April 13, 2017

Richard Repetto, CFA, Principal Collin Cook, Director

212-466-7906 212-466-8065
rrepetto@sandleroneill.com ccook@sandleroneill.com

A Dismal Quarter for Volatility But Volumes Fare Better

Exchange stocks appreciated in 1Q17 despite mixed volumes and lower volatility. Exchange stocks were up on
average 6% in 1Q17. CBOE was the top performer in the group, rising 10% (YTD +10%) as it closed its acquisition of Bats
Global Markets on February 28. CME was up 3% (YTD +1%) as ADV reached a record quarterly level in 1Q, while pricing
was likely unchanged QoQ. ICE increased 6% QoQ (YTD +6%), as interest rate ADV reached the highest level since 2Q13
(prior to ICEs acquisition of NYSE). NDAQ was up 3% QoQ (YTD +2%) despite generally soft volumes in 1Q and a soft,
seasonal backdrop for many of NDAQs non-transaction related businesses.

A dismal quarter for volatility as intra-day volatility sets a record low. The volatility headwind continued in 1Q17 with
(1) actual realized volatility at a low of 6.6%, (2) implied volatility, as measured by the CBOE's VIX, declining 17% QoQ to
11.7 and (3) the actual to implied volatility averaging 0.57x, down from a dismal 0.60x in 4Q16. Also, a measure of S&P
500 intra-day volatility was 0.57, the lowest level recorded in at least 20 years (our data goes back to 1Q95). While trading
volumes generally held up better (i.e. CME 1Q17 ADV was a record 17.2 million contracts & ICE had its best futures ADV in
nearly 4 years), the cause of the muted volatility remains largely an unanswered question. Most trading industry personnel
point at numerous factors driving low volatility such as (1) structural issues (possibly HFT and/or the popularity of ETFs,
etc.), (2) economic factors (i.e. policies of the central banks to keep rates low, the large amount of uninvested cash on the
sidelines), or even (3) political issues (i.e. awaiting the outcome of new Presidential policies, etc.). Bottomline, low volatility
continues to negatively impact market makers while the precise cause(s) remains uncertain.

Despite dismal environment, the execution services stocks increased meaningfully in 1Q. The average return for the
execution services space was 16% in 1Q17 (+12% excluding KCG), despite likely mixed results for the sector. KCG was
the top performer in the group, rising 35% in 1Q (YTD +28%) after announcing that it had received an unsolicited bid from
VIRT for $18.50-$20 per share on March 15. MKTX rose 28% QoQ (YTD +23%) in the wake of strong fixed income industry
volumes to start the year, which drove MKTXs ADNV to a record level in 1Q. BGCP increased 11% QoQ (YTD +6%) after
announcing that it had "confidentially" filed for an IPO of its real estate business in January, suggesting that the path towards
unlocking shareholder value had begun. VIRT increased 7% (YTD -4%), despite a soft macro backdrop in 1Q after reporting
a 4Q16 earnings beat. ITG rose 3% QoQ (YTD -2%) despite soft commentary on U.S. revenue capture though trends in
the international business was positive.

Our 2018 estimates are generally ahead of consensus due to the Sandler ONeill Research view regarding corporate
tax rates in 2018. Excluding KCG, where we are materially above consensus, our 2018 EPS estimates for the exchanges
and trading companies are 8% above the consensus, on average. However, if we remove the anticipated benefit from the
lowering of the U.S. Federal corporate tax rate (as Sandler ONeill Research adopted a policy of assuming the federal
corporate tax rate declines to 25% beginning in 2018) our 2018 EPS estimates are, on average, 2% below the consensus
(again, excluding KCG).

Sandler O'Neill + Partners, L.P. All rights reserved. Sandler O'Neill does and seeks to do business with
companies covered in its research reports. As a result, investors should be aware that Sandler O'Neill may
have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as
only a single factor in making their investment decision. Please see "Important Disclosures" and the analyst
certifications in the Appendix of this report.
SOP Estimates Excluding Corporate Tax Rate Cuts vs. Consensus
Consensus
SOP 2018E SOP 2018E (no decrease in U.S. corp. tax rate) 2018E
Ticker EPS Tax rate $ v. Cons. % v. Cons. EPS Tax rate $ v. Cons. % v. Cons. EPS
Exchanges
CBOE $4.10 29.4% $0.42 11.4% $3.69 36.4% $0.01 0.3% $3.68
CME $5.88 27.5% $0.57 10.7% $5.17 36.3% -$0.14 -2.6% $5.31
ICE $3.69 23.0% $0.27 7.9% $3.38 29.5% -$0.04 -1.2% $3.42
NDAQ $4.96 24.8% $0.39 8.5% $4.55 31.0% -$0.02 -0.4% $4.57
Trading companies
BGCP $1.09 10.3% -$0.03 -2.7% $1.03 15.1% -$0.09 -8.0% $1.12
ITG $1.33 19.1% -$0.02 -1.5% $1.24 24.0% -$0.11 -8.1% $1.35
KCG $1.68 29.0% $0.65 63.1% $1.46 38.0% $0.43 41.7% $1.03
MKTX $5.03 27.0% $0.27 5.7% $4.61 33.0% -$0.15 -3.2% $4.76
VIRT $1.43 25.5% $0.24 20.2% $1.16 35.5% -$0.03 -2.5% $1.19

Source: Sandler O'Neill estimates and FactSet

April 13, 2017 2

 Table of Contents
Earnings Calendar 4
Earnings Surprise History 5
SOP vs. Consensus EPS Estimates 5

Exchange Industry Overview 6

CBOE Holdings, Inc. 10
CME Group Inc. 12
Intercontinental Exchange, Inc. 14
Nasdaq, Inc. 16

Trading Company Overview 18

BGC Partners, Inc. 20
Investment Technology Group, Inc. 22
KCG Holdings, Inc. 24
MarketAxess Holdings Inc. 26
Virtu Financial, Inc. 28
Note: Stock prices are as of April 12, 2017

April 13, 2017 3

First Quarter 2017 Earnings Calendar - April / May 2017
Monday Tuesday Wednesday Thursday Friday
April 17 April 18 April 19 April 20 April 21
KCG 1Q17 Earnings call 9:00am
Dial-in: (800) 378-1475
Passcode: 7262449

April 24 April 25 April 26 April 27 April 28

NDAQ 1Q17 Earnings call 8:00am CME 1Q17 Earnings call 8:30am
Dial-in: (866) 302-4765

May 1 May 2 May 3 May 4 May 5

ITG 1Q17 Earnings call 8:00am BGCP 1Q17 Earnings call 10:00am
Dial-in: (844) 881-0134

ICE 1Q17 Earnings call 8:30am

May 8 May 9 May 10 May 11 May 12

CBOE 1Q17 Earnings call 8:30am
Dial-in: (877) 255-4313

TBD: MKTX, VIRT

Source: Sandler ONeill and company information

April 13, 2017 4

Earnings Surprise History
Last 20 Quarters
Upside Met Downside
Company Ticker Surprise Consensus Surprise

Exchanges:
CBOE Holdings CBOE 80% 10% 10%
CME Group CME 65% 25% 10%
Intercontinental Exchange ICE 85% 15% 0%
Nasdaq NDAQ 85% 5% 10%

Execution Services:
BGC Partners BGCP 35% 55% 10%
Investment Technology Group ITG 70% 0% 30%
KCG Holdings KCG 60% 10% 30%
MarketAxess MKTX 70% 15% 15%
Virtu Financial VIRT 43% 14% 43%
Note: All data vs. FactSet consensus estimates, VIRT surprise history only includes 7 quarters as public company.
Source: FactSet & Sandler O'Neill

Sandler O'Neill Versus Consensus

1Q17 Est. 2017 Est. 2018 Est.
Company Name Ticker SOP Cons. SOP Cons. SOP Cons.

Exchanges
CBOE Holdings, Inc. CBOE $0.70 > $0.69 $3.13 < $3.17 $4.10 > $3.68
CME Group Inc. CME $1.21 > $1.20 $4.82 < $4.87 $5.88 > $5.31
Intercontinental Exchange, Inc. ICE $0.74 > $0.73 $3.02 = $3.02 $3.69 > $3.42
Nasdaq, Inc. NDAQ $1.05 < $1.06 $4.18 = $4.18 $4.96 > $4.55

Trading Companies
BGC Partners, Inc. BGCP $0.23 = $0.23 $0.95 < $0.98 $1.09 < $1.12
Investment Technology Group, Inc. ITG $0.05 < $0.07 $0.58 > $0.57 $1.33 < $1.35
KCG Holdings, Inc. KCG -$0.05 < -$0.04 $0.65 > $0.47 $1.68 > $1.02
MarketAxess Holdings Inc. MKTX $0.95 < $0.96 $3.90 > $3.89 $5.03 > $4.76
Virtu Financial, Inc. VIRT $0.16 < $0.19 $0.99 > $0.97 $1.43 > $1.19
Source: Sandler O'Neill and FactSet

April 13, 2017 5

Exchanges Overview:

Exchange stocks appreciated in 1Q17 despite mixed volumes and lower volatility. Exchange stocks were up
on average 6% in 1Q17. CBOE was the top performer in the group, rising 10% (YTD +10%) as it closed its acquisition
of Bats Global Markets on February 28. CME was up 3% (YTD +1%) as ADV reached a record quarterly level in
1Q, while pricing was likely unchanged QoQ. ICE increased 6% QoQ (YTD +6%), as interest rate ADV reached the
highest level since 2Q13 (prior to ICEs acquisition of NYSE). NDAQ was up 3% QoQ (YTD +2%) despite generally
soft volumes in 1Q and a soft, seasonal backdrop for many of NDAQs non-transaction related businesses.

Exchange Stock Performance

Stock Return (ex-div.) Total Return (incl. div.)
Ticker Price 1Q17 YTD 2Q17TD 1Q17 YTD 2Q17TD
CBOE $81.53 10% 10% 1% 10% 11% 1%
CME $116.59 3% 1% -2% 4% 2% -2%
ICE $59.83 6% 6% 0% 6% 6% 0%
NDAQ $68.68 3% 2% -1% 4% 3% -1%
Average 6% 5% -1% 6% 5% -1%

S&P 500 2,345 6% 5% -1% 6% 5% -1%

XLF 23.20 2% 0% -2% 2% 0% -2%
Source: Bloomberg

Average volatility declined in 1Q17. In 1Q17, the average closing value of the VIX was 11.7, down 17% from 4Q16
and 43% lower YoY. Volatility was muted throughout the quarter as volatility declined in January and February and
increased modestly in March. By month, the VIX averaged 11.6 in January, 11.5 in February and 11.9 in March (Note:
the average VIX is up 7% MoM in March-to-date to 12.7). Additionally, realized volatility on the S&P 500 hit a record
low in 1Q17 of 5.6 (-18% QoQ, -63% YoY) while the ratio of actual to implied volatility declined to 0.57x from 0.60x
in 4Q16. Lower volatility is typically a negative for equity volumes as well as trading activity in equity index futures.

Monthly Average Closing Value of the VIX

"Taper Risk of Global Concerns Over
May '10 European Debt Asian Market U.S.
50 Tantrum" Economic Strength of 14
"Flash Crash" Crisis & US Debt Correction Presidential
Slowdown
VIX Average ClosingValue

45 Downgrade Global 13
Election
Economy
40 12
U.S. Equity ADV (B)

35 11
30 10
25 9
20 8
15 7
10 6
5 5
0 4
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17

Source: Bloomberg

Equity volumes declined 3% in 1Q17. First quarter consolidated tape volume of 6.8 billion shares per day was
down 3% sequentially (-20% YoY). In 1Q17, ICE had the leading market share of U.S. cash equities at 22.7% (its
lowest level since 2Q14) while BATS ranked second with market share of 19.2%. NDAQ ranked third amongst the
exchanges with market share of 17.6%.

April 13, 2017 6

U.S. Equity Average Daily Share Volume
9 8.6
8 7.3
6.9 7.0 6.9 7.1 7.3 7.1 6.8
7 6.1 6.4 6.6
5.7
6
ADV (M)

5
4
3
2
1
0
1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

1Q17
Tape A Tape C Tape B
Source: ICE press releases

Option volumes increased modestly in 1Q17. Multi-listed equity option volume (excluding index option volume)
as reported by the OCC averaged 14.6 million contracts per day in 1Q17, up 1% sequentially but down 4% YoY.
NDAQ claimed the leading market share of equity options at 42.5% while CBOE had market share of 24.9% and
ICE had market share of 14.9%. Meanwhile, index option volumes increased 11% sequentially in 1Q17 to 2.0 million
contracts per day (+7% YoY).

U.S. Equity Options ADV and YoY Change

16.5 15%
U.S. Equity Option ADV (mm)

16.0 10%
15.5

YoY%Change
5%
15.0
14.5 0%
14.0 -5%
13.5
-10%
13.0
12.5 -15%
12.0 -20%
4Q13

4Q15
1Q13

2Q13

3Q13

1Q14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

1Q16

2Q16

3Q16

4Q16

1Q17

U.S. Equity Options ADV YoY Change

Source: Options Clearing Corporation

Exchange listed derivatives volumes were generally higher in 1Q17. In 1Q17, CMEs average daily volume
increased 5% QoQ (+1 YoY) to a record 17.1 million contracts per day with record volume in interest rates and
metals. ADV across all product categories except for equities and energy increased QoQ despite the decline in
volatility. CBOEs VIX futures volumes increased 8% QoQ in 1Q17 (+18% YoY). Meanwhile, ICE futures & options
ADV increased 11% QoQ (+4% YoY) as energy products were up 5% QoQ, while Ags & metals ADV was up 17%
QoQ and financials ADV was up 18% QoQ.

April 13, 2017 7

Selected 1Q17 Exchange Volume and Market Indicators

Exchange 1Q16 4Q16 1Q17 Seq. Chg. YoY Chg. 2014 2015 2016 '14/'13 '15/'14 '16/'15
CME Group 16.94 16.33 17.10 4.7% 0.9% 13.66 13.96 15.65 9.0% 2.2% 12.1%
ICE Energy Contracts 2.80 2.73 2.85 4.5% 1.6% 2.26 2.42 2.57 -11.2% 7.3% 6.2%
ICE Ags Contracts 0.45 0.34 0.39 16.6% -11.5% 0.32 0.36 0.40 -1.2% 12.9% 11.3%
ICE Total Financial Contracts 2.57 2.35 2.80 19.0% 9.1% 2.22 2.01 2.20 -20.8% -9.4% 9.7%
U.S. Cash Equities (Tape A, B, & C) 8,552 7,059 6,843 -3.1% -20.0% 6,426 6,972 7,416 3.3% 8.5% 6.4%
OCC Equity & Index Options 17.1 16.2 16.6 2.2% -3.2% 2.5 2.5 2.3 -9.4% 0.9% -6.6%
CBOE (Total) 4.77 4.85 5.20 7.1% 8.9% 5.26 4.66 4.70 11.6% -11.4% 0.9%
VIX 20.5 14.1 11.7 -17.1% -42.9% 14.2 16.7 15.8 -0.4% 17.6% -5.1%
Source: company websites and releases

Open interest increased on both a QoQ and YoY basis at CME, CBOE and ICE. In 1Q17, CME open interest
was a record 114.1 million contracts (+11% QoQ, +8% YoY). The YoY increase in open interest at CME was driven
by interest rates (+18% YoY), equities (+2% YoY) and FX (+13% YoY). ICEs open interest increased on a YoY basis
in 1Q17 with total open interest rising 6% YoY. Every product category except ags & metals increased YoY with
the largest YoY increase coming in ICEs interest rate complex (+12% YoY). At CBOE's futures exchange, CFE, OI
increased 42% YoY to a record 520k.

QoQ and YoY Open Interest Comparison

QoQ % YoY %
CME (000s) 1Q16 4Q16 1Q17 Chg. Chg.
Interest Rates 56,253.6 58,491.3 66,422.3 14% 18%
Equities 8,083.8 7,593.9 8,214.2 8% 2%
Energy 28,858.9 26,313.9 27,094.0 3% -6%
FX 2,032.1 2,099.3 2,296.0 9% 13%
Commodities 7,966.9 6,338.8 7,864.5 24% -1%
Metals 2,311.7 2,092.7 2,239.5 7% -3%
Total 105,506.9 102,929.9 114,130.5 11% 8%
QoQ % YoY %
ICE (000s) 1Q16 4Q16 1Q17 Chg. Chg.
Energy 37,831.0 35,769.0 39,158.0 9% 4%
Agriculture 4,037.0 3,921.0 3,931.0 0% -3%
Total Commodities 41,868.0 39,690.0 43,089.0 9% 3%
Interest Rates 19,293.0 13,943.0 21,585.0 55% 12%
Total Financials 24,687.0 19,413.0 27,502.0 42% 11%
Total 66,555.0 59,103.0 70,591.0 19% 6%

QoQ % YoY %
CBOE (000s) 1Q16 4Q16 1Q17 Chg. Chg.
CFE 367.2 396.7 520.2 31% 42%
Source: company documents

April 13, 2017 8

Exchange Revenue and Margin Forecasts (M)
Revenue Mix

1Q16 4Q16 1Q17E Seq. % Chg. YoY % Chg. 1Q16 4Q16 1Q17E
CBOE
Transaction fees $99 $95 $119 25% 20% 69% 67% 63%
Listing fees $0 $0 $0 NA NA 0% 0% 0%
Market data fees $8 $9 $21 143% 169% 6% 6% 11%
Other $36 $39 $47 21% 30% 25% 27% 25%
Net revenue $143 $143 $187 31% 31% 100% 100% 100%
Pre-tax income $82 $85 $103 21% 26%
Pre-tax margin 57.0% 59.7% 55.0% -469 bps -203 bps
EPS $0.61 $0.63 $0.70 11% 15%
CME
Transaction fees $796 $769 $792 3% -1% 85% 84% 85%
Listing fees $0 $0 $0 NA NA 0% 0% 0%
Market data fees $102 $100 $103 2% 0% 11% 11% 11%
Other $36 $44 $40 -11% 11% 4% 5% 4%
Net revenue $934 $913 $934 2% 0% 100% 100% 100%
Pre-tax income $636 $601 $643 7% 1%
Pre-tax margin 68.1% 65.9% 68.8% 295 bps 70 bps
EPS $1.20 $1.14 $1.21 6% 1%
ICE
Transaction fees $529 $472 $492 4% -7% 46% 41% 42%
Listing fees $103 $105 $106 1% 3% 9% 9% 9%
Market data fees $477 $515 $525 2% 10% 41% 45% 45%
Other $45 $46 $47 2% 4% 4% 4% 4%
Net revenue $1,154 $1,138 $1,170 3% 1% 100% 100% 100%
Pre-tax income $634 $617 $638 3% 1%
Pre-tax margin 54.9% 54.2% 54.5% 32 bps -40 bps
EPS $0.74 $0.71 $0.74 4% 1%
NDAQ
Transaction fees $138 $150 $149 -1% 8% 26% 25% 25%
Listing fees $143 $167 $166 -1% 16% 27% 28% 28%
Market data fees $105 $105 $110 5% 5% 20% 18% 19%
Other $148 $177 $169 -4% 14% 28% 30% 28%
Net revenue $534 $599 $594 -1% 11% 100% 100% 100%
Pre-tax income $230 $242 $237 -2% 3%
Pre-tax margin 43.1% 40.4% 39.9% -47 bps -314 bps
EPS $0.91 $0.95 $1.05 10% 15%
Note: for CBOE, transaction fees and net revenues are net of royalty fees and trading volume incentives.
Source: company documents and Sandler O'Neill estimates

April 13, 2017 9

CBOE Holdings, Inc. (CBOE, HOLD)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.61 $0.60 $0.58 $0.63 $2.42 12.3% 33.7x
2017E $0.70 $0.78 $0.79 $0.87 $3.13 29.3% 26.0x
2018E $0.98 $1.03 $0.99 $1.11 $4.10 31.0% 19.9x

Source: Company reports and Sandler ONeill calculations

Revenue should increase following closing of BATS acquisition. We model total net revenue of $187 million
(+31% QoQ, +31% YoY) as CBOE closed the acquisition of BATS on February 28. We are forecasting a 25%
increase in net transaction revenue in 1Q17 to $119 million due to the one month impact of BATS transaction
revenues. We forecast market data revenues of $21 million, exchange services and other fees of $21 million, access
fees of $13 million, regulatory fees of $10 million and other revenue of $4 million.

Operating expenses should increase sequentially. We assume total expenses of $80 million, +28% QoQ. Core
operating expenses (excluding D&A) should increase 25% QoQ to $67 million. We project operating margins of
57.1% up from 48.9% in 4Q16 and 49.7% in 1Q16. We are modeling full year core expenses of $347.

CBOE believes one plus one will equal more than two when merging with BATS. CBOE CEO Ed Tilly and
new COO Chris Concannon have given numerous examples where they believe the combined CBOE BATS, once
integrated, should provide value greater than the sum of the parts. Combining the BATS ETF listing and trading
with CBOEs index and futures capabilities is one example. In addition, the distinct customer bases/geographic
dispersion, product differentiation, and technology capabilities should lead to highly interesting and accretive
opportunities for the combined firm.

Plenty to discuss on the 1Q earnings call. Due to the closing of the BATS acquisition in February, we expect
much of the earnings call will be focused on this topic. Specific details well be looking for include: (1) updated
expense guidance for the FY17, (2) updates to synergy targets (recall CBOE anticipates realizing $50 million in
synergies by year three post-close and $65 million by year five-post close), (3) additional guidance regarding interest
expense, share count and D&A, and (4) the outlook across CBOEs product sets following the low levels of volatility
experienced across asset classes in 1Q.

April 13, 2017 10

CBOE Holdings, Inc. Earnings Model ($MM)
1Q16 4Q16 1Q17E 2016 2017E 2018E
Operating revenues:
Net transaction fees 98.8 98.8 118.6 384.4 579.1 641.7
Access fees 13.2 12.9 12.9 52.4 51.6 51.6
Exchange services & other fees 11.4 12.0 21.3 46.3 141.5 175.7
Market data fees 8.0 8.8 21.4 33.2 165.8 199.0
Regulatory fees 9.1 9.0 9.5 36.5 38.0 38.9
Other 2.6 5.1 3.5 13.6 14.3 14.6
Total net revenues 162.3 163.2 187.2 566.3 990.3 1,121.7
Seq. % chg. 6.5% 4.5% 14.7% 2.0% 74.9% 13.3%
Operating expenses:
Employee costs 26.9 29.0 36.9 111.7 196.6 222.6
Depreciation & amortization 11.6 9.8 13.7 43.2 74.4 79.0
Technology support services 5.4 5.5 7.1 22.2 38.0 42.4
Outside services 13.3 12.7 14.0 53.5 63.2 67.7
Travel & promotional expenses 2.5 3.4 2.7 11.0 11.8 11.6
Facilities costs 1.5 1.4 1.7 5.7 8.3 9.0
Change in fair value of contingent consideration liability to re 0.0 0.0 0.3 0.0 2.7 0.8
Other 1.3 1.2 3.8 4.4 34.4 42.1
Cost synergies 0.0 -7.5 -27.5
Total operating expenses 62.5 63.0 80.3 251.5 421.7 447.7
Seq. % chg. 0.9% 2.4% 27.5% 5.0% 67.7% 6.2%
Operating income 80.6 79.8 106.9 314.7 568.6 674.0
Total other income/(expense) 1.0 5.4 -4.0 7.3 -31.1 -35.3
Income before taxes 81.6 85.2 102.9 322.0 537.5 638.7
Provision for income taxes 31.7 33.8 38.6 125.0 202.8 187.9
Net income 49.9 51.4 64.3 197.0 334.7 450.9
Diluted EPS for all stockholders $0.61 $0.63 $0.70 $2.42 $3.13 $4.10
Diluted shares 81.8 81.3 91.6 81.4 106.9 110.1
Operating margin 49.7% 48.9% 57.1% 48.8% 48.6% 50.8%
Pretax margin 50.3% 52.2% 55.0% 49.9% 48.3% 50.5%
Effective tax rate 38.8% 39.7% 37.5% 38.8% 39.7% 37.8%

Source: Company reports and Sandler ONeill estimates

April 13, 2017 11

CME Group, Inc. (CME, BUY)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $1.20 $1.14 $1.05 $1.14 $4.53 10.8% 25.8x
2017E $1.21 $1.19 $1.21 $1.21 $4.82 6.4% 24.2x
2018E $1.51 $1.50 $1.43 $1.45 $5.88 22.0% 19.9x

Source: Company reports and Sandler ONeill calculations

We expect 1Q17 revenues to be up QoQ, matching last years record 1Q. We forecast total revenue of $934
million (+2% QoQ, unchanged YoY). Transaction revenues of $792 million should rise (+3% QoQ, -1% YoY) lower
than the increase in 1Q17 ADV (a record 17.1 mm contracts), which was up 5% QoQ and 1% YoY. We expect a the
RPC to remain unchanged QoQ (-3% YoY) at $0.730 as unfavorable mix shifts (lower-priced IR volume was 51% of
the mix in March vs. 49% in December and premium-priced energy volume was 15% of the mix in March vs. 17% in
December) and volume discounts (financial ADV was up 16% in March vs. December) are offset by pricing tweaks
CME implemented at the beginning of the year. We forecast non-transaction related revenues to decline 1% QoQ
as a 2.5% QoQ increase in data revenues is offset by a 24% QoQ reduction in other revenues due to a $5 million
one-time software sale which occurred in 4Q.

Expenses should seasonally decline in 1Q17. Were forecasting operating expenses of $304 million for 1Q17 (-6%
QoQ, +1% YoY). CMEs 1Q is normally lighter than 4Q due to lower marketing expenses (4Q marketing expense is
seasonally elevated). Expenses ex-licensing fees should come in at $273 million, down 6% QoQ (+4% YoY). Were
projecting operating margins of 67.4% for the quarter, up from 64.6% in 4Q. Note: CMEs FY17 expense guidance
is for 1% growth in expenses ex-licensing and other fee agreements to $1.09 billion.

Volumes set a quarterly record in 1Q. In 1Q16, ADV at CME was a record 17.1 million, up 5% QoQ and up 1% YoY.
Strong volume was driven by interest rates +10% QoQ and commodities +6% QoQ. Additionally, metals ADV was
up 5% QoQ and FX increased 1% QoQ. Meanwhile, equities volumes (-4% QoQ) and energy volumes (-3% QoQ)
declined sequentially. Volume records were set for both interest rates (9.2 million per day) and metals (512,000 per
day). Quarter end open interest at CME stood at a quarter-end record 114 million contracts, up 8% YoY.

The CME machine keeps rolling along, but - what to watch for? We expect to get CMEs views on (1) updates to
guidance for 2017 expenses, (2) updated expectations for market data revenue as CME invests in organic growth
in that line, (3) new product roll-outs and investments, (4) the outlook for investment income following the approval
to house customer accounts with the Fed and (5) the impact of the decision to shut down the companys European
exchange.

April 13, 2017 12

CME Group Earnings Model ($MM)
1Q16 4Q16 1Q17E 2016 2017E 2018E
Revenues:
Clearing and transaction fees 796.1 768.5 791.9 3,036.4 3,150.8 3,327.5
Market data and information services 102.4 100.1 102.6 406.5 429.2 452.8
Processing services 0.0 0.0 0.0 0.0 0.0 0.0
Access and communication fees 21.6 23.7 23.9 91.4 95.7 96.7
Other 14.1 20.6 15.7 60.9 62.8 63.1
Total revenues 934.2 912.9 934.1 3,595.2 3,738.6 3,940.1

Expenses:
Compensation and benefits 131.9 133.1 136.4 523.7 531.5 542.3
Communications 6.7 6.9 6.9 26.8 27.6 28.2
Technology support services 17.4 18.4 18.2 70.8 72.9 74.7
Professional fees and outside services 30.6 40.2 36.2 143.3 144.7 146.2
Depreciation and amortization 32.6 31.1 30.8 125.3 123.2 123.2
Occupancy and building operations 21.1 20.0 20.0 81.1 80.0 81.4
Licensing and other fee agreements 39.0 32.5 31.4 135.8 130.4 142.7
Marketing and other 23.4 40.7 24.4 110.1 111.9 115.1
Total operating expenses 302.7 322.9 304.4 1,216.9 1,222.1 1,253.7
Operating income 631.5 590.0 629.8 2,378.3 2,516.5 2,686.4
Non-operating income & expense:
Investment income 17.8 27.7 37.7 87.8 201.3 308.7
Interest expense -29.8 -31.6 -31.6 -123.5 -126.4 -126.4
Equity in net gains (losses) of unconsolidated subsidiaries 26.8 27.8 27.8 110.2 111.2 111.2
Total non-operating 4.8 11.2 13.0 30.9 53.7 66.0

Income before income taxes 636.3 601.2 642.8 2,409.2 2,570.2 2,752.4
Income tax provision -231.2 -213.9 -233.3 -872.9 -933.0 -756.9
Net income 405.1 387.3 409.5 1,536.3 1,637.2 1,995.5
Net income attributable to non-controlling interest 0.0 0.0 0.0 0.0 0.0 0.0
Net Income attributable to CME Group 405.1 387.3 409.5 1,536.3 1,637.2 1,995.5
Fully Diluted EPS $1.20 $1.14 $1.21 $4.53 $4.82 $5.88
Diluted shares 338.5 339.3 339.3 338.9 339.3 339.3

ADV by Product (contracts in mm)

Interest Rates 8.25 8.30 9.17 7.52 8.38 8.70
Equities 3.56 2.88 2.77 3.06 2.94 3.29
Energy 2.54 2.59 2.50 2.43 2.45 2.53
FX 0.94 0.88 0.89 0.86 0.90 0.90
Commodities 1.21 1.19 1.26 1.32 1.29 1.33
Metals 0.45 0.49 0.51 0.46 0.51 0.55
Total 16.94 16.33 17.10 15.65 16.46 17.30
RPC by Product
Interest Rates $0.501 $0.491 $0.492 $0.499 $0.492 $0.492
Equities $0.726 $0.691 $0.704 $0.702 $0.704 $0.704
Energy $1.203 $1.099 $1.129 $1.141 $1.129 $1.129
FX $0.767 $0.804 $0.818 $0.793 $0.818 $0.818
Commodities $1.321 $1.336 $1.365 $1.318 $1.365 $1.365
Metals $1.597 $1.486 $1.471 $1.545 $1.471 $1.471
Total $0.756 $0.731 $0.730 $0.754 $0.741 $0.740
Source: Company reports and Sandler ONeill estimates

April 13, 2017 13

Intercontinental Exchange, Inc. (ICE, BUY)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.74 $0.69 $0.64 $0.71 $2.78 17.6% 21.6x
2017E $0.74 $0.76 $0.75 $0.77 $3.02 8.6% 19.9x
2018E $0.91 $0.93 $0.90 $0.93 $3.69 22.2% 16.3x

Source: Company reports and Sandler ONeill calculations

Revenues should reach a record level in 1Q17. We expect record total revenue in 1Q17 of $1,170 million, up 3%
QoQ (+1% YoY). Transaction revenues of $492 million are expected to rise 4% QoQ (-7% YoY) driven by higher
futures volumes relative to 4Q, particularly in ICEs interest rate products category (ADV +28% QoQ, +20% YoY).
Partially offsetting the volume related upside was a decline in financials RPCs during 1Q (-6% QoQ, -29% YoY) which
was likely due to increased volumes and FX moves during the quarter. Data services revenue should increase 2%
QoQ to $525 million. Recall ICE guided to at least 6% YoY growth in data revenues in 2017 on a constant currency
basis. We forecast a slight increase in both Listings revenue (+1% QoQ) and other revenue (+2% QoQ) in 1Q17.

Expenses should remain unchanged QoQ. We are modeling 1Q17 adjusted operating expenses of $493 million,
which is flat QoQ and slightly below ICEs guidance for operating expenses of $495-505 million. We model
compensation expense up 2% QoQ due to seasonal compensation increases though the compensation ratio should
remain unchanged at 21%. We forecast a modest decline across ICEs other 5 expense lines (-$6 million QoQ).
ICEs operating margin should rise to 57.8% as the modest revenue increase should improve profitability.

A number of announcements within the data business during 1Q. On February 15, ICE announced that it had
reached an agreement to acquire TMX Atrium from TMX. TMX Atrium provides low latency connectivity across 30
trading venues in 12 countries and is expected to become part of ICE Data Services and be integrated with SFTI.
While terms of the deal were not disclosed and the financial impact of TMX Atrium is expected to be immaterial,
coupled with the IDMS sale to FactSet on March 31, should provide for some intricacies within the data revenue line
with regards to 2Q17 (recall ICE guided to a $12 million QoQ decline in data revenue in 2Q due to the IDMS sale).

Plenty of discussion points for 1Q17 call. We expect to further discussion and updates on (1) the M&A outlook
following the failure of the LSE/DB1 acquisition, (2) the significance of Euronext moving its clearing business from
LSE to ICE, (3) revenue & volume outlook in 2017 given the strength we have seen in rates trading YTD, (4) updates
on expense & cost synergy guidance in 2017, (5) market data revenue guidance following the announced acquisition
of TMX Atrium and the divestiture of IDMS on March 31, (6) the pace of potential buybacks (following the $200
million in anticipated 1Q repurchases) and (7) cash outlook following the BM&F Bovespa & CETIP merger close
earlier this year.

April 13, 2017 14

Intercontinental Exchange Earnings Model ($MM)
1Q16 4Q16 1Q17E 2,016 2017E 2018E
Revenues:
Energy 243 234 240 913 951 995
Agriculture 62 47 56 228 219 223
Financial 134 0 121 134 489 523
U.S. Cash Equities & Options 90 0 75 170 320 330
Transaction and clearing, net 529 472 492 1,925 1,978 2,071
Data services 477 515 525 1,978 2,097 2,233
Listings 103 105 106 419 427 440
Other 45 46 47 177 183 183
Total revenues 1,154 1,138 1,170 4,499 4,685 4,928
Seq. % chg. 31.9% 5.6% 2.8% 34.8% 4.1% 5.2%

Operating expenses:
Compensation and benefits 236 237 243 941 960 967
Technology and communication 92 97 97 374 382 388
Professional services 32 36 32 137 130 130
Rent and occupancy 18 18 18 70 71 71
Acquisition-related transaction costs 10 4 2 34 8 8
Selling, general and administrative 22 33 33 116 130 133
Adjusted D&A 66 68 68 275 272 272
Incremental NYSE cost synergies 0 0 0 0 0 0
Adjusted operating expenses 476 493 493 1,947 1,952 1,969
Seq. % chg. 30.8% 1.9% 0.1% 42.6% 0.3% 0.8%

Operating income 678 645 677 2,552 2,733 2,959

Total other income, net (44) (28) (39) (138) (153) (153)
Income before income taxes 634 617 638 2,414 2,580 2,806
Income tax expense 185 182 188 722 761 645
Net income from continuing operations 449 435 450 1,692 1,819 2,161
Net income attributable to non-controlling interest (8) (7) (7) (27) (26) (32)
Net income from continuing ops to ICE common 441 428 443 1,665 1,793 2,129

Income from discontinued ops 0 0 0 0 0 0

Net income 441 428 443 1,692 1,819 2,161

Diluted EPS from continuing ops $0.74 $0.71 $0.74 $2.78 $3.02 $3.69

Weighted avg. diluted shares outstanding 108.6 106.1 106.1 107.3 107.3 107.3

Operating margin 58.8% 56.7% 57.8% 56.7% 58.3% 60.1%

Pre-tax margin 54.9% 54.2% 54.5% 53.7% 55.1% 57.0%
After-tax margin 38.9% 38.2% 38.4% 37.6% 38.8% 43.9%
Effective tax rate 29.2% 29.5% 29.5% 29.9% 29.5% 23.0%

OPERATING METRICS

Credit OTC Commissions $40 $34 $37 $143 $148 $158

Average Daily Volume:

Futures - Commodities (000s) 3,247 3,064 3,242 2,971 3,149 3,271
Futures - Financials (000s) 2,568 2,354 2,803 2,204 2,804 2,986
Total Futures 5,816 5,418 6,045 5,175 5,953 6,257
U.S. Options (000s) 3,553 3,553 3,553 2,726 2,053 2,117
U.S. Equities Matched (M) 1,688 1,688 1,688 1,793 1,706 1,744

Revenue Per Contract:

Futures - Commodities $1.47 $1.40 $1.41 $1.32 $1.32 $1.32
Futures - Financials $0.57 $0.48 $0.45 $2.27 $2.29 $2.29
U.S. Options $0.15 $0.14 $0.18 $0.15 $0.17 $0.17
U.S. Cash $0.05 $0.05 $0.05 $0.05 $0.05 $0.05

Source: Company reports and Sandler ONeill estimates

April 13, 2017 15

Nasdaq, Inc. (NDAQ, BUY)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.91 $0.91 $0.91 $0.95 $3.68 20.4% 18.7x
2017E $1.05 $0.98 $1.06 $1.10 $4.18 13.6% 16.4x
2018E $1.29 $1.23 $1.18 $1.26 $4.96 18.7% 13.9x

Source: Company reports and Sandler ONeill calculations

Net revenues should decline slightly sequentially due to seasonality. We expect net revenues of $594 million,
a decrease of 1% QoQ due to declines in Market Technology revenues and Corporate Services revenues. We
expect Market Technology revenues to decline 14% QoQ due to typical seasonality. For the listings business, we
forecast a 2% QoQ decline in revenue as NDAQs total number of corporate listings has remained relatively flat
while NDAQ should experience modest seasonal headwinds in 1Q. We forecast net Market Services revenues to
remain unchanged QoQ at $220 million as volumes were mixed across NDAQs product categories while RPCs
generally declined in 1Q. Information Services revenues are expected to increase 5% QoQ due to pricing increases
in Market Data and a generally favorable market backdrop for the Global Index business.

Expenses should remain unchanged QoQ. For 1Q17 we have modeled operating expenses of $324 million
(unchanged QoQ). We expect compensation to increase by $3 million to $171 million. In terms of the other expense
lines, we expect a $4 million QoQ decline due to lighter marketing expense and professional & contract services
and as NDAQs remaining $22 million in synergies continue to be realized. For the full year, NDAQ has guided to
$1,260- 1,341 million in operating expenses (midpoint $1,285) while our estimate is $1,272 million.

Expecting resumption of repurchase activity in 1Q. During 4Q, NDAQ did not engage in any repurchase activity
as the companys focus remained on deleveraging. For 1Q17, we anticipate a reinstatement of buyback activity
(were forecasting that NDAQ repurchases 733k shares for $50 million) as the focus of NDAQs repurchase activity
remains on managing the companys share count. Coupled with the $0.32 quarterly dividend, were forecasting total
capital returns of $103 million.

NDAQ recently announced a couple of Market Technology deals. In February, NDAQ announced that it
will power EBS BrokerTecs market surveillance efforts with NDAQs SMARTS Market Surveillance technology.
Additionally, NDAQ announced it renewed its Market Technology deal with Hong Kong Exchanges & Clearing
Limited. NDAQ is expected to upgrade HKExs technology (to be completed in 2H18) and the agreement extends
the two companies existing relationship for an additional five years.

What to watch for on the call: 1) While NDAQ does not typically comment on individual transactions we anticipate
that M&A will be a topic of discussion on the 1Q earnings call particularly in the wake of the failed LSE/DB1 merger
and media reports suggesting that SGX is weighing potential partnerships or collaborations. 2) We expect an update
on FY17 expense guidance and the progress NDAQ has made in realizing the remaining $22 million in anticipated
expense synergies from its 4 acquisitions last year. 3) We anticipate an update on Market Technology revenues
following a number of Market Technology related announcements over the past few months.

April 13, 2017 16

Nasdaq, Inc. Earnings Model ($MM)

1Q16 4Q16 1Q17E 2015 2016 2017E 2018E

Revenues:
Market Services 572 594 578 2,083 2,255 2,435 2,556
Corporate Services 143 167 166 562 634 677 710
Information Services 133 135 142 512 539 574 611
Market Technology 57 77 66 244 276 297 313
Total revenues 905 973 952 3,401 3,704 3,983 4,190

Cost of revenues:
Liquidity rebates 283 286 276 982 1,090 1,177 1,238
Brokerage, clearance & exchange fees 88 88 83 329 337 368 393
Total cost of revenues 371 374 358 1,311 1,427 1,545 1,631

Revenues less cost of revenues 534 599 594 2,090 2,277 2,438 2,559

Expenses:
Compensation & benefits 152 168 171 590 652 670 698
Marketing & advertising 6 7 7 28 29 28 29
D&A (ex-intangible amortization) 21 22 22 77 88 88 88
Professional & contract services 35 43 41 147 153 163 170
Computer operations & data communications 25 31 31 95 111 124 129
Occupancy 20 23 23 86 87 92 95
General & administrative 14 22 22 64 72 88 91
Regulatory 7 8 8 27 29 32 32
Synergies 0 0 -1 0 0 -14 -22
Total expenses 280 324 324 1,114 1,221 1,272 1,310

Operating income 254 275 270 976 1,056 1,166 1,249

Non-operating expense -24 -33 -33 -102 -119 -131 -128
Pre-tax income 230 242 237 874 937 1,035 1,121
Income tax provision 77 81 59 292 316 323 278
Net income 153 161 178 582 621 712 843

Fully diluted EPS $0.91 $0.95 $1.05 $3.40 $3.68 $4.18 $4.96

Avg. fully diluted shares outstanding 168 169 170 171 169 170 170

Operating margin 47.6% 45.9% 45.5% 46.7% 46.4% 47.8% 48.8%

Pretax margin 43.1% 40.4% 39.9% 41.8% 41.2% 42.5% 43.8%
Effective tax rate 33.5% 33.5% 25.0% 33.4% 33.7% 31.2% 24.8%

OPERATING METRICS

U.S. Equities
Consolidated ADV (shares in B) 8,552 7,059 6,843 6,912 7,349 7,216 7,645
Nasdaq market share 18% 17% 18% 19% 17% 18% 18%
Nasdaq ADV (shares in B) 1,536 1,213 1,205 1,300 1,276 1,300 1,376
Revenue capture (per 1000 shares) $0.47 $0.50 $0.47 $0.51 $0.49 $0.49 $0.50

U.S. Options
Consolidated ADV (contracts in M) 15.3 14.4 14.6 14.8 14.4 13.9 14.2
Nasdaq market share 24% 39% 43% 0.3 0.3 0.4 0.4
Nasdaq ADV (contracts in M) 3.7 5.7 6.2 3.7 4.6 5.9 5.9
Revenue capture (per contract) $0.16 $0.16 $0.15 $0.16 $0.16 $0.15 $0.15

European Equities
ADV ($ BN) 3.6 3.2 3.2 3.5 3.2 3.2 3.3
Revenue capture (per $000) $0.11 $0.11 $0.11 $0.10 $0.11 $0.11 $0.11

European Derivatives
ADV (contracts in 000s) 446,109 332,496 338,313 380,161 372,844 353,624 397,591
Revenue capture (per $000) $0.40 $0.47 $0.42 $0.43 $0.42 $0.44 $0.44
Source: Company reports and Sandler ONeill estimates

April 13, 2017 17

Trading Company Overview:

Despite dismal environment, the execution services stocks increased meaningfully in 1Q. The average return
for the execution services space was 16% in 1Q17 (+12% excluding KCG), despite likely mixed results for the sector.
KCG was the top performer in the group, rising 35% in 1Q (YTD +28%) after announcing that it had received an
unsolicited bid from VIRT for $18.50-$20 per share on March 15. MKTX rose 28% QoQ (YTD +23%) in the wake of
strong fixed income industry volumes to start the year, which drove MKTXs ADNV to a record level in 1Q. BGCP
increased 11% QoQ (YTD +6%) after announcing that it had "confidentially" filed for an IPO of its real estate business
in January, suggesting that the path towards unlocking shareholder value had begun. VIRT increased 7% (YTD
-4%), despite a soft macro backdrop in 1Q after reporting a 4Q16 earnings beat. ITG rose 3% QoQ (YTD -2%)
despite soft commentary on U.S. revenue capture though trends in the international business was positive.

Trading Company Stock Performance

Stock Return (ex-div.) Total Return (incl. div.)
Price 1Q17 YTD 2Q17TD 1Q17 YTD 2Q17TD
BGCP $10.85 11% 6% -4% 13% 8% -4%
ITG $19.33 3% -2% -5% 3% -2% -5%
KCG $16.92 35% 28% -5% 35% 28% -5%
MKTX $180.82 28% 23% -4% 28% 23% -4%
VIRT $15.35 7% -4% -10% 8% -2% -10%
Average 16% 10% -5% 17% 11% -5%

S&P 500 2,345 6% 5% -1% 6% 5% -1%

XLF 23.20 2% 0% -2% 2% 0% -2%
Source: Bloomberg

Primary dealer fixed income trading fell QoQ. In the first quarter, U.S. average weekly fixed income volume
reported by primary dealers to the NY Federal Reserve declined 4% QoQ to $986 billion per day but was 3%
higher YoY. On a sequential basis, treasury volumes were down 2% from 4Q16 to $540 billion, corporate bond
volumes increased 11% to $117 billion, agency bond volumes increased 8% to $51 billion, and mortgage-backed
bond volumes were down 14% from 4Q16 levels to $287 billion. The implications for firms with significant rate, credit
and mortgage trading businesses will likely depend on how the mix of their offerings compare to the specific product
volume trends.

Average Daily Fixed Income Volumes Reported by Primary Dealers

$1,600
$1,400
Average Daily Volume (BN)

$1,200
$1,000
$800
$600
$400
$200
$0
1Q01
3Q01
1Q02
3Q02
1Q03
3Q03
1Q04
3Q04
1Q05
3Q05
1Q06
3Q06
1Q07
3Q07
1Q08
3Q08
1Q09
3Q09
1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
1Q16
3Q16
1Q17

Govt Corp. Fed Agency MBS Muni ABS

Source: Bloomberg

April 13, 2017 18

FINRA ATS data shows steady increase in ITG market share during 1Q. According to FINRAs weekly ATS
volume data, ITGs market share of NMS Tier 1 securities averaged 4.13% between the week of May 16, 2014 and
the week of July 24, 2015 (prior to the announcement of the settlement with the SEC regarding the operations of
ITGs dark pool). Since that time, market share has averaged 2.43% (-170 bps). In 1Q17, ITGs average market
share increased 32 bps from 2.87% in 4Q to 3.19%.

ITG's FINRA ATS NMS Tier 1 Volume (M) and Market Share
200 6.0%
Total Weekly Shares (mm)

180 5.5%
160 5.0%

ATS Market Share

140 4.5%
120 4.0%
100 3.5%
80 3.0%
60 2.5%
40 2.0%
20 1.5%
0 1.0%
2-Apr-15
2-Jan-15

24-Apr-15
15-May-15
5-Jun-15

17-Jul-15
7-Aug-15
28-Aug-15

9-Oct-15
31-Oct-15
20-Nov-15
11-Dec-15
1-Jan-16

4-Mar-16

15-Apr-16
6-May-16
27-May-16

8-Jul-16
29-Jul-16
19-Aug-16
9-Sep-16

21-Oct-16
11-Nov-16
2-Dec-16
23-Dec-16

3-Feb-17
30-Jan-15
20-Feb-15
13-Mar-15

26-Jun-15

18-Sep-15

22-Jan-16
12-Feb-16

25-Mar-16

17-Jun-16

30-Sep-16

13-Jan-17

24-Feb-17
17-Mar-17
NMS Tier 1 Total Shares Market Share
Source: FINRA and Sandler O'Neill

FINRA data sheds further light on off-exchange volume. During 2Q16, FINRA began disseminating weekly
trading data for OTC non-ATS venues (i.e. internalizers and wholesalers). By combining this data with FINRAs
weekly ATS trading data we can develop a more complete picture of trading activity conducted off-exchanges. During
the most recent week for which we have data for all NMS securities (the week ended March 10), OTC Non-ATS
volume made up ~25% of U.S. equity volume traded while ATS (dark pool) volume comprised 13% and volume
traded on exchanges made up ~62% of the market. Looking at the mix since FINRA began disseminating the data,
we can see that it is fairly consistent on a week-by-week basis.

U.S. Equity Market Volume Mix

Volume Mix Most Recent Week Volume Mix By Week
100%

90%

80%
OTC Non-ATS 70%
Volume (i.e.
internalizers / 60%
wholesalers)
50%
25%
40%
Exchange
Traded Volume 30%
62%
ATS Volume 20%
13%
10%

0%
8-Apr

10-Mar
1-Jul
15-Jul
29-Jul
6-May
20-May

4-Nov
18-Nov
2-Dec
16-Dec
30-Dec
7-Oct
21-Oct
3-Jun
17-Jun

12-Aug
26-Aug
9-Sep
23-Sep

13-Jan
27-Jan
10-Feb
24-Feb
22-Apr

OTC Non-ATS Volume (i.e. internalizers / wholesalers) ATS Volume Exchange Traded Volume

Source: FINRA and Bats Global Markets

April 13, 2017 19

BGC Partners, Inc. (BGCP, BUY)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.18 $0.19 $0.21 $0.25 $0.83 26.5% 13.1x
2017E $0.23 $0.22 $0.24 $0.26 $0.95 14.5% 11.4x
2018E $0.27 $0.26 $0.26 $0.29 $1.09 14.7% 9.9x

Source: Company reports and Sandler ONeill calculations

Pre-tax distributable earnings should be around the high-end of initial guidance. Our 1Q17 non-GAAP EPS
estimate for BGCP is $0.23. On March 30, BGCP announced that pre-tax distributable earnings would be "around
the high-end" of its initial guidance range, implying $0.23 in EPS..

Revenue should increase 4% QoQ. We project $698 million in revenues, just under the high-end of BGCPs
guidance range for 1Q17 revenues of $655-700 million, which is consistent with updated guidance. Based on industry
volume proxies, typical seasonality and the impact of acquisitions, we forecast BGCP financial services brokerage
revenue to rise 13% QoQ to $391 million. Real Estate brokerage traditionally declines in 1Q due to normal seasonal
patterns, thus we forecast an 8% QoQ decline in real estate brokerage revenue to $231 million. Overall, we expect
a 5% QoQ increase (+10% YoY) in BGCPs brokerage revenue to $622 million (brokerage accounted for 88% of
4Q16 revenue).

Expenses should increase QoQ as the compensation ratio ticks up QoQ. We are modeling total expenses of
$598 million (+6% QoQ, +5% YoY). Our model assumes a compensation ratio of 62.5%, up from 59.8% in 4Q16.
Were forecasting pre-tax margins of 17.0% for 1Q17, down from 19.2% in the prior quarter but up from 13.8% a
year ago.

Still awaiting details on real estate IPO. In February, under the JOBS Act, BGCP disclosed it made a confidential
filing of a draft S-1 to the SEC for an IPO of its Real Estate Services business New Grubb Knight Frank (NGKF).
The JOBS act allows for companies to privately go through the process of correcting/amending their S-1 until they
are a short period away from going public. At that time, all prior versions are made public. While we're unclear of
how far along NGKF is in the draft S-1 process, still this marked the first outwardly tangible step BGCP has made to
unlock shareholder value following its sale of eSpeed to Nasdaq in 2013. Based on our estimates, we believe the
Real Estate business could be valued at ~$1.7 billion ($3.75-$4.00 per BGCP share).

BGCP completed its acquisition of Besso Insurance Group at the end of February. BGCP announced that
it had completed its acquisition of Besso Insurance, a London based insurance broker, on February 28 for a total
purchase price of 70.5 million ($88 million) in cash and stock. Besso generated 45 million in revenue ($56 million)
in 2016 and the transaction is expected to be accretive upon closing. This established a new vertical for BGCP, after
establishing real estate in 2011. We expect BGCP to follow a similar strategy and attempt to roll-up small/medium
sized insurance brokers similar to its strategy with real estate.

April 13, 2017 20

BGC Partners, Inc. Earnings Model ($MM)
1Q16 4Q16 1Q17E 2016 2017E 2018E
Revenues:
Total brokerage revenues 567.9 594.5 621.6 2,320.1 2,536.1 2,711.9
Market data and software solutions 12.3 12.9 13.2 49.5 53.6 55.4
Real estate management services 46.1 55.8 53.0 196.8 228.6 240.5
Fees from related parties, interest and other revenues 33.8 9.9 10.1 62.4 40.4 40.4
Total revenues 660.1 673.2 697.9 2,628.8 2,858.8 3,048.2
Seq. % chg. -2.2% 4.6% 3.7% 1.4% 8.7% 6.6%
YoY % chg. 17.1% -0.2% 5.7%

Expenses:
Compensation & employee benefits 405.5 402.6 436.2 1,621.1 1,772.1 1,874.6
Non-compensation expenses 163.8 160.4 162.0 646.0 661.0 680.9
Total expenses 569.3 563.0 598.2 2,267.1 2,433.2 2,555.6
Seq. % chg. -4.6% 1.4% 6.3% -0.6% 7.3% 5.0%
YoY % chg. 16.5% -5.7% 5.1%

Pre-tax distributable earnings 90.8 129.1 118.6 420.6 501.2 568.2

Non-controlling interest 0.1 1.2 1.2 1.8 4.8 4.8
Provision for income taxes 13.6 19.9 18.4 64.0 75.8 59.7
Post-tax distributable earnings 77.0 108.0 99.0 354.8 420.6 503.7
Net interest expense on convertible notes 2.6 0.0 0.0 5.2 0.0 0.0

Earnings per share: $0.18 $0.25 $0.23 $0.83 $0.95 $1.09

Fully diluted weighted average common shares 434.9 433.4 437.7 433.8 444.3 462.4

Pretax margin 13.8% 19.2% 17.0% 16.0% 17.5% 18.6%

Tax rate 15.0% 15.4% 15.5% 15.2% 15.1% 10.5%

BROKERAGE REVENUE:
Rates 118.5 116.1 133.5 467.7 540.1 575.1
FX 78.0 70.8 92.0 298.8 305.6 302.1
Credit 84.5 62.3 63.9 291.3 256.9 275.6
Equities and other asset classes 51.2 42.0 46.2 177.9 186.9 199.0
Energy and commodities 67.5 54.1 55.5 226.0 223.1 239.3
Leasing and other services 106.0 144.5 133.7 514.2 587.1 619.0
Real estate capital markets 62.1 104.7 96.8 344.1 436.3 501.8
Total 567.9 594.5 621.6 2,320.1 2,536.1 2,711.9
Source: Company reports and Sandler ONeill estimates

April 13, 2017 21

Investment Technology Group, Inc. (ITG, HOLD)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.05 ($0.02) ($0.08) $0.16 $0.11 48.9% 175.8x
2017E $0.05 $0.17 $0.16 $0.21 $0.58 427.3% 33.3x
2018E $0.33 $0.34 $0.30 $0.35 $1.33 129.3% 14.5x

Source: Company reports and Sandler ONeill calculations

Revenues expected to decline on soft U.S. results. We are looking for revenues of $118 million, down 1% QoQ
(-5% YoY). The decline is entirely due to softer U.S. results despite a 4% QoQ improvement in ADV to 151 million
shares as revenue capture is expected decline to 37 mils (-10% QoQ, -15% YoY) due to increased sell-side and
passive activity in 1Q17. International commissions should grow 3% QoQ (+17% YoY) to $58 million which implies
average daily international commissions of 932k (+5% QoQ, +15% YoY). Overall, North American revenues of $70
million should be down 3% QoQ (-15% YoY) and Europe and Asia-Pac revenue of $48 million should be up 3%
QoQ (+16% YoY).

Expenses should increase QoQ but decline YoY. We are modeling 1Q17 operating expenses of $117 million,
up 4% QoQ (-5% YoY). We assume a comp ratio of 39.2%, up from 35.5% in 4Q16 and total compensation of $46
million (+9% QoQ, -6% YoY). Fixed non-comp expenses should remain unchanged QoQ (-9% YoY). Due to our
forecast for the North America segment to report a pre-tax loss in 1Q17, we're forecasting a modest tax benefit for
the quarter of -$0.1 million.

Market share gains continue to make progress. ITG's market share of consolidated tape volume was 2.30% in
March, up 6 bps MoM. This follows a MoM gain in market share in February but a MoM decline in January which
was attributed to increased rebalance activity in December. We acknowledge that calculating market share based
on overall industry volumes could be misleading, as ITG does not generally realize the benefit of liquid, low-priced
stocks and algorithmic flow. Still, we believe it could be an indication that ITG is making small but steady progress
in getting clients to re-engage and back to pre-SEC fine levels in July 2015 of 280-290 bps.

Expect a progress report on ITGs strategic plan. On its 4Q16 earnings call, CEO Frank Troise reported the
progress that ITG had made on its $40 million, 2 year strategic plan for the company. By the end of 2016 the company
had made several new hires (18, 10 of which had started by YE16) and begun adding new technology capabilities.
We expect a further update on the plan on the 1Q17 call. The goal of the plan is to achieve run rate revenues of
$600 million exiting 2018 and a 3%+ market share in the U.S. ITG also expects the U.S. segment to be profitable
exiting 2Q17.

M&A could be another topic for the 1Q earnings call. During 1Q17, one of ITGs competitors, Convergex,
announced that it had reached an agreement to be acquired by COWN for $116 million and KCG announced it had
received a non-binding, unsolicited bid from VIRT. We think M&A could be a topic of discussion on the 1Q earnings
call in the wake of this announcement and as ITG works its way through a turnaround amidst a challenging macro
backdrop for the execution services space.

April 13, 2017 22

Investment Technology Group, Inc. Earnings Model ($MM)
1Q16 4Q16 1Q17E 2016 2017E 2018E
Revenue:
Commissions & fees 99.0 99.3 98.1 376.5 415.1 468.1
Recurring 22.2 18.7 18.7 81.9 74.8 74.8
Other 3.5 1.6 1.6 8.2 6.3 6.3
Total revenues 124.7 119.6 118.4 466.6 496.2 549.1
Seq. % chg. 7.0% 14.8% -1.0% -11.5% 6.3% 10.7%
Expenses:
Compensation & benefits 49.7 42.4 46.4 185.4 192.9 206.8
Transaction processing 22.8 24.5 25.1 90.3 97.4 102.8
Occupancy & equipment 14.0 14.3 14.3 56.2 57.5 58.0
Telecommunications & DP services 14.8 13.3 13.4 56.6 54.0 55.4
Other G&A 20.9 17.2 17.2 74.6 69.4 70.8
Interest expense 0.5 0.5 0.5 2.2 2.2 2.2
Total expenses 122.7 112.3 117.0 465.4 473.4 496.0
Seq. % chg. 2.7% 2.3% 4.2% -5.1% 1.7% 4.8%
Income before taxes 2.0 7.3 1.4 1.2 22.8 53.1
Income tax expense (benefit) 0.1 2.0 -0.1 -2.4 3.2 10.1
Net income (loss) 1.8 5.3 1.6 3.6 19.6 43.0
Diluted EPS $0.06 $0.16 $0.05 $0.11 $0.58 $1.33
Diluted shares outstanding 33.1 34.0 33.9 33.3 33.5 32.4
Margin Analysis
Pre-tax margin 1.6% 6.1% 1.2% 0.3% 4.6% 9.7%
Effective tax rate 6.6% 27.0% -10.5% -191.7% 14.1% 19.1%
U.S. Revenue Drivers
Broker Dealer Rev per U.S. Share $0.0043 $0.0041 $0.0037 $0.0042 $0.0039 $0.0040
ITG U.S. ADV (shares in MM) 161.8 144.6 150.9 138.1 164.7 190.8
Revenue by Geography:
U.S. 66.3 56.0 53.1 229.7 235.8 266.3
Canada 16.1 16.2 16.6 61.8 66.2 72.7
Europe 31.1 33.7 34.4 125.9 137.8 148.9
Asia Pac 10.8 13.4 14.0 48.0 55.3 60.2
Corporate 0.4 0.3 0.3 1.3 1.2 1.2
Total 124.7 119.6 118.4 466.7 496.3 549.3
Source: Company reports and Sandler ONeill estimates

April 13, 2017 23

KCG Holdings, Inc. (KCG, BUY)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.35 $0.38 ($0.20) $2.47 $2.85 48.5% 6.0x
2017E ($0.05) $0.19 $0.20 $0.31 $0.65 -77.2% 26.2x
2018E $0.47 $0.45 $0.37 $0.39 $1.68 158.5% 10.1x

Source: Company reports and Sandler ONeill calculations

Market making conditions deteriorate in 1Q17. Volatility declined (VIX averaged 11.7, -17% QoQ) and KCGs
dollar volume traded dropped slightly (-1% QoQ) in 1Q17, as other key metrics such as (1) realized volatility of
6.6% (down from 8.5% in 4Q16) , (2) actual to implied volatility (0.57x down from prior quarters 0.60x) and (3) intra-
day volatility (0.57% as measured by the SPX Intraday volatility) all were the lowest levels in at least 3 years. We
optimistically expect KCGs revenue capture to improve slightly to 0.87 bps from 0.83 bps reported in 4Q16 and
below the prior 4Q16 trailing 8 quarter average of 0.93 bps.

KCGs agency trading businesses will also feel the impact of the unfriendly market conditions. On the agency
side, we assume a slightly fall in trading revenue to $42.8 million, down 6% QoQ (-19% YoY). However, we think
Bondpoint revenue ($10 million estimate, up from an estimated $8 million in 4Q16) could rise given the strength of
fixed income volumes with Bondpoint volume up an estimated +26% QoQ (+37% YoY) in 1Q17. Overall, we expect
total (gross) revenue of $247 million, down 1% sequentially (excluding $331 million of BATS share sales gains in
4Q16) and down 27% YoY and a loss of $0.05 per share (net revenues of $148 million, unchanged QoQ, -38% YoY).

We expect fixed expenses to fall slightly but efficiency efforts need to progress. We forecast operating
expenses of $252 million, down 7% QoQ (-12% YoY). This assumes a comp ratio of 42%, down from 49% (excluding
BATS gains) in 4Q16. We are modeling non-personnel fixed expenses of $91 million, down from the $96 million
reported in the prior quarter. Communications and data expense of $38 million should be down slightly from 4Q16s
$39 million, but above the 1Q16-3Q16 levels due to the addition of Neonet. While revenue can improve in a friendlier
volatility environment, KCG needs to continue to make progress on its efficiency efforts in order to move directionally
towards their 10% ROE goal.

KCG disclosed it received an unsolicited, non-binding bid from VIRT. After the close on March 15th, KCG
announced that its board had received an unsolicited bid from VIRT for $18.50-20.00 per share in cash. According
to the statement from KCG, KCG's Board of Directors is reviewing the proposal in the context of KCG's plans to
create shareholder value. With KCG's stock trading at an average discount of 26% to its TBV of $18.72 in March
prior to the disclosure of the VIRT bid, we believe the Board will need to seriously consider VIRT's offer.

Stock repurchases could have picked up in 1Q17 before bidding news was disclosed. We estimate there will
be ~66 million diluted shares outstanding in 1Q17 based on the timing of the GA stock swap (BATS shares for KCG
shares). We suspect share repurchases will resumed early in 1Q17 prior to the stock spiking on the March 15 news
that VIRT had made a non-binding, unsolicited bid for KCG. We forecast KCG used $19.5 million to repurchase
1.4 million shares in 1Q17.

April 13, 2017 24

KCG Holdings, Inc. Earnings Model ($MM)
1Q16 4Q16 1Q17E 2016 2017E 2018E
Revenues
Trading revenue 330.0 245.9 245.2 1,059.4 1,127.2 1,268.1
Net interest 0.1 0.6 0.6 1.6 2.3 2.3
Investment income (loss) and other 5.8 334.1 1.4 383.9 5.4 5.4
Total revenues 335.9 580.5 247.2 1,444.9 1,134.9 1,275.7

Net revenues 240.5 478.5 148.0 1,054.4 732.5 854.9

Expenses:
Compensation & benefits 97.6 72.4 62.2 295.1 296.0 337.7
Execution & clearance fees 73.6 75.9 74.1 295.3 300.3 312.4
Depreciation & amortization 21.9 22.8 21.6 88.8 89.2 90.2
Communications & data processing 35.7 39.2 38.0 148.0 149.9 150.6
Payments for order flow 12.7 15.2 15.1 54.8 61.1 63.8
Occupancy & equipment 9.0 9.8 8.2 37.9 32.7 32.7
Business development 1.1 1.3 1.1 5.3 5.2 5.5
Debt interest expense 9.5 9.4 9.4 37.2 37.5 37.5
Collaterlaized financing interest 9.2 11.0 9.9 40.4 41.0 44.7
Professional fees 6.1 4.3 4.3 19.8 17.1 17.5
Other 9.2 9.4 8.0 35.3 37.0 38.4
Expenses 285.5 270.7 252.0 1,058.0 1,067.0 1,131.0
"Fixed" operating expenses 190.0 168.6 152.9 667.5 664.6 710.2

Earnings before taxes 50.5 309.9 -4.8 386.9 67.9 144.7

Income taxes 19.2 113.7 -1.8 143.2 25.8 42.0
Income from continuing operations, net of tax 31.3 196.2 -3.0 243.7 42.1 102.7
Loss from discontinued items, net of tax 0.0 0.0 0.0 0.0 0.0 0.0

EPS from continuing operations $0.35 $2.47 -$0.05 $2.85 $0.65 $1.68

Diluted shares 89.6 79.4 66.0 85.5 64.9 61.3

Profitability Analysis:
Pretax margin (on net revenue) 21.0% 64.8% -3.3% 36.7% 9.3% 16.9%
Comp ratio 39.0% 49.1% 42.0% 42.2% 40.4% 39.5%
Effective tax rate 38.0% 36.7% 38.0% 37.0% 38.0% 29.0%

Operating Metrics
Market Making Segment:
KCG U.S. Equity Market Making ADNV ($ millions) $30,888 $28,414 $28,065 $27,887 $29,570 $33,054
Reported revenue capture (bp) 1.130 0.830 0.872 0.929 0.939 0.939
Global Execution Services Segment:
Algorithmic & EMS (shares in millions) 0.0 0.0 0.0 0.0 0.0 0.0
KCG Bond Point ADNV ($ billions) $192 $210 $263 $202 $267 $299
Source: Company reports and Sandler ONeill estimates

April 13, 2017 25

MarketAxess Holding, Inc. (MKTX, HOLD)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.77 $0.88 $0.82 $0.88 $3.34 8.8% 54.5x
2017E $0.95 $1.03 $0.93 $0.99 $3.90 16.8% 46.7x
2018E $1.24 $1.31 $1.23 $1.24 $5.03 29.0% 36.2x

Source: Company reports and Sandler ONeill estimates

We expect revenue hit record levels despite pricing declines as volume reached a record level in 1Q. We are
modeling 1Q17 revenue of a record $102 million, up 8% QoQ. Driving the sequential increase is a pick-up in market
volumes as market share seasonally declined during 1Q. We calculate USHG market share was 15.9% (-128 bps
QoQ, +102 bps YoY) and USHY was 6.9% (-52 bps QoQ, +43 bps YoY). Pricing is expected to decline materially
QoQ (-$10 per million to $197 per million) as MKTX guided to softer pricing due to mix shifts within its USHG bucket.

Pricing guidance suggests 5% QoQ decline in 1Q17 fee per million (FPM). In MKTX's volume release it noted
that the preliminary total variable transaction fee per million for 1Q17 was $197 (-5% QoQ, -3% YoY). MKTX noted
that the decline was primarily due to mix shifts within USHG trading towards bonds with shorter YTMs and larger
trade sizes which we believe has been driven by 1) the movement in yields experienced during 1Q and 2) the heavy
level of new issuance in the quarter which has likely driven trade sizes higher. Our model calls for a 10% reduction in
USHG pricing to $166 per million. Meanwhile, we expect other credit pricing to decline 1% QoQ to $256 per million,
while liquid products pricing should remain unchanged at $40.

Operating expenses should increase as margins should contract modestly. Our forecast is for 1Q operating
expenses of $48.3 million (+9% QoQ, +9% YoY). This implies operating margins of 52.8%, down from 53.3% in
4Q16. Driving the sequential decline in expenses are (1) higher compensation expense due to the more favorable
revenue environment in 1Q and (2) higher occupancy costs as MKTX signed an additional lease this year to cover
its expanding headcount. For the full year, we estimate operating expenses of $197.8 million, which is just under
the mid-point of management's guidance for core expenses of $192-$208 million.

What to look for on the earnings call? We expect MKTX to update us on a number of items when it reports 1Q17.
Specifically well be looking for: (1) the outlook for pricing throughout a rising rate environment, (2) an update on the
trajectory for expenses for the remainder of the year, (3) the market share progress MKTX has made within block
trades and (4) potential updates on investment spending YTD.

April 13, 2017 26

MarketAxess Holdings, Inc. Earnings Model ($MM)
1Q16 4Q16 1Q17E 2016 2017E 2018E
Revenues:
Commissions:
U.S. high-grade 45.8 49.3 51.4 194.0 208.5 221.5
Other credit 32.4 35.4 41.1 134.8 170.9 213.6
Liquid products 0.9 0.8 0.7 3.5 3.2 3.7
Total commissions 79.1 85.5 93.2 332.3 382.6 438.9
Information & post-trade services 7.8 7.5 7.7 31.2 31.7 34.3
License fees 0.0 0.0 0.0 0.0 0.0 0.0
Investment income 0.4 0.7 0.7 2.1 2.7 2.7
Other 1.3 0.7 0.7 4.3 2.8 3.0
Total revenues 88.6 94.4 102.3 369.9 419.8 478.8
QoQ % change 15.6% 4.6% 8.4% 22.0% 13.5% 14.0%

Expenses:
Employee compensation & benefits 24.5 22.5 26.1 96.8 107.4 118.8
Depreciation & amortization 4.7 4.3 4.5 17.8 18.9 20.2
Technology & communications 4.3 4.4 4.6 17.3 18.6 19.2
Professional & consulting fees 3.9 4.7 5.2 17.2 20.0 20.9
Occupancy 1.2 1.1 1.6 4.7 6.2 7.2
Marketing & advertising 1.8 3.2 2.2 8.9 10.1 10.7
General & administrative 3.9 3.8 4.0 15.6 16.6 18.2
Total expenses 44.2 44.1 48.3 178.3 197.8 215.3
QoQ % change 11.5% 0.4% 9.5% 14.9% 10.9% 8.8%

Pre-tax income 44.4 50.3 54.0 191.6 222.0 263.5

Provision for income taxes 15.4 17.2 17.8 65.4 73.3 71.1
Net income from continuing operations 29.0 33.2 36.2 126.2 148.7 192.3

Basic GAAP EPS $0.79 $0.90 $0.98 $3.42 $3.99 $5.05

Diluted GAAP EPS $0.77 $0.88 $0.95 $3.34 $3.90 $5.03

Weighted average shares:

Basic 36.8 36.8 37.0 36.8 37.3 38.1
Diluted 37.7 37.7 38.1 37.7 38.2 38.3

Pre-tax margin 50.1% 53.3% 52.8% 51.8% 52.9% 55.0%

Net margin 32.7% 35.1% 35.4% 34.1% 35.4% 40.2%
Effective tax rate 34.7% 34.1% 33.0% 34.1% 33.0% 27.0%

REVENUE DRIVERS:

Average daily volumes ($MM)

U.S. high grade 2,913.5 3,033.9 3,538.6 2,922.3 3,389.3 3,761.5
Other credit 1,909.0 2,207.0 2,557.0 2,003.0 2,649.9 3,441.9
Liquid products 251.0 285.0 247.0 285.5 268.0 320.3
Total 5,073.5 5,525.9 6,342.6 5,210.8 6,307.2 7,523.6

Variable fee capture per $MM

U.S. high-grade 177.6 184.8 165.6 185.2 174.1 171.3
Other credit 264.3 258.1 255.5 256.5 251.6 242.4
Liquid products 40.5 40.2 40.2 39.2 40.2 40.2
Total 203.6 206.8 197.1 204.8 201.3 198.6
Source: company reports and Sandler O'Neill estimates

April 13, 2017 27

Virtu Financial, Inc. (VIRT, BUY)

Earnings Statistics
Mar Jun Sep Dec Year Growth P/E
2016A $0.28 $0.22 $0.17 $0.22 $0.89 NA 17.2x
2017E $0.15 $0.25 $0.26 $0.27 $0.92 3.4% 16.7x
2018E $0.33 $0.35 $0.32 $0.33 $1.34 45.7% 11.5x

Source: Company reports and Sandler ONeill estimates

An unfriendly environment for market makers in 1Q17. The volume & volatility headwinds across asset classes
in 1Q17 have been strong with (1) actual realized volatility at a low of 6.6%, (2) implied volatility, as measured by
the CBOE's VIX, declined 17% QoQ to 11.7 and (3) the actual to implied volatility averaging 0.57x, down from a
dismal 0.60x in 4Q16. Also, intra-day volatility at 0.57 was the lowest level recorded in the 12 quarters VIRT has
published results. This combined with soft volumes drives our forecast for VIRT's 1Q17 NTI of $84 million (-17%
QoQ, -29% YoY), the lowest NTI level reported in aggregate and estimated overall revenues of $86.9 million. Our
1Q17 EPS estimate is $0.16, which excludes stock based comp ($0.15 including stock based comp) with the current
consensus at $0.19.

Margins still impressive in down revenue quarter. We are modeling adjusted fixed expenses (which exclude
variable trading costs and stock based comp ) of $51.7 million, down slightly from the prior quarters $52.4 million.
We assume a comp ratio of 16.0% in 1Q17, up 140 bps from 14.6% in 4Q16, which will result in $13.9 million
of compensation expense (excluding estimated $3.5 million in stock based comp). We expect an adjusted pre-tax
margin of 40.5% (excluding stock based comp), down from the 49.3% reported in 4Q16.

VIRT cash earnings likely below the $0.24 per dividend level. VIRT's cash flow exceeds its adjusted normalized
EPS as (1) non-cash expenses (D&A, stock based comp, etc) have exceeded capex & interest expense and (2) the
company's tax receivable agreement provides for a 15% discount from the reported 35.5% tax rate. We estimate
1Q17 cash EPS of $0.17, below the $0.24 declared dividend due to the subdued intra-day volatility environment.
On its 4Q16 earnings call, VIRT disclosed it has built up a cash "cushion" of $0.31 per share above the cost of the
quarterly $0.24 dividend since the company began paying dividends post 2Q15. VIRT's quarterly dividend of $0.24
equates to a dividend yield of ~6.3% based on recent closing prices of the stock.

VIRT announced a non-binding bid to acquire KCG. After the close on March 15th, KCG announced that its
board had received an unsolicited bid from VIRT for $18.50-20.00 per share in cash. According to the statement from
KCG, KCG's Board of Directors is reviewing the proposal in the context of KCG's plans to create shareholder value.

Significant cost synergies a starting point for the potential merger. In 2016, KCG produced ~$700 million in net
revenues (excluding BATS share gains) and ended the year with 952 employees compared to VIRT's $421 million
with 148 employees. Said differently, VIRT produces 60% of KCG's revenue base with only ~16% of the number
of employees. Further, VIRT's fixed cost base of ~$201 million is about a third of KCG's $620 million. Bottomline,
VIRT's ability to "streamline" KCG and improve efficiencies is one important driver of its merger attempt and to
earnings accretion.

And earnings accretion could be sizable assuming moderate efficiencies. Based on our forecasts for 2017
earnings for VIRT and KCG, we believe VIRT's acquisition of KCG could be nearly 30% accretive to earnings
assuming "full expected synergies" of $126 million (~20% of KCG's fixed cost base). Our model assumes a total
deal value of $1.4 billion, of which 50% is financed with additional debt and 50% in stock. This does NOT include
potential revenue synergies.

April 13, 2017 28

Virtu Financial, Inc. Earnings Model ($MM)
1Q16 4Q16 1Q17E 2016 2017E 2018E
Net Revenues
Net trading income $117.3 $100.3 $83.5 $414.1 $413.8 $464.3
Technology services $2.1 $3.1 $3.3 $10.3 $15.2 $19.7
Adjusted net revenue $119.4 $103.5 $86.9 $424.5 $429.0 $484.0

Adjusted Operating Expenses

Brokerage, exchange and clearance fees, net $59.7 $53.8 $41.8 $221.2 $206.9 $232.2
Communication and data processing $17.7 $17.4 $17.8 $71.0 $71.6 $73.2
Employee compensation and payroll taxes $21.2 $18.7 $17.4 $78.4 $77.2 $78.1
Interest and dividends expense $13.5 $13.3 $9.2 $56.6 $45.5 $51.1
Operations and administrative $4.8 $6.1 $6.2 $22.2 $24.0 $24.4
Depreciation and amortization $7.7 $7.0 $7.1 $29.7 $28.8 $29.2
Financing interest expense on senior secured credit facility $7.1 $6.8 $6.8 $28.3 $27.0 $27.0
Adjusted operating expenses $131.8 $123.1 $106.2 $507.4 $481.1 $515.2

Adjusted fixed expenses $58.5 $56.0 $55.2 $229.7 $228.6 $231.9

Income before taxes and one time items $60.8 $47.4 $31.7 $191.8 $200.3 $252.1
Provision for income taxes $21.6 $16.8 $11.2 $68.1 $71.1 $64.3
Adjusted net income $39.2 $30.5 $20.4 $123.7 $129.2 $187.8

Adjusted EPS (including stock based comp) $0.28 $0.22 $0.15 $0.89 $0.92 $1.34

Shares outstanding
Diluted shares 139.9 139.7 139.8 139.7 140.0 140.6

Adjusting for stock based comp (earnings based on VIRT definition):

Stock-based compensation $5.4 $3.6 $3.5 $18.2 $15.5 $17.5
Adjusted net income (ex-stock based comp) - VIRT definition $42.7 $32.9 $22.7 $135.5 $139.2 $200.9
Adjusted EPS (ex-stock based comp) $0.31 $0.24 $0.16 $0.97 $0.99 $1.43

Profitability Analysis:
Pre-tax margin (on net revenue) 51.0% 45.7% 36.4% 45.2% 46.7% 52.1%
EBITDA margin 61.6% 56.3% 52.4% 57.4% 59.7% 63.7%
Adjusted EBITDA margin 67.8% 62.6% 56.4% 63.3% 63.3% 67.3%
Effective tax rate (normalized) 35.5% 35.5% 35.5% 35.5% 35.5% 25.5%

Adjusted Net Trading Income by Category:

Americas Equities $37.3 $31.4 $25.1 $124.2 $138.1 $157.9
EMEA Equities $13.7 $9.7 $7.9 $44.5 $41.9 $48.6
APAC Equities $12.2 $11.2 $10.2 $49.9 $44.9 $48.9
Global Commodities $30.3 $23.0 $19.4 $101.2 $93.3 $101.2
Global Currencies $20.5 $15.4 $15.8 $65.7 $70.8 $79.4
Options, Fixed Income & Other Securities $8.7 $5.3 $5.3 $28.1 $24.8 $28.3
Unallocated -$5.4 $4.3 $0.0 $0.4 $0.0 $0.0
Net trading income $117.3 $100.3 $83.5 $414.1 $413.8 $464.3
Source: company reports and Sandler O'Neill estimates

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APPENDIX
Time of dissemination: April 13, 2017, 08:13 EDT.
I attest that all of the views expressed in this report accurately reflect my personal views about the security and/or
industry covered by this report as of the date of this report, and that no part of my compensation was, is or will be,
directly or indirectly, related to the specific recommendations or views expressed by me in this report. S/ Richard
Repetto, CFA
I attest that all of the views expressed in this report accurately reflect my personal views about the security and/or
industry covered by this report as of the date of this report, and that no part of my compensation was, is or will be,
directly or indirectly, related to the specific recommendations or views expressed by me in this report. S/ Collin Cook

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