Press Release

KCG ANNOUNCES FOURTH QUARTER 2016 RESULTS


KCG ANNOUNCES CONSOLIDATED EARNINGS OF $2.47
PER DILUTED SHARE FOR THE FOURTH QUARTER OF 2016

During the quarter, KCG repurchased 19.0 million shares and 8.1 million warrants
for $281.7 million, primarily as a result of a share exchange with General Atlantic

KCG's book value rose to $20.20 per share,
tangible book value increased to $18.71 per share

NEW YORK, New York - January 19, 2017 - KCG Holdings, Inc. (NYSE: KCG) today reported consolidated earnings of $196.2 million, or $2.47 per diluted share, for the fourth quarter of 2016. Included in the fourth quarter pre-tax earnings of $309.9 million is a pre-tax gain of $331.0 million from the sales of substantially all shares of Bats Global Markets, Inc. ("Bats") owned by KCG.

Select Financial Results ($ in thousands, except EPS)
  4Q16   3Q16   4Q15
Total Revenues 580,542   208,532   264,036
  Trading revenues, net 143,355   113,829   145,959
  Commissions and fees 102,516   87,842   94,315
Net Revenues(1) 147,461   111,999   157,686
Pre-tax earnings (loss) 309,872   (27,974)   (4,471)
EPS 2.47   (0.13)   (0.03)
  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.

Fourth Quarter Highlights

  • KCG recorded a pre-tax gain of $331.0 million from the sales of shares in Bats
  • KCG Market Making increased market share of retail SEC Rule 605 U.S. equity share volume 5.0 percent year over year
  • KCG Algorithmic Trading grew average daily U.S. equity share volume from the 25 largest U.S. asset managers 49.5 percent year over year
  • KCG BondPoint set a new quarterly record for average daily fixed income par value traded with a 39.1 percent rise year over year
  • KCG reduced total shares outstanding by 22 percent during the quarter

Daniel Coleman, Chief Executive Officer of KCG, said, "During the fourth quarter, we monetized a longstanding investment in Bats through a swap of substantially all of our stake for all KCG shares and warrants owned by General Atlantic. After the transaction plus additional open market purchases, KCG's shares outstanding declined to 67.2 million from 86.2 million from the prior quarter and the number of warrants outstanding decreased to 5.1 million from 13.2 million. Since the merger, KCG has returned a cumulative $835.7 million to equity stakeholders. Our focus on creating value for stockholders enabled KCG to increase tangible book value per share to $18.71 as of the end of 2016. From an operating perspective, revenues in the fourth quarter fell below our expectations reflecting the continuation of a difficult trading environment. However, a rise in revenues on an operating basis from the prior quarter reflects the improved market conditions starting in November."

Full Year 2016
In 2016, KCG continued to distinguish itself as an emerging, independent, pure-play, technology-driven intermediary in liquid financial instruments. Growth in core segments of market making and agency-based trading outpaced market volumes. The firm undertook an initiative to re-engineer the trading architecture. KCG reduced the ratio of compensation to net revenues year over year to 42.2 percent. In addition, the firm returned $364.7 million to equity stakeholders through repurchases of shares and warrants during the year.

Mr. Coleman commented, "KCG's long-term growth is aligned with profound, secular changes in technology, regulation and competition. We are concentrating on attaining scale to enable us to grow without creating significant costs. In the past year, we've undertaken a re-engineering of the trading architecture while managing revenues in a difficult operating environment. In 2017, we're focused on returning our revenues to previous levels, changing our infrastructure and returning capital to shareholders when prudent."

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 fourth quarter of 2016, the segment generated total revenues of $168.3 million and a pre-tax loss of $8.5 million.

In the fourth quarter of 2016, investors remained defensive at the outset and continued to reduce exposure to U.S. equities. A period of heightened trading activity around the U.S. election dissipated quickly. For the quarter, consolidated U.S. equity volume remained flat year over year while realized volatility declined and bid-ask spreads tightened. Despite continuing strong competition, KCG Market Making grew market share of retail SEC Rule 605 U.S. equity share volume by 5.0 percent to approximately 32.4 percent.

Mr. Coleman commented, "A predominantly one-way market carried over from the third quarter, which can prove difficult for quantitative trading models. The depressed market volatility, however, was a surprise given events. While the financial results for the quarter disappointed, KCG Market Making's presence in the retail and broader U.S. equity market is as strong as ever. Additionally, revenue capture per U.S. equity dollar value traded returned to levels slightly above average in November and December."

In the third quarter of 2016, the segment generated total revenues of $136.1 million and a pre-tax loss of $13.8 million.

In the fourth quarter of 2015, the segment generated total revenues of $168.2 million and a pre-tax loss of $5.1 million, which included charges related to asset writedowns of $14.2 million.

Select Trade Statistics: U.S. Equity Market Making

  4Q16   3Q16   4Q15
Average daily dollar volume traded ($ millions) 28,414   26,352   28,842
Average daily trades (thousands) 3,497   3,288   3,667
Average daily shares traded (millions) 6,472   3,768   4,698
  NYSE and NASDAQ shares traded 1,000   949   922
  OTC Bulletin Board and OTC Market shares traded 5,472   2,820   3,775
Average revenue capture per U.S. equity dollar value traded (bps) 0.83   0.67   0.77

Global Execution Services
The Global Execution Services segment comprises agency execution services and trading venues. During the fourth quarter of 2016, the segment generated total revenues of $75.5 million and pre-tax income of $4.5 million.

In the fourth quarter of 2016, an upsurge in the major market indexes failed to generate meaningful institutional trading activity. Despite the market conditions, KCG Algorithmic Trading grew U.S. equity share volume among the 25 largest U.S. asset managers by 49.5 percent year over year. KCG MatchIt increased average daily U.S. equity share volume by 30.5 percent year over year. KCG BondPoint grew market share of corporate and municipal bond transactions under 250 bonds by 1.8 percent and 3.1 percent, respectively, year over year.

Mr. Coleman commented, "At the start of the quarter, institutional investors were mainly engaged in de-risking and fence-sitting. Despite flat consolidated U.S. volume year over year, KCG Algorithmic Trading increased share volume from strategic clients. Additionally, KCG BondPoint continued to integrate with institutional order management systems by launching on Bloomberg to provide terminal users with access to the electronic fixed income trading platform."

In the third quarter of 2016, the segment generated total revenues of $63.7 million and a pre-tax loss of $0.4 million.

In the fourth quarter of 2015, the segment generated total revenues of $70.2 million and a pre-tax loss of $1.1 million, which included a writedown of goodwill of $0.9 million.

Select Trade Statistics: Agency Execution and Trading Venues

  4Q16   3Q16   4Q15
Average daily KCG Institutional Equities U.S. equities shares traded (millions)(1) 228.7   206.4   238.4
Average daily KCG BondPoint fixed income par value
traded ($ millions)
209.6   201.5   150.7
  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 fourth quarter of 2016, the segment generated total revenues of $336.7 million and pre-tax income of $313.9 million. This includes a $331.0 million pre-tax gain from the sales of substantially all shares owned of Bats.

In the third quarter of 2016, the segment generated total revenues of $8.7 million and a pre-tax loss of $13.8 million.

In the fourth quarter of 2015, the segment generated total revenues of $25.6 million and pre-tax income of $1.8 million which included gains on sales and writedowns of investments of $19.8 million and $3.2 million, respectively and a $1.0 million writedown of an intangible asset.

Share Exchange
On November 17, 2016, KCG announced that it entered into a strategic transaction with General Atlantic. Under the terms of the transaction, KCG sold 8.9 million shares it owned of Bats in exchange for all of General Atlantic's 18.7 million shares and 8.1 million warrants of KCG.

Financial Condition
As of December 31, 2016, KCG had $632.2 million in cash and cash equivalents and total outstanding debt of $454.4 million. KCG had $1.36 billion in stockholders' equity, equivalent to a book value of $20.20 per share and tangible book value of $18.71 per share based on total shares outstanding of 67.2 million, including restricted stock units.

In addition to the transaction with General Atlantic, during the fourth quarter of 2016, KCG repurchased 0.3 million shares for approximately $3.7 million under the Company's stock repurchase program.

KCG's headcount was 952 full-time employees at December 31, 2016, compared to 981 at September 30, 2016.

Subsequent Events
Subsequent to the fourth quarter, on January 18, 2017, KCG's Board of Directors authorized a program to repurchase up to a total of $150 million in shares of the Company's outstanding Class A Common Stock ("Common Stock") and warrants to purchase shares of Common Stock ("Warrants"), subject to compliance with the covenants contained in the Company's debt indenture. This authority replaces and supersedes all previous board-granted authority. Under the program, the Company may repurchase shares or Warrants from time to time in open market transactions, accelerated stock buyback programs, tender offers, privately-negotiated transactions or by other means. Repurchases of shares may also be made under a Rule 10b5-1 plan. The timing and amount of repurchase transactions will be based on market conditions, share price, legal requirements and other factors. The program has no expiration date and may be suspended, modified or discontinued at any time without prior notice. There are no assurances that any repurchases of shares of Common Stock or Warrants may actually occur.

KCG announced today that its Board of Directors has appointed Peter Fisher, Colin Smith, Heather Tookes and Adrian Weller as Directors, effective immediately. KCG also announced that Rene M. Kern and John C. (Hans) Morris have informed the company that they will not be seeking reelection at the 2017 Annual Meeting of Stockholders. It is currently expected that 11 Directors will be nominated for election at KCG's 2017 Annual Meeting of Stockholders, 10 of whom would be independent.

Conference Call
KCG will hold a conference call to discuss fourth quarter 2016 financial results starting at 9:00 a.m. Eastern Time today, January 19, 2017. To access the call, dial 888-812-8589 (domestic) or 913-312-0949 (international) and enter passcode 3024760. In addition, the call will be webcast at http://edge.media-server.com/m/p/pbtshm7s. 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 3024760.

Additional information for investors, including a presentation of the fourth 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 relocation of 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 Form 10-K for the year ended December 31, 2015 and in Part II, Item 1A of KCG's Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, "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, 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 646-682-6403
media@kcg.com investors@kcg.com

KCG HOLDINGS, INC.                   Exhibit 1
CONSOLIDATED STATEMENTS OF OPERATIONS                    
(Unaudited)                    
  For the three months ended
  December 31, 2016     September 30, 2016     December 31, 2015
  (In thousands, except per share amounts)
Revenues                    
Trading revenues, net  $ 143,355      $ 113,829      $ 145,959
Commissions and fees   102,516       87,842       94,315
Interest, net   563       677       (429)
Investment income and other, net   334,108       6,184       24,191
Total revenues   580,542       208,532       264,036
Expenses                    
Employee compensation and benefits   72,436       49,006       67,823
Execution and clearance fees   75,941       71,995       66,613
Communications and data processing   39,220       36,733       36,003
Depreciation and amortization   22,775       21,876       25,077
Payments for order flow   15,175       13,845       14,464
Collateralized financing interest   10,958       10,693       8,746
Occupancy and equipment rentals   9,781       9,275       7,842
Debt interest expense   9,379       9,153       10,025
Professional fees   4,330       4,139       5,774
Business development   1,252       994       1,751
Writedown of assets and other real estate related charges     -         -       16,154
Other   9,423       8,797       8,235
Total expenses   270,670       236,506       268,507
Income (loss) before income taxes   309,872       (27,974)       (4,471)
Income tax expense (benefit)   113,680       (16,760)       (1,500)
Net income (loss)  $ 196,192      $ (11,214)      $ (2,971)
Basic earnings (loss) per share  $ 2.51      $ (0.13)      $ (0.03)
Diluted earnings (loss) per share  $ 2.47      $ (0.13)      $ (0.03)
Shares used in computation of basic earnings (loss) per share   78,089       85,009       89,184
Shares used in computation of diluted earnings (loss) per share   79,358       85,009       89,184
                     
                     
  For the years ended        
  December 31, 2016   December 31, 2015        
  (In thousands, except per share amounts)        
                     
Revenues                    
Trading revenues, net  $   668,003      $   803,181        
Commissions and fees     391,419         376,673        
Interest, net     1,625         (2,128)        
Investment income and other, net     393,365         421,384        
Total revenues   1,454,412       1,599,110        
Expenses                    
Employee compensation and benefits     295,120       405,609        
Execution and clearance fees     295,312       265,186        
Communications and data processing     147,986       139,263        
Depreciation and amortization     88,790       90,231        
Payments for order flow     54,765       61,741        
Collateralized financing interest     40,423       34,678        
Occupancy and equipment rentals     37,875       30,128        
Debt interest expense     37,216       40,291        
Professional fees     19,827       27,055        
Business development     5,324       8,479        
Debt extinguishment charges     -       25,006        
Writedown of assets and other real estate related charges     -       56,642        
Other     35,346       34,839        
Total expenses   1,057,984       1,219,148        
Income before income taxes   396,428       379,962        
Income tax expense   140,731       130,858        
Net income  $ 255,697      $ 249,104        
Basic earnings per share  $ 3.03      $ 2.48        
Diluted earnings per share  $ 2.97      $ 2.42        
Shares used in computation of basic earnings per share   84,405       100,437        
Shares used in computation of diluted earnings per share   86,160       102,922        

KCG HOLDINGS, INC.     Exhibit 2
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION      
(In thousands)          
(Unaudited)          
  December 31, 2016   December 31, 2015
ASSETS          
Cash and cash equivalents  $ 632,234    $ 581,313
Cash and cash equivalents segregated under federal and other regulations   3,000     3,000
Financial instruments owned, at fair value:          
Equities   2,343,033     2,129,208
Debt securities   175,502     136,387
Listed options   19,100     178,360
Other financial instruments     30     445
Total financial instruments owned, at fair value   2,537,665     2,444,400
Collateralized agreements:          
Securities borrowed   1,688,222     1,636,284
Receivable from brokers, dealers and clearing organizations   834,444     681,211
Fixed assets and leasehold improvements, less          
accumulated depreciation and amortization   151,664     94,858
Investments   30,979     98,943
Goodwill and Intangible assets, less accumulated amortization   100,319     100,471
Deferred tax asset, net   109,861     151,225
Assets of businesses held for sale     8,194       25,999
Other assets   164,168     222,831
Total assets  $ 6,260,750    $ 6,040,535
LIABILITIES & EQUITY          
Liabilities          
Financial instruments sold, not yet purchased, at fair value:          
Equities  $ 1,821,957    $ 1,856,171
Debt securities   211,222     105,340
Listed options   12,961     151,893
Total financial instruments sold, not yet purchased, at fair value   2,046,140     2,113,404
Collateralized financings:          
Securities loaned    372,631     463,377
Financial instruments sold under agreements to repurchase   1,127,775     954,902
Total collateralized financings   1,500,406     1,418,279
Payable to brokers, dealers and clearing organizations   518,363     273,805
Payable to customers   23,580     17,387
Accrued compensation expense   132,406     154,547
Accrued expenses and other liabilities   156,828     134,026
Income taxes payable   71,391       -
Debt   454,353     484,989
Total liabilities   4,903,467     4,596,437
Equity          
Class A Common Stock   903     1,060
Additional paid-in capital   1,439,412     1,436,671
Retained earnings   192,064     192,120
Treasury stock, at cost   (277,343)     (186,103)
Accumulated other comprehensive income   2,247     350
Total equity   1,357,283     1,444,098
Total liabilities and equity  $ 6,260,750    $ 6,040,535
           

KCG HOLDINGS, INC.                 Exhibit 3
PRE-TAX EARNINGS (LOSS) BY BUSINESS SEGMENT            
(In thousands)                  
(Unaudited)                  
    For the three months ended 
    December 31, 2016   September 30, 2016   December 31, 2015
Market Making                  
Revenues   $ 168,323   $ 136,107    $ 168,227
Expenses     176,814     149,883     173,359
Pre-tax loss     (8,491)     (13,776)     (5,132)
                   
Global Execution Services                  
Revenues     75,510     63,713     70,221
Expenses     71,009     64,152     71,336
Pre-tax earnings (loss)     4,501     (439)     (1,115)
                   
Corporate and Other                  
Revenues     336,709     8,712     25,588
Expenses     22,847     22,471     23,813
Pre-tax earnings (loss)     313,862     (13,759)     1,775
                   
Consolidated                  
Revenues     580,542     208,532     264,036
Expenses     270,670     236,506     268,507
Pre-tax earnings (loss)   $ 309,872   $ (27,974)    $ (4,471)
                   
                   
    For the years ended       
    December 31, 2016   December 31, 2015      
Market Making                  
Revenues   $ 775,173    $ 884,858      
Expenses     681,441     760,829      
Pre-tax earnings     93,732     124,029      
                   
Global Execution Services                  
Revenues     283,756     667,723      
Expenses     271,748     298,766      
Pre-tax earnings     12,008     368,957      
                   
Corporate and Other                  
Revenues     395,483     46,529      
Expenses     104,795     159,553      
Pre-tax earnings (loss)     290,688     (113,023)      
                   
Consolidated                  
Revenues     1,454,412     1,599,110      
Expenses     1,057,984     1,219,148      
Pre-tax earnings   $ 396,428    $ 379,962      

KCG HOLDINGS, INC.                 Exhibit 4
RECONCILIATION OF TOTAL REVENUES TO NET REVENUES                  
(In thousands)                  
(Unaudited)                  
    For the three months ended 
    December 31, 2016   September 30, 2016   December 31, 2015
Total revenues per Consolidated Statements of Operations   $ 580,542   $ 208,532    $ 264,036
Less:                  
Execution and clearance fees     75,941     71,995     66,613
Payments for order flow     15,175     13,845     14,464
Collaterlaized financing interest     10,958     10,693     8,746
Gain from the sale of a portion of the Company's investment in Bats       331,007       -       -
Gain on sale of investments       -       -       19,751
Writedown of investments       -       -       (3,224)
Net revenues   $ 147,461   $ 111,999    $ 157,686
                   
                   
    For the years ended       
    December 31, 2016   December 31, 2015      
Total revenues per Consolidated Statements of Operations   $ 1,454,412   $ 1,599,110      
Less:                  
Execution and clearance fees     295,312     265,186      
Payments for order flow     54,765     61,741      
Collaterlaized financing interest     40,423     34,678      
Gain from the sale of a portion of the Company's investment in Bats     364,404       -      
Gain on sale of KCG Hotspot       -     385,026      
Gain on sale of investments       -     19,751      
Writedown of investments       -     (3,224)      
Net revenues   $ 699,508   $ 835,952