KCG 2014.12.31 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________________

FORM 10-K



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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2014



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

000-54991

Commission File Number

KCG HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

(State or other jurisdiction of incorporation or organization)

38-3898306

(I.R.S. Employer Identification Number)

545 Washington Boulevard, Jersey City, NJ 07310

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (201) 222-9400

_______________________________________________

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Name of each exchange on which registered
Class A Common Stock, $0.01 par value	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

_______________________________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No ý

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 x No ¨

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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ý No ¨

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	ý	Accelerated filer	¨

Non-accelerated filer	¨	Smaller reporting company	¨

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

The aggregate market value of the Class A Common Stock held by nonaffiliates of the Registrant was approximately $866.8 million at June 30, 2014 based upon the closing price for shares of KCG's Class A Common Stock as reported by the New York Stock Exchange.

At February 25, 2015, the number of shares outstanding of the Registrant’s Class A Common Stock was 118,439,414 (including restricted stock units) and there were no shares outstanding of the Registrant’s Class B Common Stock or Preferred Stock.

___________________________________

DOCUMENTS INCORPORATED BY REFERENCE

Definitive Proxy Statement relating to the Company’s 2015 Annual Meeting of Stockholders to be filed hereafter (incorporated, in part, into Part III hereof).

EXPLANATORY NOTE

On July 1, 2013, Knight Capital Group, Inc. (“Knight”), through a series of transactions (the "Mergers"), merged with GETCO Holding Company, LLC (“GETCO”) to form KCG Holdings, Inc. ("KCG"). The Mergers were consummated pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of December 19, 2012 and amended and restated as of April 15, 2013 (the "Merger Agreement"). Following the Mergers, each of Knight and GETCO became a wholly-owned subsidiary of KCG.

All references herein to the "Company", "we", "our" or "KCG" relate solely to KCG and not Knight or GETCO. All references to GETCO relate solely to GETCO Holding Company, LLC and not KCG.

The Mergers were treated as a purchase of Knight by GETCO for accounting and financial reporting purposes. As a result, the financial results for the year ended December 31, 2013 comprise six months of results of KCG plus six months of GETCO and the financial results for the year ended December 31, 2014 comprise the results of KCG. All periods prior to 2013 reflect solely the results and financial condition of GETCO.

All GETCO earnings per share and unit share outstanding amounts in this Annual Report on Form 10-K have been calculated as if the conversion of GETCO units to KCG Class A Common Stock took place on January 1, 2012, at the exchange ratio, as defined in the Merger Agreement.

KCG HOLDINGS, INC.

FORM 10-K ANNUAL REPORT

For the Year Ended December 31, 2014

TABLE OF CONTENTS



		Page

PART I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	26

PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	30
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	57
Item 8.	Financial Statements and Supplementary Data	62
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures	119
Item 9A.	Controls and Procedures	119
Item 9B.	Other Information	120

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	124
Item 11.	Executive Compensation	124
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	124
Item 13.	Certain Relationships and Related Transactions, and Director Independence	124
Item 14.	Principal Accountant Fees and Services	124

PART IV
Item 15.	Exhibits and Financial Statement Schedules	125
Signatures		130
Certifications
Exhibit Index

FORWARD LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K, including without limitation, those under “Legal Proceedings” in Part I, Item 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 (“MD&A”), and “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A, the documents incorporated by reference herein and statements containing the words “believes,” “intends,” “expects,” “anticipates,” and words of similar meaning, may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about KCG Holdings Inc.’s (the “Company” or “KCG”) industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company's control. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks associated with: (i) the strategic business combination (the "Mergers") of Knight Capital Group, Inc. (“Knight”) and GETCO Holding Company, LLC (“GETCO”) including, among other things, (a) difficulties and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits, (b) the inability to sustain revenue and earnings growth, and (c) customer and client reactions to the Mergers; (ii) the August 1, 2012 technology issue that resulted in Knight’s broker dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knight’s business as well as actions taken in response thereto and consequences thereof; (iii) the sale of KCG's reverse mortgage origination and securitization business, sale of KCG's futures commission merchant and the pending sale of KCG Hotspot; (iv) changes in market structure, legislative, regulatory or financial reporting rules, including the increased focus by regulators, the New York Attorney General, Congress and the media on market structure issues, and in particular, the scrutiny of high frequency trading, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures; (v) past or future changes to KCG's organizational structure and management; (vi) KCG's ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCG's customers and potential customers; (vii) KCG's ability to keep up with technological changes; (viii) KCG's ability to effectively identify and manage market risk, operational and technology risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory risk, and compliance risk; (ix) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; and (x) the effects of increased competition and KCG's ability to maintain and expand market share. The above list is not exhaustive. Because forward-looking statements involve risks and uncertainties, the actual results and performance of the Company may materially differ from the results expressed or implied by such statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein. Readers should carefully review the risks and uncertainties disclosed in the Company’s reports with the U.S. Securities and Exchange Commission (“SEC”), including those detailed under “Certain Factors Affecting Results of Operations” in MD&A and in “Risk Factors” in Part I, Item 1A herein, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time. This information should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes thereto contained in this Form 10-K, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time.

PART I



Item 1.	Business

Overview

KCG Holdings, Inc., a Delaware corporation (collectively with its subsidiaries, “KCG” or the “Company”), is a leading independent securities firm offering clients a range of services designed to address trading needs across asset classes, product types and time zones. The Company combines advanced technology with specialized client service across market making, agency execution and trading venues and also engages in principal trading via exchange-based electronic market making. KCG has multiple access points to trade global equities, options, fixed income, currencies and commodities via voice or automated execution.

Our corporate headquarters are located at 545 Washington Boulevard, Jersey City, New Jersey 07310. Our telephone number is (201) 222-9400.

Financial information concerning our business segments for each of 2014, 2013 and 2012 is set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 (“MD&A”) and in the Consolidated Financial Statements and Notes thereto located in Part II, Item 8 “Financial Statements and Supplementary Data.”

Available Information

Our Internet address is www.kcg.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, Forms 3, 4 and 5 filed on behalf of directors and executive officers, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as well as our proxy statements, are made available free of charge on or through the “Investors” section of our corporate website under “SEC Filings”, as soon as reasonably practicable after such materials are electronically filed with or furnished to, the SEC. We also post on our corporate website our Code of Business Conduct and Ethics (the “Code”) governing our directors, officers and employees. Within the time period required by the SEC, we will post on our corporate website any amendments and waivers to the Code applicable to our executive officers and directors, as defined in the Code.

Our Board of Directors (the “Board”) has a standing Finance and Audit Committee, Risk Committee, Compensation Committee and Nominating and Corporate Governance Committee. Each of these Board committees has a written charter approved by the Board. Our Board has also adopted a set of Corporate Governance Guidelines. Each committee charter, along with the Corporate Governance Guidelines, is posted on the Company’s website. None of the information on our corporate website is incorporated by reference into this report.

All of the above materials are also available in print, without charge, to any person who requests them by writing or telephoning:

KCG Holdings, Inc.

Investor Relations

545 Washington Boulevard, 3^rd Floor

Jersey City, NJ 07310

(201) 222-9400

Unless otherwise indicated, references to the “Company,” “KCG,” “We,” “Us,” or “Our” shall mean KCG Holdings, Inc. and its subsidiaries.

Operating Segments

As of December 31, 2014, we had three operating segments: (i) Market Making, (ii) Global Execution Services, and (iii) Corporate and Other.

•

Market Making- Our Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, 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, banks and institutions. 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 we 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, futures, options, foreign exchange, and fixed income to institutions, banks and broker dealers. We generally earn commissions as an agent between principals for 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 variety of access points including: (i) algorithmic trading and order routing in global equities; (ii) institutional sales traders executing program, block and riskless principal trades in global equities and exchange traded funds ("ETFs"); (iii) an institutional spot foreign exchange electronic communication network ("ECN"); (iv) a fixed income ECN that also offers trading applications; and (v) an alternative trading system ("ATS") for global equities.

•

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 the Company’s other segments such as self-clearing services, including stock lending activities.

Management from time to time conducts a strategic review of its businesses and evaluates their potential value in the marketplace relative to their current and expected returns. To the extent management and the Company's Board of Directors determine a business may return a higher value to stockholders, or is no longer core to our strategy, the Company may divest or exit such business.

In November 2013, we sold Urban Financial of America, LLC (“Urban”), the reverse mortgage origination and securitization business that was previously owned by Knight, to an investor group.

In November 2014, we sold certain assets and liabilities related to our Futures Commission Merchant ("FCM ") business to Wedbush Securities Inc.

In October 2014, we announced that we began to explore strategic options for KCG Hotspot, our institutional spot foreign exchange ECN, with the goal of executing on opportunities if it created additional value for our stockholders, clients and employees. In January 2015, we entered into an agreement to sell KCG Hotspot to BATS Global Markets ("BATS"). See "Subsequent Events" in the MD&A of this Form 10-K for further information on the announced sale of KCG Hotspot.

See Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale" to the Company's Consolidated Financial Statements included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Form 10-K for a discussion of the presentation of these businesses in our Consolidated Financial Statements.

The following table sets forth: (i) Revenues, (ii) Expenses and (iii) Pre-tax earnings (loss) from continuing operations of our segments on a consolidated basis (in thousands):



	For the year ended December 31,
	2014			2013			2012
Market Making
Revenues	$	901,152		$	688,197		$	495,427
Expenses	754,439			584,585			460,540
Pre-tax earnings	146,713			103,612			34,887
Global Execution Services
Revenues	345,710			197,765			36,211
Expenses	334,654			223,559			43,541
Pre-tax earnings (loss)	11,056			(25,794		)	(7,330		)
Corporate and Other
Revenues	69,369			141,374			19,596
Expenses	141,951			194,216			20,726
Pre-tax loss	(72,582		)	(52,842		)	(1,130		)
Consolidated
Revenues	1,316,232			1,027,336			551,234
Expenses	1,231,045			1,002,358			524,807
Pre-tax earnings	$	85,187		$	24,978		$	26,427

Totals may not add due to rounding.

See Footnote 25 "Business Segments" to the Company's Consolidated Financial Statements included in Part II, Item 8 "Financial Statements and Supplementary Data" herein for a summary of revenues by geographic region.

In the first quarter of 2014, we began to charge the Market Making and Global Execution Services segments for the cost of aggregate debt interest. The interest amount charged to each of the segments is determined based on capital limits and requirements. Historically, debt interest was included within the Corporate and Other segment. This change in the measurement of segment profitability has no impact on the consolidated results, and will only be reported prospectively, and will not be reflected in any financial results prior to January 1, 2014. For the year ended December 31, 2014, debt interest expense included in the results of the Market Making and Global Execution Services segments was $24.7 million and $7.1 million, respectively.

Market Making Segment

Business Segment Overview

We make markets primarily in global equities, futures, options, fixed income, currencies and commodities. We are an active participant on all major global equity, futures and options exchanges. As a market maker, we commit capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions. Principal trading in the Market Making segment primarily consists of direct-to-client and non-client exchange-based electronic market making in equity securities quoted and traded on the NYSE, Nasdaq Stock Market, OTC market, NYSE Amex, NYSE Arca and several European exchanges. We are connected to a large number of external market centers including exchanges, ECNs, ATSs, dark liquidity pools, alternative display facilities (“ADF”), multilateral trading facilities (“MTF”) and other broker dealers.

The majority of revenues for this segment are derived from direct-to-client electronic market making in U.S. equities. 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 AIM of the London Stock Exchange. We also provide trade executions as an equities DMM on the NYSE and NYSE Amex.

The majority of market making activity is conducted on a principal basis through the use of automated quantitative models. In direct-to-client market making, KCG derives revenues from the difference between the amount paid when securities are bought and the amount received when the securities are sold. In non-client, exchange-based market

making, we generally derive revenues from pricing and arbitrage opportunities from financial instruments within the marketplace.

Clients and Products

We offer direct-to-client market making services across multiple asset classes primarily to sell-side clients including global, national, regional and electronic broker dealers as well as buy-side clients comprising, among others, mutual funds, pension plans, plan sponsors, hedge funds, trusts, endowments and traditional investment banks in North America, Europe and Asia. In 2014, we did not have any client that accounted for more than 10% of Market Making segment revenues.

In this segment, we generally compete based on its market coverage, execution quality, payment for order flow, fulfillment rates and client service. In direct-to-client electronic market making in U.S. equities, execution quality is generally accepted as speed, spread and price improvement under SEC Rule 605. In other asset classes, standards for execution quality are client defined. In non-client exchange-based market making the Company seeks to provide best prices for buy and sell orders on market centers throughout the day and compete with proprietary trading models used by our competitors based on, among other things, speed and price.

We continually work to provide clients with high quality, low-cost trade executions that enable them to satisfy their fiduciary obligation to seek the best execution on behalf of the end client. We continually refine our automated quantitative models so that we may remain competitive.

Global Execution Services Segment

Business Segment Overview

We provide agency execution services and trading venues for agency-based, execution-only trading in global equities, currencies, fixed income, futures and options to institutions and broker dealers. We are an active participant on all major global equity, futures and options exchanges. We generally earn commissions and commission-equivalents as an agent between principals for transactions that are executed within the Global Execution Services segment, however, we will commit capital on behalf of clients as needed. We are connected to a large number of external market centers including exchanges, ECNs, ATSs, dark liquidity pools, ADFs, MTFs and other broker dealers.

The majority of revenues for this segment are derived from agency-based, execution-only trading encompassing algorithmic trading and order routing in global equities; institutional sales traders executing program, block and riskless principal trades in global equities and ETFs; an institutional spot foreign exchange ECN (KCG Hotspot); a fixed income ECN that also offers trading applications (KCG BondPoint); and an ATS for global equities.

As previously noted in November 2014, we sold our FCM business, which was part of this segment and whose results, through the sale, are included within this segment. Additionally, in 2014, we sought, and in January 2015, agreed to sell the KCG Hotspot business, whose results are included within this segment for all applicable periods.

Clients and Products

We offer agency execution services and trading venues across multiple asset classes to buy-side clients including mutual funds, pension plans, plan sponsors, hedge funds, trusts, endowments and sell-side clients including global, national, regional and electronic broker dealers. In 2014, our Global Execution Services segment did not have any client that accounted for more than 10% of our commissions earned.

In this segment, we generally compete on market coverage, liquidity, platform capabilities, anonymity, trading costs and client service. We draw on in-house developed advanced trading technologies to meet client criteria for best execution and managing trading costs. As a result, we are able to attract a diverse array of clients in terms of strategy, size and style. We also provide algorithmic trading and order routing that combine advanced technology, access to our differentiated liquidity and support from experienced professionals to help clients execute trades.

This segment offers clients a broad range of products and services and voice access to the global markets including sales and trading for equities, ETFs and options. We also provide soft dollar and commission recapture programs. Additionally, we provide buy-side clients with deep liquidity, actionable market insights, anonymity and trade executions with minimal market impact and offer comprehensive trade execution services covering the depth and breadth of the market. We handle large complex trades, accessing liquidity from its order flow and other sources.

We offer electronic trading in global equities, options, futures, currencies and commodities through algorithmic trading, order routing and an execution management system ("EMS") as well as via internal crossing through our registered ATS.

KCG Hotspot provides electronic foreign exchange trading solutions to buy-side firms through its foreign exchange ECN that provides clients with access to live, executable prices for over 60 currency pairs as well as spot gold and silver streamed by market maker banks and other clients. KCG Hotspot offers clients several access options including direct high-speed connectivity and a traditional front-end application. In January 2015, we entered into an agreement to sell KCG Hotspot to BATS Global Markets ("BATS"), which is subject to customary closing conditions. The transaction is expected to close in March 2015. See Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale" and Footnote 27 "Subsequent Event" to the Company's Consolidated Financial Statements included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Form 10-K for further information.

KCG BondPoint provides electronic fixed income trading solutions to sell-side firms. KCG BondPoint operates a fixed income ECN that serves as an electronic inter-dealer system and allows clients to access live and executable retail-sized offerings in corporate bonds, municipals, government agency, treasuries and certificates of deposits. KCG BondPoint also provides front-end applications for brokers and advisors as well as a trading application for traders.

We also operate an ATS providing clients with an anonymous source of non-displayed liquidity.

Corporate and Other Segment

Our Corporate and Other segment invests principally in strategic financial service-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 contains functions that support the other segments, such as self-clearing services, including stock lending activities. We self-clear substantially all of our domestic and international equity, ETF and equity option order flow.

Our Corporate and Other segment’s revenues include returns from strategic investments, interest income from treasury investments and stock borrow activity and other income. Operating expenses primarily consist of compensation for certain senior executives and other employees of the corporate holding company, stock loan interest related to the financing of our securities inventory, legal and other professional expenses related to corporate matters, directors’ fees, investor and public relations expenses and directors’ and officers’ insurance.

Competition

Our client offerings, encompassing direct-to-client market making agency execution services and trading venues, compete primarily with similar products offered by domestic and international broker dealers, exchanges, ATSs, crossing networks, ECNs and dark liquidity pools. Non-client, exchange-based market making competes with various market participants including those who utilize highly automated, electronic trading models. Another source of competition is broker dealers who execute portions of their client flow through internal market-making desks rather than sending the client flow to third party execution destinations, such as KCG.

Our Market Making segment competes primarily on the basis of execution quality (including price, liquidity, speed and other client-defined measures), client relationships, client service, payments for order flow and technology. Over the past several years, regulatory changes, competition and the continued focus by regulators and investors on execution quality and overall transaction costs have resulted in a market environment characterized by narrowed spreads and reduced revenue capture. Consequently, maintaining profitability has become extremely challenging for many firms. In general, improvements in execution quality, such as faster execution speed and greater price improvement, have negatively impacted the ability to derive profitability from executing client order flow. We have made, and continue to make, changes to our execution protocols and quantitative models, which have had, or could have, a significant impact on our profitability. To remain profitable, some competitors have limited or ceased activity in illiquid or marginally profitable securities or, conversely, have sought to execute a greater volume of trades at a lower cost by increasing the automation and efficiency of their operations.

Competition for order flow in the U.S. equity markets continues to be intense as reflected in publicly disclosed execution metrics, i.e., SEC Rules 605 and 606. These rules, applicable to broker dealers, add greater disclosure to execution quality and order-routing practices. Rule 605 requires market centers that trade national market system securities to make available to the public monthly electronic reports that include uniform statistical measures of execution quality on a security-by-security basis. These statistics vary by order sender based on their mix of business. Rule 606 requires broker dealers that route equity and option orders on behalf of their customers to make publicly available

quarterly reports that describe their order routing practices and disclose the venues to which customer orders are routed for execution. This rule also requires the disclosure of payment for order flow arrangements and internalization practices. The intent of this rule is to encourage routing of order flow to destinations based primarily on the demonstrable quality of executions at those destinations, supported by the order entry firms’ fiduciary obligations to seek to obtain best execution for their customers’ orders.

Our Global Execution Services segment competes with other electronic trading platforms for orders from institutional firms and, to a lesser extent, with sales and trading teams at larger firms. Competition for business with institutional clients is based on a variety of factors, including execution quality; research; soft dollar, commission sharing and recapture services; technology; market access (including direct market access and execution algorithms); client relationships; client service; cost; capital facilitation and reputation.

We believe the trend toward increased competition and the growth of alternative trading venues will continue. We may experience competitive pressures in these and other areas in the future as some of our competitors seek to obtain greater market share by reducing prices.

Infrastructure

We continue to invest significant resources to expand our execution capacity, upgrade our trading systems and infrastructure and enhance and strengthen our controls. We plan to make additional investments in technology and infrastructure in the future. We’ve been reinforcing and bolstering our operational model to manage the complexities of the Company. Our ability to identify and deploy emerging technologies that facilitate the execution of trades, including developing and enhancing our quantitative client market making models and proprietary trading models, is key to the successful execution of our business model. Technology has enhanced our capacity and ability to handle order flow faster and also has been an important component of our strategy to comply with government and industry regulations, achieve competitive execution standards, increase trading automation and provide superior client service. We continually enhance our use of technology and quantitative models to further refine our execution services, develop and enhance our non-client principal trading models and reduce trading costs.

We use our proprietary technology and technology licensed from third parties, among other items, to execute trades, manage risk, monitor the performance of our traders, assess our inventory positions and provide ongoing information to our clients. We are electronically linked to institutions and broker dealers to provide immediate access to our trading operations and facilitate the handling of client orders. Our business-to-business portal and Knight Link®, Knight Match, KCG BondPoint, KCG Hotspot FX and Knight Direct platforms and the Knight Direct and GETAlpha suites of algorithms, provide our clients with an array of tools to interact with our trading systems, multiple marketplaces throughout the globe and most U.S. equity, options, fixed income, currency and futures market centers.

We have developed a proprietary clearing platform in connection with our self-clearing activities and leveraged technology, operations and finance, legal and compliance professionals to support these efforts. We self-clear substantially all of our domestic and international equity, ETF and equity option order flow.

Alternative trading and data center facilities are in place for our primary domestic operations. These facilities have been designed to allow us to continue a substantial portion of our operations if we are prevented from accessing or utilizing our primary office locations for an extended period of time. While we take significant steps to develop, implement and maintain reasonable business continuity plans, we cannot guarantee that our alternative systems and facilities will provide full continuity of operations should a significant business disruption occur.

Intellectual Property and Other Proprietary Rights

Our success and ability to compete are dependent to a significant degree on our intellectual property, which includes our execution technology, quantitative client market making and non-client principal trading models and information regarding our client base. A large portion of our technology was developed internally, and we rely primarily on trade secret, trademark, copyright, domain name, patent, commercial and contract law to protect our intellectual property. It is our policy to enter into confidentiality, intellectual property invention assignment and/or non-competition and non-solicitation agreements or restrictions with our employees, independent contractors and business partners and to control access to and the distribution of our intellectual property.

Government Regulation and Market Structure

Most aspects of our business are subject to extensive regulation under federal, state and international laws, rules and regulations. Regulators in the U.S. and international jurisdictions continue to promulgate numerous rules and regulations that may impact our business. In the U.S., these regulatory bodies include the SEC, the Commodity Futures Trading Commission ("CFTC"), FINRA, National Futures Association ("NFA"), NYSE, NASDAQ, other self-regulatory organizations ("SROs"), and other regulatory bodies, such as state securities commissions and state attorney generals. In Europe and Asia, these regulatory bodies include, but are not limited to, the UK Financial Conduct Authority ("FCA"), the French Autorité des Marchés Financiers (the “AMF”), the Singapore Exchange, the Securities and Exchange Board of India ("SEBI"), and the Australian Securities and Investment Commission ("ASIC"). In addition, we are subject to various laws and rules in the countries where we do business.

As a matter of public policy, regulatory bodies are charged with safeguarding the integrity of the financial markets and protecting the interests of investors by ensuring that trading on their markets is reliable, transparent, competitive, fair and orderly. Regulated entities, such as KCG, are subject to rules concerning all aspects of their business, including trade practices, best execution for customers, anti-money laundering, capital adequacy, record retention, technology implementation, risk management, supervision, and officer, supervisor and employee conduct. Failure to comply with any of these laws, rules or regulations could result in administrative actions or court proceedings, censures, fines, the issuance of cease-and-desist orders, loss of membership, injunctions or the suspension or disqualification of the entity and/or its officers, supervisors or employees.

The regulatory environment in which we operate is subject to constant review and change. Legislation and regulatory requirements and market structure changes have had and will in the future have an impact on KCG’s regulated subsidiaries by directly affecting their method of operation and, at times, their profitability by imposing significant obligations and restraints on KCG and its affiliates. These increased obligations and restraints require the implementation and maintenance of internal practices, procedures and controls, which have increased our costs and may subject us to regulatory inquiries, administrative actions, court proceedings, claims, disciplinary fines or penalties. In addition, future changes may require significant technological, operational and compliance costs associated with the obligations that derive from compliance with such laws, rules and regulations.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") was enacted in the U.S. Implementation of the Dodd-Frank Act continues to be accomplished through extensive rulemaking by the CFTC, SEC and other governmental agencies. The Dodd-Frank Act and the current rulemaking to implement this law are not currently expected to have a material impact on our businesses. It is possible, however, that future rulemaking or changes to the market structure and practices in response to the Dodd-Frank Act may impact our businesses.

The SEC and other regulatory bodies have recently enacted and are actively considering rules that may affect the operation and profitability of KCG. In particular, on August 1, 2012, SEC Rule 613 was published in the Federal Register. This rule requires the securities exchanges and FINRA to act jointly in developing a national market system plan to develop, implement, and maintain a consolidated audit trail ("CAT"), with respect to the trading of listed equity securities and listed options. Once implemented, maintaining a CAT will impose substantial new reporting requirements on broker dealers, such as KCG. In addition, on November 19, 2014, the SEC adopted Regulation Systems Compliance and Integrity ("Regulation SCI") with an initial compliance date of November 3, 2015. Regulation SCI requires securities exchanges and broker dealer operators of alternative trading systems with significant volume to (1) establish and enforce written policies and procedures designed to ensure operational capabilities of technological systems, (2) take immediate remedial action and notify the SEC and those affected of system incidents, (3) conduct annual compliance reviews and industry or sector-wide business continuity testing, and (4) file periodic reports with the SEC. KCG's alternative trading system may meet the volume thresholds and KCG may be required to comply with Regulation SCI. Additionally, SEC Chair Mary Jo White directed SEC staff to prepare recommendations to consider whether an SCI-like framework should be developed for other key market participants, which could include KCG's broader operations.

Regulators may also consider proposing other market structure changes particularly considering the regulatory scrutiny of high frequency trading, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures. In January 2010, the SEC published a Concept Release that asked for comment on issues such as high frequency trading, colocation, internalization, and markets that do not publicly display price quotations, including dark liquidity pools. On June 5, 2014, SEC Chair Mary Jo White provided her wide-ranging views on market structure. Chair White called for the creation of a market structure advisory committee and a comprehensive, data-driven review of equity market

structure that will examine the above-referenced topics as well as the use of rebates by exchanges. On January 13, 2015, the SEC announced the members of the market structure advisory committee, which will be a formal mechanism to provide advice and recommendations to the SEC on market structure issues.

The financial services industry in many countries is heavily regulated, much like in the U.S. The compliance requirements of these different regulatory jurisdictions and other factors may limit our ability to conduct business or expand internationally. For example, the review of Markets in Financial Instruments Directive ("MiFID"), which was implemented in November 2007, is nearing completion. Proposed changes to MiFID, which consist of a directive called MiFID 2 and regulations called MiFIR, are expected to be finalized by the end of 2015. The adoption of MiFID 2/MiFIR will include many changes likely to affect our businesses. For example, the changes will require firms like KCG and other market participants to conduct all trading on European markets through authorized investment firms. MiFID 2/MiFIR will also require market makers, including KCG, to post firm quotes at competitive prices and will supplement current requirements with regard to investment firms’ risk controls related to the safe operation of electronic systems. MiFID 2/MiFIR may also impose additional requirements on trading platforms on which we trade, such as circuit breakers, synchronization of business clocks and flagging of algorithms. The implementation of these new requirements is tentatively planned for the second half of 2016 and may impose technological and compliance costs on KCG as a participant in those trading platforms.

The European Commission has proposed a financial transaction tax ("FTT"). Eleven European Union member states, including France, Germany, Italy and Spain, have discussed the adoption of a FTT and it has been reported that in January 2015, France attempted to revive discussions of the FTT initiative which had stalled at the end of 2014. The scope of instruments and transactions that may be covered by these FTTs is still under discussion and it is, therefore, premature to determine the impact of such FTTs on KCG’s business. In addition, France and Italy have each separately adopted FTTs. These taxes have not had a material impact on our profitability, however, changes to or expansion of these FTTs or the adoption of any subsequent FTTs could impact our business, financial condition and operating results.

For risks related to government regulation and market structure, see "Risk Factors - Regulatory and legal uncertainties could harm KCG's business" included in Part I, Item 1A herein.

Net Capital Requirements

Certain of our subsidiaries are subject to the SEC’s Uniform Net Capital Rule or capital adequacy requirements by foreign regulators. These rules, which specify minimum net capital requirements for registered broker dealers, are designed to measure the general financial integrity and liquidity of a broker dealer and require that at least a minimum part of their assets be kept in relatively liquid form. In general, net capital is defined as net worth (assets minus liabilities), plus qualifying subordinated borrowings and certain discretionary liabilities, less certain mandatory deductions that result from excluding assets that are not readily convertible into cash and from valuing conservatively certain other assets. Among these are deductions of non-allowable assets and adjustments, commonly called haircuts, which reflect the possibility of a decline in the fair value of an asset before disposition.

Failure to maintain the required net capital may subject a firm to suspension or revocation of registration by the SEC or FCA and suspension or expulsion by FINRA and other regulatory bodies, and ultimately could require the relevant entity’s liquidation. The Uniform Net Capital Rule prohibits payments of dividends, redemption of stock, the prepayment of subordinated indebtedness and the making of any unsecured advance or loan to a stockholder, employee or affiliate, if such payment would reduce the firm’s net capital below required levels.

A change in the Uniform Net Capital Rule or other similar rules effected by foreign regulatory authorities, the imposition of new rules or any unusually large charges against net capital could limit our businesses that require the intensive use of capital and also could restrict our ability to withdraw capital from our broker dealer subsidiaries. A significant operating loss or any unusually large charge against net capital could adversely affect our ability to expand or even maintain our present levels of business.

For additional discussion related to net capital, see Footnote 23 “Net Capital Requirements” included in Part II, Item 8 “Financial Statements and Supplementary Data” of this document.

Employees

At December 31, 2014, our headcount was 1,093 full-time employees, compared to 1,229 full-time employees at December 31, 2013. The decrease in headcount from December 31, 2013 is primarily due to reductions in workforce completed following the Mergers as well as the sale of our FCM business. Of our 1,093 full-time employees at

December 31, 2014, 913 were employed in the U.S. and 180 outside the U.S., primarily in London. An additional 40 employees (31 in the U.S., 9 international) are expected to transfer to BATS upon closing of the sale of KCG Hotspot. None of our employees are subject to a collective bargaining agreement. We believe that our relations with our employees are good.



Item 1A.	Risk Factors

A number of industry-related and other risks may adversely affect the business, financial condition and operating results of KCG. Additional risks and uncertainties not currently known to KCG also may adversely affect its business, financial condition and/or operating results in a material manner. In addition, KCG may also be affected by general risks not directly related to its business, including, but not limited to, acts of war, terrorism and natural disasters. KCG cannot assure that the risks described below or elsewhere in this or its other reports filed or furnished with the SEC are a complete set of all potential risks KCG may face.

Conditions in the financial services industry and the securities markets may adversely affect KCG’s trading volumes and market liquidity

KCG’s revenues are primarily transaction-based, and declines in global trading volumes, volatility levels, securities prices, commission rates or market liquidity could adversely affect KCG's business and its profitability. There may be periods when market conditions may have an adverse impact on KCG’s business and profitability. The level of activity in the markets in which KCG conducts business is directly affected by numerous national and international factors that are beyond KCG’s control, including economic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, legislative and regulatory changes, currency values and inflation, broad trends in business and finance and changes in the markets in which KCG’s transactions occur. Declines in the trading volume of equities, fixed income and other financial instruments will generally result in lower revenues from market making and transaction execution activities. Lower levels of volatility, which tends to correlate with trading volumes, will have the same directional impact. Lower price levels of securities and other instruments, as well as tighter spreads, may reduce profitability from trade executions. Increased competition can put pressure on commission rates, spreads and related fee schedules. Declines in market values of securities or other financial instruments can result in illiquid markets, which can increase the potential for losses on securities or other instruments held in inventory, the failure of buyers and sellers to fulfill their obligations and settle their trades, and increases in claims and litigation. Accordingly, reductions in trading volumes, volatility levels, securities prices, commission rates or market liquidity could materially affect KCG’s business and profitability. As a result of the foregoing, period-to-period comparisons of KCG's revenues and operating results are not necessarily meaningful, and such comparisons cannot be relied upon as indicators of future performance.

KCG trading activities expose it to the risk of significant losses

KCG conducts the majority of its trading activities as principal, which subjects its capital to significant risks. These activities involve the purchase, sale or short sale of securities and other financial instruments for KCG’s own account and, accordingly, involve risks of price fluctuations and illiquidity, or rapid changes in the liquidity of markets that may limit or restrict KCG’s ability to either resell securities or other financial instruments KCG purchases or to repurchase securities or other financial instruments KCG sells in such transactions. From time to time, KCG may have large position concentrations in securities or other financial instruments of a single issuer or issuers engaged in a specific industry or segment, which could result in higher trading losses than would occur if KCG’s positions and activities were less concentrated. The performance of KCG’s trading activities primarily depends on its ability to attract order flow, the composition and profile of its order flow, the dollar value of securities and other financial instruments traded, the performance, size and volatility of KCG’s market making portfolios, the performance, size and volatility of KCG’s client and non-client principal trading activities (including high frequency trading), market interaction, the skill of KCG’s trading personnel, the ability of KCG to design, build and effectively deploy the necessary technologies and operations to support all of its trading activities and enable KCG to remain competitive, general market conditions, effective hedging strategies and risk management processes, the price volatility of specific securities or other financial instruments, and the availability and allocation of capital. To attract order flow, KCG must be competitive on price, size of securities positions and other financial instruments traded, liquidity offerings, order execution speed, technology, reputation, payment for order flow and client relationships and service. In KCG’s role as a market maker, it attempts to derive a profit from the difference between the prices at which it buys and sells securities. However, competitive forces and regulatory requirements often require KCG to match, or improve upon, the quotes other market makers display and to hold varying amounts of securities in inventory. By maintaining inventory positions, KCG is subject to a high degree

of risk. There can be no assurance that KCG will be able to manage such risk successfully or that KCG will not experience significant losses from such activities. All of the above factors could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG is exposed to losses due to lack of perfect information

As a market maker, KCG provides liquidity by consistently buying securities from sellers and selling securities to buyers. KCG may at times trade with others who have different and possibly better information than it does, and as a result, KCG may accumulate unfavorable positions preceding large price movements in securities. Should the frequency or magnitude of these events increase, KCG’s losses would likely increase correspondingly, which could have a material adverse effect on KCG's business, financial condition and results of operations.

KCG’s market making activities have been and may be affected by changes in the levels of market volatility

Certain of KCG’s market making activities depend on market volatility to provide trading and arbitrage opportunities to KCG’s clients, and decreases in volatility may reduce these opportunities and adversely affect the results of these activities. On the other hand, increased volatility, while it can increase trading volumes and spreads, also increases risk as measured by Value-at-Risk, which KCG refers to as VaR, and may expose the Company to increased risks in connection with market making activities or cause KCG to reduce its market making positions in order to avoid increasing VaR. Limiting the size of KCG’s market making positions can adversely affect profitability. In periods when volatility is increasing, but asset values are declining significantly, it may not be possible to sell assets at all or it may only be possible to do so at steep discounts. In such circumstances the Company may be forced to either take on additional risk or to incur losses in order to decrease KCG's VaR.

The valuation of the financial instruments KCG holds may result in large and occasionally anomalous swings in the value of its positions and in its earnings in any period

The market prices of KCG’s long and short positions are reflected on its books at closing prices which are typically the last trade price before the official close of the primary exchange on which each such security trades. Given that KCG manages a globally integrated portfolio, it may have large and substantially offsetting positions in securities that trade on different exchanges that close at different times of the trading day. As a result, there may be large and occasionally anomalous swings in the value of KCG’s positions daily and, accordingly, in its earnings in any period. This is especially true on the last business day of each calendar quarter.

Substantial competition could reduce KCG’s market share and harm KCG’s financial performance

All aspects of KCG’s business are intensely competitive. KCG faces competition in its businesses primarily from global, national and regional broker dealers, exchanges, and ATSs. ATSs include crossing networks that match orders in private or without a public quote, ECNs that match orders off-exchange based on a displayed public quote, and dark liquidity pools which offer a variety of market models enabling investors to trade off-exchange. Equities competition is based on a number of factors, including KCG’s execution standards (e.g., price, liquidity, speed and other client defined measures), client relationships and service, reputation, payment for order flow, market structure, product and service offerings, and technology. KCG will continue to face intense competition in connection with all of its trading activities, and KCG’s ability to effectively compete will depend on a number of factors including its ability to design, build and effectively deploy the necessary technologies and operations to support all of its trading activities. A number of competitors of KCG’s businesses may have greater financial, technical, marketing and other resources than KCG. Some of KCG’s competitors offer a wider range of services and financial products than KCG does and have greater name recognition and a more extensive client base. These competitors may be able to respond more quickly than KCG to new or evolving opportunities and technologies, market changes and client requirements and may be able to undertake more extensive promotional activities and offer more business attractive terms to clients including larger order flow rebate payments. Moreover, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties or may consolidate to enhance their services and products. It is possible that new competitors, or alliances among competitors, may also emerge, and they may acquire significant market share. The trend toward increased competition in KCG’s businesses is expected to continue and it is possible that KCG’s competitors may acquire increased market share.

As a result of the above, there can be no assurance that KCG will be able to compete effectively with current or future competitors, which could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG may not be able to keep up with rapid technological and other changes or adequately protect its intellectual property

The markets in which KCG competes are characterized by rapidly changing technology, evolving industry standards, frequent new product and service announcements, introductions and enhancements and changing client demands. If KCG is not able to keep up with these rapid changes on a timely and cost-effective basis, it may be at a competitive disadvantage. The widespread adoption of new internet, networking or telecommunications technologies or other technological changes could require KCG to incur substantial expenditures to modify or adapt its services or infrastructure. Any failure by KCG to anticipate or respond adequately to technological advancements (including advancements related to telecommunications, data transfer, execution and messaging speeds), client requirements or changing industry standards or to adequately protect its intellectual property, or any delays in the development, introduction or availability of new services, products or enhancements, could have a material adverse effect on KCG’s business, financial condition and operating results.

Additionally, the success of KCG and its subsidiaries has largely been attributable to their sophisticated proprietary technology that has taken many years to develop. KCG has benefited from the fact that the type of proprietary technology it employs has not been widely available to its competitors. If KCG’s technology becomes more widely available to its current or future competitors for any reason, KCG’s operating results may be adversely affected.

KCG uses trademark, trade secret, copyright and other proprietary rights and procedures to protect its intellectual property and technology resources. Despite its efforts, monitoring unauthorized use of KCG’s intellectual property is difficult and costly, and KCG cannot be certain that the steps it takes to prevent unauthorized use of its proprietary rights are sufficient to prevent misappropriation of its technology, particularly in foreign countries where laws or law enforcement practices may not protect proprietary rights as fully as in the United States. In addition, KCG cannot be sure that courts will adequately enforce contractual arrangements KCG has entered into to protect its proprietary technologies. If any of KCG’s proprietary information were misappropriated by or otherwise disclosed to its competitors, its competitive position could be adversely affected. KCG may incur substantial costs to defend ownership of its intellectual property or to replace misappropriated proprietary technology. If a third party were to assert a claim of infringement of KCG’s proprietary rights, obtained through patents or otherwise, against KCG with respect to one or more of its methods of doing business or conducting its operations, KCG could be required to spend significant amounts to defend such claims, develop alternative methods of operations, pay substantial money damages or obtain a license from the third party.

Capacity constraints, systems failures and delays could harm KCG’s business

KCG’s business activities are heavily dependent on the integrity and performance of the computer and communications systems supporting them and the services of certain third parties. KCG’s systems and operations are vulnerable to damage or interruption from human error, technological or operational failures, natural disasters, power loss, computer viruses, intentional acts of vandalism, terrorism and other similar events. The nature of KCG’s businesses involves a high volume of transactions made in rapid fashion which could result in certain errors being repeated or compounded before they are discovered and successfully rectified. Extraordinary trading volumes or other events could cause KCG’s computer systems to operate at an unacceptably slow speed or even fail. KCG’s necessary dependence upon automated systems to record and process transactions and large transaction volume may further increase the risk that technical flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect.

While KCG has invested significant amounts of capital to upgrade the capacity, reliability, scalability and speed of its systems, there can be no assurance that its systems will be sufficient to handle current or future trading volumes, and the modifications themselves may result in unanticipated and undesirable consequences. Although KCG will continually update and modify its trading software in response to changes in its business, rule changes and for various other reasons, there are no assurances that such updates and modifications to KCG’s trading software will not result in future trading losses. Many of KCG’s systems are, and much of its infrastructure is, designed to accommodate additional growth without material redesign or replacement; however, KCG may need to make significant investments in additional hardware and software to accommodate growth. Failure to make necessary expansions and upgrades to its systems and infrastructure, including any inability to develop and upgrade existing technology, transaction-processing systems or network infrastructure to accommodate increased sales volume through KCG’s transaction-processing systems, could lead to unanticipated system disruptions, slower response time, degradation in levels of customer service and impaired quality and speed of order fulfillment.

From time to time, KCG has reimbursed its clients for losses incurred in connection with systems failures and delays. Capacity constraints, systems failures and delays may occur in the future and could cause, among other things, unanticipated problems with KCG’s trading or operating systems, disruptions in its client and non-client market making activities, disruptions in service to its clients, slower system response times resulting in transactions not being processed as quickly as KCG’s clients desire, decreased levels of client service and client satisfaction, and harm to KCG’s reputation. If any of these events were to occur, KCG could suffer substantial financial losses, loss of clients or reduction in the growth of its client base, increased operating expenses, litigation or other client claims and regulatory sanctions or additional regulatory burdens.

KCG may experience disasters or business disruptions

KCG has business continuity capabilities that could be utilized in the event of a disaster or disruption. Since the timing and impact of disasters and disruptions are unpredictable, KCG has to be flexible in responding to actual events as they occur. Significant business disruptions can vary in their scope. A disruption might only affect KCG, a building that KCG occupies, a business district in which KCG is located, a city in which KCG is located or an entire region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. KCG’s business continuity facilities are designed to allow it to substantially continue operations if KCG is prevented from accessing or utilizing its primary offices for an extended period of time. Although KCG has employed significant effort to develop, implement and maintain reasonable business continuity plans, KCG will not be able to ensure that its systems will properly or fully recover after a significant business disruption in a timely fashion. If KCG is prevented from using any of its current trading operations or any third party services, or if its business continuity operations do not work effectively, KCG may not have complete business continuity. This could have a material adverse effect on KCG’s business, financial condition and operating results.

Regulatory and legal uncertainties could harm KCG’s business

The capital markets industry in the U.S. and the foreign jurisdictions in which KCG conducts its business is subject to extensive oversight under federal, state and applicable foreign laws, rules and regulations, as well as the rules of SROs. Broker dealers, investment advisors and financial services firms are subject to regulations concerning all aspects of their businesses, including, but not limited to, trade practices, best execution practices, capital adequacy, record-keeping, anti-money laundering, fair and requisite disclosure and the conduct of their officers, supervisors and employees. KCG’s operations and profitability may be directly affected by, among other things, additional legislation or regulation, or changes in rules promulgated by domestic or foreign governments or regulators; and changes in the interpretation or enforcement of existing laws, regulations and rules. Failure to comply with these laws, rules or regulations could result in, among other things, administrative actions or court proceedings, censure, fines, the issuance of cease-and-desist orders or injunctions, loss of membership, or the suspension or disqualification of the market participant or broker dealer, and/or their officers, supervisors or employees. Furthermore, domestic and foreign stock exchanges, other SROs and state and foreign securities commissions can censure, fine and issue cease-and-desist orders to suspend or expel a broker-dealer or other market participant or any of its officers or employees. In recent years, the size of penalties and fees sought by regulators has increased significantly. Noncompliance with applicable laws or regulations could also negatively impact KCG’s reputation, client relationships, prospects, revenues and earnings.

KCG’s ability to comply with applicable laws, regulations and rules is largely dependent on its internal systems to ensure compliance, as well as its ability to attract and retain qualified compliance personnel. Each of KCG’s regulators engages in a series of periodic and special examinations and investigations to monitor compliance with such laws, rules and regulations that may result in disciplinary actions in the future due to alleged noncompliance. KCG is currently the subject of regulatory reviews and investigations that may, in the future, result in disciplinary actions, including the imposition of fines and penalties due to alleged non-compliance.

Federal, state and foreign legislators, regulators and SROs are constantly proposing, or enacting, new regulations which may impact KCG’s business. These include rules regarding, among others, a CAT designed to improve the ability of the SEC and others to oversee trading in the U.S. securities markets, private or over-the-counter markets, sometimes referred to as dark liquidity pools, increased transaction and other fees, transaction taxes, enhanced requirements regarding market access (including SEC Rule15c3-5) and for technology testing and implementation, increased obligations for market makers, higher capital requirements, and order routing limitations. Additionally, Section 31 fees, sometimes described as “SEC Fees”, are reviewed regularly. These could increase substantially in the future in order to recover the costs incurred by the government, including the SEC, for supervising and regulating the securities markets.

Regulators may also consider proposing other market structure changes. In January 2010, the SEC issued a Concept Release seeking public comment on certain market structure issues such as high frequency trading, the colocation of servers with exchange matching engines, off-exchange trading, including internalization where brokers match orders with their own inventory, and markets that do not publicly display price quotations including dark liquidity pools. The CFTC issued a similar release in 2013. In particular, high frequency trading continues to be a controversial feature of modern markets and regulatory scrutiny by federal, state and foreign regulators and SROs is likely to continue, as evidenced by SEC Chair Mary Jo White’s June 5, 2014 speech. Market participants continue to call upon the U.S. Congress and the SEC to make changes to limit high-frequency trading and these changes could impact KCG’s business negatively.

In addition, the financial services industry in many foreign countries is heavily regulated, much like in the U.S. The varying compliance requirements of these different regulatory jurisdictions and other factors may limit KCG’s ability to conduct business or expand internationally. Further, public debate in Europe regarding high-frequency trading is leading policymakers to consider laws and regulations that may impact KCG’s business, including potential taxes, limits on order-to-execution ratios and requirements for country-specific authorization for high frequency traders. To continue to operate and to expand its services internationally, KCG will have to comply with the regulatory controls of each country in which it conducts or intends to conduct business, the requirements of which may not be clearly defined. The varying compliance requirements of these different regulatory jurisdictions, which are often unclear, may limit KCG's ability to continue existing international operations and further expand internationally.

Any of these laws, rules or regulations, if adopted, as well as any regulatory or legal actions or proceedings, changes in legislation or regulation, and changes in market customs and practices could have a material adverse effect on KCG’s business, financial condition and operating results. In addition, changes in current laws or regulations or in governmental policies could negatively impact KCG’s operations, revenues and earnings.

At any given time, KCG may be the subject of one or more regulatory or SRO enforcement actions, including but not limited to targeted and routine regulatory inquiries and investigations involving Regulation NMS, Regulation SHO, capital requirements and other domestic and foreign securities rules and regulations. KCG’s business or reputation could be negatively impacted if it were determined that disciplinary or other enforcement actions were required.

KCG’s business is subject to substantial risk from litigation, regulatory investigations and rules and regulations

Many aspects of KCG’s business involve substantial risks of liability. KCG is exposed to potential liability under federal, state and foreign securities laws, other federal, state and foreign laws and court decisions, as well as rules and regulations promulgated by U.S. and foreign regulators. KCG is also subject to the risk of potential litigation. From time to time, KCG and its subsidiaries and certain of their past and present officers, directors and employees, are, or may be in the future, named as parties in legal actions, regulatory investigations and proceedings, arbitrations and administrative claims. KCG has been the subject of claims alleging the violation of such laws, rules and regulations, some of which have resulted in the payment of fines, awards, judgments and settlements. Moreover, KCG may be required to indemnify past and present officers, directors and employees in regards to these matters. Certain corporate events, such as a reduction in KCG’s workforce, could also result in additional litigation or arbitration. KCG could incur significant legal expenses in defending such litigations or proceedings. An adverse resolution of any current or future lawsuits, legal or regulatory proceedings or claims against KCG could have a material adverse effect on its business and reputation, financial condition and operating results.

KCG faces risks related to the events of August 1, 2012

Knight experienced a technology issue at the opening of trading at the NYSE on August 1, 2012. This issue was related to its installation of trading software and resulted in Knight’s broker dealer subsidiary, KCA, sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market. Although this software was subsequently removed from Knight’s systems and the software issue was limited to the routing of certain NYSE-listed stocks, it resulted in Knight realizing a pre-tax loss including related legal and professional fees of approximately $468.1 million. This severely impacted Knight’s capital base and business operations, and Knight experienced reduced order flow, liquidity pressures and harm to customer and counterparty confidence.

As a result of this technology issue and its impact, Knight is currently subject to litigation by former Knight stockholders alleging that they were damaged by this technology issue. While KCG is unable to predict the outcome of any existing or future litigation, an unfavorable outcome in one or more of these matters could have a material adverse effect on KCG’s financial condition or ongoing operations. In addition, KCG may incur significant expenses in

defending against the existing litigation or any other future litigation and in implementing technical changes and remedial measures which may be required or otherwise necessary or advisable. KCG may also be required to take remedial steps that could be burdensome for its business operations.

Rules governing specialists and designated market makers may require KCG to make unprofitable trades or prevent KCG from making profitable trades

Specialists and designated market makers are granted certain rights and have certain obligations to "make a market" in a particular security. They agree to specific obligations to maintain a fair and orderly market. In acting as a specialist or designated market maker, KCG is subjected to a high degree of risk by having to support an orderly market. In this role, KCG may at times be required to make trades that adversely affect its profitability. In addition, KCG may at times be unable to trade for its own account in circumstances in which it may be to its advantage to trade, and KCG may be obligated to act as a principal when buyers or sellers outnumber each other. In those instances, KCG may take a position counter to the market, buying or selling securities to support an orderly market. Additionally, the rules of the markets which govern KCG’s activities as a specialist or designated market maker are subject to change. If these rules are made more stringent, KCG’s trading revenues and profits as specialist or designated market maker could be adversely affected.

KCG’s reliance on computer systems and software, including third-party systems, could adversely affect its business

KCG relies significantly on its computer systems and software to receive and properly process internal and external data and utilize such data to generate orders and other messages. This includes certain third-party computer systems or third-party service providers, including clearing systems, exchange systems, internet service, communications facilities and other facilities. A disruption or corruption of the proper functioning of KCG’s computer systems or software, or deterioration in their performance, could be disruptive to KCG’s business. KCG cannot guarantee that its efforts to maintain competitive computer systems and software will be successful. KCG’s computer systems and software may fail or be subject to bugs or other errors, resulting in service interruptions or other unintended consequences. Additionally, if KCG’s arrangement with any third party is terminated, KCG may not be able to find an alternative source of systems support on a timely basis or on commercially reasonable terms. If any of these risks materialize, they could have a material adverse effect on KCG’s business, financial condition and results of operations.

KCG may be the target of a significant cyber-attack or threat that impairs internal systems or causes reputational damage

KCG relies heavily on technology and automation to perform many functions within the firm. This reliance on technology opens the firm to various forms of cyber-attacks; including data loss or destruction, unauthorized access, unavailability of service or the introduction of malicious code.

KCG has taken significant steps to mitigate the various cyber threats. KCG has created a dedicated Information Security Group, created and filled the role of Information Security Officer (“ISO”) and formed an Information Security Steering Committee. In addition, the firm has enhanced the communication channels with government and law enforcement agencies for better information sharing and awareness. The firm will continue to periodically review policies and procedures to ensure they are effective in mitigating current cyber and other information security threats. In addition to the policy reviews, the firm continues to look to implement technology solutions that enhance preventive and detection capabilities, and has an Emergency Management Plan (“EMP”) that sets forth procedures for firm-wide crisis responses, including in the case of a cyber-attack. See “Operational Risks” under “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of this Form 10-K.

Notwithstanding these efforts, KCG’s cybersecurity measures may not detect or prevent all attempts to compromise its systems, including denial-of-service attacks, viruses, malicious software, break-ins, phishing attacks, social engineering, security breaches or other attacks and similar disruptions that may jeopardize the security of information stored in and transmitted by KCG’s systems or that its otherwise maintains. Breaches of KCG’s cybersecurity measures could result in any of the following: unauthorized access to KCG’s systems; unauthorized access to and misappropriation of information or data, including confidential or proprietary information about ourselves, third parties with whom KCG does business or its proprietary systems; viruses, worms, spyware or other malware being placed in KCG’s systems; deletion or modification of client information; or a denial-of-service or other interruptions to KCG's business operations. Although KCG devotes significant resources to maintain and regularly upgrade its systems and networks and review the ever changing threat landscape, the methods of attack change frequently, with many vulnerabilities not publicly known until the very point in time when they are exploited. Because techniques used to obtain unauthorized access

to or sabotage systems change frequently and may not be known until launched against KCG or its third-party service providers, KCG may be unable to anticipate these attacks or to implement adequate protections in advance.

There is no guarantee that the current measures by KCG or any other measures can prevent every potential threat. Although KCG maintains insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. Any actual or perceived breach of KCG’s cybersecurity could damage its reputation, expose it to a risk of loss or litigation and possible liability, require it to expend significant capital and other resources to alleviate problems caused by such breaches and otherwise have a material adverse effect on KCG’s business, financial condition, results of operations and cash flows.

The use of open source software may expose KCG to additional risks

KCG uses software development tools covered by open source licenses and may incorporate such open source software into its proprietary software from time to time. "Open source software" refers to any code, shareware or other software that is made generally available to the public without requiring payment of fees or royalties and/or that may require disclosure or licensing of any software that incorporates such source code, shareware or other software. Given the nature of open source software, third parties might assert contractual or copyright and other intellectual property-related claims against KCG based on its use of such tools and software programs or might seek to compel the disclosure of the source code of its software or other proprietary information. If any such claims materialize, KCG could be required to (i) seek licenses from third parties in order to continue to use such tools and software or to continue to operate certain elements of KCG's technology, (ii) release certain proprietary software code comprising KCG's modifications to such open source software, (iii) make KCG’s software available under the terms of an open source license or (iv) re-engineer all, or a portion of, that software, any of which could materially and adversely affect KCG's business, financial condition and results of operations. While KCG monitors the use of all open source software in its solutions, processes and technology and seeks to ensure that no open source software is used (i) in such a way as to require KCG to disclose the source code to the related solution when it does not wish to do so nor (ii) in connection with critical or fundamental elements of its software or technology, such use may have inadvertently occurred in deploying KCG's proprietary solutions. If a third-party software provider has incorporated certain types of open source software into software KCG licenses from such third party for its products and solutions, KCG could, under certain circumstances, be required to disclose the source code to its solutions. In addition to risks related to license requirements, usage of open software can lead to greater risks than use of third-party commercial software because open source licensors generally do not provide warranties or controls on the origin of the software. Many of the risks associated with usage of open source software cannot be eliminated and could potentially have a material adverse effect on KCG’s business, financial condition and results of operations.

KCG may incur losses as a result of ineffective risk management processes and strategies

KCG seeks to monitor and control its risk exposure through a risk and control framework encompassing a variety of separate but complementary financial, credit, operational, compliance and legal reporting systems, internal controls, management review processes and other mechanisms. While KCG employs a broad and diversified set of risk monitoring and risk mitigation techniques, those techniques and the judgments that accompany their application cannot anticipate every economic and financial outcome or the specifics and timing of such outcomes. Thus, KCG may, in the course of its activities, incur losses.

KCG’s failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could cause investors to lose confidence in its financial statements and have a material adverse effect on KCG’s business and stock price

KCG devotes considerable resources, including management’s time and other internal resources, to complying with regulatory requirements relating to internal control over financial reporting. Internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, internal control over financial reporting determined to be effective can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect all misstatements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. As such, KCG could lose investor confidence in the accuracy and completeness of its financial reports, which may have a material adverse effect on its stock price.

Self-clearing exposes KCG to significant operational, financial and liquidity risks

KCG self-clears substantially all of its domestic and international equities transactions using proprietary platforms and intends to expand self-clearing across product offerings and asset classes in the future. Self-clearing requires KCG to finance the majority of its inventory and maintain margin deposits at clearing organizations. Self-clearing exposes KCG’s business to operational risks, including business and technology disruption, operational inefficiencies, liquidity and financing risks and potentially increased expenses and lost revenue opportunities. While KCG’s clearing platform, operational processes, enhanced infrastructure and current and future financing arrangements have been carefully designed, KCG may nevertheless encounter difficulties that may lead to operating inefficiencies, including technology issues, dissatisfaction amongst KCG’s client base, disruption in the infrastructure that supports the business, inadequate liquidity, increased margin requirements with clearing organizations and counterparties who provide financing with respect to inventories, reductions in available borrowing capacity and financial loss. Any such delay, disruption, expense or failure could adversely affect KCG’s ability to effect transactions and manage its exposure to risk. Moreover, any of these events could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG could lose significant sources of revenues if it loses any of its larger clients

At times, a limited number of clients could account for a significant portion of KCG’s order flow, revenues and profitability, and KCG expects a large portion of the future demand for, and profitability from, its trade execution services to remain concentrated within a limited number of clients. The loss of one or more larger clients could have an adverse effect on KCG’s revenues and profitability in the future.

None of KCG’s clients is currently contractually obligated to utilize KCG for trade execution services and, accordingly, these clients may direct their trade execution activities to other execution providers or market centers at any time. Some of these clients have grown organically or acquired market makers and specialist firms to internalize order flow or will have entered into strategic relationships with competitors. There can be no assurance that KCG will be able to retain these major clients or that such clients will maintain or increase their demand for KCG’s trade execution services. Further, the continued integration of Knight and GETCO could result in disruption to KCG’s ongoing businesses and relationships or cause issues with standards, controls, procedures and policies that adversely affect the ability of KCG to maintain relationships with customers, or to solicit new customers. The loss, or a significant reduction, of demand for KCG’s services from any of these clients could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG is highly dependent on key personnel

KCG is highly dependent on a limited number of key personnel. KCG’s success is dependent to a large degree on its ability to retain the services of its existing key executives and to attract and retain additional qualified personnel in the future. Competition for such personnel is intense. The loss of the services of any of KCG’s key executives or the inability to identify, hire and retain necessary highly qualified executive management in the future could have a material adverse effect on KCG’s business, financial condition and operating results.

KCG’s success also depends, in part, on the highly skilled, and often specialized, individuals KCG employs. KCG’s ability to attract and retain management, trading, market making, sales and technology professionals, as well as quantitative analysts and programmers is important to KCG’s business strategy. KCG strives to provide high quality services that allow it to establish and maintain long-term relationships with its clients. KCG’s ability to do so depends, in large part, upon the individual employees who represent KCG in its dealings with such clients. There can be no assurance that KCG will not lose such professionals due to increased competition or other factors in the future, or that such professionals will not leave KCG voluntarily. The loss of sales, trading or technology professionals, particularly senior professionals with broad industry or technical expertise and long-term relationships with clients, could have a material adverse effect on KCG’s business, financial condition and operating results.

International activities involve certain risks

KCG’s international operations expose it to financial, cultural, regulatory and governmental risks, including restrictions imposed by the Foreign Corrupt Practices Act (the "FCPA") and trade sanctions administered by the Office of Foreign Assets Control ("OFAC"). The FCPA is intended to prohibit bribery of foreign officials and requires companies whose securities are listed in the U.S. to keep books and records that accurately and fairly reflect those companies' transactions and to devise and maintain an adequate system of internal accounting controls. OFAC administers and

enforces economic and trade sanctions based on U.S. foreign policy and national security goals against designated foreign states, organizations and individuals.

Approximately 14% of the revenue of KCG in 2014, resulted from international operations. The financial services industry in many foreign countries is heavily regulated, much like the U.S., but differences, whether cultural, legal or otherwise, do exist. KCG is exposed to risks and uncertainties, including political, economic and financial instability, changes in requirements, exchange rate fluctuations, staffing challenges and the requisite controls needed to manage such operations. To continue to operate and expand its services globally, KCG will have to comply with the unique legal and regulatory controls of each country in which it conducts, or intends to conduct business, the requirements of which may be onerous or may not be clearly defined. The varying compliance requirements of these different regulatory jurisdictions and other factors may limit KCG’s ability to successfully conduct or expand its business internationally. It may increase KCG’s costs of investment. Additionally, operating international locations involves both execution and reputational risk. KCG may not be able to manage these costs or risks effectively.

Fluctuations in currency exchange rates could adversely affect KCG’s earnings

A significant portion of KCG’s international business is conducted in currencies other than the U.S. dollar, and changes in foreign exchange rates relative to the U.S. dollar can therefore affect the value of non-U.S. dollar net assets, revenues and expenses. Potential exposures as a result of these fluctuations in currencies are closely monitored, and, where cost-justified, strategies are adopted that are designed to reduce the impact of these fluctuations on KCG’s financial performance. These strategies may include the financing of non-U.S. dollar assets with borrowings in the same currency and the use of various hedging transactions related to net assets, revenues, expenses or cash flows. Any material fluctuations in currencies could have a material effect on our operating results.

KCG has leverage

Although KCG has repaid a significant portion of its indebtedness incurred in connection with the Mergers, $305.0 million aggregate principal amount of such indebtedness as well as $117.3 million of Convertible Notes remains outstanding as of the date of this report. This leverage may have important negative consequences for KCG and its stockholders, including:


•	increasing its vulnerability to general adverse economic and industry conditions;


•	requiring it to dedicate a portion of its cash flow from operations to payments on its indebtedness, thereby reducing the availability of cash flow to fund working capital, capital expenditures, acquisitions and investments and other general corporate purposes;


•	making it difficult for it to optimally manage the cash flow for its businesses;


•	limiting its flexibility in planning for, or reacting to, changes in its businesses and the markets in which it operates;


•	placing it at a competitive disadvantage compared to its competitors that have less debt;


•	subjecting it to a number of restrictive covenants that, among other things, limit its ability to pay dividends and distributions, make acquisitions and dispositions, borrow additional funds, and make capital expenditures and other investments, and


•	exposing it to interest rate risk due to the variable interest rate on borrowings under its revolving credit agreement.

KCG’s ability to make payments of the principal on and refinance its indebtedness will depend on its future performance, its ability to generate cash flow and market conditions, each of which is subject to economic, financial, competitive and other factors beyond its control. KCG’s business may not continue to generate cash flow from operations sufficient to service its debt and make necessary capital expenditures. If KCG is unable to generate such cash flow, it may be required to adopt one or more alternatives, such as selling assets, restructuring debt, undertaking additional borrowings or issuing additional debt or obtaining additional equity capital on terms that may be onerous or highly dilutive to current shareholders. KCG’s ability to refinance all or a portion of its indebtedness will depend on KCG's financial condition and its ability to access the capital markets and the credit markets. KCG may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in increased financing costs or a default on its debt obligations.

KCG may be unable to remain in compliance with the financial maintenance and other affirmative and negative covenants contained in its debt instruments and the obligation to comply with such covenants may adversely affect its ability to operate its business

KCG’s current debt instruments contain financial maintenance and other affirmative and negative covenants that impose significant requirements on KCG and limit its ability to engage in certain transactions or activities. In addition, in the future KCG may enter into other debt instruments with covenants different from, and potentially more onerous than, those expected to be included in the KCG debt facilities. These covenants could limit KCG’s flexibility in managing its businesses. In the event that KCG is unable to either comply with these restrictions and other covenants or obtain waivers from its lenders, KCG would be in default under these debt instruments and, among other things, the repayment of KCG’s debt could be accelerated by its lenders. In such case, KCG might not be able to repay its debt or borrow sufficient funds to refinance its debt on commercially reasonable terms, or on terms that are acceptable to KCG, resulting in a default on its debt obligations, which could have an adverse effect on its financial condition.

KCG’s outstanding senior secured notes contain customary affirmative and negative covenants and customary exceptions, qualifications and “baskets” which provide KCG exceptions to certain of the negative covenant restrictions on its business up to certain specified amounts. The negative covenants include, among other things, limitations on indebtedness, liens, hedging agreements, investments, loans and advances, asset sales, mergers and acquisitions, dividends, transactions with affiliates, prepayments of other indebtedness, modifications of organizational documents and other material agreements, restrictions on subsidiaries, capital expenditures, issuance and repurchases of capital stock, negative pledges and business activities.

In addition, KCG is required to file an exchange offer registration statement with the SEC with respect to a registered offer to exchange the senior secured notes and issue exchange securities by June 30, 2015. If KCG fails to meet this obligation, additional interest of up to 1.0% per year will accrue on the senior secured notes.

KCG may be able to incur substantially more debt and take other actions that could diminish its ability to make payments on its indebtedness when due, which could further exacerbate the risks associated with its current level of indebtedness

Despite KCG’s indebtedness level and the negative covenants contained in the senior secured notes, KCG may be able to incur substantially more indebtedness in the future. KCG is not fully restricted under the terms of the indenture for the senior secured notes from incurring additional debt, securing existing or future debt, recapitalizing KCG’s debt or taking a number of other actions, including certain additional indebtedness incurred in the ordinary course of business by KCG’s broker dealer subsidiaries and certain other regulated subsidiaries, any of which additional indebtedness could diminish KCG’s ability to make payments on its indebtedness when due and further exacerbate the risks associated with KCG’s current level of indebtedness. If new debt is added to KCG’s or any of its existing and future subsidiaries' current debt, the related risks that KCG now faces could intensify.

KCG’s reported financial results depend on management’s selection of accounting methods and certain assumptions and estimates

KCG’s accounting policies and assumptions are fundamental to its reported financial condition and results of operations. KCG’s management must exercise judgment in selecting and applying many of these accounting policies and methods so they comply with generally accepted accounting principles and reflect management’s judgment of the most appropriate manner to report KCG’s financial condition and results. In some cases, management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in KCG reporting materially different results than would have been reported under a different alternative.

Certain accounting policies are critical to presenting KCG’s reported financial condition and results. They require management to make difficult, subjective or complex judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using different assumptions or estimates. If such estimates or assumptions underlying KCG’s financial statements are incorrect, KCG may experience material losses.

In November 2013, KCG restated certain legacy historical financial statements of GETCO. As a result of these restatements, KCG's management concluded that there were material weaknesses in GETCO's financial statement preparation processes and the related disclosure controls for the period leading up to the Mergers. Any future restatements or corrections of errors may result in a loss of investor confidence in KCG’s financial reporting.

Additionally, from time to time, the Financial Accounting Standards Board and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of KCG’s financial statements. These changes are beyond KCG’s control, can be difficult to predict and could materially impact how KCG reports its financial condition and results of operations. Changes in these standards are continuously occurring, and given the current economic environment, more drastic changes may occur. The implementation of such changes could have a material adverse effect on KCG’s business, financial condition and results of operations.

Exposure to credit risk may adversely affect KCG’s results of operations

KCG will be at risk if issuers whose securities or other instruments KCG holds, customers, trading counterparties, counterparties under derivative contracts or financing agreements, clearing agents, exchanges, clearing houses or other financial intermediaries or guarantors default on their obligations to KCG due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons. Such defaults could have a material adverse effect on KCG’s results of operations, financial condition and cash flows.

KCG conducts the majority of its trade executions as principal or riskless-principal with broker dealers, financial services firms and institutional counterparties. KCG self-clears a considerable portion of its trade executions, which requires that KCG compare and match trades, record all transaction details, finance inventory and maintain deposits with clearing organizations, rather than rely upon an outside party to provide those services. When KCG self-clears its securities transactions, it is required to hold the securities subject to those transactions until the transactions settle, which typically occurs three trading days following the date of execution of the transaction. During the period of time from the execution to the settlement of a securities transaction, the securities to be transferred in the transaction may incur a significant change in value or the counterparty to the transaction may become insolvent, may default on its obligation to settle the transaction or may otherwise become unable to comply with its securities financing contractual obligations, resulting in potential losses to KCG. KCG is also exposed to credit risk from its counterparties when it self-clears securities transactions and when it clears securities transactions through an unaffiliated clearing broker, the latter of which is the case with a minority of KCG’s trade executions. Counterparty credit risk relates to both the deposits held with clearing organizations and instances where a trade might have failed, or be contested, adjusted or generally deviate from the terms understood at the time of execution. Under the terms of the agreements between KCG and its clearing brokers, the clearing brokers have the right to charge KCG for losses that result from a counterparty’s failure to fulfill its contractual obligations. No assurance can be given that any such counterparty will not default on its obligations, which default could have a material adverse effect on KCG’s business, financial condition and operating results.

Although KCG has procedures for reviewing credit exposures to specific customers and counterparties to address present credit concerns, default risk may arise from events or circumstances that are difficult to detect or foresee, including rapid changes in securities, commodity and foreign exchange price levels. Some of KCG’s risk management methods depend upon the evaluation of information regarding markets, clients or other matters that are publicly available or otherwise accessible by KCG. That information may not, in all cases, be accurate, complete, up-to-date or properly evaluated. In addition, concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions, which in turn could adversely affect KCG. KCG may be materially and adversely affected in the event of a significant default by its customers and counterparties.

Acquisitions, strategic investments, divestitures and other strategic relationships involve certain risks

KCG is the product of strategic relationships and acquisitions, and it may continue to pursue opportunistic strategic acquisitions of, investments in, or divestitures of businesses and technologies. Acquisitions may entail numerous risks, including difficulties in assessing values for acquired businesses, intangible assets and technologies, difficulties in the assimilation of acquired operations and products, diversion of management’s attention from other business concerns, employee retention issues, assumption of unknown material liabilities of acquired companies, amortization of acquired intangible assets and the potential writedown of goodwill due to impairment, which could reduce future reported earnings, or result in potential loss of clients and/or key employees of acquired companies. KCG may not be able to integrate successfully certain operations, personnel, services or products that it has acquired or may acquire in the future.

As KCG has sought to refocus on its core market making and trading services, it has shutdown, reconstituted or disposed of several non-core businesses, including its reverse mortgage origination and securitization business, its FCM business and KCG Hotspot (the sale of which is pending). Additional divestitures are possible in the future and may have a material impact on KCG’s balance sheet or results of operations. There is no guarantee that KCG will be

able to replace the revenue generated by any divested business. Divestitures generally also entail numerous risks. The divestiture of an existing business could reduce KCG’s future operating cash flows and revenues, make its financial results more volatile, and/or cause a decline in revenues and profits. A divestiture could also cause a decline in the price of KCG Class A Common Stock and increased reliance on other elements of its core business operations. In addition, the agreements to sell any divested businesses may require KCG to indemnify the buyer in certain situations. If KCG does not successfully manage the risks associated with a divestiture, its business, financial condition, and results of operations could be adversely affected. KCG also may not find suitable purchasers for businesses it may wish to divest. In addition, the decision to pursue acquisitions, divestitures or other strategic transactions may jeopardize KCG’s ability to retain the services of its existing key employees and to attract and retain additional qualified personnel in the future.

Strategic investments also entail some of the other risks described above. If these investments are unsuccessful, KCG may need to incur charges against earnings. KCG may build and establish a number of strategic relationships. These relationships and others KCG may enter into in the future may be important to its business and growth prospects. KCG may not be able to maintain these relationships or develop new strategic alliances.

KCG may fail to realize the anticipated benefits of the combination of GETCO and Knight

The success of KCG will depend on, among other things, KCG’s effectiveness in continuing to combine the businesses of GETCO and Knight in a manner that permits growth opportunities and does not materially disrupt the existing customer relationships of KCG nor result in materially decreased revenues due to loss of customers. If KCG is not able to successfully achieve these objectives, the anticipated benefits of the Mergers may not be realized fully or may take longer to realize than expected.

Business combinations involve numerous risks, including difficulties in the assimilation of the operation, systems, controls and technologies of the companies and the diversion of management’s attention from other business concerns. Achievement of the benefits expected from the Mergers have required, and in the future may require, KCG to incur significant cost in connection with, among other things, implementing financial and operating systems, and integrating technology platforms.

The market price of KCG Class A Common Stock may decline if, among other factors, the integration of the Knight and GETCO businesses ultimately proves to be unsuccessful, the operational cost savings estimates are not realized or key employees leave KCG.

Certain additional payments to be made to KCG in connection with the sale of KCG Hotspot are uncertain

The sale of KCG Hotspot is structured as a taxable asset sale and BATS and KCG have agreed to share certain related tax benefits that potentially accrue to BATS after the closing of the transaction. KCG will share in 70% of the actual tax benefits to BATS for the first three years after the closing and 50% of the actual tax benefits thereafter (the “Annual Tax Benefits”). However, KCG has a one-time option exercisable within 30 days of the third anniversary of the closing of the transaction to terminate the continued tax sharing arrangement in exchange for a one-time payment of $50 million, which BATS has the right to exercise after KCG’s option expires.

However, the receipt of the Annual Tax Benefits by KCG is subject to BATS having sufficient net income to receive the tax benefits. BATS’s net income could decrease due to numerous factors, which are outside of the control of KCG. In addition, any decrease in the corporate tax rates applicable to BATS could reduce the size or certainty of the Annual Tax Benefits.

In addition, KCG will not be entitled to the Annual Tax Benefits in the first three years if, during the five month period beginning on January 27, 2015 (subject to extension in limited cases) (the “Measurement Period”), the average daily notional FX trading volume on KCG Hotspot for any 60 trading day rolling period is less than or equal to a threshold set at 70% of the average daily notional FX trading volume on KCG Hotspot for the month with the lowest trading volume over the last two calendar years (the “Trigger Event”) and, after the Trigger Event but during the Measurement Period, the average daily notional FX trading volume on Hotspot for any 15 trading day rolling period is not 80% or more of the average daily notional FX trading volume on Hotspot for the 2014 calendar year and no subsequent Trigger Event occurs during the Measurement Period.

KCG is a holding company and depends on its subsidiaries for dividends, distributions and other payments

KCG is a legal entity separate and distinct from its broker dealer and other subsidiaries. KCG’s principal source of cash flow, including cash flow to pay principal and interest on its outstanding debt, will be dividends and distributions from its subsidiaries. There are statutory and regulatory limitations on the payment of dividends or distributions by regulated subsidiaries, such as broker dealers. If KCG’s subsidiaries are unable to make dividend payments or distributions to it and sufficient cash or liquidity is not otherwise available, KCG may not be able to make principal and interest payments on its outstanding debt and could default on its debt obligations. In addition, KCG’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization will be subject to the prior claims of the subsidiary’s creditors.

KCG’s four largest stockholders own a substantial percentage of KCG’s Class A Common Stock, which could limit the ability of other stockholders to influence corporate matters or result in actions that the other stockholders do not believe to be in KCG’s interests or their interests

As of February 23, 2015, KCG’s four largest stockholders beneficially owned an aggregate of approximately 58% of KCG’s outstanding Class A Common Stock (including restricted stock units) (or 63%, assuming exercise of the KCG warrants held by these holders in full) based on the most recent Schedule 13D or 13G filed by the holders. As a result, these large stockholders may be able to exert influence over KCG’s affairs and policies, including the election of directors and the approval of mergers, acquisitions and other extraordinary transactions. In addition, three of the largest stockholders have representation on KCG’s Board of Directors. This concentrated control will limit the ability of the remaining stockholders to influence corporate matters, and the interests of the large stockholders may not coincide with KCG’s interests or the interests of the remaining stockholders. The concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of KCG, could deprive KCG’s stockholders of an opportunity to receive a premium for their common stock as part of a sale of KCG and might ultimately affect the market price of KCG’s common stock.

These large stockholders have in the past and may in the future seek to sell large portions of KCG Class A Common Stock in one or a series of related transactions, including through block trades, 10b5-1 sales plans or underwritten secondary offerings. In connection with the Mergers, certain of these stockholders were granted registration rights, which, subject to certain limitations, require KCG to assist such stockholders in conducting one or more registered offerings of all or a portion of their holdings. Any significant sales of KCG Class A Common Stock or any market perception of future sales of KCG Class A Common Stock may result in a decrease in the trading price of KCG’s Class A Common Stock.

Shares of KCG Class A Common Stock are subject to dilution as a result of exercise of the warrants

The shares of KCG Class A Common Stock are subject to dilution upon exercise of KCG’s warrants. Approximately 24.3 million shares of KCG Class A Common Stock may be issued in connection with exercise of the warrants. These warrants have exercise prices ranging from $12.00 to $15.00 and terms of between four and six years, with the first expiration occurring on July 1, 2017. The warrants may be exercised at any time, even if the current market price of the KCG Class A Common Stock is below the applicable exercise price.

The market price of KCG Class A Common Stock will likely be influenced by the warrants. For example, the market price of KCG Class A Common Stock could become more volatile and could be depressed by investors’ anticipation of the potential resale in the market of a substantial number of additional shares of KCG Class A Common Stock received upon exercise of the warrants. This effect may be more significant as the expiration date for a class of warrants approaches.

The market price of KCG’s common stock could fluctuate significantly

The U.S. securities markets in general have experienced significant price fluctuations in recent years. If the market price of KCG Class A Common Stock fluctuates significantly, KCG may become the subject of securities class action litigation which may result in substantial costs and a diversion of management’s attention and resources. KCG’s future quarterly operating results may not consistently meet the expectations of securities analysts or investors, which could have a material adverse effect on the market price of KCG Class A Common Stock.

KCG may not pay dividends

KCG does not currently expect to pay dividends on its common stock. Any determination to pay dividends in the future will be at the discretion of the KCG board of directors and will depend, upon among other factors, KCG’s cash requirements, financial condition, requirements to comply with the covenants under its debt instruments and credit facilities, earnings and legal considerations. If KCG does not pay dividends, then the return on an investment in its common stock will depend entirely upon any future appreciation in its stock price. There is no guarantee that KCG Class A Common Stock will appreciate in value or maintain its value.



Item 1B.	Unresolved Staff Comments

None.



Item 2.	Properties

Our corporate headquarters are located in Jersey City, New Jersey. We lease approximately 266,000 square feet at 545 Washington Boulevard under a lease that expires in October 2021. We also collectively lease approximately 450,000 square feet for our office locations in the U.S., Europe and Asia.



Item 3.	Legal Proceedings

The information required by this Item is set forth in the “Legal Proceedings” section in Footnote 22 "Commitments and Contingent Liabilities" to the Company's Consolidated Financial Statements included in Part II, Item 8 "Financial Statements and Supplementary Data" herein.



Item 4.	Mine Safety Disclosures

Not applicable.

PART II



Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Class A Common Stock is listed on the New York Stock Exchange ("NYSE") under the ticker symbol “KCG”. Public trading of our Class A Common Stock commenced on July 5, 2013 on the NYSE. The following table sets forth, since July 5, 2013, the high and low quarterly closing sales price per share of the Class A Common Stock as reported by the NYSE during the relevant periods.



	High		Low
2014
First Quarter	$	12.49	$	10.91
Second Quarter	12.27		9.71
Third Quarter	12.09		10.10
Fourth Quarter	11.93		9.99
2013
Third Quarter	12.24		8.16
Fourth Quarter	12.08		8.29

The closing sale price of our Class A Common Stock as reported by the NYSE on February 23, 2015, was $12.59 per share. As of that date there were 133 holders of record of our Class A Common Stock based on information provided by our transfer agent. The number of stockholders does not reflect the actual number of individual or institutional stockholders that hold our stock because certain stock is held in the name of nominees. Based on information made available to us by our transfer agent, as of the same date there were 17,930 beneficial holders of our Class A Common Stock. Holders of restricted stock units are not included in the calculation of holders of record.

We have never declared or paid a cash dividend on our Class A Common Stock. The payment of cash dividends is within the discretion of our Board of Directors and will depend on many factors, including, but not limited to, our results of operations, financial condition, capital and liquidity requirements and restrictions imposed by financing arrangements, as further described in the “Financial Condition, Liquidity and Capital Resources” section included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation”, and in Footnote 13, “Debt” to the Company’s Consolidated Financial Statements included in Part II, Item 8 “Financial Statements and Supplementary Data”.

Comparative Stock Performance Graph

The graph below compares the total cumulative return of the KCG Class A Common Stock from July 5, 2013 (the day KCG commenced regular-way trading on the NYSE) through December 31, 2014, to the Standard & Poor’s 500 Index, the Russell 2000 Index and the SNL Broker/Dealer Index. The graph assumes that dividends were reinvested and is based on an investment of $100 on July 5, 2013.



	Period Ending
Index	07/05/13	09/30/13	12/31/13	03/31/14	06/30/14	09/30/14	12/31/14
KCG Holdings, Inc.	100.00	77.69	107.17	106.90	106.45	90.77	104.39
S&P 500	100.00	103.00	119.37	117.20	116.38	124.59	134.62
Russell 2000	100.00	106.80	115.74	116.68	118.66	109.58	119.82
SNL Broker/Dealer	100.00	103.04	113.26	114.73	120.12	120.86	126.17

The following table contains information about our purchases of KCG Class A Common Stock during the fourth quarter of 2014 (in thousands, except average price paid per share):



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
October 1, 2014 - October 31, 2014
Common stock repurchases	—			—	$	55,038
Employee transactions ⁽²⁾	63			—
Total	63	$	10.39	—
November 1, 2014 - November 30, 2014
Common stock repurchases	—			—	$	55,038
Employee transactions ⁽²⁾	56			—
Total	56	$	10.79	—
December 1, 2014 - December 31, 2014
Common stock repurchases	—			—	$	55,038
Employee transactions ⁽²⁾	16			—
Total	16	$	11.31	—
Total
Common stock repurchases	—			—	$	55,038
Employee transactions ⁽²⁾	136			—
Total	136	$	10.67	—

________________________________________

Totals may not add due to rounding.

⁽¹⁾ During the second quarter of 2014, the Company’s Board of Directors approved an initial program to repurchase up to a total of $150.0 million in shares of the Company’s outstanding KCG Class A Common Stock and KCG Warrants. Under the program, the Company may repurchase shares from time to time in open market transactions, accelerated stock buyback programs, tender offers, privately negotiated transactions or by other means. Repurchases may also be made under Rule 10b5-1 plans. The timing and amount of repurchase transactions will be determined by the Company’s management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. The Company cautions that there are no assurances that any further repurchases will actually occur. Through December 31, 2014, the Company had repurchased 8.1 million shares for $95.0 million under this program leaving $55.0 million available for additional repurchases.

⁽²⁾ Represents shares of KCG Class A Common Stock withheld in satisfaction of tax withholding obligations upon vesting of employee restricted equity awards.

Equity Compensation Plan Information

The following table sets forth certain information as of December 31, 2014, regarding the Company’s equity compensation plans for stock-based awards.



Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(In thousands, except weighted-average exercise price)
	( a )	( b )		( c )
Equity compensation plans approved by security holders	4,691	$	17.41	16,152
Equity compensation plans not approved by security holders	—	—		—
Total	4,691	$	17.41	16,152



Item 6.	Selected Financial Data

The following should be read in conjunction with the Consolidated Financial Statements and the discussion under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this document. The Consolidated Statements of Operations Data for 2014, 2013 and 2012 and the Consolidated Statements of Financial Condition Data at December 31, 2014 and 2013 have been derived from our audited Consolidated Financial Statements included elsewhere in this document. The Consolidated Statements of Operations Data for 2011 and 2010 and the Consolidated Statements of Financial Condition Data at December 31, 2012, 2011 and 2010 are derived from Consolidated Financial Statements not included in this document.



	For the year ended December 31,
	2014			2013			2012			2011			2010
Consolidated Statements of Operations Data:	(In thousands, except per share amounts)
Revenues
Trading revenues, net	$	837,357		$	628,304		$	421,063		$	611,845		$	335,418
Commissions and fees	437,022			275,474			105,518			284,620			529,673
Interest, net	621			(537		)	(2,357		)	(1,211		)	50
Investment income and other, net	41,232			124,095			27,010			20,194			1,804
Total revenues	1,316,232			1,027,336			551,234			915,448			866,945
Expenses
Employee compensation and benefits	437,269			349,192			157,855			241,753			220,318
Execution and clearance fees	305,177			246,414			185,790			289,025			303,574
Communications and data processing	150,595			123,552			90,623			87,116			61,844
Depreciation and amortization	81,448			55,570			34,938			45,675			46,612
Payments for order flow	70,183			35,711			2,964			3,299			4,086
Occupancy and equipment rentals	32,707			24,812			12,804			9,903			7,054
Debt interest expense	32,456			34,938			2,665			1,299			740
Collateralized financing interest	27,860			9,847			—			—			—
Professional fees	25,596			46,662			14,072			17,142			11,621
Business development	9,763			4,609			23			108			143
Writedown of assets and lease loss accrual, net	8,625			14,748			—			—			—
Writedown of capitalized debt costs	9,552			13,209			—			—			—
Other	39,814			43,094			23,073			26,587			21,263
Total expenses	1,231,045			1,002,358			524,807			721,907			677,255
Income from continuing operations before income taxes	85,187			24,978			26,427			193,541			189,690
Income tax (benefit) expense	22,753			(101,114		)	10,276			30,841			27,834
Income from continuing operations, net of taxes	62,434			126,092			16,151			162,700			161,856
(Loss) income from discontinued operations, net of taxes	(1,332		)	80			—			—			—
Net income	$	61,102		$	126,172		$	16,151		$	162,700		$	161,856
Net (loss) income allocated to preferred and participating units	$	—		$	(21,565	)	$	1,092		$	12,510		$	21,954
Net income attributable to common shareholders	$	61,102		$	147,737		$	15,059		$	150,190		$	139,902
Basic earnings per common share from continuing operations	$	0.55		$	1.84		$	0.31		$	2.96		$	2.80
Diluted earnings per common share from continuing operations	$	0.54		$	1.82		$	0.31		$	2.96		$	2.80
Basic loss per common share from discontinued operations	$	(0.01	)	$	—		$	—		$	—		$	—
Diluted loss per common share from discontinued operations	$	(0.01	)	$	—		$	—		$	—		$	—
Basic earnings per common share	$	0.54		$	1.84		$	0.31		$	2.96		$	2.80
Diluted earnings per common share	$	0.52		$	1.82		$	0.31		$	2.96		$	2.80
Shares used in computation of basic earnings (loss) per common share	112,854			80,143			48,970			50,688			49,977
Shares used in computation of diluted earnings (loss) per common share	116,534			81,015			48,970			50,688			49,977



	December 31,
	2014		2013		2012		2011		2010
	(In thousands)
Consolidated Statements of Financial Condition Data:
Cash and cash equivalents	$	578,768	$	674,281	$	427,631	$	607,689	$	614,025
Financial instruments owned, at fair value	2,707,371		2,721,839		654,875		240,338		99,418
Total assets	6,830,654		6,997,004		1,687,536		1,302,023		1,184,382
Financial instruments sold, not yet purchased, at fair value	2,285,707		2,165,500		512,553		140,530		191,446
Debt	422,259		657,259		15,000		15,000		21,654
Redeemable preferred member's equity	—		—		311,139		314,440		338,158
Equity	1,522,577		1,509,537		654,672		622,996		532,411



Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Explanatory Note

On July 1, 2013, Knight Capital Group, Inc. (“Knight”), through a series of transactions (the "Mergers"), merged with GETCO Holding Company, LLC (“GETCO”) to form KCG Holdings, Inc. ("KCG" or the "Company"). The Mergers were consummated pursuant to the Amended and Restated Agreement and Plan of Merger, dated as of December 19, 2012 and amended and restated as of April 15, 2013 (the "Merger Agreement"). Following the Mergers, each of Knight and GETCO became a wholly-owned subsidiary of KCG.

All references herein to the "Company", "we", "our" or "KCG" relate solely to KCG and not Knight. All references to "GETCO" relate solely to GETCO and not KCG.

Cautionary Statement Regarding Forward-Looking Information

Certain statements contained in this Annual Report on Form 10-K, including without limitation, those under “Legal Proceedings” in Part I, Item 3, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 (“MD&A”), and “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A, the documents incorporated by reference herein and statements containing the words “believes,” “intends,” “expects,” “anticipates,” and words of similar meaning, may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are not historical facts and are based on current expectations, estimates and projections about KCG Holdings, Inc.’s (the “Company” or “KCG”) industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company's control. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks associated with: (i) the strategic business combination (the "Mergers") of Knight Capital Group, Inc. (“Knight”) and GETCO Holding Company, LLC (“GETCO”) including, among other things, (a) difficulties and delays in integrating the Knight and GETCO businesses or fully realizing cost savings and other benefits, (b) the inability to sustain revenue and earnings growth, and (c) customer and client reactions to the Mergers; (ii) the August 1, 2012 technology issue that resulted in Knight’s broker dealer subsidiary sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market and the impact to Knight’s business as well as actions taken in response thereto and consequences thereof; (iii) the sale of KCG's reverse mortgage origination and securitization business, the sale of KCG's futures commission merchant and the pending sale of KCG Hotspot; (iv) changes in market structure, legislative, regulatory or financial reporting rules, including the increased focus by regulators, the New York Attorney General, Congress and the media on market structure issues, and in particular, the scrutiny of high frequency trading, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures; (v) past or future changes to KCG's organizational structure and management; (vi) KCG's ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCG's customers and potential customers; (vii) KCG's ability to keep up with technological changes; (viii) KCG's ability to effectively identify and manage market risk, operational and technology risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory risk, and compliance risk; (ix) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; and (x) the effects of increased competition and KCG's ability to maintain and expand market share. The above list is not exhaustive. Because forward-looking statements involve risks and uncertainties, the actual results and performance of the Company may materially differ from the results expressed or implied by such statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein. Readers should carefully review the risks and uncertainties disclosed in the Company’s reports with the U.S.

Securities and Exchange Commission (“SEC”), including those detailed under “Certain Factors Affecting Results of Operations” in MD&A and in “Risk Factors” in Part I, Item 1A herein, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time. This information should be read in conjunction with the Company’s Consolidated Financial Statements and the Notes thereto contained in this Form 10-K, and in other reports or documents the Company files with, or furnishes to, the SEC from time to time.

Executive Overview

We are a leading independent securities firm offering clients a range of services designed to address trading needs across asset classes, product types and time zones. The Company combines advanced technology with specialized client service across market making, agency execution and trading venues and also engages in principal trading via exchange-based electronic market making. KCG has multiple access points to trade global equities, options, futures, fixed income, currencies and commodities via voice or automated execution.

On December 19, 2012, Knight, and GETCO entered into the Merger Agreement. The Mergers were approved by the respective stockholders and unitholders of both companies at special meetings held on June 25, 2013, and the Mergers were completed on July 1, 2013. As a result of the Mergers, Knight and GETCO became wholly-owned subsidiaries of KCG.

Pursuant to the Merger Agreement, each outstanding share of Knight Class A common stock, par value $0.01 per share ("Knight Common Stock") was converted into the right to elect to receive either $3.75 per share in cash or one third of a share of KCG Class A Common Stock. As a result of the elections and proration procedures provided in the Merger Agreement, former Knight stockholders received a cash payment, in aggregate, of $720.0 million and 41.9 million shares of KCG Class A Common Stock.

Upon completion of the Mergers, GETCO unitholders received, in aggregate, 75.9 million shares of KCG Class A Common Stock and 24.3 million warrants to acquire shares of KCG Class A Common Stock. The warrants comprise 8.1 million Class A warrants, having a $12.00 exercise price and exercisable for a four-year term; 8.1 million Class B warrants, having a $13.50 exercise price and exercisable for a five-year term; and 8.1 million Class C warrants, having a $15.00 exercise price and exercisable for a six-year term (collectively the “KCG Warrants”).

The Mergers were accounted for as a purchase of Knight by GETCO under accounting principles generally accepted in the United States of America ("GAAP"). Under the purchase method of accounting, the assets and liabilities of Knight were recorded, as of completion of the Mergers, at their respective fair values and added to the carrying value of GETCO's existing assets and liabilities. The reported financial condition and results of operations of KCG following completion of the Mergers reflect Knight's and GETCO's balances and reflect the impact of purchase accounting adjustments, including revised amortization and depreciation expense for acquired assets. As GETCO is the accounting acquirer under GAAP, all financial information prior to the Mergers is that of GETCO.

Results of Operations

As of December 31, 2014, our operating segments comprised the following:

•

Market Making— Our Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, 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, banks and institutions. 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 transact 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, futures, options, foreign exchange, and fixed income to institutions, banks and broker dealers. We generally earn commissions as an agent between principals for transactions that are executed within this segment; however, we may commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities; (ii) institutional sales traders

executing program, block and riskless principal trades in global equities and exchange traded funds ("ETFs"); (iii) an institutional spot foreign exchange electronic communication network ("ECN"); (iv) a fixed income ECN that also offers trading applications; and (v) an alternative trading system ("ATS") for global equities.

•

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 the Company’s other segments such as self-clearing services, including stock lending activities.

Management from time to time conducts a strategic review of our businesses and evaluates their potential value in the marketplace relative to their current and expected returns. To the extent management and our Board of Directors determine a business may return a higher value to stockholders, or is no longer core to our strategy, the Company may divest or exit such business.

In November 2013, we sold Urban Financial of America, LLC, the reverse mortgage origination and securitization business that was previously owned by Knight to an investor group. The results of Urban's operations have been reported in (Loss) Income from discontinued operations, net of tax on the Consolidated Statements of Operations for all relevant periods presented.

In November 2014, we sold certain assets and liabilities related to our FCM business to Wedbush Securities Inc. The FCM does not meet the accounting requirements of a discontinued operation, and therefore the results of the FCM’s operations continue to be reported in the Global Execution Services segment and within Continuing Operations on the Consolidated Statements of Operations for all relevant periods presented up to and including the date of sale.

In October 2014, we announced that we began to explore strategic options for KCG Hotspot, with the goal of executing on opportunities if it creates additional value for our stockholders, clients and employees. As of December 31, 2014, the assets and liabilities of KCG Hotspot have met the applicable requirements and have been classified as Assets of business held for sale and Liabilities of business held for sale on the Consolidated Statement of Financial Condition and the results of KCG Hotspot's operations continues to be reported in the Global Execution Services segment and within Continuing Operations on the Consolidated Statements of Operations for all relevant periods presented. In January 2015, we entered into an agreement to sell KCG Hotspot to BATS Global Markets (“BATS”). The transaction, which is subject to customary closing conditions, is expected to be completed in March 2015. See “Subsequent Events” in this MD&A for further information.

The following table sets forth: (i) Revenues, (ii) Expenses and (iii) Pre-tax (loss) earnings from continuing operations of our segments and on a consolidated basis (in thousands):



	For the year ended December 31,
	2014			2013			2012
Market Making
Revenues	$	901,152		$	688,197		$	495,427
Expenses	754,439			584,585			460,540
Pre-tax earnings	146,713			103,612			34,887
Global Execution Services
Revenues	345,710			197,765			36,211
Expenses	334,654			223,559			43,541
Pre-tax earnings (loss)	11,056			(25,794		)	(7,330		)
Corporate and Other
Revenues	69,369			141,374			19,596
Expenses	141,951			194,216			20,726
Pre-tax loss	(72,582		)	(52,842		)	(1,130		)
Consolidated
Revenues	1,316,232			1,027,336			551,234
Expenses	1,231,045			1,002,358			524,807
Pre-tax earnings	$	85,187		$	24,978		$	26,427

Totals may not add due to rounding.

In the first quarter of 2014, the Company began to charge the Market Making and Global Execution Services segments for the cost of aggregate debt interest. The interest amount charged to each of the segments is determined based on capital limits and requirements. Historically, debt interest was included within the Corporate and Other segment. This change in the measurement of segment profitability has no impact on the consolidated results and will only be reported prospectively, and will not be reflected in any financial results prior to January 1, 2014. For the year ended December 31, 2014 debt interest expense included in the results of the Market Making and Global Execution Services segments was $24.7 million and $7.1 million, respectively.

Reconciliation of GAAP Pre-Tax to Non-GAAP Pre-Tax Earnings

We believe that certain non-GAAP financial presentations, when taken into consideration with the corresponding GAAP financial presentations, are important in understanding our operating results. The non-GAAP adjustments incorporate the effects of gains, losses and impairment charges related to strategic assets; gain on the sale of our FCM business; compensation expense related to reductions in workforce and other employee separations as well as the Mergers; the writedown of capitalized debt costs related to early repayment of debt; professional and other fees related to the Mergers; and writedowns of assets and lease loss accruals.

We believe the presentation of results excluding these adjustments provides meaningful information to stockholders and investors as they provide a useful summary of our results of operations for the years ended December 31, 2014, 2013 and 2012.

The following tables provide a full reconciliation of GAAP to non-GAAP pre- tax results ("adjusted pre-tax earnings") for the years ended December 31, 2014, 2013 and 2012 (in thousands):



Year ended December 31, 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	$	146,713	$	11,056		$	(72,582	)	$	85,187
Net gain related to tradeMONSTER combination with OptionsHouse	—		—			(15,105		)	(15,105		)
Income resulting from the merger of BATS and Direct Edge, net	—		—			(9,644		)	(9,644		)
Gain on sale of FCM	—		(2,116		)	—			(2,116		)
Compensation related to reduction in workforce and other employee separations	3,169		5,463			4,958			13,590
Writedown of capitalized debt costs	—		—			9,552			9,552
Writedown of assets and lease loss accrual, net	811		—			7,814			8,625
Adjusted pre-tax earnings	$	150,693	$	14,403		$	(75,007	)	$	90,089

Totals may not add due to rounding



Year ended December 31, 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	$	103,612	$	(25,794	)	$	(52,842	)	$	24,978
Gain on investment in Knight Capital Group, Inc.	—		—			(127,972		)	(127,972		)
Professional and other fees related to Mergers and August 1st technology issue	—		—			47,183			47,183
Writedown of capitalized debt costs	—		—			13,209			13,209
Compensation and other expenses related to reduction in workforce	11,518		21,444			708			33,670
Unit based compensation acceleration due to Mergers	—		—			22,031			22,031
Strategic asset impairment	—		—			7,825			7,825
Writedown of assets and lease loss accrual, net	108		1,681			13,344			15,133
Adjusted pre-tax earnings	$	115,238	$	(2,669	)	$	(76,514	)	$	36,057

Totals may not add due to rounding



Year ended December 31, 2012	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	$	34,887		$	(7,330	)	$	(1,130	)	$	26,427
Investment gain	(9,133		)	—			(14,599		)	(23,732		)
Professional and other fees related to Mergers	—			—			4,318			4,318
Adjusted pre-tax earnings	$	25,754		$	(7,330	)	$	(11,411	)	$	7,013

Totals may not add due to rounding

A summary of the changes in our financial results and balances follows. The primary reason for the variance in financial results between the years ended December 31, 2014 and 2013 is the Mergers, which occurred on July 1, 2013. Financial results for periods prior to the Mergers reflect solely the results of GETCO while periods following the Mergers reflect the results of KCG which includes both GETCO and Knight.

Consolidated revenues for 2014 increased $288.9 million from 2013, while consolidated expenses increased $228.7 million. Consolidated pre-tax earnings from continuing operations for 2014 was $85.2 million as compared to $25.0 million in 2013.

The Company’s net revenues, which we define as total revenues, less execution and clearance fees, payments for order flow, collateralized financing interest and the investment gains and losses listed in the reconciliation tables above (“adjusted net revenues”) were $886.1 million for 2014, compared to $615.2 million in 2013.

Adjusted pre-tax earnings increased from $36.1 million in 2013 to $90.1 million in 2014.

Adjusted pre-tax earnings for 2014 exclude net non-GAAP adjustments totaling a benefit of $4.9 million. These items primarily comprise the net gains related to tradeMONSTER's combination with OptionsHouse, the BATS and Direct Edge Holdings LLC ("Direct Edge") merger and the sale of our FCM business offset, in part, by compensation related to reductions in workforce and other employee separations, writedown of capitalized debt costs and writedown of assets and lease loss accruals. Adjusted pre-tax earnings for 2013 exclude net non-GAAP adjustments totaling a net benefit of $11.1 million, comprising a gain on GETCO's investment in Knight common stock offset, by merger related expenses for compensation and professional fees, August 1st related professional fees, a strategic asset impairment as well as writedowns of assets and capitalized debt costs. A detailed breakdown of these items can be found in the Reconciliation of GAAP pre-tax to Non-GAAP pre-tax earnings tables above.

As with consolidated results, the changes in our adjusted pre-tax earnings by segment from the year ended December 31, 2013 to the year ended December 31, 2014 were impacted by the Mergers, which lead to a full year of KCG results in 2014 being compared to half year of KCG results and half years of GETCO results for 2013. These results are summarized as follows:

•

Market Making— Our adjusted pre-tax earnings from Market Making for 2014 was $150.7 million, compared to adjusted pre-tax earnings of $115.2 million in 2013. Results for the current year were significantly affected by the full year's results related to the acquisition of Knight. Results were also aided by higher market volumes and volatility offset, in part, by the effects of high levels of competition.

•

Global Execution Services— Our adjusted pre-tax earnings from Global Execution Services for 2014 was $14.4 million, compared to an adjusted pre-tax loss of $2.7 million in 2013. The results for 2014 were aided by solid results from businesses such as KCG Hotspot, KCG BondPoint as well as KCG EMS, which includes Knight Direct and GETAlpha. Additionally, results were aided by improvements in our Institutional Agency business in the latter part of 2014.


•	Corporate and Other— Our adjusted pre-tax earnings from our Corporate and Other segment was a loss of $75.0 million for 2014 compared to a loss of $76.5 million in 2013.

Certain Factors Affecting Results of Operations

We may experience significant variation in our future results of operations. Fluctuations in our future performance may result from numerous factors, including, among other things, global financial market conditions and the resulting competitive, credit and counterparty risks; cyclicality, seasonality and other economic conditions; the value of our securities positions and other financial instruments and our ability to manage the risks attendant thereto; the volume, notional dollar value traded and volatility levels within the core markets where our market making and trade execution businesses operate; the composition, profile and scope of our relationships with institutional and broker dealer clients; the performance, size and volatility of our direct-to-client market making portfolios; the performance, size and volatility of our non-client exchange-based trading activities; the overall size of our balance sheet and capital usage; impairment of goodwill and/or intangible assets; the performance of our global operations, trading technology and technology infrastructure; the effectiveness of our self-clearing and futures platforms and our ability to manage risks related thereto; the availability of credit and liquidity in the marketplace; our ability to prevent erroneous trade orders from being submitted due to technology or other issues (such as the events that affected Knight on August 1, 2012) and avoiding the consequences thereof; the performance, operation and connectivity to various market centers; our ability to manage personnel, compensation, overhead and other expenses, including our occupancy expenses under our office leases and expenses and charges relating to legal and regulatory proceedings; the strength of our client relationships; changes in payments for order flow; changes to execution quality and changes in clearing, execution and regulatory transaction costs; interest rate movements; the addition or loss of executive management, sales, trading and technology professionals; geopolitical, legislative, legal, regulatory and financial reporting changes specific to financial services and global trading; legal or regulatory matters and proceedings; the Mergers and the costs and integration associated therewith; the amount, timing and cost of business divestitures/acquisitions or capital expenditures; the integration, performance and operation of acquired businesses; the incurrence of costs associated with acquisitions and dispositions; investor sentiment; and technological changes and events.

Such factors may also have an impact on our ability to achieve our strategic objectives, including, without limitation, increases in market share, growth and profitability in the businesses in which we operate. If demand for our services declines or our performance deteriorates significantly due to any of the above factors, and we are unable to adjust our cost structure on a timely basis, our operating results could be materially and adversely affected. As a result of the foregoing factors, period-to-period comparisons of our revenues and operating results are not necessarily meaningful and such comparisons cannot be relied upon as indicators of future performance. There also can be no assurance that we will be able to continue to achieve the level of revenues that we have experienced in the past or that we will be able to improve our operating results.

Trends

Global Economic Trends

Our businesses are affected by many factors in the global financial markets and worldwide economic conditions. These factors include the growth level of gross domestic product in the U.S., Europe and Asia, and the existence of transparent, efficient and liquid equity and debt markets and the level of trading volumes and volatility in such markets.

During the year ended December 31, 2014, trade volume and volatility levels across equity markets increased from the comparable prior year periods as did similar trading metrics generally across all products we trade. Overall, there are still concerns about global stability and growth, inflation and declining asset values.

Trends Affecting Our Company

We believe that our businesses are affected by the aforementioned global economic trends as well as more specific trends. Some of the specific trends that impact our operations, financial condition and results of operations are:

•

Clients continue to focus on statistics measuring the quality of equity executions (including speed of execution and amount of 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 they provide to their clients. 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 performance of our trading models and margin metrics and those of 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, while there is the possibility for consolidation among trading venues, 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 securities 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, public disclosures around execution protocols, market structure complexity, colocation, access to market data feeds and remuneration arrangements such as payment for order flow and exchange fee structures. New legislation or new or modified regulations and rules could occur in the future. Members of the U.S. Congress continue to ask the SEC and other regulators to closely review the financial markets regulatory structure and make the changes necessary to insure the rule framework governing the U.S. financial markets is comprehensive and complete. The SEC and other regulators, both in the U.S. and abroad, have adopted and will continue to propose and adopt rules and take other policy actions where necessary, on a variety of marketplace issues – including, but not limited to: high frequency trading, market fragmentation and complexity, transaction taxes, off-exchange trading, dark liquidity pools, internalization, post-trade attribution, colocation, market access, short sales, consolidated audit trails, policies and procedures relating to technology controls and systems, optimal tick sizes, and market volatility rules (including, Regulation Systems Compliance and Integrity commonly referred to as, Regulation SCI). For example, on August 26, 2014 the SRO’s, at the direction of the SEC, announced a Tick Size Pilot Plan to study tick sizes for certain securities, that could lead to further changes in market structure, including the adoption of a “Trade-At” Rule.


•	We expect continued fluctuations, including possible substantial increases, 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.

Income Statement Items

The following section briefly describes the key components of, and drivers to, our significant revenues and expenses.

Revenues

Our revenues consist principally of Trading revenues, net and Commissions and fees from all of our business segments.

Trading profits and losses on principal transactions primarily relate to our global market making activities and are included within Trading revenues, net. These revenues are primarily affected by trading volumes, including the number and dollar value of equities, fixed income, options, futures and FX trades; volatility in the marketplace; the performance of our direct-to-client and non-client trading models; our ability to derive trading gains by taking proprietary positions; changes in our execution standards and execution quality that we provide to customers; our market share; the mix of order flow from broker dealer and institutional clients; client service and relationships; and regulatory changes and evolving industry customs and practices.

Revenues on transactions for which we charge explicit commissions or commission equivalents, which include the majority of our institutional client orders and commissions on futures transactions are included within Commissions and fees. Also included in Commissions and fees are volume based fees earned from providing liquidity to other trading venues. Commissions and fees are primarily affected by changes in our equity, fixed income, futures and foreign exchange transaction volumes with institutional clients; client relationships; changes in commission rates; client experience on the various platforms; level of volume based fees from providing liquidity to other trading venues; and the level of our soft dollar and commission recapture activity.

Interest, net is earned from our cash held at banks, cash held in trading accounts at third party clearing brokers and from collateralized financing arrangements, such as securities borrowing. The Company’s third party clearing agreements call for payment or receipt of interest income, net of transaction-related interest charged by clearing brokers for facilitating the settlement and financing of securities transactions. Net interest is primarily affected by interest rates; the level of cash balances held at banks and third party clearing brokers including those held for customers; the level of our securities borrowing activity; our level of securities positions in which we are long compared to our securities positions in which we are short; and the extent of our collateralized financing arrangements.

Investment income and other, net primarily represents returns on our strategic and deferred compensation investments including the gain recognized on Knight Common Stock in 2013. Such income or loss is primarily affected by the performance and activity of our strategic investments.

Expenses

Employee compensation and benefits expense primarily consists of salaries and wages paid to all employees; performance-based compensation, which includes compensation paid to sales personnel and incentive compensation paid to other employees based on individual performance and the performance of our business; employee benefits; and stock and unit-based compensation. Employee compensation and benefits expense fluctuates, for the most part, based on changes in our revenues and business mix, profitability and the number and mix of employees. Compensation for certain employees engaged in sales activities is determined primarily based on a percentage of their gross revenues net of certain transaction-based expenses.

Execution and clearance fees primarily represent fees paid to third party clearing brokers for clearing equities, options and fixed income transactions; transaction fees paid to Nasdaq and other exchanges, clearing organizations and regulatory bodies; and execution fees paid to third parties, primarily for executing trades on the NYSE, other exchanges and ECNs. Execution and clearance fees primarily fluctuate based on changes in trade and share volume, execution strategies, rate of clearance fees charged by clearing brokers and rate of fees paid to ECNs, exchanges and certain regulatory bodies.

Communications and data processing expense primarily consists of costs for obtaining market data, connectivity, telecommunications services, colocation and systems maintenance.

Payments for order flow primarily represent payments to broker dealer clients, in the normal course of business, for directing to us their order flow in U.S. equities and options. Payments for order flow will fluctuate as we modify our rates and as our percentage of clients whose policy is not to accept payments for order flow varies. Payments for order flow also fluctuate based on U.S. equity share and option volumes, our profitability and the mix of market orders, limit orders, and customer mix.

Depreciation and amortization expense results from the depreciation of fixed assets, which consist of computer hardware, furniture and fixtures, and the amortization of purchased software, capitalized software development costs, acquired intangible assets and leasehold improvements. We depreciate our fixed assets and amortize our intangible assets on a straight-line basis over their expected useful lives. We amortize leasehold improvements on a straight-line basis over the lesser of the life of the improvement or the remaining term of the lease.

Debt interest expense consists primarily of costs associated with our debt and capital lease obligations.

Collateralized financing interest consists primarily of costs associated with financing arrangements such as securities lending and sale of financial instruments under our agreements to repurchase.

Occupancy and equipment rentals consist primarily of rent and utilities related to leased premises and office equipment.

Professional fees consist primarily of legal, accounting, consulting, and other professional fees.

Business development consists primarily of costs related to sales and marketing, conferences and client relationship management.

Writedown of capitalized debt costs represents charges recorded as the result of the repayment of our debt.

Writedown of assets and lease loss accrual consist primarily of costs associated with the writedown of assets which management has determined to be impaired and adjustments to lease loss accruals related to excess office space.

Other expenses include regulatory fees, corporate insurance, employment fees, amortization of capitalized debt costs and general office expense.

Results of Operations

The following table sets forth the consolidated statements of operations data as a percentage of total revenues:



	For the year ended December 31,
	2014		2013		2012
Revenues
Trading revenues, net	63.6	%	61.2	%	76.4	%
Commissions and fees	33.2	%	26.8	%	19.1	%
Interest, net	0.0	%	-0.1	%	-0.4	%
Investment income and other, net	3.1	%	12.1	%	4.9	%
Total revenues	100.0	%	100.0	%	100.0	%
Expenses
Employee compensation and benefits	33.2	%	34.0	%	28.6	%
Execution and clearance fees	23.2	%	24.0	%	33.7	%
Communications and data processing	11.4	%	12.0	%	16.4	%
Depreciation and amortization	6.2	%	5.4	%	6.3	%
Payments for order flow	5.3	%	3.5	%	0.5	%
Occupancy and equipment rentals	2.5	%	2.4	%	2.3	%
Debt interest expense	2.5	%	3.4	%	0.5	%
Collateralized financing interest	2.1	%	1.0	%	0.0	%
Professional fees	1.9	%	4.5	%	2.6	%
Business development	0.7	%	0.4	%	0.0	%
Writedown of assets and lease loss accrual, net	0.7	%	1.4	%	0.0	%
Writedown of capitalized debt costs	0.7	%	1.3	%	0.0	%
Other	3.0	%	4.2	%	4.2	%
Total expenses	93.5	%	97.6	%	95.2	%
Income from continuing operations before income taxes	6.5	%	2.4	%	4.8	%
Income tax (benefit) expense	1.7	%	-9.8	%	1.9	%
Income from continuing operations, net of tax	4.7	%	12.3	%	2.9	%
(Loss) income from discontinued operations, net of tax	-0.1	%	0.0	%	0.0	%
Net income	4.6	%	12.3	%	2.9	%

_______________________________

Percentages may not add due to rounding.

Year Ended December 31, 2014 and 2013

Revenues

Market Making



	For the year ended December 31,
	2014			2013			Change			% of Change
Trading revenues, net (thousands)	$	809,371		$	614,232		$	195,140		31.8	%
Commissions and fees (thousands)	117,058			86,260			30,798			35.7	%
Interest, net and other (thousands)	(25,277		)	(12,294		)	(12,983		)	N/M
Total Revenues from Market Making (thousands)	$	901,152		$	688,197		212,955			30.9	%

Totals may not add due to rounding.

N/M - Not meaningful

Total revenues from the Market Making segment, which primarily comprises Trading revenues, net and Commissions and fees from our domestic businesses, were $901.2 million for 2014 and $688.2 million in 2013.

Revenues for 2014 were aided by the full year results from the Knight businesses as well as increased overall market volumes and volatility which helped the performance of both our direct-to-client and non-client trading strategies offset, in part, by competition and an increased client focus on execution quality including price improvement, which gives our clients better prices on trades, but lowers our revenues earned on trades.

We calculate average revenue capture per U.S. equity market making dollar value traded (“revenue capture”) to measure the revenue that we earn per dollar traded within U.S. equity market making. The revenue capture metric is calculated as the total of net domestic market making trading revenues plus volume based fees from providing liquidity to other trading venues (included in Commissions and fees), (collectively “Domestic U.S. Equity Market Making Revenues”), divided by the total dollar value of the related equity transactions for the relevant period. Domestic U.S. Equity Market Making Revenues were $684.0 million for 2014, and average revenue capture was 1.00 basis points (“bps”) for 2014.

Revenue capture is a calculated metric that is impacted in a similar manner to the components that make it up including market volumes and volatility and the performance of our equity trading strategies.

Global Execution Services



	For the year ended December 31,
	2014			2013			Change	% of Change
Commissions and fees (thousands)	$	319,964		$	189,215		130,749	69.1	%
Trading revenues, net (thousands)	28,355			11,823			16,532	139.8	%
Interest, net and other (thousands)	(2,609		)	(3,273		)	663	N/M
Total Revenues from Global Execution Services (thousands)	$	345,710		$	197,765		147,944	74.8	%

Totals may not add due to rounding.

N/M - Not meaningful

Total revenues from the Global Execution Services segment, which primarily comprises Commissions and fees and, to a lesser extent, Trading revenues, net from agency execution activity and activity on our venues were $345.7 million for 2014 and $197.8 million in 2013. Revenues were primarily aided by the full year results from the Knight businesses as well as higher trading volumes within our institutional sales trading, algorithmic trading and order routing, and trading venues such as KCG Hotspot, and KCG Bondpoint. Revenues for 2014 includes a $2.1 million gain on the sale of our FCM business.

Corporate and Other



	For the year ended December 31,
	2014		2013		Change			% of Change
Total Revenues from Corporate and Other (thousands)	$	69,369	$	141,374	$	(72,005	)	N/M

N/M - Not meaningful

Total revenues from the Corporate and Other segment, which represent gains or losses on strategic investments and interest income from our stock borrow activity were $69.4 million for 2014 and $141.4 million in 2013. Revenues for 2014 include a $15.1 million net gain related to our investment in tradeMONSTER as a result of tradeMONSTER's combination with OptionsHouse, as well as a $9.6 million gain which comprises a partial realized gain with respect to our investment in Direct Edge of $16.2 million offset, in part, by our share of BATS' and Direct Edge's merger related transaction costs that were charged against their respective earnings of $6.6 million. Revenues for 2013 includes a $128.0 million gain on GETCO's investment in Knight Capital Group, Inc as well as a $7.8 million net charge for impairment of strategic assets.

Expenses

As noted in the Explanatory Note above, the Mergers were treated as a purchase of Knight by GETCO for accounting and financial reporting purposes, and, as a result, the financial results for the year ended December 31, 2013 comprise six months of results of KCG plus six months of GETCO whereas the financial results for the year ended December 31, 2014 comprise the results of KCG. As a result of the Mergers, most expenses are significantly higher for the year ended December 31, 2014 than during the year ended December 31, 2013. Specific expenses are discussed in the following paragraphs.

Employee compensation and benefits expense fluctuates, for the most part, based on changes in our business mix, revenues, profitability and the number and mix of employees. Employee compensation and benefits expense was $437.3 million for 2014 and $349.2 million in 2013. The increase on a dollar basis was primarily due to the Mergers which increased headcount significantly offset, in part, by the effects of a reduction in workforce in 2014. Excluding compensation expense related to the 2014 reduction in workforce of $13.6 million, employee compensation and benefits was $423.7 million or 47.8% of adjusted net revenues. For 2013, excluding the compensation expense related to a reduction in workforce of $33.7 million and $22.0 million in stock acceleration due to the Mergers, employee compensation was $293.5 million or 47.7% of adjusted net revenues.

The number of full time employees decreased to 1,093 at December 31, 2014 as compared to 1,229 at December 31, 2013. As of the Merger date of July 1, 2013, the number of full time employees was 1,397 (excluding employees of Urban).

Execution and clearance fees were $305.2 million for 2014 and $246.4 million in 2013. Execution and clearance fees fluctuate based on changes in transaction volumes, shift in business mix, regulatory fees and operational efficiencies and scale. Execution and clearance fees were 23.7% of revenues excluding non-recurring gains and losses on investments ("adjusted revenues") for 2014 and 27.2% in 2013. The variance on a percentage of adjusted revenues primarily relates to better rates due to the utilization of higher volume pricing tiers and other efficiencies.

Communications and data processing expenses were $150.6 million for 2014 and $123.6 million for in 2013. Communications and data processing expense primarily relates to market data, colocation and connectivity expenses. The increase primarily relates to the higher costs due to the acquisition of Knight.

Depreciation and amortization expense results from the depreciation of fixed assets and the amortization of purchased software, capitalized software development costs, acquired intangible assets and leasehold improvements. Depreciation and amortization expense was $81.4 million for 2014 and $55.6 million in 2013. The increase relates to purchases of fixed assets including new microwave communication assets put into service in 2014.

Payments for order flow fluctuate as a percentage of revenue due to changes in volume, client and product mix, client preference, profitability, and competition. Payments for order flow were $70.2 million for 2014 and $35.7 million in 2013. The variance is due to higher payments as a result of higher trading volumes after the Mergers. As a percentage of adjusted revenues, Payments for order flow were 5.4% in 2014 and 3.9% in 2013.

Debt interest expense was $32.5 million for 2014 and $34.9 million in 2013. Interest expense decreased as a result of the pay down of the remaining $235.0 million of the First Lien Credit Facility in the first half of 2014.

Collateralized financing interest expense was $27.9 million for 2014 and $9.8 million in 2013. Collateralized financing interest expense relates to the funding of our securities positions through stock loan and repurchase agreements. The increase is a result of additional funding being secured from additional parties.

Professional fees were $25.6 million for 2014 and $46.7 million in 2013. Excluding the $34.2 million in legal, consulting and investment banking fees related to the Mergers, Professional fees were $12.4 million in 2013. Professional fees increased as a result of becoming a publicly traded firm as well as integrating the two firms which led to an increase in legal, consulting and auditing fees compared to the prior year.

Writedown of assets and lease loss accrual of $8.6 million for 2014 primarily relates to adjustments to the previous calculations of lease losses due to actual and updated assumptions. Writedown of assets and lease loss accrual of $14.7 million in 2013 comprised the writedown of leasehold improvements and fixed assets as a result of excess real estate capacity.

Writedown of capitalized debt costs of $9.6 million for 2014 and $13.2 million in 2013 relates to the writedown of debt issuance costs as a result of the repayment of $235.0 million and $300.0 million principal of the First Lien Credit Facility in 2014 and 2013, respectively.

All other expenses were $82.3 million for 2014 and $72.5 million in 2013. The increase primarily relates to the increase in Occupancy and equipment rental costs due to the Mergers. Business development expense increased primarily due to additional client-related events and marketing.

Our effective tax rate for 2014 from continuing operations of 26.7% differed from the federal statutory rate of 35% primarily due to the recognition of state deferred tax assets which primarily relate to state tax net operating losses, and a benefit from federal tax credits, offset in part by state and local taxes and the effect of nondeductible expenses including certain compensation and meals and entertainment. Our effective tax rate for 2013 from continuing operations

of -574% differed from the federal statutory rate of 35% primarily due to the recognition of $103.5 million of deferred tax benefits as a result of GETCO becoming subject to U.S. corporate income taxes following the Mergers, the nontaxable gain from GETCO's investment in Knight common stock, foreign taxes, nondeductible expenses including certain compensation and meals and entertainment and GETCO being structured as a pass through entity that was not largely subject to U.S. corporate income taxes prior to the Mergers.

Year Ended December 31, 2013 and 2012

Revenues

Market Making



	For the year ended December 31,
	2013			2012		Change			% of Change
Trading revenues, net (thousands)	$	614,232		$	421,063	$	193,168		45.9	%
Commissions and fees (thousands)	86,260			69,307		16,953			24.5	%
Interest, net and other (thousands)	(12,294		)	5,057		(17,352		)	N/M
Total Revenues from Market Making (thousands)	$	688,197		$	495,427	192,770			38.9	%

Totals may not add due to rounding.

N/M - Not meaningful

Total revenues from the Market Making segment, which primarily comprises Trading revenues, net and Commissions and fees from our domestic businesses, were $688.2 million for 2013 and $495.4 million in 2012. Revenues for 2013 were driven by solid performance from our U.S. equity market making strategies. Specifically, both direct-to-client trading strategies as well as certain non-client exchange-based market making performed well, although, revenues across all asset classes were negatively impacted due to lower market volumes and volatility.

Global Execution Services



	For the year ended December 31,
	2013			2012			Change			% of Change
Commissions and fees (thousands)	$	189,215		$	36,211		$	153,004		422.5	%
Trading revenues, net (thousands)	11,823			(1		)	11,823			N/M
Interest, net and other (thousands)	(3,273		)	1			(3,273		)	N/M
Total Revenues from Global Execution Services (thousands)	$	197,766		$	36,211		161,555			446.2	%

Totals may not add due to rounding.

N/M - Not meaningful

Total revenues from the Global Execution Services segment, which primarily comprises Commissions and fees and, to a lesser extent, Trading revenues, net from agency execution activity and activity on our venues were $197.8 million for 2013 and $36.2 million in 2012. Revenues principally reflect the performance of our high and low touch equity businesses, including KCG EMS, which includes Knight Direct and GETAlpha, as well as trading venues such as KCG Hotspot and KCG Bondpoint.

Corporate and Other



	For the year ended December 31,
	2013		2012		Change		% of Change
Total Revenues from Corporate and Other (thousands)	$	141,374	$	19,596	$	121,778	N/M

N/M - Not meaningful

Total revenues from the Corporate and Other segment, which represent gains or losses on strategic investments and interest income from our stock borrow activity were $141.4 million for 2013 and $19.6 million in 2012. Revenues in 2013 include a $128.0 million non-cash gain on GETCO's investment in Knight common stock.

Expenses

prior to 2013 reflect solely the results of GETCO. As a result of the Mergers, most expenses are significantly higher for the year ended December 31, 2013 than during the year ended December 31, 2012. Specific expenses are discussed in the following paragraphs.

Employee compensation and benefits expense fluctuates, for the most part, based on changes in our business mix, revenues, profitability and the number and mix of employees. Employee compensation and benefits expense was $349.2 million for 2013 and $157.9 million in 2012. The increase on a dollar basis was primarily due to an increase in the number of employees following the Mergers and higher severance costs associated with reductions in our workforce and the reorganization of our ETF team following the Mergers. Excluding the compensation expenses related to reductions in our workforce and the reorganization of our ETF team of $33.7 million, and costs related to unit based compensation acceleration due to the Mergers of $22.0 million, Employee compensation and benefits was $293.5 million or 47.7% of adjusted net revenues for 2013 and $157.9 million or 46.6% for 2012.

Execution and clearance fees were $246.4 million for 2013 and $185.8 million in 2012. Execution and clearance fees fluctuate based on changes in transaction volumes, shift in business mix, regulatory fees and operational efficiencies and scale. Execution and clearance fees were 27.2% of adjusted revenues for 2013 and 35.2% for 2012.

Payments for order flow fluctuate as a percentage of revenue due to changes in volume, client and product mix, client preference, profitability, and competition. Payments for order flow were $35.7 million for 2013 and $3.0 million in 2012. The variance is due to the addition of the direct-to-client market making business that was added as a result of the Mergers. As a percentage of adjusted revenues, Payments for order flow were 3.9% in 2013 and 0.5% for 2012.

Debt Interest expense was $34.9 million for 2013 and $2.7 million in 2012. Interest expense increased primarily due to interest on the debt financing for the Mergers.

Collateralized financing interest expense was $9.8 million for 2013. We did not have any collateralized financing expense in 2012. Collateralized financing interest expense relates to the funding of our securities positions through stock loan and repurchase agreements.

Professional fees were $46.7 million for 2013 and $14.1 million in 2012. Professional fees include legal costs incurred after the Mergers related to Knight's August 1, 2012 trading loss and legal, consulting and investment banking fees related to the Mergers. Excluding the $34.2 million in professional fees related to the Mergers and August 1, 2012 trading loss, Professional fees were $12.4 million for 2013 compared to $9.8 million in 2012, excluding $4.3 million in professional fees related to the Mergers.

Writedown of assets of $14.7 million for 2013 primarily relates to a writedown of excess real estate as we consolidated offices located in the same city following the Mergers. There were no writedown of assets for 2012. Writedown of capitalized debt costs of $13.2 million for 2013 relates to the writedown of debt issuance costs as a result of the repayment of $300.0 million of the First Lien Credit Facility.

All other expenses were $251.6 million for 2013 and $161.5 million for the comparable period in 2012. These cost increases primarily relate to an increase in the size of KCG following the Mergers. Communications and data processing expense primarily relates to market data, colocation and connectivity expenses. Depreciation and amortization expense results from the depreciation of fixed assets and the amortization of purchased software, capitalized software development costs, acquired intangible assets and leasehold improvements. Occupancy and equipment rentals expense include additional real estate related costs in 2013 following the Mergers. Business development expense primarily includes client-related events and higher advertising costs.

Our effective tax rate for the year ended December 31, 2013 from continuing operations of -574% differed from the federal statutory rate of 35% primarily due to the recognition of $103.5 million of deferred tax benefits as a result of GETCO becoming subject to U.S. corporate income taxes following the Mergers, the nontaxable gain from GETCO's investment in Knight common stock, foreign taxes, nondeductible expenses including certain compensation and meals and entertainment and GETCO being structured as a pass through entity that was not largely subject to U.S. corporate income taxes prior to the Mergers. Our effective tax rate for the year ended December 31, 2012 from continuing operations of 38.9% differed from the federal statutory rate of 35% primarily due to GETCO being structured as a pass through entity that was not largely subject to U.S. corporate income taxes prior to the Mergers as well as state, local and non-U.S. income taxes.

Financial Condition, Liquidity and Capital Resources

Financial Condition

We have historically maintained a highly liquid balance sheet, with a substantial portion of our total assets consisting of cash, highly liquid marketable securities and short term receivables. As of December 31, 2014 and December 31, 2013, we had total assets of $6.83 billion and $7.00 billion, respectively, a significant portion of which consisted of cash or assets readily convertible into cash as follows (in thousands):



	December 31, 2014		December 31, 2013
Cash and cash equivalents	$	578,768	$	674,281
Financial instruments owned, at fair value:
Equities	2,479,910		2,298,785
Listed options	144,586		339,798
Debt securities	82,815		83,256
Collateralized agreements:
Securities borrowed	1,632,062		1,357,387
Receivable from brokers, dealers and clearing organizations⁽¹⁾	1,095,025		750,440
Total cash and assets readily convertible to cash	$	6,013,226	$	5,503,947

* Totals may not add due to rounding.

⁽¹⁾ Excludes $0.0 million and $304.3 million of assets segregated or held in separate accounts under federal or other regulations and $93.8 million and $202.5 million of securities failed to deliver as of December 31, 2014 and 2013, respectively.

Substantially all of the non-cash amounts disclosed in the table above can be liquidated into cash within five business days under normal market conditions, however, the liquidated values may be subjected to haircuts during distressed market conditions as Knight saw following its August 1, 2012 trading loss.

Financial instruments owned principally consist of equities and listed options that trade on the NYSE, NYSE Amex and NYSE Arca markets, Nasdaq and on the OTC Bulletin Board as well as U.S. government and non-U.S. government obligations and corporate debt securities, which include short-term bond funds. These financial instruments are used to generate revenues in our Market Making and Global Execution Services segments.

Securities borrowed represent the value of cash or other collateral deposited with securities lenders to facilitate our trade settlement process.

Receivable from brokers, dealers and clearing organizations include interest bearing cash balances held with third party clearing brokers, including, or net of, amounts related to securities transactions that have not yet reached their contracted settlement date, which is generally within three business days of the trade date.

As of December 31, 2014, $1.52 billion of equities have been pledged as collateral to third-parties under financing arrangements. As of December 31, 2013, $1.23 billion of equities were pledged as collateral to third-parties under financing arrangements.

Intangible assets were lower at December 31, 2014 primarily due to the reclassification of $34.7 million of KCG Hotspot intangible assets to Assets of business held for sale as a result of the announced sale of KCG Hotspot.

Other assets primarily comprises deposits, prepaids and other miscellaneous receivables.

The change in the balances of financial instruments owned, receivable from brokers, dealers and clearing organizations and securities borrowed are all consistent with activity of our trading strategies. Our securities inventory fluctuates based on trading volumes, market conditions, trading strategies utilized and our pre-determined risk limits.

Total liabilities were $5.31 billion at December 31, 2014 and $5.49 billion at December 31, 2013. Similar to the asset side, the change in Financial instruments sold, not yet purchased, Collateralized financings and Payable to brokers, dealers and clearing organizations is related to activity of our trading strategies. As noted throughout the document, substantially all of our debt was issued in order to complete the Mergers, while the decrease in the balance since December 31, 2013 is due to repayments of our debt. The “Liquidity and Capital Resources” section below includes a detailed description of the debt. The decrease in our Payable to customers is a result of the sale of our FCM business. Lower Accrued compensation expense is consistent with our decrease in headcount.

Equity increased by $13.0 million, from $1.51 billion at December 31, 2013 to $1.52 billion at December 31, 2014. The increase in equity from December 31, 2013 was primarily a result of our earnings and stock-based compensation activity in 2014, offset by our stock repurchase activity.

Liquidity and Capital Resources

We have financed our business primarily through cash generated by operations, a series of debt transactions and the issuance of equity.

At December 31, 2014, we had net current assets, which consist of net assets readily convertible into cash including assets segregated or held in separate accounts under federal and other regulations, less current liabilities, of approximately $1.27 billion.

Income from continuing operations, net of tax was $62.4 million during 2014 compared to $126.1 million during 2013. Included in these amounts were certain non-cash income and expenses such as gains on investments, stock and unit-based compensation, depreciation, amortization and certain non-cash writedowns. Stock and unit-based compensation was $58.9 million and $64.3 million during 2014 and 2013, respectively. Depreciation and amortization expense was $81.4 million and $55.6 million during 2014 and 2013, respectively. We had non-cash charges of $8.6 million and $14.7 million for the writedown of excess real estate and fixed assets during 2014 and 2013, respectively, and $9.6 million and $13.2 million, respectively, for the writedown of capitalized debt costs in conjunction with our debt repayment. We also had a non-cash net gain of $15.1 million from a business combination involving one of our strategic investments during the third quarter of 2014. We recognized a non-cash gain of $128.0 million on GETCO's investment in Knight common stock in the third quarter of 2013. Income from continuing operations, net of tax included a $103.5 million non-cash deferred income tax benefit due to the Company becoming subject to U.S. corporate income taxes as a result of the Mergers in 2013 and a $7.0 million non-cash deferred income tax benefit related to the state NOL's in 2014.

Capital expenditures related to our continuing operations were $49.0 million and $27.7 million during 2014 and 2013, respectively. Purchases of investments were $0.7 million and $0.2 million during 2014 and 2013, respectively. Proceeds and distributions received from investments were $58.7 million and $3.3 million during 2014 and 2013, respectively. Payments for former Knight stockholders during 2013 were $720.0 million in conjunction with the Mergers.

Cash Convertible Senior Subordinated Notes

In March 2010, Knight issued $375.0 million aggregate principal amount of Cash Convertible Senior Subordinated Notes (the “Convertible Notes”), due on March 15, 2015, in a private offering exempt from registration under the Securities Act of 1933, as amended.

The Convertible Notes bear interest at a rate of 3.50% per year, payable semi-annually in arrears, on March 15 and September 15 of each year, commencing on September 15, 2010 and will mature on March 15, 2015, subject to earlier repurchase or conversion. The Convertible Notes are reported as Debt in our Consolidated Statements of Financial Condition.

In connection with the closing of the Mergers, on July 1, 2013, KCG became a party to the indenture under which Knight's $375.0 million Convertible Notes were issued. On July 1, 2013, we delivered a notice (the “Convertible Notes Notice”) to the holders of the Notes. The Convertible Notes Notice advised holders of the Convertible Notes of the following (among others):


•	The completion of the Mergers on July 1, 2013 and the results of the election of the holders of Knight Common Stock to receive cash consideration for such Knight 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.

On July 1, 2013, $375.0 million, which was the amount needed to repurchase the aggregate amount of Convertible Notes in full at maturity, was deposited in a cash collateral account under the sole dominion and control of the paying agent under the First Lien Credit Facility (the "Collateral Account").

After the Mergers, a total of $257.7 million in principal amount of the Convertible Notes were repurchased using funds deposited in the Collateral Account. The repurchase included accrued and unpaid interest of $3.6 million. In October 2013, after receiving consent from the Holders of the Senior Secured Notes (as defined below), the funds remaining in the Collateral Account were used to repay a portion of the First Lien Credit Facility. As of December 31, 2014 and December 31, 2013 there were no funds in the Collateral Account. As of December 31, 2014 and December 31, 2013, $117.3 million principal amount of the Convertible Notes were outstanding. The Convertible Notes will mature on March 15, 2015.

The Convertible Notes are convertible based on a conversion rate, which was adjusted as a result of the Mergers, of 15.9728 shares of KCG common stock per $1,000 principal amount of Notes, which is equivalent to a conversion price of approximately $62.61 per share. The conversion rate and conversion price will be subject to further adjustment in certain events, such as distributions of dividends or stock splits.

Upon any cash conversion, KCG will deliver an amount of cash calculated over the applicable 40-trading day observation period. KCG will not deliver its common stock (or any other securities) upon conversion under any circumstances. In addition, following certain corporate events that may occur prior to the maturity date, KCG is required to pay a cash make-whole premium by increasing the conversion rate for a holder that that elects to convert its Convertible Notes in connection with such a corporate event in certain circumstances. Subject to certain exceptions, holders may require KCG to repurchase, for cash, all or part of the Convertible Notes upon a “Fundamental Change” at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest.

The requirement that KCG settle conversions of the Convertible Notes entirely in cash gives rise to a bifurcatable derivative instrument under GAAP (the “embedded conversion derivative”). Based largely on the conversion price of the Convertible Notes compared to the price of KCG common stock on the relevant dates, the fair value of the embedded conversion derivative was determined to be $0 at December 31, 2014 and December 31, 2013.

Debt incurred in connection with Mergers

In connection with the Mergers, we entered into a series of debt financing transactions. Described below are the details of these transactions.

Senior Secured Notes

On June 5, 2013 GETCO Financing Escrow LLC (“Finance LLC”), a wholly-owned subsidiary of GETCO, issued 8.250% senior secured notes due 2018 in the aggregate principal amount of $305.0 million (the “Senior Secured Notes”) pursuant to an indenture, dated June 5, 2013 (as amended and supplemented, the "Senior Secured Notes Indenture"). On July 1, 2013, KCG entered into a first supplemental indenture (the “First Supplemental Indenture”) pursuant to which KCG assumed all of the obligations of Finance LLC which comprised the Senior Secured Notes plus certain escrow agent fees and expenses of $3.0 million.

On July 1, 2013, KCG and certain subsidiary guarantors (the "Guarantors") under the First Lien Credit Facility, as defined below, entered into a Second Supplemental Indenture, whereby the Senior Secured Notes and the obligations under the Senior Secured Notes Indenture will be fully and unconditionally guaranteed on a joint and several basis by the Guarantors and are secured by second-priority pledges and second-priority security interests in, and mortgages on, the collateral securing the First Lien Credit Facility, subject to certain exceptions. All of the subsidiary guarantors are wholly-owned subsidiaries of KCG.

The Senior Secured Notes mature on June 15, 2018 and bear interest at a rate of 8.250% per year, payable on June 15 and December 15 of each year, beginning on December 15, 2013.

On or after June 15, 2015, KCG may redeem all or a part of the Senior Secured Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and additional interest under the Senior Secured Notes Registration Rights Agreement (defined below), if any, on the Senior Secured Notes redeemed, to the applicable redemption date, if redeemed during the 12-month period beginning on June 15 of the years indicated below:



Year	Percentage
2015	104.125	%
2016	102.063	%
2017 and thereafter	100.000	%

KCG may also redeem the Senior Secured Notes, in whole or in part, at any time prior to June 15, 2015 at a price equal to 100% of the aggregate principal amount of the Senior Secured Notes to be redeemed, plus a make-whole premium and accrued and unpaid interest, if any. In addition, at any time on or prior to June 15, 2015, KCG may redeem up to 35% of the aggregate principal amount of the Senior Secured Notes with the net cash proceeds of certain equity offerings, at a price equal to 108.25% of the aggregate principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any.

The Senior Secured Notes Indenture contains customary affirmative and negative covenants, including limitations on indebtedness, liens, hedging agreements, investments, loans and advances, asset sales, mergers and acquisitions, dividends, transactions with affiliates, prepayments of other indebtedness, restrictions on subsidiaries and issuance of capital stock. As of December 31, 2014, the Company was in compliance with the covenants.

On July 1, 2013, KCG and the Guarantors entered into a joinder to the registration rights agreement dated June 5, 2013, (the "Senior Secured Notes Registration Rights Agreement") between Finance LLC and Jefferies LLC as representative of the initial purchasers of the Senior Secured Notes. Pursuant to the registration rights agreement, KCG shall use commercially reasonable efforts to (i) file an exchange offer registration statement with the SEC with respect to a registered offer to exchange the Senior Secured Notes (the "Exchange Offer"), (ii) issue in exchange for the Senior Secured Notes a new series of exchange notes within 365 days after June 5, 2013, and, (iii) in certain circumstances, file a shelf registration statement with respect to resales of the Senior Secured Notes. If KCG and the Guarantors fail to comply with certain obligations under the Senior Secured Notes Registration Rights Agreement, additional interest of up to 1.00% per annum will begin to accrue and be payable on the Senior Secured Notes.

In October 2013, we received consents from holders ("Holders") of 99.7% of the aggregate principal amount of the Senior Secured Notes outstanding to amend, among other things, the terms of the Senior Secured Notes among the Company, The Bank of New York Mellon, as trustee and collateral agent (the “Trustee”), and the Guarantors. As a result, we entered into the Third Supplemental Indenture with the Trustee to amend the Senior Secured Notes Indenture to permit the purchase, redemption or repayment of the Convertible Notes at any price, including at a premium or at a discount from the face value thereof, with any available cash.

In May 2014, we received consents from Holders of 98.5% of the aggregate principal amount of the Senior Secured Notes outstanding to amend the terms of the Senior Secured Notes Registration Rights Agreement. As a result, we entered into the First Amendment (the “Amendment”) to the Senior Secured Notes Registration Rights Agreement. The Amendment (i) postponed the deadline by which the Company must use commercially reasonable efforts to prepare and file the Exchange Offer with the SEC, from June 5, 2014 to June 30, 2015, and (ii) postponed the deadline by which the Company must use commercially reasonable efforts to file with and have declared effective by the SEC a shelf registration statement to cover certain resales of the Senior Secured Notes, from June 5, 2014 to June 30, 2015. The Amendment also had the effect of postponing the date on which an additional interest, which constitutes liquidated damages and is the exclusive remedy available to Holders for failing to register the Senior Secured Notes, begins to accrue as a result of failing to consummate the Exchange Offer or have a shelf registration statement declared effective. Accordingly, the Company and the Guarantors no longer have any obligation to pay Holders additional interest as of June 5, 2014, even though the Company and the Guarantors did not prepare, file or have declared effective a registration statement or a shelf registration statement or consummate the Exchange Offer by such date. As of the date of this filing, we have not registered the Senior Secured Notes and if we do not do so by June 30, 2015, additional interest will begin to accrue on the notes.

First Lien Credit Facility

On July 1, 2013, KCG, as borrower, entered into a first lien senior secured credit agreement (the “Credit Agreement”) with Jefferies Finance LLC and Goldman Sachs Bank USA. The Credit Agreement was in the amount of $535.0 million (the “First Lien Credit Facility”), all of which was drawn on July 1, 2013. The First Lien Credit Facility also provided for a future uncommitted incremental first lien senior secured revolving credit facility of up to $50.0 million, including letter of credit and swingline sub-facilities, on certain terms and conditions contained in the Credit Agreement.

In 2013, we repaid $300.0 million of principal of the First Lien Credit Facility. A portion of the $300.0 million totaling $117.3 million was drawn from cash held in the Collateral Account and the remainder of the $300.0 million was paid out of available cash, including proceeds from the sale of Urban. In conjunction with these payments, we wrote down $13.2 million of our capitalized debt costs associated with the Credit Agreement.

In the first half of 2014, we repaid the remaining $235.0 million of principal of the First Lien Credit Facility out of available cash and the Credit Agreement was terminated. In conjunction with these payments, we wrote down the remaining $9.6 million, of our capitalized debt costs associated with the Credit Agreement.

The First Lien Credit Facility bore interest, at KCG's option, at a rate based on the prime rate (“First Lien Prime Rate Loans”) or based on LIBOR (“First Lien Eurodollar Loans”). First Lien Prime Rate Loans bore interest at a rate per annum equal to the greatest of prime rate, 2.25%, the federal funds rate plus 0.50%, and an adjusted one-month LIBOR rate plus 1.00%, in each case plus an applicable margin of 3.50%. First Lien Eurodollar Loans bore interest at a rate per annum equal to the adjusted LIBOR rate (subject to a 1.25% LIBOR floor) corresponding to the interest period plus an applicable margin of 4.50% per annum.

We incurred issuance costs of $38.5 million in connection with the issuance of Senior Secured Notes, Credit Agreement and consent solicitations. The remaining issuance costs are recorded within Other assets on the Consolidated Statements of Financial Condition and are amortized over the respective term of the Senior Secured Notes. Including issuance costs, the Senior Secured Notes had an effective yield of 9.1%.

Revolving Credit Agreement

On July 1, 2013, OCTEG, LLC (“OCTEG”) and Knight Capital Americas LLC ("KCA"), wholly-owned broker dealer subsidiaries of KCG, as borrowers, and KCG, as guarantor, entered into a credit agreement (the "KCGA Facility Agreement”) with a consortium of banks and financial institutions. The KCGA Facility Agreement replaces an existing credit agreement, dated as of June 6, 2012, among OCTEG and three banks.

The KCGA Facility Agreement comprises two classes of revolving loans in a total committed amount of $450.0 million, together with a swingline facility with a $50.0 million sub-limit, subject to two borrowing bases (collectively, the “KCGA Revolving Facility”): Borrowing Base A and Borrowing Base B. The KCGA Revolving Facility also provides for a future increase of the revolving credit facility of up to $300.0 million to a total of $750.0 million on certain terms and conditions.

The KCGA Revolving Facility was amended on October 24, 2013 to permit OCTEG to be removed as a borrower under the KCGA Revolving Facility. As of January 1, 2014, OCTEG was merged with and into KCA and KCA was renamed KCG Americas LLC ("KCGA").

Borrowings under the KCGA Revolving Facility bear interest, at the borrower's option, at a rate based on the federal funds rate (“Base Rate Loans”) or based on LIBOR (“Eurodollar Loans”), in each case plus an applicable margin. For each Base Rate Loan, the interest rate per annum is equal to the greater of the federal funds rate or an adjusted one-month LIBOR rate plus (a) for each Borrowing Base A loan, a margin of 1.75% per annum and (b) for each Borrowing Base B loan, a margin of 2.25% per annum. For each Eurodollar Loan, the interest rate per annum is equal to an adjusted LIBOR rate corresponding to the interest period plus (a) for each Borrowing Base A loan, a margin of 1.75% per annum and (b) for each Borrowing Base B loan, a margin of 2.25% per annum. As of December 31, 2014 and 2013, there were no outstanding borrowings under the KCGA Facility Agreement.

The proceeds of the Borrowing Base A loans may be used solely to finance the purchase and settlement of securities. The proceeds of Borrowing Base B loans may be used solely to fund clearing deposits with the NSCC.

The borrower is being charged a commitment fee at a rate of 0.35% per annum on the average daily amount of the unused portion of the KCGA Facility Agreement.

The loans under the KCGA Facility Agreement will mature on June 6, 2015. The KCGA Revolving Facility is fully and unconditionally guaranteed on an unsecured basis by KCG and, to the extent elected by KCGA, any of their respective subsidiaries. It is secured by first-priority pledges of and liens on certain eligible securities, subject to applicable concentration limits, in the case of Borrowing Base A loans, and by first-priority pledges of and liens on the right to the return of certain eligible NSCC margin deposits, in the case of Borrowing Base B loans.

business activities. It contains financial maintenance covenants establishing a minimum total regulatory capital for KCGA, a maximum total asset to total regulatory capital ratio for KCGA, a minimum excess net capital limit for KCGA, a minimum liquidity ratio for KCGA, and a minimum tangible net worth threshold for KCGA. As of December 31, 2014 and 2013, the Company was in compliance with the covenants.

In connection with the KCGA Revolving Facility, we incurred issuance costs of $1.2 million which is recorded within Other assets on the Consolidated Statements of Financial Condition and it is being amortized over the term of the facility.

See Footnote 13 “Debt” included in Part II, Item 8 “Financial Statements and Supplementary Data” of this Form 10-K.

Stock repurchase

During the second quarter of 2014, the Company approved an initial program to repurchase up to a total of $150.0 million in shares of the Company's outstanding KCG Class A Common Stock and KCG Warrants. Through December 31, 2014, we had repurchased 8.1 million shares for $95.0 million under this program. As of December 31, 2014, we had $55.0 million available to repurchase additional shares under the program. We may repurchase shares from time to time in open market transactions, accelerated stock buyback programs, tender offers, privately negotiated transactions or by other means. Repurchases may also be made under Rule 10b5-1 plans. The timing and amount of repurchase transactions will be determined by our management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. We caution that there are no assurances that any further repurchases will actually occur. As of December 31, 2014 we had 116.9 million shares of KCG Class A Common Stock outstanding including RSUs.

Regulatory requirements

Our U.S. registered broker dealer is subject to regulatory requirements intended to ensure the general financial soundness and liquidity of broker dealers and FCMs and require the maintenance of minimum levels of net capital, as defined in SEC Rule 15c3-1 as well as other capital requirements from several commodity organizations including the Commodity Futures Trading Commission (“CFTC”) and the National Futures Association. These regulations also prohibit a broker dealer from repaying subordinated borrowings, paying cash dividends, making loans to its parent, affiliates or employees, or otherwise entering into transactions which would result in a reduction of its total net capital to less than 120% of its required minimum capital. Moreover, broker dealers are required to notify the SEC, CFTC and other regulators prior to repaying subordinated borrowings, paying dividends and making loans to its parent, affiliates or employees, or otherwise entering into transactions, which, if executed, would result in a reduction of 30% or more of its excess net capital (net capital less minimum requirement). The SEC and the CFTC have the ability to prohibit or restrict such transactions if the result is detrimental to the financial integrity of the broker dealer. As of December 31, 2014, our broker dealer was in compliance with the applicable regulatory net capital rules.

The following table sets forth the net capital level and requirements for our regulated U.S. broker dealer subsidiary at December 31, 2014, as reported in its regulatory filing (in thousands):



Entity	Net Capital		Net Capital Requirement		Excess Net Capital
KCG Americas LLC	$	285,231	$	1,000	$	284,231

Our U.K. registered broker dealers are subject to certain financial resource requirements of Financial Conduct Authority ("FCA") while our Singapore and Australian broker dealers are subject to certain financial resource requirements of the Securities and Futures Commission and the Australian Securities and Investment Commission, respectively. The following table sets forth the financial resource requirement for the following foreign regulated broker dealers at December 31, 2014 (in thousands):



Entity	Financial Resources		Resource Requirement		Excess Financial Resources
KCG Europe Limited	$	187,940	$	124,577	$	63,363
GETCO Europe Limited	7,254		1,759		5,495

release of approximately $45.0 million in excess capital during year ended December 31, 2014. We are in the process of withdrawing GETCO Europe Limited's membership with the FCA.

Contractual Obligations

In connection with our operating activities, we enter into certain contractual obligations. Our future cash payments associated with our contractual obligations as of December 31, 2014 are summarized below (in thousands):



	Payments due in:
	2015		2016- 2017		2018- 2019		2020- 2027		Total
Senior Secured Notes (1)	$	—	$	—	$	305,000	$	—	$	305,000
Convertible Notes (1)	117,259		—		—		—		117,259
Operating lease obligations (2)	24,168		47,502		43,614		54,197		169,481
Capital lease (2)	4,223		2,746		—		—		6,969
Compensation guarantees (2)	9,233		—		—		—		9,233
Total	$	154,883	$	50,248	$	348,614	$	54,197	$	607,942

________________________________________


1 -	See Footnote 13, “Debt” to the Consolidated Financial Statements


2 -	See Footnote 22, “Commitments and Contingent Liabilities” to the Consolidated Financial Statements

Totals may not add due to rounding.

KCG also has provided, and may in the future provide, in the ordinary course of business, unsecured guarantees to guarantee the payment obligations of certain of its subsidiaries under trading, repurchase, financing and stock loan arrangements, as well as under certain leases.

As previously noted, the $117.3 million of Convertible Notes shown in the table above are due on March 15, 2015. Additionally, as discussed above, the Amendment to the Senior Secured Notes requires that we must use commercially reasonable efforts to prepare and file the Exchange Offer with the SEC by June 30, 2015. While we maintain a significant liquidity pool, we are also exploring opportunities which would allow us to refinance these debt obligations. Any refinancing would depend on market conditions and investor interest.

Off-Balance Sheet Arrangements

As of December 31, 2014, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Effects of Inflation

The majority of our assets are liquid in nature and therefore are not significantly affected by inflation. However, the rate of inflation may affect our expenses, such as employee compensation, office leasing costs and communications expenses, which may not be readily recoverable in the prices of the services offered by us. To the extent inflation results in rising interest rates and has other adverse effects on the securities markets, it may adversely affect our financial position and results of operations.

Subsequent Events

We have evaluated subsequent events through the date the Consolidated Financial Statements were issued. We did not note any subsequent events requiring adjustment or disclosure in the Consolidated Financial Statements except for the following.

In January 2015, we announced the sale of KCG Hotspot to BATS. Under the terms of the agreement, we will receive $365.0 million in cash upon the close. In addition, we and BATS have agreed to share certain tax benefits, which could result in further payments to us of up to approximately $70.0 million in the three-year period following the close.

The transaction, which is subject to customary closing conditions, is expected to close in March 2015. We do not believe that this sale represents a strategic shift that will have a major effect on our operations and therefore KCG Hotspot does not meet the requirements to be treated as a discontinued operation.

thereafter (the “Annual Tax Benefits”). However, KCG has a one-time option exercisable within 30 days of the third anniversary of the closing of the transaction to terminate the continued tax sharing arrangement in exchange for a one-time payment of $50 million, which BATS has the right to exercise after KCG’s option expires. However, the receipt of the Annual Tax Benefits by KCG is subject to BATS having sufficient net income to receive the tax benefits. BATS’s net income could decrease due to numerous factors, which are outside of the control of KCG. In addition, any decrease in the corporate tax rates applicable to BATS could reduce the size or certainty of the Annual Tax Benefits.

In addition, KCG will not be entitled to the Annual Tax Benefits in the first three years if, during the five month period beginning on January 27, 2015 (subject to extension in limited cases) (the “Measurement Period”), the average daily notional FX trading volume on KCG Hotspot for any 60 trading day rolling period is less than or equal to a threshold set at 70% of the average daily notional FX trading volume on KCG Hotspot for the month with the lowest trading volume over the last two calendar years (the “Trigger Event”) and, after the Trigger Event but during the Measurement Period, the average daily notional FX trading volume on KCG Hotspot for any 15 trading day rolling period is not 80% or more of the average daily notional FX trading volume on KCG Hotspot for the 2014 calendar year and no subsequent Trigger Event occurs during the Measurement Period.

On February 27, 2015 we announced that we expect to launch a capital markets debt transaction during the first week of March 2015, subject to market conditions. The net proceeds from any offering would be used to repay our maturing convertible notes and redeem our existing senior secured notes as well as for general corporate purposes, which may include share repurchases. We can offer no assurance that a capital markets transaction will occur.

Critical Accounting Policies

Our Consolidated Financial Statements are based on the application of GAAP which requires us to make estimates and assumptions about future events that affect the amounts reported in our financial statements and the accompanying notes. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates and any such differences may be material to our Consolidated Financial Statements. We believe that the estimates set forth below may involve a higher degree of judgment and complexity in their application than our other accounting estimates and represent the critical accounting estimates used in the preparation of our consolidated financial statements. We believe our judgments related to these accounting estimates are appropriate. However, if different assumptions or conditions were to prevail, the results could be materially different from the amounts recorded.

Financial Instruments and Fair Value—We value our financial instruments using a hierarchy of fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The fair value hierarchy can be summarized as follows:


•	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.

Changes in fair value are recognized in earnings each period for financial instruments that are carried at fair value.

Our financial instruments owned and financial instruments sold, not yet purchased will generally be classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations with reasonable levels of price transparency.

The types of instruments that trade in markets that are not considered to be active, but are valued based on observable inputs such as quoted market prices or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy.

Our foreign currency forward contracts, investment in the Deephaven Funds and deferred compensation investments are also classified within Level 2 of the fair value hierarchy.

We have no financial instruments classified within Level 3 of the fair value hierarchy.

There were no transfers of financial instruments between levels of the fair value hierarchy for any periods presented.

Goodwill and Intangible Assets—As a result of our various acquisitions, we have acquired goodwill and identifiable intangible assets. We determine the values and estimated useful lives of intangible assets upon acquisition. Goodwill is the cost of acquired companies in excess of the fair value of net assets, including identifiable intangible assets, at the acquisition date. We test goodwill and intangible assets with an indefinite useful life for impairment at least annually or when an event occurs or circumstances change that signifies the existence of impairment.

Goodwill

Goodwill of $17.3 million at December 31, 2014 is primarily a result of the Mergers and primarily relates to our Market Making segment. We test the goodwill in each of our reporting units for impairment at least annually by comparing the estimated fair value of each reporting unit with its estimated net book value. We will derive the fair value of each of our reporting units based on valuation techniques we believe market participants would use for each segment (observable market multiples and discounted cash flow analyses) and we will derive the net book value of our reporting units by estimating the amount of stockholders’ equity required to support the activities of each reporting unit. As part of our test for impairment, we will also consider the profitability of the applicable reporting unit as well as our overall market value, compared to our book value. No events occurred during the year ended December 31, 2014 that would indicate that our goodwill may not be recoverable.

Intangible Assets

Intangible assets, less accumulated amortization, of $135.3 million at December 31, 2014 primarily result from the Mergers and are primarily attributable to our Market Making and Global Execution Services segments. Intangible assets were reduced by $34.7 million at December 31, 2014 as a result of the announced sale of KCG Hotspot, which resulted in KCG Hotspot’s intangible assets being reclassified into Assets of business held for sale at December 31, 2014.

We amortize intangible assets with finite lives on a straight-line basis over their estimated useful lives, the majority of which have been determined to range from one to 9 years. We will test amortizable intangibles for recoverability whenever events indicate that the carrying amounts may not be recoverable. No events occurred during the year ended December 31, 2014 that would indicate that the carrying amounts of our intangible assets may not be recoverable.

Investments—Investments primarily comprise strategic investments and deferred compensation investments. Strategic investments include noncontrolling equity ownership interests in financial services-related businesses held by us within our non-broker dealer subsidiaries. Strategic investments are accounted for under the equity method, at cost or at fair value. We use the equity method of accounting when we have significant influence, generally considered to be between 20% and 50% equity ownership or greater than 3% to 5% of a partnership interest. We hold strategic investments at cost, less impairment if any, when we are not considered to exert significant influence on operating and financial policies of the investee. Strategic investments which are publicly traded are held at fair value.

We review investments on an ongoing basis to ensure that the carrying values of the investments have not been impaired. If we assess that an impairment loss on a strategic investment has occurred due to a decline in fair value or other market conditions, we write the investment down to its estimated impaired value.

We maintain a deferred compensation plan related to certain employees and directors. This plan provides a return to the participants based upon the performance of various investments. In order to hedge our liability under this plan, we generally acquire the underlying investments and hold such investments until the deferred compensation liabilities are satisfied. We record changes in value of such investments in Investment income and other, net, with a corresponding charge or credit to Employee compensation and benefits on the Consolidated Statements of Operations.

Market Making, Sales, Trading and Execution Activities—Financial instruments owned and Financial instruments sold, not yet purchased, which relate to market making and trading activities, include listed and other equity securities, listed equity options and fixed income securities which are recorded on a trade date basis and carried at fair value. Trading revenues, net (trading gains, net of trading losses) and commissions (which includes commission equivalents earned on institutional client orders and futures transactions) and related expenses are also recorded on a trade date basis. Our third party clearing agreements call for payment or receipt of interest income, net of transaction-related interest charged by clearing brokers for facilitating the settlement and financing of securities transactions.

Dividend income relating to securities owned and dividend expense relating to securities sold, not yet purchased, derived from our market making activities are included as a component of Trading revenues, net on our Consolidated Statements of Operations.

Lease Loss Accrual—It is our policy to identify excess real estate capacity and where applicable, accrue for related future costs, net of estimated sublease income. In the event we are able to sublease the excess real estate after recording a lease loss, such accrual is adjusted to the extent the actual terms of sub-leased property differ from the assumptions used in the calculation of the accrual. In the event that we conclude that previously determined excess real estate is needed for our use, such lease loss accrual is adjusted accordingly. Any such adjustments to previous lease loss accruals are recorded in Writedown of assets and lease loss accrual, net on the Consolidated Statements of Operations

Income taxes—Prior to the Mergers, GETCO and the majority of its subsidiaries were treated as partnerships or disregarded entities for U.S. income tax purposes and, accordingly, were not subject to federal income taxes. Instead, the former GETCO members were liable for federal income taxes on their proportionate share of taxable income. Upon completion of the Mergers, the Company became a corporation subject to U.S. corporate income taxes and, following the Mergers, the Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and measures them using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. The Company evaluates the recoverability of future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences and forecasted operating earnings.

Other Estimates—The preparation of financial statements in conformity with GAAP requires management to make certain estimates and assumptions. In addition to the estimates that we make in connection with accounting for the items noted above, the use of estimates is also important in determining provisions for potential losses that may arise from discontinued operations, litigation, regulatory proceedings and tax audits.

When determining stock-based employee compensation expense, we make certain estimates and assumptions relating to volatility and forfeiture rates. We estimate volatility based on several factors including implied volatility of market-traded options on our common stock on the grant date and the historical volatility of our common stock. We estimate forfeiture rates based on historical rates of forfeiture of employee stock awards.

We accrue for potential losses that may arise out of litigation and regulatory proceedings to the extent that such losses are probable and can be estimated. Significant judgment is required in making these estimates and our final liabilities may ultimately be materially different. Our total liability accrued with respect to litigation and regulatory proceedings is determined on a case-by-case basis and represents an estimate of probable losses based on, among other factors, the progress of each case, our experience and industry experience with similar cases and the opinions and views of internal and external legal counsel. Given the inherent difficulty of predicting the outcome of our litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, or where cases or proceedings are in the early stages, we cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred. For more information on our legal and regulatory matters, see Footnote 22 "Commitments and Contingent Liabilities" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Form 10-K and other reports or documents the Company files with, or furnishes, to the SEC from time to time.

Change in accounting principle

As a result of the merger of BATS and Direct Edge in the first quarter of 2014, the Company changed its method of accounting for its investment in BATS from the cost method to the equity method as the Company has significant influence following the merger. This change in accounting principal was applied retrospectively.

As a result of the change in accounting principle, the Consolidated Statement of Financial Condition at December 31, 2013 has been adjusted as follows: Investments increased by approximately $3.4 million, Deferred tax asset, net decreased by $1.1 million and Retained earnings increased by $2.3 million. The Consolidated Statement of Operations for the year ended December 31, 2013 has been adjusted by an increase in Investment income and other, net by $7.2 million.

See Footnote 11 “Investments” and Footnote 3 "Significant Accounting Policies" included in Part II, Item 8 "Financial Statements and Supplementary Data" of this Form 10-K for further discussion.

Accounting Standards Updates

Recently adopted accounting guidance

In March 2013, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standard Update (“ASU”) concerning the parent's accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity. This ASU provides for the release of the cumulative translation adjustment into net income when a parent sells a part or all of its investment within a foreign entity, no longer holds a controlling interest in an investment in a foreign entity or obtains control of an investment in a foreign entity that was previously recognized as an equity method investment. This ASU was effective for reporting periods beginning after December 15, 2013. The adoption of this ASU did not have an impact on our Consolidated Financial Statements.

In July 2013, the FASB issued an ASU to clarify the financial statement presentation of an unrecognized tax benefit when a net operating loss (“NOL”) carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU requires entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a NOL carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. The ASU is required for reporting periods beginning after December 15, 2013. The adoption of this ASU did not have an impact on our Consolidated Financial Statements.

In April 2014, the FASB issued an ASU that amends the requirements for reporting discontinued operations. Under the new guidance, discontinued operations reporting will be limited to disposal transactions that represent strategic shifts having a major effect on operations and financial results. The amended guidance also enhances disclosures and requires assets and liabilities of a discontinued operation to be classified as such for all periods presented in the financial statements. The updated guidance is effective prospectively to all disposals occurring for interim and annual reporting periods after December 15, 2014, with early adoption permitted. We early adopted this ASU in 2014, which resulted in additional disclosures within our Consolidated Financial Statements.

Recent accounting guidance to be adopted in future periods

In May 2014, the FASB issued an ASU that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. We are evaluating the impact of this ASU on our Consolidated Financial Statements.

In June 2014, the FASB issued an ASU to resolve diverse accounting treatment for share based awards in which the terms of the award are related to a performance target that affects vesting. The ASU requires an entity to treat a performance target that could be achieved after the requisite service period as a performance condition. Additionally, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved, and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered; if the performance target becomes probable of being achieved before the end of the requisite service period, then the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The guidance is effective for reporting periods beginning after December 15, 2015 and may be applied prospectively or retrospectively. We do not expect adoption of this ASU to have an impact on our Consolidated Financial Statements.

In June 2014, the FASB issued an ASU that amends the accounting and disclosure guidance on repurchase agreements. The amended guidance requires entities to account for repurchase-to-maturity transactions as secured borrowings. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The guidance is effective for reporting periods beginning after December 15, 2014. Early adoption is not permitted. Other than additional disclosure requirements, the adoption of this ASU is not expected to have an impact on our Consolidated Financial Statements.

In August 2014, the FASB issued an ASU that requires an entity’s management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. The guidance is effective for reporting periods beginning after December 15, 2016. Other than additional disclosure requirements, the adoption of this ASU is not expected to have an impact on our Consolidated Financial Statements.



Item 7A.	Quantitative and Qualitative Disclosures About Market Risk

We are exposed to numerous risks in the ordinary course of our business and activities; therefore, effective risk management is critical to our financial soundness and profitability. We have a comprehensive risk management structure and processes to monitor and evaluate the principal risks we assume in conducting our business. Our risk management policies, procedures and methodologies are subject to ongoing review and modification. The principal risks we face are as follows:

Market Risk

Our market making and trading activities expose our capital to significant risks. These risks include, but are not limited to, absolute and relative price movements, price volatility, interest rates, credit spreads and changes in liquidity. Price risks result from exposure to changes in prices of individual financial instruments, baskets and indices. Further risks may result from changes in the factors determining options prices. Interest rate risks result primarily from exposure and changes in the yield curve, the volatility of interest rates and credit spreads. As market makers we are also exposed to “open order” risk where during unusual market conditions we could have an abnormally high percentage of our open orders filled simultaneously and therefore acquire a larger than average position in securities or derivative instruments.

For working capital purposes, we invest in money market funds and government securities or maintain interest bearing balances at banks and in our trading accounts with clearing brokers, which are classified as Cash and cash equivalents and Receivable from brokers, dealers and clearing organizations, respectively, on the Consolidated Statements of Financial Condition. These financial instruments do not have maturity dates; the balances are short term, which helps to mitigate our market risks. Our cash and cash equivalents held in foreign currencies are subject to the exposure of foreign currency fluctuations. These balances are monitored daily and are hedged or reduced when appropriate and therefore not material to our overall cash position.

We employ proprietary position management and trading systems that provide real-time, on-line position management and inventory control. We monitor our risks by reviewing trading positions and their appropriate risk measures. We have established a system whereby transactions are monitored by senior management and an independent risk control function on a real-time basis as are individual and aggregate dollar and inventory position totals, capital allocations, and real-time profits and losses. Our management of trading positions is enhanced by our review of mark-to-market valuations and position summaries on a daily basis.

In the normal course of business, we maintain inventories of exchange-listed and other equity securities, and to a lesser extent, listed equity options and fixed income securities. The fair value of these financial instruments at December 31, 2014 and 2013 was $2.71 billion and $2.72 billion, respectively, in long positions and $2.29 billion and $2.17 billion, respectively, in short positions. We also enter into futures contracts, which are recorded on our Consolidated Statements of Financial Condition within Receivable from brokers, dealers and clearing organizations or Payable to brokers, dealers and clearing organizations as applicable.

We calculate daily the potential losses that might arise from a series of different stress events. These include both single factor and multi factor shocks to asset prices based off both historical events and hypothetical scenarios. The stress calculations include a full recalculation of any option positions, non-linear positions and leverage. Senior management and the independent risk function carefully monitor the highest stress scenarios to ensure that the Company is not unduly exposed to any extreme events.

The potential change in fair value is estimated to be a gain of $7.0 million using a hypothetical 10% increase in equity prices as of December 31, 2014, and an estimated loss of $2.2 million using a hypothetical 10% decrease in equity prices at December 31, 2014. These estimates take into account the offsetting effect of such hypothetical price movements on the fair value of short positions against long positions, and the effect on the fair value of options, futures, nonlinear positions and leverage. The Company has employed a third party tool to assist in the calculation of the Company’s stress risk under the various scenarios that we model.

The following table illustrates, for the period indicated, our average, highest and lowest month-end inventory at fair value (based on both the aggregate and the net of the long and short positions of financial instruments (in thousands)):



	2014				2013					2012
	Aggregate of Long and Short Positions		Net of Long and Short Positions		Aggregate of Long and Short Positions		Net of Long and Short Positions			Aggregate of Long and Short Positions		Net of Long and Short Positions
Average month-end	$	5,155,626	$	431,355	$	3,137,170	$	175,171		$	1,074,546	$	50,331
Highest month-end	5,901,615		805,837		5,268,422		561,353			1,417,482		440,775
Lowest month-end	4,671,405		40,708		1,198,112		(224,760		)	539,224		(405,583		)

Operational Risk

Operational risk can arise from many factors ranging from routine processing errors to potentially costly incidents arising, for example, from major systems failures or human errors. For example, on August 1, 2012, at the open of trading at the NYSE, Knight experienced a technology issue related to the installation of trading software which resulted in its broker dealer subsidiary, KCA, sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market. As a result of this technology issue, Knight incurred a pre-tax loss of $468.1 million which principally related to trading losses.

Following the events of August 1, 2012, the Firm has taken numerous remedial measures designed to enhance its processes and controls. Today KCG has a robust framework to manage operational risk events. The framework includes a sound risk management governance structure, including a Chief Risk Officer, a Risk function, a Board Risk Committee and Management Risk Committee. Within the Risk function KCG has created a formal Operational Risk Management team lead by Global Head of Operational Risk, responsible for managing the Firm’s operational risk exposure. The Emergency Response Center ("ERC") has been established and is tasked with monitoring and responding to operational incidents and natural disasters in real time. The Emergency Management Plan ("EMP") sets forth procedures for firm-wide crisis response, should incidents go beyond the emergency solving capabilities of individual businesses. The EMP is tested several times a year with simulated emergencies of various kinds. Furthermore, the framework incorporates market access controls designed to closely monitor inbound and outbound orders and enable the rapid automatic shut-down for specific applications.

Our businesses are highly dependent on our ability and our market centers' ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in several currencies and products. We incur operational risk across all of our business activities, including revenue generating activities as well as support functions. Legal and compliance risk is included in the scope of operational risk and is discussed below under “Legal Risk.”

We rely heavily on technology and automation to perform many functions within KCG, which exposes us to various forms of cyber-attacks, including data loss or destruction, unauthorized access, unavailability of service or the introduction of malicious code. We have taken significant steps to mitigate the various cyber threats, and we devote significant resources to maintain and regularly upgrade our systems and networks and review the ever changing threat landscape. We have created a dedicated Information Security Group, created and filled the role of Information Security officer ("ISO") and formed an Information Security Steering Committee. In addition, we have enhanced the communication channels with government and law enforcement agencies for better information sharing and awareness. We will continue to periodically review policies and procedures to ensure they are effective in mitigating current cyber and other information security threats. In addition to the policy reviews, we continue to look to implement technology solutions that enhance preventive and detection capabilities. We also maintain insurance coverage that may, subject to policy terms and conditions, cover certain aspects of cyber risks, such insurance may be insufficient to cover all losses.

Primary responsibility for the management of operational risk lies with our operating segments and supporting functions, and secondary responsibility lies with the Operational Risk Management function. Our operating segments maintain controls designed to manage and mitigate operational risk for existing activities. As new products and business activities are developed, we endeavor to identify operational risks and design controls to seek to mitigate the identified risks.

Disaster recovery plans are in place for critical facilities related to our primary operations and resources, and redundancies are built into the systems as deemed reasonably appropriate. We have also established policies, procedures and technologies designed to seek to protect our systems and other assets from unauthorized access. There is no assurance that such plans, policies, procedures and technologies will prevent a significant disruption to our business.

Liquidity Risk

Liquidity risk is the risk that we would be unable to meet our financial obligations as they arise in both normal and strained funding environments. To that end, we have established a comprehensive and conservative set of policies and procedures that govern the management of liquidity risk for the Company at the corporate level and at the subsidiary entity level.

We maintain a liquidity pool consisting of primarily cash and other highly liquid instruments at the holding company level to satisfy intraday and day-to-day funding needs, as well as potential cash needs in a strained funding environment.

Secured funding for the majority of the firm’s inventory is done through the firm’s regulated U.S. broker dealer subsidiary, KCGA. As such, a significant portion of the firm’s liquidity risk lies within KCGA. We consider cash and other highly liquid instruments held within KCGA, up to $150.0 million, a part of the firm’s liquidity pool to support financial obligations in normal and strained funding environments. We target having $350.0 million in the Company's liquidity pool of cash and highly liquid instruments held at the holding company level and KCGA.

Cash and other highly liquid investments held by all other subsidiary entities are available to support financial obligations within those entities.

Our liquidity pool comprises the following (in thousands):



	December 31, 2014		December 31, 2013
Liquidity Pool Composition
Holding companies
Cash held at banks	$	150,622	$	225,597
Money market and other highly liquid investments	152,077		27,420
KCGA
Cash held at banks	58,972		19,605
Money market and other highly liquid investments	81,997		130,395
Total Liquidity Pool	$	443,668	$	403,017
Cash and other highly liquid investments held by other subsidiary entities	$	135,100	$	271,264

In addition, we maintain committed and uncommitted credit facilities with a number of unaffiliated financial institutions. In connection with the uncommitted credit facilities, the lenders are at no time under any obligation to make any advances under the credit facilities, and any outstanding loans must be repaid on demand.

We regularly perform liquidity risk stress testing based on a scenario that considers both market-wide stresses and a company-specific stress over a one-month period. Given the nature of the Company’s business activity and balance sheet composition, survival over the first one to three days of a severe stress environment is most critical, after which management actions could be effectively implemented to navigate through prolonged periods of financial stress. The modeled cash inflows and outflows from the stress test serve as a quantitative input to assist us in establishing the Company’s liquidity risk appetite and amount of liquid assets to be held at the corporate level. The liquidity stress test considers cash flow risks arising from, but not limited to, a dislocation of the secured funding market, additional unexpected margin requirements, and operational events.

We maintain a contingency funding plan (“CFP”) which clearly delineates the roles, responsibilities and actions that will be utilized as the Company encounters various levels of liquidity stress with the goal of fulfilling all financial obligations as they arise while maintaining business activity. We periodically update and test the operational functionality of various aspects of the CFP to ensure it remains current with changing business activity.

Capital Risk

Government regulators, both in the U.S. and globally, as well as self-regulated organizations, have supervisory responsibility over our regulated activities and require us to maintain specified minimum levels of regulatory capital in our broker dealer subsidiaries. If not properly monitored, our regulatory capital levels could fall below the required minimum amounts set by our regulators, which could expose us to various sanctions ranging from fines and censure to imposing partial or complete restrictions on our ability to conduct business.

To mitigate this risk, we continuously evaluate the levels of regulatory capital at each of our regulated subsidiaries and adjust the amounts of regulatory capital as necessary to ensure compliance with regulatory capital requirements. We also maintain excess regulatory capital to accommodate periods of unusual or unforeseen market volatility. In addition, we monitor regulatory developments regarding capital requirements and prepare for changes in the required minimum levels of regulatory capital that may occur in the future.

Legal Risk

Legal risk includes the risk of non-compliance with applicable legal and regulatory requirements and standards. Legal risk also includes contractual and commercial risk such as the risk that counterparty’s performance obligations will be unenforceable. We are generally subject to extensive regulation in the different jurisdictions in which we conduct our business. We have established procedures based on legal and regulatory requirements that are designed to foster compliance with applicable statutory and regulatory requirements. We have also established procedures that are designed to require that our policies relating to conduct, ethics and business practices are followed.

Credit Risk

Credit risk represents the loss that we would incur if a counterparty fails to perform its contractual obligations in a timely manner. We manage credit risk with a global, independent credit risk management function that is responsible for measuring, monitoring and controlling the counterparty credit risks inherent in our business activities.

Our credit risk function’s process for managing credit risk includes a qualitative and quantitative risk assessment of significant counterparties prior to engaging in business activity, as well as, on an ongoing basis. The review includes formal financial analysis and due diligence when appropriate.

Our credit risk function is responsible for approving counterparties and establishing credit limits to manage credit risk exposure by counterparty and business line. The assigned limits reflect the various elements of assessed credit risk and are subsequently revised to correspond with changes in the counterparties’ credit profiles. Our credit risk function communicates counterparty limits to the business areas as well as senior management, and monitors compliance with the established limits.

Where appropriate, counterparty exposure is monitored on a daily basis and the collateral, if required, is marked to market daily to accurately reflect the current exposure.

Foreign Currency Risk

Our international businesses include transactions in currencies other than the U.S. dollar. As such, changes in foreign exchange rates relative to the U.S. dollar can affect the value of our non-U.S. dollar assets, liabilities, revenues and expenses. Additionally, our foreign subsidiary in India has a functional currency other than the U.S. dollar which exposes us to foreign currency transaction gains and losses. A portion of these risks are hedged, but fluctuations in currency exchange rates could impact our results of operations, financial position and cash flows.

Consolidated Quarterly Results

The following table sets forth certain unaudited consolidated quarterly statement of operations data for 2014 and 2013. In the opinion of management, this unaudited information has been prepared on substantially the same basis as the Consolidated Financial Statements appearing elsewhere in this document and includes all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the unaudited consolidated quarterly data. The unaudited consolidated quarterly data should be read in conjunction with the audited Consolidated Financial Statements and notes thereto appearing elsewhere in this document. The results of any quarter are not necessarily indicative of results for any future period.



	Quarter Ended*
	Dec. 31, 2014			Sept. 30, 2014			Jun. 30, 2014			Mar. 31, 2014			Dec. 31, 2013			Sept. 30, 2013			Jun. 30, 2013			Mar. 31, 2013
	(in thousands, except per share amounts)
Revenues
Trading revenues, net	$	221,415		$	150,865		$	206,780		$	258,297		$	212,809		$	230,471		$	98,260		$	86,765
Commissions and fees	117,326			102,663			104,776			112,257			111,083			109,079			29,813			25,499
Interest, net	(177		)	139			(289		)	948			433			(177		)	(672		)	(121		)
Investment income (loss) and other, net	7,575			18,635			2,866			12,155			(951		)	129,965			(7,768		)	2,849
Total revenues	346,139			272,302			314,133			383,657			323,374			469,338			119,633			114,992
Expenses
Employee compensation and benefits	116,214			95,307			103,430			122,319			112,209			129,631			75,143			32,209
Execution and clearance fees	82,377			74,058			73,242			75,501			78,483			81,023			45,951			40,957
Communications and data processing	36,945			38,576			38,279			36,796			37,512			44,046			21,301			20,694
Depreciation and amortization	21,224			20,298			19,823			20,103			19,566			20,091			7,746			8,167
Payments for order flow	14,698			15,377			18,076			22,032			18,243			16,431			448			589
Occupancy and equipment rentals	8,514			7,672			8,235			8,285			9,358			8,898			3,259			3,296
Collateralized financing interest	7,973			7,330			6,395			6,162			5,327			4,520			—			—
Debt interest expense	7,721			7,714			7,497			9,524			12,943			19,350			2,172			473
Professional fees	5,695			7,161			7,337			5,402			7,734			9,077			23,125			6,725
Business development	2,308			3,163			2,609			1,683			1,923			2,644			16			25
Writedown of assets and lease loss accrual, net	6,117			301			1,941			266			10,500			936			1,074			2,238
Writedown of capitalized debt costs	—			—			1,995			7,557			13,209			—			—			—
Other	9,822			10,580			10,767			8,643			13,066			11,318			14,234			4,477
Total expenses	319,608			287,537			299,626			324,273			340,073			347,965			194,469			119,850
Income (loss) from continuing operations before income taxes	26,531			(15,235		)	14,507			59,384			(16,699		)	121,373			(74,836		)	(4,858		)
Income tax expense (benefit)	562			(5,796		)	5,520			22,467			787			(107,190		)	3,315			1,974
Income (loss) from continuing operations, net of tax	25,969			(9,439		)	8,987			36,917			(17,486		)	228,563			(78,151		)	(6,832		)
Income (loss) from discontinued operations, net of tax	165			(177		)	(67		)	(1,253		)	864			(784		)	—			—
Net income (loss)	$	26,134		$	(9,616	)	$	8,920		$	35,664		$	(16,622	)	$	227,779		$	(78,151	)	$	(6,832	)
Net loss allocated to preferred and participating units	$	—		$	—		$	—		$	—		$	—		$	—		$	(21,565	)	$	—
Net income (loss) attributable to common shareholders	$	26,134		$	(9,616	)	$	8,920		$	35,664		$	(16,622	)	$	227,779		$	(56,586	)	$	(6,832	)
Basic earnings (loss) per common share from continuing operations	$	0.24		$	(0.09	)	$	0.08		$	0.32		$	(0.15	)	$	2.00		$	(1.24	)	$	(0.15	)
Diluted earnings (loss) per common share from continuing operations	$	0.23		$	(0.09	)	$	0.08		$	0.31		$	(0.15	)	$	1.99		$	(1.24	)	$	(0.15	)
Basic and diluted (loss) earnings per common share from discontinued operations	$	—		$	—		$	—		$	(0.01	)	$	0.01		$	(0.01	)	$	—		$	—
Basic earnings (loss) per common share	$	0.24		$	(0.09	)	$	0.08		$	0.31		$	(0.15	)	$	2.00		$	(1.24	)	$	(0.15	)
Diluted earnings (loss) per common share	$	0.23		$	(0.09	)	$	0.08		$	0.30		$	(0.15	)	$	1.98		$	(1.24	)	$	(0.15	)
* Quarterly totals may not add to full year due to rounding.



Item 8.	Financial Statements and Supplementary Data

KCG HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



	Page
Management’s Report on Internal Control over Financial Reporting	63
Report of Independent Registered Public Accounting Firm	64
Consolidated Statements of Financial Condition as of December 31, 2014 and 2013	65
Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012	66
Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012	67
Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012	68
Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012	69
Notes to Consolidated Financial Statements	71

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

KCG Holdings, Inc.’s (“KCG”) management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:


•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of KCG;


•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of KCG; and


•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of KCG’s internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013).

Based on our assessment, KCG’s management has concluded that, as of December 31, 2014, internal control over financial reporting is effective.

The effectiveness of KCG’s internal control over financial reporting as of December 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of KCG Holdings, Inc.

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of KCG Holdings, Inc. and its subsidiaries (the "Company") at December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2014 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits (which was an integrated audit in 2014). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

New York, New York

March 2, 2015

KCG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION



	December 31,			December 31,
	2014			2013
Assets	(In thousands)
Cash and cash equivalents	$	578,768		$	674,281
Cash and cash equivalents segregated under federal and other regulations	3,361			183,082
Financial instruments owned, at fair value, including securities pledged to counterparties that had the right to deliver or repledge of $536,124 at December 31, 2014 and $552,242 at December 31, 2013:
Equities	2,479,910			2,298,785
Listed options	144,586			339,798
Debt securities	82,815			83,256
Other financial instruments	60			—
Total financial instruments owned, at fair value	2,707,371			2,721,839
Collateralized agreements:
Securities borrowed	1,632,062			1,357,387
Receivable from brokers, dealers and clearing organizations	1,188,833			1,257,251
Fixed assets and leasehold improvements, less accumulated depreciation and amortization	134,051			146,668
Investments	100,726			125,413
Goodwill and Intangible assets, less accumulated amortization	152,594			208,806
Deferred tax asset, net	154,759			175,639
Assets of business held for sale	40,484			—
Other assets	137,645			146,638
Total assets	$	6,830,654		$	6,997,004
Liabilities and equity
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities	$	2,069,342		$	1,851,006
Listed options	115,362			252,282
Debt securities	101,003			57,198
Other financial instruments	—			5,014
Total financial instruments sold, not yet purchased, at fair value	2,285,707			2,165,500
Collateralized financings:
Securities loaned	707,744			733,230
Financial instruments sold under agreements to repurchase	933,576			640,950
Total collateralized financings	1,641,320			1,374,180
Payable to brokers, dealers and clearing organizations	676,089			474,108
Payable to customers	22,110			481,041
Accrued compensation expense	114,559			149,430
Accrued expenses and other liabilities	136,977			175,910
Capital lease obligations	6,700			10,039
Liabilities of business held for sale	2,356			—
Debt	422,259			657,259
Total liabilities	5,308,077			5,487,467
Commitments and Contingent Liabilities (Note 22)
Equity
Class A Common Stock
Shares authorized: 1,000,000 at December 31, 2014 and December 31, 2013; Shares issued: 127,508 at December 31, 2014 and 123,317 at December 31, 2013; Shares outstanding: 116,860 at December 31, 2014 and 122,238 at December 31, 2013	1,275			1,233
Additional paid-in capital	1,369,298			1,306,549
Retained earnings	272,780			211,678
Treasury stock, at cost; 10,649 shares at December 31, 2014 and 1,079 shares at December 31, 2013	(122,909		)	(11,324		)
Accumulated other comprehensive income	2,133			1,401
Total equity	1,522,577			1,509,537
Total liabilities and equity	$	6,830,654		$	6,997,004

The accompanying notes are an integral part of these consolidated financial statements.

KCG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



	For the year ended December 31,
	2014			2013			2012
	(In thousands, except per share amounts)
Revenues
Trading revenues, net	$	837,357		$	628,304		$	421,063
Commissions and fees	437,022			275,474			105,518
Interest, net	621			(537		)	(2,357		)
Investment income and other, net	41,232			124,095			27,010
Total revenues	1,316,232			1,027,336			551,234
Expenses
Employee compensation and benefits	437,269			349,192			157,855
Execution and clearance fees	305,177			246,414			185,790
Communications and data processing	150,595			123,552			90,623
Depreciation and amortization	81,448			55,570			34,938
Payments for order flow	70,183			35,711			2,964
Occupancy and equipment rentals	32,707			24,812			12,804
Debt interest expense	32,456			34,938			2,665
Collateralized financing interest	27,860			9,847			—
Professional fees	25,596			46,662			14,072
Business development	9,763			4,609			23
Writedown of assets and lease loss accrual, net	8,625			14,748			—
Writedown of capitalized debt costs	9,552			13,209			—
Other	39,814			43,094			23,073
Total expenses	1,231,045			1,002,358			524,807
Income from continuing operations before income taxes	85,187			24,978			26,427
Income tax expense (benefit)	22,753			(101,114		)	10,276
Income from continuing operations, net of tax	62,434			126,092			16,151
(Loss) Income from discontinued operations, net of tax	(1,332		)	80			—
Net income	$	61,102		$	126,172		$	16,151
Net (loss) income allocated to preferred and participating units	$	—		$	(21,565	)	$	1,092
Net income attributable to common shareholders	$	61,102		$	147,737		$	15,059
Basic earnings per share from continuing operations	$	0.55		$	1.84		$	0.31
Diluted earnings per share from continuing operations	$	0.54		$	1.82		$	0.31
Basic loss per share from discontinued operations	$	(0.01	)	$	—		$	—
Diluted loss per share from discontinued operations	$	(0.01	)	$	—		$	—
Basic earnings per share	$	0.54		$	1.84		$	0.31
Diluted earnings per share	$	0.52		$	1.82		$	0.31
Shares used in computation of basic earnings (loss) per share	112,854			80,143			48,970
Shares used in computation of diluted earnings (loss) per share	116,534			81,015			48,970

The accompanying notes are an integral part of these consolidated financial statements.

KCG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the year ended December 31,
	2014		2013			2012
	(In thousands)
Net income	$	61,102	$	126,172		$	16,151
Other comprehensive income (loss):
Unrealized gain (loss) on available for sale securities, net of tax	316		(114,283		)	114,319
Cumulative translation adjustment, net of tax	416		1,365			—
Comprehensive income	$	61,834	$	13,254		$	130,470

The accompanying notes are an integral part of these consolidated financial statements.

KCG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the year ended December 31, 2012, 2013, 2014



										Class A Common Stock							Treasury Stock
(in thousands)	Redeemable preferred member's equity			Members' Equity			Unrecognized Compensation			Shares	Amount		Additional Paid-In Capital		Retained Earnings		Shares		Amount			Accumulated other comprehensive income			Total Equity
Balance, January 1, 2012	314,490			666,764			(43,768		)	—	—		—		—		—		—			—			622,996
Contributions	—			12,695			24,829			—	—		—		—		—		—			—			37,524
Repurchase of Membership interests	—			(111,525		)	—			—	—		—		—		—		—			—			(111,525		)
Distributions	(3,351		)	(24,793		)	—			—	—		—		—		—		—			—			(24,793		)
Net income	—			16,151			—			—	—		—		—		—		—			114,319			130,470
Balance, December 31, 2012	$	311,139		559,292			$	(18,939	)	—	$	—	—		$	—	—		$	—		$	114,319		$	654,672
Contributions	—			11,339			18,939			—	—		—		—		—		—			—			30,278
Repurchase of Membership interests	—			(5,833		)	—			—	—		—		—		—		—			—			(5,833		)
Distributions	—			(2,054		)	—			—	—		—		—		—		—			—			(2,054		)
Net (loss) income	—			(89,305		)	—			—	—		—		—		—		—			—			(89,305		)
Unrealized gain on available for sale securities	—			—			—			—	—		—		—		—		—			4,550			4,550
Cumulative translation adjustment	—			—			—			—	—		—		—		—		—			(403		)	(403		)
Modification of redemption value	(21,565		)	21,565			—			—	—		—		—		—		—			—			21,565
Balance, June 30, 2013	289,574			495,004			—			—	—		—		—		—		—			118,466			613,470
Gain on investment in Knight Capital Group, Inc.	—			—			—			—	—		—		—		—		—			9,103			9,103
Reclassification of investment in Knight out of other comprehensive income	—			—			—			—	—		—		—		—		—			(127,972		)	(127,972		)
Equity issued to General Atlantic	—			55,000			—			—	—		—		—		—		—			—			55,000
Exchange of membership interests for shares of KCG Class A Common Stock	(289,574		)	(550,004		)	—			75,868	759		754,417		—		—		—			—			205,172
Exchange of membership interests for warrants to purchase KCG Class A Common Stock	—			—			—			—	—		74,896		—		—		—			—			74,896
Issuance of KCG Class A Common Stock to Knight stockholders	—			—			—			41,889	419		453,419		—		—		—			—			453,838
Change in estimated distribution payable to members	—			—			—			—	—		1,757		—		—		—			—			1,757
KCG Class A Common Stock repurchased	—			—			—			—	—		—		—		(1,079	)	(11,324		)	—			(11,324		)
Stock-based compensation	—			—			—			5,560	55		22,060		—		—		—			—			22,115
Unrealized gain on available for sale securities, net	—			—			—			—	—		—		—		—		—			36			36
Cumulative translation adjustment, net	—			—			—			—	—		—		—		—		—			1,768			1,768
Net Income	—			—			—			—	—		—		209,393		—		—			—			209,393
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 - See 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
KCG Class A Common Stock repurchased	—			—			—			—	—		—		—		(9,570	)	(111,585		)	—			(111,585		)
Stock-based compensation	—			—			—			4,191	42		61,865		—		—		—			—			61,907
Income tax provision-stock based compensation	—			—			—			—	—		884		—		—		—			—			884
Unrealized gain on available for sale securities, net	—			—			—			—	—		—		—		—		—			316			316
Cumulative translation adjustment, net	—			—			—			—	—		—		—		—		—			416			416
Net income	—			—			—			—	—		—		61,102		—		—			—			61,102
Balance, December 31, 2014	$	—		$	—		$	—		127,508	$	1,275	$	1,369,298	$	272,780	(10,649	)	$	(122,909	)	$	2,133		$	1,522,577

The accompanying notes are an integral part of these consolidated financial statements.

KCG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the year ended December 31,
	2014			2013			2012
Cash flows from operating activities	(In thousands)
Net income	$	61,102		$	126,172		$	16,151
(Loss) Income from discontinued operations, net of tax	(1,332		)	80			—
Income from continuing operations, net of tax	62,434			126,092			16,151
Adjustments to reconcile income from continuing operations, net of tax to net cash provided by operating activities
Non-cash gain from sale of Futures Commission Merchant	(116		)	—			—
Non-cash gain on Knight Common Stock	—			(127,972		)	—
Deferred tax benefit	19,397			(103,499		)	—
Depreciation and amortization	81,448			55,570			34,938
Stock and unit-based compensation	58,940			64,286			12,320
Writedown and amortization of debt offering costs	13,217			17,332			276
Writedown of assets and lease loss accrual, net	8,625			14,748			—
Unrealized (gain) loss on investments	(36,456		)	(4,539		)	(25,754		)
Deferred rent	930			58			—
Operating activities from discontinued operations	(1,073		)	6,952			—
(Increase) decrease in operating assets
Cash and cash equivalents segregated under federal and other regulations	(54,955		)	19,963			—
Financial instruments owned, at fair value	14,468			(129,035		)	(414,537		)
Securities borrowed	(274,675		)	(146,145		)	(30,679		)
Receivable from brokers, dealers and clearing organizations	(321,087		)	252,266			36,439
Other assets	(6,459		)	25,785			1,332
(Decrease) increase in operating liabilities
Financial instruments sold, not yet purchased, at fair value	120,207			139,951			—
Securities loaned	(25,486		)	106,339			—
Financial instruments sold under agreements to repurchase	292,625			95,950			372,023
Payable to brokers, dealers and clearing organizations	268,563			(185,992		)	(34,752		)
Payable to customers	92,096			(46,877		)	—
Accrued compensation expense	(29,536		)	24,441			(18,494		)
Accrued expenses and other liabilities	(40,583		)	(64,470		)	(13,779		)
Net cash provided by (used in) operating activities	242,524			141,204			(64,516		)
Cash flows from investing activities
Cash acquired upon acquisition of Knight Capital Group, Inc.	—			509,133			—
Cash received from sale of Urban Financial Group, Inc.	—			85,406			—
Cash received from sale of Futures Commission Merchant	2,000			—			—
Proceeds and distributions from investments	58,660			3,251			72,196
Purchases of fixed assets and leasehold improvements	(34,139		)	(25,147		)	(31,389		)
Capitalized software development costs	(14,859		)	(2,556		)	—
Purchases of investments	(744		)	(158		)	(87,308		)
Investing activities from discontinued operations	—			12,963			—
Sale of trading rights	554			—			—
Net cash provided by (used in) investing activities	11,472			582,892			(46,501		)
Cash flows from financing activities
Proceeds from issuance of Credit Agreement	—			535,000			—
Partial repayment of Credit Agreement	(235,000		)	(300,000		)	—
Proceeds from issuance of Senior Secured Notes	—			305,000			—
Repayment of notes	—			(15,000		)	—
Payment of debt issuance cost	—			(34,592		)	(1,375		)
Issuance of equity to General Atlantic	—			55,000			—
Payment to former Knight Capital Group, Inc. stockholders	—			(720,000		)	—
Repayment of Knight Convertible Notes	—			(257,741		)	—
Funding of collateral account for Knight Convertible Notes	—			(117,259		)	—
Payment out of collateral account for Knight Convertible Notes	—			117,259			—
Borrowings under capital lease obligations	5,892			—			15,558
Principal payments on capital lease obligations	(9,232		)	(14,152		)	(20,990		)
Cost of common stock repurchased	(111,585		)	(11,324		)	—
Borrowings under secured credit facility	—			25,000			88,750
Repayment of secured credit facility	—			(25,000		)	(88,750		)
Members' distributions	—			(21,002		)	(37,061		)
Repurchase of members' interest	—			—			(25,173		)
Net cash used in financing activities	(349,925		)	(478,811		)	(69,041		)
Effect of exchange rate changes on cash and cash equivalents	416			1,365			—
(Decrease) increase in cash and cash equivalents	(95,513		)	246,650			(180,058		)
Cash and cash equivalents at beginning of period	674,281			427,631			607,689
Cash and cash equivalents at end of period	$	578,768		$	674,281		$	427,631

KCG HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



Supplemental disclosure of cash flow information:
Cash paid for interest	$	76,003	$	56,227	$	8,084
Cash paid for income taxes	$	16,975	$	10,198	$	21,789

The accompanying notes are an integral part of these consolidated financial statements.

Table of Contents

KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of the Business

KCG Holdings, Inc. (collectively with its subsidiaries, "KCG" or the "Company") is a leading independent securities firm offering clients a range of services designed to address trading needs across asset classes, product types and time zones. The Company combines advanced technology with specialized client service across market making, agency execution and trading venues and also engages in principal trading via direct-to-client and non-client exchange-based electronic market making. KCG has multiple access points to trade global equities, options, futures, fixed income, currencies and commodities via voice or automated execution.

On December 19, 2012, Knight Capital Group, Inc.(“Knight”) and GETCO Holding Company, LLC (“GETCO”) entered into an agreement and plan of merger (as amended and restated on April 15, 2013, the “Merger Agreement”) for a series of strategic business combinations (the “Mergers”). The Mergers were approved by the respective stockholders and unitholders of both companies at special meetings held on June 25, 2013, and the Mergers were completed on July 1, 2013. As a result of the Mergers, Knight and GETCO each became a wholly-owned subsidiary of KCG.

The Mergers took place in order to combine the businesses, intellectual capital and resources of the two companies to more successfully compete in the highly regulated and technologically advanced marketplace and to allow for further diversification of each company's revenues from principal and agency trading across asset classes and regions. The Mergers were treated as a purchase of Knight by GETCO for accounting and financial reporting purposes. As a result, the financial results for the year ended December 31, 2013 comprise six months of results of KCG plus six months of GETCO and the financial results for the year ended December 31, 2014 comprise the results of KCG. All periods prior to 2013 reflect solely the results and financial condition of GETCO.

As of December 31, 2014, the Company's operating segments comprised the following: (i) Market Making; (ii) Global Execution Services; and (iii) Corporate and Other.

Market Making

The Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, currencies and commodities. As a market maker, the Company commits capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions. 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"). The Company is an active participant on all major global equity and futures exchanges and also trades on substantially all domestic electronic options exchanges. As a complement to electronic market making, the Company’s 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

The Global Execution Services segment comprises agency execution services and trading venues, offering trading in global equities, futures, options, foreign exchange, and fixed income to institutions, banks and broker dealers. The Company generally earns commissions as an agent between principals for transactions that are executed within this segment; however, the Company may commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities; (ii) institutional sales traders executing program, block and riskless principal trades in global equities and exchange traded funds ("ETFs"); (iii) an institutional spot foreign exchange electronic communication network ("ECN"); (iv) a fixed income ECN that also offers trading applications; and (v) an alternative trading system ("ATS") for global equities.

Corporate and Other

The 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. The Corporate and Other segment also contains functions that support the Company’s other segments such as self-clearing services, including stock lending activities.

Table of Contents

KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Discontinued Businesses

In November 2013 KCG sold Urban Financial of America, LLC, (“Urban”), the reverse mortgage origination and securitization business that was previously owned by Knight to an investor group.

In November 2014, KCG sold certain assets and liabilities related to its Futures Commission Merchant (“FCM”) business to Wedbush Securities Inc.

In October 2014, the Company announced that it began to explore strategic options for KCG Hotspot, the Company's spot institutional foreign exchange ECN, with the goal of executing on opportunities if it created additional value for the Company's stockholders, clients and employees.

See Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale" and Footnote 27 "Subsequent Event" for additional information.

2. Merger of GETCO and Knight

Background

Pursuant to the Merger Agreement, each outstanding share of Knight Class A common stock, par value $0.01 per share (“Knight Common Stock”), was converted into the right to elect to receive either $3.75 per share in cash or one third of a share of KCG Class A common stock, par value $0.01 per share (“KCG Class A Common Stock”). As a result of the elections and proration procedures provided in the Merger Agreement, former Knight stockholders received cash payments aggregating $720.0 million and 41.9 million shares of KCG Class A Common Stock.

Accounting treatment of the Mergers

The Mergers are accounted for as a purchase of Knight by GETCO under accounting principles generally accepted in the United States of America ("GAAP") based on, among other factors, the controlling ownership position of the former GETCO unitholders as of the closing of the Mergers. Under the purchase method of accounting, the assets and liabilities of Knight as of July 1, 2013 were recorded at their respective fair values and added to the carrying value of GETCO's existing assets and liabilities. The reported financial condition and results of operations of KCG for the periods following the Mergers reflect Knight's and GETCO's balances and reflect the impact of purchase accounting adjustments, including revised amortization and depreciation expense for acquired assets. As GETCO is the accounting acquirer, the financial results for KCG for the first six months of 2013 and the full year 2012 comprise solely the results of GETCO.

Prior to the Mergers, GETCO treated its investment in Knight as an available-for-sale security, which it recorded at fair value, with any gains or losses recorded in other comprehensive income as a component of equity.

All GETCO earnings per share and unit share outstanding amounts in these financial statements have been calculated as if the conversion of GETCO units to KCG Class A Common Stock took place on January 1, 2013, at the exchange ratio as defined in the Merger Agreement. See Footnote 20 "Earnings Per Share" for further information.

Purchase price and goodwill

The Knight acquisition was accounted for using the acquisition method of accounting. The aggregate purchase price of $1.37 billion was determined as the sum of the fair value of KCG shares issued to former Knight stockholders at closing; the fair value of Knight employee stock based awards attributable to periods prior to closing; and the fair value of the Knight Common Stock owned by GETCO and its subsidiaries immediately prior to the Mergers (and subsequently canceled in conjunction with the Mergers).

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The purchase price has been allocated to the assets acquired and liabilities assumed using their estimated fair values at July 1, 2013, the closing date of the Mergers. As of June 30, 2014, the Company, based on updated information, recorded purchase accounting adjustments that increased goodwill by $1.1 million, deferred tax assets by $3.1 million, and accrued expenses by $3.5 million, and decreased other assets by $0.7 million on the opening balance sheet at July 1, 2013 as well as the December 31, 2013 Consolidated Statement of Financial Condition. As of June 30, 2014, the Company had completed its analysis to finalize the allocation of the purchase price to the Knight acquired assets and liabilities.

Tax treatment of the Mergers

The Company believes that the Mergers will be treated as a transaction described in Section 351 of the Internal Revenue Code, and both Knight and GETCO have received tax opinions from external legal counsel to that effect. Knight’s tax basis in its assets and liabilities therefore generally carries over to the Company following the Mergers. Upon completion of the Mergers, the Company became a corporation subject to U.S. corporate income taxes and, following the Mergers, the Company recorded deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities. The Company measures deferred taxes using the enacted tax rates and laws that will be in effect when such temporary differences are expected to reverse.

The Company recorded net deferred tax assets of $65.5 million with respect to recording Knight’s assets and liabilities under the purchase method of accounting as described above as well as recording the value of tax net operating loss ("NOL”) carryforwards and other tax attributes acquired as a result of the Mergers, as described in Footnote 17 “Income Taxes”.

The following table reflects the allocation of the purchase price to the assets acquired and liabilities assumed at the acquisition date (in thousands):



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

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Goodwill has been primarily assigned to the Market Making segment of the Company. None of the goodwill is expected to be deductible for tax purposes; however, as described in Tax treatment of the Mergers above, Knight’s tax basis in its assets, including certain goodwill, has carried over to the Company as a result of the Mergers.

Amounts allocated to intangible assets and goodwill, and the amortization period for intangible assets with finite useful lives, were as follows (dollars in thousands):



			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.

3. Significant Accounting Policies

Basis of consolidation and form of presentation

The Consolidated Financial Statements, prepared in conformity with GAAP, include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated.

Certain reclassifications have been made to the prior periods’ Consolidated Financial Statements in order to conform to the current period presentation. Such reclassifications are immaterial to both current and all previously issued financial statements taken as a whole and have no effect on previously reported Consolidated Net income.

Change in accounting principle

As discussed in Footnote 11 "Investments", as a result of the merger of BATS Global Markets, Inc. ("BATS") and Direct Edge Holdings LLC ("Direct Edge") in the first quarter of 2014, the Company changed its method of accounting for its investment in BATS from the cost method to the equity method.

As a result of the change in accounting principle, the Consolidated Statement of Financial Condition at December 31, 2013 has been adjusted as follows: Investments increased by approximately $3.4 million, Deferred tax asset, net decreased by $1.1 million and Retained earnings increased by $2.3 million. The Consolidated Statements of Operations for the year ended December 31, 2013 have been adjusted to increase Investment income and other, net by $7.2 million and Net income by $6.1 million.

Cash and cash equivalents

Cash and cash equivalents include money market accounts, which are payable on demand, and short-term investments with an original maturity of less than 90 days. The carrying amount of such cash equivalents approximates their fair value due to the short-term nature of these instruments. These assets would be categorized as Level 1 in the fair value hierarchy if they were required to be recorded at fair value.

Cash and cash equivalents segregated under federal and other regulations

The Company maintains custody of customer funds and is obligated by rules and regulations mandated by the U.S. Securities and Exchange Commission (“SEC”) and the Commodity Futures Trading Commission (“CFTC”) to segregate or set aside cash and/or qualified securities to satisfy these regulations, which have been promulgated to protect customer assets. The amounts recognized as Cash and cash equivalents segregated under federal and other regulations approximate fair value.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Market making, sales, trading and execution activities

Financial instruments owned and Financial instruments sold, not yet purchased, relate to market making and trading activities, include listed and other equity securities, listed equity options and fixed income securities which are recorded on a trade date basis and carried at fair value. Trading revenues, net, which comprises trading gains, net of trading losses, are also recorded on a trade date basis.

Commissions, which includes commission equivalents earned on institutional client orders and commissions on futures transactions, and related expenses are also recorded on a trade date basis. Commissions earned by the Company’s former FCM, which was sold in November 2014, were recorded net of any commissions paid to independent brokers and recognized on a half-turn basis.

The Company’s third party clearing agreements call for payment or receipt of interest income, net of transaction-related interest charged by such clearing brokers, for facilitating the settlement and financing of securities transactions. Interest income and interest expense which have been netted within Interest, net on the Consolidated Statements of Operations are as follows (in thousands):



	For the year ended December 31,
	2014			2013			2012
Interest Income	$	14,363		$	10,187		$	3,070
Interest Expense	(13,742		)	(10,724		)	(5,427		)
Interest, net	$	621		$	(537	)	$	(2,357	)

Dividend income relating to financial instruments owned and dividend expense relating to financial instruments sold, not yet purchased, derived primarily from the Company’s market making activities are included as a component of Trading revenues, net on the Consolidated Statements of Operations. Trading revenues, net includes dividend income and expense as follows (in thousands):



	For the year ended December 31,
	2014			2013			2012
Dividend Income	$	45,910		$	26,237		$	2,253
Dividend Expense	$	(38,444	)	$	(21,630	)	$	(1,599	)

Payments for order flow represent payments to broker dealer clients, in the normal course of business, for directing their order flow in U.S. equities and options to the Company.

Fair value of financial instruments

The Company values its financial instruments using a hierarchy of fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value.

The fair value hierarchy can be summarized as follows:


•	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.

Changes in fair value are recognized in earnings each period for financial instruments that are carried at fair value. See Footnote 6 “Fair Value of Financial Instruments” for a description of valuation methodologies applied to the classes of financial instruments at fair value.

Collateralized agreements and financings

Collateralized agreements consist of securities borrowed and collateralized financings include securities loaned and financial instruments sold under agreements to repurchase.

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•

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.

The Company’s securities borrowed, securities loaned and financial instruments sold under agreements to repurchase are recorded at amounts that approximate fair value. These items are recorded based upon their contractual terms and are not materially sensitive to shifts in interest rates because they are short-term in nature and are substantially collateralized pursuant to the terms of the underlying agreements. These items would be categorized as Level 2 in the fair value hierarchy if they were required to be recorded at fair value.

Investments

Investments primarily comprise strategic noncontrolling equity ownership interests in financial services-related businesses and are held by the Company's non-broker dealer subsidiaries. These strategic investments are accounted for under either the equity method, at cost or at fair value. The equity method of accounting is used when the Company has significant influence. Strategic investments are held at cost, less impairment if any, when the investment does not have a readily determined fair value, and the Company is not considered to exert significant influence on operating and financial policies of the investee. Strategic investments that are publicly traded are held at fair value.

Prior to the Mergers, GETCO had a strategic investment in Knight which was classified as available for sale and held at fair value with any unrealized gains or losses recorded in Other comprehensive income or loss. As a result of the Mergers, the Company recognized a non-cash gain of $128.0 million on its investment in Knight Common Stock, which it recorded within Investment income and other, net on the Consolidated Statement of Operations for the year ended December 31, 2013 and reversed any previous unrealized gains out of Other comprehensive income.

Strategic investments are reviewed on an ongoing basis to ensure that the carrying values of the investments have not been impaired. If the Company determines that an impairment loss on a strategic investment has occurred due to a decline in fair value or other market conditions, the investment is written down to its estimated fair value.

The Company maintains a non-qualified deferred compensation plan for certain employees and directors. This plan provides a return to the participants based upon the performance of various investments. In order to hedge its liability under this plan, the Company generally acquires the underlying investments and holds such investments until the deferred compensation liabilities are satisfied. Changes in value of such investments are recorded in Investment income and other, net, with a corresponding charge or credit to Employee compensation and benefits on the Consolidated Statements of Operations. Deferred compensation investments primarily consist of mutual funds, which are accounted for at fair value.

Goodwill and intangible assets

The Company tests goodwill and intangible assets with an indefinite useful life for impairment annually or when an event occurs or circumstances change that signifies the existence of an impairment. The Company capitalizes certain costs associated with the acquisition or development of internal-use software and amortizes the software over its estimated useful life of three years, commencing at the time the software is placed in service. The Company amortizes intangible assets with a finite life on a straight line basis over their estimated useful lives and tests for recoverability whenever events indicate that the carrying amounts may not be recoverable.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Payable to customers

Payable to customers primarily relate to amounts due on cash and margin transactions. Due to their short-term nature, such amounts approximate fair value.

Treasury stock

The Company records its purchases of treasury stock at cost as a separate component of stockholders’ equity. The Company may obtain treasury stock through purchases in the open market or through privately negotiated transactions. Certain treasury stock repurchases represent shares of KCG Class A Common Stock repurchased in satisfaction of tax withholding obligations upon vesting of restricted awards. The Company may re-issue treasury stock, at average cost, for the acquisition of new businesses and in certain other circumstances.

Foreign currency translation and foreign currency forward contracts

The Company's foreign subsidiaries generally use the U.S. dollar as their functional currency. Effective January 1, 2014, one of the Company's U.K. subsidiaries changed its functional currency from British pounds to U.S. dollars. The Company has a subsidiary in India that utilizes the Indian rupee as its functional currency.

Assets and liabilities of this Indian subsidiary are translated at exchange rates at the end of a period. Revenues and expenses are translated at average exchange rates during the period. Gains and losses resulting from translating foreign currency financial statements into U.S. dollars are included in Accumulated other comprehensive income on the Consolidated Statements of Financial Condition and Cumulative translation adjustment, net of tax on the Consolidated Statements of Comprehensive Income.

Gains or losses resulting from foreign currency transactions are included in Investment income and other, net on the Company’s Consolidated Statements of Operations. For the years ended December 31, 2014, 2013 and 2012, the Company recorded a losses of $2.0 million, $4.1 million and a gain of $0.2 million, respectively on foreign currency transactions.

The Company seeks to reduce the impact of fluctuations in foreign exchange rates on its net investment in certain non-U.S. operations through the use of foreign currency forward contracts. For foreign currency forward contracts designated as hedges, the Company assesses its risk management objectives and strategy, including identification of the hedging instrument, the hedged item and the risk exposure and how effectiveness is to be assessed prospectively and retrospectively. The effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts. For qualifying net investment hedges, any gains or losses, to the extent effective, are included in Accumulated other comprehensive income on the Consolidated Statements of Financial Condition. The ineffective portion, if any, is recorded in Investment income and other, net on the Consolidated Statements of Operations.

Stock and unit based compensation

Stock and unit based compensation is measured based on the grant date fair value of the awards. These costs are amortized over the requisite service period, which is typically the vesting period. Expected forfeitures are considered in determining stock-based employee compensation expense.

The Company applies a non-substantive vesting period approach for stock-based awards related to KCG Class A Common Stock whereby the expense is accelerated for those employees and directors that receive options, stock appreciation rights ("SARs") and restricted stock units ("RSUs") and are eligible to retire prior to the vesting of such awards and in certain other circumstances.

Soft dollar expense

Under a commission management program, the Company allows institutional clients to allocate a portion of their gross commissions to pay for research and other services provided by third parties. As the Company acts as an agent in these transactions, it records such expenses on a net basis within Commissions and fees on the Consolidated Statements of Operations.

Depreciation, amortization and occupancy

Fixed assets are depreciated on a straight-line basis over their estimated useful lives of three to seven years. Leasehold improvements are being amortized on a straight-line basis over the shorter of the term of the related office lease or the expected useful life of the assets. The Company reviews fixed assets and leasehold improvements for

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable.

The Company recognizes rent expense under operating leases with fixed rent escalations, lease incentives and free rent periods on a straight-line basis over the lease term beginning on the date the Company takes possession of or controls the use of the space, including during free rent periods.

Lease loss accrual

The Company’s policy is to identify excess real estate capacity and where applicable, accrue for related future costs, net of projected sub-lease income upon the date the Company ceases to use the excess real estate. Such accrual is adjusted to the extent the actual terms of sub-leased property differ from the assumptions used in the calculation of the accrual.

Income taxes

Prior to the Mergers, GETCO and the majority of its subsidiaries were treated as partnerships or disregarded entities for U.S. income tax purposes and, accordingly, were not subject to federal income taxes. Instead, the former GETCO members were liable for federal income taxes on their proportionate share of taxable income. Upon completion of the Mergers, the Company became a corporation subject to U.S. corporate income taxes and, following the Mergers, the Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities and measures them using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. The Company evaluates the recoverability of future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences and forecasted operating earnings.

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.

Recently adopted accounting guidance

In July 2013, the FASB issued an ASU to clarify the financial statement presentation of an unrecognized tax benefit when a NOL carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU requires entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a NOL carryforward whenever the NOL or tax credit carryforward would be available to reduce the additional taxable income or tax due if the tax position is disallowed. The ASU was effective for reporting periods beginning after December 15, 2013. The adoption of this ASU did not have an impact on the Company's Consolidated Financial Statements.

In April 2014, the FASB issued an ASU that amends the requirements for reporting discontinued operations. Under the new guidance, discontinued operations reporting will be limited to disposal transactions that represent strategic shifts having a major effect on operations and financial results. The amended guidance also enhances disclosures and requires assets and liabilities of a discontinued operation to be classified as such for all periods presented in the financial statements. The updated guidance is effective prospectively to all disposals occurring for interim and annual reporting periods after December 15, 2014, with early adoption permitted. The Company early adopted this ASU in 2014, which resulted in additional disclosures within the Company's Consolidated Financial Statements.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Recent accounting guidance to be adopted in future periods

In May 2014, the FASB issued an ASU that updates the principles for recognizing revenue. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company is evaluating the impact of this ASU on its Consolidated Financial Statements.

In June 2014, the FASB issued an ASU to resolve diverse accounting treatment for share based awards in which the terms of the award are related to a performance target that affects vesting. The ASU requires an entity to treat a performance target that could be achieved after the requisite service period as a performance condition. Additionally, compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved, and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered; if the performance target becomes probable of being achieved before the end of the requisite service period, then the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The guidance is effective for reporting periods beginning after December 15, 2015 and may be applied prospectively or retrospectively. The Company does not expect adoption of this ASU to have an impact on the Company’s Consolidated Financial Statements.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

4. Discontinued Operations & Assets and Liabilities Held for Sale

In July 2013, the Company entered into an agreement to sell to an investor group Urban, the reverse mortgage origination and securitization business that was previously owned by Knight. The transaction was completed in the fourth quarter of 2013, and, as a result, the revenues and expenses of Urban's operations and costs of the related sale have been included in (Loss) Income from discontinued operations, net of tax within the Consolidated Statements of Operations for the six months ended December 31, 2013 and the year ended December 31, 2014.

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



	For the year ended December 31, 2014			For the six months ended December 31, 2013
Revenues & Gain on sale	$	(1,148	)	$	39,868

Expenses:
Compensation	$	70		$	14,068
Payments for order flow	—			9,885
Execution and clearance fees	—			5,038
Other expenses	930			10,748
Total Expenses	1,000			39,739
Pre-tax (loss) income from discontinued operations	(2,148		)	129
Income tax benefit (expense)	816			(49		)
Loss (Income) from discontinued operations, net of tax	$	(1,332	)	$	80

In September 2014, KCG entered into an agreement to sell certain assets and liabilities related to its FCM business to Wedbush Securities Inc. The transaction closed on November 30, 2014 and as such, there are no assets or liabilities related to the FCM business on the December 31, 2014 Consolidated Statement of Financial Condition. As a result of KCG’ s decision to early adopt the aforementioned ASU that amended the requirements for reporting discontinued operations, the FCM is not considered a discontinued operation, and therefore the results of the FCM’s operations are included in the Global Execution Services segment and in Continuing Operations on the Consolidated Statements of Operations for all applicable years presented.

In October 2014, the Company announced that it began to explore strategic options for KCG Hotspot, with the goal of executing on opportunities if it creates additional value for its stockholders, clients and employees. KCG Hotspot is a single disposal group that is considered to be held-for-sale as of December 31, 2014 and, as a result, certain assets and liabilities related to KCG Hotspot have been included in Assets of business held for sale and Liabilities of business held for sale on the Consolidated Statement of Financial Condition as of December 31, 2014. The Company believes that no impairment exists as the fair value of the net assets related to KCG Hotspot less the costs to sell the business will exceed the related carrying value at December 31, 2014. The Company does not believe that this sale represents a strategic shift that will have a major effect on its operations and financial results, and therefore KCG Hotspot will not meet the requirements to be treated as a discontinued operation under the recently adopted ASU relating to discontinued operations. As such, the results of KCG Hotspot's operations are included in the Global Execution Services segment and in Continuing Operations on the Consolidated Statements of Operations for all applicable years presented.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The KCG Hotspot assets and liabilities held for sale are summarized as follows (in thousands):



	December 31,
	2014
Assets:
Fixed assets, less accumulated depreciation	$	391
Intangible assets, net accumulated amortization	34,696
Other assets	5,397
Total assets of business held for sale	$	40,484

Liabilities:
Accrued compensation expense	$	2,298
Accrued expenses and other liabilities	58
Total liabilities of business held for sale	$	2,356

In January 2015, KCG entered into an agreement to sell KCG Hotspot to BATS. See Footnote 27 “Subsequent Event” for additional information.

5. Assets Segregated or Held in Separate Accounts Under Federal or Other Regulations

Cash and securities segregated under U.S. federal and other regulations ("Segregated assets") primarily relate to the Company’s regulated businesses and consist of the following (in thousands):



	December 31, 2014		December 31, 2013
Cash and cash equivalents segregated under federal or other regulations	$	3,361	$	183,082
Receivable from brokers, dealers and clearing organizations⁽¹⁾	—		304,294
Total assets segregated or held in separate accounts under federal or other regulations	$	3,361	$	487,376

⁽¹⁾ Segregated assets included within Receivable from brokers, dealers and clearing organizations comprise cash and cash equivalents and U.S. government obligations primarily held as deposits with exchange clearing organizations.

Segregated assets at December 31, 2013 primarily comprise assets related to the Company's FCM business that was sold during the fourth quarter of 2014.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

6. Fair Value of Financial Instruments

The Company’s financial instruments recorded at fair value have been categorized based upon a fair value hierarchy in accordance with accounting guidance, as described in Footnote 3 “Significant Accounting Policies.” The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value (in thousands):



	Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2014	Level 1		Level 2		Level 3		Total
Assets
Financial instruments owned, at fair value:
Equities ⁽¹⁾	$	2,479,910	$	—	$	—	$	2,479,910
Listed options	144,586		—		—		144,586
U.S. government and Non-U.S. government obligations	22,983		—		—		22,983
Corporate debt ⁽²⁾	59,832		—		—		59,832
Foreign currency forward contracts	—		60		—		60
Total Financial instruments owned, at fair value	2,707,311		60		—		2,707,371
Investment in CME Group ⁽³⁾	4,435		—		—		4,435
Deferred compensation investments ⁽³⁾	—		868		—		868
Investment in Deephaven Funds ⁽³⁾	—		146		—		146
Total assets held at fair value	$	2,711,746	$	1,074	$	—	$	2,712,820
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities ⁽¹⁾	$	2,069,342	$	—	$	—	$	2,069,342
Listed options	115,362		—		—		115,362
U.S. government obligations	18,953		—		—		18,953
Corporate debt ⁽²⁾	82,050		—		—		82,050
Total liabilities held at fair value	$	2,285,707	$	—	$	—	$	2,285,707


⁽¹⁾	Equities of $743.1 million have been netted by their respective long and short positions by CUSIP number.


⁽²⁾	Corporate debt instruments of $0.3 million have been netted by their respective long and short positions by CUSIP number.


⁽³⁾	Investment in CME Group, Deferred compensation investments and Investment in Deephaven Funds are included within Investments on the Consolidated Statements of Financial Condition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued



	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

⁽¹⁾ Equities of $697.9 million have been netted by their respective long and short positions by CUSIP number.


⁽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.

⁽³⁾ Investment in CME Group, Deferred compensation investments and Investment in Deephaven Funds are included within Investments on the Consolidated Statements of Financial Condition.

The Company’s equities, listed options, U.S. government and non-U.S. government obligations, corporate debt and strategic investments that are publicly traded are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations with reasonable levels of price transparency.

As of December 31, 2014 and December 31, 2013 the Company had no financial instruments classified within Level 3 of the fair value hierarchy.

The Company’s assets measured at fair value on a nonrecurring basis solely relate to goodwill and intangible assets arising from various acquisitions which would be classified as Level 3 within the fair value hierarchy. See Footnote 12 “Goodwill and Intangible Assets” for additional information.

There were no transfers of assets or liabilities held at fair value between levels of the fair value hierarchy for any periods presented.

The Company’s foreign currency forward contracts, deferred compensation investments and remaining investment in the Deephaven Funds are classified within Level 2 of the fair value hierarchy.

The following is a description of the valuation basis, techniques and significant inputs used by the Company in valuing its Level 2 assets and liabilities:

Foreign currency forward contracts

At December 31, 2014, the Company had a foreign currency forward contract with a notional value of 700.0 million Indian Rupees ($10.9 million U.S. dollars). This forward contract is used to hedge the Company’s investment in its Indian subsidiary. The Indian Rupee foreign currency forward contract does not qualify as a net investment hedge

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

and any gains and losses are recorded in Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2014.

At December 31, 2013, the Company had foreign currency contracts with a notional value of 80.0 million British Pounds. These forward contracts were used to hedge the Company's investment in its European subsidiaries. These forward contracts expired in the first quarter of 2014 and were not renewed.

The fair value of these forward contracts were determined based upon spot foreign exchange rates, LIBOR interest rates and dealer quotations.

Deferred compensation investments

Deferred compensation investments comprise investments in liquid mutual funds that the Company acquires to hedge its obligations to employees and directors under certain non-qualified deferred compensation arrangements. These mutual fund investments can generally be redeemed at any time and are valued based upon quoted market prices.

Investment in Deephaven Funds

Investment in Deephaven Funds represents the Company's residual investment in certain funds that were formerly managed by Deephaven Capital Management, a former Knight subsidiary. These investments are in the process of liquidation and are valued based upon the fair value of the underlying investments within such funds.

7. Derivative Financial Instruments

The Company enters into derivative transactions, primarily with respect to making markets in listed domestic options. In addition, the Company enters into derivatives to manage foreign currency exposure. Cash flows associated with such derivative activities are included in cash flows from operating activities on the Consolidated Statements of Cash Flows, when applicable.

During the normal course of business, the Company enters into futures contracts. These financial instruments are subject to varying degrees of risks whereby the fair value of the securities underlying the financial instruments, may be in excess of, or less than, the contract amount. The Company is obligated to post collateral against certain futures contracts.

The amounts and positions included in the tables below for futures contracts are classified as Level 1 while swaps and forward contracts are classified as Level 2 in the fair value hierarchy.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The following tables summarize the fair value and number of derivative instruments held at December 31, 2014 and 2013 and the gains and losses included in the Consolidated Statements of Operations for the periods then ended. These instruments include those classified as Financial Instruments, owned at fair value, Financial instruments sold, not yet purchased at fair value, as well as futures contracts which are reported within Receivable from or Payable to brokers, dealers and clearing organizations in the Consolidated Statements of Financial Condition (fair value and gain (loss) in thousands):



		December 31, 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	$	1,212	8,108	$	651	9,090
Forward contracts	Financial instruments owned at fair value	60		1	—		—
Equity
Futures contracts	Receivable from/Payable to brokers, dealers and clearing organizations	1,790		2,590	2,047		3,085
Swap contracts	Receivable from brokers, dealers and clearing organizations	98		1	13		1
Listed options	Financial instruments owned/sold, not yet purchased, at fair value	144,586		426,747	115,362		437,383
Fixed income
Futures contracts	Receivable from/Payable to brokers, dealers and clearing organizations	6,432		11,901	6,891		10,628
Commodity
Futures contracts	Receivable from/Payable to brokers, dealers and clearing organizations	15,245		8,894	14,847		9,105
Total		$	169,423	458,242	$	139,811	469,292



		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.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued



		Gain (Loss) Recognized
	Financial Statements	For the year ended December 31,
	Location	2014			2013			2012
Derivative instruments not designated as hedging instruments:
Foreign currency
Futures contracts	Trading revenues, net	$	10,535		$	12,191		$	19,699
Forward contracts	Investment Income and other, net	526			—			—
Equity
Futures contracts	Trading revenues, net	25,247			50,073			76,089
Swap contracts	Trading revenues, net	5,277			11,736			8,116
Listed options ⁽¹⁾	Trading revenues, net	(37,439		)	37,035			50,446
Fixed income
Futures contracts	Trading revenues, net	31,277			80,511			81,933
Commodity
Futures contracts	Trading revenues, net	55,295			62,215			35,952
		$	90,718		$	253,761		$	272,235
Derivative instruments designated as hedging instruments:
Foreign exchange - forward contract	Accumulated other comprehensive income	$	—		$	(3,298	)	$	—

⁽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.

8. Collateralized Transactions and Assets and Liabilities Subject to Netting

Collateralized Transactions

The Company receives financial instruments as collateral in connection with securities borrowed and financial instruments purchased under agreements to resell. Such financial instruments generally consist of equities, convertible securities and obligations of the U.S. government, but may also include obligations of federal agencies, foreign governments and corporations. In most cases the Company is permitted to deliver or repledge these financial instruments in connection with securities lending, other secured financings or for meeting settlement obligations.

The table below presents financial instruments at fair value received as collateral and included within Securities borrowed or Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition that were permitted to be delivered or repledged and that were delivered or repledged by the Company as well as the fair value of financial instruments which could be further repledged by the receiving party (in thousands):



	December 31, 2014		December 31, 2013
Collateral permitted to be delivered or repledged	$	1,586,700	$	1,315,803
Collateral that was delivered or repledged	1,485,267		1,231,468
Collateral permitted to be further repledged by the receiving counterparty	147,696		142,938

In order to finance securities positions, the Company also pledges financial instruments that it owns to counterparties who, in turn, are permitted to deliver or repledge them. Under these transactions, the Company pledges certain financial instruments owned to collateralize repurchase agreements and other secured financings. Repurchase agreements and other secured financings are short-term and mature within one year. Financial instruments owned and pledged to counterparties that do not have the right to sell or repledge such financial instruments consist of equity securities.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The table below presents information about assets pledged by the Company (in thousands):



	December 31, 2014		December 31, 2013
Financial instruments owned, at fair value, pledged to counterparties that had the right to deliver or repledge	$	536,124	$	552,242
Financial instruments owned, at fair value, pledged to counterparties that do not have the right to deliver or repledge	979,652		676,956

Assets and Liabilities Subject to Netting

The Company may enter into master netting agreements and collateral arrangements with counterparties in order to manage its exposure to credit risk associated with securities financing transactions. Such transactions are generally executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions). A master agreement creates a single contract under which all transactions between two counterparties are executed allowing for trade aggregation and a single net payment obligation. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. The Company may also enter into bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation.

In the event of counterparty’s default, provisions of the master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. Any collateral posted can be applied to the net obligations, with any excess returned and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court.

The Company is also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open repurchase and/or securities lending transactions.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The gross amounts of assets and liabilities subject to netting and gross amounts offset in the Consolidated Statements of Financial Condition were as follows (in thousands):



December 31, 2014	Gross Amounts Recognized		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts Presented in the Statements of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition				Net Amount
							Available Collateral⁽¹⁾		Counterparty Netting⁽²⁾
							Available Collateral⁽¹⁾		Counterparty Netting⁽²⁾
Assets
Listed options	$	144,586	$	—	$	144,586	$	—	$	—	$	144,586
Securities borrowed	1,632,062		—		1,632,062		1,570,194		15,782		46,086
Receivable from brokers, dealers and clearing organizations ⁽³⁾	21,545		—		21,545		21,425		—		120
Foreign currency forward contracts	60		—		60		—		—		60
Swaps	85		—		85		—		—		85
Futures	24,680		24,436		244		—		—		244
Total Assets	$	1,823,018	$	24,436	$	1,798,582	$	1,591,619	$	15,782	$	191,181
Liabilities
Listed options	$	115,362	$	—	$	115,362	$	—	$	17,359	$	98,003
Securities loaned	707,744		—		707,744		682,389		15,782		9,573
Financial instruments sold under agreements to repurchase	933,576		—		933,576		933,560		—		16
Futures	24,436		24,436		—		—		—		—
Total Liabilities	$	1,781,118	$	24,436	$	1,756,682	$	1,615,949	$	33,141	$	107,592

⁽¹⁾Includes securities received or delivered under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty's rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.

⁽²⁾Under master netting agreements with its counterparties, the Company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is avalable by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met.

⁽³⁾Represents reverse repurchase agreements at broker dealer.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued



December 31, 2013	Gross Amounts Recognized		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts Presented in the Statements of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition				Net Amount
							Available Collateral⁽¹⁾		Counterparty Netting⁽²⁾
							Available Collateral⁽¹⁾		Counterparty Netting⁽²⁾
Assets
Listed options	$	339,798	$	—	$	339,798	$	—	$	—	$	339,798
Securities borrowed	1,357,387		—		1,357,387		1,316,110		10,110		31,167
Receivable from brokers, dealers and clearing organizations ⁽³⁾	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	$	1,340,359	$	10,110	$	375,644
Liabilities
Listed options	$	252,282	$	—	$	252,282	$	—	$	10,924	$	241,358
Securities loaned	733,230		—		733,230		716,838		10,110		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	$	1,357,786	$	21,034	$	252,674

⁽²⁾Under master netting agreements with its counterparties, the company has the legal right of offset with a counterparty, which incorporates all of the counterparty's outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is avalable by counterparty in the event of a counterparty's default, but which are not netted in the Statement of Financial Condition because other netting provisions under U.S. GAAP are not met.

⁽³⁾Represents reverse repurchase agreements at broker dealer.

9. Receivable from and Payable to Brokers, Dealers and Clearing Organizations

Amounts receivable from and payable to brokers, dealers and clearing organizations consist of the following (in thousands):



	December 31, 2014		December 31, 2013
Receivable:
Clearing organizations and other	$	1,095,025	$	750,440
Assets segregated or held in separate accounts under federal or other regulations ⁽¹⁾	—		304,294
Securities failed to deliver	93,808		202,517
Total Receivable	$	1,188,833	$	1,257,251
Payable:
Clearing organizations and other	$	350,627	$	425,196
Securities failed to receive	325,462		48,912
Total Payable	$	676,089	$	474,108

⁽¹⁾ Segregated assets primarily related to the FCM Business, which was sold in the fourth quarter of 2014, included within Receivable from brokers, dealers and clearing organizations comprise cash and cash equivalents and U.S. government obligations primarily held as deposits with exchange clearing organizations.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Segregated assets at December 31, 2013 primarily comprise assets related to the Company's FCM business that was sold during the fourth quarter of 2014.

Management believes that the carrying value of amounts receivable from and payable to brokers, dealers and clearing organizations approximates fair value since they are short term in nature.

10. Fixed Assets and Leasehold Improvements

Fixed assets and leasehold improvements comprise the following (in thousands):



	Depreciation	December 31, 2014			December 31, 2013
	Period	December 31, 2014			December 31, 2013
Computer hardware and software	3 years	$	242,498		$	223,141
Leasehold improvements	*	114,851			115,046
Telephone systems and equipment	5 years	3,962			3,848
Furniture and fixtures	7 years	12,120			12,227
		373,431			354,262
Less - Accumulated depreciation and amortization		(239,380		)	(207,594		)
		$	134,051		$	146,668

*Shorter of life of lease or useful life of assets

11. Investments

Investments comprise strategic investments, deferred compensation investments, and investment in the Deephaven Funds. Investments consist of the following (in thousands):



	December 31, 2014		December 31, 2013
Strategic investments:
Investments accounted for under the equity method	$	86,328	$	110,460
Investments held at fair value	4,435		3,925
Common stock or equivalent of companies representing less than 20% equity ownership held at adjusted cost	8,949		8,953
Total Strategic investments	99,712		123,338
Deferred compensation investments	868		117
Investment in Deephaven Funds	146		1,958
Total Investments	$	100,726	$	125,413

Investments held at fair value are accounted for as available for sale securities and any unrealized gains or losses are recorded in Other comprehensive income.

Merger of BATS and Direct Edge

In January 2014, BATS and Direct Edge, each of whose equity the Company held as an investment, completed their previously announced merger into BATS. Prior to the merger, the Company accounted for its investment in BATS under the cost method and accounted for its investment in Direct Edge under the equity method. Following the merger, the Company owns 16.7% of the overall equity of BATS and holds 19.9% of the voting equity and a board seat. Based on these facts, the Company will account for its interest in BATS under the equity method. This change in accounting principle is applied retrospectively and, as such, the Company has presented the adjustment as a prior period adjustment to the 2013 consolidated results of operations. See Footnote 3 "Significant Accounting Policies" for a discussion of the effect of this retrospective adjustment.

The Company received approximately $42.2 million from the aggregate distributions paid by BATS and Direct Edge at or around the close of the merger, which the Company recorded as a return of capital under the equity method of accounting.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

During the first quarter of 2014 the Company recognized income of $9.6 million related to the merger of BATS and Direct Edge which is recorded within Investment income and other, net in the Consolidated Statements of Operations. The $9.6 million comprises a partial realized gain with respect to the Company's investment in Direct Edge of $16.2 million offset, in part, by the Company's share of BATS' and Direct Edge's merger related transaction costs that were charged against their respective earnings of $6.6 million.

tradeMONSTER Group, Inc.

Prior to August 2014, the Company held an investment in tradeMONSTER Group, Inc. ("tradeMONSTER") which it accounted for under the equity method of accounting. In August 2014, tradeMONSTER combined with OptionsHouse LLC ("OptionsHouse") to form TM Holdings, L.P. (“TM Holdings”). The Company will continue to account for its interest in TM Holdings under the equity method of accounting.

During the third quarter of 2014 the Company recognized a net gain of $15.1 million related to the combination, which is recorded within Investment income and other, net in the Consolidated Statements of Operations. The net gain of $15.1 million comprises a gain on the Company's exchange of its investment in tradeMONSTER for its investment in TM Holdings of $17.6 million offset, in part, by the Company's share of tradeMONSTER’s transaction costs.

12. Goodwill and Intangible Assets

Goodwill and intangible assets with indefinite lives are assessed for impairment annually or when events indicate that the amounts may be impaired. The Company assesses goodwill for impairment at the reporting unit level. The Company’s reporting units are the components of its business segments for which discrete financial information is available and is regularly reviewed by the Company’s management. As part of the assessment for impairment, the Company considers the cash flows of the respective reporting unit and assesses the fair value of the respective reporting unit as well as the overall market value of the Company compared to its net book value. The assessment of fair value of the reporting units is principally performed using a discounted cash flow methodology with a risk-adjusted weighted average cost of capital which the Company believes to be the most reliable indicator of the fair values of its respective reporting units. The Company also assesses the fair value of each reporting unit based upon its estimated market value and assesses the Company’s overall market value based upon the market price of KCG Class A Common Stock.

Intangible assets are assessed for recoverability when events or changes in circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. The Company assesses intangible assets for impairment at the “asset group” level which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. As part of the assessment for impairment, the Company considers the cash flows of the respective asset group and assesses the fair value of the respective asset group. Step 1 of the impairment assessment for intangibles is performed using undiscounted cash flow models, which indicates whether the future cash flows of the asset group are sufficient to recover the book value of such asset group. When an asset is not considered to be recoverable, step 2 of the impairment assessment is performed using a discounted cash flow methodology with a risk-adjusted weighted average cost of capital to determine the fair value of the intangible asset group. In cases where amortizable intangible assets and goodwill are assessed for impairment at the same time, the amortizable intangibles are assessed for impairment prior to goodwill being assessed.

As discussed in Footnote 2 "Merger of GETCO and Knight", as a result of the Mergers, $155.4 million and $12.7 million in identifiable intangible assets and goodwill, respectively, were recorded by the Company as of the date of the Mergers.

No events occurred in the years ended December 31, 2014 or 2013 that would indicate that the carrying amounts of the Company’s goodwill or intangible assets may not be recoverable. In the fourth quarter of 2014 and 2013, the Company assessed the impairment of goodwill and intangible assets as part of its annual assessment and concluded that there was no impairment.

The following table summarizes the Company’s goodwill by segment (in thousands):



	December 31, 2014		December 31, 2013
Market Making	$	16,404	$	16,404
Global Execution Services	907		907
Total	$	17,311	$	17,311

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Intangible assets with definite useful lives are amortized over their estimated remaining useful lives, the majority of which have been determined to range from one to 9 years. The weighted average remaining life of the Company’s intangible assets with definite useful lives at December 31, 2014 and December 31, 2013 was approximately five and six years, respectively.

The following tables summarize the Company’s Intangible assets, net of accumulated amortization by segment and type (in thousands):



	December 31, 2014		December 31, 2013
Market Making
Technology	$	50,542	$	53,315
Trading rights	44,358		48,920
Total	94,900		102,235
Global Execution Services ⁽¹⁾
Technology	18,200		38,682
Customer relationships	10,833		33,278
Trade names	850		3,800
Total	29,883		75,760
Corporate and Other
Technology	10,500		13,500
Total	$	135,283	$	191,495


⁽¹⁾	Excluded from the December 31, 2014 balance is $34.7 million of intangibles related to the KCG Hotspot which is held for sale. As noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", such amount is included in Assets of business held for sale at December 31, 2014.



		December 31, 2014			December 31, 2013
Technology ⁽¹⁾	Gross carrying amount	$	115,804		$	120,346
	Accumulated amortization	(36,562		)	(14,849		)
	Net carrying amount	79,242			105,497
Trading rights ⁽²⁾	Gross carrying amount	62,468			62,450
	Accumulated amortization	(18,110		)	(13,530		)
	Net carrying amount	44,358			48,920
Customer relationships ⁽³⁾	Gross carrying amount	13,000			35,000
	Accumulated amortization	(2,167		)	(1,722		)
	Net carrying amount	10,833			33,278
Trade names ⁽⁴⁾	Gross carrying amount	1,000			4,000
	Accumulated amortization	(150		)	(200		)
	Net carrying amount	850			3,800
Total	Gross carrying amount	192,272			221,796
	Accumulated amortization	(56,989		)	(30,301		)
	Net carrying amount	$	135,283		$	191,495

⁽¹⁾

The weighted average remaining life for technology, including capitalized software, was approximately 3 and 4 years as of December 31, 2014 and December 31, 2013, respectively. Excluded from the December 31, 2014 balance is $13.1 million of technology assets related to the KCG Hotspot which as noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", is included in Assets of business held for sale at December 31, 2014.


⁽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 December 31, 2014 and December 31, 2013, respectively. As of December 31, 2014 and December 31, 2013, $6.8 million and $7.6 million, respectively, of trading rights had indefinite useful lives.


⁽³⁾	Customer relationships relate to KCG BondPoint and KCG Hotspot (for December 31, 2013 only). The weighted average remaining life was approximately 8 and 10 years as of December 31, 2014 and December 31, 2013, respectively. Lives may be reduced depending upon actual

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

retention rates. Excluded from the December 31, 2014 balance is $19.0 million of customer relationships related to the KCG Hotspot which as noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", is included in Assets of business held for sale at December 31, 2014.

⁽⁴⁾

Trade names relate to KCG BondPoint and KCG Hotspot (for December 31, 2013 only). The weighted average remaining life was approximately 9 and 10 years as of December 31, 2014 and December 31, 2013, respectively. Excluded from the December 31, 2014 balance is $2.6 million of trade name related to the KCG Hotspot which as noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", is included in Assets of business held for sale at December 31, 2014.

The following table summarizes the Company’s amortization expense from continuing operations relating to Intangible assets (in thousands):



	For the year ended December 31,
	2014		2013		2012
Amortization expense	$	35,592	$	19,211	$	5,518

As of December 31, 2014, the following table summarizes the Company’s estimated amortization expense for future periods (in thousands):



	Amortization expense
For the year ended December 31, 2015	$	31,180
For the year ended December 31, 2016	30,049
For the year ended December 31, 2017	27,244
For the year ended December 31, 2018	15,611
For the year ended December 31, 2019	6,211

13. Debt

The carrying value and fair value of the Company's debt is as follows (in thousands):



	December 31, 2014				December 31, 2013
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Cash Convertible Senior Subordinated Notes	$	117,259	$	116,819	$	117,259	$	118,432
Senior Secured Notes	305,000		309,194		305,000		320,823
First Lien Credit Facility	—		—		235,000		235,000
Total Debt	$	422,259	$	426,013	$	657,259	$	674,255

The fair value of the Company's debt is based upon the value of such debt in the secondary market. The carrying value of the First Lien Credit facility approximated fair value as it was not materially sensitive to shifts in interest rates due to its floating interest rate, which also considers changes in the Company's credit quality and financial condition. These liabilities would all be categorized as Level 2 in the fair value hierarchy if they were required to be recorded at fair value.

Cash Convertible Senior Subordinated Notes

The Convertible Notes bear interest at a rate of 3.50% per year, payable semi-annually in arrears, on March 15 and September 15 of each year, commencing on September 15, 2010 and will mature on March 15, 2015, subject to earlier repurchase or conversion. The Convertible Notes are reported as Debt in the Company’s Consolidated Statements of Financial Condition.

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“Convertible Notes Notice”) to the holders of the Notes. The Convertible Notes Notice advised holders of the Convertible Notes of the following (among others):


•	The completion of the Mergers on July 1, 2013 and the results of the election of the holders of Knight Common Stock to receive cash consideration for such Knight 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.

Debt incurred in connection with Mergers

In connection with the Mergers, KCG entered into a series of debt financing transactions. Described below are the details of these transactions.

Senior Secured Notes

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the Guarantors and are secured by second-priority pledges and second-priority security interests in, and mortgages on, the collateral securing the First Lien Credit Facility, subject to certain exceptions. All of the subsidiary guarantors are wholly-owned subsidiaries of KCG.

The Senior Secured Notes mature on June 15, 2018 and bear interest at a rate of 8.250% per year, payable on June 15 and December 15 of each year, beginning on December 15, 2013.



Year	Percentage
2015	104.125	%
2016	102.063	%
2017 and thereafter	100.000	%

The Senior Secured Notes Indenture contains customary affirmative and negative covenants, including limitations on indebtedness, liens, hedging agreements, investments, loans and advances, asset sales, mergers and acquisitions, dividends, transactions with affiliates, prepayments of other indebtedness, restrictions on subsidiaries and issuance of capital stock. As of December 31, 2014 and 2013, the Company was in compliance with the covenants.

In October 2013, the Company received consents from holders ("Holders") of 99.7% of the aggregate principal amount of the Senior Secured Notes outstanding to amend, among other things, the terms of the Senior Secured Notes among the Company, The Bank of New York Mellon, as trustee and collateral agent (the “Trustee”), and the Guarantors. As a result, the Company entered into the Third Supplemental Indenture with the Trustee to amend the Senior Secured Notes Indenture to permit the purchase, redemption or repayment of the Convertible Notes at any price, including at a premium or at a discount from the face value thereof, with any available cash.

In May 2014, the Company received consents from Holders of 98.5% of the aggregate principal amount of the Senior Secured Notes outstanding to amend the terms of the Senior Secured Notes Registration Rights Agreement. As a result, the Company entered into the First Amendment (the “Amendment”) to the Senior Secured Notes Registration Rights Agreement. The Amendment (i) postponed the deadline by which the Company must use commercially reasonable efforts to prepare and file the Exchange Offer with the SEC, from June 5, 2014 to June 30, 2015, and (ii) postponed the deadline by which the Company must use commercially reasonable efforts to file with and have declared effective by the SEC a shelf registration statement to cover certain resales of the Senior Secured Notes, from June 5, 2014 to June 30, 2015. The Amendment also had the effect of postponing the date on which an additional interest, which constitutes liquidated damages and is the exclusive remedy available to Holders for failing to register the Senior Secured Notes, begins to accrue as a result of failing to consummate the Exchange Offer or have a shelf registration statement declared effective. Accordingly, the Company and the Guarantors no longer have any obligation to pay

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Holders additional interest as of June 5, 2014, even though the Company and the Guarantors did not prepare, file or have declared effective a registration statement or a shelf registration statement or consummate the Exchange Offer by such date. As of the date of this filing, the Company has not registered the Senior Secured Notes and if it does not do so by June 30, 2015, additional interest will begin to accrue on the notes.

First Lien Credit Facility

In 2013, the Company repaid $300.0 million of principal of the First Lien Credit Facility. A portion of the $300.0 million totaling $117.3 million was drawn from cash held in the Collateral Account and the remainder of the $300.0 million was paid out of available cash, including proceeds from the sale of Urban. In conjunction with these payments, the Company wrote down $13.2 million of its capitalized debt costs associated with the Credit Agreement.

In 2014, the Company repaid the remaining $235.0 million of principal of the First Lien Credit Facility out of available cash and the Credit Agreement was terminated. In conjunction with these payments, the Company wrote down the remaining $9.6 million of its capitalized debt costs associated with the Credit Agreement.

The Company incurred issuance costs of $38.5 million in connection with the issuance of Senior Secured Notes, Credit Agreement and consent solicitations. The remaining issuance costs are recorded within Other assets on the Consolidated Statements of Financial Condition and are being amortized over the remaining term of the Senior Secured Notes. Including issuance costs, the Senior Secured Notes had an effective yield of 9.1%.

Revolving Credit Agreement

On July 1, 2013, OCTEG, LLC (“OCTEG”) and Knight Capital Americas LLC ("KCA"), wholly-owned broker dealer subsidiaries of KCG, as borrowers, and KCG, as guarantor, entered into a credit agreement (the "KCGA Facility Agreement”) with a consortium of banks and financial institutions. The KCGA Facility Agreement replaced an existing credit agreement, dated as of June 6, 2012, among OCTEG and three banks.

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The borrower is being charged a commitment fee at a rate of 0.35% per annum on the average daily amount of the unused portion of the KCGA Facility Agreement.

The KCGA Facility Agreement includes customary affirmative and negative covenants, including limitations on indebtedness, liens, hedging agreements, investments, loans and advances, asset sales, mergers and acquisitions, dividends, transactions with affiliates, restrictions on subsidiaries, issuance of capital stock, negative pledges and business activities. It contains financial maintenance covenants establishing a minimum total regulatory capital for KCGA, a maximum total asset to total regulatory capital ratio for KCGA, a minimum excess net capital limit for KCGA, a minimum liquidity ratio for KCGA, and a minimum tangible net worth threshold for KCGA. As of December 31, 2014, the Company was in compliance with the covenants.

In connection with the KCGA Revolving Facility, the Company incurred issuance costs of $1.2 million which is recorded within Other assets on the Consolidated Statements of Financial Condition and it is being amortized over the term of the facility.

The Company recorded expenses with respect to the Debt as follows (in thousands):



	For the year ended December 31,
	2014		2013		2012
Interest expense	$	31,724	$	34,138	$	1,194
Amortization of debt issuance cost ⁽¹⁾	13,217		16,832		276
Commitment fee	1,575		792		1,034
Total	$	46,516	$	51,762	$	2,504

⁽¹⁾

Of the $13.2 million of amortization of debt issuance cost incurred during 2014, $9.6 million is included in Writedown of debt issuance costs and $3.6 million is in Other expenses. The writedown amounts were incurred as a result of the $235.0 million repayment of the First Lien Credit Facility made in 2014. For 2013, $3.6 million is included in Other expense while $13.2 million is included in Writedown of debt issuance cost as a result of the $300.0 million repayment of the First Lien Credit Facility.

14. Related Parties

The Company interacts with two parties which are the beneficial owners of more than 10 percent of KCG’s Class A Common Stock. It also has trading activities with three investees whereby KCG accounts for its investment under the equity method of accounting. Each is considered a related party for all applicable periods.

The Company earns revenues, incurs expenses and maintains balances with these related parties or their affiliates. As of the date and period indicated below, the Company had the following balances and transactions with the related parties or their affiliates (in thousands):

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	For the year ended December 31,
Statements of Operations	2014			2013
Revenues
Commissions and fees	$	14,528		$	4,045
Trading revenues, net	3,862			437
Interest, net	651			71
Total revenues from related parties	$	19,041		$	4,553
Expenses
Execution and clearance fees⁽¹⁾	$	(10,261	)	$	(19,491	)
Payment for order flow	585			—
Collateralized financing interest	529			102
Other expense	1,719			651
Total expenses incurred with respect to related parties	$	(7,428	)	$	(18,738	)

⁽¹⁾ Represents net volume based fees received from providing liquidity to related trading venues.



Statements of Financial Condition	December 31, 2014		December 31, 2013
Assets
Securities borrowed	$	26,110	$	57,732
Receivable from brokers, dealers and clearing organizations	20,075		20,826
Other assets	—		277
Liabilities
Securities loaned	$	7,376	$	116,062
Payable to brokers, dealers and clearing organizations	8,509		17,911
Accrued expenses and other liabilities	5,667		179

In the ordinary course of business, the Company enters into foreign exchange contracts with related parties.

During 2013, the Company paid one of the related parties $49.8 million in fees related to financing and advisory activities.

15. Stock-Based Compensation

KCG Equity Incentive Plan

The Knight Capital Group, Inc. Amended and Restated 2010 Equity Incentive Plan was established to provide long-term incentive compensation to employees and directors of the Company. As a result of the Mergers, on July 1, 2013, this plan was assumed by KCG and was renamed the KCG Holdings, Inc. Amended and Restated Equity Incentive Plan (the "KCG Plan"). As of December 31, 2014, there were approximately 30.1 million shares authorized for issuance under the KCG Plan, of which approximately 16.3 million shares are available for grant (subject to adjustment as provided under the KCG Plan).

The KCG Plan is administered by the Compensation Committee of the Company’s Board of Directors, and allows for the grant of options, SARs, restricted stock and RSUs (collectively, the “awards”), as defined by the KCG Plan. In addition to overall limitations on the aggregate number of awards that may be granted, the KCG Plan also limits the number of awards that may be granted to a single individual. The KCG Plan replaced prior Knight stockholder-approved equity plans for future equity grants and no additional grants will be made under those historical Knight stock plans. However, the terms and conditions of any outstanding equity grants under the historical Knight stock plans are not affected.

As a result of the Mergers on July 1, 2013, each outstanding Knight stock option, whether vested or unvested, was automatically replaced with an option to purchase KCG Class A Common Stock equal to one third of the number of shares of Knight Common Stock subject to such original stock option immediately prior to the completion of the

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Mergers (rounded down to the nearest whole share of KCG Class A Common Stock). The exercise price per share of KCG Class A Common Stock is equal to the exercise price per share of Knight Common Stock subject to such Company stock option multiplied by three (rounded up to the nearest whole cent). Pursuant to the terms of the applicable Knight stock plans and award agreements, each option granted on or prior to December 19, 2012 immediately vested. There were no Knight stock options granted subsequent to December 19, 2012.

As a result of the Mergers, each outstanding Knight restricted share and Knight RSU granted after December 19, 2012 was replaced with a KCG restricted share or RSU, as applicable, in respect of one third of a share of common stock of KCG (rounded to the nearest whole share). Knight restricted share and RSU awards granted on or prior to December 19, 2012 (except for RSUs subject to performance-based vesting conditions) automatically vested upon the completion of the Mergers. Knight restricted share and RSU awards granted after December 19, 2012 (and RSUs granted on or prior to December 19, 2012 that were subject to performance-based vesting conditions) continue to vest in accordance with their existing vesting schedule, subject to acceleration under certain circumstances.

Restricted Shares and Restricted Stock Units

Eligible employees and directors may receive restricted shares and/or RSUs (collectively “restricted awards”) as a portion of their total compensation. The majority of restricted awards vest ratably over three years and are subject to accelerated vesting, or continued vesting, following certain termination circumstances, in accordance with the applicable award documents and employment agreements between the Company and the participant. For certain restricted awards, the Company has the right to fully vest employees and directors upon retirement and in certain other circumstances.

The Company measures compensation cost related to restricted awards based on the fair value of KCG Class A Common Stock at the date of grant. Compensation expense from continuing operations relating to restricted awards, which is primarily recorded in Employee compensation and benefits, and the corresponding income tax benefit, which is recorded in Income tax (benefit) expense on the Consolidated Statements of Operations are presented in the following table (in thousands):



	For the year ended December 31,
	2014		2013
Stock award compensation expense	$	55,402	$	33,067
Income tax benefit	21,053		11,573

The following table summarizes restricted awards activity for the year ended December 31, 2014 (awards in thousands):



	Restricted Stock Units
	Number of Units		Weighted- Average Grant date Fair Value
Outstanding at December 31, 2013	8,420		$	10.71
Granted	4,937		10.99
Vested	(3,464	)	10.77
Forfeited	(746	)	11.66
Outstanding at December 31, 2014	9,147		$	10.77

There is $54.8 million of unamortized compensation related to unvested RSUs outstanding at December 31, 2014. The cost of these unvested RSUs is expected to be recognized over a weighted average life of 1.6 years.

Stock Options and Stock Appreciation Rights

The Company’s policy is to grant options for the purchase of shares of KCG Class A Common Stock and SARs to purchase or receive the cash value of shares of KCG Class A Common Stock, in each case with an exercise price not less than the market value of KCG Class A Common Stock on the grant date. Options and SARs generally vest ratably over a three year period and expire on the fifth or tenth anniversary of the grant date, pursuant to the terms of

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the applicable award agreement. Options and SARs are subject to accelerated vesting, or continued vesting following certain termination circumstances, in accordance with the applicable award agreements and employment agreements between the Company and the participant. Options and SARs are otherwise canceled if employment is terminated before the end of the relevant vesting period. The Company’s policy is to issue new shares upon option exercises by its employees and directors. The Company may issue new shares or provide a cash payment upon SARs exercises by its employees.

The fair value of each option and SAR granted is estimated as of its respective grant date using the Black-Scholes option-pricing model. Stock options and SARs are granted with exercise prices equal to or greater than the market value of the Company’s common stock at the date of grant as defined by the KCG Plan. The principal assumptions utilized in valuing options and SARs and the methodology for estimating such model inputs include: 1) risk-free interest rate—estimate is based on the yield of U.S. zero coupon securities with a maturity equal to the expected life of the option or SAR; 2) expected volatility—estimate is based on several factors including implied volatility of market-traded options on the Company’s common stock on the grant date and the volatility of the Company’s common stock; and 3) expected option or SAR life—estimate is based on internal studies of historical experience and projected exercise behavior based on different employee groups and specific option and SAR characteristics, including the effect of employee terminations. There were no stock options or SARs granted during the year ended December 31, 2014.

The weighted average assumptions used for stock options granted in 2013 were as follows:



	2013
Dividend yield	—	%
Expected volatility	35.0	%
Risk-free interest rate	1.0	%
Expected life (in years)	3.5

Compensation expense from continuing operations relating to stock options and SARs, all of which was recorded in Employee compensation and benefits, as well as the corresponding income tax benefit, which is recorded in Income tax (benefit) expense on the Consolidated Statements of Operations are as follows (in thousands):



	For the year ended December 31,
	2014		2013
Stock option and SAR compensation expense	$	3,807	$	1,813
Income tax benefit	1,447		635

The following table summarizes stock option and SAR activity and stock options exercisable for the year ended December 31, 2014 (awards in thousands):



	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	(276	)	36.16
Outstanding at December 31, 2014 ⁽¹⁾	4,691		$	17.41	$	3,438	3.41
Exercisable at December 31, 2014	1,809		$	20.95	$	1,146	3.23
Available for future grants at December 31, 2014 ⁽²⁾	16,291

⁽¹⁾ Includes 1.7 million of SARs.

⁽²⁾ Represents options, SARs and awards available for grant under the KCG Plan.

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	Options Outstanding				Options Exercisable
Range of Exercise Prices	Outstanding at 12/31/14	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable at 12/31/14	Weighted- Average Exercise Price
$8.24 - $8.24	833	3.61	$	8.24	278	$	8.24
$8.25- $8.25	91	3.64	8.25		30	8.25
$11.65 - $11.65	1,700	3.51	11.65		567	11.65
$22.50 - $22.50	1,700	3.51	22.50		567	22.50
$23.70 - $52.98	294	2.01	40.94		294	40.94
$53.91 - $53.91	74	2.08	53.91		74	53.91
	4,691	3.41	$	17.41	1,809	$	20.95

The aggregate intrinsic value is the amount by which the closing price of the Company’s common stock exceeds the exercise price of the stock options multiplied by the number of shares. There were no stock options or SARs exercised during the year ended December 31, 2014.

There is $3.3 million of unamortized compensation related to unvested stock options and SARs outstanding at December 31, 2014. The cost of these unvested awards is expected to be recognized over a weighted average life of 0.9 years.

Incentive units

Prior to the Mergers, GETCO awarded deferred compensation to its employees in the form of incentive units that generally vested over time. The value of these incentive units was determined at the date of grant based on the estimated enterprise value of GETCO and the amount expensed was determined based on this valuation multiplied by the percent vested. In connection with the Mergers, all outstanding unvested incentive units vested and were converted into units based on the applicable exchange ratio of GETCO units to KCG Class A Common Stock. The units are marked to the current stock price of KCG Class A Common Stock at the end of each period with the resulting change in the liability reflected as either an expense or gain included in Employee compensation and benefits on the Consolidated Statements of Operations. Given that the units vested in connection with the Mergers, the Company fully amortized the units as of June 30, 2013. Deferred compensation payable at December 31, 2014 and December 31, 2013 related to incentive units was $2.9 million and $3.8 million, respectively, and is included in Accrued compensation expense on the Consolidated Statements of Financial Condition.

The following is a summary of the changes in the incentive units for the year ended December 31, 2014 (units in thousands):



	Vested
Incentive units at December 31, 2013	49
Issued	—
Vested	—
Exercised	(11	)
Canceled	—
Incentive units at December 31, 2014	38

Class B units

Prior to the Mergers, GETCO granted membership unit awards to employees in the form of Class B units. The Class B units were valued based on the same methodology used to value the GETCO incentive units. Prior to 2012, these non-voting units vested in full three years from the grant date, provided certain conditions of employment and performance were met by the employee. In 2012, GETCO changed the vesting of units granted in 2012 to annual vesting of one-third of the units over a three year period. Upon termination of employment, GETCO had the option to repurchase all or a portion of the units granted within six months. The purchase price for the unvested units was determined as a percentage of grant date fair value. GETCO classified these unit awards as equity as the employees

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received full membership rights with respect to allocation of income and participation in member distributions. In connection with the Mergers, all outstanding unvested Class B units vested on June 25, 2013.

Class E units

In 2012, GETCO also granted employees profit interests in the form of Class E units. Prior to 2012, Class E units primarily vested in full three years from the grant date. For units granted in 2012, GETCO changed the vesting of Class E units to an annual vesting of one-third of the units over the three year period and provided GETCO an option to repurchase the units at the end of 5 years. Class E units allowed for future appreciation in excess of the GETCO's value over a certain strike price per unit and allocation of income once the units are vested. Upon the departure of an employee, the Class E units were forfeited whether vested or not, and if vested, the cash value of the Class E units above their strike price was paid to the employee. GETCO classified these unit awards as equity. In connection with the Mergers all outstanding unvested Class E units vested on June 25, 2013 and were canceled for no consideration.

As noted, in connection with the Mergers, all outstanding incentive units, Class B units and Class E units vested, and as a result the remaining unamortized expense was accelerated. The accelerated amortization expense recorded during the year ended December 31, 2013 for incentive units, Class B units and Class E units was $1.3 million, $9.4 million and $3.5 million, respectively.

Compensation expense (benefit) related to the Class B, Class E and Incentive units, all of which are recorded within Employee compensation and benefits on the Consolidated Statements of Operations are as follows (in thousands):



	For the year ended December 31,
	2014			2013		2012
Class B and E units	$	—		$	19,860	$	12,320
Incentive units	(269		)	2,446		1,264
Total	$	(269	)	$	22,306	$	13,584

16. Employee Benefit Plan

The Company sponsors a 401(k) profit sharing plan (the “401(k) Plan”) in which most of its employees are eligible to participate. Under the terms of the 401(k) Plan, the Company is required to make annual contributions to the 401(k) Plan equal to 100% of the contributions made by its employees, up to annual limits, however for 2013, such provisions only applied to Knight employees. The total expense recognized with respect to the 401(k) Plan is included in Employee compensation and benefits on the Consolidated Statements of Operations, as follows (in thousands):



	For the year ended December 31,
	2014		2013
Total expense	$	10,093	$	2,959

17. Income Taxes

Upon completion of the Mergers, the Company became subject to U.S. corporate income taxes. The Company and its subsidiaries file a consolidated federal income tax return as well as combined state income tax returns in certain jurisdictions. In other jurisdictions, the Company and its subsidiaries will file separate company state and local income tax returns.

As described in Footnote 2 “Merger of GETCO and Knight”, following the Mergers on July 1, 2013 the Company recorded $65.5 million of deferred tax assets as a result of recording Knight’s assets and liabilities under the purchase method of accounting as well as recording the value of Knight’s NOLs and tax credit carryforwards as described below.

As a result of the Company becoming subject to U.S. corporate income taxes, the Company also recorded, upon the closing of the Mergers on July 1, 2013, a nonrecurring $103.5 million deferred tax benefit and corresponding

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deferred tax asset relating to GETCO's existing tax attributes. This deferred tax asset primarily relates to differences between GETCO’s book and tax bases in its intangible assets and its strategic investments.

The provision (benefit) for income taxes from continuing operations consists of (in thousands):



	For the year ended December 31,
	2014			2013			2012
Current:
U.S. federal	$	709		$	(194	)	$	(627	)
U.S. state and local	4,081			2,902			618
Non U.S.	(828		)	3,773			8,708
	$	3,962		$	6,481		$	8,699
Deferred:
U.S. federal	$	30,331		(106,996		)	1,771
U.S. state and local	(10,997		)	—			1,046
Non U.S.	(543		)	(599		)	(1,240		)
	$	18,791		$	(107,595	)	$	1,577

Provision (benefit) for income taxes	$	22,753		$	(101,114	)	$	10,276

The following table reconciles the U.S. federal statutory income tax to the Company's actual income tax from continuing operations (in thousands):



	For the year ended December 31,
	2014			2013			2014

U.S. federal statutory income tax expense	$	29,815		$	8,742		$	9,249
Income not subject to U.S. corporate income tax	—			(15,583		)	(7,095		)
U.S. state and local income taxes, net of U.S. federal income tax effect	(4,495		)	1,881			772
Deferred tax benefit resulting from the Company becoming subject to U.S. corporate income taxes	—			(103,499		)	—
Nondeductible expenses ⁽¹⁾	230			3,627			200
Foreign taxes	(1,371		)	3,603			7,468
Federal research & development tax credits	(1,241		)	—			—
Other, net	(185		)	115			(318		)
Income tax expense (benefit)	$	22,753		$	(101,114	)	$	10,276

⁽¹⁾Nondeductible expenses include nondeductible compensation and meals and entertainment.

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances recorded on the balance sheet dates are necessary in cases where management believes that it is more likely than not that some portion or all of the deferred tax assets will not be realized.

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The Company’s net deferred tax assets are reported as Deferred tax asset, net on the Consolidated Statements of Financial Condition. At December 31, 2014, and December 31, 2013, the Company’s net deferred tax assets were $154.8 million and $175.6 million, respectively, and comprised the following:



	For the year ended December 31,
	2014			2013
Deferred tax assets:
Employee compensation and benefit plans	$	24,587		$	16,629
Fixed assets and other amortizable assets	82,882			90,130
Reserves	2,668			5,589
Valuation of investments	32,962			30,073
Net operating loss carryforwards, net	94,770			127,637
Less: Valuation allowance on net operating loss carryforwards	(15,238		)	(36,043		)
Total deferred tax assets	$	222,631		$	234,015

Deferred tax liabilities
Employee compensation and benefit plans	$	—		$	—
Fixed assets and other amortizable assets	26,244			29,077
Reserves	2,226			—
Valuation of investments	19,912			10,414
Reduction in foreign tax credit for Non-U.S. NOL carryforwards	19,490			18,885
Total deferred tax liabilities	67,872			58,376
Net deferred tax assets	$	154,759		$	175,639

Based on the weight of the positive and negative evidence considered, management believes that it is more likely than not that the Company will be able to realize its federal deferred tax assets in the future. With the exception of certain NOLs discussed below, the Company has not recorded any valuation allowance with respect to its federal deferred tax assets at December 31, 2014 or December 31, 2013. Management believes that positive evidence including the Company's history of sustainable profitability and its forecasts of future profitability outweighs the negative evidence. The Company has also recorded a partial valuation allowance against state and local deferred tax assets as it is more likely than not that the benefit of such items will not be realized due to limitations on utilization in the particular jurisdictions in which the Company operates.

At December 31, 2014 and December 31, 2013, the Company had total U.S. federal NOL carryforwards of $133.5 million and $194.5 million, respectively, of which $28.5 million and $89.0 million, respectively, resulted from the acquisition of Knight. The Company recorded a related deferred income tax asset related to these federal NOLs of $46.7 million and $68.1 million at December 31, 2014 and December 31, 2013, respectively, and a partially offsetting valuation allowance of $6.8 million at each December 31, 2014 and December 31, 2013, which represents the portion of these net operating loss carryforwards that are considered more likely than not to expire unutilized.

In accordance with Section 382 of the Internal Revenue Code, a change in equity ownership of greater than 50% of a corporation within a three-year period results in an annual limitation on the corporation’s ability to utilize its NOL carryforwards that were created during tax periods prior to the change in ownership. As a result of the Mergers as well as prior ownership changes, Knight experienced ownership changes under Section 382 and as a result, the rate of utilization of NOL carryforwards generated by Knight may be limited. The Company does not believe these limitations will have a significant effect on the Company's ability to utilize its anticipated federal NOL carryforward. The Company's U.S. federal NOL carryforwards will begin to expire in 2019.

At December 31, 2014 and December 31, 2013, the Company had, in multiple jurisdictions, aggregate state and local NOL carryforwards of $1.28 billion and $1.66 billion, respectively, all of which resulted from the acquisition of Knight. The Company recorded deferred income tax assets related to these NOLs of $18.5 million and $25.8 million as of December 31, 2014 and December 31, 2013, respectively, and offsetting valuation allowances of $8.1 million and $25.8 million, respectively, which represents the portion of these NOLs that are considered more likely than not

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to expire unutilized. In 2014 the Company reversed $10.8 million of the valuation related to its state and local NOLs as a portion of such loss carryforwards are now expected to be utilized based upon the expected profitability of certain of the Company’s subsidiaries. Certain of these carryforwards are subject to annual limitations on utilization and these NOLs will begin to expire in 2019.

At December 31, 2014 and December 31, 2013, the Company had non-U.S. NOL carryforwards of $90.6 million and $86.4 million, respectively, of which $62.4 million and $65.7 million, respectively, were generated by Knight in periods prior to the Mergers. The Company recorded a foreign deferred income tax asset of $19.5 million and $18.9 million for these NOL carryforwards as of December 31, 2014 and December 31, 2013, respectively, along with an offsetting U.S. federal deferred tax liability of $19.5 million and $18.9 million, respectively, for the expected future reduction in U.S. foreign tax credits associated with the use of the non-U.S. loss carryforwards. These non-U.S. net operating losses may be carried forward indefinitely. The Company had tax credit carryforwards comprising general business credit carryforwards of $4.4 million and $2.5 million, at December 31, 2014 and December 31, 2013, respectively, and alternative minimum tax credit carryforwards $6.8 million at each December 31, 2014 and December 31, 2013.

At December 31, 2014, and December 31, 2013, the Company had unrecognized tax benefits, respectively, of $2.2 million and $1.5 million, all of which would affect the Company's effective tax rate if recognized.

The following table reconciles the beginning and ending amount of unrecognized tax benefits (in thousands):



	For the year ended December 31,
	2014			2013
Balance at beginning of period	$	1,464		$	—
Increases based on tax positions related to prior periods	1,843			1,464
Decreases based on tax positions related to prior periods	(995		)	—
Decreases related to settlements with taxing authorities	—			—
Balance at the end of the period	$	2,312		$	1,464

As of December 31, 2014, the Company is subject to U.S. Federal income tax examinations for the tax years 2009 through 2013, and to non U.S. income tax examinations for the tax years 2007 through 2013. In addition, the Company is subject to state and local income tax examinations in various jurisdictions for the tax years 2007 through 2013. The final outcome of these examinations is not yet determinable, however, the Company does not anticipate that any adjustments would result in a material change to its results of operations or financial condition.

The Company's policy for recording interest and penalties associated with audits is to record such items as a component of income or loss from continuing operations before income taxes. Penalties, if any, are recorded in Other expenses and interest paid or received is recorded in Debt interest expense and Interest, net, on the Consolidated Statements of Operations.

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18. Accumulated Other Comprehensive Income

The following table presents changes in Accumulated other comprehensive income, net of tax by component for the years ended December 31, 2014, 2013 and 2012 (in thousands):



	Unrealized Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation Adjustments		Total
Balance January 1, 2012	$	—		$	—	$	—
Other comprehensive income	114,319			—		114,319
Balance December 31, 2012	114,319			—		114,319
Other comprehensive income	13,689			1,365		15,054
Amount reclassified from Accumulated Other Comprehensive Income ⁽¹⁾	(127,972		)	—		(127,972		)
Net current-period other comprehensive (loss) income	(114,283		)	1,365		(112,918		)
Balance December 31, 2013	36			1,365		1,401
Other comprehensive income	316			416		732
Balance December 31, 2014	$	352		$	1,781	$	2,133

⁽¹⁾As a result of the Mergers, the Company recorded a non-cash gain of $128.0 million on its investment in Knight Common Stock, which it recognized within Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2013 and reversed any previous unrealized gains out of Other comprehensive income.

19. Writedowns and Other Charges

Writedown of capitalized debt costs

In 2014 and 2013, the Company made principal repayments under the Credit Agreement of $235.0 million and $300.0 million, respectively. As a result, for the years ended 2014 and 2013, $9.6 million and $13.2 million, respectively, were written down.

Lease loss accrual

For the years ended 2014 and 2013, the Company recorded $8.6 million and $7.1 million, respectively, of net lease loss accruals related to excess real estate capacity.

Writedown of assets

For the year ended 2013, the Company recorded $7.7 million in writedown of assets primarily related to leasehold improvements and fixed assets.

20. Earnings Per Share

Basic earnings or loss per common share (“EPS”) has been calculated by dividing net income from continuing operations by the weighted average shares of KCG Class A Common Stock outstanding during each respective period. Diluted EPS reflects the potential reduction in EPS using the treasury stock method to reflect the impact of common stock equivalents if stock options, SARs and warrants were exercised and restricted awards were to vest.

The number of such RSUs, options, warrants and SARs excluded from the EPS calculation was approximately 28.3 million and 29.1 million for the years ended December 31, 2014 and 2013, respectively. Such options, warrants and SARS were excluded from the EPS calculation as their inclusion would have an anti-dilutive impact on the EPS calculation. The computation of diluted shares can vary among periods due in part to the change in the average price of KCG Class A Common Stock.

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The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations from continuing operations for the year ended December 31, 2014, 2013 and 2012 (in thousands):



	For the year ended December 31,
	2014				2013					2012
	Numerator / net income		Denominator / shares		Numerator / net income			Denominator / shares		Numerator / net income		Denominator / shares
Income from continuing operations and shares used in basic calculations	$	62,434	112,854		$	126,092		80,143		16,151		48,970
Effect of dilutive stock based awards
Restricted awards			3,579					855				—
Stock options and SARs			101					17				—
Income from continuing operations and shares used in diluted calculations	$	62,434	116,534		$	126,092		81,015		$	16,151	48,970
Loss from continuing operations allocated to preferred and participating units	$	—			$	(21,565	)			$	1,092
Income from continuing operations attributable to common shareholders	$	62,434			$	147,657				$	15,059
Basic earnings per common share from continuing operations			$	0.55				$	1.84			$	0.31
Diluted earnings per common share from continuing operations			$	0.54				$	1.82			$	0.31

Prior to the Mergers, GETCO units comprised preferred and common units, and net income was allocated among the various classes of units based upon participation rights in undistributed earnings. The number of shares used to calculate EPS for 2013 are GETCO units converted into KCG shares using an exchange ratio as detailed in the Merger Agreement.

21. Significant Clients

The Company considers significant clients to be those clients who account for 10% or more of the total U.S. equity market making dollar value traded by the Company. No clients accounted for more than 10% of the Company’s U.S. equity dollar value traded during the years ended December 31, 2014, 2013 or 2012.

22. Commitments and Contingent Liabilities

Legal Proceedings

In the ordinary course of business, the nature of the Company’s business subjects it to claims, lawsuits, regulatory examinations and other proceedings. The Company and its subsidiaries are subject to several of these matters at the present time. Given the inherent difficulty of predicting the outcome of the litigation and regulatory matters, particularly in cases or proceedings in which substantial or indeterminate damages or fines are sought, or where cases or proceedings are in the early stages, the Company cannot estimate losses or ranges of losses for cases or proceedings where there is only a reasonable possibility that a loss may be incurred. In addition, there are numerous factors that result in a greater degree of complexity in class-action lawsuits as compared to other types of litigation. Due to the many intricacies involved in class-action lawsuits particularly in the early stages of such matters, obtaining clarity on a reasonable estimate is difficult which may call into question its reliability. There can be no assurance that these matters will not have a material adverse effect on the Company’s results of operations in any future period, and a material judgment could have a material adverse impact on the Company’s financial condition and results of operations. However, it is the opinion of management, after consultation with legal counsel that, based on information currently available, the ultimate outcome of these ordinary matters will not have a material adverse impact on the business, financial condition or operating results of the Company although they might be material to the operating results for any particular reporting period, depending, in part, upon operating results for that period. The Company carries directors and officers liability insurance coverage for potential claims, including securities actions, against the Company, Knight and GETCO and their respective directors and officers.

As previously disclosed in KCG's and Knight's public filings, Knight experienced a technology issue at the open of trading at the NYSE on August 1, 2012. This issue was related to the installation of trading software and resulted in KCA sending numerous erroneous orders in NYSE-listed and NYSE Arca securities into the market. Knight has

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since been named as a defendant in two putative class action complaints (one of which was voluntarily dismissed) and one derivative lawsuit, all of which relate to the technology issue. Knight has also received several derivative demand letters and/or requests for the inspection or production of certain books and records pursuant to Delaware law related to the technology issue and the raising of $400.0 million in equity financing through a convertible preferred stock offering to certain investors (the "August 6, 2012 recapitalization").

After the announcement on December 19, 2012 of the signing of the Merger Agreement, Knight, GETCO, GA-GTCO, as well as the individual members of the Knight's Board of Directors prior to the Mergers (the “Individual Defendants”), were named as defendants in several lawsuits brought by certain purported Knight stockholders challenging the proposed Mergers. The lawsuits generally alleged, among other things, that the Mergers failed to properly value Knight, that the Individual Defendants breached their fiduciary duties in approving the Merger Agreement and that those breaches were aided and abetted by GETCO and GA-GTCO. The lawsuits, among other things, sought to enjoin the defendants from completing the Mergers on the agreed-upon terms, rescission of the Mergers (to the extent the Mergers have already been consummated), monetary relief and attorneys' fees and costs.

While the Company is currently unable to predict the outcome of any existing or future litigation related to the August 1, 2012 technology issue, an unfavorable outcome in one of these matters could have a material adverse effect on its financial condition or ongoing results of operations. In addition, the Company expects to incur additional expenses in defending against such litigation.

Legal

Litigation Related to the August 1, 2012 Technology Issue

On October 26, 2012, Knight, its then-Chairman and Chief Executive Officer, Thomas M. Joyce, and its then-Executive Vice President, Chief Operating Officer and Chief Financial Officer, Steven Bisgay, were named as defendants in an action entitled Fernandez v. Knight Capital Group, Inc. in the U.S. District Court for the District of New Jersey, Case No. 2:12-cv-06760. Generally, this putative class action complaint alleged that the defendants made material misstatements and/or failed to disclose matters related to the events of August 1, 2012. The plaintiff asserted claims under Sections 10(b) and 20 and Rule 10b-5 of the federal securities laws, claiming that he and a purported class of Knight's stockholders who purchased Knight's Class A Common Stock between January 19, 2012 and August 1, 2012 paid an inflated price. Following the appointment of a lead plaintiff and counsel, the plaintiff filed an amended complaint on March 14, 2013, alleging generally that the defendants made material misstatements and/or failed to disclose matters related to the events of August 1, 2012. The plaintiff asserted claims under Sections 10(b) and 20 and Rule 10b-5 of the federal securities laws, claiming that it and a purported class of Knight's stockholders who purchased Knight's securities between November 30, 2011 and August 1, 2012 paid an inflated price. On May 13, 2013, Knight filed a motion to dismiss the amended complaint, which was fully briefed as of August 2013. Before the court rendered a decision on the motion to dismiss, the plaintiff filed a second amended complaint on December 20, 2013, alleging generally that the defendants made material misstatements and/or failed to disclose matters related to the events of August 1, 2012. More specifically, the plaintiff referred to KCA's October 2013 settlement with the SEC and alleged that the defendants made false and misleading statements concerning Knight's risk management procedures and protocols, available cash and liquidity, Value at Risk and internal controls over financial reporting. The plaintiff asserted claims under Sections 10(b) and 20 and Rule 10b-5 of the federal securities laws, claiming that it and a purported class of Knight's stockholders who purchased Knight's securities between May 10, 2011 and August 1, 2012 paid an inflated price. The defendants filed a motion to dismiss the second amended complaint on February 18, 2014. The motion was fully briefed as of June 5, 2014, and is before the court for decision.

In November 2014, prior to the court’s decision on defendants’ motion to dismiss, the parties participated in a court-ordered mediation. Following the mediation, in December 2014 the parties reached an agreement in principle to settle the Fernandez litigation. On February 9, 2015, the parties entered into a Stipulation of Settlement that, if approved by the District Court, will resolve the litigation and result in the Fernandez action being dismissed with prejudice. The District Court has set March 16, 2015 for a preliminary approval hearing. Under the terms of the proposed settlement, Knight has agreed that certain of its insurance carriers will pay $13 million to stockholders in the class. The settlement requires no direct payment by any of the defendants. Under the proposed settlement, defendants and various of their related persons and entities will receive a full release of all claims that were or could have been brought in the action as well as all claims that arise out of, are based upon or relate to the allegations, transactions, facts, representations, omissions or other matters involved in the complaints filed in the action or any statement communicated to the public during the Class Period, and the purchase, acquisition or sale of the Company’s stock during the Class Period. The proposed settlement contains no admission of any liability or wrongdoing on the

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part of the defendants, each of whom continues to deny all of the allegations against them and believes that the claims are without merit. Because the full amount of the proposed settlement will be paid by the Company’s insurance carriers, the settlement will not have an effect on the Company’s results of operations. Though the Company believes the likelihood of approval of the settlement is probable, we cannot predict with certainty the outcome of the litigation, and if the settlement is not finally approved by the Court, we believe that we have meritorious defenses to the claims in the operative complaint.

As noted above, Knight received several demand letters requesting that it commence a lawsuit against certain directors and officers for alleged breaches of fiduciary duties, waste, wrongdoing, mismanagement and/or demanding that it produce certain books and records pursuant to Delaware law concerning the technology issue and the August 6, 2012 recapitalization.

Mergers Litigation

Delaware Litigation. On December 28, 2012, a purported stockholder class action complaint was filed in the Court of Chancery of the State of Delaware, captioned Ann Jimenez McMillan v. Thomas M. Joyce, et al., Case No. 8163-VCP. The complaint names as defendants Knight, the Individual Defendants, GETCO, and GA-GTCO, LLC. The complaint generally alleges, among other things, that the Individual Defendants violated their fiduciary duties by accepting an inadequate merger price, approving the transaction despite material conflicts of interest, and agreeing to a number of improper deal protection devices and voting agreements, which allegedly make it less likely that other bidders would make successful competing offers for Knight. The complaint also alleges that Knight, GETCO, and GA-GTCO, LLC aided and abetted these purported breaches of fiduciary duties. The relief sought includes, among other things, an injunction prohibiting consummation of the Mergers, rescission of the Mergers (to the extent the Mergers have already been consummated), and attorneys' fees and costs. On December 28, 2012, a purported stockholder class action complaint was filed in the Court of Chancery of the State of Delaware, captioned Chrislaine Dominique v. Thomas M. Joyce, et al., Case No. 8159-VCP. The complaint names as defendants Knight, the Individual Defendants, GETCO, and GA-GTCO, LLC. The complaint generally alleges, among other things, that the Individual Defendants violated their fiduciary duties by accepting an inadequate merger price, approving the transaction despite material conflicts of interest, including that they were appointed by an investor group that included GETCO, and agreeing to a number of improper deal protection devices, which allegedly make it less likely that other bidders would make successful competing offers for Knight. The complaint also alleges that Knight and GETCO aided and abetted these purported breaches of fiduciary duties. The relief sought includes, among other things, an injunction prohibiting consummation of the Mergers, rescission of the Mergers (to the extent the Mergers have already been consummated), and attorneys' fees and costs. On January 31, 2013, the Court of Chancery consolidated for all purposes the McMillan and Dominique actions into a single action captioned In re Knight Capital Group, Inc. Shareholder Litigation, C.A. No. 8159-VCP. On March 5, 2013, the co-lead plaintiffs in the Delaware Consolidated Action filed an amended complaint and motions for expedited discovery and a preliminary injunction. In addition to the allegations in the initial complaints, the Delaware amended complaint contains allegations that the Knight Board of Directors breached its fiduciary duties by providing stockholders with allegedly deficient disclosures about the proposed transaction in the Company's Preliminary Form S-4, filed with the SEC on February 13, 2013 (the “Preliminary Proxy”).

New Jersey Litigation. On December 31, 2012, a purported stockholder class action complaint was filed in the Superior Court of New Jersey, Chancery Division of Hudson County, NJ, captioned Charles Bryan v. Knight Capital, et al., Case No. HUD-C-001-13. The complaint names as defendants Knight, the Individual Defendants, Jefferies & Company, Inc., Jefferies High Yield Trading, LLC, TD Ameritrade Holding Corp., Blackstone Capital Partners VI L.P., Blackstone Family Investment Partnership VI-ESC L.P., Blackstone Family Investment Partnership VI L.P., Stephens Investments Holdings LLC, Stifel Financial Corp., GETCO Strategic Investments, LLC, GETCO Holding Company LLC, and GA-GTCO, LLC. The complaint generally alleges that the Individual Defendants breached their fiduciary duties by accepting an inadequate merger price, agreeing to a number of improper deal protection devices and voting agreements, which allegedly make it less likely that other bidders would make successful competing offers for Knight and approving the transaction despite material conflicts of interest, including that they were appointed by an investor group that included GETCO. The complaint further alleges that the entity defendants (except for Knight and GA-GTCO, LLC) breached alleged fiduciary duties in connection with the Individual Defendants' approval of the Mergers. The complaint also alleges that GETCO and GA-GTCO, LLC aided and abetted the Individual Defendants' purported breaches of fiduciary duty. The relief sought includes, among other things, an injunction prohibiting the consummation of the Mergers, rescission of the Mergers (to the extent the Mergers have already been consummated), and attorneys' fees and costs.

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On December 31, 2012, a purported stockholder class action complaint was filed in the Superior Court of New Jersey, Chancery Division of Hudson County, NJ, captioned James Ward v. Knight Capital, et al., Case No. HUD-C-0003-13. The complaint names as defendants Knight, the Individual Defendants, Jefferies & Company, Inc., Jefferies High Yield Trading, LLC, TD Ameritrade Holding Corp., Blackstone Capital Partners VI L.P., Blackstone Family Investment Partnership VI-ESC L.P., Blackstone Family Investment Partnership VI L.P., Stephens Investments Holdings LLC, Stifel Financial Corp., GETCO Strategic Investments, LLC, GETCO Holding Company LLC, and GA-GTCO, LLC. The complaint generally alleges that the Individual Defendants breached their fiduciary duties by accepting an inadequate merger price, agreeing to a number of improper deal protection devices and voting agreements, which allegedly make it less likely that other bidders would make successful competing offers for Knight and approving the transaction despite material conflicts of interest, including that they were appointed by an investor group that included GETCO. The complaint further alleges that the entity defendants (except for Knight and GA-GTCO, LLC) breached alleged fiduciary duties in connection with the Individual Defendants' approval of the Mergers. The complaint also alleges that GETCO and GA-GTCO, LLC aided and abetted the Individual Defendants' purported breaches of fiduciary duty. The relief sought includes, among other things, an injunction prohibiting the consummation of the Mergers, rescission of the Mergers (to the extent the Mergers have already been consummated), and attorneys' fees and costs. On February 20, 2013, Knight moved to dismiss or, in the alternative, stay the New Jersey actions in deference to the first-filed Delaware actions. The New Jersey court granted the motion on March 28, 2013, and ordered that the New Jersey actions be stayed for all purposes in deference to the first-filed Delaware actions.

New York Litigation. On January 15, 2013, Knight, the Individual Defendants, GETCO, GA-GTCO, LLC and General Atlantic were named as defendants in an action entitled Joel Rosenfeld v. Thomas M. Joyce, et al., Case No. 6540147/2013, in the Supreme Court of the State of New York (New York County). The plaintiff, Joel Rosenfeld, is one of the stockholders mentioned above who previously sent Knight a derivative demand letter. Generally, this complaint asserts both derivative and class action claims. First, it purports to assert derivative claims, which allege, among other things, that the seven Knight directors who were serving as of August 1, 2012 breached their fiduciary duties and wasted corporate assets by failing to erect and oversee effective safeguards to prevent against technology issues, such as the one that occurred on August 1, 2012, for which Knight incurred a realized pre-tax loss of approximately $457.6 million. Second, it asserts putative class action claims resulting from the proposed Mergers for (1) breach of fiduciary duty against the Individual Defendants; and (2) aiding and abetting the purported breach of fiduciary duty against GETCO, GA-GTCO, LLC, and General Atlantic. The complaint generally alleges that the Individual Defendants breached their fiduciary duties by approving the Mergers at an inadequate price, agreeing to a number of improper deal protection devices and voting agreements, which allegedly make it less likely that other bidders would make successful competing offers for Knight, and that certain of Knight's directors have conflicts of interest in connection with the transaction, including that certain directors sought to enter into the transaction to avoid potential liability relating to the derivative claims asserted in the complaint. With respect to the merger claims, the plaintiff seeks, among other things, to enjoin the proposed Mergers, rescission of the proposed Mergers (to the extent they have already been consummated) and attorneys' fees. With respect to the derivative claims, the plaintiff seeks, among other things, an order requiring the Knight directors who were serving as of August 1, 2012 to pay restitution and/or compensatory damages in favor of Knight and/or the proposed class of Knight stockholders. On March 14, 2013, the plaintiff filed an amended complaint, which, in addition to the allegations in the initial complaint, contains allegations that the Knight Board of Directors breached its fiduciary duties by providing stockholders with allegedly deficient disclosures about the proposed transaction in the Preliminary Proxy. On March 21, 2013, the plaintiff moved by order to show cause for expedited discovery in support of his claims. The New York court issued an order on March 25, 2013, setting a hearing on the plaintiff's motion for April 4, 2013. On March 28, 2013, the parties in the New York action reached an agreement with respect to the matters raised in the plaintiff's motion and other aspects of the action, and as a result, on March 29, 2013, the plaintiff withdrew his motion for expedited discovery. On April 9, 2013, the New York court granted permission for the plaintiff to withdraw his motion.

On June 10, 2013, the defendants entered into a memorandum of understanding with the plaintiffs in the Delaware shareholder actions and New York shareholder action regarding the settlement of those actions. In connection with the settlement, Knight and GETCO agreed to make supplemental disclosures to the joint proxy statement/prospectus filed with the SEC on May 28, 2013 (the “Proxy Statement”). In addition, Knight and GETCO agreed to make certain revisions to Knight's risk committee charter, as well as to KCG's risk committee charter.

The memorandum of understanding contemplated that the parties would enter into a stipulation of settlement, which would be subject to customary conditions, including court approval following notice to Knight's former stockholders. It also contemplated that in the event that the parties enter into a stipulation of settlement, a hearing

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would be scheduled at which the Delaware Court of Chancery would consider the fairness, reasonableness and adequacy of the settlement. If the settlement is finally approved by the court, it would resolve and release all claims that were brought or could have been brought in the Delaware, New York, and New Jersey shareholder actions, including claims challenging any aspect of the Mergers, the Merger Agreement, or any disclosure made in connection therewith, pursuant to terms that will be disclosed to Knight's former stockholders prior to final approval of the settlement. In addition, in connection with the settlement, the parties contemplated that plaintiffs' counsel will file a petition in the Delaware Court of Chancery for an award of attorneys' fees and expenses to be paid by KCG.

On June 5, 2014, the parties entered into a Stipulation and Agreement of Compromise, Settlement and Release (the “Stipulation”). As contemplated in the memorandum of understanding, the Stipulation provides, among other things, that in exchange for the supplemental disclosures and changes to Knight’s and KCG’s risk committee charters discussed above, and upon final approval by the Delaware Court of Chancery, the Delaware and New York stockholder plaintiffs, and a class of former Knight stockholders that includes such plaintiffs, will finally and fully resolve and release all claims that were brought or could have been brought in the Delaware, New York, and New Jersey shareholder actions, including claims challenging any aspect of the Mergers, the Merger Agreement, or any disclosure made in connection therewith. The Stipulation further provides that counsel for the Delaware and New York shareholder plaintiffs will seek, and the defendants will not oppose, court approval of an award of attorneys’ fees and costs in an amount not to exceed $490,000. The Stipulation and the settlement it contemplates, is not, and should not be construed as, an admission of wrongdoing or liability by any of the defendants. Nonetheless, the defendants entered into the settlement to avoid the risk of the stockholder actions delaying or adversely affecting the Mergers, to minimize the substantial expense, burden, distraction and inconvenience of continued litigation, and to fully and finally resolve the claims in the stockholder actions.

On June 9, 2014, the parties to the Stipulation filed the Stipulation and associated exhibits with the Delaware Court of Chancery, seeking among other things, preliminary approval of the settlement, conditional certification of a non-opt-out class of former Knight stockholders for settlement purposes only, and the scheduling of a final settlement hearing.

On June 17, 2014, the Delaware Court of Chancery entered an order preliminarily approving the settlement as set forth in the Stipulation, conditionally certifying a non-opt-out class of former Knight stockholders for settlement purposes only pursuant to Court of Chancery Rules 23(a), 23(b)(1), and 23(b)(2), and scheduling a final settlement hearing to be held on September 26, 2014. The Court’s preliminary order provided that at the final settlement hearing, the Court would, among other things, determine whether to finally certify the non-opt-out class of former Knight stockholders, determine whether the settlement is fair, reasonable, and adequate to the class and should be approved by the Court, determine whether to enter a final order and judgment dismissing the action with prejudice, consider the application for attorneys’ fees and costs by counsel for the Delaware and New York shareholder plaintiffs, and rule on such other matters as the Court may deem appropriate. The Court’s preliminary order further provided that members of the conditionally-certified class would receive notice of the settlement hearing at least 45 days prior to the hearing, which notice would describe, among other things, the material terms of the settlement and the procedures for class members to follow if they wished to object to the settlement and/or be heard at the final hearing.

On September 26, 2014, the Delaware Court of Chancery held a settlement hearing to determine, among other things, whether the proposed settlement is fair, reasonable, and adequate to the class. Following the hearing, the Delaware Court issued a final order and judgment that, among other things, (a) determined that the defendants had complied with the notice requirements under Delaware Court of Chancery Rule 23; (b) certified a non-opt-out class action pursuant to Delaware Court of Chancery Rules 23(a) and 23(b)(1) and (b)(2); (c) found the proposed settlement to be fair, reasonable and adequate and in the best interests of the class, and approved it pursuant to Delaware Court of Chancery Rule 23(e); (d) released the defendants from any claims that were brought, or could have been brought, by the plaintiffs in the Delaware or New York shareholder actions as well as from claims that could have been brought by the shareholders who sent demand letters to the Company described in the previous section; and (e) granted an award of attorneys’ fees, costs and expenses to attorneys for plaintiffs in the Delaware and New York shareholder actions in the amount of $425,000. Pursuant to the order and final judgment, the Delaware shareholder action was dismissed with prejudice.

As contemplated by the settlement, on October 9, 2014, the plaintiff in the New York shareholder action filed a Stipulation of Discontinuance with Prejudice. In addition, on September 2, 2014, the plaintiffs in the New Jersey shareholder actions filed a Notice of Voluntary Dismissal with Prejudice in the New Jersey Court.

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Other Legal and Regulatory Matters

The Company owns subsidiaries including regulated entities that are subject to extensive oversight under federal, state and applicable international laws as well as SRO rules. Changes in market structure and the need to remain competitive require constant changes to the Company's systems and order handling procedures. The Company makes these changes while continuously endeavoring to comply with many complex laws and rules. Compliance, surveillance and trading issues common in the securities industry are monitored by, reported to, and/or reviewed in the ordinary course of business by the Company's regulators in the U.S. and abroad. As a major order flow execution destination, the Company is named from time to time in, or is asked to respond to a number of regulatory matters brought by U.S. regulators, foreign regulators and SROs that arise from its business activities. The Company is currently the subject of various regulatory reviews and investigations by both U.S. and foreign regulators and SROs, including the SEC, FINRA, FCA and the AMF. In some instances, these matters may rise to a disciplinary action and/or a civil or administrative action.

In addition, 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 arrangements, such as payment for order flow and exchange fee structures. The Company has received information requests from various authorities, including the SEC, requesting, among other items, information regarding these market structure matters, which the Company is in the process of responding.

Lease and Contract Obligations

Capital Leases

The Company enters into capitalized lease obligations related to certain computer equipment. These obligations represent drawdowns under a revolving secured lending facility with a single lender. At December 31, 2014, the obligations have a weighted-average interest rate of 3.52% per annum and are on varying 3-year terms. The carrying amounts of the capital leases approximate fair value. The future minimum payments including interest under the capitalized leases at December 31, 2014 consist of (in thousands):



	Minimum Payments
2015	$	4,223
2016	2,126
2017	620
Total	$	6,969

The total interest expense related to capital leases for the years ended December 31, 2014, and 2013 included in the Consolidated Statements Operations is as follows (in thousands):



	For the year ended December 31,
	2014		2013		2012
Interest expense - Capital leases	$	370	$	700	$	1,376

Operating Leases

The Company leases office space under noncancelable operating leases. Certain office leases contain fixed dollar-based escalation clauses. Rental expense from continuing operations under the office leases was $19.7 million and $16.0 million for the years ended December 31, 2014 and 2013, respectively, and is included in Occupancy and equipment rentals on the Consolidated Statements of Operations.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The Company leases certain computer and other equipment under noncancelable operating leases. As of December 31, 2014, future minimum rental commitments under all noncancelable office, computer and equipment leases (“Gross Lease Obligations”), and Sublease Income were as follows (in thousands):



	Gross Lease Obligations		Sublease Income		Net Lease Obligations
Year ending December 31, 2015	$	28,224	$	4,056	$	24,168
Year ending December 31, 2016	27,762		3,488		24,274
Year ending December 31, 2017	26,211		2,983		23,228
Year ending December 31, 2018	25,354		2,667		22,687
Year ending December 31, 2019	23,316		2,389		20,927
Thereafter through December 31, 2027	64,441		10,244		54,197
Total	$	195,308	$	25,827	$	169,481

Contract Obligations

During the normal course of business, the Company collateralizes certain leases or other contractual obligations through letters of credit or segregated funds held in escrow accounts. At December 31, 2014, the Company had provided letters of credit for $11.6 million, collateralized by cash, as a guarantee for several of its lease obligations and for a trading joint venture. In the ordinary course of business, KCG also has provided, and may provide in the future, unsecured guarantees with respect to the payment obligations of certain of its subsidiaries under trading, repurchase, financing and stock loan arrangements, as well as under certain leases. At December 31, 2014, the Company had $9.2 million in compensation guarantees payable through December 31, 2015. There were no compensation guarantees at December 31, 2013.

23. Net capital requirements

The Company's U.S. registered broker dealer is subject to the SEC’s Uniform Net Capital Rule, which requires the maintenance of minimum net capital. In 2014, the Company's U.S. registered broker dealer was in compliance with its capital adequacy requirements.

The following table sets forth the net capital levels and requirements for the Company’s U.S. registered broker dealer subsidiary at December 31, 2014 as filed in its regulatory filings (in thousands):



Entity	Net Capital		Net Capital Requirement		Excess Net Capital
KCG Americas LLC	$	285,231	$	1,000	$	284,231

The Company's U.K. registered broker dealers are subject to certain financial resource requirements of Financial Conduct Authority ("FCA") while the Company's Singapore and Australian broker dealers are subject to certain financial resource requirements of the Securities and Futures Commission and the Australian Securities and Investment Commission, respectively. The following table sets forth the financial resource requirement for the following foreign regulated broker dealers at December 31, 2014 (in thousands):



Entity	Financial Resources		Resource Requirement		Excess Financial Resources
KCG Europe Limited	$	187,940	$	124,577	$	63,363
GETCO Europe Limited	7,254		1,759		5,495

The businesses of GETCO Europe Limited were combined into KCG Europe Limited in the second quarter of 2014 but the legal entity itself has not officially dissolved. The consolidation of the Company's U.K. broker dealers allowed for the release of approximately $45.0 million in excess capital during year ended December 31, 2014. The Company is in the process of withdrawing GETCO Europe Limited's membership with the FCA.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

24. Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

As a market maker in global equities, fixed income, futures, options, commodities and currencies, the majority of the Company’s securities transactions are conducted as principal or riskless principal with broker dealers and institutional counterparties primarily located in the United States. The Company self-clears substantially all of its U.S. equity and option securities transactions. The Company clears a portion of its securities transactions through third party clearing brokers. Foreign transactions are settled pursuant to global custody and clearing agreements with major U.S. banks. Substantially all of the Company’s credit exposures are concentrated with its clearing brokers, broker dealer and institutional counterparties. The Company’s policy is to monitor the credit standing of counterparties with which it conducts business.

In the normal course of its operations, the Company enters into contracts that contain a variety of representations and warranties which provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company believes the risk of significant loss is minimal.

Financial instruments sold, not yet purchased, at fair value represent obligations to purchase such securities (or underlying securities) at a future date. The Company may incur a loss if the market value of the securities subsequently increases.

The Company currently has no loans outstanding to any former or current executive officer or director.

25. Business Segments

As of December 31, 2014, the Company's operating segments comprised the following: (i) Market Making; (ii) Global Execution Services; and (iii) Corporate and Other.

The Market Making segment principally consists of market making in the cash, futures and options markets across global equities, options, fixed income, currencies and commodities. As a market maker, the Company commits capital on a principal basis by offering to buy securities from, or sell securities to, broker dealers, banks and institutions. 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 DMM on the NYSE and NYSE Amex. The Company is an active participant on all major global equity and futures exchanges and also trades on substantially all domestic electronic options exchanges. As a complement to electronic market making, the Company’s cash trading business handles specialized orders and also transacts on the OTC Bulletin Board, marketplaces operated by the OTC Markets Group Inc. and the AIM of the London Stock Exchange.

The Global Execution Services segment comprises agency execution services and trading venues, offering trading in global equities, futures, options, foreign exchange, and fixed income to institutions, banks and broker dealers. The Company generally earns commissions as an agent between principals for transactions that are executed within this segment; however, the Company may commit capital on behalf of clients as needed. Agency-based, execution-only trading in the segment is done primarily through a variety of access points including: (i) algorithmic trading and order routing in global equities; (ii) institutional sales traders executing program, block and riskless principal trades in global equities and ETFs; (iii) an institutional spot foreign exchange ECN; (iv) a fixed income ECN that also offers trading applications; and (v) an ATS for global equities.

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The Company’s revenues, income (loss) from continuing operations before income taxes (“Pre-tax earnings”) and total assets by segment are summarized in the following table (in thousands):



	Market Making		Global Execution Services			Corporate and Other			Consolidated Total
For the year ended December 31, 2014:
Revenues	$	901,152	$	345,710		$	69,369		$	1,316,232
Pre-tax earnings	146,713		11,056			(72,582		)	85,187
Total assets	4,401,021		786,734			1,642,899			6,830,654
For the year ended December 31, 2013:
Revenues	$	688,197	$	197,765		$	141,374		$	1,027,336
Pre-tax earnings	103,612		(25,794		)	(52,842		)	24,978
Total assets	3,939,965		1,106,448			1,950,591			6,997,004
For the year ended December 31, 2012:
Revenues	$	495,427	$	36,211		$	19,596		$	551,234
Pre-tax earnings	34,887		(7,330		)	(1,130		)	26,427
Total assets	1,408,516		33,623			245,397			1,687,536

In the first quarter of 2014, the Company began to charge the Market Making and Global Execution Services segments for the cost of aggregate debt interest. The interest amount charged to each of the segments is determined based on capital limits and requirements. Historically, debt interest was included within the Corporate and Other segment. This change in the measurement of segment profitability has no impact on the consolidated results and will only be reported prospectively, and will not be reflected in financial results prior to January 1, 2014. For the year ended December 31, 2014 debt interest expense included in the results of the Market Making and Global Execution Services segments was $24.7 million and $7.1 million, respectively.

Included in total assets within Global Execution Services at December 31, 2014 is $40.5 million related to KCG Hotspot. As noted in Footnote 4 "Discontinued Operations & Assets and Liabilities Held for Sale", such assets are included as Assets held for sale at December 31, 2014. See Footnote 27 "Subsequent Event"

The Company operates in the U.S. and internationally, primarily in Europe and Asia. The following table presents Revenues by geographic area.



	U.S.		International		Consolidated Total
For the year ended December 31, 2014:
Revenues	$	1,127,088	$	189,144	$	1,316,232
For the year ended December 31, 2013:
Revenues	$	834,410	$	192,926	$	1,027,336
For the year ended December 31, 2012:
Revenues	$	340,117	$	211,117	$	551,234

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

26. Condensed Financial Statements of KCG Holdings, Inc. (parent only)

Presented below are the Condensed Statements of Financial Condition, Operations and Cash Flows for the Company on an unconsolidated basis.

Statements of Financial Condition

KCG Holdings, Inc. (parent only)



	December 31,
	2014		2013
	(in thousands)
Assets
Cash and cash equivalents	$	302,700	$	253,017
Receivable from subsidiaries	21,851		60,460
Investments in subsidiaries	1,122,254		1,359,779
Income taxes receivable	13,999		90
Deferred tax asset, net	137,009		143,028
Subordinated loans to subsidiaries	280,000		250,000
Other assets	19,397		21,182
Total assets	$	1,897,210	$	2,087,556
Liabilities and equity
Liabilities
Accrued compensation expense	$	13,208	$	—
Payable to subsidiaries	42,478		25,705
Accrued expenses and other liabilities	13,947		12,314
Debt	305,000		540,000
Total liabilities	374,633		578,019
Total equity	1,522,577		1,509,537
Total liabilities and equity	$	1,897,210	$	2,087,556

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Statements of Operations

KCG Holdings, Inc. (parent only)



	For the year ended December 31,
	2014			2013			2012
	(in thousands)
Revenues
Investment income and other, net	$	3,415		$	3,717		$	5,981
Total revenues	3,415			3,717			5,981
Expenses
Employee compensation and benefits	50,256			31,970			(12,251		)
Interest	11,939			28,476			1,195
Depreciation and amortization	—			698			1,395
Professional fees	9,211			30,488			4,997
Business development	3,625			—			—
Other	25,460			29,829			1,493
Total expenses	100,491			121,461			(3,171		)
(Loss) income before income taxes and equity in earnings of subsidiaries	(97,076		)	(117,744		)	9,152
Income tax benefit	(35,972		)	(120,761		)	—
Income (loss) before equity in earnings of subsidiaries	(61,104		)	3,017			9,152
Equity in earnings of subsidiaries	122,206			123,155			6,999
Net income	$	61,102		$	126,172		$	16,151

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

Statements of Cash Flows

KCG Holdings, Inc. (parent only)



	For the year ended December 31,
	2014			2013			2012
	(In thousands)
Cash flows from operating activities
Net income	$	61,102		$	126,172		$	16,151
Adjustments to reconcile net income to net cash used in operating activities
Equity in earnings of subsidiaries	(122,206		)	(123,155		)	(6,999		)
Writedown and amortization of debt issuance costs	12,548			16,931			52
Amortization of intangibles	—			698			1,395
Stock-based compensation	16,997			—			—
Decrease (increase) in operating assets
Subordinated loan receivable	(30,000		)	(250,000		)	—
Receivable from subsidiaries	38,609			(67,523		)	(97,375		)
Deferred tax asset	(13,909		)	(144,109		)	—
Income taxes receivable	6,019			(90		)	—
Other assets	(10,763		)	(15,351		)	31,031
(Decrease) increase in operating liabilities
Payable to subsidiaries	16,773			(2,024		)	11,756
Accrued compensation expense	8,839			—			—
Accrued expenses and other liabilities	1,633			59,561			5,106
Net cash used in operating activities	(14,358		)	(398,890		)	(38,883		)
Cash flows from investing activities
Cash acquired upon acquisition of Knight Capital Group, Inc.	—			509,133			—
Cash received from sale of Urban Financial of America, LLC	—			85,406			—
Dividends received from subsidiaries	807,715			646,425			161,606
Capital contributions to subsidiaries	(397,089		)	(238,909		)	(70,794		)
Net cash provided by investing activities	410,626			1,002,055			90,812
Cash flows from financing activities
Proceeds from issuance of Credit Agreement	—			535,000			—
Partial repayment of Credit Agreement	(235,000		)	(300,000		)	—
Proceeds from issuance of Senior Secured Notes	—			305,000			—
Repayment of notes payable	—			(15,000		)	—
Payment of debt issuance costs	—			(34,592		)	—
Issuance of equity to General Atlantic	—			55,000			—
Payment to former Knight Capital Group, Inc. stockholders	—			(720,000		)	—
Repayment of Knight Convertible Notes	—			(257,741		)	—
Funding of collateral account for Knight Convertible Notes	—			(117,259		)	—
Payment out of collateral account for Knight Convertible Notes	—			117,259			—
Proceeds from stock issuance	—			—			12,320
Member distributions	—			(21,002		)	(62,234		)
Cost of common stock repurchased	(111,585		)	(11,324		)	—
Net cash used in financing activities	(346,585		)	(464,659		)	(49,914		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—
Increase in cash and cash equivalents	49,683			138,506			2,015
Cash and cash equivalents at beginning of period	253,017			114,511			112,496
Cash and cash equivalents at end of period	$	302,700		$	253,017		$	114,511
Supplemental disclosure of cash flow information:
Cash paid for interest	$	28,426		$	26,239		$	1,116
Cash paid for income taxes	$	15,456		$	365		$	—

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KCG HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued

The condensed financial statements of KCG Holdings, Inc. (parent only; the “Parent Company”) should be read in conjunction with the Consolidated Financial Statements of the Company and the Notes thereto. As noted in Footnote 1 "Organization and Description of Business", the Mergers were treated as a purchase of Knight by GETCO for accounting and financial reporting purposes.

The Statements of Operations and Cash Flows included in this footnote for the year ended December 31, 2013 include the combined financial results and cash flows for GETCO Holding Company, LLC for the six month period January 1, 2013 to June 30, 2013 and for KCG Holdings, Inc. for the six month period July 1, 2013 to December 31, 2013. These combined Statements of Operations and Cash Flows were presented for comparability to the prior year, 2012.

27. Subsequent Event

The Company has evaluated subsequent events through the date the Consolidated Financial Statements were issued. The Company did not note any subsequent events requiring adjustment or disclosure in the Consolidated Financial Statements except for the following.

In January 2015, the Company announced the sale of KCG Hotspot to BATS. Under the terms of the agreement, the Company will receive $365.0 million in cash upon the close. In addition, the Company and BATS have agreed to share certain tax benefits, which could result in further payments to the Company of up to approximately $70.0 million in the three-year period following the close.

The sale of KCG Hotspot is structured as an asset sale for income tax purposes and BATS and KCG have agreed to share certain related tax benefits that potentially accrue to BATS after the closing of the transaction. KCG will share in 70% of the actual tax benefits to BATS for the first three years after the closing and 50% of the actual tax benefits thereafter (the “Annual Tax Benefits”). However, KCG has a one-time option exercisable within 30 days of the third anniversary of the closing of the transaction to terminate the continued tax sharing arrangement in exchange for a one-time payment of $50.0 million, which BATS has the right to exercise after KCG’s option expires. However, the receipt of the Annual Tax Benefits by KCG is subject to BATS having sufficient net income to receive the tax benefits. BATS’s net income could decrease due to numerous factors, which are outside of the control of KCG. In addition, any decrease in the corporate tax rates applicable to BATS could reduce the size or certainty of the Annual Tax Benefits.



Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

None



Item 9A.	Controls and Procedures

(a) Disclosure Controls and Procedures. KCG's management, with the participation of KCG's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, KCG's Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2014, KCG's disclosure controls and procedures are effective.

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(b) Internal Control Over Financial Reporting. Management's annual report on internal control over financial reporting is contained in Part II, Item 8 of this Form 10-K.

(c) Changes in Internal Control Over Financial Reporting. There have not been any changes in KCG's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, KCG's internal control over financial reporting.



Item 9B.	Other Information

In January 2015, KCG Holdings, Inc. (the “Company” or “KCG”) announced the sale of KCG Hotspot to BATS Global Markets (“BATS”). Under the terms of the agreement, the Company will receive $365.0 million in cash upon the close, subject to customary adjustments, including for working capital. In addition, the Company and BATS have agreed to share certain tax benefits, which could result in further payments to the Company of up to approximately $70.0 million in the three-year period following the close (together with the $365.0 million, "Purchase Price").

The transaction, which is subject to customary closing conditions, is expected to close in March 2015. The Company does not believe that this sale represents a strategic shift that will have a major effect on the Company’s operations and financial results, and therefore KCG Hotspot does not meet the requirements to be treated as a discontinued operation, however it will trigger a significant disposition, as defined by SEC guidance, requiring pro forma disclosure. As such, the Company has set forth the following unaudited pro forma condensed consolidated financial statements (the “Unaudited Pro Forma Financial Statements”) to show the impact of the sale of KCG Hotspot.

The unaudited pro forma condensed consolidated statement of financial condition (the “Unaudited Pro Forma Balance Sheet”) at December 31, 2014 gives effect to the sale of KCG Hotspot, including: (i) the sale of the assets and liabilities directly related to KCG Hotspot and (ii) the proceeds and expenses directly related to the sale and such other adjustments as described in the notes below as if the sale occurred on December 31, 2014.

The unaudited pro forma condensed consolidated statement of operations (the “Unaudited Pro Forma Income Statement”) for year ended December 31, 2014 gives effect to the sale as if it had occurred on January 1, 2014, and reflects pro forma adjustments that are expected to have a continuing impact on the results of operations.

The Unaudited Pro Forma Financial Statements have been prepared by management for illustrative purposes only and do not purport to represent what the results of operations, balance sheet data or other financial information of KCG would have been if the sale had occurred as of the dates indicated or what such results will be for any future periods. The pro forma adjustments are based on the assumptions and information available at the time of the preparation of this Form 10-K. The historical financial information has been adjusted to give effect to pro forma events that are: (1) directly attributable to the sale; (2) factually supportable; and (3) with respect to the Unaudited Pro Forma Income Statement, expected to have a continuing impact on the results of KCG. As such, the Unaudited Pro Forma Income Statement for the year ended December 31, 2014 presented herein does not reflect non-recurring charges that will be or have been incurred in connection with the sale. The Unaudited Pro Forma Income Statement also does not reflect any cost savings from potential operating efficiencies or associated costs to achieve such savings or synergies that may result from the sale nor does it include any costs associated with severance or other potential additional costs resulting from the sale, as they are currently not known, and to the extent they arise, they are expected to be non-recurring and will not have been incurred as of the closing date of the sale. However, such costs could affect the Company following the sale in the period the costs are incurred. The Unaudited Pro Forma Financial Statements assumes there is no adjustment made at closing to the Purchase Price.

Overview

The sale of KCG Hotspot is structured as an asset sale for income tax purposes and BATS and KCG have agreed to share certain related tax benefits that potentially accrue to BATS after the closing of the transaction. KCG will share in 70% of the actual tax benefits to BATS for the first three years after the closing and 50% of the actual tax benefits thereafter (the “Annual Tax Benefits”). However, KCG has a one-time option exercisable within 30 days of the third anniversary of the closing of the transaction to terminate the continued tax sharing arrangement in exchange for a one-time payment of $50 million, which BATS has the right to exercise after KCG’s option expires. However, the receipt of the Annual Tax Benefits by KCG is subject to BATS having sufficient net income to receive the tax benefits. BATS’s net income could decrease due to numerous factors, which are outside of the control of KCG. In addition, any decrease in the corporate tax rates applicable to BATS could reduce the size or certainty of the Annual Tax Benefits.

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KCG HOLDINGS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL CONDITION

DECEMBER 31, 2014

(in thousands)



	KCG			Probable Sale of KCG Hotspot				KCG Pro Forma
Assets
Cash and cash equivalents	$	578,768		$	365,000		b	$	943,768
Cash and cash equivalents segregated under federal and other regulations	3,361							3,361
Financial instruments owned, at fair value	2,707,371							2,707,371
Collateralized agreements:
Securities borrowed	1,632,062							1,632,062
Receivable from brokers, dealers and clearing organizations	1,188,833							1,188,833
Fixed assets and leasehold improvements, less accumulated depreciation and amortization	134,051							134,051
Investments	100,726							100,726
Goodwill and Intangible assets, less accumulated amortization	152,594							152,594
Deferred tax asset, net	154,759			18,138			c,d	172,897
Assets of business held for sale	40,484			(40,484		)	a	—
Other assets	137,645			53,486			b	191,131
Total assets	$	6,830,654		$396,140				$	7,226,794
Liabilities and equity
Liabilities
Financial instruments sold, not yet purchased, at fair value:	$	2,285,707						2,285,707
Collateralized financings:
Securities loaned	707,744							707,744
Financial instruments sold under agreements to repurchase	933,576							933,576
Total collateralized financings	1,641,320			—				1,641,320
Payable to brokers, dealers and clearing organizations	676,089							676,089
Payable to customers	22,110							22,110
Accrued compensation expense	114,559			3,987			c	118,546
Accrued expenses and other liabilities	136,977			164,837			c,d	301,814
Capital lease obligations	6,700							6,700
Liabilities of business held for sale	2,356			(2,356		)	a	—
Debt	422,259							422,259
Total liabilities	5,308,077			166,468				5,474,545
Equity
Class A Common Stock	1,275			(2		)	c	1,273
Additional paid-in capital	1,369,298			(1,406		)	c	1,367,892
Retained earnings	272,780			231,080			c	503,860
Treasury stock, at cost	(122,909		)					(122,909		)
Accumulated other comprehensive income	2,133							2,133
Total equity	1,522,577			229,672				1,752,249
Total liabilities and equity	$	6,830,654		$	396,140			$	7,226,794

The accompanying notes are an integral part of these Unaudited Pro Forma Financial Statements

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KCG HOLDINGS, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2014

(dollars and shares/units in thousands, except per share data)



	KCG		Proposed Sale of KCG Hotspot			KCG Pro Forma

Revenues
Trading revenues, net	$	837,357	$	—		$	837,357
Commissions and fees	437,022		45,938			391,084
Interest, net	621		9			612
Investment income and other, net	41,232		441			40,791
Total revenues	1,316,232		46,388		e	1,269,844
Expenses
Employee compensation and benefits	437,269		16,050			421,219
Execution and clearance fees	305,177		—			305,177
Communications and data processing	150,595		823			149,772
Depreciation and amortization	81,448		6,175			75,273
Payments for order flow	70,183		—			70,183
Occupancy and equipment rentals	32,707		769			31,938
Debt interest expense	32,456		—			32,456
Collateralized financing interest	27,860		—			27,860
Professional fees	25,596		138			25,458
Business development	9,763		777			8,986
Writedown of assets and lease loss accrual, net	8,625		—			8,625
Writedown of capitalized debt costs	9,552		—			9,552
Other	39,814		337			39,477
Total expenses	1,231,045		25,069		e	1,205,976
Income from continuing operations before income taxes	85,187		21,319		e	63,868
Income tax expense	22,753		8,101		f	14,652
Income from continuing operations, net of tax	62,434		13,218			49,216
Basic earnings per share from continuing operations	$	0.55				$	0.44
Diluted earnings per share from continuing operations	$	0.54				$	0.42
Shares used in computation of basic earnings (loss) per share	112,854		—			112,854
Shares used in computation of diluted earnings (loss) per share	116,534		665		g	115,869

The accompanying notes are an integral part of these Unaudited Pro Forma Financial Statements

Notes to the Unaudited Pro Forma Financial Statements

The Unaudited Pro Forma Financial Statements include certain pro forma adjustments to give effect to the sale of KCG Hotspot. The pro forma adjustments are as follows:

Unaudited Pro Forma Balance Sheet:


a)	In January 2015, the Company agreed to sell KCG Hotspot to BATS. The transaction is expected to close in March 2015. As a result, for the purposes of the Unaudited Pro Forma Financial Statements, all assets and liabilities pertaining to KCG Hotspot have been eliminated from the Unaudited Pro Forma Balance Sheet. Completion of the sale is subject to customary closing conditions.


b)	The Unaudited Pro Forma Balance Sheet reflects the expected proceeds on the transaction, including cash upon close of $365.0 million.

Additionally, included in Other assets is a receivable of $53.5 million representing the estimated fair value, as of December 31, 2014, of the Annual Tax Benefits to be paid to KCG for the first three years plus the one time $50.0 million payment in year 3 (together, the "tax sharing benefits"). The Company has elected the fair value option to account for the tax sharing benefits. Fair value was determined based on the day one values of the future cash

122

flows, using a discount rate that takes into account assumptions such as the risk free interest rate and the Company's cost of capital as well as the estimated probability of receiving such payments.

The sale of KCG Hotspot will result in a gain for the Company. This gain is the difference between the fair value of the total proceeds to be received less any anticipated costs directly related to the transaction. This result will then be compared to the book value of KCG Hotspot to determine the pre-tax gain. The tax payable on the transaction, included in Accrued expenses and other liabilities, is calculated using a 38% tax rate. The following table summarizes this calculation (in $ thousands):



Proceeds on sale	$	365,000
Present value of tax sharing benefits	53,486
	418,486

Carrying value of Hotspot Net Assets	38,128

Compensation due to KCG Hotspot employees on close⁽ⁱ⁾	2,579
Professional fees	5,068
Total expenses	7,647

Pre-tax gain	372,711

Income tax at 38%	141,630
Post-tax gain	$	231,081

⁽ⁱ⁾ Compensation due to KCG Hotspot employees includes cash payments to be made of $4.0 million, offset in part by a benefit of $1.4 million from the cancellation of approximately 240,000 restricted stock units, included in Class A Common Stock and Additional Paid-In Capital.

The transaction is structured as an asset sale for income tax purposes, and there is a difference between the book basis of the assets and the tax basis of such assets. This basis differential, along with differences in how and when taxes are recorded and paid on the tax sharing benefits result in an increase to the deferred tax asset and current tax payable amounts (included within Accrued expenses and other liabilities) of $18.1 million and $159.8 million, respectively.

A summary of the balances that make up the pro forma adjustment to Accrued expenses and other liabilities is included in the table below:



Professional Fees	$	5,068
Income tax payable on gain on sale	159,768
Total	$	164,836

Unaudited Pro Forma Income Statement


e)	As a result of the proposed sale, for the purposes of the Unaudited Pro Forma Financial Statements, all revenues and expenses directly pertaining to KCG Hotspot have been eliminated from the Unaudited Pro Forma Income Statement. Completion of the sale is subject to customary closing conditions.


f)	Estimated tax rate of 38% on the pre-tax results of KCG Hotspot for the year ended December 31, 2014 approximates a 35% federal rate and a 3% state and local blended rate.


g)	The Unaudited Pro Forma Income Statement assumes the transaction occurred on January 1, 2014. Therefore, the 665,000 restricted share units (“RSUs”) held by KCG Hotspot employees at January 1, 2014, would have been canceled on that date, thus decreasing the weighted average shares outstanding for 2014.

123

PART III—ITEMS 10, 11, 12, 13 and 14

The Company’s Proxy Statement for its 2015 Annual Meeting of Stockholders, which, when filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by reference in this Annual Report on Form 10-K pursuant to General Instruction G (3) of Form 10-K, provides the information required under Part III (Items 10, 11, 12, 13 and 14)

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PART IV



Item 15.	Exhibits and Financial Statements Schedules

(a) The following documents are filed as part of this report:

Consolidated Financial Statements and Financial Statement Schedules. See “Part II Item 8, Financial Statements and Supplementary Data”



NUMBER ASSIGNED TO EXHIBIT (I.E. 601 OF REGULATION S-K)		DESCRIPTION OF EXHIBITS

2.1		Amended and Restated Agreement and Plan of Merger, dated as of December 19, 2012 and amended and restated as of April 15, 2013, by and among GETCO Holding Company, LLC, GA-GTCO, LLC, Knight Capital Group, Inc., Knight Holdco, Inc., Knight Acquisition Corp, GETCO Acquisition, LLC and GA-GTCO Acquisition, LLC (exhibits excluded) - Incorporated herein by reference to Exhibit 2.1 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

2.2		Stock Purchase Agreement, dated July 29, 2013, by and among Knight Libertas Holdings LLC, KCG Holdings, Inc. and UFG Holdings LLC - Incorporated herein by reference to Exhibit 2.1 of the Registrant's Quarterly Report on Form 10-Q filed on August 9, 2013.

2.3		Securities Purchase Agreement, dated January 27, 2015, between Knight Capital Group, Inc. and BATS Global Markets, Inc. - Incorporated herein by reference to Exhibit 2.1 of the Registrant's Form 8-K Current Report filed on January 29, 2015.

3.1		Amended and Restated Certificate of Incorporation of KCG Holdings, Inc. - Incorporated herein by reference to Exhibit 3.1 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

3.2		Amended and Restated Bylaws of KCG Holdings, Inc. - Incorporated herein by reference to Exhibit 3.2 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.1		Form of Certificate of Class A Common Stock of KCG Holdings, Inc. - Incorporated herein by reference to Exhibit 4.1 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.2		Registration Rights Agreement, dated July 1, 2013, among KCG Holdings, Inc., Daniel V. Tierney 2011 Trust, Serenity Investments, LLC and GA-GTCO Interholdco, LLC. - Incorporated herein by reference to Exhibit 4.2 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.3		Warrant Agreement, dated July 1, 2013, between KCG Holdings, Inc and Computershare Shareowner Services LLC. - Incorporated herein by reference to Exhibit 4.3 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.4		Form of Class A Warrant Certificate (included in Exhibit 4.3)

4.5		Form of Class B Warrant Certificate (included in Exhibit 4.3)

4.6		Form of Class C Warrant Certificate (included in Exhibit 4.3)

4.7		Indenture (the “Senior Secured Indenture”), dated June 5, 2013, between GETCO Financing Escrow LLC and the Trustee in connection with the 8.250% senior secured notes due 2018 in the aggregate principal amount of $305,000,000 - Incorporated herein by reference to Exhibit 4.7 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.8		First Supplemental Indenture, dated July 1, 2013, by and between KCG Holdings, Inc. and The Bank of New York Mellon, as trustee (the “Trustee”), amending the Senior Secured Indenture - Incorporated herein by reference to Exhibit 4.8 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

125




4.9		Second Supplemental Indenture, dated July 1, 2013, by and between KCG Holdings, Inc., certain Guarantors and the Trustee, amending the Senior Secured Indenture - Incorporated herein by reference to Exhibit 4.9 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.10		Third Supplemental Indenture, dated as of October 15, 2013, by and among the Company, the Guarantors and the Trustee, amending the Senior Secured Indenture - Incorporated herein by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed on October 16, 2013.

4.11		Registration Rights Agreement (the “Original Senior Secured Registration Rights Agreement”), dated June 5, 2013, between GETCO Financing Escrow LLC and Jefferies LLC as representative of the initial purchasers of the 8.250% senior secured notes due 2018 in the aggregate principal amount of $305,000,000 - Incorporated herein by reference to Exhibit 4.10 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.12		Joinder, dated July 1, 2013, by KCG Holdings Inc. and certain Guarantors to the Original Senior Secured Registration Rights Agreement - Incorporated herein by reference to Exhibit 4.11 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.13		Intercreditor Agreement, dated July 1, 2013, by and among KCG Holdings, Inc., certain Guarantors, Jefferies Finance LLC, as first lien collateral agent, and the Indenture Trustee, as second lien collateral agent - Incorporated herein by reference to Exhibit 4.12 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

4.13		First Amendment to Registration Rights Agreement, dated May 30, 2014, by KCG Holdings Inc. - Incorporated herein by reference to Exhibit 4.1 of the Registrant’s Form 8-K Current Report filed on June 2, 2014

4.14		Indenture (the “Original Convertible Notes Indenture”), dated March 19, 2010, between Knight Capital Group, Inc. and Deutsche Bank Trust Company Americas in connection with that certain 3.50% cash convertible senior subordinated notes due 2015 in the aggregate principal amount of $375,000,000 - Incorporated herein by reference to Exhibit 4.1 of Knight Capital Group, Inc.’s Form 8-K filed on March 19, 2010.

4.15		First Supplemental Indenture, dated July 1, 2013, by and among KCG Holdings, Inc., Knight Capital Group, Inc. and The Bank of New York Mellon, as successor in interest to Deutsche Bank Trust Company Americas, amending the Original Convertible Notes Indenture - Incorporated herein by reference to the Registrant’s Current Report on Form 8-K filed on July 2, 2013.

10.1		Employment Agreement between the Company and Daniel Coleman - Incorporated herein by reference to Exhibit 10.4 of the Registrant's Form 8-K12G3 Current Report filed on July 1, 2013.

10.2		Form of Employment Agreement - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed August 9, 2013.

10.3		Term Schedule to Employment Agreement between the Company and Steven Bisgay- Incorporated herein by reference to Exhibit 10.2 of the Registrant's Form 8-K Current Report filed August 9, 2013.

10.4		Term Schedule to Employment Agreement between the Company and John DiBacco - Incorporated herein by reference to Exhibit 10.3 of the Registrant's Form 8-K Current Report filed August 9, 2013.

10.5		Term Schedule to Employment Agreement between the Company and John McCarthy - Incorporated herein by reference to Exhibit 10.4 of the Registrant's Form 8-K Current Report filed August 9, 2013.

10.6		Term Schedule to Employment Agreement between the Company and Nick Ogurtsov - Incorporated herein by reference to Exhibit 10.5 of the Registrant's Form 8-K Current Report filed August 9, 2013.

126



10.7		Revised Term Schedule to Employment Agreement between the Company and Jonathan Ross - Incorporated herein by reference to Exhibit 10.1 of the Registrant's Form 10-Q Quarterly Report filed November 12, 2013.

10.8		Revised Term Schedule to Employment Agreement between the Company and George Sohos - Incorporated herein by reference to Exhibit 10.8 of the Registrant's Form 10-K Annual Report filed March 3, 2014.

10.9		Term Schedule to Employment Agreement between the Company and Ryan Primmer - Incorporated herein by reference to Exhibit 10.9 of the Registrant's Form 10-K Annual Report filed March 3, 2014.

10.10		Term Schedule to Employment Agreement between the Company and Gregory Tusar - Incorporated herein by reference to Exhibit 10.10 of the Registrant's Form 10-K Annual Report filed March 3, 2014.

10.11		Term Schedule to Employment Agreement between the Company and Steffan Parratt - Incorporated herein by reference to Exhibit 10.2 of the Registrant's Form 8-K Current Report filed January 6, 2015.

10.12*		Employment Agreement, dated March 19, 2014, between KCG Europe Limited and Philip Allison.

10.13		KCG Holdings, Inc. Amended and Restated Equity Incentive Plan - Incorporated herein by reference to Exhibit 10.5 of the Registrant’s Form 10-Q Quarterly Report filed on May 12, 2014.

10.14		KCG Holdings, Inc. Amended and Restated Executive Incentive Plan - Incorporated herein by reference to Exhibit 10.7 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.15		KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Restricted Stock Unit Agreement- Incorporated herein by reference to Exhibit 10.8 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.16		KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Employee Stock Option Agreement- Incorporated herein by reference to Exhibit 10.9 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.17		KCG Holdings, Inc. Amended and Restated Equity Incentive Plan Form of Employee Stock Appreciation Right Agreement- Incorporated herein by reference to Exhibit 10.10 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.18		KCG Holdings, Inc. Compensation Recoupment Policy- Incorporated herein by reference to Exhibit 10.16 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.19		Amended and Restated Aircraft Timeshare Agreement, dated as of April 17, 2014, by and between KCG Holdings, Inc. and Redmont Holdings LLC - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report filed on May 12, 2014.

10.2		Credit Agreement, dated July 1, 2013, by and among KCG Holdings, Inc., the lenders party thereto, Jefferies Finance LLC, as documentation agent, administrative agent, collateral agent and syndication agent, and Jefferies Finance LLC and Goldman Sachs Bank USA, as arrangers and book managers - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.21		First Amendment and Consent to Credit Agreement, dated as of October 15, 2013, by and among the Company, the Guarantors, the lenders party thereto and the Credit Agreement Agent - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on October 16, 2013.

127



10.22		Credit Agreement, dated July 1, 2013, by and among OCTEG, LLC and Knight Capital Americas LLC, as borrowers, KCG Holdings, Inc., as guarantor, the lenders from time to time party thereto, BMO Harris Bank N.A., as administrative agent and collateral agent, JPMorgan Chase Bank N.A. and Bank of America, N.A., as syndication agents, and BMO Capital Markets, JPMorgan Securities, LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint lead arrangers and joint book runners - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on July 2, 2013.

10.23		First Amendment to Credit Agreement, dated October 24, 2013, by and among OCTEG, LLC and Knight Capital Americas LLC, as borrowers, KCG Holdings, Inc., as guarantor, the lenders from time to time party thereto and BMO Harris Bank N.A., as administrative agent - Incorporated herein by reference to Exhibit 10.21 of the Registrant's Form 10-K Annual Report filed March 3, 2014.

10.24		Master Agreement to Lease Equipment, dated as of October 30, 2009, between Global Colocation Services LLC and Cisco Systems Capital Corporation - Incorporated herein by reference to Exhibit 10.2 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.25		Guaranty of GETCO Holding Company, LLC under the Master Agreement to Lease Equipment, dated as of October 30, 2009 - Incorporated herein by reference to Exhibit 10.3 of the Registrant’s Form 8-K12G3 Current Report filed on July 1, 2013.

10.26		Master Agreement to Lease Equipment, dated as of March 10, 2014, between KCG Americas LLC and Cisco Systems Capital Corporation - Incorporated herein by reference to Exhibit 10.2 of the Registrant’s 10-Q Quarterly Report filed on May 12, 2014.

10.27		Amendment No. 1 to Master Agreement to Lease Equipment, dated as of March 10, 2014, between KCG Americas LLC and Cisco Systems Capital Corporation - Incorporated herein by reference to Exhibit 10.3 of the Registrant’s 10-Q Quarterly Report filed on May 12, 2014.

10.28		Guaranty of KCG Holdings, Inc. under the Master Agreement to Lease Equipment, dated as of March 13, 2014 - Incorporated herein by reference to Exhibit 10.4 of the Registrant’s 10-Q Quarterly Report filed on May 12, 2014.

10.29		U.S. Securities and Exchange Commission Order against Knight Capital Americas LLC, dated October 16, 2013 - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on October 16, 2013.

10.30		Advisory Services and Separation Agreement, dated as of November 6, 2014, by and between KCG Holdings, Inc. and Steven Bisgay - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on November 12, 2014.

10.31		Letter dated September 15, 2014, from KCG Holdings, Inc. to Sean Galvin - Incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on September 15, 2014.

21.1*		Subsidiaries of the Registrant as of December 31, 2013.

23.1*		Consent of Independent Registered Public Accounting Firm.

24.1		Powers of Attorney (included on signature page).

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.

128



101**		The following financial statements from KCG Holdings, Inc's Annual Report on Form 10-K for the year ended December 31, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Statements of Financial Condition at December 31, 2014 and 2013, (ii) Consolidated Statements of Operations for the years ended December 31, 2014, 2013 and 2012 (iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2014, 2013 and 2012, (iv) Consolidated Statements of Changes in Equity for the years ended December 31, 2014, 2013 and 2012 (v) Consolidated Statements of Cash Flows for the years ended December 31, 2014, 2013 and 2012 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.

129

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 2nd day of March 2015.



KCG HOLDINGS, INC.

By:	/s/ DANIEL COLEMAN
	Daniel Coleman
	Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Daniel Coleman and Steffen Parratt, and each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in the capacities and on the date indicated.



Name	Title	Date

/s/ DANIEL COLEMAN	Chief Executive Officer	March 2, 2015
Daniel Coleman	(Principal Executive Officer)

/s/ STEFFEN PARRATT	Chief Financial Officer	March 2, 2015
Steffen Parratt	(Principal Financial Officer)

/s/ SEAN P. GALVIN	Chief Accounting Officer	March 2, 2015
Sean P. Galvin	(Principal Accounting Officer)

/s/ CHARLES E. HALDEMAN JR.	Non-Executive Chairman of the Board	March 2, 2015
Charles E. Haldeman, Jr.

/s/ RENE KERN	Director	March 2, 2015
Rene Kern

/s/ JAMES T. MILDE	Director	March 2, 2015
James T. Milde

130




/s/ JOHN C. MORRIS	Director	March 2, 2015
John C. Morris

/s/ DANIEL F. SCHMITT	Director	March 2, 2015
Daniel F. Schmitt

/s/ STEPHEN SCHULER	Director	March 2, 2015
Stephen Schuler

/s/ LAURIE M. SHAHON	Director	March 2, 2015
Laurie M. Shahon

/s/ DANIEL TIERNEY	Director	March 2, 2015
Daniel Tierney

131

KCG Exhibit 10.12 Q4 14

Exhibit 10.12

Contract of Employment

This Agreement between you, Philip Allison (“You”) and KCG Europe Limited, City Place House, 55 Basinghall Street, London EC2V 5DU (the “Company”) as at 19 March 2014 comprises your contract of employment with the Company and a statement of the main terms and conditions of your employment which are required by section 1 of the Employment Rights Act 1996.


1.	Your Employer


1.1.	You will be employed by the Company.


1.2.	If the Company at any time proposes to transfer your employment to any Group Company on the same or no less favourable terms, it will not seek to do so without giving reasonable written notice to you of its reasons.


2.	Conditions Precedent


2.1.	Your employment and the terms of employment contained in this Agreement are conditional upon:


2.1.1	you being free to enter into this Agreement and perform your obligations under it without being in breach of any court order or express or implied term of any contract or other obligation binding on you;


2.1.2	receipt by the Company of references that the Company, acting reasonably, considers to be satisfactory;


2.1.3	verification of background information including but not limited to, evidence of credit checks, a search to ascertain whether you have been declared bankrupt or have any County Court Judgements (CCJs) entered against your name, relevant registrations or professional qualifications);


2.1.4	you providing evidence to satisfy the Company that your nationality or immigration status allows you to undertake the position offered. If you did not do so at your most recent interview, prior to the Date of Commencement you must provide the Company with:


2.1.4.1.	your original passport or UK immigration status document (which, if appropriate, shall include your ID card issued by the Home Office) which shows evidence of your entitlement to work including your period of leave to remain in the UK; and


2.1.4.2.	your contact details, which includes your telephone and mobile telephone numbers and evidence of your current address.


2.2.	The evidence required under these clauses 2.1.2 to 2.1.4 (inclusive) must be provided before the Date of Commencement.


2.3.	As the position of CEO KCG Europe includes duties which are deemed by the Financial Conduct Authority (“FCA”) to be controlled functions under the provisions of the Financial Services and Markets Act 2000 (“FSMA”), this appointment is also conditional upon:


2.3.1	the Company carrying out all necessary pre-employment checks for the purposes of applying for approval from the FCA; and


2.3.2	approval from the FCA under section 59 FSMA to perform any controlled functions necessary to discharge your duties.


3.	Date of Commencement of Employment


3.1.	You will commence your employment with the Company on or before 1 October 2014 (“Date of Commencement”) or such other date that may be agreed between you and the Company, which is also the date on which your period of continuous employment with the Company begins. No period of employment with any previous employer counts towards your period of continuous employment with the Company.


3.2.	Your employment shall continue, subject to the terms of this Agreement, until terminated by either party giving notice under clause 13.


4.	Job Title and Duties


4.1.	You will be employed as CEO KCG Europe.

4.2.

You will report to and take instructions from the Chief Executive Officer of KCG Holdings, Inc. (the “Chief Executive”) and the Company’s Board. In this Agreement, “Board” means the board of directors from time to time of the Company or the directors present at a meeting of directors at which a quorum is present or a duly appointed committee of the Company and includes any person nominated by the Company from time to time of the Company for the relevant purposes of this Agreement.

4.3.

Your duties are those duties that would reasonably be expected to fall within your job title together with such other duties, consistent with your status, as may reasonably be assigned to you from time to time. Subject always as above, you acknowledge that, as the needs of the Company’s business change, your job title, reporting line, duties and responsibilities may be amended by the Chief Executive and/or the Board.


4.4.	You may be required by the Company for any period covered by this Agreement and without being entitled to further remuneration to act as an officer of any Group Company or hold any other appointment or office as nominee or representative of any Group Company.


4.5.	During your employment you are required at all times to:

4.5.1

carry out your duties loyally, diligently and in accordance with the directions of the Chief Executive and/or the Board. You will keep the Board properly informed about your involvement in the business of the Company always giving it the full benefit of your knowledge, expertise and skills and promoting and protecting the interests and reputation of the Company and any Group Company and not knowingly or deliberately doing anything which is to its or their detriment;


4.5.2	maintain the highest standards in terms of both personal and professional conduct. When acting on the Company’s behalf you are required do so with honesty, good faith and fairness and do nothing which brings the Company into disrepute. You must use your skills, knowledge and judgment to the best of your ability. You are expected to comply

with the Company’s policies and procedures and with all reasonable instructions or requests made by the Chief Executive and/or the Board;

4.5.3

unless prevented by ill health or injury and except during holiday taken in accordance with clause 12 of this Agreement devote the whole of your working time to the business of the Company. You may not during your employment (including, without limitation, any period of suspension or garden leave), without the prior written consent of the Board, accept any other appointment, nor without such consent, undertake any other work in your spare time;


4.5.4	not, without the prior written consent of the Board, directly or indirectly give or receive or retain any payment or benefit, either in respect of any business transacted (whether or not by you) by or on behalf of the Company, or with a view to any such business being transacted;


4.5.5	notify the Board forthwith and without delay in writing of any information or event which could reasonably be expected to impact on your nationality or immigration status or right to work or reside in the UK; and


4.5.6	promptly disclose to the Board any information that comes into your possession concerning any matter which you consider adversely affects or you consider is reasonably likely to adversely affect the business of the Company including, but not limited to:


(a)	the plans of any senior or significant employee to join a competitor or to establish a business in competition with the Company;


(b)	any steps taken by a senior employee to implement any such plans;


(c)	the misuse by any employee of any Confidential Information belonging to the Company or its clients;


(d)	any misconduct by you or any employee; and


(e)	any conflict of interest, whether or not involving you, of which you become aware.


5.	Place of Work


5.1.	Your primary place of work will be at the Company’s offices detailed above, but you may be required to work either permanently or temporarily in other locations within the Greater London area.

5.2.

You may be required to travel within the UK and abroad in the course of performing your duties on behalf of the Company. It is not currently envisaged that any single period of travel abroad will be for a period in excess of one (1) month at any given time. If you are required to travel outside the UK for more than one (1) month, you will be provided with written particulars of this, outlining details of the assignment.


6.	Hours of Work


6.1.	The Company’s normal hours of business are from 6.30 a.m. to 9.30 p.m. Monday to Friday inclusive. During the Company’s normal hours of business you shall work such hours as are necessary for the proper performance of your duties, subject to a minimum of 40 hours per week, and you are entitled to up to one hour’s unpaid lunch break per working day. You may be required

to work additional hours either as and when requested by the Chief Executive and/or the Board, or when the proper performance of your work requires. You will not be given any extra remuneration for any such additional hours worked in excess of your minimum weekly hours.


6.2.	You agree that if necessary for the proper performance of your duties, you will work more than an average of 48 hours in a seven day reference period (as defined by and calculated in accordance with the Working Time Regulations 1998 (as amended)). You can withdraw your agreement to the terms of this clause by giving the Company three (3) months’ written notice.


7.	Remuneration

7.1.

Your basic salary is £350,000, per annum payable by bank transfer in equal monthly instalments on or about the 24^th of each month unless that day is a weekend or public holiday, in which case payment shall be made on the nearest preceding working day. Salary shall accrue from day to day. There is no obligation on the Company to increase the level of your basic salary at any review. An increase awarded in one year will not influence or set a precedent in relation to future years.


7.2.	Provided that you comply with the conditions in this clause 7.2, for the calendar year 2015 onwards you will be eligible to be considered for a discretionary annual bonus in an amount to be determined in the sole discretion of the Company and KCG. Eligibility for consideration for and payment of a bonus (if any) is conditional upon you:


7.2.7	being employed by the Company on the bonus payment date;


7.2.8	not being under notice of termination of employment, whether given by you or given by the Company, on the bonus payment date;


7.2.9	not being under any form of suspension (e.g. disciplinary/investigative suspension) on the bonus payment date which subsequently leads to the termination of your employment.

For the avoidance of doubt you shall not be eligible to be considered for a discretionary bonus in respect of the calendar year 2014.


7.3.	The amount of any bonus awarded to you will depend on certain criteria including but not limited to the overall performance of the Company and the Group Company, the performance of your business unit, and your own personal performance.

7.4.

For the calendar year 2014 only, your total compensation shall be US$2,000,000 (the “Total 2014 Compensation”). At the end of the 2014 calendar year, the Company will calculate the difference between the Total 2014 Compensation and the salary you have received or are eligible to receive during the 2014 calendar year (with the Company using the foreign exchange rate determined by the Company and prevailing at the time of the calculation). If the conditions in clause 7.5 have been satisfied, the Company will make a payment to you (the “2014 Compensation Payment”) on or around 31 January 2015 (the “2014 Compensation Payment Date”) to increase your total gross compensation to the Total 2014 Compensation. 40% of the 2014 Compensation Payment shall be payable in cash and 60% in long-term equity (including but not limited to restricted stock and restricted stock units. Such long-term equity compensation will be subject to the terms of a separate award agreement and the plan rules in force from time to time).


7.5.	Any payment or award made to you pursuant to clause 7.4 is conditional upon you:


7.5.1	being employed by the Company on the 2014 Compensation Payment Date;


7.5.2	not being under notice of termination of employment, whether given by you or by the Company, on the 2014 Compensation Payment Date;


7.5.3	not being under any form of suspension (e.g. disciplinary/investigative suspension) on the 2014 Compensation Payment Date which subsequently leads to the termination of your employment.

7.6.

The Company shall at entirely its own discretion determine the proportion between cash and long-term equity (including but not limited to restricted stock and restricted stock units) of any sums payable pursuant to clause 7.2, so long as the proportion split between cash and long-term equity is generally consistent with the group policy of KCG Holdings, Inc., which may change from time to time. Such long-term equity compensation will be subject to the terms of a separate award agreement and the plan rules in force from time to time.


7.7.	All amounts which might be payable to you under this Agreement are stated as gross and will be reduced by all applicable statutory deductions, and any other authorised or required deductions.


7.8.	The payment date for any discretionary annual bonus shall be notified to you annually.


7.9.	The payment of any bonus in one year will not influence or set a precedent in relation to future years. Bonus entitlement does not accrue in the course of a year, and you are not entitled to payment of a bonus, or any pro-rata portion of it, if you leave employment for any reason prior to the date that the bonus is paid.


8.	Buy-out

8.1.

You have advised the Company that, as a result of your commencing employment with the Company, you will forfeit deferred compensation with your former employer UBS. Subject to the provisions of this Agreement, the Company shall compensate you with Shares (as defined below) provided that the only reason such deferred compensation is not honoured by UBS is that you have resigned from UBS in order to commence employment with the Company.


8.2.	On the Date of Commencement you will be granted 750,000 restricted shares or restricted stock units of KCG Holdings, Inc. common stock (collectively, “Shares”), expressly conditioned on the following:


8.2.1	you provide satisfactory documentation to the Company that you have forfeited unvested shares, stock units and/or options of approximate value, awarded by your previous employer. Such documentation must be provided as soon as reasonably practicable prior to the Commencement Date;


8.2.2	the Compensation Committee of KCG Holdings, Inc.’s Board of Directors approves such grant;


8.2.3	the Shares are not more generous in either their amount or terms (including any deferral or retention periods) than the variable remuneration awarded or offered by your previous employer;


8.2.4	you have not given notice to terminate your employment on the Date of Commencement; and


8.2.5	you have not been given notice to terminate your employment, by reason of conduct, performance, capability or your qualifications which you have been unable to remedy within a reasonable period to the Company’s satisfaction.

8.3.

The Shares will be subject to the terms of a separate award agreement and the plan rules in force from time to time. As described more fully in the applicable plan and the applicable award agreement, the restricted stock units or options will vest in three equal instalments, with the first vesting on 1 July 2015 and the remaining instalments vesting annually on the next two anniversaries of your Date of Commencement.


8.4.	However, in the event you are not reporting to Daniel Coleman as the Chief Executive Officer of KCG Holdings, Inc. or his successor by December 31, 2015, the unvested restricted stock units that are the subject of the initial Award shall vest but deliver on the original delivery date.


9.	Expenses


9.1.	You will be reimbursed your reasonable expenses properly and necessarily incurred by you in the proper performance of your duties under this Agreement, provided that you produce valid receipts and/or vouchers to the Company’s satisfaction. All expense claims must be made in accordance with the Company’s Expenses Reimbursement policy.


10.	Benefits


10.1.	The Company operates a benefits package and entitlement to join the Company’s contributory pension scheme forms part of this package, subject always to the rules of the schemes (including any eligibility requirements) from time to time in force. From the Date of Commencement (as stated above), you are entitled to become a member of the following schemes:

10.1.1

Personal Pension Scheme. Subject to you making contributions to your personal pension scheme, the Company will make additional matching contributions at a rate of 200% of your contribution. For example, if you contribute 2% of salary, the Company will contribute 4%. However, the maximum you may contribute is 5% of your salary and the maximum matching contribution will be 10% for the Company, subject always to a pension earnings cap which will be set by the Company in its absolute discretion or as required by law.


10.1.2	Health, Dental and Travel Insurance; and


10.1.3	Group Income Protection; and


10.1.4	Group Life Assurance

Details of the above schemes are available from Human Resources.

10.2.

The Company reserves the right to cease to offer or to amend or substitute another provider or to alter or substitute any part of the benefits package available to you under, or the terms and conditions of, that scheme at any time. No liability will accrue to the Company in the event that cover for any benefit available to you is refused by the provider or any conditions or limitations to the benefit are applied by the provider. The Company’s sole obligations in respect of any of these insurances are to pay the premium from time to time required by the provider and to pay to you such sums (if any) as may from time to time be received by the Company from the provider in respect of any claim made by you under the scheme and for the avoidance of doubt the Company shall be under no

obligation to take any action to enforce the terms of the insurance or otherwise to procure the benefit of the insurance for you.


10.3.	Your entitlement to participate in any benefit scheme will be conditional on the terms of any such scheme from time to time and your ability to satisfy any conditions for participation and/or entitlement imposed by any such scheme provider.


10.4.	The Company shall be entitled to exercise its rights under clause 13 notwithstanding that the effect of the exercise of such rights is or may be to terminate your employment in circumstances or at a time such that you are or may be deprived of any benefit (actual or contingent) under any insurance scheme provided by the Company.


11.	Sickness


11.1.	Any absence caused by sickness or injury must be notified to Human Resources by 10 a.m. on the first day of absence. If you are still off work on the third day, you must contact Human Resources to report on your progress and thereafter you are required to keep the Board regularly informed of your absence, the reasons for it, and of the expected duration.

11.2.

For the first seven (7) days of any absence caused by sickness or injury, a self-certification form should be completed, which is available from Human Resources. For absences of more than seven (7) days, a doctor’s certificate must be produced on the eighth day and should be submitted regularly for any period of absence thereafter. On each occasion that a medical certificate expires and you do not anticipate returning to work, you must notify the Board on the first working day following expiry of the medical certificate.

11.3.

Subject to you complying with the Company’s sickness absence procedure, and following completion of your probationary period, the Company will pay you basic salary in respect of periods of absence due to sickness or injury up to a maximum of 26 weeks’ qualifying sickness absence during any consecutive 12-month period calculated from the first day of absence. Further details are contained in the Company’s Sick Pay Policy set out in the Employee Handbook. Any Company Sick Pay paid in this way includes any entitlement you have to Statutory Sick Pay (“SSP”) and any other sickness or other benefit obtainable by you under any legislation for the time being in force.


11.4.	The Company at all times reserves the right to withhold, discontinue or request repayment of any Company Sick Pay awarded if:


11.4.1	it is satisfied that you have misrepresented your state of health or are in any way abusing the sickness scheme;


11.4.2	an injury from an accident at work was caused by your misconduct at work;


11.4.3	you fail to follow the Company’s absence procedure;


11.4.4	in the opinion of a doctor nominated by the Company, you are well enough to work;


11.4.5	you behave in a manner likely to retard your recovery.


11.5.	The Company reserves the right to require you to submit to a medical examination by a practitioner appointed by the Company, the cost of which will be borne by the Company. You acknowledge that the medical practitioner carrying out this examination will prepare a medical report for the Company and is entitled to disclose or discuss with the Company any matters arising from such

examination, including those which might materially or adversely affect your health and which may hinder or affect the proper performance of your duties.


11.6.	Prolonged or frequent absences may result in the termination of your employment whether you are in receipt of Company Sick Pay at that time or not.


11.7.	Failure to comply with the Company’s sickness and absence rules and procedures as set out in this clause 11 and/or the Employee Handbook may render you subject to disciplinary action and may also bar you from receiving any Company Sick Pay as outlined in clause 11.4 above.


12.	Holidays


12.1.	The Company’s holiday year runs from 1 January to 31 December.

12.2.

In addition to public holidays in England and Wales, you will be entitled to 26 days holiday during each complete holiday year. You may be required to work UK public or bank holidays and are required to be flexible in relation to such holidays, in view of the international nature of the Company’s business. You may also be required to take periods of leave during public or market holidays which apply to the markets or countries for which you may be involved as part of your employment with the Company, in addition to or instead of UK public or bank holidays.

12.3.

In each holiday year (apart from the year in which your employment commences or terminates) you will be expected to take at least the statutory 28 days’ holiday (including normal public holidays) to which you are entitled, whether or not you are absent on sick leave for all or any part of the holiday year. A maximum of five days holiday may be taken over from one leave year to the next, subject to approval by the Chief Executive, but must be taken by the end of March in the following year or it will be lost. No payment in lieu of untaken holiday will be given except on termination of employment where appropriate in accordance with clause 12.6 below.


12.4.	Your holiday entitlement for your first and final years of employment will be adjusted pro rata to reflect the proportion of the holiday year worked by you.


12.5.	You must obtain the prior approval of the Chief Executive before taking any holiday, in accordance with the Company’s policy as set out in the Employee Handbook.


12.6.	Upon the termination of your employment you will receive a payment in respect of any days’ holiday which are due but have not been taken. A sum will be deducted in respect of any days you have taken in excess of accrued holiday entitlement or any other sums owed to you by the Company. For these purposes, a day’s pay is calculated as 1/260 of your annual salary.


12.7.	During any period of notice (whether given by you or by the Company), no contractual holiday entitlement shall accrue. Entitlement to statutory annual leave only shall continue to accrue during such period.


13.	Notice and Termination


13.1.	You are required to give six (6) months’ notice in writing to terminate your employment. Save as otherwise provided for in this Agreement, you will be entitled to receive six (6) months’ written notice from the Company to terminate your employment.


13.2.	Notwithstanding clause 13.1, the Company may, in its sole and absolute discretion, terminate your employment at any time and with immediate effect by paying a Payment in Lieu. For the avoidance of doubt, the Payment in Lieu shall not include any element in relation to:


13.2.6	any bonus that might otherwise have been due during the period for which the Payment in Lieu is made (including but not limited to the 2014 Compensation Payment);


13.2.7	any payment in respect of benefits which you would have been entitled to receive during the period for which the Payment in Lieu is made; and


13.2.8	any payment in respect of any holiday entitlement that would have accrued during the period for which the Payment in Lieu is made.


13.3.	You will have no right to receive a Payment in Lieu unless the Company has exercised its discretion in clause 13.1. Nothing in this clause shall prevent the Company from terminating your employment in breach.

13.4.

Your employment may be terminated by the Company without notice and without Payment in Lieu or other compensation if you are considered by the Company to be guilty of gross misconduct or to be in fundamental breach of the terms of this Agreement. A non-exhaustive list of examples of conduct which the Company regards as constituting gross misconduct is contained in the Employee Handbook and it is your responsibility to familiarise yourself with these.


13.5.	On the termination of your employment for whatever reason you must immediately resign without compensation from any office which you may hold in the Company or any Group Company or which you hold as a nominee of the Company or any Group Company.


14.	Garden Leave

14.1.

At any time after you have or the Company has given notice to terminate your employment in accordance with the terms of this Agreement, or after you have purported to terminate your employment without giving full notice and the Company does not accept such resignation on such terms, the Company may require that during any such notice period or any part of parts of such notice periods that, without the prior written consent of the Company, you do not attend your workplace or you perform none of your duties or only perform such specific duties as are expressly assigned to you by the Company. Save as otherwise provided for in this Agreement, you will be entitled to full pay and contractual benefits during any such period of garden leave.


14.2.	During any period of notice whatsoever, however it is served (including whether as garden leave or not) you must, if instructed by the Company:


14.2.1	resign without compensation from any office which you may hold in the Company or any Group Company or which you hold as a nominee of the Company or any Group Company;


14.2.2	cease to be an authorised signatory of the Company or any Group Company;


14.2.3	refrain from contacting or communicating with any client, customer or supplier of the Company or any Group Company;


14.2.4	refrain from contacting or communicating with any employee, officer, director, agent or consultant of the Company or any Group Company;


14.2.5	refrain from undertaking any work for any third party, whether paid or unpaid, and whether as an employee or otherwise;


14.2.6	return all Company property, including, without limitation, all confidential information, documents, software and any copies thereof (in whatever format).

14.3.

During any period of garden leave, you will remain an employee of the Company and your employment shall continue and you will not be entitled to be employed or engaged by any other company, partnership, person or entity in any capacity (whether paid or unpaid). You should keep the Company informed of your whereabouts so that you may be contacted should the need arise during normal working periods, be it to perform any duties set out in clause 14.1 above or otherwise.


14.4.	The Company reserves the right to require you to take holiday that has accrued up to the commencement of any garden leave period during such garden leave.


15.	Confidentiality


15.1.	You acknowledge that in the course of your employment you will have access to Confidential Information. You have therefore agreed to accept the restrictions in this clause 15.

15.2.

You shall not (except in the proper course of your duties), either during your employment with the Company or any Group Company or at any time after its termination (howsoever arising}, use or disclose to any person, company or other organisation whatsoever (and shall use your best endeavours to prevent the publication or disclosure of) any Confidential Information. This restriction does not apply to:


15.2.1	any use or disclosure authorised by the Company or required by law or required by the proper performance of your duties; or


15.2.2	any information which is already in, or comes into, the public domain other than through your unauthorised disclosure; or


15.2.3	prevent you from making a protected disclosure within the meaning of section 43A of the Employment Rights Act 1996 (as amended).


16.	Intellectual Property

16.1.

You shall give the Company full written details of all Inventions and of all works embodying Intellectual Property Rights conceived or made wholly or partially by you at any time during the course of your employment with the Company which relates to, or are reasonably capable of being used in, the business of the Company. You also acknowledge that all Intellectual Property Rights subsisting (or which may in the future subsist) in all such Inventions and works shall automatically, on creation, vest in the Company absolutely. To the extent that they do not vest automatically, you agree to hold them on trust for the Company and will do everything necessary or desirable at the Company’s expense to vest the Intellectual Property Rights fully in the Company and/or to secure patent or appropriate forms of protection for the Intellectual Property Rights. You agree promptly to execute all documents and do all acts as may, in the opinion of the Company, be necessary to give effect to this clause 16.1. Decisions as to the protection or exploitation of any Intellectual Property Rights shall be in the absolute discretion of the Company.


16.2.	You hereby irrevocably waive all moral rights under the Copyright, Designs and Patents Act 1988 (and all similar rights in other jurisdictions) which you have or will have in any existing or future works referred to in this clause 16.1.

16.3.

You hereby irrevocably appoint the Company to be your attorney to execute and do any such instrument or thing and generally to use your name for the purpose of giving the Company or its nominee the benefit of this clause 16 and acknowledge in favour of a third party that a certificate in writing signed by any Director or the Secretary of the Company that any instrument or act falls within the authority conferred by this clause 16 shall be conclusive evidence that such is the case.


17.	Restrictions During Employment

17.1.

During your employment you shall not, in a Relevant Capacity, be engaged or concerned in any business or undertaking other than that of the Company or any Group Company, without the prior written consent of the Board, but you may nevertheless be or become a minority holder of any securities (to a maximum holding of not more than 5% of such securities) which are quoted on a recognised investment exchange, subject to conforming to all regulatory requirements and rules and the Company’s Compliance procedures which may change from time to time at the Board’s absolute discretion.


18.	Restrictions After Employment


18.1.	For a period of twelve (12) months after the Termination Date you shall not, in a Relevant Capacity, without the previous written consent of the Board:


18.1.1	be engaged or concerned or interested in or carry on any business within the Restricted Area which competes with (or will within such period compete with) the Restricted Business;

18.1.2

solicit, interfere with, entice away or endeavour to entice away (or procure or assist the soliciting, interference or enticement), in connection with any business which competes to a material extent with the Restricted Business, the custom or business of any Customer or prospective Customer with whom you have had personal contact or management responsibility on a more than de minimis basis during the course of your employment with the Company at any time during the period of 12 months preceding the Termination Date, not attempt to discourage or dissuade such person, firm or company from doing business with the Company;

18.1.3

solicit, entice away or endeavour to entice away (or procure or assist the soliciting or enticement) any Key Employee or do any act whereby such Key Employee is encouraged to terminate their employment, appointment or contract with the Company, whether or not such Key Employee would, by reason of terminating their employment, appointment or contract service with the Company, commit a breach of their contract with the Company; or


18.1.4	engage or employ or offer employment to (or procure or assist the engagement, employment or offering to) any Key Employee, whether or not such Key Employee would, by reason of terminating their employment, appointment or contract with the Company, commit a breach of their contract with the Company.


18.2.	The provisions set out in clauses 18.1 above shall apply after the Termination Date regardless of the reason for the termination of your employment (including the termination pursuant to clause 13.3).


18.3.	The period of the restrictions set out in clauses 18.1 shall be reduced by any period(s) during which you are placed on garden leave by the Company pursuant to clause 14 above.

18.4.

Each of the restrictions contained at clauses 18.1 to 18.3 constitutes an entirely separate and independent restriction and is considered by the parties to be reasonable and necessary for the protection of the legitimate interests of the Company but if any such restriction or part thereof shall be found void, invalid, illegal or unenforceable by any court of competent jurisdiction but would be valid if some words were deleted therefrom, or the period thereof reduced, or area covered or range of activities reduced, such restriction shall apply with such modification as may be necessary to make it valid and effective.


18.5.	You shall at the request of the Board enter into a direct agreement or undertaking with any other Group Company by which you will accept restrictions corresponding to the restrictions contained in this clause (or such of them as the Board may require in the circumstances).

18.6.

You agree that the potential damage to the Company and any Group Company of a breach of the restrictions specified in clause 18.1 above may be such that it is unquantifiable or that you will not be able to compensate the Company or any Group Company adequately. You acknowledge that the Company may seek injunctive relief and/or any other equitable relief to enforce any part of clause 18.1 above whether in respect of any threatened or actual breach of that clause.


18.7.	Before accepting any employment, appointment or engagement with any third party either during the Employment or at any time during the period of 12 months after the Termination Date, you shall draw the provisions of this clause 18 to the attention of such third party.

18.8.

In the event of the transfer (within the meaning of the Transfer of Undertakings (Protection of Employment) Regulations 2006 (the “Transfer Regulations”)) of the undertaking or the part of the undertaking in which you shall at the time be employed as the result of which (by virtue of the Transfer Regulations) your employment is automatically transferred to another (the “Transferee”), the provisions of this clause 18 shall have effect as though references in it (and in all associated terms defined in this Agreement) to any “Group Company” are construed as references to “any other company within the Transferee’s Group” which for these purposes shall comprise the Transferee and any holding company of the Transferee and the subsidiaries of the Transferee and of any such holding companies for the time being.


19.	Assistance

19.1.

You will during and after the termination of your employment provide such reasonable assistance, reasonably requested documents, physical evidence or testimony as the Company or any Group Company may reasonably require in the conduct of any internal investigation, the defence or prosecution of any current or future claim that may be made against the Company or any Group Company including but not limited to any proceeding before any arbitrary, administrative, regulatory, judicial, legislative or other body or agency to the extent such claims, investigations or proceedings relate to services performed, or required to be performed by you, pertinent knowledge possessed by you, or any act or omission by you.


19.2.	If the Company or any Group Company requests such assistance after the termination of your employment:

19.2.1

The Company or any Group Company will reimburse you for any reasonable out-of-pocket expenses you necessarily and wholly incur in complying with clause 19.1 subject to the prior written consent of the Company’s General Counsel in consultation with the Board (which shall not be unreasonably withheld) and to the provision of evidence of expenditure to the General Counsel’s reasonable satisfaction;


19.2.2	The Company shall pay for you to take legal advice from its lawyers, save in the event that the Company’s General Counsel in consultation with the Board determines that there is a conflict of interest (in which case the Company shall pay the reasonable costs of independent advice); and


19.2.3	The Company acknowledges that any assistance should not be at times which may reasonably jeopardise any new employment of yours.


20.	Company Property

20.1.

On request and in any event on the termination of your employment for any reason, you are required immediately to return to the Company all Company property in your possession or under your control including any Company credit or charge cards, all keys, computer hardware and software including discs and demonstration equipment, samples and passwords and all documents in whatever form (including notes and minutes of meetings, customer lists, diaries and address books, computer printouts, plans, diagrams, projections) together with all copies thereof. The ownership of all such property and documents shall at all times remain vested in the Company.


20.2.	All programmes and information about the Company’s or any Group Company’s affairs held on any computer owned by you shall be deleted on the termination of your employment and, if requested by the Company, you will make that computer available for inspection to ensure that this has been effectively carried out.


21.	Conduct, Grievance and Disciplinary Procedure

21.1.

Your conduct must at all times be consistent with an employee of a company regulated by the FCA or its successor body. Where it is necessary for you to be registered as an Approved Person by the FCA for the performance of your duties, any failure to be so registered may give the Company cause for the termination of your employment. If from time to time you carry out Controlled Functions, the Company reserves the right to remove you from involvement in some or all Controlled Functions or any other regulated activities if the Company has any concern about your competence or fitness and propriety to carry out those Controlled Functions or other regulated activities. You are required to comply with the Company’s Compliance Manual and procedures.


21.2.	You must observe all rules, regulations, policies and other requirements which apply from time to time, of any body which regulates the Company or any Group Company’s activities. You are also required to observe all applicable legislation, and to act in accordance with the instructions issued from time to time by the Group Chief Compliance Officer.


21.3.	The Company’s Grievance and Disciplinary Procedures are set out in the Employee Handbook. These Procedures do not form part of your terms and conditions of employment and may be amended by the Company from time to time. You are, however, required to comply with its terms and it is your responsibility to familiarise yourself with it.


22.	Deductions


22.1.	You hereby agree to deductions being made from your salary or any other sums due to you from the Company in respect of any sums owed by you to the Company from time to time, including without limitation, overpayments, drawings, outstanding loans, advances or payments for excess holiday.


23.	Alterations to Terms and Conditions


23.1.	Any minor changes to this Agreement will be notified to you in writing.


23.2.	Unless as otherwise provided for in this Agreement you will be given at least one month’s prior written notice of any proposed major changes and will be subject to your agreement — but you will be taken to have accepted these if you do not indicate to the contrary.


24.	Compliance with Policies and Procedures


24.1.	You will be issued with an Employee Handbook, the contents of which you are expected to comply with during the course of your employment. The Company will update the Employee Handbook from time to time and you will be notified of any such changes. Save as set out in the Employee Handbook, it does not form part of your contract of employment.


24.2.	To the extent that there is a conflict between the provisions of this Agreement and the Employee Handbook or any other such manuals, codes or regulations current from time to time, the provisions of this Agreement shall prevail.

24.3.

You are required to comply with the provisions of any policies or procedures of the Company in place from time to time including, without limitation, the Company’s Computers, Communications Devices, E-mail, Electronic Communications and internet Use Policy, Code of Business Conduct and Ethics and you will be required to execute a separate Acknowledgement in respect to the policies specifically listed above, which Acknowledgement will form part of this Agreement.


25.	Other Agreements

25.1.

This Agreement constitutes the whole agreement between the parties. All other agreements (if any) for service between the Company and you are hereby abrogated and superseded and any sum or sums paid to you by way of remuneration under any such other agreements after the commencement of the employment shall be deemed to have been received by you on account of the remuneration payable to you under this letter. The terms of this Agreement shall prevail in the event of any inconsistency between the terms of this Agreement and the terms of any offer letter. You have not been induced to enter into an agreement in the form of this letter in reliance on, nor have you been given any warranty, representation, statement, agreement or undertaking of any nature whatsoever other than as are expressly set out in this Agreement and, to the extent that any of them have been, you unconditionally and irrevocably waive any claims, rights or remedies which you might otherwise have had in relation thereto.


25.2.	There are no collective agreements which directly affect the terms and conditions of your employment and your employment with the Company is not covered by any collective agreements.

25.3.

If any provision contained in this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, that provision will be severed from this Agreement and that invalidity or unenforceability will not affect any other provision of this Agreement, the balance of which will remain in and have its intended full force and effect; provided, however, if the invalid or unenforceable provision may be modified so as to be valid and enforceable as a matter of law, the

invalid provision will be deemed to have been modified so as to be valid and enforceable to the maximum extent permitted by law.


26.	Third Party Rights

26.1.

The Contracts (Rights of Third Parties) Act 1999 shall not apply to this agreement and no person other than you and the Company (or any Group Company) shall have any rights under it. The terms of this Agreement may be varied, amended or modified or this Agreement may be suspended, cancelled or terminated by agreement in writing between the parties or this Agreement may be rescinded (in each case), without the consent of any third party.


27.	Changes in Particulars of Employees


27.1.	You must notify the Board in writing of:

27.1.1

any change in your personal details which is your name, address, home telephone number or mobile telephone number, nationality or immigration status, marital status or civil partnership status, date of marriage or civil partnership, divorce or births in your immediate family, examination passes or any other changes to your professional registrations or accreditations, change of your next of kin, change of life assurance beneficiary, or your next of kin’s change of address, telephone number etc.;


27.1.2	your arrest, charge or conviction for a criminal offence or if you become bankrupt, apply for or have made against you a receiving order, make any composition with your creditors or commit any act of bankruptcy or are subject to any disciplinary action taken against you by a professional or regulatory body, which may render you liable to summary dismissal.


28.	Data Protection


28.1.	The Company will, as a consequence of your employment, collect certain of your personal information in order to carry out necessary personnel administration, work and business management tasks and activities. As a result, the personal information kept on you may be used to:


28.1.1	to administer rights and benefits under your employment contract such as salary, bonus, healthcare pension, leave etc.;


28.1.2	ensure the Company’s compliance with its various legal obligations such as in relation to health and safety, equal opportunities, public interest disclosure etc.;


28.1.3	administer payroll and discharge the Company’s PAVE obligations;


28.1.4	operate necessary reviews and evaluations such as in relation to performance;


28.1.5	assist in the smooth operation of the Company’s IT and communications systems;


28.1.6	assist in handling any legal claims against the Company or in which the Company is involved.


28.2.	The Company may need to disclose the personal information held on you to Group Companies and may, in doing so, transfer personal information to the United States where laws may not be

as protective of your personal information privacy rights as in the UK. The Company will not disclose your personal information for any reason incompatible with those reasons set out at clause 28.1 above without your consent or unless it is in your vital interests to do so, or as otherwise authorised by law.


28.3.	You agree to the Company’s holding, using and processing of personal information about you within the purposes set out in clause 28.1 above including, where necessary, sensitive personal information.


28.4.	The Company reserves the right to review, audit, intercept, access and disclose on a random basis all messages created, received or sent over the Facilities in order to:


28.4.1	protect against the unauthorised use of the system;


28.4.2	protect the system against viruses or hackers;


28.4.3	find lost messages or retrieve messages due to system failure;


28.4.4	assist in the investigations of wrongful acts;


28.4.5	combat or investigate fraud or corruption;


28.4.6	prevent or detect crime;


28.4.7	comply with any legal obligation;


28.4.8	protect the Company’s legitimate interest and activities.


29.	Warranty


29.1.	You warrant that by entering into or performing these and any other arrangements made between the Company and you

29.1.1

you will not be in breach of or subject to any express or implied term of any contract with or other obligation to any third party binding on you, including without limitation any notice period or the provisions of any restrictive covenants or confidentially obligations, arising out of any employment with any other employer or former employer. You further warrant that at the commencement date of your employment you are not bound by any such express or implied term that you have not disclosed to the Company.


29.1.2	you are entitled to work in the United Kingdom without any additional approvals and will notify the Company immediately if you cease to be so entitled at any time during your employment with the Company or any Group Company.


30.	Potential impact of the Remuneration Code


30.1.	The Company is regulated by the FCA and is currently a Level 3 entity for the purposes of the FCA Remuneration Code. The Company believes that the terms and conditions set out in this Agreement are all consistent with the current requirements of the Remuneration Code.


30.2.	Notwithstanding any other provision in this Agreement, where the Company makes any payment to you of variable compensation that is regulated by the Remuneration Code, the Company reserves

the right in its sole discretion to adjust any payment to you {including to reduce the payment) to the extent it decides is reasonably necessary taking into account the terms of the Remuneration Code and the Company’s Remuneration Policy Statement published under the Remuneration Code. The Company anticipates exercising this right on rare occasions, if at all, and any potential exercise of this right will be discussed with you in advance save where it is not reasonably practicable to do so. The Company shall only exercise its rights hereunder acting reasonably and may not adjust an individual’s remuneration basis unless all or substantially all employees at a level commensurate with such employee are all subject to the same variation(s), save to the extent that it would be appropriate to do so by virtue of a particular issue applying to a particular individual.

30.3.

In the unlikely event that the FCA advises the Company of its view that these terms and conditions are not consistent with the Remuneration Code, or the Remuneration Code (or any other regulatory requirements affecting remuneration) change, or the Company’s position with respect to such regulatory requirements changes (for example, if the Company becomes a Level 2 instead of a Level 3 entity under the Remuneration Code), the Company reserves the right to unilaterally modify these terms and conditions to the extent, and in the manner, it considers appropriate in its sole and absolute discretion acting reasonably. Save where it is not reasonably practicable, any proposed changes will be negotiated and agreed with you in advance of being made by the Company (in such circumstances both parties acting reasonably), however the nature of any changes will remain within the ultimate discretion of the Company.


30.4.	You hereby acknowledge that changes made by the Company pursuant to the above will not constitute a breach of your terms and conditions of employment, even if the precise terms of any future changes are unable to be identified by either party in advance.


31.	Governing Law

This Agreement shall be governed by the laws of England and Wales and the parties submit to the exclusive jurisdiction of the English Courts.


32.	Interpretation


32.1.	For the purposes of this Agreement, the following words shall have the following meanings:


“Company Sick Pay”	means any sick pay paid in accordance with clause 11.3 (Sickness).

“Confidential Information”

means information (whether or not recorded in documentary form, or stored on any magnetic or optical disk or memory) which is not in the public domain relating to the business, products, customers, clients, directors, affairs and finances of the Company or any Group Company for the time being confidential to the Company or any Group Company and trade secrets including, without limitation, technical data and know-how relating to the business of the Company or any Group Company or any of its or their business contacts;


“Customer’’	means any person, firm or company from whom during the period of twelve months preceding the Termination Date, the Company obtained an order for goods or services;


“Facilities”	means email, voicemail, telephone system or internet;


“Group Company”	means any Company which for the time being is (a) a holding company of the Company or (b) a subsidiary undertaking of the Company or (c) a subsidiary undertaking of any such holding company (as these expressions are defined in the Companies Act 2006) and shall include, for the avoidance of doubt, Knight Capital (Europe) Limited and Getco Europe Limited;

“Intellectual Property Rights”

means patents, rights to inventions, copyright and related rights, trade-marks, trade names and domain names, rights in get-up, rights in goodwill or to sue for passing off, unfair competition rights, rights in designs, rights in computer software, database rights, topography rights, rights in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (or rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which subsist or will subsist now or in the future in any part of the world;


“Invention”	means any invention, idea, discovery, development, improvement or innovation, whether or not patentable or capable of registration, and whether or not recorded in any medium;

“Key Employee”

means any employee of or consultant or independent contractor to the Company at the Termination Date or who was such an employee, consultant or independent contractor at any time during the 12 months preceding the Termination Date and, in each case, who worked or provided services in a senior executive, managerial, IT, sales or trading capacity and with whom you dealt personally or had management responsibility for on a more than de minimis basis at any time during the 12 months preceding the Termination Date;


“Payment in Lieu”	means a sum in lieu of notice equal to the basic salary (as at the date of termination) which you would have been entitled to receive under this Agreement during the relevant notice period referred to at clause 13.1 (or, if notice has already been given, during the remainder of the notice period) less any deductions required by law;


“Prospective Customer’’	means any person, firm or company with whom during the period of twelve months preceding the Termination Date, the Company was or has been in negotiations or discussions with or to whom the company shall have presented a proposal with a view to such person, firm or Company placing an order for goods or services with the Company;


“Relevant Capacity”	means either alone or jointly with another in the capacity of principal, agent, consultant, partner, director, shareholder, independent contractor or employee whether directly or indirectly;


“Restricted Area”	means Europe, the US, Singapore, Hong Kong and such other areas worldwide in which the Company carries on business at the Termination Date and in or in respect of which you shall have carried out duties or been engaged or concerned at any time during the 12 months preceding the Termination Date;


“Restricted Business”	means any business carried on by the Company or Group Company at the Termination Date and in which you were materially engaged at any time during the period of 12 months immediately preceding the Termination Date;


“Termination Date”	means the date on which your employment terminates, howsoever arising.

This agreement is signed by the parties to indicate their Agreement to its terms.

Signed on behalf of the Company

Date: 19 March 2014

Name and position: Marcia Jones – Managing Director – Human Resources

Signed: /s/ Marcia Jones

Please indicate that you agree to these terms by signing one copy of this Agreement and returning it.

I have read and understood the terms and conditions set out in this Agreement and agree that I will comply with those terms and conditions.

Date: 24/3/14

Name: Philip Allison

Signed: /s/ Philip Allison

KCG Exhibit 21.1 Q4 14

Exhibit 21.1

Significant Subsidiaries of the Registrant

The following are significant subsidiaries of KCG Holdings, Inc. as of December 31, 2014 and the states in which they are organized. Indentation indicates the principal parent of each subsidiary. Except as otherwise specified, in each case KCG Holdings, Inc. owns, directly or indirectly, at least 99% of the voting securities of each subsidiary. The names of particular subsidiaries have been omitted because, considered in the aggregate as a single subsidiary, they would not constitute, as of December 31, 2014, a "significant subsidiary" as that term is defined in Rule 1-02(w) of regulation S-X under the Securities Exchange Act of 1934.



Name		State of Entity
KCG Holdings, Inc.		Delaware
Knight Capital Group, Inc.		Delaware
Knight Capital Holdings LLC		Delaware
KCG Americas LLC		Delaware
KCG Europe Limited		United Kingdom
GETCO, LLC		Illinois
Global Colocation Services LLC		Delaware
Hotspot FX Holdings, Inc.		Delaware
KCG Hotspot FX LLC		New Jersey
GETCO Holding Company, LLC		Delaware
GETCO Europe Limited		United Kingdom
GETCO Trading, LLC		Delaware
GETCO Investments, LLC		Delaware
KCG Asia Pacific Pte. Ltd.		Singapore

KCG Exhibit 23.1 Q4 14

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S‑3ASR (No. 333-189747) and Form S‑8 (No. 333-189746) of KCG Holdings, Inc. of our report dated March 2, 2015 relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.

/s/ PricewaterhouseCoopers LLP

New York, New York

March 2, 2015

KCG Exhibit 31.1 Q4 14

EXHIBIT 31.1

CERTIFICATIONS

I, Daniel Coleman, certify that:


1.	I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of KCG Holdings, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/S/ DANIEL COLEMAN

Name: Daniel Coleman

Title: Chief Executive Officer

(Principal Executive Officer)

Date: March 2, 2015

KCG Exhibit 31.2 Q4 14

EXHIBIT 31.2

CERTIFICATIONS

I, Steffen Parratt, certify that:


1.	I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2014 of KCG Holdings, Inc.;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


(b)	Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/S/ STEFFEN PARRATT

Name: Steffen Parratt

Title: Chief Financial Officer

(Principal Financial Officer)

Date: March 2, 2015

KCG Exhibit 32.1 Q4 14

EXHIBIT 32.1

Statement 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

In connection with the Annual Report on Form 10-K of KCG Holdings, Inc. (the “Company”) for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Daniel Coleman, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or, 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



	/S/ DANIEL COLEMAN
Name: Title: Date:	Daniel Coleman Chief Executive Officer March 2, 2015

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

KCG Exhibit 32.2 Q4 14

EXHIBIT 32.2

Statement 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

In connection with the Annual Report on Form 10-K of KCG Holdings, Inc. (the “Company”) for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Steffen Parratt as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:


1.	The Report fully complies with the requirements of Section 13(a) or, 15(d) of the Securities Exchange Act of 1934; and


2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



	/S/ STEFFEN PARRATT
Name: Title: Date:	Steffen Parratt Chief Financial Officer March 2, 2015

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