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 8 "Investments" for the carrying value of these investees at September 30, 2016 and December 31, 2015 and for the Company's income with respect to its equity earnings from these investees for the three and nine months ended September 30, 2016 and 2015.

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):



	For the three months ended September 30,					For the nine months ended September 30,
Statements of Operations	2016		2015			2016		2015
Revenues
Commissions and fees	$	8,171	$	4,496		$	23,246	$	10,624
Trading revenues, net	86		1,343			1,190		5,248
Interest, net	119		399			394		756
Total revenues from related parties	$	8,376	$	6,238		$	24,830	$	16,628
Expenses
Execution and clearance fees⁽¹⁾	$	4,132	$	(4,525	)	$	8,577	$	(13,333	)
Communications and data processing	4,710		1,577			12,327		3,986
Payment for order flow	—		274			5		2,527
Collateralized financing interest	73		99			199		346
Professional fees	—		—			—		5,507
Other expense	71		479			125		1,756
Total expenses incurred with respect to related parties	$	8,986	$	(2,096	)	$	21,233	$	789


⁽¹⁾	Represents net volume based fees paid or received by KCG for taking or providing liquidity to related trading venues.



Statements of Financial Condition	September 30, 2016		December 31, 2015
Assets
Securities borrowed	$	35,421	$	10,573
Receivable from brokers, dealers and clearing organizations	4,601		1,987
Other assets	62,789		67,652
Liabilities
Securities loaned	$	3,127	$	3,844
Payable to brokers, dealers and clearing organizations	61		61
Accrued expenses and other liabilities	4,016		4,159

As noted in Footnote 8 "Investments", in the second quarter of 2016, the Company sold a portion of its investment in Bats, which it accounts for under the equity method. The Company recorded a pre-tax gain of $33.4 million from the sale, which is included in Investment income and other, net on the Consolidated Statements of Operations for the nine months ended September 30, 2016 and is not included in the table above.

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 nine months ended September 30, 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. KCG received the first annual payment of $6.6 million in March 2016. The remaining additional potential payments are recorded at their estimated fair value of $59.9 million in Other assets on the September 30, 2016 Consolidated Statement of Financial Condition and in the table above. See Footnote 3 "Assets of Businesses Held for Sale & Sales of Businesses" for additional information.

Additionally, for the nine months ended September 30, 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 debt issuance costs and its remaining balance is included, net, within Debt on the Consolidated Statements of Financial Condition and $5.5 million that was recorded as Professional fees in the Consolidated Statement of Operations for the nine months ended September 30, 2015. These Professional fees are included in the table above, however, the $11.3 million capitalized debt issuance costs are not included in the table above as such costs are being amortized over the life of the debt.

In the nine months ended September 30, 2016, the Company paid $66,000 in fees to one of its related parties for acting as broker in connection with the Company's stock buyback program. In the nine months ended September 30, 2015, the Company paid $23,000 in fees to this same related party 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 Statements of Financial Condition at both September 30, 2016 and December 31, 2015 and are 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 three and nine months ended September 30, 2015.

During the second quarter of 2016, the Company repurchased 1.9 million shares of KCG Class A Common Stock for $26.1 million, for an average price per share of $13.48, and 6.6 million Warrants for $14.2 million from entities affiliated with two former directors of KCG.