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KCG ANNOUNCES SECOND QUARTER 2016 RESULTS


KCG ANNOUNCES CONSOLIDATED EARNINGS OF $0.38 PER DILUTED SHARE FOR THE SECOND QUARTER OF 2016

KCG reports consolidated revenues of $319.9 million
and pre-tax earnings of $54.6 million for the quarter

KCG increases book value to $16.79 per share and
tangible book value to $15.63 per share

JERSEY CITY, New Jersey - July 21, 2016 - KCG Holdings, Inc. (NYSE: KCG) today reported consolidated earnings of $33.6 million, or $0.38 per diluted share, for the second quarter of 2016. Pre-tax income of $54.6 million includes a gain of $33.4 million from the sale of a portion of the company's investment in Bats Global Markets, Inc. ("Bats").

Select Financial Results ($ in thousands, except EPS)
  2Q16   1Q16   2Q15
Total Revenues 319,914   345,424   261,882
  Trading revenues, net 186,882   223,938   170,750
  Commissions and fees 94,961   106,101   87,370
Net Revenues(1) 190,076   249,972   175,490
Pre-tax income (loss) 54,565   59,965   (57,114)
EPS 0.38   0.41   (0.18)

(1) See Exhibit 4 for a reconciliation of Total revenues to Net revenues. Net revenues is a non-GAAP measure the company uses to measure its performance as well as make certain strategic decisions.

Second Quarter Highlights

  • KCG grew its market share of retail SEC Rule 605 U.S. equity share volume among the leading market makers by more than two percentage points
  • KCG BondPoint set a new quarterly record for average daily fixed income par value traded
  • KCG recorded a pre-tax gain of $33.4 million from the sale of a portion of its investment in Bats
  • KCG grew consolidated revenues 22.2 percent year over year or 9.4 percent after adjusting for the gain from the sale of a portion of its Bats shares
  • KCG repurchased 3.5 million shares of KCG Class A Common Stock for $46.5 million and warrants for $14.2 million

Daniel Coleman, Chief Executive Officer of KCG, said, "Despite relatively poor market conditions for most of the second quarter, KCG produced reasonable financial results. KCG market making in U.S. equities had another strong quarter with a revenue capture of 1.07 basis points. In addition, our franchise ETF desk and KCG BondPoint both showed continued growth in revenues and market share. The results were further lifted by a sizeable gain from the sale of a portion of the company's investment in Bats, a part of the proceeds from which went toward funding more than $60 million in stock and warrant repurchases during the quarter."

Market Making
The Market Making segment encompasses direct-to-client and non-client, exchange-based market making across multiple asset classes and is an active participant in all major cash, options and futures markets in the U.S., Europe and Asia. During the second quarter of 2016, the segment generated total revenues of $211.8 million and pre-tax income of $40.5 million.

In the second quarter of 2016, market volumes of U.S. equities were muted due to uncertainty over impending market events and the macroeconomic outlook. For the quarter, average daily consolidated U.S. equity dollar volume rose just 1 percentage point year over year. Average daily retail SEC Rule 605 dollar volume declined approximately 8 percentage points over the same period. A rise in market volatility was largely confined to the final week of the quarter. The lack of conviction extended to market volumes of U.S. equity futures and options contracts. Outside of U.S. equities, market-wide trading activity also declined in European equities, U.S. Treasuries and currencies from a year ago.

Mr. Coleman commented, "Although the market for U.S. equities was relatively quiet until the tail end of the quarter, KCG Market Making produced strong results. The performance of quantitative trading models and market share gains of retail order flow drove the performance. Notwithstanding, lower realized volatility constrained results as did the broad declines in market volumes for certain asset classes and products year over year."

In the first quarter of 2016, the segment generated total revenues of $258.9 million and pre-tax income of $75.5 million. Included in first quarter revenues is a $2.9 million gain from the sale of assets related to retail U.S. options market making.

In the second quarter of 2015, the segment generated total revenues of $192.3 million and pre-tax income of $4.4 million, which included accelerated stock-based compensation expense of $19.8 million resulting from stockholder-approved changes made during the quarter related to outstanding equity awards.

Select Trade Statistics: U.S. Equity Market Making

  2Q16   1Q16   2Q15
Average daily dollar volume traded ($ millions) 26,046   30,888   27,883
Average daily trades (thousands) 3,577   4,236   3,550
Average daily shares traded (millions) 4,680   4,816   5,785
  NYSE and NASDAQ shares traded 972   1,109   885
  OTC Bulletin Board and OTC Market shares traded 3,708   3,707   4,900
Average revenue capture per U.S. equity dollar value traded (bps) 1.07   1.13   0.80

Global Execution Services
The Global Execution Services segment comprises agency execution services and trading venues. During the second quarter of 2016, the segment generated total revenues of $68.1 million and pre-tax income of $1.7 million.

In the second quarter of 2016, institutional trading activity was tempered in anticipation of the June Federal Open Market Committee meeting and the "Brexit" referendum in the U.K., affecting U.S. and European equity market volumes. Market-wide trade volume of ETFs rose just 1 percentage point year over year. Conversely, the retail bond market was particularly active as corporate bond transactions under 250 bonds rose 31 percentage points year over year.

Mr. Coleman commented, "The subdued institutional trading activity affected KCG Institutional Equities in both algorithmic trading and sales trading. Despite only a modest rise in market volumes of ETFs, however, the franchise ETF desk performed well. KCG BondPoint set another new record for trade volumes in part on the strength of recent market share gains in municipals."

In the first quarter of 2016, the segment generated total revenues of $76.4 million and pre-tax income of $6.3 million.

In the second quarter of 2015, the segment generated total revenues of $63.5 million and a pre-tax loss of $9.9 million, which included accelerated stock-based compensation expense of $8.2 million resulting from stockholder-approved changes related to outstanding equity awards in the second quarter of 2015.

Select Trade Statistics: Agency Execution and Trading Venues

  2Q16   1Q16   2Q15
Average daily KCG Institutional Equities U.S. equities shares traded (millions) (1) 217.5   271.8   215.4
Average daily KCG BondPoint fixed income par value
traded ($ millions)
203.3   192.4   138.3
  1. KCG Institutional Equities average daily U.S. National Market System (NMS) equity share volume represents trading on behalf of clients covering algorithmic trading and high touch sales trading in single stocks, ETFs and programs. In 2016, KCG modified the reporting of trading volumes within the Global Execution Services segment to remove internal volume generated by KCG trading desks and add volume from sales trading. Prior periods have been recast for this new presentation.

Corporate and Other
The Corporate and Other segment includes strategic investments and corporate overhead expenses. During the second quarter of 2016, the segment generated total revenues of $40.0 million and pre-tax income of $12.4 million. Included in these results is a gain of $33.4 million from the sale of a portion of the company's investment in Bats. Following the sale, KCG retained a 13.7 percent ownership stake in Bats.

In the first quarter of 2016, the segment generated total revenues of $10.1 million and a pre-tax loss of $21.8 million. Included in first quarter revenues are a $3.7 million gain from KCG's repurchase of a portion of its 6.875 percent Senior Secured Notes and a $2.8 million net gain primarily related to a distribution from an investment.

In the second quarter of 2015, the segment generated total revenues of $6.0 million and a pre-tax loss of $51.6 million. Included in these results is accelerated stock-based compensation expense of $0.8 million. Also included in these results are charges related to the early redemption of the $305 million 8.25% Senior Secured Notes comprising a debt make-whole premium of $16.5 million and writedown of capitalized debt costs of $8.5 million, as well as other real estate related charges of $6.3 million.

Financial Condition
As of June 30, 2016, KCG had $492.5 million in cash and cash equivalents and total outstanding debt of $452.7 million. KCG had $1.46 billion in stockholders' equity, equivalent to a book value of $16.79 per share and tangible book value, which includes the value of its assets of businesses held for sale, of $15.63 per share based on total shares outstanding of 86.9 million, including restricted stock units.

During the second quarter of 2016, KCG repurchased 3.5 million shares for approximately $46.5 million and warrants for $14.2 million.

KCG's headcount was 942 full-time employees at June 30, 2016, compared to 972 at March 31, 2016.

Subsequent Events
KCG announced today that Mike Blum, who joined the firm in January as Global Head of Client Technology, has been named Chief Technology Officer ("CTO"), effective October 1, 2016. Jon Ross, KCG's CTO, will be leaving the company to pursue a variety of personal projects in the technology space, unrelated to trading and markets. Blum has nearly 25 years of industry experience designing and developing systems and managing global teams within high frequency, ECN, ATS and execution service spaces. Most recently, Blum was CTO at Teza Technologies. Ross will remain at KCG as CTO through the transition period.

Conference Call
KCG will hold a conference call to discuss second quarter 2016 financial results starting at 9:00 a.m. Eastern Time today, July 21, 2016. To access the call, dial 800-753-0487 (domestic) or 913-312-4373 (international) and enter passcode 3402400. In addition, the call will be webcast at http://edge.media-server.com/m/p/9wqdm557. Following the conclusion of the call, a replay will be available by selecting a number based on country of origin from a list posted at: https://replaynumbers.conferencinghub.com/index.aspx?confid=3402400&passcode=3402400 and entering passcode 3402400.

Additional information for investors, including a presentation of the second quarter financial results, can be found at http://investors.kcg.com.

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

Certain statements contained herein and the documents incorporated by reference containing the words "believes," "intends," "expects," "anticipates," and words of similar meaning, may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These "forward-looking statements" are not historical facts and are based on current expectations, estimates and projections about KCG's industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Any forward-looking statement contained herein speaks only as of the date on which it is made. Accordingly, readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict including, without limitation, risks associated with: (i) the inability to manage trading strategy performance and sustain revenue and earnings growth; (ii) the receipt of additional payments from the sale of KCG Hotspot that are subject to certain contingencies; (iii) changes in market structure, legislative, regulatory or financial reporting rules, including the increased focus by Congress, federal and state regulators, the SROs and the media on market structure issues, and in particular, the scrutiny of high frequency trading, alternative trading systems, market fragmentation, colocation, access to market data feeds, and remuneration arrangements such as payment for order flow and exchange fee structures; (iv) past or future changes to KCG's organizational structure and management; (v) KCG's ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by KCG's customers and potential customers; (vi) KCG's ability to keep up with technological changes; (vii) KCG's ability to effectively identify and manage market risk, operational and technology risk, cybersecurity risk, legal risk, liquidity risk, reputational risk, counterparty and credit risk, international risk, regulatory risk, and compliance risk; (viii) the cost and other effects of material contingencies, including litigation contingencies, and any adverse judicial, administrative or arbitral rulings or proceedings; (ix) the effects of increased competition and KCG's ability to maintain and expand market share; (x) the announced plan to relocate KCG's global headquarters from Jersey City, NJ to New York, NY; and (xi) KCG's ability to complete the sale or disposition of any or all of the assets or businesses that are classified as held for sale. The list above is not exhaustive. Because forward looking statements involve risks and uncertainties, the actual results and performance of KCG may materially differ from the results expressed or implied by such statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Unless otherwise required by law, KCG also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made herein. Readers should carefully review the risks and uncertainties disclosed in KCG's reports with the U.S. Securities and Exchange Commission ("SEC"), including those detailed in "Risk Factors" in Part I, Item 1A of KCG's Annual Report on Form10-K for the year ended December 31, 2015, "Legal Proceedings" in Part I, Item 3, under "Certain Factors Affecting Results of Operations" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7, in "Quantitative and Qualitative Disclosures About Market Risk" in Part II, Item 7A, and in other reports or documents KCG files with, or furnishes to, the SEC from time to time. This information should be read in conjunction with KCG's Consolidated Financial Statements and the Notes thereto contained in its Annual Report on Form 10-K, Quarterly Report on Form 10-Q for the quarter-ended March 31, 2016, and in other reports or documents KCG files with, or furnishes to, the SEC from time to time.

CONTACTS

Sophie Sohn Jonathan Mairs
Communications & Marketing Investor Relations
312-931-2299 201-356-1529
media@kcg.com jmairs@kcg.com

KCG HOLDINGS, INC.                   Exhibit 1
CONSOLIDATED STATEMENTS OF OPERATIONS                    
(Unaudited)                    
  For the three months ended
  June 30, 2016     March 31, 2016     June 30, 2015
  (In thousands, except per share amounts)
Revenues                    
Trading revenues, net  $ 186,882      $ 223,938      $ 170,750
Commissions and fees   94,961       106,101       87,370
Interest, net   267       117       (596)
Investment income and other, net   37,804       15,268       4,358
Total revenues   319,914       345,424       261,882
Expenses                    
Employee compensation and benefits   76,092       97,586       109,471
Execution and clearance fees   73,742       73,634       62,598
Communications and data processing   36,376       35,657       34,240
Depreciation and amortization   22,234       21,905       20,726
Payments for order flow   13,090       12,655       14,935
Debt interest expense   9,191       9,492       10,911
Collateralized financing interest   9,609       9,163       8,859
Occupancy and equipment rentals   9,829       8,990       7,474
Professional fees   5,301       6,057       5,694
Business development   1,960       1,119       3,025
Debt extinguishment charges     -         -       25,006
Writedown of assets and other real estate related charges     -         -       6,327
Other   7,925       9,201       9,730
Total expenses   265,349       285,459       318,996
Income (loss) before income taxes   54,565       59,965       (57,114)
Income tax expense (benefit)   21,011       22,800       (37,952)
Net income (loss)  $ 33,554      $ 37,165      $ (19,162)
Basic earnings (loss) per share  $ 0.39      $ 0.42      $ (0.18)
Diluted earnings (loss) per share  $ 0.38      $ 0.41      $ (0.18)
Shares used in computation of basic earnings (loss) per share   86,138       88,458       108,588
Shares used in computation of diluted earnings (loss) per share   88,214       89,605       108,588
                     
                     
  For the six months ended        
    June 30, 2016       June 30, 2015        
  (In thousands, except per share amounts)        
                     
Revenues                    
Trading revenues, net  $   410,820      $   379,545        
Commissions and fees     201,062         187,331        
Interest, net     384         (619)        
Investment income and other, net     53,072         391,781        
Total revenues   665,338       958,038        
Expenses                    
Employee compensation and benefits     173,678       216,189        
Execution and clearance fees     147,376       131,071        
Communications and data processing     72,033       68,004        
Depreciation and amortization     44,139       41,341        
Payments for order flow     25,745       30,156        
Debt interest expense     18,683       20,308        
Collateralized financing interest     18,772       17,315        
Occupancy and equipment rentals     18,819       14,814        
Professional fees     11,358       16,875        
Business development     3,079       4,882        
Debt extinguishment charges     -       25,006        
Writedown of assets and other real estate related charges     -       6,459        
Other     17,126       16,604        
Total expenses   550,808       609,024        
Income before income taxes   114,530       349,014        
Income tax expense   43,811       118,875        
Net income  $ 70,719      $ 230,139        
Basic earnings per share  $ 0.81      $ 2.08        
Diluted earnings per share  $ 0.79      $ 2.02        
Shares used in computation of basic earnings per share   87,326       110,890        
Shares used in computation of diluted earnings per share   89,125       113,809        
                     

KCG HOLDINGS, INC.     Exhibit 2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION      
(In thousands)          
(Unaudited)          
  June 30, 2016   December 31, 2015
ASSETS          
Cash and cash equivalents  $ 492,497    $ 581,313
Cash and cash equivalents segregated under federal and other regulations   3,000     3,000
Financial instruments owned, at fair value:          
Equities   2,556,172     2,129,208
Listed options   20,991     178,360
Debt securities   228,887     136,387
Other financial instruments   15     445
Total financial instruments owned, at fair value   2,806,065     2,444,400
Collateralized agreements:          
Securities borrowed   1,888,295     1,636,284
Receivable from brokers, dealers and clearing organizations   1,318,607     681,211
  Fixed assets and leasehold improvements, less          
accumulated depreciation and amortization   105,863     94,858
Investments   90,329     98,943
Goodwill and Intangible assets, less accumulated amortization   101,326     100,471
Deferred tax asset, net   151,058     151,225
Assets of businesses held for sale     8,194       25,999
Other assets   226,873     222,831
Total assets  $ 7,192,107    $ 6,040,535
LIABILITIES & EQUITY          
Liabilities          
Financial instruments sold, not yet purchased, at fair value:          
Equities  $ 2,011,163    $ 1,856,171
Listed options   25,501     151,893
Debt securities   324,858     105,340
Total financial instruments sold, not yet purchased, at fair value   2,361,522     2,113,404
Collateralized financings:          
Securities loaned    1,011,288     463,377
Financial instruments sold under agreements to repurchase   895,899     954,902
Total collateralized financings   1,907,187     1,418,279
Payable to brokers, dealers and clearing organizations   682,826     273,805
Payable to customers   83,680     17,387
Accrued compensation expense   87,017     154,547
Accrued expenses and other liabilities   158,445     134,026
Debt   452,694     484,989
Total liabilities   5,733,371     4,596,437
Equity          
Class A Common Stock   1,090     1,060
Additional paid-in capital   1,458,752     1,436,671
Retained earnings   262,839     192,120
Treasury stock, at cost   (263,729)     (186,103)
Accumulated other comprehensive income   (216)     350
Total equity   1,458,736     1,444,098
Total liabilities and equity  $ 7,192,107    $ 6,040,535

KCG HOLDINGS, INC.                 Exhibit 3
PRE-TAX EARNINGS (LOSS) BY BUSINESS SEGMENT            
(In thousands)                  
(Unaudited)                  
    For the three months ended 
    June 30, 2016   March 31, 2016   June 30, 2015
Market Making                  
Revenues   $ 211,824   $ 258,918    $ 192,328
Expenses     171,314     183,429     187,926
Pre-tax earnings     40,510     75,489     4,402
                   
Global Execution Services                  
Revenues     68,138     76,394     63,522
Expenses     66,454     70,133     73,459
Pre-tax earnings (loss)     1,684     6,261     (9,937)
                   
Corporate and Other                  
Revenues     39,952     10,112     6,032
Expenses     27,581     31,897     57,611
Pre-tax earnings (loss)     12,371     (21,785)     (51,579)
                   
Consolidated                  
Revenues     319,914     345,424     261,882
Expenses     265,349     285,459     318,996
Pre-tax earnings (loss)   $ 54,565   $ 59,965    $ (57,114)
                   
                   
    For the six months ended       
    June 30, 2016   June 30, 2015      
Market Making                  
Revenues   $ 470,742    $ 416,876      
Expenses     354,743     373,134      
Pre-tax earnings     115,999     43,742      
                   
Global Execution Services                  
Revenues     144,532     527,788      
Expenses     136,587     156,667      
Pre-tax earnings     7,945     371,121      
                   
Corporate and Other                  
Revenues     50,064     13,374      
Expenses     59,478     79,223      
Pre-tax loss     (9,414)     (65,849)      
                   
Consolidated                  
Revenues     665,338     958,038      
Expenses     550,808     609,024      
Pre-tax earnings   $ 114,530    $ 349,014      
                   

KCG HOLDINGS, INC.                 Exhibit 4
RECONCILIATION OF TOTAL REVENUES TO NET REVENUES                  
(In thousands)                  
(Unaudited)                  
    For the three months ended 
    June 30, 2016   March 31, 2016   June 30, 2015
Total revenues per Consolidated Statements of Operations   $ 319,914   $ 345,424    $ 261,882
Less:                  
Execution and clearance fees     73,742     73,634     62,598
Payments for order flow     13,090     12,655     14,935
Collaterlaized financing interest     9,609     9,163     8,859
Gain from the sale of a portion of the Company's investment in Bats     33,397       -       -
Net revenues   $ 190,076   $ 249,972    $ 175,490
                   
                   
    For the six months ended       
    June 30, 2016   June 30, 2015      
Total revenues per Consolidated Statements of Operations   $ 665,338   $ 958,038      
Less:                  
Execution and clearance fees     147,376     131,071      
Payments for order flow     25,745     30,156      
Collaterlaized financing interest     18,772     17,315      
Gain from the sale of a portion of the Company's investment in Bats     33,397       -      
Gain on sale of KCG Hotspot       -     385,026      
Net revenues   $ 440,048   $ 394,470      
                   

HUG#2029796
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