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Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-11-03 · 144 added, 377 removed, 569 unchanged (48% of the section changed)

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

The following management’s discussion and analysis covers the three and nine months ended September 30, 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.

The following management’s discussion and analysis covers the three months ended March 31, 2023, and 2022 should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes for the period ended March 31, 2023, which are included 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, 2022, 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, 2022.

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

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

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

• recent SEC proposals focused on equity markets which 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;

• 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's 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 (each as defined below) on ongoing business operations generally, including the assumption of potential liabilities and risks relating to these historical acquisitions;

• capacity constraints, system failures, and delays;

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• 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, geopolitical conflicts, 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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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 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").

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;

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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 the Credit Agreement, with the lenders party thereto, JPMorgan Chase Bank, N.A.

2”), which further amended the Acquisition Credit Agreement to, among other things, reduce the interest rate spread over adjusted London Interbank Offered Rate ("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.

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

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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.

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

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

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

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 March 31, 2023, 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.

Parent Company Financial Information

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

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 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.

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of March 31, 2023 in the amount of $3.6 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of March 31, 2023 in the amount of $135.9 million and tax receivable agreement obligation in the amount of $238.8 million, in each case as described in greater detail in Note 4 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member's equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of March 31, 2023;

and (iv) provision for corporate income tax in the amount of $17.9 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2023.

Components of Our Results of Operations

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and nine months ended September 30, 2022, and 2021:

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

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three months ended March 31, 2023, and 2022:

(in thousands) Three Months Ended March 31,

Market Making 2023 2022

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Income before income taxes and noncontrolling interest $ 134,765 $ 241,711

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,

The following table shows our results of operations for the three months ended March 31, 2023, and 2022:

Three Months Ended March 31,

(in thousands) 2023 2022

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Net income $ 110,083 $ 199,925

Selected Operating Margins

Net Income Margin (1) 17.7 % 28.5 %

(1) Calculated by dividing Net income by Total revenue.

Net income available to stockholders and basic and diluted earnings per share are presented below:

Three Months Ended March 31,

(in thousands, except for share or per share data) 2023 2022

Net income $ 110,083 $ 199,925

Noncontrolling interest (52,202) (87,668)

Net income available for common stockholders $ 57,881 $ 112,257

Earnings per share

Basic $ 0.56 $ 0.99

Diluted $ 0.56 $ 0.98

Weighted average common shares outstanding

Basic 97,795,957 109,329,468

Diluted 97,813,691 110,066,641

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 comprises 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.

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

Trading income, net, accounted for 66% and 74% of our total revenues for the three months ended March 31, 2023 and 2022, respectively.

Interest and dividends income.

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Revenue is recognized on a trade date basis, which is the point at which the performance obligation to the customer is satisfied, based on the trade being executed.

In addition, we offer workflow technology and analytics services to select third parties.

In addition, we offer workflow technology and analytics services to select third

Revenues are derived from fees generated by matching sell-side and buy-side clients orders, and from analytic products delivered to the clients.

Technology licensing fees are charged for the licensing of our proprietary technology and the provision of related services, including hosting, management and support.

These fees include an up-front component and a recurring fee for the relevant terms, which may include both fixed and variable components.

Revenue is recognized ratably for these services over the contractual term of the agreement.

We have interests in multiple strategic investments and telecommunications joint ventures (“JVs”).

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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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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 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.

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We are subject to U.S.

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

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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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 core business 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.

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

• “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, 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%.

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

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GAAP measure.

The following table reconciles the Condensed Consolidated Statements of Comprehensive Income to arrive at Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, and Operating Margins for the three and nine months ended September 30, 2022, and 2021.

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

Three Months Ended March 31,

(in thousands) 2023 2022

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

The following table reconciles Net Income to arrive at Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted Net Income and Normalized Adjusted EPS for the three and nine months ended September 30, 2022, and 2021:

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

Three Months Ended March 31,

(in thousands, except share and per share data) 2023 2022

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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 nine months ended September 30, 2022, and 2021.

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

Trading income, net $ 392,496 $ 4,887 $ — $ 397,383

Commissions, net and technology services 10,687 110,299 — 120,986

Interest and dividends income 43,446 185 — 43,631

Brokerage, exchange, clearance fees and payments for order flow, net (147,346) (21,523) — (168,869)

Interest and dividends expense (61,019) (970) — (61,989)

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

Three Months Ended September 30, 2021

(in thousands) Market Making Execution Services Corporate Total

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

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

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

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

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

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

Nine Months Ended September 30, 2022

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three months ended March 31, 2023, and 2022:

Three Months Ended March 31, 2023

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 277,857 $ 95,218 $ — $ 373,075

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

(in thousands) Market Making Execution Services Corporate Total

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

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):

2022 2021 % Change

Market Making $ 238,264 $ 248,702 (4.2)%

Execution Services 92,878 105,742 (12.2)%

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

Three Months Ended September 30,

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

2022 2021 % Change

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three months ended March 31, 2023, and 2022:

(in thousands, except %) 2023 2022

Adjusted Net Trading Income by Segment:

Total Average Daily % Total Average Daily %

Market Making:

Execution Services 1,451 1,652 (12.2)%

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

Nine Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

2022 2021 % Change

Market Making $ 277,857 $ 4,482 74.5 % $ 381,846 $ 6,159 75.6 %

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Adjusted Net Trading Income $ 373,075 $ 6,017 100.0 % $ 505,055 $ 8,146 100.0 %

Nine Months Ended September 30,

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

2022 2021 % Change

Market Making $ 4,648 $ 5,616 (17.2)%

Execution Services 1,701 1,960 (13.2)%

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

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

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Total Revenues

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,

Our total revenues decreased $80.9 million, or 11.5%, to $620.4 million for the three months ended March 31, 2023, compared to $701.3 million for the three months ended March 31, 2022.

The decrease was primarily driven by lower market volumes and lower volatility across global markets, and 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 interacted during the three months ended March 31, 2023 compared to the same period in 2022.

The following table shows total revenues by segment for the three months ended March 31, 2023 and 2022.

Three Months Ended March 31,

(in thousands, except for percentage) 2023 2022 % Change

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Trading income, net $ 4,168 $ 5,949 (29.9)%

Interest and dividends income 185 — NM

Interest and dividends income 2,557 29 8,717.2%

Commissions, net and technology services 111,743 145,607 (23.3)%

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Total revenues from Execution Services $ 118,478 $ 151,745 (21.9)%

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

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

Other, net $ 2,981 $ 2,956 0.8%

Total revenues from Corporate $ 2,981 $ 2,956 0.8%

Trading income, net $ 412,511 $ 522,307 (21.0)%

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Commissions, net and technology services 121,444 154,655 (21.5)%

Other, net (956) 4,452 NM

Other, net 4,181 3,289 27.1%

Total revenues $ 620,380 $ 701,262 (11.5)%

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

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.

Trading income, net decreased $109.8 million, or 21.0% to $412.5 million for the three months ended March 31, 2023, compared to $522.3 million for the three months ended March 31, 2022.

The decrease was largely a result of lower market volumes and lower volatility across global markets and 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 interacted.

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 $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.

Interest and dividends income increased $61.2 million, or 291.4%, to $82.2 million for the three months ended March 31, 2023, compared to $21.0 million for the three months ended March 31, 2022.

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 banks and prime brokers, both of which benefited from higher interest rates for the period compared to the same period during the prior year.

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

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

Commissions, net and technology services revenues decreased $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.

Commissions, net and technology services revenues decreased $33.2 million, or 21.5%, to $121.4 million for the three months ended March 31, 2023, compared to $154.7 million for the three months ended March 31, 2022.

This decrease was driven by lower market volumes, a reduction of institutional investors' commissions available, and declining institutional engagement.

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 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 increased $0.9 million, or 27.1%, to $4.2 million for the three months ended March 31, 2023, compared to $3.3 million for the three months ended March 31, 2022.

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.

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Adjusted Net Trading Income

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.

Adjusted Net Trading Income, which is a non-GAAP measure, decreased $132.0 million, or 26.1%, to $373.1 million for the three months ended March 31, 2023, compared to $505.1 million for the three months ended March 31, 2022.

This decrease was primarily attributable to lower Trading income, net in the Market Making segment during the three months ended March 31, 2023 compared to the same period in 2022, as noted above.

Adjusted Net Trading Income per day decreased $2.1 million, or 25.9%, to $6.0 million for the three months ended March 31, 2023, compared to $8.1 million for the three months ended March 31, 2022.

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 $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.

Our operating expenses increased $26.1 million, or 5.7%, to $485.6 million for the three months ended March 31, 2023, compared to $459.6 million for the three months ended March 31, 2022.

The increase in operating expenses is primarily due to an increase in Interest and dividends expense, partially offset by a decline in Debt issue cost related to debt refinancing, prepayment and commitment fees, described in more detail below.

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

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

Brokerage exchange, clearance fees and payments for order flow, net, decreased $4.9 million, or 3.2%, to $145.5 million for the three months ended March 31, 2023, compared to $150.4 million for the three months ended March 31, 2022.

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 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.

Communication and data processing expense increased $1.0 million, or 1.7%, to $56.8 million for the three months ended March 31, 2023, compared to $55.8 million for the three months ended March 31, 2022.

This increase was primarily due to increased connectivity spending in various communication and data processing services and subscriptions.

Employee compensation and payroll taxes.

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.

Employee compensation and payroll taxes remained consistent at $103.4 million for the three months ended March 31, 2023, compared to $103.5 million for the three months ended March 31, 2022.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $8.4 million and $8.5 million for the three months ended March 31, 2023, and 2022, respectively.

Interest and dividends expense.

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.

Interest and dividends expense increased $55.1 million or 129.4% to $97.6 million for the three months ended March 31, 2023, compared to $42.5 million for the three months ended March 31, 2022.

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 $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 September 30, 2022.

Depreciation and amortization.

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 $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 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 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 $0.1 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 $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

We incur corporate tax at the U.S.

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

Our income tax expense reflects such U.S.

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

subsidiaries.

Our provision for income taxes and effective tax rates were $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 $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

Market Making

Trading income, net $ 1,299,117 $ 1,571,347 (17.3)%

Interest and dividends income 95,221 26,174 263.8%

Commissions, net and technology services 30,881 32,111 (3.8)%

Other, net 1,825 5,923 (69.2)%

Total revenues from Market Making $ 1,427,044 $ 1,635,555 (12.7)%

Execution Services

Trading income, net $ 16,501 $ 20,493 (19.5)

Interest and dividends income 214 72 197.2%

Commissions, net and technology services 381,100 438,576 (13.1)%

Other, net 4,525 777 482%

Total revenues from Execution Services $ 402,340 $ 459,918 (12.5)%

Other, net $ 37,660 $ 10,408 261.8%

Total revenues from Corporate $ 37,660 $ 10,408 261.8%

Trading income, net $ 1,315,618 $ 1,591,840 (17.4)%

Interest and dividends income 95,435 26,246 263.6%

Commissions, net and technology services 411,981 470,687 (12.5)%

Other, net 44,010 17,108 157.2%

Total revenues $ 1,867,044 $ 2,105,881 (11.3)%

Trading income, net.

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

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.

Interest and dividends income.

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

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.

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

Commissions, net and technology services.

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

Commissions, net and technology services revenues decreased $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 $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 $1.3 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.

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

Operating Expenses

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 $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.

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

Communication and data processing.

Communication and data processing expense increased $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 $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 $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.

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

Operations and administrative.

Operations and administrative expense decreased $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 nine months ended September 30, 2022.

Operations and administrative expense decreased $0.9 million or 3.6% to $24.3 million for the three months ended March 31, 2023, compared to $25.2 million for the three months ended March 31, 2022.

This decrease was primarily driven by decreased regulatory expenses incurred during the three months ended March 31, 2023.

Depreciation and amortization.

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.

Depreciation and amortization decreased $2.1 million, or 12.2% to $15.3 million for the three months ended March 31, 2023, compared to $17.5 million for the three months ended March 31, 2022.

The decrease is driven primarily by decreased amortization of capitalized software compared to the prior period.

Amortization of purchased intangibles and acquired capitalized software.

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.

Amortization of purchased intangibles and acquired capitalized software decreased $0.5 million, or 2.8%, to $16.0 million for the three months ended March 31, 2023, compared to $16.5 million for the three months ended March 31, 2022.

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

Termination of office leases.

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.

Termination of office leases was $0.1 million for the three months ended March 31, 2023, compared to $0.7 million for the three months ended March 31, 2022.

There were no significant lease terminations in either period.

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 $23.5 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.

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

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees decreased to $2.2 million for the three months ended March 31, 2023, compared to $25.7 million for the three months ended March 31, 2022.

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

Transaction advisory fees and expenses.

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.

Transaction advisory fees and expenses were immaterial for the three months ended March 31, 2023, compared to $0.4 million for the three months ended March 31, 2022.

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 $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.

Financing interest expense on long-term borrowings increased $3.0 million or 13.9% to $24.3 million for the three months ended March 31, 2023, compared to $21.3 million for the three months ended March 31, 2022.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 $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.

Our provision for income taxes and effective tax rates were $24.7 million and 18.3% for the three months ended March 31, 2023, compared to $41.8 million and 17.3% for the three months ended March 31, 2022.

Liquidity and Capital Resources

As of September 30, 2022, we had $836.3 million in Cash and cash equivalents.

As of March 31, 2023, we had $769.0 million in Cash and cash equivalents.

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

As of September 30, 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.

As of March 31, 2023, we had borrowings under our prime brokerage credit facilities of approximately $285.1 million, borrowings under our broker dealer facilities of $125.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,808.3 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 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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Certain of our cash balances are insured by the Federal Deposit Insurance Corporation, generally up to $250,000 per account but without a cap under certain conditions.

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

From time to time these cash balances may exceed insured

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

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

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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.

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

Generally, we are required under the tax receivable agreements entered into in connection with our IPO to make payments to certain direct or indirect equity holders of Virtu Financial that are generally equal to 85% of the applicable cash tax savings, if any, that we realize as a result of favorable tax attributes that are available to us as a result of the Reorganization Transactions, for exchanges of membership interests for Class A Common Stock or Class B Common Stock and payments made under the tax receivable agreements.

Generally, we are required under the tax receivable agreements entered into in connection with our IPO to make payments to certain direct or indirect equity holders of Virtu Financial that are generally equal to 85% of the applicable cash tax savings, if any, that we realize as a result of favorable tax attributes that are available to us as a result of the IPO and certain reorganization transactions undertaken in connection therewith, for exchanges of membership interests for Class A Common Stock or Class B Common Stock and payments made under the tax receivable agreements.

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 4 "Tax Receivable Agreements" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q are expected to range from approximately $0.4 million to $22.0 million per year over the next 15 years.

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

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

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

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

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 Europe Trading Limited ("VETL") (f/k/a Virtu ITG Europe Limited) are regulated by the Central Bank of Ireland as Investment Firms and in accordance with European Union law are required to maintain a minimum amount of regulatory capital based upon their positions, financial conditions, and other factors.

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

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

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.

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 19 "Regulatory Requirement" of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for a discussion of regulatory capital requirements of our regulated subsidiaries.

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

As of September 30, 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.

As of March 31, 2023, there was an outstanding principal balance on our broker-dealer facilities of $125.0 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 $285.1 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.

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.

The Warrant was exercised on December 17, 2021 for the full 3,000,000 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 and up to and including January 15, 2022 at a price of $22.98.

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

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

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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.

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

The Acquisition Credit Agreement provided (i) the Acquisition First Lien Term Loan Facility in an aggregate principal amount of $1,500.0 million, drawn in its entirety on the ITG Closing Date, of which approximately $404.5 million was borrowed by VFH to repay all amounts outstanding under a previous term loan facility and the remaining approximately $1,095 million was borrowed by the Acquisition Borrower to finance the consideration and fees and expenses paid in connection with the ITG Acquisition, and (ii) the $50 million Acquisition First Lien Revolving Facility, with a $5.0 million letter of credit subfacility and a $5.0 million swing-line subfacility.

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

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

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

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

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

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

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 Secured Overnight Financing Rate ("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.

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The revolving commitments will terminate on January 13, 2025.

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.

As of March 31, 2023, $1,782.0 million was outstanding under the term loans.

We were in compliance with all applicable covenants under the Credit Agreement as of March 31, 2023.

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 nine months ended September 30, 2022, and 2021.

Nine Months Ended September 30,

The table below summarizes our primary sources and uses of cash for the three months ended March 31, 2023, and 2022.

Three Months Ended March 31,

Net cash provided by (used in):

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Operating Activities

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.

Net cash used in operating activities was $148.4 million for the three months ended March 31, 2023, compared to net cash used in operating activities of $255.2 million for the three months ended March 31, 2022.

The decrease in net cash used in 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 three months ended March 31, 2023 compared to the prior period.

Investing Activities

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.

Net cash used in investing activities was $35.8 million for the three months ended March 31, 2023, consistent with net cash used in investing activities of $35.0 million for the three months ended March 31, 2022.

Net cash used in investing activities for the three months ended March 31, 2023 and 2022 consists of cash used for the acquisition of property, equipment, and capitalized software, and transactions related to our strategic investments.

Financing Activities

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.

Net cash used in financing activities was $46.5 million for the three months ended March 31, 2023, compared to $212.9 million for the three months ended March 31, 2022.

The cash used in financing activities for the three months ended March 31, 2023 was primarily attributable to $52.0 million in dividends to stockholders and distributions made to noncontrolling interests and $93.2 million in purchases of treasury stock.

The cash used in financing activities of $212.9 million during the same period of 2022 primarily reflects $125.8 million net dividends to stockholders, and distributions to noncontrolling interests, and $305.6 million purchase of treasury stock, partially offset by $164.4 million of net proceeds from long term borrowings, and an increase of $78.9 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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The timing and amount of repurchase transactions are determined by the Company's management based on its evaluation of market conditions, share price, cash sources, legal requirements and other factors.

From the inception of the program through September 30, 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.

From the inception of the program through March 31, 2023, the Company repurchased approximately 36.3 million shares of Class A Common Stock and Virtu Financial

Units for approximately $975.2 million.

As of March 31, 2023, the Company has approximately of $244.8 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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Estimating the fair value of level 3 financial instruments requires judgments to be made.

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

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

Revenue Recognition

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Interest income and interest expense are accrued in accordance with contractual rates.

Interest income consists of income earned on collateralized financing arrangements and on cash held by brokers.

Interest income consists of income earned on collateralized financing arrangements and on cash held by brokers and banks.

Interest expense includes interest expense from collateralized transactions, margin and related short-term lending facilities.

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

At year end there is no future assessment that would affect grants with a performance condition.

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

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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.

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.

used a shorter estimated useful life of seven years, the Company would have recorded an additional $4.1 million of amortization expense for the three months ended March 31, 2023, and 2022.

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

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

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

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

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

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

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

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

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

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

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

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

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

These financial instruments do not have maturity dates;

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

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

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

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

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

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

The fair value of these financial instruments at 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.

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

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

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

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

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

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

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

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

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

Interest Rate Risk, Derivative Instruments

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

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

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

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

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

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

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

operations through the use of foreign currency forward contracts.

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

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

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

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

Futures Contracts .

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

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

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

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

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

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

Due from Broker-Dealers and Clearing Organizations .

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

Foreign Currency Risk

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

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

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

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

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

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

Approximately 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 $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.

dollar functional currencies are translated into U.S.

dollars at period-end exchange rates.

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

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

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

Financial Instruments with Off Balance Sheet Risk

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

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

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

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

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

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

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

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

Accordingly, futures contracts generally do not have credit risk.

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

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

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2022.

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.

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

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

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

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

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

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

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

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

Changes to Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the three months ended September 30, 2022 that has or is reasonably likely to materially affect, our internal control over financial reporting.

LEGAL PROCEEDINGS

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

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

“Risk Factors” in our 2021 Form 10-K.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis