Discontinued Operations, Assets of Businesses Held for Sale & Sales of Businesses

12 Months Ended

Dec. 31, 2016

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations, Assets of Businesses Held for Sale & Sales of Businesses

Discontinued Operations, Assets of Businesses Held for Sale & Sales of Businesses

In July 2013, the Company entered into an agreement to sell to an investor group Urban Financial of America, LLC, ("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 from discontinued operations, net of tax within the Consolidated Statements of Operations for the year ended December 31, 2014.

The revenues and results of operations of discontinued operations are summarized as follows (in thousands):

	For the year ended December 31, 2014
Revenues and gain (adjustment to gain) on sale	$	(1,148	)
Expenses:
Compensation	$	70
Other expenses	930
Total expenses	1,000
Pre-tax loss from discontinued operations	(2,148		)
Income tax benefit	816
Loss from discontinued operations, net of tax	$	(1,332	)

For the years ended December 31, 2016 and 2015, there was no activity related to discontinued operations.

In November 2014, KCG sold certain assets and liabilities related to its FCM business to Wedbush Securities Inc. The FCM was not considered a discontinued operation, and therefore the results of the FCM’s operations for 2014 through the date of sale are included in the Global Execution Services segment and in Continuing Operations on the Consolidated Statements of Operations.

In March 2015, the Company completed the sale of KCG Hotspot to Bats. 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 Statement 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 Statement 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, consisting of a $50.0 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. On September 26, 2016, Bats entered into an agreement and plan of merger with CBOE Holdings, Inc. (“CBOE”) and certain newly formed subsidiaries thereof, pursuant to which Bats will merge into a subsidiary of CBOE, which such subsidiary surviving the merger (the “Bats Merger”). The remaining Annual Payments are contingent on Bats (and, following the closing of the Bats Merger, CBOE) generating sufficient taxable net income to receive the tax benefits.

The Company has elected the fair value option related to the receivable from Bats and 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. KCG received the first annual payment of $6.6 million in March 2016. The remaining additional potential payments of $63.1 million are recorded at a fair value of $60.5 million in Other assets on the Consolidated Statement of Financial Condition as of December 31, 2016.

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 DMM and retail options market making businesses, were no longer considered core to its strategy. Assets of businesses held for sale are recorded at the lower of their book value or their estimated fair value and are reported as Assets of businesses held for sale on the December 31, 2016 and December 31, 2015 Consolidated Statements of Financial Condition. See Footnote 10 "Goodwill and Intangible Assets" for further details.

Included in the $26.0 million of Assets of businesses held for sale at December 31, 2015 were assets related to the Company's retail options market making business, which were sold to a third party in March 2016, and as a result of the sale, the Company recorded a gain of $2.9 million, which is included in Investment income and other, net on the Consolidated Statement of Operations for the year ended December 31, 2016. Also included in the $26.0 million of Assets of businesses held for sale at December 31, 2015 were assets related to the Company's DMM business. The DMM business was sold to Citadel in May 2016. As charges were recorded in the fourth quarter of 2015 in order to reflect the estimated fair value of this held for sale business, no gain or loss on sale was recorded in the year ended December 31, 2016. The Company continues to have one business, which comprises a technology platform, that is considered to be held for sale at December 31, 2016.

The assets of businesses held for sale as of December 31, 2016 and December 31, 2015 are summarized as follows (in thousands):

	December 31, 2016		December 31, 2015
Assets:
Intangible assets, net of accumulated amortization	$	8,194	$	25,999
Total assets of businesses held for sale	$	8,194	$	25,999