) the greater of (a) an adjusted term SOFR rate for the interest period in effect and (b) (1) in the case of term loan borrowings, 0.50% and (2) in the case of revolver borrowings, 0.00%, plus, (x) in the case of term loan borrowings, 3.00% and (y) in the case of revolver borrowings, 2.50%.

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

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

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

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

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

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

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

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

These two interest rate swaps met the criteria to be considered and were designated as qualifying cash flow hedges under ASC 815 in the first quarter of 2020, and they effectively fix interest payment obligations on $525.0 million and $1,000.0 million of principal under the First Lien Term Loan Facility at rates of 4.3% and 4.4% through September 2024 and January 2025, respectively, based on the interest rates set forth in the Amended Credit Agreement.

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

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

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

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

The revolving commitments will terminate on January 13, 2025.

As of December 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 December 31, 2022.

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

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

These two interest rate swaps met the criteria to be considered and were designated as qualifying cash flow hedges under ASC 815 in the first quarter of 2020, and they effectively fixed interest payment obligations on $525.0 million and $1,000.0 million of principal under the Acquisition First Lien Term Loan Facility at rates of 4.3% and 4.4% through September 2024 and January 2025, respectively, based on the interest rates set forth in the Acquisition Credit Agreement.

In April 2021, each of the swap agreements described above was novated to another counterparty and amended in connection with such novation.

The amendments included certain changes to collateral posting obligations and also had the effect of increasing the effective fixed interest payment obligations to rates of 4.5%, with respect to the earlier maturing swap arrangement, and 4.6% with respect to the later maturing swap arrangement.

In January 2022, we entered into a new senior secured first lien term loan for $1,800.0 million of principal.

The proceeds from this new loan were primarily used to repay the First Lien Term Loan Facility.

Refer to Note 26 "Subsequent Events" of Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.

We were in compliance with all applicable covenants under the Amended Credit Agreement as of December 31, 2021.

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

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

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

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Effect of exchange rate changes on cash and cash equivalents (24,239) (12,470) 15,318

Net increase in cash and cash equivalents $ 113,948 $ 233,725 $ 37,233

Net increase (decrease) in cash and cash equivalents $ (82,711) $ 113,948 $ 233,725

Operating Activities

Net cash provided by operating activities was $706.8 million for the year ended December 31, 2022, compared to net cash provided by operating activities of $1,171.6 million for the year ended December 31, 2021.

The increase in net cash provided by operating activities was primarily attributable to an increase in Securities loaned, a decrease in Receivables from broker-dealers and clearing organizations, and an increase in trading liabilities, at fair value, offset by an increase in trading assets, at fair value, and a decrease in Payables to broker-dealers and clearing organizations for the year ended December 31, 2021 compared to the prior period.

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 year ended December 31, 2022 compared to the prior period.

Investing Activities

Net cash used in investing activities was $29.5 million for the year ended December 31, 2022, compared to net cash used in investing activities of $87.3 million for the year ended December 31, 2021.

The increase in cash used in investing activities for the year ended December 31, 2021 was primarily attributable to an increase in contributions to our strategic investments in the current year, shown in Other investing activities on our consolidated statement of cash flows, offset by the sale of MATCHNow in the prior year.

The net decrease in cash used in investing activities for the year ended December 31, 2022 was primarily attributable to sales of strategic investments during the year ended December 31, 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 $957.9 million for the year ended December 31, 2021, while net cash used in financing activities was $839.9 million for the year ended December 31, 2020.

The cash used in financing activities for the year ended December 31, 2021 was primarily attributable to $548.0 million in dividends to stockholders and distributions made to noncontrolling interests and $427.5 million in purchases of treasury stock, partially offset by the proceeds of $68.9 million of Warrants exercised.

The cash used in financing activities of $839.9 million during the same period of 2020 primarily reflects net dividends to stockholders and distributions to noncontrolling interests and repayment of long-term borrowings.

Net cash used in financing activities was $735.7 million for the year ended December 31, 2022, compared to $957.9 million for the year ended December 31, 2021.

The cash used in financing activities for the year ended December 31, 2022 was primarily attributable to $375.3 million in dividends to stockholders and distributions made to noncontrolling interests and $480.5 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 $957.9 million during the same period of 2021 primarily reflects $548.0 million net dividends to stockholders and distributions to noncontrolling interests, and $427.5 million purchase of treasury stock, partially offset by an increase of $2.0 million in short-term borrowings.

Share Repurchase Program

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

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

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

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

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

Since the inception of the program through November 3, 2021.

The share repurchase program authorizes the Company to repurchase shares from time to time in open market transactions, privately negotiated transactions or by other means.

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As of December 31, 2022, we had $1,800.0 million of outstanding principal on our First Lien Term Loan Facility.

Subsequent to year end, we completed the issuance of a $1.8 billion senior secured first lien term loan due in 2029 ("New Term Loan"), and proceeds were used to repay the outstanding balance on the First Lien Term Loan Facility.

See Note 26 "Subsequent Events" in Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for more details on this transaction.

Additionally, $30.7 million of long-term debt related to the SBI bonds is due in 2023.

Each year, we are required to repay $18.0 million of this balance, with the remaining principal due in 2029.

Additionally, $26.7 million of our long-term debt related to the SBI bonds is due in 2026.

See Note 9 "Borrowings" in Part II Item 8 “Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for more details.

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Tax Receivable Agreement

The contractual obligation table above excludes contractual amounts owed under the tax receivable agreement as the ultimate amount and timing of the amounts due are not presently known.

The ultimate amounts owed under the tax receivable agreement and timing of the amounts due are not presently known.

As of December 31, 2022, a total of $238.8 million has been recorded for amounts due pursuant to tax receivable agreements in the Consolidated Financial Statements representing management’s best estimate of the amounts currently expected to be owed under the tax receivable agreement, as savings are realized as a result of favorable tax attributes.

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License fee revenues, generated for the use of our OMS and other software products, are fixed and recognized at the point in time at which the customer is able to use and benefit from the license.

revenue is variable in nature, based on the number of live connections, and is recognized over time on a monthly basis using a time-based measure of progress.

Connectivity revenue is variable in nature, based on the number of live connections, and is recognized over time on a monthly basis using a time-based measure of progress.

Analytics revenues are earned from providing customers with analytics products and services, including trading and portfolio analytics tools.

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Developments in an audit, litigation, or the relevant laws, regulations, administrative practices, principles, and interpretations could have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods.

We recognize the tax benefit from an uncertain tax position in

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

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

The tax benefits recognized in the Consolidated Financial Statements from such a position are measured based on the largest benefit for each such position that has a greater than fifty percent likelihood of being realized upon ultimate resolution.

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• fluctuations in foreign exchange rates or other developments in equity and credit markets;

• industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (considered in both absolute terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development;

terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development;

• cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows;

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

our estimate of

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

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

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

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

Had we used a shorter estimated useful life of seven years, the Company would have recorded an additional $16.5 million of amortization expense for the years ended 2021 and 2020, and an additional $7.0 million of expense for the year ended 2019.

Had we used a shorter estimated useful life of seven years, the Company would have recorded an additional $16.5 million of amortization expense for the years ended December 31, 2022, 2021, and 2020 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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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis