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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2019

or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-38860

Tradeweb Markets Inc.

(Exact name of registrant as specified in its charter)

(646) 430-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o Yes x No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

Securities registered pursuant to Section 12(b) of the Act:

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TRADEWEB MARKETS INC.

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INTRODUCTORY NOTE

The financial statements and other disclosures contained in this report include those of Tradeweb Markets Inc., which is the registrant, and those of Tradeweb Markets LLC, which became the principal operating subsidiary of Tradeweb Markets Inc. in a series of reorganization transactions that were completed subsequent to March 31, 2019 (the “Reorganization Transactions”) in connection with Tradeweb Markets Inc.’s initial public offering (“IPO”), which was completed on April 8, 2019. Accordingly, because Tradeweb Markets Inc. had no business transactions or activities and no substantial assets or liabilities during the periods presented in this Quarterly Report on Form 10-Q and because the Reorganization Transactions had not been completed as of such date, we believe that it is informative to provide the financial statements and various other disclosures of TWM LLC as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019 and 2018. For more information regarding the transactions described above, see Note 4 to the unaudited financial statements of Tradeweb Markets Inc. and Note 18 to the unaudited consolidated financial statements of Tradeweb Markets LLC, each contained elsewhere in this Quarterly Report on Form 10-Q.

As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to:

·                  “We,” “us,” “our,” the “Company,” “Tradeweb” and similar references refer: (i) on or prior to the completion of the Reorganization Transactions, including the IPO, to Tradeweb Markets LLC, which we refer to as “TWM LLC,” and, unless otherwise stated or the context otherwise requires, all of its subsidiaries and any predecessor entities, and (ii) following the completion of the Reorganization Transactions, including the IPO, to Tradeweb Markets Inc., and, unless otherwise stated or the context otherwise requires, TWM LLC and all of its subsidiaries and any predecessor entities.

·                  “Bank Stockholders” refer collectively to entities affiliated with the following clients: Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated (a subsidiary of Bank of America Corporation), Morgan Stanley & Co. LLC, RBS Securities Inc., UBS Securities LLC and Wells Fargo Securities, LLC.

·                  “Continuing LLC Owners” refer collectively to those Original LLC Owners, including an indirect subsidiary of Refinitiv (as defined below), the Bank Stockholders and members of management, that continued to own LLC Interests immediately prior to the closing of the IPO who received shares of our Class C common stock, shares of our Class D common stock or a combination of both, as the case may be, in connection with the completion of the Reorganization Transactions.

·                  “Investor Group” refer to certain investment funds affiliated with The Blackstone Group L.P., an affiliate of Canada Pension Plan Investment Board, an affiliate of GIC Special Investments Pte. Ltd. and certain co-investors, which collectively hold indirectly a 55% ownership interest in Refinitiv (as defined below).

·                  “LLC Interests” refer to the single class of newly issued common membership interests of TWM LLC.

·                  “Original LLC Owners” refer to the owners of TWM LLC prior to the Reorganization Transactions.

·                  “Refinitiv” refer to Refinitiv Holdings Limited, and unless otherwise stated or the context otherwise requires, all of its subsidiaries, which owns substantially all of the former financial and risk business of Thomson Reuters (as defined below), including an indirect majority ownership interest in Tradeweb, and is controlled by the Investor Group.

·                  “Refinitiv Transaction” refer to the transaction pursuant to which Refinitiv indirectly acquired on October 1, 2018 substantially all of the financial and risk business of Thomson Reuters and Thomson Reuters indirectly acquired a 45% ownership interest in Refinitiv.

·                  “Thomson Reuters” refer to Thomson Reuters Corporation, which indirectly holds a 45% ownership interest in Refinitiv.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can generally identify forward-looking statements by our use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “projection,” “seek,” “should,” “will” or “would,” or the negative thereof or other variations thereon or comparable terminology. In particular, statements about the markets in which we operate, including our expectations about market trends, our market opportunity and the growth of our various markets, our expansion into new markets, any potential tax savings we may realize as a result of our organizational structure, our expected dividend policy and our expectations, beliefs, plans, strategies, objectives, prospects, assumptions, or future events or performance, contained in this Quarterly Report on Form 10-Q are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements, or could affect our share price. Some of the factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include:

·                    changes in economic, political and market conditions and the impact of these changes on trading volumes;

·                    our failure to compete successfully;

·                    our failure to adapt our business effectively to keep pace with industry changes;

·                    consolidation and concentration in the financial services industry;

·                    our dependence on dealer clients that are also stockholders;

·                    our dependence on third parties for certain market data and certain key functions;

·                    our inability to maintain and grow the capacity of our trading platforms, systems and infrastructure;

·                    design defects, errors, failures or delays with our platforms or solutions;

·                    systems failures, interruptions, delays in services, catastrophic events and resulting interruptions;

·                    our ability to implement our business strategies profitably;

·                    our ability to successfully integrate any acquisition or to realize benefits from any strategic alliances, partnerships or joint ventures;

·                    our ability to retain the services of certain members of our management;

·                    inadequate protection of our intellectual property;

·                    extensive regulation of our industry;

·                    limitations on operating our business and incurring additional indebtedness as a result of covenant restrictions under the $500.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with Citibank, N.A., as administrative agent and collateral agent, and the other lenders party thereto, and certain Refinitiv indebtedness;

·                    our dependence on distributions from TWM LLC to fund our expected dividend policy and to pay our taxes and expenses, including payments under the tax receivable agreement (the “Tax Receivable Agreement”) entered into in connection with the IPO;

·                    our ability to realize any benefit from our organizational structure;

·                    Refinitiv’s control of us and our status as a controlled company; and

·                    other risks and uncertainties, including those listed under “Risk Factors” in our final prospectus, dated April 3, 2019 (the “IPO Prospectus”), filed with the Securities and Exchange Commission (“SEC”) pursuant to Rule

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424(b) under the Securities Act, relating to our IPO, and in other filings we may make from time to time with the SEC.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance and our actual results of operations, financial condition, and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. In addition, even if our results of operations, financial condition, and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Quarterly Report on Form 10-Q speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q.

Investors and others should note that we announce material financial and operational information using our investor relations website, press releases, SEC filings and public conference calls and webcasts. Information about Tradeweb, our business, and our results of operations may also be announced by posts on Tradeweb’s accounts on the following social media channels: Instagram, LinkedIn and Twitter. The information that we post through these social media channels may be deemed material. As a result, we encourage investors, the media and others interested in Tradeweb to monitor these social media channels in addition to following our press releases, SEC filings and public conference calls and webcasts. These social media channels may be updated from time to time on our investor relations website.

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PART I — FINANCIAL INFORMATION

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Tradeweb Markets Inc.

Statements of Financial Condition

(Unaudited)

The accompanying notes are an integral part of these financial statements.

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Tradeweb Markets Inc.

Notes to Statements of Financial Condition

(Unaudited)

1.                            Organization

Tradeweb Markets Inc. (the “Corporation”) was formed as a Delaware corporation on November 7, 2018. The Corporation was formed for the purpose of completing certain reorganization transactions in order to carry on the business of Tradeweb Markets LLC (“TWM LLC”) and conducting an initial public offering (“IPO”).

On April 8, 2019, the Corporation closed an IPO of 46,000,000 shares of Class A common stock at a public offering price of $27.00, which includes 6,000,000 shares of Class A common stock issued pursuant to the underwriters’ option to purchase additional shares of Class A common stock.  The Corporation received $1,161,270,000 in net proceeds, after deducting underwriting discounts and commissions but before deducting offering expenses, which were used to purchase membership interests of TWM LLC from certain existing equityholders of TWM LLC (and cancelled the corresponding shares of common stock as described below), at a purchase price per interest equal to the public offering price of $27.00, less the underwriting discounts and commissions payable thereon. Subsequent to the Reorganization Transactions (as defined in note 4) that occurred after March 31, 2019, the Corporation is the sole manager of TWM LLC. As the sole manager of TWM LLC, the Corporation operates and controls all of the business and affairs of TWM LLC and, through TWM LLC and its subsidiaries, conducts the Corporation’s business. As a result of this control, and because the Corporation has a substantial financial interest in TWM LLC, the Corporation will consolidate the financial results of TWM LLC and report a non-controlling interest in the Corporation’s consolidated financial statements.

2.                            Summary of Significant Accounting Policies

Basis of Accounting

The statements of financial condition are presented in accordance with accounting principles generally accepted in the United States of America.  Separate statements of operations, comprehensive income, changes in stockholder’s equity and cash flows have not been presented in the financial statements because, as of March 31, 2019, there have been no activities in this entity other than the initial capitalization.

3.                            Stockholder’s Equity

As of March 31, 2019, the Corporation was authorized to issue 1,000 shares of Common Stock, par value $0.01 per share.  The Chief Executive Officer of TWM LLC was the sole shareholder of the Corporation and contributed $100 to the Corporation on November 7, 2018 to purchase 100 shares of common stock.  Holders of common stock were entitled to one vote for each share of common stock held on all matters submitted to shareholders for vote, consent or approval.

4.         Subsequent Events

As noted above, on April 8, 2019, the Corporation closed an IPO of 46,000,000 shares of Class A common stock at a public offering price of $27.00, which includes 6,000,000 shares of Class A common stock issued pursuant to the underwriters’ option to purchase additional shares of Class A common stock.  The Corporation received $1,161,270,000 in net proceeds, after deducting underwriting discounts and commissions but before deducting offering expenses, which were used to purchase membership interests of TWM LLC from certain of the Bank Stockholders (as defined below) (and cancel the corresponding shares of common stock), at a purchase price per interest equal to the public offering price of $27.00, less the underwriting discounts and commissions payable thereon.

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Tradeweb Markets Inc.

Notes to Statements of Financial Condition

(Unaudited)

Prior to the closing of the IPO, a series of reorganization transactions (the “Reorganization Transactions”) was completed among the Corporation, TWM LLC and the following parties:

·      The Owners of TWM LLC prior to the Reorganization Transactions, including an indirect subsidiary (the “Refinitiv LLC Owner”) of Refinitiv Holdings Limited (“Refinitiv”), certain investment and commercial banks (collectively, the “Bank Stockholders”) and members of management, that continued to own LLC Interests (as defined below) immediately prior to the closing of the IPO and who received shares of the Corporation’s Class C common stock, shares of the Corporation’s Class D common stock or a combination of both, as the case may be (collectively, the “Continuing LLC Owners”); and

·      An indirect subsidiary (the “Refinitiv Direct Owner” and, together with the Refinitiv LLC Owner, the “Refinitiv Owners”) of Refinitiv that owned interests in an entity that held membership interests of TWM LLC prior to the Reorganization Transactions and contributed such entity to the Corporation (the “Refinitiv Contribution”).

The following Reorganization Transactions occurred:

·      TWM LLC’s limited liability company agreement (the “TWM LLC Agreement”) was amended and restated to, among other things, (i) provide for a new single class of common membership interests in TWM LLC (“LLC Interests”), (ii) exchange all of the existing membership interests of TWM LLC’s existing equityholders for LLC Interests and (iii) appoint the Corporation as the sole manager of TWM LLC.

The TWM LLC Agreement also requires that TWM LLC at all times maintain (i) a one-to-one ratio between the number of shares of Class A common stock and Class B common stock issued by the Corporation and the number of LLC Interests owned by the Corporation and (ii) a one-to-one ratio between the number of shares of Class C common stock and Class D common stock issued by the Corporation and the number of LLC Interests owned by the holders of such Class C common stock and Class D common stock;

·      The Corporation’s certificate of incorporation was amended and restated to, among other things, provide for Class A common stock, Class B common stock, Class C common stock and Class D common stock. Each share of Class A common stock and Class C common stock entitles its holder to one vote on all matters presented to the Corporation’s stockholders generally. Each share of Class B common stock and Class D common stock entitles its holder to ten votes on all matters presented to the Corporation’s stockholders generally. The holders of Class C common stock and Class D common stock have no economic interests in the Corporation (where “economic interests” means the right to receive any dividends or distributions, whether cash or stock, in connection with common stock). These attributes are summarized in the following table:

Holders of outstanding shares of Class A common stock, Class B common stock, Class C common stock and Class D common stock will vote together as a single class on all matters presented to the Corporation’s stockholders for their vote or approval, except as otherwise required by applicable law.

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Tradeweb Markets Inc.

Notes to Statements of Financial Condition

(Unaudited)

Each share of Class B common stock will automatically convert into one share of Class A common stock and each share of Class D common stock will automatically convert into one share of Class C common stock (i) immediately prior to any sale or other transfer of such share by a holder or its permitted transferees to a non-permitted transferee or (ii) once the Refinitiv Owners and their affiliates together no longer beneficially own a number of shares of common stock and LLC Interests that together entitle them to at least 10% of TWM LLC’s economic interest. Holders of LLC Interests that receive shares of Class C common stock upon any such conversion may continue to elect to have their LLC Interests redeemed for newly issued shares of Class A common stock as described below (in which case their shares of Class C common stock will be cancelled on a one-for-one basis upon such issuance).

·      The Corporation assumed sponsorship of an option plan and PRSU plan formerly sponsored by TWM LLC. Accordingly, all options and PRSUs granted under such plans were converted into economically equivalent awards of the Corporation with respect to shares of the Corporation’s Class A common stock;

·      The Corporation’s board of directors adopted a new omnibus equity incentive plan, under which equity awards may be made in respect of shares of the Corporation’s Class A common stock;

·      The Corporation issued 20,000,000 shares of Class C common stock and 105,289,005 shares of Class D common stock to the Continuing LLC Owners, on a one-to-one basis with the number of LLC Interests they owned immediately following the amendment and restatement of the TWM LLC Agreement for nominal consideration (the Corporation canceled 9,993,731 shares of such Class C common stock and 36,006,269 shares of such Class D common stock in connection with the Corporation’s purchase of LLC Interests from certain of the Bank Stockholders using the net proceeds of the IPO).

LLC Interests are redeemable, at the election of such holders, for newly issued shares of Class A common stock or Class B common stock, as the case may be, on a one-for-one basis (and such holders’ shares of Class C common stock or Class D common stock, as the case may be, will be cancelled on a one-for-one basis upon any such issuance). The Corporation’s board of directors, which includes directors who hold LLC Interests or are affiliated with holders of LLC Interests and may include such directors in the future, may, at its option, instead of the foregoing redemptions of LLC Interests, cause the Corporation to make a cash payment equal to the volume weighted average market price of one share of Class A common stock for each LLC Interest redeemed (subject to customary adjustments, including for stock splits, stock dividends and reclassifications) in accordance with the terms of the TWM LLC Agreement. Holders of Class D common stock may also from time to time exchange all or a portion of their shares of Class D common stock for newly issued shares of Class C common stock on a one-for-one basis (in which case their shares of Class D common stock will be cancelled on a one-for-one basis upon such issuance). In addition, with respect to each Bank Stockholder that holds shares of Class D common stock, immediately prior to the occurrence of any event that would cause the combined voting power held by such Bank Stockholder to exceed 4.9%, the minimum number of shares of Class D common stock of such Bank Stockholder that would need to convert into shares of Class C common stock such that the combined voting power held by such Bank Stockholder would not exceed 4.9% will automatically convert into shares of Class C common stock;

·      As a result of the Refinitiv Contribution, the Corporation received 96,933,192 LLC Interests and the Refinitiv Direct Owner received 96,933,192 shares of Class B common stock. The Refinitiv Direct Owner and other future holders of Class B common stock may from time to time exchange all or a portion of their shares of the Corporation’s Class B common stock for newly issued shares of Class A common stock on a one-for-one basis (in which case their shares of Class B common stock will be cancelled on a one-for-one basis upon any such issuance); and

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Tradeweb Markets Inc.

Notes to Statements of Financial Condition

(Unaudited)

·      The Corporation entered into a Tax Receivable Agreement with TWM LLC and the Continuing LLC Owners that provides for the payment by the Corporation to a Continuing LLC Owner of 50% of the amount of U.S. federal, state and local income or franchise tax savings, if any, that the Corporation actually realizes (or in some circumstances is deemed to realize) as a result of (i) increases in the tax basis of TWM LLC’s assets resulting from (a) the purchase of LLC Interests from such Continuing LLC Owner using the net proceeds of the IPO or any future offering or (b) redemptions or exchanges by such Continuing LLC Owner of LLC Interests for shares of Class A common stock or Class B common stock or for cash, as applicable, and (ii) certain other tax benefits related to the Corporation making payments under the Tax Receivable Agreement.

Following the completion of the Reorganization Transactions, including the IPO and the application of the proceeds therefrom as described above, the Corporation owns 64.3% of TWM LLC. The Continuing LLC Owners that continue to own LLC Interests own the remaining 35.7% of TWM LLC.

On May 8, 2019, the Corporation’s board of directors declared a cash dividend of $0.08 per share of Class A common stock and Class B common stock for the second quarter of 2019. This dividend will be payable on June 15, 2019 to stockholders of record as of June 1, 2019.

There were no other subsequent events requiring adjustment to the financial statements or disclosure.

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Tradeweb Markets LLC and Subsidiaries

Consolidated Statements of Financial Condition

(in thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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Tradeweb Markets LLC and Subsidiaries

Consolidated Statements of Income

(in thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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Tradeweb Markets LLC and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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Tradeweb Markets LLC and Subsidiaries

Consolidated Statements of Changes in Members’ Capital and Accumulated Other Comprehensive Income

(in thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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Tradeweb Markets LLC and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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Tradeweb Markets LLC and Subsidiaries

Consolidated Statements of Cash Flows — (Continued)

(in thousands)

(Unaudited)

The following table provides a reconciliation of cash and cash equivalents and restricted cash that sum to the amounts shown in the consolidated statements of cash flows:

The accompanying notes are an integral part of these consolidated financial statements.

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Tradeweb Markets LLC and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

1.                            Organization

Tradeweb Markets LLC (the “Company”) is a leader in building and operating electronic marketplaces for a global network of clients across the institutional, wholesale and retail client sectors.

The Company, a Delaware limited liability company, is a consolidating subsidiary of BCP York Holdings (“BCP”), a company owned by certain investment funds affiliated with The Blackstone Group L.P., through BCP’s majority ownership interest in Refinitiv Holdings Limited (“Refinitiv” or the “Parent”).  As of March 31, 2019, Refinitiv owned a majority ownership interest in the Company and a minority ownership interest of the Company was owned by a group of investment and commercial banks (the “Banks”).

A majority interest of Refinitiv (formerly the Thomson Reuters Financial & Risk Business) was acquired by BCP on October 1, 2018 (the “Refinitiv Transaction”) from Thomson Reuters Corporation (“TR”). The accompanying consolidated financial statements are presented for two periods: predecessor and successor, which relate to the periods preceding and succeeding the Refinitiv Transaction, respectively.  The Refinitiv Transaction results in a new basis of accounting beginning on October 1, 2018 and the financial reporting periods are presented as follows:

·                  The successor period of the Company, reflecting the Refinitiv Transaction, as of March 31, 2019 and December 31, 2018 and for the three months ended March 31, 2019.

·                  The predecessor period of the Company for the three months ended March 31, 2018.

The Company, through its subsidiary Tradeweb Global LLC (“TWG”), owns:

·                  Tradeweb LLC (“TWL”), a registered broker-dealer under the Securities Exchange Act of 1934, a member of the Financial Industry Regulatory Authority (“FINRA”), a registered independent introducing broker with the Commodities Future Trading Commission (“CFTC”) and a member of the National Futures Association (“NFA”).

·                  Tradeweb Europe Limited (“TEL”), a Multilateral Trading Facility regulated by the Financial Conduct Authority (the “FCA”) in the UK, which maintains branches in Asia which are regulated by certain Asian securities regulators.

·                  TW SEF LLC (“TW SEF”), a Swap Execution Facility (“SEF”) regulated by the CFTC.

·                  DW SEF LLC (“DW SEF”), a SEF regulated by the CFTC.

·                  Tradeweb Japan K.K. (“TWJ”), a security house regulated by the Japanese Financial Services Agency (“JFSA”) and the Japan Securities Dealers Association (“JSDA”).

·                  Tradeweb EU B.V. (“TWEU”), a Trading Venue and Approved Publication Arrangement regulated by the Netherlands Authority for the Financial Markets (“AFM”).

The Company, through its subsidiary Tradeweb IDB Markets Inc. (“TWIDB”) (formerly known as Hydrogen Holdings Corporation), owns Dealerweb Inc. (“DW”) (formerly known as Hilliard Farber & Co., Inc.).  DW is a registered broker-dealer under the Securities Exchange Act of 1934 and a member of FINRA.  DW is also registered as an introducing broker with the CFTC and NFA.

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Tradeweb Markets LLC and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

The Company, through its subsidiary BondDesk Group LLC, owns Tradeweb Direct LLC (“TWD”) (formerly known as BondDesk Trading LLC), a registered broker-dealer under the Securities Exchange Act of 1934 and a member of FINRA.

2.                            Significant Accounting Policies

The following is a summary of significant accounting policies:

Basis of Accounting

The consolidated financial statements have been presented in conformity with accounting principles generally accepted in the United States of America.  All adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented, are normal and recurring in nature.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates and the difference may be material to the consolidated financial statements.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.  All intercompany transactions and balances have been eliminated in consolidation.

Recapitalization

As discussed in note 18, on April 4, 2019, the Company’s limited liability company agreement (“LLC Agreement”) was amended and restated to, among other things, (i) provide for a new single class of common membership interests in the Company (“LLC Interests”) and (ii) exchange all of the existing membership interests of the Company’s existing equityholders for LLC Interests.  For purposes of calculating net income per share on the consolidated statements of income, the number of outstanding shares have been adjusted retroactively for all periods to reflect the above-mentioned amendment and resulting recapitalization.  Other share amounts and related disclosures in the notes to the consolidated financial statements reflect the share classes and amounts prior to the recapitalization unless otherwise indicated.

Cash and Cash Equivalents

Cash and cash equivalents consists of cash and highly liquid investments (such as short-term money market instruments) with original maturities of less than three months.

Allowance for Doubtful Accounts

The Company continually monitors collections and payments from its clients and maintains an allowance for doubtful accounts.  The allowance for doubtful accounts is based upon the historical collection experience and specific collection issues that have been identified.  Additions, if any, to the allowance for doubtful accounts are charged to bad debt expense, which is included in general and administrative expenses on the consolidated statements of income.

Furniture, Equipment, Purchased Software and Leasehold Improvements

Furniture, equipment, purchased software and leasehold improvements are carried at cost less accumulated depreciation.  Depreciation for furniture, equipment and purchased software, including the allocated fair value of assets as a result of pushdown accounting (see note 3), is computed on a straight-line basis over the estimated useful lives of the related assets, ranging from three to seven years.  Leasehold improvements are amortized over the lesser of the estimated useful lives of the leasehold improvements or the remaining term of the lease for office space.

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Tradeweb Markets LLC and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

Software Development Costs

The Company capitalizes costs associated with the development of internal use software at the point at which the conceptual formulation, design and testing of possible software project alternatives have been completed, in accordance with Accounting Standards Codification (“ASC”)  350.  The Company capitalizes employee compensation and related benefits and third party consulting costs incurred during the application development stage which directly contribute to such development.  Once the product is ready for its intended use, such costs are amortized on a straight-line basis over three years.  Costs capitalized as part of the pushdown accounting allocation (see note 3) are amortized over nine years.  The Company reviews the amounts capitalized for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be fully recoverable, or that their useful lives are shorter than originally expected.  Non-capitalized software costs and routine maintenance costs are expensed as incurred.

Intangible Assets

Intangible assets with a finite life are amortized over the estimated lives in accordance with ASC 350.  Intangible assets subject to amortization are tested for impairment whenever events or changes in circumstances suggest that an asset’s or asset group’s carrying value may not be fully recoverable in accordance with ASC 360.  Intangible assets with an indefinite useful life are tested for impairment at least annually.  An impairment loss is recognized if the sum of the estimated undiscounted cash flows relating to the asset or asset group is less than the corresponding fair value.  Intangible assets are amortized over their estimated useful lives of seven to sixteen years.

Goodwill

Goodwill is the excess of the fair value of the Company above the fair value accounting basis of the net assets and liabilities of the Company under pushdown accounting.  Goodwill is also the cost of acquired companies in excess of the fair value of identifiable net assets at acquisition date.  Goodwill is not amortized, but in accordance with ASC 350, goodwill is tested for impairment annually and between annual tests whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable.  In 2019, the Company changed the annual date on which goodwill is tested for impairment from July 1st to October 1st to align with the annual impairment testing date of the Company’s Parent.  This change did not accelerate, delay, avoid or cause an impairment charge, nor does this change result in adjustments to the Company’s previously issued financial statements.  Goodwill is tested at the reporting unit level, which is defined as an operating segment or one level below the operating segment.  An impairment loss is recognized if the estimated fair value of a reporting unit is less than its net book value.  Such loss is calculated as the difference between the estimated fair value of goodwill and its carrying value.

Deferred IPO Costs

In 2018 the Company began incurring costs in connection with the filing of a Registration Statement on Form S-1, which are deferred in other assets in accordance with ASC 505-10-25 in the consolidated statements of financial condition. Initial public offering (“IPO”) costs consist of legal, accounting, and other costs directly related to the Company’s efforts to raise capital through an IPO. These deferred costs were offset against proceeds received from the offering which closed on April 8, 2019 and will be reclassified to additional paid-in capital on the consolidated statements of financial condition.  See note 18.

Translation of Foreign Currency

Revenues and expenses denominated in foreign currencies are translated at the rate of exchange prevailing at the transaction date.  Assets and liabilities denominated in foreign currencies are translated at the rate prevailing at the consolidated statements of financial condition date.  Foreign currency re-measurement gains or losses on transactions in nonfunctional currencies are recognized in the consolidated statements of income.  Gains or losses on translation in the financial statements of a non-U.S. operation, when the functional currency is other than the U.S. dollar, are included as a component of comprehensive income.

Income Tax

The Company is a multiple member limited liability company which is taxed as a partnership.  No federal income tax provision is required on the earnings of the Company as it is a partnership, and therefore the tax effects of its activities accrue directly to its partners.  As a partnership, the Company and certain subsidiaries are subject to unincorporated business taxes on income earned, or losses incurred, by conducting business in

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certain state and local jurisdictions and income taxes in foreign jurisdictions on certain of their operations.  Additionally, TWIDB and its subsidiary DW are C Corporations and therefore incur corporate federal, state and local income tax expense.  Income taxes are accounted for in accordance with ASC 740.  The Company recorded deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities.  The Company measures deferred taxes using the enacted tax rates and laws that will be in effect when such temporary differences are expected to reverse.  Based on the weight of the positive and negative evidence considered, management believes that it is more likely than not that the Company will be able to realize its deferred tax assets in the future, therefore, no valuation allowance is necessary.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to income taxes within the provision for income taxes in the consolidated statements of income.  Accrued interest and penalties are included within accounts payable, accrued expenses and other liabilities in the consolidated statements of financial condition.

The Company has elected to treat taxes due on future U.S. inclusions in taxable income under the GILTI provision as a current period expense when incurred.

Revenue Recognition

The Company earns transaction fees from transactions executed on the Company’s trading platforms through various fee plans. Transaction fees are generated both on a variable and fixed price basis and vary by geographic region, product type and trade size. For variable transaction fees, the Company charges clients fees based on the mix of products traded and the volume of transactions executed. Transaction fee revenue is recorded at a point in time when the trade occurs and is generally billed monthly.

The Company earns subscription fees from granting access to institutional investors to the Company’s electronic marketplaces. Subscription fees are recognized into income in the period that access is provided on a monthly basis. Also included in subscription fees on the consolidated statements of income are viewer fees earned monthly from institutional investors accessing fixed income market data. The frequency of subscription fee billings varies from monthly until annually, depending on contract terms. Fees received by the Company which are not yet earned are included in deferred revenue on the consolidated statements of financial condition until the revenue recognition criteria has been met.

The Company earns commission revenue from its electronic and voice brokerage services on a riskless principal basis. Riskless principal revenues are derived on matched principal transactions where revenues are earned on the spread between the buy and sell price of the transacted product. Securities transactions and related commission income for brokerage transactions are recorded on a trade-date basis. This income is received by the Company when the transactions settle or is billed monthly.

The Company earns fees from Refinitiv, formerly TR in the predecessor periods, relating to the sale of market data to Refinitiv, which redistributes that data.  Included in these fees, which are billed quarterly, are real-time market data fees which are recognized in the period that the data is provided, generally on a monthly basis and historical data sets which are recognized when the historical data set is provided to Refinitiv.

On January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective approach.  The adoption of ASU 2014-09 did not have a material impact on the measurement or recognition of revenue in any prior reporting periods.  However, subsequent to the adoption,

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the Company was required to make significant judgements for the Refinitiv market data fees.  Significant judgements used in accounting for this contract include:

·                  The provision of real-time market data feeds and annual historical data sets are distinct performance obligations.

·                  The performance obligations under this contract are recognized over time from the initial delivery of the data feeds or each historical data set until the end of the contract term.

·                  Determining the transaction price for the performance obligations by using a market assessment analysis.  Inputs in this analysis include a consultant study which determined the overall value of the Company’s market data and pricing information for historical data sets provided by other companies.

Some commission and transaction fees earned by the Company have fixed fee components, such as monthly minimums or fixed monthly fees, and variable components, such as transaction based fees.  The breakdown of revenues between fixed and variable revenues, in thousands, for the three months ended March 31, 2019 and 2018 is as follows:

Share-Based Compensation

The Company accounts for share-based compensation in accordance with ASC 718.  ASC 718 focuses primarily on accounting for a transaction in which an entity obtains employee services in exchange for share-based payments.  Under ASC 718, the share-based payments received by the employees of the Company are accounted for either as equity awards or as liability awards.

As an equity award, the Company measures and recognizes the cost of employee services received in exchange for awards of equity instruments based on their estimated fair values measured as of the grant date.  These costs are recognized as an expense over the requisite service period, with an offsetting increase to members’ capital.

As a liability award, the cost of employee services received in exchange for an award of equity instruments is generally measured based on the grant-date fair value of the award.  The fair value of that award is remeasured subsequently at each reporting date through the settlement in accordance with ASC 505.  Changes in the equity instrument’s fair value during the requisite service period are recognized as compensation cost over that period.

Under ASC 718, the grant-date fair value of share-based awards that do not require future service (i.e., vested awards) are expensed immediately.  The grant-date fair value of share-based employee awards that require future service, and are graded-vesting awards, are amortized over the relevant service period on a straight-line basis, with each tranche separately measured.  The grant-date fair value of share-based employee awards that require both future service and the achievement of Company performance-based conditions, are amortized over the relevant service period for the performance-based condition.  If in a reporting period it is

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determined that the achievement of a performance target for a performance-based tranche is not probable, then no expense is recognized for that tranche and any expenses already recognized relating to that tranche in prior reporting periods are reversed in the current reporting period.

Determining the appropriate fair value model and calculating the fair value of the share-based payment awards requires the input of highly subjective assumptions, including the expected life of the share-based payment awards and the stock price volatility.  The Company uses the Black-Scholes pricing model to value some of its share-based awards. Application of alternative assumptions could produce significantly different estimates of the fair value of stock-based compensation and consequently, the related amounts recognized in the Company’s consolidated statements of income.

Net Income Per Share

Basic net income per share is computed by dividing the net income attributable to the Company’s shares by the weighted-average number of the Company’s shares outstanding during the period.  For purposes of computing diluted net income per share, the weighted-average number of the Company’s shares reflects the dilutive effect that could occur if convertible securities were converted into or exercised for the Company’s shares using the treasury stock method.

Fair Value Measurement

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the exit price).  Instruments that the Company owns (long positions) are marked to bid prices, and instruments that the Company has sold, but not yet purchased (short positions), are marked to offer prices.  Fair value measurements do not include transaction costs.

The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).  The three levels of the fair value hierarchy under ASC 820 are described below:

Basis of Fair Value Measurement

Level 1               Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2               Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3               Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses.  The ASU provides new guidance for estimating credit losses on certain types of financial instruments by introducing an approach based on expected losses.  This ASU is effective in the fiscal year beginning January 1, 2020.  The Company is currently evaluating the impact of this ASU on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles — Goodwill and Other.  The ASU simplifies the quantitative goodwill impairment test by eliminating the second step of the test.  Under this ASU, impairment will be measured by comparing the estimated fair value of the reporting unit with its carrying value.  The ASU is applicable for the Company in the fiscal year beginning January 1, 2021.  The Company

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does not anticipate the adoption of this ASU to have a material impact on the Company’s consolidated financial statements.

3.                          Pushdown Accounting

The Refinitiv Transaction was accounted for by Refinitiv in accordance with the acquisition method of accounting pursuant to ASC 805, and pushdown accounting was applied to Refinitiv to record the fair value of the assets and liabilities of Refinitiv on the date of the Refinitiv Transaction.  The Company, as a consolidating subsidiary of Refinitiv, also accounted for the Refinitiv Transaction using pushdown accounting. Under pushdown accounting, the excess of the fair value of the Company above the fair value accounting basis of the net assets and liabilities of the Company was recorded as goodwill. The Company has one year from the date of the Refinitiv Transaction to finalize these amounts.

The adjusted valuations resulted in an increase in depreciation and amortization expense, due to the increased carrying value of the Company’s assets and the related increase in depreciation of tangible assets and amortization of intangible assets, and a decrease in occupancy expense as a result of the recognition of a leasehold interest liability.

4.                            Leases

Effective January 1, 2019, the Company adopted ASC 842. This standard requires the Company to recognize a right-of-use asset and a lease liability for all leases with an initial term in excess of twelve months. The Company accounts for an option to extend a lease when the option is reasonably certain to be exercised.  The asset reflects the present value of unpaid lease payments coupled with initial direct costs, prepaid lease payments, and lease incentives. The amount of the lease liability is calculated as the present value of unpaid lease payments.  The Company adopted ASC 842 using a modified retrospective approach and did not restate comparative periods.  The Company elected to take the package of practical expedients allowing the Company to not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases.  The Company has elected to account for nonlease components in a contract as part of the single lease component to which they are related.

Significant assumptions and judgements in calculating the right-of-use assets and lease liability include the determination of the applicable borrowing rate for each lease.

On January 1, 2019, upon the adoption of ASC 842, the Company recorded, for office space and data center leases in the US and UK, right-of-use assets of $34,760,000, lease liabilities of $39,635,000 and eliminated deferred rent of $4,875,000.  The leases have initial lease terms ranging from 3 to 11 years.

Activity related to the Company’s leases for the three months ended March 31, 2019 is as follows (in thousands):

At March 31, 2019, the weighted average borrowing rate and weighted average lease term are as follows:

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The following table presents the maturity of lease liabilities as of March 31, 2019 (in thousands):

At March 31, 2019, the future minimum lease payments are as follows (in thousands):

One US lease is secured by a letter of credit in the amount of $1,200,000, which is guaranteed by Refinitiv.

5.                          Intangible Assets and Goodwill

Intangible assets and goodwill relate to the allocation of purchase price associated with the Refinitiv Transaction (see note 3).

The following is a summary of intangible assets which have an indefinite useful life at both March 31, 2019 and December 31, 2018 (in thousands):

Intangible assets that are subject to amortization, including the related accumulated amortization, are comprised as follows (in thousands):

For the three months ended March 31, 2019 and 2018, amortization expense relating to intangible assets was $24,852,000 and $6,506,000, respectively.

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The estimated annual future amortization for existing intangibles assets through December 31, 2023 is as follows (in thousands):

6.                            Deferred Revenue

The Company records deferred revenue when cash payments are received or due in advance of services to be performed.  The recognized revenue and remaining balance is shown below (in thousands):

7.                          Income Taxes

The provision for income taxes consists of the following (in thousands):

The Company and certain of its subsidiaries are taxed as partnerships for U.S federal income tax purposes. The Company’s effective tax rate was 10.1% and 5.3% for the three months ended March 31, 2019 and 2018, respectively. The Company’s consolidated effective tax rate can vary from period to period depending on the geographic mix of its earnings and changes in tax legislation and tax rates.

8.                          Shares

The Company’s issued and vested shares as of both March 31, 2019 and December 31, 2018 are as follows:

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As described in note 18, on April 4, 2019, the LLC Agreement was amended and restated, pursuant to which, among other things, all of the outstanding Class A Shares, Class P(A) Shares, Class P-1(A) Shares, Class C Shares, Class P(C) Shares and Class P-1(C) Shares of the Company were exchanged for 222,222,197 LLC Interests.

Each formerly outstanding Class A Share, Class P(A) Share, Class P-1(A) Share, Class C Share, Class P(C) Share and Class P-1(C) Share equally participated in the earnings of the Company.  All of these shares could not be transferred without approval by the former Board of Managers of the Company, with the exception of transfers to certain related parties.  Most of the Class A and Class P(A) Shareholders had the right to appoint the members of the former Board of Managers.  The Class C Shareholders, Class P(C) Shareholders and Class P-1(C) Shareholders did not have the right to appoint members of the former Board of Managers.

9.                          Share-Based Compensation Plans

As of March 31, 2019, the Company maintained a share-based incentive plan (the “PRSU Plan”) which provided for the grant of performance-based restricted share units (“PRSUs”) to encourage employees of the Company to participate in the long-term success of the Company.

PRSUs vest in the third plan year following the year of grant. The outstanding PRSUs vest on January 1, 2020, 2021 and 2022.  The final number of the PRSUs received upon vesting is determined by a performance modifier, which is adjusted as a result of the financial performance of the Company.  If an employee’s employment with the Company is terminated, subject to certain exceptions, all unvested PRSUs are forfeited.

The following table reports the activity for equity-settled PRSUs of the Company:

Subsequent to March 31, 2019, in connection with the reorganization transactions described in note 18, the Corporation’s board of directors adopted and assumed sponsorship of the Amended & Restated Tradeweb Markets Inc. PRSU Plan, including all awards previously granted under the predecessor plan of the Company. As a result, the equity-settled PRSUs outstanding at March 31, 2019, converted into equity-settled PRSUs of the Corporation represented by 2,770,334 shares of Class A common stock of the Corporation.

Certain PRSUs are cash-settled and are accounted for as liability awards.  The Company measures the cost of employee services received in exchange for the award based on the fair value of the Company and the value of accumulated dividend rights associated with each award.  The fair value of that award is remeasured subsequently at each reporting date through to settlement.  Changes in the award’s fair value during the requisite service period is recognized as compensation cost over that period.

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The following table reports the activity for cash-settled PRSUs of the Company:

In October 2018, the Company made a special award of options under an option plan (the “Option Plan”). Each option vests one half based solely on the passage of time and one half only if the Company achieves certain performance targets. The time vesting portion of the options has a graded vesting schedule with vesting dates of January 1, 2019, 2020, 2021 and 2022.

In accounting for the options issued under the Option Plan, the Company measures and recognizes compensation expense for all awards based on their estimated fair values measured as of the grant date.  These options are exercisable only any time following the closing of an initial public offering (“IPO”) or during a 15-day period following a change in control of the Company.  Costs related to these options will be recognized as an expense in the consolidated statements of income over the requisite service period, when exercisability is considered probable.  Therefore expense will be recognized only upon the completion of an IPO or a change in control, over the vesting period, with an offsetting increase to members’ capital.  On April 8, 2019, as a result of the options becoming exercisable because of completion of the Corporation’s IPO, the Company recognized $18,883,000 of compensation expense related to these options.

The fair value of the options was calculated at the date of grant using the Black-Scholes model.  The significant assumptions used to estimate the fair value of the options as of grant date did not reflect changes that would have occurred to these assumptions as a result of the Corporation’s IPO.  See note 18.  The significant assumptions used to estimate the fair value of the options were as follows:

The following table reports the activity for options held by employees of the Company:

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