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EX-2.3 - EX-2.3 - Virtu Financial, Inc.a15-8228_1ex2d3.htm
EX-1.1 - EX-1.1 - Virtu Financial, Inc.a15-8228_1ex1d1.htm
EX-3.1 - EX-3.1 - Virtu Financial, Inc.a15-8228_1ex3d1.htm
EX-2.2 - EX-2.2 - Virtu Financial, Inc.a15-8228_1ex2d2.htm
EX-3.2 - EX-3.2 - Virtu Financial, Inc.a15-8228_1ex3d2.htm
EX-2.1 - EX-2.1 - Virtu Financial, Inc.a15-8228_1ex2d1.htm
EX-10.9 - EX-10.9 - Virtu Financial, Inc.a15-8228_1ex10d9.htm
EX-10.4 - EX-10.4 - Virtu Financial, Inc.a15-8228_1ex10d4.htm
EX-31.1 - EX-31.1 - Virtu Financial, Inc.a15-8228_1ex31d1.htm
EX-32.1 - EX-32.1 - Virtu Financial, Inc.a15-8228_1ex32d1.htm
EX-10.8 - EX-10.8 - Virtu Financial, Inc.a15-8228_1ex10d8.htm
EX-10.5 - EX-10.5 - Virtu Financial, Inc.a15-8228_1ex10d5.htm
EX-10.1 - EX-10.1 - Virtu Financial, Inc.a15-8228_1ex10d1.htm
EX-10.7 - EX-10.7 - Virtu Financial, Inc.a15-8228_1ex10d7.htm
EX-32.2 - EX-32.2 - Virtu Financial, Inc.a15-8228_1ex32d2.htm
EX-31.2 - EX-31.2 - Virtu Financial, Inc.a15-8228_1ex31d2.htm
EX-10.3 - EX-10.3 - Virtu Financial, Inc.a15-8228_1ex10d3.htm
EX-10.6 - EX-10.6 - Virtu Financial, Inc.a15-8228_1ex10d6.htm
EX-10.2 - EX-10.2 - Virtu Financial, Inc.a15-8228_1ex10d2.htm
EX-10.15 - EX-10.15 - Virtu Financial, Inc.a15-8228_1ex10d15.htm
EX-10.12 - EX-10.12 - Virtu Financial, Inc.a15-8228_1ex10d12.htm
EX-10.11 - EX-10.11 - Virtu Financial, Inc.a15-8228_1ex10d11.htm
EX-10.13 - EX-10.13 - Virtu Financial, Inc.a15-8228_1ex10d13.htm
EX-10.10 - EX-10.10 - Virtu Financial, Inc.a15-8228_1ex10d10.htm
EX-10.14 - EX-10.14 - Virtu Financial, Inc.a15-8228_1ex10d14.htm

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from        to        

 

Commission file number:  001-37352

 

Virtu Financial, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware

 

32-0420206

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer
Identification No.)

 

900 Third Avenue, 29th Floor

New York, New York 10022-0100

 

10022

(Address of principal executive offices)

 

(Zip Code)

 

(212) 418-0100

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o     No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x     No 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 x   Smaller reporting company o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o     No x

 

Class of Stock

 

Shares Outstanding
as of May 29, 2015

 

Class A common stock, par value $0.00001 per share

 

34,305,052

 

Class C common stock, par value $0.00001 per share

 

24,531,817

 

Class D common stock, par value $0.00001 per share

 

79,610,490

 

 

 

 



Table of Contents

 

VIRTU FINANCIAL, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2015

 

 

 

PAGE
NUMBER

 

 

 

PART I -

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Virtu Financial, Inc.

 

 

 

 

 

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Statements of Financial Condition

4

 

 

 

 

Condensed Statements of Comprehensive Income (Loss)

5

 

 

 

 

Condensed Statement of Change in Stockholder’s Equity/(Deficit)

6

 

 

 

 

Condensed Statements of Cash Flows

7

 

 

 

 

Notes to Condensed Financial Statements (Unaudited)

8

 

 

 

 

Virtu Financial LLC and Subsidiaries

 

 

 

 

 

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Financial Condition

9

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

10

 

 

 

 

Condensed Consolidated Statements of Changes in Members’ Equity

11

 

 

 

 

Condensed Consolidated Statements of Cash Flows

12

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

13

 

 

 

Item 1A.

Unaudited Pro Forma Financial Information

39

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income

40

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

42

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58

 

 

 

Item 4.

Controls and Procedures

60

 

 

 

PART II -

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

61

 

 

 

Item 1A.

Risk Factors

61

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

61

 

 

 

Item 3.

Defaults Upon Senior Securities

61

 

 

 

Item 4.

Mine Safety Disclosures

61

 

 

 

Item 5.

Other Information

61

 

 

 

Item 6.

Exhibits

62

 

 

 

 

SIGNATURES

63

 

2



Table of Contents

 

PART I - FINANCIAL INFORMATION

 

Financial Statements Introductory Note

 

The financial statements and other disclosures contained in this report include those of Virtu Financial, Inc. (“we” or the “Registrant”), which is the registrant, and those of Virtu Financial LLC (“Virtu Financial”), which became the principal operating subsidiary of the Registrant in a series of reorganization transactions that were completed subsequent to March 31, 2015 (the “Reorganization Transactions”) in connection with our initial public offering (“IPO”), which was completed on April 21, 2015. Accordingly, because we had no substantial assets or activities (except for activities relating to our IPO) as of March 31, 2015 and because the Reorganization Transactions had not been completed as of such date, we believe that it is informative to provide the financial statements and various other disclosures of Virtu Financial as of March 31, 2015 and for the quarters ended March 31, 2015 and 2014. For more information regarding the transactions described above, see Note 15, “Subsequent Events,” to our financial statements contained in this quarterly report on Form 10-Q.

 

3



Table of Contents

 

Virtu Financial, Inc.

Condensed Statements of Financial Condition

As of March 31, 2015 and December 31, 2014

(Unaudited)

 

 

 

As of

 

 

 

 

 

December 31,

 

 

 

March 31, 2015

 

2014

 

Assets

 

 

 

 

 

Cash

 

$

545

 

$

545

 

Deferred tax benefit

 

4,744

 

4,744

 

Total assets

 

$

5,289

 

$

5,289

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Payable to affiliate

 

$

14,000

 

$

14,000

 

Total liabilities

 

$

14,000

 

$

14,000

 

 

 

 

 

 

 

Stockholder’s equity (deficit)

 

 

 

 

 

Class A common stock, $0.00001 par value - 1,000 shares authorized, 100 shares issued and outstanding

 

$

 

$

 

Accumulated deficit

 

(8,811

)

(8,811

)

Additional paid-in capital

 

100

 

100

 

Total stockholder’s equity/(deficit)

 

$

(8,711

)

$

(8,711

)

 

 

 

 

 

 

Total liabilities and stockholder’s equity/(deficit)

 

$

5,289

 

$

5,289

 

 

See accompanying notes to the unaudited condensed financial statements.

 

4



Table of Contents

 

Virtu Financial, Inc.

Condensed Statements of Comprehensive Income (Loss)

For the Three Months Ended March 31, 2015 and 2014

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

 

 

2015

 

2014

 

Operating Expenses:

 

 

 

 

 

Operations and administrative

 

$

 

$

13,555

 

 

 

 

 

 

 

Income (loss) before income taxes

 

 

(13,555

)

 

 

 

 

 

 

Provision (benefit) for income taxes

 

 

(4,744

)

 

 

 

 

 

 

Net income (loss)

 

$

 

$

(8,811

)

 

See accompanying notes to the unaudited condensed financial statements.

 

5



Table of Contents

 

Virtu Financial, Inc.

Condensed Statement of Changes in Stockholder’s Equity/(Deficit)

For the Three Months Ended March 31, 2015

(Unaudited)

 

 

 

 

 

Additional

 

 

 

Total

 

 

 

Class A

 

paid-in

 

Accumulcated

 

Stockholder’s

 

 

 

Common Stock

 

Capital

 

Deficit

 

Equity

 

Balance at December 31, 2014

 

100

 

100

 

(8,811

)

(8,711

)

Net income (loss)

 

 

 

 

 

Balance at March 31, 2015

 

100

 

$

100

 

$

(8,811

)

$

(8,711

)

 

See accompanying notes to the unaudited condensed financial statements.

 

6



Table of Contents

 

Virtu Financial, Inc.

Condensed Statements of Cash Flows

For the Three Months Ended March 31, 2015 and 2014

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

 

$

(8,811

)

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Deferred tax benefit

 

 

(4,744

)

Changes in operating assets and liabilities:

 

 

 

 

 

Payable to affiliate

 

 

14.000

 

Net cash provided by operating activities

 

 

445

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Capital contribution

 

 

 

 

 

 

 

 

 

Net increase in Cash

 

 

445

 

Cash, beginning of period

 

545

 

100

 

Cash, end of period

 

$

545

 

$

545

 

 

See accompanying notes to the unaudited condensed financial statements.

 

7



Table of Contents

 

Virtu Financial, Inc.

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

 

1.              Organization

 

Virtu Financial, Inc. (the ‘‘Company’’) was formed as a Delaware corporation on October 16, 2013. The Company’s fiscal year end is December 31. The Company was formed for the purpose of completing certain reorganization transactions, in order to carry on the business of Virtu Financial LLC and conducting a public offering. The Company will be the sole managing member of Virtu Financial LLC and will operate and control all of the businesses and affairs of Virtu Financial LLC and, through Virtu Financial LLC and its subsidiaries, continue to conduct the business now conducted by such subsidiaries.

 

2.              Summary of Significant Accounting Policies

 

The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

 

3.              Related-Party Transactions

 

The Company may receive funding from affiliates in the ordinary course of business. As of March 31, 2015, and December 31, 2014, the Company had a payable of $14,000 and $14,000 to its affiliates, respectively.

 

4.              Income Taxes

 

The Company is subject to taxes at the U.S. federal statutory rate of 35%. For the three months ended March 31, 2015 and 2014, the Company recognized income tax benefits of $0 and $4,744, respectively, due to current losses. A deferred tax asset relating to the carryforward losses has been recognized in the amount of $4,744 and $4,744 as of March 31, 2015 and December 31, 2014, respectively. The provisions of ASC 740 require that carrying amounts of deferred tax assets be reduced by a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accordingly, the need to establish valuation allowances for deferred tax assets is assessed periodically with appropriate consideration given to all positive and negative evidence related to the realization of the deferred tax assets. A valuation allowance against deferred tax assets at the balance sheet date is not considered necessary, because it is more likely than not the deferred tax asset will be fully realized.

 

5.              Stockholder’s Equity

 

VFH Parent LLC, a wholly owned subsidiary of Virtu Financial LLC, is the sole stockholder of the Company, and contributed $100 to the Company on October 17, 2013 to purchase 100 shares of Class A common stock. Holders of Class A common stock shall be entitled to one vote for each share of Class A common stock held on all matters submitted to stockholders for vote, consent or approval.

 

6.              Subsequent Events

 

Refer to Footnote 15, “Subsequent Events” in the Virtu Financial LLC financial statements for information regarding the Company’s reorganization transactions (which were completed on April 15, 2015) initial public offering (which was completed on April 21, 2015) as well as the use of proceeds from such offering, the amendment to VFH Parent’s credit facility entered into on April 15, 2015 and the adoption of the 2015 Management Incentive Plan on April 21, 2015.

 

8



Table of Contents

 

Virtu Financial LLC and Subsidiaries

Condensed Consolidated Statements of Financial Condition

as of March 31, 2015 and December 31, 2014

(Unaudited)

 

 

 

Pro Forma

 

As of

 

 

 

As of March 31,

 

March 31,

 

December 31,

 

(in thousands, except interest data)

 

2015

 

2015

 

2014

 

 

 

(Note 1)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

 

$

66,571

 

$

75,864

 

Securities borrowed

 

 

 

691,084

 

484,934

 

Securities purchased under agreements to resell

 

 

 

272

 

31,463

 

Receivables from broker dealers and clearing organizations

 

 

 

461,181

 

387,652

 

Trading assets, at fair value:

 

 

 

 

 

 

 

Financial instruments owned

 

 

 

1,580,274

 

1,307,933

 

Financial instruments owned and pledged

 

 

 

496,833

 

236,375

 

Property, equipment and capitalized software (net of accumulated depreciation of $93,142 and $84,579 as of March 31, 2015 and December 31, 2014, respectively)

 

 

 

41,775

 

44,644

 

Goodwill

 

 

 

715,379

 

715,379

 

Intangibles (net of accumulated amortization)

 

 

 

1,362

 

1,414

 

Other assets ($8,679 and $8,205, at fair value, as of March 31, 2015 and December 31, 2014, respectively)

 

 

 

44,774

 

33,800

 

Total assets

 

$

4,099,505

 

$

4,099,505

 

$

3,319,458

 

 

 

 

 

 

 

 

 

Liabilities, redeemable membership interest and members’ equity

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

Securities loaned

 

 

 

$

956,897

 

$

497,862

 

Securities sold under agreements to repurchase

 

 

 

10,973

 

2,006

 

Payables to broker dealers and clearing organizations

 

 

 

726,085

 

686,203

 

Trading liabilities, at fair value:

 

 

 

 

 

 

 

Financial instruments sold, not yet purchased

 

 

 

1,292,280

 

1,037,634

 

Accounts payable and accrued expenses and other liabilities

 

217,383

 

117,383

 

93,331

 

Senior secured credit facility

 

 

 

496,100

 

495,724

 

Total liabilities

 

$

3,699,718

 

$

3,599,718

 

$

2,812,760

 

 

 

 

 

 

 

 

 

Class A-1 redeemable membership interest

 

294,433

 

294,433

 

294,433

 

 

 

 

 

 

 

 

 

Members’ equity

 

 

 

 

 

 

 

Class A-1 - Authorized and Issued - 1,964,826 and 1,964,826 interests, Outstanding - 1,964,826 and 1,964,826 interests, at March 31, 2015 and December 31, 2014, respectively

 

 

 

19,648

 

19,648

 

Class A-2 - Authorized and Issued - 101,387,750 and 101,381,332 interests, Outstanding - 99,848,589 and 99,855,666 interests at March 31, 2015 and December 31, 2014, respectively

 

 

 

287,983

 

287,705

 

Accumulated deficit

 

(193,939

)

(93,939

)

(91,383

)

Accumulated other comprehensive loss

 

 

 

(8,338

)

(3,705

)

Total members’ equity

 

$

105,354

 

$

205,354

 

$

212,265

 

 

 

 

 

 

 

 

 

Total liabilities, redeemable membership interest and members’ equity

 

$

4,099,505

 

$

4,099,505

 

$

3,319,458

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

9



Table of Contents

 

 Virtu Financial LLC and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

for the Three Months Ended March 31, 2015

(Unaudited)

 

 

 

For the Three Months Ended March 31,

 

(in thousands)

 

2015

 

2014

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

Trading income, net

 

$

213,930

 

$

165,163

 

Interest and dividends income

 

5,182

 

5,555

 

Technology services

 

2,416

 

2,577

 

Total revenue

 

221,528

 

173,295

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Brokerage, exchange and clearance fees, net

 

61,138

 

54,434

 

Communication and data processing

 

17,943

 

15,807

 

Employee compensation and payroll taxes

 

26,900

 

21,613

 

Interest and dividends expense

 

9,566

 

10,463

 

Operations and administrative

 

5,762

 

5,771

 

Depreciation and amortization

 

9,663

 

6,482

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

Acquisition related retention bonus

 

 

1,266

 

Termination of office leases

 

2,729

 

 

Financing interest expense on senior secured credit facility

 

7,602

 

7,551

 

Total operating expenses

 

141,356

 

123,440

 

 

 

 

 

 

 

Income before income taxes

 

80,172

 

49,855

 

 

 

 

 

 

 

Provision for income taxes

 

2,728

 

966

 

 

 

 

 

 

 

Net income

 

$

77,444

 

$

48,889

 

 

 

 

 

 

 

Other Comprehensive Income, net of taxes:

 

 

 

 

 

Foreign exchange translation adjustment

 

(4,633

)

48

 

 

 

 

 

 

 

Comprehensive Income

 

$

72,811

 

$

48,937

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

10



Table of Contents

 

Virtu Financial LLC and Subsidiaries

Condensed Consolidated Statements of Changes in Members’ Equity

for the Three Months Ended March 31, 2015

(Unaudited)

 

 

 

Class A-1

 

Class A-2

 

Accumulated

 

Accumulated
Other
Comprehensive

 

Total
Members’

 

Class A-1
Redeemable

 

(in thousands, except per interest data)

 

Interests

 

Amounts

 

Interests

 

Amounts

 

Deficit

 

Loss

 

Equity

 

Interest

 

Balance at December 31, 2014

 

1,964,826

 

$

19,648

 

99,855,666

 

$

287,705

 

$

(91,383

)

$

(3,705

)

$

212,265

 

$

294,433

 

Share based compensation

 

 

 

6,418

 

375

 

 

 

375

 

 

Repurchase of Class A-2 interests

 

 

 

(13,495

)

(97

)

 

 

(97

)

 

Distribution to members

 

 

 

 

 

(80,000

)

 

(80,000

)

 

Foreign exchange translation adjustment

 

 

 

 

 

 

(4,633

)

(4,633

)

 

Net income

 

 

 

 

 

77,444

 

 

77,444

 

 

Balance at March 31, 2015

 

1,964,826

 

$

19,648

 

99,848,589

 

$

287,983

 

$

(93,939

)

$

(8,338

)

$

205,354

 

$

294,433

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

11



Table of Contents

 

Virtu Financial LLC and Subsidiaries

Condensed Consolidated Statements of Cash Flows

for the Three Months Ended March 31, 2015 and 2014

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31,

 

(in thousands)

 

2015

 

2014

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

Net Income

 

$

77,444

 

$

48,889

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

9,663

 

6,482

 

Amortization of purchased intangibles and acquired capitalized software

 

53

 

53

 

Amortization of debt issuance costs and deferred financing fees

 

376

 

350

 

Termination of office leases

 

2,729

 

 

Share based compensation

 

5,375

 

4,787

 

Deferred income taxes

 

713

 

 

Other

 

(501

)

243

 

Changes in operating assets and liabilities:

 

 

 

 

 

Securities borrowed

 

(206,150

)

285,402

 

Securities purchased under agreements to resell

 

31,191

 

100,236

 

Receivables from broker dealers and clearing organizations

 

(73,529

)

(307,192

)

Trading assets, at fair value

 

(532,799

)

76,381

 

Other assets

 

(11,189

)

(7,908

)

Securities loaned

 

459,035

 

(148,831

)

Securities sold under agreements to repurchase

 

8,967

 

(1,939

)

Payables to broker dealers and clearing organizations

 

39,882

 

(218,969

)

Trading liabilities, at fair value

 

254,646

 

248,168

 

Accounts payable and accrued expenses and other liabilities

 

16,347

 

8,070

 

Net cash provided by operating activities

 

82,253

 

94,222

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Development of capitalized software

 

(2,251

)

(2,579

)

Acquisition of property and equipment

 

(4,065

)

(5,418

)

Net cash used in investing activities

 

(6,316

)

(7,997

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Member distributions

 

(80,000

)

(45,000

)

Repurchase of Class A-2 interests

 

(597

)

(44

)

Repayment of short term borrowings

 

 

(37,800

)

Repayment of senior secured credit facility

 

 

(1,275

)

Net cash used in financing activities

 

(80,597

)

(84,119

)

 

 

 

 

 

 

Effect of exchange rate changes on Cash and cash equivalents

 

(4,633

)

48

 

 

 

 

 

 

 

Net increase (decrease) in Cash and cash equivalents

 

(9,293

)

2,154

 

Cash and cash equivalents, beginning of period

 

75,864

 

66,010

 

Cash and cash equivalents, end of period

 

$

66,571

 

$

68,164

 

 

 

 

 

 

 

Supplementary disclosure of cash flow information

 

 

 

 

 

Cash paid for interest

 

$

14,015

 

$

18,001

 

 

 

 

 

 

 

Non-cash investing activities

 

 

 

 

 

Compensation to developers subject to capitalization of software (of which $478 and $480 were capitalized for the three months ended March 31, 2015 and 2014, respectively)

 

1,278

 

1,278

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

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Table of Contents

 

Virtu Financial LLC and Subsidiaries

 

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and Basis of Presentation

 

Organization

 

Virtu Financial LLC (“Virtu Financial” or, collectively with its wholly owned subsidiaries, the “Company”) was formed as a Delaware limited liability company on April 8, 2011 in connection with a corporate reorganization and acquisition of the outstanding equity interests of Madison Tyler Holdings, LLC (“MTH”), an electronic trading firm and market maker. In connection with the reorganization, the members of Virtu Financial’s predecessor entity, Virtu Financial Operating LLC (“VFO”), a Delaware limited liability company formed on March 19, 2008, exchanged their interests in VFO for interests in Virtu Financial and the members of MTH exchanged their interests in MTH for cash and/or interests in Virtu Financial. Virtu Financial’s principal subsidiaries include Virtu Financial BD LLC (“VFBD”), a self-clearing US broker-dealer, Virtu Financial Capital Markets LLC (“VFCM”), a self-clearing US broker-dealer and designated market maker on the New York Stock Exchange (“NYSE”) and the NYSE MKT (formerly NYSE Amex), Virtu Financial Global Markets LLC (“VFGM”), a US trading entity focused on futures and currencies, Virtu Financial Ireland Limited (“VFIL”), formed in Ireland, Virtu Financial Asia Pty Ltd (“VFAP”), formed in Australia, and Virtu Financial Singapore Pte. Ltd. (“VFSing”), formed in Singapore. VFCM became a designated market maker (“DMM”) in connection with its acquisition of certain assets of Cohen Capital Group LLC (“CCG”) on December 9, 2011.

 

The Company is a technology-enabled market maker and liquidity provider. The Company has developed a single, proprietary, multi-asset, multi-currency technology platform through which it provides quotations to buyers and sellers in equities, commodities, currencies, options, fixed income and other securities on numerous exchanges, markets and liquidity pools in numerous countries around the world.

 

The Company is managed and operated as one business. Accordingly, the Company operates under one reportable segment.

 

Pro Forma Impact of Distributions in Connection with Initial Public Offering

 

The Company made a cash distribution of $50.0 million to its members prior to the consummation of Virtu Financial, Inc.’s initial public offering in April 2015 (funded from cash on hand). Additionally, the Company intends to make a further cash distribution of up to $50.0 million to its members following the consummation of such offering. The Company expects that this further distribution will be funded from cash on hand and excess cash held at clearing deposits from broker dealers and clearing organizations.

 

Basis of Presentation

 

These condensed consolidated financial statements are presented in U.S. dollars and have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding financial reporting with respect to Form 10-Q and accounting standards generally accepted in the United States of America (“U.S. GAAP”) promulgated in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or the “Codification”). These condensed consolidated financial statements are unaudited and include all adjustments of a normal, recurring nature necessary to present fairly the financial condition as of March 31, 2015 and December 31, 2014, the results of operations and comprehensive income and cash flows for the three months ended March 31, 2015 and 2014. The condensed consolidated financial statement information as of December 31, 2014 has been derived from the 2014 audited consolidated financial statements. The results of operations for interim periods are not necessarily indicative of results for the entire year. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Virtu Financial, Inc.’s final prospectus filed with the SEC on April 16, 2015 (the “Prospectus”) for the offering of Class A common stock, par value $0.00001 per share (the “Class A common stock”). See Note 15 to the condensed consolidated financial statements for information regarding the Reorganization Transactions (as defined in Note 15) and Virtu Financial, Inc.’s IPO.

 

Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of Virtu Financial and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

2. Summary of Significant Accounting Policies

 

Use of Estimates

 

The Company’s condensed consolidated financial statements are prepared in conformity with US GAAP, which require management to make estimates and assumptions regarding fair value measurements including trading assets and liabilities, goodwill and intangibles, compensation accruals, capitalized software, and other matters that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Accordingly, actual results could differ materially from those estimates.

 

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Table of Contents

 

2. Summary of Significant Accounting Policies (Continued)

 

Cash and Cash Equivalents

 

The Company considers cash equivalents as highly liquid investments with original maturities of less than three months when acquired. The Company maintains cash in bank deposit accounts that, at times, may exceed federally insured limits.

 

Securities Borrowed and Securities Loaned

 

The Company conducts securities borrowing and lending activities with external counterparties. In connection with these transactions, the Company receives or posts collateral. These transactions are collateralized by cash or securities. In accordance with substantially all of its stock borrow agreements, the Company is permitted to sell or repledge the securities received. Securities borrowed or loaned are recorded based on the amount of cash collateral advanced or received. The initial collateral advanced or received generally approximates or is greater than 102% of the fair value of the underlying securities borrowed or loaned. The Company monitors the fair value of securities borrowed and loaned, and delivers or obtains additional collateral as appropriate. Receivables and payables with the same counterparty are not offset in the condensed consolidated statements of financial condition. For these transactions, the interest received or paid by the Company is recorded gross on an accrual basis under interest and dividends income or interest and dividends expense in the condensed consolidated statements of comprehensive income.

 

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

 

In a repurchase agreement, securities sold under agreements to repurchase are treated as collateralized financing transactions and are recorded at contract value, plus accrued interest, which approximates fair value. It is the Company’s policy that its custodian takes possession of the underlying collateral securities, the fair value of which exceeds the principal amount of the repurchase transaction, including accrued interest. For reverse repurchase agreements, the Company typically requires delivery of collateral with a fair value approximately equal to the carrying value of the relevant assets in the condensed consolidated statements of financial condition. To ensure that the fair value of the underlying collateral remains sufficient, the collateral is valued daily with additional collateral obtained or excess collateral returned, as permitted under contractual provisions.

 

The Company does not net securities purchased under agreements to resell transactions with securities sold under agreements to repurchase transactions entered into with the same counterparty.

 

Receivables from/Payables to Broker-dealers and Clearing Organizations

 

Amounts receivable from broker-dealers and clearing organizations may be restricted to the extent that they serve as deposits for securities sold, not yet purchased. At March 31, 2015 and December 31, 2014, receivables from and payables to broker-dealers and clearing organizations primarily represent amounts due for unsettled trades, open equity in futures transactions, securities failed to deliver or failed to receive, deposits with clearing organizations or exchanges and balances due from or due to prime brokers in relation to the Company’s trading. The Company also offsets the outstanding principal balances on all short term credit facilities against amounts receivable from and payable to broker-dealers and clearing organizations when the criteria for offsetting are met.

 

In the normal course of business, substantially all of the Company’s securities transactions, money balances, and security positions are transacted with several brokers. The Company is subject to credit risk to the extent any broker with whom it conducts business is unable to fulfill contractual obligations on its behalf. The Company’s management monitors the financial condition of such brokers and does not anticipate any losses from these counterparties.

 

Financial Instruments Owned Including Those Pledged as Collateral and Financial Instruments Sold, Not Yet Purchased

 

The Company carries financial instruments owned, including those pledged as collateral, and financial instruments sold, not yet purchased at fair value. Gains and losses arising from financial instrument transactions are recorded net on a trade-date basis in trading income on the condensed consolidated statements of comprehensive income.

 

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Table of Contents

 

2. Summary of Significant Accounting Policies (Continued)

 

Fair Value Measurements

 

At March 31, 2015 and December 31, 2014, substantially all of Company’s financial assets and liabilities, except for long-term borrowings and certain exchange memberships, were carried at fair value based on published market prices and are marked to market daily or were short-term in nature and were carried at amounts that approximate fair value.

 

The Company’s assets and liabilities have been categorized based upon a fair value hierarchy in accordance with ASC 820-10, Fair Value Measurements and Disclosures. ASC 820-10 defines fair value as the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. The recognition of ‘‘block discounts’’ for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available in an active market is prohibited. ASC 820-10 requires a three level hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each financial instrument is based on the assessment of the transparency and reliability of the inputs used in the valuation of such financial instruments at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).

 

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories based on inputs:

 

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2 — Quoted prices in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly;

 

Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

 

Transfers in or out are recognized based on the beginning fair value of the period in which they occurred. There were no transfers of financial instruments between levels during the quarters ended March 31, 2015 and 2014.

 

Derivative Instruments

 

Derivative instruments used for trading purposes, including economic hedges of trading instruments, are carried at fair value. Fair values for exchange-traded derivatives, principally futures, are based on quoted market prices. Fair values for over-the-counter derivative instruments, principally forward contracts, are based on the values of the underlying financial instruments within the contract. The underlying derivative instruments are currencies which are actively traded.

 

Derivative instruments used for economic hedging purposes include futures, forward contracts, and options. Unrealized gains or losses on these derivative instruments are recognized currently in the Condensed Consolidated Statements of comprehensive income as trading income, net. The Company does not apply hedge accounting as defined in ASC 815, Derivatives and Hedging; accordingly all derivative instruments are recorded at fair value with changes in fair values reflected in earnings.

 

Property and Equipment

 

Property and equipment are carried at cost, less accumulated depreciation, except for the assets acquired in connection with the acquisition of MTH which were recorded at fair value on the date of acquisition. Depreciation is provided using the straight-line method over estimated useful lives of the underlying asset. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that appreciably extend the useful life of the assets are capitalized. When property and equipment are sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in income. Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable.

 

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Table of Contents

 

2. Summary of Significant Accounting Policies (Continued)

 

The useful lives of furniture and fixtures are as follows:

 

Furniture, fixtures and equipment

 

3 to 7 years

Leasehold improvements

 

7 years or length of lease term, whichever is shorter

 

Capitalized Software

 

The Company accounts for the costs of computer software developed or obtained for internal use in accordance with ASC 350-40, Internal-Use Software. The Company capitalizes costs of materials, consultants, and payroll and payroll related costs for employees incurred in developing internal-use software. Costs incurred during the preliminary project and post-implementation stages are charged to expense.

 

Management’s judgment is required in determining the point at which various projects enter the stages at which costs may be capitalized, in assessing the ongoing value of the capitalized costs, and in determining the estimated useful lives over which the costs are amortized.

 

The Company’s capitalized software development costs were approximately $2.7 million and $3.1 million for the quarters ended March 31, 2015 and 2014, respectively.  The related amortization expense was approximately $2.5 million and $2.6 million for the quarters ended March 31, 2015 and 2014, respectively. Capitalized software development costs and related accumulated amortization are included in property, equipment and capitalized software on the accompanying condensed consolidated statements of financial condition and are amortized over a period of 1.4 to 2.5 years, which represents the estimated useful lives of the underlying software.

 

Goodwill

 

Goodwill represents the excess of the purchase price over the underlying net tangible and intangible assets of our acquisitions. Goodwill is not amortized but is tested for impairment on an annual basis and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment. We operate in one operating segment, which is our only reporting unit.

 

The goodwill impairment test is a two-step process. The first step is used to identify potential impairment and compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed. The second step is used to measure the amount of impairment loss, if any, and compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. If the carrying amount of reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss must be recognized in an amount equal to that excess.

 

The primary valuation methods we use to estimate the fair value of our reporting unit are the income and market approaches. In applying the income approach, projected available cash flows and the terminal value are discounted to present value to derive an indication of fair value of the business enterprise. The market approach compares the reporting unit to selected reasonably similar publicly-traded companies.

 

The Company tests goodwill for impairment on an annual basis on July 1 and on an interim basis when certain events or circumstances exist. There were no triggering events that would have caused the Company to assess goodwill for impairment during the three months ended March 31, 2015 and 2014.

 

Intangible Assets

 

The Company amortizes finite-lived intangible assets over their estimated useful lives. Finite-lived intangible assets are tested for impairment annually or when impairment indicators are present, and if impaired, written down to fair value.

 

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Table of Contents

 

2. Summary of Significant Accounting Policies (Continued)

 

Exchange Memberships and Stock

 

Exchange memberships are recorded at cost or, if any other than temporary impairment in value has occurred, at a value that reflects management’s estimate of fair value, in accordance with ASC 940-340, Financial Services — Broker and Dealers. Exchange stock includes shares that entitles the Company to certain trading privileges. The shares are marked to market with the corresponding gain or loss recorded in the condensed consolidated statements of comprehensive income. The Company’s exchange memberships and stock are included in other assets on the condensed consolidated statements of financial condition.

 

Trading Income

 

Trading income is comprised of changes in the fair value of trading assets and liabilities (i.e., unrealized gains and losses) and realized gains and losses on trading assets and liabilities. Trading gains and losses on financial instruments owned and financial instruments sold, not yet purchased are recorded on the trade date and reported on a net basis in the condensed consolidated statements of comprehensive income.

 

Interest and Dividends Income/Interest and Dividends Expense

 

Interest income and interest expense are accrued in accordance with contractual rates. Interest income consists of interest earned on collateralized financing arrangements and on cash held by brokers. Interest expense includes interest expense from collateralized transactions, margin and related lines of credit. Dividends on financial instruments owned including those pledged as collateral and financial instruments sold, not yet purchased are recorded on the ex-dividend date and interest is recognized on the accrual basis.

 

Technology Services

 

Technology services revenues consist of fees paid by third parties for licensing of our proprietary risk management and trading infrastructure technology and provision of associated management and hosting services. These fees include both upfront and annual recurring fees. Revenue from technology services is recognized once persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. Revenue is recognized ratably over the contractual service period.

 

Rebates

 

Rebates consist of volume discounts, credits or payments received from exchanges or other market places related to the placement and/or removal of liquidity from the order flow in the marketplace. Rebates are recorded on an accrual basis and included net within brokerage, exchange and clearance fees in the accompanying condensed consolidated statements of comprehensive income.

 

Income Taxes

 

The Company is a limited liability company and is treated as a pass-through entity for United States federal, state, and local income tax purposes. Accordingly, no provision for income taxes is required.

 

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Table of Contents

 

2. Summary of Significant Accounting Policies (Continued)

 

Certain of the Company’s wholly owned subsidiaries are subject to income taxes in foreign jurisdictions. The provision for income tax is comprised of current tax and deferred tax. Current tax represents the tax on current year tax returns, using tax rates enacted at the balance sheet date. A deferred tax asset is recognized only to the extent that it is probable that future taxable income will be available against which the asset can be utilized.

 

The Company recognizes the tax benefit from an uncertain tax position, in accordance with ASC 740, Income Taxes only if it is more likely than not that the tax position will be sustained on examination by the applicable taxing authority, including resolution of the appeals or litigation processes, based on the technical merits of the position. The tax benefits recognized in the condensed consolidated financial statements from such a position are measured based on the largest benefit for each such position that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Many factors are considered when evaluating and estimating the tax positions and tax benefits. Such estimates involve interpretations of regulations, rulings, case law, etc. and are inherently complex. The Company’s estimates may require periodic adjustments and may not accurately anticipate actual outcomes as resolution of income tax treatments in individual jurisdictions typically would not be known for several years after completion of any fiscal year. The Company has determined that there are no uncertain tax positions that would have a material impact on the Company’s financial position as of March 31, 2015 and December 31, 2014 or the results of operations for the three months ended March 31, 2015 and 2014.

 

Comprehensive Income and Foreign Currency Translation

 

The Company’s operating results are reported in the condensed consolidated statements of comprehensive income pursuant to Accounting Standards Update 2011-05, Comprehensive Income.

 

Comprehensive income consists of two components: net income and other comprehensive income (“OCI”). OCI is comprised of revenues, expenses, gains and losses that are reported in the comprehensive income section of the consolidated statements of comprehensive income, but are excluded from reported net income. The Company’s OCI is comprised of foreign currency translation adjustments. Assets and liabilities of operations having non-U.S. dollar functional currencies are translated at period-end exchange rates, and income statement accounts are translated at weighted average exchange rates for the period. Gains and losses resulting from translating foreign currency financial statements, net of related tax effects, are reflected in other comprehensive income, a separate component of members’ equity.

 

Share-Based Compensation

 

The Company accounts for share-based compensation transactions with employees under the provisions of ASC 718, Compensation: Stock Compensation. ASC 718 requires a share-based payment transaction with employees to be measured based on the fair value of equity instruments issued. The fair value of awards issued for compensation is determined by management, with the assistance of an independent third party valuation firm, using a projected annual forfeiture rate, where applicable, on the date of grant. The fair value of share based awards granted to employees is expensed based on the vesting conditions.

 

Recent Accounting Pronouncements

 

Revenue - In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2016 (fiscal year 2018 for the Company) and early adoption is not permitted. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. The Company has not yet determined the potential effects of the adoption of ASU 2014-09 on its condensed consolidated financial statements

 

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Table of Contents

 

2. Summary of Significant Accounting Policies (Continued)

 

Repurchase Agreements - In June, 2014, the FASB released ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures.  The amendment changes the accounting for repurchase financing transactions and for repurchase-to-maturity transactions to secured borrowing accounting.  The accounting changes are effective for the Company beginning in the first quarter of 2015.  The effect of the accounting changes on transactions outstanding as of the effective date are required to be presented as a cumulative effect adjustment to retained earnings as January 1, 2015.  The Company is currently evaluating the impact of the new amendment but believes the effect on the condensed consolidated statements of financial condition and comprehensive income will be immaterial, as the Company currently does not enter into these types of repurchase transactions.  The amendment also requires additional disclosures for repurchase agreements and securities lending transactions regarding the class of collateral pledged and the remaining contractual tenor of the agreements, as well as a discussion of the potential risks associated with the agreements and the related collateral pledged, and how those risks are managed.  Additional disclosures are required for repurchase agreements, securities lending transactions, sales with a total return swap, and other similar transfers of financial assets that are accounted for as a sale.  The additional disclosures are required to be presented beginning in the second quarter of 2015.

 

Compensation — In June 2014, the Emerging Issues Task Force (the ‘‘EITF’’) of the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendment requires that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015 (fiscal year 2016 for the Company). Earlier adoption is permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

 

Going Concern — In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The guidance will explicitly require management to assess an entity’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. The new standard will be effective in the first annual period ending after December 15, 2016 (fiscal year 2017 for the Company). Earlier adoption is permitted. The Company will implement this new standard on the required effective date.

 

Hybrid Financial Instruments — In November 2014, the EITF of the FASB issued ASU 2014-16, Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity. The ASU requires that for hybrid financial instruments issued in the form of a share, an entity should determine the nature of the host contract by considering all stated and implied substantive terms and features of the hybrid financial instrument, weighing each term and feature on the basis of relevant facts and circumstances. An entity should use judgment based on an evaluation of all the relevant terms and features, and should consider the economic characteristics and risks of the entire hybrid financial instrument, including the embedded derivative feature that is being evaluated for separate accounting from the host contract. The ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2015 (fiscal year 2016 for the Company) and interim periods within fiscal years beginning after December 15, 2016. Early adoption, including adoption in an interim period, is permitted. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

 

Debt Issuance Costs — In April 2015, the FASB issued ASU 2015-03,  Simplifying the Presentation of Debt Issuance Costs.  The ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts, rather than as a deferred charge asset. The ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015 (fiscal year 2016 for the Company), and interim periods within those fiscal years.  Early adoption of the amendment is permitted and the Company has elected to early adopt this ASU effective as of March 31, 2015. The new guidance has been applied on a retrospective basis, wherein the accompanying condensed consolidated statements of financial condition have been adjusted to reflect the period-specific effects of applying the new guidance.  Refer to Note 6 for additional information regarding the impact of this guidance on the Company’s condensed consolidated financial statements.

 

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Table of Contents

 

3. Goodwill and Intangible Assets

 

There were no changes in the carrying amount of goodwill for the three months ended March 31, 2015 and 2014.

 

No goodwill impairment was recognized in the three months ended March 31, 2015 and 2014.

 

Acquired intangible assets consisted of the following as of March 31, 2015 and December 31, 2014:

 

 

 

As of March 31, 2015

 

(in thousands)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Useful Lives
(Years)

 

Purchased technology

 

$

110,000

 

$

110,000

 

$

 

1.4 to 2.5

 

ETF issuer relationships

 

950

 

269

 

681

 

9

 

ETF buyer relationships

 

950

 

269

 

681

 

9

 

 

 

$

111,900

 

$

110,538

 

$

1,362

 

 

 

 

 

 

As of December 31, 2014

 

(in thousands)

 

Gross
Carrying
Amount

 

Accumulated
Amortization

 

Net Carrying
Amount

 

Useful Lives
(Years)

 

Purchased technology

 

$

110,000

 

$

110,000

 

$

 

1.4 to 2.5

 

ETF issuer relationships

 

950

 

243

 

707

 

9

 

ETF buyer relationships

 

950

 

243

 

707

 

9

 

 

 

$

111,900

 

$

110,486

 

$

1,414

 

 

 

 

Amortization expense relating to finite-lived intangible assets was approximately $0.05 million and $0.05 million for the three months ended March 31, 2015 and 2014, respectively. This is included in amortization of purchased intangibles and acquired capitalized software in the accompanying condensed consolidated statements of comprehensive income.

 

4. Receivables from/Payables to Broker-Dealers and Clearing Organizations

 

The following is a summary of receivables from and payables to brokers-dealers and clearing organizations at March 31, 2015 and December 31, 2014:

 

 

 

March 31,

 

December 31,

 

(in thousands)

 

2015

 

2014

 

Assets

 

 

 

 

 

Due from prime brokers

 

$

102,734

 

$

67,556

 

Deposits with clearing organizations

 

53,907

 

29,595

 

Net equity with futures commission merchants

 

148,611

 

155,060

 

Unsettled trades

 

37,349

 

55,929

 

Securities failed to deliver

 

118,580

 

79,512

 

Total receivables from broker-dealers and clearing organizations

 

$

461,181

 

$

387,652

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Due to prime brokers

 

$

178,063

 

$

313,623

 

Net equity with futures commission merchants

 

455,112

 

60,973

 

Unsettled trades

 

92,909

 

311,322

 

Securities failed to receive

 

1

 

285

 

Total payables to broker-dealers and clearing organizations

 

$

726,085

 

$

686,203

 

 

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Table of Contents

 

Included as a deduction from “Due from prime brokers” and “Net equity with futures commission merchants” is the outstanding principal balance on all of the Company’s short-term credit facilities of approximately $241.8 million and $183.0 million as of March 31, 2015 and December 31, 2014, respectively. The loan proceeds from the credit facilities are available only to meet the initial margin requirements associated with the Company’s ordinary course futures and other trading positions, which are held in the Company’s trading accounts with an affiliate of the respective financial institutions. The credit facilities are fully collateralized by the Company’s trading accounts and deposit accounts with these financial institutions. “Securities failed to deliver” and “Securities failed to receive” include amounts with a clearing organization and other broker-dealers.

 

5. Collateralized Transactions

 

The Company is permitted to sell or repledge securities received as collateral and use these securities to secure repurchase agreements, enter into securities lending transactions or deliver these securities to counterparties or clearing organizations to cover short positions. At March 31, 2015 and December 31, 2014, substantially all of the securities received as collateral have been repledged. Amounts relating to collateralized transactions at March 31, 2015 and December 31, 2014 are summarized as follows:

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2015

 

2014

 

Securities received as collateral:

 

 

 

 

 

Securities borrowed

 

$

666,963

 

$

470,553

 

Securities purchased under agreements to resell

 

272

 

31,472

 

 

 

$

667,235

 

$

502,025

 

 

In the normal course of business, the Company pledges qualified securities with clearing organizations to satisfy daily margin and clearing fund requirements.

 

Financial instruments owned and pledged, where the counterparty has the right to repledge, at March 31, 2015 and December 31, 2014 consisted of the following:

 

 

 

March 31,

 

December 31,

 

(In thousands)

 

2015

 

2014

 

Equities

 

$

482,700

 

$

219,159

 

Exchange traded notes

 

14,133

 

17,216

 

 

 

$

496,833

 

$

236,375

 

 

21



Table of Contents

 

6. Borrowings

 

Broker-Dealer Credit Facilities

 

The Company is a party to two secured credit facilities with the same financial institution to finance overnight securities positions purchased as part of its ordinary course broker-dealer market making activities. One of the facilities (the “Uncommitted Facility”), is provided on an uncommitted basis and is available for borrowings by the Company’s broker-dealer subsidiaries up to a maximum amount of $100.0 million. In connection with this credit facility, the Company has entered into demand promissory notes dated February 20, 2013. The loans provided under the Uncommitted Facility are collateralized by the Company’s broker-dealer trading and deposit accounts with the same financial institution and, bear interest at a rate set by the financial institution on a daily basis (1.13% at March 31, 2015 and 1.12% at December 31, 2014).  The Uncommitted Facility has a 364-day term. The Company is party to another facility (the “Committed Facility”) with the same financial institution dated July 22, 2013 which is provided on a committed basis and is available for borrowings by one of the Company’s broker-dealer subsidiaries up to a maximum of the lesser of $50.0 million or an amount determined based on agreed advance rates for pledged securities. The Committed Facility is subject to certain financial covenants, including a minimum tangible net worth, a maximum total assets to equity ratio, and a minimum excess net capital, each as defined. The Committed Facility bears interest at a rate per annum at the Company’s election equal to either an adjusted LIBOR rate or base rate, plus a margin of 1.25% per annum, and has a term of 364 days. As of March 31, 2015 and December 31, 2014, the Company did not have any outstanding principal balance on the Uncommitted Facility or the Committed Facility. Interest expense for the three months ended March 31, 2015 and 2014 was approximately $0.1 million and $0.1 million, respectively. Interest expense is included within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income.

 

Short-Term Credit Facilities

 

The Company entered into a credit facility with a financial institution on April 26, 2010, amended on December 10, 2010 and July 1, 2011. The loan proceeds of the credit facility are available only for meeting the initial margin requirements associated with the Company’s ordinary course futures trading positions held in its trading account with a prime brokerage affiliate of the financial institution, and the amount available for borrowing is the lesser of $35.0 million or 80% of the initial margin requirement. These borrowings are collateralized by the Company’s trading accounts and deposit accounts with the financial institution and its brokerage affiliate. The loan is payable on demand and interest on daily unpaid principal balances bears interest at rate per annum quoted by the financial institution each day (2.13% at March 31, 2015 and 2.05% December 31, 2014). Any balance that is not paid upon demand bears interest at the higher of the rate in effect for such loan plus 2% or the prime rate plus 2%. As of March 31, 2015 and December 31, 2014, the outstanding principal payable balance on the facility was approximately $32.6 million and $26.7 million, respectively, which was recorded as an offset against receivables from broker-dealers and clearing organizations in the accompanying condensed consolidated statements of financial condition. Interest expense for the three months ended March 31, 2015 and 2014 was approximately $0.2 million and $0.1 million, respectively.  Interest expense is recorded within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income.

 

The Company entered into a $200.0 million credit facility with a financial institution on June 29, 2011 which was increased to $300.0 million on February 17, 2012. The loan proceeds of the credit facility are available only for meeting margin requirements associated with the products traded by the Company in the ordinary course using the financial institution’s affiliate as its prime broker. The credit facility is collateralized by the Company’s trading accounts for these products with the financial institution’s affiliate and bears interest at 1.00% per annum in excess of the federal funds target rate of 0.25% (1.16% at March 31, 2015 and 1.25% at December 31, 2014). The credit facility is subject to certain financial covenants, including minimum account balances and loan ratios, as defined. The outstanding principal balance on the line of credit was approximately $168.5 million and $124.3 million as of March 31, 2015 and December 31, 2014, respectively, and recorded within receivables from broker-dealers and clearing organizations in the accompanying condensed consolidated statements of financial condition. Interest expense for the three months ended March 31, 2015 and 2014 was approximately $0.4 million and $0.6 million, respectively. Interest expense is recorded within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income.

 

The Company entered into a credit facility with a financial institution on August 8, 2011 with approximately $10.0 million available for borrowing. The loan proceeds of the credit facility are available only to finance the Company’s ordinary course securities positions held in its trading account with the financial institution’s prime brokerage affiliate. The credit facility is collateralized by the securities held in such account and bears interest at the rate published by Bank of Mexico on business day immediately preceding the

 

22



Table of Contents

 

6. Borrowings (Continued)

 

date on which the calculation is made. There were no outstanding balances as of March 31, 2015 and December 31, 2014. Interest expense for the three months ended March 31, 2015 and 2014 was approximately $0.3 million and $0, respectively. Interest expense is recorded within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income.

 

The Company entered into a credit facility with a financial institution on March 6, 2013 whereby the loan proceeds of the credit facility are available only for meeting the initial margin requirements associated with the Company’s ordinary course futures trading positions held in its trading account with an affiliate of the financial institution, and the amount available for borrowing is the lesser of $40.0 million or 80% of the initial margin requirement. These borrowings are collateralized by the Company’s trading accounts and deposit accounts with the financial institution and its prime brokerage affiliate. The loan is payable on demand and interest on daily unpaid principal balances bears interest at 2.00% per annum in excess of the interest period average of daily opening federal funds target rate (2.12% at March 31, 2015 and 2.12% at December 31, 2014). As of March 31, 2015 and December 31, 2014, the outstanding principal balance on the line was approximately $38.6 million and $31.9 million, respectively, which was recorded within receivables from broker-dealers and clearing organizations in the accompanying condensed consolidated statements of financial condition. Interest expense for the three months ended, March 31, 2015 and 2014 was approximately $0.2 million and $0.1 million, respectively. Interest expense is recorded within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income.

 

The Company entered into a $20.0 million credit facility with a financial institution on June 24, 2014, amended on December 1, 2014. The loan proceeds of the credit facility are available only for meeting margin requirements associated with the products traded by the Company in the ordinary course using the financial institution’s affiliate as its prime broker. The credit facility is collateralized by the Company’s trading accounts for these products with the financial institution’s affiliate and bears interest at 1.10% per annum in excess of USD LIBOR. The credit facility is subject to certain financial covenants, including minimum account balances and loan ratios, as defined. As of March 31, 2015 and December 31, 2014, the outstanding principal balance on the line of credit was approximately $2.1 million and $0.1 million, respectively, which was recorded within receivables from broker-dealers and clearing organizations in the accompanying condensed consolidated statements of financial condition. Interest expense for the three months ended March 31, 2015 and December 31, 2014 was approximately $0 for both periods.

 

The Company entered into a $3.0 million credit facility with a financial institution on August 6, 2014, which was increased to $5.0 million on October 17, 2014. The loan proceeds of the credit facility are available only to finance the Company’s ordinary course securities positions held in its trading account with the financial institution’s affiliate. The credit facility is collateralized by the Company’s trading accounts for these products with the financial institution’s affiliate and bears interest at 9% per annum, subject to change by the financial institution from time to time with at least ten business days’ notice. There were no outstanding principal balances as of March 31, 2015 and December 31, 2014. Interest expense for the three months ended March 31, 2015 and December 31, 2014 was approximately $0.2 million and $0.1 million, respectively, which was recorded within interest and dividends expense in the accompanying condensed consolidated statements of comprehensive income.

 

Senior Secured Credit Facility

 

On July 8, 2011, the Company funded a portion of the MTH acquisition with a term loan provided by a syndicate of financial institutions in the amount of $320.0 million to the Company’s wholly owned subsidiary, VFH Parent LLC (“VFH”). The credit facility was issued at a discount of 2.0% or $313.6 million, net of $6.4 million discount. The credit facility was initially subject to quarterly principal payments beginning on December 31, 2011 with the unpaid principal payable on maturity on July 8, 2016. Under the terms of the loan, VFH is subject to certain financial covenants, including a total net leverage ratio and an interest coverage ratio, as defined in the credit agreement. VFH is also subject to contingent principal payments based on excess cash flow, as defined in the credit agreement, and certain other triggering events. Borrowings are collateralized by substantially all the assets of the Company, other than the equity interests in and assets of its registered broker-dealer and foreign subsidiaries, but including 100% of the non-voting stock and 65% of the voting stock of the Company’s or its domestic subsidiaries’ direct foreign subsidiaries.

 

The credit facility was amended on February 5, 2013, May 1, 2013 and November 8, 2013. The amendments resulted in a decreased interest rate, changes in certain operating covenants, and an increase in principal amount outstanding by $150.0 million on May 1, 2013 and $106.7 million on November 8, 2013, respectively. Additionally, the amendments reduced the annual amortization obligation from 15% of the original principal amount to approximately 1% of the outstanding principal amount as of November 8, 2013, which was $510.0 million. The terms of the amended credit facility are otherwise substantially similar terms to the original credit facility, except as set forth below.

 

23



Table of Contents

 

6. Borrowings (Continued)

 

The credit facility bears interest at a rate per annum at the Company’s election equal to either (i) the greatest of (a) the prime rate in effect, (b) the federal funds effective rate (as defined in the credit agreement) plus 0.5% (c) the adjusted LIBOR rate (as defined in the credit agreement) for a Eurodollar borrowing with an interest period of one month plus 1%, and (d) 2.25% plus, in each case, 3.5%, or (ii) the greater of (x) the adjusted LIBOR rate for the interest period in effect and (y) 1.25%, plus 4.5%. Pursuant to the amendment, each incremental spread will be reduced by 0.50% upon the consummation of a qualifying initial public offering. The rate at March 31, 2015 was 5.75%.

 

Aggregate future required minimum principal payments based on the terms of this loan at March 31, 2015 were as follows:

 

(in thousands)

 

 

 

2015

 

$

2,914

 

2016

 

5,100

 

2017

 

5,100

 

2018 and thereafter

 

489,600

 

Total maturities of long-term debt

 

$

502,714

 

 

Net carrying amount of deferred financing fees capitalized in connection with the financing were approximately $4.8 million and $5.1 million, respectively, as of March 31, 2015 and December 31, 2014, which are included as a deduction to senior secured credit facility in the accompanying condensed consolidated statements of financial condition. The Company retrospectively adopted ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, wherein the accompanying condensed consolidated statements of financial condition have been adjusted to reflect the period specific effects of applying the new guidance. After retrospectively applying the new guidance, the Company reclassified approximately $5.1 million in deferred financing fees as of December 31, 2014 previously included within other assets to senior secured credit facility in the accompanying condensed consolidated statements of financial condition. Amortization expense related to the deferred financing fees was approximately $0.3 million and $0.3 million for the three months ended March 31, 2015 and 2014, respectively. Amortization expense is included within financing interest expense on senior secured credit facility in the accompanying condensed consolidated statements of comprehensive income.

 

Accretion related to the net carrying amount of debt discount of $1.8 million and $1.9 million, respectively, as of March 31, 2015 and December 31, 2014, was approximately $0.1 million and $0.1 million for the three months ended March 31, 2015 and 2014, and is included within financing interest expense on senior secured credit facility in the accompanying condensed consolidated statements of comprehensive income.

 

7. Financial Assets and Liabilities

 

At March 31, 2015 and December 31, 2014, substantially all of Company’s financial assets and liabilities, except for the senior secured credit facility and certain exchange memberships, were carried at fair value based on published market prices and are marked to market daily or were short-term in nature and were carried at amounts that approximate fair value. The Company determined that the carrying value of the Company’s senior secured credit facility approximates fair value as of March 31, 2015 and December 31, 2014 based on the quoted over-the-counter market prices provided by the issuer of the senior secured credit facility, which was categorized as Level 2.

 

The fair value of equities, U.S. government obligations and exchange traded notes is estimated using recently executed transactions and market price quotations in active markets and are categorized as Level 1 with the exception of inactively traded equities which are categorized as Level 2. Fair value of the Company’s derivative contracts is based on the indicative prices obtained from the banks that are counterparties to these contracts, as well as management’s own analyses. The indicative prices have been independently validated through the Company’s risk management systems, which are designed to check prices with information independently obtained from exchanges and venues where such financial instruments are listed or to compare prices of similar instruments with similar maturities for listed financial futures in foreign exchange. At March 31, 2015 and December 31, 2014, the Company’s derivative contracts and non-U.S. government obligations have been categorized as Level 2.

 

Transfers in or out of levels are recognized based on the beginning fair value of the period in which they occurred. There were no transfers of financial instruments between levels during the quarters ended March 31, 2015 and 2014.

 

24



Table of Contents

 

Fair value measurements for those items measured on a recurring basis are summarized below as of March 31, 2015:

 

 

 

March 31, 2015

 

 

 

Quoted Prices

 

Significant

 

 

 

 

 

 

 

 

 

in Active

 

Other

 

Significant

 

 

 

 

 

 

 

Markets for

 

Observable

 

Unobservable

 

Counter-

 

 

 

 

 

Identical Assets

 

Inputs

 

Inputs

 

Party

 

Total Fair

 

(in thousands)

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Netting

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Financial instruments owned, at fair value:

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

1,472,279

 

$

23,668

 

$

 

$

 

$

1,495,947

 

U.S. and Non-U.S. government obligations

 

993

 

1,711

 

 

 

2,704

 

Exchange traded notes

 

15,436

 

 

 

 

15,436

 

Currency forwards

 

 

1,128,453

 

 

(1,062,511

)

65,942

 

Options

 

 

245

 

 

 

245

 

 

 

$

1,488,708

 

$

1,154,077

 

$

 

$

(1,062,511

)

$

1,580,274

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial instruments owned, pledged as collateral:

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

482,700

 

$

 

$

 

$

 

$

482,700

 

Exchange traded notes

 

14,133

 

 

 

 

14,133

 

 

 

$

496,833

 

$

 

$

 

$

 

$

496,833

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

Exchange stock

 

$

8,679

 

$

 

$

 

$

 

$

8,679

 

 

 

$

8,679

 

$

 

$

 

$

 

$

8,679

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Financial instruments sold, not yet purchased, at fair value:

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

1,250,392

 

$

116

 

$

 

$

 

$

1,250,508

 

U.S. and Non-U.S. government obligations

 

9,512

 

 

 

 

9,512

 

Exchange traded notes

 

28,791

 

 

 

 

28,791

 

Interest rate swaps

 

 

11

 

 

 

11

 

Currency forwards

 

 

1,065,436

 

 

(1,062,511

)

2,925

 

Options

 

 

533

 

 

 

533

 

 

 

$

1,288,695

 

$

1,066,096

 

$

 

$

(1,062,511

)

$

1,292,280

 

 

25



Table of Contents

 

Fair value measurements for those items measured on a recurring basis are summarized below as of December 31, 2014:

 

(in thousands)

 

Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Counter-
Party
Netting

 

Total Fair
Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Financial instruments owned, at fair value:

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

1,216,532

 

$

17,166

 

$

 

$

 

$

1,233,698

 

U.S. and non-U.S. government obligations

 

 

8,222

 

 

 

8,222

 

Exchange traded notes

 

65,684

 

 

 

 

65,684

 

Currency forwards

 

 

1,629,637

 

 

(1,629,629

)

8

 

Options

 

 

321

 

 

 

321

 

 

 

$

1,282,216

 

$

1,655,346

 

$

 

$

(1,629,629

)

$

1,307,933

 

Financial instruments owned, pledged as collateral:

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

219,159

 

$

 

$

 

$

 

$

219,159

 

Exchange traded notes

 

17,216

 

 

 

 

17,216

 

 

 

$

236,375

 

$

 

$

 

$

 

$

236,375

 

Other Assets

 

 

 

 

 

 

 

 

 

 

 

Exchange stock

 

$

8,205

 

$

 

$

 

$

 

$

8,205

 

 

 

$

8,205

 

$

 

$

 

$

 

$

8,205

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Financial instruments sold, not yet purchased, at fair value:

 

 

 

 

 

 

 

 

 

 

 

Equity securities

 

$

859,836

 

$

47,896

 

$

 

$

 

$

907,732

 

U.S. and non-U.S. government obligations

 

21,107

 

 

 

 

21,107

 

Exchange traded notes

 

92,513

 

 

 

 

92,513

 

Currency forwards

 

 

1,645,820

 

 

(1,629,629

)

16,191

 

Options

 

 

79

 

 

 

79

 

Interest rate swaps

 

 

12

 

 

 

12

 

 

 

$

973,456

 

$

1,693,807

 

$

 

$

(1,629,629

)

$

1,037,634

 

 

26



Table of Contents

 

The Company adopted the guidance in ASU 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities for periods beginning after January 1, 2013. This authoritative guidance requires companies to report disclosures of offsetting assets and liabilities.

 

The Company does not net securities borrowed and securities loaned, or securities purchased under agreements to resell and securities sold under agreements to repurchase. These financial instruments are presented on a gross basis in the condensed consolidated statements of financial condition. In the tables below, the amounts of financial instruments owned that are not offset in the condensed consolidated statements of financial condition, but could be netted against financial liabilities with specific counterparties under legally enforceable master netting agreements in the event of default, are presented to provide financial statement readers with the Company’s estimate of its net exposure to counterparties for these financial instruments.

 

The following tables set forth the netting of certain financial assets and financial liabilities as of March 31, 2015 and December 31, 2014, pursuant to the requirements of ASU 2011-11 and ASU 2013-01.

 

 

 

March 31, 2015

 

 

 

 

 

Gross Amounts

 

Net Amounts of

 

 

 

 

 

 

 

 

 

 

 

Offset in the

 

Assets Presented in

 

Gross Amounts Not Offset in the

 

 

 

 

 

 

 

Condensed

 

the Condensed

 

Condensed Consolidated

 

 

 

 

 

Gross Amounts of

 

Consolidated

 

Consolidated

 

Statement of Financial Condition

 

 

 

 

 

Recognized

 

Statement of

 

Statement of

 

Financial

 

Cash Collateral

 

 

 

(in thousands)

 

Assets

 

Financial Condition

 

Financial Condition

 

Instruments

 

Received

 

Net Amount

 

Offsetting of Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities borrowed

 

$

691,084

 

$

 

$

691,084

 

$

(681,368

)

$

 

$

9,716

 

Securities purchased under agreements to resell

 

272

 

 

272

 

(272

)

 

 

Trading assets, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency forwards

 

1,128,453

 

(1,062,511

)

65,942

 

 

(62,616

)

3,326

 

Options

 

245

 

 

245

 

(245

)

 

 

Total

 

$

1,820,054

 

$

(1,062,511

)

$

757,543

 

$

(681,885

)

$

(62,616

)

$

13,042

 

 

 

 

 

 

Gross Amounts

 

Net Amounts of

 

 

 

 

 

 

 

 

 

 

 

Offset in the

 

Liabilities Presented in

 

Gross Amounts Not Offset in the

 

 

 

 

 

 

 

Condensed

 

the Condensed

 

Condensed Consolidated

 

 

 

 

 

Gross Amounts of

 

Consolidated

 

Consolidated

 

Statement of Financial Condition

 

 

 

 

 

Recognized

 

Statement of

 

Statement of

 

Financial

 

Cash Collateral

 

 

 

 

 

Liabilities

 

Financial Condition

 

Financial Condition

 

Instruments

 

Pledged

 

Net Amount

 

Offsetting of Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities loaned

 

$

956,897

 

$

 

$

956,897

 

$

(944,435

)

$

(2,846

)

$

9,616

 

Securities sold under agreements to repurchase

 

10,973

 

 

10,973

 

(10,973

)

 

 

Trading liabilities, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency forwards

 

1,065,436

 

(1,062,511

)

2,925

 

 

(1,912

)

1,013

 

Options

 

533

 

 

533

 

(245

)

(288

)

 

Interest rate swaps

 

11

 

 

11

 

 

(11

)

 

Total

 

$

2,033,850

 

$

(1,062,511

)

$

971,339

 

$

(955,653

)

$

(5,057

)

$

10,629

 

 

27



Table of Contents

 

 

 

December 31, 2014

 

 

 

Gross

 

Gross Amounts
Offset in the
Condensed

Consolidated

 

Net Amounts of
Assets Presented
in the
Condensed

Consolidated

 

Gross Amounts Not
Offset in the Condensed
Consolidated
Statement of
Financial Condition

 

 

 

(in thousands)

 

Amounts of
Recognized
Assets

 

Statement of
Financial
Condition

 

Statement of
Financial
Condition

 

Financial
Instruments

 

Cash
Collateral
Received

 

Net
Amount

 

Offsetting of Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities borrowed

 

$

484,934

 

$

 

$

484,934

 

$

(477,559

)

$

 

$

7,375

 

Securities purchased under agreements to resell

 

31,463

 

 

31,463

 

(31,463

)

 

 

Trading assets, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency forwards

 

1,629,637

 

(1,629,629

)

8

 

 

 

8

 

Options

 

321

 

 

 

321

 

(76

)

 

245

 

Total

 

$

2,146,355

 

$

(1,629,629

)

$

516,726

 

$

(509,098

)

$

 

$

7,628

 

 

 

 

Gross

 

Gross Amounts
Offset in the
Condensed
Consolidated

 

Net Amounts of
Liabilities
Presented
in the Condensed
Consolidated

 

Gross Amounts Not
Offset in the Condensed
Consolidated
Statement of
Financial Condition

 

 

 

(in thousands)

 

Amounts of
Recognized
Liabilities

 

Statement of
Financial
Condition

 

Statement of
Financial
Condition

 

Financial
Instruments

 

Cash
Collateral
Pledged

 

Net
Amount

 

Offsetting of Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities loaned

 

$

497,862

 

$

 

$

497,862

 

$

(490,768

)

$

(2,812

)

$

4,282

 

Securities sold under agreements to repurchase

 

2,006

 

 

2,006

 

(2,006

)

 

 

Trading liabilities, at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency forwards

 

1,645,820

 

(1,629,629

)

16,191

 

 

(16,191

)

 

Options

 

79

 

 

79

 

(79

)

 

 

Interest rate swaps

 

12

 

 

12

 

 

(12

)

 

Total

 

$

2,145,779

 

$

(1,629,629

)

$

516,150

 

$

(492,853

)

$

(19,015

)

$

4,282

 

 

Excluded from the fair value and offsetting tables above is net variation margin on long and short futures contracts in the amounts of $(64.2) million and $46.4 million, which are included within receivables from broker-dealers and clearing organizations as of March 31, 2015 and December 31, 2014, respectively, and $(2.9) million and $(3.6) million, which are included within payables to broker-dealers and clearing organizations as of March 31, 2015 and December 31, 2014, respectively.

 

8. Derivative Instruments

 

The fair value of the Company’s derivative instruments on a gross basis consisted of the following at March 31, 2015 and December 31, 2014:

 

28



Table of Contents

 

(in thousands)

 

 

 

March 31, 2015

 

December 31, 2014

 

Derivatives Assets

 

Balance Sheet Classification

 

Fair Value

 

Notional

 

Fair Value

 

Notional

 

 

 

 

 

 

 

&nbs