The following discussion ofBGC Partners' financial condition and results of operations should be read together withBGC 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 toBGC 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 six months endedJune 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 toBGC's Insurance brokerage business being classified as "Held for Sale" as ofJune 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 ofJune 30, 2021 , but not as ofDecember 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 ofJune 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, brokerage services, clearing, compression, connectivity solutions, 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). OnNovember 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 endedDecember 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, Corant, Corant Global,Besso ,Ed Broking ,Poten & Partners , RP Martin, kACE, Capitalab, Swaptioniser, CBID, Aqua and Lucera are trademarks/service marks, and/or registered trademarks/service marks ofBGC 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 includingNew York andLondon , as well as inBahrain ,Beijing ,Bermuda , Bogotá,Brisbane ,Buenos Aires ,Chicago ,Copenhagen ,Dubai ,Dublin ,Frankfurt ,Geneva ,Hong Kong ,Houston ,Istanbul ,Johannesburg ,Madrid ,Melbourne ,Mexico City ,Moscow , Nyon,Paris ,Rio de Janeiro ,Santiago , São Paulo,Seoul ,Shanghai ,Singapore ,Sydney ,Tel Aviv ,Tokyo ,Toronto , andZurich . As ofJune 30, 2021 , we had approximately 2,750 brokers, salespeople, managers and other front-office personnel across our businesses. Fenics 69 -------------------------------------------------------------------------------- Table of Contents For the purposes of this document and subsequentSEC 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 ofU.S. Treasuries and spot FX, the banks and financial firms that dominate the OTC markets had, until recent years, generally been hesitant in adopting electronically traded products. However, banks, broker-dealers, and other professional trading 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 in 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 as a whole. We expect this trend to accelerate as we 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, and 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, for which average daily volumes grew by over 71% during the quarter and is the second largest CLOB platform forU.S. Treasuries. This compares with an increase of approximately 2% for overall primary dealerU.S. Treasury volumes with maturities greater than 2 years. Primary dealer volumes are based on data from theSecurities Industry and Financial Markets Association . CLOB market share increased from 10% a year ago to over 17% in the second quarter. CLOB market share is based on BGC's estimates and data fromGreenwich Associates . Nearly 65% of all CLOB trades in the second quarter were transacted at prices only offered on the Fenics UST platform, providing a tremendous competitive advantage. Fenics UST is estimated to have saved our clients over$32 million in the second quarter and over$213 million fromJanuary 2019 throughJune 2021 by offering the tightest spreads in the market. As a result of our continued technological innovations and strong client support, we expect both volumes and market share to continue to outperform the overall market. Additionally, Fenics UST optimized its commercial agreements going into 2021, which together with higher volumes, has driven revenue growth. Additionally, Fenics UST will be launchingU.S. Repos on the platform inAugust 2021 , following on the recent successful launch of UST Bills. •Fenics GO, our global options electronic trading platform, which 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 relatedDelta One strategies. InMay 2021 , Fenics GO, launched Korea Composite Stock Price Index (KOSPI) options, which quickly grew to over 12 percent of estimated block-sized front-month market share inJune 2021 . Additionally, Fenics GO has continued to scaleHang Seng 70 -------------------------------------------------------------------------------- Table of Contents Chinese Enterprise Index (HSCEI) option volumes, where GO represented over 26 percent of estimated market share inJune 2021 , only six months after launch. Fenics GO electronic liquidity providers includeSusquehanna International Securities (SIG), which joined DRW, Lighthouse,Citadel Securities , IMC,Maven Securities ,Optiver andAkuna Capital as electronic liquidity providers. Strong performance across its newly launched Asian index options offering, including HSCEI and KOSPI, drove volumes during the second quarter of 2021. 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. Following the success of its recent APAC expansion, Fenics GO plans to launchU.S. listed options by the end of 2021. •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 inMarch 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 subscription SaaS improves their workflow and liquidity through data aggregation, pre-trade information analysis, and execution facilitation. We have rebrandedAlgomi 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 existingLucera SaaS connectivity subscription service in order to provide both data and execution capabilities directly between banks/dealers and their buy side customers. •Fenics Portfolio Match, our newly developed session-based Credit portfolio trading solution, continued to gain traction during the quarter, with volumes quadrupling versus the first quarter of 2021. Since its fourth quarter 2020 launch, over 30 bank counterparties have uploaded bond portfolios totaling over$650 billion in notional value to the platform. Portfolio Match currently supportsU.S. and European investment grade credit, and European high yield credit.U.S. high yield credit sessions are expected to launch in the fourth quarter of 2021. •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; and •Capitalab, which has businesses included under both Fenics Markets and Fenics Growth Platforms. Collectively, our newer Fenics offerings, such as those listed above, are not yet fully up to scale, and are not yet generating significant revenues. Fenics revenue comprised 21% overall revenue, excluding Insurance brokerage, for the second quarter of 2021, representing its highest ever contribution. 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 brokerage 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 second quarter of 2021 include: •Fenics MIDFX, our leading wholesale FX hedging platform, grew its revenue by approximately 25% versus the prior year. Building on the longstanding success in Spot FX, Fenics MIDFX launched Asian non-deliverable forwards at the beginning of 2021, which have continued to gain traction throughout the year. •Fenics Direct, our web-delivered FX options platform, had a record quarter and more than doubled its volumes and revenue. 71 -------------------------------------------------------------------------------- Table of Contents •Fenics Market Data signed a record number of new contracts during the quarter, with total contracted value increasing by nearly 150% compared to last year. •Capitalab's NDF Match business, our advanced web-based matching platform that helps clients reduce foreign exchange exposure, generated record revenue during the quarter. Since its launch in 2017, NDF Match has grown its market share and has become a leading solution for post-trade risk reduction. Revenues in our Fenics businesses increased 23.5% to$97.0 million and 32.9% to$204.6 million for the three and six months endedJune 30, 2021 , respectively, compared to the prior year period. Within our Fenics businesses, Fenics Markets revenue grew 21.0% to$86.4 million , and Fenics Growth Platforms grew 48.4% to$10.6 million . Fenics Markets had a pre-tax margin of 29.9% in the second quarter of 2021. Total revenues from our high-margin data, software, and post-trade business, which is predominately comprised of recurring revenue, were up 7.3% and 10.2% for the three and six months endedJune 30, 2021 , respectively, over the prior year period and Fenics brokerage revenues increased by 28.9% to$75.3 million and 40.6% to$160.9 million , for the three and six months endedJune 30, 2021 , respectively. Going forward, we expect Fenics to become an even more valuable part of BGC as it continues to grow. We continue to analyze how to optimally configure our Voice/Hybrid and Fully Electronic businesses. 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. Should the Company decide to move forward with a corporate conversion, it will continue to work with regulators, lenders, and rating agencies. 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$6.8 million and$29.5 million ofU.S. GAAP compensation charges recorded under this program for the three and six months endedJune 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. SuchU.S. GAAP items may include charges for exiting leases and/or other long-term contracts as part of cost-saving initiatives. Insurance Disposition OnMay 26, 2021 , the Company announced that it has entered into an agreement to sell its Insurance brokerage business toThe Ardonagh Group for$500 million of cash consideration, subject to adjustments for working capital and other certain closing adjustments. As ofJune 30, 2021 , the Company's Insurance brokerage business met 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.BGC's Insurance brokerage business contributed$54.4 million and$106.9 million in Total revenues for the three and six months endedJune 30, 2021 , respectively. No impairment charge was recorded for the sale of Insurance brokerage business for the three and six months endedJune 30, 2021 as the carrying amount of the net assets was less than the fair value less costs to sell. Equity awards previously granted by the Company to employees of its Insurance brokerage business will be converted into the right to receive a cash payment from BGC; 50% vests and is paid in cash at closing of the proposed transaction and 50% vests and is paid in cash two years after closing, if the applicable employee remains an employee of the buyer. CF&Co served as advisor to the Company and, upon the closing of the proposed transaction, will receive a fee consistent with market rates in connection with the proposed transaction. The Company expects to complete the sale prior toDecember 31, 2021 . 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 72 -------------------------------------------------------------------------------- Table of Contents 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 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 had faced more challenging market conditions from 2009 until the second half of 2016. Accommodative monetary policies were enacted by several major central banks, including theFederal Reserve, Bank ofEngland , Bank of Japan and theEuropean 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, a lower unemployment rates in most major economies, higher consumer spending, the modification or repeal of certainU.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 theU.K. and the EU after Brexit, a slowdown in global growth driven by the outbreak of COVID-19, inflation expectation impact onU.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 ourEmployee Assistance Program and the ways it can assist them during this challenging time. There is a zero co-pay for Teladoc mental health visits throughDecember 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 82% of our employees are fully vaccinated. Impact of COVID-19 on the Company's Results 73 -------------------------------------------------------------------------------- Table of Contents Revenues Voice/Hybrid and/or Higher-Margin, Technology-Driven Fenics Businesses We recorded total revenue of$512.5 million , which reflected improved trading activity in the second half of the quarter, following softer industry-wide trading volumes in April. For the three months endedJune 30, 2021 , Fenics revenues increased 23.5% driven by a$15.0 million , or 21.0%, increase in Fenics Markets and a$3.5 million , or 48.4%, 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 second quarter of 2021 provided a favorable Rates trading environment, particularly across BGC'sU.S. government bond, inflation, and interest rate swap businesses. •Energy & Commodities generated solid revenue growth, driven by strong performance in BGC's environmental brokerage business. •Increasing concerns aroundU.S. inflation 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. We expect record levels of global debt issuance, interest rate volatility, and an improvingU.S. and global economy to provide tailwinds to our Rates business going forward. Overall Fenics •BGC's Fenics revenues increased 23.5% in the second quarter of 2021 compared to the prior year period. •Fenics has benefited and is expected to continue to benefit from secular trend 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. •The pace of adoption of certain financial technology offerings may slow in the short-term due to physical dislocations experienced by BGC's employees and clients as a result of the pandemic. Our medium-to longer-term overall strategy with respect to Fenics is not expected to be impacted. •BGC's data, software, and post-trade businesses are predominantly comprised of recurring revenues. Insurance Brokerage •Our Insurance brokerage business generated record revenue during the second quarter of$54.3 million , up 18.6% compared to the prior year period, driven by strong performance across theU.S. Property & Casualty markets and improved market conditions. •The insurance brokerage industry typically generates significant amounts of predictable revenues at specific times of the year as different categories of clients sign or renew policies. •Although certain clients may be facing financial hardship or dislocation due to the pandemic, the insurance brokerage industry has generally performed well during past economic downturns. Expenses BGC's compensation expenses increased in the second quarter of 2021 primarily due to an increase in charges related to grants of exchangeability and issuance of shares of BGC Class A common stock partially offset by the impact of lower 74 -------------------------------------------------------------------------------- Table of Contents commissionable revenues on variable compensation. BGC's non-compensation expenses increased due to higher selling and promotion, and other expenses. 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. SuchU.S. GAAP items may include charges for exiting leases and/or other long-term contracts as part of cost-saving initiatives; •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. OnAugust 3, 2021 , our Board declared a$0.01 dividend for the second 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. The balance sheet as ofJune 30, 2021 reflects the maturity of the 5.125% Senior Notes paid in full and the draw down of$190.0 million on the Revolving Credit Agreement, ordinary movements in working capital, repurchases of BGC Class A common stock and LPU's, cash paid with respect to employee bonuses, tax payments, and our continued investment in Fenics Growth Platforms. We continue to manage our business with a focus on its investment grade ratings. Brexit OnJune 23, 2016 , theU.K. held a referendum regarding continued membership of the EU. The exit from the EU is commonly referred to as Brexit. OnJanuary 1, 2021 , theU.K. formally left the EU andU.K. -EU trade became subject to a new agreement that was concluded in December of 2020. Financial services falls 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. InMarch 2021 , theU.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 theU.K. -EU flow of financial services therefore remains unknown. This same uncertainty applies to the consequences for the economies of theU.K. and the EU member states as a result of theU.K.'s withdrawal from the EU. We have implemented plans to ensure continuity of service inEurope and continue to have regulated entities in place in many of the major European markets. As part of our Brexit strategy, ownership of BGC Madrid,Copenhagen andFrankfurt & GFI Paris,Madrid and Dublin branches was transferred to Aurel BGC SAS (a French-based operation and therefore based in the EU) inJuly 2020 ,BGC's Insurance division has established new brokerage platforms inCyprus andFrance , and we have been generally increasing our footprint in the EU. 75 -------------------------------------------------------------------------------- Table of Contents Regardless of these and other mitigating measures, our European headquarters and largest operations are inLondon , 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 theU.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 theU.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. We believe that certain parts of the Dodd-Frank Act rules may be modified or repealed, which could be a net positive for our business and its largest customers. However, there can be no assurance that these rules will be amended, and we continue to expect the industry to be more heavily regulated than it was prior to the financial crisis of 2008-2009, and we are prepared to operate under a variety of regulatory regimes. In addition to regulations in theU.S. , legislators and regulators inEurope 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 asEMIR 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 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 newEuropean 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 andU.K. financial firms alike. We are unable to predict how any of these new laws and proposed rules and regulations in theU.S. or theU.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 onOctober 2, 2013 . Both BGC Derivative Markets and GFI Swaps Exchange received permanent registration approval from the CFTC as SEFs onJanuary 22, 2016 . Mandatory Dodd-Frank Act compliant execution on SEFs by eligibleU.S. persons commenced inFebruary 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 onJuly 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. InNovember 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 onJuly 15, 2019 , and this change in leadership could impact these proposals. OnJune 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 onNovember 1, 2020 for swaps subject to the trade execution requirement under the Commodity 76 -------------------------------------------------------------------------------- Table of Contents Exchange Act Section 2(h)(8) andJuly 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 endedDecember 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 such as ICE buying BondPoint, Deutsche Börse buying 360T, and CBOE buying Hotspot, 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 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 theU.S. Federal Reserve ,ECB , Bank of Japan,Bank of England , andSwiss 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 theU.S. ,Japan ,U.K. , as well as theEurozone 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 ofJanuary 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 endedJune 30, 2021 , industry volumes were mixed year-over-year for Rates, generally lower across Credit, Energy & Commodities,U.S. cash equities and European equities and generally higher across FX andU.S. Equity derivatives. BGC's brokerage revenues, excluding Insurance, were down by 4.3% year-on-year in the quarter, which 77 -------------------------------------------------------------------------------- Table of Contents reflected improved trading activity in the second half of the quarter, following softer industry-wide trading volumes in April. 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 high by historical standards; however the level of secondary trading and related hedging activity was higher during the second quarter of 2021 due to the elevated levels of volatility and trading volume related to the onset of the COVID-19 pandemic during the first quarter of last year. In addition, according toSIFMA and theFederal Reserve Bank of New York , the average daily volume of variousU.S. Treasuries, excludingTreasury bills, among primary dealers was flat in the second quarter of 2021 as compared to a year earlier. However, volumes of longer-datedU.S. Treasuries, with maturities greater than two years, increased 2.0% compared to the prior year. Additionally, interest rate derivative volumes were up 19.4% and 24.5% at ICE and the CME, respectively, all according to company press releases. In comparison, our revenue from Fenics Rates increased 44.7%, while our overall Rates revenues were up 2.6% as compared to a year earlier to$136.5 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 benchmarkU.S. Treasuries exhibited volatility during the second quarter of 2021 on future inflation concerns. 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, elevated levels of government debt issuance, coupled with the potential for risingU.S. interest rates and volatility, are expected to provide tailwinds to our Rates business. FX Volumes and Volatility Global FX volumes were generally higher during the second quarter of 2021. Volumes for CME FX futures and options, Refinitiv and CME EBS spot FX were up 6.1%, 8.0%, and down 1.1%, respectively, during the quarter. In comparison, our revenue from Fenics FX increased 68.2%, while our overall FX revenues decreased by 2.1% to$72.8 million . Insurance Brokerage Our overall Insurance Brokerage business, which is being sold toThe Ardonagh Group , includesEd Broking andBesso , as well as our aviation and space insurance brokerage business, Piiq. The pre-tax loss relating to Insurance was$6.7 million and$7.3 million for the three months endedJune 30, 2021 and 2020, respectively. Insurance posted record revenues of$54.3 million for the second quarter of 2021 as it continued to benefit from strong performance across theU.S. property & casualty markets and improved market conditions. The pre-tax loss relating to Insurance was$7.1 million and$15.8 million for the six months endedJune 30, 2021 and 2020, respectively. Our 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 down during the second quarter of 2021. Research fromRaymond James indicated that the average daily volumes ofU.S. cash equities andU.S. options were down 14.7% and 29.0%, respectively, as compared to a year earlier, while average daily volume of European cash equities shares were down 7.2% (in notional value). Over the same timeframe, Eurex average daily volumes of equity derivatives were down 14.3% while Euronext equity derivative index volumes declined by 24.6%. BGC's equity business primarily consists of equity derivatives. Our overall revenues from Equity derivatives and cash equities decreased by 1.5% to$60.8 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 theU.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 78 -------------------------------------------------------------------------------- Table of Contents international financial regulations. During the second quarter of 2021, primary dealer average daily volume for corporate bonds (excluding commercial paper) was down by 30.5% according to Bloomberg and theFederal Reserve Bank of New York . Total notional traded credit derivatives as reported by theInternational Swaps and Derivatives Association - a reflection of the OTC derivatives market - were down by 13.7%, from a year earlier. In comparison, our overall Credit revenues decreased by 24.2% to$72.6 million . Energy and Commodities Energy and commodities volumes were generally lower during the second quarter of 2021 compared with the year earlier. CME and ICE energy futures and options volumes were down 5.8% and 8.4%, respectively. Historically lower sustained prices across energy and commodities reduced demand for underlying product hedges. In comparison, BGC's energy and commodities revenues increased by 4.8% to$74.7 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. 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, as ofJune 30, 2021 , our front-office headcount was 2,196 brokers, salespeople, managers and other front-office personnel, down 8.0% from 2,388 a year ago. Compared to the prior year period, average revenue per front-office employee for the three and six months endedJune 30, 2021 , increased by 5.7% to approximately$198 thousand and 4.7% to approximately$421 thousand , respectively, despite overall revenue being lower versus the prior year. On a stand-alone basis, our front-office Insurance headcount increased by 25.7% to 547 from 435 a year ago. The laws and regulations passed or proposed on both sides of theAtlantic 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 includedEd Broking , Ginga Petroleum,Algomi and several smaller acquisitions. OnJanuary 31, 2019 , we completed the acquisition ofEd Broking , an independentLloyd'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 has become part of the Company's overall Insurance brokerage business. OnMarch 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. 79 -------------------------------------------------------------------------------- Table of Contents OnMarch 6, 2020 , we completed the acquisition ofAlgomi , 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. FINANCIAL HIGHLIGHTS For the three months endedJune 30, 2021 , we had income (loss) from operations before income taxes of$21.7 million compared to$47.9 million in the year earlier period. This decrease was largely a result of an increase in both compensation and non-compensation expenses in the three months endedJune 30, 2021 . Total revenues for the three months endedJune 30, 2021 , decreased$6.6 million , or 1.3%, to$512.5 million , which was primarily driven by record levels of volatility and volumes related to the onset of the COVID-19 pandemic beginning in the first quarter of 2020. For the six months endedJune 30, 2021 , income from operations before income taxes increased by$16.8 million , or 21.3%, to$95.7 million compared to the same period in 2020, primarily due to a decrease of$46.3 million , or 4.4%, in our expenses more than offsetting the decline in revenues. This was principally a result of a$50.0 million decrease in Compensation and employee benefits, primarily driven by 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. Total revenues for the six months endedJune 30, 2021 decreased by$42.2 million , or 3.8%, to$1,080.0 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 continue to make excellent progress with respect to our investments in Fenics. Our Fenics growth accelerated during the second quarter, with revenues increasing by 23.5% and represented 21.2% of our total revenues, excluding our Insurance brokerage business, its highest ever contribution. 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. Brokerage revenues for the three months endedJune 30, 2021 decreased by$10.3 million , or 2.1%, to$471.8 million compared to the same period in 2020. For the six months endedJune 30, 2021 , our brokerage revenues decreased by$45.5 million , or 4.3%, to$1,005.7 million compared to the same period in 2020. The decline in our brokerage revenues was primarily driven by Credit revenues, which decreased by$23.2 million , to$72.6 million , and$30.3 million , to$162.7 million , for the three and six months endedJune 30, 2021 , respectively, due to significantly lower industry-wide trading volumes. For the six months endedJune 30, 2021 , our FX revenues decreased$12.5 million , to$156.2 million , and revenues from Equity derivatives and cash equities decreased by$12.3 million , to$131.3 million . Our Insurance brokerage business generated 18.6% and 17.7% growth for the three and six months endedJune 30, 2021 , respectively, driven by new hires in aviation and reinsurance. Our Insurance brokerage business benefited from favorable pricing trends and improved productivity from previously hired brokers and salespeople. The second quarter of 2021 provided a favorable trading environment across many of the Rates products BGC brokers, particularly across BGC'sU.S. government bond, inflation, and interest rate swap businesses. Energy and commodities generated solid revenue growth during the three months endedJune 30, 2021 , driven by strong performance in our environmental brokerage business. Revenues in our Fenics business increased 23.5% to$97.0 million and 32.9% to$204.6 million , respectively, for the three and six months endedJune 30, 2021 , compared to the prior year period. 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$86.4 million , an improvement of$15.0 million , or 21.0%, 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$3.5 million , or 48.4%, 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. Total expenses for the three months endedJune 30, 2021 increased$20.5 million to$494.0 million compared to the prior year period, primarily due to a$17.3 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$30.5 million to$58.3 million due to an increase in charges related to grants of exchangeability and issuance of shares of BGC Class A common 80 -------------------------------------------------------------------------------- Table of Contents stock, while expenses for Compensation and employee benefits decreased by$13.2 million to$270.4 million due to the impact of lower commissionable revenues on variable compensation. The$3.2 million increase in non-compensation expenses was primarily driven by higher selling and promotion expenses, an increase in other expenses driven by legal settlement and litigation costs, and an increase in interest expense related to the 4.375% Senior Notes issued onJuly 10, 2020 partially offset by lower interest expense recorded on the 5.125% Senior Notes due to repayment in full onMay 27, 2021 , partially offset by reduced professional and consulting fees. Total expenses for the six months endedJune 30, 2021 decreased by$46.3 million to$994.3 million compared to the prior year period, primarily driven by a$50.0 million decrease in Compensation and employee benefits, 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$18.1 million , or 5.3%, primarily driven by a continued focus on tighter cost management as well as the impact of COVID-19, including lower selling and promotion expenses, as well as reduced professional and consulting fees. This was partially offset by an increase of$21.8 million , or 31.1%, in Equity-based compensation and allocations of net income to limited partnership units and FPUs 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 endedJune 30, 2021 increased$0.9 million , to$3.2 million compared to the prior year period, primarily due to an increase in other recoveries related to our 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 endedJune 30, 2020 . Total other income (losses), net for the six months endedJune 30, 2021 , increased$12.8 million , to$10.0 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, and 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 six months endedJune 30, 2021 . In addition, for the three months endedJune 30, 2021 , income from operations before income taxes decreased by$52.4 million , to$21.7 million , compared to income from operations before income taxes of$74.1 million for the three months endedMarch 31, 2021 . Total revenues for the three months endedJune 30, 2021 decreased by$55.1 million , or 9.7%, to$512.5 million . This was principally a result of a$62.2 million decrease in brokerage revenues, which was largely driven by a decrease of$25.3 million in Rates revenues, a$17.4 million decrease in Credit, a$10.6 million decrease in FX, and a$9.6 million decrease in Equity derivatives and cash equities. Total expenses for the three months endedJune 30, 2021 decreased$6.4 million , to$494.0 million , compared to the three months endedMarch 31, 2021 , primarily due to a$12.9 million decrease in total compensation expenses and partially offset by a$6.5 million increase in non-compensation expenses. Within total compensation expenses, our Compensation and employee benefits decreased$37.7 million , or 12.2%, to$270.4 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$24.8 million , or 74.0%, to$58.3 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 endedJune 30, 2021 decreased$3.7 million , to$3.2 million compared to the three months endedMarch 31, 2021 , primarily due to a gain recognized on a litigation resolution in the first quarter of 2021. OnAugust 3, 2021 , our Board declared a$0.01 dividend for the second quarter. Effective with the first quarter of 2020 dividend, the Board took the step of reducing the quarterly dividend out of an abundance of caution in order to strengthen the Company's balance sheet as the global capital markets face difficult and unprecedented macroeconomic conditions. Additionally,BGC Holdings reduced its distributions to or on behalf of its partners. The distributions to or on behalf of partners will at least cover their related tax payments. Whether any given post-tax amount is equivalent to the amount received by a stockholder also on an after-tax basis depends upon stockholders' and partners' domiciles and tax status. BGC believes that these steps will allow the Company to prioritize its financial strength. Our 2021 capital allocation priorities are to return capital to stockholders and to continue investing in our high growth Fenics businesses. Previously, we were deeply dividend-centric; going forward, we plan to prioritize share and unit repurchases over dividends and distribution with an aim to nominally increase it toward the end of the year. 81 -------------------------------------------------------------------------------- Table of Contents RESULTS OF OPERATIONS The following table sets forth our unaudited condensed consolidated statements of operations data expressed as a percentage of total revenues for the periods indicated (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Percentage Percentage Percentage Percentage Actual of Total Actual of Total Actual of Total Actual of Total Results Revenues Results Revenues Results Revenues Results Revenues Revenues: Commissions$ 389,768 76.1 %$ 382,640 73.7 %$ 824,988 76.4 %$ 838,495 74.7 % Principal transactions 81,997 16.0 99,453 19.2 180,760 16.7 212,764 19.0 Total brokerage revenues 471,765 92.1 482,093 92.9 1,005,748 93.1 1,051,259 93.7 Fees from related parties 4,245 0.8 6,562 1.3 8,030 0.7 12,083 1.1 Data, software and post-trade 21,602 4.2 20,139 3.9 43,588 4.0 39,537 3.5 Interest and dividend income 11,455 2.2 6,536 1.3 14,493 1.3 10,697 1.0 Other revenues 3,383 0.7 3,758 0.6 8,167 0.9 8,679 0.7 Total revenues 512,450 100.0 519,088 100.0 1,080,026 100.0 1,122,255 100.0 Expenses: Compensation and employee benefits 270,427 52.7 283,616 54.6 578,589 53.6 628,544 56.0 Equity-based compensation and allocations of net income to limited partnership units and FPUs¹ 58,290 11.4 27,819 5.4 91,785 8.5 70,023 6.2 Total compensation and employee benefits 328,717 64.1 311,435 60.0 670,374 62.1 698,567 62.2 Occupancy and equipment 46,900 9.2 47,247 9.1 95,033 8.8 98,321 8.8 Fees to related parties 4,452 0.9 5,194 1.0 9,743 0.9 10,629 1.0 Professional and consulting fees 17,820 3.5 19,805 3.8 33,960 3.1 39,761 3.5 Communications 30,774 6.0 30,524 5.9 60,578 5.6 61,045 5.4 Selling and promotion 8,616 1.7 6,634 1.3 16,104 1.5 25,333 2.3 Commissions and floor brokerage 14,308 2.8 13,520 2.6 32,237 3.0 32,797 2.9 Interest expense 18,680 3.6 17,625 3.4 36,533 3.4 35,131 3.1 Other expenses 23,688 4.6 21,480 4.1 39,777 3.7 39,011 3.6 Total expenses 493,955 96.4 473,464 91.2 994,339 92.1 1,040,595 92.8 Other income (losses), net: Gains (losses) on divestitures and sale of investments (32) 0.0 - - (32) 0.0 - - Gains (losses) on equity method investments 1,323 0.3 1,119 0.2 2,789 0.3 2,142 0.2 Other income (loss) 1,864 0.3 1,129 0.2 7,270 0.7 (4,886) (0.4) Total other income (losses), net 3,155 0.6 2,248 0.4 10,027 1.0 (2,744) (0.2) Income (loss) from operations before income taxes 21,650 4.2 47,872 9.2 95,714 8.9 78,916 7.0 Provision (benefit) for income taxes (1,191) (0.3) 8,599 1.6 13,748 1.3 19,474 1.7 Consolidated net income (loss)$ 22,841 4.5 %$ 39,273 7.6 %$ 81,966 7.6 %$ 59,442 5.3 % Less: Net income (loss) operations attributable to noncontrolling interest in subsidiaries 4,672 1.0 11,354 2.2 20,706 1.9 17,849 1.6 Net income (loss) available to common stockholders$ 18,169 3.5 %$ 27,919 5.4 %$ 61,260 5.7 %$ 41,593 3.7 % ________________
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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Table of Contents Three Months Ended June 30, Six Months Ended June 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$ 31,222 6.1 %$ 2,362 0.5 %$ 39,076 3.6 %$ 25,396 2.3 % Allocations of net income 6,846 1.3 2,660 0.5 12,477 1.2 3,939 0.3 LPU amortization 16,741 3.3 19,524 3.8 33,835 3.1 35,833 3.2 RSU amortization 3,481 0.7 3,273 0.6 6,397 0.6 4,855 0.4 Equity-based compensation and allocations of net income to limited partnership units and FPUs$ 58,290 11.4 %$ 27,819 5.4 %$ 91,785 8.5 %$ 70,023 6.2 % Three Months EndedJune 30, 2021 Compared to Three Months EndedJune 30, 2020 Revenues Brokerage Revenues Total brokerage revenues decreased by$10.3 million , or 2.1%, to$471.8 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Commission revenues increased by$7.1 million , or 1.9%, to$389.8 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Principal transactions revenues decreased by$17.5 million , or 17.6%, to$82.0 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The decrease in total brokerage revenues was primarily driven by decreases in revenues from Credit, FX, Equity derivatives and cash equities, partially offset by an increase in revenues from Insurance, Rates, and Energy and commodities. The decreases in BGC's brokerage revenues, excluding Insurance, Rates and Energy and commodities, were due to the elevated levels of volatility and trading volume related to the onset of the COVID-19 pandemic beginning in the first quarter of 2020. Our Credit revenues decreased by$23.2 million , or 24.2%, to$72.6 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This was primarily driven by significantly lower industry-wide trading volumes. Our FX revenues decreased by$1.6 million , or 2.1%, to$72.8 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Our brokerage revenues from Equity derivatives and cash equities decreased by$1.0 million , or 1.5%, to$60.8 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Our brokerage revenues from Insurance increased by$8.5 million , or 18.6%, to$54.3 million for the three months endedJune 30, 2021 as compared to the three months endedJune 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 Rates increased by$3.4 million , or 2.6%, to$136.5 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The second quarter of 2021 provided favorable Rates trading environment, particularly across BGC'sU.S. government bond, inflation, and interest rate swap businesses. Our brokerage revenues from Energy and commodities increased by$3.4 million , or 4.8%, to$74.7 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Fees from Related Parties Fees from related parties decreased by$2.3 million , or 35.3%, to$4.2 million for the three months endedJune 30, 2021 as compared to the three months endedJune 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 83 -------------------------------------------------------------------------------- Table of Contents Data, software and post-trade revenues increased by$1.5 million , or 7.3%, to$21.6 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This increase was primarily driven by Lucera expanding their client base. Interest and Dividend Income Interest and dividend income increased by$4.9 million , or 75.3%, to$11.5 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This was primarily due to an increase in dividend income and higher interest income earned on employee loans. Other Revenues Other revenues decreased by$0.4 million , or 10.0%, to$3.4 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Expenses Compensation and Employee Benefits Compensation and employee benefits expense decreased by$13.2 million , or 4.7%, to$270.4 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The main driver of this decrease was the impact of lower 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$30.5 million , or 109.5%, to$58.3 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This was primarily driven by a increase in grants of exchangeability and issuance of Class A common stock. Occupancy and Equipment Occupancy and equipment expense decreased by$0.3 million , or 0.7%, to$46.9 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Fees to Related Parties Fees to related parties decreased by$0.7 million , or 14.3%, to$4.5 million for the three months endedJune 30, 2021 as compared to the three months endedJune 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 decreased by$2.0 million , or 10.0%, to$17.8 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This decrease was primarily driven by a decrease in consulting fees in the three months endedJune 30, 2021 . Communications Communications expense increased by$0.3 million , or 0.8%, to$30.8 million for the three months endedJune 30, 2021 as compared to three months endedJune 30, 2020 . Selling and Promotion Selling and promotion expense increased by$2.0 million , or 29.9%, to$8.6 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This increase was primarily due to the impact of COVID-19 and the continued focus on tighter cost management during the three months endedJune 30, 2020 , which resulted in a significant reduction in travel and entertainment expenses. Commissions and Floor Brokerage 84 -------------------------------------------------------------------------------- Table of Contents Commissions and floor brokerage expense increased by$0.8 million , or 5.8%, to$14.3 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Interest Expense Interest expense increased by$1.1 million , or 6.0%, to$18.7 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This increase was primarily driven by interest expense related to the 4.375% Senior Notes issued inJuly 2020 , partially offset by lower interest expense related to the 5.125% Senior Notes, which were repaid inMay 2021 , and lower interest expense related to borrowings on the Revolving Credit Agreement. Other Expenses Other expenses increased by$2.2 million , or 10.3%, to$23.7 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 , which was primarily due to an increase in settlements, and partially offset by a decrease in other provisions. Other Income (Losses), net Gains (Losses) on Divestitures and Sale of Investments For the three months endedJune 30, 2021 , we had a loss of$32 thousand on divestitures. For the three months endedJune 30, 2020 , we had no gains or losses from divestitures or the sale of investments. Gains (Losses) on Equity Method Investments Gains (losses) on equity method investments increased by$0.2 million , or 18.2%, to a gain of$1.3 million , for the three months endedJune 30, 2021 as compared to a gain of$1.1 million for the three months endedJune 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$0.7 million , or 65.1%, to$1.9 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . This was primarily driven by an increase in other recoveries related to our 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 endedJune 30, 2020 . Provision (Benefit) for Income Taxes Provision (benefit) for income taxes decreased by$9.8 million , or 113.9%, to$(1.2) million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . The decrease is primarily driven by the revaluation of deferred taxes due to enacted rate changes in theU.K. and 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$6.7 million , or 58.9%, to$4.7 million for the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 . Six Months EndedJune 30, 2021 Compared to Six Months EndedJune 30, 2020 Revenues Brokerage Revenues Total brokerage revenues decreased by$45.5 million , or 4.3%, to$1,005.7 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . Commission revenues decreased by$13.5 million , or 1.6%, to$825.0 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . Principal transactions revenues decreased by$32.0 million , or 15.0%, to$180.8 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . 85 -------------------------------------------------------------------------------- Table of Contents The decrease in total brokerage revenues was primarily driven by decreases in Credit, FX, Equity derivatives and cash equities, Energy and commodities, and Rates, partially offset by an increase in revenues from Insurance. Our Credit revenues decreased by$30.3 million , or 15.7%, to$162.7 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . This decrease was mainly due to significantly lower industry-wide volumes. Our FX revenues decreased by$12.5 million , or 7.4%, to$156.2 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 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$12.3 million , or 8.6%, to$131.3 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . Our brokerage revenues from energy and commodities decreased by$4.5 million , or 2.9%, to$150.6 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . This decrease was primarily driven by lower industry volumes. Our brokerage revenues from Rates decreased by$2.0 million , or 0.7%, to$298.3 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 . Our brokerage revenues from Insurance increased by$16.1 million , or 17.7%, to$106.7 million for the six months endedJune 30, 2021 , as compared to the six months endedJune 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. Fees from Related Parties Fees from related parties decreased by$4.1 million , or 33.5%, to$8.0 million for the six months endedJune 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$4.1 million , or 10.2%, to$43.6 million for the six months endedJune 30, 2021 as compared to the same period in prior year. This increase was primarily driven by Lucera expanding their client base, and an increase in revenues from post-trade services. Interest and Dividend Income Interest and dividend income increased by$3.8 million , or 35.5%, to$14.5 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This was primarily driven by an increase in dividend income. Other Revenues Other revenues decreased by$0.5 million , or 5.9% to$8.2 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This was primarily driven by a decrease in consulting income forPoten & Partners . Expenses Compensation and Employee Benefits Compensation and employee benefits expense decreased by$50.0 million , or 7.9%, to$578.6 million for the six months endedJune 30, 2021 as compared to the six months endedJune 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 six months endedJune 30, 2020 compared to the six months endedJune 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$21.8 million , or 31.1%, to$91.8 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This was primarily driven by an increase in grants of exchangeability and issuance of Class A common stock. 86 -------------------------------------------------------------------------------- Table of Contents Occupancy and Equipment Occupancy and equipment expense decreased by$3.3 million , or 3.3%, to$95.0 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This was primarily driven by a decrease in fixed asset impairments. Fees to Related Parties Fees to related parties decreased by$0.9 million , or 8.3%, to$9.7 million for the six months endedJune 30, 2021 as compared to the six months endedJune 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$5.8 million , or 14.6%, to$34.0 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This decrease was primarily driven by a decrease in consulting fees. Communications Communications expense decreased by$0.5 million , or 0.8%, to$60.6 million for the six months endedJune 30, 2021 as compared to the six months endedJune 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$9.2 million , or 36.4%, to$16.1 million for the six months endedJune 30, 2021 as compared to the six months endedJune 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 decreased by$0.6 million , or 1.7%, to$32.2 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . Commissions and floor brokerage expense tends to move in line with brokerage revenues. Interest Expense Interest expense increased by$1.4 million , or 4.0%, to$36.5 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This increase was primarily driven by interest expense related to the 4.375% Senior Notes issued inJuly 2020 , partially offset by lower interest expense related to the 5.125% Senior Notes, which were repaid inMay 2021 , and lower interest expense related to the borrowings on the Revolving Credit Agreement. Other Expenses Other expenses increased by$0.8 million , or 2.0%, to$39.8 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , which was primarily related to an increase in settlements, and partially offset by a decrease in other provisions. Other Income (Losses), net Gains (Losses) on Divestitures and Sale of Investments For the six months endedJune 30, 2021 , we had a loss of$32 thousand on divestitures. For the six months endedJune 30, 2020 , we had no gains or losses from divestitures or the sale of investments. Gains (Losses) on Equity Method Investments Gains (losses) on equity method investments increased by$0.6 million , to a gain of$2.8 million , for the six months endedJune 30, 2021 as compared to a gain of$2.1 million for the six months endedJune 30, 2020 . Gains (losses) on equity 87 -------------------------------------------------------------------------------- Table of Contents 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$12.2 million , to$7.3 million for the six months endedJune 30, 2021 as compared to the six months endedJune 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 six months endedJune 30, 2021 , an increase due to an impairment of an equity method investment recorded in the six months endedJune 30, 2020 , and an increase in other recoveries related to our Insurance brokerage business, partially offset by a decrease related to COVID-19 recoveries in the six months endedJune 30, 2020 Provision (Benefit) for Income Taxes Provision (benefit) for income taxes decreased by$5.7 million , or 29.4%, to$13.7 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 . This decrease is primarily driven by the revaluation of deferred taxes due to enacted rate changes in theU.K. and 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$2.9 million , or 16.0%, to$20.7 million for the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 , which was primarily driven by an increase in earnings. QUARTERLY RESULTS OF OPERATIONS The following table sets forth our unaudited quarterly results of operations for the indicated periods (in thousands). Results of any period are not necessarily indicative of results for a full year and may, in certain periods, be affected by seasonal fluctuations in our business. Certain reclassifications have been made to prior period amounts to conform to the current period's presentation. 88
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Table of Contents June 30, March 31, December September June 30, March 31, December September 2021 2021 31, 2020 30, 2020 2020 2020 31, 2019 30, 2019 Revenues: Commissions$ 389,768 $ 435,220 $ 377,146 $ 352,027 $ 382,640 $ 455,855 $ 382,897 $ 409,765 Principal transactions 81,997 98,763 73,687 65,182 99,453 113,311 71,725 75,536 Fees from related parties 4,245 3,785 4,857 8,814 6,562 5,521 8,218 8,208 Data, software and post-trade 21,602 21,986 20,860 21,523 20,139 19,398 18,151 18,364 Interest and dividend income 11,455 3,038 (783) 2,418 6,536 4,161 2,865 3,976 Other revenues 3,383 4,784 3,659 5,075 3,758 4,921 3,300 5,288 Total revenues 512,450 567,576 479,426 455,039 519,088 603,167 487,156 521,137 Expenses: Compensation and employee benefits 270,427 308,162 258,687 244,419 283,616 344,928 268,696 278,744 Equity-based compensation and allocations of net income to limited partnership units and FPUs 58,290 33,495 80,515 33,007 27,819 42,204 69,389
44,093
Total compensation and employee benefits 328,717 341,657 339,202 277,426 311,435 387,132 338,085
322,837
Occupancy and equipment 46,900 48,133 45,723 45,224 47,247 51,074 47,387
44,709
Fees to related parties 4,452 5,291 4,954 7,610 5,194 5,435 2,858 7,123 Professional and consulting fees 17,820 16,140 18,072 15,637 19,805 19,956 27,553 21,262 Communications 30,774 29,804 30,470 30,088 30,524 30,521 29,715 29,882 Selling and promotion 8,616 7,488 6,891 5,943 6,634 18,699 21,432
20,320
Commissions and floor brokerage 14,308 17,929 13,646 12,933 13,520 19,277 16,377 15,831 Interest expense 18,680 17,853 21,811 19,665 17,625 17,506 16,354 15,403 Other expenses 23,688 16,089 21,574 28,348 21,480 17,531 29,487 42,257 Total expenses 493,955 500,384 502,343 442,874 473,464 567,131 529,248 519,624 Other income (losses), net: Gain (loss) on divestiture and sale of investments (32) - 403 (9) - - (14) - Gains (losses) on equity method investments 1,323 1,466 1,354 1,527 1,119 1,023 1,064 1,530 Other income (loss) 1,864 5,406 1,687 4,779 1,129 (6,015) 11,642 2,095 Total other income (losses), net 3,155 6,872 3,444 6,297 2,248 (4,992) 12,692 3,625 Income (loss) from operations before income taxes 21,650 74,064 (19,473) 18,462 47,872 31,044 (29,400) 5,138 Provision (benefit) for income taxes (1,191) 14,939 (6,729) 8,558 8,599 10,875 4,075
6,691
Consolidated net income (loss)$ 22,841 $ 59,125 $ (12,744) $ 9,904 $ 39,273 $ 20,169 $ (33,475) $ (1,553) Less: Net income (loss) attributable to noncontrolling interest in subsidiaries 4,672 16,034 (10,406) 251 11,354 6,495 (12,914) 4,752 Net income (loss) available to common stockholders$ 18,169 $ 43,091 $ (2,338) $ 9,653 $ 27,919 $ 13,674 $ (20,561) $ (6,305)
The table below details our brokerage revenues by product category for the indicated periods (in thousands):
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Table of Contents
June 30, March 31, December 31, September 30, June 30, March 31,
2021 2021 2020 2020 2020 2020 2019 2019 Brokerage revenue by product: Rates$ 136,474 $ 161,793 $ 124,495 $ 119,325 $ 133,034 $ 167,240 $ 129,549 $ 156,765 Credit 72,609 90,047 68,882 68,053 95,780 97,189 70,438 72,382 FX 72,807 83,433 73,213 73,281 74,393 94,366 80,369 86,492 Energy and commodities 74,735 75,868 71,706 65,871 71,326 83,738 71,456 73,012
Equity derivatives and
cash equities 60,825 70,462 63,718 47,410 61,777 81,797 59,533 56,958 Insurance 54,315 52,380 48,819 43,269 45,783 44,836 43,277 39,692
Total brokerage revenues
$ 454,622 $ 485,301 Brokerage revenue by product (percentage): Rates 28.9 % 30.3 % 27.6 % 28.6 % 27.6 % 29.4 % 28.5 % 32.3 % Credit 15.4 16.9 15.3 16.3 19.9 17.1 15.5 14.9 FX 15.4 15.6 16.2 17.6 15.4 16.6 17.7 17.8 Energy and commodities 15.8 14.2 15.9 15.8 14.8 14.6 15.7 15.0
Equity derivatives and
cash equities 12.9 13.2 14.2 11.3 12.8 14.4 13.1 11.8 Insurance 11.6 9.8 10.8 10.4 9.5 7.9 9.5 8.2 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$ 396,480 $ 448,350 $ 387,305 $ 358,418 $ 423,697 $ 513,101 $ 410,332 $ 436,841 Fully Electronic 75,285 85,633 63,528 58,791 58,396 56,065 44,290 48,460 Total brokerage revenues$ 471,765 $ 533,983 $ 450,833 $ 417,209 $ 482,093 $ 569,166 $ 454,622 $ 485,301 Brokerage revenue by type (percentage): Voice/Hybrid 84.0 % 84.0 % 85.9 % 85.9 % 87.9 % 90.1 % 90.3 % 90.0 % Fully Electronic 16.0 16.0 14.1 14.1 12.1 9.9 9.7 10.0 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 ofJune 30, 2021 were$5.1 billion , an increase of 30.0% as compared toDecember 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 ofJune 30, 2021 of$469.9 million . See "Liquidity Analysis" below for a further discussion of our liquidity. Our Securities owned were$49.2 million as ofJune 30, 2021 , compared to$58.6 million atDecember 31, 2020 . Our Marketable securities increased to$0.4 million as ofJune 30, 2021 , compared to$0.3 million as ofDecember 31, 2020 . We did not have any Repurchase agreements, Securities loaned or Reverse repurchase agreements as ofJune 30, 2021 andDecember 31, 2020 . As ofJune 30, 2021 , there were$1.0 billion Assets held for sale and$850.1 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 ofJune 30, 2021 . 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 ofJune 30, 2021 andDecember 31, 2020 , there were no reverse repurchase agreements outstanding. 90 -------------------------------------------------------------------------------- Table of Contents Additionally, inAugust 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 ofJune 30, 2021 andDecember 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 fail financing. 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 us to maximize our growth and 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 the interest rates on our debt. 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 toSEC review prior to effectiveness, which may lengthen the time required for us to raise capital, reducing our access to the capital markets or increasing our cost of capital. As discussed above, our liquidity remains strong at$469.9 million as ofJune 30, 2021 , which reflects the maturity of the 5.125% Senior Notes paid in full and the draw down of$190.0 million on the Revolving Credit Agreement, ordinary movements in working capital, repurchases of BGC Class A common stock and LPUs, cash paid with respect to employee bonuses, tax payments, and our continued investment in Fenics Growth Platforms. 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. OnAugust 3, 2021 , our Board declared a$0.01 dividend for the second 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 an d 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 91 -------------------------------------------------------------------------------- Table of Contents Unsecured Senior Revolving Credit Agreement OnNovember 28, 2018 , we entered into the Revolving Credit Agreement withBank 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 wasNovember 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. OnDecember 11, 2019 , we entered into an amendment to the new unsecured Revolving Credit Agreement. Pursuant to the amendment, the maturity date was extended toFebruary 26, 2021 . OnFebruary 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 toFebruary 26, 2023 . The size of the Revolving Credit Agreement, along with the interest rate on the borrowings therefrom, remained unchanged. As ofJune 30, 2021 , there were$188.7 million of borrowings outstanding, net of deferred financing costs of$1.3 million , under the Revolving Credit Agreement. As ofDecember 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, 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$469.9 million as ofJune 30, 2021 , as discussed below. 5.125% Senior Notes OnMay 27, 2016 , we issued an aggregate of$300.0 million principal amount of 5.125% Senior Notes, which matured onMay 27, 2021 . The 5.125% Senior Notes were general senior unsecured obligations of the Company. The 5.125% Senior Notes bear interest at a rate of 5.125% per year, payable in cash onMay 27 andNovember 27 of each year, commencingNovember 27, 2016 and ending on the maturity date. Prior to maturity, onAugust 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. OnAugust 11, 2020 , the Company's cash tender offer expired at5:00 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 ofAugust 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 ofJune 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 and$18 thousand were underwriting fees payable toCastleOak Securities, L.P. OnAugust 16, 2016 , we filed a Registration Statement on Form S-4 which was declared effective by theSEC onSeptember 13, 2016 . OnSeptember 15, 2016 , BGC launched an exchange offer in which holders of the 5.125% Senior Notes, issued in a private placement onMay 27, 2016 . could exchange such notes for new registered notes with substantially identical terms. The exchange offer closed onOctober 12, 2016 . at which point the initial 5.125% Senior Notes were exchanged for new registered notes with substantially identical terms. OnMay 27, 2021 , we repaid$256.0 million principal plus accrued interest of our 5.125% Senior Notes. 5.375% Senior Notes OnJuly 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 onJanuary 24 andJuly 24 of each year, commencingJanuary 24, 2019 . The 5.375% Senior Notes will mature onJuly 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 and$41 thousand were underwriting fees paid toCastleOak Securities, L.P. 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 ofJune 30, 2021 was$447.2 million . OnJuly 31, 2018 , we filed a Registration Statement on Form S-4 which was declared effective by theSEC onAugust 10, 2018 . OnAugust 10, 2018 , BGC launched an exchange offer in which holders of the 5.375% Senior Notes, issued in a private placement onJuly 24, 2018 , could exchange such notes for new registered notes with substantially identical terms. 92 -------------------------------------------------------------------------------- Table of Contents The exchange offer closed onSeptember 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 OnSeptember 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 eachApril 1 andOctober 1 , commencingApril 1, 2020 . The 3.750% Senior Notes will mature onOctober 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 and$36 thousand were underwriting fees payable toCastleOak Securities, L.P. 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$297.3 million as ofJune 30, 2021 . OnOctober 11, 2019 , we filed a Registration Statement on Form S-4, which was declared effective by theSEC onOctober 24, 2019 . OnOctober 28, 2019 , BGC launched an exchange offer in which holders of the 3.750% Senior Notes, issued in a private placement onSeptember 27, 2019 , may exchange such notes for new registered notes with substantially identical terms. The exchange offer closed onDecember 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 OnJuly 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 onJune 15 andDecember 15 , commencingDecember 15, 2020 . The 4.375% Senior Notes will mature onDecember 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 ofJune 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 and$36 thousand were underwriting fees payable toCastleOak Securities, L.P. The carrying value of the 4.375% Senior Notes was$297.3 million as ofJune 30, 2021 . OnAugust 28, 2020 , we filed a Registration Statement on Form S-4, which was declared effective by theSEC onSeptember 8, 2020 . OnSeptember 9, 2020 , BGC launched an exchange offer in which holders of the 4.375% Senior Notes, issued in a private placement onJuly 10, 2020 , may exchange such notes for new registered notes with substantially identical terms. The exchange offer closed onOctober 14, 2020 , at which point the initial 4.375% Senior Notes were exchanged for new registered notes with substantially identical terms. Collateralized Borrowings OnMay 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 onMay 31, 2021 , therefore, there were no borrowings outstanding as ofJune 30, 2021 . As ofDecember 31, 2020 , we had$4.0 million outstanding related to this secured loan arrangement. The book value of the fixed assets pledged as ofDecember 31, 2020 was$0.8 million . OnApril 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 onApril 8, 2023 . As ofJune 30, 2021 , we had$7.8 million outstanding related to this secured loan arrangement. The book value of the fixed assets pledged as ofJune 30, 2021 was$0.4 million . As ofDecember 31, 2020 , we had$9.6 million outstanding related to this secured loan arrangement. The net book value of the fixed assets pledged as ofDecember 31, 2020 , was$1.2 million . Also, onApril 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 onApril 19, 2023 . As ofJune 30, 2021 , we had 93 -------------------------------------------------------------------------------- Table of Contents$5.0 million outstanding related to this secured loan arrangement. The book value of the fixed assets pledged as ofJune 30, 2021 was$1.7 million . As ofDecember 31, 2020 , we had$6.3 million outstanding related to this secured loan arrangement. The book value of the fixed assets pledged as ofDecember 31, 2020 , was$2.7 million . Weighted-average Interest Rate For the three months endedJune 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 4.23% and 4.42%, respectively. For the six months endedJune 30, 2021 and 2020, the weighted-average interest rate of our total Notes payable and other borrowings, was 4.23% and 4.42%, respectively. Short-term Borrowings OnAugust 22, 2017 , we entered into a committed unsecured loan agreement withItau Unibanco S.A. The credit agreement provides for short-term loans of up to$4.0 million (BRL 20.0 million ). The maturity date of the agreement isAugust 19, 2021 . Borrowings under this agreement bear interest at the BrazilianInterbank offering rate plus 4.75%. As ofJune 30, 2021 , there were$4.0 million (BRL 20.0 million ) of borrowings outstanding under the facility. As ofDecember 31, 2020 , there were$3.8 million (BRL 20.0 million ), of borrowings outstanding under the facility. As ofJune 30, 2021 , the interest rate was 9.00%. OnAugust 23, 2017 , we entered into a committed unsecured credit agreement withItau Unibanco S.A. The credit agreement provides for an intra-day overdraft credit line up to$10.0 million (BRL 50.0 million ). The maturity date of the agreement isSeptember 9, 2021 . This agreement bears a fee of 1.48% per year. As ofJune 30, 2021 andDecember 31, 2020 , there were no borrowings outstanding under this agreement. OnJune 1, 2021 , the Company entered into a committed unsecured loan agreement withBanco Daycoval S.A. The agreement provides for short-term loans of up to$2.0 million (BRL$10.0 million ). The maturity date of the agreement isJanuary 18, 2022 . Borrowings under this agreement bear interest at the BrazilianInterbank offering rate plus 3.66%. As ofJune 30, 2021 , there were$2.0 million (BRL$10.0 million ) of borrowings outstanding under the agreement. As ofJune 30, 2021 , the interest rate was 7.90%. BGC Credit Agreement with Cantor OnMarch 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 theAudit Committee of BGC . OnAugust 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 borrowing rate in effect at such time plus 1.00%. As ofJune 30, 2021 , there were no borrowings by BGC or Cantor outstanding under this Agreement. CREDIT RATINGS As ofJune 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
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/ 94 -------------------------------------------------------------------------------- Table of Contents 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 reduction 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, including earnings, dividends and distributions, net investing and funding activities, including repurchases and redemptions of BGC Class A common stock and partnership units, security settlements, changes in securities held and marketable securities, and changes in our working capital. 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. AtDecember 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 ofJune 30, 2021 is$15.8 million . As ofJune 30, 2021 , the Company had$420.3 million of Cash and cash equivalents, and included in this amount was$310.4 million of Cash and cash equivalents held by foreign subsidiaries. Discussion of the six months endedJune 30, 2021 The table below presents our Liquidity Analysis: June 30, 2021 December 31, 2020 (in thousands) Cash and cash equivalents$ 420,302 $ 593,646 Securities owned 49,222 58,572 Marketable securities 360 349 Total$ 469,884 $ 652,567 95
-------------------------------------------------------------------------------- Table of Contents The$182.7 million decrease in our liquidity position from$652.6 million as ofDecember 31, 2020 to$469.9 million as ofJune 30, 2021 , was primarily related to the$256.0 million repayment in full of the 5.125% Senior Notes, partially offset by drawing$190.0 million from our$350.0 million revolving credit facility. Our liquidity position also decreased due to Cash held for sale totaling$28.6 million , relating to our Insurance brokerage business. Further, Securities owned decreased$9.3 million resulting from sales ofU.S. Treasury bills. The movement in our liquidity position is further reduced by ordinary movements in working capital, repurchases of Class A common stock, cash paid with respect to annual employee bonuses, tax payments, and our continued investment in Fenics Growth Platforms. Discussion of the six months endedJune 30, 2020 The table below presents our Liquidity Analysis: June 30, 2020 December 31, 2019 (in thousands) Cash and cash equivalents$ 463,554 $ 415,379 Securities owned 58,685 57,525 Marketable securities¹ 278 326 Total$ 522,517 $ 473,230
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1As ofDecember 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$49.3 million increase in our liquidity position from$473.2 million as ofDecember 31, 2019 to$522.5 million as ofJune 30, 2020 , was primarily related to the$155.0 million net draw down on the Revolving Credit Agreement, 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, year-end taxes, acquisitions and our continued investment in new revenue generating hires. CLEARING CAPITAL InNovember 2008 , we entered into a clearing capital agreement with Cantor to clearU.S. Treasury andU.S. government agency securities transactions on our behalf. InJune 2020 , this clearing capital agreement was amended to cover Cantor providing clearing services in all eligible financial products to us and not justU.S. Treasury andU.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 property acceptable to Cantor in the amount reasonably requested by Cantor under the clearing capital agreement or Cantor will post cash or other property on our behalf for a commercially reasonable charge. Cantor had not requested any cash or other property from us as collateral as ofJune 30, 2021 . REGULATORY REQUIREMENTS Our liquidity and available cash resources are restricted by regulatory requirements of our operating subsidiaries. Many of these regulators, includingU.S. and non-U.S. government agencies and self-regulatory organizations, as well as state securities commissions in theU.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. In addition, self-regulatory organizations, such as theFINRA and the NFA, along with statutory bodies such as theFCA , theSEC , 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. 96 -------------------------------------------------------------------------------- Table of Contents TheFCA is the relevant statutory regulator in theU.K. TheFCA'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, inHong Kong ,BGC Securities (Hong Kong ), LLC,GFI (HK) Securities LLC and Sunrise Broker (Hong Kong ) Limited are regulated by theSecurities and Futures Commission .BGC Capital Markets (Hong Kong ), Limited andGFI (HK) Brokers Ltd are regulated by TheHong Kong Monetary Authority . All are subject toHong Kong net capital requirements. InFrance ,Aurel BGC andBGC France Holdings ; inAustralia ,BGC Partners (Australia) Pty Limited ,BGC (Securities) Pty Limited andGFI Australia Pty Ltd. ; inJapan ,BGC Shoken Kaisha Limited's Tokyo branch andBGC Capital Markets Japan LLC's Tokyo Branch; inSingapore ,BGC Partners (Singapore) Limited ,GFI Group Pte Ltd andGinga Global Markets Pte Ltd ; inKorea ,BGC Capital Markets & Foreign Exchange Broker (Korea) Limited andGFI Korea Money Brokerage Limited ; inPhilippines GFI Group (Philippines) Inc. and inTurkey , 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 asThe London Metal Exchange , which may impose minimum capital requirements. InLatin 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 ofJune 30, 2021 ,$687.9 million of net assets were held by regulated subsidiaries excluding$51.9 million of net assets classified as held for sale. As ofJune 30, 2021 , these subsidiaries had aggregate regulatory net capital, as defined, in excess of the aggregate regulatory requirements, as defined, of$375.4 million excluding$43.2 million classified as held for sale. InApril 2013 , theBoard 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. BGC Derivative Markets and GFI Swaps Exchange, our subsidiaries, operate as SEFs. Mandatory Dodd-Frank Act compliant execution on SEFs by eligibleU.S. persons commenced inFebruary 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 onJuly 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 theU.S. and subject to local prudential regulations. As such, we will continue to operate a number of European regulated venues in accordance with EU orU.K. legislation and licensed by theFCA or EU-based national supervisors. These venues are also operated for non-derivative instruments for these clients. MiFID II was published by theEuropean Securities and Markets Authority inSeptember 2015 , and implemented inJanuary 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, theU.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 theU.K. and EU are in the process of reviewing their financial services rulebooks, which may lead to regulatory changes. 97 -------------------------------------------------------------------------------- Table of Contents In addition, the GDPR came into effect in the EU onMay 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. OnSeptember 30, 2020 , theSEC 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 theSEC staff'sMay 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 theSEC's guidance, and theSEC has made no allegations with regard to any periods following the first quarter of 2016. In connection with theSEC 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 theSEC's allegations. See "Regulation" in Part I, Item 1 of our Annual Report on Form 10-K for the year endedDecember 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 June 30, Six Months Ended June 30, 2021 2020 2021 2020 Shares outstanding at beginning of period 334,364 311,059 323,018 307,915 Share issuances: Redemptions/exchanges of limited partnership interests¹ 30,156 1,969 40,587 4,074 Vesting of RSUs 360 103 1,728 800 Acquisitions 537 15 787 285 Other issuances of BGC Class A common stock 5 177 266 249 Restricted stock forfeitures (84) - (84) - Treasury stock repurchases (16,543) - (17,507) - Shares outstanding at end of period 348,795 313,323 348,795 313,323
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1Included in redemptions/exchanges of limited partnership interests for the three months endedJune 30, 2021 and 2020 are 13.8 million shares of BGC Class A common stock granted in connection with the cancellation of 14.6 million LPUs, and 0.7 million shares of BGC Class A common stock granted in connection with the cancellation of 0.6 million LPUs, respectively. Included in redemptions/exchanges of limited partnership interests for the six months endedJune 30, 2021 and 2020 are 15.4 million shares of BGC Class A common stock granted in connection with the cancellation of 16.3 million LPUs, and 2.1 million shares of BGC Class A common stock granted in connection with the cancellation of 2.1 million LPUs, respectively. Because LPUs are included in the Company's fully diluted share count, if dilutive, redemptions/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 six months endedJune 30, 2021 and 2020. As ofJune 30, 2021 andDecember 31, 2020 , there were 45.9 million shares of BGC Class B common stock outstanding. Unit Redemptions and Share Repurchase ProgramThe 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. OnAugust 1, 2018 , theBoard and Audit Committee increased the Company's share repurchase and unit redemption authorization to$300.0 million , which may include purchases from Cantor, its partners or employees or other affiliated persons or entities. OnAugust 3, 2021 , theBoard and Audit Committee increased theBGC 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 ofJune 30, 2021 , the 98 -------------------------------------------------------------------------------- Table of Contents Company had$114.6 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 six months endedJune 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 Total Redemptions 4,735 $ 5.82
Repurchases3,4
January 1, 2021-March 31, 2021 965 $ 4.56 April 1, 2021-April 30, 2021 2 5.29 May 1, 2021-May 31, 2021 1,018 5.59 June 1, 2021-June 30, 2021 15,522 6.29 Total Repurchases 17,507 $ 6.16 Total Redemptions and Repurchases 22,242 $ 6.08 $ 114,584
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1During the three months endedJune 30, 2021 , the Company redeemed 4.7 million LPUs at an aggregate redemption price of$27.3 million for a weighted-average price of$5.84 per unit. During the three months endedJune 30, 2021 , the Company redeemed 44 thousand FPUs at an aggregate redemption price of$181 thousand for a weighted-average price of$4.06 per unit. During the three months endedJune 30, 2020 , the Company redeemed 0.1 million LPUs at an aggregate redemption price of$0.3 million for a weighted-average price of$3.05 per unit. During the three months endedJune 30, 2020 , the Company redeemed 1 thousand FPUs at an aggregate redemption price of$4 thousand for an average price of$3.07 per unit. The table above does not include units redeemed/cancelled in connection with the grant of 13.8 million and 0.7 million shares of BGC Class A common stock during the three months endedJune 30, 2021 and 2020, respectively, nor the limited partnership interests exchanged for 16.8 million and 1.3 million shares of BGC Class A common stock during the three months endedJune 30, 2021 and 2020, respectively. 2During the six months endedJune 30, 2021 , the Company redeemed 4.7 million LPUs at an aggregate redemption price of$27.3 million for an average price of$5.83 per unit. During the six months endedJune 30, 2021 , the Company redeemed 51 thousand FPUs at an aggregate redemption price of$209 thousand for an average price of$4.11 per unit. During the six months endedJune 30, 2020 , the Company redeemed 0.3 million LPUs at an aggregate redemption price of$1.3 million for an average price of$3.92 per unit. During the six months endedJune 30, 2020 , the Company redeemed 1 thousand FPUs at an aggregate redemption price of$4 thousand for an average price of$3.07 per unit. The table above does not include units redeemed/cancelled in connection with the grant of 15.4 million and 2.1 million shares of BGC Class A common stock during the six months endedJune 30, 2021 and 2020, respectively, nor the limited partnership interests exchanged for 25.9 million and 1.8 million shares of BGC Class A common stock during the six months endedJune 30, 2021 and 2020, respectively. 3During the three months endedJune 30, 2021 , the Company repurchased 16.5 million shares of BGC Class A common stock at an aggregate price of$103.4 million for a weighted-average price of$6.25 per share. The Company did not repurchase any shares of BGC Class A common stock during the three months endedJune 30, 2020 . 4During the six months endedJune 30, 2021 , the Company repurchased 17.5 million shares of BGC Class A common stock at an aggregate price of$107.8 million for a weighted-average price of$6.16 per share. The Company did not repurchase any shares of BGC Class A common stock during the six months endedJune 30, 2020 . The weighted-average share count for our earnings per share calculation was as follows (in thousands): 99
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Table of Contents Three Months EndedJune 30, 2021 Common stock outstanding1 384,902 Partnership units2 173,606 RSUs (Treasury stock method) 4,141 Other 1,274 Total3 563,923
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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 endedJune 30, 2021 , the weighted-average number of shares of BGC Class A common stock was 339.0 million and shares of BGC Class B common stock was 45.9 million. 2Partnership units collectively include FPUs, LPUs, including contingent units ofBGC Holdings for which all necessary conditions have been satisfied except for the passage of time, and Cantor units (see Note 2-"Limited Partnership Interests inBGC Holdings andNewmark 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 endedJune 30, 2021 , 31 thousand potentially dilutive securities were not included in the computation of fully diluted EPS because their effect would have been anti-dilutive. Also as ofJune 30, 2021 , 31.4 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 ofJune 30, 2021 . The fully diluted period-end spot share count was as follows (in thousands): As of June 30, 2021 Common stock outstanding 394,679 Partnership units 137,303 RSUs (Treasury stock method) 4,263 Other 3,037 Total 539,282 OnJune 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 common stock, which currently can be acquired upon the exchange of Cantor units owned inBGC 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 inBGC 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 inBGC 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. OnNovember 23, 2018 , in the ClassB 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 ClassB 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 inBGC Holdings , into shares of BGC Class B common stock. As ofJune 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 inBGC Holdings . Accordingly, the Cantor entities will not be entitled to receive 100 -------------------------------------------------------------------------------- Table of Contents any more shares of BGC ClassB Stock under this agreement than they were previously eligible to receive upon exchange of Cantor units. OnNovember 4, 2015 , partners ofBGC 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 ofBGC 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. OnDecember 14, 2016 , partners ofBGC 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. OnDecember 13, 2017 , theAmended 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 ofBGC Holdings intoBGC Holdings andNewmark Holdings , including: •an apportionment of the existing economic attributes (including, among others, capital accounts and post-termination payments) of eachBGC 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 exchangeableBGC Holdings unit together with a number of exchangeableNewmark 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 toLegacy 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 ofBGC Holdings units that are no longer outstanding, and permits the general partner ofBGC Holdings to determine the total number of authorizedBGC 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 onMarch 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. OnMarch 9, 2018 , we entered into theMarch 2018 Sales Agreement, pursuant to which we may 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 may be used for redemptions of limited partnership interests inBGC 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. As of the date of filing of this Form 10-Q, we have issued 17.6 million shares of BGC Class A common stock (or$210.8 million ) under theMarch 2018 Sales Agreement, and$89.2 million of stock is remaining for sale by us under theMarch 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. OnMarch 8, 2021 , we filed a replacement CEO Program shelf registration statement on Form S-3, which has not yet been declared 101 -------------------------------------------------------------------------------- Table of Contents 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 (inclusive of the$89.2 million of shares remaining for sale under the current CEO Program) 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 inBGC 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, orBGC 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 theMarch 2018 Sales Agreement. Further, we have an effective registration statement on Form S-4 filed onSeptember 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 ofJune 30, 2021 , we have issued an aggregate of 15.0 million shares of BGC Class A common stock under this Form S-4 registration statement. Additionally, onSeptember 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 ofJune 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 theBGC Partners, Inc. Dividend Reinvestment and Stock Purchase Plan. As ofJune 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. OnJune 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 ofJune 30, 2021 , the limit on the aggregate number of shares authorized to be delivered allowed for the grant of future awards relating to 86.4 million shares of BGC Class A common stock. OnOctober 20, 2020 , we filed a registration statement on Form S-3, which was declared effective onOctober 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. 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 ofJune 30, 2021 , the Company has issued 0.5 million shares of BGC Class A common stock, 0.1 million of RSUs and paid$27.3 million in cash related to such contingent payments. As ofJune 30, 2021 , 1.8 million shares of BGC Class A common stock, 0.2 million RSUs and$22.8 million in cash remain to be issued if the targets are met, net of forfeitures and other adjustments. DERIVATIVE SUIT OnOctober 5, 2018 , Roofers Local 149Pension Fund filed a putative derivative complaint in theDelaware Chancery Court , captioned Roofers Local 149Pension 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 theBerkeley Point acquisition from CCRE for$875 million and (ii) committed to invest$100 million for a 27% interest in Real 102 -------------------------------------------------------------------------------- Table of ContentsEstate, 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, onNovember 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 reBGC Partners, Inc. Derivative Litigation (Consolidated C.A. No. 2018-0722-AGB), and the complaint filed by Roofers Local 149Pension Fund onOctober 5, 2018 was designated as the operative complaint. In response to motions to dismiss filed by all defendants inDecember 2018 , Plaintiffs filed a motion for leave to amend the operative complaint inFebruary 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. OnMarch 19, 2019 , all defendants filed motions to dismiss the amended complaints, again on demand grounds. OnSeptember 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. OnFebruary 11, 2021 , following the close of discovery, the Company and the independent directors of the Board filed motions for summary judgement seeking dismissal of the case based on the discovery record, which plaintiffs have opposed. Argument was held on defendants' summary judgment motions onJune 22, 2021 , but no decision has yet been issued. If the Court does not rule in defendants' favor on these motions, trial is currently set forOctober 2021 . The Company continues to believe that the allegations pled against the defendants in the amended complaint are without merit and intends to defend against them vigorously as the case moves forward. However, as in any litigated matter, the outcome cannot be determined with certainty. PURCHASE OF LIMITED PARTNERSHIP INTERESTS Cantor has the right to purchase Cantor units fromBGC Holdings upon redemption of non-exchangeable FPUs redeemed byBGC Holdings upon termination or bankruptcy of the Founding/Working Partner. In addition, pursuant to Article Eight, Section 8.08, of theSecond 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 inBGC 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 byBGC 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). OnMarch 31, 2021 , Cantor purchased fromBGC 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 inBGC 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 ofJune 30, 2021 , there were 1.6 million FPUs inBGC Holdings remaining, whichBGC 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. JOINT SERVICES AGREEMENT WITH CANTOR InFebruary 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. InMay 2020 , the Audit Committee authorized us to extend the initial term of the short-term services agreement for an additional nine months. 103 -------------------------------------------------------------------------------- Table of Contents GUARANTEE AGREEMENT FROM MINT BROKERS Under rules adopted by the CFTC, all foreign introducing brokers engaging in transactions withU.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 withU.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. EffectiveApril 1, 2020 , these guarantees were transferred to Mint Brokers from CF&Co. During both the three months endedJune 30, 2021 , the Company recorded expenses of$31 thousand with respect to these guarantees. During both the six months endedJune 30, 2021 , the Company recorded expenses of$63 thousand with respect to these guarantees. BGC SUBLEASE FROM NEWMARK InMay 2020 , BGCU.S. OpCo entered into an arrangement to sublease excess space fromRKF 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 inNew York City . Under the terms of the sublease, BGCU.S. OpCo will pay a fixed rent amount of$1.1 million in addition to all operating and tax expenses attributable to the lease. In connection with the sublease, BGCU.S. OpCo paid$0.1 million and$0.1 million for the three months endedJune 30, 2021 and 2020, respectively. In connection with the sublease, BGCU.S. OpCo paid$0.4 million and$0.1 million for the six months endedJune 30, 2021 and 2020, respectively. DEBT REPURCHASE PROGRAM OnJune 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 ofCompany Debt Securities . Repurchases ofCompany 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 ofCompany 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 ofCompany 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 ofJune 30, 2021 , the Company had$50.0 million remaining from its debt repurchase authorization. PURCHASE OF CX FUTURES TRANSACTION OnJune 7, 2021 , theBoard and Audit Committee approved entry into an agreement between certain affiliates of BGC and Cantor for the sale to BGC of Cantor's futures exchange and related clearinghouse. OnJune 21, 2021 , BGC entered into a Purchase Agreement with Cantor, providing that at closing BGC will purchase the direct and indirect equity of each of (i)CFLP CX Futures Exchange Holdings, LLC , (ii)CFLP CX Futures Exchange Holdings, L.P. , (iii)CX Futures Exchange Holdings, LLC , (iv)CX Clearinghouse Holdings, LLC , (v)CX Futures Exchange, L.P. and (vi)CX Clearinghouse, L.P. , for a purchase price of approximately$4.9 million at closing, plus the cash held at closing by theFutures Exchange Group , and an earn-out, only payable out of BGC's portion of the profits of theFutures Exchange Group , capped at the amount Cantor contributed to theFutures Exchange Group prior to closing. The Futures Transaction closed onJuly 30, 2021 . 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. OnFebruary 5, 2020 andFebruary 25, 2021 , the Company'sBoard 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 104 -------------------------------------------------------------------------------- Table of Contents OnFebruary 22, 2021 , the Company grantedSean A. Windeatt 123,713 exchange rights with respect to 123,713 non-exchangeable LPUs that were previously granted toMr. Windeatt onFebruary 22, 2019 . The resulting 123,713 exchangeable LPUs are immediately exchangeable byMr. 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 byMr. Windeatt , for a payment of$178,266 for taxes when the LPU units are exchanged. OnApril 8, 2021 , the Compensation Committee approved the repurchase by the Company onApril 23, 2021 of 123,713 exchangeable BGC Holdings LPU-NEWs held byMr. Windeatt at the price of$5.65 , which was the closing price of our Class A common stock onApril 23, 2021 , and the redemption of 28,477 exchangeable BGC Holdings PLPU-NEWs held byMr. Windeatt for$178,266 , less applicable taxes and withholdings. OnApril 8, 2021 , the Compensation Committee approved the repurchase by the Company of the remaining 62,211 exchangeable BGC Holdings LPUs held byMr. Windeatt that were granted exchangeability onMarch 2, 2020 at the price of$5.38 , the closing price of Class A common stock onApril 8, 2020 . OnApril 28, 2021 , the Compensation Committee approved an additional monetization opportunity forMr. Merkel . EffectiveApril 29, 2021 , 108,350 ofMr. Merkel's 273,612 non-exchangeable BGC Holdings PSUs were redeemed for zero, 101,358 ofMr. 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 toMr. Merkel . OnApril 29, 2021 , the 108,350 shares of BGC Class A common stock were repurchased fromMr. Merkel at the closing price of our Class A common stock on that date, under our stock buyback program. OnJune 28, 2021 , (i) the Company exchanged 520,380 exchangeable LPUs held byMr. Lutnick at the price of$5.86 , which was the closing price of the Company's Class A common stock onJune 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 toMr. 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 issuedMr. 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 toMr. Lutnick ; and (iii) 1,131,774 H Units held byMr. 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. OnMarch 2, 2020 , the Company grantedStephen M. Merkel 360,065 exchange rights with respect to 360,065 non-exchangeable LPUs that were previously granted toMr. Merkel . The resulting 360,065 exchangeable LPUs were immediately exchangeable byMr. 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 byMr. Merkel , for a payment of$1,507,285 for taxes when the LPU units were exchanged. OnMarch 20, 2020 , the Company redeemed 185,300 of such 360,065 exchangeable LPUs held byMr. Merkel at the average price of shares of BGC Class A common stock sold under BGC's CEO Program fromMarch 10, 2020 toMarch 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. OnJuly 30, 2020 , the Company redeemed the remaining 174,765 exchangeable LPUs held byMr. Merkel at the price of$2.76 , the closing price of our Class A Common Stock onJuly 30, 2020 . This transaction was approved by the Compensation Committee. In connection with the redemption of the 185,300 exchangeable LPUs onMarch 20, 2020 , 122,579 PLPUs were redeemed for$661,303 for taxes. In connection with the redemption of the 174,765 LPUs onJuly 30, 2020 , 142,989 PLPUs were redeemed for$846,182 for taxes. OnMarch 2, 2020 , the Company grantedShaun D. Lynn 883,348 exchange rights with respect to 883,348 non-exchangeable LPUs that were previously granted toMr. Lynn . The resulting 883,348 exchangeable LPUs were immediately exchangeable byMr. Lynn for an aggregate of 883,348 shares of BGC Class A common stock. The grant was approved by the Compensation Committee. Additionally, the Compensation Committee approved the right to exchange for cash 245,140 non-exchangeable PLPUs held by Mr. Lynn, for a payment of$ 1,099,599 for taxes when the LPU units are exchanged. OnJuly 30, 2020 , the Company redeemed 797,222 exchangeable LPUs held byMr. Lynn at the price of$2.76 , the closing price of our Class A Common Stock onJuly 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. OnMarch 2, 2020 , the Company grantedSean A. Windeatt 519,725 exchange rights with respect to 519,725 non-exchangeable LPUs that were previously granted toMr. Windeatt . The resulting 519,725 exchangeable LPUs were immediately exchangeable byMr. 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 byMr. Windeatt , for a payment of$645,779 for taxes when the LPU units are exchanged. On August 105 -------------------------------------------------------------------------------- Table of Contents 5, 2020, the Company redeemed 436,665 exchangeable LPUs held byMr. Windeatt at the price of$2.90 , the closing price of our Class A common stock onAugust 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 withMr. Windeatt's LLP status. Additionally, onAugust 5, 2020 , the Company grantedMr. Windeatt 40,437 exchange rights with respect to 40,437 non-exchangeable LPUs that were previously granted toMr. Windeatt . The resulting 40,437 exchangeable LPUs were immediately exchangeable byMr. 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 byMr. Windeatt . OnAugust 5, 2020 , the Company redeemed these 40,437 exchangeable LPUs held byMr. Windeatt at the price of$2.90 , the closing price of our Class A common stock onAugust 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, onAugust 6, 2020 ,Mr. Windeatt was granted exchange rights with respect to 43,890 non-exchangeable Newmark Holding LPUs that were previously granted toMr. Windeatt . Additionally,Mr. Windeatt was granted the right to exchange for cash 17,068 non-exchangeableNewmark Holdings PLPUs held byMr. 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. OnAugust 6, 2020 , Newmark redeemed the 40,209Newmark Holdings exchangeable LPUs held byMr. Windeatt for an amount equal to the closing price of Newmark's Class A Common Stock onAugust 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 atAugust 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 withMr. Windeatt's LLP status. MARKET SUMMARY The following table provides certain volume and transaction count information for the quarterly periods indicated: June 30, March 31, December 31, September 30, June 30, 2021 2021 2020 2020 2020 Notional Volume (in billions) Total Fully Electronic volume 10,245 11,803 8,736 8,426 7,206 Total Hybrid volume¹ 61,989 67,913 59,165 64,298 63,873 Total Fully Electronic and Hybrid volume 72,234 79,716 67,901 72,724 71,079 Transaction Count (in thousands, except for days) Total Fully Electronic transactions 3,217 3,745 2,895 2,735 3,247 Total Hybrid transactions 1,152 1,348 1,129 1,115 1,333 Total Fully Electronic and Hybrid transactions 4,369 5,093 4,024 3,850 4,580 Trading days 63 61 64 64 63
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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$10.2 trillion for the three months endedJune 30, 2021 , compared to$7.2 trillion for the three months endedJune 30, 2020 . Our Hybrid volume for the three months endedJune 30, 2021 was$62.0 trillion , compared to$63.9 trillion for the three months endedJune 30, 2020 . OFF-BALANCE SHEET ARRANGEMENTS 106 -------------------------------------------------------------------------------- Table of Contents 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 withU.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 endedDecember 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 theU.S. GAAP guidance. RSUs provided to certain employees are accounted for as equity awards, and in accordance with theU.S. 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 theU.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 inBGC Holdings andNewmark 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 107 -------------------------------------------------------------------------------- Table of Contents 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 theU.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 endedJune 30, 2021 and 2020, we incurred equity-based compensation expense of$31.2 million and$2.4 million , respectively. During the six months endedJune 30, 2021 and 2020, we incurred equity-based compensation expense of$39.1 million and$25.4 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 endedJune 30, 2021 and 2020, we incurred equity-based compensation expense related to these LPUs of$16.7 million and$19.5 million , respectively. During the six months endedJune 30, 2021 and 2020, we incurred equity-based compensation expense related to these LPUs of$33.8 million and$35.8 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 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 ofJune 30, 2021 andDecember 31, 2020 , the aggregate balance of employee loans, net of reserve, was$370.8 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. TheJune 30, 2021 balance above excludes$14.5 million of employee loans classified as Assets held for sale as ofJune 30, 2021 . Compensation expense (benefit) for the above-mentioned employee loans for the three months endedJune 30, 2021 and 2020 was$19.1 million and$17.1 million , respectively. Compensation expense (benefit) for the above-mentioned employee loans for the six months endedJune 30, 2021 and 2020 was$34.7 million and$31.6 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 theU.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. 108 -------------------------------------------------------------------------------- Table of Contents 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 onJanuary 1, 2020 , represents a significant change from priorU.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 priorU.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 theU.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 our entities are taxed asU.S. partnerships and are subject to UBT in theCity 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 inBGC Holdings andNewmark 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 theU.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 theU.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 onDecember 22, 2017 , which includes the global intangible low-taxed income, GILTI, provision. This provision requires inclusion in the Company'sU.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 ofDecember 31, 2020 for additional information regarding these critical accounting policies and other significant accounting policies. 109 -------------------------------------------------------------------------------- Table of Contents 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 21.2 million shares and units during the second quarter and repurchased an additional 10.0 million shares so far in the third quarter. 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 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 BGCU.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, underDelaware law, dividends may be payable only out of surplus, which is our net assets minus our capital (as defined underDelaware 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 withU.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 110 -------------------------------------------------------------------------------- Table of Contents 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. *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 theJanuary 11, 2016 back-end merger with GFI. 111 -------------------------------------------------------------------------------- Table of Contents 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: *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 112 -------------------------------------------------------------------------------- Table of Contents 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 asU.S. partnerships and are subject to the Unincorporated Business Tax ("UBT") inNew York City . AnyU.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 includeU.S. federal, state, and local income taxes on the Company's allocable share of theU.S. results of operations. Outside of theU.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-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 113 -------------------------------------------------------------------------------- Table of Contents 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 newU.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. 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. 114 -------------------------------------------------------------------------------- Table of Contents OUR ORGANIZATIONAL STRUCTURE Stock Ownership As ofJune 30, 2021 , there were 348.8 million shares of BGC Class A common stock outstanding. OnJune 21, 2017 , Cantor pledged 10.0 million shares of BGC Class A common stock in connection with a partner loan program. OnNovember 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. OnNovember 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 ofJune 5, 2015 , by and betweenBGC Partners and Cantor. Pursuant to the Exchange Agreement, no additional consideration was paid toBGC Partners by Cantor or CFGM for the ClassB Issuance . The ClassB Issuance was exempt from registration pursuant to Section 3(a)(9) of the Securities Act. As ofJune 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 ofJune 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 56.8% 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. ThroughJune 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 millionApril 2008 distribution rights shares, and (ii) 1.5 millionFebruary 2012 distribution rights shares. As ofJune 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 millionApril 2008 distribution rights shares and 1.8 millionFebruary 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, BGCU.S. OpCo, which holds ourU.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 andBGC Holdings , and the limited partnership interests ofBGC Holdings are currently held by LPU holders,Founding Partners , and Cantor. We hold theBGC Holdings general partnership interest and theBGC Holdings special voting limited partnership interest, which entitle us to remove and appoint the general partner ofBGC Holdings , and serve as the general partner ofBGC Holdings , which entitles us to controlBGC Holdings .BGC Holdings , in turn, holds the BGCU.S. OpCo general partnership interest and the BGCU.S. OpCo special voting limited partnership interest, which entitle the holder thereof to remove and appoint the general partner of BGCU.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 BGCU.S. OpCo and BGC Global OpCo, all of which entitleBGC Holdings (and thereby us) to control each of BGCU.S. OpCo and BGC Global OpCo.BGC Holdings holds its BGC Global OpCo general partnership interest through a company incorporated in theCayman Islands ,BGC Global Holdings GP Limited . As ofJune 30, 2021 , we held directly and indirectly, through wholly-owned subsidiaries, 394.7 million BGCU.S. OpCo limited partnership units and 394.7 million BGC Global OpCo limited partnership units, representing approximately 75.3% of the outstanding limited partnership units in both BGCU.S. OpCo and BGC Global OpCo. As of that date,BGC Holdings held 129.2 million BGCU.S. OpCo limited partnership units and 129.2 million BGC Global OpCo limited partnership units, representing approximately 24.7% of the outstanding limited partnership units in both BGCU.S. OpCo and BGC Global OpCo. LPU holders,Founding Partners , and Cantor directly holdBGC Holdings limited partnership interests. SinceBGC Holdings in turn holds BGCU.S. OpCo limited partnership interests and BGC Global OpCo limited partnership interests, LPU holders,Founding Partners , and Cantor indirectly have interests in BGCU.S. OpCo limited partnership interests and BGC Global OpCo limited partnership interests. Further, in connection with the Separation and Distribution Agreement, limited partnership interests inNewmark Holdings were distributed to the holders of limited partnership interests inBGC Holdings , whereby each holder ofBGC Holdings limited partnership interests who at that time held aBGC Holdings limited partnership interest received a correspondingNewmark Holdings limited partnership interest, equal in number to aBGC Holdings limited 115 -------------------------------------------------------------------------------- Table of Contents partnership interest divided by 2.2 (i.e., 0.4545 of a unit inNewmark Holdings ). Accordingly, existing partners at the time of the Separation inBGC Holdings are also partners inNewmark Holdings and hold corresponding units issued at the applicable ratio. Thus, such partners now also have an indirect interest in Newmark OpCo. As ofJune 30, 2021 , excluding Preferred Units and NPSUs described below, outstandingBGC Holdings partnership interests included 72.3 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 repurchaseBGC 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 inBGC 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 ofJune 30, 2021 , there were 1.6 million FPUs remaining whichBGC 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. In order to facilitate partner compensation and for other corporate purposes, theBGC 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 ofBGC 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 ofJune 30, 2021 , there were 25.3 million such units granted and outstanding inBGC Holdings . OnJune 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 June 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 Cantor entities upon exchange of exchangeable LPUs inBGC 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. 116 -------------------------------------------------------------------------------- Table of Contents 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 ofBGC 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 ofBGC Holdings intoBGC Holdings andNewmark 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 ofBGC Holdings units that are no longer outstanding, and permits the general partner ofBGC Holdings to determine the total number of authorizedBGC 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 June 30, 2021. The diagram does not reflect the various subsidiaries of BGC, BGCU.S. OpCo, BGC Global OpCo, or Cantor, or the noncontrolling interests in our consolidated subsidiaries other than Cantor's units inBGC Holdings .* 117
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STRUCTURE OF BGC PARTNERS, INC. AS OF JUNE 30, 2021 [[Image Removed: bgcp-20210630_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 11.4% of the voting power, CFGM would hold 0.2% of the voting power, and the public stockholders would hold 88.4% of the voting power (and Cantor and CFGM's indirect economic interests 118
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Table of Contents in BGCU.S. and BGC Global would remain unchanged). The diagram does not reflect certain BGC Class A common stock andBGC 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) 25.3 million Preferred Units granted and outstanding toBGC Holdings partners (see "BGC Partners, Inc. Partnership Structure" herein); and (c) 45.5 million N Units granted and outstanding toBGC Holdings partners. The diagram reflects BGC Class A common stock andBGC Holdings partnership unit activity from January 1, 2021 through June 30, 2021 as follows: (a) 17.5 million shares of BGC Class A common stock repurchased by us; (b) 8.3 million LPUs redeemed for Newmark employees and executives; (c) 6.8 million LPUs for vested N Units; (d) an aggregate of 5.7 million LPUs granted byBGC Holdings ; (e) 4.7 million LPUs and FPUs redeemed or repurchased by us for cash; (f) 2.7 million LPUs forfeited; (g) 1.7 million shares of BGC Class A common stock issued for vested restricted stock units; (h) 1.5 million LPUs related to prior period adjustments; (i) 0.8 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 5.0 million of such shares remaining available for issuance by us under such Registration Statement; and (j) 9 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 six months ended June 30, 2021 under the March 2018 Sales Agreement pursuant to our Registration Statement on Form S-3 (Registration No. 333-223550) ($89.2 million of stock remains for sale by us under such sales agreement). As June 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. Should the Company decide to move forward with a corporate conversion, it will continue to work with regulators, lenders, and rating agencies.
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