14. Share-based Compensation

Share-based compensation prior to the Company’s Reorganization completed on April 15, 2015 and IPO commenced on April 16, 2015

Class A-2 profits interests were issued to Employee Holdco, a holding company that holds the interests on behalf of certain key employees or stakeholders. During the three months ended March 31, 2017 and 2016, the Company recorded expense relating to non-voting common interest units, which were originally granted as Class A-2 profits interests and were reclassified into non-voting common interest units in connection with the Reorganization Transactions. The non-voting common interest units are subject to the same vesting requirements as the prior Class A-2 profits interests, which were either fully vested upon issuance or vested over a period of up to four years, and in each case are subject to repurchase provisions upon certain termination events. These awards were accounted for as equity awards and were measured at fair value at the date of grant. The Company recognized compensation expense related to the vesting of non-voting common interest units (formerly Class A-2 profits interests) of $0.2 million and $0.4 million for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016, total unrecognized share-based compensation expense related to unvested non-voting common interest units (formerly Class A-2 profits interests), was $0.5 million and $0.8 million, respectively, and this amount is expected to be recognized over a weighted average period of 0.6 years and 0.8 years, respectively.

On July 8, 2011, 2,625,000 Class A-2 capital interests were contributed by Class A-2 members to Virtu East

MIP LLC (“East MIP”). East MIP issued Class A interests to the members who contributed the Class A-2 capital

interests, and Class B interests (“East MIP Class B interests”) to certain key employees. Additionally, Class B interests were issued to Employee Holdco on behalf of certain key employees and stakeholders on July 8, 2011, and on subsequent dates. East MIP Class B interests and Class B interests were each subject to time based vesting over four years and only fully vested upon the consummation of a qualifying capital transaction by the Company, including an IPO. In connection with the Reorganization Transactions, East MIP was liquidated and a portion of the Class A-2 capital interests held by East MIP were contributed to Employee Holdco on behalf of holders of East MIP Class B Interests (or, in the case of certain employees located outside the United States, contributed to a trust whose trustee is one of the Company’s subsidiaries), which Class A-2 capital interests were subsequently reclassified into non-voting common interest units. The Company recognized compensation expense in respect of non-voting common interest units (formerly Class B interests) vested of $0.2 million and $0.3 mllion for three months ended March 31, 2017 and 2016, respectively. Compensation expense related to non-voting common interest units (formerly Class B interests) was included within charges related to share based compensation at IPO in the condensed consolidated statements of comprehensive income. As of March 31, 2017 and December 31, 2016, total unrecognized share-based compensation expense related to unvested non-voting common interest units (formerly Class B interests) was $0.6 million and $0.8 million, respectively, and this amount is expected to be recognized over a weighted average period of 0.8 years and 1.0 years respectively.

Additionally, in connection with the compensation charges related to non-voting common interest units (formerly Class B interests) mentioned above, the Company capitalized $0.01 million and $0.1 million for the three months ended March 31, 2017 and 2016, respectively. The amortization costs related to these capitalized compensation charges and previously capitalized compensation charges related to East MIP Class B interests and Class B interests were approximately $0.02 million and $0.3 million for the three months ended March 31, 2017 and 2016, respectively. The costs attributable to employees incurred in development of software for internal use were included within charges related to share based compensation at IPO in the condensed consolidated statements of comprehensive income.

The fair value of the Class A-2 profit, Class B and East MIP Class B interest was estimated by the Company using an option pricing methodology based on expected volatility, risk-free rates and expected life. Expected volatility is calculated based on companies in the same peer group as the Company. The weighted-average assumptions used by the Company in estimating the grant date fair values of Class A-2 profits, Class B and East MIP Class B interests for the three months ended March 31, 2017 and 2016 are summarized below:



	2017		2016
Expected life (in years)	2.7		0.5
Weighted average risk free interest rate	0.72	%	0.12	%
Expected stock price volatility	47	%	25	%
Expected dividend yield	—		—

In connection with the Reorganization Transactions, all Class A-2 profits interests, Class B and East MIP Class B interests were reclassified into non-voting common interest units. As of March 31, 2017 and December 31, 2016, there were 13,502,263 and 14,231,535 non-voting common interest units outstanding, respectively, and 729,272 and 53,743 non-voting common interest units and corresponding Class C common stock exchanged into Class A common stock, forfeited or repurchased during the three months ended March 31, 2017 and 2016.

Share-based compensation after the Company’s Reorganization completed on April 15, 2015 and IPO completed on April 16, 2015

Pursuant to 2015 Management Incentive Plan as described above (Note 13) and in connection with the IPO, non-qualified stock options to purchase shares of Class A common stock were granted, each of which vests in equal annual installments over a period of the four years from grant date and expires not later than 10 years from the date of grant.

The following table summarizes activity related to stock options for the three months ended March 31, 2017 and 2016:


	Options Outstanding					Options Exercisable
		Weighted Average		Weighted Average			Weighted Average
	Number of	Exercise Price		Remaining		Number of	Exercise Price
	Options	Per Share		Contractual Life		Options	Per Share
At December 31, 2015	8,994,000	$	19.00		9.29	—	$	—
Granted	—		—		—	—		—
Exercised	—		—		—	—		—
Forfeited or expired	(625,000)		—		—	—		—
At March 31, 2016	8,369,000	$	19.00		9.05	—	$	—

At December 31, 2016	8,234,000	$	19.00		8.29	2,058,500	$	19.00
Granted	—		—		—	—		—
Exercised	—		—		—	—		—
Forfeited or expired	(195,000)		—		—	—		—
At March 31, 2017	8,039,000	$	19.00		8.05	2,009,750	$	19.00

The fair value of the stock option grants in 2015 was determined through the application of the Black-Scholes-Merton model with the following assumptions:



	2017
Expected life (in years)		6.25
Weighted average risk free interest rate		1.52	%
Expected stock price volatility		30	%
Expected dividend yield		5.05	%
Weighted average fair value at grant date	$	3.02

The expected life has been determined based on an average of vesting and contractual period. The risk-free interest rate was determined based on the yields available on U.S. Treasury zero-coupon issues. The expected stock price volatility was determined based on historical volatilities of comparable companies. The expected dividend yield was determined based on estimated future dividend payments divided by the IPO stock price.

The Company recognized $1.4 million and $1.2 million of compensation expense in relation to the stock options for the three months ended March 31, 2017 and 2016, respectively. As of March 31, 2017 and December 31, 2016, total unrecognized share-based compensation expense related to unvested stock options was $12.8 million and $14.2 million, respectively, and these amounts are to be recognized over a weighted average period of 2.0 years and 2.3 years, respectively.

Class A common stock and Restricted Stock Units

Pursuant to the 2015 Management Incentive Plan as described above (Note 13), subsequent to the IPO, shares of immediately vested Class A common stock and restricted stock units were granted, the latter which vest over a period of up to 4 years. The fair value of the Class A common stock and restricted stock units was determined based on a volume weighted average price and will be recognized on a straight line basis over the vesting period. For the three months ended March 31, 2017 and 2016, the Company accrued compensation expense of $4.7 million and $3.4 million, respectively, related to Class A common stock expected to be granted as part of year-end compensation.

The following table summarizes activity related to the restricted stock units for the three months ended March 31, 2017 and 2016:


		Weighted
	Number of	Average Fair
	Shares	Value
At December 31, 2015	984,466	$	22.32
Granted	—		—
Forfeited	(115,869)		22.51
Vested	—		—
At March 31, 2016	868,597	$	22.30

At December 31, 2016	1,573,441	$	18.28
Granted	—		—
Forfeited	(95,481)		18.38
Vested	—		—
At March 31, 2017	1,477,960	$	18.28

The Company recognized $2.6 million and $1.6 million of compensation expense in relation to the restricted stock units for the three months ended March 31, 2017 and 2016. As of March 31, 2017 and December 31, 2016, total unrecognized share-based compensation expense related to unvested restricted stock units was $23.9 million and $28.5 million, respectively, and these amounts are to be recognized over a weighted period of 2.3 years and 2.6 years, respectively.