ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class | Name of each exchange on which registered |
Class A Common Stock, $0.01 par value | New York Stock Exchange |
Large accelerated filer | ý | Accelerated filer | ¨ | ||
Non-accelerated filer | ¨ | Smaller reporting company | ¨ |
Page | ||
PART I | ||
Item 1. | Business | |
Item 1A. | Risk Factors | |
Item 1B. | Unresolved Staff Comments | |
Item 2. | Properties | |
Item 3. | Legal Proceedings | |
Item 4. | Mine Safety Disclosures | |
PART II | ||
Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
Item 6. | Selected Financial Data | |
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 8. | Financial Statements and Supplementary Data | |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosures | |
Item 9A. | Controls and Procedures | |
Item 9B. | Other Information | |
PART III | ||
Item 10. | Directors, Executive Officers and Corporate Governance | |
Item 11. | Executive Compensation | |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | |
Item 14. | Principal Accountant Fees and Services | |
PART IV | ||
Item 15. | Exhibits and Financial Statement Schedules | |
Signatures | ||
Certifications | ||
Exhibit Index |
Item 1. | Business |
• | Market Making - Our Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, currencies and commodities. As a market maker, we commit capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions. Principal trading in the Market Making segment primarily consists of direct-to-client and non-client exchange-based electronic market making, including trade executions conducted as an equities Designated Market Maker (“DMM”) on the New York Stock Exchange ("NYSE") and NYSE Amex Equities ("NYSE Amex"). We are an active participant on all major global equity and futures exchanges and we also trade on substantially all domestic electronic options exchanges. As a complement to electronic market making, our cash trading business handles specialized orders and also transacts on the OTC Bulletin Board marketplaces operated by the OTC Markets Group Inc. and the Alternative Investment Market of the London Stock Exchange ("AIM"). |
• | Global Execution Services - Our Global Execution Services segment comprises agency execution services and trading venues offering trading in global equities, options, futures and fixed income to institutions, banks and broker dealers. We generally earn commissions as an agent between principals for transactions; however, we will commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities and options; (ii) institutional sales traders executing program, block and riskless principal trades in global equities and exchange traded funds ("ETFs"); (iii) a fixed income electronic communication network ("ECN") that also offers trading applications; and (iv) an alternative trading system ("ATS") for global equities. |
• | Corporate and Other - Our Corporate and Other segment contains investments principally in strategic financial services-oriented opportunities; manages the deployment of capital across the organization; houses executive management functions; and maintains corporate overhead expenses and all other income and expenses that are not attributable to our other segments. Our Corporate and Other segment also contains functions that support the Company’s other segments such as self-clearing services, including stock lending activities. |
For the year ended December 31, | ||||||||||||
2015 | 2014 | 2013 | ||||||||||
Market Making | ||||||||||||
Revenues | $ | 884,858 | $ | 901,152 | $ | 688,197 | ||||||
Expenses | 760,830 | 754,439 | 584,585 | |||||||||
Pre-tax earnings | 124,028 | 146,713 | 103,612 | |||||||||
Global Execution Services | ||||||||||||
Revenues | 667,723 | 345,710 | 197,765 | |||||||||
Expenses | 298,766 | 334,654 | 223,559 | |||||||||
Pre-tax earnings (loss) | 368,957 | 11,056 | (25,794 | ) | ||||||||
Corporate and Other | ||||||||||||
Revenues | 46,529 | 69,369 | 141,374 | |||||||||
Expenses | 159,552 | 141,951 | 194,216 | |||||||||
Pre-tax loss | (113,023 | ) | (72,582 | ) | (52,842 | ) | ||||||
Consolidated | ||||||||||||
Revenues | 1,599,110 | 1,316,232 | 1,027,336 | |||||||||
Expenses | 1,219,148 | 1,231,045 | 1,002,358 | |||||||||
Pre-tax earnings | $ | 379,962 | $ | 85,187 | $ | 24,978 |
Item 1A. | Risk Factors |
• | increasing its vulnerability to general adverse economic and industry conditions; |
• | requiring it to dedicate a portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes; |
• | making it difficult for KCG to optimally manage the cash flow for its businesses; |
• | limiting its flexibility in planning for, or reacting to, changes in its businesses and the markets in which it operates; |
• | placing it at a competitive disadvantage compared to its competitors that have less debt; |
• | subjecting it to a number of restrictive covenants that, among other things, limit its ability to pay dividends and distributions, make acquisitions and dispositions, borrow additional funds, and make capital expenditures and other investments, and |
• | exposing it to interest rate risk due to the variable interest rate on borrowings under its revolving credit agreement. |
Item 1B. | Unresolved Staff Comments |
Item 2. | Properties |
Item 3. | Legal Proceedings |
Item 4. | Mine Safety Disclosures |
Item 5. | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
High | Low | ||||||
2015 | |||||||
First Quarter | $ | 12.92 | $ | 11.55 | |||
Second Quarter | 13.63 | 12.24 | |||||
Third Quarter | 12.49 | 9.88 | |||||
Fourth Quarter | 12.98 | 11.24 | |||||
2014 | |||||||
First Quarter | $ | 12.49 | $ | 10.91 | |||
Second Quarter | 12.27 | 9.71 | |||||
Third Quarter | 12.09 | 10.10 | |||||
Fourth Quarter | 11.93 | 9.99 |
Period Ending | ||||||||||||||||||
Index | 07/05/13 | 12/31/13 | 06/30/14 | 12/31/14 | 06/30/15 | 12/31/15 | ||||||||||||
KCG Holdings, Inc. | 100.00 | 107.17 | 106.45 | 104.39 | 110.48 | 110.30 | ||||||||||||
Russell 2000 | 100.00 | 115.74 | 118.66 | 119.82 | 124.72 | 112.98 | ||||||||||||
SNL Broker/Dealer | 100.00 | 113.26 | 120.12 | 126.17 | 141.08 | 130.82 |
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (3) | ||||||||||
October 1, 2015 - October 31, 2015 | ||||||||||||||
Common stock repurchases | — | — | $ | 57,790 | ||||||||||
Employee transactions (2) | 12 | — | ||||||||||||
Total | 12 | $ | 11.06 | — | ||||||||||
November 1, 2015 - November 30, 2015 | ||||||||||||||
Common stock repurchases | 2,285 | 2,285 | $ | 23,906 | ||||||||||
Employee transactions (2) | 4 | — | ||||||||||||
Total | 2,289 | $ | 12.89 | 2,285 | ||||||||||
December 1, 2015 - December 31, 2015 | ||||||||||||||
Common stock repurchases | — | — | $ | 23,906 | ||||||||||
Employee transactions (2) | 26 | — | ||||||||||||
Total | 26 | $ | 12.44 | — | ||||||||||
Total | ||||||||||||||
Common stock repurchases | 2,285 | 2,285 | $ | 23,906 | ||||||||||
Employee transactions (2) | 41 | — | ||||||||||||
Total | 2,326 | $ | 12.87 | 2,285 |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||||||
(In thousands, except weighted-average exercise price) | |||||||||
( a ) | ( b ) | ( c ) | |||||||
Equity compensation plans approved by security holders | 4,371 | $ | 17.36 | 16,347 | |||||
Equity compensation plans not approved by security holders | — | — | — | ||||||
Total | 4,371 | $ | 17.36 | 16,347 |
Item 6. | Selected Financial Data |
For the year ended December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
Consolidated Statements of Operations Data: | (In thousands, except per share amounts) | ||||||||||||||||||
Revenues | |||||||||||||||||||
Trading revenues, net | $ | 803,181 | $ | 837,357 | $ | 628,304 | $ | 421,063 | $ | 611,845 | |||||||||
Commissions and fees | 376,673 | 437,022 | 275,474 | 105,518 | 284,620 | ||||||||||||||
Interest, net | (2,128 | ) | 621 | (537 | ) | (2,357 | ) | (1,211 | ) | ||||||||||
Investment income and other, net | 421,384 | 41,232 | 124,095 | 27,010 | 20,194 | ||||||||||||||
Total revenues | 1,599,110 | 1,316,232 | 1,027,336 | 551,234 | 915,448 | ||||||||||||||
Expenses | |||||||||||||||||||
Employee compensation and benefits | 405,609 | 437,269 | 349,192 | 157,855 | 241,753 | ||||||||||||||
Execution and clearance fees | 265,186 | 305,177 | 246,414 | 185,790 | 289,025 | ||||||||||||||
Communications and data processing | 139,263 | 150,595 | 123,552 | 90,623 | 87,116 | ||||||||||||||
Depreciation and amortization | 90,231 | 81,448 | 55,570 | 34,938 | 45,675 | ||||||||||||||
Payments for order flow | 61,741 | 70,183 | 35,711 | 2,964 | 3,299 | ||||||||||||||
Debt interest expense | 36,755 | 32,456 | 34,938 | 2,665 | 1,299 | ||||||||||||||
Collateralized financing interest | 34,678 | 27,860 | 9,847 | — | — | ||||||||||||||
Occupancy and equipment rentals | 30,128 | 32,707 | 24,812 | 12,804 | 9,903 | ||||||||||||||
Professional fees | 27,055 | 25,596 | 46,662 | 14,072 | 17,142 | ||||||||||||||
Business development | 8,479 | 9,763 | 4,609 | 23 | 108 | ||||||||||||||
Debt extinguishment charges | 25,006 | 9,552 | 13,209 | — | — | ||||||||||||||
Writedown of assets and other real estate related charges | 56,642 | 8,625 | 14,748 | — | — | ||||||||||||||
Other | 38,375 | 39,814 | 43,094 | 23,073 | 26,587 | ||||||||||||||
Total expenses | 1,219,148 | 1,231,045 | 1,002,358 | 524,807 | 721,907 | ||||||||||||||
Income from continuing operations before income taxes | 379,962 | 85,187 | 24,978 | 26,427 | 193,541 | ||||||||||||||
Income tax expense (benefit) | 130,858 | 22,753 | (101,114 | ) | 10,276 | 30,841 | |||||||||||||
Income from continuing operations, net of tax | 249,104 | 62,434 | 126,092 | 16,151 | 162,700 | ||||||||||||||
(Loss) income from discontinued operations, net of tax | — | (1,332 | ) | 80 | — | — | |||||||||||||
Net income | $ | 249,104 | $ | 61,102 | $ | 126,172 | $ | 16,151 | $ | 162,700 | |||||||||
Net (loss) income allocated to preferred and participating units | $ | — | $ | — | $ | (21,565 | ) | $ | 1,092 | $ | 12,510 | ||||||||
Net income attributable to common shareholders | $ | 249,104 | $ | 61,102 | $ | 147,737 | $ | 15,059 | $ | 150,190 | |||||||||
Basic earnings per common share from continuing operations | $ | 2.48 | $ | 0.55 | $ | 1.84 | $ | 0.31 | $ | 2.96 | |||||||||
Diluted earnings per common share from continuing operations | $ | 2.42 | $ | 0.54 | $ | 1.82 | $ | 0.31 | $ | 2.96 | |||||||||
Basic loss per common share from discontinued operations | $ | — | $ | (0.01 | ) | $ | — | $ | — | $ | — | ||||||||
Diluted loss per common share from discontinued operations | $ | — | $ | (0.01 | ) | $ | — | $ | — | $ | — | ||||||||
Basic earnings per common share | $ | 2.48 | $ | 0.54 | $ | 1.84 | $ | 0.31 | $ | 2.96 | |||||||||
Diluted earnings per common share | $ | 2.42 | $ | 0.52 | $ | 1.82 | $ | 0.31 | $ | 2.96 | |||||||||
Shares used in computation of basic earnings (loss) per common share | 100,437 | 112,854 | 80,143 | 48,970 | 50,688 | ||||||||||||||
Shares used in computation of diluted earnings (loss) per common share | 102,922 | 116,534 | 81,015 | 48,970 | 50,688 |
December 31, | |||||||||||||||||||
2015 | 2014 | 2013 | 2012 | 2011 | |||||||||||||||
(In thousands) | |||||||||||||||||||
Consolidated Statements of Financial Condition Data: | |||||||||||||||||||
Cash and cash equivalents | $ | 581,313 | $ | 578,768 | $ | 674,281 | $ | 427,631 | $ | 607,689 | |||||||||
Financial instruments owned, at fair value | 2,444,400 | 2,707,371 | 2,721,839 | 654,875 | 240,338 | ||||||||||||||
Total assets | 6,051,178 | 6,830,654 | 6,997,004 | 1,687,536 | 1,302,023 | ||||||||||||||
Financial instruments sold, not yet purchased, at fair value | 2,113,404 | 2,285,707 | 2,165,500 | 512,553 | 140,530 | ||||||||||||||
Debt | 495,632 | 422,259 | 657,259 | 15,000 | 15,000 | ||||||||||||||
Redeemable preferred member's equity | — | — | — | 311,139 | 314,440 | ||||||||||||||
Equity | 1,444,098 | 1,522,577 | 1,509,537 | 654,672 | 622,996 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Three Months Ended December 31, 2015 | Year Ended December 31, 2015 | ||||||
(in thousands, except for per share data) | |||||||
Net income (loss) announced on January 29, 2016 | $ | (4,596 | ) | $ | 247,480 | ||
Adjustments, net of tax: | |||||||
Fair value of businesses held for sale | 772 | 772 | |||||
Other income | 853 | 853 | |||||
Net income (loss) reported in Form 10-K | $ | (2,971 | ) | $ | 249,104 | ||
Net income (loss) per share: | |||||||
Basic - announced on January 29, 2016 | $ | (0.05 | ) | $ | 2.46 | ||
Basic - reported in Form 10-K | $ | (0.03 | ) | $ | 2.48 | ||
Diluted - announced on January 29, 2016 | $ | (0.05 | ) | $ | 2.40 | ||
Diluted - reported in Form 10-K | $ | (0.03 | ) | $ | 2.42 |
• | Market Making— Our Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, currencies and commodities. As a market maker, we commit capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions. Principal trading in the Market Making segment primarily consists of direct-to-client and non-client exchange-based electronic market making, including trade executions conducted as an equities Designated Market Maker (“DMM”) on the New York Stock Exchange ("NYSE") and NYSE Amex Equities ("NYSE Amex"). We are an active participant on all major global equity and futures exchanges and also trade on substantially all domestic electronic options exchanges. As a complement to electronic market making, our cash trading business handles specialized orders and also transacts on the OTC Bulletin Board marketplaces operated by the OTC Markets Group Inc. and the Alternative Investment Market of the London Stock Exchange ("AIM"). |
• | Global Execution Services— Our Global Execution Services segment comprises agency execution services and trading venues, offering trading in global equities, options, futures and fixed income to institutions, banks and broker dealers. We generally earn commissions as an agent between principals for transactions; however, we will commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities and options; (ii) institutional sales traders executing program, block and riskless principal trades in global equities and exchange traded funds ("ETFs"); (iii) a fixed income electronic communication network ("ECN") that also offers trading applications; and (iv) an alternative trading system ("ATS") for global equities. |
• | Corporate and Other— Our Corporate and Other segment contains investments principally in strategic financial services-oriented opportunities; manages the deployment of capital across the organization; houses executive management functions; and maintains corporate overhead expenses and all other income and expenses that are not attributable to our other segments. Our Corporate and Other segment also contains functions that support the Company’s other segments such as self-clearing services, including stock lending activities. |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Market Making | |||||||||||
Revenues | $ | 884,858 | $ | 901,152 | $ | 688,197 | |||||
Expenses | 760,830 | 754,439 | 584,585 | ||||||||
Pre-tax earnings | 124,028 | 146,713 | 103,612 | ||||||||
Global Execution Services | |||||||||||
Revenues | 667,723 | 345,710 | 197,765 | ||||||||
Expenses | 298,766 | 334,654 | 223,559 | ||||||||
Pre-tax earnings (loss) | 368,957 | 11,056 | (25,794 | ) | |||||||
Corporate and Other | |||||||||||
Revenues | 46,529 | 69,369 | 141,374 | ||||||||
Expenses | 159,552 | 141,951 | 194,216 | ||||||||
Pre-tax loss | (113,023 | ) | (72,582 | ) | (52,842 | ) | |||||
Consolidated | |||||||||||
Revenues | 1,599,110 | 1,316,232 | 1,027,336 | ||||||||
Expenses | 1,219,148 | 1,231,045 | 1,002,358 | ||||||||
Pre-tax earnings | $ | 379,962 | $ | 85,187 | $ | 24,978 |
Year ended December 31, 2015 | Market Making | Global Execution Services | Corporate and Other | Consolidated | ||||||||||||
Reconciliation of GAAP Revenues to Non-GAAP Revenues: | ||||||||||||||||
GAAP Revenues | $ | 884,858 | $ | 667,723 | $ | 46,529 | $ | 1,599,110 | ||||||||
Gain on sale of KCG Hotspot | — | (385,026 | ) | — | (385,026 | ) | ||||||||||
Gain on sales of investments | — | — | (19,751 | ) | (19,751 | ) | ||||||||||
Writedowns of investments | — | — | 3,224 | 3,224 | ||||||||||||
Adjusted revenues | $ | 884,858 | $ | 282,697 | $ | 30,002 | $ | 1,197,557 |
Year ended December 31, 2015 | Market Making | Global Execution Services | Corporate and Other | Consolidated | ||||||||||||
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: | ||||||||||||||||
GAAP Income (loss) from continuing operations before income taxes | $ | 124,028 | $ | 368,957 | $ | (113,023 | ) | $ | 379,962 | |||||||
Gain on sale of KCG Hotspot | — | (385,026 | ) | — | (385,026 | ) | ||||||||||
Gain on sales of investments | — | — | (19,751 | ) | (19,751 | ) | ||||||||||
Writedowns of investments | — | — | 3,224 | 3,224 | ||||||||||||
Other real estate related charges | — | — | 35,284 | 35,284 | ||||||||||||
Accelerated stock-based compensation | 19,844 | 8,202 | 803 | 28,849 | ||||||||||||
Writedown of goodwill and intangible assets | 14,016 | 907 | 1,014 | 15,937 | ||||||||||||
Debt make-whole premium | — | — | 16,500 | 16,500 | ||||||||||||
Writedown of capitalized debt costs | — | — | 8,506 | 8,506 | ||||||||||||
Professional fees related to the sale of KCG Hotspot | — | 6,736 | — | 6,736 | ||||||||||||
Writedown of assets | 4,595 | — | 825 | 5,420 | ||||||||||||
Compensation expense related to the sale of KCG Hotspot | — | 4,457 | — | 4,457 | ||||||||||||
Adjusted pre-tax earnings | $ | 162,483 | $ | 4,233 | $ | (66,618 | ) | $ | 100,098 |
Year ended December 31, 2014 | Market Making | Global Execution Services | Corporate and Other | Consolidated | ||||||||||||
Reconciliation of GAAP Revenues to Non-GAAP Revenues: | ||||||||||||||||
GAAP Revenues | $ | 901,152 | $ | 345,710 | $ | 69,369 | $ | 1,316,232 | ||||||||
Net gain related to tradeMONSTER combination with OptionsHouse | — | — | (15,105 | ) | (15,105 | ) | ||||||||||
Income resulting from the merger of BATS and Direct Edge, net | — | — | (9,644 | ) | (9,644 | ) | ||||||||||
Gain on sale of FCM | — | (2,116 | ) | — | (2,116 | ) | ||||||||||
Adjusted revenues | $ | 901,152 | $ | 343,594 | $ | 44,620 | $ | 1,289,367 |
Year ended December 31, 2014 | Market Making | Global Execution Services | Corporate and Other | Consolidated | ||||||||||||
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: | ||||||||||||||||
GAAP Income (loss) from continuing operations before income taxes | $ | 146,713 | $ | 11,056 | $ | (72,582 | ) | $ | 85,187 | |||||||
Net gain related to tradeMONSTER combination with OptionsHouse | — | — | (15,105 | ) | (15,105 | ) | ||||||||||
Income resulting from the merger of BATS and Direct Edge, net | — | — | (9,644 | ) | (9,644 | ) | ||||||||||
Gain on sale of FCM | — | (2,116 | ) | — | (2,116 | ) | ||||||||||
Compensation related to reduction in workforce and other employee separations | 3,169 | 5,463 | 4,958 | 13,590 | ||||||||||||
Writedown of capitalized debt costs | — | — | 9,552 | 9,552 | ||||||||||||
Writedown of assets and lease loss accrual, net | 811 | — | 7,814 | 8,625 | ||||||||||||
Adjusted pre-tax earnings | $ | 150,693 | $ | 14,403 | $ | (75,007 | ) | $ | 90,089 |
Year ended December 31, 2013 | Market Making | Global Execution Services | Corporate and Other | Consolidated | ||||||||||||
Reconciliation of GAAP Revenues to Non-GAAP Revenues: | ||||||||||||||||
GAAP Revenues | $ | 688,197 | $ | 197,765 | $ | 141,374 | $ | 1,027,336 | ||||||||
Gain on investment in Knight Capital Group, Inc. | — | — | (127,972 | ) | (127,972 | ) | ||||||||||
Strategic asset impairment | — | — | 7,825 | 7,825 | ||||||||||||
Adjusted revenues | $ | 688,197 | $ | 197,765 | $ | 21,227 | $ | 907,189 |
Year ended December 31, 2013 | Market Making | Global Execution Services | Corporate and Other | Consolidated | ||||||||||||
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax: | ||||||||||||||||
GAAP Income (loss) from continuing operations before income taxes | $ | 103,612 | $ | (25,794 | ) | $ | (52,842 | ) | $ | 24,978 | ||||||
Gain on investment in Knight Capital Group, Inc. | — | — | (127,972 | ) | (127,972 | ) | ||||||||||
Professional and other fees related to Mergers and Knight's August 1st, 2012 technology issue | — | — | 47,183 | 47,183 | ||||||||||||
Writedown of capitalized debt costs | — | — | 13,209 | 13,209 | ||||||||||||
Compensation and other expenses related to reduction in workforce | 11,518 | 21,444 | 708 | 33,670 | ||||||||||||
Unit based compensation acceleration due to Mergers | — | — | 22,031 | 22,031 | ||||||||||||
Strategic asset impairment | — | — | 7,825 | 7,825 | ||||||||||||
Writedown of assets and lease loss accrual, net | 108 | 1,681 | 13,344 | 15,133 | ||||||||||||
Adjusted pre-tax earnings | $ | 115,238 | $ | (2,669 | ) | $ | (76,514 | ) | $ | 36,057 |
Year ended December 31, 2015 | GAAP | Adjustments for non-GAAP presentation | Non-GAAP expenses | |||||||||
Reconciliation of GAAP non-transactional based expenses to Non-GAAP non-transactional based expenses* | ||||||||||||
Employee compensation and benefits | $ | 405,609 | $ | 33,306 | $ | 372,303 | ||||||
Communications and data processing | 139,263 | — | 139,263 | |||||||||
Depreciation and amortization | 90,231 | — | 90,231 | |||||||||
Debt interest expense | 36,755 | — | 36,755 | |||||||||
Occupancy and equipment rentals | 30,128 | — | 30,128 | |||||||||
Professional fees | 27,055 | 6,736 | 20,319 | |||||||||
Business development | 8,479 | — | 8,479 | |||||||||
Debt extinguishment charges | 25,006 | 25,006 | — | |||||||||
Writedown of assets and other real estate related charges | 56,642 | 56,642 | — | |||||||||
Other | 38,375 | — | 38,375 | |||||||||
Total | $ | 857,543 | $ | 121,690 | $ | 735,853 |
Year ended December 31, 2014 | GAAP | Adjustments for non-GAAP presentation | Non-GAAP expenses | |||||||||
Reconciliation of GAAP non-transactional based expenses to Non-GAAP non-transactional based expenses* | ||||||||||||
Employee compensation and benefits | $ | 437,269 | $ | 13,590 | $ | 423,679 | ||||||
Communications and data processing | 150,595 | — | 150,595 | |||||||||
Depreciation and amortization | 81,448 | — | 81,448 | |||||||||
Debt interest expense | 32,456 | — | 32,456 | |||||||||
Occupancy and equipment rentals | 32,707 | — | 32,707 | |||||||||
Professional fees | 25,596 | — | 25,596 | |||||||||
Business development | 9,763 | — | 9,763 | |||||||||
Debt extinguishment charges | 9,552 | 9,552 | — | |||||||||
Writedown of assets and other real estate related charges | 8,625 | 8,625 | — | |||||||||
Other | 39,814 | — | 39,814 | |||||||||
Total | $ | 827,825 | $ | 31,767 | $ | 796,058 |
Year ended December 31, 2013 | GAAP | Adjustments for non-GAAP presentation | Non-GAAP expenses | |||||||||
Reconciliation of GAAP non-transactional based expenses to Non-GAAP non-transactional based expenses* | ||||||||||||
Employee compensation and benefits | $ | 349,192 | $ | 55,701 | $ | 293,491 | ||||||
Communications and data processing | 123,552 | — | 123,552 | |||||||||
Depreciation and amortization | 55,570 | — | 55,570 | |||||||||
Debt interest expense | 34,938 | 2,963 | 31,975 | |||||||||
Occupancy and equipment rentals | 24,812 | — | 24,812 | |||||||||
Professional fees | 46,662 | 34,213 | 12,449 | |||||||||
Business development | 4,609 | — | 4,609 | |||||||||
Debt extinguishment charges | 13,209 | 13,209 | — | |||||||||
Writedown of assets and other real estate related charges | 14,748 | 14,748 | — | |||||||||
Other | 43,094 | 10,392 | 32,702 | |||||||||
Total | $ | 710,386 | $ | 131,226 | $ | 579,160 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Reconciliation of total revenues to net revenues: | |||||||||||
Total revenues per Consolidated Statements of Operations | $ | 1,599,110 | $ | 1,316,232 | $ | 1,027,336 | |||||
Less: | |||||||||||
Execution and clearance fees | 265,186 | 305,177 | 246,414 | ||||||||
Payments for order flow | 61,741 | 70,183 | 35,711 | ||||||||
Collateralized financing interest | 34,678 | 27,860 | 9,847 | ||||||||
Gain on sale of KCG Hotspot | 385,026 | — | — | ||||||||
Gain on sales of investments | 19,751 | — | — | ||||||||
Writedowns of investments | (3,224 | ) | — | — | |||||||
Net gain related to tradeMONSTER combination with OptionsHouse | — | 15,105 | — | ||||||||
Income resulting from the merger of BATS and Direct Edge, net | — | 9,644 | — | ||||||||
Gain on sale of FCM | — | 2,116 | — | ||||||||
Gain on investment in Knight Capital Group, Inc. | — | — | 127,972 | ||||||||
Strategic asset impairment | — | — | (7,825 | ) | |||||||
Net revenues | $ | 835,952 | $ | 886,147 | $ | 615,217 |
(i) | Items related to our sale of KCG Hotspot, which was sold to BATS in the first quarter of 2015 |
(ii) | Activity related to our investments comprising gains on sales and writedowns |
(iii) | Accelerated stock-based compensation as a result of an amendment to vesting provisions made to prior years’ bonus-related annual equity awards |
(iv) | Charges related to the early retirement of debt including a contractual make-whole premium and writedown of capitalized debt costs |
(v) | Other real estate related charges including lease losses for our Jersey City and New York City offices and accelerated amortization of leasehold improvements for related to abandoned space in our Jersey City and Chicago offices |
(i) | Net gains related to tradeMONSTER's combination with OptionsHouse |
(ii) | BATS and Direct Edge Holdings LLC ("Direct Edge") merger |
(iii) | Sale of our FCM business |
(iv) | Compensation related to reductions in workforce and other employee separations |
(v) | Writedown of capitalized debt costs and writedown of assets and lease loss accruals |
• | Market Making— Our Adjusted pre-tax earnings from Market Making for 2015 were $162.5 million, compared to adjusted pre-tax earnings of $150.7 million for 2014. Results for 2015 were aided, primarily, by lower expenses offset, in part, by higher competition which negatively impacted revenues. |
• | Global Execution Services— Our Adjusted pre-tax earnings from Global Execution Services for 2015 were $4.2 million, compared to adjusted pre-tax earnings of $14.4 million in 2014. The results were affected by lower earnings as a result of the sale of KCG Hotspot, as its results were included for all of 2014 but only through the date of sale in the first quarter of 2015 and the sale of our FCM business in the fourth quarter of 2014 offset, in part, by improved results in our algorithmic trading and ETF businesses, which aided 2015 results. |
• | Corporate and Other— Our Adjusted pre-tax earnings from our Corporate and Other segment was a loss of $66.6 million for 2015 compared to a loss of $75.0 million in 2014. |
• | Clients continue to focus on statistics measuring the quality of their executions (including speed of execution and amount of price improvement). In an effort to improve the quality of their executions as well as increase efficiencies, market makers continue to increase the level of sophistication and automation within their operations and the extent of price improvement they provide to their clients. The continued focus on execution quality has resulted in greater price competition in the marketplace, which, along with market structure changes and market conditions, has negatively impacted the performance of our trading models and margin metrics and those of other market making firms. |
• | Market Making and Global Execution Services transaction volumes executed by clients have fluctuated over the past few years due to market conditions, retail and institutional investor sentiment and a variety of other factors. Market Making and Global Execution Services transaction volumes are not predictable and may not be sustainable. |
• | Over the past several years exchanges have become far more competitive, and market participants have created ATSs, ECNs and other execution venues which compete with the OTC and listed trading venues. Initiatives by these and other market participants could draw market share away from the Company, and thus negatively impact our business. In addition, while there is the possibility for consolidation among trading venues, there are many new entrants into the market, including ATS, Multilateral Trading Facilities, systematic internalizers, dark liquidity pools, high frequency trading firms and market making firms competing for retail and institutional order flow. Further, many broker dealers offer their own internal crossing networks. These factors continue to create further fragmentation and competition in the marketplace. |
• | Market structure changes, competition, market conditions and a steady increase in electronic trading have resulted in a reduction in institutional commission rates and volumes which may continue in the future. Additionally, many institutional clients allocate commissions to broker dealers based not only on the quality of executions, but also in exchange for research or participation in soft dollar and commission recapture programs. |
• | There continues to be growth in electronic trading, including direct market access platforms, algorithmic and program trading, high frequency trading ECNs, ATSs and dark liquidity pools. In addition, electronic trading continues to expand to other asset classes, including options, currencies and fixed income. The expansion of electronic trading may result in the growth of innovative electronic products and competition for order flow and may further reduce demand for traditional institutional voice services. |
• | Market structure changes, competition and technology advancements have led to an industry focus on increasing execution speeds and a dramatic increase in electronic message traffic. Increases in execution speeds and message traffic require additional expenditures for technology infrastructure and place heavy strains on the technology resources, bandwidth and capacities of market participants. Additionally, the expansion by market participants into trading of non-equities products offers similar challenges. |
• | There has been increased scrutiny of the capital markets industry by the regulatory and legislative authorities, both in the U.S. and abroad, which could result in increased regulatory costs in the future particularly as it relates to the trading of equities, fixed income, commodities, and currencies. As has been widely reported, there has been an increased focus by securities regulators, federal and state law enforcement agencies, Congress and the media on market structure issues, and, in particular, high frequency trading, best execution, ATS manner of operations, market fragmentation, public disclosures around order types and execution protocols, market structure complexity, colocation, access to market data feeds and remuneration arrangements such as payment for order flow and exchange fee structures. New legislation or new or modified regulations and rules could occur in the future. Members of the U.S. Congress continue to ask the SEC and other regulators to closely review the financial markets regulatory structure and make the changes necessary to insure the rule framework governing the U.S. financial markets is comprehensive and complete. The SEC and other regulators, both in the U.S. and abroad, have adopted and will continue to propose and adopt rules and take other policy actions where necessary, on a variety of marketplace issues – including, but not limited to: high frequency trading, market fragmentation and complexity, transaction taxes, off-exchange trading, dark liquidity pools, internalization, post-trade attribution, colocation, market access, short sales, consolidated audit trails, policies and procedures relating to technology controls and systems, optimal tick sizes, and market volatility rules. |
• | Unique instances of trading volatility impact our businesses. For example, on October 15, 2014, the market for U.S. Treasury securities, futures and other closely related financial markets experienced an unusually high level of volatility. More recently, on August 24, 2015, the securities markets experienced an unusually high level of volatility that contributed to the delayed opening of securities on primary exchanges, sharp price moves in the major indices and in ETFs, and frequent triggering of trading halts. Market structure changes that may ensue as a result of these events and their effect on the Company are difficult to forecast. |
• | There could be continued fluctuations, including possible substantial increases, in Section 31 fees and fees imposed by other regulators. In addition,clearing corporations are considering various proposals which could require substantial increases in clearing margin, liquidity and collateral requirements, and FTTs have been introduced in certain jurisdictions and may be introduced in others. |
• | The Dodd-Frank Act affects nearly all financial institutions that operate in the U.S. While the weight of the Dodd-Frank Act falls more heavily on large, complex financial institutions, smaller institutions will continue to face a more complicated and expensive regulatory framework. |
• | There has recently been an increased focus and increased sanction levels by regulators on broker-dealers’ controls and surveillance for Anti-Money Laundering and sanctions compliance, as well as an enhanced interest on transactions involving microcap securities. |
For the year ended December 31, | |||||||||
2015 | 2014 | 2013 | |||||||
Revenues | |||||||||
Trading revenues, net | 50.2 | % | 63.6 | % | 61.2 | % | |||
Commissions and fees | 23.6 | % | 33.2 | % | 26.8 | % | |||
Interest, net | -0.1 | % | 0.0 | % | -0.1 | % | |||
Investment income and other, net | 26.4 | % | 3.1 | % | 12.1 | % | |||
Total revenues | 100.0 | % | 100.0 | % | 100.0 | % | |||
Expenses | |||||||||
Employee compensation and benefits | 25.4 | % | 33.2 | % | 34.0 | % | |||
Execution and clearance fees | 16.6 | % | 23.2 | % | 24.0 | % | |||
Communications and data processing | 8.7 | % | 11.4 | % | 12.0 | % | |||
Depreciation and amortization | 5.6 | % | 6.2 | % | 5.4 | % | |||
Payments for order flow | 3.9 | % | 5.3 | % | 3.5 | % | |||
Debt interest expense | 2.3 | % | 2.5 | % | 3.4 | % | |||
Collateralized financing interest | 2.2 | % | 2.1 | % | 1.0 | % | |||
Occupancy and equipment rentals | 1.9 | % | 2.5 | % | 2.4 | % | |||
Professional fees | 1.7 | % | 1.9 | % | 4.5 | % | |||
Business development | 0.5 | % | 0.7 | % | 0.4 | % | |||
Debt extinguishment charges | 1.6 | % | 0.7 | % | 1.3 | % | |||
Writedown of assets and other real estate related charges | 3.5 | % | 0.7 | % | 1.4 | % | |||
Other | 2.4 | % | 3.0 | % | 4.2 | % | |||
Total expenses | 76.2 | % | 93.5 | % | 97.6 | % | |||
Income from continuing operations before income taxes | 23.8 | % | 6.5 | % | 2.4 | % | |||
Income tax expense (benefit) | 8.2 | % | 1.7 | % | -9.8 | % | |||
Income from continuing operations, net of tax | 15.6 | % | 4.7 | % | 12.3 | % | |||
Income (loss) from discontinued operations, net of tax | 0.0 | % | -0.1 | % | 0.0 | % | |||
Net income | 15.6 | % | 4.6 | % | 12.3 | % |
For the year ended December 31, | ||||||||||||||
2015 | 2014 | Change | % of Change | |||||||||||
Trading revenues, net (thousands) | $ | 767,951 | $ | 809,371 | $ | (41,420 | ) | (5.1 | )% | |||||
Commissions and fees (thousands) | 122,516 | 117,058 | 5,458 | 4.7 | % | |||||||||
Interest, net and other (thousands) | (5,609 | ) | (25,277 | ) | 19,669 | N/M | ||||||||
Total revenues from Market Making (thousands) | $ | 884,858 | $ | 901,152 | (16,294 | ) | (1.8 | )% | ||||||
U.S. equity Market Making statistics: | ||||||||||||||
Average daily dollar volume traded ($ millions) | 29,814 | 27,197 | 2,617 | 9.6 | % | |||||||||
Average daily trades (thousands) | 3,797 | 3,732 | 65 | 1.7 | % | |||||||||
Average daily NYSE and Nasdaq shares traded (millions) | 931 | 820 | 111 | 13.5 | % | |||||||||
Average daily OTC Bulletin Board and OTC Market shares traded (millions) | 4,156 | 8,317 | (4,161 | ) | (50.0 | )% | ||||||||
Average revenue capture per U.S. equity dollar value traded (bps) | 0.95 | 1.00 | (0.05 | ) | (5.0 | )% |
For the year ended December 31, | ||||||||||||||
2015 | 2014 | Change | % of Change | |||||||||||
Commissions and fees (thousands) | $ | 254,157 | $ | 319,964 | $ | (65,807 | ) | (20.6 | )% | |||||
Trading revenues, net (thousands) | 35,121 | 28,355 | 6,766 | 23.9 | % | |||||||||
Interest, net and other (thousands) | 378,445 | (2,609 | ) | 381,054 | N/M | |||||||||
Total revenues from Global Execution Services (thousands) | $ | 667,723 | $ | 345,710 | 322,013 | 93.1 | % | |||||||
Average daily KCG algorithmic trading and order routing U.S. equities shares traded (millions) | 303.7 | 282.1 | 21.6 | 7.7 | % | |||||||||
Average daily KCG BondPoint fixed income par value traded ($ millions) | 141.1 | 133.6 | 7.5 | 5.6 | % |
For the year ended December 31, | ||||||||||||||
2015 | 2014 | Change | % of Change | |||||||||||
Total revenues from Corporate and Other (thousands) | $ | 46,529 | $ | 69,369 | $ | (22,840 | ) | (32.9 | )% |
For the year ended December 31, | ||||||||||||||
2014 | 2013 | Change | % of Change | |||||||||||
Trading revenues, net (thousands) | $ | 809,371 | $ | 614,232 | $ | 195,140 | 31.8 | % | ||||||
Commissions and fees (thousands) | 117,058 | 86,260 | 30,798 | 35.7 | % | |||||||||
Interest, net and other (thousands) | (25,277 | ) | (12,294 | ) | (12,983 | ) | N/M | |||||||
Total Revenues from Market Making (thousands) | $ | 901,152 | $ | 688,197 | 212,955 | 30.9 | % |
For the year ended December 31, | |||||||||||||
2014 | 2013 | Change | % of Change | ||||||||||
Commissions and fees (thousands) | $ | 319,964 | $ | 189,215 | 130,749 | 69.1 | % | ||||||
Trading revenues, net (thousands) | 28,355 | 11,823 | 16,532 | 139.8 | % | ||||||||
Interest, net and other (thousands) | (2,609 | ) | (3,273 | ) | 663 | N/M | |||||||
Total Revenues from Global Execution Services (thousands) | $ | 345,710 | $ | 197,765 | 147,944 | 74.8 | % |
For the year ended December 31, | |||||||||||||
2014 | 2013 | Change | % of Change | ||||||||||
Total Revenues from Corporate and Other (thousands) | $ | 69,369 | $ | 141,374 | $ | (72,005 | ) | N/M |
December 31, 2015 | December 31, 2014 | ||||||
Cash and cash equivalents | $ | 581,313 | $ | 578,768 | |||
Financial instruments owned, at fair value: | |||||||
Equities | 2,129,208 | 2,479,910 | |||||
Listed options | 178,360 | 144,586 | |||||
Debt securities | 136,387 | 82,815 | |||||
Collateralized agreements: | |||||||
Securities borrowed | 1,636,284 | 1,632,062 | |||||
Receivable from brokers, dealers and clearing organizations (1) | 571,222 | 1,095,025 | |||||
Total cash and assets readily convertible to cash | $ | 5,232,774 | $ | 6,013,166 |
(1) | Excludes $110.0 million and $93.8 million of securities failed to deliver as of December 31, 2015 and December 31, 2014, respectively. |
Net Capital | Net Capital Requirement | Excess Net Capital | ||||||||||
KCG Americas LLC | $ | 286,757 | $ | 1,000 | $ | 285,757 |
Financial Resources | Resource Requirement | Excess Financial Resources | ||||||||||
KCG Europe Limited | $ | 155,081 | $ | 131,840 | $ | 23,241 |
• | Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
• | Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
• | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
2015 | 2014 | 2013 | |||||||||||||||||||||
Aggregate of Long and Short Positions | Net of Long and Short Positions | Aggregate of Long and Short Positions | Net of Long and Short Positions | Aggregate of Long and Short Positions | Net of Long and Short Positions | ||||||||||||||||||
Average month-end | $ | 5,050,512 | $ | 415,058 | $ | 5,155,626 | $ | 431,355 | $ | 3,137,170 | $ | 175,171 | |||||||||||
Highest month-end | 5,862,353 | 691,202 | 5,901,615 | 805,837 | 5,268,422 | 561,353 | |||||||||||||||||
Lowest month-end | 4,556,914 | 98,204 | 4,671,405 | 40,708 | 1,198,112 | (224,760 | ) |
December 31, 2015 | December 31, 2014 | ||||||
Liquidity Pool Composition | |||||||
Holding company | |||||||
Cash held at banks | $ | 3,283 | $ | 150,622 | |||
Money market and other highly liquid investments | 330,698 | 152,077 | |||||
KCGA | |||||||
Cash held at banks | 28,485 | 58,972 | |||||
Money market and other highly liquid investments | 121,515 | 81,997 | |||||
Total Liquidity Pool | $ | 483,981 | $ | 443,668 | |||
Cash and other highly liquid investments held by other subsidiary entities | $ | 73,779 | $ | 135,100 |
Quarter Ended* | |||||||||||||||||||||||||||||||
Dec. 31, 2015 | Sept. 30, 2015 | Jun. 30, 2015 | Mar. 31, 2015 | Dec 31, 2014 | Sept. 30, 2014 | Jun 30, 2014 | Mar 31, 2014 | ||||||||||||||||||||||||
(in thousands, except per share amounts) | |||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||
Trading revenues, net | $ | 145,959 | $ | 277,677 | $ | 170,750 | $ | 208,795 | $ | 221,415 | $ | 150,865 | $ | 206,780 | $ | 258,297 | |||||||||||||||
Commissions and fees | 94,315 | 95,027 | 87,370 | 99,961 | 117,326 | 102,663 | 104,776 | 112,257 | |||||||||||||||||||||||
Interest, net | (429 | ) | (1,080 | ) | (596 | ) | (23 | ) | (177 | ) | 139 | (289 | ) | 948 | |||||||||||||||||
Investment income and other, net | 24,191 | 5,412 | 4,358 | 387,423 | 7,575 | 18,635 | 2,866 | 12,155 | |||||||||||||||||||||||
Total revenues | 264,036 | 377,036 | 261,882 | 696,156 | 346,139 | 272,302 | 314,133 | 383,657 | |||||||||||||||||||||||
Expenses | |||||||||||||||||||||||||||||||
Employee compensation and benefits | 67,823 | 121,597 | 109,471 | 106,718 | 116,214 | 95,307 | 103,430 | 122,319 | |||||||||||||||||||||||
Execution and clearance fees | 66,613 | 67,502 | 62,598 | 68,473 | 82,377 | 74,058 | 73,242 | 75,501 | |||||||||||||||||||||||
Communications and data processing | 36,003 | 35,256 | 34,240 | 33,764 | 36,945 | 38,576 | 38,279 | 36,796 | |||||||||||||||||||||||
Depreciation and amortization | 25,077 | 23,813 | 20,726 | 20,615 | 21,224 | 20,298 | 19,823 | 20,103 | |||||||||||||||||||||||
Payments for order flow | 14,464 | 17,121 | 14,935 | 15,221 | 14,698 | 15,377 | 18,076 | 22,032 | |||||||||||||||||||||||
Debt interest expense | 9,186 | 9,117 | 9,989 | 8,463 | 7,721 | 7,714 | 7,497 | 9,524 | |||||||||||||||||||||||
Collateralized financing interest | 8,746 | 8,617 | 8,859 | 8,456 | 7,973 | 7,330 | 6,395 | 6,162 | |||||||||||||||||||||||
Occupancy and equipment rentals | 7,842 | 7,472 | 7,474 | 7,340 | 8,514 | 7,672 | 8,235 | 8,285 | |||||||||||||||||||||||
Professional fees | 5,774 | 4,406 | 5,694 | 11,181 | 5,695 | 7,161 | 7,337 | 5,402 | |||||||||||||||||||||||
Business development | 1,751 | 1,846 | 3,025 | 1,857 | 2,308 | 3,163 | 2,609 | 1,683 | |||||||||||||||||||||||
Debt extinguishment charges | — | — | 25,006 | — | — | — | 1,995 | 7,557 | |||||||||||||||||||||||
Writedown of assets and other real estate related charges | 16,154 | 34,029 | 6,327 | 132 | 6,117 | 301 | 1,941 | 266 | |||||||||||||||||||||||
Other | 9,074 | 10,841 | 10,652 | 7,808 | 9,822 | 10,580 | 10,767 | 8,643 | |||||||||||||||||||||||
Total expenses | 268,507 | 341,617 | 318,996 | 290,028 | 319,608 | 287,537 | 299,626 | 324,273 | |||||||||||||||||||||||
(Loss) income from continuing operations before income taxes | (4,471 | ) | 35,419 | (57,114 | ) | 406,128 | 26,531 | (15,235 | ) | 14,507 | 59,384 | ||||||||||||||||||||
Income tax (benefit) expense | (1,500 | ) | 13,482 | (37,952 | ) | 156,827 | 562 | (5,796 | ) | 5,520 | 22,467 | ||||||||||||||||||||
(Loss) income from continuing operations, net of tax | (2,971 | ) | 21,937 | (19,162 | ) | 249,301 | 25,969 | (9,439 | ) | 8,987 | 36,917 | ||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | — | — | — | — | 165 | (177 | ) | (67 | ) | (1,253 | ) | ||||||||||||||||||||
Net (loss) income | $ | (2,971 | ) | $ | 21,937 | $ | (19,162 | ) | $ | 249,301 | $ | 26,134 | $ | (9,616 | ) | $ | 8,920 | $ | 35,664 | ||||||||||||
Basic (loss) earnings per common share from continuing operations | $ | (0.03 | ) | $ | 0.24 | $ | (0.18 | ) | $ | 2.25 | $ | 0.24 | $ | (0.09 | ) | $ | 0.08 | $ | 0.32 | ||||||||||||
Diluted (loss) earnings per common share from continuing operations | $ | (0.03 | ) | $ | 0.24 | $ | (0.18 | ) | $ | 2.19 | $ | 0.23 | $ | (0.09 | ) | $ | 0.08 | $ | 0.31 | ||||||||||||
Basic and diluted loss per common share from discontinued operations | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (0.01 | ) | ||||||||||||||
Basic (loss) earnings per common share | $ | (0.03 | ) | $ | 0.24 | $ | (0.18 | ) | $ | 2.25 | $ | 0.24 | $ | (0.09 | ) | $ | 0.08 | $ | 0.31 | ||||||||||||
Diluted (loss) earnings per common share | $ | (0.03 | ) | $ | 0.24 | $ | (0.18 | ) | $ | 2.19 | $ | 0.23 | $ | (0.09 | ) | $ | 0.08 | $ | 0.30 | ||||||||||||
* Quarterly totals may not add to full year due to rounding. |
Item 8. | Financial Statements and Supplementary Data |
Page | |
Management’s Report on Internal Control over Financial Reporting | |
Report of Independent Registered Public Accounting Firm | |
Consolidated Statements of Financial Condition as of December 31, 2015 and 2014 | |
Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 | |
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013 | |
Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 | |
Notes to Consolidated Financial Statements |
• | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of KCG; |
• | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of KCG; and |
• | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
December 31, | December 31, | ||||||
2015 | 2014 | ||||||
Assets | (In thousands) | ||||||
Cash and cash equivalents | $ | 581,313 | $ | 578,768 | |||
Cash and cash equivalents segregated under federal and other regulations | 3,000 | 3,361 | |||||
Financial instruments owned, at fair value, including securities pledged to counterparties that had the right to deliver or repledge of $324,146 at December 31, 2015 and $536,124 at December 31, 2014: | |||||||
Equities | 2,129,208 | 2,479,910 | |||||
Listed options | 178,360 | 144,586 | |||||
Debt securities | 136,387 | 82,815 | |||||
Other financial instruments | 445 | 60 | |||||
Total financial instruments owned, at fair value | 2,444,400 | 2,707,371 | |||||
Collateralized agreements: | |||||||
Securities borrowed | 1,636,284 | 1,632,062 | |||||
Receivable from brokers, dealers and clearing organizations | 681,211 | 1,188,833 | |||||
Fixed assets and leasehold improvements, less accumulated depreciation and amortization | 94,858 | 134,051 | |||||
Investments | 98,943 | 100,726 | |||||
Goodwill and Intangible assets, less accumulated amortization | 100,471 | 152,594 | |||||
Deferred tax asset, net | 151,225 | 154,759 | |||||
Assets of businesses held for sale | 25,999 | 40,484 | |||||
Other assets | 233,474 | 137,645 | |||||
Total assets | $ | 6,051,178 | $ | 6,830,654 | |||
Liabilities and equity | |||||||
Liabilities | |||||||
Financial instruments sold, not yet purchased, at fair value: | |||||||
Equities | $ | 1,856,171 | $ | 2,069,342 | |||
Listed options | 151,893 | 115,362 | |||||
Debt securities | 105,340 | 101,003 | |||||
Total financial instruments sold, not yet purchased, at fair value | 2,113,404 | 2,285,707 | |||||
Collateralized financings: | |||||||
Securities loaned | 463,377 | 707,744 | |||||
Financial instruments sold under agreements to repurchase | 954,902 | 933,576 | |||||
Total collateralized financings | 1,418,279 | 1,641,320 | |||||
Payable to brokers, dealers and clearing organizations | 273,805 | 676,089 | |||||
Payable to customers | 17,387 | 22,110 | |||||
Accrued compensation expense | 154,547 | 114,559 | |||||
Accrued expenses and other liabilities | 134,026 | 143,677 | |||||
Liabilities of businesses held for sale | — | 2,356 | |||||
Debt | 495,632 | 422,259 | |||||
Total liabilities | 4,607,080 | 5,308,077 | |||||
Commitments and Contingent Liabilities (Note 22) | |||||||
Equity | |||||||
Class A Common Stock | |||||||
Shares authorized: 1,000,000 at December 31, 2015 and December 31, 2014; Shares issued: 106,025 at December 31, 2015 and 127,508 at December 31, 2014; Shares outstanding: 90,156 at December 31, 2015 and 116,860 at December 31, 2014 | 1,060 | 1,275 | |||||
Additional paid-in capital | 1,436,671 | 1,369,298 | |||||
Retained earnings | 192,120 | 272,780 | |||||
Treasury stock, at cost; 15,869 shares at December 31, 2015 and 10,649 shares at December 31, 2014 | (186,103 | ) | (122,909 | ) | |||
Accumulated other comprehensive income | 350 | 2,133 | |||||
Total equity | 1,444,098 | 1,522,577 | |||||
Total liabilities and equity | $ | 6,051,178 | $ | 6,830,654 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
(In thousands, except per share amounts) | |||||||||||
Revenues | |||||||||||
Trading revenues, net | $ | 803,181 | $ | 837,357 | $ | 628,304 | |||||
Commissions and fees | 376,673 | 437,022 | 275,474 | ||||||||
Interest, net | (2,128 | ) | 621 | (537 | ) | ||||||
Investment income and other, net | 421,384 | 41,232 | 124,095 | ||||||||
Total revenues | 1,599,110 | 1,316,232 | 1,027,336 | ||||||||
Expenses | |||||||||||
Employee compensation and benefits | 405,609 | 437,269 | 349,192 | ||||||||
Execution and clearance fees | 265,186 | 305,177 | 246,414 | ||||||||
Communications and data processing | 139,263 | 150,595 | 123,552 | ||||||||
Depreciation and amortization | 90,231 | 81,448 | 55,570 | ||||||||
Payments for order flow | 61,741 | 70,183 | 35,711 | ||||||||
Debt interest expense | 36,755 | 32,456 | 34,938 | ||||||||
Collateralized financing interest | 34,678 | 27,860 | 9,847 | ||||||||
Occupancy and equipment rentals | 30,128 | 32,707 | 24,812 | ||||||||
Professional fees | 27,055 | 25,596 | 46,662 | ||||||||
Business development | 8,479 | 9,763 | 4,609 | ||||||||
Debt extinguishment charges | 25,006 | 9,552 | 13,209 | ||||||||
Writedown of assets and other real estate related charges | 56,642 | 8,625 | 14,748 | ||||||||
Other | 38,375 | 39,814 | 43,094 | ||||||||
Total expenses | 1,219,148 | 1,231,045 | 1,002,358 | ||||||||
Income from continuing operations before income taxes | 379,962 | 85,187 | 24,978 | ||||||||
Income tax expense (benefit) | 130,858 | 22,753 | (101,114 | ) | |||||||
Income from continuing operations, net of tax | 249,104 | 62,434 | 126,092 | ||||||||
(Loss) income from discontinued operations, net of tax | — | (1,332 | ) | 80 | |||||||
Net income | $ | 249,104 | $ | 61,102 | $ | 126,172 | |||||
Net loss allocated to preferred and participating units | $ | — | $ | — | $ | (21,565 | ) | ||||
Net income attributable to common shareholders | $ | 249,104 | $ | 61,102 | $ | 147,737 | |||||
Basic earnings per share from continuing operations | $ | 2.48 | $ | 0.55 | $ | 1.84 | |||||
Diluted earnings per share from continuing operations | $ | 2.42 | $ | 0.54 | $ | 1.82 | |||||
Basic loss per share from discontinued operations | $ | — | $ | (0.01 | ) | $ | — | ||||
Diluted loss per share from discontinued operations | $ | — | $ | (0.01 | ) | $ | — | ||||
Basic earnings per share | $ | 2.48 | $ | 0.54 | $ | 1.84 | |||||
Diluted earnings per share | $ | 2.42 | $ | 0.52 | $ | 1.82 | |||||
Shares used in computation of basic earnings (loss) per share | 100,437 | 112,854 | 80,143 | ||||||||
Shares used in computation of diluted earnings (loss) per share | 102,922 | 116,534 | 81,015 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
(In thousands) | |||||||||||
Net income | $ | 249,104 | $ | 61,102 | $ | 126,172 | |||||
Other comprehensive income (loss): | |||||||||||
Unrealized (loss) gain on available for sale securities, net of tax | (202 | ) | 316 | (114,283 | ) | ||||||
Cumulative translation adjustment, net of tax | (1,581 | ) | 416 | 1,365 | |||||||
Comprehensive income | $ | 247,321 | $ | 61,834 | $ | 13,254 |
Class A Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||
(in thousands) | Redeemable preferred member's equity | Members' Equity | Unrecognized Compensation | Shares | Amount | Additional Paid-In Capital | Retained Earnings | Shares | Amount | Accumulated other comprehensive income | Total Equity | ||||||||||||||||||||||||||||||
Balance, January 1, 2013 | $ | 311,139 | $ | 559,292 | $ | (18,939 | ) | — | $ | — | $ | — | $ | — | — | $ | — | $ | 114,319 | $ | 654,672 | ||||||||||||||||||||
Contributions | — | 11,339 | 18,939 | — | — | — | — | — | — | — | 30,278 | ||||||||||||||||||||||||||||||
Repurchase of Membership interests | — | (5,833 | ) | — | — | — | — | — | — | — | — | (5,833 | ) | ||||||||||||||||||||||||||||
Distributions | — | (2,054 | ) | — | — | — | — | — | — | — | — | (2,054 | ) | ||||||||||||||||||||||||||||
Net (loss) income | — | (89,305 | ) | — | — | — | — | — | — | — | — | (89,305 | ) | ||||||||||||||||||||||||||||
Unrealized gain on available for sale securities | — | — | — | — | — | — | — | — | — | 4,550 | 4,550 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment | — | — | — | — | — | — | — | — | — | (403 | ) | (403 | ) | ||||||||||||||||||||||||||||
Modification of redemption value | (21,565 | ) | 21,565 | — | — | — | — | — | — | — | — | 21,565 | |||||||||||||||||||||||||||||
Balance, June 30, 2013 | 289,574 | 495,004 | — | — | — | — | — | — | — | 118,466 | 613,470 | ||||||||||||||||||||||||||||||
Gain on investment in Knight Capital Group, Inc. | — | — | — | — | — | — | — | — | — | 9,103 | 9,103 | ||||||||||||||||||||||||||||||
Reclassification of investment in Knight out of other comprehensive income | — | — | — | — | — | — | — | — | — | (127,972 | ) | (127,972 | ) | ||||||||||||||||||||||||||||
Equity issued to General Atlantic | — | 55,000 | — | — | — | — | — | — | — | — | 55,000 | ||||||||||||||||||||||||||||||
Exchange of membership interests for shares of KCG Class A Common Stock | (289,574 | ) | (550,004 | ) | — | 75,868 | 759 | 754,417 | — | — | — | — | 205,172 | ||||||||||||||||||||||||||||
Exchange of membership interests for warrants to purchase KCG Class A Common Stock | — | — | — | — | — | 74,896 | — | — | — | — | 74,896 | ||||||||||||||||||||||||||||||
Issuance of KCG Class A Common Stock to Knight stockholders | — | — | — | 41,889 | 419 | 453,419 | — | — | — | — | 453,838 | ||||||||||||||||||||||||||||||
Change in estimated distribution payable to members | — | — | — | — | — | 1,757 | — | — | — | — | 1,757 | ||||||||||||||||||||||||||||||
KCG Class A Common Stock repurchased | — | — | — | — | — | — | — | (1,079 | ) | (11,324 | ) | — | (11,324 | ) | |||||||||||||||||||||||||||
Stock-based compensation | — | — | — | 5,560 | 55 | 22,060 | — | — | — | — | 22,115 | ||||||||||||||||||||||||||||||
Unrealized gain on available for sale securities, net | — | — | — | — | — | — | — | — | — | 36 | 36 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net | — | — | — | — | — | — | — | — | — | 1,768 | 1,768 | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 209,393 | — | — | — | 209,393 | ||||||||||||||||||||||||||||||
Balance, December 31, 2013 - as reported | — | — | — | 123,317 | $ | 1,233 | $ | 1,306,549 | $ | 209,393 | (1,079 | ) | $ | (11,324 | ) | $ | 1,401 | $ | 1,507,252 | ||||||||||||||||||||||
Cumulative effect of change in accounting principle - See Footnote 3 | — | — | — | — | — | — | 2,285 | — | — | — | 2,285 | ||||||||||||||||||||||||||||||
Balance, December 31, 2013 - as adjusted | — | — | — | 123,317 | 1,233 | 1,306,549 | 211,678 | (1,079 | ) | (11,324 | ) | 1,401 | 1,509,537 | ||||||||||||||||||||||||||||
KCG Class A Common Stock repurchased | — | — | — | — | — | — | — | (9,570 | ) | (111,585 | ) | — | (111,585 | ) | |||||||||||||||||||||||||||
Stock-based compensation | — | — | — | 4,191 | 42 | 61,865 | — | — | — | — | 61,907 | ||||||||||||||||||||||||||||||
Income tax provision-stock based compensation | — | — | — | — | — | 884 | — | — | — | — | 884 | ||||||||||||||||||||||||||||||
Unrealized gain on available for sale securities, net | — | — | — | — | — | — | — | — | — | 316 | 316 | ||||||||||||||||||||||||||||||
Cumulative translation adjustment, net | — | — | — | — | — | — | — | — | — | 416 | 416 | ||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 61,102 | — | — | — | 61,102 | ||||||||||||||||||||||||||||||
Balance, December 31, 2014 | — | — | — | 127,508 | 1,275 | 1,369,298 | 272,780 | (10,649 | ) | (122,909 | ) | 2,133 | 1,522,577 | ||||||||||||||||||||||||||||
KCG Class A Common Stock repurchased and retired via Tender Offer | — | — | — | (23,571 | ) | (236 | ) | — | (329,764 | ) | — | — | — | (330,000 | ) | ||||||||||||||||||||||||||
KCG Class A Common Stock repurchased | — | — | — | — | — | — | — | (5,220 | ) | (63,194 | ) | — | (63,194 | ) | |||||||||||||||||||||||||||
Stock-based compensation | — | — | — | 1,883 | 19 | 67,390 | — | — | — | — | 67,409 | ||||||||||||||||||||||||||||||
Income tax provision-stock based compensation | — | — | — | — | — | 2,647 | — | — | — | — | 2,647 |
Stock options exercised | — | — | — | 151 | 2 | 1,245 | — | — | — | — | 1,247 | ||||||||||||||||||||||||||||||
Warrants exercised | — | — | — | 54 | — | 532 | — | — | — | — | 532 | ||||||||||||||||||||||||||||||
Warrants repurchased | — | — | — | — | — | (4,441 | ) | — | — | — | — | (4,441 | ) | ||||||||||||||||||||||||||||
Unrealized gain on available for sale securities, net | — | — | — | — | — | — | — | — | — | (202 | ) | (202 | ) | ||||||||||||||||||||||||||||
Cumulative translation adjustment, net | — | — | — | — | — | — | — | — | — | (1,581 | ) | (1,581 | ) | ||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 249,104 | — | — | — | 249,104 | ||||||||||||||||||||||||||||||
Balance, December 31, 2015 | $ | — | $ | — | $ | — | 106,025 | $ | 1,060 | $ | 1,436,671 | $ | 192,120 | (15,869 | ) | $ | (186,103 | ) | $ | 350 | $ | 1,444,098 |
For the years ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Cash flows from operating activities | (In thousands) | ||||||||||
Net income | $ | 249,104 | $ | 61,102 | $ | 126,172 | |||||
(Loss) income from discontinued operations, net of tax | — | (1,332 | ) | 80 | |||||||
Income from continuing operations, net of tax | 249,104 | 62,434 | 126,092 | ||||||||
Adjustments to reconcile income from continuing operations, net of tax to net cash provided by operating activities | |||||||||||
Gain on sale of KCG Hotspot | (385,026 | ) | — | — | |||||||
Non-cash gain from sale of Futures Commission Merchant | — | (116 | ) | — | |||||||
Realized gain on investments | (19,751 | ) | — | — | |||||||
Unrealized gain on investments | (10,173 | ) | (36,456 | ) | (4,539 | ) | |||||
Stock and unit-based compensation | 84,663 | 58,940 | 64,286 | ||||||||
Depreciation and amortization | 90,231 | 81,448 | 55,570 | ||||||||
Non-cash gain on Knight Common Stock | — | — | (127,972 | ) | |||||||
Deferred taxes | 9,976 | 19,397 | (103,499 | ) | |||||||
Debt discount accretion and other debt related expenses | 12,829 | 13,217 | 17,332 | ||||||||
Writedown of assets and other real estate related charges | 56,642 | 8,625 | 14,748 | ||||||||
Deferred rent | 2,075 | 930 | 58 | ||||||||
Change in value in receivable from BATS | (2,102 | ) | — | — | |||||||
Realized gain from reclassification of available for sale securities | (497 | ) | — | — | |||||||
Operating activities from discontinued operations | — | (1,073 | ) | 6,952 | |||||||
Decrease (increase)in operating assets | |||||||||||
Cash and cash equivalents segregated under federal and other regulations | 361 | (54,955 | ) | 19,963 | |||||||
Financial instruments owned, at fair value | 265,763 | 14,468 | (129,035 | ) | |||||||
Securities borrowed | (4,223 | ) | (274,675 | ) | (146,145 | ) | |||||
Receivable from brokers, dealers and clearing organizations | 507,623 | (321,087 | ) | 252,266 | |||||||
Other assets | (26,340 | ) | (6,459 | ) | 25,785 | ||||||
(Decrease) increase in operating liabilities | |||||||||||
Financial instruments sold, not yet purchased, at fair value | (172,302 | ) | 120,207 | 139,951 | |||||||
Securities loaned | (244,368 | ) | (25,486 | ) | 106,339 | ||||||
Financial instruments sold under agreements to repurchase | 21,327 | 292,625 | 95,950 | ||||||||
Payable to brokers, dealers and clearing organizations | (402,285 | ) | 268,563 | (185,992 | ) | ||||||
Payable to customers | (4,724 | ) | 92,096 | (46,877 | ) | ||||||
Accrued compensation expense | 21,726 | (29,536 | ) | 24,441 | |||||||
Accrued expenses and other liabilities | (37,545 | ) | (40,583 | ) | (64,470 | ) | |||||
Net cash provided by operating activities | 12,984 | 242,524 | 141,204 | ||||||||
Cash flows from investing activities | |||||||||||
Cash acquired upon acquisition of Knight Capital Group, Inc. | — | — | 509,133 | ||||||||
Cash received from sale of KCG Hotspot, net of cash provided | 360,928 | — | — | ||||||||
Cash received from sale of Urban Financial Group, Inc. | — | — | 85,406 | ||||||||
Cash received from sale of Futures Commission Merchant | — | 2,000 | — | ||||||||
Proceeds and distributions from investments | 34,620 | 58,660 | 3,251 | ||||||||
Purchases of fixed assets and leasehold improvements | (34,581 | ) | (34,139 | ) | (25,147 | ) | |||||
Capitalized software development costs | (24,530 | ) | (14,859 | ) | (2,556 | ) | |||||
Purchases of investments | (7,959 | ) | (744 | ) | (158 | ) | |||||
Investing activities from discontinued operations | — | — | 12,963 | ||||||||
Sale of trading rights | — | 554 | — | ||||||||
Net cash provided by investing activities | 328,478 | 11,472 | 582,892 | ||||||||
Cash flows from financing activities | |||||||||||
Proceeds from issuance of 6.875% Senior Secured Notes, net | 494,810 | — | — | ||||||||
Repayment of 8.25% Senior Secured Notes | (305,000 | ) | — | — | |||||||
Repayment of convertible notes | (117,259 | ) | — | — | |||||||
Issuance of equity to General Atlantic | — | — | 55,000 | ||||||||
Payment to former Knight Capital Group, Inc. stockholders | — | — | (720,000 | ) | |||||||
Payment of debt issuance costs | (12,645 | ) | — | (34,592 | ) | ||||||
Borrowings under capital lease obligations | — | 5,892 | — | ||||||||
Principal payments on capital lease obligations | (4,033 | ) | (9,232 | ) | (14,152 | ) | |||||
Cost of common stock repurchased - Tender Offer | (330,000 | ) | — | — | |||||||
Cost of common stock repurchased | (63,194 | ) | (111,585 | ) | (11,324 | ) | |||||
Stock options exercised | 1,247 | — | — | ||||||||
Warrants exercised | 532 | — | — | ||||||||
Cost of warrants repurchased | (4,441 | ) | — | — | |||||||
Income tax provision on stock awards exercised | 2,647 | — | — | ||||||||
Proceeds from issuance of Credit Agreement | — | — | 535,000 | ||||||||
Partial repayment of Credit Agreement | — | (235,000 | ) | (300,000 | ) | ||||||
Proceeds from issuance of Senior Secured Notes | — | — | 305,000 |
Repayment of Knight Convertible Notes | — | — | (257,741 | ) | |||||||
Funding of collateral account for Knight Convertible Notes | — | — | (117,259 | ) | |||||||
Release of collateral account for Knight Convertible Notes | — | — | 117,259 | ||||||||
Borrowings under secured credit facility | — | — | 25,000 | ||||||||
Repayment of secured credit facility | — | — | (25,000 | ) | |||||||
Members' distributions | — | — | (21,002 | ) | |||||||
Repayment of Notes | — | — | (15,000 | ) | |||||||
Net cash used in financing activities | (337,336 | ) | (349,925 | ) | (478,811 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | (1,581 | ) | 416 | 1,365 | |||||||
Increase (decrease) in cash and cash equivalents | 2,545 | (95,513 | ) | 246,650 | |||||||
Cash and cash equivalents at beginning of period | 578,768 | 674,281 | 427,631 | ||||||||
Cash and cash equivalents at end of period | $ | 581,313 | $ | 578,768 | $ | 674,281 | |||||
Supplemental disclosure of cash flow information: | |||||||||||
Cash paid for interest | $ | 81,349 | $ | 76,003 | $ | 56,227 | |||||
Cash paid for income taxes | $ | 124,461 | $ | 16,975 | $ | 10,198 | |||||
Non-cash investing activities - Contribution of fixed assets to joint venture | $ | 3,370 | $ | — | $ | — |
Identifiable Net Assets | ||||||
Cash and cash equivalents | $ | 509,133 | ||||
Cash and cash equivalents segregated under federal and other regulations | 203,045 | |||||
Financial instruments owned | 1,937,929 | |||||
Securities borrowed | 1,158,981 | |||||
Receivable from brokers, dealers and clearing organizations | 1,369,474 | |||||
Fixed assets and leasehold improvements | 80,280 | |||||
Investments | 106,353 | |||||
Intangible assets | 155,425 | |||||
Assets within discontinued operations | 5,607,063 | |||||
Deferred tax asset, net | 65,465 | |||||
Other assets | 140,933 | |||||
Total Assets | $ | 11,334,081 | ||||
Financial instruments sold, not yet purchased | $ | 1,512,983 | ||||
Collateralized financings | 1,166,211 | |||||
Payable to brokers, dealers and clearing organizations | 635,914 | |||||
Payable to customers | 527,918 | |||||
Accrued compensation expense | 107,409 | |||||
Accrued expenses and other liabilities | 130,010 | |||||
Liabilities within discontinued operations | 5,518,168 | |||||
Debt | 375,000 | |||||
Total Liabilities | $ | 9,973,613 | ||||
Total identified assets acquired, net of assumed liabilities | 1,360,468 | |||||
Goodwill | 12,666 | |||||
Total Purchase Price | $ | 1,373,134 |
Amortization | ||||||
Amount | Years | |||||
Technology | $ | 110,504 | 5 years | |||
Customer relationships | 35,000 | 9 - 11 years | ||||
Trade names | 4,000 | 10 years | ||||
Trading rights (1) | 5,921 | 7 years | ||||
Intangible assets | 155,425 | |||||
Goodwill | 12,666 | |||||
Total | $ | 168,091 |
(1) | Trading rights include both assets with a finite useful life and assets with an indefinite useful life. The 7 years amortization period only applies to assets with a finite useful life. |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Interest Income | $ | 12,666 | $ | 14,363 | $ | 10,187 | |||||
Interest Expense | (14,794 | ) | (13,742 | ) | (10,724 | ) | |||||
Interest, net | $ | (2,128 | ) | $ | 621 | $ | (537 | ) |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Dividend Income | $ | 63,971 | $ | 45,910 | $ | 26,237 | |||||
Dividend Expense | $ | (42,398 | ) | $ | (38,444 | ) | $ | (21,630 | ) |
• | Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. |
• | Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
• | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
• | Securities borrowed and securities loaned transactions are recorded at the amount of cash collateral advanced or received. Securities borrowed transactions facilitate the securities settlement process and require the Company to deposit cash or other collateral with the lender. Securities loaned transactions help finance the Company’s securities inventory whereby the Company lends stock to counterparties in exchange for the receipt of cash or other collateral from the borrower. In these transactions, the Company receives or posts cash or other collateral in an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of securities borrowed or loaned on a daily basis, and obtains additional collateral or refunds excess collateral as necessary. |
• | Financial instruments sold under agreements to repurchase are used to finance inventories of securities and other financial instruments and are recorded at their contractual amount. The Company has entered into bilateral and tri-party term and overnight repurchase agreements which bear interest at negotiated rates. The Company receives cash and makes delivery of financial instruments to a custodian who monitors the market value of these instruments on a daily basis. The market value of the instruments delivered must be equal to or in excess of the principal amount loaned under the repurchase agreements plus the agreed upon margin requirement. The custodian may request additional collateral, if appropriate. |
Carrying Amount | Maximum Exposure to loss | |||||||||||||||
Asset | Liability | VIE's assets | ||||||||||||||
Equity investment | $ | 10,632 | $ | 5 | $ | 10,632 | $ | 22,197 |
Class A | Class B | Class C | ||||||||||||
Original Exercise Price | $ | 12.00 | $ | 13.50 | $ | 15.00 | ||||||||
Adjusted Exercise Price | $ | 11.70 | $ | 13.16 | $ | 14.63 | ||||||||
Initial term (years) | 4 | 5 | 6 | |||||||||||
Expiration | 7/1/2017 | 7/1/2018 | 7/1/2019 | |||||||||||
Total | ||||||||||||||
Warrants - Outstanding at January 1, 2015 | 8,114 | 8,114 | 8,113 | 24,341 | ||||||||||
Exercised | (158 | ) | — | — | (158 | ) | ||||||||
Repurchased | (859 | ) | (859 | ) | (859 | ) | (2,578 | ) | ||||||
Warrants - Outstanding at December 31, 2015 | 7,097 | 7,254 | 7,254 | 21,605 |
For the year ended December 31, 2014 | For the six months ended December 31, 2013 | ||||||
Revenues and gain (adjustment to gain) on sale | $ | (1,148 | ) | $ | 39,868 | ||
Expenses: | |||||||
Compensation | $ | 70 | $ | 14,068 | |||
Payments for order flow | — | 9,885 | |||||
Execution and clearance fees | — | 5,038 | |||||
Other expenses | 930 | 10,748 | |||||
Total expenses | 1,000 | 39,739 | |||||
Pre-tax (loss) income from discontinued operations | (2,148 | ) | 129 | ||||
Income tax expense (benefit) | 816 | (49 | ) | ||||
(Loss) income from discontinued operations, net of tax | $ | (1,332 | ) | $ | 80 |
December 31, 2015 | December 31, 2014 | ||||||
Assets: | |||||||
Fixed assets, less accumulated depreciation | $ | — | $ | 391 | |||
Intangible assets, net of accumulated amortization | 25,999 | 34,696 | |||||
Other assets | — | 5,397 | |||||
Total assets of businesses held for sale | $ | 25,999 | $ | 40,484 | |||
Liabilities: | |||||||
Accrued compensation expense | $ | — | $ | 2,298 | |||
Accrued expenses and other liabilities | — | 58 | |||||
Total liabilities of businesses held for sale | $ | — | $ | 2,356 |
Assets and Liabilities Measured at Fair Value on a Recurring Basis | ||||||||||||||||
December 31, 2015 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | ||||||||||||||||
Financial instruments owned, at fair value: | ||||||||||||||||
Equities (1) | $ | 2,129,208 | $ | — | $ | — | $ | 2,129,208 | ||||||||
Listed options | 178,360 | — | — | 178,360 | ||||||||||||
U.S. government and Non-U.S. government obligations (2) | 41,706 | — | — | 41,706 | ||||||||||||
Corporate debt | 94,681 | — | — | 94,681 | ||||||||||||
Foreign currency forward contracts | — | 445 | — | 445 | ||||||||||||
Total Financial instruments owned, at fair value | 2,443,955 | 445 | — | 2,444,400 | ||||||||||||
Investment in CME Group (3) | 1,814 | — | — | 1,814 | ||||||||||||
Other (4) | — | 65,732 | 5,789 | 71,521 | ||||||||||||
Total assets held at fair value | $ | 2,445,769 | $ | 66,177 | $ | 5,789 | $ | 2,517,735 | ||||||||
Liabilities | ||||||||||||||||
Financial instruments sold, not yet purchased, at fair value: | ||||||||||||||||
Equities (1) | $ | 1,856,171 | $ | — | $ | — | $ | 1,856,171 | ||||||||
Listed options | 151,893 | — | — | 151,893 | ||||||||||||
U.S. government obligations (2) | 21,056 | — | — | 21,056 | ||||||||||||
Corporate debt | 84,284 | — | — | 84,284 | ||||||||||||
Total liabilities held at fair value | $ | 2,113,404 | $ | — | $ | — | $ | 2,113,404 |
(1) | Equities of $856.4 million have been netted by their respective long and short positions by CUSIP number. |
(2) | U.S. government and Non-U.S. government obligations of $0.1 million have been netted by their respective long and short positions by CUSIP number. |
(3) | Investment in CME Group is included within Investments on the Consolidated Statements of Financial Condition. See Footnote 11 "Investments" for additional information. |
(4) | Other primarily consists of a $64.2 million receivable from BATS related to the sale of KCG Hotspot, $5.8 million receivable from the sale of an investment and $1.5 million of deferred compensation investments which are included within Other assets and Investments, respectively, on the Consolidated Statements of Financial Condition. |
Assets and Liabilities Measured at Fair Value on a Recurring Basis | ||||||||||||||||
December 31, 2014 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets | ||||||||||||||||
Financial instruments owned, at fair value: | ||||||||||||||||
Equities (1) | $ | 2,479,910 | $ | — | $ | — | $ | 2,479,910 | ||||||||
Listed options | 144,586 | — | — | 144,586 | ||||||||||||
U.S. government and Non-U.S. government obligations | 22,983 | — | — | 22,983 | ||||||||||||
Corporate debt (2) | 59,832 | — | — | 59,832 | ||||||||||||
Foreign currency forward contracts | — | 60 | — | 60 | ||||||||||||
Total Financial instruments owned, at fair value | 2,707,311 | 60 | — | 2,707,371 | ||||||||||||
Investment in CME Group (3) | 4,435 | — | — | 4,435 | ||||||||||||
Other investments (3) | — | 1,014 | — | 1,014 | ||||||||||||
Total assets held at fair value | $ | 2,711,746 | $ | 1,074 | $ | — | $ | 2,712,820 | ||||||||
Liabilities | ||||||||||||||||
Financial instruments sold, not yet purchased, at fair value: | ||||||||||||||||
Equities (1) | $ | 2,069,342 | $ | — | $ | — | $ | 2,069,342 | ||||||||
Listed options | 115,362 | — | — | 115,362 | ||||||||||||
U.S. government obligations | 18,953 | — | — | 18,953 | ||||||||||||
Corporate debt (2) | 82,050 | — | — | 82,050 | ||||||||||||
Total liabilities held at fair value | $ | 2,285,707 | $ | — | $ | — | $ | 2,285,707 |
Level 3 Financial Assets for the year ended December 31, 2015 | ||||||||||||||||||||||||||
Balance at January 1, 2015 | Realized gains(losses) during period | Unrealized gains (losses) during the period | Purchases | Sales | Settlements | Issuances | Transfers in or (out) of Level 3 | Balance at December 31, 2015 | ||||||||||||||||||
Receivable from sold investment | — | — | — | — | — | — | 5,789 | — | 5,789 |
December 31, 2015 | |||||||||||||||
Financial Statements | Assets | Liabilities | |||||||||||||
Location | Fair Value | Contracts | Fair Value | Contracts | |||||||||||
Foreign currency | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | $ | 578 | 3,675 | $ | 955 | 6,586 | ||||||||
Forward contracts | Financial instruments owned, at fair value | 445 | 1 | — | — | ||||||||||
Equity | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | 1,558 | 4,038 | 1,743 | 3,432 | ||||||||||
Swap contracts | Receivable from brokers, dealers and clearing organizations | — | — | 281 | 2 | ||||||||||
Listed options | Financial instruments owned/sold, not yet purchased, at fair value | 178,360 | 360,469 | 151,893 | 390,949 | ||||||||||
Fixed income | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | 4,265 | 6,195 | 4,037 | 4,891 | ||||||||||
Commodity | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | 35,441 | 22,424 | 35,814 | 24,261 | ||||||||||
Total | $ | 220,647 | 396,802 | $ | 194,723 | 430,121 |
December 31, 2014 | |||||||||||||||
Financial Statements | Assets | Liabilities | |||||||||||||
Location | Fair Value | Contracts | Fair Value | Contracts | |||||||||||
Foreign currency | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | $ | 1,212 | 8,108 | $ | 651 | 9,090 | ||||||||
Forward contracts | Financial instruments owned, at fair value | 60 | 1 | — | — | ||||||||||
Equity | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | 1,790 | 2,590 | 2,047 | 3,085 | ||||||||||
Swap contracts | Receivable from/Payable to brokers, dealers and clearing organizations | 98 | 1 | 13 | 1 | ||||||||||
Listed options | Financial instruments owned/sold, not yet purchased, at fair value | 144,586 | 426,747 | 115,362 | 437,383 | ||||||||||
Fixed income | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | 6,432 | 11,901 | 6,891 | 10,628 | ||||||||||
Commodity | |||||||||||||||
Futures contracts | Receivable from/Payable to brokers, dealers and clearing organizations | 15,245 | 8,894 | 14,847 | 9,105 | ||||||||||
Total | $ | 169,423 | 458,242 | $ | 139,811 | 469,292 |
Gain (Loss) Recognized | ||||||||||||||
Financial Statements | For the year ended December 31, | |||||||||||||
Location | 2015 | 2014 | 2013 | |||||||||||
Derivative instruments not designated as hedging instruments: | ||||||||||||||
Foreign currency | ||||||||||||||
Futures contracts | Trading revenues, net | $ | 4,273 | $ | 10,535 | $ | 12,191 | |||||||
Forward contracts | Investment income and other, net | (10 | ) | 526 | — | |||||||||
Equity | ||||||||||||||
Futures contracts | Trading revenues, net | 30,479 | 25,247 | 50,073 | ||||||||||
Swap contracts | Trading revenues, net | 3,789 | 5,277 | 11,736 | ||||||||||
Listed options (1) | Trading revenues, net | (14,278 | ) | (37,439 | ) | 37,035 | ||||||||
Fixed income | ||||||||||||||
Futures contracts | Trading revenues, net | 37,710 | 31,277 | 80,511 | ||||||||||
Commodity | ||||||||||||||
Futures contracts | Trading revenues, net | 48,604 | 55,295 | 62,215 | ||||||||||
$ | 110,567 | $ | 90,718 | $ | 253,761 | |||||||||
Derivative instruments designated as hedging instruments: | ||||||||||||||
Foreign exchange - forward contract | Accumulated other comprehensive income | $ | 208 | $ | — | $ | (3,298 | ) |
(1) | Realized gains and losses on listed equity options relate to the Company’s market making activities in such options. Such market making activities also comprise trading in the underlying equity securities with gains and losses on such securities generally offsetting the gains and losses reported in this table. Gains and losses on such equity securities are also included in Trading revenues, net on the Company’s Consolidated Statements of Operations. |
December 31, 2015 | Gross Amounts Recognized | Gross Amounts Offset in the Statements of Financial Condition | Net Amounts Presented in the Statements of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | Net Amount | |||||||||||||||||||
Available Collateral(1) | Counterparty Netting(2) | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Listed options | $ | 178,360 | $ | — | $ | 178,360 | $ | — | $ | — | $ | 178,360 | ||||||||||||
Foreign currency forward contracts | 445 | — | 445 | — | — | 445 | ||||||||||||||||||
Futures | 41,842 | 41,146 | 696 | — | — | 696 | ||||||||||||||||||
Total Assets | $ | 220,647 | $ | 41,146 | $ | 179,501 | $ | — | $ | — | $ | 179,501 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Listed options | $ | 151,893 | $ | — | $ | 151,893 | $ | — | $ | — | $ | 151,893 | ||||||||||||
Futures (3) | 42,549 | 42,549 | — | — | — | — | ||||||||||||||||||
Swaps | 281 | 281 | — | — | — | — | ||||||||||||||||||
Total Liabilities | $ | 194,723 | $ | 42,830 | $ | 151,893 | $ | — | $ | — | $ | 151,893 |
December 31, 2014 | Gross Amounts Recognized | Gross Amounts Offset in the Statements of Financial Condition | Net Amounts Presented in the Statements of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | Net Amount | |||||||||||||||||||
Available Collateral(1) | Counterparty Netting(2) | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Listed options | $ | 144,586 | $ | — | $ | 144,586 | $ | — | $ | — | $ | 144,586 | ||||||||||||
Foreign currency forward contracts | 60 | — | 60 | — | — | 60 | ||||||||||||||||||
Swaps | 98 | 13 | 85 | — | — | 85 | ||||||||||||||||||
Futures | 24,679 | 24,436 | 243 | — | — | 243 | ||||||||||||||||||
Total Assets | $ | 169,423 | $ | 24,449 | $ | 144,974 | $ | — | $ | — | $ | 144,974 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Listed options | $ | 115,362 | $ | — | $ | 115,362 | $ | — | $ | 17,359 | $ | 98,003 | ||||||||||||
Futures | 24,436 | 24,436 | — | — | — | — | ||||||||||||||||||
Swaps | 13 | 13 | — | — | — | — | ||||||||||||||||||
Total Liabilities | $ | 139,811 | $ | 24,449 | $ | 115,362 | $ | — | $ | 17,359 | $ | 98,003 |
December 31, 2015 | December 31, 2014 | ||||||
Collateral permitted to be delivered or repledged | $ | 1,640,145 | $ | 1,586,700 | |||
Collateral that was delivered or repledged | 1,570,921 | 1,485,267 | |||||
Collateral permitted to be further repledged by the receiving counterparty | 188,345 | 147,696 |
December 31, 2015 | December 31, 2014 | ||||||
Financial instruments owned, at fair value, pledged to counterparties that have the right to deliver or repledge | $ | 324,146 | $ | 536,124 | |||
Financial instruments owned, at fair value, pledged to counterparties that do not have the right to deliver or repledge | 1,027,847 | 979,652 |
December 31, 2015 | Financial instruments sold under agreements to repurchase | |||||||
Asset Class | Securities Loaned | |||||||
Equities | $ | 451,085 | $ | 855,632 | ||||
U.S. government obligations | — | 54,902 | ||||||
Corporate debt | 12,292 | 44,368 | ||||||
Total | $ | 463,377 | $ | 954,902 |
December 31, 2014 | Financial instruments sold under agreements to repurchase | |||||||
Asset Class | Securities Loaned | |||||||
Equities | $ | 696,162 | $ | 832,614 | ||||
U.S. government obligations | — | 73,576 | ||||||
Corporate debt | 11,582 | 27,386 | ||||||
Total | $ | 707,744 | $ | 933,576 |
December 31, 2015 | Gross Amounts Recognized | Gross Amounts Offset in the Statements of Financial Condition | Net Amounts Presented in the Statements of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | Net Amount | |||||||||||||||||||
Available Collateral(1) | Counterparty Netting(2) | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Securities borrowed | $ | 1,636,284 | $ | — | $ | 1,636,284 | $ | 1,575,568 | $ | 8,277 | $ | 52,439 | ||||||||||||
Receivable from brokers, dealers and clearing organizations (3) | 65,433 | — | 65,433 | 62,580 | — | 2,853 | ||||||||||||||||||
Total Assets | $ | 1,701,717 | $ | — | $ | 1,701,717 | $ | 1,638,148 | $ | 8,277 | $ | 55,292 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Securities loaned | $ | 463,377 | $ | — | $ | 463,377 | $ | 440,486 | $ | 8,277 | $ | 14,614 | ||||||||||||
Financial instruments sold under agreements to repurchase | 954,902 | — | 954,902 | 954,902 | — | — | ||||||||||||||||||
Total Liabilities | $ | 1,418,279 | $ | — | $ | 1,418,279 | $ | 1,395,388 | $ | 8,277 | $ | 14,614 |
December 31, 2014 | Gross Amounts Recognized | Gross Amounts Offset in the Statements of Financial Condition | Net Amounts Presented in the Statements of Financial Condition | Gross Amounts Not Offset in the Statement of Financial Condition | Net Amount | |||||||||||||||||||
Available Collateral(1) | Counterparty Netting(2) | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||
Securities borrowed | $ | 1,632,062 | $ | — | $ | 1,632,062 | $ | 1,570,194 | $ | 15,782 | $ | 46,086 | ||||||||||||
Receivable from brokers, dealers and clearing organizations (3) | 21,545 | — | 21,545 | 21,425 | — | 120 | ||||||||||||||||||
Total Assets | $ | 1,653,607 | $ | — | $ | 1,653,607 | $ | 1,591,619 | $ | 15,782 | $ | 46,206 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Securities loaned | $ | 707,744 | $ | — | $ | 707,744 | $ | 682,389 | $ | 15,782 | $ | 9,573 | ||||||||||||
Financial instruments sold under agreements to repurchase | 933,576 | — | 933,576 | 933,560 | — | 16 | ||||||||||||||||||
Total Liabilities | $ | 1,641,320 | $ | — | $ | 1,641,320 | $ | 1,615,949 | $ | 15,782 | $ | 9,589 |
As of December 31, 2015 | Overnight | 0 - 30 days | 31 - 60 days | 61 - 90 days | Total | ||||||||||||||
Securities loaned | $ | 463,377 | $ | — | $ | — | $ | — | $ | 463,377 | |||||||||
Financial instruments sold under agreements to repurchase | 54,902 | 635,000 | 150,000 | 115,000 | 954,902 | ||||||||||||||
Total | $ | 518,279 | $ | 635,000 | $ | 150,000 | $ | 115,000 | $ | 1,418,279 |
As of December 31, 2014 | Overnight | 0 - 30 days | 31 - 60 days | 61 - 90 days | Total | ||||||||||||||
Securities loaned | $ | 707,744 | $ | — | $ | — | $ | — | $ | 707,744 | |||||||||
Financial instruments sold under agreements to repurchase | 73,576 | 410,000 | 325,000 | 125,000 | 933,576 | ||||||||||||||
Total | $ | 781,320 | $ | 410,000 | $ | 325,000 | $ | 125,000 | $ | 1,641,320 |
December 31, 2015 | December 31, 2014 | ||||||
Receivable: | |||||||
Clearing organizations and other | $ | 505,789 | $ | 1,073,480 | |||
Financial instruments purchased under agreement to resell | 65,433 | 21,545 | |||||
Securities failed to deliver | 109,989 | 93,808 | |||||
Total Receivable | $ | 681,211 | $ | 1,188,833 | |||
Payable: | |||||||
Clearing organizations and other | $ | 240,985 | $ | 350,627 | |||
Securities failed to receive | 32,820 | 325,462 | |||||
Total Payable | $ | 273,805 | $ | 676,089 |
Depreciation | December 31, 2015 | December 31, 2014 | |||||||
Period | |||||||||
Computer hardware and software | 3 years | $ | 253,113 | $ | 242,498 | ||||
Leasehold improvements | * | 108,173 | 114,851 | ||||||
Telephone systems and equipment | 5 years | 3,651 | 3,962 | ||||||
Furniture and fixtures | 7 years | 12,216 | 12,120 | ||||||
377,153 | 373,431 | ||||||||
Less - Accumulated depreciation and amortization | (282,295 | ) | (239,380 | ) | |||||
$ | 94,858 | $ | 134,051 |
December 31, 2015 | December 31, 2014 | ||||||
Strategic investments: | |||||||
Investments accounted for under the equity method | $ | 86,853 | $ | 86,328 | |||
Investments held at fair value | 1,814 | 4,435 | |||||
Common stock or equivalent of companies representing less than 20% equity ownership held at adjusted cost | 8,746 | 8,949 | |||||
Total Strategic investments | 97,413 | 99,712 | |||||
Other investments | 1,530 | 1,014 | |||||
Total Investments | $ | 98,943 | $ | 100,726 |
December 31, 2015 | December 31, 2014 | ||||||
Market Making | $ | 16,404 | $ | 16,404 | |||
Global Execution Services | — | 907 | |||||
Total | $ | 16,404 | $ | 17,311 |
December 31, 2015 | December 31, 2014 | ||||||
Market Making (1) | |||||||
Technology | $ | 38,151 | $ | 50,542 | |||
Trading rights | 8,530 | 44,358 | |||||
Total | 46,681 | 94,900 | |||||
Global Execution Services (2) | |||||||
Technology | 21,446 | 18,200 | |||||
Customer relationships | 9,389 | 10,833 | |||||
Trade names | 750 | 850 | |||||
Total | 31,585 | 29,883 | |||||
Corporate and Other | |||||||
Technology | 5,801 | 10,500 | |||||
Total | $ | 84,067 | $ | 135,283 |
(1) | Excluded from the December 31, 2015 balance is $26.0 million of intangibles related to businesses which meet the requirements to be considered held-for-sale. As noted in Footnote 5 "Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses", such amount is included in Assets of businesses held for sale at December 31, 2015. |
(2) | Excluded from the December 31, 2014 balance is $34.7 million of intangibles related to KCG Hotspot which was held for sale at that time. As noted in Footnote 5 "Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses", such amount is included in Assets of businesses held for sale at December 31, 2014. |
December 31, 2015 | December 31, 2014 | |||||||
Technology (1) | Gross carrying amount | $ | 120,256 | $ | 115,804 | |||
Accumulated amortization | (54,858 | ) | (36,562 | ) | ||||
Net carrying amount | 65,398 | 79,242 | ||||||
Trading rights (2) | Gross carrying amount | 9,209 | 62,468 | |||||
Accumulated amortization | (679 | ) | (18,110 | ) | ||||
Net carrying amount | 8,530 | 44,358 | ||||||
Customer relationships (3) | Gross carrying amount | 13,000 | 13,000 | |||||
Accumulated amortization | (3,611 | ) | (2,167 | ) | ||||
Net carrying amount | 9,389 | 10,833 | ||||||
Trade names (4) | Gross carrying amount | 1,000 | 1,000 | |||||
Accumulated amortization | (250 | ) | (150 | ) | ||||
Net carrying amount | 750 | 850 | ||||||
Total | Gross carrying amount | 143,465 | 192,272 | |||||
Accumulated amortization | (59,398 | ) | (56,989 | ) | ||||
Net carrying amount | $ | 84,067 | $ | 135,283 |
(1) | The weighted average remaining life for technology, including capitalized internal use software, was approximately two and three years as of December 31, 2015 and December 31, 2014, respectively. Excluded from the December 31, 2015 balance is $8.8 million of technology assets related to Assets of businesses held for sale. Excluded from the December 31, 2014 balance is $13.1 million of technology assets related to KCG Hotspot which as noted in Footnote 5 "Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses", is included in Assets of businesses held for sale at December 31, 2014. |
(2) | Trading rights provide the Company with the rights to trade on certain exchanges. The weighted average remaining life of trading rights with definite useful lives was approximately five and seven years as of December 31, 2015 and December 31, 2014, respectively. As of December 31, 2015 and December 31, 2014, $6.9 million of trading rights had indefinite useful lives. Excluded from the December 31, 2015 balance is $17.2 million of trading rights related to Assets of businesses held for sale. |
(3) | Customer relationships relate to KCG BondPoint. The weighted average remaining life was approximately 7 and 8 years as of December 31, 2015 and December 31, 2014, respectively. Lives may be reduced depending upon actual retention rates. Excluded from the December 31, |
(4) | Trade names relate to KCG BondPoint. The weighted average remaining life was approximately 7 and 8 years as of December 31, 2015 and December 31, 2014, respectively. Excluded from the December 31, 2014 balance is $2.6 million of the trade name related to KCG Hotspot which as noted in Footnote 5 "Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses", is included in Assets of businesses held for sale at December 31, 2014. |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Amortization expense | $ | 35,244 | $ | 35,592 | $ | 19,211 |
Amortization expense | |||
For the year ended December 31, 2016 | $ | 28,739 | |
For the year ended December 31, 2017 | 27,381 | ||
For the year ended December 31, 2018 | 15,127 | ||
For the year ended December 31, 2019 | 1,751 | ||
For the year ended December 31, 2020 | 1,659 |
December 31, 2015 | December 31, 2014 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Cash Convertible Senior Subordinated Notes | $ | — | $ | — | $ | 117,259 | $ | 116,819 | |||||||
8.25% Senior Secured Notes | — | — | 305,000 | 309,194 | |||||||||||
6.875% Senior Secured Notes | 495,632 | 450,000 | — | — | |||||||||||
Total Debt | $ | 495,632 | $ | 450,000 | $ | 422,259 | $ | 426,013 |
Year | Percentage | ||
2017 | 103.438 | % | |
2018 | 101.719 | % | |
2019 and thereafter | 100.000 | % |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Interest expense | $ | 35,591 | $ | 31,724 | $ | 34,138 | |||||
Debt extinguishment charges | 25,006 | 9,552 | 13,209 | ||||||||
Amortization of debt issuance cost | 3,537 | 3,665 | 3,623 | ||||||||
Commitment fee | 1,506 | 1,575 | 792 | ||||||||
Total | $ | 65,640 | $ | 46,516 | $ | 51,762 |
For the year ended December 31, | |||||||||||
Statements of Operations | 2015 | 2014 | 2013 | ||||||||
Revenues | |||||||||||
Commissions and fees | $ | 15,844 | $ | 14,528 | $ | 4,045 | |||||
Trading revenues, net | 6,468 | 3,862 | 437 | ||||||||
Interest, net | 914 | 651 | 71 | ||||||||
Total revenues from related parties | $ | 23,226 | $ | 19,041 | $ | 4,553 | |||||
Expenses | |||||||||||
Execution and clearance fees(1) | $ | (15,472 | ) | $ | (10,261 | ) | $ | (19,491 | ) | ||
Communications and data processing | 6,351 | — | — | ||||||||
Payment for order flow | 2,685 | 585 | — | ||||||||
Collateralized financing interest | 399 | 529 | 102 | ||||||||
Professional fees | 5,507 | — | — | ||||||||
Other expense | 2,349 | 1,719 | 651 | ||||||||
Total expenses incurred with respect to related parties | $ | 1,819 | $ | (7,428 | ) | $ | (18,738 | ) |
Statements of Financial Condition | December 31, 2015 | December 31, 2014 | |||||
Assets | |||||||
Securities borrowed | $ | 10,573 | $ | 26,110 | |||
Receivable from brokers, dealers and clearing organizations | 1,987 | 20,075 | |||||
Other assets | 67,652 | — | |||||
Liabilities | |||||||
Securities loaned | $ | 3,844 | $ | 7,376 | |||
Payable to brokers, dealers and clearing organizations | 61 | 8,509 | |||||
Accrued expenses and other liabilities | 4,159 | 5,667 |
Name | Relationship/ Title | Number of Shares Purchased | Total Purchase Price | ||||||
Stephen Schuler and related entities(1) | Stockholder/Director | 1,708 | $ | 23,918 | |||||
Daniel Tierney and related entities(2) | Stockholder/Former Director | 1,798 | 25,176 | ||||||
GA-GTCO Interholdco, LLC(3) | Stockholder | 8,285 | 115,989 | ||||||
Jefferies LLC | Stockholder | 6,533 | 91,458 |
(1) | Includes (i) Stephen Schuler, (ii) Serenity Investments, LLC, a limited liability company organized under the laws of the state of Alaska (“Serenity”), of which Mr. Schuler and his wife separately hold equity interests that together represent a controlling interest and with respect to which Mr. Schuler may be deemed to share voting and dispositive power and (iii) the Schuler Family GST Trust dated June 6, 2003, a trust that holds securities with respect to which Mr. Schuler may be deemed to share voting and dispositive power. Mr. Schuler disclaims beneficial ownership of the securities held by Serenity except to the extent of his pecuniary interest therein. |
(2) | Includes (i) Daniel Tierney and (ii) the Daniel V. Tierney 2011 Trust (the “Tierney Trust”), a trust of which Daniel Tierney is the settlor and beneficiary. Mr. Tierney does not have or share voting or dispositive power over the securities held by the Tierney Trust, but does have the power to revoke the Tierney Trust and acquire beneficial ownership of such securities within 60 days. Mr. Tierney disclaims beneficial ownership of the securities held by the Tierney Trust. In November, 2015, Daniel Tierney resigned from his position as a director of the Company. |
(3) | GA-GTCO Interholdco, LLC, an affiliate of General Atlantic, has appointed two directors to the Company’s board of directors (Rene Kern, an employee of General Atlantic and John C. (Hans) Morris, a former employee of General Atlantic). Neither director participated in the Tender Offer with respect to shares they hold directly. |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Stock award compensation expense (1) | $ | 81,496 | $ | 55,402 | $ | 33,067 | |||||
Income tax benefit | 30,968 | 21,053 | 11,573 |
(1) | Included in the year ended December 31, 2015 is $28.8 million of accelerated stock compensation expense related to the Outstanding Annual RSUs as a result of implementing the Continued Vesting Amendment. |
Restricted Stock Units | |||||||
Number of Units | Weighted- Average Grant date Fair Value | ||||||
Outstanding at December 31, 2014 | 9,147 | $ | 10.77 | ||||
Granted | 2,660 | 12.21 | |||||
Vested | (4,293 | ) | 10.73 | ||||
Forfeited | (777 | ) | 11.33 | ||||
Outstanding at December 31, 2015 | 6,737 | $ | 11.29 |
2013 | ||
Dividend yield | — | % |
Expected volatility | 35.0 | % |
Risk-free interest rate | 1.0 | % |
Expected life (in years) | 3.5 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Stock option and SAR compensation expense | $ | 2,999 | $ | 3,807 | $ | 1,813 | |||||
Income tax benefit | 1,140 | 1,447 | 635 |
Number of Stock Awards | Weighted- Average Exercise Price | Aggregate Intrinsic Value | Weighted- Average Remaining Life (years) | ||||||||||
Outstanding at December 31, 2014 (1) | 4,691 | $ | 17.41 | ||||||||||
Granted at market value | — | — | |||||||||||
Exercised | (151 | ) | 8.24 | ||||||||||
Forfeited or expired | (169 | ) | 26.99 | ||||||||||
Outstanding at December 31, 2015 (1) | 4,371 | $ | 17.36 | $ | 4,353 | 2.48 | |||||||
Exercisable at December 31, 2015 | 2,992 | $ | 18.21 | $ | 2,902 | 2.46 | |||||||
Available for future grants at December 31, 2015 (2) | 16,347 |
(1) | Includes 1.7 million SARs. |
(2) | Represents shares available for grant of options, SARs, RSUs and other awards under the Amended 2015 Plan. |
Options and SARs Outstanding | Options and SARs Exercisable | |||||||||||||||
Range of Exercise Prices | Outstanding at 12/31/15 | Weighted- Average Remaining Contractual Life | Weighted- Average Exercise Price | Number Exercisable at 12/31/15 | Weighted- Average Exercise Price | |||||||||||
$8.24 - $8.25 | 740 | 2.61 | $ | 8.24 | 493 | $ | 8.24 | |||||||||
$11.65 - $11.65 | 1,700 | 2.51 | 11.65 | 1,133 | 11.65 | |||||||||||
$22.50 - $22.50 | 1,700 | 2.51 | 22.50 | 1,133 | 22.50 | |||||||||||
$30.72 - $51.84 | 133 | 2.14 | 48.36 | 133 | 48.36 | |||||||||||
$52.98 - $52.98 | 25 | 0.88 | 52.98 | 25 | 52.98 | |||||||||||
$53.91 - $53.91 | 74 | 1.08 | 53.91 | 74 | 53.91 | |||||||||||
4,371 | 2.48 | $ | 17.36 | 2,992 | $ | 18.21 |
Vested | ||
Incentive units at December 31, 2014 | 38 | |
Issued | — | |
Vested | — | |
Exercised | (8 | ) |
Canceled | — | |
Incentive units at December 31, 2015 | 30 |
For the year ended December 31, | ||||||||||
2015 | 2014 | 2013 | ||||||||
Incentive units | $ | 168 | $ | (269 | ) | 2,446 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Class B and E units | $ | — | $ | — | $ | 19,860 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Total expense | $ | 9,765 | $ | 10,093 | $ | 2,959 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Current: | |||||||||||
U.S. federal | $ | 106,700 | $ | 709 | $ | (194 | ) | ||||
U.S. state and local | 19,665 | 4,081 | 2,902 | ||||||||
Non U.S. | 958 | (828 | ) | 3,773 | |||||||
$ | 127,323 | $ | 3,962 | $ | 6,481 | ||||||
Deferred: | |||||||||||
U.S. federal | $ | 25,221 | 30,331 | (106,996 | ) | ||||||
U.S. state and local | (16,803 | ) | (10,997 | ) | — | ||||||
Non U.S. | (4,883 | ) | (543 | ) | (599 | ) | |||||
$ | 3,535 | $ | 18,791 | $ | (107,595 | ) | |||||
Provision (benefit) for income taxes | $ | 130,858 | $ | 22,753 | $ | (101,114 | ) |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
U.S. federal income tax expense at statutory rate | $ | 132,987 | $ | 29,815 | $ | 8,742 | |||||
Income not subject to U.S. corporate income tax | — | — | (15,583 | ) | |||||||
U.S. state and local income tax expense (benefit), net of U.S. federal income tax effect | 18,101 | (4,495 | ) | 1,881 | |||||||
Recognition of state deferred tax assets and net operating losses, net of U.S. federal income tax effect | (16,242 | ) | — | — | |||||||
Deferred tax benefit resulting from the Company becoming subject to U.S. corporate income taxes | — | — | (103,499 | ) | |||||||
Nondeductible expenses (1) | 3,223 | 230 | 3,627 | ||||||||
Federal research & development tax credits | (3,753 | ) | (1,241 | ) | — | ||||||
Foreign taxes | (3,927 | ) | (1,371 | ) | 3,603 | ||||||
Other, net | 469 | (185 | ) | 115 | |||||||
Income tax expense (benefit) | $ | 130,858 | $ | 22,753 | $ | (101,114 | ) |
December 31, 2015 | December 31, 2014 | ||||||
Deferred tax assets: | |||||||
Employee compensation and benefit plans | $ | 41,447 | $ | 24,587 | |||
Fixed assets and other amortizable assets | 79,765 | 82,882 | |||||
Reserves | 7,875 | 2,668 | |||||
Valuation of investments | 13,590 | 32,962 | |||||
Net operating loss carryforwards and tax credits, net | 43,419 | 94,770 | |||||
Less: Valuation allowance on net operating loss carryforwards | (9,715 | ) | (15,238 | ) | |||
Total deferred tax assets | $ | 176,381 | $ | 222,631 | |||
Deferred tax liabilities: | |||||||
Fixed assets and other amortizable assets | 243 | 26,244 | |||||
Reserves | — | 2,226 | |||||
Valuation of investments | 280 | 19,912 | |||||
Reduction in foreign tax credit for Non-U.S. NOL carryforwards | 24,633 | 19,490 | |||||
Total deferred tax liabilities | 25,156 | 67,872 | |||||
Net deferred tax assets | $ | 151,225 | $ | 154,759 |
December 31, 2015 | December 31, 2014 | ||||||
Balance at beginning of period | $ | 2,312 | $ | 1,464 | |||
Increases based on tax positions related to prior periods | 1,332 | 1,843 | |||||
Decreases based on tax positions related to prior periods | — | (995 | ) | ||||
Balance at the end of the period | $ | 3,644 | $ | 2,312 |
Unrealized Gains (Losses) on Available-for-Sale Securities | Foreign Currency Translation Adjustments | Total | ||||||||||
Balance January 1, 2013 | $ | 114,319 | $ | — | $ | 114,319 | ||||||
Other Comprehensive Income | 13,689 | 1,365 | 15,054 | |||||||||
Amount reclassified from Accumulated Other Comprehensive Income | (127,972 | ) | — | (127,972 | ) | |||||||
Net current-period other comprehensive (loss) income | (114,283 | ) | 1,365 | (112,918 | ) | |||||||
Balance, December 31, 2013 | 36 | 1,365 | 1,401 | |||||||||
Other comprehensive income | 316 | 416 | 732 | |||||||||
Balance, December 31, 2014 | 352 | 1,781 | 2,133 | |||||||||
Other comprehensive income | 106 | (1,581 | ) | (1,475 | ) | |||||||
Amount reclassified from Accumulated Other Comprehensive Income | (308 | ) | — | (308 | ) | |||||||
Net current-period other comprehensive loss | (202 | ) | (1,581 | ) | (1,783 | ) | ||||||
Balance, December 31, 2015 | $ | 150 | $ | 200 | $ | 350 |
For the year ended December 31, 2013 | Amounts Reclassified from Other Comprehensive Income | Affected Line Item in the Consolidated Statement of Operations where Net Income is Presented | ||||
Accumulated Other Comprehensive Income Components | ||||||
Available-for-sale securities: | ||||||
Reclassification of unrealized net gains | (127,972 | ) | Investment income and other, net | |||
Related income tax expense | 48,629 | Income tax expense | ||||
$ | (79,343 | ) | Net of tax |
For the year ended December 31, 2015 | Amounts Reclassified from Other Comprehensive Income | Affected Line Item in the Consolidated Statement of Operations where Net Income is Presented | ||||
Accumulated Other Comprehensive Income Components | ||||||
Available-for-sale securities: | ||||||
Reclassification of unrealized net gains | (497 | ) | Investment income and other, net | |||
Related income tax expense | 189 | Income tax expense | ||||
$ | (308 | ) | Net of tax |
December 31, 2015 | December 31, 2014 | ||||||
Balance as of beginning of period | $ | 5,897 | $ | 6,120 | |||
Real estate charges incurred | 23,186 | 5,360 | |||||
Payments made, net | (8,921 | ) | (4,468 | ) | |||
Interest accretion | (1,270 | ) | (1,115 | ) | |||
Balance as of end of period | $ | 18,892 | $ | 5,897 |
For the years ended December 31, | |||||||||||||||||||||||
2015 | 2014 | 2013 | |||||||||||||||||||||
Numerator / net income | Denominator / shares | Numerator / net income | Denominator / shares | Numerator / net income | Denominator / shares | ||||||||||||||||||
Income from continuing operations and shares used in basic calculations | $ | 249,104 | 100,437 | $ | 62,434 | 112,854 | 126,092 | 80,143 | |||||||||||||||
Effect of dilutive stock based awards | |||||||||||||||||||||||
Restricted awards | 1,955 | 3,579 | 855 | ||||||||||||||||||||
Stock options and SARs | 316 | 101 | 17 | ||||||||||||||||||||
Warrants | 214 | — | — | ||||||||||||||||||||
Income from continuing operations and shares used in diluted calculations | $ | 249,104 | 102,922 | $ | 62,434 | 116,534 | $ | 126,092 | 81,015 | ||||||||||||||
Loss from continuing operations allocated to preferred and participating units | $ | — | $ | — | $ | (21,565 | ) | ||||||||||||||||
Income from continuing operations attributable to common stockholders | $ | 249,104 | $ | 62,434 | $ | 147,657 | |||||||||||||||||
Basic earnings per common share from continuing operations | $ | 2.48 | $ | 0.55 | $ | 1.84 | |||||||||||||||||
Diluted earnings per common share from continuing operations | $ | 2.42 | $ | 0.54 | $ | 1.82 |
Minimum Payments | |||
2016 | $ | 2,126 | |
2017 | 620 | ||
Total | $ | 2,746 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
Interest expense - Capital leases | $ | 189 | $ | 370 | $ | 700 |
Gross Lease Obligations | Sublease Income | Net Lease Obligations | |||||||||
Year ending December 31, 2016 | $ | 24,613 | $ | 5,116 | $ | 19,497 | |||||
Year ending December 31, 2017 | 28,677 | 4,633 | 24,044 | ||||||||
Year ending December 31, 2018 | 27,003 | 4,286 | 22,717 | ||||||||
Year ending December 31, 2019 | 24,367 | 3,630 | 20,737 | ||||||||
Year ending December 31, 2020 | 22,918 | 2,482 | 20,436 | ||||||||
Thereafter through December 31, 2031 | 175,323 | 6,538 | 168,785 | ||||||||
Total | $ | 302,901 | $ | 26,685 | $ | 276,216 |
Net Capital | Net Capital Requirement | Excess Net Capital | ||||||||||
KCG Americas LLC | $ | 286,757 | $ | 1,000 | $ | 285,757 |
Financial Resources | Resource Requirement | Excess Financial Resources | ||||||||||
KCG Europe Limited | $ | 155,081 | $ | 131,840 | $ | 23,241 |
Market Making | Global Execution Services | Corporate and Other | Consolidated Total | ||||||||||||
For the year ended December 31, 2015: | |||||||||||||||
Revenues | $ | 884,858 | $ | 667,723 | $ | 46,529 | $ | 1,599,110 | |||||||
Pre-tax earnings | 124,028 | 368,957 | (113,023 | ) | 379,962 | ||||||||||
Total assets | 4,855,482 | 727,029 | 468,667 | 6,051,178 | |||||||||||
For the year ended December 31, 2014: | |||||||||||||||
Revenues | $ | 901,152 | $ | 345,710 | $ | 69,369 | $ | 1,316,232 | |||||||
Pre-tax earnings | 146,713 | 11,056 | (72,582 | ) | 85,187 | ||||||||||
Total assets | 4,401,021 | 786,734 | 1,642,899 | 6,830,654 | |||||||||||
For the year ended December 31, 2013: | |||||||||||||||
Revenues | $ | 688,197 | $ | 197,765 | $ | 141,374 | $ | 1,027,336 | |||||||
Pre-tax earnings | 103,612 | (25,794 | ) | (52,842 | ) | 24,978 | |||||||||
Total assets | 3,939,965 | 1,106,448 | 1,950,591 | 6,997,004 |
U.S. | International | Consolidated Total | |||||||||
For the year ended December 31, 2015: | |||||||||||
Revenues | $ | 1,449,370 | $ | 149,740 | $ | 1,599,110 | |||||
For the year ended December 31, 2014: | |||||||||||
Revenues | $ | 1,127,088 | $ | 189,144 | $ | 1,316,232 | |||||
For the year ended December 31, 2013: | |||||||||||
Revenues | $ | 834,410 | $ | 192,926 | $ | 1,027,336 |
December 31, | |||||||
2015 | 2014 | ||||||
(in thousands) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 333,982 | $ | 302,700 | |||
Receivable from subsidiaries | 212,336 | 21,851 | |||||
Investments in subsidiaries | 1,039,250 | 1,122,254 | |||||
Fixed assets and leasehold improvements, at cost, less accumulated depreciation and amortization | 2,755 | — | |||||
Goodwill and intangible assets, less accumulated amortization | 218 | — | |||||
Deferred tax asset, net | 76,747 | 137,009 | |||||
Subordinated loans to subsidiaries | 280,000 | 280,000 | |||||
Other assets | 51,821 | 33,396 | |||||
Total assets | $ | 1,997,109 | $ | 1,897,210 | |||
Liabilities and equity | |||||||
Liabilities | |||||||
Accrued compensation expense | $ | 21,775 | $ | 13,208 | |||
Payable to subsidiaries | — | 42,478 | |||||
Accrued expenses and other liabilities | 35,604 | 13,947 | |||||
Debt | 495,632 | 305,000 | |||||
Total liabilities | 553,011 | 374,633 | |||||
Total equity | 1,444,098 | 1,522,577 | |||||
Total liabilities and equity | $ | 1,997,109 | $ | 1,897,210 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
(in thousands) | |||||||||||
Revenues | |||||||||||
Investment income and other, net | $ | 7,341 | $ | 3,415 | $ | 3,717 | |||||
Total revenues | 7,341 | 3,415 | 3,717 | ||||||||
Expenses | |||||||||||
Employee compensation and benefits | 48,863 | 50,256 | 31,970 | ||||||||
Debt interest expense | 35,883 | 11,939 | 28,476 | ||||||||
Depreciation and amortization | — | — | 698 | ||||||||
Professional fees | 15,728 | 9,211 | 30,488 | ||||||||
Business development | 2,759 | 3,625 | — | ||||||||
Occupancy and equipment rentals | 2,059 | — | — | ||||||||
Other | 31,331 | 25,460 | 29,829 | ||||||||
Total expenses | 136,623 | 100,491 | 121,461 | ||||||||
Loss before income taxes and equity in earnings of subsidiaries | (129,282 | ) | (97,076 | ) | (117,744 | ) | |||||
Income tax benefit | (75,784 | ) | (35,972 | ) | (120,761 | ) | |||||
(Loss) income before equity in earnings of subsidiaries | (53,498 | ) | (61,104 | ) | 3,017 | ||||||
Equity in earnings of subsidiaries | 302,602 | 122,206 | 123,155 | ||||||||
Net income | 249,104 | 61,102 | 126,172 | ||||||||
Other comprehensive income (loss) | (1,783 | ) | 732 | (112,918 | ) | ||||||
Comprehensive income | $ | 247,321 | $ | 61,834 | $ | 13,254 |
For the year ended December 31, | |||||||||||
2015 | 2014 | 2013 | |||||||||
(In thousands) | |||||||||||
Cash flows from operating activities | |||||||||||
Net income | $ | 249,104 | $ | 61,102 | $ | 126,172 | |||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
Equity in earnings of subsidiaries, net of tax | (302,602 | ) | (122,206 | ) | (123,155 | ) | |||||
Stock-based compensation | 14,942 | 16,997 | — | ||||||||
Debt discount accretion and other debt related expenses | 12,103 | 12,548 | 16,931 | ||||||||
Amortization of intangibles | — | — | 698 | ||||||||
Dividends received from subsidiaries | 85,323 | 224,524 | 396,425 | ||||||||
Decrease (increase) in operating assets | |||||||||||
Subordinated loan receivable | — | (30,000 | ) | (250,000 | ) | ||||||
Deferred tax asset | 60,262 | 6,019 | (144,109 | ) | |||||||
Other assets | (17,255 | ) | (25,897 | ) | 5,568 | ||||||
(Decrease) increase in operating liabilities | |||||||||||
Accrued compensation expense | 5,050 | 13,208 | — | ||||||||
Accrued expenses and other liabilities | 20,063 | 3,178 | 64,571 | ||||||||
Net cash provided by operating activities | 126,990 | 159,473 | 93,101 | ||||||||
Cash flows from investing activities | |||||||||||
Cash acquired upon acquisition of Knight Capital Group, Inc. | — | — | 509,133 | ||||||||
Cash received from sale of Urban Financial of America, LLC | — | — | 85,406 | ||||||||
Purchase of fixed assets and leasehold improvements | (2,972 | ) | — | — | |||||||
Capital contributions to subsidiaries | — | — | (164,975 | ) | |||||||
Net cash (used in) provided by investing activities | (2,972 | ) | — | 429,564 | |||||||
Cash flows from financing activities | |||||||||||
Proceeds from issuance of Credit Agreement | — | — | 535,000 | ||||||||
Partial payment of Credit Agreement | — | (235,000 | ) | (300,000 | ) | ||||||
Proceeds from issuance of 6.875% Senior Secured Notes, net | 494,810 | — | — | ||||||||
Proceeds from issuance of 8.25% Senior Secured Notes | — | — | 305,000 | ||||||||
Repayment of 8.25% Senior Secured Notes | (305,000 | ) | — | — | |||||||
Repayment of notes payable | — | — | (15,000 | ) | |||||||
Payment of debt issuance costs | (12,645 | ) | — | (34,592 | ) | ||||||
Cost of common stock repurchased - Tender Offer | (330,000 | ) | — | — | |||||||
Cost of common stock repurchased | (63,194 | ) | (111,585 | ) | (11,324 | ) | |||||
Issuance of equity to General Atlantic | — | — | 55,000 | ||||||||
Payment to former Knight Capital Group, Inc. stockholders | — | — | (720,000 | ) | |||||||
Repayment of Knight Convertible Notes | — | — | (257,741 | ) | |||||||
Funding of collateral account for Knight Convertible Notes | — | — | (117,259 | ) | |||||||
Payment out of collateral account for Knight Convertible Notes | — | — | 117,259 | ||||||||
Members distributions | — | — | (21,002 | ) | |||||||
Cash funding transactions with subsidiaries | 123,308 | 236,795 | 80,500 | ||||||||
Stock options exercised | 1,247 | — | — | ||||||||
Warrants exercised | 532 | — | — | ||||||||
Cost of warrants repurchased | (4,441 | ) | — | — | |||||||
Income tax (provision) benefit related to stock-based compensation | 2,647 | — | — | ||||||||
Net cash used in financing activities | (92,736 | ) | (109,790 | ) | (384,159 | ) | |||||
Increase in cash and cash equivalents | 31,282 | 49,683 | 138,506 | ||||||||
Cash and cash equivalents at beginning of period | 302,700 | 253,017 | 114,511 | ||||||||
Cash and cash equivalents at end of period | $ | 333,982 | $ | 302,700 | $ | 253,017 | |||||
Supplemental disclosure of cash flow information: | |||||||||||
Cash paid for interest | $ | 33,878 | $ | 28,426 | $ | 26,239 | |||||
Cash paid for income taxes | $ | 124,461 | $ | 15,456 | $ | 365 | |||||
Non-cash net funding financing activities with subsidiaries | $ | 54,510 | $ | 131,840 | $ | 1,082,031 |
For the year ended December 31, | |||||||
2014 | 2013 | ||||||
(in thousands) | |||||||
Net cash used in operating activities - as reported | $ | (14,358 | ) | $ | (398,890 | ) | |
Net cash provided by operating activities - as revised | 159,473 | 93,101 | |||||
Net cash provided by investing activities - as reported | 410,626 | 1,002,055 | |||||
Net cash provided by investing activities - as revised | — | 429,564 | |||||
Net cash used in financing activities - as reported | (346,585 | ) | (464,659 | ) | |||
Net cash used in by financing activities - as revised | (109,790 | ) | (384,159 | ) |
Item 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosures |
Item 9A. | Controls and Procedures |
Item 9B. | Other Information |
Item 15. | Exhibits and Financial Statements Schedules |
NUMBER ASSIGNED TO EXHIBIT (I.E. 601 OF REGULATION S-K) | DESCRIPTION OF EXHIBITS | |
2.1 | Amended and Restated Agreement and Plan of Merger, dated as of December 19, 2012 and amended and restated as of April 15, 2013, by and among GETCO Holding Company, LLC, GA-GTCO, LLC, Knight Capital Group, Inc., Knight Holdco, Inc., Knight Acquisition Corp, GETCO Acquisition, LLC and GA-GTCO Acquisition, LLC (exhibits excluded) - Incorporated herein by reference to Exhibit 2.1 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
2.2 | Stock Purchase Agreement, dated July 29, 2013, by and among Knight Libertas Holdings LLC, KCG Holdings, Inc. and UFG Holdings LLC - Incorporated herein by reference to Exhibit 2.1 of the Registrant's Quarterly Report on Form 10-Q filed on August 9, 2013. | |
2.3 | Securities Purchase Agreement, dated January 27, 2015, between Knight Capital Group, Inc. and BATS Global Markets, Inc. - Incorporated herein by reference to Exhibit 2.1 of the Registrant's Form 8-K Current Report filed on January 29, 2015. | |
3.1 | Amended and Restated Certificate of Incorporation of KCG Holdings, Inc. - Incorporated herein by reference to Exhibit 3.1 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
3.2 | Second Amended and Restated Bylaws of KCG Holdings, Inc. - Incorporated herein by reference to Exhibit 3.2 of the Registrant's Current Report on Form 8-K filed on December 4, 2015. | |
4.1 | Form of Certificate of Class A Common Stock of KCG Holdings, Inc. - Incorporated herein by reference to Exhibit 4.1 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.2 | Registration Rights Agreement, dated July 1, 2013, among KCG Holdings, Inc., Daniel V. Tierney 2011 Trust, Serenity Investments, LLC and GA-GTCO Interholdco, LLC. - Incorporated herein by reference to Exhibit 4.2 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.3 | Warrant Agreement, dated July 1, 2013, between KCG Holdings, Inc and Computershare Shareowner Services LLC. - Incorporated herein by reference to Exhibit 4.3 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.4 | Form of Class A Warrant Certificate (included in Exhibit 4.3) | |
4.5 | Form of Class B Warrant Certificate (included in Exhibit 4.3) | |
4.6 | Form of Class C Warrant Certificate (included in Exhibit 4.3) | |
4.7 | Indenture (the “8.250% Senior Secured Indenture”), dated June 5, 2013, between GETCO Financing Escrow LLC and the Trustee in connection with the 8.250% senior secured notes due 2018 in the aggregate principal amount of $305,000,000 - Incorporated herein by reference to Exhibit 4.7 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.8 | First Supplemental Indenture, dated July 1, 2013, by and between KCG Holdings, Inc. and The Bank of New York Mellon, as trustee (the “Trustee”), amending the 8.250% Senior Secured Indenture - Incorporated herein by reference to Exhibit 4.8 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. |
4.9 | Second Supplemental Indenture, dated July 1, 2013, by and between KCG Holdings, Inc., certain Guarantors and the Trustee, amending the 8.250% Senior Secured Indenture - Incorporated herein by reference to Exhibit 4.9 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.10 | Third Supplemental Indenture, dated as of October 15, 2013, by and among the Company, the Guarantors and the Trustee, amending the 8.250% Senior Secured Indenture - Incorporated herein by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on October 16, 2013. | |
4.11 | Registration Rights Agreement (the “Original Senior Secured Registration Rights Agreement”), dated June 5, 2013, between GETCO Financing Escrow LLC and Jefferies LLC as representative of the initial purchasers of the 8.250% senior secured notes due 2018 in the aggregate principal amount of $305,000,000 - Incorporated herein by reference to Exhibit 4.10 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.12 | Joinder, dated July 1, 2013, by KCG Holdings Inc. and certain Guarantors to the Original Senior Secured Registration Rights Agreement - Incorporated herein by reference to Exhibit 4.11 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.13 | Intercreditor Agreement, dated July 1, 2013, by and among KCG Holdings, Inc., certain Guarantors, Jefferies Finance LLC, as first lien collateral agent, and the Indenture Trustee, as second lien collateral agent - Incorporated herein by reference to Exhibit 4.12 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
4.13 | First Amendment to Registration Rights Agreement, dated May 30, 2014, by KCG Holdings Inc. - Incorporated herein by reference to Exhibit 4.1 of the Registrant’s Form 8-K Current Report filed on June 2, 2014 | |
4.14 | Indenture (the “Original Convertible Notes Indenture”), dated March 19, 2010, between Knight Capital Group, Inc. and Deutsche Bank Trust Company Americas in connection with that certain 3.50% cash convertible senior subordinated notes due 2015 in the aggregate principal amount of $375,000,000 - Incorporated herein by reference to Exhibit 4.1 of Knight Capital Group, Inc.’s Form 8-K filed on March 19, 2010. | |
4.15 | First Supplemental Indenture, dated July 1, 2013, by and among KCG Holdings, Inc., Knight Capital Group, Inc. and The Bank of New York Mellon, as successor in interest to Deutsche Bank Trust Company Americas, amending the Original Convertible Notes Indenture - Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on July 2, 2013. | |
4.16 | Indenture, dated March 13, 2015, among KCG Holdings, Inc., the guarantors named therein and The Bank of New York Mellon, as trustee and collateral agent, in connection with the 6.875% senior secured notes due 2020 in the aggregate principal amount of $500,000,000 - Incorporated herein by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on March 16, 2015. | |
10.1 | Employment Agreement between the Company and Daniel Coleman - Incorporated herein by reference to Exhibit 10.4 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.2 | Form of Employment Agreement - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed August 9, 2013. | |
10.3 | Term Schedule to Employment Agreement between the Company and John DiBacco - Incorporated herein by reference to Exhibit 10.3 of the Registrant's Form 8-K Current Report filed August 9, 2013. | |
10.4 | Term Schedule to Employment Agreement between the Company and John McCarthy - Incorporated herein by reference to Exhibit 10.4 of the Registrant's Form 8-K Current Report filed August 9, 2013. | |
10.5 | Term Schedule to Employment Agreement between the Company and Nick Ogurtsov - Incorporated herein by reference to Exhibit 10.5 of the Registrant's Form 8-K Current Report filed August 9, 2013. | |
10.6 | Revised Term Schedule to Employment Agreement between the Company and Jonathan Ross - Incorporated herein by reference to Exhibit 10.1 of the Registrant's Form 10-Q Quarterly Report filed November 12, 2013. | |
10.7 | Revised Term Schedule to Employment Agreement between the Company and George Sohos - Incorporated herein by reference to Exhibit 10.8 of the Registrant's Form 10-K Annual Report filed March 3, 2014. | |
10.8 | Term Schedule to Employment Agreement between the Company and Ryan Primmer - Incorporated herein by reference to Exhibit 10.9 of the Registrant's Form 10-K Annual Report filed March 3, 2014. | |
10.9 | Term Schedule to Employment Agreement between the Company and Gregory Tusar - Incorporated herein by reference to Exhibit 10.10 of the Registrant's Form 10-K Annual Report filed March 3, 2014. | |
10.10 | Term Schedule to Employment Agreement between the Company and Steffan Parratt - Incorporated herein by reference to Exhibit 10.12 of the Registrant's Form 10-K Annual Report filed March 2, 2015. | |
10.11 | Employment Agreement, dated March 19, 2014, between KCG Europe Limited and Philip Allison - Incorporated herein by reference to Exhibit 10.2 of the Registrant's Form 8-K Current Report filed January 6, 2015. | |
10.12 | KCG Holdings, Inc. Amended and Restated Equity Incentive Plan - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report filed on August 10, 2015. | |
10.13 | KCG Holdings, Inc. Amended and Restated Executive Incentive Plan - Incorporated herein by reference to Exhibit 10.7 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.14 | KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Restricted Stock Unit Agreement- Incorporated herein by reference to Exhibit 10.8 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.15 | KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Employee Stock Option Agreement- Incorporated herein by reference to Exhibit 10.9 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.16 | KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Employee Stock Appreciation Right Agreement- Incorporated herein by reference to Exhibit 10.10 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.17 | KCG Holdings, Inc. Compensation Recoupment Policy- Incorporated herein by reference to Exhibit 10.16 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.18 | Amended and Restated Aircraft Timeshare Agreement, dated as of April 17, 2014, by and between KCG Holdings, Inc. and Redmont Holdings LLC - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report filed on May 12, 2014. | |
10.19 | Credit Agreement (the “Original Credit Agreement”), dated July 1, 2013, by and among OCTEG, LLC and Knight Capital Americas LLC, as borrowers, KCG Holdings, Inc., as guarantor, the lenders from time to time party thereto, BMO Harris Bank N.A., as administrative agent and collateral agent, JPMorgan Chase Bank N.A. and Bank of America, N.A., as syndication agents, and BMO Capital Markets, JPMorgan Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book runners - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on July 2, 2013. | |
10.20 | First Amendment to the Original Credit Agreement, dated October 24, 2013, by and among OCTEG, LLC and Knight Capital Americas LLC, as borrowers, KCG Holdings, Inc., as guarantor, the lenders from time to time party thereto and BMO Harris Bank N.A., as administrative agent - Incorporated herein by reference to Exhibit 10.21 of the Registrant's Form 10-K Annual Report filed March 3, 2014. | |
10.21 | Credit Agreement, dated June 5, 2015, by and among KCG Americas LLC, as borrower, KCG Holdings, Inc., as guarantor, the lenders from time to time party thereto, BMO Harris Bank N.A., as administrative agent and collateral agent, Bank of America, N.A., as syndication agent, and BMO Capital Markets and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book runners - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on June 9, 2015. | |
10.22 | Security Agreement, dated March 13, 2015 among KCG Holdings, Inc., the guarantors named therein and The Bank of New York Mellon, as trustee and collateral agent - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on March 16, 2015. | |
10.23 | Master Agreement to Lease Equipment, dated as of October 30, 2009, between Global Colocation Services LLC and Cisco Systems Capital Corporation - Incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.24 | Guaranty of GETCO Holding Company, LLC under the Master Agreement to Lease Equipment, dated as of October 30, 2009 - Incorporated herein by reference to Exhibit 10.3 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013. | |
10.25 | Master Agreement to Lease Equipment, dated as of March 10, 2014, between KCG Americas LLC and Cisco Systems Capital Corporation - Incorporated herein by reference to Exhibit 10.2 of the Registrant’s 10-Q Quarterly Report filed on May 12, 2014. | |
10.26 | Amendment No. 1 to Master Agreement to Lease Equipment, dated as of March 10, 2014, between KCG Americas LLC and Cisco Systems Capital Corporation - Incorporated herein by reference to Exhibit 10.3 of the Registrant’s 10-Q Quarterly Report filed on May 12, 2014. | |
10.27 | Guaranty of KCG Holdings, Inc. under the Master Agreement to Lease Equipment, dated as of March 13, 2014 - Incorporated herein by reference to Exhibit 10.4 of the Registrant’s 10-Q Quarterly Report filed on May 12, 2014. | |
10.28 | U.S. Securities and Exchange Commission Order against Knight Capital Americas LLC, dated October 16, 2013 - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on October 16, 2013. | |
10.29 | Separation Agreement dated March 30, 2015, by and between KCG Holdings, Inc. and George Sohos - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on April 2, 2015. | |
10.30 | Lease Agreement between KCG Holdings, Inc. and BOP One North End LLC, dated July 31, 2015. - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s 10-Q Quarterly Report filed on November 6, 2015. | |
21.1* | Subsidiaries of the Registrant as of December 31, 2015. | |
23.1* | Consent of Independent Registered Public Accounting Firm. | |
24.1 | Powers of Attorney (included on signature page). | |
31.1* | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1* | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2* | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101** | The following financial statements from KCG Holdings, Inc's Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Financial Condition at December 31, 2015 and 2014, (ii) Consolidated Statements of Operations for the years ended December 31, 2015, 2014 and 2013 (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014 and 2013, (iv) Consolidated Statements of Changes in Equity for the years ended December 31, 2015, 2014 and 2013 (v) Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013 and (vi) the Notes to Consolidated Financial Statements. | |
* | Filed herewith. |
** | Pursuant to rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections. |
KCG HOLDINGS, INC. | |
By: | /s/ DANIEL COLEMAN |
Daniel Coleman | |
Chief Executive Officer |
Name | Title | Date | ||
/s/ DANIEL COLEMAN | Chief Executive Officer | February 29, 2016 | ||
Daniel Coleman | (Principal Executive Officer) | |||
/s/ STEFFEN PARRATT | Chief Financial Officer | February 29, 2016 | ||
Steffen Parratt | (Principal Financial Officer) | |||
/s/ SEAN P. GALVIN | Chief Accounting Officer | February 29, 2016 | ||
Sean P. Galvin | (Principal Accounting Officer) | |||
/s/ CHARLES E. HALDEMAN JR. | Non-Executive Chairman of the Board | February 29, 2016 | ||
Charles E. Haldeman, Jr. | ||||
/s/ DEBRA J. CHRAPATY | Director | February 29, 2016 | ||
Debra J. Chrapaty | ||||
/s/ RENE KERN | Director | February 29, 2016 | ||
Rene Kern |
/s/ JAMES T. MILDE | Director | February 29, 2016 | ||
James T. Milde | ||||
/s/ JOHN C. MORRIS | Director | February 29, 2016 | ||
John C. Morris | ||||
/s/ ALASTAIR RAMPELL | Director | February 29, 2016 | ||
Alastair Rampell | ||||
/s/ DANIEL F. SCHMITT | Director | February 29, 2016 | ||
Daniel F. Schmitt | ||||
/s/ STEPHEN SCHULER | Director | February 29, 2016 | ||
Stephen Schuler | ||||
/s/ LAURIE M. SHAHON | Director | February 29, 2016 | ||
Laurie M. Shahon |
Name | State of Entity | |
KCG Holdings, Inc. | Delaware | |
Knight Capital Group LLC | Delaware | |
Knight Capital Holdings LLC | Delaware | |
KCG Americas LLC | Delaware | |
KCG Europe Limited | England and Wales | |
GETCO, LLC | Illinois | |
Global Colocation Services LLC | Delaware | |
GETCO Holding Company, LLC | Delaware | |
GETCO Europe Limited | England and Wales | |
GETCO Trading, LLC | Delaware | |
GETCO Investments, LLC | Delaware | |
KCG Asia Pacific Pte. Ltd. | Singapore |
1. | I have reviewed this Quarterly Report on Form 10-K for the year ended December 31, 2015 of KCG Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/S/ DANIEL COLEMAN |
Name: Daniel Coleman Title: Chief Executive Officer (Principal Executive Officer) |
1. | I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2015 of KCG Holdings, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/S/ STEFFEN PARRATT |
Name: Steffen Parratt Title: Chief Financial Officer (Principal Financial Officer) |
1. | The Report fully complies with the requirements of Section 13(a) or, 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/S/ DANIEL COLEMAN | |
Name: Title: Date: | Daniel Coleman Chief Executive Officer February 29, 2016 |
1. | The Report fully complies with the requirements of Section 13(a) or, 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/S/ STEFFEN PARRATT | |
Name: Title: Date: | Steffen Parratt Chief Financial Officer February 29, 2016 |
Document and Entity Information - USD ($) $ in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Feb. 24, 2016 |
Jun. 30, 2015 |
|
Entity Information [Line Items] | |||
Entity Registrant Name | KCG HOLDINGS, INC. | ||
Entity Central Index Key | 0001569391 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2015 | ||
Document Fiscal Period Focus | FY | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Public Float | $ 783.4 | ||
Common Class A | |||
Entity Information [Line Items] | |||
Entity Common Stock, Shares Outstanding | 90,878,650 | ||
Common Class B | |||
Entity Information [Line Items] | |||
Entity Common Stock, Shares Outstanding | 0 |
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Financial instruments owned, at fair value, securities pledged | $ 324,146 | $ 536,124 |
Common stock, shares authorized | 1,000,000,000 | 1,000,000,000 |
Common stock, shares issued | 106,025,000 | 127,508,000 |
Common stock, shares outstanding | 90,156,000 | 116,860,000 |
Treasury stock, shares | 15,869,000 | 10,649,000 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Statement of Comprehensive Income [Abstract] | |||
Net income | $ 249,104 | $ 61,102 | $ 126,172 |
Other comprehensive income (loss): | |||
Unrealized (loss) gain on available for sale securities, net of tax | (202) | 316 | (114,283) |
Cumulative translation adjustment, net of tax | (1,581) | 416 | 1,365 |
Comprehensive income | $ 247,321 | $ 61,834 | $ 13,254 |
CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) - Senior Secured Notes |
Dec. 31, 2015 |
Mar. 10, 2015 |
Jun. 05, 2013 |
---|---|---|---|
6.875% Senior Secured Notes | |||
Interest rate | 6.875% | 6.875% | |
8.25% Senior Secured Notes | |||
Interest rate | 8.25% | 8.25% |
Organization and Description of the Business |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Description of the Business | Organization and Description of the Business KCG Holdings, Inc. (collectively with its subsidiaries, "KCG" or the "Company") is a leading independent securities firm offering clients a range of services designed to address trading needs across asset classes, product types and time zones. The Company combines advanced technology with specialized client service across market making, agency execution and trading venues and also engages in principal trading via direct-to-client and non-client exchange-based electronic market making. KCG has multiple access points to trade global equities, options, futures, fixed income, currencies and commodities via voice or automated execution. KCG was formed as a result of a strategic business combination (the “Mergers”) of Knight Capital Group, Inc.(“Knight”) and GETCO Holding Company, LLC (“GETCO”) in July 2013. As of December 31, 2015, the Company's operating segments comprised the following: (i) Market Making; (ii) Global Execution Services; and (iii) Corporate and Other. Market Making The Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, currencies and commodities. As a market maker, the Company commits capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions. Principal trading in the Market Making segment primarily consists of direct-to-client and non-client exchange-based electronic market making, including trade executions conducted as an equities Designated Market Maker (“DMM”) on the New York Stock Exchange ("NYSE") and NYSE Amex Equities ("NYSE Amex"). KCG is an active participant on all major global equity and futures exchanges and also trades on substantially all domestic electronic options exchanges. As a complement to electronic market making, the Company's cash trading business handles specialized orders and also transacts on the OTC Bulletin Board marketplaces operated by the OTC Markets Group Inc. and the Alternative Investment Market of the London Stock Exchange ("AIM"). Global Execution Services The Global Execution Services segment comprises agency execution services and trading venues, offering trading in global equities, options, futures and fixed income to institutions, banks and broker dealers. The Company generally earns commissions as an agent between principals for transactions; however, the Company will commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities and options; (ii) institutional sales traders executing program, block and riskless principal trades in global equities and exchange traded funds ("ETFs"); (iii) a fixed income electronic communication network ("ECN") that also offers trading applications; and (iv) an alternative trading system ("ATS") for global equities. Corporate and Other The Corporate and Other segment contains investments principally in strategic financial services-oriented opportunities; manages the deployment of capital across the organization; houses executive management functions; and maintains corporate overhead expenses and all other income and expenses that are not attributable to the other segments. The Corporate and Other segment also contains functions that support the Company’s other segments such as self-clearing services, including stock lending activities. Sales of Businesses Management from time to time conducts a strategic review of its businesses and evaluates their potential value in the marketplace relative to their current and expected returns. To the extent management and the Company's Board of Directors determine a business may return a higher value to stockholders, or is no longer core to its strategy, the Company may divest or exit such business. In November 2013, the Company sold Urban Financial of America, LLC, (“Urban”), the reverse mortgage origination and securitization business that was previously owned by Knight to an investor group. In November 2014, the Company sold certain assets and liabilities related to its former Futures Commission Merchant (“FCM”) business to Wedbush Securities Inc. In March 2015, the Company sold KCG Hotspot, the Company's former spot institutional foreign exchange ECN, to BATS Global Markets, Inc. ("BATS"). See Footnote 5 "Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses" and Footnote 27 "Subsequent Event" for further details. |
Merger of GETCO and Knight |
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Merger of GETCO and Knight | Merger of GETCO and Knight Background Pursuant to the Merger Agreement, each outstanding share of Knight Class A common stock, par value $0.01 per share (“Knight Common Stock”), was converted into the right to elect to receive either $3.75 per share in cash or one third of a share of KCG Class A common stock, par value $0.01 per share (“KCG Class A Common Stock”). As a result of the elections and proration procedures provided in the Merger Agreement, former Knight stockholders received cash payments aggregating $720.0 million and 41.9 million shares of KCG Class A Common Stock. Upon completion of the Mergers, GETCO unitholders received, in aggregate, 75.9 million shares of KCG Class A Common Stock and 24.3 million warrants to acquire shares of KCG Class A Common Stock. The warrants comprised 8.1 million Class A warrants, having a $12.00 exercise price and exercisable for a four-year term; 8.1 million Class B warrants, having a $13.50 exercise price and exercisable for a five-year term; and 8.1 million Class C warrants, having a $15.00 exercise price and exercisable for a six-year term (collectively the “KCG Warrants”). The exercise price of each of the Class A, Class B, Class C Warrants was later adjusted as a result of the "modified Dutch auction" tender offer commenced by the Company on May 4, 2015 (the "Tender Offer"). See Footnote 4 "Tender Offer and Stock Repurchase" for further information. Accounting treatment of the Mergers The Mergers are accounted for as a purchase of Knight by GETCO under accounting principles generally accepted in the United States of America ("GAAP") based on, among other factors, the controlling ownership position of the former GETCO unitholders as of the closing of the Mergers. Under the purchase method of accounting, the assets and liabilities of Knight as of July 1, 2013 were recorded at their respective fair values and added to the carrying value of GETCO's existing assets and liabilities. The reported financial condition and results of operations of KCG for the periods following the Mergers reflect Knight's and GETCO's balances and reflect the impact of purchase accounting adjustments, including revised amortization and depreciation expense for acquired assets. As GETCO is the accounting acquirer, the financial results for KCG for the first six months of 2013 comprise solely the results of GETCO. Prior to the Mergers, GETCO treated its investment in Knight as an available-for-sale security, which it recorded at fair value, with any gains or losses recorded in other comprehensive income as a component of equity. All GETCO earnings per share and unit share outstanding amounts in these financial statements have been calculated as if the conversion of GETCO units to KCG Class A Common Stock took place on January 1, 2013, at the exchange ratio as defined in the Merger Agreement. See Footnote 20 "Earnings Per Share" for further information. Purchase price and goodwill The Knight acquisition was accounted for using the acquisition method of accounting. The aggregate purchase price of $1.37 billion was determined as the sum of the fair value of KCG shares issued to former Knight stockholders at closing; the fair value of Knight employee stock based awards attributable to periods prior to closing; and the fair value of the Knight Common Stock owned by GETCO and its subsidiaries immediately prior to the Mergers (and subsequently canceled in conjunction with the Mergers). Tax treatment of the Mergers The Company believes that the Mergers will be treated as a transaction described in Section 351 of the Internal Revenue Code, and both Knight and GETCO have received tax opinions from external legal counsel to that effect. Knight’s tax basis in its assets and liabilities therefore generally carries over to the Company following the Mergers. Upon completion of the Mergers, the Company became a corporation subject to U.S. corporate income taxes and, following the Mergers, the Company recorded deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company measures deferred taxes using the enacted tax rates and laws that will be in effect when such temporary differences are expected to reverse. The Company recorded net deferred tax assets of $65.5 million with respect to recording Knight’s assets and liabilities under the purchase method of accounting as described above as well as recording the value of tax net operating loss ("NOL”) carryforwards and other tax attributes acquired as a result of the Mergers, as described in Footnote 17 “Income Taxes”. The following table reflects the allocation of the purchase price to the assets acquired and liabilities assumed at the acquisition date (in thousands):
Goodwill has been primarily assigned to the Market Making segment of the Company. None of the goodwill is expected to be deductible for tax purposes; however, as described in Tax treatment of the Mergers above, Knight’s tax basis in its assets, including certain goodwill, has carried over to the Company as a result of the Mergers. Amounts allocated to intangible assets and goodwill, and the amortization period for intangible assets with finite useful lives, were as follows (dollars in thousands):
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Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Significant Accounting Policies | Significant Accounting Policies Basis of consolidation and form of presentation The Consolidated Financial Statements, prepared in conformity with GAAP, include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Change in accounting principle As discussed in Footnote 11 "Investments", as a result of the merger of BATS and Direct Edge Holdings LLC ("Direct Edge") in the first quarter of 2014, the Company changed its method of accounting for its investment in BATS from the cost method to the equity method. Cash and cash equivalents Cash and cash equivalents include money market accounts, which are payable on demand, and short-term investments with an original maturity of less than 90 days. The carrying amount of such cash equivalents approximates their fair value due to the short-term nature of these instruments. These assets would be categorized as Level 1 in the fair value hierarchy if they were required to be recorded at fair value. Cash and cash equivalents segregated under federal and other regulations The Company maintains custody of customer funds and is obligated by rules and regulations mandated by the U.S. Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) to segregate or set aside cash and/or qualified securities to satisfy these regulations, which have been promulgated to protect customer assets. The amounts recognized as Cash and cash equivalents segregated under federal and other regulations approximate fair value. These assets would be categorized as Level 1 in the fair value hierarchy if they were required to be recorded at fair value. Market making, sales, trading and execution activities Financial instruments owned and Financial instruments sold, not yet purchased relate to market making and trading activities, and include listed and other equity securities, listed equity options and fixed income securities that are recorded on a trade date basis and are reported at fair value. Trading revenues, net, which comprises trading gains, net of trading losses on such financial instruments, are also recorded on a trade date basis. Commissions, which primarily comprise commission equivalents earned on institutional client orders and volume based fees earned from providing liquidity to other trading venues, as well as related expenses, are also recorded on a trade date basis. Prior to its sale in November 2014, commissions earned by the Company’s former FCM were recorded net of any commissions paid to independent brokers and were recognized on a half-turn basis. The Company’s third party clearing agreements call for payment or receipt of interest income, net of transaction-related interest charged by such clearing brokers, for facilitating the settlement and financing of securities transactions. Interest income and interest expense which have been netted within Interest, net on the Consolidated Statements of Operations are as follows (in thousands):
Dividend income relating to financial instruments owned and dividend expense relating to financial instruments sold, not yet purchased, are derived primarily from the Company’s market making activities and are included as a component of Trading revenues, net on the Consolidated Statements of Operations. Trading revenues, net includes dividend income and expense as follows (in thousands):
Payments for order flow represent payments to broker dealer clients, in the normal course of business, for directing their order flow in U.S. equities and options to the Company. Fair value of financial instruments The Company values its financial instruments using a hierarchy of fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:
Changes in fair value are recognized in earnings each period for financial instruments that are carried at fair value. See Footnote 6 “Fair Value” for a description of valuation methodologies applied to the classes of financial instruments at fair value. Collateralized agreements and financings Collateralized agreements consist of securities borrowed. Collateralized financings include securities loaned and financial instruments sold under agreements to repurchase.
The Company’s securities borrowed, securities loaned and financial instruments sold under agreements to repurchase are recorded at amounts that approximate fair value. These items are recorded based upon their contractual terms and are not materially sensitive to shifts in interest rates because they are short-term in nature and are substantially collateralized pursuant to the terms of the underlying agreements. These items would be categorized as Level 2 in the fair value hierarchy if they were required to be recorded at fair value. Investments Investments primarily comprise noncontrolling equity ownership interests in financial services-related businesses and are held by the Company's non-broker dealer subsidiaries. These investments are accounted for under the equity method, at cost or at fair value. The equity method of accounting is used when the Company has significant influence over the operating and financial policies of the investee. Investments are held at cost, less impairment if any, when the investment does not have a readily determined fair value, and the Company is not considered to exert significant influence over operating and financial policies of the investee. Investments that are publicly traded are held at fair value and accounted for as available for sale securities on the Consolidated Statements of Financial Condition. Prior to the Mergers, GETCO had a strategic investment in Knight which was classified as available for sale and held at fair value with any unrealized gains or losses recorded in Other comprehensive income or loss. As a result of the Mergers, the Company recognized a non-cash gain of $128.0 million on its investment in Knight Common Stock, which it recorded within Investment income and other, net on the Consolidated Statement of Operations for the year ended December 31, 2013 and reversed any previous unrealized gains out of Other comprehensive income. Investments are reviewed on an ongoing basis to ensure that the carrying values of the investments have not been impaired. If the Company determines that an impairment loss on an investment has occurred due to a decline in fair value or other market conditions, the investment is written down to its estimated fair value. Included in the Company's investments are assets supporting a non-qualified deferred compensation plan for certain employees. This plan provides a return to the participants based upon the performance of various investments. In order to hedge its liability under this plan, the Company generally acquires the underlying investments and holds such investments until the deferred compensation liabilities are satisfied. Changes in value of such investments are recorded in Investment income and other, net, with a corresponding charge or credit to Employee compensation and benefits on the Consolidated Statements of Operations. Deferred compensation investments primarily consist of mutual funds, which are accounted for at fair value. Goodwill and intangible assets The Company tests goodwill and intangible assets with an indefinite useful life for impairment annually or when an event occurs or circumstances change that signifies that the carrying amounts may not be recoverable. The Company amortizes intangible assets with a finite life on a straight line basis over their estimated useful lives and tests for recoverability whenever events indicate that the carrying amounts may not be recoverable. The Company capitalizes certain costs associated with the acquisition or development of internal-use software and amortizes the software over its estimated useful life of three years, commencing at the time the software is placed in service. Payable to customers Payable to customers primarily relate to amounts due on cash and margin transactions. Due to their short-term nature, such amounts approximate fair value. Repurchases of common stock The Company may repurchase shares of KCG Class A Common Stock in the open market or through privately negotiated transactions. The Company may structure such repurchases as either a purchase of treasury stock or a retirement of shares. The Company records its purchases of treasury stock, which include shares repurchased in satisfaction of tax withholding obligations upon vesting of restricted awards, at cost as a separate component of stockholders’ equity. The Company may re-issue treasury stock, at average cost, for the acquisition of new businesses and in certain other circumstances. For shares that are retired, the Company records its repurchases at cost, as a reduction in Class A Common Stock for the par value of such retired shares and a reduction in Retained earnings for the balance. Repurchases of warrants The Company may repurchase KCG Warrants through privately negotiated transactions. The Company records its purchases as a reduction in Additional paid-in capital for the total cost. Foreign currency translation and foreign currency forward contracts The Company's foreign subsidiaries generally use the U.S. dollar as their functional currency. The Company has a subsidiary in India that utilizes the Indian Rupee as its functional currency. Assets and liabilities of the Indian subsidiary are translated at exchange rates at the end of a period. Revenues and expenses are translated at average exchange rates during the period. Gains and losses resulting from translating foreign currency financial statements into U.S. dollars are included in Accumulated other comprehensive income on the Consolidated Statements of Financial Condition and Cumulative translation adjustment, net of tax on the Consolidated Statements of Comprehensive Income. Gains or losses resulting from foreign currency transactions are included in Investment income and other, net on the Company’s Consolidated Statements of Operations. For the years ended December 31, 2015, 2014 and 2013, the Company recorded losses of $0.7 million, $2.0 million and $4.1 million, respectively on foreign currency transactions. The Company seeks to reduce the impact of fluctuations in foreign exchange rates on its net investment in certain non-U.S. operations through the use of foreign currency forward contracts. For foreign currency forward contracts designated as hedges, the Company assesses its 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 forward contracts. For qualifying net investment hedges, any gains or losses, to the extent effective, are included in Accumulated other comprehensive income on the Consolidated Statements of Financial Condition and Cumulative translation adjustment, net of tax, on the Consolidated Statements of Comprehensive Income. The ineffective portion, if any, is recorded in Investment income and other, net on the Consolidated Statements of Operations. Stock and unit based compensation Stock and unit based compensation is primarily measured based on the grant date fair value of the awards. These costs are amortized over the requisite service period, if any. Expected forfeitures are considered in determining stock-based employee compensation expense. See Footnote 15 "Stock-Based Compensation" for further discussion. Soft dollar expense Under a commission management program, the Company allows institutional clients to allocate a portion of their gross commissions to pay for research and other services provided by third parties. As the Company acts as an agent in these transactions, it records such expenses on a net basis within Commissions and fees on the Consolidated Statements of Operations. Depreciation, amortization and occupancy Fixed assets are depreciated on a straight-line basis over their estimated useful lives of three to seven years. Leasehold improvements are being amortized on a straight-line basis over the shorter of the term of the related office lease or the expected useful life of the assets. The Company reviews fixed assets and leasehold improvements for impairment and their remaining useful lives whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company recognizes rent expense under operating leases with fixed rent escalations, lease incentives and free rent periods on a straight-line basis over the lease term beginning on the date the Company takes possession of or controls the use of the space, including during free rent periods. Lease loss accrual The Company’s policy is to identify excess real estate capacity and where applicable, accrue for related future costs, net of projected sub-lease income upon the date the Company ceases to use the excess real estate. Such accrual is adjusted to the extent the actual terms of sub-leased property differ from the assumptions used in the calculation of the accrual. Income taxes The Company is a corporation subject to U.S. corporate income tax as well as non-U.S. income taxes in the jurisdictions in which it operates. The Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and measures them using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. The Company evaluates the recoverability of future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences and forecasted operating earnings. Variable interest entities A variable interest entity (“VIE”) is an entity that lacks one or more of the following characteristics (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The Company will be considered to have a controlling financial interest and will consolidate a VIE if it has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Since January 2015, the Company has owned 50% of the voting shares and 50% of the equity of a joint venture, (“JV”) which maintains microwave communication networks in the U.S. and Europe, and is considered to be a VIE. The Company and its JV partner each use the microwave communication networks in connection with their respective trading activities, and the JV sells excess bandwidth that is not utilized by the JV members to third parties. The Company pays the JV for the communication services that it uses, and such amounts are recorded within Communications and data processing on the Consolidated Statements of Operations. The Company does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; therefore it does not have a controlling financial interest in the JV and does not consolidate the JV. The Company records its interest in the JV under the equity method of accounting and records its investment in the JV within Investments and its amounts payable for communication services provided by the JV within Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition. The Company records its pro-rata share of the JV’s earnings or losses within Investment income and other, net and communication services provided by the JV within Communications and data processing on the Consolidated Statements of Operations. The Company’s exposure to the obligations of this VIE is generally limited to its interests in the JV, which is the carrying value of the equity investment in the JV. The following table presents the Company’s nonconsolidated VIE at December 31, 2015 (in thousands):
Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. Recently adopted accounting guidance In April 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) that amends the requirements for reporting discontinued operations. Under the new guidance, discontinued operations reporting are limited to disposal transactions that represent strategic shifts having a major effect on operations and financial results. The amended guidance also enhances disclosures and requires assets and liabilities of a discontinued operation to be classified as such for all periods presented in the financial statements. The updated guidance is effective prospectively to all disposals occurring for interim and annual reporting periods beginning after December 15, 2014, with early adoption permitted. The Company early adopted this ASU in 2014, which resulted in additional disclosures within the Company's Consolidated Financial Statements. In June 2014, the FASB issued an ASU that amends the accounting and disclosure guidance on repurchase agreements. The amended guidance requires entities to account for repurchase-to-maturity transactions as secured borrowings. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The accounting changes and additional disclosures about certain transferred financial assets accounted for as sales were effective for reporting periods beginning after December 15, 2014. The additional disclosures for securities financing transactions are required for annual reporting periods beginning after December 15, 2014 and for interim reporting periods beginning after March 15, 2015. Other than additional disclosure requirements, the adoption of this ASU did not have an impact on the Company’s Consolidated Financial Statements. Recent accounting guidance to be adopted in future periods In May 2014, the FASB issued an ASU that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods beginning after December 15, 2016. The Company is evaluating the impact of this ASU on its Consolidated Financial Statements. In June 2014, the FASB issued an ASU to resolve diverse accounting treatment for share based awards in which the terms of the award are related to a performance target that affects vesting. The ASU requires an entity to treat a performance target that could be achieved after the requisite service period as a performance condition. Additionally, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved, and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered; if the performance target becomes probable of being achieved before the end of the requisite service period, then the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The guidance is effective for reporting periods beginning after December 15, 2015 and may be applied prospectively or retrospectively. The Company does not expect adoption of this ASU to have an impact on its Consolidated Financial Statements. In August 2014, the FASB issued an ASU that requires an entity’s management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for reporting periods beginning after December 15, 2016. Other than additional disclosure requirements, the Company does not expect the adoption of this ASU to have an impact on its Consolidated Financial Statements. In February 2015, the FASB issued an ASU which requires entities to evaluate whether they should consolidate certain legal entities. The ASU simplifies consolidation accounting by reducing the number of consolidation models that an entity may apply. The guidance is effective for reporting periods beginning after December 15, 2015 and early adoption is permitted. The Company does not expect the adoption of this ASU to have an impact on its Consolidated Financial Statements. In April 2015, the FASB issued an ASU regarding simplification of the presentation of debt issuance costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the Consolidated Statements of Financial Condition as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively for reporting periods beginning after December 15, 2015 and early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company's Consolidated Financial Statements. In January 2016, the FASB issued an ASU that provides entities guidance for the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted under a modified retrospective approach for certain financial liabilities as specified in this ASU. The Company is evaluating the impact of this ASU on its Consolidated Financial Statements. |
Tender Offer and Stock Repurchase |
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Tender Offer and Stock Repurchase | Tender Offer and Stock Repurchase On April 2, 2015, the Company’s Board of Directors authorized the repurchase of up to $400.0 million (including the previously unused $55.0 million of authority under the repurchase program authorized on May 1, 2014) of KCG Class A Common Stock and warrants to purchase shares of KCG Class A Common Stock (the "Warrants"). On May 4, 2015, the Company commenced a “modified Dutch auction” tender offer ("Tender Offer") that expired on June 2, 2015. Under the terms of the Tender Offer, stockholders had the opportunity to sell up to $330.0 million of KCG Class A Common Stock to the Company at specified prices per share of not less than $13.50 and not greater than $14.00, or at the purchase price determined by KCG in accordance with the terms of the Tender Offer. Following the expiration of the Tender Offer on June 2, 2015 and based on the number of shares tendered and the prices specified by the tendering stockholders, the Company accepted for purchase 23.6 million shares of the Company’s Class A Common Stock at a purchase price of $14.00 per share, for a cost of $330.0 million excluding fees and expenses related to the Tender Offer. The 23.6 million shares of KCG Class A Common Stock that the Company accepted for purchase in the Tender Offer were retired as of June 9, 2015. As a result, the Company reduced Class A Common Stock and Retained earnings on the Consolidated Statements of Financial Condition by $0.2 million and $329.8 million, respectively. Shares of KCG Common Stock were accepted on a pro rata basis (except for tenders of odd lots, which were accepted in full) at a proration factor, after giving effect to the priority of odd lots, of approximately 29.1% as the Tender Offer was oversubscribed. The Company incurred expenses of $2.1 million in connection with the Tender Offer, which were recorded within Professional fees in the Consolidated Statements of Operations for the year ended December 31, 2015. In 2015, the Company repurchased an additional 3.5 million shares of KCG Class A Common Stock for $41.7 million outside of the Tender Offer. As part of these additional repurchases, on November 4, 2015, the Company purchased approximately 1.9 million shares of KCG Class A Common Stock from Serenity Investments, LLC, a limited liability company organized under the laws of the state of Alaska ("Serenity") for $12.89 per share, the closing stock price of the KCG Class A Common Stock on that date. Stephen Schuler, a director of the Company, and his wife separately hold equity interests that together represent a controlling interest in Serenity. See Footnote 14 "Related Parties" for additional information regarding repurchases of shares from related parties. Warrants As a portion of the consideration in the Mergers, former GETCO unitholders received, in addition to KCG Class A Common Stock, 24.3 million Class A, Class B and Class C Warrants, which were issued in accordance with the Warrant Agreement, dated July 1, 2013, between KCG and Computershare Shareowner Services LLC (the “Warrant Agreement”) and which are subject to the terms and conditions of the Warrant Agreement. The Warrant Agreement includes various anti-dilution and similar provisions that require adjustments to the exercise prices of the Class A, Class B and Class C Warrants and/or the number of shares of KCG Class A Common Stock issuable upon exercise of the KCG Warrants upon certain events and actions taken by the Company, including the Company’s repurchase of KCG Class A Common Stock through a public tender offer. As a result of the Company’s Tender Offer, as described above, the exercise price of each of the Class A, Class B and Class C Warrants was adjusted in accordance with the terms of the Warrant Agreement. All other terms of the Warrants remained the same. The adjusted exercise price for each class of Warrants and the activity for the year ended December 31, 2015 were as follows (Warrants in thousands):
During the fourth quarter of 2015, the Company repurchased 2.6 million KCG Warrants for $4.4 million. See Footnote 14 "Related Parties" for additional information. As of December 31, 2015, approximately $23.9 million in authority remained under the share repurchase program, which is subject to the restrictive covenants in the 6.875% Senior Secured Notes Indenture. |
Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses | Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses In July 2013, the Company entered into an agreement to sell to an investor group Urban, the reverse mortgage origination and securitization business that was previously owned by Knight. The transaction was completed in November 2013, and, as a result, residual revenues and expenses of Urban's operations and costs of the related sale have been included in (Loss) income from discontinued operations, net of tax within the Consolidated Statements of Operations for the year ended December 31, 2014 and the six months ended December 31, 2013. The revenues and results of operations of discontinued operations are summarized as follows (in thousands):
For the year ended December 31, 2015, there was no activity related to discontinued operations. In September 2014, KCG entered into an agreement to sell certain assets and liabilities related to its FCM business to Wedbush Securities Inc. The transaction closed on November 30, 2014. The FCM is not considered a discontinued operation, and therefore the results of the FCM’s operations for 2013 and 2014 are included in the Global Execution Services segment and in Continuing Operations on the Consolidated Statements of Operations. In October 2014, the Company announced that it began to explore strategic options for KCG Hotspot. KCG Hotspot was a single disposal group that was considered to be held-for-sale as of December 31, 2014 and, as a result, certain assets and liabilities related to KCG Hotspot were included in Assets of businesses held for sale and Liabilities of businesses held for sale on the Consolidated Statement of Financial Condition as of December 31, 2014. The Company determined that the sale of KCG Hotspot did not represent a strategic shift that would have a major effect on its operations and financial results, and therefore KCG Hotspot did not meet the requirements to be treated as a discontinued operation. As such, the results of KCG Hotspot's operations through the sale date of March 13, 2015 are included in the Global Execution Services segment and in Continuing Operations on the Consolidated Statements of Operations for all applicable periods presented. In March 2015, the Company completed the sale of KCG Hotspot to BATS. The Company and BATS have agreed to share certain tax benefits, which could result in future payments to the Company of up to approximately $70.0 million in the three-year period following the close, consisting of a $50 million payment in 2018 and annual payments of up to $6.6 million per year (the "Annual Payments"), from 2016 up to and including 2018. The additional potential payments are recorded at fair value in Other assets on the Consolidated Statements of Financial Condition and as of December 31, 2015, have a fair value of $64.2 million. The Annual Payments were contingent on KCG Hotspot achieving various levels of trading volumes through June 2015. That contingency has been removed because the trading levels were achieved. However, the Annual Payments remain contingent on BATS generating sufficient taxable net income to receive the tax benefits. The Company recorded a gain upon completion of the sale of $385.0 million, which is recorded as Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2015. The net gain on the sale of KCG Hotspot was $373.8 million which is net of direct costs associated with the sale which comprised professional fees of $6.7 million and compensation of $4.5 million, which are recorded in Professional fees and Employee compensation and benefits, respectively, on the Consolidated Statements of Operations for the year ended December 31, 2015. The Company has elected the fair value option related to the $64.2 million receivable from BATS. It considers the receivable to be a Level 2 asset in the fair value hierarchy as the fair value is derived from observable significant inputs such as contractual cash flows and market discount rates. In accordance with the Company's strategic review of its businesses and evaluation of their potential value in the marketplace relative to their current and expected returns, KCG determined in 2015 that certain of its businesses including its NYSE DMM business, are no longer considered core to its strategy, and KCG is currently seeking the opportunity to exit or divest of these businesses. KCG believes that the sale or divestiture of these businesses does not represent a strategic shift that will have a major effect on its operations and financial results,however, these businesses meet the requirements to be considered as held-for-sale at December 31, 2015. As part of this review, KCG determined that the carrying value of certain intangible assets related to businesses that are considered held for sale exceeded their fair value, and, as a result, recorded charges in the Consolidated Statement of Operations for the year ended December 31, 2015 totaling $15.0 million to reflect the estimated fair value of such held-for-sale businesses. The estimated fair value of such assets of $26.0 million is based on several factors including quoted market prices, and are included within Assets of businesses held for sale on the December 31, 2015 Consolidated Statement of Financial Condition. See Footnote 12 "Goodwill and Intangible Assets" and Footnote 27 "Subsequent Events" for further details. The assets and liabilities of businesses held for sale as of December 31, 2015 and 2014 are summarized as follows (in thousands):
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Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value | Fair Value The Company’s financial instruments recorded at fair value have been categorized based upon a fair value hierarchy in accordance with accounting guidance, as described in Footnote 3 “Significant Accounting Policies.” The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value (in thousands):
(1) Equities of $743.1 million have been netted by their respective long and short positions by CUSIP number. (2) Corporate debt instruments of $0.3 million have been netted by their respective long and short positions by CUSIP number. (3) Investment in CME Group and Other investments, which primarily consist of deferred compensation investments, are included within Investments on the Consolidated Statements of Financial Condition. The Company's derivative financial instruments are also held at fair value. See Footnote 7 "Derivative Financial Instruments" for further information. The Company’s equities, listed options, U.S. government and non-U.S. government obligations, corporate debt and strategic investments that are publicly traded are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations with reasonable levels of price transparency. The types of instruments that trade in markets that are not considered to be active, but are valued based on observable inputs such as quoted market prices or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy. As of December 31, 2015, a receivable related to the sale of an investment was classified within Level 3 of the fair value hierarchy. As of December 31, 2014 the Company had no financial instruments classified within Level 3 of the fair value hierarchy. The Company’s assets measured at fair value on a nonrecurring basis for the year ended December 31, 2015 solely relate to certain goodwill and assets of businesses held for sale. The fair value measurements of such goodwill and the assets of businesses held for sale at each of the impairment measurement date and at December 31, 2015 are classified as Level 3 measurements within the fair value hierarchy, with the exception of one business unit held for sale that is classified as Level 2 at December 31, 2015. The Level 2 fair value measurement of the business unit held for sale was based on actionable quotes for the business unit, while the Level 3 measurements were valued based on discounted cash flow and other models incorporating unobservable inputs such as earnings forecasts, estimated costs of equity and avoidable costs. Total fair value as of December 31, 2015 was $0 and $24.4 million for such goodwill and assets of businesses held for sale, respectively. See Footnote 12 “Goodwill and Intangible Assets” and Footnote 5 "Discontinued Operations, Assets and Liabilities of Businesses Held for Sale & Sales of Businesses" for additional information. There were no transfers of assets or liabilities held at fair value between levels of the fair value hierarchy for any periods presented. The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level 3 of the fair value hierarchy for the year ended December 31, 2015 (in thousands):
The following is a description of the valuation basis, techniques and significant inputs used by the Company in valuing its Level 2 and Level 3 assets and liabilities. Foreign currency forward contracts At December 31, 2015 and December 31, 2014, the Company had foreign currency forward contracts with a notional value of 850.0 million Indian Rupees ($13.0 million U.S. dollars) and 700.0 million Indian Rupees ($10.9 million U.S. dollars), respectively. These forward contracts are used to hedge the Company’s investment in its Indian subsidiary. The fair value of these forward contracts were determined based upon spot foreign exchange rates and dealer quotations. Other Other primarily consists of the fair value of the Company's receivable from BATS as more fully described in Footnote 5 "Discontinued Operations, Assets and Liabilities Held for Sale and Sales of Businesses". Also included in this category are deferred compensation investments which comprise investments in liquid mutual funds that the Company acquires to hedge its obligations to employees under certain non-qualified deferred compensation arrangements. These mutual fund investments can generally be redeemed at any time and are valued based upon quoted market prices. The Company has elected the fair value option related to the $64.2 million receivable from BATS. It considers the receivable to be a Level 2 asset in the fair value hierarchy as the fair value is derived from observable significant inputs such as contractual cash flows and market discount rates. The Company has elected the fair value option related to a receivable originating from the sale of an investment which is classified within Level 3 of the fair value hierarchy. The valuation of this financial instrument was based upon the use of a model developed by Company management. Inputs into this model were based upon risk profiles of similar financial instruments in the market and reflects management’s judgment relating to the appropriate discount on the receivable as well as a financial assessment of the debtor. To the extent that valuations based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. |
Derivative Financial Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments The Company enters into derivative transactions as part of its trading activities and to manage foreign currency exposure. Cash flows associated with such derivative activities are included in cash flows from operating activities on the Consolidated Statements of Cash Flows. During the normal course of business, the Company enters into futures contracts. These financial instruments are subject to varying degrees of risks whereby the fair value of the securities underlying the financial instruments, may be in excess of, or less than, the contract amount. The Company is obligated to post collateral against certain futures contracts. The amounts and positions included in the tables below for futures contracts would be classified as Level 1 while swaps and forward contracts would be classified as Level 2 in the fair value hierarchy. The following tables summarize the fair value and number of derivative instruments held at December 31, 2015 and December 31, 2014 and the gains and losses included in the Consolidated Statements of Operations for the periods then ended. These instruments include those classified as Financial Instruments, owned at fair value, Financial instruments sold, not yet purchased at fair value, as well as futures contracts which are reported within Receivable from or Payable to brokers, dealers and clearing organizations in the Consolidated Statements of Financial Condition (fair value and gain (loss) in thousands):
The Company has entered into and may continue to enter into International Swaps and Derivative Association, Inc. (“ISDA”) master netting agreements with counterparties. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. The Company may also enter into bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation. Under the ISDA master netting agreements, the Company typically also executes credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted or paid by a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. In the event of counterparty’s default, provisions of the ISDA master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. Any collateral posted can be applied to the net obligations, with any excess returned and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court. The Company is also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open derivative contracts. The table below provides information regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of offset associated with these arrangements exist and could have had an effect on our financial position (in thousands):
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) The full amount of the liabilities related to futures of $42.5 million has been netted against assets related to futures of $6.1 million and margin posted by the Company at the clearing broker in excess of the net liability of $36.4 million.
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk As a market maker in global equities, fixed income, futures, options, commodities and currencies, the majority of the Company’s securities transactions are conducted as principal or riskless principal with broker dealers and institutional counterparties primarily located in the United States. The Company self-clears substantially all of its U.S. equity and option securities transactions. The Company clears a portion of its securities transactions through third party clearing brokers. Foreign transactions are settled pursuant to global custody and clearing agreements with major U.S. banks. Substantially all of the Company’s credit exposures are concentrated with its clearing brokers, broker dealer and institutional counterparties. The Company’s policy is to monitor the credit standing of counterparties with which it conducts business. Financial instruments sold, not yet purchased, at fair value represent obligations to purchase such securities (or underlying securities) at a future date. The Company may incur a loss if the market value of the securities subsequently increases. The Company currently has no loans outstanding to any former or current executive officer or director. |
Collateralized Transactions |
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Collateralized Agreements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Collateralized Transactions | Collateralized Transactions The Company receives financial instruments as collateral in connection with securities borrowed and financial instruments purchased under agreements to resell. Such financial instruments generally consist of equities, corporate obligations and obligations of the U.S. government, but may also include obligations of federal agencies, foreign governments and convertible securities. In most cases the Company is permitted to deliver or repledge these financial instruments in connection with securities lending, other secured financings or for meeting settlement obligations. The table below presents financial instruments at fair value received as collateral related to Securities borrowed or Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition that were permitted to be delivered or repledged and that were delivered or repledged by the Company as well as the fair value of financial instruments which could be further repledged by the receiving party (in thousands):
In order to finance securities positions, the Company also pledges financial instruments that it owns to counterparties who, in turn, are permitted to deliver or repledge them. Under these transactions, the Company pledges certain financial instruments owned to collateralize repurchase agreements and other secured financings. Repurchase agreements and other secured financings are short-term and mature within one year. Financial instruments owned and pledged to counterparties that do not have the right to sell or repledge such financial instruments consist of equities, corporate obligations and obligations of the U.S. government, but may also include obligations of federal agencies, foreign governments and convertible securities. The table below presents information about assets pledged by the Company (in thousands):
The table below presents the gross carrying value of Securities loaned and Financial instruments sold under agreements to repurchase by class of collateral pledged (in thousands):
The Company may enter into master netting agreements and collateral arrangements with counterparties in order to manage its exposure to credit risk associated with securities financing transactions. Such transactions are generally executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions). Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. The Company may also enter into bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation. In the event of counterparty’s default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. Any collateral posted can be applied to the net obligations, with any excess returned and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court. The Company is also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open repurchase and/or securities lending transactions. The gross amounts of assets and liabilities subject to netting and gross amounts offset in the Consolidated Statements of Financial Condition were as follows (in thousands):
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) Represents financial instruments purchased under agreement to resell.
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) Represents financial instruments purchased under agreement to resell. See Footnote 7 "Derivative Financial Instruments" for information related to the offsetting of derivatives in the Company's Consolidated Financial Statements. Maturities of Securities loaned and Financial instruments sold under agreements to repurchase are provided in the table below (dollars in thousands):
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Receivable from and Payable to Brokers, Dealers and Clearing Organizations |
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Brokers and Dealers [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Receivable from and Payable to Brokers, Dealers and Clearing Organizations | Receivable from and Payable to Brokers, Dealers and Clearing Organizations Amounts receivable from and payable to brokers, dealers and clearing organizations consist of the following (in thousands):
Management believes that the carrying value of amounts receivable from and payable to brokers, dealers and clearing organizations approximates fair value since they are short term in nature. |
Fixed Assets and Leasehold Improvements |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fixed Assets and Leasehold Improvements | Fixed Assets and Leasehold Improvements Fixed assets and leasehold improvements comprise the following (in thousands):
*Shorter of life of lease or useful life of assets |
Investments |
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | Investments Investments primarily comprise strategic investments and deferred compensation investments. Investments consist of the following (in thousands):
For the years ended December 31, 2015 and 2014, the Company recorded income of $21.0 million and $36.0 million, respectively, related to Investments accounted for under the equity method of accounting. The Company's investments accounted for under the equity method are considered to be related parties. See Footnote 14 "Related Parties". Investments held at fair value are accounted for as available for sale securities and any unrealized gains or losses are recorded net of tax in Other comprehensive income. In the third quarter of 2015, one of the Company’s investments, with a fair value of $2.8 million, was reclassified from an investment to a trading security and as of December 31, 2015 is therefore reported within Financial instruments owned, at fair value on the Consolidated Statements of Financial Condition. As a result of the reclassification, the Company recognized a gain of $0.5 million within Investment income and other, net in the Consolidated Statements of Operations for the year ended December 31, 2015. This gain, net of taxes, was offset on the December 31, 2015 Statement of Financial Condition by a decrease in Accumulated other comprehensive income. In the fourth quarter of 2015, the Company sold one of its investments and recognized a gain of $9.3 million within Investment income and other, net in the Consolidated Statements of Operations for the year ended December 31, 2015. Upon the closing, $3.5 million was received in cash and the remaining $5.8 million was recorded as a receivable within Other assets on the Consolidated Statement of Financial Condition as of December 31, 2015. The receivable is included within Level 3 of the fair value hierarchy as noted in Footnote 6 "Fair Value". Merger of BATS and Direct Edge In January 2014, BATS and Direct Edge, each of whose equity the Company held as an investment, merged, with BATS being the surviving entity in the merger. Prior to the merger, the Company accounted for its investment in BATS under the cost method and accounted for its investment in Direct Edge under the equity method. The Company changed its method of accounting for its investment in BATS from the cost method to the equity method as a result of this merger, and the effect of the change in accounting principle was made retrospectively. Following the merger, the Company owns 16.7% of the overall equity of BATS and holds 19.9% of the voting equity and has appointed a director to BATS' board of directors. Based on these facts, the Company believes that it has significant influence over BATS' operating and financial policies and accounts for its interest in BATS under the equity method. The Company received approximately $42.2 million from the aggregate distributions paid by BATS and Direct Edge at or around the close of the merger, which the Company recorded as a return of capital under the equity method of accounting. During the first quarter of 2014 the Company recognized income of $9.6 million related to the merger of BATS and Direct Edge which is recorded within Investment income and other, net in the Consolidated Statements of Operations. The $9.6 million comprises a partial realized gain with respect to the Company's investment in Direct Edge of $16.2 million offset, in part, by the Company's share of BATS' and Direct Edge's merger related transaction costs that were charged against their earnings of $6.6 million. tradeMONSTER Group, Inc. Prior to August 2014, the Company held an investment in tradeMONSTER Group, Inc. ("tradeMONSTER") which it accounted for under the equity method of accounting. In August 2014, tradeMONSTER combined with OptionsHouse LLC ("OptionsHouse") to form TM Holdings, L.P. now known as Aperture Holdings, LP, ("Aperture"). Following the combination, the Company continued to account for its interest in Aperture under the equity method of accounting. During the third quarter of 2014 the Company recognized a net gain of $15.1 million related to the combination, which is recorded within Investment income and other, net in the Consolidated Statements of Operations for the year ended December 31, 2014. The net gain of $15.1 million comprises a gain on the Company's exchange of its investment in tradeMONSTER for its investment in Aperture of $17.6 million offset, in part, by the Company's share of tradeMONSTER’s transaction costs. During the fourth quarter of 2015 the Company recognized a gain of $10.5 million related to the sale of its investment in Aperture, which was recorded within Investment income and other, net in the Consolidated Statements of Operations for the year ended December 31, 2015. |
Goodwill and Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill and intangible assets with indefinite lives are assessed for impairment annually or when events indicate that the amounts may be impaired. The Company assesses goodwill for impairment at the reporting unit level. The Company’s reporting units are the components of its business segments for which discrete financial information is available and is regularly reviewed by the Company’s management. As part of the assessment for impairment, the Company considers the cash flows of the respective reporting unit and assesses the fair value of the respective reporting unit as well as the overall market value of the Company compared to its net book value. The assessment of fair value of the reporting units is principally performed using a discounted cash flow methodology with a risk-adjusted weighted average cost of equity which the Company believes to be the most reliable indicator of the fair values of its respective reporting units. The Company also assesses the fair value of each reporting unit based upon its estimated market value and assesses the Company’s overall market value based upon the market price of KCG Class A Common Stock. Intangible assets are assessed for recoverability when events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. The Company assesses intangible assets for impairment at the “asset group” level which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. As part of the assessment for impairment, the Company considers the cash flows of the respective asset group and assesses the fair value of the respective asset group. Step one of the impairment assessment for intangibles is performed using undiscounted cash flow models, which indicates whether the future cash flows of the asset group are sufficient to recover the book value of such asset group. When an asset is not considered to be recoverable, step two of the impairment assessment is performed using a discounted cash flow methodology with a risk-adjusted weighted average cost of equity to determine the fair value of the intangible asset group. In cases where amortizable intangible assets and goodwill are assessed for impairment at the same time, the amortizable intangibles are assessed for impairment prior to goodwill being assessed. In the fourth quarter of 2015, the Company assessed the impairment of goodwill and intangible assets as part of its annual assessment and concluded that there was an impairment relating to the goodwill within the Global Execution Services segment. The Company recorded a $0.9 million charge within Writedown of assets and other real estate related charges in the Consolidated Statements of Operations for the year ended December 31, 2015. As detailed in Footnote 5 “Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses” the Company conducted a strategic review of its businesses and determined that certain of its businesses are no longer considered core to its strategy and the Company is currently seeking the opportunity to exit or divest of these businesses. As a result, the Company recorded a charge of $15.0 million in the Consolidated Statement of Operations for the year ended December 31, 2015 to reflect the excess of carrying value over estimated fair value of intangible assets of businesses held for sale. The $26.0 million estimated fair value of such intangibles are reported within Assets of businesses held for sale on the Consolidated Statement of Financial Condition as of December 31, 2015. The following table summarizes the Company’s goodwill by segment (in thousands):
Intangible assets with definite useful lives are amortized over their remaining estimated useful lives, the majority of which have been determined to range from one to eight years. The weighted average remaining life of the Company’s intangible assets with definite useful lives at December 31, 2015 and December 31, 2014 was approximately three and five years, respectively. The following tables summarize the Company’s Intangible assets, net of accumulated amortization by segment and type (in thousands):
The following table summarizes the Company’s amortization expense from continuing operations relating to Intangible assets (in thousands):
As of December 31, 2015, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):
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Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt The carrying value and fair value of the Company's debt is as follows (in thousands):
The fair value of the Company's 6.875% Senior Secured Notes, 8.25% Senior Secured Notes and Cash Convertible Senior Subordinated Notes is based upon the value of such debt in the secondary market. All of the above liabilities would be categorized as Level 2 in the fair value hierarchy if they were required to be recorded at fair value. Cash Convertible Senior Subordinated Notes In March 2010, Knight issued $375.0 million aggregate principal amount of Cash Convertible Senior Subordinated Notes (the “Convertible Notes”), due on March 15, 2015, in a private offering exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"). In connection with the closing of the Mergers, on July 1, 2013, KCG became a party to the indenture under which the Convertible Notes were issued. On March 16, 2015, the Convertible Notes became due and were paid off in full with a payment of $119.3 million comprising $117.3 million in principal and $2.1 million in interest. The Convertible Notes bore interest at a rate of 3.50% per year, payable semi-annually in arrears, on March 15 and September 15 of each year, commencing on September 15, 2010. 8.25% Senior Secured Notes On June 5, 2013 GETCO Financing Escrow LLC (“Finance LLC”), a wholly-owned subsidiary of GETCO, issued 8.25% senior secured notes due 2018 in the aggregate principal amount of $305.0 million (the “8.25% Senior Secured Notes”) pursuant to an indenture, dated June 5, 2013 (as amended and supplemented, the "8.25% Senior Secured Notes Indenture"). On July 1, 2013, KCG entered into a first supplemental indenture (the “First Supplemental Indenture”) pursuant to which KCG assumed all of the obligations of Finance LLC which comprised the 8.25% Senior Secured Notes plus certain escrow agent fees and expenses of $3.0 million. The 8.25% Senior Secured Notes were scheduled to mature on June 15, 2018 and bore interest at a rate of 8.25% per year, payable on June 15 and December 15 of each year, beginning on December 15, 2013. The 8.25% Senior Secured Notes Indenture provided that KCG could redeem the 8.25% Senior Secured Notes, in whole or in part, at any time prior to June 15, 2015 at a price equal to 100% of the aggregate principal amount of the 8.25% Senior Secured Notes to be redeemed, plus a make-whole premium and accrued and unpaid interest, if any. On March 13, 2015, KCG provided 30 days’ notice that it would be calling its existing 8.25% Senior Secured Notes, effective April 13, 2015. On March 13, 2015, the Company used a portion of the gross proceeds from the 6.875% Senior Secured Notes (as defined below), to deposit in an escrow account maintained by The Bank of New York Mellon, the trustee of the 8.25% Senior Secured Notes (“Bank of New York”) an amount sufficient to redeem the 8.25% Senior Secured Notes in full and accordingly satisfied and discharged the 8.25% Senior Secured Notes Indenture. The Company funded $330.2 million into an escrow account maintained by Bank of New York comprising the following: principal of $305.0 million, accrued interest for the period from December 16, 2014 to April 13, 2015 of $8.2 million, make whole premium which included 4.125% early redemption cost plus additional interest due from April 13, 2015 through June 15, 2015 totaling $16.5 million, and additional funds to cover other miscellaneous charges of $0.4 million. On April 13, 2015, the escrow amount of $330.2 million was released and the required amount was paid out to the 8.25% Senior Secured Notes holders to redeem the 8.25% Senior Secured Notes. Upon the release of the $330.2 million escrow account, the Company recognized charges for a make-whole premium of $16.5 million and the write off of capitalized debt costs of $8.5 million which are recorded as Debt extinguishment charges in the Consolidated Statements of Operations for the year ended December 31, 2015. 6.875% Senior Secured Notes On March 10, 2015, the Company entered into a purchase agreement with Jefferies LLC, as initial purchaser (the “Initial Purchaser”), pursuant to which the Company agreed to sell, and the Initial Purchaser agreed to purchase, $500.0 million aggregate principal amount of 6.875% Senior Secured Notes (the “6.875% Senior Secured Notes”), pursuant to an indenture dated March 13, 2015 (the “6.875% Indenture”), in a private offering exempt from registration under the Securities Act. The 6.875% Senior Secured Notes were resold by the Initial Purchaser to qualified institutional buyers in reliance on Rule 144A and Regulation S under the Securities Act. The 6.875% Senior Secured Notes mature on March 15, 2020 and bear interest at a rate of 6.875% per year, payable on March 15 and September 15 of each year, beginning on September 15, 2015. The 6.875% Senior Secured Notes were issued at 98.962% with net proceeds (before fees and expenses) of $494.8 million and a yield to maturity of 7.083%. On March 13, 2015, KCG and certain subsidiary guarantors (the "6.875% Guarantors") under the 6.875% Indenture, fully and unconditionally guaranteed on a joint and several basis the 6.875% Senior Secured Notes. The 6.875% Senior Secured Notes and the obligations under the 6.875% Indenture are currently secured by pledges of all of the equity interests in each of KCG’s and the 6.875% Guarantors’ existing and future domestic subsidiaries (but limited to 66% of the voting equity interests of controlled foreign company subsidiaries and excluding equity interests in regulated subsidiaries to the extent that such pledge would have a material adverse regulatory effect or is not permitted by applicable law) and security interests in substantially all other tangible and intangible assets of KCG and the 6.875% Guarantors, in each case subject to customary exclusions; provided, however, that if in the future KCG or any of the 6.875% Guarantors enter into certain first lien obligations (as described in the 6.875% Indenture) the collateral agent is authorized by the holders of the 6.875% Senior Secured Notes to enter into an Intercreditor Agreement pursuant to which the lien securing the 6.875% Senior Secured Notes would be contractually subordinated to the lien securing such first lien obligations, to the extent of the value of the collateral securing such obligations. The 6.875% Senior Secured Notes are effectively subordinated to any existing and future indebtedness that is secured by assets that do not constitute collateral under the 6.875% Senior Secured Notes to the extent of the value of such assets. All of the 6.875% Guarantors are wholly-owned subsidiaries of KCG. On or after March 15, 2017, KCG may redeem all or a part of the 6.875% Senior Secured Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and additional interest on the 6.875% Senior Secured Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on March 15 of the years indicated below:
KCG may also redeem the 6.875% Senior Secured Notes, in whole or in part, at any time prior to March 15, 2017 at a price equal to 100% of the aggregate principal amount of the 6.875% Senior Secured Notes to be redeemed, plus a contractual make-whole premium and accrued and unpaid interest. In addition, at any time on or prior to March 15, 2017, KCG may redeem up to 40% of the aggregate principal amount of the 6.875% Senior Secured Notes with the net cash proceeds of certain equity offerings, at a price equal to 106.875% of the aggregate principal amount of the 6.875% Senior Secured Notes, plus accrued and unpaid interest, if any. The 6.875% Indenture contains customary affirmative and negative covenants, including limitations on indebtedness, liens, hedging agreements, investments, loans and advances, asset sales, mergers and acquisitions, dividends, transactions with affiliates, prepayments of other indebtedness, restrictions on subsidiaries, and issuance and repurchases of capital stock. As of December 31, 2015, the Company was in compliance with these covenants. If at any time the 6.875% Senior Secured Notes are rated investment grade by Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Group and no default or event of default has occurred and is continuing under the 6.875% Indenture, certain of the restrictive covenants will be suspended and will not apply to KCG or its restricted subsidiaries; provided, however, that such covenants will be reinstated if the 6.875% Senior Secured Notes subsequently cease to be rated or are no longer assigned an investment grade rating by both rating agencies. The 6.875% Senior Secured Notes and the guarantee of the 6.875% Senior Secured Notes have not been registered under the Securities Act or the securities laws of any other jurisdiction and have no registration rights and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The Company has determined that the terms of the 6.875% Senior Secured Notes do not give rise to a bifurcatable derivative instrument under GAAP. The Company incurred issuance costs of approximately $12.6 million in connection with the issuance of the 6.875% Senior Secured Notes. The issuance costs are recorded within Other assets on the Consolidated Statements of Financial Condition and are being amortized over the remaining term of the 6.875% Senior Secured Notes. Including issuance costs and original issue discount, the 6.875% Senior Secured Notes had an effective yield of 7.590%. Of the above mentioned costs, $11.3 million was paid to a related party. See Footnote 14 "Related Parties" for additional information relating to financing and advising activities. See Footnote 27 "Subsequent Events" for further information regarding the repurchase of a portion of the Company's 6.875% Senior Secured Notes. First Lien Credit Facility On July 1, 2013, KCG, as borrower, entered into a first lien senior secured credit agreement (the “Credit Agreement”) with Jefferies Finance LLC and Goldman Sachs Bank USA. The Credit Agreement was in the amount of $535.0 million (the “First Lien Credit Facility”), all of which was drawn on July 1, 2013. The First Lien Credit Facility also provided for a future uncommitted incremental first lien senior secured revolving credit facility of up to $50.0 million, including letter of credit and swingline sub-facilities, on certain terms and conditions contained in the Credit Agreement. In 2013, the Company repaid $300.0 million of principal of the First Lien Credit Facility. A portion of the $300.0 million totaling $117.3 million was drawn from cash held in a collateral account and the remainder of the $300.0 million was paid out of available cash, including proceeds from the sale of Urban. In the first half of 2014, the Company repaid the remaining $235.0 million of principal of the First Lien Credit Facility out of available cash and the Credit Agreement was terminated. In conjunction with these payments, the Company wrote down $9.6 million of its capitalized debt costs associated with the Credit Agreement. Revolving Credit Agreement On June 5, 2015, KCG Americas LLC ("KCGA"), a wholly-owned broker dealer subsidiary of KCG, as borrower, and KCG, as guarantor, entered into a credit agreement (the "KCGA Facility Agreement”) with a consortium of banks. The KCGA Facility Agreement replaced the prior KCGA credit agreement, dated July 1, 2013, which was terminated as of June 5, 2015. The KCGA Facility Agreement comprises two classes of revolving loans in a total aggregate committed amount of $355.0 million, including a swingline facility with a $50.0 million sub-limit, subject to two borrowing bases (collectively, the “KCGA Revolving Facility”): Borrowing Base A and Borrowing Base B (limited to a maximum loan amount of $115.0 million). The KCGA Revolving Facility also provides for future increases of the revolving credit facility of up to $145.0 million to a total of $500.0 million on certain terms and conditions. Borrowings under the KCGA Revolving Facility bear interest, at the borrower's option, at a rate based on the federal funds rate (“Base Rate Loans”) or based on LIBOR (“Eurodollar Loans”), in each case plus an applicable margin. For each Base Rate Loan, the interest rate per annum is equal to the greater of the federal funds rate or an adjusted one-month LIBOR rate plus (a) for each Borrowing Base A loan, a margin of 1.50% per annum and (b) for each Borrowing Base B loan, a margin of 2.50% per annum. For each Eurodollar Loan, the interest rate per annum is equal to an adjusted LIBOR rate corresponding to an interest period of one, two or three months plus (a) for each Borrowing Base A loan, a margin of 1.50% per annum and (b) for each Borrowing Base B loan, a margin of 2.50% per annum. As of December 31, 2015, there were no outstanding borrowings under the KCGA Facility Agreement. The proceeds of the Borrowing Base A loans may be used solely to finance the purchase and settlement of securities. The proceeds of Borrowing Base B loans may be used solely to fund clearing deposits with the National Securities Clearing Corporation ("NSCC"). KCGA is charged a commitment fee at a rate of 0.40% per annum on the average daily amount of the unused portion of the KCGA Facility Agreement. The loans under the KCGA Facility Agreement will mature on June 5, 2017. The KCGA Revolving Facility is fully and unconditionally guaranteed on an unsecured basis by KCG and, to the extent elected by KCGA, any of its or KCG’s other subsidiaries. It is secured by first-priority pledges of and liens on certain eligible securities, subject to applicable concentration limits, in the case of Borrowing Base A loans, and by first-priority pledges of and liens on the right to the return of certain eligible NSCC margin deposits, in the case of Borrowing Base B loans. The KCGA Facility Agreement includes customary affirmative and negative covenants, including limitations on indebtedness, liens, hedging agreements, investments, loans and advances, asset sales, mergers and acquisitions, dividends, transactions with affiliates, restrictions on subsidiaries, issuance of capital stock, negative pledges and business activities. It contains financial maintenance covenants establishing a minimum total regulatory capital for KCGA, a maximum total asset to total regulatory capital ratio for KCGA, a minimum excess net capital limit for KCGA, a minimum liquidity ratio for KCGA, and a minimum tangible net worth threshold for KCGA. As of December 31, 2015, the Company and KCGA were in compliance with these covenants. The KCGA Facility Agreement also contains events of default customary for facilities of its type, including: nonpayment of principal, interest, fees and other amounts when due, inaccuracy of representations and warranties in any material respect; violation of covenants; cross-default and cross-acceleration to material indebtedness; bankruptcy and insolvency events; material judgments; ERISA events; collateral matters; certain regulatory matters; and a “change of control”; subject, where appropriate, to threshold, notice and grace period provisions. The terms of the prior KCGA credit agreement were substantially the same as the terms of the KCGA Facility Agreement, except that: (i) the facility size was $450.0 million with an uncommitted incremental revolving credit facility of up to $300.0 million on certain terms and conditions; (ii) for each Base Rate Loan, the interest rate per annum was equal to the greater of the federal funds rate or an adjusted one-month LIBOR rate plus (a) for each Revolving A Loan, a margin of 1.75% per annum and (b) for each Revolving B Loan, a margin of 2.25% per annum and for each Eurodollar Loan, the interest rate per annum was equal to an adjusted LIBOR rate corresponding to the interest period plus (a) for each Revolving A Loan, a margin of 1.75% per annum and (b) for each Revolving B loan, a margin of 2.25% per annum; (iii) the Revolving B Sublimit was $150.0 million; and (iv) the commitment fee was 0.35%. In connection with the KCGA Revolving Facility, the Company incurred issuance costs of $1.7 million which are recorded within Other assets on the Consolidated Statements of Financial Condition and are being amortized over the term of the facility. The Company recorded expenses with respect to its Debt as follows (in thousands):
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Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Parties | Related Parties The Company interacts with one party which is the beneficial owner of more than 10 percent of KCG’s Class A Common Stock. It also has trading and other activities with certain investees for which KCG accounts for under the equity method of accounting. Each is considered a related party for all applicable periods. See Footnote 11 "Investments" for the carrying value of these investees at December 31, 2015 and 2014 and for the Company's income with respect to its equity earnings from these investees for the years ended December 31, 2015 and 2014. The Company earns revenues, incurs expenses and maintains balances with these related parties or their affiliates in the ordinary course of business. As of the date and period indicated below, the Company had the following balances and transactions with its related parties or their affiliates (in thousands):
(1) Represents net volume based fees received by KCG from providing liquidity to related trading venues.
In March 2015, the Company completed the sale of KCG Hotspot to BATS, a related party. The Company recorded a gain on sale of $385.0 million which is included as Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2015. The Company and BATS have agreed to share certain tax benefits, which could result in future payments to the Company of up to approximately $70.0 million in the three-year period following the close. The additional potential payments are recorded at their estimated fair value of $64.2 million in Other assets on the December 31, 2015 Consolidated Statement of Financial Condition and in the table above. See Footnote 5 "Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses" for additional information. Additionally, for the year ended December 31, 2015, the Company paid one of its related parties $16.8 million in fees related to financing and advisory activities associated with the issuance of the 6.875% Senior Secured Notes and the sale of KCG Hotspot to BATS. The $16.8 million comprised $11.3 million that was capitalized as deferred debt costs within Other assets on the Consolidated Statement of Financial Condition and $5.5 million that was recorded as Professional fees in the Consolidated Statement of Operations. While the Professional fees are included in the table above, the capitalized debt fees are not included in the table above. The $11.3 million capitalized as deferred debt costs are being amortized over the life of the debt. In 2015, the Company paid $31,000 in fees to one of its related parties for acting as broker in connection with the Company's stock buyback program. Such fees are recorded within Treasury stock, at cost in the Consolidated Statement of Financial Condition as of December 31, 2015 and is not included in the above table. In the third quarter of 2015, the Company contributed microwave communication network assets to the JV, which is considered a related party. These assets were contributed at fair value and resulted in the Company recording a $4.3 million writedown of such assets. This charge is included in Writedown of assets and other real estate related charges on the Consolidated Statements of Operations for the year ended December 31, 2015. As part of the Company’s Tender Offer, it accepted for purchase validly tendered shares of the KCG Class A Common Stock at $14.00 per share from the following directors and stockholders, or their affiliates, who owned more than 10% of KCG Class A Common Stock (in thousands):
The purchases from the individuals and entities listed above were on the same terms that were available to all of the Company’s stockholders. On November 4, 2015, the Company purchased approximately 1.9 million shares of KCG Class A Common Stock from Serenity for $24.5 million or $12.89 per share, the closing stock price of the KCG Class A Common Stock on that date. Stephen Schuler, a director of the Company, and his wife separately hold equity interests that together represent a controlling interest in Serenity. On November 11, 2015, the Company purchased approximately 2.0 million KCG Warrants from Daniel Tierney for $3.6 million. On December 29, 2015, Aperture, a related party, redeemed all the Company’s interests in Aperture through a series of transactions, for an aggregate purchase price of $28.5 million. The Company recognized a gain of $10.5 million on the sale. See Footnote 4 "Tender Offer and Stock Repurchase" for additional information on the Tender Offer and stock repurchases. |
Stock-Based Compensation |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation | Stock-Based Compensation KCG Equity Incentive Plan KCG Holdings, Inc. Amended and Restated Equity Incentive Plan (the "KCG Plan") was initially assumed from Knight in connection with the Mergers, and since the Mergers, has been maintained by the Company for the purpose of granting incentive awards to officers, employees and directors of the Company. In April 2015, the Company’s Board of Directors approved and adopted an amended and restated version of the KCG Plan, the KCG Holdings, Inc. 2015 Amended and Restated Equity Incentive Plan (“the Amended 2015 Plan”), subject to approval by the KCG stockholders which was obtained on May 12, 2015 at the Company’s annual meeting of stockholders. The Amended 2015 Plan removed a legacy provision that required, subject to limited exceptions, that awards of restricted stock units ("RSUs") and restricted shares be subject to minimum three year vesting for time-based awards and minimum one year vesting for performance-based awards. In the second quarter of 2015, the Compensation Committee of the Company’s Board of Directors (the "Compensation Committee") amended the terms of existing RSUs previously granted by the Company as a component of annual incentive compensation in respect of the 2012, 2013 and 2014 performance years (the “Outstanding Annual RSUs”) to provide for the continued vesting of such RSUs following a voluntary resignation of employment, subject to the grantee’s ongoing compliance with non-competition and non-solicitation requirements through the duration of the vesting period (the “Continued Vesting Amendment”). The RSUs granted by the Company as a component of 2015 annual incentive compensation provide for the continued vesting treatment described above, and the Company expects that future equity awards granted as a component of annual incentive compensation (“Annual Equity Awards”) will have similar terms. As of December 31, 2015, there were approximately 27.5 million shares authorized for issuance under the Amended 2015 Plan, of which approximately 16.3 million shares are available for grant (subject to adjustment as provided under the Amended 2015 Plan). The Amended 2015 Plan is administered by the Compensation Committee, and allows for the grant of stock options, stock appreciation rights ("SARs"), restricted stock and RSUs (collectively, the “awards”), as defined by the Amended 2015 Plan. In addition to overall limitations on the aggregate number of awards that may be granted, the Amended 2015 Plan also limits the number of awards that may be granted to a single individual. Restricted Shares and Restricted Stock Units The Company has historically awarded RSUs to eligible officers, employees and directors as a component of annual incentive compensation, and has also made off-cycle grants of RSUs for purposes of one-time, special or retention awards ("Off-Cycle Grants"). The majority of RSUs that have been granted by the Company vest ratably over three years and are subject to accelerated vesting, or continued vesting, following the grantee’s termination of employment, in accordance with the applicable award documents and employment agreements between the Company and the grantee. As a result of implementing the Continued Vesting Amendment described above, the Outstanding Annual RSUs are no longer considered to have a service condition from an expense perspective. This amendment resulted in the acceleration of the unrecognized expense associated with such awards and the Company recorded a charge of $28.8 million in Employee compensation and benefits in the Consolidated Statements of Operations for the year ended December 31, 2015. Beginning in the second quarter of 2015, the Company also began to recognize the expense associated with the RSUs expected to be granted by the Company in early 2016 as a component of 2015 annual incentive compensation in respect of the 2015 performance year. The Company measures compensation expense related to Off-Cycle Grants (and previously for Outstanding Annual RSUs) based on the fair value of KCG Class A Common Stock at the date of grant. When accruing compensation expense over the duration of a performance year prior to the grant of Annual Equity Awards for that year, the Company accrues compensation expense based on the estimated value of such future awards. For example, prior to granting the RSUs expected to be awarded by the Company in early 2016 as a component of annual incentive compensation for the 2015 performance year, the Company accrued compensation expense for such awards over the year ended December 31, 2015, based on the estimated value of such awards. The amount accrued during the year for Annual Equity Awards is included in Accrued compensation on the Consolidated Statements of Financial Condition. Compensation expense from continuing operations relating to RSUs, which is primarily recorded in Employee compensation and benefits, and the corresponding income tax benefit, which is recorded in Income tax expense (benefit) on the Consolidated Statements of Operations are presented in the following table (in thousands):
The following table summarizes restricted awards activity for the year ended December 31, 2015 (awards in thousands):
There is $14.0 million of unamortized compensation related to unvested RSUs outstanding at December 31, 2015 that are not Annual Equity Awards. The cost of these unvested RSUs, unless a modification occurs, is expected to be recognized over a weighted average life of 0.87 years. Stock Options and Stock Appreciation Rights The Company’s policy is to grant options for the purchase of shares of KCG Class A Common Stock and SARs to purchase or receive the cash value of shares of KCG Class A Common Stock. The stock options and SARs outstanding as of the date hereof have each been granted with an exercise price not less than the market value of KCG Class A Common Stock on the grant date and generally vest ratably over a three year period and expire on the fifth or tenth anniversary of the grant date, pursuant to the terms of the applicable award agreement. Like RSUs, stock options and SARs are subject to accelerated vesting, or continued vesting following certain termination circumstances, in accordance with the applicable award agreements and employment agreements between the Company and the grantee. The Company issues new shares upon stock option exercises by its employees and directors, and may either issue new shares or provide a cash payment upon SARs exercises by its employees. The Company estimates the fair value of each stock option and SAR granted as of its respective grant date using the Black-Scholes option-pricing model. The principal assumptions utilized in valuing stock options and SARs and the methodology for estimating the inputs to such model include: 1) risk-free interest rate, the estimate of which is based on the yield of U.S. zero coupon securities with a maturity equal to the expected life of the stock option or SAR; 2) expected volatility, the estimate of which is based on several factors including implied volatility of market-traded stock options on the Company’s common stock on the grant date and the volatility of the Company’s common stock; and 3) expected option or SAR life, the estimate of which is based on internal studies of historical experience and projected exercise behavior based on different employee groups and specific stock option and SAR characteristics, including the effect of employee terminations. There were no stock options or SARs granted during the years ended December 31, 2015 or 2014. The weighted average assumptions used for stock options granted in 2013 were as follows:
Compensation expense from continuing operations relating to stock options and SARs, all of which was recorded in Employee compensation and benefits, as well as the corresponding income tax benefit, which is recorded in Income tax expense (benefit) on the Consolidated Statements of Operations are as follows (in thousands):
The following table summarizes stock option and SAR activity and stock options exercisable for the year ended December 31, 2015 (awards in thousands):
The aggregate intrinsic value is the amount by which the closing price of KCG Class A Common Stock exceeds the exercise price of the stock options or SARs, as applicable, multiplied by the number of shares underlying such award. The total intrinsic value and cash received from stock options exercised during the year ended December 31, 2015 is $0.7 million and $1.2 million, respectively. There were no stock options or SARs exercised during the year ended December 31, 2014. There is $0.3 million of unamortized compensation related to unvested stock options and SARs outstanding at December 31, 2015. The cost of these unvested awards is expected to be recognized over a weighted average life of 0.5 years. Incentive units Prior to the Mergers, GETCO awarded deferred compensation to its employees in the form of incentive units that generally vested over time. The value of these incentive units was determined at the date of grant based on the estimated enterprise value of GETCO and the amount expensed was determined based on this valuation multiplied by the percent vested. In connection with the Mergers, all outstanding unvested incentive units vested and were converted into units based on the applicable exchange ratio of GETCO units to KCG Class A Common Stock. The units are marked to the current stock price of KCG Class A Common Stock at the end of each period with the resulting change in the liability reflected as either an expense or gain included in Employee compensation and benefits on the Consolidated Statements of Operations. Given that the units vested in connection with the Mergers, the Company fully amortized the costs associated with these units as of June 30, 2013. Deferred compensation payable at December 31, 2015 and December 31, 2014 related to incentive units were $2.4 million and $2.9 million, respectively, and is included in Accrued compensation expense on the Consolidated Statements of Financial Condition. The following is a summary of the changes in the incentive units for the year ended December 31, 2015 (units in thousands):
Compensation expense (benefit) related to the Incentive units which are recorded within Employee compensation and benefits on the Consolidated Statements of Operations are as follows (in thousands):
Class B units Prior to the Mergers, GETCO granted membership unit awards to employees in the form of Class B units. The Class B units were valued based on the same methodology used to value the GETCO incentive units. Prior to 2012, these non-voting units vested in full three years from the grant date, provided certain conditions of employment and performance were met by the employee. In 2012, GETCO changed the vesting of units granted in 2012 to annual vesting of one-third of the units over a three year period. Upon termination of employment, GETCO had the option to repurchase all or a portion of the units granted within six months. The purchase price for the unvested units was determined as a percentage of grant date fair value. GETCO classified these unit awards as equity as the employees received full membership rights with respect to allocation of income and participation in member distributions. In connection with the Mergers, all outstanding unvested Class B units vested on June 25, 2013. Class E units In 2012, GETCO also granted employees profit interests in the form of Class E units. Prior to 2012, Class E units primarily vested in full three years from the grant date. For units granted in 2012, GETCO changed the vesting of Class E units to an annual vesting of one-third of the units over the three year period and provided GETCO an option to repurchase the units at the end of 5 years. Class E units allowed for future appreciation in excess of the GETCO's value over a certain strike price per unit and allocation of income once the units are vested. Upon the departure of an employee, the Class E units were forfeited whether vested or not, and if vested, the cash value of the Class E units above their strike price was paid to the employee. GETCO classified these unit awards as equity. In connection with the Mergers all outstanding unvested Class E units vested on June 25, 2013 and were canceled for no consideration. As noted, in connection with the Mergers, all outstanding incentive units, Class B units and Class E units vested, and as a result the remaining unamortized expense was accelerated. The accelerated amortization expense recorded during the year ended December 31, 2013 for incentive units, Class B units and Class E units was $1.3 million, $9.4 million and $3.5 million, respectively. Compensation expense related to the Class B and Class E, all of which are recorded within Employee compensation and benefits on the Consolidated Statements of Operations are as follows (in thousands):
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Employee Benefit Plan |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Benefit Plan | Employee Benefit Plan The Company sponsors a 401(k) profit sharing plan (the “401(k) Plan”) in which most of its employees are eligible to participate. Under the terms of the 401(k) Plan, the Company is required to make annual contributions to the 401(k) Plan equal to 100% of the contributions made by its employees, up to annual limits, however for 2013, such provisions only applied to Knight employees. The total expense recognized with respect to the 401(k) Plan is included in Employee compensation and benefits on the Consolidated Statements of Operations, as follows (in thousands):
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Income Taxes |
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes Upon completion of the Mergers, the Company became subject to U.S. corporate income taxes. The Company and its subsidiaries file a consolidated federal income tax return as well as combined state income tax returns in certain jurisdictions. In other jurisdictions, the Company and its subsidiaries will file separate company state and local income tax returns. Prior to the Mergers, GETCO and the majority of its subsidiaries were treated as partnerships or disregarded entities for U.S. income tax purposes and, accordingly, were not subject to federal income taxes. Instead, former GETCO members were liable for federal income taxes on their proportionate share of taxable income; however, certain subsidiaries were subject to corporate income taxes related to the taxable income generated by their operations. As described in Footnote 2 “Merger of GETCO and Knight”, following the Mergers on July 1, 2013 the Company recorded $65.5 million of deferred tax assets as a result of recording Knight’s assets and liabilities under the purchase method of accounting as well as recording the value of Knight’s NOLs and tax credit carryforwards. As a result of the Company becoming subject to U.S. corporate income taxes, the Company also recorded, upon the closing of the Mergers on July 1, 2013, a nonrecurring $103.5 million deferred tax benefit and corresponding deferred tax asset relating to GETCO's existing tax attributes. This deferred tax asset primarily relates to differences between GETCO’s book and tax bases in its intangible assets and its strategic investments. The provision (benefit) for income taxes from continuing operations consists of (in thousands):
The following table reconciles the U.S. federal statutory income tax to the Company's actual income tax from continuing operations (in thousands):
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances recorded on the balance sheet dates are necessary in cases where management believes that it is more likely than not that some portion or all of the deferred tax assets will not be realized.The Company’s net deferred tax assets are reported as Deferred tax asset, net on the Consolidated Statements of Financial Condition. At December 31, 2015, and December 31, 2014, the Company’s net deferred tax assets were $151.2 million and $154.8 million, respectively, and comprised the following:
A valuation allowance is established when management determines that it is more likely than not that the Company will be able to realize its deferred tax assets in the future. With the exception of certain NOLs and state and local deferred tax assets as discussed below, the Company has not recorded any valuation allowance with respect to its deferred tax assets at December 31, 2015 or December 31, 2014. At December 31, 2015, the Company had U.S. federal NOL carryforwards of $27.7 million which are subject to annual limitations pursuant to Section 382 of the Internal Revenue Code. The Company recorded a deferred income tax asset related to these federal NOLs of $9.7 million and a partial valuation allowance of $6.5 million at December 31, 2015, which represents the portion of these net operating loss carryforwards that are considered more likely than not to expire unutilized. At December 31, 2014, the Company had U.S. federal NOL carryforwards of $133.5 million of which $28.5 million were subject to annual limitations pursuant to Section 382 of the Internal Revenue Code. The Company recorded a deferred income tax asset related to these federal NOLs of $46.7 million and a partial valuation allowance of $6.8 million at December 31, 2014, which represents the portion of these net operating loss carryforwards that are considered more likely than not to expire unutilized. At December 31, 2015, the Company recorded deferred income tax assets related to state and local NOLs of $8.8 million and a partial valuation allowance of $12 thousand, which represents the portion of these NOLs that are considered more likely than not to expire unutilized. At December 31, 2014, the Company recorded deferred income tax assets related to state and local NOLs of $18.5 million and a partial valuation allowance of $8.1 million, which represents the portion of these NOLs that are considered more likely than not to expire unutilized. Certain of these carryforwards are subject to annual limitations on utilization and these NOLs will begin to expire in 2019. Prior to 2015, the Company had recorded a partial valuation allowance against certain of its state and local NOLs and other deferred tax assets as it was more likely than not that the benefit of such items would not be realized. During 2015, the Company undertook an internal restructuring which resulted in profits of certain subsidiaries flowing into a formerly unprofitable subsidiary for U.S. corporate income tax purposes, and as a result the Company reversed this partial valuation allowance as these loss carryforwards and other state and local deferred tax assets are now expected to be utilized. At December 31, 2015, the Company had non-U.S. NOL carryforwards of $114.6 million. The Company recorded a foreign deferred income tax asset of $24.6 million for these NOL carryforwards as of December 31, 2015 along with an offsetting U.S. federal deferred tax liability of $24.6 million, for the expected future reduction in U.S. foreign tax credits associated with the use of the non-U.S. loss carryforwards. At December 31, 2014, the Company had non-U.S. NOL carryforwards of $90.6 million. The Company recorded a foreign deferred income tax asset of $19.5 million for these NOL carryforwards as of December 31, 2014 along with an offsetting U.S. federal deferred tax liability of $19.5 million, for the expected future reduction in U.S. foreign tax credits associated with the use of the non-U.S. loss carryforwards. The Company’s non-U.S. net operating losses may be carried forward indefinitely. At December 31, 2015, and December 31, 2014, the Company had unrecognized tax benefits, respectively, of $3.6 million and $2.2 million, all of which would affect the Company's effective tax rate if recognized. The following table reconciles the beginning and ending amount of unrecognized tax benefits (in thousands):
As of December 31, 2015, the Company is subject to U.S. Federal income tax examinations for the tax years 2012 through 2014, and to non U.S. income tax examinations for the tax years 2007 through 2014. In addition, the Company is subject to state and local income tax examinations in various jurisdictions for the tax years 2007 through 2014. The final outcome of these examinations is not yet determinable, however, the Company does not anticipate that any adjustments would result in a material change to its results of operations or financial condition. The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income or loss from continuing operations before income taxes. Penalties, if any, are recorded in Other expenses and interest paid or received is recorded in Debt interest expense and Interest, net, on the Consolidated Statements of Operations. |
Accumulated Other Comprehensive Income |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income | Accumulated Other Comprehensive Income The following table presents changes in Accumulated other comprehensive income, net of tax by component for the years ended December 31, 2015, 2014 and 2013 (in thousands):
The following table presents the effects of reclassifications out of Accumulated Other Comprehensive Income and into the Consolidated Statements of Operations (in thousands):
As a result of the Mergers, the Company recorded a non-cash gain of $128.0 million on its investment in Knight Common Stock, which it recognized within Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2013 and reversed any previous unrealized gains out of Other comprehensive income.
See Footnote 11 "Investments" for information related to the reclassification of Available-for-sale securities. |
Writedowns and Other Charges |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Writedowns and Other Charges | Writedowns and Other Charges Writedown of assets and other real estate related charges For the year ended December 31, 2015, the Company recorded $15.9 million in writedowns primarily related to goodwill and intangible assets of businesses held for sale. See Footnote 5 ”Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses” and Footnote 12 “Goodwill and Intangible Assets” for further details. In the second quarter of 2015, the Company adopted a plan to consolidate its metro New York City area real estate, which currently comprises the Company’s Jersey City, NJ and New York, NY locations, through a relocation of its corporate headquarters to lower Manhattan in late 2016. As a result of this plan, the Company expects to abandon the majority of its Jersey City, NJ location on a staggered basis through the end of 2016 and expects to abandon its current New York, NY location by the end of 2016. Upon adopting the relocation plan, the Company prospectively shortened the remaining useful lives of the leasehold improvements and other fixed assets associated with these locations to reflect the projected abandonment dates. Additionally, the Company completed consolidating its offices in Chicago and abandoned a portion of its Chicago premises in the third quarter of 2015. For the year ended December 31, 2015, the Company recorded writedowns of fixed assets totaling $17.0 million which comprises accelerated amortization related to leaseholds and furniture on partially vacated properties at its Jersey City and Chicago locations and losses on the sale of certain microwave communication network assets to the JV. In addition, the Company recorded $23.7 million in charges in 2015 primarily related to the early termination of its Jersey City lease, modification of its New York City lease, and lease loss accruals for its Chicago and Greenwich premises. For the years ended December 31, 2014 and 2013, the Company recorded $8.6 million and $7.1 million, respectively, of net lease loss accruals related to excess real estate capacity. For the year ended December 31, 2013, the Company recorded $7.7 million in writedown of assets primarily related to leasehold improvements and fixed assets. The activity in the liability accounts related to the Company’s lease losses and lease terminations for its U.S. leases are recorded in Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition as follows (in thousands):
Debt extinguishment charges In 2015, the Company wrote off $8.5 million of capitalized debt costs and paid $16.5 million as a contractual make-whole premium related to the early retirement of the Company's $305.0 million 8.25% Senior Secured Notes. See Footnote 13 "Debt" for further details. In 2014, the Company made $235.0 million principal repayments under the Credit Agreement. As a result, the Company wrote off $9.6 million in capitalized debt costs. |
Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share Basic earnings or loss per common share (“EPS”) has been calculated by dividing net income from continuing operations by the weighted average shares of the Company's Class A Common Stock outstanding during each respective period. Diluted EPS reflects the potential reduction in EPS using the treasury stock method to reflect the impact of common stock equivalents if stock options, SARs and Warrants to purchase shares of the Company's Class A Common Stock were exercised and restricted awards were to vest. The number of such RSUs, options, Warrants and SARs excluded from the EPS calculation was approximately 16.5 million, 28.3 million and 29.1 million for the years ended December 31, 2015, 2014 and 2013, respectively. Such RSUs, options, Warrants and SARs were excluded from the EPS calculation as their inclusion would have an anti-dilutive impact on the EPS calculation. The computation of diluted shares can vary among periods due in part to the change in the average price of the Company's Class A Common Stock. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations from continuing operations for the years ended December 31, 2015, 2014 and 2013 (in thousands, except per share amounts):
Prior to the Mergers, GETCO units comprised preferred and common units, and net income was allocated among the various classes of units based upon participation rights in undistributed earnings. The number of shares used to calculate EPS for 2013 are GETCO units converted into KCG shares using an exchange ratio as detailed in the Merger Agreement. |
Significant Clients |
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Risks and Uncertainties [Abstract] | |
Significant Clients | Significant Clients The Company considers significant clients to be those clients who account for 10% or more of the total U.S. equity market making dollar value traded by the Company. No clients accounted for more than 10% of the Company’s U.S. equity dollar value traded during the years ended December 31, 2015, 2014 or 2013. |
Commitments and Contingent Liabilities |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingent Liabilities | Commitments and Contingent Liabilities Legal Proceedings In the ordinary course of business, the nature of the Company’s business subjects it to claims, lawsuits, regulatory examinations or investigations and other proceedings. The Company and its subsidiaries are subject to several of these matters at the present time. Given the inherent difficulty of predicting the outcome of litigation and regulatory matters, particularly in regulatory examinations or investigations or other proceedings in which substantial or indeterminate damages or fines are sought, or where such matters are in the early stages, the Company cannot estimate losses or ranges of losses for such matters where there is only a reasonable possibility that a loss may be incurred. In addition, there are numerous factors that result in a greater degree of complexity in class-action lawsuits as compared to other types of litigation. Due to the many intricacies involved in class-action lawsuits particularly in the early stages of such matters, obtaining clarity on a reasonable estimate is difficult which may call into question its reliability. There can be no assurance that these matters will not have a material adverse effect on the Company’s results of operations in any future period, and a material judgment, fine or sanction could have a material adverse impact on the Company’s financial condition and results of operations. However, it is the opinion of management, after consultation with legal counsel that, based on information currently available, the ultimate outcome of these ordinary matters will not have a material adverse impact on the business, financial condition or operating results of the Company although they might be material to the operating results for any particular reporting period, depending, in part, upon operating results for that period. The Company carries directors and officers’ liability insurance coverage for potential claims, including securities actions, against the Company, Knight and GETCO and their respective directors and officers. Other Legal and Regulatory Matters The Company owns subsidiaries including regulated entities that are subject to extensive oversight under federal, state and applicable international laws as well as self-regulatory organization ("SRO") rules. Changes in market structure and the need to remain competitive require constant changes to the Company's systems and order handling procedures. The Company makes these changes while continuously endeavoring to comply with many complex laws and rules. Compliance, surveillance and trading issues common in the securities industry are monitored by, reported to, and/or reviewed in the ordinary course of business by the Company's regulators in the U.S. and abroad. As a major order flow execution destination, the Company is named from time to time in, or is asked to respond to a number of regulatory matters brought by U.S. regulators, foreign regulators, SROs, as well as actions brought by private plaintiffs, which arise from its business activities. There has recently been an increased focus by regulators on Anti-Money Laundering and sanctions compliance by broker-dealers and similar entities, as well as an enhanced interest on transactions involving microcap securities. In addition, there has been an increased focus by Congress, federal and state regulators, the SROs and the media on market structure issues, and in particular, high frequency trading, best execution, ATS manner of operations, market fragmentation and complexity, colocation, access to market data feeds and remuneration arrangements, such as payment for order flow and exchange fee structures. The Company has received information requests from various authorities, including the SEC, requesting, among other items, information regarding these market structure matters, which the Company is in the process of responding. The Company is currently the subject of various regulatory reviews and investigations by federal, state and foreign regulators and SROs, including the SEC, the U.S. Department of Justice, Financial Industry Regulatory Authority, Inc. and the Financial Conduct Authority ("FCA"). In some instances, these matters may rise to a disciplinary action and/or a civil or administrative action. In addition, the Autorité des Marchés Financiers ("AMF") is investigating GETCO’s trading activities on Euronext for the period 2010 to 2012. The AMF board, upon the report of its investigation division, has referred the matter to the AMF enforcement committee who could decide to impose administrative sanctions or monetary penalties. In May 2015, the Company received a Wells Notice from the staff of the New York office of the SEC concerning the handling of orders by KCGA (formerly, Knight Capital Americas LLC) in Over-the-Counter securities quoted on OTC Link (an inter-dealer quotation system formerly referred to as the “Pink Sheets”) during the period of January 1, 2010 through July 2013, which indicated that the staff made a preliminary determination to recommend that the Commission file an enforcement action alleging that KCGA violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. KCGA and the staff of the SEC reached an agreement in principle pursuant to which KCGA would pay a fine in the sum of $300,000, disgorge approximately $686,000 and pay approximately $70,000 in prejudgment interest. On December 21, 2015, the agreement in principle was formally approved by the Commission, and on December 22, 2015, the Company paid the fine, disgorgement and prejudgment interest. The amount of the settlement had been fully accrued for in prior quarters. The settlement resolves the matter referred to in the SEC’s Wells Notice referred to above. Capital Leases The Company enters into capitalized lease obligations related to certain computer equipment. These obligations represent drawdowns under a revolving secured lending facility with a single lender. At December 31, 2015, the obligations have a weighted-average interest rate of 4.44% per annum and are on varying 3-year terms. The carrying amounts of the capital leases approximate fair value. The future minimum payments including interest under the capitalized leases at December 31, 2015 consist of (in thousands):
The total interest expense related to capital leases for the years ended December 31, 2015, 2014 and 2013 included in Debt interest expense on the Consolidated Statements Operations is as follows (in thousands):
Operating Leases The Company leases office space under noncancelable operating leases. Certain office leases contain fixed dollar-based escalation clauses. Rental expense from continuing operations under the office leases was $17.8 million, $19.7 million and $16.0 million for the years ended December 31, 2015, 2014 and 2013, respectively, and is included in Occupancy and equipment rentals on the Consolidated Statements of Operations. The Company leases certain computer and other equipment under noncancelable operating leases. As of December 31, 2015, future minimum rental commitments under all noncancelable office, computer and equipment leases (“Gross Lease Obligations”), and Sublease Income were as follows (in thousands):
Contract Obligations During the normal course of business, the Company collateralizes certain leases or other contractual obligations through letters of credit or segregated funds held in escrow accounts. At December 31, 2015, the Company had provided letters of credit for $11.6 million, collateralized by cash, as a guarantee for several of its lease obligations and for a trading JV. In the ordinary course of business, KCG also has provided, and may provide in the future, unsecured guarantees with respect to the payment obligations of certain of its subsidiaries under trading, repurchase, financing and stock loan arrangements, as well as under certain leases. Guarantees The Company is a member of exchanges that trade and clear futures contracts. Associated with its memberships, the Company may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchange. Although the rules governing different exchange memberships vary, in general the Company’s guarantee obligations would arise only if the exchange had previously exhausted its resources. In addition, any such guarantee obligation would be apportioned among the other nondefaulting members of the exchange. Any potential contingent liability under these membership agreements cannot be estimated. The Company has not recorded any contingent liability in the financial statements for these agreements and management believes that any potential requirement to make payments under these agreements is remote. There were no compensation guarantees at December 31, 2015 or 2014 that extended beyond the respective year end. Representations and Warranties In the normal course of its operations, the Company enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company believes the risk of significant loss is minimal. Urban has advised KCG that it will seek indemnification from KCG for losses on certain loans that were underwritten prior to KCG’s disposition of Urban. This potential obligation relates to approximately 40 loans which have been identified as either loans pursuant to which Urban was required to provide an indemnification to the U.S. Department of Housing and Urban Development (“HUD”) in the event the loans sustained losses or as not qualifying for HUD insurance. Based on information currently available, KCG estimates that its maximum exposure to losses with respect to reimbursing Urban for any potential losses on these loans will not exceed $8.5 million. For the year ended December 31, 2015, the Company has paid $0.5 million to Urban as a result of this indemnification. The Company has not recorded any liabilities related to these potential losses as of December 31, 2015. |
Net Capital Requirements |
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Brokers and Dealers [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net capital requirements | Net capital requirements KCG Americas LLC ("KCGA"), the Company's U.S. registered broker dealer is subject to the SEC’s Uniform Net Capital Rule, which requires the maintenance of minimum net capital. As of December 31, 2015, KCGA was in compliance with the applicable regulatory net capital rules. The following table sets forth the net capital levels and requirements for the Company’s U.S. registered broker dealer subsidiary at December 31, 2015 as filed in its amended regulatory filings (in thousands):
The Company's U.K. registered broker dealer is subject to certain financial resource requirements of Financial Conduct Authority ("FCA"). The following table sets forth the financial resource requirement for KCG Europe Limited, our U.K. registered broker dealer, at December 31, 2015 (in thousands):
The Company's other U.K. registered broker dealer, GETCO Europe Limited, withdrew from its membership with the FCA during the first quarter of 2015. All business of GETCO Europe Limited had previously been transferred to KCG Europe Limited. |
Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk | Derivative Financial Instruments The Company enters into derivative transactions as part of its trading activities and to manage foreign currency exposure. Cash flows associated with such derivative activities are included in cash flows from operating activities on the Consolidated Statements of Cash Flows. During the normal course of business, the Company enters into futures contracts. These financial instruments are subject to varying degrees of risks whereby the fair value of the securities underlying the financial instruments, may be in excess of, or less than, the contract amount. The Company is obligated to post collateral against certain futures contracts. The amounts and positions included in the tables below for futures contracts would be classified as Level 1 while swaps and forward contracts would be classified as Level 2 in the fair value hierarchy. The following tables summarize the fair value and number of derivative instruments held at December 31, 2015 and December 31, 2014 and the gains and losses included in the Consolidated Statements of Operations for the periods then ended. These instruments include those classified as Financial Instruments, owned at fair value, Financial instruments sold, not yet purchased at fair value, as well as futures contracts which are reported within Receivable from or Payable to brokers, dealers and clearing organizations in the Consolidated Statements of Financial Condition (fair value and gain (loss) in thousands):
The Company has entered into and may continue to enter into International Swaps and Derivative Association, Inc. (“ISDA”) master netting agreements with counterparties. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. The Company may also enter into bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation. Under the ISDA master netting agreements, the Company typically also executes credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted or paid by a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. In the event of counterparty’s default, provisions of the ISDA master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. Any collateral posted can be applied to the net obligations, with any excess returned and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court. The Company is also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open derivative contracts. The table below provides information regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of offset associated with these arrangements exist and could have had an effect on our financial position (in thousands):
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) The full amount of the liabilities related to futures of $42.5 million has been netted against assets related to futures of $6.1 million and margin posted by the Company at the clearing broker in excess of the net liability of $36.4 million.
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk As a market maker in global equities, fixed income, futures, options, commodities and currencies, the majority of the Company’s securities transactions are conducted as principal or riskless principal with broker dealers and institutional counterparties primarily located in the United States. The Company self-clears substantially all of its U.S. equity and option securities transactions. The Company clears a portion of its securities transactions through third party clearing brokers. Foreign transactions are settled pursuant to global custody and clearing agreements with major U.S. banks. Substantially all of the Company’s credit exposures are concentrated with its clearing brokers, broker dealer and institutional counterparties. The Company’s policy is to monitor the credit standing of counterparties with which it conducts business. Financial instruments sold, not yet purchased, at fair value represent obligations to purchase such securities (or underlying securities) at a future date. The Company may incur a loss if the market value of the securities subsequently increases. The Company currently has no loans outstanding to any former or current executive officer or director. |
Business Segments |
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Business Segments | Business Segments As of December 31, 2015, the Company's operating segments comprised the following: (i) Market Making; (ii) Global Execution Services; and (iii) Corporate and Other. The Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, currencies and commodities. As a market maker, the Company commits capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions. Principal trading in the Market Making segment primarily consists of direct-to-client and non-client exchange-based electronic market making, including trade executions conducted as a DMM on the NYSE and NYSE Amex. KCG is an active participant on all major global equity and futures exchanges and also trades on substantially all domestic electronic options exchanges. As a complement to electronic market making, the Company's cash trading business handles specialized orders and also transacts on the OTC Bulletin Board marketplaces operated by the OTC Markets Group Inc. and the AIM. The Global Execution Services segment comprises agency execution services and trading venues, offering trading in global equities, options, futures and fixed income to institutions, banks and broker dealers. The Company generally earns commissions as an agent between principals for transactions; however, the Company will commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities and options; (ii) institutional sales traders executing program, block and riskless principal trades in global equities and ETFs; (iii) a fixed income ECN that also offers trading applications; and (iv) an ATS for global equities. The Corporate and Other segment contains investments principally in strategic financial services-oriented opportunities; manages the deployment of capital across the organization; houses executive management functions; and maintains corporate overhead expenses and all other income and expenses that are not attributable to the other segments. The Corporate and Other segment also contains functions that support the Company’s other segments such as self-clearing services, including stock lending activities. The Company’s revenues, income (loss) from continuing operations before income taxes (“Pre-tax earnings”) and total assets by segment are summarized in the following table (in thousands):
In the first quarter of 2015, the Company began to allocate costs incurred to operate its self-clearing function to the Market Making and Global Execution Services segments and no longer report it as a distinct business within the Corporate and Other segment. Previously, these support costs were embedded within the internal clearing rates charged by the Corporate and Other segment to the various businesses, which eliminated during consolidation. In the first quarter of 2014, the Company began to charge the Market Making and Global Execution Services segments for the cost of aggregate debt interest. The interest amount charged to each of the segments is determined based on capital limits and requirements. Historically, debt interest was included within the Corporate and Other segment. This change in the measurement of segment profitability has no impact on the consolidated results and has only been reported prospectively, and is not reflected in financial results prior to January 1, 2014. For the year ended December 31, 2014 debt interest expense included in the results of the Market Making and Global Execution Services segments was $24.7 million and $7.1 million, respectively. For the year ended December 31, 2015, debt interest expense included in the results of the Market Making and Global Execution Services segments was $21.2 million and $4.9 million, respectively. Additionally, prior to 2015, funding costs of inventory positions were recorded in the Corporate and Other segment, primarily within Collateralized financing interest on the Consolidated Statements of Operations. These costs were subsequently charged out to the Market Making and Global Execution Services segments primarily through the Interest, net line item, with an equal and offsetting revenue item within the Corporate and Other segment. With the move of the self clearing team to a support function, these third party costs are now charged directly to the businesses within the Market Making and Global Execution Services segments. This shift in how the Company’s self clearing unit is reported has no impact to the Consolidated Statements of Operations, nor any of the individual line items within it. However, on a segment level, this decreases the amount of total revenues reported by the Corporate and Other segment, because it no longer records the offsetting revenue for these third party funding costs. This change in the measurement of segment profitability, which has no impact to the consolidated results, is reported prospectively, and, therefore, is not reflected in the financial results for any period prior to January 1, 2015. Included in Revenues and Pre-tax earnings within Global Execution Services for the year ended December 31, 2015 are results of KCG Hotspot through March 13, 2015, the date of the sale. Also included in Revenues and Pre-tax earnings for the year ended December 31, 2015 is a gain related to the sale of KCG Hotspot of $385.0 million and $373.8 million, respectively. Revenue and Pre-tax earnings from KCG Hotspot and the Company's former FCM business (through the date of sale in the fourth quarter of 2014) are included in the Global Execution Services segment for the years ended December 31, 2014 and 2013. Included in total assets within market Making at December 31, 2015 is $26.0 million related to Assets of businesses held for sale. Included in total assets within Global Execution Services at December 31, 2014 is $40.5 million related to KCG Hotspot. As noted in Footnote 5 "Discontinued Operations & Assets and Liabilities Held for Sale", such assets are included as Assets held for sale at December 31, 2015 and 2014. The Company operates in the U.S. and internationally, primarily in Europe and Asia. The following table presents Revenues by geographic area.
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Condensed Financial Statements of KCG Holdings, Inc. (parent only) |
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Condensed Financial Statements of KCG Holdings, Inc. (parent only) | Condensed Financial Statements of KCG Holdings, Inc. (parent only) Presented below are the Condensed Statements of Financial Condition, Operations and Cash Flows for the Company on an unconsolidated basis. Statements of Financial Condition KCG Holdings, Inc. (parent only)
Statements of Operations and Comprehensive Income KCG Holdings, Inc. (parent only)
Statements of Cash Flows KCG Holdings, Inc. (parent only)
During the fourth quarter of 2015, the Company identified errors in the presentation of its previously reported parent company only Statements of Cash Flows for the years ended December 31, 2014 and 2013. Cash flows from operating, investing and financing activities have been revised to correct for the previous inclusion of non-cash items as well as the classification of certain cash flows. The errors impacted the line items that reflected activity between the parent company and its subsidiaries within the Statements of Cash Flows for the parent company only, and had no impact on the ending cash balances or any other parent company only financial statements or the Consolidated Financial Statements. The Company evaluated the materiality of these errors in accordance with SEC Staff Accounting Bulletin No. 99, Materiality, and SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements When Quantifying Misstatements in Current Year Financial Statements, and concluded that these errors, individually and in the aggregate, were immaterial to the Consolidated Financial Statements for all prior periods. While the adjustments were immaterial, the Company revised its previously reported parent company only Statements of Cash Flows. The impact of the errors on the subtotals within the statement are shown in the following table:
As noted in Footnote 1 "Organization and Description of Business", the Mergers were treated as a purchase of Knight by GETCO for accounting and financial reporting purposes. The Statements of Operations and Cash Flows included in this footnote for the year ended December 31, 2013 include the combined financial results and cash flows for GETCO Holding Company, LLC for the six month period January 1, 2013 to June 30, 2013 and for KCG Holdings, Inc. for the six month period July 1, 2013 to December 31, 2013. |
Subsequent Events |
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Subsequent Events [Abstract] | |
Subsequent Events | Subsequent Events On February 4, 2016, KCGA entered into an asset purchase agreement with Citadel Securities LLC (“Citadel”), pursuant to which KCGA agreed to sell its NYSE DMM business to Citadel. The transaction is expected to close during the second quarter of 2016. Subsequent to the year ended December 31, 2015, the Company repurchased in the open market $35.0 million par value of its 6.875% Senior Secured Notes. |
Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||
Basis of consolidation and form of presentation | Basis of consolidation and form of presentation The Consolidated Financial Statements, prepared in conformity with GAAP, include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. |
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Change in accounting principle | Change in accounting principle As discussed in Footnote 11 "Investments", as a result of the merger of BATS and Direct Edge Holdings LLC ("Direct Edge") in the first quarter of 2014, the Company changed its method of accounting for its investment in BATS from the cost method to the equity method. |
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Cash and cash equivalents | Cash and cash equivalents Cash and cash equivalents include money market accounts, which are payable on demand, and short-term investments with an original maturity of less than 90 days. The carrying amount of such cash equivalents approximates their fair value due to the short-term nature of these instruments. These assets would be categorized as Level 1 in the fair value hierarchy if they were required to be recorded at fair value. |
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Cash and cash equivalents segregated under federal and other regulations | Cash and cash equivalents segregated under federal and other regulations The Company maintains custody of customer funds and is obligated by rules and regulations mandated by the U.S. Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) to segregate or set aside cash and/or qualified securities to satisfy these regulations, which have been promulgated to protect customer assets. The amounts recognized as Cash and cash equivalents segregated under federal and other regulations approximate fair value. These assets would be categorized as Level 1 in the fair value hierarchy if they were required to be recorded at fair value. |
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Market making, sales, trading and execution activities | Payments for order flow represent payments to broker dealer clients, in the normal course of business, for directing their order flow in U.S. equities and options to the Company. Market making, sales, trading and execution activities Financial instruments owned and Financial instruments sold, not yet purchased relate to market making and trading activities, and include listed and other equity securities, listed equity options and fixed income securities that are recorded on a trade date basis and are reported at fair value. Trading revenues, net, which comprises trading gains, net of trading losses on such financial instruments, are also recorded on a trade date basis. Commissions, which primarily comprise commission equivalents earned on institutional client orders and volume based fees earned from providing liquidity to other trading venues, as well as related expenses, are also recorded on a trade date basis. Prior to its sale in November 2014, commissions earned by the Company’s former FCM were recorded net of any commissions paid to independent brokers and were recognized on a half-turn basis. The Company’s third party clearing agreements call for payment or receipt of interest income, net of transaction-related interest charged by such clearing brokers, for facilitating the settlement and financing of securities transactions. Dividend income relating to financial instruments owned and dividend expense relating to financial instruments sold, not yet purchased, are derived primarily from the Company’s market making activities and are included as a component of Trading revenues, net on the Consolidated Statements of Operations. |
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Fair value of financial instruments | Fair value of financial instruments The Company values its financial instruments using a hierarchy of fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:
Changes in fair value are recognized in earnings each period for financial instruments that are carried at fair value. |
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Collateralized agreements and financings | Collateralized agreements and financings Collateralized agreements consist of securities borrowed. Collateralized financings include securities loaned and financial instruments sold under agreements to repurchase.
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Securitization activities | The Company’s securities borrowed, securities loaned and financial instruments sold under agreements to repurchase are recorded at amounts that approximate fair value. These items are recorded based upon their contractual terms and are not materially sensitive to shifts in interest rates because they are short-term in nature and are substantially collateralized pursuant to the terms of the underlying agreements. These items would be categorized as Level 2 in the fair value hierarchy if they were required to be recorded at fair value. |
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Investments | Investments Investments primarily comprise noncontrolling equity ownership interests in financial services-related businesses and are held by the Company's non-broker dealer subsidiaries. These investments are accounted for under the equity method, at cost or at fair value. The equity method of accounting is used when the Company has significant influence over the operating and financial policies of the investee. Investments are held at cost, less impairment if any, when the investment does not have a readily determined fair value, and the Company is not considered to exert significant influence over operating and financial policies of the investee. Investments that are publicly traded are held at fair value and accounted for as available for sale securities on the Consolidated Statements of Financial Condition. Prior to the Mergers, GETCO had a strategic investment in Knight which was classified as available for sale and held at fair value with any unrealized gains or losses recorded in Other comprehensive income or loss. As a result of the Mergers, the Company recognized a non-cash gain of $128.0 million on its investment in Knight Common Stock, which it recorded within Investment income and other, net on the Consolidated Statement of Operations for the year ended December 31, 2013 and reversed any previous unrealized gains out of Other comprehensive income. Investments are reviewed on an ongoing basis to ensure that the carrying values of the investments have not been impaired. If the Company determines that an impairment loss on an investment has occurred due to a decline in fair value or other market conditions, the investment is written down to its estimated fair value. Included in the Company's investments are assets supporting a non-qualified deferred compensation plan for certain employees. This plan provides a return to the participants based upon the performance of various investments. In order to hedge its liability under this plan, the Company generally acquires the underlying investments and holds such investments until the deferred compensation liabilities are satisfied. Changes in value of such investments are recorded in Investment income and other, net, with a corresponding charge or credit to Employee compensation and benefits on the Consolidated Statements of Operations. Deferred compensation investments primarily consist of mutual funds, which are accounted for at fair value. |
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Goodwill and intangible assets | Goodwill and intangible assets The Company tests goodwill and intangible assets with an indefinite useful life for impairment annually or when an event occurs or circumstances change that signifies that the carrying amounts may not be recoverable. The Company amortizes intangible assets with a finite life on a straight line basis over their estimated useful lives and tests for recoverability whenever events indicate that the carrying amounts may not be recoverable. The Company capitalizes certain costs associated with the acquisition or development of internal-use software and amortizes the software over its estimated useful life of three years, commencing at the time the software is placed in service. |
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Payable to customers | Payable to customers Payable to customers primarily relate to amounts due on cash and margin transactions. Due to their short-term nature, such amounts approximate fair value. |
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Repurchases of common stock | Repurchases of common stock The Company may repurchase shares of KCG Class A Common Stock in the open market or through privately negotiated transactions. The Company may structure such repurchases as either a purchase of treasury stock or a retirement of shares. The Company records its purchases of treasury stock, which include shares repurchased in satisfaction of tax withholding obligations upon vesting of restricted awards, at cost as a separate component of stockholders’ equity. The Company may re-issue treasury stock, at average cost, for the acquisition of new businesses and in certain other circumstances. For shares that are retired, the Company records its repurchases at cost, as a reduction in Class A Common Stock for the par value of such retired shares and a reduction in Retained earnings for the balance. |
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Repurchase of warrants | Repurchases of warrants The Company may repurchase KCG Warrants through privately negotiated transactions. The Company records its purchases as a reduction in Additional paid-in capital for the total cost. |
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Foreign currency translation and foreign currency forward contracts | Foreign currency translation and foreign currency forward contracts The Company's foreign subsidiaries generally use the U.S. dollar as their functional currency. The Company has a subsidiary in India that utilizes the Indian Rupee as its functional currency. Assets and liabilities of the Indian subsidiary are translated at exchange rates at the end of a period. Revenues and expenses are translated at average exchange rates during the period. Gains and losses resulting from translating foreign currency financial statements into U.S. dollars are included in Accumulated other comprehensive income on the Consolidated Statements of Financial Condition and Cumulative translation adjustment, net of tax on the Consolidated Statements of Comprehensive Income. Gains or losses resulting from foreign currency transactions are included in Investment income and other, net on the Company’s Consolidated Statements of Operations. For the years ended December 31, 2015, 2014 and 2013, the Company recorded losses of $0.7 million, $2.0 million and $4.1 million, respectively on foreign currency transactions. The Company seeks to reduce the impact of fluctuations in foreign exchange rates on its net investment in certain non-U.S. operations through the use of foreign currency forward contracts. For foreign currency forward contracts designated as hedges, the Company assesses its 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 forward contracts. For qualifying net investment hedges, any gains or losses, to the extent effective, are included in Accumulated other comprehensive income on the Consolidated Statements of Financial Condition and Cumulative translation adjustment, net of tax, on the Consolidated Statements of Comprehensive Income. The ineffective portion, if any, is recorded in Investment income and other, net on the Consolidated Statements of Operations. |
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Stock and unit based compensation | Stock and unit based compensation Stock and unit based compensation is primarily measured based on the grant date fair value of the awards. These costs are amortized over the requisite service period, if any. Expected forfeitures are considered in determining stock-based employee compensation expense. |
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Soft dollar expense | Soft dollar expense Under a commission management program, the Company allows institutional clients to allocate a portion of their gross commissions to pay for research and other services provided by third parties. As the Company acts as an agent in these transactions, it records such expenses on a net basis within Commissions and fees on the Consolidated Statements of Operations. |
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Depreciation, amortization and occupancy | Depreciation, amortization and occupancy Fixed assets are depreciated on a straight-line basis over their estimated useful lives of three to seven years. Leasehold improvements are being amortized on a straight-line basis over the shorter of the term of the related office lease or the expected useful life of the assets. The Company reviews fixed assets and leasehold improvements for impairment and their remaining useful lives whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company recognizes rent expense under operating leases with fixed rent escalations, lease incentives and free rent periods on a straight-line basis over the lease term beginning on the date the Company takes possession of or controls the use of the space, including during free rent periods. |
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Lease loss accrual | Lease loss accrual The Company’s policy is to identify excess real estate capacity and where applicable, accrue for related future costs, net of projected sub-lease income upon the date the Company ceases to use the excess real estate. Such accrual is adjusted to the extent the actual terms of sub-leased property differ from the assumptions used in the calculation of the accrual. |
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Income taxes | Income taxes The Company is a corporation subject to U.S. corporate income tax as well as non-U.S. income taxes in the jurisdictions in which it operates. The Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and measures them using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. The Company evaluates the recoverability of future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences and forecasted operating earnings. |
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Variable interest entities | Variable interest entities A variable interest entity (“VIE”) is an entity that lacks one or more of the following characteristics (i) the total equity investment at risk is sufficient to enable the entity to finance its activities independently and (ii) the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The Company will be considered to have a controlling financial interest and will consolidate a VIE if it has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Since January 2015, the Company has owned 50% of the voting shares and 50% of the equity of a joint venture, (“JV”) which maintains microwave communication networks in the U.S. and Europe, and is considered to be a VIE. The Company and its JV partner each use the microwave communication networks in connection with their respective trading activities, and the JV sells excess bandwidth that is not utilized by the JV members to third parties. The Company pays the JV for the communication services that it uses, and such amounts are recorded within Communications and data processing on the Consolidated Statements of Operations. The Company does not have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; therefore it does not have a controlling financial interest in the JV and does not consolidate the JV. The Company records its interest in the JV under the equity method of accounting and records its investment in the JV within Investments and its amounts payable for communication services provided by the JV within Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition. The Company records its pro-rata share of the JV’s earnings or losses within Investment income and other, net and communication services provided by the JV within Communications and data processing on the Consolidated Statements of Operations. The Company’s exposure to the obligations of this VIE is generally limited to its interests in the JV, which is the carrying value of the equity investment in the JV. |
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Use of estimates | Use of estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. |
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Recently adopted accounting guidance and Recent accounting guidance to be adopted in future periods | Recently adopted accounting guidance In April 2014, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) that amends the requirements for reporting discontinued operations. Under the new guidance, discontinued operations reporting are limited to disposal transactions that represent strategic shifts having a major effect on operations and financial results. The amended guidance also enhances disclosures and requires assets and liabilities of a discontinued operation to be classified as such for all periods presented in the financial statements. The updated guidance is effective prospectively to all disposals occurring for interim and annual reporting periods beginning after December 15, 2014, with early adoption permitted. The Company early adopted this ASU in 2014, which resulted in additional disclosures within the Company's Consolidated Financial Statements. In June 2014, the FASB issued an ASU that amends the accounting and disclosure guidance on repurchase agreements. The amended guidance requires entities to account for repurchase-to-maturity transactions as secured borrowings. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The accounting changes and additional disclosures about certain transferred financial assets accounted for as sales were effective for reporting periods beginning after December 15, 2014. The additional disclosures for securities financing transactions are required for annual reporting periods beginning after December 15, 2014 and for interim reporting periods beginning after March 15, 2015. Other than additional disclosure requirements, the adoption of this ASU did not have an impact on the Company’s Consolidated Financial Statements. Recent accounting guidance to be adopted in future periods In May 2014, the FASB issued an ASU that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted for reporting periods beginning after December 15, 2016. The Company is evaluating the impact of this ASU on its Consolidated Financial Statements. In June 2014, the FASB issued an ASU to resolve diverse accounting treatment for share based awards in which the terms of the award are related to a performance target that affects vesting. The ASU requires an entity to treat a performance target that could be achieved after the requisite service period as a performance condition. Additionally, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved, and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered; if the performance target becomes probable of being achieved before the end of the requisite service period, then the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The guidance is effective for reporting periods beginning after December 15, 2015 and may be applied prospectively or retrospectively. The Company does not expect adoption of this ASU to have an impact on its Consolidated Financial Statements. In August 2014, the FASB issued an ASU that requires an entity’s management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for reporting periods beginning after December 15, 2016. Other than additional disclosure requirements, the Company does not expect the adoption of this ASU to have an impact on its Consolidated Financial Statements. In February 2015, the FASB issued an ASU which requires entities to evaluate whether they should consolidate certain legal entities. The ASU simplifies consolidation accounting by reducing the number of consolidation models that an entity may apply. The guidance is effective for reporting periods beginning after December 15, 2015 and early adoption is permitted. The Company does not expect the adoption of this ASU to have an impact on its Consolidated Financial Statements. In April 2015, the FASB issued an ASU regarding simplification of the presentation of debt issuance costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented in the Consolidated Statements of Financial Condition as a direct deduction from the carrying amount of that debt liability. The guidance is effective retrospectively for reporting periods beginning after December 15, 2015 and early adoption is permitted. The adoption of this ASU is not expected to have a material impact on the Company's Consolidated Financial Statements. In January 2016, the FASB issued an ASU that provides entities guidance for the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The guidance is effective for reporting periods beginning after December 15, 2018 and early adoption is permitted under a modified retrospective approach for certain financial liabilities as specified in this ASU. The Company is evaluating the impact of this ASU on its Consolidated Financial Statements. |
Merger of GETCO and Knight (Tables) |
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Allocation of Purchase Price to Assets Acquired and Liabilities Assumed | The following table reflects the allocation of the purchase price to the assets acquired and liabilities assumed at the acquisition date (in thousands):
Amounts allocated to intangible assets and goodwill, and the amortization period for intangible assets with finite useful lives, were as follows (dollars in thousands):
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Significant Accounting Policies (Tables) |
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Interest Income and Interest Expense | Interest income and interest expense which have been netted within Interest, net on the Consolidated Statements of Operations are as follows (in thousands):
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Net Trading Revenue Including Dividend Income and Expense | Trading revenues, net includes dividend income and expense as follows (in thousands):
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Schedule of Nonconsolidated VIE | The following table presents the Company’s nonconsolidated VIE at December 31, 2015 (in thousands):
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Tender Offer and Stock Repurchase (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Adjusted Exercise Price and Activity of Warrants | The adjusted exercise price for each class of Warrants and the activity for the year ended December 31, 2015 were as follows (Warrants in thousands):
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Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Results of Operations and Financial Condition of Discontinued Operations | The revenues and results of operations of discontinued operations are summarized as follows (in thousands):
The assets and liabilities of businesses held for sale as of December 31, 2015 and 2014 are summarized as follows (in thousands):
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Fair Value (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value (in thousands):
(1) Equities of $743.1 million have been netted by their respective long and short positions by CUSIP number. (2) Corporate debt instruments of $0.3 million have been netted by their respective long and short positions by CUSIP number. (3) Investment in CME Group and Other investments, which primarily consist of deferred compensation investments, are included within Investments on the Consolidated Statements of Financial Condition. |
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Changes in Fair Value of Financial Assets Categorized within Level 3 | The following is a summary of changes in fair value of the Company's financial assets that have been categorized within Level 3 of the fair value hierarchy for the year ended December 31, 2015 (in thousands):
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Derivative Financial Instruments (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Fair Value and Derivative Instruments in Consolidated Statements of Financial Condition | The following tables summarize the fair value and number of derivative instruments held at December 31, 2015 and December 31, 2014 and the gains and losses included in the Consolidated Statements of Operations for the periods then ended. These instruments include those classified as Financial Instruments, owned at fair value, Financial instruments sold, not yet purchased at fair value, as well as futures contracts which are reported within Receivable from or Payable to brokers, dealers and clearing organizations in the Consolidated Statements of Financial Condition (fair value and gain (loss) in thousands):
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Summary of Fair Value and Derivative Instruments in Consolidated Statements of Operations |
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Schedule of Offsetting of Derivative Instruments | The table below provides information regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of offset associated with these arrangements exist and could have had an effect on our financial position (in thousands):
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) The full amount of the liabilities related to futures of $42.5 million has been netted against assets related to futures of $6.1 million and margin posted by the Company at the clearing broker in excess of the net liability of $36.4 million.
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. |
Collateralized Transactions (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Collateralized Agreements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Financial Instruments at Fair Value Received as Collateral that were Permitted to be Delivered or Repledged | The table below presents financial instruments at fair value received as collateral related to Securities borrowed or Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition that were permitted to be delivered or repledged and that were delivered or repledged by the Company as well as the fair value of financial instruments which could be further repledged by the receiving party (in thousands):
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Summary of Assets Pledged | The table below presents information about assets pledged by the Company (in thousands):
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Gross Carrying Value of Assets Sold Under Agreements to Repurchase | The table below presents the gross carrying value of Securities loaned and Financial instruments sold under agreements to repurchase by class of collateral pledged (in thousands):
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Assets Subject to Netting | The gross amounts of assets and liabilities subject to netting and gross amounts offset in the Consolidated Statements of Financial Condition were as follows (in thousands):
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) Represents financial instruments purchased under agreement to resell.
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) Represents financial instruments purchased under agreement to resell. |
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Liabilities Subject to Netting | The gross amounts of assets and liabilities subject to netting and gross amounts offset in the Consolidated Statements of Financial Condition were as follows (in thousands):
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) Represents financial instruments purchased under agreement to resell.
(1) Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements. (2) Under master netting agreements with its counterparties, the company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty's default, but which are not netted in the Consolidated Statement of Financial Condition because other netting provisions under U.S. GAAP are not met. (3) Represents financial instruments purchased under agreement to resell. |
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Maturities of Assets Sold Under Repurchase Agreements | Maturities of Securities loaned and Financial instruments sold under agreements to repurchase are provided in the table below (dollars in thousands):
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Receivable from and Payable to Brokers, Dealers and Clearing Organizations (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Brokers and Dealers [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Amounts Receivable from and Payable to Brokers, Dealers and Clearing Organizations | Amounts receivable from and payable to brokers, dealers and clearing organizations consist of the following (in thousands):
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Fixed Assets and Leasehold Improvements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Fixed Assets and Leasehold Improvements | Fixed assets and leasehold improvements comprise the following (in thousands):
*Shorter of life of lease or useful life of assets |
Investments (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Investments | Investments primarily comprise strategic investments and deferred compensation investments. Investments consist of the following (in thousands):
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Goodwill and Intangible Assets (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Goodwill by Segment | The following table summarizes the Company’s goodwill by segment (in thousands):
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Summary of Intangible Assets, Net by Segment and Type | The following tables summarize the Company’s Intangible assets, net of accumulated amortization by segment and type (in thousands):
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Summary of Amortization Expense | The following table summarizes the Company’s amortization expense from continuing operations relating to Intangible assets (in thousands):
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Summary of Estimated Amortization Expense for Future Periods | As of December 31, 2015, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):
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Debt (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Long-term Debt | The carrying value and fair value of the Company's debt is as follows (in thousands):
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Debt Instrument Redemption | KCG may redeem all or a part of the 6.875% Senior Secured Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and additional interest on the 6.875% Senior Secured Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on March 15 of the years indicated below:
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Recorded Expenses with Respect to Long-term Debt | The Company recorded expenses with respect to its Debt as follows (in thousands):
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Related Parties (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Balances and Transactions with Related Parties or Their Affiliates | As of the date and period indicated below, the Company had the following balances and transactions with its related parties or their affiliates (in thousands):
(1) Represents net volume based fees received by KCG from providing liquidity to related trading venues.
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Schedule of Tender Offer | As part of the Company’s Tender Offer, it accepted for purchase validly tendered shares of the KCG Class A Common Stock at $14.00 per share from the following directors and stockholders, or their affiliates, who owned more than 10% of KCG Class A Common Stock (in thousands):
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Stock-Based Compensation (Tables) |
12 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Compensation Expense Relating to RSUs and Summary of Changes in Incentive Units | The following is a summary of the changes in the incentive units for the year ended December 31, 2015 (units in thousands):
Compensation expense from continuing operations relating to RSUs, which is primarily recorded in Employee compensation and benefits, and the corresponding income tax benefit, which is recorded in Income tax expense (benefit) on the Consolidated Statements of Operations are presented in the following table (in thousands):
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Summary of Restricted Awards Activity | The following table summarizes restricted awards activity for the year ended December 31, 2015 (awards in thousands):
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Stock Options, Valuation Assumptions | The weighted average assumptions used for stock options granted in 2013 were as follows:
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Compensation Expense Relating to Stock Options and SARs | Compensation expense from continuing operations relating to stock options and SARs, all of which was recorded in Employee compensation and benefits, as well as the corresponding income tax benefit, which is recorded in Income tax expense (benefit) on the Consolidated Statements of Operations are as follows (in thousands):
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Summary of Stock Option, SAR Activity and Stock Options Exercisable | The following table summarizes stock option and SAR activity and stock options exercisable for the year ended December 31, 2015 (awards in thousands):
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Options and SARs Outstanding and Exercisable by Exercise Price Range |
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Schedule of Compensation Expense (Benefit) | Compensation expense related to the Class B and Class E, all of which are recorded within Employee compensation and benefits on the Consolidated Statements of Operations are as follows (in thousands):
Compensation expense (benefit) related to the Incentive units which are recorded within Employee compensation and benefits on the Consolidated Statements of Operations are as follows (in thousands):
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Employee Benefit Plan (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Compensation and Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Expense Recognized on 401(k) Plan | The total expense recognized with respect to the 401(k) Plan is included in Employee compensation and benefits on the Consolidated Statements of Operations, as follows (in thousands):
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Income Taxes (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Provision (Benefit) for Income Taxes | The provision (benefit) for income taxes from continuing operations consists of (in thousands):
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Income Tax Rate Reconciliation | The following table reconciles the U.S. federal statutory income tax to the Company's actual income tax from continuing operations (in thousands):
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Components of Net Deferred Tax Assets | At December 31, 2015, and December 31, 2014, the Company’s net deferred tax assets were $151.2 million and $154.8 million, respectively, and comprised the following:
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Reconciliation of Beginning and Ending Amount of Unrecognized Tax Benefits | The following table reconciles the beginning and ending amount of unrecognized tax benefits (in thousands):
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Accumulated Other Comprehensive Income (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income | The following table presents changes in Accumulated other comprehensive income, net of tax by component for the years ended December 31, 2015, 2014 and 2013 (in thousands):
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Effects of Reclassifications out of Accumulated Other Comprehensive Income | The following table presents the effects of reclassifications out of Accumulated Other Comprehensive Income and into the Consolidated Statements of Operations (in thousands):
As a result of the Mergers, the Company recorded a non-cash gain of $128.0 million on its investment in Knight Common Stock, which it recognized within Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2013 and reversed any previous unrealized gains out of Other comprehensive income.
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Writedowns and Other Charges (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Activity in Liability Account Related to Office Space Consolidation | The activity in the liability accounts related to the Company’s lease losses and lease terminations for its U.S. leases are recorded in Accrued expenses and other liabilities on the Consolidated Statements of Financial Condition as follows (in thousands):
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Earnings Per Share (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Reconciliation of Earnings Per Share | The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations from continuing operations for the years ended December 31, 2015, 2014 and 2013 (in thousands, except per share amounts):
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Commitments and Contingent Liabilities (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Future Minimum Payments Under Capital Leases | The future minimum payments including interest under the capitalized leases at December 31, 2015 consist of (in thousands):
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Schedule of Interest Expense, Capital Leases | The total interest expense related to capital leases for the years ended December 31, 2015, 2014 and 2013 included in Debt interest expense on the Consolidated Statements Operations is as follows (in thousands):
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Schedule of Future Minimum Rental Commitments for Operating Leases | As of December 31, 2015, future minimum rental commitments under all noncancelable office, computer and equipment leases (“Gross Lease Obligations”), and Sublease Income were as follows (in thousands):
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Net capital requirements (Tables) |
12 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Dec. 31, 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Brokers and Dealers [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Capital Levels and Requirements for U.S. Registered Broker-Dealer Subsidiary | The following table sets forth the net capital levels and requirements for the Company’s U.S. registered broker dealer subsidiary at December 31, 2015 as filed in its amended regulatory filings (in thousands):
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Financial Resource Requirements on Significant Foreign Regulated Broker-Dealer | The following table sets forth the financial resource requirement for KCG Europe Limited, our U.K. registered broker dealer, at December 31, 2015 (in thousands):
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Business Segments (Tables) |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues, Pre-tax Earnings and Total Assets by Segment | The Company’s revenues, income (loss) from continuing operations before income taxes (“Pre-tax earnings”) and total assets by segment are summarized in the following table (in thousands):
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Revenues by Geographic Area | The following table presents Revenues by geographic area.
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Condensed Financial Statements of KCG Holdings, Inc. (parent only) (Tables) |
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Condensed Financial Information of Parent Company Only Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statements of Financial Condition (parent only) | Statements of Financial Condition KCG Holdings, Inc. (parent only)
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Statements of Operations and Comprehensive Income (parent only) | Statements of Operations and Comprehensive Income KCG Holdings, Inc. (parent only)
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Statements of Cash Flows (parent only) | Statements of Cash Flows KCG Holdings, Inc. (parent only)
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Schedule of Quantifying Prior Year Misstatements Corrected in Current Year Financial Statements | The impact of the errors on the subtotals within the statement are shown in the following table:
|
Merger of GETCO and Knight - Intangible Assets Acquired (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Jul. 01, 2013 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Business Acquisition [Line Items] | |||
Goodwill | $ 16,404 | $ 17,311 | |
Amortization Years | 3 years | 5 years | |
Knight | |||
Business Acquisition [Line Items] | |||
Intangible assets | $ 155,425 | ||
Goodwill | 12,666 | ||
Total | 168,091 | ||
Knight | Technology | |||
Business Acquisition [Line Items] | |||
Intangible assets | $ 110,504 | ||
Amortization Years | 5 years | ||
Knight | Customer relationships | |||
Business Acquisition [Line Items] | |||
Intangible assets | $ 35,000 | ||
Knight | Customer relationships | Minimum | |||
Business Acquisition [Line Items] | |||
Amortization Years | 9 years | ||
Knight | Customer relationships | Maximum | |||
Business Acquisition [Line Items] | |||
Amortization Years | 11 years | ||
Knight | Trade names | |||
Business Acquisition [Line Items] | |||
Intangible assets | $ 4,000 | ||
Amortization Years | 10 years | ||
Knight | Trading rights | |||
Business Acquisition [Line Items] | |||
Intangible assets | $ 5,921 | ||
Amortization Years | 7 years |
Significant Accounting Policies - Schedule of Interest Income and Interest Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Accounting Policies [Abstract] | |||
Interest Income | $ 12,666 | $ 14,363 | $ 10,187 |
Interest Expense | (14,794) | (13,742) | (10,724) |
Interest, net | $ (2,128) | $ 621 | $ (537) |
Significant Accounting Policies - Net Trading Revenue Including Dividend Income and Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Accounting Policies [Abstract] | |||
Dividend Income | $ 63,971 | $ 45,910 | $ 26,237 |
Dividend Expense | $ (42,398) | $ (38,444) | $ (21,630) |
Significant Accounting Policies - Nonconsolidated VIEs (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Variable Interest Entity [Line Items] | ||
Carrying Amount, Asset | $ 10,632 | |
Carrying Amount, Liability | 5 | |
Maximum Exposure to loss | 10,632 | |
VIE's assets | 6,051,178 | $ 6,830,654 |
VIE | ||
Variable Interest Entity [Line Items] | ||
VIE's assets | $ 22,197 |
Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses - Income Disclosures (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Dec. 31, 2013 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Discontinued Operations and Disposal Groups [Abstract] | ||||
Revenues and gain (adjustment to gain) on sale | $ 39,868 | $ (1,148) | ||
Expenses: | ||||
Compensation | 14,068 | 70 | ||
Payments for order flow | 9,885 | 0 | ||
Execution and clearance fees | 5,038 | 0 | ||
Other expenses | 10,748 | 930 | ||
Total expenses | 39,739 | 1,000 | ||
Pre-tax (loss) income from discontinued operations | 129 | (2,148) | ||
Income tax expense (benefit) | 49 | (816) | ||
(Loss) income from discontinued operations, net of tax | $ 80 | $ 0 | $ (1,332) | $ 80 |
Discontinued Operations, Assets and Liabilities Held for Sale & Sales of Businesses - Financial Condition Disclosures (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Assets: | ||
Fixed assets, less accumulated depreciation | $ 0 | $ 391 |
Intangible assets, net of accumulated amortization | 25,999 | 34,696 |
Other assets | 0 | 5,397 |
Total assets of businesses held for sale | 25,999 | 40,484 |
Liabilities: | ||
Accrued compensation expense | 0 | 2,298 |
Accrued expenses and other liabilities | 0 | 58 |
Total liabilities of businesses held for sale | $ 0 | $ 2,356 |
Fair Value - Additional Information (Details) ₨ in Millions |
Dec. 31, 2015
USD ($)
|
Dec. 31, 2015
INR (₨)
|
Dec. 31, 2014
USD ($)
|
Dec. 31, 2014
INR (₨)
|
---|---|---|---|---|
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||
Transfers of financial instruments between levels | $ 0 | $ 0 | ||
Transfers of financial instruments between level 2 to level 1 | 0 | 0 | ||
Notional value of foreign currency forward | 13,000,000 | ₨ 850.0 | $ 10,900,000 | ₨ 700.0 |
Nonrecurring | Level 3 | ||||
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items] | ||||
Goodwill, fair value | 0 | |||
Assets of businesses held for sale, fair value | $ 24,400,000 |
Fair Value - Level 3 Financial Assets (Details) - Receivable from sold investment $ in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2015
USD ($)
| |
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | |
Balance at beginning of period | $ 0 |
Realized gains(losses) during period | 0 |
Unrealized gains (losses) during the period | 0 |
Purchases | 0 |
Sales | 0 |
Settlements | 0 |
Issuances | 5,789 |
Transfers in or (out) of Level 3 | 0 |
Balance at end of period | $ 5,789 |
Collateralized Transactions - Financial Instruments at Fair Value Received as Collateral that were Permitted to be Delivered or Repledged (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Collateralized Agreements [Abstract] | ||
Collateral permitted to be delivered or repledged | $ 1,640,145 | $ 1,586,700 |
Collateral that was delivered or repledged | 1,570,921 | 1,485,267 |
Collateral permitted to be further repledged by the receiving counterparty | $ 188,345 | $ 147,696 |
Collateralized Transactions - Additional Information (Details) |
12 Months Ended |
---|---|
Dec. 31, 2015 | |
Collateralized Agreements [Abstract] | |
Repurchase agreements and other secured financings, maturity (years) | 1 year |
Collateralized Transactions - Assets Pledged (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Repurchase Agreement Counterparty [Line Items] | ||
Financial instruments owned, at fair value, pledged to counterparties that have the right to deliver or repledge | $ 1,640,145 | $ 1,586,700 |
Right to deliver or repledge | ||
Repurchase Agreement Counterparty [Line Items] | ||
Financial instruments owned, at fair value, pledged to counterparties that have the right to deliver or repledge | 324,146 | 536,124 |
Not having the right to deliver or repledge | ||
Repurchase Agreement Counterparty [Line Items] | ||
Financial instruments owned, at fair value, pledged to counterparties that do not have the right to deliver or repledge | $ 1,027,847 | $ 979,652 |
Collateralized Transactions - Agreements to Repurchase (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||
Securities Loaned | $ 463,377 | $ 707,744 |
Financial instruments sold under agreements to repurchase | 954,902 | 933,576 |
Equities | ||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||
Securities Loaned | 451,085 | 696,162 |
Financial instruments sold under agreements to repurchase | 855,632 | 832,614 |
U.S. government obligations | ||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||
Securities Loaned | 0 | 0 |
Financial instruments sold under agreements to repurchase | 54,902 | 73,576 |
Corporate debt | ||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||
Securities Loaned | 12,292 | 11,582 |
Financial instruments sold under agreements to repurchase | $ 44,368 | $ 27,386 |
Receivable from and Payable to Brokers, Dealers and Clearing Organizations (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Receivable: | ||
Clearing organizations and other | $ 505,789 | $ 1,073,480 |
Financial instruments purchased under agreement to resell | 65,433 | 21,545 |
Securities failed to deliver | 109,989 | 93,808 |
Total Receivable | 681,211 | 1,188,833 |
Payable: | ||
Clearing organizations and other | 240,985 | 350,627 |
Securities failed to receive | 32,820 | 325,462 |
Total Payable | $ 273,805 | $ 676,089 |
Fixed Assets and Leasehold Improvements (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Property, Plant and Equipment [Line Items] | ||
Fixed assets and leasehold improvements, gross | $ 377,153 | $ 373,431 |
Less - Accumulated depreciation and amortization | (282,295) | (239,380) |
Fixed assets and leasehold improvements, net | $ 94,858 | 134,051 |
Computer hardware and software | ||
Property, Plant and Equipment [Line Items] | ||
Depreciation Period | 3 years | |
Fixed assets and leasehold improvements, gross | $ 253,113 | 242,498 |
Leasehold improvements | ||
Property, Plant and Equipment [Line Items] | ||
Fixed assets and leasehold improvements, gross | $ 108,173 | 114,851 |
Telephone systems and equipment | ||
Property, Plant and Equipment [Line Items] | ||
Depreciation Period | 5 years | |
Fixed assets and leasehold improvements, gross | $ 3,651 | 3,962 |
Furniture and fixtures | ||
Property, Plant and Equipment [Line Items] | ||
Depreciation Period | 7 years | |
Fixed assets and leasehold improvements, gross | $ 12,216 | $ 12,120 |
Investments - Components of Investments (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Strategic investments: | ||
Investments accounted for under the equity method | $ 86,853 | $ 86,328 |
Investments held at fair value | 1,814 | 4,435 |
Common stock or equivalent of companies representing less than 20% equity ownership held at adjusted cost | 8,746 | 8,949 |
Total Strategic investments | 97,413 | 99,712 |
Other investments | 1,530 | 1,014 |
Total Investments | $ 98,943 | $ 100,726 |
Goodwill and Intangible Assets - Additional Information (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Finite-Lived Intangible Assets [Line Items] | ||
Impairment of intangible assets | $ 15,000 | |
Assets held for sale | $ 25,999 | $ 40,484 |
Weighted average useful life | 3 years | 5 years |
Minimum | ||
Finite-Lived Intangible Assets [Line Items] | ||
Amortization period | 1 year | |
Maximum | ||
Finite-Lived Intangible Assets [Line Items] | ||
Amortization period | 8 years | |
Write-down of Assets and Other Real Estate Charges | Global Execution Services | ||
Finite-Lived Intangible Assets [Line Items] | ||
Impairment of goodwill and intangible assets | $ 900 |
Goodwill and Intangible Assets - Summary of Goodwill (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Goodwill [Line Items] | ||
Goodwill | $ 16,404 | $ 17,311 |
Operating Segments | Market Making | ||
Goodwill [Line Items] | ||
Goodwill | 16,404 | 16,404 |
Operating Segments | Global Execution Services | ||
Goodwill [Line Items] | ||
Goodwill | $ 0 | $ 907 |
Goodwill and Intangible Assets - Summary of Amortization Expense Relating to Intangible Assets (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | |||
Amortization expense | $ 35,244 | $ 35,592 | $ 19,211 |
Goodwill and Intangible Assets - Summary of Estimated Amortization Expense for Future Years (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Amortization expense | |
For the year ended December 31, 2016 | $ 28,739 |
For the year ended December 31, 2017 | 27,381 |
For the year ended December 31, 2018 | 15,127 |
For the year ended December 31, 2019 | 1,751 |
For the year ended December 31, 2020 | $ 1,659 |
Debt - Summary of Long-Term Debt (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Mar. 10, 2015 |
Dec. 31, 2014 |
Jun. 05, 2013 |
---|---|---|---|---|
Carrying Amount | ||||
Cash Convertible Senior Subordinated Notes | $ 0 | $ 117,259 | ||
8.25% Senior Secured Notes | 0 | 305,000 | ||
6.875% Senior Secured Notes | 495,632 | 0 | ||
Total Debt | 495,632 | 422,259 | ||
Fair Value | ||||
Cash Convertible Senior Subordinated Notes | 0 | 116,819 | ||
8.25% Senior Secured Notes | 0 | 309,194 | ||
6.875% Senior Secured Notes | 450,000 | 0 | ||
Total Debt | $ 450,000 | $ 426,013 | ||
Senior Secured Notes | 6.875% Senior Secured Notes | ||||
Debt Instrument [Line Items] | ||||
Interest rate | 6.875% | 6.875% | ||
Senior Secured Notes | 8.25% Senior Secured Notes | ||||
Debt Instrument [Line Items] | ||||
Interest rate | 8.25% | 8.25% |
Debt - Cash Convertible Senior Subordinated Notes (Details) - USD ($) |
1 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Mar. 16, 2015 |
Mar. 31, 2010 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Debt Disclosure [Abstract] | |||||
Issue of cash convertible senior subordinated notes | $ 375,000,000 | ||||
Debt maturity date | Mar. 15, 2015 | ||||
Payment of convertible notes | $ 119,300,000 | $ 117,259,000 | $ 0 | $ 0 | |
Payment of convertible notes, principal amount | 117,300,000 | ||||
Payment of convertible notes, interest portion | $ 2,100,000 | ||||
Notes bear interest rate per year | 3.50% | ||||
Date of commencing of notes | Sep. 15, 2010 |
Debt - Debt Redemption (Details) - Senior Secured Notes - 6.875% Senior Secured Notes |
Mar. 10, 2015 |
---|---|
Debt Instrument [Line Items] | |
Percentage | 106.875% |
2017 | |
Debt Instrument [Line Items] | |
Percentage | 103.438% |
2018 | |
Debt Instrument [Line Items] | |
Percentage | 101.719% |
2019 and thereafter | |
Debt Instrument [Line Items] | |
Percentage | 100.00% |
Debt - First Lien Credit Facility (Details) - Jefferies Finance LLC and Goldman Sachs Bank USA - USD ($) |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2014 |
Dec. 31, 2013 |
Jul. 01, 2013 |
|
First Lien Credit Facility | |||
Line of Credit Facility [Line Items] | |||
Term credit agreement | $ 535,000,000 | ||
Principal payments | $ 235,000,000 | $ 300,000,000 | |
Cash held in collateral account | $ 117,300,000 | ||
Writedown of capitalized debt costs | $ 9,600,000 | ||
Revolving Credit Facility | |||
Line of Credit Facility [Line Items] | |||
Revolving credit facility amount | $ 50,000,000 |
Debt - Recorded Expenses with Respect to Long-term Debt (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Debt Disclosure [Abstract] | |||
Interest expense | $ 35,591 | $ 31,724 | $ 34,138 |
Debt extinguishment charges | 25,006 | 9,552 | 13,209 |
Amortization of debt issuance cost | 3,537 | 3,665 | 3,623 |
Commitment fee | 1,506 | 1,575 | 792 |
Total | $ 65,640 | $ 46,516 | $ 51,762 |
Stock-Based Compensation - Compensation Expense Relating to Restricted Awards (Details) - RSUs - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Stock award compensation expense | $ 81,496 | $ 55,402 | $ 33,067 |
Income tax benefit | 30,968 | $ 21,053 | $ 11,573 |
Accelerated stock compensation expense | $ 28,800 |
Stock-Based Compensation - Summary of Restricted Awards Activity (Details) - RSUs shares in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2015
$ / shares
shares
| |
Number of Units | |
Beginning Balance (in shares) | shares | 9,147 |
Granted (in shares) | shares | 2,660 |
Vested (in shares) | shares | (4,293) |
Forfeited (in shares) | shares | (777) |
Ending Balance (in shares) | shares | 6,737 |
Weighted- Average Grant date Fair Value | |
Beginning Balance (in dollars per share) | $ / shares | $ 10.77 |
Granted (in dollars per share) | $ / shares | 12.21 |
Vested (in dollars per share) | $ / shares | 10.73 |
Forfeited (in dollars per share) | $ / shares | 11.33 |
Ending Balance (in dollars per share) | $ / shares | $ 11.29 |
Stock-Based Compensation - Valuation Assumptions (Details) - Stock options |
12 Months Ended |
---|---|
Dec. 31, 2013 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Dividend yield | 0.00% |
Expected volatility | 35.00% |
Risk-free interest rate | 1.00% |
Expected life (in years) | 3 years 6 months |
Stock-Based Compensation - Compensation Expense Relating to Stock Options and SARs (Details) - Stock options and SARs - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Stock option and SAR compensation expense | $ 2,999 | $ 3,807 | $ 1,813 |
Income tax benefit | $ 1,140 | $ 1,447 | $ 635 |
Stock-Based Compensation - Change in Incentive Units (Details) - Incentive Units - Common Class A shares in Thousands |
12 Months Ended |
---|---|
Dec. 31, 2015
shares
| |
Vested | |
Beginning balance (in shares) | 38 |
Issued (in shares) | 0 |
Vested (in shares) | 0 |
Exercised (in shares) | (8) |
Canceled (in shares) | 0 |
Ending balance (in shares) | 30 |
Stock-Based Compensation - Compensation Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Incentive units | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Compensation expense (benefit) | $ 168 | $ (269) | $ 2,446 |
Class B and E units | |||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |||
Compensation expense (benefit) | $ 0 | $ 0 | $ 19,860 |
Employee Benefit Plan (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Employee Benefit Plans [Line Items] | |||
Total expense | $ 9,765 | $ 10,093 | $ 2,959 |
Parent Company | |||
Employee Benefit Plans [Line Items] | |||
Employer contribution match to employee contributions | 100.00% |
Income Taxes - Provision (Benefit) for Income Taxes (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Current: | |||
U.S. federal | $ 106,700 | $ 709 | $ (194) |
U.S. state and local | 19,665 | 4,081 | 2,902 |
Non U.S. | 958 | (828) | 3,773 |
Current income tax expense | 127,323 | 3,962 | 6,481 |
Deferred: | |||
U.S. federal | 25,221 | 30,331 | (106,996) |
U.S. state and local | (16,803) | (10,997) | 0 |
Non U.S. | (4,883) | (543) | (599) |
Deferred income tax expense (benefit) | 3,535 | 18,791 | (107,595) |
Income tax expense (benefit) | $ 130,858 | $ 22,753 | $ (101,114) |
Income Taxes - Effective Income Tax Reconciliation (Detail) - USD ($) $ in Thousands |
12 Months Ended | |||
---|---|---|---|---|
Jul. 01, 2013 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Effective Income Tax Rate Reconciliation, Deduction, Amount [Abstract] | ||||
U.S. federal income tax expense at statutory rate | $ 132,987 | $ 29,815 | $ 8,742 | |
Income not subject to U.S. corporate income tax | 0 | 0 | (15,583) | |
U.S. state and local income tax expense (benefit), net of U.S. federal income tax effect | 18,101 | (4,495) | 1,881 | |
Recognition of state deferred tax assets and net operating losses, net of U.S. federal income tax effect | (16,242) | 0 | 0 | |
Deferred tax benefit resulting from the Company becoming subject to U.S. corporate income taxes | $ (103,500) | 0 | 0 | (103,499) |
Nondeductible expenses | 3,223 | 230 | 3,627 | |
Federal research & development tax credits | (3,753) | (1,241) | 0 | |
Foreign taxes | (3,927) | (1,371) | 3,603 | |
Other, net | 469 | (185) | 115 | |
Income tax expense (benefit) | $ 130,858 | $ 22,753 | $ (101,114) |
Income Taxes - Components of Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Deferred tax assets: | ||
Employee compensation and benefit plans | $ 41,447 | $ 24,587 |
Fixed assets and other amortizable assets | 79,765 | 82,882 |
Reserves | 7,875 | 2,668 |
Valuation of investments | 13,590 | 32,962 |
Net operating loss carryforwards and tax credits, net | 43,419 | 94,770 |
Less: Valuation allowance on net operating loss carryforwards | (9,715) | (15,238) |
Total deferred tax assets | 176,381 | 222,631 |
Deferred tax liabilities: | ||
Fixed assets and other amortizable assets | 243 | 26,244 |
Reserves | 0 | 2,226 |
Valuation of investments | 280 | 19,912 |
Reduction in foreign tax credit for Non-U.S. NOL carryforwards | 24,633 | 19,490 |
Total deferred tax liabilities | 25,156 | 67,872 |
Net deferred tax assets | $ 151,225 | $ 154,759 |
Income Taxes - Unrecognized Tax Benefits Rollforward (Details) - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Reconciliation of Unrecognized Tax Benefits, Excluding Amounts Pertaining to Examined Tax Returns [Roll Forward] | ||
Balance at beginning of period | $ 2,312 | $ 1,464 |
Increases based on tax positions related to prior periods | 1,332 | 1,843 |
Decreases based on tax positions related to prior periods | 0 | (995) |
Balance at the end of the period | $ 3,644 | $ 2,312 |
Accumulated Other Comprehensive Income - Reclassification out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||
Investment income and other, net | $ 421,384 | $ 41,232 | $ 124,095 |
Income tax expense | (130,858) | (22,753) | 101,114 |
Non-cash gain on Knight Common Stock | 0 | $ 0 | 127,972 |
Knight Capital Group | |||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||
Non-cash gain on Knight Common Stock | 128,000 | ||
Amounts Reclassified from Other Comprehensive Income | |||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | |||
Investment income and other, net | (497) | (127,972) | |
Income tax expense | 189 | 48,629 | |
Net of tax | $ (308) | $ (79,343) |
Writedowns and Other Charges - Activity in Liability Account Related to Office Space Consolidation (Details) - Office Space Consolidation - USD ($) $ in Thousands |
12 Months Ended | |
---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Restructuring Reserve [Roll Forward] | ||
Balance as of beginning of period | $ 5,897 | $ 6,120 |
Real estate charges incurred | 23,186 | 5,360 |
Payments made, net | (8,921) | (4,468) |
Interest accretion | (1,270) | (1,115) |
Balance as of end of period | $ 18,892 | $ 5,897 |
Earnings Per Share - Additional Information (Details) - shares shares in Millions |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Earnings Per Share [Abstract] | |||
Options excluded (in shares) | 16.5 | 28.3 | 29.1 |
Commitments and Contingent Liabilities - Additional Information (Details) |
1 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
May. 31, 2015
USD ($)
|
Dec. 31, 2015
USD ($)
loan
|
Dec. 31, 2014
USD ($)
|
Dec. 31, 2013
USD ($)
|
|
Loss Contingencies [Line Items] | ||||
Rental expense | $ 17,800,000 | $ 19,700,000 | $ 16,000,000 | |
Compensation guarantees payable | $ 0 | $ 0 | ||
Revolving Credit Facility | ||||
Loss Contingencies [Line Items] | ||||
Weighted average interest rate | 4.44% | |||
Debt term | 3 years | |||
Guarantee Obligations | ||||
Loss Contingencies [Line Items] | ||||
Letters of credit obligation | $ 11,600,000 | |||
Indemnification Agreement | ||||
Loss Contingencies [Line Items] | ||||
Number of loans with contingent potential obligation | loan | 40 | |||
Maximum potential losses on loans | $ 8,500,000.0 | |||
Payment of indemnification | $ 500,000 | |||
KCGA | Settled Litigation | Unfavorable Regulatory Action | ||||
Loss Contingencies [Line Items] | ||||
Settlement expense, fine | $ 300,000 | |||
Litigation settlement, amount | 686,000 | |||
Settlement interest | $ 70,000 |
Commitments and Contingent Liabilities - Schedule of Capital Lease and Contract Obligations (Details) $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Minimum Payments | |
2016 | $ 2,126 |
2017 | 620 |
Total | $ 2,746 |
Commitments and Contingent Liabilities - Schedule of Interest Expense (Details) - USD ($) $ in Thousands |
12 Months Ended | ||
---|---|---|---|
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Commitments and Contingencies Disclosure [Abstract] | |||
Interest expense - Capital leases | $ 189 | $ 370 | $ 700 |
Net capital requirements - Net Capital Levels and Requirements for U.S. Registered Broker-Dealer Subsidiary (Details) - KCG Americas LLC $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Net Capital And Net Capital Requirements For Companys Broker Dealer Subsidiaries [Line Items] | |
Net Capital | $ 286,757 |
Net Capital Requirement | 1,000 |
Excess Net Capital | $ 285,757 |
Net capital requirements - Financial Resource Requirements on Significant Foreign Regulated Broker-Dealer (Details) - KCG Europe Limited $ in Thousands |
Dec. 31, 2015
USD ($)
|
---|---|
Net Capital Requirements [Line Items] | |
Net Capital | $ 155,081 |
Resource Requirement | 131,840 |
Excess Financial Resources | $ 23,241 |
Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk (Details) - USD ($) |
Dec. 31, 2015 |
Dec. 31, 2014 |
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Loans outstanding | $ 495,632,000 | $ 422,259,000 |
Executive Director or Officer | ||
Derivatives, Fair Value [Line Items] | ||
Loans outstanding | $ 0 |
Condensed Financial Statements of KCG Holdings, Inc. (parent only) - Statements of Operations and Comprehensive Income (Parent Only) (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Dec. 31, 2013 |
Jun. 30, 2013 |
Dec. 31, 2015 |
Dec. 31, 2014 |
Dec. 31, 2013 |
|
Revenues | |||||
Investment income and other, net | $ 421,384 | $ 41,232 | $ 124,095 | ||
Total revenues | 1,599,110 | 1,316,232 | 1,027,336 | ||
Expenses | |||||
Employee compensation and benefits | 405,609 | 437,269 | 349,192 | ||
Depreciation and amortization | 90,231 | 81,448 | 55,570 | ||
Professional fees | 27,055 | 25,596 | 46,662 | ||
Business development | 8,479 | 9,763 | 4,609 | ||
Occupancy and equipment rentals | 30,128 | 32,707 | 24,812 | ||
Other | 38,375 | 39,814 | 43,094 | ||
Total expenses | 1,219,148 | 1,231,045 | 1,002,358 | ||
Income tax benefit | 130,858 | 22,753 | (101,114) | ||
Net income | $ 209,393 | $ (89,305) | 249,104 | 61,102 | 126,172 |
Comprehensive income | 247,321 | 61,834 | 13,254 | ||
Parent Company | |||||
Revenues | |||||
Investment income and other, net | 7,341 | 3,415 | 3,717 | ||
Total revenues | 7,341 | 3,415 | 3,717 | ||
Expenses | |||||
Employee compensation and benefits | 48,863 | 50,256 | 31,970 | ||
Debt interest expense | 35,883 | 11,939 | 28,476 | ||
Depreciation and amortization | 0 | 0 | 698 | ||
Professional fees | 15,728 | 9,211 | 30,488 | ||
Business development | 2,759 | 3,625 | 0 | ||
Occupancy and equipment rentals | 2,059 | 0 | 0 | ||
Other | 31,331 | 25,460 | 29,829 | ||
Total expenses | 136,623 | 100,491 | 121,461 | ||
Loss before income taxes and equity in earnings of subsidiaries | (129,282) | (97,076) | (117,744) | ||
Income tax benefit | (75,784) | (35,972) | (120,761) | ||
(Loss) income before equity in earnings of subsidiaries | (53,498) | (61,104) | 3,017 | ||
Equity in earnings of subsidiaries | 302,602 | 122,206 | 123,155 | ||
Net income | 249,104 | 61,102 | 126,172 | ||
Other comprehensive income (loss) | (1,783) | 732 | (112,918) | ||
Comprehensive income | $ 247,321 | $ 61,834 | $ 13,254 |
Subsequent Events (Details) - Senior Secured Notes - 6.875% Senior Secured Notes - USD ($) $ in Millions |
Feb. 26, 2016 |
Dec. 31, 2015 |
Mar. 10, 2015 |
---|---|---|---|
Subsequent Event [Line Items] | |||
Interest rate | 6.875% | 6.875% | |
Subsequent Event | |||
Subsequent Event [Line Items] | |||
Debt repurchased in the open market | $ 35.0 | ||
Interest rate | 6.875% |
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