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Item 2. Management’s Discussion and Analysis

2024-10-28 compared with 2024-07-26 · 153 added, 146 removed, 734 unchanged (29% of the section changed)

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

The following management’s discussion and analysis covers the three and six months ended June 30, 2024, and 2023 should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes for the period ended June 30, 2024, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2023, which are included in Item 8 and 7 respectively, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

The following management’s discussion and analysis covers the three and nine months ended September 30, 2024, and 2023 should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying notes for the period ended September 30, 2024, which are included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and the audited consolidated financial statements and accompanying notes and MD&A for the year ended December 31, 2023, which are included in Item 8 and 7 respectively, of the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

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;

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

• 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.

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In connection with the IPO, non-qualified stock options to purchase 9,228,000 shares were granted at the IPO per share price, each of which 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 June 30, 2024, options to purchase 1,643,750 shares in the aggregate were forfeited and 6,101,849 options were exercised.

Subsequent to the IPO and through September 30, 2024, options to purchase 1,646,500 shares in the aggregate were forfeited and 6,555,519 options were exercised.

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

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

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of June 30, 2024 in the amount of $25.3 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of June 30, 2024 in the amount of $122.3 million and tax receivable agreement obligation in the amount of $196.3 million, in each case as described in greater detail in Note 5 “Tax Receivable Agreements” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member’s equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of June 30, 2024;

and (iv) provision for corporate income tax in the amount of $15.6 million and $34.8 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2024, respectively.

(i) cash and cash equivalents reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2024 in the amount of $50.7 million;

(ii) deferred tax assets reflected on our Condensed Consolidated Statements of Financial Condition as of September 30, 2024 in the amount of $118.9 million and tax receivable agreement obligation in the amount of $196.3 million, in each case as described in greater detail in Note 5 “Tax Receivable Agreements” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q;

(iii) a portion of the member’s equity of Virtu Financial is represented as noncontrolling interest on our Condensed Consolidated Statements of Financial Condition as of September 30, 2024;

and (iv) provision for corporate income tax in the amount of $18.3 million and $53.2 million reflected on our Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024, respectively.

Components of Our Results of Operations

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and six months ended June 30, 2024 and 2023:

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

The following table shows our i) Total revenue, ii) Total operating expenses, and iii) Income before income taxes and noncontrolling interest by segment for the three and nine months ended September 30, 2024 and 2023:

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

Market Making 2024 2023 2024 2023

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Income before income taxes and noncontrolling interest $ 147,160 $ 138,105 $ 442,365 $ 308,337

The following table shows our results of operations for the three and six months ended June 30, 2024 and 2023:

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

The following table shows our results of operations for the three and nine months ended September 30, 2024 and 2023:

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

(in thousands) 2024 2023 2024 2023

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

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

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

(in thousands, except for share or per share data) 2024 2023 2024 2023

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Commissions and fees are derived from commissions charged for trade executions in client execution services.

We earn commissions and commission equivalents, as well as, in certain cases, contingent fees based on client revenues, which represent variable consideration.

The services offered under these contracts have the same pattern of transfer;

accordingly, they are being measured and recognized as a single performance obligation.

The performance obligation is satisfied over time, and accordingly, revenue is recognized as time passes.

Variable consideration has not been included in the transaction price as the amount of consideration is contingent on factors outside our control.

Recurring revenues are primarily derived from workflow technology connectivity fees generated for matching client orders, and analytics services to select third parties.

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

Trading income, net, accounted for 62% and 64% of our total revenues for the six months ended June 30, 2024 and 2023, respectively.

Trading income, net, accounted for 63% and 59% of our total revenues for the nine months ended September 30, 2024 and 2023, respectively.

Interest and dividends income.

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Commissions, net and technology services.

We earn revenues on transactions for which we charge explicit commissions or commission equivalents, which include the majority of our institutional client orders.

We earn revenues on transactions for which we charge explicit commissions, which include the majority of our institutional client orders.

Commissions and fees are primarily affected by changes in our equities, fixed income and futures transaction volumes with institutional clients, which vary based on client relationships;

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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

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

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

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

We record our pro-rata share of each JV’s earnings or losses within Other, net, while fees related to the use of communication services provided by the JVs are recorded within Communications and data processing.

We record our pro-rata share of our JVs’ earnings or losses within Other, net, while fees related to the use of communication services provided by the JVs are recorded within Communications and data processing.

We have a noncontrolling investment (the “JNX Investment”) in Japannext Co., Ltd.

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

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

As a result of the refinancing or early termination of our long-term borrowings, we accelerate the capitalized debt issue cost and the discount on the term loan that

would otherwise be amortized or accreted over the life of the term loan.

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

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GAAP measure.

The following table reconciles the Condensed Consolidated Statements of Comprehensive Income to arrive at Adjusted Net Trading Income, EBITDA, Adjusted EBITDA, and Operating Margins for the three and six months ended June 30, 2024 and 2023.

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

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

(in thousands) 2024 2023 2024 2023

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

The following table reconciles Net Income to arrive at Normalized Adjusted Net Income before income taxes, Normalized provision for income taxes, Normalized Adjusted Net Income and Normalized Adjusted EPS for the three and six months ended June 30, 2024 and 2023:

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

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

(in thousands, except share and per share data) 2024 2023 2024 2023

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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 the dilutive impact of options, restricted stock units and restricted stock awards outstanding under the Amended and Restated 2015 Management Incentive Plan and the Amended and Restated ITG 2007 Equity Plan during the three and six months ended June 30, 2024 and 2023.

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, 2024

The following tables reconcile Trading income, net to Adjusted Net Trading Income by segment for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30, 2024

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 288,000 $ 100,032 $ — $ 388,032

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 208,069 $ 89,938 $ — $ 298,007

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 847,241 $ 292,744 $ — $ 1,139,985

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

(in thousands) Market Making Execution Services Corporate Total

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Adjusted Net Trading Income $ 679,120 $ 270,649 $ — $ 949,769

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30,

The following table shows our Adjusted Net Trading Income and average daily Adjusted Net Trading Income by segment for the three and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

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Adjusted Net Trading Income $ 388,032 $ 298,007 30.2%

Three Months Ended June 30,

Three Months Ended September 30,

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

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Average Daily Adjusted Net Trading Income $ 6,063 $ 4,731 29.8%

Six Months Ended June 30,

Nine Months Ended September 30,

Adjusted Net Trading Income by Segment (in thousands):

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Adjusted Net Trading Income $ 1,139,985 $ 949,769 20.0%

Six Months Ended June 30,

Nine Months Ended September 30,

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

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Average Daily Adjusted Net Trading Income $ 6,064 $ 5,079 19.6%

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Total Revenues

Our total revenues increased $186.1 million, or 36.7%, to $693.0 million for the three months ended June 30, 2024, compared to $506.9 million for the three months ended June 30, 2023.

The increase was primarily driven by an increase of $120.2 million in Trading income, net due to higher trading volumes and increased opportunities across global markets, an increase of $16.6 million in Commissions, net and technology services due to strengthened institutional engagement, as well as an increase of $40.2 million in Other, net, primarily driven by gains on settlement fund recoveries during the three months ended June 30, 2024 compared to the same period in 2023.

The following table shows total revenues by segment for the three months ended June 30, 2024 and 2023.

Three Months Ended June 30,

Our total revenues increased $76.6 million, or 12.2%, to $706.8 million for the three months ended September 30, 2024, compared to $630.2 million for the three months ended September 30, 2023.

The increase was primarily driven by an increase of $127.9 million in Trading income, net due to higher trading volumes and increased opportunities across global markets and an increase of $21.3 million in Commissions, net and technology services due to strengthened institutional engagement, offset by a decrease of $70.1 million in Other, net, as a result of gains on settlement fund recoveries received during the three months ended September 30, 2023.

The following table shows total revenues by segment for the three months ended September 30, 2024 and 2023.

Three Months Ended September 30,

(in thousands, except for percentage) 2024 2023 % Change

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Commissions, net and technology services 12,721 6,343 100.6%

Other, net 36,117 709 NM

Other, net 1,432 75,682 (98.1)%

Total revenues from Market Making $ 576,660 $ 517,351 11.5%

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Commissions, net and technology services 118,900 103,933 14.4%

Other, net 1,163 6 NM

Total revenues from Execution Services $ 127,059 $ 109,116 16.4%

Other, net 108 68 58.8%

Total revenues from Corporate $ (3,857) $ (7,512) (48.7)%

Total revenues from Execution Services $ 125,727 $ 112,453 11.8%

Other, net $ 4,453 $ 360 NM

Total revenues from Corporate $ 4,453 $ 360 NM

Trading income, net $ 443,997 $ 316,085 40.5%

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Commissions, net and technology services 131,621 110,276 19.4%

Other, net 33,423 (6,797) NM

Other, net 5,993 76,110 (92.1)%

Total revenues $ 706,840 $ 630,164 12.2%

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

Trading income, net increased $120.2 million, or 39.3% to $426.4 million for the three months ended June 30, 2024, compared to $306.2 million for the three months ended June 30, 2023.

The increase was largely a result of higher trading volumes and increased opportunities across global markets during the three months ended June 30, 2024 compared to the same period in 2023.

Trading income, net increased $127.9 million, or 40.5% to $444.0 million for the three months ended September 30, 2024, compared to $316.1 million for the three months ended September 30, 2023.

The increase was largely a result of higher trading volumes and increased opportunities across global markets during the three months ended September 30, 2024 compared to the same period in 2023.

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 $9.1 million, or 9.3%, to $107.1 million for the three months ended June 30, 2024, compared to $98.0 million for the three months ended June 30, 2023.

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

Interest and dividends income decreased $2.5 million, or 2.0%, to $125.2 million for the three months ended September 30, 2024, compared to $127.7 million for the three months ended September 30, 2023.

This decrease was primarily attributable to a decrease in interest income earned on cash collateral posted as part of securities borrowing transactions driven by lower 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 increased $16.6 million, or 15.2%, to $126.1 million for the three months ended June 30, 2024, compared to $109.5 million for the three months ended June 30, 2023.

Commissions, net and technology services revenues increased $21.3 million, or 19.3%, to $131.6 million for the three months ended September 30, 2024, compared to $110.3 million for the three months ended September 30, 2023.

This increase was driven by higher client volumes and increasing institutional engagement compared to the same period in 2023.

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 $40.2 million, to $33.4 million for the three months ended June 30, 2024, compared to $(6.8) million for the three months ended June 30, 2023.

The three months ended June 30, 2024 included gains on settlement fund recoveries in which we are eligible to participate based on our transactions in the applicable products.

Other, net decreased $70.1 million, to $6.0 million for the three months ended September 30, 2024, compared to $76.1 million for the three months ended September 30, 2023.

The three months ended September 30, 2023 included gains on settlement fund recoveries in which we are eligible to participate based on our transactions in the applicable products.

Adjusted Net Trading Income

Adjusted Net Trading Income, which is a non-GAAP measure, increased $106.4 million, or 38.2%, to $385.1 million for the three months ended June 30, 2024, compared to $278.7 million for the three months ended June 30, 2023.

This increase was primarily attributable to higher Trading income, net in the Market Making segment due to higher trading volumes and increased opportunities during the three months ended June 30, 2024 compared to the same period in 2023, as noted above, partially offset by higher Brokerage, exchange, clearance fees and payments for order flow, net as described below.

Average daily Adjusted Net Trading Income increased $1.6 million, or 35.6%, to $6.1 million for the three months ended June 30, 2024, compared to $4.5 million for the three months ended June 30, 2023.

Adjusted Net Trading Income, which is a non-GAAP measure, increased $90.0 million, or 30.2%, to $388.0 million for the three months ended September 30, 2024, compared to $298.0 million for the three months ended September 30, 2023.

This increase was primarily attributable to higher Trading income, net due to higher trading volumes and increased opportunities during the three months ended September 30, 2024 compared to the same period in 2023, as noted above, partially offset by higher Brokerage, exchange, clearance fees and payments for order flow, net as described below.

Average daily Adjusted Net Trading Income increased $1.4 million, or 29.8%, to $6.1 million for the three months ended September 30, 2024, compared to $4.7 million for the three months ended September 30, 2023.

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 $66.2 million, or 14.0%, to $537.6 million for the three months ended June 30, 2024, compared to $471.4 million for the three months ended June 30, 2023.

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

Our operating expenses increased $67.6 million, or 13.7%, to $559.7 million for the three months ended September 30, 2024, compared to $492.1 million for the three months ended September 30, 2023.

The increase in operating expenses is primarily due to an increase in Brokerage, exchange, clearance fees and payments for order flow, net, 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 $28.3 million, or 23.1%, to $150.8 million for the three months ended June 30, 2024, compared to $122.5 million for the three months ended June 30, 2023.

Brokerage exchange, clearance fees and payments for order flow, net, increased $53.5 million, or 43.4%, to $176.7 million for the three months ended September 30, 2024, compared to $123.2 million for the three months ended September 30, 2023.

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

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Communication and data processing.

Communication and data processing expense increased $2.3 million, or 4.0%, to $59.3 million for the three months ended June 30, 2024, compared to $57.0 million for the three months ended June 30, 2023.

This increase was primarily due to increased spending on market data and microwave communication networks maintained by our joint ventures.

Communication and data processing expense increased $2.5 million, or 4.4%, to $59.6 million for the three months ended September 30, 2024, compared to $57.1 million for the three months ended September 30, 2023.

This increase was primarily due to increased spending on market data and colocation services.

Employee compensation and payroll taxes.

Employee compensation and payroll taxes increased $10.1 million, or 10.6%, to $105.7 million for the three months ended June 30, 2024, compared to $95.6 million for the three months ended June 30, 2023.

Employee compensation and payroll taxes increased $10.4 million, or 10.7%, to $107.6 million for the three months ended September 30, 2024, compared to $97.2 million for the three months ended September 30, 2023.

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

We have capitalized and therefore excluded employee compensation and benefits related to software development of $10.6 million and $10.1 million for the three months ended June 30, 2024, and 2023, respectively.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $9.3 million and $9.7 million for the three months ended September 30, 2024, and 2023, respectively.

Interest and dividends expense.

Interest and dividends expense increased $11.2 million, or 10.0%, to $123.7 million for the three months ended June 30, 2024, compared to $112.5 million for the three months ended June 30, 2023.

This increase was primarily attributable to 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, and higher dividends expense with respect to securities sold, not yet purchased.

Interest and dividends expense increased $3.3 million, or 2.5%, to $136.1 million for the three months ended September 30, 2024, compared to $132.8 million for the three months ended September 30, 2023.

This increase was primarily attributable to increased borrowing activities 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 evaluate it in the broader context of our Adjusted Net Trading Income.

Operations and administrative.

Operations and administrative expense decreased $3.4 million, or 13.3%, to $22.1 million for the three months ended June 30, 2024, compared to $25.5 million for the three months ended June 30, 2023.

This decrease was primarily driven by a decrease in professional and regulatory expenses.

Operations and administrative expense increased $2.5 million, or 11.2%, to $24.9 million for the three months ended September 30, 2024, compared to $22.4 million for the three months ended September 30, 2023.

This increase was primarily driven by an increase in professional expense, as well as less favorable foreign exchange rate movements during the period.

Depreciation and amortization.

Depreciation and amortization increased $0.2 million, or 1.3%, to $16.1 million for the three months ended June 30, 2024, compared to $15.9 million for the three months ended June 30, 2023.

The increase is driven primarily by an increase in amortization of capitalized software compared to the same period in 2023.

Depreciation and amortization increased $0.7 million, or 4.4%, to $16.5 million for the three months ended September 30, 2024, compared to $15.8 million for the three months ended September 30, 2023.

The increase was driven primarily by an increase in amortization of leased equipment compared to the same period in 2023.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software decreased $3.8 million, or 23.8%, to $12.2 million for the three months ended June 30, 2024, compared to $16.0 million for the three months ended June 30, 2023.

Amortization of purchased intangibles and acquired capitalized software decreased $4.2 million, or 26.3%, to $11.8 million for the three months ended September 30, 2024, compared to $16.0 million for the three months ended September 30, 2023.

This decrease was due to certain intangible assets being fully amortized during 2023.

Termination of office leases.

Termination of office leases was insignificant for the three months ended June 30, 2024 and June 30, 2023.

These expenses, when incurred, are related to the impairment of lease right-of-use assets, leasehold improvements and fixed assets for certain abandoned or vacated office space.

Termination of office leases was insignificant for the three months ended September 30, 2024 and September 30, 2023.

These expenses, when incurred, are related to the impairment of lease right-of-use assets,

leasehold improvements and fixed assets for certain abandoned or vacated office space.

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 to $24.3 million for the three months ended June 30, 2024, compared to $1.8 million for the three months ended June 30, 2023.

The increase was primarily driven by the acceleration of our capitalized debt issue cost and discount on our previous term loan as a result of refinancing during the three months ended June 30, 2024.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees remained consistent at $1.8 million for the three months ended September 30, 2024 and 2023.

Refer to Note 9 “Borrowings” in Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for more details on our borrowing arrangements.

Transaction advisory fees and expenses.

Transaction advisory fees and expenses were insignificant for both the three months ended June 30, 2024, and June 30, 2023.

Transaction advisory fees and expenses were insignificant for both the three months ended September 30, 2024, and September 30, 2023.

These expenses, when incurred, are primarily in relation to our strategic investment portfolio.

Financing interest expense on long-term borrowings.

Financing interest expense on long-term borrowings decreased $1.5 million, or 6.0%, to $23.4 million for the three months ended June 30, 2024, compared to $24.9 million for the three months ended June 30, 2023.The decrease was attributable to the decrease in outstanding principal as a result of the voluntary prepayment in December 2023 and the amortization of the amounts in AOCI related to the interest rate swaps terminated in December 2023, as well as a lower overall interest rate after the refinancing described in Note 9 “Borrowings” during the three months ended June 30, 2024.

Financing interest expense on long-term borrowings decreased $0.9 million, or 3.5%, to $24.5 million for the three months ended September 30, 2024, compared to $25.4 million for the three months ended September 30, 2023.The decrease was attributable to the amortization of the amounts in AOCI related to the interest rate swaps terminated in December 2023 as well as lower overall interest rates as a result of rate cuts and our debt refinancing described in Note 9 “Borrowings”.

Provision for income taxes

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subsidiaries.

Our provision for income taxes and effective tax rates were $27.3 million and 17.6% for the three months ended June 30, 2024, compared to $5.9 million and 16.7% for the three months ended June 30, 2023.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Our provision for income taxes and effective tax rates were $28.1 million and 19.1% for the three months ended September 30, 2024, compared to $20.5 million and 14.9% for the three months ended September 30, 2023.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Total Revenues

Our total revenues increased $208.6 million, or 18.5%, to $1,335.8 million for the six months ended June 30, 2024, compared to $1,127.2 million for the six months ended June 30, 2023.

This increase was primarily attributable to an increase of $115.8 million in Trading income, net due to higher trading volumes and increased opportunities across global markets, an increase of $32.9 million in Interest and dividends income as a result of higher interest rates during the period, as well as an increase of $46.2 million in Other, net primarily driven by gains on settlement fund recoveries during the six months ended June 30, 2024 compared to the same period in 2023.

The following table shows the total revenues by segment for the six months ended June 30, 2024 and 2023.

Six Months Ended June 30,

Our total revenues increased $285.3 million, or 16.2%, to $2,042.7 million for the nine months ended September 30, 2024, compared to $1,757.4 million for the nine months ended September 30, 2023.

This increase was primarily attributable to an increase of $243.7 million in Trading income, net due to higher trading volumes and increased opportunities across global markets and an increase of $35.1 million in Commissions, net and technology services driven by strengthened institutional engagement during the period during the nine months ended September 30, 2024 compared to the same period in 2023.

The following table shows the total revenues by segment for the nine months ended September 30, 2024 and 2023.

Nine Months Ended September 30,

(in thousands, except for percentage) 2024 2023 % Change

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Commissions, net and technology services 29,203 22,677 28.8%

Other, net 42,423 1,897 NM

Other, net 43,855 77,580 (43.5)%

Total revenues from Market Making $ 1,667,450 $ 1,421,522 17.3%

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Commissions, net and technology services 376,333 341,223 10.3%

Other, net 43,564 (2,617) NM

Other, net 49,557 73,493 (32.6)%

Total revenues $ 2,042,664 $ 1,757,396 16.2%

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

Trading income, net, increased $115.8 million, or 16.1%, to $834.5 million for the six months ended June 30, 2024, compared to $718.7 million for the six months ended June 30, 2023.

The increase was largely a result of higher trading volumes and increased opportunities across global markets during the six months ended June 30, 2024 compared to the same period in 2023.

Trading income, net, increased $243.7 million, or 23.6%, to $1,278.5 million for the nine months ended September 30, 2024, compared to $1,034.8 million for the nine months ended September 30, 2023.

The increase was largely a result of higher trading volumes and increased opportunities across global markets during the nine months ended September 30, 2024 compared to the same period in 2023.

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

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

Interest and dividends income increased $32.9 million, or 18.3%, to $213.1 million for the six months ended June 30, 2024, compared to $180.2 million for the six months ended June 30, 2023.

This increase was primarily attributable to an increase in interest income earned on cash collateral posted as part of securities borrowed transactions, and higher dividends earned on market making trading assets held over periods when dividends are paid, 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 $30.4 million, or 9.9%, to $338.3 million for the nine months ended September 30, 2024, compared to $307.9 million for the nine months ended September 30, 2023.

This increase was primarily attributable to an increase in interest income earned on cash collateral posted as part of securities borrowed transactions, driven by higher interest rates for the period compared to the same period during the prior year, despite the rate cuts during the three months ended September 30, 2024.

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

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

Commissions, net and technology services revenues increased $13.8 million, or 6.0%, to $244.7 million for the six months ended June 30, 2024, compared to $230.9 million for the six months ended June 30, 2023.

Commissions, net and technology services revenues increased $35.1 million, or 10.3%, to $376.3 million for the nine months ended September 30, 2024, compared to $341.2 million for the nine months ended September 30, 2023.

This increase was driven by relatively higher client volumes and increasing institutional engagement compared to the same period in 2023.

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

Other, net increased $46.2 million, or 1,776.9%, to $43.6 million for the six months ended June 30, 2024, compared to $(2.6) million for the six months ended June 30, 2023.

The income for the six months ended June 30, 2024 primarily related to gains on settlement fund recoveries in which we are eligible to participate based on our transactions in the applicable products.

Other, net decreased $23.9 million, or 32.5%, to $49.6 million for the nine months ended September 30, 2024, compared to $73.5 million for the nine months ended September 30, 2023.

The income for the nine months ended

September 30, 2024 and 2023 were primarily related to gains on settlement fund recoveries in which we are eligible to participate based on our transactions in the applicable products.

Adjusted Net Trading Income

Adjusted Net Trading Income, which is a non-GAAP measure, increased $100.2 million, or 15.4%, to $752.0 million for the six months ended June 30, 2024, compared to $651.8 million for the six months ended June 30, 2023.

This increase was primarily attributable to higher Trading income, net and Other, net, as noted above, partially offset by higher Brokerage, exchange, clearance fees and payments for order flow, net and Interest and dividends expense as described below.

Average daily Adjusted Net Trading Income increased $0.8 million, or 15.1%, to $6.1 million for the six months ended June 30, 2024, compared to $5.3 million for the six months ended June 30, 2023.

The number of trading days was 124 days for the six months ended June 30, 2024 and June 30, 2023.

Adjusted Net Trading Income, which is a non-GAAP measure, increased $190.2 million, or 20.0%, to $1,140.0 million for the nine months ended September 30, 2024, compared to $949.8 million for the nine months ended September 30, 2023.

This increase was primarily attributable to higher Trading income, net, as noted above, partially offset by higher Brokerage, exchange, clearance fees and payments for order flow, net and Interest and dividends expense as described below.

Average daily Adjusted Net Trading Income increased $1.0 million, or 19.6%, to $6.1 million for the nine months ended September 30, 2024, compared to $5.1 million for the nine months ended September 30, 2023.

The number of trading days was 188 days for the nine months ended September 30, 2024, compared to 187 days for the nine months ended September 30, 2023.

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 $83.6 million, or 8.7%, to $1,040.6 million for the six months ended June 30, 2024, compared to $957.0 million for the six months ended June 30, 2023.

Our operating expenses increased $151.2 million, or 10.4%, to $1,600.3 million for the nine months ended September 30, 2024, compared to $1,449.1 million for the nine months ended September 30, 2023.

The increase was primarily driven by increase in Brokerage, exchange, clearance fees and payments for order flow, net, Interest and dividends expense, and Debt issue cost related to debt refinancing, prepayment and commitment fees.

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

Brokerage, exchange, clearance fees and payments for order flow, net, increased $22.6 million, or 8.4%, to $290.6 million for the six months ended June 30, 2024, compared to $268.0 million for the six months ended June 30, 2023.

Brokerage, exchange, clearance fees and payments for order flow, net, increased $76.1 million, or 19.5%, to $467.3 million for the nine months ended September 30, 2024, compared to $391.2 million for the nine months ended September 30, 2023.

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

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Communication and data processing.

Communication and data processing expense increased $3.7 million, or 3.3%, to $117.5 million for the six months ended June 30, 2024, compared to $113.8 million for the six months ended June 30, 2023.

This increase was primarily attributable to increased connectivity spending on market data, client connectivity, access ports and gateways, and microwave communication networks maintained by our joint ventures.

Communication and data processing expense increased $6.3 million, or 3.7%, to $177.1 million for the nine months ended September 30, 2024, compared to $170.8 million for the nine months ended September 30, 2023.

This increase was primarily attributable to increased connectivity spending on market data, subscription, and communication networks maintained by our joint ventures.

Employee compensation and payroll taxes.

Employee compensation and payroll taxes increased $7.5 million, or 3.8%, to $206.5 million for the six months ended June 30, 2024, compared to $199.0 million for the six months ended June 30, 2023.

Employee compensation and payroll taxes increased $18.0 million, or 6.1%, to $314.2 million for the nine months ended September 30, 2024, compared to $296.2 million for the nine months ended September 30, 2023.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $20.8 million and $19.8 million for the six months ended June 30, 2024 and 2023, respectively.

We have capitalized and therefore excluded employee compensation and benefits related to software development of $30.1 million and $29.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Interest and dividends expense.

Interest and dividends expense increased $39.6 million, or 18.8%, to $249.7 million for the six months ended June 30, 2024, compared to $210.1 million for the six months ended June 30, 2023.

Interest and dividends expense increased $42.9 million, or 12.5%, to $385.8 million for the nine months ended September 30, 2024, compared to $342.9 million for the nine months ended September 30, 2023.

This increase was primarily attributable to higher interest expense incurred on cash collateral received driven by higher interest rates, as well as an increase in securities lending transactions and higher dividends expense with respect to securities sold, not yet purchased for the period compared to the same period during the prior year.

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Operations and administrative.

Operations and administrative expense decreased $5.4 million, or 10.8%, to $44.4 million for the six months ended June 30, 2024, compared to $49.8 million for the six months ended June 30, 2023.

The decrease was primarily driven by a decrease in professional and regulatory expenses, as well as the beneficial effect of a strong U.S.

dollar on foreign exchange translation gains during the prior year period.

Operations and administrative expense decreased $2.9 million, or 4.0%, to $69.3 million for the nine months ended September 30, 2024, compared to $72.2 million for the nine months ended September 30, 2023.

The decrease was primarily driven by a decrease in regulatory and occupancy expenses.

Depreciation and amortization.

Depreciation and amortization increased $0.9 million, or 2.9%, to $32.2 million for the six months ended June 30, 2024, compared to $31.3 million for the six months ended June 30, 2023.

Depreciation and amortization increased $1.5 million, or 3.2%, to $48.6 million for the nine months ended September 30, 2024, compared to $47.1 million for the nine months ended September 30, 2023.

This increase was driven primarily by increased amortization of capitalized software and depreciation of leased equipment compared to the prior period.

Amortization of purchased intangibles and acquired capitalized software.

Amortization of purchased intangibles and acquired capitalized software decreased $5.2 million, or 16.3%, to $26.8 million for the six months ended June 30, 2024,

compared to $32.0 million for the six months ended June 30, 2023.

Amortization of purchased intangibles and acquired capitalized software decreased $9.3 million, or 19.4%, to $38.7 million for the nine months ended September 30, 2024, compared to $48.0 million for the nine months ended September 30, 2023.

This decrease was primarily attributable to certain intangible assets being fully amortized in 2023.

Termination of office leases.

Termination of office leases was insignificant for the six months ended June 30, 2024 and June 30, 2023.

Termination of office leases was insignificant for the nine months ended September 30, 2024 and September 30, 2023.

These expenses, when incurred, are related to the impairment of lease right-of-use assets, leasehold improvements and fixed assets for certain abandoned or vacated office space.

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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 $22.1 million, or 566.7%, to $26.0 million for the six months ended June 30, 2024, compared to $3.9 million for the six months ended June 30, 2023.

The increase was primarily driven by the acceleration of our capitalized debt issue cost and discount on our previous term loan as a result of refinancing during the six months ended June 30, 2024.

Expense from debt issue cost related to debt refinancing, prepayment and commitment fees increased $22.0 million, or 386.0%, to $27.7 million for the nine months ended September 30, 2024, compared to $5.7 million for the nine months ended September 30, 2023.

The increase was primarily driven by the acceleration of our capitalized debt issue cost and discount on our previous term loan as a result of refinancing during the nine months ended September 30, 2024.

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

Transaction advisory fees and expenses.

Transaction advisory fees and expenses were insignificant for the six months ended June 30, 2024 and June 30, 2023.

Transaction advisory fees and expenses were insignificant for the nine months ended September 30, 2024 and September 30, 2023.

These expenses, when incurred, are primarily in relation to our strategic investment portfolio.

Financing interest expense on long term borrowings.

Financing interest expense on long-term borrowings decreased $2.4 million, or 4.9%, to $46.7 million for the six months ended June 30, 2024, compared to $49.1 million for the six months ended June 30, 2023.

This decrease was attributable to the decrease in outstanding principal as a result of the voluntary prepayment in December 2023 and the amortization of the amounts in AOCI related to the interest rate swaps terminated in December 2023, as well as a lower overall interest rate after the refinancing described in Note 9 “Borrowings” during the three months ended June 30, 2024.

Financing interest expense on long-term borrowings decreased $3.3 million, or 4.4%, to $71.2 million for the nine months ended September 30, 2024, compared to $74.5 million for the nine months ended September 30, 2023.

This decrease was attributable to the decrease in outstanding principal as a result of the voluntary prepayment in December 2023, the amortization of the amounts in AOCI related to the interest rate swaps terminated in December 2023, as well as a lower overall interest rate after our debt refinancing described in Note 9 “Borrowings”.

Provision for income taxes

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subsidiaries.

Our provision for income taxes and effective tax rate was $55.8 million and 18.9% for the six months ended June 30, 2024, compared to a provision for income taxes and effective tax rate of $30.6 million and 18.0% for the six months ended June 30, 2023.

Our provision for income taxes and effective tax rate was $83.9 million and 19.0% for the nine months ended September 30, 2024, compared to a provision for income taxes and effective tax rate of $51.1 million and 16.6% for the nine months ended September 30, 2023.

Liquidity and Capital Resources

As of June 30, 2024, we had $684.8 million in Cash and cash equivalents.

As of September 30, 2024, we had $701.4 million in Cash and cash equivalents.

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

As of June 30, 2024, we had borrowings under our prime brokerage credit facilities of approximately $119.3 million, borrowings under our broker dealer facilities of $75.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,766.8 million.

As of September 30, 2024, we had borrowings under our prime brokerage credit facilities of approximately $143.9 million, borrowings under our broker dealer facilities of $110.0 million, and long-term debt outstanding in an aggregate principal amount of approximately $1,769.4 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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Short-term Liquidity and Capital Resources

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 due to margin requirements from increased trading activities in markets where we currently provide liquidity and in new markets into which we plan to expand.

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

We made payments totaling $114.0 million from February 2017 through March 2024.

We made payments totaling $114.0 million from February 2017 through September 2024.

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

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

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

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 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 Canadian Investment Regulatory Organization.

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

As of June 30, 2024, there was an outstanding principal balance on our broker-dealer facilities of $75.0 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 $119.3 million, which was netted within Receivables from broker-dealers and clearing organizations on the Condensed Consolidated Statements of Financial Condition of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q.

As of September 30, 2024, there was an outstanding principal balance on our broker-dealer facilities of $110.0 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 $143.9 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.

Credit Agreement

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

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

Borrowings under the Credit Agreement are guaranteed by Virtu Financial and VFH’s material non-regulated domestic

restricted subsidiaries and secured by substantially all of the assets of VFH and the guarantors, in each case, subject to certain exceptions.

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

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The New Term Loans are also subject to contingent principal payments based on excess cash flow and certain other triggering events.

As of June 30, 2024, $1,245.0 million was outstanding under the term loans.

We were in compliance with all applicable covenants under the Credit Agreement as of June 30, 2024.

As of September 30, 2024, $1,245.0 million was outstanding under the term loans.

We were in compliance with all applicable covenants under the Credit Agreement as of September 30, 2024.

In connection with its entry into the Amended Credit Agreement and the associated reduction in term loan balance, the Company partially terminated the December 2023 Swap, reducing the notional amount thereof from $1,525.0 million to $1,075.0 million and received $2.0 million in proceeds from the counterparty.

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

The table below summarizes our primary sources and uses of cash for the six months ended June 30, 2024 and 2023.

Six Months Ended June 30,

The table below summarizes our primary sources and uses of cash for the nine months ended September 30, 2024 and 2023.

Nine Months Ended September 30,

Net cash provided by (used in):

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Operating Activities

Net cash provided by operating activities was $95.4 million for the six months ended June 30, 2024, compared to net cash used in operating activities of $26.4 million for the six months ended June 30, 2023.

The change in net cash provided by operating activities was primarily attributable to decreases in noncash adjustments for the six months ended June 30, 2024 compared to the prior period.

Net cash provided by operating activities was $207.5 million for the nine months ended September 30, 2024, compared to net cash provided by operating activities of $143.7 million for the nine months ended September 30, 2023.

The change in net cash provided by operating activities was primarily attributable to higher net income as well as movements in noncash adjustments for the nine months ended September 30, 2024 compared to the prior period.

Investing Activities

Net cash used in investing activities, which includes cash used with respect to capitalized software and cash used in the acquisition of property and equipment, was $36.4 million for the six months ended June 30, 2024, compared with net cash used in investing activities of $55.1 million for the six months ended June 30, 2023.

The change in net cash used in investing activities was primarily attributable to decreases in acquisition of property and equipment in the six months ended June 30, 2024.

Net cash used in investing activities, which includes cash used with respect to capitalized software and cash used in the acquisition of property and equipment, was $55.7 million for the nine months ended September 30, 2024, compared with net cash used in investing activities of $70.5 million for the nine months ended September 30, 2023.

The change in net cash used in investing activities was primarily attributable to decreases in acquisition of property and equipment in the nine months ended September 30, 2024.

Financing Activities

Net cash used in financing activities was $194.7 million for the six months ended June 30, 2024, compared to Net cash used in financing activities of $215.1 million for the six months ended June 30, 2023.

The cash used in financing activities for the six months ended June 30, 2024 was primarily attributable to $75.0 million of net proceeds from short-term borrowings, offset by $160.7 million in dividends to stockholders and distributions made to noncontrolling interests and $82.9 million in purchases of treasury stock.

Net cash used in financing activities was $272.8 million for the nine months ended September 30, 2024, compared to Net cash used in financing activities of $385.3 million for the nine months ended September 30, 2023.

The cash used in financing activities for the nine months ended September 30, 2024 was primarily attributable to $1,741.9 million of net proceeds from long-term borrowings and $129.6 million of net proceeds from short-term borrowings, offset by $1,727.0 million of repayment of our previous long-term borrowings, $247.9 million in dividends to stockholders and distributions made to noncontrolling interests, and $132.9 million in purchases of treasury stock.

The cash used in financing activities of $385.3 million during the same period of 2023 primarily reflects $251.9 million net dividends to stockholders and distributions to noncontrolling interests, and $184.4 million purchase of treasury stock, partially offset by net proceeds of $96.1 million from short-term borrowings.

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The timing and amount of repurchase transactions are determined by the Company's management based on its evaluation of market conditions, share price, cash sources, legal requirements and other factors.

From the inception of the program through June 30, 2024, the Company repurchased approximately 47.0 million shares of Class A Common Stock and Virtu Financial Units for approximately $1,176.3 million.

As of June 30, 2024, the Company has approximately of $543.7 million remaining capacity for future purchases of shares of Class A Common Stock and Virtu Financial Units under the program.

From the inception of the program through September 30, 2024, the Company repurchased approximately 48.7 million shares of Class A Common Stock and Virtu Financial Units for approximately $1,224.7 million.

As of September 30, 2024, the Company has approximately of $495.3 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 Condensed Consolidated Financial Statements See Note 10 “Financial Assets and Liabilities” of Part I Item 1 “Financial Statements” of this Quarterly Report on Form 10-Q for further information about fair value measurements.

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

Revenue Recognition

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Commissions, Net and Technology Services

Commissions, net, which primarily comprise commissions and commission equivalents earned on institutional client orders, are recorded on a trade date basis, which is the point at which the performance obligation to the customer is satisfied.

Commissions, net, which primarily comprise commissions earned on institutional client orders, are recorded on a trade date basis, which is the point at which the performance obligation to the customer is satisfied.

Under a commission management program, we allow institutional clients to allocate a portion of their gross commissions to pay for research and other services provided by third parties.

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Workflow technology revenues consist of order and trade execution management and order routing services we provide through our front-end workflow solutions and network capabilities.

We provide trade order routing from our execution management system (“EMS”) to our execution services offerings, with each trade order routed through the EMS representing a separate performance obligation that is satisfied at a point in time.

A portion of the commissions earned on the trade is then allocated to Workflow Technology based on the stand-alone selling price paid by third-party brokers for order routing.

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When assessing impairment, an entity may perform an initial qualitative assessment, under which it assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

An entity has an unconditional option to bypass this qualitative assessment for any reporting unit in any period and proceed directly to performing the first step of the goodwill impairment test.

An entity may resume performing the qualitative assessment in any subsequent period.

In evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, an entity shall assess relevant events and circumstances, including the following:

• general economic conditions;

• limitations on accessing capital;

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

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

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

• overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods;

• other relevant entity-specific events such as changes in management, key personnel, strategy, or customers, contemplation of bankruptcy, or litigation.

If, after assessing the totality of such events or circumstances, an entity determines that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further goodwill impairment testing is necessary.

If further testing is necessary, the fair value of the reporting unit is compared to its carrying value;

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

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

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

In the impairment assessment as of July 1, 2023, we performed a quantitative assessment as described above for each reporting unit and, the estimated fair value of each of the reporting units exceeded its respective carrying value, and therefore, goodwill was not impaired.

The estimated fair value of each reporting unit was based on valuation techniques the Company believes market participants would use to value these reporting units, and allocated the enterprise value to each reporting unit based on an estimate of relative fair value for each reporting unit.

The carrying value of each reporting unit reflects an allocation of total shareholders’ equity and represents the estimated amount of total shareholders’ equity required to support the activities of the applicable reporting unit under currently applicable regulatory capital requirements.

In the impairment assessment as of July 1, 2024, we performed a qualitative assessment as described above for each reporting unit.

No impairment of goodwill was identified.

Valuation of intangible assets involves the use of significant estimates and assumptions with respect to the timing and amounts of revenue growth rates, customer attrition rates, future tax rates, royalty rates, contributory asset charges, discount rate and the resulting cash flows.

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

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

Had we used a shorter estimated useful life of seven years, the Company would have recorded an additional $5.4 million and $10.8 million of amortization expense for the three and six months ended June 30, 2024 and 2023, respectively.

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

Had we used a shorter estimated useful life of seven years, the Company would have recorded an additional $4.0 million and

$5.4 million of amortization expense for the three months ended September 30, 2024 and 2023, respectively, and an additional $14.8 million and $16.3 million for the nine months ended September 30, 2024 and 2023, respectively.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis