Business Segments

12 Months Ended

Dec. 31, 2015

Segment Reporting [Abstract]

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):

	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

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.

	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