BGC PARTNERS, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of BGC Partners' financial condition and results of
operations should be read together with BGC Partners, Inc.'s unaudited condensed
consolidated financial statements and notes to those statements, as well as the
cautionary statements relating to forward-looking statements included in this
report. When used herein, the terms "BGC Partners," "BGC," the "Company," "we,"
"us" and "our" refer to BGC Partners, Inc., including consolidated subsidiaries.
This discussion summarizes the significant factors affecting our results of
operations and financial condition as of and during the three and nine months
ended September 30, 2021 and 2020. This discussion is provided to increase the
understanding of, and should be read in conjunction with, our unaudited
condensed consolidated financial statements and the notes thereto included
elsewhere in this report.
Due to BGC's Insurance brokerage business being classified as "Held for Sale" as
of September 30, 2021, certain financial statement line items within our
unaudited condensed consolidated statement of financial condition are not fully
comparable. Assets and liabilities related to the Insurance brokerage business,
including cash and cash equivalents, are reflected within "Assets held for sale"
and "Liabilities held for sale" in our unaudited condensed consolidated
statement of financial condition, as of September 30, 2021, but not as of
December 31, 2020. Refer to Note 4-"Assets and Liabilities Held for Sale" for
detailed information on the held for sale activities of the Company reported in
the unaudited condensed consolidated statements of financial condition as of
September 30, 2021.
OVERVIEW AND BUSINESS ENVIRONMENT
We are a leading global brokerage and financial technology company servicing the
global financial markets.
Through brands including BGC®, GFI®, Sunrise™, Besso™, Ed Broking®, Poten &
Partners™, RP Martin™, Fenics, Corant™, and Corant Global™, among others, our
businesses specialize in the brokerage of a broad range of products, including
fixed income such as government bonds, corporate bonds, and other debt
instruments, as well as related interest rate derivatives and credit
derivatives. We also broker products across FX, equity derivatives and cash
equities, energy and commodities, shipping, insurance, and futures and options.
Our businesses also provide a wide variety of services, including trade
execution, connectivity solutions, brokerage services, clearing, compression,
and other post-trade services, information, and other back-office services to a
broad assortment of financial and non-financial institutions. Our integrated
platform is designed to provide flexibility to customers with regard to price
discovery, execution and processing of transactions, and enables them to use
Voice, Hybrid, or in many markets, Fully Electronic brokerage services in
connection with transactions executed either OTC or through an exchange. Through
our Fenics® group of electronic brands, we offer a number of market
infrastructure and connectivity services, Fully Electronic marketplaces, and the
Fully Electronic brokerage of certain products that also may trade via Voice and
Hybrid execution. The full suite of Fenics® offerings include Fully Electronic
and Hybrid brokerage, market data and related information services, trade
compression and other post-trade services, analytics related to financial
instruments and markets, and other financial technology solutions. Fenics®
brands operate under the names Fenics®, BGC Trader™, CreditMatch®, Fenics Market
Data™, Fenics GO™, BGC Market Data™, kACE®, Capitalab®, Swaptioniser®, CBID® and
Lucera®.
We previously offered real estate services through our publicly traded
subsidiary, Newmark (Nasdaq: NMRK). On November 30, 2018, we completed the
Spin-Off of Newmark. Following the Spin-Off, BGC no longer holds any interest in
Newmark. See Note 1-"Organization and Basis of Presentation" to our consolidated
financial statements in Part II, Item 8 of our Annual Report on Form 10-K for
the year ended December 31, 2020, for further information regarding the
transactions related to the Newmark IPO, Separation and Spin-Off.
BGC, BGC Partners, BGC Trader, GFI, GFI Ginga, CreditMatch, Fenics, Fenics.com,
Sunrise Brokers, Poten & Partners, RP Martin, kACE2, Capitalab, Swaptioniser,
CBID, Aqua and Lucera are trademarks/service marks, and/or registered
trademarks/service marks of BGC Partners, Inc. and/or its affiliates.
Our customers include many of the world's largest banks, broker-dealers,
investment banks, trading firms, hedge funds, governments, corporations, and
investment firms. We have dozens of offices globally in major markets including
New York and London, as well as in Bahrain, Beijing, Bermuda, Bogotá, Brisbane,
Buenos Aires, Chicago, Copenhagen, Dubai, Dublin, Frankfurt, Geneva, Hong Kong,
Houston, Istanbul, Johannesburg, Madrid, Melbourne, Mexico City, Miami, Moscow,
Nyon, Paris, Rio de Janeiro, Santiago, São Paulo, Seoul, Shanghai, Singapore,
Sydney, Tel Aviv, Tokyo, Toronto, and Zurich.
As of September 30, 2021, we had approximately 2,700 brokers, salespeople,
managers and other front-office personnel across our businesses.
Futures Exchange Group
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On July 30, 2021, the Company completed the purchase of the Futures Exchange
Group for a purchase price of $4.9 million at closing, plus the cash held at
closing by the Futures Exchange Group, and an earn-out, only payable out of our
portion of the profits of the Futures Exchange Group, capped at the amount
Cantor contributed to the Futures Exchange Group prior to closing.
The Futures Exchange Group acquisition has been determined to be a combination
of entities under common control that resulted in a change in the reporting
entity. Accordingly, the financial results of the Company have been recast to
include the financial results of the Futures Exchange Group in the current and
prior periods as if the Futures Exchange Group had always been consolidated.
The following tables summarize the impact of the Futures Exchange Group
acquisition to the Company's unaudited condensed consolidated statement of
financial condition as of December 31, 2020, and to the Company's unaudited
condensed consolidated statements of operations for the three and nine months
ended September 30, 2020 (in thousands, except per share amounts):
                                                                      December 31, 2020
                                                       As Previously     Retrospective
                                                         Reported         Adjustments      As Adjusted
Total assets                                          $  3,949,300    $          3,942    $ 3,953,242
Total liabilities                                        3,120,397                 874      3,121,271
Total equity                                               808,229               3,068        811,297
Total liabilities, redeemable partnership interest,
and equity                                               3,949,300               3,942      3,953,242


                                            Three Months Ended September 30, 2020                 Nine Months Ended September 30, 2020
                                      As Previously      Retrospective                     As Previously      Retrospective
                                         Reported         Adjustments      

As Adjusted Reported Adjustments As Adjusted
Income (loss) from operations before
income taxes

                         $      18,462    $         (1,189)   $ 

17,273 $ 97,378 $ (3,188) $ 94,190
Consolidated net income (loss)

               9,904              (1,189)          8,715           69,346              (3,188)         66,158
Net income (loss) attributable to
noncontrolling interest in
subsidiaries                                   251                (386)           (135)          18,100              (1,033)         17,067
Net income (loss) available to
common stockholders                          9,653                (803)          8,850           51,246              (2,155)         49,091
Basic earnings (loss) per share               0.03               (0.01)           0.02             0.14                   -            0.14
Diluted earnings (loss) per share             0.03               (0.01)           0.02             0.14               (0.01)           0.13


Additionally, the unaudited condensed consolidated statements of comprehensive
income (loss), unaudited condensed consolidated statements of cash flows and
unaudited condensed consolidated statements of changes in equity have been
adjusted to reflect these retrospective adjustments.
Fenics
For the purposes of this document and subsequent SEC filings, all of our
higher-margin, technology-driven businesses are referred to as Fenics. In the
first quarter of 2021, we began to categorize our Fenics businesses as Fenics
Markets and Fenics Growth Platforms, and we have conformed our prior period
comparisons of the components of our Fenics businesses to this new
categorization. Fenics Markets includes the fully electronic portion of BGC's
brokerage businesses, data, software and post-trade revenues that are unrelated
to Fenics Growth Platforms, as well as Fenics Integrated revenues. Fenics Growth
Platforms includes Fenics UST, Fenics GO, Lucera, Fenics FX and other newer
standalone platforms. Revenue generated from data, software, and post-trade
attributable to Fenics Growth Platforms are included within their related
businesses.
Historically, technology-based product growth has led to higher margins and
greater profits over time for exchanges and wholesale financial intermediaries
alike, even if overall Company revenues remain consistent. This is largely
because automated and electronic trading efficiency allows the same number of
employees to manage a greater volume of trades as the marginal cost of
incremental trading activity falls. Over time, the conversion of exchange-traded
and OTC markets to Fully Electronic trading has also typically led to an
increase in volumes which offset lower commissions, and often lead to similar or
higher overall revenues. We have been a pioneer in creating and encouraging
Hybrid and Fully Electronic execution, and we continually work with our
customers to expand such trading across more asset classes and geographies.
Outside of U.S. Treasuries and spot FX, the banks and financial firms that
dominate the OTC markets had, until recent years, been hesitant in adopting
electronically traded products. However, banks, broker-dealers, and other
professional trading
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firms are now much more active in Hybrid and Fully Electronically traded markets
across various OTC products, including credit derivative indices, FX
derivatives, non-U.S. sovereign bonds, corporate bonds, and interest rate
derivatives. These electronic markets have grown as a percentage of overall
industry volumes for the past few years as firms like BGC have invested in the
kinds of technology favored by our customers. Regulation across banking, capital
markets, and OTC derivatives has accelerated the adoption of Fully Electronic
execution, and we expect this demand to continue. We also believe that new
clients, beyond our large bank customer base, will primarily transact
electronically across our Fenics platforms.
The combination of wider adoption of Hybrid and Fully Electronic execution and
our competitive advantage in terms of technology and experience has contributed
to our strong growth in electronically traded products. We continue to invest in
our high-growth, high-margin, technology-driven businesses, including our
standalone Fully Electronic Fenics Growth Platforms. Fenics has exhibited strong
growth over the past several years, and we believe that this growth has outpaced
the wholesale brokerage industry. We expect this trend to accelerate as we
continue to convert more of our Voice and Hybrid execution into higher-margin,
technology-driven execution across our Fenics platforms and grow our Fenics
Growth Platforms.
We expect to benefit from the secular trend towards electronic trading,
increased demand for market data, and the need for increased connectivity,
automation, and post-trade services. We continue to onboard new customers as the
opportunities created by electronic and algorithmic trading continue to
transform our industry. We continue to roll out our next-gen Fenics execution
platforms across more products and geographies with the goal of seamlessly
integrating Voice liquidity with customer electronic orders either by a
graphical user interface, application programming interface, or web-based
interface. We expect to have continued success converting Voice/Hybrid desks
over time as we roll out these platforms across more products and geographies.
We have continued to invest in our Fenics Growth Platforms, which currently
include:
•Fenics UST, one of the largest CLOB platforms for U.S. Treasuries, had ADV
growth of over 64% during the quarter, outpacing the overall market. This
compares with an increase of approximately 9% for overall primary dealer U.S.
Treasury volumes. Primary dealer volumes are based on data from the Securities
Industry and Financial Markets Association. Fenics UST CLOB market share
increased from 12% a year ago to over 19% in the third quarter. CLOB market
share is based on BGC's internal estimates and data from Greenwich Associates.
From the third quarter onward, Greenwich Associates updated its methodology for
calculating CLOB market share to more accurately reflect CLOB-only trading
volumes. Fenics UST is estimated to have saved our clients over $25 million in
the third quarter and over $238 million from January 2019 through September
2021. Fenics UST continues to provide the tightest markets, offering prices
inside of competing platforms' bid and offer spreads on benchmark U.S.
Treasuries. Fenics UST optimized its commercial agreements going into 2021,
which together with higher volumes, has driven revenue growth. In addition,
Fenics UST launched U.S. Repos on the platform in the third quarter of 2021,
following on the prior successful launch of UST Bills.
•Fenics GO, our global options electronic trading platform, provides live,
real-time, and tradeable two-way electronic liquidity for exchange-listed
futures and options, such as Eurex Euro Stoxx 50 Index Options, Euro Stoxx Banks
Index Options, Nikkei 225 Index Options, Hang Seng Chinese Enterprise Index
Options (HSCEI), DAX Index Options, and Korea Composite Stock Price Index
Options (KOSPI). Fenics GO electronic liquidity providers include Susquehanna
International Securities (SIG), which joined DRW, Lighthouse, Citadel
Securities, IMC, Maven Securities, Optiver and Akuna Capital as electronic
liquidity providers. Fenics GO has integrated Fenics' existing electronic
platform MatchBox into its client offering. MatchBox is an online platform that
automates the trading, booking, and lifecycle management of global equity
derivatives contracts. The integration of these two electronic platforms
provides Fenics GO's clients with a comprehensive electronic equity derivatives
trading solution. Fenics GO is the only anonymous multilateral electronic
platform for block-sized listed equity index options, giving it a unique
advantage in helping clients satisfy their best execution requirements.
•Lucera, which is our software-defined network, offering the trading community
direct connectivity to each other. Lucera has a fully built, scalable
infrastructure that provides clients electronic trading connectivity with their
counterparties within days, as opposed to months, and at a significantly lower
cost. Lucera is comprised of three main business lines, LUMEMarkets,
LuceraConnect and LUMEAlfa. LUMEMarkets is our low latency aggregator, providing
a single access point across multiple fragmented marketplaces and exchanges (FX,
Rates, Futures and Credit markets). LuceraConnect provides on-demand
connectivity to over one thousand endpoints across buy-side clients, trading
firms, marketplaces, and exchanges. LuceraConnect has quickly become the
industry standard for the FX market and is rapidly expanding in other asset
classes. Lucera also supports the distribution of Fenics trading platforms,
including Fenics UST, Fenics FX and Fenics MIDFX. Algomi, acquired in March
2020, which is a dealer-to-client credit marketplace for banks streaming to
buy-side clients, provides the buy-side aggregated access to broad bank
liquidity. This
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subscription SaaS improves their workflow and liquidity through data
aggregation, pre-trade information analysis, and execution facilitation. We have
rebranded Algomi to LUMEAlfa, a new product that combines the functionality of
Algomi Alfa's aggregation with Lucera's global bank and buy side connectivity,
and credit and rates execution, and are integrating this business with our
existing Lucera SaaS connectivity subscription service to provide both data and
execution capabilities directly between banks/dealers and their buy-side
customers. Lucera made significant progress onboarding new institutional and
bank clients during the quarter. Winning new clients and expanding existing
relationships adds to Lucera's highly recurring and compounding subscription
revenue base. Additionally, Lucera started offering clients access to
cryptocurrency trading venues, leveraging its leading connectivity to exchanges,
trading platforms, and custodians. Lucera's cryptocurrency solution is focused
on providing clients with world-class infrastructure that offers fully compliant
workflows.
•Fenics' Credit offering, Portfolio Match, our recently deployed session-based,
matching platform, continued to gain traction during the quarter, with September
setting a new ADV record in U.S. investment grade credit. Portfolio Match
currently supports U.S. and European investment grade credit, and European high
yield credit. U.S. high yield credit sessions are expected to launch during the
fourth quarter of 2021.
•Fenics FX, our ultra-low latency electronic FX trading platform, which sits in
Fenics Growth Platforms, generated strong double-digit revenue growth against a
challenging trading environment with tempered FX volatility. Fenics FX growth
was driven by new clients, and improved fee capture. Its new NDF offering, which
launched in the first quarter of 2021, continued to gain traction, with third
quarter volumes improving by over 175 percent versus the first quarter of 2021
and over 45 percent quarter-over-quarter.
•Our expanded Fenics FX platforms, which has businesses included under both
Fenics Markets and Fenics Growth Platforms, including MIDFX, Spot FX, and FX
Options, and non-deliverable forwards.
•Capitalab, which has businesses included under both Fenics Markets and Fenics
Growth Platforms.
Collectively, our newer Fenics Growth Platform offerings, such as those listed
above, are not yet fully up to scale, and are not yet generating significant
revenues. Fenics revenue comprised 22.6% overall revenue, excluding Insurance
brokerage, for the third quarter of 2021. Additionally, revenue growth from
Fenics Growth Platforms continued to significantly outpace the overall business.
Over time, we expect these new products and services to become profitable,
high-margin businesses as their scale and revenues increase, all else equal.
Fenics Markets includes Fenics Integrated, introduced during the second quarter
of 2020, which seamlessly integrates hybrid liquidity with customer electronic
orders either by GUI and/or API. Desks are categorized as "Fenics Integrated" if
they utilize sufficient levels of technology such that significant amounts of
their transactions can be or are executed without broker intervention and have
expected pre-tax margins of at least 25%. Fenics Markets revenues include
revenues from Fenics Integrated from the second quarter of 2020 onward. We
believe that Fenics Integrated will enhance profit margins by further
incentivizing our brokers and clients to automate execution and create superior
real-time information and improve the robustness and value of Fenics Market
Data, which will accelerate our growth rate.
Fenics Markets notable highlights for the third quarter of 2021 include:
•Fenics MIDFX, our leading wholesale FX hedging platform, grew its revenue by
approximately 44% versus the prior year, driven by higher activity across its
spot FX and its newer Asian NDF offering, which has continued to gain traction
throughout the year.
•Fenics Market Data signed 43 new contracts during the third quarter, with the
total contracted value increasing by over 200% compared to last year. Fenics
Market Data has highly recurring and compounding subscription revenue.
•Capitalab's NDF Match business, our advanced web-based matching platform that
helps clients reduce foreign exchange exposure, grew its volumes by 30%, driving
double-digit revenue growth compared to a year ago.
Net Revenues in our Fenics businesses increased 18.7% to $95.3 million and 28.0%
to $299.9 million for the three and nine months ended September 30, 2021,
respectively, compared to the prior year period. Within our Fenics businesses,
Fenics Markets revenue grew 18.1% to $84.7 million, and Fenics Growth Platforms
grew 23.6% to $10.6 million. Fenics Markets had a pre-tax margin of 29.5% in the
third quarter of 2021.
Total revenues from our high-margin data, software, and post-trade business,
which is predominately comprised of recurring revenue, were up 3.3% and 7.8% for
the three and nine months ended September 30, 2021, respectively, over the prior
year period and Fenics brokerage revenues increased by 24.2% to $73.0 million
and 35.0% to $233.9 million, for the three and nine months ended September 30,
2021, respectively. Going forward, we expect Fenics to become an even more
valuable part
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of BGC as it continues to grow. We continue to analyze how to optimally
configure our Voice/Hybrid and Fully Electronic businesses.

FMX

The Company launched FMX, which combines its leading Fenics UST business and FMX
Futures platform. FMX will deliver an integrated trading and clearing solution,
utilizing Fenics UST's trading technology and network, combined with the world's
largest IRS clearing pool at LCH. BGC's FMX will offer a fully electronic, U.S.
Rates cash and futures platform, with a unique clearing solution, providing
cross-margining offset efficiencies. With respect to value creation, FMX expects
key strategic partners to invest in the business and that FMX will open for
trading in the middle of 2022.
Possible Corporate Conversion
The Company continues to explore a possible conversion into a simpler corporate
structure. Our board and committees have hired advisors and are reviewing the
potential structure and details of such conversion.
Cost Reduction Program
The Company is continuing to examine how best to operate our business with the
goal of reducing expenses. During the first quarter of 2020, we implemented a
$35.0 million cost reduction program to reduce our compensation-related cost
base and streamline our operations, which resulted in $2.5 million and $32.0
million of U.S. GAAP compensation charges recorded under this program for the
three and nine months ended September 30, 2020, respectively. U.S. GAAP items
recorded include:
•Certain severance charges incurred in connection with headcount reductions as
part of a broad cost reduction program; and
•Certain compensation and non-compensation-related charges incurred as part of a
broad cost reduction program. Such U.S. GAAP items may include charges for
exiting leases and/or other long-term contracts as part of cost-saving
initiatives.
Insurance Disposition
On November 1, 2021, the Company successfully completed the previously announced
Insurance Business Disposition and, after closing adjustments, received
approximately $535 million in gross cash proceeds from the Buyer, subject to
limited post-closing adjustments. The investment in the Insurance brokerage
business generated an internal rate of return of 21.2% for our shareholders. As
of September 30, 2021, we have repurchased and redeemed 45.2 million shares and
units since announcing the sale on May 26, 2021. Additionally, as of
September 30, 2021, the Company's Insurance brokerage business continued to meet
the criteria to be classified as held for sale. The sale of the business did not
represent a strategic shift that would have a major effect on the Company's
operations and financial results and was, therefore, not classified as
discontinued operations. CF&Co served as advisor to the Company and, upon
closing of the transaction, a fee of $4.4 million was payable to Cantor in
connection with the transaction. For further information regarding the sale of
our Insurance brokerage business, please see our Current Report on Form 8-K
filed with the SEC on November 1, 2021.
The Insurance brokerage business contributed $51.6 million and $158.5 million in
total revenues for the three and nine months ended September 30, 2021,
respectively. No impairment charge was recorded for the sale of the Insurance
brokerage business for the three and nine months ended September 30, 2021 as the
carrying amount of the net assets was less than the fair value less costs to
sell.
Unvested equity and other awards previously granted by BGC to employees of its
Insurance brokerage business were converted into the right to receive a cash
payment from BGC; a significant portion of these awards was 50% vested and paid
in cash at closing, with the remaining 50% vesting and to be paid in cash two
years after closing. The remaining portion of these awards will have been 100%
vested and paid in cash by two years after the closing. The payments after
closing are only made if the applicable employee remains an employee of the
Insurance brokerage business.
Financial Services Industry
The financial services industry has grown historically due to several factors.
One factor was the increasing use of derivatives to manage risk or to take
advantage of the anticipated direction of a market by allowing users to protect
gains and/or guard against losses in the price of underlying assets without
having to buy or sell the underlying assets. Derivatives are often used to
mitigate the risks associated with interest rates, equity ownership, changes in
the value of FX, credit defaults by corporate and sovereign debtors, and changes
in the prices of commodity products. Over this same timeframe, demand from
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financial institutions, large corporations and other end-users of financial
products have increased volumes in the wholesale derivatives market, thereby
increasing the business opportunity for financial intermediaries.
Another key factor in the historical growth of the financial services industry
has been the increase in the number of new financial products. As market
participants and their customers strive to mitigate risk, new types of equity
and fixed income securities, futures, options and other financial instruments
have been developed. Most of these new securities and derivatives were not
immediately ready for more liquid and standardized electronic markets, and
generally increased the need for trading and required broker-assisted execution.
Due largely to the impacts of the global financial crisis of 2008-2009, our
businesses faced more challenging market conditions from 2009 until the second
half of 2016. Accommodative monetary policies were enacted by several major
central banks, including the Federal Reserve, Bank of England, Bank of Japan and
the European Central Bank, in response to the global financial crises. These
policies resulted in historically low levels of volatility and interest rates
across many of the financial markets in which we operate. The global credit
markets also faced structural issues, such as increased bank capital
requirements under Basel III. Consequently, these factors contributed to lower
trading volumes in our Rates and Credit asset classes across most geographies in
which we operated.
From mid-2016 until the first quarter of 2020, the overall financial services
industry benefited from sustained economic growth, lower unemployment rates in
most major economies, higher consumer spending, the modification or repeal of
certain U.S. regulations, and higher overall corporate profitability. In
addition, the secular trend towards digitalization and electronification within
the industry contributed to higher overall volumes and transaction count in
Fully Electronic execution. From the second quarter of 2020 onward, concerns
about the future trade relationship between the U.K. and the EU after Brexit, a
slowdown in global growth driven by the outbreak of COVID-19, inflation
expectation impact on U.S. rates volumes, and an increase in trade protectionism
were tempered by monetary and fiscal stimulus.
Impact of COVID-19
Impact of COVID-19 on Employees
As a global intermediary to financial markets, BGC is considered an essential
business in many of its various global locations where key employees are thus
able to operate out of its primary offices around the world. We have nonetheless
taken proactive measures intended to protect our employees and clients during
this global pandemic. These policies and practices seek to protect the health,
safety and welfare of our workforce while enabling employees to maintain a high
level of performance. Certain of these items are summarized below:
•We activated our Business Continuity Plan in the first quarter of 2020. The
vast majority of front-office personnel are working in a firm office and most
BGC staff members are attending work in the office several days a week, while
working remotely the other part of the week. Unvaccinated employees are required
to wear masks in common spaces and when not able to maintain six feet of
distance.
•We provide ongoing informational COVID-19-related messages and notices. We
disseminated our COVID-19 policies and FAQs on a regular basis; they are also
posted on the Company's intranet sites.
•Where applicable, we are applying more frequent and vigorous cleaning and
sanitation measures and providing personal protective equipment (PPE).
•Internal and external meetings are sometimes held in person, as well as
conducted virtually and via phone calls.
•We have deferred some corporate events and participation in industry
conferences.
•Our medical plans have waived applicable member cost sharing for all medically
necessary diagnostic testing related to COVID-19.
•We have reminded employees about our Employee Assistance Program and the ways
it can assist them during this challenging time. There is a zero co-pay for
Teladoc mental health visits through December 31, 2021.
•We provide paid leave in accordance with its policies and applicable
COVID-19-related laws and regulations.
We continue to take significant steps to protect our employees and encourage
them all to get vaccinated. Currently 85% of our employees are fully vaccinated.
Impact of COVID-19 on the Company's Results
Revenues
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Voice/Hybrid and/or Higher-Margin, Technology-Driven Fenics Businesses
We recorded total revenue of $473.7 million, 4.1% higher than a year ago.
For the three months ended September 30, 2021, Fenics net revenues increased
18.7% driven by a $13.0 million, or 18.1%, increase in Fenics Markets and a $2.0
million, or 23.6%, increase in Fenics Growth Platforms.
Certain key items are summarized below:
•Revenues across Rates, Credit, FX, Equity derivatives and cash equities, Energy
and commodities are generally correlated with corresponding industry volumes.
•The third quarter of 2021 provided a favorable Rates trading environment,
particularly across BGC's U.S. government bonds, inflation products, listed
rates, and emerging market rates.
•Equity Derivatives and Cash Equities had robust growth driven by U.S. and
European equity derivatives.
•Energy & Commodities generated solid revenue growth, driven by strong
performance in BGC's environmental brokerage business and heightened volatility
across the energy markets.
•Increasing concerns around U.S. inflation and expectations of the Federal
Reserve to begin to ease asset purchases in the fourth quarter drove interest
rate volatility higher and supported global Rates trading volumes.
•Conversely, quantitative easing measures taken by central banks around the
world have lowered and may continue to lower market volumes should these
programs remain in place for a sustained period of time.
•Uncertainty around global energy supplies led to large price rallies and
volatility in these products, which increased secondary market trading volumes.
We expect record levels of global debt issuance, interest rate volatility, and
an improving U.S. and global economy to provide tailwinds to our Rates business
going forward.
Overall Fenics
•BGC's Fenics net revenues increased 18.7% in the third quarter of 2021 compared
to the prior year period.
•Fenics has benefited and is expected to continue to benefit from secular trends
towards electronic execution and opportunities created by algorithmic trading
and automation.
•The dislocations caused by COVID-19 have resulted in an even greater demand for
the Company's electronic execution. We believe that the driver of this demand is
the best-in-class market liquidity that only integrated global firms like BGC
can provide.
•This benefit may be tempered by temporary shifts by traders toward Voice
execution in certain markets during periods of extreme market turbulence.
•BGC's data, software, and post-trade businesses are predominantly comprised of
recurring revenues.
Expenses
BGC's compensation expenses increased in the third quarter of 2021 primarily due
to higher revenues compared to a year ago. BGC's non-compensation expenses
decreased due to lower interest expense, fees to related parties, and other
expenses. These expense reductions were partially offset by higher selling and
promotion charges, as COVID-19 restrictions have relaxed across many of the
major geographies in which BGC operates.
BGC has recorded or may potentially record amounts for certain expenses that are
higher than they otherwise would have been due to the overall impact of the
pandemic. Some of these items include:
•Non-cash impairment charges with respect to assets;
•Non-cash mark-to-market adjustments for non-marketable investments;
•Certain severance charges incurred in connection with headcount reductions as
part of a broad cost reduction program;
•Certain compensation and non-compensation-related charges incurred as part of a
broad cost reduction program. Such U.S. GAAP items may include charges for
exiting leases and/or other long-term contracts as part of cost-saving
initiatives;
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•Expenses relating to setting up and maintaining remote and/or back-up
locations; and
•Communication expenses related to additional voice and data connections.
Some of the above items may be partially offset by certain tax benefits. It is
difficult to predict the amounts of any these items or when they might be
recorded because they may depend on the duration, severity, and overall impact
of the pandemic.
Capital and Liquidity
With the outbreak of COVID-19, we reduced our dividend and focused on
strengthening our balance sheet. Effective with the first quarter of 2020
dividend, the Board took the step of reducing the quarterly dividend out of an
abundance of caution in order to strengthen the Company's balance sheet as the
global capital markets face difficult and unprecedented macroeconomic
conditions. On November 2, 2021, our Board declared a $0.01 dividend for the
third quarter of 2021. Additionally, BGC Holdings reduced its distributions to
or on behalf of its partners. The distributions to or on behalf of partners will
at least cover their related tax payments. Whether any given post-tax amount is
equivalent to the amount received by a stockholder also on an after-tax basis
depends upon stockholders' and partners' domiciles and tax status. BGC believes
that these steps will allow the Company to prioritize its financial strength.
Our 2021 capital allocation priorities are to return capital to stockholders and
to continue investing in our high growth Fenics businesses. Previously, we were
deeply dividend-centric; going forward, we plan to prioritize share and unit
repurchases over dividends and distributions. We plan to reassess our current
dividend and distribution with an aim to nominally increase it toward the end of
the year.
For further information on the balance sheet, liquidity and capital, see
"Liquidity and Capital Resources" herein.
Brexit
On January 1, 2021, the U.K. formally left the EU and U.K.-EU trade became
subject to a new agreement that was concluded in December of 2020. The exit from
the EU is commonly referred to as Brexit. Financial services fall outside of the
scope of this trade agreement. Instead, the relationship will largely be
determined by a series of "equivalence decisions," each of which would grant
mutual market access for a limited subset of financial services where either
party finds the other party has a regulatory regime that achieves similar
outcomes to its own. It is currently unknown if or when equivalence decisions
will be taken. In March 2021, the U.K. and EU agreed a Memorandum of
Understanding on Financial Services Regulatory Cooperation which creates a
structure for dialogue but does not include commitments on equivalence.
In light of ongoing uncertainties, market participants are still adjusting. The
exact impact of Brexit on the U.K.-EU flow of financial services therefore
remains unknown. This same uncertainty applies to the consequences for the
economies of the U.K. and the EU member states as a result of the U.K.'s
withdrawal from the EU.
We implemented plans to ensure continuity of service in Europe and continue to
have regulated offices in place in many of the major European markets. As part
of our Brexit strategy, ownership of BGC Madrid, Copenhagen and Frankfurt & GFI
Paris, Madrid and Dublin branches was transferred to Aurel BGC SAS (a
French-based operation and therefore based in the EU) in July 2020. We have been
generally increasing our footprint in the EU which includes the establishment of
a new branch office of Aurel BGC SAS in Milan and a new office in Monaco under a
new local Monaco subsidiary.
Regardless of these and other mitigating measures, our European headquarters and
largest operations are in London, and market access risks and uncertainties have
had and could continue to have a material adverse effect on our customers,
counterparties, businesses, prospects, financial condition and results of
operations. Furthermore, in the future the U.K. and EU's regulation may diverge,
which could disrupt and increase the costs of our operations, and result in a
loss of existing levels of cross-border market access.
Regulation
Regulators in the U.S. have finalized most of the new rules across a range of
financial marketplaces, including OTC derivatives, as mandated by the Dodd-Frank
Wall Street Reform and Consumer Protection Act. Many of these rules became
effective in prior years, while ongoing phase-ins are anticipated over coming
years.
In addition to regulations in the U.S., legislators and regulators in Europe
have crafted similar rules; MiFID II, which made sweeping changes to market
infrastructure, European Market Infrastructure Regulation, which focused
specifically on derivatives, and Capital Requirements Directive IV for
prudential standards. Over the past years, European policymakers have launched
various reviews of post-crisis legislation, leading to legislative updates such
as EMIR Regulatory Fitness and Performance and CRD V. Furthermore, they
introduced a new prudential regime tailored specifically to investment firms
such as our firm -the Investment Firm Review. As all these rules take effect,
they will continue to alter the environment in which we
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operate. We note that various internal and external factors have made the EU
more rigid in its approach to non-EU countries which could impact the ease with
which the global financial system is connected.
In 2019, a new European Commission took office which may over the course of its
five-year mandate or introduce new legislative proposals for the Financial
Services Sector and change the Brexit landscape for EU and U.K. financial firms
alike. We are unable to predict how any of these new laws and proposed rules and
regulations in the U.S. or the U.K. will be implemented or in what form, or
whether any additional or similar changes to statutes or rules and regulations,
including the interpretation or implementation thereof or a relaxation or other
amendment of existing rules and regulations, will occur in the future. Any such
action could affect us in substantial and unpredictable ways, including
important changes in market infrastructure, increased reporting costs and a
potential rearrangement in the sources of available revenue in a more
transparent market. Certain enhanced regulations could subject us to the risk of
fines, sanctions, enhanced oversight, increased financial and capital
requirements and additional restrictions or limitations on our ability to
conduct or grow our businesses, and could otherwise have an adverse effect on
our businesses, financial condition, results of operations and prospects. We
believe that uncertainty and potential delays around the final form of such new
rules and regulations may negatively impact our customers and trading volumes in
certain markets in which we transact, although a relaxation of existing rules
and requirements could potentially have a positive impact in certain markets.
Increased capital requirements may also diminish transaction velocity.
BGC Derivative Markets and GFI Swaps Exchange, our subsidiaries, began operating
as SEFs on October 2, 2013. Both BGC Derivative Markets and GFI Swaps Exchange
received permanent registration approval from the CFTC as SEFs on January 22,
2016. Mandatory Dodd-Frank Act compliant execution on SEFs by eligible U.S.
persons commenced in February 2014 for "made available to trade" products, and a
wide range of other rules relating to the execution and clearing of derivative
products were finalized with implementation periods in 2016 and beyond. We also
own ELX, which became a dormant contract market on July 1, 2017. As these rules
require authorized execution facilities to maintain robust front-end and
back-office IT capabilities and to make large and ongoing technology
investments, and because these execution facilities may be supported by a
variety of voice and auction-based execution methodologies, we expect our Hybrid
and Fully Electronic trading capability to perform strongly in such an
environment.
In November 2018, the CFTC issued proposed rules that would significantly revise
CFTC Rule Part 37, which relates to SEFs. The proposed rules would significantly
affect the trading of swaps and the facilities offering swaps trading by
allowing for trading through "any means of interstate commerce" rather than the
two (central limit order book and request for quote) methods prescribed under
the current rules. The proposed rules may also expand the number and type of
swaps required to be executed on SEFs. If these rules are passed, our SEFs will
need to make numerous changes to facilitate trading under a new regulatory
framework. A new CFTC Chairman was sworn in on July 15, 2019, and this change in
leadership could impact these proposals.
On June 25, 2020, the CFTC approved a final rule prohibiting post-trade name
give-up for swaps executed, prearranged or pre-negotiated anonymously on or
pursuant to the rules of a SEF and intended to be cleared. The rule provides
exemptions for package transactions that include a component transaction that is
not a swap that is intended to be cleared. The rule went into effect on November
1, 2020 for swaps subject to the trade execution requirement under the Commodity
Exchange Act Section 2(h)(8) and July 5, 2021 for swaps not subject to the trade
execution requirement, but intended to be cleared.
See "Regulation" included in Part I, Item 1 of our Annual Report on Form 10-K
for the year ended December 31, 2020 for additional information related to our
regulatory environment.
Industry Consolidation
In recent years, there has been significant consolidation among the
interdealer-brokers and wholesale brokers with which we compete. We expect to
continue to compete with the electronic markets, post-trade and information
businesses of NEX, that are part of CME now, through the various offerings on
our Fenics platform. We will also continue to compete with TP ICAP and Tradition
across various Voice/Hybrid brokerage marketplaces as well as via Fenics.
Additionally, there has been an increase in acquisitions of OTC trading
platforms by exchanges and electronic marketplaces such as ICE buying BondPoint,
Deutsche Börse buying 360T, and CBOE buying Hotspot, MarketAxess buying
LiquidityEdge, Tradeweb buying Nasdaq U.S. Fixed Income Electronic Trading
Platform, etc. We view the recent consolidation in the industry favorably, as we
expect it to provide additional operating leverage to our businesses in the
future.
Growth Drivers
As a wholesale intermediary in the financial services industry, our businesses
are driven primarily by secondary trading volumes in the markets in which we
broker, the size and productivity of our front-office headcount including
brokers, salespeople, managers and other front-office personnel, regulatory
issues, and the percentage of our revenues we are able to
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generate by Fully Electronic means. BGC's revenues tend to have low correlation
in the short and medium-term with global bank and broker-dealer sales and
trading revenues, which reflect bid-ask spreads and mark-to-market movements, as
well as industry volumes in both the primary and secondary markets.
Below is a brief analysis of the market and industry volumes for some of our
products, including our overall Hybrid and Fully Electronic execution
activities.
Overall Market Volumes and Volatility
Volume is driven by a number of factors, including the level of issuance for
financial instruments, price volatility of financial instruments, macro-economic
conditions, creation and adoption of new products, regulatory environment, and
the introduction and adoption of new trading technologies. Historically,
increased price volatility has often increased the demand for hedging
instruments, including many of the cash and derivative products that we broker.
Rates volumes in particular are influenced by market volumes and, in certain
instances, volatility. Historically low and negative interest rates across the
globe have significantly reduced the overall trading appetite for rates
products. As a result of central bank policies and actions, many sovereign bonds
continue to trade at or close to negative yields, especially in real terms.
Also, weighing on yields and rates volumes are global central bank quantitative
easing programs. The programs depress rates volumes because they entail central
banks buying government securities or other securities in the open market in an
effort to promote increased lending and liquidity and bring down long-term
interest rates. When central banks hold these instruments, they tend not to
trade or hedge, thus lowering rates volumes across cash and derivatives markets
industry-wide. Following the market dislocation and ongoing pandemic, major
central banks such as the U.S. Federal Reserve, ECB, Bank of Japan, Bank of
England, and Swiss National Bank have restarted quantitative easing programs,
and continue to maintain historically low interest rates, keep key short-term
interest rates low, or a combination of both. The overall dollar value of
balance sheets of many developed countries such as the U.S., Japan, U.K., as
well as the Eurozone is expected to increase and remain high as a percentage of
GDP over the medium-to-long-term.
Additional factors have weighed on market volumes in the products we broker. For
example, the Basel III accord, implemented in late 2010 by the G-20 central
banks, is a global regulatory framework on bank capital adequacy, stress testing
and market liquidity risk that was developed with the intention of making banks
more stable in the wake of the financial crisis by increasing bank liquidity and
reducing bank leverage. The accord, which is expected to be fully phased in as
of January 1, 2022, has already required most large banks in G-20 nations to
hold approximately three times as much Tier 1 capital as was required under the
previous set of rules. These capital rules have made it more expensive for banks
to hold non-sovereign debt assets on their balance sheets, and as a result,
analysts say that banks have reduced their proprietary trading activity in
corporate and asset-backed fixed income securities as well as in various other
OTC cash and derivative instruments. We believe that this has further reduced
overall market exposure and industry volumes in many of the products we broker,
particularly in Credit.
During the three months ended September 30, 2021, industry volumes were
generally higher across Rates, Energy & Commodities, U.S. Equity derivatives,
and European equities. They were generally lower across Credit, FX and U.S. cash
equities. BGC's brokerage revenues, excluding Insurance, were up by 4.2%
year-on-year in the quarter. Below is an expanded discussion of the volume and
growth drivers of our various brokerage product categories.
Rates Volumes and Volatility
Our Rates business is influenced by a number of factors, including global
sovereign issuances, secondary trading and the hedging of these sovereign debt
instruments. The amount of global sovereign debt outstanding remains at record
levels; the level of secondary trading and related hedging activity was higher
during the third quarter of 2021 than the prior year period, as the prior year
was severely impacted by the COVID-19 pandemic, which led to the dislocations of
traders and lower risk appetites. In addition, according to SIFMA and the
Federal Reserve Bank of New York, the average daily volume of various U.S.
Treasuries and Treasury bills, among primary dealers was up 9% in the third
quarter of 2021 as compared to a year earlier. Additionally, interest rate
derivative volumes were up 18% and 53% at ICE and the CME, respectively, all
according to company press releases. In comparison, our revenue from Fenics
Rates increased 32.7%, while our overall Rates revenues were up 7.7% as compared
to a year earlier to $128.5 million.
Our Rates revenues, like the revenues for most of our products, are not fully
dependent on market volumes and, therefore, do not always fluctuate consistently
with industry metrics. This is largely because our Voice, Hybrid, and Fully
Electronic Rates desks often have volume discounts built into their price
structure, which results in our Rates revenues being less volatile than the
overall industry volumes.
Overall, analysts and economists expect the absolute level of sovereign debt
outstanding to remain at elevated levels for the foreseeable future as
governments finance their future deficits and roll over their sizable existing
debt. Additionally, yields on benchmark U.S. Treasuries exhibited volatility
during the third quarter of 2021 on future inflation concerns and the
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anticipation of news on tapering plans. While most economists expect that the
effects of various forms of quantitative easing being undertaken by the various
major central banks will continue to negatively impact financial market volumes,
there are signals that central banks are beginning to think about tapering while
interest rate hikes, along with elevated levels of government debt issuance are
expected to provide tailwinds to our Rates business.
FX Volumes and Volatility
Global FX volumes were generally lower during the third quarter of 2021. Volumes
for CME FX futures and options and CME EBS spot FX were down 6% and 14%,
respectively, whereas Refinitiv was up 2%, during the quarter. In comparison,
our revenue from Fenics FX increased 25.5%, while our overall FX revenues
decreased by 0.4% to $73.0 million.
Insurance Brokerage
The overall Insurance brokerage business, which we sold to The Ardonagh Group on
November 1, 2021, included Ed Broking and Besso, as well as our aviation and
space insurance brokerage business, Piiq. The pre-tax loss relating to Insurance
was $6.4 million and $8.2 million for the three months ended September 30, 2021
and 2020, respectively. Insurance posted total revenues of $51.6 million for the
third quarter of 2021 as it continued to benefit from strong performance across
the U.S. property & casualty markets and improved market conditions. The pre-tax
loss relating to Insurance was $13.5 million and $24.0 million for the nine
months ended September 30, 2021 and 2020, respectively. The Insurance brokerage
business growth was also driven by new business lines, including its aviation &
aerospace business, Piiq Risk Partners, which won new key clients.
Equity derivatives and cash equities
Global equity volumes were mixed during the third quarter of 2021. Research from
Raymond James indicated that the average daily volumes of U.S. cash equities and
U.S. options were down 2% and up 27%, respectively, as compared to a year
earlier, while average daily volume of European cash equities shares were up 6%
(in notional value). Over the same timeframe, Eurex average daily volumes of
equity derivatives were up 2% while Euronext equity derivative index volumes
declined by 5%. BGC's equity business primarily consists of equity derivatives.
Our overall revenues from Equity derivatives and cash equities increased by
15.4% to $54.7 million.
Credit Volumes
The cash portion of our Credit business is impacted by the level of global
corporate bond issuance, while both the cash and credit derivatives parts of our
business is impacted by corporate issuance. Global credit derivative market
turnover has declined over the last few years due to the introduction of rules
and regulations around the clearing of credit derivatives in the U.S. and
elsewhere, along with non-uniform regulation across different geographies. In
addition, many of our large bank customers continue to reduce their inventory of
bonds and other credit products in order to comply with Basel III and other
international financial regulations. During the third quarter of 2021, primary
dealer average daily volume for corporate bonds (excluding commercial paper) was
down by 12.6% according to Bloomberg and the Federal Reserve Bank of New York.
Total notional traded credit derivatives as reported by the International Swaps
and Derivatives Association - a reflection of the OTC derivatives market - were
up by 25.4%, from a year earlier. In comparison, our overall Credit revenues
decreased by 13.3% to $59.0 million.
Energy and Commodities
Energy and commodities volumes were generally higher during the third quarter of
2021 compared with the year earlier. CME and ICE energy futures and options
volumes were up 18% and 23%, respectively, driven by heightened volatility
across the energy markets. In comparison, BGC's energy and commodities revenues
increased by 12.8% to $74.3 million.
REGULATORY ENVIRONMENT
See "Regulation" in Part I, Item 1 of our Annual Report on Form 10-K for
additional information related to our regulatory environment.
LIQUIDITY
See "Liquidity and Capital Resources" herein for information related to our
liquidity and capital resources.
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HIRING AND ACQUISITIONS
Key drivers of our revenue are front-office producer headcount and average
revenue per producer. We believe that our strong technology platform and unique
compensation structure have enabled us to use both acquisitions and recruiting
to profitably grow at a faster rate than our largest competitors since our
formation in 2004. We reduced front office headcount with a focus on
underperforming or less profitable brokers, which helped improve our average
revenue per producer.
We have invested significantly through acquisitions and the hiring of new
brokers, salespeople, managers and other front-office personnel. The business
climate for these acquisitions has been competitive, and it is expected that
these conditions will persist for the foreseeable future. We have been able to
attract businesses and brokers, salespeople, managers and other front-office
personnel to our platform as we believe they recognize that we have the scale,
technology, experience and expertise to succeed.
Our average revenue per front-office employee has historically declined
year-over-year for the period immediately following significant headcount
increases, and the additional brokers and salespeople generally achieve
significantly higher productivity levels in their second or third year with the
Company. Excluding Insurance brokerage, as of September 30, 2021, our
front-office headcount was 2,148 brokers, salespeople, managers and other
front-office personnel, down 9% from 2,351 a year ago. Compared to the prior
year period, average revenue per front-office employee for the three and nine
months ended September 30, 2021, increased by over 14% to approximately $190
thousand and 7% to approximately $611 thousand, respectively. On a stand-alone
basis, the front-office Insurance headcount increased by 16% to 540 from 464 a
year ago.
The laws and regulations passed or proposed on both sides of the Atlantic
concerning OTC trading seem likely to favor increased use of technology by all
market participants, and are likely to accelerate the adoption of both Hybrid
and Fully Electronic execution. We believe these developments will favor the
larger inter-dealer brokers over smaller, non-public local competitors, as the
smaller players generally do not have the financial resources to invest the
necessary amounts in technology. We believe this will lead to further
consolidation across the wholesale financial brokerage industry, and thus allow
us to grow profitably.
Since 2019, our acquisitions have included Ed Broking, Ginga Petroleum, Algomi
and several smaller acquisitions.
On January 31, 2019, we completed the acquisition of Ed Broking, an independent
Lloyd's of London insurance broker with a strong reputation across accident and
health, aerospace, cargo, energy, financial and political risks, marine,
professional and executive risks, property and casualty, specialty and
reinsurance. Ed Broking became part of the overall Insurance brokerage business.
On March 12, 2019, we completed the acquisition of Ginga Petroleum. Ginga
Petroleum provides a comprehensive range of broking services for physical and
derivative energy products, including naphtha, liquefied petroleum gas, fuel
oil, biofuels, middle distillates, petrochemicals and gasoline.
On March 6, 2020, we completed the acquisition of Algomi, a software company
operating under a SaaS model that provides technology to bond market
participants to improve their workflow and liquidity by data aggregation,
pre-trade information analysis and execution facilitation.
On July 30, 2021, we completed the purchase of the Futures Exchange Group from
Cantor, which represents our futures exchange and related clearinghouse.
FINANCIAL HIGHLIGHTS
For the three months ended September 30, 2021, we had a loss from operations
before income taxes of $20.6 million compared to income from operations before
income taxes of $17.3 million in the year earlier period. This decrease was
largely a result of a $58.4 million increase in total compensation expenses in
the three months ended September 30, 2021. Total revenues for the three months
ended September 30, 2021, increased $18.7 million, or 4.1%, to $473.7 million.
For the nine months ended September 30, 2021, income from operations before
income taxes decreased by $22.4 million, or 23.8%, to $71.8 million compared to
the same period in 2020, primarily due to an increase of $30.1 million in total
compensation expenses. Total revenues for the nine months ended September 30,
2021 decreased by $23.6 million, or 1.5%, to $1,553.8 million compared to the
prior year period. The first quarter of 2020 was unique in that it reflected
record market volatility and volumes driven by the onset of the COVID-19
pandemic. We continued to make excellent progress in the third quarter of 2021
with respect to our investments in Fenics. Our Fenics growth accelerated during
the third quarter of 2021, with revenues increasing by 18.7% and represented a
record 22.6% of our total revenues, excluding the Insurance brokerage business,
increasing from 19.5% in the third quarter of 2020. The growth in our Fenics
platforms continued to significantly outpace the overall business as we added
new clients and expanded our product offerings. As we continue to grow our
higher margin businesses, we are well positioned for increased profitability.
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Brokerage revenues for the three months ended September 30, 2021 increased by
$23.8 million, or 5.7%, to $441.0 million compared to the same period in 2020.
The increase in our brokerage revenues was primarily driven by Rates revenues,
which increased by $9.2 million, to $128.5 million, for the three months ended
September 30, 2021. The third quarter of 2021 provided a favorable trading
environment across many of the Rates products BGC brokers, particularly across
BGC's U.S. government bond, inflation products, listed rates, and emerging
market rates. Energy and commodities generated solid revenue growth during the
three months ended September 30, 2021, an increase of $8.5 million, to $74.3
million, driven by strong performance in our environmental brokerage business
and heightened volatility across the energy complex. Revenues from the Insurance
brokerage business increased $8.2 million, to $51.5 million, driven by favorable
pricing trends and improved productivity from previously hired brokers and
salespeople, and revenues from Equity derivatives and cash equities increased by
$7.3 million, to $54.7 million for the three months ended September 30, 2021,
driven by both U.S. and European equity derivatives. The increases in these
products were partially offset by a decrease of $9.1 million in Credit revenues,
due to significantly lower industry-wide trading volumes. For the nine months
ended September 30, 2021, our brokerage revenues decreased by $21.7 million, or
1.5%, to $1,446.8 million compared to the same period in 2020. The decline in
our brokerage revenues was primarily driven by Credit revenues, which decreased
by $39.4 million, to $221.6 million, for the nine months ended September 30,
2021, due to significantly lower industry-wide trading volumes. For the nine
months ended September 30, 2021, our FX revenues decreased $12.8 million, to
$229.2 million, and revenues from Equity derivatives and cash equities decreased
by $5.0 million, to $186.0 million. The Insurance brokerage business generated
an increase of $24.3 million, or 18.2% growth, to $158.2 million, for the nine
months ended September 30, 2021, driven by new hires in aviation and
reinsurance. The Insurance brokerage business benefited from favorable pricing
trends and improved productivity from previously hired brokers and salespeople.
Rates revenues increased by $7.2 million, to $426.8 million, for the nine months
ended September 30, 2021 as compared to the same period in 2020, driven by
favorable trading environment across many of the Rates products BGC Brokers, and
revenues from Energy and commodities increased by $4.0 million, to $224.9
million for the nine months ended September 30, 2021, led by BGC's leading
environmental brokerage business and heightened volatility across the energy
complex. Revenues in our Fenics business increased 18.7% to $95.3 million and
28.0% to $299.9 million, respectively, for the three and nine months ended
September 30, 2021, compared to the prior year period, driven by strong growth
across both Fenics Markets and Fenics Growth Platforms.
Beginning in the first quarter of 2021, BGC categorized its Fenics businesses as
Fenics Markets and Fenics Growth Platforms. Fenics Markets includes the Fully
Electronic portions of BGC's brokerage businesses, data, software and post-trade
revenues that are unrelated to Fenics Growth Platforms, as well as Fenics
Integrated revenues. Fenics Growth Platforms includes Fenics UST, Fenics GO,
Lucera, Fenics FX and other newer standalone platforms. Revenues generated from
data, software and post-trade attributable to Fenics Growth Platforms are
included within their related businesses. Fenics Markets and Fenics Growth
Platforms compete with companies such as CME, Tradeweb and MarketAxess. Fenics
Markets revenues comprised $84.7 million, an improvement of $13.0 million, or
18.1%, which reflected higher conversion of Voice and Hybrid execution to Fenics
brokerage, increased contribution from Fenics Integrated, and strong growth
across Rates, FX and Market Data. Fenics Growth Platforms revenues comprised
$10.6 million, an increase of $2.0 million, or 23.6%, driven by strong growth in
Fenics UST, Lucera and Fenics GO. During the second quarter of 2020, we
introduced Fenics Integrated, which seamlessly integrates hybrid liquidity with
customer electronic orders. We believe that Fenics Integrated will enhance
profit margins by further incentivizing the Company's brokers and clients to
automate execution. We believe that Fenics Integrated will create superior
real-time information, improving the robustness and value of Fenics Market Data,
which will accelerate our growth. As we expand our product offerings, optimize
our commercial agreements, and add new clients across our electronic platforms,
we continue to expect profitability in our newer Fenics Growth Platforms, which
includes Fenics UST, Fenics GO, Lucera, Fenics FX and other newer standalone
platforms. We are excited about the launch of FMX, our combined U.S. Treasury
and Futures electronic marketplace. Leveraging the success of our proven,
state-of-the-art Fenics UST platform, our FMX Futures solution will challenge
the status quo of the current futures market. Our clearing agreement with the
LCH provides a unique clearing solution across U.S. futures and interest rate
swaps. FMX was created in response to our customers' need for an integrated
trading and clearing solution, that leverages the world's largest IRS clearing
pool at LCH, to provide significant cross margin efficiencies. We believe FMX
will offer a more optimal clearing solution for futures than the CME.
Total expenses for the three months ended September 30, 2021 increased $56.7
million to $500.8 million compared to the prior year period, primarily due to a
$58.4 million increase in total compensation expenses. Within total
compensation, our Equity-based compensation and allocations of net income to
limited partnership units and FPUs increased by 45.5 million to 78.5 million due
to an increase in charges related to grants of exchangeability and issuance of
shares of BGC Class A common stock, while expenses for Compensation and employee
benefits increased by $13.0 million to $257.6 million due to the impact of
higher commission revenues on variable compensation. The $1.7 million decrease
in non-compensation expenses was primarily driven by lower interest expense
recorded on the 5.125% Senior Notes due to repayment in full on May 27, 2021, a
decrease in amortization expenses on intangible assets, and a decrease in other
provisions, partially offset by an increase related to Charity Day
contributions, higher selling and promotion expenses, an increase in commissions
and floor brokerage expenses which tend to move in line with brokerage revenues,
an increase in legal settlement and litigation costs, an increase in interest
expense related to borrowings on the Revolving Credit Agreement, and an increase
in interest expense related to the 4.375%
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Senior Notes issued on July 10, 2020. Total expenses for the nine months ended
September 30, 2021 increased by $11.8 million to 1,498.5 million compared to the
prior year period, primarily driven by a $30.1 million increase in total
compensation expenses. Within total compensation, our Equity-based compensation
and allocations of net income to limited partnership units and FPUs increased by
$67.2 million due to an increase in charges related to grants of exchangeability
and issuance of shares of BGC Class A common stock, while expenses for
Compensation and employee benefits decreased by $37.2 million, due to the impact
of lower commission revenues on variable compensation as well as the cost
reduction program which the Company implemented in the first quarter of 2020 to
reduce its cost base to improve margins. Our non-compensation expenses decreased
by $18.3 million, or 3.6%, primarily driven by a continued focus on tighter cost
management as well as the impact of COVID-19, including lower selling and
promotion expenses, lower occupancy and equipment expenses, and reduced
professional and consulting fees. There was also a decrease in other expenses
related to a decrease in other provisions, and a decrease in amortization
expense on intangible assets, partially offset by an increase in legal
settlement and litigation costs, as well as an increase related to Charity Day
contributions. Further, there was a decrease in interest expense related to the
5.125% Senior Notes, which were repaid in May 2021, lower interest expense
related to the borrowings on the Revolving Credit Agreement, partially offset by
interest expense related to the 4.375% Senior Notes issued in July 2020.
Total other income (losses), net for the three months ended September 30, 2021
increased $0.1 million, to $6.4 million compared to the prior year period,
primarily due to an increase related to gains on equity method investments, an
increase related to fair value adjustments on investments held recorded in the
three months ended September 30, 2020, an increase in other recoveries related
to the Insurance brokerage business, and an increase related to mark-to-market
movements on other assets, partially offset by a decrease related to COVID-19
recoveries in the three months ended September 30, 2020. Total other income
(losses), net for the nine months ended September 30, 2021, increased $12.9
million, to 16.4 million compared to the prior year period, primarily due to an
increase related to mark-to-market movements on other assets, a gain recognized
on a litigation resolution in the first quarter of 2021, an increase due to an
impairment of an equity-method investment recorded in the first quarter of 2020
compared to no impairment recorded in the nine months ended September 30, 2021,
an increase in other recoveries related to the Insurance brokerage business, and
an increase related to fair value adjustments on investments held recorded in
the nine months ended September 30, 2020, partially offset by a decrease related
to COVID-19 recoveries in the nine months ended September 30, 2020.
In addition, for the three months ended September 30, 2021, income from
operations before income taxes decreased by $39.5 million, to a loss of $20.6
million, compared to income from operations before income taxes of $18.9 million
for the three months ended June 30, 2021. Total revenues for the three months
ended September 30, 2021 decreased by $38.7 million, or 7.6%, to $473.7 million.
This was principally a result of a $30.8 million decrease in brokerage revenues,
which was largely driven by a decrease of $13.6 million in Credit revenues, a
$8.0 million decrease in Rates, a $6.1 million decrease in Equity derivatives
and cash equities, and a $2.8 million decrease in revenues from the Insurance
brokerage business. Total expenses for the three months ended September 30, 2021
increased $4.1 million, to $500.8 million, compared to the three months ended
June 30, 2021, primarily due to a $7.2 million increase in total compensation
expenses, partially offset by a $3.2 million decrease in non-compensation
expenses. Within total compensation expenses, our Compensation and employee
benefits decreased $13.0 million, or 4.8%, to $257.6 million which was driven by
the impact of lower commissionable revenues on variable compensation, while
expenses for Equity-based compensation and allocations of net income to limited
partnership units and FPUs increased by $20.2 million, or 34.7%, to $78.5
million due to an increase in charges related to grants of exchangeability and
issuance of shares of BGC Class A common stock. Total other income (losses), net
for the three months ended September 30, 2021 increased $3.3 million, to $6.4
million compared to the three months ended June 30, 2021, primarily due to a an
increase in other recoveries related to the Insurance brokerage business.
On November 2, 2021, our Board declared a $0.01 dividend for the third quarter.
Effective with the first quarter of 2020 dividend, the Board took the step of
reducing the quarterly dividend out of an abundance of caution in order to
strengthen the Company's balance sheet as the global capital markets face
difficult and unprecedented macroeconomic conditions. Additionally, BGC Holdings
reduced its distributions to or on behalf of its partners. The distributions to
or on behalf of partners will at least cover their related tax payments. Whether
any given post-tax amount is equivalent to the amount received by a stockholder
also on an after-tax basis depends upon stockholders' and partners' domiciles
and tax status. BGC believes that these steps will allow the Company to
prioritize its financial strength. Our 2021 capital allocation priorities are to
return capital to stockholders and to continue investing in our high growth
Fenics businesses. Previously, we were deeply dividend-centric; going forward,
we plan to prioritize share and unit repurchases over dividends and distribution
with an aim to nominally increase it toward the end of the year.
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RESULTS OF OPERATIONS
The following table sets forth our unaudited condensed consolidated statements
of operations data expressed as a percentage of total revenues for the periods
indicated (in thousands):
                                                          Three Months Ended September 30,                                                                Nine Months Ended September 30,
                                                  2021                                           2020                                           2021                                            2020
                                                            Percentage                                  Percentage                                        Percentage                                    Percentage
                                     Actual                  of Total               Actual               of Total                  Actual                  of Total                Actual                of Total
                                    Results                  Revenues              Results               Revenues                 Results                  Revenues               Results                Revenues
Revenues:
Commissions                    $       367,016                     77.5  %       $ 352,027                     77.4  %       $     1,192,004                     76.7  %       $ 1,190,522                     75.5  %

Principal transactions                  73,997                     15.6             65,182                     14.3                  254,757                     16.4              277,946                     17.6
Total brokerage revenues               441,013                     93.1            417,209                     91.7                1,446,761                     93.1            1,468,468                     93.1
Fees from related parties                3,470                      0.7              8,814                      1.9                   11,500                      0.7               20,897                      1.3
Data, software and post-trade           22,238                      4.7             21,523                      4.7                   65,826                      4.2               61,060                      3.9
Interest and dividend income             3,042                      0.6              2,418                      0.5                   17,535                      1.1               13,115                      0.8
Other revenues                           3,984                      0.9              5,078                      1.2                   12,151                      0.9               13,795                      0.9
Total revenues                         473,747                    100.0            455,042                    100.0                1,553,773                    100.0            1,577,335                    100.0
Expenses:
Compensation and employee
benefits                               257,604                     54.4            244,648                     53.7                  836,533                     53.8              873,691                     55.4
Equity-based compensation and
allocations of net income to
limited partnership units and
FPUs¹                                   78,490                     16.6             33,007                      7.3                  170,275                     11.0              103,030                      6.5
Total compensation and
employee benefits                      336,094                     71.0            277,655                     61.0                1,006,808                     64.8              976,721                     61.9
Occupancy and equipment                 46,049                      9.7             45,924                     10.1                  141,598                      9.1              145,074                      9.2
Fees to related parties                  5,674                      1.2              7,728                      1.7                   15,574                      1.0               18,590                      1.2
Professional and consulting
fees                                    16,836                      3.6             15,755                      3.5                   53,071                      3.4               55,839                      3.5
Communications                          29,305                      6.2             30,097                      6.6                   89,891                      5.8               91,165                      5.8
Selling and promotion                    9,586                      2.0              5,942                      1.3                   25,692                      1.7               31,338                      2.0
Commissions and floor
brokerage                               15,908                      3.4             12,933                      2.8                   48,145                      3.1               45,730                      2.9
Interest expense                        16,735                      3.5             19,665                      4.3                   53,268                      3.4               54,796                      3.5
Other expenses                          24,614                      5.2             28,367                      6.3                   64,423                      4.1               67,445                      4.3
Total expenses                         500,801                    105.8            444,066                     97.6                1,498,470                     96.4            1,486,698                     94.3
Other income (losses), net:
Gains (losses) on divestitures
and
 sale of investments                        92                      0.0                 (9)                     0.0                       60                      0.0                   (9)                     0.0
Gains (losses) on equity
method investments                       1,816                      0.4              1,527                      0.3                    4,605                      0.3                3,669                      0.2
Other income (loss)                      4,513                      1.0              4,779                      1.1                   11,783                      0.8                 (107)                     0.0
Total other income (losses),
net                                      6,421                      1.4              6,297                      1.4                   16,448                      1.1                3,553                      0.2
Income (loss) from operations
before income taxes                    (20,633)                    (4.4)            17,273                      3.8                   71,751                      4.7               94,190                      5.9
Provision (benefit) for income
taxes                                   (6,692)                    (1.5)             8,558                      1.9                    7,056                      0.4               28,032                      1.7
Consolidated net income (loss) $       (13,941)                    (2.9) %       $   8,715                      1.9  %       $        64,695                      4.3  %       $    66,158                      4.2  %
Less: Net income (loss)
operations attributable to
noncontrolling interest in
subsidiaries                            (2,539)                    (0.5)              (135)                     0.0                   17,141                      1.2               17,067                      1.1
Net income (loss) available to
common stockholders            $       (11,402)                    (2.4) %       $   8,850                      1.9  %       $        47,554                      3.1  %       $    49,091                      3.1  %


________________

1.The components of Equity-based compensation and allocations of net income to
limited partnership units and FPUs are as follows (in thousands):

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                                                      Three Months Ended September 30,                                                         Nine Months Ended September 30,
                                               2021                                      2020                                          2021                                          2020
                                                     Percentage                                Percentage                                       Percentage                                 Percentage
                                  Actual              of Total              Actual              of Total                  Actual                 of Total               Actual              of Total
                                 Results              Revenues              Results             Revenues                 Results                 Revenues              Results              Revenues
Issuance of common stock and
grants of exchangeability      $  47,177                    10.0  %       $  3,554                     0.8  %       $        86,253                     5.6  %       $  28,950                     1.8  %
Allocations of net income          6,943                     1.4             8,213                     1.8                   19,420                     1.2             12,152                     0.8
LPU amortization                  19,861                     4.2            18,455                     4.1                   53,696                     3.5             54,288                     3.4
RSU amortization                   4,509                     1.0             2,785                     0.6                   10,906                     0.7              7,640                     0.5
Equity-based compensation and
allocations of net income to
limited partnership units and
FPUs                           $  78,490                    16.6  %       $ 33,007                     7.3  %       $       170,275                    11.0  %       $ 103,030                     6.5  %


Three Months Ended September 30, 2021 Compared to Three Months Ended September
30, 2020
Revenues
Brokerage Revenues
Total brokerage revenues increased by $23.8 million, or 5.7%, to $441.0 million
for the three months ended September 30, 2021 as compared to the three months
ended September 30, 2020. Commission revenues increased by $15.0 million, or
4.3%, to $367.0 million for the three months ended September 30, 2021 as
compared to the three months ended September 30, 2020. Principal transactions
revenues increased by $8.8 million, or 13.5%, to $74.0 million for the three
months ended September 30, 2021 as compared to the three months ended September
30, 2020.
The increase in total brokerage revenues was primarily driven by an increase in
revenues from Rates, Energy and commodities, Insurance, Equity derivatives and
cash equities, partially offset by a decrease in revenues from Credit and FX.
The increases in BGC's brokerage revenues, excluding Credit and FX, were due to
the elevated levels of volatility and trading volume.
Our brokerage revenues from Rates increased by $9.2 million, or 7.7%, to
$128.5 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. The third quarter of 2021 provided
favorable Rates trading environment, particularly across BGC's U.S. government
bonds, inflation products, listed rates and emerging market rates.
Our brokerage revenues from Energy and commodities increased by $8.5 million, or
12.8%, to $74.3 million for the three months ended September 30, 2021 as
compared to the three months ended September 30, 2020. This increase was
primarily led by BGC's leading environmental brokerage business, and heightened
volatility across the energy complex.
Our brokerage revenues from Insurance increased by $8.2 million, or 19.0%, to
$51.5 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. This increase was primarily due to
organic growth, as previously hired brokers and salespeople ramped up production
and benefited from favorable pricing trends for insurance renewals.
Our brokerage revenues from Equity derivatives and cash equities increased by
$7.3 million, or 15.4%, to $54.7 million for the three months ended September
30, 2021 as compared to the three months ended September 30, 2020. This increase
was primarily driven by strength across both U.S. and European equity
derivatives.
Our Credit revenues decreased by $9.1 million, or 13.3%, to $59.0 million for
the three months ended September 30, 2021 as compared to the three months ended
September 30, 2020. This was primarily driven by significantly lower
industry-wide trading volumes.
Our FX revenues decreased by $0.3 million, or 0.4%, to $73.0 million for the
three months ended September 30, 2021 as compared to the three months ended
September 30, 2020.
Fees from Related Parties
Fees from related parties decreased by $5.3 million, or 60.6%, to $3.5 million
for the three months ended September 30, 2021 as compared to the three months
ended September 30, 2020. This was primarily driven by a decrease in technology
service revenues in connection with services provided to Cantor.
Data, Software and Post-Trade
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Data, software and post-trade revenues increased by $0.7 million, or 3.3%, to
$22.2 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. This increase was primarily driven by new
business contracts and Lucera expanding their client base, partially offset by a
decrease in revenues from post-trade services.
Interest and Dividend Income
Interest and dividend income increased by $0.6 million, or 25.8%, to
$3.0 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. This increase was primarily due to higher
interest income earned on employee loans.
Other Revenues
Other revenues decreased by $1.1 million, or 21.5%, to $4.0 million for the
three months ended September 30, 2021 as compared to the three months ended
September 30, 2020. This was primarily driven by a decrease in consulting income
for Poten & Partners.
Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense increased by $13.0 million, or 5.3%,
to $257.6 million for the three months ended September 30, 2021 as compared to
the three months ended September 30, 2020. The main driver of this increase was
the impact of higher brokerage revenues on variable compensation.
Equity-Based Compensation and Allocations of Net Income to Limited Partnership
Units and FPUs
Equity-based compensation and allocations of net income to limited partnership
units and FPUs increased by $45.5 million, or 137.8%, to $78.5 million for the
three months ended September 30, 2021 as compared to the three months ended
September 30, 2020. This was driven by an increase in grants of exchangeability
and issuance of Class A common stock primarily due to BGC's volume weighted
average share price more than doubling compared to the year ago period.
Occupancy and Equipment
Occupancy and equipment expense increased by $0.1 million, or 0.3%, to
$46.0 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020.
Fees to Related Parties
Fees to related parties decreased by $2.1 million, or 26.6%, to $5.7 million for
the three months ended September 30, 2021 as compared to the three months ended
September 30, 2020. Fees to related parties are allocations paid to Cantor for
administrative and support services (such as accounting, occupancy, and legal).
Professional and Consulting Fees
Professional and consulting fees increased by $1.1 million, or 6.9%, to
$16.8 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. This increase was primarily driven by an
increase in legal fees in the three months ended September 30, 2021.
Communications
Communications expense decreased by $0.8 million, or 2.6%, to $29.3 million for
the three months ended September 30, 2021 as compared to three months ended
September 30, 2020. As a percentage of total revenues, communications expense
slightly decreased from the prior year period.
Selling and Promotion
Selling and promotion expense increased by $3.6 million, or 61.3%, to
$9.6 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. This increase was primarily due to the
impact
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of COVID-19 and the continued focus on tighter cost management during the three
months ended September 30, 2020, which resulted in a significant reduction in
travel and entertainment expenses.
Commissions and Floor Brokerage
Commissions and floor brokerage expense increased by $3.0 million, or 23.0%, to
$15.9 million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. Commissions and floor brokerage expense
tends to move in line with brokerage revenues.
Interest Expense
Interest expense decreased by $2.9 million, or 14.9%, to $16.7 million for the
three months ended September 30, 2021 as compared to the three months ended
September 30, 2020. This decrease was primarily driven by lower interest expense
related to the 5.125% Senior Notes, which were repaid in May 2021, partially
offset by interest expense related to borrowings on the Revolving Credit
Agreement, and interest expense related to the 4.375% Senior Notes issued in
July 2020.
Other Expenses
Other expenses decreased by $3.8 million, or 13.2%, to $24.6 million for the
three months ended September 30, 2021 as compared to the three months ended
September 30, 2020, which was primarily due to a decrease in amortization
expense on intangible assets, a decrease in other provisions, partially offset
by an increase related to Charity Day contributions, and an increase in
settlements.
Other Income (Losses), net
Gains (Losses) on Divestitures and Sale of Investments
For the three months ended September 30, 2021, we had a gain of $92 thousand on
divestitures. For the three months ended September 30, 2020, we had a loss of $9
thousand on divestitures.

Gains (Losses) on Equity Method Investments
Gains (losses) on equity method investments increased by $0.3 million, or 18.9%,
to a gain of $1.8 million, for the three months ended September 30, 2021 as
compared to a gain of $1.5 million for the three months ended September 30,
2020. Gains (losses) on equity method investments represent our pro-rata share
of the net gains or losses on investments over which we have significant
influence, but which we do not control.
Other Income (Loss)
Other income (loss) decreased by $0.3 million, or 5.6%, to $4.5 million for the
three months ended September 30, 2021 as compared to the three months ended
September 30, 2020. This was primarily driven by a decrease related to COVID-19
recoveries in the three months ended September 30, 2020, partially offset by an
increase related to fair value adjustments on investments held recorded in the
three months ended September 30, 2020, an increase in other recoveries related
to the Insurance brokerage business, and an increase in mark-to-market movements
on other assets,.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes decreased by $15.3 million, or 178.2%, to
$(6.7) million for the three months ended September 30, 2021 as compared to the
three months ended September 30, 2020. The decrease is primarily driven by: (i)
the revaluation of deferred taxes due to enacted rate changes in the U.K. and
the ownership interest change in the operating partnership; (ii) the reversal of
previously accrued amounts related to various U.S. Federal tax matters, due to
the expired statute of limitation; and (iii) a change in the geographical and
business mix of earnings, which can impact our consolidated effective tax rate
from period-to-period.
Net Income (Loss) Attributable to Noncontrolling Interest in Subsidiaries
Net income (loss) attributable to noncontrolling interest in subsidiaries
decreased by $2.4 million, to a loss of $2.5 million for the three months ended
September 30, 2021 as compared to the three months ended September 30, 2020.
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Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30,
2020
Revenues
Brokerage Revenues
Total brokerage revenues decreased by $21.7 million, or 1.5%, to $1,446.8
million for the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020. Commission revenues increased by $1.5 million,
or 0.1%, to $1,192.0 million for the nine months ended September 30, 2021 as
compared to the nine months ended September 30, 2020. Principal transactions
revenues decreased by $23.2 million, or 8.3%, to $254.8 million for the nine
months ended September 30, 2021 as compared to the nine months ended September
30, 2020.
The decrease in total brokerage revenues was primarily driven by decreases in
Credit, FX, and Equity derivatives and cash equities, partially offset by an
increase in revenues Insurance, Rates, and Energy and commodities.
Our Credit revenues decreased by $39.4 million, or 15.1%, to $221.6 million for
the nine months ended September 30, 2021, as compared to the nine months ended
September 30, 2020. This decrease was mainly due to significantly lower
industry-wide volumes.
Our FX revenues decreased by $12.8 million, or 5.3%, to $229.2 million for the
nine months ended September 30, 2021, as compared to the nine months ended
September 30, 2020. This decrease was primarily driven by lower industry volumes
due to quantitative easing undertaken by several major central banks and
uniformly lower global interest rates.
Our brokerage revenues from Equity derivatives and cash equities decreased by
$5.0 million, or 2.6%, to $186.0 million for the nine months ended September 30,
2021, as compared to the nine months ended September 30, 2020.
Our brokerage revenues from Insurance increased by $24.3 million, or 18.2%, to
$158.2 million for the nine months ended September 30, 2021, as compared to the
nine months ended September 30, 2020. This increase was primarily due to organic
growth, as the Insurance brokerage business benefited as previously hired
brokers and salespeople ramped up production and benefited from favorable
pricing trends for insurance renewals.
Our brokerage revenues from Rates increased by $7.2 million, or 1.7%, to $426.8
million for the nine months ended September 30, 2021, as compared to the nine
months ended September 30, 2020. This increase was primarily driven by improved
activity across U.S. government bonds, inflation products, listed rates, and
emerging market rates.
Our brokerage revenues from energy and commodities increased by $4.0 million, or
1.8%, to $224.9 million for the nine months ended September 30, 2021, as
compared to the nine months ended September 30, 2020. This increase was
primarily driven by BGC's leading environmental brokerage business and
heightened volatility across the energy complex.
Fees from Related Parties
Fees from related parties decreased by $9.4 million, or 45.0%, to $11.5 million
for the nine months ended September 30, 2021 as compared to the prior year. This
was primarily driven by a decrease in technology service revenues in connection
with services provided to Cantor.
Data, Software and Post-Trade
Data, software and post-trade revenues increased by $4.8 million, or 7.8%, to
$65.8 million for the nine months ended September 30, 2021 as compared to the
same period in prior year. This increase was primarily driven by new business
contracts and Lucera expanding their client base.
Interest and Dividend Income
Interest and dividend income increased by $4.4 million, or 33.7%, to $17.5
million for the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020. This was primarily driven by an increase in
dividend income and higher interest income earned on employee loans.
Other Revenues
Other revenues decreased by $1.6 million, or 11.9% to $12.2 million for the nine
months ended September 30, 2021 as compared to the nine months ended September
30, 2020. This was primarily driven by a decrease in both consulting and
sublease income for Poten & Partners.
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Expenses
Compensation and Employee Benefits
Compensation and employee benefits expense decreased by $37.2 million, or 4.3%,
to $836.5 million for the nine months ended September 30, 2021 as compared to
the nine months ended September 30, 2020. The main drivers of this decrease was
the impact of lower brokerage revenues on variable compensation, as well as
costs associated with the cost reduction program which were significantly higher
in the nine months ended September 30, 2020 compared to the nine months ended
September 30, 2021.
Equity-Based Compensation and Allocations of Net Income to Limited Partnership
Units and FPUs
Equity-based compensation and allocations of net income to limited partnership
units and FPUs increased by $67.2 million, or 65.3%, to $170.3 million for the
nine months ended September 30, 2021 as compared to the nine months ended
September 30, 2020. This was driven by an increase in grants of exchangeability
and issuance of Class A common stock primarily due to BGC's volume weighted
average share price more than doubling compared to the year ago period.
Occupancy and Equipment
Occupancy and equipment expense decreased by $3.5 million, or 2.4%, to $141.6
million for the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020. This was primarily driven by a decrease in
software licenses and maintenance, and a decrease in fixed asset impairments,
partially offset by an increase in amortization expense on developed software.
Fees to Related Parties
Fees to related parties decreased by $3.0 million, or 16.2%, to $15.6 million
for the nine months ended September 30, 2021 as compared to the nine months
ended September 30, 2020. Fees to related parties are allocations paid to Cantor
for administrative and support services.
Professional and Consulting Fees
Professional and consulting fees decreased by $2.8 million, or 5.0%, to $53.1
million for the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020. This decrease was primarily driven by a
decrease in consulting fees, partially offset by an increase in legal fees.
Communications
Communications expense decreased by $1.3 million, or 1.4%, to $89.9 million for
the nine months ended September 30, 2021 as compared to the nine months ended
September 30, 2020. As a percentage of total revenues, communications expense
remained relatively unchanged from the prior year period.
Selling and Promotion
Selling and promotion expense decreased by $5.6 million, or 18.0%, to $25.7
million for the nine months ended September 30, 2021 as compared to the nine
months ended September 30, 2020. This decrease was primarily a result of a
reduction in travel and entertainment expenses due to a continued focus on
tighter cost management as well as the impact of COVID-19.
Commissions and Floor Brokerage
Commissions and floor brokerage expense increased by $2.4 million, or 5.3%, to
$48.1 million for the nine months ended September 30, 2021 as compared to the
nine months ended September 30, 2020.
Interest Expense
Interest expense decreased by $1.5 million, or 2.8%, to $53.3 million for the
nine months ended September 30, 2021 as compared to the nine months ended
September 30, 2020. This decrease was primarily driven by lower interest expense
related to the 5.125% Senior Notes, which were repaid in May 2021, lower
interest expense related to the borrowings on the Revolving Credit Agreement,
partially offset by interest expense related to the 4.375% Senior Notes issued
in July 2020.
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Other Expenses
Other expenses decreased by $3.0 million, or 4.5%, to $64.4 million for the nine
months ended September 30, 2021 as compared to the nine months ended September
30, 2020, which was primarily related to a decrease other provisions, and a
decrease related to amortization expense on intangible assets, partially offset
by an increase in settlements and an increase related to Charity Day
contributions.
Other Income (Losses), net
Gains (Losses) on Divestitures and Sale of Investments
For the nine months ended September 30, 2021, we had a gain of $60 thousand on
divestitures. For the nine months ended September 30, 2020, we had a loss of $9
thousand on divestitures.
Gains (Losses) on Equity Method Investments
Gains (losses) on equity method investments increased by $0.9 million, to a gain
of $4.6 million, for the nine months ended September 30, 2021 as compared to a
gain of $3.7 million for the nine months ended September 30, 2020. Gains
(losses) on equity method investments represent our pro rata share of the net
gains or losses on investments over which we have significant influence but
which we do not control.
Other Income (Loss)
Other income (loss) increased by $11.9 million, to $11.8 million for the nine
months ended September 30, 2021 as compared to the nine months ended September
30, 2020. This was primarily driven by an increase related to mark-to-market
movements on other assets, a gain recognized on a litigation resolution during
the nine months ended September 30, 2021, an increase due to an impairment of an
equity method investment recorded in the nine months ended September 30, 2020,
an increase in other recoveries related to the Insurance brokerage business, and
an increase related to fair value adjustments on investments held recorded in
the nine months ended September 30, 2020, partially offset by a decrease related
to COVID-19 recoveries in the nine months ended September 30, 2020.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes decreased by $21.0 million, or 74.8%, to
$7.1 million for the nine months ended September 30, 2021 as compared to the
nine months ended September 30, 2020. This decrease is primarily driven by: (i)
the revaluation of deferred taxes due to enacted rate changes in the U.K. and
the ownership interest change in the operating partnership; (ii) the reversal of
previously accrued amounts related to various U.S. Federal tax matters, due to
the expired statute of limitation; and (iii) a change in the geographical and
business mix of earnings, which can impact our consolidated effective tax rate
from period-to-period.
Net Income (Loss) Attributable to Noncontrolling Interest in Subsidiaries
Net income (loss) attributable to noncontrolling interest in subsidiaries
increased by $0.1 million, or 0.4%, to $17.1 million for the nine months ended
September 30, 2021 as compared to the nine months ended September 30, 2020.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth our unaudited quarterly results of operations for
the indicated periods (in thousands). Results of any period are not necessarily
indicative of results for a full year and may, in certain periods, be affected
by seasonal fluctuations in our business. Certain reclassifications have been
made to prior period amounts to conform to the current period's presentation.
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                         September           June 30,          March 31,           December          September           June 30,          March 31,           December
                          30, 2021             2021               2021             31, 2020           30, 2020             2020               2020             31, 2019
Revenues:
Commissions             $ 367,016          $ 389,768          $ 435,220          $ 377,146          $ 352,027          $ 382,640          $ 455,855          $ 382,897
Principal transactions     73,997             81,997             98,763             73,687             65,182             99,453            113,311             71,725
Fees from related
parties                     3,470              4,245              3,785              4,857              8,814              6,562              5,521              8,218
Data, software and
post-trade                 22,238             21,602             21,986             20,860             21,523             20,139             19,398             18,151
Interest and dividend
income                      3,042             11,455              3,038               (783)             2,418              6,536              4,161              2,865
Other revenues              3,984              3,383              4,784              3,659              5,078              3,776              4,941              3,319
Total revenues            473,747            512,450            567,576            479,426            455,042            519,106            603,187            487,175
Expenses:
Compensation and
employee benefits         257,604            270,586            308,343            258,866            244,648            283,949            345,094            268,911
Equity-based
compensation and
allocations of net
income to limited
partnership units and
FPUs                       78,490             58,290             33,495             80,515             33,007             27,819             42,204     

69,389

Total compensation and
employee benefits         336,094            328,876            341,838            339,381            277,655            311,768            387,298     

338,300

Occupancy and equipment    46,049             47,159             48,390             47,763             45,924             47,652             51,498     

48,292

Fees to related parties     5,674              4,518              5,382              5,028              7,728              5,335              5,527              2,998
Professional and
consulting fees            16,836             20,029             16,206             18,233             15,755             19,994             20,090             27,735
Communications             29,305             30,776             29,810             30,481             30,097             30,538             30,530             29,729
Selling and promotion       9,586              8,618              7,488              6,896              5,942              6,673             18,723     

21,485

Commissions and floor
brokerage                  15,908             14,308             17,929             13,646             12,933             13,520             19,277             16,377
Interest expense           16,735             18,680             17,853             21,811             19,665             17,625             17,506             16,354
Other expenses             24,614             23,772             16,037             21,600             28,367             21,508             17,570             29,533
Total expenses            500,801            496,736            500,933            504,839            444,066            474,613            568,019            530,803
Other income (losses),
net:
Gain (loss) on
divestiture and sale of
investments                    92                (32)                 -                403                 (9)                 -                  -                (14)
Gains (losses) on
equity method
investments                 1,816              1,323              1,466              1,354              1,527              1,119              1,023              1,064
Other income (loss)         4,513              1,864              5,406              1,687              4,779              1,129             (6,015)            11,642
Total other income
(losses), net               6,421              3,155              6,872              3,444              6,297              2,248             (4,992)            12,692
Income (loss) from
operations before
income taxes              (20,633)            18,869             73,515            (21,969)            17,273             46,741             30,176            (30,936)
Provision (benefit) for
income taxes               (6,692)            (1,191)            14,939             (6,729)             8,558              8,599             10,875     

4,075

Consolidated net income
(loss)                  $ (13,941)         $  20,060          $  58,576          $ (15,240)         $   8,715          $  38,142          $  19,301          $ (35,011)
Less: Net income (loss)
attributable to
noncontrolling interest
in subsidiaries            (2,539)             3,820             15,860            (11,211)              (135)            10,986              6,216            (13,413)
Net income (loss)
available to common
stockholders            $ (11,402)         $  16,240          $  42,716          $  (4,029)         $   8,850          $  27,156          $  13,085          $ (21,598)


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The table below details our brokerage revenues by product category for the
indicated periods (in thousands):

                                  September 30,           June 30,          March 31,          December 31,          September 30,           June 30,   

March 31, December 31,

                                       2021                 2021               2021                2020                   2020                 2020               2020                2019
Brokerage revenue by product:
Rates                            $     128,508          $ 136,474          $ 161,793          $    124,495          $     119,325          $ 133,034          $ 167,240          $    129,549
Credit                                  58,983             72,609             90,047                68,882                 68,053             95,780             97,189                70,438
FX                                      72,976             72,807             83,433                73,213                 73,281             74,393             94,366                80,369
Energy and commodities                  74,328             74,735             75,868                71,706                 65,871             71,326             83,738                71,456
Equity derivatives and
  cash equities                         54,715             60,825             70,462                63,718                 47,410             61,777             81,797                59,533
Insurance                               51,503             54,315             52,380                48,819                 43,269             45,783             44,836                43,277

Total brokerage revenues $ 441,013 $ 471,765 $ 533,983 $ 450,833 $ 417,209 $ 482,093

          $ 569,166          $    454,622
Brokerage revenue by
  product (percentage):
Rates                                     29.1  %            28.9  %            30.3  %               27.6  %                28.6  %            27.6  %            29.4  %               28.5  %
Credit                                    13.4               15.4               16.9                  15.3                   16.3               19.9               17.1                  15.5
FX                                        16.5               15.4               15.6                  16.2                   17.6               15.4               16.6                  17.7
Energy and commodities                    16.9               15.8               14.2                  15.9                   15.8               14.8               14.6                  15.7

Equity derivatives and

  cash equities                           12.4               12.9               13.2                  14.2                   11.3               12.8               14.4                  13.1
Insurance                                 11.7               11.6                9.8                  10.8                   10.4                9.5                7.9                   9.5
Total brokerage revenues                 100.0  %           100.0  %           100.0  %              100.0  %               100.0  %           100.0  %           100.0  %              100.0  %
Brokerage revenue by type:
Voice/Hybrid                     $     367,992          $ 396,480          $ 448,350          $    387,305          $     358,418          $ 423,697          $ 513,101          $    410,332
Fully Electronic                        73,021             75,285             85,633                63,528                 58,791             58,396             56,065                44,290
Total brokerage revenues         $     441,013          $ 471,765          $ 533,983          $    450,833          $     417,209          $ 482,093          $ 569,166          $    454,622
Brokerage revenue by
  type (percentage):
Voice/Hybrid                              83.4  %            84.0  %            84.0  %               85.9  %                85.9  %            87.9  %            90.1  %               90.3  %
Fully Electronic                          16.6               16.0               16.0                  14.1                   14.1               12.1                9.9                   9.7
Total brokerage revenues                 100.0  %           100.0  %           100.0  %              100.0  %               100.0  %           100.0  %           100.0  %              100.0  %



LIQUIDITY AND CAPITAL RESOURCES
Balance Sheet
Our balance sheet and business model are not capital intensive. Our assets
consist largely of cash and cash equivalents, collateralized and
uncollateralized short-dated receivables and less liquid assets needed to
support our business. Longer-term capital (equity and notes payable) is held to
support the less liquid assets and potential capital investment opportunities.
Total assets as of September 30, 2021 were $5.4 billion, an increase of 37.0% as
compared to December 31, 2020. The increase in total assets was driven primarily
by an increase in Receivables from broker-dealers, clearing organizations,
customers and related broker-dealers. We maintain a significant portion of our
assets in Cash and cash equivalents and Securities owned, with our liquidity
(which we define as Cash and cash equivalents, Reverse repurchase agreements,
Marketable securities and Securities owned, less Securities loaned and
Repurchase Agreements) as of September 30, 2021 of $485.6 million. See
"Liquidity Analysis" below for a further discussion of our liquidity. Our
Securities owned were $37.4 million as of September 30, 2021, compared to $58.6
million at December 31, 2020. Our Marketable securities was $0.3 million as of
both September 30, 2021 and December 31, 2020. Our Repurchase agreements as of
September 30, 2021 were $3.0 million. We did not have any Repurchase agreements
as of December 31, 2020. We did not have any Securities loaned or Reverse
repurchase agreements as of September 30, 2021 and December 31, 2020. As of
September 30, 2021, there were $1.0 billion Assets held for sale and $799.4
million Liabilities held for sale. Refer to Note 4-"Assets and Liabilities Held
for Sale" for detailed information on the held for sale activities of the
Company reported in the unaudited condensed consolidated statements of financial
condition as of September 30, 2021.
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As part of our cash management process, we may enter into tri-party reverse
repurchase agreements and other short-term investments, some of which may be
with Cantor. As of September 30, 2021 and December 31, 2020, there were no
reverse repurchase agreements outstanding.
Additionally, in August 2013, the Audit Committee authorized us to invest up to
$350 million in an asset-backed commercial paper program for which certain
Cantor entities serve as placement agent and referral agent. The program issues
short-term notes to money market investors and is expected to be used from time
to time as a liquidity management vehicle. The notes are backed by assets of
highly rated banks. We are entitled to invest in the program so long as the
program meets investment policy guidelines, including policies relating to
ratings. Cantor will earn a spread between the rate it receives from the
short-term note issuer and the rate it pays to us on any investments in this
program. This spread will be no greater than the spread earned by Cantor for
placement of any other commercial paper note in the program. As of September 30,
2021 and December 31, 2020, we had no investments in the program.
Funding
Our funding base consists of longer-term capital (equity and notes payable),
collateralized financings, shorter-term liabilities and accruals that are a
natural outgrowth of specific assets and/or our business model, such as matched
fails and accrued compensation. We have limited need for short-term unsecured
funding in our regulated entities for their brokerage business. Contingent
liquidity needs are largely limited to potential cash collateral that may be
needed to meet clearing bank, clearinghouse, and exchange margins and/or to fund
fails. Current cash and cash equivalent balances exceed our potential normal
course contingent liquidity needs. We believe that cash and cash equivalents in
and available to our largest regulated entities, inclusive of financing provided
by clearing banks and cash segregated under regulatory requirements, is adequate
for potential cash demands of normal operations, such as margin or financing of
fails. We expect our operating activities going forward to generate adequate
cash flows to fund normal operations, including any dividends paid pursuant to
our dividend policy. However, we continually evaluate opportunities for growth
and to further enhance our strategic position, including, among other things,
acquisitions, strategic alliances and joint ventures potentially involving all
types and combinations of equity, debt and acquisition alternatives. As a
result, we may need to raise additional funds to:
•increase the regulatory net capital necessary to support operations;
•support continued growth in our businesses;
•effect acquisitions, strategic alliances, joint ventures and other
transactions;
•develop new or enhanced products, services and markets; and
•respond to competitive pressures.
Acquisitions and financial reporting obligations related thereto may impact our
ability to access longer term capital markets funding on a timely basis and may
necessitate greater short-term borrowings in the interim. This may impact our
credit rating or our costs of borrowing. We may need to access short-term
capital sources to meet business needs from time to time, including, but not
limited to, conducting operations; hiring or retaining brokers, salespeople,
managers and other front-office personnel; financing acquisitions; and providing
liquidity, including in situations where we may not be able to access the
capital markets in a timely manner when desired by us. Accordingly, we cannot
guarantee that we will be able to obtain additional financing when needed on
terms that are acceptable to us, if at all. In addition, as a result of
regulatory actions, our registration statements under the Securities Act will be
subject to SEC review prior to effectiveness, which may lengthen the time
required for us to raise capital, potentially reducing our access to the capital
markets or increasing our cost of capital.
As discussed above, our liquidity remains strong at $485.6 million as of
September 30, 2021, which reflects, ordinary movements in working capital,
repurchases of BGC Class A common stock and LPUs, cash paid with respect to
employee bonuses, tax payments, our continued investment in Fenics Growth
Platforms, and the maturity of the 5.125% Senior Notes paid in full and the
drawdown of $300.0 million on the Revolving Credit Agreement. In addition, as of
September 30, 2021, there was $36.6 million of the Insurance brokerage business'
Cash and cash equivalents which was included in Assets held for sale and is
excluded from our current liquidity, but was included in liquidity as of
December 31, 2020.
On November 1, 2021, BGC closed the sale of its Insurance brokerage business to
the Ardonagh Group for gross proceeds of approximately $535 million, subject to
limited post-closing adjustments. The investment in the Insurance brokerage
business generated an internal rate of return of 21.2% for our shareholders. The
proceeds from the Insurance Business Disposition provides us with significant
resources to continue repurchasing shares and to accelerate Fenics growth. Since
the announced sale of the Insurance brokerage business in May 2021, BGC has
repurchased and redeemed 45.2 million shares of BGC Class A common stock and
LPUs as of September 30, 2021. In addition, a portion of these proceeds have
already been used to fully repay the $300.0 million outstanding borrowings under
the Company's Revolving Credit Agreement, reducing outstanding Notes payable and
other borrowings. As of November 5, 2021, we have repurchased an additional 13.9
million
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shares during the fourth quarter for aggregate consideration of $71.8 million,
representing a weighted-average price per share of $5.15.
With the outbreak of COVID-19, we reduced our dividend and focused on
strengthening our balance sheet. Effective with the first quarter of 2020
dividend, the Board took the step of reducing the quarterly dividend out of an
abundance of caution in order to strengthen the Company's balance sheet as the
global capital markets face difficult and unprecedented macroeconomic
conditions. On November 2, 2021, our Board declared a $0.01 dividend for the
third quarter of 2021. Additionally, BGC Holdings reduced its distributions to
or on behalf of its partners. The distributions to or on behalf of partners will
at least cover their related tax payments. Whether any given post-tax amount is
equivalent to the amount received by a stockholder also on an after-tax basis
depends upon stockholders' and partners' domiciles and tax status. BGC believes
that these steps will allow the Company to prioritize its financial strength.
Our 2021 capital allocation priorities are to return capital to stockholders and
to continue investing in our high growth Fenics businesses. Previously, we were
deeply dividend-centric; going forward, we plan to prioritize share and unit
repurchases over dividends and distributions. We plan to reassess our current
dividend and distribution with an aim to nominally increase it toward the end of
the year.
Notes Payable, Other and Short-term Borrowings
Unsecured Senior Revolving Credit Agreement
On November 28, 2018, we entered into the Revolving Credit Agreement with Bank
of America, N.A., as administrative agent, and a syndicate of lenders, which
replaced the existing committed unsecured senior revolving credit agreement. The
maturity date of the Revolving Credit Agreement was November 28, 2020 and the
maximum revolving loan balance is $350.0 million. Borrowings under this
agreement bear interest at either LIBOR or a defined base rate plus additional
margin. On December 11, 2019, we entered into an amendment to the new unsecured
Revolving Credit Agreement. Pursuant to the amendment, the maturity date was
extended to February 26, 2021. On February 26, 2020, the Company entered into a
second amendment to the unsecured revolving credit agreement, pursuant to which,
the maturity date was extended by two years to February 26, 2023. The size of
the Revolving Credit Agreement, along with the interest rate on the borrowings
therefrom, remained unchanged. As of September 30, 2021, there were
$298.8 million of borrowings outstanding, net of deferred financing costs of
$1.2 million, under the Revolving Credit Agreement, which have since been fully
repaid as of November 1, 2021. As of December 31, 2020, there were no borrowings
outstanding under the new unsecured Revolving Credit Agreement. We may draw down
on the Revolving Credit Agreement to provide flexibility in the normal course to
meet ongoing operational cash needs and other general corporate purposes,
including as necessary to manage through the current extraordinary
macroeconomic/business environment as a result of the COVID-19 pandemic. Our
liquidity remains strong, and was $485.6 million as of September 30, 2021, as
discussed below.
5.125% Senior Notes
On May 27, 2016, we issued an aggregate of $300.0 million principal amount of
5.125% Senior Notes, which matured on May 27, 2021. The 5.125% Senior Notes were
general senior unsecured obligations of the Company. The 5.125% Senior Notes
bore interest at a rate of 5.125% per year, payable in cash on May 27 and
November 27 of each year, commencing November 27, 2016 and ending on the
maturity date. Prior to maturity, on August 5, 2020, the Company commenced a
cash tender offer for any and all $300.0 million outstanding aggregate principal
amount of its 5.125% Senior Notes. On August 11, 2020, the Company's cash tender
offer expired at 5:00 p.m., New York City time. As of the expiration time, $44.0
million aggregate principal amount of the 5.125% Senior Notes were validly
tendered. These notes were redeemed on the settlement date of August 14, 2020.
The Company retained CF&Co as one of the dealer managers for the tender offer.
As a result of this transaction, $14 thousand in dealer management fees were
paid to CF&Co. Cantor tendered $15.0 million of such senior notes in the tender
offer, and did not hold such notes as of September 30, 2021.
The initial carrying value of the 5.125% Senior Notes was $295.8 million, net of
the discount and debt issuance costs of $4.2 million, of which $0.5 million were
underwriting fees payable to CF&Co.
On August 16, 2016, we filed a Registration Statement on Form S-4 which was
declared effective by the SEC on September 13, 2016. On September 15, 2016, BGC
launched an exchange offer in which holders of the 5.125% Senior Notes, issued
in a private placement on May 27, 2016. could exchange such notes for new
registered notes with substantially identical terms. The exchange offer closed
on October 12, 2016, at which point the initial 5.125% Senior Notes were
exchanged for new registered notes with substantially identical terms. On May
27, 2021, we repaid the remaining $256.0 million principal plus accrued interest
on our 5.125% Senior Notes.
5.375% Senior Notes
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On July 24, 2018, we issued an aggregate of $450.0 million principal amount of
5.375% Senior Notes. The 5.375% Senior Notes are general senior unsecured
obligations of the Company. The 5.375% Senior Notes bear interest at a rate of
5.375% per year, payable in cash on January 24 and July 24 of each year,
commencing January 24, 2019. The 5.375% Senior Notes will mature on July 24,
2023. We may redeem some or all of the 5.375% Senior Notes at any time or from
time to time for cash at certain "make-whole" redemption prices (as set forth in
the indenture related to the 5.375% Senior Notes). If a "Change of Control
Triggering Event" (as defined in the indenture related to the 5.375% Senior
Notes) occurs, holders may require the Company to purchase all or a portion of
their notes for cash at a price equal to 101% of the principal amount of the
notes to be purchased plus any accrued and unpaid interest to, but excluding,
the purchase date. The initial carrying value of the 5.375% Senior Notes was
$444.2 million, net of the discount and debt issuance costs of $5.8 million, of
which $0.3 million were underwriting fees paid to CF&Co. We also paid CF&Co an
advisory fee of $0.2 million in connection with the issuance. The issuance costs
are amortized as interest expense and the carrying value of the 5.375% Senior
Notes will accrete up to the face amount over the term of the notes. The
carrying value of the 5.375% Senior Notes as of September 30, 2021 was $447.6
million.
On July 31, 2018, we filed a Registration Statement on Form S-4 which was
declared effective by the SEC on August 10, 2018. On August 10, 2018, BGC
launched an exchange offer in which holders of the 5.375% Senior Notes, issued
in a private placement on July 24, 2018, could exchange such notes for new
registered notes with substantially identical terms. The exchange offer closed
on September 17, 2018, at which point the initial 5.375% Senior Notes were
exchanged for new registered notes with substantially identical terms.
3.750% Senior Notes
On September 27, 2019, we issued an aggregate of $300.0 million principal amount
of 3.750% Senior Notes. The 3.750% Senior Notes are general unsecured
obligations of the Company. The 3.750% Senior Notes bear interest at a rate of
3.750% per annum, payable in cash on each April 1 and October 1, commencing
April 1, 2020. The 3.750% Senior Notes will mature on October 1, 2024. We may
redeem some or all of the 3.750% Senior Notes at any time or from time to time
for cash at certain "make-whole" redemption prices (as set forth in the
indenture related to the 3.750% Senior Notes). If a "Change of Control
Triggering Event" (as defined in the indenture related to the 3.750% Senior
Notes) occurs, holders may require the Company to purchase all or a portion of
their notes for cash at a price equal to 101% of the principal amount of the
notes to be purchased plus any accrued and unpaid interest to, but excluding,
the purchase date. The initial carrying value of the 3.750% Senior Notes was
$296.1 million, net of discount and debt issuance costs of $3.9 million, of
which $0.2 million were underwriting fees payable to CF&Co. The issuance costs
will be amortized as interest expense and the carrying value of the 3.750%
Senior Notes will accrete up to the face amount over the term of the notes. The
carrying value of the 3.750% Senior Notes was $297.5 million as of September 30,
2021.
On October 11, 2019, we filed a Registration Statement on Form S-4, which was
declared effective by the SEC on October 24, 2019. On October 28, 2019, BGC
launched an exchange offer in which holders of the 3.750% Senior Notes, issued
in a private placement on September 27, 2019, may exchange such notes for new
registered notes with substantially identical terms. The exchange offer closed
on December 9, 2019, at which point the initial 3.750% Senior Notes were
exchanged for new registered notes with substantially identical terms.
4.375% Senior Notes
On July 10, 2020, we issued an aggregate of $300.0 million principal amount of
4.375% Senior Notes. The 4.375% Senior Notes are general unsecured obligations
of the Company. The 4.375% Senior Notes bear interest at a rate of 4.375% per
year, payable in cash on June 15 and December 15, commencing December 15, 2020.
The 4.375% Senior Notes will mature on December 15, 2025. We may redeem some or
all of the notes at any time or from time to time for cash at certain
"make-whole" redemption prices (as set forth in the indenture related to the
4.375% Senior Notes). If a "Change of Control Triggering Event" (as defined in
the indenture related to the 4.375% Senior Notes) occurs, holders may require
the Company to purchase all or a portion of their notes for cash at a price
equal to 101% of the principal amount of the notes to be purchased plus any
accrued and unpaid interest to, but excluding, the purchase date. Cantor
purchased $14.5 million of such senior notes and still holds such notes as of
September 30, 2021. The initial carrying value of the 4.375% Senior Notes was
$296.8 million, net of discount and debt issuance costs of $3.2 million, of
which $0.2 million were underwriting fees payable to CF&Co. The carrying value
of the 4.375% Senior Notes was $297.4 million as of September 30, 2021.
On August 28, 2020, we filed a Registration Statement on Form S-4, which was
declared effective by the SEC on September 8, 2020. On September 9, 2020, BGC
launched an exchange offer in which holders of the 4.375% Senior Notes, issued
in a private placement on July 10, 2020, may exchange such notes for new
registered notes with substantially identical terms. The exchange offer closed
on October 14, 2020, at which point the initial 4.375% Senior Notes were
exchanged for new registered notes with substantially identical terms.
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Collateralized Borrowings
 On May 31, 2017, we entered into a secured loan arrangement of $29.9 million
under which we pledged certain fixed assets as security for a loan. This
arrangement incurs interest at a fixed rate of 3.44% per year and matured on May
31, 2021, therefore, there were no borrowings outstanding as of September 30,
2021. As of December 31, 2020, we had $4.0 million outstanding related to this
secured loan arrangement. The book value of the fixed assets pledged as of
December 31, 2020 was $0.8 million.
On April 8, 2019, we entered into a secured loan arrangement of $15.0 million,
under which we pledged certain fixed assets as security for a loan. This
arrangement incurs interest at a fixed rate of 3.77% and matures on April 8,
2023. As of September 30, 2021, we had $6.8 million outstanding related to this
secured loan arrangement. The book value of the fixed assets pledged as of
September 30, 2021 was $0.1 million. As of December 31, 2020, we had $9.6
million outstanding related to this secured loan arrangement. The net book value
of the fixed assets pledged as of December 31, 2020, was $1.2 million. Also, on
April 19, 2019, we entered into a secured loan arrangement of $10.0 million,
under which we pledged certain fixed assets as security for a loan. This
arrangement incurs interest at a fixed rate of 3.89% and matures on April 19,
2023. As of September 30, 2021, we had $4.4 million outstanding related to this
secured loan arrangement. The book value of the fixed assets pledged as of
September 30, 2021 was $1.4 million. As of December 31, 2020, we had $6.3
million outstanding related to this secured loan arrangement. The book value of
the fixed assets pledged as of December 31, 2020, was $2.7 million.
Weighted-average Interest Rate
For the three months ended September 30, 2021 and 2020, the weighted-average
interest rate of our total Notes payable and other borrowings, which include our
Unsecured Senior Revolving Credit Agreement, Senior Notes, and Collateralized
Borrowings, was 4.06% and 4.71%, respectively. For the nine months ended
September 30, 2021 and 2020, the weighted-average interest rate of our total
Notes payable and other borrowings, was 4.06% and 4.71%, respectively.
Short-term Borrowings
On August 22, 2017, we entered into a committed unsecured loan agreement with
Itau Unibanco S.A. The credit agreement provided for short-term loans of up to
$3.7 million (BRL 20.0 million). The agreement was automatically renewed every
180 days until August 13, 2021, when it was repaid in full. Borrowings under
this agreement bore interest at the Brazilian Interbank offering rate plus
4.75%. As of September 30, 2021, there were no borrowings outstanding under the
facility. As of December 31, 2020, there were $3.8 million (BRL 20.0 million),
of borrowings outstanding under the facility. As of September 30, 2021, the
interest rate was 11.00%.
On August 23, 2017, we entered into a committed unsecured credit agreement with
Itau Unibanco S.A. The credit agreement provided for an intra-day overdraft
credit line up to $10.0 million (BRL 50.0 million). On August 20, 2021, the
agreement was renegotiated, increasing the credit line to $11.0 million (BRL
60.0 million). The maturity date of the agreement is November 20, 2021. This
agreement bears a fee of 1.35% per year. As of September 30, 2021 and
December 31, 2020, there were no borrowings outstanding under this agreement.
On January 25, 2021, the Company entered into a committed unsecured loan
agreement with Banco Daycoval S.A., which provided for short-term loans of up to
$1.8 million (BRL 10.0 million) and was renegotiated on June 1, 2021. The
agreement provides for short-term loans of up to $3.7 million (BRL 20.0
million). The maturity date of the agreement is January 18, 2022. Borrowings
under this agreement bear interest at the Brazilian Interbank offering rate plus
3.66%. As of September 30, 2021, there were $3.7 million (BRL 20.0 million) of
borrowings outstanding under the agreement. As of September 30, 2021, the
interest rate was 9.91%.
BGC Credit Agreement with Cantor
On March 19, 2018, we entered into the BGC Credit Agreement with Cantor. The BGC
Credit Agreement provides for each party and certain of its subsidiaries to
issue loans to the other party or any of its subsidiaries in the lender's
discretion in an aggregate principal amount up to $250.0 million outstanding at
any time. The BGC Credit Agreement replaced the previous credit facility between
BGC and an affiliate of Cantor, and was approved by the Audit Committee of BGC.
On August 6, 2018, the Company entered into an amendment to the BGC Credit
Agreement, which increased the aggregate principal amount that can be loaned to
the other party or any of its subsidiaries from $250.0 million to $400.0 million
that can be outstanding at any time. The BGC Credit Agreement will mature on the
earlier to occur of (a) March 19, 2022, after which the maturity date of the BGC
Credit Agreement will continue to be extended for successive one-year periods
unless prior written notice of non-extension is given by a lending party to a
borrowing party at least six months in advance of such renewal date and (b) the
termination of the BGC Credit Agreement by either party pursuant to its terms.
The outstanding amounts under the BGC Credit Agreement will bear interest for
any rate period at a per annum rate equal to the higher of BGC's or Cantor's
short-term
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borrowing rate in effect at such time plus 1.00%. As of September 30, 2021,
there were no borrowings by BGC or Cantor outstanding under this Agreement.
CREDIT RATINGS
As of September 30, 2021, our public long-term credit ratings and associated
outlooks are as follows:
                                     Rating       Outlook
Fitch Ratings Inc.                  BBB-          Stable
Standard & Poor's                   BBB-          Stable

Japan Credit Rating Agency, Ltd. BBB+ Stable
Kroll Bond Rating Agency

            BBB           Stable


Credit ratings and associated outlooks are influenced by a number of factors,
including but not limited to: operating environment, earnings and profitability
trends, the prudence of funding and liquidity management practices, balance
sheet size/composition and resulting leverage, cash flow coverage of interest,
composition and size of the capital base, available liquidity, outstanding
borrowing levels and the firm's competitive position in the industry. A credit
rating and/or the associated outlook can be revised upward or downward at any
time by a rating agency if such rating agency decides that circumstances warrant
such a change. Any downgrade in our credit ratings and/or the associated
outlooks could adversely affect the availability of debt financing on terms
acceptable to us, as well as the cost and other terms upon which we are able to
obtain any such financing. In addition, credit ratings and associated outlooks
may be important to customers or counterparties when we compete in certain
markets and when we seek to engage in certain transactions. In connection with
certain agreements, we may be required to provide additional collateral in the
event of a credit ratings downgrade.
LIQUIDITY ANALYSIS
We consider our liquidity to be comprised of the sum of Cash and cash
equivalents, Reverse repurchase agreements, Marketable securities, and
Securities owned, less Securities loaned and Repurchase agreements. The
discussion below describes the key components of our liquidity analysis.
We consider the following in analyzing changes in our liquidity.
Our liquidity analysis includes a comparison of our Consolidated net income
(loss) adjusted for certain non-cash items (e.g., Equity-based compensation) as
presented on the cash flow statement. Dividends and distributions are payments
made to our holders of common shares and limited partnership interests and are
related to earnings from prior periods. These timing differences will impact our
cash flows in a given period.
Our investing and funding activities represent a combination of our capital
raising activities, including short-term borrowings and repayments, issuances of
shares under our CEO Program (net), BGC Class A common stock repurchases and
partnership unit redemptions, purchases and sales of securities, dispositions,
and other investments (e.g., acquisitions, forgivable loans to new brokers and
capital expenditures-all net of depreciation and amortization).
Our securities settlement activities primarily represent deposits with clearing
organizations. In addition, when advantageous, we may elect to facilitate the
settlement of matched principal transactions by funding failed trades, which
results in a temporary secured use of cash and is economically beneficial to us.
Other changes in working capital represent changes primarily in receivables and
payables and accrued liabilities that impact our liquidity.
Changes in Reverse repurchase agreements, Securities owned, and Marketable
securities may result from additional cash investments or sales, which will be
offset by a corresponding change in Cash and cash equivalents and, accordingly,
will not result in a change in our liquidity. Conversely, changes in the market
value of such securities are reflected in our earnings or other comprehensive
income (loss) and will result in changes in our liquidity.
At December 31, 2019, the Company completed the calculation of the one-time
transition tax on the deemed repatriation of foreign subsidiaries' earnings
pursuant to the Tax Act and previously recorded a net cumulative tax expense of
$25.0 million, net of foreign tax credits. An installment election can be made
to pay the taxes over eight years with 40% paid in equal installments over the
first five years and the remaining 60% to be paid in installments of 15%, 20%
and 25% in years six, seven and eight, respectively. The cumulative remaining
balance as of September 30, 2021 is $15.8 million.
As of September 30, 2021, the Company had $450.8 million of Cash and cash
equivalents, and included in this amount was $297.6 million of Cash and cash
equivalents held by foreign subsidiaries.
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Discussion of the nine months ended September 30, 2021
The table below presents our Liquidity Analysis:

                               September 30, 2021      December 31, 2020
(in thousands)
Cash and cash equivalents     $          450,830      $          596,291
Securities owned                          37,430                  58,572
Marketable securities                        348                     349
Repurchase agreements                     (2,997)                      -
Total                         $          485,611      $          655,212


The $169.6 million decrease in our liquidity position from $655.2 million as of
December 31, 2020 to $485.6 million as of September 30, 2021 was primarily
related to 45.2 million repurchases of Class A common stock and LPUs since the
announced sale of our Insurance brokerage business in May 2021, ordinary
movements in working capital, cash paid with respect to annual employee bonuses,
tax payments, and our continued investment in Fenics Growth Platforms. Our
liquidity position also decreased due to Cash held for sale totaling $36.6
million, relating to the Insurance brokerage business. Our liquidity position
also reflected an increase related to net debt transactions due to drawing down
$300.0 million from our $350.0 million revolving credit facility, partially
offset by the $256.0 million repayment in full of the 5.125% Senior Notes.
Discussion of the nine months ended September 30, 2020
The table below presents our Liquidity Analysis:
                               September 30, 2020      December 31, 2019
(in thousands)
Cash and cash equivalents     $          494,949      $          419,328
Securities owned                          58,547                  57,525
Marketable securities¹                       303                     326
Repurchase agreements                     (2,089)                      -
Total                         $          551,710      $          477,179

________________________________________

1As of December 31, 2019 $13.9 million of Marketable securities on our balance
sheet had been lent in a Securities loaned transaction and, therefore, are not
included in this Liquidity Analysis.
The $74.5 million increase in our liquidity position from $477.2 million as of
December 31, 2019 to $549.1 million as of September 30, 2020, was primarily
related to the issuance of $300.0 million of the 4.375% Senior Notes, the $68.9
million net payoff of the Revolving Credit Agreement and the $44.0 million cash
tender offer on the 5.125% Senior Notes. This was partially offset by ordinary
movements in working capital (including settlement of payables to related
parties), cash paid with respect to annual employee bonuses and associated tax
and compensation expenses, cost reduction charges, tax payments, acquisitions
and our continued investment in new revenue generating hires.
CLEARING CAPITAL
In November 2008, we entered into a clearing capital agreement with Cantor to
clear U.S. Treasury and U.S. government agency securities transactions on our
behalf. In June 2020, this clearing capital agreement was amended to cover
Cantor providing clearing services in all eligible financial products to us and
not just U.S. Treasury and U.S. government agency securities. Pursuant to the
terms of this agreement, so long as Cantor is providing clearing services to us,
Cantor shall be entitled to request from us cash or other collateral acceptable
to Cantor in the amount reasonably requested by Cantor under the clearing
capital agreement or Cantor will post cash or other collateral on our behalf for
a commercially reasonable charge. Cantor had not requested any cash or other
property from us as collateral as of September 30, 2021.
REGULATORY REQUIREMENTS
Our liquidity and available cash resources are restricted by regulatory
requirements of our operating subsidiaries. Many of these regulators, including
U.S. and non-U.S. government agencies and self-regulatory organizations, as well
as state securities commissions in the U.S., are empowered to conduct
administrative proceedings that can result in civil and criminal judgments,
settlements, fines, penalties, injunctions, enhanced oversight, remediation, or
other relief.
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In addition, self-regulatory organizations, such as the FINRA and the NFA, along
with statutory bodies such as the FCA, the SEC, and the CFTC require strict
compliance with their rules and regulations. The requirements imposed by
regulators are designed to ensure the integrity of the financial markets and to
protect customers and other third parties who deal with broker-dealers and are
not designed to specifically protect stockholders. These regulations often serve
to limit our activities, including through net capital, customer protection and
market conduct requirements.
The final phase of Basel III (unofficially called "Basel IV") is a global
prudential regulatory standard designed to make banks more resilient and
increase confidence in the banking system. Its wide scope includes reviewing
market, credit and operational risk along with targeted changes to leverage
ratios. Basel IV includes updates to the calculation of bank capital
requirements with the aim of making outcomes more comparable across banks
globally. Most of the requirements are expected to be implemented by national
and regional authorities by around 2023, with certain delays announced by
regulators recently due to COVID-19. The adoption of these proposed rules could
restrict the ability of our large bank and broker-dealer customers to operate
trading businesses and to maintain current capital market exposures under the
present structure of their balance sheets, and will cause these entities to need
to raise additional capital in order to stay active in our marketplaces.
The FCA is the relevant statutory regulator in the U.K. The FCA's objectives are
to protect customers, maintain the stability of the financial services industry
and promote competition between financial services providers. It has broad
rule-making, investigative and enforcement powers derived from the Financial
Services and Markets Act 2000 and subsequent and derivative legislation and
regulations.
In addition, the majority of our other foreign subsidiaries are subject to
similar regulation by the relevant authorities in the countries in which they do
business. Certain other of our foreign subsidiaries are required to maintain
non-U.S. net capital requirements. For example, in Hong Kong, BGC Securities
(Hong Kong), LLC, GFI (HK) Securities LLC and Sunrise Broker (Hong Kong) Limited
are regulated by the Securities and Futures Commission. BGC Capital Markets
(Hong Kong), Limited and GFI (HK) Brokers Ltd are regulated by The Hong Kong
Monetary Authority. All are subject to Hong Kong net capital requirements. In
France, Aurel BGC and BGC France Holdings; in Australia, BGC Partners
(Australia) Pty Limited, BGC (Securities) Pty Limited and GFI Australia Pty
Ltd.; in Japan, BGC Shoken Kaisha Limited's Tokyo branch and BGC Capital Markets
Japan LLC's Tokyo Branch; in Singapore, BGC Partners (Singapore) Limited, GFI
Group Pte Ltd and Ginga Global Markets Pte Ltd; in Korea, BGC Capital Markets &
Foreign Exchange Broker (Korea) Limited and GFI Korea Money Brokerage Limited;
in Philippines GFI Group (Philippines) Inc. and in Turkey, BGC Partners Menkul
Degerler AS, all have net capital requirements imposed upon them by local
regulators. In addition, BGC is a member of clearing houses such as The London
Metal Exchange, which may impose minimum capital requirements. In Latin America,
BGC Liquidez Distribuidora De Titulos E Valores Mobiliarios Ltda. (Brazil) has
net capital requirements imposed upon it by local regulators.
These subsidiaries may also be prohibited from repaying the borrowings of their
parents or affiliates, paying cash dividends, making loans to their parent or
affiliates or otherwise entering into transactions, in each case, that result in
a significant reduction in their regulatory capital position without prior
notification or approval from their principal regulator. See Note 22-"Regulatory
Requirements" to our unaudited condensed consolidated financial statements for
further details on our regulatory requirements.
As of September 30, 2021, $669.4 million of net assets were held by regulated
subsidiaries excluding $47.1 million of net assets classified as held for sale.
As of September 30, 2021, these subsidiaries had aggregate regulatory net
capital, as defined, in excess of the aggregate regulatory requirements, as
defined, of $360.5 million excluding $38.6 million classified as held for sale.
In April 2013, the Board and Audit Committee authorized management to enter into
indemnification agreements with Cantor and its affiliates with respect to the
provision of any guarantees provided by Cantor and its affiliates from time to
time as required by regulators. These services may be provided from time to time
at a reasonable and customary fee. In 2020, the introducing broker guarantees
were moved from CF&Co to Mint Brokers for the firm's stand alone and foreign NFA
registered introducing brokers.
BGC Derivative Markets and GFI Swaps Exchange, our subsidiaries, operate as
SEFs. Mandatory Dodd-Frank Act compliant execution on SEFs by eligible U.S.
persons commenced in February 2014 for "made available to trade" products, and a
wide range of other rules relating to the execution and clearing of derivative
products have been finalized with implementation periods in 2016 and beyond. We
also own ELX, which became a dormant contract market on July 1, 2017. As these
rules require authorized execution facilities to maintain robust front-end and
back-office IT capabilities and to make large and ongoing technology
investments, and because these execution facilities may be supported by a
variety of voice and auction-based execution methodologies, we expect our Hybrid
and Fully Electronic trading capability to perform strongly in such an
environment.
Much of our global derivatives volumes continue to be executed by non-U.S. based
clients outside the U.S. and subject to local prudential regulations. As such,
we will continue to operate a number of European regulated venues in accordance
with EU or U.K. legislation and licensed by the FCA or EU-based national
supervisors. These venues are also operated for non-
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derivative instruments for these clients. MiFID II was published by the European
Securities and Markets Authority in September 2015, and implemented in January
2018 and introduced important infrastructural changes.
MiFID II requires a significant part of the market in these instruments to trade
on trading venues subject to transparency regimes, not only in pre- and
post-trade prices, but also in fee structures and access. In addition, it has
impacted a number of key areas, including corporate governance, transaction
reporting, pre- and post-trade transparency, technology synchronization, best
execution and investor protection.
MiFID II is intended to help improve the functioning of the EU single market by
achieving a greater consistency of regulatory standards. By design, therefore,
it is intended that EU member states should have very similar regulatory regimes
in relation to the matters addressed to MiFID. MiFID II has also introduced a
new regulated execution venue category known as an OTF that captures much of the
Voice-and Hybrid-oriented trading in EU. Much of our existing EU derivatives and
fixed income execution business now take place on OTFs. Further to its decision
to leave the EU, the U.K. has implemented MIFID II's requirements into its own
domestic legislation. Brexit may impact future market structures and MiFID II
rulemaking and implementation. Both the U.K. and EU are in the process of
reviewing their financial services rulebooks, which may lead to regulatory
changes.
In addition, the GDPR came into effect in the EU on May 25, 2018 and creates new
compliance obligations in relation to personal data. The GDPR may affect our
practices, and will increase financial penalties for non-compliance
significantly.
On September 30, 2020, the SEC announced a settlement with BGC regarding alleged
negligent disclosure violations related to one of BGC's non-GAAP financial
measures for periods beginning with the first quarter of 2015 through the first
quarter of 2016. All of the relevant disclosures related to those periods and
pre-dated the SEC staff's May 2016 detailed compliance and disclosure guidance
with respect to non-GAAP presentations. BGC revised its non-GAAP presentation
beginning with the second quarter of 2016 as a result of the SEC's guidance, and
the SEC has made no allegations with regard to any periods following the first
quarter of 2016. In connection with the SEC settlement, BGC was ordered to cease
and desist from any future violations of Sections 17(a)(2) and 17(a)(3) of the
Securities Act, Section 13(a) of the Exchange Act and Rule 13a-11 thereunder,
and Rule 100(b) of Regulation G, and agreed to pay a civil penalty of $1.4
million without admitting or denying the SEC's allegations.
See "Regulation" in Part I, Item 1 of our Annual Report on Form 10-K for the
year ended December 31, 2020 for additional information related to our
regulatory environment.
EQUITY
Class A Common Stock
Changes in shares of BGC Class A common stock outstanding were as follows (in
thousands):
                                                          Three Months Ended September 30,                            Nine Months Ended September 30,
                                                         2021                             2020                     2021                               2020
Shares outstanding at beginning of period               348,795                           313,323                 323,018                              

307,915

Share issuances:
Redemptions/exchanges of limited partnership
interests¹                                                8,446                             1,747                  49,033                                5,821
Vesting of RSUs                                             213                               115                   1,941                                  915
Acquisitions                                                343                                42                   1,130                                  327
Other issuances of BGC Class A common stock                 100                                90                     366                               

339

Restricted stock forfeitures                                (56)                                -                    (140)                                   -
Treasury stock repurchases                              (24,433)                               (2)                (41,940)                                  (2)
Shares outstanding at end of period                     333,408                           315,315                 333,408                              

315,315

_________________________________

1Included in redemptions/exchanges of limited partnership interests for the
three months ended September 30, 2021 and 2020 are 5.8 million shares of BGC
Class A common stock granted in connection with the cancellation of 6.9 million
LPUs, and 0.5 million shares of BGC Class A common stock granted in connection
with the cancellation of 0.4 million LPUs, respectively. Included in
redemptions/exchanges of limited partnership interests for the nine months ended
September 30, 2021 and 2020 are 21.2 million shares of BGC Class A common stock
granted in connection with the cancellation of 23.2 million LPUs, and 2.6
million shares of BGC Class A common stock granted in connection with the
cancellation of 2.5 million LPUs, respectively. Because LPUs are included in the
Company's fully diluted share count, if dilutive, redemptions/
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exchanges in connection with the issuance of BGC Class A common stock would not
impact the fully diluted number of shares outstanding.
Class B Common Stock
The Company did not issue any shares of BGC Class B common stock during the
three and nine months ended September 30, 2021 and 2020. As of September 30,
2021 and December 31, 2020, there were 45.9 million shares of BGC Class B common
stock outstanding.
Unit Redemptions and Share Repurchase Program
The Board and Audit Committee have authorized repurchases of BGC Class A common
stock and redemptions of limited partnership interests or other equity interests
in our subsidiaries. On August 3, 2021, the Board and Audit Committee increased
the BGC Partners share repurchase and unit redemption authorization to $400.0
million, which may include purchases from Cantor, its partners or employees or
other affiliated persons or entities. As of September 30, 2021, the Company had
$322.8 million remaining from its share repurchase and unit redemption
authorization. From time to time, the Company may actively continue to
repurchase shares and/or redeem units.
The table below represents the units redeemed and/or shares repurchased for cash
and does not include units redeemed/cancelled in connection with the grant of
shares of BGC Class A common stock nor the limited partnership interests
exchanged for shares of BGC Class A common stock. The unit redemptions and share
repurchases of BGC Class A common stock during the three and nine months ended
September 30, 2021 were as follows (in thousands, except for weighted-average
price data):
                                                                                                                           Approximate
                                                                                                                          Dollar Value
                                                               Total Number                                               of Units and
                                                                 of Units                                                Shares That May
                                                                 Redeemed              Weighted-Average Price           Yet Be Redeemed/
                                                                 or Shares                 Paid per Unit                    Purchased
Period                                                          Repurchased                   or Share                  Under the Program

Redemptions1,2

January 1, 2021-March 31, 2021                                        20             $                  4.40
April 1, 2021-June 30, 2021                                        4,715                                5.82
July 1, 2021-September 30, 2021                                       73                                5.14
Total Redemptions                                                  4,808             $                  5.81

Repurchases3,4

January 1, 2021-March 31, 2021                                       965             $                  4.56
April 1, 2021-June 30, 2021                                       16,542                                6.25
July 1, 2021-July 31, 2021                                        10,000                                5.00
August 1, 2021-August 31, 2021                                     5,899                                5.64
September 1, 2021-September 30, 2021                               8,534                                5.10
Total Repurchases                                                 41,940             $                  5.59
Total Redemptions and Repurchases                                 46,748             $                  5.62          $          322,835

____________________________

1During the three months ended September 30, 2021, the Company redeemed 16
thousand LPUs at an aggregate redemption price of $71 thousand for a
weighted-average price of $4.47 per unit. During the three months ended
September 30, 2021, the Company redeemed 57 thousand FPUs at an aggregate
redemption price of $302 thousand for a weighted-average price of $5.33 per
unit. During the three months ended September 30, 2020, the Company redeemed 1.5
million LPUs at an aggregate redemption price of $4.1 million for a
weighted-average price of $2.81 per unit. During the three months ended
September 30, 2020, the Company redeemed 27 thousand FPUs at an aggregate
redemption price of $73 thousand for an average price of $2.74 per unit. The
table above does not include units redeemed/cancelled in connection with the
grant of 5.8 million and 0.5 million shares of BGC Class A common stock during
the three months ended September 30, 2021 and 2020, respectively, nor the
limited partnership interests exchanged for 2.9 million and 1.3 million shares
of BGC Class A common stock during the three months ended September 30, 2021 and
2020, respectively.
2During the nine months ended September 30, 2021, the Company redeemed 4.7
million LPUs at an aggregate redemption price of $27.4 million for an average
price of $5.83 per unit. During the nine months ended September 30, 2021, the
Company redeemed 0.1 million FPUs at an aggregate redemption price of
$0.5 million for an average price
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of $4.75 per unit. During the nine months ended September 30, 2020, the Company
redeemed 1.8 million LPUs at an aggregate redemption price of $5.4 million for
an average price of $3.02 per unit. During the nine months ended September 30,
2020, the Company redeemed 28 thousand FPUs at an aggregate redemption price of
$77 thousand for an average price of $2.75 per unit. The table above does not
include units redeemed/cancelled in connection with the grant of 21.2 million
and 2.6 million shares of BGC Class A common stock during the nine months ended
September 30, 2021 and 2020, respectively, nor the limited partnership interests
exchanged for 28.8 million and 3.1 million shares of BGC Class A common stock
during the nine months ended September 30, 2021 and 2020, respectively.
3During the three months ended September 30, 2021, the Company repurchased 24.4
million shares of BGC Class A common stock at an aggregate price of
$126.8 million for a weighted-average price of $5.19 per share. During the three
months ended September 30, 2020, the Company repurchased 2 thousand shares of
BGC Class A common stock at an aggregate price of $6 thousand for a
weighted-average price of $2.58 per share.
4During the nine months ended September 30, 2021, the Company repurchased 41.9
million shares of BGC Class A common stock at an aggregate price of
$234.6 million for a weighted-average price of $5.59 per share. During the nine
months ended September 30, 2020 the Company repurchased 2 thousand shares of BGC
Class A common stock at an aggregate price of $6 thousand for a weighted-average
price of $2.58 per share.
The weighted-average share count for our earnings per share calculation was as
follows (in thousands):
                                 Three Months Ended September 30, 2021
Common stock outstanding1                         387,121
Partnership units2                                      -
RSUs (Treasury stock method)                            -
Other                                                   -
Total3                                            387,121

______________________________

1Common stock consisted of shares of BGC Class A common stock, shares of BGC
Class B common stock and contingent shares of our Class A common stock for which
all necessary conditions have been satisfied except for the passage of time. For
the quarter ended September 30, 2021, the weighted-average number of shares of
BGC Class A common stock was 341.2 million and shares of BGC Class B common
stock was 45.9 million.
2Partnership units collectively include FPUs, LPUs, including contingent units
of BGC Holdings for which all necessary conditions have been satisfied except
for the passage of time, and Cantor units (see Note 2-"Limited Partnership
Interests in BGC Holdings and Newmark Holdings," to our unaudited condensed
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q for more information).
3For the three months ended September 30, 2021, 143.5 million potentially
dilutive securities were not included in the computation of fully diluted EPS
because their effect would have been anti-dilutive. Also as of September 30,
2021, 37.5 million shares of contingent BGC Class A common stock, N units, RSUs,
and LPUs were excluded from fully diluted EPS computations because the
conditions for issuance had not been met by the end of the period. The
contingent BGC Class A common stock is recorded as a liability and included in
"Accounts payable, accrued and other liabilities" in our unaudited condensed
consolidated statement of financial condition as of September 30, 2021.
The fully diluted period-end spot share count was as follows (in thousands):
                                As of September 30, 2021
Common stock outstanding                379,292
Partnership units                       130,395
RSUs (Treasury stock method)              4,230
Other                                     3,241
Total                                   517,158


As of November 5, 2021, we have repurchased an additional 13.9 million shares of
BGC Class A common stock during the fourth quarter for aggregate consideration
of $71.8 million representing a weighted-average price per share of $5.15.
On June 5, 2015, we entered into the Exchange Agreement with Cantor providing
Cantor, CFGM and other Cantor affiliates entitled to hold BGC Class B common
stock the right to exchange from time to time, on a one-to-one basis, subject to
adjustment, up to an aggregate of 34.6 million shares of BGC Class A common
stock now owned or subsequently acquired by such Cantor entities for up to an
aggregate of 34.6 million shares of BGC Class B common stock. Such shares of BGC
Class B
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common stock, which currently can be acquired upon the exchange of Cantor units
owned in BGC Holdings, are already included in our fully diluted share count and
will not increase Cantor's current maximum potential voting power in the common
equity. The Exchange Agreement enabled the Cantor entities to acquire the same
number of shares of BGC Class B common stock that they were already entitled to
acquire without having to exchange its Cantor units in BGC Holdings. The Audit
Committee and Board have determined that it was in the best interests of us and
our stockholders to approve the Exchange Agreement because it will help ensure
that Cantor retains its Cantor units in BGC Holdings, which is the same
partnership in which our partner employees participate, thus continuing to align
the interests of Cantor with those of the partner employees. On November 23,
2018, in the Class B Issuance, BGC issued 10.3 million shares of BGC Class B
common stock to Cantor and 0.7 million shares of BGC Class B common stock to
CFGM, an affiliate of Cantor, in each case in exchange for shares of BGC Class A
common stock from Cantor and CFGM, respectively, on a one-to-one basis pursuant
to the Exchange Agreement. Pursuant to the Exchange Agreement, no additional
consideration was paid to BGC by Cantor or CFGM for the Class B Issuance.
Following this exchange, Cantor and its affiliates only have the right to
exchange under the Exchange Agreement up to an aggregate of 23.6 million shares
of BGC Class A common stock, now owned or subsequently acquired, or its Cantor
units in BGC Holdings, into shares of BGC Class B common stock. As of
September 30, 2021, Cantor and CFGM do not own any shares of BGC Class A common
stock.
We and Cantor have agreed that any shares of BGC Class B common stock issued in
connection with the Exchange Agreement would be deducted from the aggregate
number of shares of BGC Class B common stock that may be issued to the Cantor
entities upon exchange of Cantor units in BGC Holdings. Accordingly, the Cantor
entities will not be entitled to receive any more shares of BGC Class B Stock
under this agreement than they were previously eligible to receive upon exchange
of Cantor units.
On November 4, 2015, partners of BGC Holdings created five new classes of
non-distributing partnership units (collectively with the NPSUs, "N Units").
These new N Units carry the same name as the underlying unit with the insertion
of an additional "N" to designate them as the N Unit type and are designated as
NREUs, NPREUs, NLPUs, NPLPUs and NPPSUs. The N Units are not entitled to
participate in partnership distributions, will not be allocated any items of
profit or loss and may not be made exchangeable into shares of BGC Class A
common stock. The Eleventh Amendment was approved by the Audit Committee and by
the Board.
Subject to the approval of the Compensation Committee or its designee, certain N
Units may be converted into the underlying unit type (i.e. an NREU will be
converted into an REU) and will then participate in partnership distributions,
subject to terms and conditions determined by the general partner of BGC
Holdings in its sole discretion, including that the recipient continue to
provide substantial services to the Company and comply with his or her
partnership obligations. Such N Units are not included in the fully diluted
share count.
On December 14, 2016, partners of BGC Holdings amended certain terms and
conditions of the partnership's N Units in order to provide flexibility to the
Company and the Partnership in using such N Units in connection with
compensation arrangements and practices. The amendment provides for a minimum
$5 million gross revenue requirement in a given quarter as a condition for an N
Unit to be replaced by another type of partnership unit in accordance with the
Partnership Agreement and the grant documentation. The amendment was approved by
the Audit Committee.
On December 13, 2017, the Amended and Restated BGC Holdings Partnership
Agreement was amended and restated a second time to include prior standalone
amendments and to make certain other changes related to the Separation. The
Second Amended and Restated BGC Holdings Partnership Agreement, among other
things, reflects changes resulting from the division in the Separation of BGC
Holdings into BGC Holdings and Newmark Holdings, including:
•an apportionment of the existing economic attributes (including, among others,
capital accounts and post-termination payments) of each BGC Holdings limited
partnership interests outstanding immediately prior to the Separation between
such Legacy BGC Holdings Unit and the fraction of a Newmark Holdings LPU issued
in the Separation in respect of such Legacy BGC Holdings Unit, based on the
relative value of BGC and Newmark as of after the Newmark IPO;
•an adjustment of the exchange mechanism between the Newmark IPO and the
Distribution so that one exchangeable BGC Holdings unit together with a number
of exchangeable Newmark Holdings units equal to 0.4545 divided by the Newmark
Holdings Exchange Ratio as of such time, must be exchanged in order to receive
one share of BGC Class A common stock; and
•a right of the employer of a partner (whether it be Newmark or BGC) to
determine whether to grant exchangeability with respect to Legacy BGC Holdings
Units or Legacy Newmark Holdings Units held by such partner.
The Second Amended and Restated BGC Holdings Partnership Agreement also removes
certain classes of BGC Holdings units that are no longer outstanding, and
permits the general partner of BGC Holdings to determine the total number
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of authorized BGC Holdings units. The Second Amended and Restated BGC Holdings
Limited Partnership Agreement was approved by the Audit Committee.
Registration Statements
We currently have in place an effective equity shelf registration statement on
Form S-3 filed on March 9, 2018 with respect to the issuance and sale of up to
an aggregate of $300.0 million of shares of BGC Class A common stock from time
to time on a delayed or continuous basis (the "March 2018 Form S-3"). On March
9, 2018, we entered into the March 2018 Sales Agreement, pursuant to which we
could offer and sell up to an aggregate of $300.0 million of shares of BGC Class
A common stock under the CEO Program. Proceeds from shares of BGC Class A common
stock sold under this CEO Program Sales Agreement could be used for redemptions
of limited partnership interests in BGC Holdings, as well as for general
corporate purposes, including acquisitions and the repayment of debt. CF&Co is a
wholly owned subsidiary of Cantor and an affiliate of us. Under this Sales
Agreement, we have agreed to pay CF&Co 2% of the gross proceeds from the sale of
shares. For certain transactions during 2020, we paid CF&Co 1% of the gross
proceeds from the sale of shares of our Class A common stock in our CEO program.
The March 2018 Form S-3 and the March 2018 Sales Agreement expired in September
2021. As of the date of expiration, we had sold 17.6 million shares of BGC Class
A common stock (or $210.8 million) under the March 2018 Sales Agreement, and
$89.2 million of stock remained unsold by us under the March 2018 Sales
Agreement. For additional information on the Company's CEO Program sales
agreements, see Note 14-"Related Party Transactions" to our unaudited condensed
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q. On March 8, 2021, we filed a replacement CEO Program shelf
registration statement on Form S-3, which has not yet been declared effective,
with respect to the issuance and sale of up to an aggregate of $300.0 million of
shares of BGC Class A common stock from time to time on a delayed or continuous
basis.
We intend to use the net proceeds of any shares of BGC Class A common stock sold
for general corporate purposes for potential acquisitions, redemptions of LPUs
and FPUs in BGC Holdings and repurchases of shares of BGC Class A common stock
from partners, executive officers and other employees of ours or our
subsidiaries and of Cantor and its affiliates. Certain of such partners will be
expected to use the proceeds from such sales to repay outstanding loans issued
by, or credit enhanced by, Cantor, or BGC Holdings. In addition to general
corporate purposes, these sales along with our share repurchase authorization
are designed as a planning device in order to facilitate the redemption process.
Going forward, we may redeem units and reduce our fully diluted share count
under our repurchase authorization or later sell shares of BGC Class A common
stock under the replacement CEO Program shelf registration statement on Form
S-3, which has not yet been declared effective.
Further, we have an effective registration statement on Form S-4 filed on
September 3, 2010, with respect to the offer and sale of up to 20 million shares
of BGC Class A common stock from time to time in connection with business
combination transactions, including acquisitions of other businesses, assets,
properties or securities. As of September 30, 2021, we have issued an aggregate
of 15.4 million shares of BGC Class A common stock under this Form S-4
registration statement. Additionally, on September 13, 2019, we filed a
registration statement on Form S-4, with respect to the offer and sale of up to
20 million shares of Class A common stock from time to time in connection with
business combination transactions, including acquisitions of other businesses,
assets, properties or securities. As of September 30, 2021, we have not issued
any shares of BGC Class A common stock under this Form S-4 registration
statement. We also have an effective shelf registration statement on Form S-3
pursuant to which we can offer and sell up to 10 million shares of BGC Class A
common stock under the BGC Partners, Inc. Dividend Reinvestment and Stock
Purchase Plan. As of September 30, 2021, we have issued 0.7 million shares of
BGC Class A common stock under the Dividend Reinvestment and Stock Purchase
Plan.
The Compensation Committee may grant stock options, stock appreciation rights,
deferred stock such as RSUs, bonus stock, performance awards, dividend
equivalents and other equity-based awards, including to provide exchange rights
for shares of BGC Class A common stock upon exchange of LPUs. On June 22, 2016,
at our Annual Meeting of Stockholders, our stockholders approved our Equity Plan
to increase from 350 million to 400 million the aggregate number of shares of
BGC Class A common stock that may be delivered or cash-settled pursuant to
awards granted during the life of the Equity Plan. As of September 30, 2021, the
limit on the aggregate number of shares authorized to be delivered allowed for
the grant of future awards relating to 72.9 million shares of BGC Class A common
stock. On October 7, 2021, our Compensation Committee recommended and our Board
adopted, subject to stockholder approval at the Annual Meeting of Stockholders,
amendments to the Equity Plan to increase by 100 million to a total of 500
million shares the aggregate number of shares of our Class A common stock that
may be delivered or cash settled pursuant to awards granted during the life of
the Plan, subject to adjustment, and to remove the annual per-participant limit
of 15 million awards that may be granted under the Plan. In addition to seeking
stockholder approval of these amendments to our Equity Plan at our Annual
Meeting of Stockholders, we are also taking this opportunity to ask our
stockholders to once again approve the entire Equity Plan, as amended and
restated.
On October 20, 2020, we filed a registration statement on Form S-3, which was
declared effective on October 28, 2020, pursuant to which CF&Co may make offers
and sales of our 5.125% Senior Notes, 5.375% Senior Notes, 3.750% Senior Notes
and 4.375% Senior Notes in connection with ongoing market-making transactions
which may occur from time to time.
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Such market-making transactions in these securities may occur in the open market
or may be privately negotiated at prevailing market prices at a time of resale
or at related or negotiated prices. Neither CF&Co, nor any other of our
affiliates, has any obligation to make a market in our securities, and CF&Co or
any such other affiliate may discontinue market-making activities at any time
without notice.
CONTINGENT PAYMENTS RELATED TO ACQUISITIONS
Since 2016, the Company has completed acquisitions whose purchase price included
an aggregate of approximately 2.2 million shares of the Company's Class A common
stock (with an acquisition date fair value of approximately $9.2 million),
0.1 million LPUs (with an acquisition date fair value of approximately $0.2
million), 0.2 million RSUs (with an acquisition date fair value of approximately
$1.1 million) and $37.5 million in cash that may be issued contingent on certain
targets being met through 2023.
As of September 30, 2021, the Company has issued 0.5 million shares of BGC
Class A common stock, 0.2 million of RSUs and paid $30.4 million in cash related
to such contingent payments.
As of September 30, 2021, 1.8 million shares of BGC Class A common stock, 0.1
million RSUs and $19.8 million in cash remain to be issued if the targets are
met, net of forfeitures and other adjustments.
DERIVATIVE SUIT
On October 5, 2018, Roofers Local 149 Pension Fund filed a putative derivative
complaint in the Delaware Chancery Court, captioned Roofers Local 149 Pension
Fund vs. Howard Lutnick, et al. (Case No. 2018-0722), alleging breaches of
fiduciary duty against (i) the members of the Board, (ii) Howard Lutnick, CFGM,
and Cantor as controlling stockholders of BGC, and (iii) Howard Lutnick as an
officer of BGC. The complaint challenges the transactions by which BGC (i)
completed the Berkeley Point acquisition from CCRE for $875 million and (ii)
committed to invest $100 million for a 27% interest in Real Estate, L.P.
(collectively, the "Transaction"). Among other things, the complaint alleges
that (i) the price BGC paid in connection with the Transaction was unfair, (ii)
the process leading up to the Transaction was unfair, and (iii) the members of
the special committee of the Board were not independent. It seeks to recover for
the Company unquantified damages, disgorgement of any payments received by
defendants, and attorneys' fees.
A month later, on November 5, 2018, the same plaintiffs' firm filed an identical
putative derivative complaint against the same defendants seeking the same
relief on behalf of a second client, Northern California Pipe Trades Trust
Funds. The cases have been consolidated into a single action, captioned In re
BGC Partners, Inc. Derivative Litigation (Consolidated C.A. No. 2018-0722-AGB),
and the complaint filed by Roofers Local 149 Pension Fund on October 5, 2018 was
designated as the operative complaint.
In response to motions to dismiss filed by all defendants in December 2018,
Plaintiffs filed a motion for leave to amend the operative complaint in February
2019, requesting that the Court allow them to supplement their allegations,
which the Court granted. The amended complaint alleges the same purported
breaches of fiduciary duty as the operative complaint, raises no new claims, and
seeks identical relief, but includes additional allegations, including alleged
reasons for plaintiffs' failure to make a demand on the Board, which was the
basis of defendants' motion to dismiss. On March 19, 2019, all defendants filed
motions to dismiss the amended complaints, again on demand grounds. On September
30, 2019, the Court denied defendants' motions to dismiss, permitting the case
to move forward into discovery. In its ruling, the Court determined that the
amended complaint sufficiently pled that plaintiffs were not required to make
demand on the Board in order to file a derivative suit, but did not make
findings of fact with respect to the underlying merits of plaintiffs'
allegations concerning the Transaction. On February 11, 2021, following the
close of discovery, the Company and the independent directors of the Board filed
motions for summary judgment seeking dismissal of the case based on the
discovery record, which plaintiffs have opposed. Argument was held on
defendants' summary judgment motions on June 22, 2021. On September 20, 2021,
the Court partially granted the summary judgment motions, dismissing directors
Stephen Curwood and Linda Bell and permitting the trial to move forward against
the remaining defendants. A trial was held before Vice Chancellor Lori Will on
October 11, 2021, which concluded on October 15, 2021. The parties will submit
post-trial briefing, after which the Court is expected to rule on all pending
matters.
The Company continues to believe that the allegations pled against the
defendants in the amended complaint are without merit and will continue to
defend against them vigorously as the case moves forward. However, as in any
litigated matter, the outcome cannot be determined with certainty.
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PURCHASE OF LIMITED PARTNERSHIP INTERESTS
Cantor has the right to purchase Cantor units from BGC Holdings upon redemption
of non-exchangeable FPUs redeemed by BGC Holdings upon termination or bankruptcy
of the Founding/Working Partner. In addition, pursuant to Article Eight, Section
8.08, of the Second Amended and Restated BGC Holdings Limited Partnership
Agreement (previously the Sixth Amendment), where either current, terminating,
or terminated partners are permitted by the Company to exchange any portion of
their FPUs and Cantor consents to such exchangeability, the Company shall offer
to Cantor the opportunity for Cantor to purchase the same number of Cantor units
in BGC Holdings at the price that Cantor would have paid for Cantor units had
the Company redeemed the FPUs. If Cantor acquires any Cantor units as a result
of the purchase or redemption by BGC Holdings of any FPUs, Cantor will be
entitled to the benefits (including distributions) of such units it acquires
from the date of termination or bankruptcy of the applicable Founding/Working
Partner. In addition, any such Cantor units purchased by Cantor are currently
exchangeable for up to 23.6 million shares of BGC Class B common stock or, at
Cantor's election or if there are no such additional shares of BGC Class B
common stock, shares of BGC Class A common stock, in each case on a one-for-one
basis (subject to customary anti-dilution adjustments).
On March 31, 2021, Cantor purchased from BGC Holdings an aggregate of 1,149,684
Cantor units for aggregate consideration of $2,104,433 as a result of the
redemption of 1,149,684 FPUs, and 1,618,376 Cantor units for aggregate
consideration of $3,040,411 as a result of the exchange of 1,618,376 FPUs. Each
Cantor unit in BGC Holdings held by Cantor is exchangeable by Cantor at any time
on a one-for-one basis (subject to adjustment) for shares of BGC Class A common
stock.
As of September 30, 2021, there were 1.6 million FPUs in BGC Holdings remaining,
which BGC Holdings had the right to redeem or exchange and with respect to which
Cantor will have the right to purchase an equivalent number of Cantor units
following such redemption or exchange.
On October 28, 2021, Cantor purchased from BGC Holdings an aggregate of 460,929
Cantor units for an aggregate consideration of $715,605 as a result of the
redemption of 460,929 FPUs, and 1,179,942 Cantor units for aggregate
consideration of $2,033,838 as a result of the exchange of 1,179,942 FPUs. Each
Cantor unit in BGC Holdings held by Cantor is exchangeable by Cantor at any time
on a one-for-one basis (subject to adjustment) for shares of BGC Class A common
stock.
JOINT SERVICES AGREEMENT WITH CANTOR
In February 2019, the Audit Committee authorized us to enter into a short-term
services agreement with Cantor pursuant to which Cantor would be responsible for
clearing, settling and processing certain transactions executed on behalf of
customers in exchange for a 33% revenue share based on net transaction revenue
and the payment by BGC of the fully allocated cost of certain salespersons
related thereto. In May 2020, the Audit Committee authorized us to extend the
initial term of the short-term services agreement for an additional nine months.
GUARANTEE AGREEMENT FROM MINT BROKERS
Under rules adopted by the CFTC, all foreign introducing brokers engaging in
transactions with U.S. persons are required to register with the NFA and either
meet financial reporting and net capital requirements on an individual basis or
obtain a guarantee agreement from a registered Futures Commission Merchant. Our
European-based brokers engage from time to time in interest rate swap
transactions with U.S.-based counterparties, and therefore we are subject to the
CFTC requirements. Mint Brokers has entered into guarantees on our behalf (and
on behalf of GFI), and we are required to indemnify Mint Brokers for the
amounts, if any, paid by Mint Brokers on our behalf pursuant to this
arrangement. Effective April 1, 2020, these guarantees were transferred to Mint
Brokers from CF&Co. During both the three months ended September 30, 2021, the
Company recorded expenses of $31 thousand with respect to these guarantees.
During both the nine months ended September 30, 2021, the Company recorded
expenses of $94 thousand with respect to these guarantees.
BGC SUBLEASE FROM NEWMARK
In May 2020, BGC U.S. OpCo entered into an arrangement to sublease excess space
from RKF Retail Holdings LLC, a subsidiary of Newmark, which sublease was
approved by the Audit Committee. The deal is a one-year sublease of
approximately 21,000 rentable square feet in New York City. Under the terms of
the sublease, BGC U.S. OpCo paid a fixed rent amount of $1.1 million in addition
to all operating and tax expenses attributable to the lease. In May 2021, the
sublease was amended to provide for a rate of $15 thousand per month based on
the size of utilized space, with terms extending on a month-to-month basis. In
connection with the sublease, BGC U.S. OpCo paid $0.1 million and $0.4 million
for the three months ended September 30, 2021 and 2020, respectively. In
connection with the sublease, BGC U.S. OpCo paid $0.5 million for the both the
nine months ended September 30, 2021 and 2020.
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DEBT REPURCHASE PROGRAM
On June 11, 2020, the Company's Board of Directors and its Audit Committee
authorized a debt repurchase program for the repurchase by the Company of up to
$50.0 million of Company Debt Securities. Repurchases of Company Debt
Securities, if any, are expected to reduce future cash interest payments, as
well as future amounts due at maturity or upon redemption.
Under the authorization, the Company may make repurchases of Company Debt
Securities for cash from time to time in the open market or in privately
negotiated transactions upon such terms and at such prices as management may
determine. Additionally, the Company is authorized to make any such repurchases
of Company Debt Securities through CF&Co (or its affiliates), in its capacity as
agent or principal, or such other broker-dealers as management shall determine
to utilize from time to time, and such repurchases shall be subject to brokerage
commissions which are no higher than standard market commission rates.
As of September 30, 2021, the Company had $50.0 million remaining from its debt
repurchase authorization.
EQUITY METHOD INVESTMENTS
The Company was authorized to enter into loans, investments or other credit
support arrangements for Aqua (see Note 13- "Related Party Transactions," to our
unaudited condensed consolidated financial statements in Part I, Item 1 of this
Quarterly Report on Form 10-Q); such arrangements are proportionally and on the
same terms as similar arrangements between Aqua and Cantor. On February 5, 2020
and February 25, 2021, the Company's Board and Audit Committee increased the
authorized amount by an additional $2.0 million and $1.0 million respectively,
to an aggregate of $20.2 million. The Company has been further authorized to
provide counterparty or similar guarantees on behalf of Aqua from time to time,
provided that liability for any such guarantees, as well as similar guarantees
provided by Cantor, would be shared proportionally with Cantor.
UNIT REDEMPTIONS AND EXCHANGES-EXECUTIVE OFFICERS
On February 22, 2021, the Company granted Sean A. Windeatt 123,713 exchange
rights with respect to 123,713 non-exchangeable LPUs that were previously
granted to Mr. Windeatt on February 22, 2019. The resulting 123,713 exchangeable
LPUs are immediately exchangeable by Mr. Windeatt for an aggregate of 123,713
shares of BGC Class A common stock. The grant was approved by the Compensation
Committee. Additionally, the Compensation Committee approved the right to
exchange for cash 28,477 non-exchangeable PLPUs held by Mr. Windeatt, for a
payment of $178,266 for taxes when the LPU units are exchanged.
On April 8, 2021, the Compensation Committee approved the repurchase by the
Company on April 23, 2021 of 123,713 exchangeable BGC Holdings LPU-NEWs held by
Mr. Windeatt at the price of $5.65, which was the closing price of our Class A
common stock on April 23, 2021, and the redemption of 28,477 exchangeable BGC
Holdings PLPU-NEWs held by Mr. Windeatt for $178,266, less applicable taxes and
withholdings.
On April 8, 2021, the Compensation Committee approved the repurchase by the
Company of the remaining 62,211 exchangeable BGC Holdings LPUs held by Mr.
Windeatt that were granted exchangeability on March 2, 2020 at the price of
$5.38, the closing price of Class A common stock on April 8, 2020.
On April 28, 2021, the Compensation Committee approved an additional
monetization opportunity for Mr. Merkel. Effective April 29, 2021, 108,350 of
Mr. Merkel's 273,612 non-exchangeable BGC Holdings PSUs were redeemed for zero,
101,358 of Mr. Merkel's 250,659 non- exchangeable BGC Holdings PPSUs were
redeemed for a cash payment of $575,687, and 108,350 shares of BGC Class A
common stock were issued to Mr. Merkel. On April 29, 2021, the 108,350 shares of
BGC Class A common stock were repurchased from Mr. Merkel at the closing price
of our Class A common stock on that date, under our stock buyback program.
On June 28, 2021, (i) the Company exchanged 520,380 exchangeable LPUs held by
Mr. Lutnick at the price of $5.86, which was the closing price of the Company's
Class A common stock on June 28, 2021, for 520,380 shares of BGC Class A common
stock, less applicable taxes and withholdings, resulting in the delivery of
365,229 net shares of BGC Class A common stock to Mr. Lutnick, and in connection
with the exchange of these 520,380 exchangeable LPUs, 425,765 exchangeable PLPUs
were redeemed for a cash payment of $1,525,705 towards taxes; (ii) 88,636
non-exchangeable LPUs were redeemed for zero, and in connection therewith the
Company issued Mr. Lutnick 88,636 shares of BGC Class A common stock, less
applicable taxes and withholdings, resulting in the delivery of 41,464 net
shares of BGC Class A common stock to Mr. Lutnick; and (iii) 1,131,774 H Units
held by Mr. Lutnick were redeemed for 1,131,774 HDUs with a capital account of
$7,017,000, and in connection with the redemption of these 1,131,774 H Units,
1,018,390 Preferred H Units were redeemed for $7,983,000 for taxes.
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On March 2, 2020, the Company granted Stephen M. Merkel 360,065 exchange rights
with respect to 360,065 non-exchangeable LPUs that were previously granted to
Mr. Merkel. The resulting 360,065 exchangeable LPUs were immediately
exchangeable by Mr. Merkel for an aggregate of 360,065 shares of BGC Class A
common stock. The grant was approved by the Compensation Committee.
Additionally, the Compensation Committee approved the right to exchange for cash
265,568 non-exchangeable PLPUs held by Mr. Merkel, for a payment of $1,507,285
for taxes when the LPU units were exchanged. On March 20, 2020, the Company
redeemed 185,300 of such 360,065 exchangeable LPUs held by Mr. Merkel at the
average price of shares of BGC Class A common stock sold under BGC's CEO Program
from March 10, 2020 to March 13, 2020 less 1% (approximately $4.0024 per LPU,
for an aggregate redemption price of approximately $741,644). This transaction
was approved by the Compensation Committee. On July 30, 2020, the Company
redeemed the remaining 174,765 exchangeable LPUs held by Mr. Merkel at the price
of $2.76, the closing price of our Class A Common Stock on July 30, 2020. This
transaction was approved by the Compensation Committee. In connection with the
redemption of the 185,300 exchangeable LPUs on March 20, 2020, 122,579 PLPUs
were redeemed for $661,303 for taxes. In connection with the redemption of the
174,765 LPUs on July 30, 2020, 142,989 PLPUs were redeemed for $846,182 for
taxes.
On March 2, 2020, the Company granted Shaun D. Lynn 883,348 exchange rights with
respect to 883,348 non-exchangeable LPUs that were previously granted to Mr.
Lynn. The resulting 883,348 exchangeable LPUs were immediately exchangeable by
Mr. Lynn for an aggregate of 883,348 shares of BGC Class A common stock. The
grant was approved by the Compensation Committee. Additionally, the Compensation
Committee approved the right to exchange for cash 245,140 non-exchangeable PLPUs
held by Mr. Lynn, for a payment of $ 1,099,599 for taxes when the LPU units are
exchanged. On July 30, 2020, the Company redeemed 797,222 exchangeable LPUs held
by Mr. Lynn at the price of $2.76, the closing price of our Class A Common Stock
on July 30, 2020. This transaction was approved by the Compensation Committee.
In connection with the redemption of the 797,222 exchangeable LPUs, 221,239
exchangeable PLPUs were redeemed for $992,388 for taxes. In connection with the
redemption, Mr. Lynn's remaining 86,126 exchangeable LPUs and 23,901
exchangeable PLPUs were redeemed for zero upon exchange in connection with his
LLP status.
On March 2, 2020, the Company granted Sean A. Windeatt 519,725 exchange rights
with respect to 519,725 non-exchangeable LPUs that were previously granted to
Mr. Windeatt. The resulting 519,725 exchangeable LPUs were immediately
exchangeable by Mr. Windeatt for an aggregate of 519,725 shares of BGC Class A
common stock. The grant was approved by the Compensation Committee.
Additionally, the Compensation Committee approved the right to exchange for cash
97,656 non-exchangeable PLPUs held by Mr. Windeatt, for a payment of $645,779
for taxes when the LPU units are exchanged. On August 5, 2020, the Company
redeemed 436,665 exchangeable LPUs held by Mr. Windeatt at the price of $2.90,
the closing price of our Class A common stock on August 5, 2020. This
transaction was approved by the Compensation Committee. In connection with the
redemption of the 436,665 exchangeable LPUs, 96,216 exchangeable PLPUs were
redeemed for $637,866 for taxes. In connection with the redemption, 20,849
exchangeable LPUs and 1,440 exchangeable PLPUs were redeemed for zero upon
exchange in connection with Mr. Windeatt's LLP status.
Additionally, on August 5, 2020, the Company granted Mr. Windeatt 40,437
exchange rights with respect to 40,437 non-exchangeable LPUs that were
previously granted to Mr. Windeatt. The resulting 40,437 exchangeable LPUs were
immediately exchangeable by Mr. Windeatt for an aggregate of 40,437 shares of
BGC Class A common stock. The grant was approved by the Compensation Committee.
Additionally, the Compensation Committee approved the right to exchange for cash
21,774 non-exchangeable PLPUs held by Mr. Windeatt. On August 5, 2020, the
Company redeemed these 40,437 exchangeable LPUs held by Mr. Windeatt at the
price of $2.90, the closing price of our Class A common stock on August 5, 2020.
This transaction was approved by the Compensation Committee. In connection with
the redemption of these 40,437 exchangeable LPUs, the 21,774 exchangeable PLPUs
were redeemed for $136,305 for taxes.
In addition to the foregoing, on August 6, 2020, Mr. Windeatt was granted
exchange rights with respect to 43,890 non-exchangeable Newmark Holding LPUs
that were previously granted to Mr. Windeatt. Additionally, Mr. Windeatt was
granted the right to exchange for cash 17,068 non-exchangeable Newmark Holdings
PLPUs held by Mr. Windeatt. As these Newmark Holdings LPUs and PLPUs were
previously non-exchangeable, the Company took a transaction charge of $381,961
upon grant of exchangeability. On August 6, 2020, Newmark redeemed the 40,209
Newmark Holdings exchangeable LPUs held by Mr. Windeatt for an amount equal to
the closing price of Newmark's Class A Common Stock on August 6, 2020 ($4.16)
multiplied by 37,660 (the amount of shares of Newmark's Class A Common Stock the
40,209 Newmark Holdings LPUs were exchangeable into based on the Exchange Ratio
at August 6, 2020). In connection with the redemption of these 40,209
exchangeable Newmark Holdings LPUs, 15,637 exchangeable Newmark Holdings PLPUs
were redeemed for $194,086 for taxes. In connection with the redemption, 3,681
exchangeable Newmark Holding LPUs and 1,431 exchangeable Newmark Holdings PLPUs
were redeemed for zero upon exchange in connection with Mr. Windeatt's LLP
status.
MARKET SUMMARY
The following table provides certain volume and transaction count information
for the quarterly periods indicated:
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                                   September 30,           June 30,           March 31,            December 31,           September 30,
                                       2021                  2021                2021                  2020                   2020
Notional Volume (in billions)
Total Fully Electronic volume    $       10,269          $  10,249          $    11,805          $       8,736          $        8,426
Total Hybrid volume¹                        62,649             62,145               67,913                 59,165                  64,298
Total Fully Electronic and
Hybrid volume                    $       72,918          $  72,394          $    79,718          $      67,901          $       72,724
Transaction Count (in thousands,
except for days)
Total Fully Electronic
transactions                              3,374              3,218                3,746                  2,895                   2,735
Total Hybrid transactions                 1,062              1,107                1,348                  1,129                   1,115
Total Fully Electronic and
Hybrid transactions                       4,436              4,325                5,094                  4,024                   3,850
Trading days                                    64                 63                   61                     64                      64

_____________________________________

Note: Certain information may have been recast with current estimates to reflect
changes in reporting methodology. Such revisions have no impact on the Company's
revenues or earnings.
1Hybrid is defined as transactions involving some element of electronic trading
but executed by BGC's brokers, exclusive of voice-only transactions. Fully
electronic involves customer-to-customer trades, free from broker execution.
Fully Electronic volume, including new products, was $10.3 trillion for the
three months ended September 30, 2021, compared to $8.4 trillion for the three
months ended September 30, 2020. Our Hybrid volume for the three months ended
September 30, 2021 was $62.6 trillion, compared to $64.3 trillion for the three
months ended September 30, 2020.
OFF-BALANCE SHEET ARRANGEMENTS
In the ordinary course of business, we enter into arrangements with
unconsolidated entities, including variable interest entities. See Note
15-"Investments" to our unaudited condensed consolidated financial statements in
Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information
related to our investments in unconsolidated entities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of our unaudited condensed consolidated financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of the assets and liabilities, revenues and
expenses, and the disclosure of contingent assets and liabilities in our
unaudited condensed consolidated financial statements. These accounting
estimates require the use of assumptions about matters, some of which are highly
uncertain at the time of estimation. To the extent actual experience differs
from the assumptions used, our unaudited condensed consolidated statements of
financial condition, unaudited condensed consolidated statements of operations
and unaudited condensed consolidated statements of cash flows could be
materially affected. We believe that the following accounting policies involve a
higher degree of judgment and complexity.
Revenue Recognition
We derive our revenues primarily through commissions from brokerage services,
the spread between the buy and sell prices on matched principal transactions,
fees from related parties, data, software and post-trade services, and other
revenues. See Note 3-"Summary of Significant Accounting Policies" to our
consolidated financial statements in Part II, Item 8 of our Annual Report on
Form 10-K for the year ended December 31, 2020, for further information
regarding revenue recognition.
Equity-Based and Other Compensation
Discretionary Bonus: A portion of our compensation and employee benefits expense
is comprised of discretionary bonuses, which may be paid in cash, equity,
partnership awards or a combination thereof. We accrue expense in a period based
on revenues in that period and on the expected combination of cash, equity and
partnership units. Given the assumptions used in estimating discretionary
bonuses, actual results may differ.
Restricted Stock Units: We account for equity-based compensation under the fair
value recognition provisions of the U.S. GAAP guidance. RSUs provided to certain
employees are accounted for as equity awards, and in accordance with the U.S.
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GAAP, we are required to record an expense for the portion of the RSUs that is
ultimately expected to vest. Further, forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Because assumptions are used in estimating employee
turnover and associated forfeiture rates, actual results may differ from our
estimates under different assumptions or conditions.
The fair value of RSU awards to employees is determined on the date of grant,
based on the fair value of BGC Class A common stock. Generally, RSUs granted by
us as employee compensation do not receive dividend equivalents; as such, we
adjust the fair value of the RSUs for the present value of expected forgone
dividends, which requires us to include an estimate of expected dividends as a
valuation input. This grant-date fair value is amortized to expense ratably over
the awards' vesting periods. For RSUs with graded vesting features, we have made
an accounting policy election to recognize compensation cost on a straight-line
basis. The amortization is reflected as part of "Equity-based compensation and
allocations of net income to limited partnership units and FPUs" in our
unaudited condensed consolidated statements of operations.
Restricted Stock: Restricted stock provided to certain employees is accounted
for as an equity award, and as per the U.S. GAAP guidance, we are required to
record an expense for the portion of the restricted stock that is ultimately
expected to vest. We have granted restricted stock that is not subject to
continued employment or service; however, transferability is subject to
compliance with our and our affiliates' customary noncompete obligations. Such
shares of restricted stock are generally saleable by partners in five to ten
years. Because the restricted stock is not subject to continued employment or
service, the grant-date fair value of the restricted stock is expensed on the
date of grant. The expense is reflected as non-cash equity-based compensation
expense in our unaudited condensed consolidated statements of operations.
Limited Partnership Units: LPUs in BGC Holdings and Newmark Holdings are
generally held by employees. Generally, such units receive quarterly allocations
of net income, which are cash distributed on a quarterly basis and generally
contingent upon services being provided by the unit holders. In addition,
Preferred Units are granted in connection with the grant of certain LPUs, such
as PSUs, that may be granted exchangeability or redeemed in connection with the
grant of shares of common stock to cover the withholding taxes owed by the unit
holder upon such exchange or grant. This is an acceptable alternative to the
common practice among public companies of issuing the gross amount of shares to
employees, subject to cashless withholding of shares to pay applicable
withholding taxes. Our Preferred Units are not entitled to participate in
partnership distributions other than with respect to a distribution at a rate of
either 0.6875% (which is 2.75% per calendar year) or such other amount as set
forth in the award documentation. The quarterly allocations of net income to
such LPUs are reflected as a component of compensation expense under
"Equity-based compensation and allocations of net income to limited partnership
units and FPUs" in our unaudited condensed consolidated statements of
operations.
Certain of these LPUs entitle the holders to receive post-termination payments
equal to the notional amount, generally in four equal yearly installments after
the holder's termination. These LPUs are accounted for as post-termination
liability awards under the U.S. GAAP. Accordingly, we recognize a liability for
these units on our consolidated statements of financial condition as part of
"Accrued compensation" for the amortized portion of the post-termination payment
amount, based on the current fair value of the expected future cash payout. We
amortize the post-termination payment amount, less an expected forfeiture rate,
over the vesting period, and record an expense for such awards based on the
change in value at each reporting period in our unaudited condensed consolidated
statements of operations as part of "Equity-based compensation and allocations
of net income to limited partnership units and FPUs."
Certain LPUs are granted exchangeability into shares of BGC or Newmark Class A
common stock or are redeemed in connection with the grant of BGC or Newmark
Class A common stock issued; BGC Class A common stock is issued on a one-for-one
basis, and Newmark Class A common stock is issued based on the number of LPUs
exchanged or redeemed multiplied by the then Exchange Ratio. At the time
exchangeability is granted or shares of BGC or Newmark Class A common stock are
issued, we recognize an expense based on the fair value of the award on that
date, which is included in "Equity-based compensation and allocations of net
income to limited partnership units and FPUs" in our unaudited condensed
consolidated statements of operations. During the three months ended September
30, 2021 and 2020, we incurred equity-based compensation expense of $47.2
million and $3.6 million, respectively. During the nine months ended September
30, 2021 and 2020, we incurred equity-based compensation expense of $86.3
million and $29.0 million, respectively.
Certain LPUs have a stated vesting schedule and do not receive quarterly
allocations of net income. Compensation expense related to these LPUs is
recognized over the stated service period, and these units generally vest
between two and five years. During the three months ended September 30, 2021 and
2020, we incurred equity-based compensation expense related to these LPUs of
$19.9 million and $18.5 million, respectively. During the nine months ended
September 30, 2021 and 2020, we incurred equity-based compensation expense
related to these LPUs of $53.7 million and $54.3 million, respectively. This
expense is included in "Equity-based compensation and allocations of net income
to limited partnership units and FPUs" in our unaudited condensed consolidated
statements of operations.
Employee Loans: We have entered into various agreements with certain employees
and partners, whereby these individuals receive loans that may be either wholly
or in part repaid from distributions that the individuals receive on some or
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all of their LPUs and from proceeds of the sale of the employees' shares of BGC
Class A common stock or may be forgiven over a period of time. Cash advance
distribution loans are documented in formal agreements and are repayable in
timeframes outlined in the underlying agreements. We intend for these advances
to be repaid in full from the future distributions on existing and future awards
granted. The distributions are treated as compensation expense when made and the
proceeds are used to repay the loan. The forgivable portion of any loans is
recognized as compensation expense in our unaudited condensed consolidated
statements of operations over the life of the loan. We review the loan balances
each reporting period for collectability. If we determine that the
collectability of a portion of the loan balances is not expected, we recognize a
reserve against the loan balances. Actual collectability of loan balances may
differ from our estimates.
As of September 30, 2021 and December 31, 2020, the aggregate balance of
employee loans, net of reserve, was $376.0 million and $408.1 million,
respectively, and is included as "Loans, forgivable loans and other receivables
from employees and partners, net" in our unaudited condensed consolidated
statements of financial condition. The September 30, 2021 balance above excludes
$13.9 million of employee loans classified as Assets held for sale as of
September 30, 2021. Compensation expense (benefit) for the above-mentioned
employee loans for the both the three months ended September 30, 2021 and 2020
was $11.1 million. Compensation expense (benefit) for the above-mentioned
employee loans for the nine months ended September 30, 2021 and 2020 was $45.7
million and $42.7 million, respectively. The compensation expense related to
these loans was included as part of "Compensation and employee benefits" in our
unaudited condensed consolidated statements of operations.
Goodwill
Goodwill is the excess of the purchase price over the fair value of identifiable
net assets acquired in a business combination. As prescribed in the U.S. GAAP
guidance, Intangibles - Goodwill and Other, goodwill is not amortized, but
instead is periodically tested for impairment. We review goodwill for impairment
on an annual basis during the fourth quarter of each fiscal year or whenever an
event occurs or circumstances change that could reduce the fair value of a
reporting unit below its carrying amount.
When reviewing goodwill for impairment, we first assess qualitative factors to
determine whether it is more likely than not that the fair value of a reporting
unit is less than its carrying amount, including goodwill. If the results of the
qualitative assessment indicate that it is more likely than not that the fair
value of a reporting unit is less than its carrying amount, or if we choose to
bypass the qualitative assessment, we perform a quantitative goodwill impairment
analysis as follows.
The quantitative goodwill impairment test, used to identify both the existence
of impairment and the amount of impairment loss, compares the fair value of a
reporting unit with its carrying amount, including goodwill. If the carrying
amount of a reporting unit exceeds its fair value, an impairment loss should be
recognized in an amount equal to that excess, limited to the total amount of
goodwill allocated to that reporting unit. If the estimated fair value of a
reporting unit exceeds its carrying value, goodwill is deemed not to be
impaired. To estimate the fair value of the reporting unit, we use a discounted
cash flow model and data regarding market comparables. The valuation process
requires significant judgment and involves the use of significant estimates and
assumptions. These assumptions include cash flow projections, estimated cost of
capital and the selection of peer companies and relevant multiples. Because
assumptions and estimates are used in projecting future cash flows, choosing
peer companies and selecting relevant multiples, actual results may differ from
our estimates under different assumptions or conditions.
CECL
We present financial assets that are measured at amortized cost net of an
allowance for credit losses, which represents the amount expected to be
collected over their estimated life. Expected credit losses for newly recognized
financial assets carried at amortized cost, as well as changes to expected
lifetime credit losses during the period, are recognized in earnings. The CECL
methodology, which became effective for the Company on January 1, 2020,
represents a significant change from prior U.S. GAAP and replaced the prior
multiple impairment methods, which generally required that a loss be incurred
before it was recognized. Within the life cycle of a loan or other financial
asset in scope, the methodology generally results in the earlier recognition of
the provision for credit losses and the related allowance for credit losses than
under prior U.S. GAAP. The CECL methodology's impact on expected credit losses,
among other things, reflects the Company's view of the current state of the
economy, forecasted macroeconomic conditions and BGC's portfolios.
Income Taxes
We account for income taxes using the asset and liability method as prescribed
in the U.S. GAAP guidance, Income Taxes. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to basis differences
between the consolidated financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. Certain of
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our entities are taxed as U.S. partnerships and are subject to UBT in the City
of New York. Therefore, the tax liability or benefit related to the partnership
income or loss except for UBT rests with the partners (see Note 2-"Limited
Partnership Interests in BGC Holdings and Newmark Holdings" for a discussion of
partnership interests), rather than the partnership entity. As such, the
partners' tax liability or benefit is not reflected in our unaudited condensed
consolidated financial statements. The tax-related assets, liabilities,
provisions or benefits included in our unaudited condensed consolidated
financial statements also reflect the results of the entities that are taxed as
corporations, either in the U.S. or in foreign jurisdictions.
We provide for uncertain tax positions based upon management's assessment of
whether a tax benefit is more likely than not to be sustained upon examination
by tax authorities. Management is required to determine whether a tax position
is more likely than not to be sustained upon examination by tax authorities,
including resolution of any related appeals or litigation processes, based on
the technical merits of the position. Because significant assumptions are used
in determining whether a tax benefit is more likely than not to be sustained
upon examination by tax authorities, actual results may differ from our
estimates under different assumptions or conditions. We recognize interest and
penalties related to income tax matters in "Provision for income taxes" in our
unaudited condensed consolidated statements of operations.
A valuation allowance is recorded against deferred tax assets if it is deemed
more likely than not that those assets will not be realized. In assessing the
need for a valuation allowance, we consider all available evidence, including
past operating results, the existence of cumulative losses in the most recent
fiscal years, estimates of future taxable income and the feasibility of tax
planning strategies.
The measurement of current and deferred income tax assets and liabilities is
based on provisions of enacted tax laws and involves uncertainties in the
application of tax regulations in the U.S. and other tax jurisdictions. Because
our interpretation of complex tax law may impact the measurement of current and
deferred income taxes, actual results may differ from these estimates under
different assumptions regarding the application of tax law.
The Tax Act was enacted on December 22, 2017, which includes the global
intangible low-taxed income, GILTI, provision. This provision requires inclusion
in the Company's U.S. income tax return the earnings of certain foreign
subsidiaries. The Company has elected to treat taxes associated with the GILTI
provision using the Period Cost Method and thus has not recorded deferred taxes
for basis differences under this regime.
See Note 3-"Summary of Significant Accounting Policies" to our consolidated
financial statements in Part II, Item 8 of our Annual Report on Form 10-K as of
December 31, 2020 for additional information regarding these critical accounting
policies and other significant accounting policies.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1-"Organization and Basis of Presentation" to our unaudited condensed
consolidated financial statements in Part I, Item 1 of this Quarterly Report on
Form 10-Q for information regarding recent accounting pronouncements.
CAPITAL DEPLOYMENT PRIORITIES, DIVIDEND POLICY AND REPURCHASE AND REDEMPTION
PROGRAM
BGC's 2021 capital allocation priorities are to return capital to stockholders
and to continue investing in its high growth Fenics businesses. BGC plans to
prioritize share and unit repurchases over dividends and distributions. We have
repurchased or redeemed 24.4 million shares during the third quarter and
repurchased an additional 13.9 million shares, during the fourth quarter, as of
November 5, 2021.
Traditionally, our dividend policy provides that we expect to pay a quarterly
cash dividend to our common stockholders based on our post-tax Adjusted Earnings
per fully diluted share. Please see below for a detailed definition of post-tax
Adjusted Earnings per fully diluted share. Beginning in the first quarter of
2020, and for all of the quarterly periods in 2020, the Board reduced the
quarterly dividend to $0.01 per share out of an abundance of caution in order to
strengthen the Company's balance sheet as the global capital markets faced
difficult and unprecedented macroeconomic conditions related to the global
pandemic. Additionally, during 2020, BGC Holdings, L.P. reduced its
distributions to or on behalf of its partners. We plan to continue dividends and
distributions at or near current levels through the balance of 2021 and
prioritize our other capital allocation priorities. BGC believes that these
steps will allow the Company to maintain its financial strength.
Any dividends, if and when declared by our Board, will be paid on a quarterly
basis. The dividend to our common stockholders is expected to be calculated
based on post-tax Adjusted Earnings allocated to us and generated over the
fiscal quarter ending prior to the record date for the dividend. No assurance
can be made, however, that a dividend will be paid each quarter. The
declaration, payment, timing, and amount of any future dividends payable by us
will be at the sole discretion of our Board. With respect to any distributions
which are declared, amounts paid to or on behalf of partners will at least cover
their
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related tax payments. Whether any given post-tax amount is equivalent to the
amount received by a stockholder also on an after tax basis depends upon
stockholders' and partners' domiciles and tax status.
We are a holding company, with no direct operations, and therefore we are able
to pay dividends only from our available cash on hand and funds received from
distributions from BGC U.S. OpCo and BGC Global OpCo. Our ability to pay
dividends may also be limited by regulatory considerations as well as by
covenants contained in financing or other agreements. In addition, under
Delaware law, dividends may be payable only out of surplus, which is our net
assets minus our capital (as defined under Delaware law), or, if we have no
surplus, out of our net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. Accordingly, any unanticipated
accounting, tax, regulatory or other charges against net income may adversely
affect our ability to declare and pay dividends. While we intend to declare and
pay dividends quarterly, there can be no assurance that our Board will declare
dividends at all or on a regular basis or that the amount of our dividends will
not change.
Non-GAAP Financial Measures
We use non-GAAP financial measures that differ from the most directly comparable
measures calculated and presented in accordance with U.S. GAAP. Non-GAAP
financial measures used by the Company include "Adjusted Earnings before
noncontrolling interests and taxes", which is used interchangeably with "pre-tax
Adjusted Earnings"; "Post-tax Adjusted Earnings to fully diluted shareholders",
which is used interchangeably with "post-tax Adjusted Earnings"; and "Adjusted
EBITDA". The definitions of these terms are below.
Adjusted Earnings Defined
BGC uses non-GAAP financial measures, including "Adjusted Earnings before
noncontrolling interests and taxes" and "Post-tax Adjusted Earnings to fully
diluted shareholders", which are supplemental measures of operating results used
by management to evaluate the financial performance of the Company and its
consolidated subsidiaries. BGC believes that Adjusted Earnings best reflect the
operating earnings generated by the Company on a consolidated basis and are the
earnings which management considers when managing its business.
As compared with "Income (loss) from operations before income taxes" and "Net
income (loss) for fully diluted shares", both prepared in accordance with GAAP,
Adjusted Earnings calculations primarily exclude certain non-cash items and
other expenses that generally do not involve the receipt or outlay of cash by
the Company and/or which do not dilute existing stockholders. In addition,
Adjusted Earnings calculations exclude certain gains and charges that management
believes do not best reflect the ordinary results of BGC. Adjusted Earnings is
calculated by taking the most comparable GAAP measures and adjusting for certain
items with respect to compensation expenses, non-compensation expenses, and
other income, as discussed below.
Calculations of Compensation Adjustments for Adjusted Earnings and Adjusted
EBITDA
Treatment of Equity-Based Compensation Line Item for Adjusted Earnings and
Adjusted EBITDA
The Company's Adjusted Earnings and Adjusted EBITDA measures exclude all GAAP
charges included in the line item "Equity-based compensation and allocations of
net income to limited partnership units and FPUs" (or "equity-based
compensation" for purposes of defining the Company's non-GAAP results) as
recorded on the Company's GAAP Consolidated Statements of Operations and GAAP
Consolidated Statements of Cash Flows. These GAAP equity-based compensation
charges reflect the following items:
*Charges with respect to grants of exchangeability, which reflect the right of
holders of limited partnership units with no capital accounts, such as LPUs and
PSUs, to exchange these units into shares of common stock, or into partnership
units with capital accounts, such as HDUs, as well as cash paid with respect to
taxes withheld or expected to be owed by the unit holder upon such exchange. The
withholding taxes related to the exchange of certain non-exchangeable units
without a capital account into either common shares or units with a capital
account may be funded by the redemption of preferred units such as PPSUs.
*Charges with respect to preferred units. Any preferred units would not be
included in the Company's fully diluted share count because they cannot be made
exchangeable into shares of common stock and are entitled only to a fixed
distribution. Preferred units are granted in connection with the grant of
certain limited partnership units that may be granted exchangeability or
redeemed in connection with the grant of shares of common stock at ratios
designed to cover any withholding taxes expected to be paid. This is an
alternative to the common practice among public companies of issuing the gross
amount of shares to employees, subject to cashless withholding of shares, to pay
applicable withholding taxes.
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*GAAP equity-based compensation charges with respect to the grant of an
offsetting amount of common stock or partnership units with capital accounts in
connection with the redemption of non-exchangeable units, including PSUs and
LPUs.
*Charges related to amortization of RSUs and limited partnership units.
*Charges related to grants of equity awards, including common stock or
partnership units with capital accounts.
*Allocations of net income to limited partnership units and FPUs. Such
allocations represent the pro-rata portion of post-tax GAAP earnings available
to such unit holders.
The amounts of certain quarterly equity-based compensation charges are based
upon the Company's estimate of such expected charges during the annual period,
as described further below under "Methodology for Calculating Adjusted Earnings
Taxes."
Virtually all of BGC's key executives and producers have equity or partnership
stakes in the Company and its subsidiaries and generally receive deferred equity
or limited partnership units as part of their compensation. A significant
percentage of BGC's fully diluted shares are owned by its executives, partners
and employees. The Company issues limited partnership units as well as other
forms of equity-based compensation, including grants of exchangeability into
shares of common stock, to provide liquidity to its employees, to align the
interests of its employees and management with those of common stockholders, to
help motivate and retain key employees, and to encourage a collaborative culture
that drives cross-selling and revenue growth.
All share equivalents that are part of the Company's equity-based compensation
program, including REUs, PSUs, LPUs, HDUs, and other units that may be made
exchangeable into common stock, as well as RSUs (which are recorded using the
treasury stock method), are included in the fully diluted share count when
issued or at the beginning of the subsequent quarter after the date of grant.
Generally, limited partnership units other than preferred units are expected to
be paid a pro-rata distribution based on BGC's calculation of Adjusted Earnings
per fully diluted share. However, out of an abundance of caution and in order to
strengthen the Company's balance sheet due the uncertain macroeconomic
conditions with respect to the COVID-19 pandemic, BGC Holdings, L.P. has reduced
its distributions of income from the operations of BGC's businesses to its
partners.
Compensation charges are also adjusted for certain other cash and non-cash
items, including those related to the amortization of GFI employee forgivable
loans granted prior to the closing of the January 11, 2016 back-end merger with
GFI.
Certain Other Compensation-Related Adjustments for Adjusted Earnings
BGC also excludes various other GAAP items that management views as not
reflective of the Company's underlying performance in a given period from its
calculation of Adjusted Earnings. These may include compensation-related items
with respect to cost-saving initiatives, such as severance charges incurred in
connection with headcount reductions as part of broad restructuring and/or cost
savings plans.
Calculation of Non-Compensation Adjustments for Adjusted Earnings
Adjusted Earnings calculations may also exclude items such as:
*Non-cash GAAP charges related to the amortization of intangibles with respect
to acquisitions;
*Acquisition related costs;
*Certain rent charges;
*Non-cash GAAP asset impairment charges; and
*Various other GAAP items that management views as not reflective of the
Company's underlying performance in a given period, including
non-compensation-related charges incurred as part of broad restructuring and/or
cost savings plans. Such GAAP items may include charges for exiting leases
and/or other long-term contracts as part of cost-saving initiatives, as well as
non-cash impairment charges related to assets, goodwill and/or intangibles
created from acquisitions.
Calculation of Adjustments for Other (income) losses for Adjusted Earnings
Adjusted Earnings calculations also exclude certain other non-cash,
non-dilutive, and/or non-economic items, which may, in some periods, include:
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*Gains or losses on divestitures;
*Fair value adjustment of investments;
*Certain other GAAP items, including gains or losses related to BGC's
investments accounted for under the equity method; and
*Any unusual, one-time, non-ordinary, or non-recurring gains or losses.
Methodology for Calculating Adjusted Earnings Taxes
Although Adjusted Earnings are calculated on a pre-tax basis, BGC also reports
post-tax Adjusted Earnings to fully diluted shareholders. The Company defines
post-tax Adjusted Earnings to fully diluted shareholders as pre-tax Adjusted
Earnings reduced by the non-GAAP tax provision described below and net income
(loss) attributable to noncontrolling interest for Adjusted Earnings.
The Company calculates its tax provision for post-tax Adjusted Earnings using an
annual estimate similar to how it accounts for its income tax provision under
GAAP. To calculate the quarterly tax provision under GAAP, BGC estimates its
full fiscal year GAAP income (loss) from operations before income taxes and
noncontrolling interests in subsidiaries and the expected inclusions and
deductions for income tax purposes, including expected equity-based compensation
during the annual period. The resulting annualized tax rate is applied to BGC's
quarterly GAAP income (loss) from operations before income taxes and
noncontrolling interests in subsidiaries. At the end of the annual period, the
Company updates its estimate to reflect the actual tax amounts owed for the
period.
To determine the non-GAAP tax provision, BGC first adjusts pre-tax Adjusted
Earnings by recognizing any, and only, amounts for which a tax deduction applies
under applicable law. The amounts include charges with respect to equity-based
compensation; certain charges related to employee loan forgiveness; certain net
operating loss carryforwards when taken for statutory purposes; and certain
charges related to tax goodwill amortization. These adjustments may also reflect
timing and measurement differences, including treatment of employee loans;
changes in the value of units between the dates of grants of exchangeability and
the date of actual unit exchange; variations in the value of certain deferred
tax assets; and liabilities and the different timing of permitted deductions for
tax under GAAP and statutory tax requirements.
After application of these adjustments, the result is the Company's taxable
income for its pre-tax Adjusted Earnings, to which BGC then applies the
statutory tax rates to determine its non-GAAP tax provision. BGC views the
effective tax rate on pre-tax Adjusted Earnings as equal to the amount of its
non-GAAP tax provision divided by the amount of pre-tax Adjusted Earnings.
Generally, the most significant factor affecting this non-GAAP tax provision is
the amount of charges relating to equity-based compensation. Because the charges
relating to equity-based compensation are deductible in accordance with
applicable tax laws, increases in such charges have the effect of lowering the
Company's non-GAAP effective tax rate and thereby increasing its post-tax
Adjusted Earnings.
BGC incurs income tax expenses based on the location, legal structure and
jurisdictional taxing authorities of each of its subsidiaries. Certain of the
Company's entities are taxed as U.S. partnerships and are subject to the
Unincorporated Business Tax ("UBT") in New York City. Any U.S. federal and state
income tax liability or benefit related to the partnership income or loss, with
the exception of UBT, rests with the unit holders rather than with the
partnership entity. The Company's consolidated financial statements include U.S.
federal, state, and local income taxes on the Company's allocable share of the
U.S. results of operations. Outside of the U.S., BGC is expected to operate
principally through subsidiary corporations subject to local income taxes. For
these reasons, taxes for Adjusted Earnings are expected to be presented to show
the tax provision the consolidated Company would expect to pay if 100 percent of
earnings were taxed at global corporate rates.
Calculations of Pre- and Post-Tax Adjusted Earnings per Share
BGC's pre- and post-tax Adjusted Earnings per share calculations assume either
that:
*The fully diluted share count includes the shares related to any dilutive
instruments, but excludes the associated expense, net of tax, when the impact
would be dilutive; or
*The fully diluted share count excludes the shares related to these instruments,
but includes the associated expense, net of tax.
The share count for Adjusted Earnings excludes certain shares and share
equivalents expected to be issued in future periods but not yet eligible to
receive dividends and/or distributions. Each quarter, the dividend payable to
BGC's stockholders, if any, is expected to be determined by the Company's Board
of Directors with reference to a number of factors, including post-
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tax Adjusted Earnings per share. BGC may also pay a pro-rata distribution of net
income to limited partnership units, as well as to Cantor for its noncontrolling
interest. The amount of this net income, and therefore of these payments per
unit, would be determined using the above definition of Adjusted Earnings per
share on a pre-tax basis.
The declaration, payment, timing, and amount of any future dividends payable by
the Company will be at the discretion of its Board of Directors using the fully
diluted share count. For more information on any share count adjustments, see
the table titled "Fully Diluted Weighted-Average Share Count under GAAP and for
Adjusted Earnings" in the Company's most recent financial results press release.
Management Rationale for Using Adjusted Earnings
BGC's calculation of Adjusted Earnings excludes the items discussed above
because they are either non-cash in nature, because the anticipated benefits
from the expenditures are not expected to be fully realized until future
periods, or because the Company views results excluding these items as a better
reflection of the underlying performance of BGC's ongoing operations. Management
uses Adjusted Earnings in part to help it evaluate, among other things, the
overall performance of the Company's business, to make decisions with respect to
the Company's operations, and to determine the amount of dividends payable to
common stockholders and distributions payable to holders of limited partnership
units. Dividends payable to common stockholders and distributions payable to
holders of limited partnership units are included within "Dividends to
stockholders" and "Earnings distributions to limited partnership interests and
noncontrolling interests," respectively, in our unaudited, condensed,
consolidated statements of cash flows.
The term "Adjusted Earnings" should not be considered in isolation or as an
alternative to GAAP net income (loss). The Company views Adjusted Earnings as a
metric that is not indicative of liquidity, or the cash available to fund its
operations, but rather as a performance measure. Pre- and post-tax Adjusted
Earnings, as well as related measures, are not intended to replace the Company's
presentation of its GAAP financial results. However, management believes that
these measures help provide investors with a clearer understanding of BGC's
financial performance and offer useful information to both management and
investors regarding certain financial and business trends related to the
Company's financial condition and results of operations. Management believes
that the GAAP and Adjusted Earnings measures of financial performance should be
considered together.
For more information regarding Adjusted Earnings, see the section in the
Company's most recent financial results press release titled "Reconciliation of
GAAP Income (Loss) from Operations before Income Taxes to Adjusted Earnings and
GAAP Fully Diluted EPS to Post-Tax Adjusted EPS", including the related
footnotes, for details about how BGC's non-GAAP results are reconciled to those
under GAAP.
Adjusted EBITDA Defined
BGC also provides an additional non-GAAP financial performance measure,
"Adjusted EBITDA", which it defines as GAAP "Net income (loss) available to
common stockholders", adjusted to add back the following items:
*Provision (benefit) for income taxes;
*Net income (loss) attributable to noncontrolling interest in subsidiaries;
*Interest expense;
*Fixed asset depreciation and intangible asset amortization;
*Equity-based compensation and allocations of net income to limited partnership
units and FPUs;
*Impairment of long-lived assets;
*(Gains) losses on equity method investments; and
*Certain other non-cash GAAP items, such as non-cash charges of amortized rents
incurred by the Company for its new U.K. based headquarters.
The Company's management believes that its Adjusted EBITDA measure is useful in
evaluating BGC's operating performance, because the calculation of this measure
generally eliminates the effects of financing and income taxes and the
accounting effects of capital spending and acquisitions, which would include
impairment charges of goodwill and intangibles created from acquisitions. Such
items may vary for different companies for reasons unrelated to overall
operating performance. As a result, the Company's management uses this measure
to evaluate operating performance and for other discretionary purposes. BGC
believes that Adjusted EBITDA is useful to investors to assist them in getting a
more complete picture of the Company's financial results and operations.
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Since BGC's Adjusted EBITDA is not a recognized measurement under GAAP,
investors should use this measure in addition to GAAP measures of net income
when analyzing BGC's operating performance. Because not all companies use
identical EBITDA calculations, the Company's presentation of Adjusted EBITDA may
not be comparable to similarly titled measures of other companies. Furthermore,
Adjusted EBITDA is not intended to be a measure of free cash flow or GAAP cash
flow from operations because the Company's Adjusted EBITDA does not consider
certain cash requirements, such as tax and debt service payments.
For more information regarding Adjusted EBITDA, see the section in the Company's
most recent financial results press release titled "Reconciliation of GAAP Net
Income (Loss) Available to Common Stockholders to Adjusted EBITDA", including
the footnotes to the same, for details about how BGC's non-GAAP results are
reconciled to those under GAAP.
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OUR ORGANIZATIONAL STRUCTURE
Stock Ownership
As of September 30, 2021, there were 333.4 million shares of BGC Class A common
stock outstanding. On June 21, 2017, Cantor pledged 10.0 million shares of BGC
Class A common stock in connection with a partner loan program. On November 23,
2018, those shares of BGC Class A common stock were converted into 10.0 million
shares of BGC Class B common stock and remain pledged in connection with the
partner loan program. On November 23, 2018, BGC Partners issued 10.3 million
shares of BGC Class B common stock to Cantor and 0.7 million shares of BGC Class
B common stock to CFGM, an affiliate of Cantor, in each case in exchange for
shares of BGC Class A common stock from Cantor and CFGM, respectively, on a
one-to-one basis pursuant to Cantor's and CFGM's right to exchange such shares
under the letter agreement, dated as of June 5, 2015, by and between BGC
Partners and Cantor. Pursuant to the Exchange Agreement, no additional
consideration was paid to BGC Partners by Cantor or CFGM for the Class B
Issuance. The Class B Issuance was exempt from registration pursuant to Section
3(a)(9) of the Securities Act. As of September 30, 2021, Cantor and CFGM did not
own any shares of BGC Class A common stock. Each share of BGC Class A common
stock is entitled to one vote on matters submitted to a vote of our
stockholders.
In addition, as of September 30, 2021, Cantor and CFGM held 45.9 million shares
of BGC Class B common stock (which represents all of the outstanding shares of
BGC Class B common stock), representing approximately 57.9% of our voting power
on such date. Each share of BGC Class B common stock is generally entitled to
the same rights as a share of BGC Class A common stock, except that, on matters
submitted to a vote of our stockholders, each share of Class B common stock is
entitled to ten votes. The BGC Class B common stock generally votes together
with the BGC Class A common stock on all matters submitted to a vote of our
stockholders.
Through September 30, 2021, Cantor has distributed to its current and former
partners an aggregate of 20.9 million shares of BGC Class A common stock,
consisting of (i) 19.4 million April 2008 distribution rights shares, and
(ii) 1.5 million February 2012 distribution rights shares. As of September 30,
2021, Cantor is still obligated to distribute to its current and former partners
an aggregate of 15.8 million shares of BGC Class A common stock, consisting of
14.0 million April 2008 distribution rights shares and 1.8 million February 2012
distribution rights shares.
From time to time, we may actively continue to repurchase shares of our Class A
common stock including from Cantor, Newmark, our executive officers, other
employees, partners and others.
BGC Partners, Inc. Partnership Structure
We are a holding company with no direct operations, and our business is operated
through two operating partnerships, BGC U.S. OpCo, which holds our U.S.
businesses, and BGC Global OpCo, which holds our non-U.S. businesses. The
limited partnership interests of the two operating partnerships are held by us
and BGC Holdings, and the limited partnership interests of BGC Holdings are
currently held by LPU holders, Founding Partners, and Cantor. We hold the BGC
Holdings general partnership interest and the BGC Holdings special voting
limited partnership interest, which entitle us to remove and appoint the general
partner of BGC Holdings, and serve as the general partner of BGC Holdings, which
entitles us to control BGC Holdings. BGC Holdings, in turn, holds the BGC U.S.
OpCo general partnership interest and the BGC U.S. OpCo special voting limited
partnership interest, which entitle the holder thereof to remove and appoint the
general partner of BGC U.S. OpCo, and the BGC Global OpCo general partnership
interest and the BGC Global OpCo special voting limited partnership interest,
which entitle the holder thereof to remove and appoint the general partner of
BGC Global OpCo, and serves as the general partner of BGC U.S. OpCo and BGC
Global OpCo, all of which entitle BGC Holdings (and thereby us) to control each
of BGC U.S. OpCo and BGC Global OpCo. BGC Holdings holds its BGC Global OpCo
general partnership interest through a company incorporated in the Cayman
Islands, BGC Global Holdings GP Limited.
As of September 30, 2021, we held directly and indirectly, through wholly-owned
subsidiaries, 379.3 million BGC U.S. OpCo limited partnership units and 379.3
million BGC Global OpCo limited partnership units, representing approximately
75.6% of the outstanding limited partnership units in both BGC U.S. OpCo and BGC
Global OpCo. As of that date, BGC Holdings held 122.1 million BGC U.S. OpCo
limited partnership units and 122.1 million BGC Global OpCo limited partnership
units, representing approximately 24.4% of the outstanding limited partnership
units in both BGC U.S. OpCo and BGC Global OpCo.
LPU holders, Founding Partners, and Cantor directly hold BGC Holdings limited
partnership interests. Since BGC Holdings in turn holds BGC U.S. OpCo limited
partnership interests and BGC Global OpCo limited partnership interests, LPU
holders, Founding Partners, and Cantor indirectly have interests in BGC U.S.
OpCo limited partnership interests and BGC Global OpCo limited partnership
interests. Further, in connection with the Separation and Distribution
Agreement, limited partnership interests in Newmark Holdings were distributed to
the holders of limited partnership interests in BGC Holdings, whereby each
holder of BGC Holdings limited partnership interests who at that time held a BGC
Holdings limited partnership
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interest received a corresponding Newmark Holdings limited partnership interest,
equal in number to a BGC Holdings limited partnership interest divided by 2.2
(i.e., 0.4545 of a unit in Newmark Holdings). Accordingly, existing partners at
the time of the Separation in BGC Holdings are also partners in Newmark Holdings
and hold corresponding units issued at the applicable ratio. Thus, such partners
now also have an indirect interest in Newmark OpCo.
As of September 30, 2021, excluding Preferred Units and NPSUs described below,
outstanding BGC Holdings partnership interests included 65.4 million LPUs, 9.8
million FPUs and 55.1 million Cantor units.
We may in the future effect additional redemptions of BGC Holdings LPUs and
FPUs, and concurrently grant shares of BGC Class A common stock. We may also
continue our earlier partnership restructuring programs, whereby we redeemed or
repurchased certain LPUs and FPUs in exchange for new units, grants of
exchangeability for BGC Class A common stock or cash and, in many cases,
obtained modifications or extensions of partners' employment arrangements. We
also generally expect to continue to grant exchange rights with respect to
outstanding non-exchangeable LPUs and FPUs, and to repurchase BGC Holdings
partnership interests from time to time, including from Cantor, our executive
officers, and other employees and partners, unrelated to our partnership
restructuring programs.
Cantor units in BGC Holdings are generally exchangeable under the Exchange
Agreement for up to 23.6 million shares of BGC Class B common stock (or, at
Cantor's option or if there are no such additional authorized but unissued
shares of our Class B common stock, BGC Class A common stock) on a one-for-one
basis (subject to adjustments). Upon certain circumstances, Cantor may have the
right to acquire additional Cantor units in connection with the redemption of or
grant of exchangeability to certain non-exchangeable BGC Holdings FPUs owned by
persons who were previously Cantor partners prior to our 2008 acquisition of the
BGC business from Cantor. Cantor has exercised this right from time to time.
As of September 30, 2021, there were 1.6 million FPUs remaining which BGC
Holdings had the right to redeem or exchange and with respect to which Cantor
will have the right to purchase an equivalent number of Cantor units following
such redemption or exchange. On October 28, 2021, Cantor purchased from BGC
Holdings an aggregate of 460,929 Cantor units for an aggregate consideration of
$715,605 as a result of the redemption of 460,929 FPUs, and 1,179,942 Cantor
units for aggregate consideration of $2,033,838 as a result of the exchange of
1,179,942 FPUs. Each Cantor unit in BGC Holdings held by Cantor is exchangeable
by Cantor at any time on a one-for-one basis (subject to adjustment) for shares
of BGC Class A common stock.
In order to facilitate partner compensation and for other corporate purposes,
the BGC Holdings limited partnership agreement provides for Preferred Units,
which are Working Partner units that may be awarded to holders of, or
contemporaneous with the grant of, PSUs, PSIs, PSEs, LPUs, APSUs, APSIs, APSEs,
REUs, RPUs, AREUs, and ARPUs. These Preferred Units carry the same name as the
underlying unit, with the insertion of an additional "P" to designate them as
Preferred Units.
Such Preferred Units may not be made exchangeable into BGC Class A common stock
and accordingly will not be included in the fully diluted share count. Each
quarter, the net profits of BGC Holdings are allocated to such Units at a rate
of either 0.6875% (which is 2.75% per calendar year) of the allocation amount
assigned to them based on their award price, or such other amount as set forth
in the award documentation, before calculation and distribution of the quarterly
Partnership distribution for the remaining Partnership units. The Preferred
Units will not be entitled to participate in Partnership distributions other
than with respect to the Preferred Distribution. As of September 30, 2021, there
were 24.9 million such units granted and outstanding in BGC Holdings.
On June 5, 2015, we entered into an agreement with Cantor providing Cantor, CFGM
and other Cantor affiliates entitled to hold BGC Class B common stock the right
to exchange from time to time, on a one-to-one basis, subject to adjustment, up
to an aggregate of 34.6 million shares of BGC Class A common stock now owned or
subsequently acquired by such Cantor entities for up to an aggregate of 34.6
million shares of BGC Class B common stock. Such shares of BGC Class B common
stock, which currently can be acquired upon the exchange of exchangeable LPUs
owned in our Holdings, are already included in the Company's fully diluted share
count and will not increase Cantor's current maximum potential voting power in
the common equity. The Exchange Agreement will enable the Cantor entities to
acquire the same number of shares of BGC Class B common stock that they were
already entitled to acquire without having to exchange their exchangeable LPUs
in our Holdings.
Under the Exchange Agreement, Cantor and CFGM have the right to exchange shares
of BGC Class A common stock owned by them for the same number of shares of BGC
Class B common stock. As of September 30, 2021, Cantor and CFGM do not own any
shares of BGC Class A common stock. Cantor and CFGM would also have the right to
exchange any shares of BGC Class A common stock subsequently acquired by either
of them for shares of BGC Class B common stock, up to 23.6 million shares of BGC
Class B common stock.
We and Cantor have agreed that any shares of BGC Class B common stock issued in
connection with the Exchange Agreement would be deducted from the aggregate
number of shares of BGC Class B common stock that may be issued to the
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Cantor entities upon exchange of exchangeable LPUs in BGC Holdings. Accordingly,
the Cantor entities will not be entitled to receive any more shares of BGC
Class B common stock under this agreement than they were previously eligible to
receive upon exchange of exchangeable LPUs.
Non-distributing partnership units, or N Units, carry the same name as the
underlying unit with the insertion of an additional "N" to designate them as the
N Unit type and are designated as NREUs, NPREUs, NLPUs, NPLPUs and NPPSUs. The N
Units are not entitled to participate in Partnership distributions, will not be
allocated any items of profit or loss and may not be made exchangeable into
shares of BGC Class A common stock. Subject to the approval of the Compensation
Committee or its designee, certain N Units may be converted into the underlying
unit type (i.e. an NREU will be converted into an REU) and will then participate
in Partnership distributions, subject to terms and conditions determined by the
general partner of BGC Holdings, in its sole discretion, including that the
recipient continue to provide substantial services to the Company and comply
with his or her partnership obligations.
On December 13, 2017, the Amended and Restated BGC Holdings Partnership
Agreement was amended and restated a second time to include prior standalone
amendments and to make certain other changes related to the Separation. The
Second Amended and Restated BGC Holdings Partnership Agreement, among other
things, reflects changes resulting from the division in the Separation of BGC
Holdings into BGC Holdings and Newmark Holdings, including:
•an apportionment of the existing economic attributes (including, among others,
capital accounts and post-termination payments) of each BGC Holdings LPU
outstanding immediately prior to the Separation between such Legacy BGC Holdings
Unit and the 0.4545 of a Newmark Holdings LPU issued in the Separation in
respect of each such Legacy BGC Holdings Unit, based on the relative value of
BGC and Newmark as of after the Newmark IPO; and
•a right of the employer of a partner to determine whether to grant
exchangeability with respect to Legacy BGC Holdings Units held by such partner.
The Second Amended and Restated BGC Holdings Partnership Agreement also removes
certain classes of BGC Holdings units that are no longer outstanding, and
permits the general partner of BGC Holdings to determine the total number of
authorized BGC Holdings units. The Second Amended and Restated BGC Holdings
Limited Partnership Agreement was approved by the Audit Committee of the Board
of Directors of the Company.
The following diagram illustrates our organizational structure as of
September 30, 2021. The diagram does not reflect the various subsidiaries of
BGC, BGC U.S. OpCo, BGC Global OpCo, or Cantor, or the noncontrolling interests
in our consolidated subsidiaries other than Cantor's units in BGC Holdings.*

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            STRUCTURE OF BGC PARTNERS, INC. AS OF SEPTEMBER 30, 2021
                    [[Image Removed: bgcp-20210930_g1.jpg]]
* Shares of BGC Class B common stock are convertible into shares of BGC Class A
common stock at any time in the discretion of the holder on a one-for-one basis.
Accordingly, if Cantor and CFGM converted all of their BGC Class B common stock
into BGC Class A common stock, Cantor would hold 11.9% of the voting power, CFGM
would hold 0.2% of the voting power, and the public stockholders would hold
87.9% of the voting power (and Cantor and CFGM's indirect economic interests
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in BGC U.S. and BGC Global would remain unchanged). The diagram does not reflect
certain BGC Class A common stock and BGC Holdings partnership units as follows:
(a) any shares of BGC Class A common stock that may become issuable upon the
conversion or exchange of any convertible or exchangeable debt securities that
may in the future be sold under our shelf Registration Statement on Form S-3
(Registration No. 333-180331); (b) 24.9 million Preferred Units granted and
outstanding to BGC Holdings partners (see "BGC Partners, Inc. Partnership
Structure" herein); and (c) 54.7 million N Units granted and outstanding to BGC
Holdings partners.
The diagram reflects BGC Class A common stock and BGC Holdings partnership unit
activity from January 1, 2021 through September 30, 2021 as follows: (a) 41.9
million shares of BGC Class A common stock repurchased by us; (b) 8.3 million
LPUs redeemed for Newmark employees and executives; (c) 9.0 million LPUs for
vested N Units; (d) an aggregate of 7.6 million LPUs granted by BGC Holdings;
(e) 4.8 million LPUs and FPUs redeemed or repurchased by us for cash; (f) 3.5
million LPUs forfeited; (g) 1.9 million shares of BGC Class A common stock
issued for vested restricted stock units; (h) 0.9 million LPUs related to prior
period adjustments; (i) 1.1 million shares of Class A common stock issued by us
under our acquisition shelf Registration Statement on Form S-4 (Registration
No. 333-169232), but not the 4.6 million of such shares remaining available for
issuance by us under such Registration Statement; and (j) 13 thousand shares
issued by us under our Dividend Reinvestment and Stock Purchase Plan shelf
Registration Statement on Form S-3 (Registration No. 333-173109), but not the
9.3 million of such shares remaining available for issuance by us under shelf
Registration Statement on Form S-3 (Registration No. 333-196999). No shares of
BGC Class A common stock were sold by us during the nine months ended September
30, 2021 under the March 2018 Sales Agreement pursuant to our Registration
Statement on Form S-3 (Registration No. 333-223550). As September 30, 2021, we
have not issued any shares of BGC Class A common stock under our 2019 Form S-4
Registration Statement (Registration No. 333-233761).
Possible Corporate Conversion
The Company continues to explore a possible conversion into a simpler corporate
structure. Our board and committees have hired advisors and are reviewing the
potential structure and details of such conversion.