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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Kcg Holdings Class A | NYSE:KCG | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 20.00 | 0 | 01:00:00 |
ý
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
Title of each class
|
Name of each exchange on which registered
|
Class A Common Stock, $0.01 par value
|
New York Stock Exchange
|
Large accelerated filer
|
|
ý
|
Accelerated filer
|
|
¨
|
|
|
|
|
|
|
Non-accelerated filer
|
|
¨
|
Smaller reporting company
|
|
¨
|
|
|
Page
|
|
|
|
PART I
|
FINANCIAL INFORMATION:
|
|
|
|
|
Item 1.
|
Financial Statements (Unaudited)
|
|
|
Consolidated Statements of Operations
|
|
|
Consolidated Statements of Comprehensive Income
|
|
|
Consolidated Statements of Financial Condition
|
|
|
Consolidated Statement of Changes in Equity
|
|
|
Consolidated Statements of Cash Flows
|
|
|
Notes to Consolidated Financial Statements
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
Item 4.
|
Controls and Procedures
|
|
|
|
|
PART II
|
OTHER INFORMATION:
|
|
|
|
|
Item 1.
|
Legal Proceedings
|
|
Item 1A.
|
Risk Factors
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
|
Item 3.
|
Defaults Upon Senior Securities
|
|
Item 4.
|
Mine Safety Disclosures
|
|
Item 5.
|
Other Information
|
|
Item 6.
|
Exhibits
|
|
Signatures
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
(In thousands, except per share amounts)
|
||||||||||||||
Revenues
|
|
|
|
|
|
|
|
||||||||
Trading revenues, net
|
$
|
206,780
|
|
|
$
|
98,260
|
|
|
$
|
465,077
|
|
|
$
|
185,025
|
|
Commissions and fees
|
104,776
|
|
|
29,813
|
|
|
217,033
|
|
|
55,312
|
|
||||
Interest, net
|
(289
|
)
|
|
(672
|
)
|
|
659
|
|
|
(793
|
)
|
||||
Investment income (loss) and other, net
|
2,866
|
|
|
(7,768
|
)
|
|
15,021
|
|
|
(4,919
|
)
|
||||
Total revenues
|
314,133
|
|
|
119,633
|
|
|
697,790
|
|
|
234,625
|
|
||||
Expenses
|
|
|
|
|
|
|
|
||||||||
Employee compensation and benefits
|
103,430
|
|
|
75,143
|
|
|
225,749
|
|
|
107,352
|
|
||||
Execution and clearance fees
|
73,242
|
|
|
45,951
|
|
|
148,743
|
|
|
86,908
|
|
||||
Communications and data processing
|
38,279
|
|
|
21,301
|
|
|
75,075
|
|
|
41,995
|
|
||||
Depreciation and amortization
|
19,823
|
|
|
7,746
|
|
|
39,926
|
|
|
15,913
|
|
||||
Payments for order flow
|
18,076
|
|
|
448
|
|
|
40,108
|
|
|
1,037
|
|
||||
Occupancy and equipment rentals
|
8,235
|
|
|
3,259
|
|
|
16,520
|
|
|
6,555
|
|
||||
Debt interest expense
|
7,497
|
|
|
2,172
|
|
|
17,021
|
|
|
2,645
|
|
||||
Professional fees
|
7,337
|
|
|
23,125
|
|
|
12,739
|
|
|
29,850
|
|
||||
Collateralized financing interest
|
6,395
|
|
|
—
|
|
|
12,557
|
|
|
—
|
|
||||
Business development
|
2,609
|
|
|
16
|
|
|
4,292
|
|
|
41
|
|
||||
Writedown of capitalized debt costs
|
1,995
|
|
|
—
|
|
|
9,552
|
|
|
—
|
|
||||
Writedown of assets and lease loss accrual, net
|
1,941
|
|
|
1,074
|
|
|
2,207
|
|
|
3,312
|
|
||||
Other
|
10,767
|
|
|
14,234
|
|
|
19,410
|
|
|
18,711
|
|
||||
Total expenses
|
299,626
|
|
|
194,469
|
|
|
623,899
|
|
|
314,319
|
|
||||
Income (loss) from continuing operations before income taxes
|
14,507
|
|
|
(74,836
|
)
|
|
73,891
|
|
|
(79,694
|
)
|
||||
Income tax expense
|
5,520
|
|
|
3,315
|
|
|
27,987
|
|
|
5,289
|
|
||||
Income (loss) from continuing operations, net of tax
|
8,987
|
|
|
(78,151
|
)
|
|
45,904
|
|
|
(84,983
|
)
|
||||
Loss from discontinued operations, net of tax
|
(67
|
)
|
|
—
|
|
|
(1,320
|
)
|
|
—
|
|
||||
Net income (loss)
|
$
|
8,920
|
|
|
$
|
(78,151
|
)
|
|
$
|
44,584
|
|
|
$
|
(84,983
|
)
|
Net loss allocated to preferred and participating units
|
$
|
—
|
|
|
$
|
(21,535
|
)
|
|
$
|
—
|
|
|
$
|
(21,535
|
)
|
Net income (loss) attributable to common shareholders
|
$
|
8,920
|
|
|
$
|
(56,616
|
)
|
|
$
|
44,584
|
|
|
$
|
(63,448
|
)
|
Basic earnings (loss) per common share from continuing operations
|
$
|
0.08
|
|
|
$
|
(1.24
|
)
|
|
$
|
0.40
|
|
|
$
|
(1.39
|
)
|
Diluted earnings (loss) per common share from continuing operations
|
$
|
0.08
|
|
|
$
|
(1.24
|
)
|
|
$
|
0.39
|
|
|
$
|
(1.39
|
)
|
Basic earnings (loss) per common share from discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
Diluted earnings (loss) per common share from discontinued operations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.01
|
)
|
|
$
|
—
|
|
Basic earnings (loss) per common share
|
$
|
0.08
|
|
|
$
|
(1.24
|
)
|
|
$
|
0.39
|
|
|
$
|
(1.39
|
)
|
Diluted earnings (loss) per common share
|
$
|
0.08
|
|
|
$
|
(1.24
|
)
|
|
$
|
0.38
|
|
|
$
|
(1.39
|
)
|
Shares used in computation of basic earnings per common share
|
114,859
|
|
|
45,576
|
|
|
115,282
|
|
|
45,514
|
|
||||
Shares used in computation of diluted earnings per common share
|
117,601
|
|
|
45,576
|
|
|
118,170
|
|
|
45,514
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
(In thousands)
|
||||||||||||||
Net income (loss)
|
$
|
8,920
|
|
|
$
|
(78,151
|
)
|
|
$
|
44,584
|
|
|
$
|
(84,983
|
)
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
||||||||
Unrealized (loss) gain on available for sale securities, net of tax
|
(96
|
)
|
|
(7,394
|
)
|
|
(233
|
)
|
|
4,550
|
|
||||
Cumulative translation adjustment, net of tax
|
291
|
|
|
(487
|
)
|
|
492
|
|
|
(403
|
)
|
||||
Comprehensive income (loss)
|
$
|
9,115
|
|
|
$
|
(86,032
|
)
|
|
$
|
44,843
|
|
|
$
|
(80,836
|
)
|
|
June 30,
|
|
December 31,
|
||||
|
2014
|
|
2013
|
||||
Assets
|
(In thousands)
|
||||||
Cash and cash equivalents
|
$
|
600,865
|
|
|
$
|
674,281
|
|
Cash and cash equivalents segregated under federal and other regulations
|
234,350
|
|
|
183,082
|
|
||
Financial instruments owned, at fair value, including securities pledged to counterparties that had the right to deliver or repledge of $514,580 at June 30, 2014 and $552,242 at December 31, 2013:
|
|
|
|
||||
Equities
|
2,620,427
|
|
|
2,298,785
|
|
||
Listed options
|
178,598
|
|
|
339,798
|
|
||
Debt securities
|
90,782
|
|
|
83,256
|
|
||
Total financial instruments owned, at fair value
|
2,889,807
|
|
|
2,721,839
|
|
||
Collateralized agreements:
|
|
|
|
||||
Securities borrowed
|
1,602,467
|
|
|
1,357,387
|
|
||
Receivable from brokers, dealers and clearing organizations
|
1,588,926
|
|
|
1,257,251
|
|
||
Fixed assets and leasehold improvements, less accumulated depreciation and amortization
|
138,546
|
|
|
146,668
|
|
||
Investments
|
92,143
|
|
|
125,413
|
|
||
Goodwill and Intangible assets, less accumulated amortization
|
196,642
|
|
|
208,806
|
|
||
Deferred tax asset, net
|
175,363
|
|
|
175,639
|
|
||
Other assets
|
143,365
|
|
|
146,638
|
|
||
Total assets
|
$
|
7,662,474
|
|
|
$
|
6,997,004
|
|
Liabilities and equity
|
|
|
|
||||
Liabilities
|
|
|
|
||||
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
||||
Equities
|
$
|
2,011,591
|
|
|
$
|
1,851,006
|
|
Listed options
|
158,942
|
|
|
252,282
|
|
||
Debt securities
|
230,821
|
|
|
57,198
|
|
||
Other financial instruments
|
758
|
|
|
5,014
|
|
||
Total financial instruments sold, not yet purchased, at fair value
|
2,402,112
|
|
|
2,165,500
|
|
||
Collateralized financings:
|
|
|
|
||||
Securities loaned
|
824,663
|
|
|
733,230
|
|
||
Financial instruments sold under agreements to repurchase
|
950,110
|
|
|
640,950
|
|
||
Total collateralized financings
|
1,774,773
|
|
|
1,374,180
|
|
||
Payable to brokers, dealers and clearing organizations
|
647,120
|
|
|
474,108
|
|
||
Payable to customers
|
622,364
|
|
|
481,041
|
|
||
Accrued compensation expense
|
84,060
|
|
|
149,430
|
|
||
Accrued expenses and other liabilities
|
166,850
|
|
|
175,910
|
|
||
Capital lease obligations
|
9,222
|
|
|
10,039
|
|
||
Debt
|
422,259
|
|
|
657,259
|
|
||
Total liabilities
|
6,128,760
|
|
|
5,487,467
|
|
||
Equity
|
|
|
|
||||
Class A Common Stock
|
|
|
|
||||
Shares authorized: 1,000,000 at June 30, 2014 and December 31, 2013; Shares issued: 127,162 at June 30, 2014 and 123,317 at December 31, 2013; Shares outstanding: 121,111 at June 30, 2014 and 122,238 at December 31, 2013
|
1,272
|
|
|
1,233
|
|
||
Additional paid-in capital
|
1,343,963
|
|
|
1,306,549
|
|
||
Retained earnings
|
256,262
|
|
|
211,678
|
|
||
Treasury stock, at cost; 6,051 shares at June 30, 2014 and 1,079 shares at December 31, 2013
|
(69,443
|
)
|
|
(11,324
|
)
|
||
Accumulated other comprehensive income
|
1,660
|
|
|
1,401
|
|
||
Total equity
|
1,533,714
|
|
|
1,509,537
|
|
||
Total liabilities and equity
|
$
|
7,662,474
|
|
|
$
|
6,997,004
|
|
|
(in thousands)
|
|||||||||||||||||||||||||||||
|
|
Class A Common
Stock
|
|
|
|
|
|
Treasury Stock
|
|
|
|
|
||||||||||||||||||
|
|
Shares
|
|
Amount
|
|
Additional
Paid-In
Capital
|
|
Retained
Earnings
|
|
Shares
|
|
Amount
|
|
Accumulated
other
comprehensive
income (loss)
|
|
Total
Equity
|
||||||||||||||
Balance, December 31, 2013 - as reported
|
|
123,317
|
|
|
$
|
1,233
|
|
|
$
|
1,306,549
|
|
|
$
|
209,393
|
|
|
(1,079
|
)
|
|
$
|
(11,324
|
)
|
|
$
|
1,401
|
|
|
$
|
1,507,252
|
|
Cumulative effect of change in accounting principle - Footnote 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,285
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,285
|
|
||||||
Balance, December 31, 2013 - as adjusted
|
|
123,317
|
|
|
1,233
|
|
|
1,306,549
|
|
|
211,678
|
|
|
(1,079
|
)
|
|
(11,324
|
)
|
|
1,401
|
|
|
1,509,537
|
|
||||||
Class A Common Stock repurchased
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(4,972
|
)
|
|
(58,119
|
)
|
|
—
|
|
|
(58,119
|
)
|
||||||
Stock-based compensation
|
|
3,845
|
|
|
39
|
|
|
37,414
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
37,453
|
|
||||||
Unrealized loss on available for sale securities, net
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(233
|
)
|
|
(233
|
)
|
||||||
Cumulative translation adjustment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
492
|
|
|
492
|
|
||||||
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,584
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
44,584
|
|
||||||
Balance, June 30, 2014
|
|
127,162
|
|
|
$
|
1,272
|
|
|
$
|
1,343,963
|
|
|
$
|
256,262
|
|
|
(6,051
|
)
|
|
$
|
(69,443
|
)
|
|
$
|
1,660
|
|
|
$
|
1,533,714
|
|
|
For the six months ended June 30,
|
||||||
|
2014
|
|
2013
|
||||
Cash flows from operating activities
|
(In thousands)
|
||||||
Net income (loss)
|
$
|
44,584
|
|
|
$
|
(84,983
|
)
|
Loss from discontinued operations, net of tax
|
(1,320
|
)
|
|
—
|
|
||
Income (loss) from continuing operations, net of tax
|
45,904
|
|
|
(84,983
|
)
|
||
Adjustments to reconcile income (loss) from continuing operations, net of tax
to net cash provided by operating activities |
|
|
|
||||
Depreciation and amortization
|
39,926
|
|
|
15,913
|
|
||
Stock and unit-based compensation
|
32,907
|
|
|
26,960
|
|
||
Writedown and amortization of debt offering costs
|
11,557
|
|
|
473
|
|
||
Writedown of assets and lease loss accrual, net
|
2,207
|
|
|
3,312
|
|
||
Unrealized (gain) loss on investments
|
(15,140
|
)
|
|
2,978
|
|
||
Deferred rent
|
(129
|
)
|
|
—
|
|
||
Operating activities from discontinued operations
|
(1,119
|
)
|
|
—
|
|
||
(Increase) decrease in operating assets
|
|
|
|
||||
Cash and cash equivalents segregated under federal and other regulations
|
(51,267
|
)
|
|
—
|
|
||
Financial instruments owned, at fair value
|
(167,968
|
)
|
|
92,101
|
|
||
Securities borrowed
|
(245,080
|
)
|
|
(38,474
|
)
|
||
Receivable from brokers, dealers and clearing organizations
|
(331,675
|
)
|
|
(214,128
|
)
|
||
Other assets
|
(8,009
|
)
|
|
380
|
|
||
(Increase) decrease in operating liabilities
|
|
|
|
||||
Financial instruments sold, not yet purchased, at fair value
|
236,612
|
|
|
230,108
|
|
||
Securities loaned
|
91,433
|
|
|
—
|
|
||
Financial instruments sold under agreements to repurchase
|
309,160
|
|
|
—
|
|
||
Payable to brokers, dealers and clearing organizations
|
173,012
|
|
|
9,916
|
|
||
Payable to customers
|
141,323
|
|
|
—
|
|
||
Accrued compensation expense
|
(60,825
|
)
|
|
10,069
|
|
||
Accrued expenses and other liabilities
|
(10,993
|
)
|
|
36,658
|
|
||
Net cash provided by operating activities
|
191,836
|
|
|
91,283
|
|
||
Cash flows from investing activities
|
|
|
|
||||
Proceeds and distributions from investments
|
48,627
|
|
|
1,201
|
|
||
Purchases of fixed assets and leasehold improvements
|
(14,781
|
)
|
|
(12,396
|
)
|
||
Capitalized software development costs
|
(5,615
|
)
|
|
—
|
|
||
Purchases of investments
|
(593
|
)
|
|
—
|
|
||
Sale of trading rights
|
554
|
|
|
—
|
|
||
Net cash provided by (used in) investing activities
|
28,192
|
|
|
(11,195
|
)
|
||
Cash flows from financing activities
|
|
|
|
||||
Repayment of Credit Agreement
|
(235,000
|
)
|
|
—
|
|
||
Proceeds from issuance of Senior Secured Notes
|
—
|
|
|
296,994
|
|
||
Cash held under restrictions
|
—
|
|
|
(308,081
|
)
|
||
Borrowings under capital lease obligations
|
4,525
|
|
|
—
|
|
||
Principal payments on capital lease obligations
|
(5,342
|
)
|
|
(8,725
|
)
|
||
Cost of common stock repurchased
|
(58,119
|
)
|
|
—
|
|
||
Borrowings under secured credit facility
|
—
|
|
|
25,000
|
|
||
Repayment of secured credit facility
|
—
|
|
|
(25,000
|
)
|
||
Repurchase of members' interest
|
—
|
|
|
(21,002
|
)
|
||
Net cash used in financing activities
|
(293,936
|
)
|
|
(40,814
|
)
|
||
Effect of exchange rate changes on cash and cash equivalents
|
492
|
|
|
(403
|
)
|
||
(Decrease) increase in cash and cash equivalents
|
(73,416
|
)
|
|
38,871
|
|
||
Cash and cash equivalents at beginning of period
|
674,281
|
|
|
427,631
|
|
||
Cash and cash equivalents at end of period
|
$
|
600,865
|
|
|
$
|
466,502
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
39,129
|
|
|
$
|
3,950
|
|
Cash paid for income taxes
|
$
|
14,040
|
|
|
$
|
6,197
|
|
Identifiable Net Assets
|
|
|
|
|
||
Cash and cash equivalents
|
|
|
|
$
|
509,133
|
|
Cash and cash equivalents segregated under federal and other regulations
|
|
|
|
203,045
|
|
|
Financial instruments owned
|
|
|
|
1,937,929
|
|
|
Securities borrowed
|
|
|
|
1,158,981
|
|
|
Receivable from brokers, dealers and clearing organizations
|
|
|
|
1,369,474
|
|
|
Fixed assets and leasehold improvements
|
|
|
|
80,280
|
|
|
Investments
|
|
|
|
106,353
|
|
|
Intangible assets
|
|
|
|
155,425
|
|
|
Assets within discontinued operations
|
|
|
|
5,607,063
|
|
|
Deferred tax asset, net
|
|
|
|
65,465
|
|
|
Other assets
|
|
|
|
140,933
|
|
|
Total Assets
|
|
|
|
$
|
11,334,081
|
|
|
|
|
|
|
||
Financial instruments sold, not yet purchased
|
|
|
|
$
|
1,512,983
|
|
Collateralized financings
|
|
|
|
1,166,211
|
|
|
Payable to brokers, dealers and clearing organizations
|
|
|
|
635,914
|
|
|
Payable to customers
|
|
|
|
527,918
|
|
|
Accrued compensation expense
|
|
|
|
107,409
|
|
|
Accrued expenses and other liabilities
|
|
|
|
130,010
|
|
|
Liabilities within discontinued operations
|
|
|
|
5,518,168
|
|
|
Debt
|
|
|
|
375,000
|
|
|
Total Liabilities
|
|
|
|
$
|
9,973,613
|
|
|
|
|
|
|
||
Total identified assets acquired, net of assumed liabilities
|
|
|
|
1,360,468
|
|
|
|
|
|
|
|
||
Goodwill
|
|
|
|
12,666
|
|
|
|
|
|
|
|
||
Total Purchase Price
|
|
|
|
$
|
1,373,134
|
|
|
|
|
|
Amortization
|
||
|
|
Amount
|
|
Years
|
||
Technology
|
|
$
|
110,504
|
|
|
5 years
|
Customer relationships
|
|
35,000
|
|
|
9 - 11 years
|
|
Trade names
|
|
4,000
|
|
|
10 years
|
|
Trading rights
(1)
|
|
5,921
|
|
|
7 years
|
|
Intangible assets
|
|
155,425
|
|
|
|
|
Goodwill
|
|
12,666
|
|
|
|
|
Total
|
|
$
|
168,091
|
|
|
|
(1)
|
Trading rights include both assets with a finite useful life and assets with an indefinite useful life. The
7
years amortization period only applies to assets with a finite useful life.
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Interest Income
|
$
|
3,777
|
|
|
$
|
1,043
|
|
|
$
|
7,128
|
|
|
$
|
2,030
|
|
Interest Expense
|
(4,066
|
)
|
|
(1,715
|
)
|
|
(6,469
|
)
|
|
(2,823
|
)
|
||||
Interest, net
|
$
|
(289
|
)
|
|
$
|
(672
|
)
|
|
$
|
659
|
|
|
$
|
(793
|
)
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Dividend Income
|
$
|
9,832
|
|
|
$
|
1,974
|
|
|
$
|
19,615
|
|
|
$
|
2,475
|
|
Dividend Expense
|
$
|
(8,203
|
)
|
|
$
|
(720
|
)
|
|
$
|
(15,778
|
)
|
|
$
|
(1,136
|
)
|
•
|
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
•
|
Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
•
|
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
•
|
Securities borrowed and securities loaned transactions are recorded at the amount of cash collateral advanced or received. Securities borrowed transactions facilitate the securities settlement process and require the Company to deposit cash or other collateral with the lender. Securities loaned transactions help finance the Company’s securities inventory whereby the Company lends stock to counterparties in exchange for the receipt of cash or other collateral from the borrower. In these transactions, the Company receives or lends cash or other collateral in an amount generally in excess of the market value of the applicable securities borrowed or loaned. The Company monitors the market value of securities borrowed or loaned on a daily basis, and obtains additional collateral or refunds excess collateral as necessary.
|
•
|
Financial instruments sold under agreements to repurchase are used to finance inventories of securities and other financial instruments and are recorded at their contractual amount. The Company has entered into bilateral and tri-party term and overnight repurchase agreements which bear interest at negotiated rates. The Company receives cash and makes delivery of financial instruments to a custodian who monitors the market value of these instruments on a daily basis. The market value of the instruments delivered must be equal to or in excess of the principal amount loaned under the repurchase agreements plus the agreed upon margin requirement. The custodian may request additional collateral, if appropriate.
|
|
For the three months ended June 30, 2014
|
|
For the six months ended June 30, 2014
|
||||
Additional Loss on Sale
|
$
|
(1
|
)
|
|
$
|
(1,313
|
)
|
|
|
|
|
||||
Expenses:
|
|
|
|
||||
Compensation
|
$
|
126
|
|
|
$
|
171
|
|
Other expenses
|
(19
|
)
|
|
645
|
|
||
Total Expenses
|
107
|
|
|
816
|
|
||
Pre-tax loss from discontinued operations
|
(108
|
)
|
|
(2,129
|
)
|
||
Income tax benefit
|
41
|
|
|
809
|
|
||
Loss from discontinued operations, net of tax
|
$
|
(67
|
)
|
|
$
|
(1,320
|
)
|
|
June 30,
2014 |
|
December 31, 2013
|
||||
Cash and cash equivalents segregated under federal or other regulations
|
$
|
234,350
|
|
|
$
|
183,082
|
|
Receivable from brokers, dealers and clearing organizations (1)
|
364,955
|
|
|
304,294
|
|
||
Total assets segregated or held in separate accounts under federal or other regulations
|
$
|
599,305
|
|
|
$
|
487,376
|
|
|
Assets and Liabilities Measured at
Fair Value on a Recurring Basis
|
||||||||||||||
June 30, 2014
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Financial instruments owned, at fair value:
|
|
|
|
|
|
|
|
||||||||
Equities
(1)
|
$
|
2,620,427
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,620,427
|
|
Listed options
|
178,598
|
|
|
—
|
|
|
—
|
|
|
178,598
|
|
||||
U.S. government and Non-U.S. government obligations
(2)
|
28,317
|
|
|
—
|
|
|
—
|
|
|
28,317
|
|
||||
Corporate debt
(3)
|
62,465
|
|
|
—
|
|
|
—
|
|
|
62,465
|
|
||||
Total Financial instruments owned, at fair value
|
2,889,807
|
|
|
—
|
|
|
—
|
|
|
2,889,807
|
|
||||
Securities on deposit with clearing organizations
(4)
|
189,045
|
|
|
—
|
|
|
—
|
|
|
189,045
|
|
||||
Investment in CME Group
(5)
|
3,549
|
|
|
—
|
|
|
—
|
|
|
3,549
|
|
||||
Deferred compensation investments
(5)
|
—
|
|
|
752
|
|
|
—
|
|
|
752
|
|
||||
Investment in Deephaven Funds
(5)
|
—
|
|
|
169
|
|
|
—
|
|
|
169
|
|
||||
Total assets held at fair value
|
$
|
3,082,401
|
|
|
$
|
921
|
|
|
$
|
—
|
|
|
$
|
3,083,322
|
|
Liabilities
|
|
|
|
|
|
|
|
||||||||
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
|
|
||||||||
Equities
(1)
|
$
|
2,011,591
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,011,591
|
|
Listed options
|
158,942
|
|
|
—
|
|
|
—
|
|
|
158,942
|
|
||||
U.S. government obligations
(2)
|
160,646
|
|
|
—
|
|
|
—
|
|
|
160,646
|
|
||||
Corporate debt
(3)
|
70,175
|
|
|
—
|
|
|
—
|
|
|
70,175
|
|
||||
Foreign currency forward contracts
|
—
|
|
|
758
|
|
|
—
|
|
|
758
|
|
||||
Total liabilities held at fair value
|
$
|
2,401,354
|
|
|
$
|
758
|
|
|
$
|
—
|
|
|
$
|
2,402,112
|
|
(1)
|
Equities of
$914.0 million
have been netted by their respective long and short positions by CUSIP number.
|
(2)
|
U.S. Government Obligations of
$0.6 million
have been netted by their respective long and short positions by CUSIP number.
|
(3)
|
Corporate debt of $
0.2 million
have been netted by their respective long and short positions by CUSIP number.
|
(4)
|
Securities on deposit with clearing organizations consist of U.S. government obligations and are recorded within Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition.
|
(5)
|
Investment in CME Group, Deferred compensation investments and Investment in Deephaven Funds are included within Investments on the Consolidated Statements of Financial Condition.
|
|
Assets and Liabilities Measured at
Fair Value on a Recurring Basis
|
||||||||||||||
December 31, 2013
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
Financial instruments owned, at fair value:
|
|
|
|
|
|
|
|
||||||||
Equities
(1)
|
$
|
2,298,785
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,298,785
|
|
Listed options
|
339,798
|
|
|
—
|
|
|
—
|
|
|
339,798
|
|
||||
U.S. government and Non-U.S. government obligations
|
40,053
|
|
|
—
|
|
|
—
|
|
|
40,053
|
|
||||
Corporate debt
|
43,203
|
|
|
—
|
|
|
—
|
|
|
43,203
|
|
||||
Total Financial instruments owned, at fair value
|
2,721,839
|
|
|
—
|
|
|
—
|
|
|
2,721,839
|
|
||||
Securities on deposit with clearing organizations
(2)
|
170,235
|
|
|
—
|
|
|
—
|
|
|
170,235
|
|
||||
Investment in CME Group
(3)
|
3,925
|
|
|
—
|
|
|
—
|
|
|
3,925
|
|
||||
Deferred compensation investments
(3)
|
—
|
|
|
117
|
|
|
—
|
|
|
117
|
|
||||
Investment in Deephaven Funds
(3)
|
—
|
|
|
1,958
|
|
|
—
|
|
|
1,958
|
|
||||
Total assets held at fair value
|
$
|
2,895,999
|
|
|
$
|
2,075
|
|
|
$
|
—
|
|
|
$
|
2,898,074
|
|
Liabilities
|
|
|
|
|
|
|
|
||||||||
Financial instruments sold, not yet purchased, at fair value:
|
|
|
|
|
|
|
|
||||||||
Equities
(1)
|
$
|
1,851,006
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,851,006
|
|
Listed options
|
252,282
|
|
|
—
|
|
|
—
|
|
|
252,282
|
|
||||
U.S. government obligations
|
15,076
|
|
|
—
|
|
|
—
|
|
|
15,076
|
|
||||
Corporate debt
|
42,122
|
|
|
—
|
|
|
—
|
|
|
42,122
|
|
||||
Foreign currency forward contracts
|
—
|
|
|
5,014
|
|
|
—
|
|
|
5,014
|
|
||||
Total liabilities held at fair value
|
$
|
2,160,486
|
|
|
$
|
5,014
|
|
|
$
|
—
|
|
|
$
|
2,165,500
|
|
(2)
|
Securities on deposit with clearing organizations consist of U.S. government obligations and are recorded within Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition.
|
|
|
|
June 30, 2014
|
||||||||||||
|
Financial Statements
|
|
Assets
|
|
Liabilities
|
||||||||||
|
Location
|
|
Fair Value
|
|
Contracts
|
|
Fair Value
|
|
Contracts
|
||||||
Foreign currency
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
$
|
114
|
|
|
359
|
|
|
$
|
163
|
|
|
1,154
|
|
Forward contracts
|
Financial instruments sold, not yet purchased, at fair value
|
|
559
|
|
|
1
|
|
|
1,317
|
|
|
1
|
|
||
Equity
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
1,504
|
|
|
4,548
|
|
|
1,853
|
|
|
3,398
|
|
||
Swap contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
9
|
|
|
1
|
|
|
—
|
|
|
—
|
|
||
Listed options
|
Financial instruments owned/sold, not yet purchased, at fair value
|
|
178,598
|
|
|
550,401
|
|
|
158,942
|
|
|
551,378
|
|
||
Fixed income
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
3,347
|
|
|
20,548
|
|
|
3,124
|
|
|
20,738
|
|
||
Commodity
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
3,189
|
|
|
4,181
|
|
|
3,516
|
|
|
4,351
|
|
||
Total
|
|
|
$
|
187,320
|
|
|
581,038
|
|
|
$
|
168,915
|
|
|
581,020
|
|
|
|
|
December 31, 2013
|
||||||||||||
|
Financial Statements
|
|
Assets
|
|
Liabilities
|
||||||||||
|
Location
|
|
Fair Value
|
|
Contracts
|
|
Fair Value
|
|
Contracts
|
||||||
Foreign currency
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
$
|
89
|
|
|
892
|
|
|
$
|
142
|
|
|
533
|
|
Forward contracts
|
Other assets
|
|
6,913
|
|
|
1
|
|
|
6,501
|
|
|
1
|
|
||
Forward contracts
(1)
|
Financial instruments sold, not yet purchased, at fair value
|
|
—
|
|
|
—
|
|
|
5,014
|
|
|
1
|
|
||
Equity
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
223
|
|
|
1,069
|
|
|
1,089
|
|
|
1,046
|
|
||
Swap contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
—
|
|
|
—
|
|
|
18
|
|
|
1
|
|
||
Listed options
|
Financial instruments owned/sold, not yet purchased, at fair value
|
|
339,798
|
|
|
730,020
|
|
|
252,282
|
|
|
755,947
|
|
||
Fixed income
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
4,815
|
|
|
18,280
|
|
|
2,259
|
|
|
15,202
|
|
||
Commodity
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Receivable from/Payable to brokers, dealers and clearing organizations
|
|
3,392
|
|
|
10,629
|
|
|
1,773
|
|
|
3,806
|
|
||
Total
|
|
|
$
|
355,230
|
|
|
760,891
|
|
|
$
|
269,078
|
|
|
776,537
|
|
(1)
|
Designated as hedging instrument.
|
|
|
|
|
Gain (Loss) Recognized
|
||||||||||||||
|
|
Financial Statements
|
|
For the three months
ended June 30, |
|
For the six months
ended June 30, |
||||||||||||
|
|
Location
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Derivative instruments not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign currency
|
|
|
|
|
|
|
|
|
|
|
||||||||
Futures contracts
|
|
Trading revenues, net
|
|
$
|
2,952
|
|
|
$
|
2,562
|
|
|
$
|
5,794
|
|
|
$
|
5,132
|
|
Forward contracts
|
|
Investment Income (loss) and other, net
|
|
(120
|
)
|
|
75
|
|
|
312
|
|
|
584
|
|
||||
Equity
|
|
|
|
|
|
|
|
|
|
|
||||||||
Futures contracts
|
|
Trading revenues, net
|
|
6,044
|
|
|
16,238
|
|
|
14,781
|
|
|
26,664
|
|
||||
Swap contracts
|
|
Trading revenues, net
|
|
1,061
|
|
|
5,435
|
|
|
2,343
|
|
|
8,871
|
|
||||
Listed options
(1)
|
|
Trading revenues, net
|
|
2,212
|
|
|
28,288
|
|
|
(71,664
|
)
|
|
46,277
|
|
||||
Fixed income
|
|
|
|
|
|
|
|
|
|
|
||||||||
Futures contracts
|
|
Trading revenues, net
|
|
5,118
|
|
|
22,178
|
|
|
13,947
|
|
|
42,202
|
|
||||
Commodity
|
|
|
|
|
|
|
|
|
|
|
||||||||
Futures contracts
|
|
Trading revenues, net
|
|
12,435
|
|
|
13,975
|
|
|
26,005
|
|
|
25,279
|
|
||||
|
|
|
|
$
|
29,702
|
|
|
$
|
88,751
|
|
|
$
|
(8,482
|
)
|
|
$
|
155,009
|
|
Derivative instruments designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Foreign exchange - forward contract
|
|
Accumulated other comprehensive income
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
168
|
|
|
$
|
—
|
|
(1)
|
Realized gains and losses on listed equity options relate to the Company’s market making activities in such options. Such market making activities also comprise trading in the underlying equity securities with gains and losses on such securities generally offsetting the gains and losses reported in this table. Gains and losses on such equity securities are also included in Trading revenues, net on the Company’s Consolidated Statements of Operations.
|
June 30, 2014
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Statements of Financial Condition
|
|
Net Amounts of Assets Presented in the Statements of Financial Condition
|
|
Gross Amounts Not Offset in the Statement of Financial Condition
|
|
Net Amount
|
|||||||||||||||
Financial Instruments
|
|
Cash Collateral
|
||||||||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Listed options
|
$
|
178,598
|
|
|
$
|
—
|
|
|
$
|
178,598
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
178,598
|
|
|
Securities borrowed
|
1,602,467
|
|
|
—
|
|
|
1,602,467
|
|
|
1,562,911
|
|
|
—
|
|
|
39,556
|
|
|||||||
Receivable from brokers, dealers and clearing organizations
(1)
|
13,206
|
|
|
—
|
|
|
13,206
|
|
|
12,991
|
|
|
—
|
|
|
215
|
|
|||||||
Foreign currency forward contracts
|
559
|
|
|
559
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Futures
|
8,154
|
|
|
7,589
|
|
|
565
|
|
|
—
|
|
|
—
|
|
|
565
|
|
|||||||
Total Assets
|
$
|
1,802,984
|
|
|
$
|
8,148
|
|
|
$
|
1,794,836
|
|
|
$
|
1,575,902
|
|
|
$
|
—
|
|
|
$
|
218,934
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Listed options
|
$
|
158,942
|
|
|
$
|
—
|
|
|
$
|
158,942
|
|
|
$
|
—
|
|
|
$
|
15,113
|
|
|
$
|
143,829
|
|
|
Securities loaned
|
824,663
|
|
|
—
|
|
|
824,663
|
|
|
812,001
|
|
|
—
|
|
|
12,662
|
|
|||||||
Financial instruments sold under agreements to repurchase
|
950,110
|
|
|
—
|
|
|
950,110
|
|
|
950,110
|
|
|
—
|
|
|
—
|
|
|||||||
Foreign currency forward contracts
|
1,317
|
|
|
559
|
|
|
758
|
|
|
—
|
|
|
—
|
|
|
758
|
|
|||||||
Futures
|
8,656
|
|
|
8,656
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Total Liabilities
|
$
|
1,943,688
|
|
|
$
|
9,215
|
|
|
$
|
1,934,473
|
|
|
$
|
1,762,111
|
|
|
$
|
15,113
|
|
|
$
|
157,249
|
|
December 31, 2013
|
Gross Amounts Recognized
|
|
Gross Amounts Offset in the Statements of Financial Condition
|
|
Net Amounts of Assets Presented in the Statements of Financial Condition
|
|
Gross Amounts Not Offset in the Statement of Financial Condition
|
|
Net Amount
|
|||||||||||||||
Financial Instruments
|
|
Cash Collateral
|
||||||||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Listed options
|
$
|
339,798
|
|
|
$
|
—
|
|
|
$
|
339,798
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
339,798
|
|
|
Securities borrowed
|
1,357,387
|
|
|
—
|
|
|
1,357,387
|
|
|
1,326,220
|
|
|
—
|
|
|
31,167
|
|
|||||||
Receivable from brokers, dealers and clearing organizations
(1)
|
24,366
|
|
|
—
|
|
|
24,366
|
|
|
24,249
|
|
|
—
|
|
|
117
|
|
|||||||
Foreign currency forward contracts
|
6,913
|
|
|
6,501
|
|
|
412
|
|
|
—
|
|
|
—
|
|
|
412
|
|
|||||||
Futures
|
8,519
|
|
|
4,369
|
|
|
4,150
|
|
|
—
|
|
|
—
|
|
|
4,150
|
|
|||||||
Total Assets
|
$
|
1,736,983
|
|
|
$
|
10,870
|
|
|
$
|
1,726,113
|
|
|
$
|
1,350,469
|
|
|
$
|
—
|
|
|
$
|
375,644
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Listed options
|
$
|
252,282
|
|
|
$
|
—
|
|
|
$
|
252,282
|
|
|
$
|
—
|
|
|
$
|
10,924
|
|
|
$
|
241,358
|
|
|
Securities loaned
|
733,230
|
|
|
—
|
|
|
733,230
|
|
|
726,948
|
|
|
—
|
|
|
6,282
|
|
|||||||
Financial instruments sold under agreements to repurchase
|
640,950
|
|
|
—
|
|
|
640,950
|
|
|
640,948
|
|
|
—
|
|
|
2
|
|
|||||||
Foreign currency forward contracts
|
11,515
|
|
|
6,501
|
|
|
5,014
|
|
|
—
|
|
|
—
|
|
|
5,014
|
|
|||||||
Futures
|
5,263
|
|
|
5,263
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Swaps
|
18
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
—
|
|
|
18
|
|
|||||||
Total Liabilities
|
$
|
1,643,258
|
|
|
$
|
11,764
|
|
|
$
|
1,631,494
|
|
|
$
|
1,367,896
|
|
|
$
|
10,924
|
|
|
$
|
252,674
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Collateral permitted to be delivered or repledged
|
$
|
1,562,642
|
|
|
$
|
1,315,803
|
|
Collateral that was delivered or repledged
|
1,472,862
|
|
|
1,231,468
|
|
||
Collateral permitted to be further repledged by the receiving counterparty
|
266,603
|
|
|
142,938
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Financial instruments owned, at fair value, pledged to counterparties that had the right to deliver or repledge
|
$
|
514,580
|
|
|
$
|
552,242
|
|
Financial instruments owned, at fair value, pledged to counterparties that do not have the right to deliver or repledge
|
913,040
|
|
|
676,956
|
|
|
June 30,
2014 |
|
December 31, 2013
|
||||
Receivable:
|
|
|
|
||||
Clearing organizations and other
|
$
|
883,047
|
|
|
$
|
750,440
|
|
Assets segregated or held in separate accounts under federal or other regulations
|
364,955
|
|
|
304,294
|
|
||
Securities failed to deliver
|
340,924
|
|
|
202,517
|
|
||
Total Receivable
|
$
|
1,588,926
|
|
|
$
|
1,257,251
|
|
Payable:
|
|
|
|
||||
Clearing organizations and other
|
$
|
462,875
|
|
|
$
|
425,196
|
|
Securities failed to receive
|
184,245
|
|
|
48,912
|
|
||
Total Payable
|
$
|
647,120
|
|
|
$
|
474,108
|
|
|
June 30,
2014 |
|
December 31,
2013 |
||||
Strategic investments:
|
|
|
|
||||
Investments accounted for under the equity method
|
$
|
78,719
|
|
|
$
|
110,460
|
|
Investments held at fair value
|
3,549
|
|
|
3,925
|
|
||
Common stock or equivalent of companies representing less than 20% equity ownership held at adjusted cost
|
8,954
|
|
|
8,953
|
|
||
Total Strategic investments
|
91,222
|
|
|
123,338
|
|
||
Deferred compensation investments
|
752
|
|
|
117
|
|
||
Investment in Deephaven Funds
|
169
|
|
|
1,958
|
|
||
Total Investments
|
$
|
92,143
|
|
|
$
|
125,413
|
|
|
June 30,
2014 |
|
December 31, 2013
|
||||
Market Making
|
$
|
16,404
|
|
|
$
|
16,404
|
|
Global Execution Services
|
907
|
|
|
907
|
|
||
Total
|
$
|
17,311
|
|
|
$
|
17,311
|
|
|
June 30,
2014 |
|
December 31, 2013
|
||||
Market Making
|
|
|
|
||||
Technology
|
$
|
50,917
|
|
|
$
|
53,315
|
|
Trading rights
|
46,092
|
|
|
48,920
|
|
||
Total
|
97,009
|
|
|
102,235
|
|
||
Global Execution Services
|
|
|
|
||||
Technology
|
35,166
|
|
|
38,682
|
|
||
Customer relationships
|
31,556
|
|
|
33,278
|
|
||
Trade names
|
3,600
|
|
|
3,800
|
|
||
Total
|
70,322
|
|
|
75,760
|
|
||
Corporate and Other
|
|
|
|
||||
Technology
|
12,000
|
|
|
13,500
|
|
||
Consolidated Total
|
$
|
179,331
|
|
|
$
|
191,495
|
|
|
|
June 30,
2014 |
|
December 31, 2013
|
||||
Technology
(1)
|
Gross carrying amount
|
$
|
125,961
|
|
|
$
|
120,346
|
|
|
Accumulated amortization
|
(27,878
|
)
|
|
(14,849
|
)
|
||
|
Net carrying amount
|
98,083
|
|
|
105,497
|
|
||
Trading rights
(2)
|
Gross carrying amount
|
61,897
|
|
|
62,450
|
|
||
|
Accumulated amortization
|
(15,805
|
)
|
|
(13,530
|
)
|
||
|
Net carrying amount
|
46,092
|
|
|
48,920
|
|
||
Customer relationships
(3)
|
Gross carrying amount
|
35,000
|
|
|
35,000
|
|
||
|
Accumulated amortization
|
(3,444
|
)
|
|
(1,722
|
)
|
||
|
Net carrying amount
|
31,556
|
|
|
33,278
|
|
||
Trade names
(4)
|
Gross carrying amount
|
4,000
|
|
|
4,000
|
|
||
|
Accumulated amortization
|
(400
|
)
|
|
(200
|
)
|
||
|
Net carrying amount
|
3,600
|
|
|
3,800
|
|
||
Total
|
Gross carrying amount
|
226,858
|
|
|
221,796
|
|
||
|
Accumulated amortization
|
(47,527
|
)
|
|
(30,301
|
)
|
||
|
Net carrying amount
|
$
|
179,331
|
|
|
$
|
191,495
|
|
(1)
|
The weighted average remaining life for technology, including capitalized software, was approximately
4
years as of both
June 30, 2014
and
December 31, 2013
.
|
(2)
|
Trading rights provide the Company with the rights to trade on certain exchanges. The weighted average remaining life of trading rights with definite useful lives was approximately
7
and
8
years as of
June 30, 2014
and
December 31, 2013
, respectively. As of
June 30, 2014
and December 31, 2013,
$7.1 million
and
$7.6 million
, respectively, of trading rights had indefinite useful lives.
|
(3)
|
Customer relationships relate to KCG Hotspot and KCG BondPoint. The weighted average remaining life was approximately
9
and
10
years as of
June 30, 2014
and
December 31, 2013
, respectively. Lives may be reduced depending upon actual retention rates.
|
(4)
|
Trade names relate to KCG Hotspot and KCG BondPoint. The weighted average remaining life was approximately
9
and
10
years as of
June 30, 2014
and
December 31, 2013
, respectively.
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Amortization expense
|
$
|
8,732
|
|
|
$
|
1,380
|
|
|
$
|
17,226
|
|
|
$
|
2,759
|
|
|
Amortization
expense
|
||
For the six months ended December 31, 2014
|
$
|
17,646
|
|
For the year ended December 31, 2015
|
34,476
|
|
|
For the year ended December 31, 2016
|
33,398
|
|
|
For the year ended December 31, 2017
|
30,950
|
|
|
For the year ended December 31, 2018
|
19,396
|
|
|
June 30, 2014
|
|
December 31, 2013
|
||||||||||||
|
Carrying Amount
|
|
Fair Value
|
|
Carrying Amount
|
|
Fair Value
|
||||||||
Cash Convertible Senior Subordinated Notes
|
$
|
117,259
|
|
|
$
|
116,086
|
|
|
$
|
117,259
|
|
|
$
|
118,432
|
|
Senior Secured Notes
|
305,000
|
|
|
325,588
|
|
|
305,000
|
|
|
320,823
|
|
||||
First Lien Credit Facility
|
—
|
|
|
—
|
|
|
235,000
|
|
|
235,000
|
|
||||
Total Debt
|
$
|
422,259
|
|
|
$
|
441,674
|
|
|
$
|
657,259
|
|
|
$
|
674,255
|
|
•
|
The completion of the Mergers on July 1, 2013 and the results of the election of the holders of KCG Class A Common Stock to receive cash consideration for such KCG Class A Common Stock constitutes a “Fundamental Change";
|
•
|
Each holder of the Convertible Notes had the right to deliver a “Fundamental Change Repurchase Notice” requiring the Company to repurchase all or any portion of the principal amount of the Convertible Notes at a Fundamental Change Repurchase Price of 100% of the principal amount plus accrued and unpaid interest on August 5, 2013, the Fundamental Change Repurchase Date; and
|
•
|
The Company deposited with the paying agent an amount of money sufficient to repurchase all of the Convertible Notes to be repurchased; and upon payment by the paying agent such Convertible Notes will cease to be outstanding.
|
|
For the three months
ended June 30, |
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Interest expense
|
$
|
7,349
|
|
|
$
|
1,970
|
|
|
$
|
16,765
|
|
|
$
|
2,193
|
|
Amortization of debt issuance cost
(1)
|
2,791
|
|
|
359
|
|
|
11,557
|
|
|
472
|
|
||||
Commitment fee
|
394
|
|
|
8,937
|
|
|
788
|
|
|
8,937
|
|
||||
Total
|
$
|
10,534
|
|
|
$
|
11,266
|
|
|
$
|
29,110
|
|
|
$
|
11,602
|
|
(1)
|
Of the
$2.8 million
of amortization of debt issuance cost incurred during the three months ended June 30, 2014,
$2.0 million
is included in Writedown of debt issuance costs and
$0.8 million
is in Other expenses. Of the
$11.6 million
of amortization of debt issuance cost incurred during the six months ended June 30, 2014,
$9.6 million
is included in Writedown of debt issuance costs and
$2.0 million
is in Other expenses. The writedown amounts were incurred as a result of the
$50.0 million
and
$235.0 million
repayment of the First Lien Credit Facility made during the three and six months ended June 30, 2014, respectively.
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
Statement of Operations
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Revenues
|
|
|
|
|
|
|
|
||||||||
Commissions and fees
|
$
|
2,740
|
|
|
$
|
—
|
|
|
$
|
7,886
|
|
|
$
|
—
|
|
Trading revenues, net
|
541
|
|
|
—
|
|
|
1,355
|
|
|
—
|
|
||||
Interest, net
|
130
|
|
|
—
|
|
|
318
|
|
|
—
|
|
||||
Total revenues from related parties
|
$
|
3,411
|
|
|
$
|
—
|
|
|
$
|
9,559
|
|
|
$
|
—
|
|
Expenses
|
|
|
|
|
|
|
|
||||||||
Execution and clearance fees
(1)
|
$
|
(2,798
|
)
|
|
$
|
(3,732
|
)
|
|
$
|
(7,090
|
)
|
|
$
|
(8,626
|
)
|
Interest expense
|
120
|
|
|
—
|
|
|
279
|
|
|
—
|
|
||||
Other expense
|
434
|
|
|
—
|
|
|
834
|
|
|
—
|
|
||||
Total expenses incurred with respect to related parties
|
$
|
(2,244
|
)
|
|
$
|
(3,732
|
)
|
|
$
|
(5,977
|
)
|
|
$
|
(8,626
|
)
|
Statements of Financial Condition
|
June 30,
2014 |
|
December 31,
2013
|
||||
Assets
|
|
|
|
||||
Securities borrowed
|
$
|
47,667
|
|
|
$
|
57,732
|
|
Receivable from brokers, dealers and clearing organizations
|
98,680
|
|
|
20,826
|
|
||
Other assets
|
—
|
|
|
277
|
|
||
Liabilities
|
|
|
|
||||
Securities loaned
|
$
|
10,992
|
|
|
$
|
116,062
|
|
Payable to brokers, dealers and clearing organizations
|
114,343
|
|
|
17,820
|
|
||
Accrued expenses and other liabilities
|
4,334
|
|
|
179
|
|
|
For the three months
ended June 30, |
|
For the six months
ended June 30, |
||||
|
2014
|
|
2014
|
||||
Stock award compensation expense
|
$
|
14,937
|
|
|
$
|
31,175
|
|
Income tax benefit
|
5,676
|
|
|
11,846
|
|
|
|
Restricted Stock Units
|
|||||
|
|
Number of
Units
|
|
Weighted-
Average
Grant date
Fair Value
|
|||
Outstanding at December 31, 2013
|
|
8,420
|
|
|
$
|
10.71
|
|
Granted
|
|
4,157
|
|
|
11.09
|
|
|
Vested
|
|
(1,119
|
)
|
|
11.11
|
|
|
Forfeited
|
|
(313
|
)
|
|
12.13
|
|
|
Outstanding at June 30, 2014
|
|
11,145
|
|
|
$
|
10.77
|
|
|
For the three months ended June 30, 2014
|
|
For the six months
ended June 30, 2014 |
||||
Stock option and SAR compensation expense
|
$
|
958
|
|
|
$
|
1,920
|
|
Income tax benefit
|
364
|
|
|
730
|
|
|
|
Number of Stock Awards
|
|
Weighted-
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Weighted-
Average
Remaining
Life (years)
|
|||||
Outstanding at December 31, 2013
(1)
|
|
4,967
|
|
|
$
|
18.45
|
|
|
|
|
|
||
Granted at market value
|
|
—
|
|
|
—
|
|
|
|
|
|
|||
Exercised
|
|
—
|
|
|
—
|
|
|
|
|
|
|||
Forfeited or expired
|
|
(123
|
)
|
|
38.77
|
|
|
|
|
|
|||
Outstanding at June 30, 2014
(1)
|
|
4,844
|
|
|
$
|
17.93
|
|
|
$
|
3,752
|
|
|
3.83
|
Exercisable at June 30, 2014
|
|
521
|
|
|
$
|
40.75
|
|
|
$
|
—
|
|
|
2.12
|
Available for future grants at June 30, 2014
(2)
|
|
15,509
|
|
|
|
|
|
|
|
|
Vested
|
|
Incentive units at December 31, 2013
|
49
|
|
Issued
|
—
|
|
Vested
|
—
|
|
Exercised
|
(6
|
)
|
Canceled
|
—
|
|
Incentive units at June 30, 2014
|
43
|
|
|
For the three months
ended June 30, |
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Class B and E units
|
$
|
—
|
|
|
$
|
16,942
|
|
|
$
|
—
|
|
|
$
|
19,860
|
|
Incentive units
|
(14
|
)
|
|
1,884
|
|
|
(188
|
)
|
|
2,293
|
|
||||
Total
|
$
|
(14
|
)
|
|
$
|
18,826
|
|
|
$
|
(188
|
)
|
|
$
|
22,153
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
|
|
|
|
|
|
|
|
||||||||
U.S. federal statutory income tax expense (benefit)
|
$
|
5,077
|
|
|
$
|
(26,193
|
)
|
|
$
|
25,862
|
|
|
$
|
(27,893
|
)
|
Income not subject to U.S. corporate income tax
|
—
|
|
|
27,461
|
|
|
—
|
|
|
29,206
|
|
||||
U.S. state and local income taxes, net of U.S. federal income tax effect
|
676
|
|
|
247
|
|
|
1,956
|
|
|
473
|
|
||||
Nondeductible expenses
(1)
|
211
|
|
|
132
|
|
|
414
|
|
|
170
|
|
||||
Foreign taxes
|
(165
|
)
|
|
1,761
|
|
|
(102
|
)
|
|
3,559
|
|
||||
Other, net
|
(279
|
)
|
|
(93
|
)
|
|
(143
|
)
|
|
(226
|
)
|
||||
Income tax expense
|
$
|
5,520
|
|
|
$
|
3,315
|
|
|
$
|
27,987
|
|
|
$
|
5,289
|
|
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||
Balance March 31, 2014
|
|
$
|
(101
|
)
|
|
$
|
1,566
|
|
|
$
|
1,465
|
|
Other comprehensive income (loss)
|
|
(96
|
)
|
|
291
|
|
|
195
|
|
|||
Balance June 30, 2014
|
|
$
|
(197
|
)
|
|
$
|
1,857
|
|
|
$
|
1,660
|
|
|
|
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||
Balance December 31, 2013
|
|
$
|
36
|
|
|
$
|
1,365
|
|
|
$
|
1,401
|
|
Other comprehensive income (loss)
|
|
(233
|
)
|
|
492
|
|
|
259
|
|
|||
Balance June 30, 2014
|
|
$
|
(197
|
)
|
|
$
|
1,857
|
|
|
$
|
1,660
|
|
|
|
Unrealized Gains on Available-for-Sale Securities
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||
Balance March 31, 2013
|
|
$
|
126,263
|
|
|
$
|
84
|
|
|
$
|
126,347
|
|
Other comprehensive loss
|
|
(7,394
|
)
|
|
(487
|
)
|
|
(7,881
|
)
|
|||
Balance June 30, 2013
|
|
$
|
118,869
|
|
|
$
|
(403
|
)
|
|
$
|
118,466
|
|
|
|
Unrealized Gains on Available-for-Sale Securities
|
|
Foreign Currency Translation Adjustments
|
|
Total
|
||||||
Balance December 31, 2012
|
|
$
|
114,319
|
|
|
$
|
—
|
|
|
$
|
114,319
|
|
Other comprehensive income (loss)
|
|
4,550
|
|
|
(403
|
)
|
|
4,147
|
|
|||
Balance June 30, 2013
|
|
$
|
118,869
|
|
|
$
|
(403
|
)
|
|
$
|
118,466
|
|
|
For the three months ended June 30,
|
||||||||||||||
|
2014
|
|
2013
|
||||||||||||
|
Numerator /
net income |
|
Denominator /
shares
|
|
Numerator /
net (loss)
|
|
Denominator /
shares
|
||||||||
Income (loss) from continuing operations and shares used in basic calculations
|
$
|
8,987
|
|
|
114,859
|
|
|
$
|
(78,151
|
)
|
|
45,576
|
|
||
Effect of dilutive stock based awards
|
|
|
2,742
|
|
|
|
|
—
|
|
||||||
Income (loss) from continuing operations and shares used in diluted calculations
|
$
|
8,987
|
|
|
117,601
|
|
|
$
|
(78,151
|
)
|
|
45,576
|
|
||
Loss from continuing operations allocated to preferred and participating units
|
$
|
—
|
|
|
|
|
$
|
(21,535
|
)
|
|
|
||||
Income (loss) from continuing operations attributable to common shareholders
|
$
|
8,987
|
|
|
|
|
$
|
(56,616
|
)
|
|
|
||||
Basic earnings (loss) per common share from continuing operations
|
|
|
$
|
0.08
|
|
|
|
|
$
|
(1.24
|
)
|
||||
Diluted earnings (loss) per common share from continuing operations
|
|
|
$
|
0.08
|
|
|
|
|
$
|
(1.24
|
)
|
|
For the six months ended June 30,
|
||||||||||||||
|
2014
|
|
2013
|
||||||||||||
|
Numerator /
net income |
|
Denominator /
shares
|
|
Numerator /
net (loss)
|
|
Denominator /
shares
|
||||||||
Income (loss) from continuing operations and shares used in basic calculations
|
$
|
45,904
|
|
|
115,282
|
|
|
$
|
(84,983
|
)
|
|
45,514
|
|
||
Effect of dilutive stock based awards
|
|
|
2,888
|
|
|
|
|
—
|
|
||||||
Income (loss) from continuing operations and shares used in diluted calculations
|
$
|
45,904
|
|
|
118,170
|
|
|
$
|
(84,983
|
)
|
|
45,514
|
|
||
Loss from continuing operations allocated to preferred and participating units
|
$
|
—
|
|
|
|
|
$
|
(21,535
|
)
|
|
|
||||
Income (loss) from continuing operations attributable to common shareholders
|
$
|
45,904
|
|
|
|
|
$
|
(63,448
|
)
|
|
|
||||
Basic earnings (loss) per common share from continuing operations
|
|
|
$
|
0.40
|
|
|
|
|
$
|
(1.39
|
)
|
||||
Diluted earnings (loss) per common share from continuing operations
|
|
|
$
|
0.39
|
|
|
|
|
$
|
(1.39
|
)
|
|
Minimum Payments
|
||
Six months ending December 31, 2014
|
$
|
4,226
|
|
2015
|
3,686
|
|
|
2016
|
1,614
|
|
|
2017
|
322
|
|
|
Total
|
$
|
9,848
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Interest expense - Capital leases
|
$
|
102
|
|
|
$
|
201
|
|
|
$
|
190
|
|
|
$
|
451
|
|
|
Gross Lease
Obligations
|
|
Sublease
Income
|
|
Net Lease
Obligations
|
||||||
Six months ending December 31, 2014
|
$
|
15,407
|
|
|
$
|
2,042
|
|
|
$
|
13,365
|
|
Year ending December 31, 2015
|
29,530
|
|
|
4,914
|
|
|
24,616
|
|
|||
Year ending December 31, 2016
|
29,183
|
|
|
4,850
|
|
|
24,333
|
|
|||
Year ending December 31, 2017
|
27,640
|
|
|
4,426
|
|
|
23,214
|
|
|||
Year ending December 31, 2018
|
26,796
|
|
|
2,720
|
|
|
24,076
|
|
|||
Thereafter through December 31, 2027
|
82,676
|
|
|
12,521
|
|
|
70,155
|
|
|||
Total
|
$
|
211,232
|
|
|
$
|
31,473
|
|
|
$
|
179,759
|
|
|
Market
Making
|
|
Global Execution Services
|
|
Corporate
and Other
|
|
Consolidated
Total
|
||||||||
For the three months ended June 30, 2014:
|
|
|
|
|
|
|
|
||||||||
Revenues
|
$
|
218,446
|
|
|
$
|
85,903
|
|
|
$
|
9,784
|
|
|
$
|
314,133
|
|
Pre-tax earnings
|
36,004
|
|
|
736
|
|
|
(22,233
|
)
|
|
14,507
|
|
||||
Total assets
|
4,303,928
|
|
|
1,560,919
|
|
|
1,797,627
|
|
|
7,662,474
|
|
||||
For the three months ended June 30, 2013:
|
|
|
|
|
|
|
|
||||||||
Revenues
|
$
|
113,501
|
|
|
$
|
13,060
|
|
|
$
|
(6,928
|
)
|
|
$
|
119,633
|
|
Pre-tax earnings
|
1,922
|
|
|
(3,121
|
)
|
|
(73,637
|
)
|
|
(74,836
|
)
|
||||
Total assets
|
1,924,622
|
|
|
20,666
|
|
|
245,413
|
|
|
2,190,701
|
|
||||
For the six months ended June 30, 2014:
|
|
|
|
|
|
|
|
||||||||
Revenues
|
$
|
495,792
|
|
|
$
|
173,123
|
|
|
$
|
28,875
|
|
|
$
|
697,790
|
|
Pre-tax earnings
|
112,036
|
|
|
2,752
|
|
|
(40,897
|
)
|
|
73,891
|
|
||||
Total assets
|
4,303,928
|
|
|
1,560,919
|
|
|
1,797,627
|
|
|
7,662,474
|
|
||||
For the six months ended June 30, 2013:
|
|
|
|
|
|
|
|
||||||||
Revenues
|
$
|
215,568
|
|
|
$
|
22,334
|
|
|
$
|
(3,277
|
)
|
|
$
|
234,625
|
|
Pre-tax earnings
|
7,809
|
|
|
(4,948
|
)
|
|
(82,555
|
)
|
|
(79,694
|
)
|
||||
Total assets
|
1,924,622
|
|
|
20,666
|
|
|
245,413
|
|
|
2,190,701
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Market Making— Our Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, foreign currencies and commodities. As a market maker, we commit capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, institutions and banks. Principal trading in the Market Making segment primarily consists of direct-to-client and non-client exchange-based electronic market making, including trade executions conducted as an equities Designated Market Maker (“DMM”) on the New York Stock Exchange ("NYSE") and NYSE Amex Equities ("NYSE Amex"). We are an active participant on all major global equity and futures exchanges and also trade on substantially all domestic electronic options exchanges. As a complement to electronic market making, our cash trading business handles specialized orders and also transacts on the OTC Bulletin Board, marketplaces operated by the OTC Markets Group Inc. and the Alternative Investment Market (“AIM”) of the London Stock Exchange.
|
•
|
Global Execution Services— Our Global Execution Services segment comprises agency execution services and trading venues, offering trading in global equities, options, foreign exchange, fixed income and futures to institutions, banks and broker dealers. We generally earn commissions as an agent between principals to transactions that are executed within this segment, however, we will commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variation of
|
•
|
Corporate and Other— Our Corporate and Other segment invests principally in strategic financial services-oriented opportunities, allocates, deploys and monitors all capital, and maintains corporate overhead expenses and all other income and expenses that are not attributable to the other segments. Our Corporate and Other segment also contains functions that support our other segments such as self-clearing services, including stock lending activities.
|
|
|
For the three months ended June 30,
|
|
For the six months ended June 30,
|
||||||||||||
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
||||||||
Market Making
|
|
|
|
|
|
|
|
|
||||||||
Revenues
|
|
$
|
218,446
|
|
|
$
|
113,501
|
|
|
$
|
495,792
|
|
|
$
|
215,568
|
|
Expenses
|
|
182,442
|
|
|
111,579
|
|
|
383,756
|
|
|
207,759
|
|
||||
Pre-tax earnings
|
|
36,004
|
|
|
1,922
|
|
|
112,036
|
|
|
7,809
|
|
||||
Global Execution Services
|
|
|
|
|
|
|
|
|
||||||||
Revenues
|
|
85,903
|
|
|
13,060
|
|
|
173,123
|
|
|
22,334
|
|
||||
Expenses
|
|
85,167
|
|
|
16,181
|
|
|
170,371
|
|
|
27,282
|
|
||||
Pre-tax earnings (loss)
|
|
736
|
|
|
(3,121
|
)
|
|
2,752
|
|
|
(4,948
|
)
|
||||
Corporate and Other
|
|
|
|
|
|
|
|
|
||||||||
Revenues
|
|
9,784
|
|
|
(6,928
|
)
|
|
28,875
|
|
|
(3,277
|
)
|
||||
Expenses
|
|
32,017
|
|
|
66,709
|
|
|
69,772
|
|
|
79,278
|
|
||||
Pre-tax loss
|
|
(22,233
|
)
|
|
(73,637
|
)
|
|
(40,897
|
)
|
|
(82,555
|
)
|
||||
Consolidated
|
|
|
|
|
|
|
|
|
||||||||
Revenues
|
|
314,133
|
|
|
119,633
|
|
|
697,790
|
|
|
234,625
|
|
||||
Expenses
|
|
299,626
|
|
|
194,469
|
|
|
623,899
|
|
|
314,319
|
|
||||
Pre-tax earnings (loss)
|
|
$
|
14,507
|
|
|
$
|
(74,836
|
)
|
|
$
|
73,891
|
|
|
$
|
(79,694
|
)
|
Three months ended June 30, 2014
|
|
Market Making
|
|
Global
Execution
Services
|
|
Corporate and
Other
|
|
Consolidated
|
||||||||
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
|
|
|
|
|
|
|
|
|
||||||||
GAAP Income (loss) from continuing operations before income taxes
|
|
$
|
36,004
|
|
|
$
|
736
|
|
|
$
|
(22,233
|
)
|
|
$
|
14,507
|
|
Writedown of capitalized debt costs
|
|
—
|
|
|
—
|
|
|
1,995
|
|
|
1,995
|
|
||||
Compensation related to reduction in workforce
|
|
383
|
|
|
1,886
|
|
|
800
|
|
|
3,069
|
|
||||
Writedown of assets and lease loss accrual
|
|
452
|
|
|
—
|
|
|
1,489
|
|
|
1,941
|
|
||||
Adjusted pre-tax earnings
|
|
$
|
36,839
|
|
|
$
|
2,622
|
|
|
$
|
(17,949
|
)
|
|
$
|
21,512
|
|
Three months ended June 30, 2013
|
|
Market Making
|
|
Global
Execution
Services
|
|
Corporate and
Other
|
|
Consolidated
|
||||||||
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
|
|
|
|
|
|
|
|
|
||||||||
GAAP Income (loss) from continuing operations before income taxes
|
|
$
|
1,922
|
|
|
$
|
(3,121
|
)
|
|
$
|
(73,637
|
)
|
|
$
|
(74,836
|
)
|
Professional and other fees related to Mergers
|
|
—
|
|
|
—
|
|
|
33,299
|
|
|
33,299
|
|
||||
Compensation and other expenses related to Mergers
|
|
—
|
|
|
—
|
|
|
22,031
|
|
|
22,031
|
|
||||
Compensation and other expenses related to reduction in workforce
|
|
1,852
|
|
|
335
|
|
|
—
|
|
|
2,187
|
|
||||
Impairment of strategic asset
|
|
—
|
|
|
—
|
|
|
9,184
|
|
|
9,184
|
|
||||
Writedown of assets and lease loss accrual
|
|
—
|
|
|
—
|
|
|
1,074
|
|
|
1,074
|
|
||||
Adjusted pre-tax earnings
|
|
$
|
3,774
|
|
|
$
|
(2,786
|
)
|
|
$
|
(8,049
|
)
|
|
$
|
(7,061
|
)
|
Six months ended June 30, 2014
|
|
Market Making
|
|
Global
Execution
Services
|
|
Corporate and
Other
|
|
Consolidated
|
||||||||
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
|
|
|
|
|
|
|
|
|
||||||||
GAAP Income (loss) from continuing operations before income taxes
|
|
$
|
112,036
|
|
|
$
|
2,752
|
|
|
$
|
(40,897
|
)
|
|
$
|
73,891
|
|
Writedown of capitalized debt costs
|
|
—
|
|
|
—
|
|
|
9,552
|
|
|
9,552
|
|
||||
Income resulting from merger of BATS and Direct Edge, net
|
|
—
|
|
|
—
|
|
|
(9,644
|
)
|
|
(9,644
|
)
|
||||
Compensation related to reduction in workforce
|
|
383
|
|
|
1,886
|
|
|
800
|
|
|
3,069
|
|
||||
Writedown of assets and lease loss accrual, net
|
|
811
|
|
|
—
|
|
|
1,396
|
|
|
2,207
|
|
||||
Adjusted pre-tax earnings
|
|
$
|
113,230
|
|
|
$
|
4,638
|
|
|
$
|
(38,793
|
)
|
|
$
|
79,075
|
|
Six months ended June 30, 2013
|
|
Market Making
|
|
Global
Execution
Services
|
|
Corporate and
Other
|
|
Consolidated
|
||||||||
Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax:
|
|
|
|
|
|
|
|
|
||||||||
GAAP Income (loss) from continuing operations before income taxes
|
|
$
|
7,809
|
|
|
$
|
(4,948
|
)
|
|
$
|
(82,555
|
)
|
|
$
|
(79,694
|
)
|
Professional and other fees related to Mergers
|
|
—
|
|
|
—
|
|
|
38,875
|
|
|
38,875
|
|
||||
Compensation and other expenses related to Mergers
|
|
—
|
|
|
—
|
|
|
22,031
|
|
|
22,031
|
|
||||
Compensation and other expenses related to reduction in workforce
|
|
3,963
|
|
|
865
|
|
|
378
|
|
|
5,206
|
|
||||
Impairment of strategic asset
|
|
—
|
|
|
—
|
|
|
9,184
|
|
|
9,184
|
|
||||
Writedown of assets and lease loss accrual
|
|
—
|
|
|
—
|
|
|
3,312
|
|
|
3,312
|
|
||||
Adjusted pre-tax earnings
|
|
$
|
11,772
|
|
|
$
|
(4,083
|
)
|
|
$
|
(8,775
|
)
|
|
$
|
(1,086
|
)
|
•
|
Market Making
— Our adjusted pre-tax earnings from Market Making for the
three months ended June 30, 2014
was
$36.8 million
, compared to adjusted pre-tax earnings of
$3.8 million
for the comparable period in 2013. Our adjusted pre-tax earnings from Market Making for the
six months ended June 30, 2014
was
$113.2 million
, compared to adjusted pre-tax earnings of
$11.8 million
for the comparable period in 2013. Results
|
•
|
Global Execution Services
— Our adjusted pre-tax earnings from Global Execution Services for the
three months ended June 30, 2014
was
$2.6 million
, compared to an adjusted pre-tax loss of
$2.8 million
for the comparable period in 2013. Our adjusted pre-tax earnings from Global Execution Services for the
six months ended June 30, 2014
was
$4.6 million
, compared to an adjusted pre-tax loss of
$4.1 million
for the comparable period in 2013. Despite a quarter in which market volumes across many products declined, results for the current quarter and first six months of 2014 were aided by the acquisition of Knight. In the first half of 2014, the Global Execution Services segment included solid results from businesses included in the Knight acquisition such as KCG Hotspot, KCG Bondpoint as well as KCG EMS, which includes Knight Direct and GETAlpha.
|
•
|
Corporate and Other
—Our adjusted pre-tax earnings from our Corporate and Other segment was a loss of
$17.9 million
for the
three months ended June 30, 2014
compared to a loss of
$8.0 million
for the comparable period in 2013. Our adjusted pre-tax earnings from our Corporate and Other segment was a loss of
$38.8 million
for the
six months ended June 30, 2014
compared to a loss of
$8.8 million
for the comparable period in 2013. A larger infrastructure, including additional corporate employees, a stock lending business and other required costs associated with being a public company all contributed to the additional expense within this segment.
|
•
|
Clients continue to focus on statistics measuring the quality of equity executions (including speed of execution and price improvement). In an effort to improve the quality of their executions as well as increase efficiencies, market makers continue to increase the level of sophistication and automation within their operations and the extent of price improvement. The continued focus on execution quality has resulted in greater competition in the marketplace, which, along with market structure changes and market conditions, has negatively impacted the revenue capture and margin metrics of the Company and other market making firms.
|
•
|
Market Making and Global Execution Services transaction volumes executed by clients have fluctuated over the past few years due to retail and institutional investor sentiment, market conditions and a variety of other factors. Market Making and Global Execution Services transaction volumes may not be sustainable and are not predictable.
|
•
|
Over the past several years exchanges have become far more competitive, and market participants have created ATS, ECNs and other execution venues which compete with the OTC and listed trading venues. Initiatives by these and other market participants could draw market share away from the Company, and thus negatively impact our business. In addition, there are many new entrants into the market, including ATS, Multilateral Trading Facilities, systematic internalizers, dark liquidity pools, high frequency trading firms, and market making firms competing for retail and institutional order flow. Further, many broker dealers offer their own internal crossing networks. These factors continue to create further fragmentation and competition in the marketplace.
|
•
|
Market structure changes, competition, market conditions and a steady increase in electronic trading have resulted in a reduction in institutional commission rates and volumes which may continue in the future. Additionally, many institutional clients allocate commissions to broker dealers based not only on the quality of executions, but also in exchange for research, or participation in soft dollar and commission recapture programs.
|
•
|
There continues to be growth in electronic trading, including direct market access platforms, algorithmic and program trading, high frequency trading ECNs, ATS and dark liquidity pools. In addition, electronic trading continues to expand to other asset classes, including options, currencies and fixed income. The expansion of electronic trading may result in the growth of innovative electronic products and competition for order flow and may further reduce demand for traditional institutional voice services.
|
•
|
Market structure changes, competition and technology advancements have led to an industry focus on increasing execution speeds and a dramatic increase in electronic message traffic. Increases in execution speeds and message traffic require additional expenditures for technology infrastructure and place heavy strains on the technology resources, bandwidth and capacities of market participants. Additionally, the expansion by market participants into trading of non-equities products offers similar challenges.
|
•
|
There has been increased scrutiny of the capital markets industry by the regulatory and legislative authorities, both in the U.S. and abroad, which could result in increased regulatory costs in the future. As has been widely reported, there has been an increased focus by regulators, the New York Attorney General, Congress and the media on market structure issues, and in particular, high frequency trading, ATS manner of operations, market fragmentation and complexity, colocation, access to market data feeds and remuneration
|
•
|
We expect increases, possibly substantial, in Section 31 fees and fees imposed by other regulators. In addition, the Depository Trust & Clearing Corporation ("DTCC") and National Securities Clearing Corporation ("NSCC") are considering proposals which could require substantial increases in clearing margin, liquidity and collateral requirements.
|
•
|
The Dodd-Frank Act affects nearly all financial institutions that operate in the U.S. While the weight of the Dodd-Frank Act falls more heavily on large, complex financial institutions, smaller institutions will continue to face a more complicated and expensive regulatory framework.
|
|
For the three months
ended June 30, |
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
Change
|
|
% of Change
|
|||||||
Trading revenues, net (thousands)
|
$
|
199,053
|
|
|
$
|
98,241
|
|
|
$
|
100,813
|
|
|
102.6
|
%
|
Commissions and fees (thousands)
|
25,829
|
|
|
16,753
|
|
|
9,075
|
|
|
54.2
|
%
|
|||
Interest, net and other (thousands)
|
(6,436
|
)
|
|
(1,493
|
)
|
|
(4,943
|
)
|
|
N/M
|
|
|||
Total Revenues from Market Making (thousands)
|
$
|
218,446
|
|
|
$
|
113,501
|
|
|
104,945
|
|
|
92.5
|
%
|
|
For the three months
ended June 30, |
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
Change
|
|
% of Change
|
|||||||
Commissions and fees (thousands)
|
$
|
78,947
|
|
|
$
|
13,060
|
|
|
$
|
65,887
|
|
|
504.5
|
%
|
Trading revenues, net (thousands)
|
7,836
|
|
|
19
|
|
|
7,817
|
|
|
N/M
|
|
|||
Interest, net and other (thousands)
|
(881
|
)
|
|
(19
|
)
|
|
(862
|
)
|
|
N/M
|
|
|||
Total Revenues from Global Execution Services (thousands)
|
$
|
85,903
|
|
|
$
|
13,060
|
|
|
72,843
|
|
|
557.8
|
%
|
|
For the three months
ended June 30, |
|
|
|
|
||||||||
|
2014
|
|
2013
|
|
Change
|
|
% of Change
|
||||||
Total Revenues from Corporate and Other (thousands)
|
$
|
9,784
|
|
|
$
|
(6,928
|
)
|
|
$
|
16,712
|
|
|
N/M
|
|
For the six months
ended June 30, |
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
Change
|
|
% of Change
|
|||||||
Trading revenues, net (thousands)
|
$
|
53,997
|
|
|
$
|
32,978
|
|
|
$
|
21,019
|
|
|
63.7
|
%
|
Commissions and fees (thousands)
|
453,685
|
|
|
184,996
|
|
|
268,689
|
|
|
145.2
|
%
|
|||
Interest, net and other (thousands)
|
(11,890
|
)
|
|
(2,405
|
)
|
|
(9,485
|
)
|
|
N/M
|
|
|||
Total Revenues from Market Making (thousands)
|
$
|
495,792
|
|
|
$
|
215,568
|
|
|
280,224
|
|
|
130.0
|
%
|
|
For the six months
ended June 30, |
|
|
|
|
|||||||||
|
2014
|
|
2013
|
|
Change
|
|
% of Change
|
|||||||
Commissions and fees (thousands)
|
$
|
163,036
|
|
|
$
|
22,334
|
|
|
$
|
140,701
|
|
|
630.0
|
%
|
Trading revenues, net (thousands)
|
11,585
|
|
|
28
|
|
|
11,557
|
|
|
N/M
|
|
|||
Interest, net and other (thousands)
|
(1,498
|
)
|
|
(28
|
)
|
|
(1,470
|
)
|
|
N/M
|
|
|||
Total Revenues from Global Execution Services (thousands)
|
$
|
173,123
|
|
|
$
|
22,334
|
|
|
150,789
|
|
|
675.2
|
%
|
|
For the six months
ended June 30, |
|
|
|
|
||||||||
|
2014
|
|
2013
|
|
Change
|
|
% of Change
|
||||||
Total Revenues from Corporate and Other (thousands)
|
$
|
28,875
|
|
|
$
|
(3,277
|
)
|
|
$
|
32,152
|
|
|
N/M
|
|
June 30,
2014 |
|
December 31, 2013
|
||||
Cash and cash equivalents
|
$
|
600,865
|
|
|
$
|
674,281
|
|
Financial instruments owned, at fair value:
|
|
|
|
||||
Equities
|
2,620,427
|
|
|
2,298,785
|
|
||
Listed options
|
178,598
|
|
|
339,798
|
|
||
Debt securities
|
90,782
|
|
|
83,256
|
|
||
Collateralized agreements:
|
|
|
|
||||
Securities borrowed
|
1,602,467
|
|
|
1,357,387
|
|
||
Receivable from brokers, dealers and clearing organizations
(1)
|
883,047
|
|
|
750,440
|
|
||
Total cash and assets readily convertible to cash
|
$
|
5,976,186
|
|
|
$
|
5,503,947
|
|
•
|
The completion of the Mergers on July 1, 2013 and the results of the election of the holders of KCG Class A Common Stock to receive cash consideration for such KCG Class A Common Stock constitutes a “Fundamental Change";
|
•
|
Each holder of the Convertible Notes had the right to deliver a “Fundamental Change Repurchase Notice” requiring the Company to repurchase all or any portion of the principal amount of the Convertible Notes at a Fundamental Change Repurchase Price of 100% of the principal amount plus accrued and unpaid interest on August 5, 2013, the Fundamental Change Repurchase Date; and
|
•
|
The Company deposited with the paying agent an amount of money sufficient to repurchase all of the Convertible Notes to be repurchased; and upon payment by the paying agent such Convertible Notes will cease to be outstanding.
|
Entity
|
|
Net Capital
|
|
Net Capital
Requirement
|
|
Excess Net
Capital
|
||||||
KCG Americas LLC
|
|
$
|
326,935
|
|
|
$
|
31,208
|
|
|
$
|
295,727
|
|
Entity
|
|
Financial
Resources
|
|
Resource
Requirement
|
|
Excess
Financial
Resources
|
||||||
KCG Europe Limited
|
|
$
|
222,416
|
|
|
$
|
177,749
|
|
|
$
|
44,667
|
|
GETCO Europe Limited
|
|
11,480
|
|
|
4,688
|
|
|
6,792
|
|
•
|
Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
|
•
|
Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
•
|
Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
|
June 30,
2014 |
|
December 31, 2013
|
||||
Liquidity Pool Composition
|
|
|
|
||||
Holding companies
|
|
|
|
||||
Cash held at banks
|
$
|
210,689
|
|
|
$
|
225,597
|
|
Money market and other highly liquid investments
|
97,967
|
|
|
27,420
|
|
||
KCGA
|
|
|
|
||||
Cash held at banks
|
106,303
|
|
|
19,605
|
|
||
Money market and other highly liquid investments
|
22,597
|
|
|
130,395
|
|
||
Total Liquidity Pool
|
$
|
437,556
|
|
|
$
|
403,017
|
|
Cash and other highly liquid investments held by other subsidiary entities
|
$
|
163,309
|
|
|
$
|
271,264
|
|
Item 4.
|
Controls and Procedures
|
PART II
|
OTHER INFORMATION
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Period
|
|
Total Number of
Shares Purchased
|
|
Average
Price Paid
per Share
|
|
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
(1)
|
|
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the Plans or
Programs
|
||||||
April 1, 2014 - April 30, 2014
|
|
|
|
|
|
|
|
|
||||||
Common stock repurchases
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|||
Employee transactions
(2)
|
|
2
|
|
|
|
|
—
|
|
|
|
||||
Total
|
|
2
|
|
|
$
|
9.96
|
|
|
—
|
|
|
|
||
May 1, 2014 - May 31, 2014
|
|
|
|
|
|
|
|
|
||||||
Common stock repurchases
|
|
2,381
|
|
|
|
|
2,381
|
|
|
$
|
122,332
|
|
||
Employee transactions
(2)
|
|
3
|
|
|
|
|
—
|
|
|
|
||||
Total
|
|
2,384
|
|
|
$
|
11.62
|
|
|
2,381
|
|
|
|
||
June 1, 2014 - June 30, 2014
|
|
|
|
|
|
|
|
|
||||||
Common stock repurchases
|
|
2,114
|
|
|
|
|
2,114
|
|
|
$
|
97,123
|
|
||
Employee transactions
(2)
|
|
52
|
|
|
|
|
—
|
|
|
|
||||
Total
|
|
2,166
|
|
|
$
|
11.92
|
|
|
2,114
|
|
|
|
||
Total
|
|
|
|
|
|
|
|
|
||||||
Common stock repurchases
|
|
4,495
|
|
|
|
|
4,495
|
|
|
|
||||
Employee transactions
(2)
|
|
58
|
|
|
|
|
—
|
|
|
|
||||
Total
|
|
4,553
|
|
|
$
|
11.76
|
|
|
4,495
|
|
|
|
Item 3.
|
Defaults Upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
NUMBER ASSIGNED
TO EXHIBIT (I.E. 601
OF REGULATION S-K)
|
|
DESCRIPTION OF EXHIBITS
|
|
|
|
31.1*
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2*
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1*
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.2*
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
101**
|
|
The following financial statements from KCG Holdings, Inc's Quarterly Report on Form 10-Q for the three months ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (ii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iii) Consolidated Statements of Financial Condition at June 30, 2014 and December 31, 2013, (iv) Consolidated Statement of Changes in Equity for the six months ended June 30, 2014, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 and (vi) the Notes to Consolidated Financial Statements.
|
|
|
|
*
|
Filed herewith.
|
**
|
Pursuant to rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
|
KCG HOLDINGS, INC.
|
|
|
|
By:
|
/s/ DANIEL COLEMAN
|
|
Daniel Coleman
|
|
Chief Executive Officer
|
|
|
By:
|
/s/ STEVEN BISGAY
|
|
Steven Bisgay
|
|
Chief Financial Officer
|
1 Year KCG Holdings, Inc. Chart |
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