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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on November 12, 2015

Registration No. 333-207874


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 1
to

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



Virtu Financial, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  6200
(Primary Standard Industrial
Classification Code Number)
  32-0420206
(I.R.S. Employer
Identification Number)



900 Third Avenue
New York, New York 10022-1010
(212) 418-0100
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



Douglas A. Cifu
Chief Executive Officer
900 Third Avenue
New York, New York 10022-1010
(212) 418-0100
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

John C. Kennedy, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019-6064
(212) 373-3000
  Michael Kaplan, Esq.
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000



Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.

            If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: o

            If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

            If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

            If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

            Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý
(Do not check if a
smaller reporting company)
  Smaller reporting company o



CALCULATION OF REGISTRATION FEE

               
 
Title of Each Class
of Securities to be Registered

  Amount to be
Registered(1)

  Proposed Maximum
Offering Price per
Share

  Proposed
Maximum
Aggregate
Offering
Price(1)(2)

  Amount of
Registration
Fee(2)(3)

 

Class A common stock, par value $0.00001 per share

  6,473,371   $23.96   $155,101,969.16   $15,618.77

 

(1)
Includes 397,534 shares of Class A common stock to be offered by Virtu Financial, Inc. and an additional 6,075,837 shares of Class A common stock to be offered by the selling stockholders.
(2)
The offering price and registration fee are estimated pursuant to Rule 457(c) under the Securities Act of 1933, as amended, based upon the average high and low prices for the shares of Class A common stock of Virtu Financial, Inc., as reported by The NASDAQ Stock Market LLC, on November 4, 2015.
(3)
Previously paid.



            The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion. Dated November 12, 2015.

PROSPECTUS

6,473,371 Shares

LOGO

Virtu Financial, Inc.

Class A Common Stock



           Virtu Financial, Inc. is offering 397,534 shares of Class A common stock to be sold in the offering and we will use all of the net proceeds to repurchase an equivalent number of non-voting common interest units of Virtu Financial LLC and corresponding shares of our Class C common stock from one of our equityholders. The selling stockholders identified in this prospectus are offering an additional 6,075,837 shares of Class A common stock to be sold in the offering. We will not receive any proceeds from the sale of shares of Class A common stock by the selling stockholders.

           Our shares of Class A common stock are listed on The NASDAQ Stock Market LLC ("NASDAQ") under the symbol "VIRT." On November 11, 2015, the closing price for our shares of Class A common stock on NASDAQ was $23.10 per share of Class A common stock.

           We have four classes of authorized common stock. The Class A common stock offered hereby and the Class C common stock have one vote per share. The Class B common stock and the Class D common stock have 10 votes per share. TJMT Holdings LLC, an affiliate of Mr. Vincent Viola, our Founder and Executive Chairman, and certain trusts for the benefit of the Viola family and others hold all of our issued and outstanding Class D common stock and control more than a majority of the combined voting power of our common stock. As a result, the Viola family is able to control any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and by-laws and the approval of any merger or sale of substantially all of our assets.

           We are a "controlled company" under the corporate governance rules for NASDAQ-listed companies, and therefore are permitted, and have elected, not to comply with certain NASDAQ corporate governance requirements. See "Management — Controlled Company."

           We are an "emerging growth company" under the federal securities laws. Investing in our Class A common stock involves risks. See "Risk Factors" on page 36 to read about factors you should consider before buying shares of our Class A common stock.

           Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.



 
  Per Share
  Total

Public offering price

  $                $             

Underwriting discounts and commissions

  $                $             

Proceeds, before expenses, to us(1)

  $                $             

Proceeds, before expenses, to the selling stockholders

  $                $             

(1)
See "Underwriting."

           The underwriters expect to deliver the shares of Class A common stock against payment in New York, New York on or about                          , 2015.



Goldman, Sachs & Co.



   

Prospectus dated                    , 2015.


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          We, the selling stockholders and the underwriters have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses we have prepared. We, the selling stockholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give to you. This prospectus is an offer to sell only the shares offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of the date hereof.



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INDUSTRY AND MARKET DATA

          Industry and market data used throughout this prospectus were obtained through company research, surveys and studies conducted by third parties and industry and general publications. Certain information contained in "Business" is based on studies, analyses and surveys prepared by the Bank for International Settlements, Bloomberg, BATS Global Markets, Inc., the Futures Industry Association, the Investment Industry Regulatory Organization of Canada and the World Federation of Exchanges. While we are not aware of any misstatements regarding the industry data presented herein, estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading "Risk Factors."

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TRADEMARKS

          This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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PROSPECTUS SUMMARY

          This summary highlights selected information about us and this offering but does not contain all of the information that you should consider before investing in our Class A common stock. Before making an investment decision, you should read this entire prospectus carefully, including the discussion under the heading "Risk Factors" and the consolidated financial statements and related notes thereto contained elsewhere in this prospectus. This prospectus includes forward looking-statements that involve risks and uncertainties. See "Forward-Looking Statements" for more information.

          Unless we state otherwise or the context otherwise requires, the terms "we," "us," "our," "Virtu" and the "Company" refer to Virtu Financial, Inc., a Delaware corporation, and its consolidated subsidiaries after giving effect to the reorganization transactions described under " — Corporate History and Organizational Structure" below. Also, unless we state otherwise or the context otherwise requires, all information in this prospectus gives effect to the reorganization transactions described below. "Virtu Financial" refers to Virtu Financial LLC, a Delaware limited liability company and a consolidated subsidiary of ours following the reorganization transactions.

Overview

          Virtu is a leading technology-enabled market maker and liquidity provider to the global financial markets. We stand ready, at any time, to buy or sell a broad range of securities and other financial instruments, and we generate revenue by buying and selling securities and other financial instruments and earning small amounts of money on individual transactions based on the difference between what buyers are willing to pay and what sellers are willing to accept, which we refer to as "bid/ask spreads," across a large volume of transactions. We make markets by providing quotations to buyers and sellers in more than 11,000 securities and other financial instruments on more than 225 unique exchanges, markets and liquidity pools in 35 countries around the world. We believe that our broad diversification, in combination with our proprietary technology platform and low-cost structure, enables us to facilitate risk transfer between global capital markets participants by supplying liquidity and competitive pricing while at the same time earning attractive margins and returns.

          We believe that market makers like us serve an important role in maintaining and improving the overall health and efficiency of the global capital markets by continuously posting bids and offers for securities and other financial instruments and thereby providing to market participants an efficient means to transfer risk. Market participants benefit from the increased liquidity, lower overall trading costs and enhanced execution certainty that we provide. While in most cases we do not have customers in a traditional sense, we make markets for global banks, brokers and other intermediaries, in addition to retail and institutional investors, including corporations, individuals, hedge funds, mutual funds, pension funds and other investors, all of whom can access our liquidity on exchanges or venues in order to transfer risk in multiple securities and asset classes for their own accounts and/or on behalf of their customers. The following table illustrates our diversification and scale:

 

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Asset Classes
 
Selected Venues in Which We Make Markets

North, Central and South America
("Americas") Equities

  NYSE, NASDAQ, DirectEdge, NYSE Arca, NYSE MKT, BATS, IEX, TMX, ICE, CME, BM&F Bovespa, major private liquidity pools

Europe, Middle East and Africa
("EMEA") Equities

 

London Stock Exchange, Borsa Italiana, SIX Swiss Exchange, Euronext (Paris, Amsterdam, Brussels, Lisbon), XETRA, Bolsa de Madrid, EUREX, ICE Futures Europe, Turquoise Exchange, BATS Chi-x Europe, Johannesburg Stock Exchange

Asia and Pacific ("APAC") Equities

 

TSE, SGX, OSE, SBI Japannext, TOCOM

Global Commodities (including energy,
metals and other commodities)

 

CME, ICE, TOCOM, SGX, NYSE Liffe, EBS

Global Currencies (including futures
contracts in FX)

 

CME, ICE, Currenex, EBS, HotSpot, Reuters, FXall, LMAX

Options, Fixed Income and
Other Securities

 

CBOE, PHLX, NYSE Arca Options, eSpeed, BOX, BrokerTec

          We refer to our market making activities as being "market neutral," which means that we are not dependent on the direction of any particular market and we do not speculate. Our market making activities are designed to minimize capital at risk at any given time by limiting the notional size of our positions. Our strategies are also designed to lock in returns through precise hedging in the primary instrument or in one or more economically equivalent instruments, as we seek to eliminate the price risk in any positions held. See "Business — Overview" for more information regarding our strategies. Our revenue generation is driven primarily by transaction volume across a broad range of securities and other financial instruments, asset classes and geographies. We avoid the risk of long or short positions in favor of seeking to earn small bid/ask spreads on large trading volumes across thousands of securities and other financial instruments. While we seek to eliminate the price risk of long or short positions, a significant percentage of our trades are not profitable. For example, for the 252 trading days of 2014, we averaged approximately 5.3 million trades per day globally across all asset classes, and we profitably exited 49% of our overall positions.

          We do not engage in the types of principal investing and predictive, momentum and signal trading in which many other broker-dealers and trading firms engage. In fact, in order to minimize the likelihood of unintended activities by our market making strategies, if our risk management system detects a trading strategy generating revenues outside of our preset limits, it will freeze, or "lockdown," that strategy and alert risk management personnel and management. Although this approach may prevent us from maximizing potential returns in times of extreme market volatility, we believe the reduction in risk is an appropriate trade-off that is in keeping with our aim of generating consistently strong revenue from trading.

          For the six months ended June 30, 2015 and 2014, respectively:

    our total revenues were approximately $403.5 million and $336.3 million,

    our trading income, net, was approximately $383.7 million and $318.5 million,

    our Adjusted Net Trading Income was approximately $254.3 million and $200.3 million,

    our net income was approximately $85.0 million and $79.7 million, and

    our Adjusted Net Income was approximately $143.7 million and $99.6 million.

          For the years ended December 31, 2014 and 2013, respectively:

    our total revenues were approximately $723.1 million and $664.5 million,

    our trading income, net, was approximately $685.2 million and $623.7 million,

    our Adjusted Net Trading Income was approximately $435.0 million and $414.5 million,

 

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    our net income was approximately $190.1 million and $182.2 million, and

    our Adjusted Net Income was approximately $226.5 million and $215.4 million.

          For the six months ended June 30, 2015, we earned approximately 22% of our Adjusted Net Trading Income from Americas equities (of which approximately 17% was attributable to U.S. equities and approximately 5% was attributable to Canadian and Latin American equities), 12% from EMEA equities, 8% from APAC equities, 25% from global commodities, 26% from global currencies and 6% from options, fixed income and other securities. For the year ended December 31, 2014, we earned approximately 26% of our Adjusted Net Trading Income from Americas equities (of which approximately 20% was attributable to U.S. equities and approximately 6% was attributable to Canadian and Latin American equities), 12% from EMEA equities, 7% from APAC equities, 21% from global commodities, 25% from global currencies and 10% from options, fixed income and other securities. For a reconciliation of Adjusted Net Trading Income to trading income, net, and Adjusted Net Income to net income, see " — Summary Historical and Pro Forma Consolidated Financial and Other Data." Since our inception, we have sought to broadly diversify our market making across securities, asset classes and geographies, and as a result, for the six months ended June 2015 and the year ended December 31, 2014, we achieved a diverse mix of Adjusted Net Trading Income results, with no one geography or asset class constituting more than 26% of our total Adjusted Net Trading Income.

          Technology and operational efficiency are at the core of our business, and our focus on market making technology is a key element of our success. We have developed a proprietary, multi-asset, multi-currency technology platform that is highly reliable, scalable and modular, and we integrate directly with exchanges and other liquidity centers. Our market data, order routing, transaction processing, risk management and market surveillance technology modules manage our market making activities in an efficient manner and enable us to scale our market making activities globally and across additional securities and other financial instruments and asset classes without significant incremental costs or third-party licensing or processing fees.

Industry and Market Overview

          A "market maker" or "liquidity provider" is commonly defined by stock exchanges, futures exchanges and regulatory authorities around the world as a person or entity who provides continuous, two-sided quotes at multiple price levels at or near the best bid or offer, taking market risk, through a variety of exchanges and markets, which are accessible broadly and continuously for immediate execution. Market makers, like us, serve a critical role in the functioning of all financial markets by providing bids and offers for securities and other financial instruments. Market makers enhance liquidity and execution certainty for all market participants, enabling buyers and sellers to efficiently transfer risk, and are compensated for this service by earning a small amount of money on the bid/ask spread on individual transactions. A market maker's success depends on it posting competitive prices and accurately and efficiently responding to relevant market data.

          Historically, market making activities occurred on the physical floor of exchanges, where human traders would execute buy and sell orders for securities. Over the last 20 years, however, the global trading markets have been characterized by the electronification of trading, development of new asset classes, volume growth and improving technology and speed of communication. The advent of electronic trading venues has changed the traditional trading process for many types of securities in the equity, bond and currency markets. The practice of physical, "open outcry" trading has largely been replaced by electronic trading platforms. This shift, and the resulting increase in automation and speed and reduction in trading costs, has led to significant growth in electronic trading volumes, as implied by growth in the aggregate notional value and number of trades on exchanges around the world.

          Market structures have become increasingly complex and diverse. Although in some geographies and asset classes trading continues to occur through a single exchange, many

 

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markets for many asset classes, such as U.S. and European equities, have become increasingly fragmented. While we believe this fragmentation and related competition have been beneficial to all market participants, leading to more compressed bid/ask spreads and creating deeper liquidity, they have also created greater complexity and have required electronic market makers to expand their infrastructure to connect with more venues. We believe this trend will enable larger firms with scalable infrastructure, like us, to capture more of these opportunities.

Our Competitive Strengths

          Critical Component of an Efficient Market Eco-System.    As a leading, low-cost market maker dedicated to providing improved efficiency and liquidity across multiple securities, asset classes and geographies, we aim to provide critical market functionality and robust price competition, leading to reduced trading costs and more efficient pricing in the securities and other financial instruments in which we provide liquidity. This contribution to the financial markets, and the scale and diversity of our market making activities, provides added liquidity and transparency, which we believe are necessary and valued components to the efficient functioning of market infrastructure and benefit all market participants. We support transparent and efficient, technologically advanced marketplaces and advocate for legislation and regulation that promotes fair and transparent access to markets.

          Cutting Edge, Proprietary Technology.    Technology is at the core of our business. Our team of software engineers develops all of our core software internally, and we utilize optimized infrastructure to integrate directly with the exchanges and other trading venues on which we provide liquidity. Wherever possible, we lease commercially available rack space that is co-located with, or in close proximity to, the exchanges and other venues where we provide liquidity. We do not pay any licensing or per-trade processing fees to any third parties, and the engineering cycles for enhancements or new technologies are entirely within our control. Our focus on technology and our ability to leverage our technology enables us to be one of the lowest cost providers of liquidity to the global electronic trading marketplace.

          Consistent, Diversified and Growing Revenue Base.    We generate revenues by making markets and earning small bid/ask spreads in more than 11,000 listed securities and other financial instruments on more than 225 unique exchanges, markets and liquidity pools in 35 countries around the world. The reliability and scalability of our technology platform also allow us to capitalize on higher transaction volumes during periods of extraordinary market volatility and enable us to diversify our Adjusted Net Trading Income through asset class and geographic expansion. As a result, during the six months ended June 30, 2015 and the year ended December 31, 2014, no single asset class or geography constituted more than 26% of our total Adjusted Net Trading Income. Our diversification, together with our revenue generation strategy of earning small bid/ask spreads on large trading volumes across thousands of securities, enables us to deliver consistent Adjusted Net Trading Income under a wide range of market conditions.

          Low Costs and Large Economies of Scale.    Our high degree of automation, together with our ability to reduce external costs by internalizing certain trade processing functions, enables us to leverage our low market making costs over large trading volumes. Our market making costs are low due to several factors. As a self-clearing member of the Depository Trust Company ("DTC"), we avoid paying clearing fees to third parties in our U.S. equities market making business. In addition, because of our significant scale, we are able to obtain competitive pricing for trade processing functions and other costs that we do not internalize. Our significant volumes frequently place us in the lowest cost tiers of brokerage, clearing and exchange fees for venues that provide tiered pricing structures. Our low-cost structure allows us to maintain a marginal cost per trade that we believe is favorable compared to our competitors. Our scale is further demonstrated by our headcount — as

 

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of June 30, 2015, we had only 148 employees. Our business efficiency is also reflected in our operating margins and our Adjusted EBITDA margins.

          Real-Time Risk Management.    Our trading is designed to be non-directional, non-speculative and market neutral. Our market making strategies are designed to put minimal capital at risk at any given time by limiting the notional size of our positions. Our strategies are also designed to lock in returns through precise hedging in the primary instrument or in one or more economically equivalent instruments, as we seek to eliminate the price risk in any positions held. Our real-time risk management system is built into our trading platform and is an integral part of our order life-cycle, analyzing real-time pricing data and ensuring that our order activity is conducted within strict pre-determined trading and position limits. If our risk management system detects that a trading strategy is generating revenues or losses in excess of our preset limits, it will lockdown that strategy and alert management. In addition, our risk management system continuously reconciles our internal transaction records against the records of the exchanges and other liquidity centers with which we interact.

          Proven and Talented Management Team.    Our management team, with an average of approximately 20 years of industry experience, is led by individuals with diverse backgrounds and deep knowledge and experience in the development and application of technology to the electronic trading industry. Mr. Vincent Viola, our Founder and Executive Chairman, is the former Chairman of the NYMEX and has been a market maker his entire career since leaving active duty in the U.S. Army and joining the NYMEX in 1982. Mr. Viola is widely recognized as an innovator and pioneer in market making and electronic trading over his 30-plus year career. Our Chief Executive Officer, Mr. Douglas A. Cifu, has been with us since our founding in 2008 and previously was a Partner with the international law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP. Our Chief Financial Officer, Joseph Molluso, has been with us since 2013 and previously was a Managing Director in the Investment Banking division at J.P. Morgan.

Our Key Growth Strategies

          Capitalize on secular growth in electronic trading of global listed securities markets and continue to increase market penetration.    We expect that global electronic trading volumes will continue to grow, driven by various factors, including technology, globalization, convergence of exchange and non-exchange markets and the evolving regulatory environment. According to the World Federation of Exchanges, the number of equity shares traded through an electronic order book grew at a compound annual rate of 15.8% since 2004, from approximately 3.5 billion shares in 2004 to approximately 15.1 billion shares in 2014. In addition, according to the Futures Industry Association, trading of futures and options on exchanges has grown at a compound annual rate of 9.4% since 2004, from 8.9 billion contracts in 2004 to 21.9 billion contracts in 2014, and we believe that a significant portion of this growth has come from the electronification of trading. Our ability to offer competitive bid and offer quotes, facilitated by our proprietary, scalable technology platform and our low-cost structure, has enabled us to grow our business and add trading volume at little incremental cost. As a result, we expect to be well positioned to capitalize on future growth in the global electronic trading markets, particularly in certain asset classes in which we have lower Adjusted Net Trading Income or are not yet a participant.

          Provide increasing liquidity across a wider range of new securities and other financial instruments.    We believe that the full implementation of the European Markets Infrastructure Regulation and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") in the U.S. will increase transparency, liquidity and efficiency in global trading markets and encourage the further development of trading opportunities in certain asset classes in which highly liquid electronic markets remain limited or nonexistent due to historical reliance on bilateral voice

 

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trading and other inefficient processes. The migration of these products to electronic markets will provide us with an opportunity to deploy our market making strategies in asset classes that are not accessible to us currently including, for example, interest rate swaps, interest rate swap futures, credit default swap ("CDS") index futures and over-the-counter ("OTC") energy swaps.

          Grow geographically.    We trade on over 225 unique exchanges, markets and liquidity pools around the world, located in 35 countries. We look to expand into new geographies when access is available to us and the applicable regulatory scheme permits us to deploy our strategy. Given the scalability of our platform, we believe we will be able to expand into new geographies and begin generating revenues quickly with little incremental cost. We intend to continue to expand our market making business into new geographic locations, including locations in the EMEA and APAC markets, where we began making markets in 2008 and 2010, respectively. We entered the Japanese, Australian and certain other Asian markets beginning in late 2011, and we expect those markets to be growth areas for us.

          Leverage our technology to offer additional technology services to market participants.    We believe that our order management, market data, order routing, processing, risk management and market surveillance technology modules offer a key value proposition to market participants and that sharing our technological capabilities with market participants in a manner that expands electronic trading will create more opportunities for market making as trading volumes increase. For example, we adapted our existing technology to provide a customized automated trading platform for foreign exchange products to a major financial institution. We believe this platform will increase transparency, liquidity and efficiency for that financial institution and will provide us with a unique opportunity to provide liquidity and market making services directly to other financial institutions as well. In 2014, we also entered into an order routing agreement with a registered broker-dealer in order to assist it in its execution of institutional order flow.

          Expand customized liquidity solutions.    We also provide liquidity and competitive pricing in foreign currency markets directly to market participants on our own trading platform called "VFX" and through other customized liquidity arrangements. We offered more than 75 different pairs of currency products as of June 30, 2015. We intend to offer this same type of customized liquidity in other asset classes globally.

          Pursue strategic partnerships and acquisitions.    We intend to selectively consider opportunities to grow through strategic partnerships or acquisitions that enhance our existing capabilities or enable us to enter new markets or provide new products and services. For example, the Madison Tyler Transactions described below created economies of scale with substantial synergy opportunities realized to date and allowed us to enhance our international presence. In addition, with our acquisition of the ETF market making assets of Nyenburgh Holding B.V. ("Nyenburgh") in the third quarter of 2012, we became an OTC market maker in ETFs and from time to time provide two-sided liquidity to a significant number of counterparties throughout Europe.

Recent Developments

          On November 4, 2015, we announced our financial results for the three and nine months ended September 30, 2015.

Financial highlights

          For the three months ended September 30, 2015,

    total revenues increased $42.6 million, or 24.6%, to $215.8 million, compared to $173.2 million in the same period in 2014,

 

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    trading income, net, increased $44.5 million, or 27.4%, to $206.8 million, compared to $162.3 million in the same period in 2014,

    net income increased $28.1 million, or 67.9%, to $69.5 million, compared to $41.4 million in the same period in 2014, and

    Basic EPS was $0.36 and Diluted EPS was $0.35.

          For the nine months ended September 30, 2015,

    total revenues increased $109.8 million, or 21.6%, to $619.3 million, compared to $509.5 million in the same period in 2014,

    trading income, net, increased $109.8 million, or 22.8%, to $590.6 million, compared to $480.8 million in the same period in 2014,

    net income increased $33.4 million, or 27.6%, to $154.5 million, compared to $121.1 million in the same period in 2014, and

    Basic EPS was $0.37 and Diluted EPS was $0.37.

          As of September 30, 2015, we had $161.5 million in cash and cash equivalents, and total long-term debt outstanding in an aggregate principal amount of $501.1 million. The increase in cash and cash equivalents compared to the same period in 2014 was primarily attributable to the net proceeds contributed to Virtu Financial as a result of our initial public offering.

Business performance

          For the three months ended September 30, 2015,

    Adjusted Net Trading Income increased $35.4 million, or 34.3%, to $138.6 million, compared to $103.2 million for same period in 2014,

    Adjusted Net Income increased $27.6 million, or 56.8%, to $76.2 million, compared to $48.6 million in the same period in 2014, and

    Adjusted EBITDA increased $34.6 million, or 52.3%, to $100.7 million, compared to $66.1 million in the same period in 2014.

          For the nine months ended September 30, 2015,

    Adjusted Net Trading Income increased $89.4 million, or 29.4%, to $392.9 million, compared to $303.5 million in the same period in 2014,

    Adjusted Net Income increased $71.7 million, or 48.4%, to $219.9 million, compared to $148.2 million in the same period in 2014, and

    Adjusted EBITDA increased $85.8 million, or 44.1%, to $280.4 million, compared to $194.6 million in the same period in 2014.

          Since our inception, we have sought to broadly diversify our market making across securities, asset classes and geographies, and as a result, for the three and nine months ended September 30, 2015, no one category constituted more than 33.0% and 26.0%, respectively of our total Adjusted Net Trading Income and for the three months ended September 30, 2015, our Daily Adjusted Net Trading Income increased approximately $0.55 million, or 34.4%, to $2.17 million compared to $1.61 million the same period in 2014, and for the nine months ended September 30, 2015, it increased approximately $0.48 million, or 29.5%, to $2.09 million, compared to $1.61 million in the same period in 2014.

 

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          The increase in Adjusted Net Trading Income for the three and nine months ended September 30, 2015 compared to the same period in 2014 was primarily driven by strong performances in Americas equities (which were 33.0% of Adjusted Net Trading Income for the three months ended September 30, 2015 due to high volatility in the U.S. markets), EMEA equities, APAC equities and Global Commodities, and reflected the overall increased volumes in most of the global markets we serve. These increases were partially offset by a decrease in Adjusted Net Trading Income from trading global currencies in the three months ended September 30, 2015 and from decreases in trading options, fixed income and other securities, in each case compared to the prior year period.

          Adjusted Net Trading Income, Adjusted Net Income and Adjusted EBITDA are non-GAAP financial measures. For a description of these measures and their limitations, see footnotes 8 and 9 in "—Summary Historical and Pro Forma Consolidated Financial and Other Data."

          The following tables show our Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income by category for the three and nine months ended September 30, 2015 and 2014:

 
  Three Months Ended September 30,  
Adjusted Net Trading Income:
  2015   % of Total   2014   % of Total   % Change  
 
  (in thousands, except percentages)
 

Category

                               

Americas Equities

  $ 45,815     33.1 % $ 25,982     25.2 %   76.3 %

EMEA Equities

    15,087     10.9 %   12,324     11.9 %   22.4 %

APAC Equities

    13,144     9.5 %   7,032     6.8 %   86.9 %

Global Commodities

    28,273     20.4 %   18,457     17.9 %   53.2 %

Global Currencies

    23,289     16.8 %   25,211     24.4 %   –7.6 %

Options, Fixed Income and Other

    10,988     7.9 %   10,063     9.8 %   9.2 %

Unallocated(1)

    2,020     1.4 %   4,120     4.0 %   NM  

Total Adjusted Net Trading Income

  $ 138,616     100.0 % $ 103,189     100.0 %   34.3 %

 

 
  Three Months Ended September 30,  
Average Daily Adjusted Net Trading Income:
  2015   % of Total   2014   % of Total   % Change  
 
  (in thousands, except percentages)
 

Category

                               

Americas Equities

  $ 716     33.1 %   406     25.2 %   76.3 %

EMEA Equities

    236     10.9 %   193     12.1 %   22.4 %

APAC Equities

    205     9.5 %   110     6.8 %   86.9 %

Global Commodities

    442     20.4 %   288     17.9 %   53.2 %

Global Currencies

    364     16.8 %   394     24.4 %   –7.6 %

Options, Fixed Income and Other

    172     7.9 %   157     9.7 %   9.2 %

Unallocated(1)

    31     1.4 %   64     3.9 %   NM  

Total Adjusted Net Trading Income

  $ 2,166     100.0 % $ 1,612     100.0 %   34.3 %

 
  Nine Months Ended September 30,  
Adjusted Net Trading Income:
  2015   % of Total   2014   % of Total   % Change  
 
  (in thousands, except percentages)
 

Category

                               

Americas Equities

  $ 102,278     26.0 % $ 78,122     25.7 %   30.9 %

EMEA Equities

    46,013     11.7 %   38,283     12.6 %   20.2 %

APAC Equities

    33,875     8.6 %   20,450     6.7 %   65.6 %

Global Commodities

    90,514     23.0 %   67,848     22.4 %   33.4 %

Global Currencies

    90,147     22.9 %   70,557     23.2 %   27.8 %

Options, Fixed Income and Other

    24,911     6.3 %   27,831     9.2 %   –10.5 %

Unallocated(1)

    5,151     1.5 %   425     0.2 %   NM  

Total Adjusted Net Trading Income

  $ 392,889     100.0 % $ 303,516     100.0 %   29.4 %

 

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  Nine Months Ended September 30,  
 
  2015   % of Total   2014   % of Total   % Change  
 
  (in thousands, except percentages)
 

Average Daily Adjusted Net Trading Income:

                               

Category

                               

Americas Equities

  $ 544     26.0 % $ 416     25.7 %   30.9 %

EMEA Equities

    245     11.7 %   204     12.6 %   20.2 %

APAC Equities

    180     8.6 %   109     6.7 %   65.6 %

Global Commodities

    481     23.0 %   361     22.4 %   33.4 %

Global Currencies

    480     22.9 %   375     23.2 %   27.8 %

Options, Fixed Income and Other

    133     6.3 %   148     9.2 %   –10.5 %

Unallocated(1)

    27     1.5 %   1     0.2 %   NM  

Total Adjusted Net Trading Income

  $ 2,090     100.0 % $ 1,614     100.0 %   29.4 %
(1)
Under our methodology for recording "trading income, net" in our condensed consolidated statements of comprehensive income, we recognize revenues based on the exit price of assets in accordance with applicable U.S. GAAP rules, and when we calculate Adjusted Net Trading Income for corresponding reporting periods, we start with trading income, net. By contrast, when we calculate Adjusted Net Trading Income by category, we recognize revenues on a daily basis, and as a result prices used in recognizing revenues may differ. Because we provide liquidity on a global basis, across asset classes and time zones, the timing of any particular daily Adjusted Net Trading Income calculation can effectively defer or accelerate revenue from one day to another or one reporting period to another, as the case may be. We do not allocate any resulting differences based on the timing of revenue recognition.

 

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          The table below sets forth our unaudited consolidated results of operations in thousands of dollars for the three and nine months ended September 30, 2015 and 2014.

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2015   2014   2015   2014  
 
  (in thousands, except share and per share data)
 

Revenues:

                         

Trading income, net

  $ 206,832   $ 162,260   $ 590,554   $ 480,799  

Interest and dividends income

    6,425     8,518     21,022     21,287  

Technology services

    2,545     2,456     7,733     7,419  

Total revenues

    215,802     173,234     619,309     509,505  

Operating Expenses:

                         

Brokerage, exchange and clearance fees, net

    61,814     55,861     179,453     164,132  

Communication and data processing

    16,110     17,256     51,602     50,568  

Employee compensation and payroll taxes

    24,736     24,768     66,801     63,636  

Interest and dividends expense

    12,827     11,728     39,234     34,438  

Operations and administrative

    4,857     4,392     17,288     16,517  

Depreciation and amortization

    8,176     8,552     26,025     22,514  

Amortization of purchased intangibles and

                         

acquired capitalized software

    53     53     159     159  

Acquisition related retention bonus

        152         2,639  

Termination of office leases

            2,729     849  

Initial public offering fees and expenses

        60         8,961  

Charges related to share based compensation at IPO

    1,107         45,301      

Financing interest expense on senior secured credit facility

    7,205     7,815     22,066     23,114  

Total operating expenses

    136,885     130,637     450,658     387,527  

Income before income taxes and non-controlling interest

    78,917     42,597     168,651     121,978  

Provision for income taxes

    9,378     1,179     14,103     829  

Net income

  $ 69,538   $ 41,418   $ 154,548   $ 121,149  

Non-controlling interest

    (57,233 )         (141,768 )      

Net income available for common stockholders

  $ 12,306         $ 12,780        

Earnings per share:

                         

Basic

  $ 0.36         $ 0.37        

Diluted

  $ 0.35         $ 0.37        

Weighted average common shares outstanding

                         

Basic

    34,305,052           34,305,052        

Diluted

    34,738,733           34,641,497        

Comprehensive income:

                         

Net income

  $ 69,539   $ 41,418   $ 154,548   $ 121,149  

Other comprehensive income (loss)

                         

Foreign exchange translation adjustment, net of taxes

    3,596     (3,520 )   595     (3,683 )

Comprehensive income

  $ 73,135   $ 37,898   $ 155,143   $ 117,466  

Less: Comprehensive income attributable to noncontrolling interests

    (59,931 )         (141,053 )      

Comprehensive income available for common stockholders

  $ 13,204         $ 14,090        

 

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          The table below sets forth our unaudited consolidated statements of financial condition in thousands of dollars as of September 30, 2015:

 
  September 30, 2015  
 
  (in thousands)
 

Assets

       

Cash and cash equivalents

  $ 161,538  

Securities borrowed

    510,600  

Receivables from broker-dealers and clearing organizations

    560,716  

Trading assets, at fair value

    1,454,558  

Property, equipment and capitalized software, net

    42,442  

Goodwill

    715,379  

Intangibles (net of accumulated amortization)

    1,255  

Deferred taxes

    160,782  

Other assets

    34,676  

Total assets

  $ 3,641,946  

Liabilities and equity

       

Liabilities

       

Short-term borrowings

  $ 28,000  

Securities loaned

    741,728  

Securities sold under agreements to repurchase

    9,000  

Payables to broker-dealers and clearing organizations

    328,054  

Trading liabilities, at fair value

    1,198,881  

Tax receivable agreement obligations

    184,679  

Accounts payable and accrued expenses and other liabilities

    128,278  

Senior secured credit facility, net

    494,498  

Total liabilities

  $ 3,113,118  

Total equity

    528,828  

Total liabilities and equity

  $ 3,641,946  

 

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          The following tables reconcile trading income, net to Adjusted Net Trading Income, Net income to Adjusted to Net income, net income to EBITDA and Adjusted EBITDA for the three and nine months ended September 30, 2015 and 2014:

 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2015   2014   2015   2014  
 
  (in thousands, except percentages)
 

Reconciliation of Trading income, net to Adjusted Net Trading Income

                         

Trading income, net

  $ 206,832   $ 162,260   $ 590,554   $ 480,799  

Interest and dividends income

    6,425     8,518     21,022     21,287  

Brokerage, exchange and clearance fees, net

    (61,814 )   (55,861 )   (179,453 )   (164,132 )

Interest and dividends expense

    (12,827 )   (11,728 )   (39,234 )   (34,438 )

Adjusted Net Trading Income

  $ 138,616   $ 103,189   $ 392,889   $ 303,516  

Reconciliation of Net Income to Adjusted Net Income

                         

Net income

  $ 69,539   $ 41,418   $ 154,548   $ 121,149  

Amortization of purchased intangibles and acquired capitalized software

    53     53     159     159  

Severance

    342     2,742     645     3,136  

Initial public offering fees and expenses

        60         8,961  

Termination of office leases

            2,729     849  

Equipment write-off

    251         1,719      

Acquisition related retention bonus

        152         2,639  

Share based compensation

    3,254     4,170     11,907     11,299  

Charges related to share based compensation at IPO, 2015 Management Incentive Plan

    1,655         2,913      

Charges related to share based compensation at IPO

    1,107         45,301      

Adjusted Net Income

  $ 76,201   $ 48,595   $ 219,921   $ 148,192  

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

                         

Net income

  $ 69,539   $ 41,418   $ 154,548   $ 121,149  

Financing interest expense on senior secured credit facility

    7,205     7,815     22,066     23,114  

Depreciation and amortization

    8,176     8,552     26,025     22,514  

Amortization of purchased intangibles and acquired capitalized software

    53     53     159     159  

Provision for income taxes

    9,378     1,179     14,103     829  

EBITDA

  $ 94,351   $ 59,017   $ 216,901   $ 167,765  

Severance

    342     2,742     645     3,136  

Initial public offering fees and expenses

        60         8,961  

Termination of office leases

            2,729     849  

 

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  Three Months Ended
September 30,
  Nine Months Ended
September 30,
 
 
  2015   2014   2015   2014  
 
  (in thousands, except percentages)
 

Acquisition related retention bonus

        152         2,639  

Share based compensation

    3,254     4,170     11,907     11,299  

Charges related to share based compensation at IPO, 2015 Management Incentive Plan

    1,655         2,913      

Charges related to share based compensation at IPO

    1,107         45,301      

Adjusted EBITDA

  $ 100,709   $ 66,141   $ 280,396   $ 194,649  

Selected Operating Margins

                         

Operating Margin(1)

    55 %   47 %   56 %   49 %

Adjusted EBITDA Margin(2)

    73 %   64 %   71 %   64 %

(1)
Calculated by dividing Adjusted Net Income by Adjusted Net Trading Income.

(2)
Calculated by dividing Adjusted EBITDA by Adjusted Net Trading Income.

          The financial information set out above is subject to revision as we prepare our consolidated financial statements and other disclosures as of and for the three months and nine months ended September 30, 2015, including all disclosures required by GAAP. Because we have not completed our normal quarterly closing and review procedures for the three months and nine months ended September 30, 2015, and subsequent events may occur that require material adjustments to these results, the final results and other disclosures for the three months and nine months ended September 30, 2015 may differ from the above information. In addition, the financial and other data set forth above has been prepared by, and is the responsibility of, our management. The information and estimates have not been compiled or examined by our independent registered public accounting firm nor has our independent registered public accounting firm performed any procedures with respect to this information or expressed any opinion or any form of assurance on such information. These estimates should not be viewed as a substitute for full financial statements prepared in accordance with GAAP or as a measure of performance. In addition, these results of operations for the three months and nine months ended September 30, 2015 are not necessarily indicative of the results to be achieved for any future period. See "Forward-Looking Statements." These results of operations should be read together with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes included elsewhere in this prospectus.

Risks Associated with Our Business

          While we have set forth our competitive strengths and our key growth strategies above, we face numerous risks and uncertainties in operating our business, which may negatively impact our competitive strengths, prevent us from implementing our key growth strategies or have a material adverse effect on our business, financial condition or results of operations. Below is a summary of certain risk factors associated with our business that you should consider in evaluating an investment in shares of our Class A common stock.

    Because our revenues and profitability depend on trading volume and volatility in the markets in which we operate, they are subject to factors beyond our control, are prone to significant fluctuations and are difficult to predict. Decreases in market volumes and lower levels of volatility generally result in lower revenues from our market making activities, which could inhibit our plans to capitalize on growth in electronic trading, to provide liquidity across a wider range of new securities and other financial instruments and to grow geographically.

 

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    We are dependent upon our trading counterparties and clearing houses to perform their obligations to us. If our trading counterparties do not meet their obligations to us, or if any central clearing parties fail to properly manage defaults by market participants, we could suffer a material adverse effect on our business, financial condition, results of operations and cash flows.

    We may incur material trading losses from our market making activities despite our real-time risk management system.

    We face competition in our market making activities and we may be unable to sustain what we believe are our existing business advantages or compete with new market participants with greater financial and other resources than us.

    Regulatory and legal uncertainties could harm our business. These uncertainties could increase our costs and inhibit our plan to provide liquidity in new securities and other financial instruments as new regulations cause migration of certain products to electronic markets. The risk of unfavorable regulatory or legal changes may be enhanced by recent scrutiny of electronic trading and market structure from regulators, lawmakers and the financial news media.

    We are subject to risks relating to litigation and potential securities law liability, which could increase our costs and negate any competitive advantage we have based on our low-cost structure.

    We depend on our customized technology, and our future results may be negatively impacted if we cannot remain technologically competitive.

    Our reliance on our computer systems and software could expose us to great financial harm if any of our computer systems or software were subject to any material disruption or corruption and could compromise any competitive advantage we have based on our proprietary technology.

    We may experience risks associated with future growth or expansion of our operations or acquisitions or dispositions of businesses, and we may never realize the anticipated benefits of such activities. Although growing geographically and pursuing strategic partnerships and acquisitions are two of our key growth strategies, these activities may not be successful and could have a material adverse effect on our business, financial condition, results of operations and cash flows.

    We are dependent on the continued service of certain key executives, the loss or diminished performance of whom could negatively impact one of our competitive advantages and could have a material adverse effect on our business.

    Our success depends, in part, on our ability to identify, recruit and retain skilled management and technical personnel. If we fail to recruit and retain suitable candidates or if our relationship with our employees changes or deteriorates, it could have a material adverse effect on our business.

          The above list is not exhaustive. See "Risk Factors" on page 28 for a more thorough discussion of these and other risks and uncertainties we face.

Corporate History and Organizational Structure

          We and our predecessors have been in the electronic trading and market making business for approximately 12 years. We conduct our business through Virtu Financial and its subsidiaries. On July 8, 2011, we completed our acquisition of Madison Tyler Holdings, LLC ("Madison Tyler Holdings"), which was co-founded in 2002 by Mr. Vincent Viola, our Founder and Executive Chairman. In connection with the acquisition, Virtu Financial paid approximately $536.5 million in

 

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cash and issued interests in Virtu Financial to the members of Madison Tyler Holdings and Virtu Financial Operating LLC ("Virtu East"). We refer to the acquisition of Madison Tyler Holdings and the related transactions as the "Madison Tyler Transactions." To finance the Madison Tyler Transactions, (i) an affiliate of Silver Lake Partners invested approximately $250.0 million in Virtu Financial, (ii) an affiliate of Mr. Viola invested approximately $19.6 million in Virtu Financial and (iii) Virtu Financial borrowed approximately $304.4 million, net of fees and expenses, under a term loan facility, which we refer to (as amended to date) as our "senior secured credit facility." The business that comprises Virtu Financial today is the result of the Madison Tyler Transactions, which combined Virtu East, our historical business, with Madison Tyler Holdings.

          On December 31, 2014, through a series of transactions, Temasek Holdings (Private) Limited, whom we refer to as "Temasek," acting through two indirect wholly owned subsidiaries, acquired (i) direct interests in Virtu Financial from affiliates of Silver Lake Partners, Virtu Financial and a member of management (other than Messrs. Viola and Cifu and their affiliates) and (ii) indirect interests in Virtu Financial by acquiring an interest in an affiliate of Silver Lake Partners. For more information, see "Organizational Structure — The Temasek Transaction."

The Reorganization Transactions

          Prior to the consummation of the reorganization transactions described below and our initial public offering, all of Virtu Financial's outstanding equity interests, including its Class A-1 interests, Class A-2 capital interests, Class A-2 profits interests and Class B interests, were owned by the following persons, whom we refer to collectively as the "Virtu Pre-IPO Members":

    three affiliates of Mr. Viola, whom we refer to collectively as the "Founder Pre-IPO Members";

    an affiliate of Silver Lake Partners, whom we refer to as the "Silver Lake Pre-IPO Member";

    an affiliate of Temasek, whom we refer to as the "Temasek Pre-IPO Member";

    an affiliate of Silver Lake Partners and Temasek, whom we refer to as the "SLT Pre-IPO Member" and whom we refer to collectively with the Silver Lake Pre-IPO Member and the Temasek Pre-IPO Member as the "Investor Pre-IPO Members";

    two entities, both of which were managed by Mr. Viola, whose equityholders included certain members of the management of Virtu Financial, whom we refer to together as the "Management Vehicles." Certain of the equity interests held by the Management Vehicles were subject to vesting restrictions; and

    certain current and former members of the management of Virtu Financial and Madison Tyler Holdings and their affiliates, whom we refer to collectively as the "Management Members." Certain of the equity interests held by the Management Members were subject to vesting restrictions.

          Prior to the completion of our initial public offering, we completed an internal reorganization, which we refer to as the "reorganization transactions." In connection with the reorganization transactions, the following steps occurred:

    we became the sole managing member of Virtu Financial;

    in a series of transactions, one of the Management Vehicles liquidated, with its equity interests in Virtu Financial either being distributed to its members, including certain members of management, or contributed to the other Management Vehicle (which we refer to as "Virtu Employee Holdco") and certain employees of ours based outside the United States were distributed equity interests in Virtu Financial held by Virtu Employee Holdco on behalf of such employees and such equity interests were contributed to a trust (which we refer to as the "Employee Trust"), whose trustee is one of our subsidiaries;

 

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    two of the Founder Pre-IPO Members liquidated and distributed their equity interests in Virtu Financial to their equityholders, one of whom was TJMT Holdings LLC, the third Founder Pre-IPO Member;

    the SLT Pre-IPO Member distributed its equity interests in Virtu Financial to its equityholders, which consisted of investment funds and other entities affiliated with Silver Lake Partners and Temasek;

    following a series of transactions, we acquired equity interests in Virtu Financial as a result of certain mergers involving wholly owned subsidiaries of ours, an affiliate of Silver Lake Partners and Temasek, and the Temasek Pre-IPO Member (the "Mergers"), and in exchange we issued to an affiliate of Silver Lake Partners, whom we refer to as the "Silver Lake Post-IPO Stockholder," and an affiliate of Temasek, whom we refer to as the "Temasek Post-IPO Stockholder" and whom we refer to together with the Silver Lake Post-IPO Stockholder as the "Investor Post-IPO Stockholders," shares of our Class A common stock and rights to receive payments under a tax receivable agreement described below. The number of shares of Class A common stock issued to the Investor Post-IPO Stockholders was based on the value of the Virtu Financial equity interests that we acquired, which was determined based on a hypothetical liquidation of Virtu Financial and the initial public offering price per share of our Class A common stock in our initial public offering;

    all of the existing equity interests in Virtu Financial were reclassified into Virtu Financial's non-voting common interest units, which we refer to as "Virtu Financial Units." The number of Virtu Financial Units issued to each member of Virtu Financial was determined based on a hypothetical liquidation of Virtu Financial and the initial public offering price per share of our Class A common stock in our initial public offering. The Virtu Financial Units received by Virtu Employee Holdco, the Employee Trust and the Management Members have the same vesting restrictions as the equity interests that were reclassified. Vested Virtu Financial Units are entitled to receive distributions, if any, from Virtu Financial. Subject to certain exceptions, unvested Virtu Financial Units are not entitled to receive such distributions (other than tax distributions). If any unvested Virtu Financial Units are forfeited, they are cancelled by Virtu Financial for no consideration (and we cancel the related shares of Class C common stock (described below) for no consideration);

    we amended and restated our certificate of incorporation and are authorized to issue four classes of common stock: Class A common stock, Class B common stock, Class C common stock and Class D common stock, which we refer to collectively as our "common stock." The Class A common stock and Class C common stock each provide holders with one vote on all matters submitted to a vote of stockholders, and the Class B common stock and Class D common stock each provide holders with 10 votes on all matters submitted to a vote of stockholders. The holders of Class C common stock and Class D common stock do not have any of the economic rights (including rights to dividends and distributions upon liquidation) provided to holders of Class A common stock and Class B common stock. These attributes are summarized in the following table:

Class of Common Stock
  Votes   Economic Rights

Class A common stock

    1   Yes

Class B common stock

    10   Yes

Class C common stock

    1   No

Class D common stock

    10   No

      Shares of our common stock generally vote together as a single class on all matters submitted to a vote of our stockholders;

 

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    the remaining members of Virtu Financial after giving effect to the reorganization transactions, other than us, whom we refer to collectively as the "Virtu Post-IPO Members," subscribed for and purchased shares of our common stock as follows, in each case at a purchase price of $0.00001 per share and in an amount equal to the number of Virtu Financial Units held by each such Virtu Post-IPO Member:

    TJMT Holdings LLC, whom we refer to as the "Founder Post-IPO Member," purchased 79,610,490 shares of our Class D common stock; and

    affiliates of Silver Lake Partners, whom we refer to as the "Silver Lake Post-IPO Members," Virtu Employee Holdco, the Employee Trust, the Management Members and the other Virtu Post-IPO Members purchased 36,746,041 shares of our Class C common stock; and

    the Founder Post-IPO Member was granted the right to exchange its Virtu Financial Units, together with a corresponding number of shares of our Class D common stock, for shares of our Class B common stock, and the other Virtu Post-IPO Members were granted the right to exchange their Virtu Financial Units, together with a corresponding number of shares of our Class C common stock, for shares of our Class A common stock. Each share of our Class B common stock and Class D common stock is convertible at any time, at the option of the holder, into one share of Class A common stock or Class C common stock, respectively.

          See "Organizational Structure" for further details.

Initial Public Offering

          On April 21, 2015, we completed our initial public offering of 19,012,112 shares of our Class A common stock and received $335.9 million in aggregate net proceeds. As a result of the completion of the reorganization transactions and our initial public offering, we held a 24.8% equity interest in Virtu Financial.

          We used the net proceeds from our initial public offering as follows:

    we contributed $58.8 million of the net proceeds from our initial public offering to Virtu Financial in exchange for a number of Virtu Financial Units equal to the contribution amount divided by the price paid by the underwriters for shares of our Class A common stock in our initial public offering (3,327,164 Virtu Financial Units), and such contribution amount will be used by Virtu Financial for working capital and general corporate purposes, which may include financing growth; and

    we used the remaining approximately $277.2 million of the net proceeds from our initial public offering to repurchase 3,470,724 shares of Class A common stock from the Silver Lake Post-IPO Stockholder and 12,214,224 Virtu Financial Units and corresponding shares of Class C common stock from certain of the Virtu Post-IPO Members, including 4,862,609 Virtu Financial Units and corresponding shares of Class C common stock from the Silver Lake Post-IPO Members and 7,351,615 Virtu Financial Units from certain employees at a net price equal to the price paid by the underwriters for shares of our Class A common stock in our initial public offering. None of the Founder Pre-IPO Members, the Founder Post-IPO Member, Mr. Viola, Mr. Cifu or any of their family members sold any equity interests in the Company in connection with the reorganization transactions or our initial public offering. No additional shares of Class A common stock or Virtu Financial Units and corresponding shares of Class C common stock were purchased from our 5% equityholders, directors or executive officers.

          See "Certain Relationships and Related Party Transactions — Purchases from Equityholders" for further details.

 

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          The following diagram depicts our organizational structure following the reorganization transactions, our initial public offering and the application of the net proceeds therefrom, including all of the transactions described above. This chart is provided for illustrative purposes only and does not purport to represent all legal entities within our organizational structure and does not reflect the impact of this offering:

GRAPHIC


*
Includes 3,853,555 unvested Virtu Financial Units and corresponding shares of Class C common stock.

**
Represents economic interest in Virtu Financial, Inc. and not Virtu Financial LLC.

          In connection with the reorganization transactions, we were appointed as the sole managing member of Virtu Financial pursuant to Virtu Financial's limited liability company agreement. Because we manage and operate the business and control the strategic decisions and day-to-day operations of Virtu Financial and also have a substantial financial interest in Virtu Financial, we consolidate the financial results of Virtu Financial, and a portion of our net income (loss) is allocated to the non-controlling interest to reflect the entitlement of the Virtu Post-IPO Members to a portion of Virtu Financial's net income (loss). In addition, because Virtu Financial is under the common control of Mr. Viola and his affiliates, we accounted for the reorganization transactions as a reorganization of entities under common control and initially measured the interests of the Virtu Pre-IPO Members in the assets and liabilities of Virtu Financial at their carrying amounts as of the date of the completion of the reorganization transactions.

 

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          Following the reorganization transactions and our initial public offering and the application of the net proceeds therefrom, we held approximately 24.8% of the outstanding Virtu Financial Units, the Virtu Post-IPO Members held approximately 75.2% of the outstanding Virtu Financial Units and approximately 95.9% of the combined voting power of our outstanding common stock, the Investor Post-IPO Stockholders held approximately 1.9% of the combined voting power of our common stock and the investors in our initial public offering held approximately 2.2% of the combined voting power of our common stock. See "Organizational Structure," "Certain Relationships and Related Party Transactions" and "Description of Capital Stock" for more information on the rights associated with our capital stock and the Virtu Financial Units.

          In connection with the reorganization transactions, we acquired existing equity interests in Virtu Financial from an affiliate of Silver Lake Partners and Temasek, and the Temasek Pre-IPO Member in the Mergers described under "Organizational Structure — The Reorganization Transactions." In addition, as described above, we used a portion of the net proceeds from our initial public offering to purchase Virtu Financial Units and corresponding shares of Class C common stock from certain Virtu Post-IPO Members, including the Silver Lake Post-IPO Members and certain employees. These acquisitions of interests in Virtu Financial resulted in tax basis adjustments to the assets of Virtu Financial that were allocated to us and our subsidiaries. Future acquisitions of interests in Virtu Financial, including through the use of the net proceeds received by us in this offering, are expected to produce favorable tax attributes. In addition, future exchanges by the Virtu Post-IPO Members of Virtu Financial Units and corresponding shares of Class C common stock or Class D common stock, as the case may be, for shares of our Class A common stock or Class B common stock, respectively, including the exchange by one of the selling stockholders to be completed in connection with this offering, are expected to produce favorable tax attributes. These tax attributes would not be available to us in the absence of those transactions. In connection with the reorganization transactions, we entered into tax receivable agreements that obligate us to make payments to the Virtu Post-IPO Members and the Investor Post-IPO Stockholders generally equal to 85% of the applicable cash savings that we actually realize as a result of these tax attributes and tax attributes resulting from payments made under the tax receivable agreement. We will retain the benefit of the remaining 15% of these tax savings. See "Organizational Structure — Holding Company Structure and Tax Receivable Agreements" and "Certain Relationships and Related Party Transactions — Tax Receivable Agreements."

This Offering

          We are offering 397,534 shares of Class A common stock in this offering, and we intend to use our net proceeds from this offering to repurchase Virtu Financial Units and corresponding shares of Class C common stock from one of our employees at a net price equal to the price paid by the underwriters for shares of our Class A common stock in this offering. The selling stockholders are selling 6,075,837 shares of Class A common stock, 3,100,579 shares of which represent shares of Class A common stock to be issued by us to one of the selling stockholders in exchange for an equal number of Virtu Financial Units and corresponding shares of our Class C common stock. As described above, the acquisition by us of Virtu Financial Units with the net proceeds received by us in the offering and the exchange by one of our selling stockholders of Virtu Financial Units and corresponding shares of our Class C common stock are expected to produce favorable tax attributes.

          Following the completion of this offering, the application of the net proceeds received by us and the exchange of the Virtu Financial Units and corresponding shares of our Class C common stock by one of the selling stockholders for shares of Class A common stock in connection with this offering, we will hold approximately 27.3% of the outstanding Virtu Financial Units, the Virtu Post-IPO Members will hold approximately 72.7% of the outstanding Virtu Financial Units and

 

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approximately 95.6% of the combined voting power of our outstanding common stock, the Investor Post-IPO Stockholders will hold approximately 1.4% of the combined voting power of our common stock and our public stockholders will hold approximately 3.0% of the combined voting power of our common stock.

Our Principal Equityholders

          The Founder Post-IPO Member controls approximately 93.1% of the combined voting power of our outstanding common stock. As a result, the Founder Post-IPO Member controls any action requiring the general approval of our stockholders, including the election of our board of directors, the adoption of amendments to our certificate of incorporation and by-laws and the approval of any merger or sale of substantially all of our assets. Because the Founder Post-IPO Member holds more than 50% of the combined voting power of our outstanding common stock, we are a "controlled company" under the corporate governance rules for NASDAQ-listed companies. Therefore we are permitted, and we have elected, not to comply with certain NASDAQ corporate governance requirements. See "Management — Controlled Company."

          The Founder Post-IPO Member is controlled by family members of Mr. Viola, our Founder and Executive Chairman. Mr. Viola has successfully led our Company since our inception and is one of the nation's foremost leaders in electronic trading. He was the founder of Virtu East in 2008, a founder of Madison Tyler Holdings in 2002 and the former Chairman of the New York Mercantile Exchange ("NYMEX"). None of the Founder Pre-IPO Members, the Founder Post-IPO Member, Mr. Viola or any of his family members sold any equity interests in the Company in connection with the reorganization transactions or our initial public offering.

          Silver Lake is a global investment firm focused on the technology, technology-enabled and related growth industries with offices in Menlo Park, New York, London, Hong Kong and Tokyo. Silver Lake was founded in 1999 and has over $26 billion in combined assets under management and committed capital across its large-cap private equity, middle-market private equity, growth equity and credit investment strategies. We refer to affiliates of Silver Lake Partners that own equity interests in us from time to time as the "Silver Lake Equityholders." Following this offering, the Silver Lake Equityholders will no longer hold any equity interest in us.

          Incorporated in 1974, Temasek is an investment company based in Singapore, with a S$266 billion (US$177 billion) portfolio as of March 31, 2015. Temasek's portfolio encompasses companies across a broad spectrum of sectors, financial services; transportation, logistics and industrials; telecommunications, media and technology; life sciences, consumer and real estate; and energy and resources. In addition to Singapore, Temasek has offices in 10 other cities around the world, including Beijing, Shanghai, Mumbai, São Paulo, Mexico City, London and New York. We refer to Temasek entities that own equity interests in our Company prior to our initial public offering, namely Wilbur Investments LLC and Havelock Fund Investments Pte Ltd., as the "Temasek Equityholders."

Corporate Information

          We were formed as a Delaware corporation on October 16, 2013. Our corporate headquarters are located at 900 Third Avenue, New York, New York 10022, and our telephone number is (212) 418-0100. Our website address is www.virtu.com. Information contained on our website does not constitute a part of this prospectus.

 

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The Offering

Class A common stock outstanding as of November 11, 2015   34,305,052 shares of Class A common stock.

Class A common stock offered by us

 

397,534 shares of Class A common stock.

Class A common stock offered by the selling stockholders

 

6,075,837 shares of Class A common stock (3,100,579 shares of which represent shares of Class A common stock to be issued by us to one of the selling stockholders in exchange for an equal number of Virtu Financial Units and corresponding shares of our Class C common stock prior to the consummation of this offering).

Class A common stock outstanding as of November 11, 2015 after giving effect to this offering

 

37,803,165 shares. If, immediately after this offering, all of the Virtu Post-IPO Members elected to exchange their Virtu Financial Units and corresponding shares of Class C common stock or Class D common stock for shares of our Class A common stock or Class B common stock and all of the shares of Class B common stock were converted into shares of Class A common stock, 138,447,359 shares of our Class A common stock would have been outstanding as of November 11, 2015 (18% of which would have been owned by non-affiliates of the Company).

Class B common stock outstanding as of November 11, 2015

 

None.

Class C common stock outstanding as of November 11, 2015 after giving effect to this offering

 

21,033,704 shares. Shares of our Class C common stock have voting but no economic rights (including rights to dividends and distributions upon liquidation) and were issued in the reorganization transactions in an amount equal to the number of Virtu Financial Units held by the Virtu Post-IPO Members other than the Founder Post-IPO Member. When a Virtu Financial Unit, together with a share of our Class C common stock, is exchanged for a share of our Class A common stock, the corresponding share of our Class C common stock will be cancelled.

 

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Class D common stock outstanding as of November 11, 2015   79,610,490 shares. Shares of our Class D common stock have voting but no economic rights (including rights to dividends and distributions upon liquidation) and were issued in an amount equal to the number of Virtu Financial Units held by the Founder Post-IPO Member. When a Virtu Financial Unit, together with a share of our Class D common stock, is exchanged for a share of our Class B common stock, the corresponding share of our Class D common stock will be cancelled.

Voting rights

 

Each share of our Class A common stock entitles its holder to one vote per share, representing an aggregate of 4.0% of the combined voting power of our issued and outstanding common stock as of November 11, 2015 (or 4.4% after giving effect to this offering).

 

 

Each share of our Class B common stock entitles its holder to 10 votes per share. Because no shares of Class B common stock will be issued and outstanding upon the completion of this offering and the application of the net proceeds from this offering, our Class B common stock will initially represent none of the combined voting power of our issued and outstanding common stock.

 

 

Each share of our Class C common stock entitles its holder to one vote per share, representing an aggregate of 2.9% of the combined voting power of our issued and outstanding common stock as of November 11, 2015 (or 2.5% after giving effect to this offering).

 

 

Each share of our Class D common stock entitles its holder to 10 votes per share, representing an aggregate of 93.1% of the combined voting power of our issued and outstanding common stock as of November 11, 2015.

 

 

All classes of our common stock generally vote together as a single class on all matters submitted to a vote of our stockholders. Our Class D common stock is held exclusively by the Founder Post-IPO Member and our Class C common stock is held by the Virtu Post-IPO Members other than the Founder Post-IPO Member. See "Description of Capital Stock."

Exchange/conversion

 

Virtu Financial Units held by the Founder Post-IPO Member, together with a corresponding number of shares of our Class D common stock, may be exchanged for shares of our Class B common stock on a one-for-one basis.

 

 

Virtu Financial Units held by the Virtu Post-IPO Members other than the Founder Post-IPO Member, together with a corresponding number of shares of our Class C common stock, may be exchanged for shares of our Class A common stock on a one-for-one basis.

 

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    Each share of our Class B common stock and Class D common stock is convertible at any time, at the option of the holder, into one share of Class A common stock or Class C common stock, respectively.

 

 

Each share of our Class B common stock will automatically convert into one share of Class A common stock and each share of our Class D common stock will automatically convert into one share of our Class C common stock (a) immediately prior to any sale or other transfer of such share by a Founder Post-IPO Member or any of its affiliates or permitted transferees, subject to certain limited exceptions, such as transfers to permitted transferees, or (b) if the Founder Post-IPO Member or any of its affiliates or permitted transferees own less than 25% of our issued and outstanding common stock. See "Description of Capital Stock."

Use of proceeds

 

We estimate our net proceeds from this offering will be approximately $9.0 million, after deducting underwriting discounts and commissions of approximately $0.2 million, based on an offering price of $23.10 per share (the closing price for our shares of Class A common stock on NASDAQ on November 11, 2015). We intend to use our net proceeds from this offering to repurchase Virtu Financial Units and corresponding shares of Class C common stock from one of our employees at a net price equal to the price paid by the underwriters for shares of our Class A common stock in this offering. The selling stockholders will receive all of the net proceeds from the sale of shares of Class A common stock to be sold by them in this offering.

 

 

We estimate that the offering expenses (other than the underwriting discounts) will be approximately $1.0 million. All of such offering expenses (other than the underwriting discounts payable by the selling stockholders) will be paid for or otherwise borne by Virtu Financial.

 

 

See "Use of Proceeds."

 

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Dividend policy   Our board of directors declared a dividend of $0.24 per share of Class A common stock and Class B common stock that is payable on December 15, 2015 to holders of record as of December 1, 2015. A dividend of $0.24 per share of Class A common stock and Class B common stock was paid on September 15, 2015 to holders of record as of the close of business of September 1, 2015. Our current intent is to continue to pay a quarterly dividend of $0.24 per share of Class A common stock and Class B common stock. Subject to the sole discretion of our board of directors and the considerations discussed below, we intend to continue to pay dividends that will annually equal, in the aggregate, between 70% and 100% of our net income. The payment of dividends will be subject to general economic and business conditions, including our financial condition and results of operations, capital requirements, contractual restrictions, including restrictions contained in the credit agreement governing our senior secured credit facility, which we refer to as our "credit agreement," business prospects and other factors that our board of directors considers relevant.

 

 

Because we are a holding company and our principal asset is our direct and indirect equity interests in Virtu Financial, we fund dividends by causing Virtu Financial to make distributions to its equityholders, including the Founder Post-IPO Member, Virtu Employee Holdco, the Employee Trust, the Management Members and us.

 

 

Virtu Financial authorized distributions to certain Virtu Pre-IPO Members as of a record date prior to the commencement of the reorganization transactions, pro rata, in accordance with their respective interests in classes of equity entitled to participate in operating cash flow (as defined under "Market Prices and Dividend Policy") distributions, an amount based on operating cash flow of Virtu Financial and its subsidiaries for the fiscal period beginning on January 1, 2015 and ending on the date of the consummation of the reorganization transactions, less any reserves established during this period and less any operating cash flow for this period previously distributed to such Virtu Pre-IPO Members. Such amount was determined to be approximately $50.0 million. As of November 11, 2015, $10.0 million of such amount has been distributed to the Virtu Pre-IPO Members. We expect the remaining $40.0 million of distributions to be funded from cash on hand. We refer to these distributions as the "2015 Distributions" (as further described under "Market Prices and Dividend Policy").

 

 

See "Market Prices and Dividend Policy."

NASDAQ symbol

 

"VIRT."

 

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Risk factors   You should read the "Risk Factors" section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our Class A common stock.

          Unless we indicate otherwise throughout this prospectus, the number of shares of our Class A common stock and Class B common stock outstanding after this offering excludes:

    9,224,627 shares of Class A common stock issuable pursuant to stock options and restricted stock units granted under the Virtu Financial, Inc. 2015 Management Incentive Plan (the "2015 Management Incentive Plan").

    2,775,373 additional shares of Class A common stock, that remain available for issuance under the 2015 Management Incentive Plan.

    21,033,704 shares of Class A common stock reserved for issuance upon the exchange of Virtu Financial Units (together with the corresponding shares of our Class C common stock), and 79,610,490 shares of Class B common stock reserved for issuance upon the exchange of Virtu Financial Units (together with the corresponding shares of our Class D common stock); and

    79,610,490 shares of our Class A common stock reserved for issuance upon the conversion of our Class B common stock into Class A common stock.

 

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Summary Historical and Pro Forma Consolidated Financial and Other Data

          The following tables set forth summary historical consolidated financial and other data of Virtu Financial for the periods presented. We were formed as a Delaware corporation on October 16, 2013 and, prior to the consummation of the reorganization transactions and our initial public offering, did not conduct any activities other than those incident to our formation and our initial public offering.

          The consolidated statements of comprehensive income data for the six months ended June 30, 2015 and 2014 and statements of financial condition data as of June 30, 2015 have been derived from our financial statements included elsewhere in this prospectus. Our financial statements reflect, for periods prior to April 16, 2015 (the period prior to completion of the reorganization transactions), the operations of Virtu Financial and its consolidated subsidiaries. On or after April 16, 2015, our financial statements reflect the operations of our Company and its consolidated subsidiaries (including Virtu Financial). The consolidated statements of comprehensive income data for the years ended December 31, 2014, 2013 and 2012 and statements of financial condition data as of December 31, 2014 and 2013 have been derived from Virtu Financial's audited financial statements included elsewhere in this prospectus.

          The unaudited pro forma condensed consolidated statement of income for the six months ended June 30, 2015 and the year ended December 31, 2014 gives effect to (i) the reorganization transactions described under "Organizational Structure", (ii) our initial public offering and the use of net proceeds of our initial public offering, (iii) the creation of certain tax assets in connection with our initial public offering and the reorganization transactions and the creation or acquisition of related liabilities in connection with entering into the tax receivable agreements with the Virtu Post-IPO Members and the Investor Post-IPO Stockholders, (iv) this offering and the exchange by one of the selling stockholders of 3,100,579 Virtu Financial Units and corresponding shares of our Class C common stock for an equal number of shares of our Class A common stock, (v) the use of net proceeds received by us from this offering and (vi) the creation of certain tax assets in connection with this offering and the creation or acquisition of related liabilities in connection with the tax receivable agreements with certain Virtu Post-IPO Members and Investor Post-IPO Stockholders, as if each had occurred on January 1, 2014.

          The unaudited pro forma condensed consolidated statement of financial condition as of June 30, 2015 gives effect to (i) this offering and the exchange by one of our selling stockholders of 3,100,579 Virtu Financial Units and corresponding shares of our Class C common stock for an equal number of shares of our Class A common stock, (ii) the use of net proceeds received by us from this offering, (iii) creation of certain tax assets in connection with this offering and the creation or acquisition of related liabilities in connection with the tax receivable agreements with certain Virtu Post-IPO Members and Investor Post-IPO Stockholders and (iv) the distribution of $40.0 million to the Virtu Pre-IPO Members, which will be funded from cash on hand (as further described under "Market Prices and Dividend Policy"), as if each had occurred on June 30, 2015.

          The summary historical and pro forma consolidated financial and other data presented below do not purport to be indicative of the results that can be expected for any future period and should be read together with "Capitalization," "Unaudited Pro Forma Financial Information," "Selected Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our and Virtu Financial's audited consolidated financial statements, our

 

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unaudited consolidated financial statements and related notes thereto included elsewhere in this prospectus.

 
 
Pro Forma
Six Months
Ended
June 30,
2015
  Six Months Ended June 30,  
(in thousands)
 
2015
 
2014
 

Consolidated Statements of Comprehensive Income Data:

                   

Revenues

                   

Trading income, net

  $ 383,722   $ 383,722   $ 318,539  

Interest and dividends income

    14,597     14,597     12,769  

Technology services

    5,188     5,188     4,963  

Total revenue

    403,507     403,507     336,271  

Operating Expenses

   
 
   
 
   
 
 

Brokerage, exchange and clearance fees, net

    117,639     117,639     108,271  

Communication and data processing

    35,492     35,492     33,312  

Employee compensation and payroll taxes(1)

    44,334     42,065     38,868  

Interest and dividends expense

    26,407     26,407     22,710  

Operations and administrative

    12,431     12,431     12,125  

Depreciation and amortization

    17,849     17,849     13,962  

Amortization of purchased intangibles and acquired capitalized software

    106     106     106  

Acquisition related retention bonus

            2,487  

Termination of office leases(2)

    2,729     2,729     849  

Initial public offering fees and expenses(3)

            8,901  

Charges related to share based compensation at IPO(4)

    6,134     44,194      

Financing interest expense on senior secured credit facility

    13,900     14,861     15,299  

Total operating expenses

    277,021     313,773     256,890  

Income before income taxes and noncontrolling interest

    126,486     89,734     79,381  

Provision for (benefit from) income taxes

    15,692     4,725     (350 )

Net income

    110,794     85,009   $ 79,731  

Noncontrolling interest

    (88,515 )   (84,535 )    

Net income available for common stockholders

  $ 22,279   $ 474      

Basic and diluted earnings per share of Class A common stockholders:

                   

Basic

  $ 0.59   $ 0.01      

Diluted

  $ 0.59   $ 0.01      

Weighted average common shares outstanding

                   

Basic

    37,803,165     34,305,052      

Diluted

    37,803,165     34,529,349      

 

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  Years Ended
Dec. 31,
 
 
  Pro Forma
Year Ended
Dec. 31,
2014
 
(In thousands)
  2014   2013   2012  

Consolidated Statements of Comprehensive Income Data:

                         

Revenues

                         

Trading income, net

  $ 685,150   $ 685,150   $ 623,733   $ 581,476  

Interest and dividends income

    27,923     27,923     31,090     34,152  

Technology services

    9,980     9,980     9,682      

Total revenues

    723,053     723,053     664,505     615,628  

Operating Expenses

   
 
   
 
   
 
   
 
 

Brokerage, exchange and clearance fees, net

    230,965     230,965     195,146     200,587  

Communication and data processing

    68,847     68,847     64,689     55,384  

Employee compensation and payroll taxes(1)

    91,588     84,531     78,353     63,836  

Interest and dividends expense

    47,083     47,083     45,196     48,735  

Operations and administrative

    21,923     21,923     27,215     27,826  

Depreciation and amortization

    30,441     30,441     23,922     17,975  

Amortization of purchased intangibles and acquired capitalized software

    211     211     1,011     71,654  

Acquisition cost

                69  

Acquisition related retention bonus

    2,639     2,639     6,705     6,151  

Impairment of intangible assets

                1,489  

Lease abandonment

                6,134  

Debt issue cost related to debt refinancing(5)

            10,022      

Initial public offering fees and expenses(3)

    8,961     8,961          

Transaction advisory fees and expenses(6)

    3,000     3,000          

Charges related to share based compensation at IPO(4)

    12,268              

Financing interest expense on senior secured credit facility

    28,322     30,894     24,646     26,460  

Total operating expenses

    546,248     529,495     476,905     526,300  

Income before income taxes

    176,805     193,558     187,600     89,328  

Provision for income taxes

    19,680     3,501     5,397     1,768  

Net income

  $ 157,125   $ 190,057   $ 182,203   $ 87,560  

Net income attributable to non-controlling interest

    (125,983 )            

Net income attributable to Virtu Financial, Inc. 

    31,142              

Basic and diluted earnings per share to Class A common stockholders:

                         

Basic

  $ 0.82              

Diluted

  $ 0.82              

Weighted average number of shares used in computing earnings per share:

                         

Basic

    37,803,165              

Diluted

    37,803,165              

 

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Pro Forma
As of
June 30, 2015
 
As of
June 30,
2015
  As of Dec. 31,  
(In thousands)
 
2014
 
2013
 

Consolidated Statements of Financial Condition Data:

                         

Cash and cash equivalents

  $ 81,978   $ 126,978   $ 75,864   $ 66,010  

Total assets

    4,528,584     4,536,720     3,324,561     3,963,570  

Senior secured credit facility

    495,312     495,312     500,827     507,725  

Total liabilities

    4,068,207     4,032,056     2,817,863     3,510,282  

Class A-1 redeemable interest(7)

            294,433     250,000  

Total equity

    460,377     504,664     212,265     203,288  

 

 
   
  Six Months Ended June 30,  
 
 
Pro Forma
Six Months
Ended
June 30, 2015
 
(In thousands)
 
2015
 
2014
 

Unaudited Financial Data:

                   

Adjusted Net Income(8)

    132,247     143,721     99,598  

EBITDA(8)

    158,341     122,550     108,748  

Adjusted EBITDA(8)

    179,688     179,688     128,509  

Adjusted Net Trading Income(9)

    254,273     254,273     200,327  

Operating margin(10)

    52.6     56.5     49.7  

Adjusted EBITDA margin(10)

    70.7     69.3     62.6  

 
   
  Years Ended
Dec. 31,
 
 
  Pro Forma
Year Ended
Dec. 31,
2014
 
(In thousands)
  2014   2013   2012  

Unaudited Financial Data:

                         

Adjusted Net Income(8)

  $ 212,929   $ 226,536   $ 215,372   $ 188,305  

EBITDA(8)

    235,779     255,104     247,201     205,417  

Adjusted EBITDA(8)

    291,372     291,372     269,337     234,508  

Adjusted Net Trading Income(9)

    435,025     435,025     414,481     366,306  

Operating margin(10)

    49 %   52 %   52 %   51 %

Adjusted EBITDA margin(10)

    67 %   67 %   65 %   64 %

(1)
Includes, on a pro forma basis, approximately $2.3 million for the six months ended June 30, 2015 and $7.1 million for the year ended December 31, 2014 of compensation expenses in respect of the time-based vesting of stock options with respect to an aggregate of 9,228,000 shares of Class A common stock issued in connection with our initial public offering under the 2015 Management Incentive Plan.

(2)
Represents an accelerated expense of approximately $2.7 million from future lease payments of one of our office locations during the six months ended June 30, 2015. During the six months ended June 30, 2014, we recorded a deferred lease write-off of $0.4 million and one-time payment of $0.4 million for the termination of the lease of our London office.

(3)
Initial public offering fees and expenses reflect costs directly attributable to the Company's initial public offering process, which was postponed in April 2014. The Company accounted for such costs in accordance with ASC 340-10, Other Assets and Deferred Costs. ASC 340 states that costs directly attributable to a successfully completed offering of equity securities may be deferred and charged against the gross proceeds of the offering as a reduction of additional paid-in capital, but for an offering postponed for a period greater than 90 days, the offering costs must be charged as an expense in the period the offering process was postponed.

(4)
Represents primarily non-recurring, non-cash compensation expenses in respect of the outstanding time vested Class B interests of Virtu Financial and Class B interests of Virtu East MIP LLC ("East MIP Class B interests) recognized at the consummation of our initial public offering for the six months ended June 30, 2015. On a pro forma basis, represents recurring non-cash compensation expenses for the six months ended June 30, 2015 and the year ended December 31, 2014.

(5)
In connection with the Madison Tyler Transactions, Virtu Financial entered into a $320.0 million senior secured credit facility, which was subsequently refinanced. A portion of certain financing costs incurred in connection with the original credit facility that were scheduled to be amortized over the five-year term of the loan, including original issue discount and underwriting and legal fees, were accelerated and recognized at the closing of the refinancing.

(6)
Transaction advisory fees reflect professional fees incurred by the Company in connection with the Temasek Transaction (as defined below), which was consummated on December 31, 2014.

 

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(7)
The Class A-1 interests of Virtu Financial were convertible by the holders at any time into an equivalent number of Class A-2 capital interests of Virtu Financial and, in a sale or other specified capital transaction, holders were entitled to receive distributions up to specified preference amounts before holders of Class A-2 capital interests were entitled to receive distributions. In connection with the reorganization transactions, all of the existing equity interests in Virtu Financial were reclassified into Virtu Financial Units. See "Organizational Structure — The Reorganization Transactions."

(8)
"Adjusted Net Income" measures our operating performance by adjusting net income to exclude amortization of purchased intangibles and acquired capitalized software, debt issue cost related to debt refinancing, impairment of intangible assets, lease abandonment, acquisition cost, terminated transaction fees and expenses, initial public offering fees and expenses, transaction advisory fees and expenses, expenses associated with termination of office leases, severance, equipment write-off, acquisition related retention bonus, stock-based compensation and stock-based compensation expense vested upon our initial public offering. "EBITDA" measures our operating performance by adjusting net income to exclude financing interest expense on senior secured credit facility, debt issue cost related to debt refinancing, depreciation and amortization, amortization of purchased intangibles and acquired capitalized software, equipment write-off and income tax expense, and "Adjusted EBITDA" measures our operating performance by further adjusting EBITDA to exclude impairment of intangible assets, lease abandonment, terminated transaction fees and expenses, initial public offering fees and expenses, transaction advisory fees and expenses, expenses associated with termination of office leases, severance, equipment write-off, acquisition related retention bonus, stock-based compensation and stock-based compensation expense vested upon our initial public offering. Adjusted Net Income, EBITDA and Adjusted EBITDA are non-GAAP financial measures used by management in evaluating operating performance and in making strategic decisions. In addition, Adjusted Net Income, EBITDA and Adjusted EBITDA or similar non-GAAP measures are used by research analysts, investment bankers and lenders to assess our operating performance. Management believes that the presentation of Adjusted Net Income, EBITDA and Adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted Net Income, EBITDA and Adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in certain costs or other items. Accordingly, management believes that these measurements are useful for comparing general operating performance from period to period. Furthermore, our credit agreement contains covenants and other tests based on metrics similar to Adjusted EBITDA. Other companies may define Adjusted Net Income or Adjusted EBITDA differently, and as a result our measures of Adjusted Net Income and Adjusted EBITDA may not be directly comparable to those of other companies. Although we use Adjusted Net Income, EBITDA and Adjusted EBITDA as financial measures to assess the performance of our business, such use is limited because they do not include certain material costs necessary to operate our business. Adjusted Net Income, EBITDA and Adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with U.S. GAAP as a measure of performance. Our presentation of Adjusted Net Income, EBITDA and Adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or nonrecurring items. Adjusted Net Income and our EBITDA-based measures have limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

they do not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;

our EBITDA-based measures do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payment on our debt;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and our EBITDA-based measures do not reflect any cash requirement for such replacements or improvements;

they are not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations; and

they do not reflect limitations on our costs related to transferring earnings from our subsidiaries to us.


Because of these limitations, Adjusted Net Income, EBITDA and Adjusted EBITDA are not intended as alternatives to net income as indicators of our operating performance and should not be considered as measures of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted Net Income, EBITDA and Adjusted EBITDA along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. These U.S. GAAP measurements include operating income (loss), net income (loss), cash flows from operations and cash flow data. Our U.S. GAAP-based measures can be found in our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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          The following tables reconcile net income to Adjusted Net Income for the periods indicated:

 
   
  Six Months Ended June 30,  
 
 
Pro Forma
Six Months
Ended
June 30, 2015
 
(In thousands)
 
2015
 
2014
 

Net Income

  $ 110,794   $ 85,009   $ 79,731  

Amortization of purchased intangibles and acquired capitalized software

    106     106     106  

Severance

    303     303     395  

IPO fees and expenses

            8,901  

Termination of office leases(a)

    2,729     2,729     849  

Equipment write-off(b)

    1,468     1,468      

Acquisition related retention bonus

            2,487  

Share based compensation

    8,653     8,653     7,129  

Charges related to share based compensation at IPO, 2015 Management Incentive Plan(c)

    3,528     1,259      

Charges related to share based compensation awards at IPO(d)

    6,134     44,194      

Adjusted Net Income

  $ 133,715   $ 143,721   $ 99,598  
    (a)
    Represents an accelerated expense of approximately $2.7 million from future lease payments of one of our office locations during the six months ended June 30, 2015. During the six months ended June 30, 2014, we recorded a deferred lease write-off of $0.4 million and one-time payment of $0.4 million for the termination of the lease of our London office.

    (b)
    Represents accelerated depreciation from equipment that was deemed to be obsolete during the six months ended June 30, 2015.

    (c)
    Represents expenses in respect of stock options granted in connection with our initial public offering under the 2015 Management Incentive Plan vesting over a four year period.

    (d)
    Represents non-cash compensation expenses in respect of the outstanding time vested Class B interests of Virtu Financial and East MIP Class B interests recognized at the consummation of our initial public offering and through the period ended June 30, 2015, net of $9.5 million and $8.0 million in capitalization and amortization, respectively, of the costs attributable to employees incurred in development of software for internal use, during the six months ended June 30, 2015.

 

 
   
  Years Ended
Dec. 31,
 
 
  Pro Forma
Year Ended
Dec. 31,
2014
 
(In thousands)
  2014   2013   2012  

Net income

  $ 157,125   $ 190,057   $ 182,203   $ 87,560  

Amortization of purchased intangibles and acquired capitalized software

    211     211     1,011     71,654  

Debt issue cost related to debt refinancing

            10,022      

Impairment of intangible assets

                1,489  

Lease abandonment

                6,134  

Acquisition cost

                69  

Terminated transaction fees and expenses(a)

                4,727  

Initial public offering fees and expenses

    8,961     8,961          

Transaction advisory fees and expenses

    3,000     3,000          

Expenses associated with termination of London leases(b)

    849     849          

Severance(c)

    4,786     4,786     1,990     2,123  

Acquisition related retention bonus

    2,639     2,639     6,705     6,151  

Stock-based compensation

    16,033     16,033     13,441     8,398  

Charges related to share based compensation at IPO, 2015 Management Incentive Plan

    7,057              

Charges related to share based compensation at IPO

    12,268              

Adjusted Net Income

  $ 212,929   $ 226,536   $ 215,372   $ 188,305  
    (a)
    Represents expense of $4.7 million incurred in connection with our attempt to purchase a publicly traded market making and financial services firm during the year ended December 31, 2012 and the professional and other fees incurred in connection therewith.

    (b)
    Represents deferred lease write-off of $0.4 million and one-time payment of $0.4 million for the termination of the lease of our London office.

    (c)
    Represents expense of $4.8 million, $2.0 million and $2.1 million incurred for the years ended December 31, 2014, 2013 and 2012, respectively, primarily relating to the employee costs associated with consolidation of operations following the Madison Tyler Transactions.

 

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          The following tables reconcile net income to EBITDA and Adjusted EBITDA for the periods indicated:

 
   
  Six Months Ended June 30,  
 
 
Pro Forma
Six Months
Ended
June 30, 2015
 
(In thousands)
 
2015
 
2014
 

Net Income

  $ 110,794   $ 85,009   $ 79,731  

Financing interest expense on senior secured credit facility

    13,900     14,861     15,299  

Depreciation and amortization

    16,381     16,381     13,962  

Amortization of purchased intangibles and acquired capitalized software

    106     106     106  

Equipment write-off(a)

    1,468     1,468      

Provision for Income Taxes

    15,692     4,725     (350 )

EBITDA

  $ 158,341   $ 122,550   $ 108,748  

Severance

    303     303     395  

IPO fees and expenses

            8,901  

Termination of office leases

    2,729     2,729     849  

Acquisition related retention bonus(b)

            2,487  

Share based compensation

    8,653     8,653     7,129  

Charges related to share based compensation at IPO, 2015 Management Incentive Plan(c)

    3,528     1,259      

Charges related to share based compensation awards at IPO(d)

    6,134     44,194      

Adjusted EBITDA

  $ 179,688   $ 179,688   $ 128,509  
    (a)
    Represents accelerated depreciation from equipment that was deemed to be obsolete during the six months ended June 30, 2015.

    (b)
    Represents the termination of installment payments under the retention plan. The final installment payment was made on July 2014.

    (c)
    Represents expenses in respect of stock options granted in connection with our initial public offering under the 2015 Management Incentive Plan vesting over a four year period.

    (d)
    Represents non-cash compensation expenses in respect of the outstanding time vested Class B interests of Virtu Financial and East MIP Class B interests recognized at the consummation of our initial public offering and through the period ended June 30, 2015, net of $9.5 million and $8.0 million in capitalization and amortization, respectively, of the costs attributable to employees incurred in development of software for internal use, during the six months ended June 30, 2015.

 

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  Years Ended
Dec. 31,
 
 
  Pro Forma
Year Ended
Dec. 31,
2014
 
(In thousands)
  2014   2013   2012  

Net income

  $ 157,125   $ 190,057   $ 182,203   $ 87,560  

Financing interest expense on senior secured credit facility

    28,322     30,894     24,646     26,460  

Debt issue cost related to debt refinancing

            10,022      

Depreciation and amortization

    30,441     30,441     23,922     17,975  

Amortization of purchased intangibles and acquired capitalized software

    211     211     1,011     71,654  

Income tax expense

    19,680     3,501     5,397     1,768  

EBITDA

  $ 235,779   $ 255,104   $ 247,201   $ 205,417  

Impairment of intangible assets

                1,489  

Lease abandonment

                6,134  

Acquisition cost

                69  

Terminated transaction fees and expenses(a)

                4,727  

Initial public offering fees and expenses

    8,961     8,961          

Transaction advisory fees and expenses

    3,000     3,000          

Expenses associated with termination of London leases(b)

    849     849          

Severance(c)

    4,786     4,786     1,990     2,123  

Acquisition related retention bonus

    2,639     2,639     6,705     6,151  

Stock-based compensation

    16,033     16,033     13,441     8,398  

Charges related to share based compensation at IPO, 2015 Management Incentive Plan

    7,057              

Charges related to share based compensation at IPO

    12,268              

Adjusted EBITDA

  $ 291,372   $ 291,372   $ 269,337   $ 234,508  
    (a)
    Represents expense of $4.7 million incurred in connection with our attempt to purchase a publicly traded market making and financial services firm during the year ended December 31, 2012 and the professional and other fees incurred in connection therewith.

    (b)
    Represents deferred lease write-off of $0.4 million and one-time payment of $0.4 million for the termination of the lease of our London office.

    (c)
    Represents expense of $4.8 million, $2.0 million and $2.1 million incurred for the years ended December 31, 2014, 2013 and 2012, respectively, primarily relating to the employee costs associated with consolidation of operations following the Madison Tyler Transactions.
(9)
"Adjusted Net Trading Income" is the amount of revenue we generate from our market making activities, or trading income, net, plus interest and dividends income and expense, net, less direct costs associated with those revenues, including brokerage, exchange and clearance fees, net. Rather than analyzing these components of our operating results individually, we generally view them on an aggregate basis in the context of Adjusted Net Trading Income. Adjusted Net Trading Income is a non-GAAP financial measure. Our total Adjusted Net Trading Income is the primary metric used by management in evaluating performance, making strategic decisions and allocating resources, and the primary factor influencing Adjusted Net Trading Income is volume levels. Management believes that the presentation of Adjusted Net Trading Income provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted Net Trading Income provides an indicator of the performance of our market making activities that is not affected by revenues or expenses that are not directly associated with such activities. Accordingly, management believes that this measurement is useful for comparing general operating performance from period to period. Although we use Adjusted Net Trading Income as a financial measure to assess the performance of our business, the use of Adjusted Net Trading Income is limited because it does not include certain material costs that are necessary to operate our business. Adjusted Net Trading Income should be considered in addition to, and not as a substitute for, trading income, net, in accordance with U.S. GAAP as a measure of performance. Our presentation of Adjusted Net Trading Income should not be construed as an indication that our future results will be unaffected by revenues or expenses that are not directly associated with our market making activities. Adjusted Net Trading Income is limited as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under U.S. GAAP. Our U.S. GAAP-based measures can be found in our consolidated financial statements and related notes included elsewhere in this prospectus.

 

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          The following tables reconcile trading income, net, to Adjusted Net Trading Income for the periods indicated:

 
   
  Six Months Ended June 30,  
 
 
Pro Forma
Six Months
Ended
June 30, 2015
 
(In thousands)
 
2015
 
2014
 

Trading income, net

  $ 383,722   $ 383,722   $ 318,539  

Interest and dividends income

    14,597     14,597     12,769  

Brokerage, exchange and clearance fees, net

    (117,639 )   (117,639 )   (108,271 )

Interest and dividends expense

    (26,407 )   (26,407 )   (22,710 )

Adjusted Net Trading Income

  $ 254,273   $ 254,273   $ 200,327  

 
  Pro Forma
Year Ended
Dec. 31,
2014
  Years Ended Dec. 31,  
(In thousands)
  2014   2013   2012  

Trading income, net

  $ 685,150   $ 685,150   $ 623,733   $ 581,476  

Interest and dividends income and expense, net

    (19,160 )   (19,160 )   (14,106 )   (14,583 )

Brokerage, exchange and clearance fees, net

    (230,965 )   (230,965 )   (195,146 )   (200,587 )

Adjusted Net Trading Income

  $ 435,025   $ 435,025   $ 414,481   $ 366,306  

          The following table shows our Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income by category for the six months ended June 30, 2015 and 2014.

 
  Six Months Ended June 30,  
 
  2015   2014  
(In thousands, except percentages)
 
Total
 
Average Daily
 
%
 
Total
 
Average Daily
 
%
 

Adjusted Net Trading Income:

                                     

Asset Class

                                     

Americas Equities (1)

  $ 56,463   $ 455     22 % $ 52,140   $ 420     26 %

EMEA Equities

    30,926     249     12 %   25,959     209     13 %

APAC Equities

    20,731     167     8 %   13,418     108     7 %

Global Commodities

    62,241     502     25 %   49,391     398     25 %

Global Currencies

    66,858     539     26 %   45,346     366     23 %

Options, Fixed income and Other Securities

    13,923     112     6 %   17,768     143     9 %

Unallocated (2)

    3,131     25     1 %   (3,695 )   (30 )   –3 %

Total Adjusted Net Trading Income

  $ 254,273   $ 2,049     100 % $ 200,327   $ 1,614     100 %

(1)
For the six months ended June 30, 2015, our percentage of Adjusted Net Trading Income from Americas equities consisted of 17% attributable to U.S. equities and 5% attributable to Canadian and Latin American equities, respectively.

(2)
Under our methodology for recording "trading income, net" in our condensed consolidated statements of comprehensive income, we recognize revenues based on the exit price of assets and liabilities in accordance with applicable U.S. GAAP rules, and when we calculate Adjusted Net Trading Income for corresponding reporting periods, we start with trading income, net, so calculated. By contrast, when we calculate Adjusted Net Trading Income by asset class, we do so on a daily basis, and as a result prices used in recognizing revenues may differ. Because we provide liquidity on a global basis, across asset classes and time zones, the timing of any particular Adjusted Net Trading Income calculation can effectively defer or accelerate revenue from one day to another or one reporting period to another, as the case may be. We do not allocate any resulting differences based on the timing of revenue recognition.

 

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          The following table shows our Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income by asset class for the years ended December 31, 2014, 2013 and 2012.

 
  Years Ended Dec. 31,  
 
  2014   2013   2012  
(In thousands, except percentages)
  Total   Average
Daily(a)
  %   Total   Average
Daily(a)
  %   Total   Average
Daily(a)
  %  

Adjusted Net Trading Income:

                                                       

Asset Class

                                                       

Americas Equities(b)

  $ 113,402   $ 450     26 % $ 111,098   $ 441     27 % $ 108,845     435     30 %

EMEA Equities

    51,604     205     12 %   44,435     176     11 %   45,799     183     13 %

APAC Equities

    29,965     119     7 %   45,566     181     11 %   41,924     168     11 %

Global Commodities

    93,083     369     21 %   94,934     377     23 %   96,602     386     26 %

Global Currencies

    109,693     435     25 %   81,014     321     20 %   50,766     203     14 %

Options, Fixed Income and Other Securities

    42,321     168     10 %   38,499     153     9 %   26,628     106     7 %

Unallocated(c)

    (5,043 )   (20 )   (1 )%   (1,065 )   (4 )   (1 )%   (4,258 )   (17 )   (1 )%

Total Adjusted Net Trading Income

  $ 435,025   $ 1,726     100 % $ 414,481   $ 1,645     100 % $ 366,306   $ 1,464     100 %
    (a)
    Average daily Adjusted Net Trading Income figures are based on (i) 252 trading days during the year ended December 31, 2014, (ii) 252 trading days during the year ended December 31, 2013 and (iii) 250 trading days during the year ended December 31, 2012.

    (b)
    In 2014, our Adjusted Net Trading Income, average daily Adjusted Net Trading Income and percentage of Adjusted Net Trading Income for Americas Equities consisted of approximately $86.5 million, $343,000 and 20%, respectively, attributable to U.S. equities, and approximately $26.9 million, $107,000 and 6%, respectively, attributable to Canadian and Latin American equities.

    (c)
    Under our methodology for recording "trading income, net" in our consolidated statements of comprehensive income, we recognize revenues based on the exit price of assets in accordance with applicable U.S. GAAP rules, and when we calculate Adjusted Net Trading Income for corresponding reporting periods, we start with trading income, net, so calculated. By contrast, when we calculate Adjusted Net Trading Income by asset class, we recognize revenues on a daily basis, and as a result prices used in recognizing revenues may differ. Because we provide liquidity on a global basis, across asset classes and time zones, the timing of any particular daily Adjusted Net Trading Income calculation can effectively defer or accelerate revenue from one day to another or one reporting period to another, as the case may be. We do not allocate any resulting differences based on the timing of revenue recognition.
(10)
We calculate "operating margin" by dividing Adjusted Net Income by Adjusted Net Trading Income. We calculate "Adjusted EBITDA margin" by dividing Adjusted EBITDA by Adjusted Net Trading Income. Operating margin and Adjusted EBITDA margin are non-GAAP financial measures used by management in evaluating operating performance and in making strategic decisions. Other companies may define operating margin and Adjusted EBITDA margin differently, and as a result our measures may not be directly comparable to those of other companies. These measures should be considered in addition to, rather than as a substitute for, the comparable U.S. GAAP financial measures as measures of our operating performance.

 

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RISK FACTORS

          Investing in our Class A common stock involves substantial risks. In addition to the other information in this prospectus, you should carefully consider the following factors before investing in our Class A common stock. Any of the risk factors we describe below could have a material adverse effect on our business, financial condition or results of operations. The market price of our Class A common stock could decline if one or more of these risks or uncertainties develop into actual events, causing you to lose all or part of your investment. While we believe these risks and uncertainties are especially important for you to consider, we may face other risks and uncertainties that could have a material adverse effect on our business. Certain statements contained in the risk factors described below are forward-looking statements. See "Forward-Looking Statements" for more information.

Risks Related to Our Business

Because our revenues and profitability depend on trading volume and volatility in the markets in which we operate, they are subject to factors beyond our control, are prone to significant fluctuations and are difficult to predict.

          Our revenues and profitability depend in part on the level of trading activity of securities, derivatives and other financial products on exchanges and in other trading venues in the U.S. and abroad, which are directly affected by factors beyond our control, including economic and political conditions, broad trends in business and finance and changes in the markets in which such transactions occur. Weaknesses in the markets in which we operate, including economic slowdowns in recent years, have historically resulted in reduced trading volumes for us. Declines in trading volumes generally result in lower revenues from market making and transaction execution activities. Lower levels of volatility generally have the same directional impact. Declines in market values of securities or other financial instruments can also result in illiquid markets, which can also result in lower revenues and profitability from market making and transaction execution activities. Lower price levels of securities and other financial instruments, as well as compressed bid/ask spreads, which often follow lower pricing, can further result in reduced revenues and profitability. These factors can also increase the potential for losses on securities or other financial instruments held in inventory and failures of buyers and sellers to fulfill their obligations and settle their trades, as well as claims and litigation. Any of the foregoing factors could have a material adverse effect on our business, financial condition and results of operations. In the past, our revenues and operating results have varied significantly from period to period due primarily to movements and trends in the underlying markets and to fluctuations in trading volumes and volatility levels. As a result, period to period comparisons of our revenues and operating results may not be meaningful, and future revenues and profitability may be subject to significant fluctuations or declines.

We are dependent upon our trading counterparties and clearing houses to perform their obligations to us.

          Our business consists of providing consistent two-sided liquidity to market participants across numerous geographies and asset classes. In the event of a systemic market event, resulting from large price movements or otherwise, certain market participants may not be able to meet their obligations to their trading counterparties, who, in turn, may not be able to meet their obligations to their other trading counterparties, which could lead to major defaults by one or more market participants. Following the implementation of certain mandates under the Dodd-Frank Act in the U.S. and similar legislation worldwide, many trades in the securities and futures markets, and an increasing number of trades in the over-the-counter derivatives markets, are cleared through central counterparties. These central counterparties assume, and specialize in managing, counterparty performance risk relating to such trades. However, even when trades are cleared in this manner, there can be no assurance that a clearing house's risk management methodology will be adequate to manage one or more defaults. Given the concentration of counterparty performance risk that is concentrated in central clearing parties, any failure by a clearing house to properly manage a

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default could lead to a systemic market failure. If our trading counterparties do not meet their obligations to us, or if any central clearing parties fail to properly manage defaults by market participants, we could suffer a material adverse effect on our business, financial condition and results of operations.

We may incur losses in our market making activities in the event of failures of our customized trading platform.

          The success of our market making business is substantially dependent on the accuracy and performance of our customized trading platform, which evaluates and monitors the risks inherent in our market making strategies, assimilates market data and reevaluates our outstanding quotes continuously throughout the trading day. Our strategies are designed to automatically rebalance our positions throughout the trading day to manage risk exposures on our positions. Flaws in our strategies, latencies or inaccuracies in the market data that we use to generate our quotes, or human error in managing risk parameters or other strategy inputs, may lead to unexpected and unprofitable trades, which may result in material trading losses and could have a material adverse effect on our business, financial condition and results of operations.

We may incur material trading losses from our market making activities.

          A significant portion of our revenues and operating profits are derived from our trading as principal in our role as a formal or registered market maker and liquidity provider on various exchanges and markets, including as a designated market maker ("DMM") on the New York Stock Exchange. We may incur trading losses relating to these activities since each primarily involves the purchase, sale or short sale of securities, futures and other financial instruments for our own account. In any period, we may incur significant trading losses for a variety of reasons, including price changes, lack of liquidity in instruments in which we have positions and the required performance of our market making obligations. Furthermore, we may from time to time develop large position concentrations in securities or other financial instruments of a single issuer or issuers engaged in a specific industry, or alternatively a single future or other financial instrument, which would result in the risk of higher trading losses than if our concentration were lower.

          These risks may limit or restrict, for example, our ability to either resell securities we have purchased or to repurchase securities we have sold. In addition, we may experience difficulty borrowing securities to make delivery to purchasers to whom we have sold securities short or lenders from whom we have borrowed securities.

          In our role as a market maker, we attempt to derive a profit from bid/ask spreads. However, competitive forces often require us to match or improve upon the quotes that other market makers display, thereby narrowing bid/ask spreads, and to hold long or short positions in securities, futures or other financial instruments. We cannot assure you that we will be able to manage these risks successfully or that we will not experience significant losses from such activities, which could have a material adverse effect on our business, financial condition and results of operations.

          Our risk management activities utilize a four-pronged approach, consisting of strategy lockdowns, centralized strategy monitoring, aggregate exposure monitoring and operational controls. In particular, messages that leave our trading environment first must pass through a series of preset risk controls or "lockdowns" that are intended to minimize the likelihood of unintended activities. In certain cases this layer of risk management, which adds a layer of latency to our process, may limit our ability to profit from acute volatility in the markets. This would be the case, for example, where a particular strategy being utilized by one of our traders is temporarily locked down for generating revenue in excess of the preset risk limit. Even if we are able to quickly and correctly identify the reasons for a lockdown and quickly resume the trading strategy, we may limit our potential upside as a result of our risk management policies.

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The valuation of the securities we hold at any particular time may result in large and occasionally anomalous swings in the value of our positions and in our earnings in any period.

          The market prices of our long and short positions are reflected on our books at closing prices, which are typically the last trade prices before the official close of the primary exchange on which each such security trades. Given that we manage a globally integrated portfolio, we may have large and substantially offsetting positions in securities that trade on different exchanges that close at different times of the trading day and may be denominated in different currencies. Further, there may be large and occasionally anomalous swings in the value of our positions on any particular day and in our earnings in any period. Such swings may be especially pronounced on the last business day of each calendar quarter, as the discrepancy in official closing prices resulting from the asynchronous closing times may cause us to recognize a gain or loss in one quarter which would be substantially offset by a corresponding loss or gain in the following quarter.

We are exposed to losses due to lack of perfect information.

          As a market maker, we provide liquidity by consistently buying securities from sellers and selling securities to buyers. We may at times trade with others who have information that is more accurate or complete than the information we have, and as a result we may accumulate unfavorable positions preceding large price movements in a given instrument. Should the frequency or magnitude of these events increase, our losses would likely increase correspondingly, which could have a material adverse effect on our business, financial condition and results of operations.

We face competition in our market making activities.

          Revenues from our market making activities depend on our ability to offer to buy and sell financial instruments at prices that are attractive and represent the best bid and/or offer in a given instrument at a given time. To attract order flow, we compete with other firms not only on our ability to provide liquidity at competitive prices, but also on other factors such as order execution speed and technology. Our competitors include other registered market makers, as well as unregulated or lesser-regulated trading firms that also compete to provide liquidity. Our competitors range from sole proprietors with very limited resources to highly sophisticated groups, hedge funds, well-capitalized broker-dealers and proprietary trading firms or other market makers that have substantially greater financial and other resources than we do. These larger and better capitalized competitors may be better able to respond to changes in the market making industry, to compete for skilled professionals, to finance acquisitions, to fund internal growth, to manage costs and expenses and to compete for market share generally. Trading firms that are not registered as broker-dealers or broker-dealers not registered as market makers may in some instances have certain advantages over more regulated firms, including our subsidiaries, that may allow them to bypass regulatory restrictions and trade more cheaply than more regulated participants on some markets or exchanges. In addition, we may in the future face enhanced competition from new market participants that may also have substantially greater financial and other resources than we do, which may result in compressed bid/ask spreads in the marketplace that may negatively impact our financial performance. Moreover, current and potential competitors may establish cooperative relationships among themselves or with third parties or may consolidate to enhance their services and products. The trend toward increased competition in our business is expected to continue, and it is possible that our competitors may acquire increased market share. Increased competition or consolidation in the marketplace could reduce the bid/ask spreads on which our business and profitability depend. As a result, there can be no assurance that we will be able to compete effectively with current or future competitors, which could have a material adverse effect on our business, financial condition and results of operations.

We are subject to liquidity risk in our operations.

          We require liquidity to fund various ongoing obligations, including operating expenses, capital expenditures, debt service and dividend payments. Our main sources of liquidity are cash flow from

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the operations of our subsidiaries, our broker-dealer revolving credit facility (described under "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Credit Facilities"), margin financing provided by our prime brokers and cash on hand. Our liquidity could be materially impaired by a number of factors, including reduced business activity due to a market downturn, adverse regulatory action or a downgrade of our credit rating. If our business activities decrease or we are unable to borrow additional funds in the future on terms that are acceptable to us, or at all, we could suffer a material adverse effect on our business, financial condition and results of operations.

Self-clearing and other elements of our trade processing operations expose us to significant operational, financial and liquidity risks.

          We currently self-clear substantially all of our domestic equity trades and may expand our self-clearing operations internationally and across product offerings and asset classes in the future. Self-clearing exposes our business to operational risks, including business disruption, operational inefficiencies, liquidity, financing risks, counterparty performance risk and potentially increased expenses and lost revenue opportunities. While our clearing platform, operational processes, risk methodologies, enhanced infrastructure and current and future financing arrangements have been carefully designed, we may nevertheless encounter difficulties that may lead to operating inefficiencies, including delays in implementation, disruption in the infrastructure that supports the business, inadequate liquidity and financial loss. Any such delay, disruption or failure could negatively impact our ability to effect transactions and manage our exposure to risk and could have a material adverse effect on our business, financial condition and results of operations.

Rules governing designated market makers may require us to make unprofitable trades or prevent us from making profitable trades from time to time.

          DMMs are granted certain rights and have certain obligations to "make a market" in a particular security. They agree to specific obligations that are designed to maintain a fair and orderly market. In acting as a DMM, we are subject to a high degree of risk by having to support an orderly market. In this role, we may at times be required to make trades that negatively impact our profitability. In addition, we may at times be unable to trade for our own account in circumstances in which it may be to our advantage to trade, and we may be obligated to act as a principal when buying and selling interest is unbalanced. In those instances, we may take a position counter to the market, buying or selling securities to support an orderly market. Additionally, the rules of the markets that govern our activities as a DMM and the interpretations of such rules are subject to change. If these rules or interpretations impose new or more stringent obligations on us, our trading revenues and profits as a DMM could be negatively impacted and we could suffer a material adverse effect on our business, financial condition and results of operations.

Regulatory and legal uncertainties could harm our business.

          Securities and derivatives businesses are heavily regulated. Firms in the financial services industry have been subject to an increasingly regulated environment over recent years, and penalties and fines sought by regulatory authorities have increased considerably. In addition, following recent news media attention to electronic trading and market structure, this regulatory and enforcement environment has created uncertainty with respect to various types of transactions that historically had been entered into by financial services firms and that were generally believed to be permissible and appropriate. "High frequency" and other forms of low latency or electronic trading strategies continue to be the focus of extensive regulatory scrutiny by federal, state and foreign regulators and self-regulatory organizations ("SROs"), and such scrutiny is likely to continue. While we do not engage in the type of principal investing or predictive, momentum or signal trading that are often associated with high frequency trading, our market making and trading activities are characterized by substantial volumes, an emphasis on technology and certain other characteristics that are also commonly associated with high frequency trading. Specifically, both the SEC and the Commodity Futures Trading Commission ("CFTC") have issued general concept releases on

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market structure requesting comment from market participants on topics including, among others, high frequency trading, co-location, dark liquidity, pre- and post-trade risk controls and system safeguards. The SEC has adopted rules that, among other results, have significantly limited the use of sponsored access by market participants to the U.S. equities exchanges, imposed large trader reporting requirements, restricted short sales in listed securities under certain conditions and required the planning and creation of a new comprehensive consolidated audit trail. The SEC has also approved by order a pilot proposal by the Financial Industry Regulatory Authority, Inc. ("FINRA") and the national securities exchanges establishing a "Limit Up-Limit Down" mechanism to address market volatility.

          In addition, certain market participants, SROs, government officials and regulators have requested that the U.S. Congress, the SEC, and the CFTC propose and adopt additional laws and rules, including rules relating to additional registration requirements, restrictions on co-location, order-to-execution ratios, minimum quote life for orders, incremental messaging fees to be imposed by exchanges for "excessive" order placements and/or cancellations, further transaction taxes, tick sizes and other market structure proposals. For example, the SEC recently adopted Regulation SCI, which could impose significant compliance and other costs on market centers that may have to pass such costs on to their users, including us, and could impact our future business plans of establishing a market center to avoid or reduce market center costs for certain of our transactions. Similarly, the consolidated audit trail, which the SEC has required the SROs to propose a plan for and will require them to implement, is expected to entail significant costs both on market centers, which may pass these costs along to their users, and broker-dealers directly. In May 2015, the SEC approved a proposal by the NYSE to adopt a new rule to conduct a daily single-priced auction at a specified time in lower volume securities ("Midday Auction"). Beginning at a specified time, the NYSE would pause trading in the Midday Auction, suspend automatic executions and publish a zero quote on both the public and proprietary data feeds. The new rule could result in reduced opportunities for liquidity providers to provide liquidity in such lower-volume securities outside the Midday Auction while reducing spreads during the Midday Auction. The SEC also required that the SROs propose a pilot program to increase the minimum trading increment, or "tick size," for certain securities. The proposed pilot program approved by the SEC will include a "trade at" component, requiring that certain of these transactions occur only on an exchange. If not accompanied by a reduction in the fees paid to access liquidity on exchanges, the trade at requirement may increase the costs for certain of our transactions. Finally, the SEC has recently proposed amendments to regulations that would require our registered broker-dealer that is not currently a FINRA member to become a member of FINRA, which, if adopted as proposed, would subject the broker-dealer to FINRA's rules and require payment of additional fees per trade that could adversely affect our profits given that we seek to make small profits on individual trades.

          Any or all of these proposals or additional proposals may be adopted by the SEC, CFTC or other U.S. or foreign legislative or regulatory bodies, and recent news media attention to electronic trading and market structure could increase the likelihood of adoption. These potential market structure and regulatory changes could cause a change in the manner in which we make markets, impose additional costs and expenses on our business or otherwise have a material adverse effect on our business, financial condition and results of operations.

          In addition, the financial services industry is heavily regulated in many foreign countries, much like in the U.S. The varying compliance requirements of these different regulatory jurisdictions and other factors may limit our ability to conduct business or expand internationally. For example, the Markets in Financial Instruments Directive ("MiFID"), which was implemented in November 2007, is in the process of being replaced by MiFID II/Markets in Financial Investments Regulation ("MiFIR"), which was adopted by the European Parliament on April 15, 2014 and by the Council on May 13, 2014, and entered into force on July 2, 2014. The MiFID II/MiFIR proposals include many changes likely to affect our business. For example, MiFID II/MiFIR will require certain types of firms, including

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us, to post firm quotes at competitive prices and will supplement current requirements with regard to investment firms' risk controls related to the safe operation of electronic systems. MiFID II/MiFIR will also impose additional requirements on market structure, such as the introduction of a harmonized tick size regime, the introduction of new trading venues known as Organized Trading Facilities, new open access provisions, market making requirements and various other pre- and post-trade risk management requirements. E