Fair Value Disclosures

The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis at February 28, 2015 and November 30, 2014 by level within the fair value hierarchy (in thousands):



	February 28, 2015
	Level 1(1)		Level 2(1)		Level 3		Counterparty and Cash Collateral Netting (2)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	2,150,032	$	209,338	$	18,210	$	—		$	2,377,580
Corporate debt securities	—		3,399,249		30,735		—			3,429,984
Collateralized debt obligations	—		153,900		90,897		—			244,797
U.S. government and federal agency securities	3,783,645		106,427		—		—			3,890,072
Municipal securities	—		772,940		—		—			772,940
Sovereign obligations	1,522,227		1,057,623		333		—			2,580,183
Residential mortgage-backed securities	—		2,824,500		79,953		—			2,904,453
Commercial mortgage-backed securities	—		542,089		24,629		—			566,718
Other asset-backed securities	—		138,391		7,146		—			145,537
Loans and other receivables	—		1,349,201		111,410		—			1,460,611
Derivatives	96,660		5,083,829		46,136		(4,729,533		)	497,092
Investments at fair value	—		3		169,961		—			169,964
Physical commodities	—		58,715		—		—			58,715
Total financial instruments owned	$	7,552,564	$	15,696,205	$	579,410	$	(4,729,533	)	$	19,098,646
Cash and cash equivalents	$	3,339,965	$	—	$	—	$	—		$	3,339,965
Investments in managed funds	$	—	$	23,839	$	30,840	$	—		$	54,679
Cash and securities segregated and on deposit for regulatory purposes (3)	$	3,186,319	$	—	$	—	$	—		$	3,186,319
Securities received as collateral	$	4,821	$	—	$	—	$	—		$	4,821
Total Level 3 assets					$	610,250
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,996,335	$	60,034	$	38	$	—		$	2,056,407
Corporate debt securities	—		1,766,453		—		—			1,766,453
U.S. government and federal agency securities	1,366,689		99,422		—		—			1,466,111
Sovereign obligations	707,844		659,846		—		—			1,367,690
Residential mortgage-backed securities	—		11,925		—		—			11,925
Loans	—		910,569		9,327		—			919,896
Derivatives	71,707		5,011,935		49,450		(4,810,751		)	322,341
Total financial instruments sold, not yet purchased	$	4,142,575	$	8,520,184	$	58,815	$	(4,810,751	)	$	7,910,823
Obligation to return securities received as collateral	$	4,821	$	—	$	—	$	—		$	4,821
Other secured financings	$	—	$	—	$	65,602	$	—		$	65,602
Embedded conversion option	$	—	$	—	$	825	$	—		$	825


(1)	There were no transfers between Level 1 and Level 2 for the three months ended February 28, 2015.


(2)	Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.


(3)	Cash and securities segregated and on deposit for regulatory purposes include U.S. government securities with a fair value of $434.8 million and Commodities Futures Trading Commission (“CFTC”) approved money market funds with a fair value of $810.0 million.



	November 30, 2014
	Level 1 (1)		Level 2 (1)		Level 3		Counterparty and Cash Collateral Netting (2)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	2,178,837	$	226,441	$	20,964	$	—		$	2,426,242
Corporate debt securities	—		3,342,276		55,918		—			3,398,194
Collateralized debt obligations	—		306,218		91,498		—			397,716
U.S. government and federal agency securities	2,694,268		81,273		—		—			2,775,541
Municipal securities	—		590,849		—		—			590,849
Sovereign obligations	1,968,747		790,764		—		—			2,759,511
Residential mortgage-backed securities	—		2,879,954		82,557		—			2,962,511
Commercial mortgage-backed securities	—		966,651		26,655		—			993,306
Other asset-backed securities	—		137,387		2,294		—			139,681
Loans and other receivables	—		1,458,760		97,258		—			1,556,018
Derivatives	65,145		5,046,278		54,190		(4,759,345		)	406,268
Investments at fair value	—		73,152		95,389		—			168,541
Physical commodities	—		62,234		—		—			62,234
Total financial instruments owned	$	6,906,997	$	15,962,237	$	526,723	$	(4,759,345	)	$	18,636,612
Cash and cash equivalents	$	4,079,968	$	—	$	—	$	—		$	4,079,968
Investments in managed funds	$	—	$	19,383	$	54,982	$	—		$	74,365
Cash and securities segregated and on deposit for regulatory purposes (3)	$	3,444,674	$	—	$	—	$	—		$	3,444,674
Securities received as collateral	$	5,418	$	—	$	—	$	—		$	5,418
Total Level 3 assets					$	581,705
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,911,145	$	74,681	$	38	$	—		$	1,985,864
Corporate debt securities	—		1,611,994		223		—			1,612,217
Collateralized debt obligations	—		4,557		—		—			4,557
U.S. government and federal agency securities	2,253,055		—		—		—			2,253,055
Sovereign obligations	1,217,075		574,010		—		—			1,791,085
Loans	—		856,525		14,450		—			870,975
Derivatives	52,778		5,117,803		49,552		(4,856,618		)	363,515
Total financial instruments sold, not yet purchased	$	5,434,053	$	8,239,570	$	64,263	$	(4,856,618	)	$	8,881,268
Obligation to return securities received as collateral	$	5,418	$	—	$	—	$	—		$	5,418
Other secured financings	$	—	$	—	$	30,825	$	—		$	30,825
Embedded conversion option	$	—	$	—	$	693	$	—		$	693


(1)	At December 1, 2013, equity options presented within Financial instruments owned and Financial instruments sold, not yet purchased of $6.1 million and $6.6 million, respectively, were transferred from Level 1 to Level 2 as adjustments were incorporated into the valuation approach for such contracts to estimate the point within the bid-ask range that meets the best estimate of fair value.


(2)	Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.


(3)	Cash and securities segregated and on deposit for regulatory purposes include U.S. government securities with a fair value of $453.7 million and CFTC approved money market funds with a fair value of $545.0 million.

The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

Corporate Equity Securities


•	Exchange Traded Equity Securities: Exchange-traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 or Level 3 of the fair value hierarchy.

•

Non-exchange Traded Equity Securities: Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).


•	Equity warrants: Non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

•

Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds.

•

High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations

Collateralized debt obligations are measured based on prices observed for recently executed market transactions of the same or similar security or based on valuations received from third party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transitions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria including but not limited to collateral type, tranche type, rating, origination year, prepayment rates, default rates, and severities.

U.S. Government and Federal Agency Securities


•	U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy.


•	U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.

Sovereign Obligations

Foreign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.

Residential Mortgage-Backed Securities


•	Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.

•

Agency Residential Interest-Only and Inverse Interest-Only Securities (“Agency Inverse IOs”): The fair value of agency inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency inverse IOs are categorized within Level 2 or Level 3 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

•

Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields.

Commercial Mortgage-Backed Securities

•

Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association (“GNMA”) project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.


•	Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.

Other Asset-Backed Securities

Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables and student loans and are categorized within Level 2 and Level 3 of the fair value hierarchy. Valuations are determined using pricing data obtained from external pricing services and prices observed for recently executed market transactions.

Loans and Other Receivables

•

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by market transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.

•

Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.

•

Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations of assets with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.

•

Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions incorporating additional valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.

•

Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.

Derivatives

•

Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy.

•

OTC Derivative Contracts: Over-the-counter (“OTC”) derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.

OTC options include OTC equity, foreign exchange and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

Physical Commodities

Physical commodities include base and precious metals and are measured using observable inputs including spot prices and published indices. Physical commodities are categorized within Level 2 of the fair value hierarchy. To facilitate the trading in precious metals we undertake leasing of such precious metals. The fees earned or paid for such leases are recorded as Principal transaction revenues on the Consolidated Statements of Earnings.

Investments at Fair Value and Investments in Managed Funds

Investments at fair value and Investments in managed funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and commodity funds, which are measured at fair value based on the net asset value of the funds provided by the fund managers and are categorized within Level 2 or Level 3 of the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany. Fair value for the insurance contracts is determined using a third party and is categorized within Level 3 of the fair value hierarchy.

The following tables present information about our investments in entities that have the characteristics of an investment company at February 28, 2015 and November 30, 2014 (in thousands):



	February 28, 2015
	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds (2)	$	49,550	$	—	Monthly, Quarterly
High Yield Hedge Funds (3)	196		—		—
Fund of Funds (4)	340		94		—
Equity Funds (5)	40,403		25,670		—
Convertible Bond Funds (6)	3,470		—		At Will
Total (7)	$	93,959	$	25,764



	November 30, 2014
	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds (2)	$	44,983	$	—	Monthly, Quarterly
High Yield Hedge Funds (3)	204		—		—
Fund of Funds (4)	323		94		—
Equity Funds (5)	65,216		26,023		—
Convertible Bond Funds (6)	3,355		—		At Will
Total (7)	$	114,081	$	26,117


(1)	Where fair value is calculated based on net asset value, fair value has been derived from each of the funds’ capital statements.


(2)	This category includes investments in hedge funds that invest, long and short, in equity securities in domestic and international markets in both the public and private sectors. At February 28, 2015 and November 30, 2014, investments representing approximately 100% and 99%, respectively, of the fair value of investments in this category are redeemable with 30-90 days prior written notice.


(3)	Includes investments in funds that invest in domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. The underlying assets of the funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated.

(4)

Includes investments in fund of funds that invest in various private equity funds. At February 28, 2015 and November 30, 2014, approximately 96% and 95%, respectively, of the fair value of investments in this category are managed by us and have no redemption provisions, instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to be liquidated in approximately two years. For the remaining investments we have requested redemption; however, we are unable to estimate when these funds will be received.

(5)

At February 28, 2015 and November 30, 2014, investments representing approximately 99% and 99%, respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed, instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years. The remaining investments are in liquidation and we are unable to estimate when the underlying assets will be fully liquidated.


(6)	This category represents an investment in the Jefferies Umbrella Fund, an open-ended investment company managed by us that invests primarily in convertible bonds. The investment is redeemable with five days prior written notice.


(7)	Investments at fair value in Financial instruments owned in the Consolidated Statements of Financial Condition at February 28, 2015 and November 30, 2014 include $130.7 million and $128.8 million, respectively, of direct investments which do not have the characteristics of investment companies and therefore not included within this table.

Other Secured Financings

Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets. In addition, at February 28, 2015 and November 30, 2014, Other secured financings includes $5.6 million and $7.8 million, respectively, related to transfers of loans accounted for as secured financings rather than as sales and classified as Level 3 within the fair value hierarchy.

Embedded Conversion Option

The embedded conversion option presented within long-term debt represents the fair value of the conversion option on Leucadia shares within our 3.875% Convertible Senior Debentures, due November 1, 2029 and categorized as Level 3 within the fair value hierarchy. The conversion option was valued using a convertible bond model using as inputs the price of Leucadia's common stock, the conversion strike price, 252-day historical volatility, a maturity date of November 1, 2017 (the first put date), dividend yield and the risk-free interest rate curve.

Pricing Information

At February 28, 2015 and November 30, 2014, our Financial instruments owned and Financial instruments sold, not yet purchased are measured using different valuation bases as follows:



	February 28, 2015				November 30, 2014
	Financial Instruments Owned		Financial Instruments Sold, Not Yet Purchased		Financial Instruments Owned		Financial Instruments Sold, Not Yet Purchased
Exchange closing prices	11	%	25	%	12	%	20	%
Recently observed transaction prices	4	%	3	%	4	%	2	%
External pricing services	73	%	64	%	71	%	69	%
Broker quotes	4	%	4	%	4	%	3	%
Valuation techniques	8	%	4	%	9	%	6	%
	100	%	100	%	100	%	100	%

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended February 28, 2015 (in thousands):



	Three Months Ended February 28, 2015
	Balance at November 30, 2014			Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of) Level 3			Balance at February 28, 2015		Change in unrealized gains/ (losses) relating to instruments still held at February 28, 2015 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	20,964		$	63		$	—		$	(168	)	$	—		$	—	$	(2,649	)	$	18,210	$	243
Corporate debt securities	55,918			(1,930		)	469			(533		)	—			—		(23,189		)	30,735		(1,577		)
Collateralized debt obligations	91,498			(16,022		)	—			(13,519		)	(1,296		)	—		30,236			90,897		(15,886		)
Sovereign obligations	—			13			—			(1		)	—			—		321			333		12
Residential mortgage-backed securities	82,557			(2,863		)	2,100			(1,375		)	(23		)	—		(443		)	79,953		783
Commercial mortgage-backed securities	26,655			(531		)	—			(382		)	(6,864		)	—		5,751			24,629		(1,369		)
Other asset-backed securities	2,294			(167		)	26			(1		)	—			—		4,994			7,146		(167		)
Loans and other receivables	97,258			(5,033		)	40,019			(16,122		)	(15,448		)	—		10,736			111,410		(3,262		)
Investments at fair value	95,389			1,299			5,010			(594		)	(277		)	—		69,134			169,961		1,304
Investments in managed funds	54,982			(24,496		)	354			—			—			—		—			30,840		(24,495		)
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	38		$	—		$	—		$	—		$	—		$	—	$	—		$	38	$	—
Corporate debt securities	223			(115		)	(6,683		)	6,698			—			—		(123		)	—		—
Net derivatives (2)	(4,638		)	6,938			—			—			(58		)	1,072		—			3,314		(8,771		)
Loans	14,450			(39		)	(2,877		)	825			—			—		(3,032		)	9,327		39
Other secured financings	30,825			—			—			—			(2,218		)	36,995		—			65,602		—
Embedded conversion option	693			132			—			—			—			—		—			825		(132		)


(1)	Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.


(2)	Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives.

Analysis of Level 3 Assets and Liabilities for the Three Months Ended February 28, 2015

During the three months ended February 28, 2015, transfers of assets of $205.2 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:


•	Non-agency residential mortgage-backed securities of $35.3 million, commercial mortgage-backed securities of $10.3 million and other asset-backed securities of $5.0 million for which no recent trade activity was observed for purposes of determining observable inputs;


•	Loans and other receivables of $16.4 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;


•	Collateralized debt obligations of $64.5 million which have little to no transparency related to trade activity;


•	Corporate debt securities of $2.4 million, corporate equity securities of $1.7 million and investments at fair value of $69.2 million due to a lack of observable market transactions.

During the three months ended February 28, 2015, transfers of assets of $110.3 million from Level 3 to Level 2 are attributed to:


•	Non-agency residential mortgage-backed securities of $35.7 million and commercial mortgage-backed securities of $4.5 million for which market trades were observed in the period for either identical or similar securities;


•	Collateralized debt obligations of $34.3 million and loans and other receivables of $5.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


•	Corporate debt securities of $25.6 million and corporate equity securities of $4.4 million due to an increase in observable market transactions.

During the three months ended February 28, 2015, there were transfers of loan liabilities of $3.0 million from Level 3 to Level 2 due to an increase in observable inputs in the valuation.

Net losses on Level 3 assets were $49.7 million and net losses on Level 3 liabilities were $6.9 million for the three months ended February 28, 2015. Net losses on Level 3 assets were primarily due to decreased valuations of certain investments in managed funds, collateralized debt obligations, loans and other receivables, residential and commercial mortgage-backed securities and corporate debt securities, partially offset by an increase in valuation of certain investments at fair value. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.



	Three Months Ended February 28, 2014
	Balance at November 30, 2013		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of) Level 3			Balance at February 28, 2014		Change in unrealized gains/ (losses) relating to instruments still held at February 28, 2014 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	9,884	$	(1,393	)	$	134		$	—		$	—		$	—	$	3,716		$	12,341	$	(1,319	)
Corporate debt securities	25,666		(2,014		)	4,136			(624		)	—			—		2,151			29,315		193
Collateralized debt obligations	37,216		10,184			76,511			(78,081		)	(144		)	—		20,342			66,028		5,662
Residential mortgage-backed securities	105,492		(1,626		)	9,637			(13,703		)	(1,755		)	—		18,947			116,992		(2,097		)
Commercial mortgage-backed securities	17,568		(3,032		)	8,933			(14,645		)	(50		)	—		8,712			17,486		(958		)
Other asset-backed securities	12,611		72			2,250			(2,048		)	(83		)	—		(10,427		)	2,375		7
Loans and other receivables	145,890		(3,902		)	36,213			(49,475		)	(935		)	—		1,041			128,832		(3,807		)
Investments at fair value	101,242		24,889			22,500			(29,587		)	—			—		(776		)	118,268		24,889
Investments in managed funds	57,285		(2,859		)	5,102			—			—			—		—			59,528		(2,859		)
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	38	$	8		$	—		$	411		$	—		$	—	$	558		$	1,015	$	(8	)
Net derivatives (2)	6,905		1,267			(1,327		)	2,169			197			—		(3,438		)	5,773		(1,267		)
Loans	22,462		(153		)	(18,913		)	4,887			—			—		1,977			10,260		(153		)
Other secured financings	8,711		—			—			—			—			21,683		—			30,394		—
Embedded conversion option	9,574		(1,967		)	—			—			—			—		—			7,607		—


(1)	Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.


(2)	Net derivatives represent Financial instruments owned – Derivatives and Financial instruments sold, not yet purchased – Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended February 28, 2014

During the three months ended February 28, 2014, transfers of assets of $91.0 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:


•	Non-agency residential mortgage-backed securities of $38.1 million and commercial mortgage-backed securities of $9.0 million and other asset-backed securities of $1.8 million for which no recent trade activity was observed for purposes of determining observable inputs;


•	Loans and other receivables of $8.9 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;


•	Corporate equity securities of $7.4 million and corporate debt securities of $2.3 million due to lack of observable market transactions;


•	Collateralized debt obligations of $23.5 million which have little to no transparency related to trade activity.

During the three months ended February 28, 2014, transfers of assets of $47.3 million from Level 3 to Level 2 are attributed to:


•	Non-agency residential mortgage-backed securities of $19.1 million and commercial mortgage-backed securities of $0.2 million and other asset-backed securities of $12.2 million for which market trades were observed in the period for either identical or similar securities;


•	Collateralized debt obligations of $3.3 million and loans and other receivables of $7.9 million and investments at fair value of $0.8 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


•	Corporate equity securities of $3.6 million and corporate debt securities of $0.2 million due to an increase in observable market transactions.

During the three months ended February 28, 2014, there were transfers of loan liabilities of $2.9 million from Level 3 to Level 2 and transfers of $4.8 million from Level 2 to Level 3. There were $3.4 million transfers of net derivative liabilities from Level 3 to Level 2 due to an increase in observable inputs used in valuing the derivative contracts.

Net gains on Level 3 assets were $20.3 million and net gains on Level 3 liabilities were $0.8 million for the three months ended February 28, 2014. Net gains on Level 3 assets were primarily due to increased valuations of certain collateralized debt obligations and investments at fair value, partially offset by a decrease in valuation of certain corporate equity securities, corporate debt securities, residential and commercial mortgage-backed securities, loans and other receivables and investments in managed funds. Net gains on Level 3 liabilities were primarily due to decreased valuations of the embedded conversion option, partially offset by increased valuations of certain loan positions.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at February 28, 2015 and November 30, 2014

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.

February 28, 2015

Financial Instruments Owned

Fair Value

(in thousands)

Valuation Technique

Significant Unobservable Input(s)

Input / Range

Weighted

Average

Corporate equity securities

18,210

Non-exchange traded securities

Market approach

EBITDA (a) multiple

3.5 to 8.6

4.4

Scenario analysis

Estimated recovery percentage

78%

—

Corporate debt securities

24,795

Convertible bond model

Discount rate/yield

32%

—



Collateralized debt obligations	$	51,095	Discounted cash flows	Constant prepayment rate	0% to 20%	14		%
				Constant default rate	0% to 2%	2		%
				Loss severity	0% to 70%	42		%
				Yield	6% to 20%	13		%
Residential mortgage-backed securities	$	79,953	Discounted cash flows	Constant prepayment rate	2% to 50%	13		%
				Constant default rate	2% to 100%	21		%
				Loss severity	35% to 80%	52		%
				Yield	1% to 13%	6		%
Commercial mortgage-backed securities	$	24,629	Discounted cash flows	Yield	8% to 22%	14		%
				Cumulative loss rate	2% to 73%	16		%
			Scenario analysis	Estimated recovery percentage	81%	—
Other asset-backed securities	$	7,146	Discounted cash flows	Constant prepayment rate	4% to 6%	4		%
				Constant default rate	3% to 4%	4		%
				Loss severity	50% to 60%	52		%
				Yield	6% to 7%	6		%
Loans and other receivables	$	102,034	Comparable pricing	Comparable bond or loan price	$100 to $101	$	100.5
			Market approach	Yield	3% to 9%	7		%
				EBITDA (a) multiple	8.2	—
			Scenario analysis	Estimated recovery percentage	10% to 81%	37		%
			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Yield	11%	—
Derivatives	46,136
Foreign exchange options			Option Model	Volatility	12% to 23%	15		%
Commodity forwards			Discounted cash flows	Discount rate	20%	—
Unfunded commitment			Comparable pricing	Comparable loan price	$71 to $100	$	99.0
				Yield	8%	—
Investments at fair value
Private equity securities	$	9,179	Market approach	Transaction Level	$57	—
Liabilities	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range	Weighted Average
Financial Instruments Sold, Not Yet Purchased:
Derivatives	$	49,450
Foreign exchange options			Option model	Volatility	12% to 23%	15		%
Unfunded commitment			Comparable pricing	Comparable loan price	$71 to $100	$	78.6
			Market approach	Yield	5% to 8%	8		%
			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Yield	11%	—
Loans and other receivables	$	9,327	Comparable pricing	Comparable loan price	$100	—
Other secured financings	$	65,602	Comparable pricing	Comparable loan price	$82 to $100	$	98.9
Embedded conversion option	$	825	Option valuation model	Historical volatility	20%	—


(a)	Earnings before interest, taxes, depreciation and amortization (“EBITDA”).



November 30, 2014
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range	Weighted Average
Corporate equity securities	$	19,814
Non-exchange traded securities			Market approach	EBITDA multiple	3.4 to 4.7	3.6
			Scenario analysis	Estimated recovery percentage	24%	—
Corporate debt securities	$	22,766	Convertible bond model	Discount rate/yield	32%	—
Collateralized debt obligations	$	41,784	Discounted cash flows	Constant prepayment rate	0% to 20%	13		%
				Constant default rate	0% to 2%	2		%
				Loss severity	0% to 70%	39		%
				Yield	2% to 51%	16		%
Residential mortgage-backed securities	$	82,557	Discounted cash flows	Constant prepayment rate	1% to 50%	13		%
				Constant default rate	1% to 100%	14		%
				Loss severity	20% to 80%	50		%
				Yield	3% to 13%	7		%
Commercial mortgage-backed securities	$	26,655	Discounted cash flows	Yield	8% to 12%	11		%
				Cumulative loss rate	4% to 72%	15		%
			Scenario analysis	Estimated recovery percentage	90%	—
Other asset-backed securities	$	2,294	Discounted cash flows	Constant prepayment rate	8%	—
				Constant default rate	3%	—
				Loss severity	70%	—
				Yield	7%	—
Loans and other receivables	$	88,154	Comparable pricing	Comparable loan price	$100 to $101	$	100.3
			Market approach	Yield	3% to 5%	4		%
				EBITDA multiple	3.4 to 8.2	7.6
			Scenario analysis	Estimated recovery percentage	10% to 41%	36		%
Derivatives	$	54,190
Foreign exchange options			Option Model	Volatility	13% to 23%	—
Commodity forwards			Discounted cash flows	Discount rate	17%	—
Loan commitments			Comparable pricing	Comparable loan price	$100	—
Investments at fair value	$	8,500
Private equity securities			Market approach	Transaction level	$50	—
Liabilities	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range	Weighted Average
Financial Instruments Sold, Not Yet Purchased:
Derivatives	$	49,552
FX options			Option model	Volatility	13% to 23%	17		%
Unfunded commitment			Comparable pricing	Comparable loan price	$89 to $100	$	92.0
				Credit spread	45bps	—
			Market approach	Yield	5%	—
Loans and other receivables	$	14,450	Comparable pricing	Comparable loan price	$100	—
Other secured financings	$	30,825	Comparable pricing	Comparable loan price	$81-$100	$	98.7
Embedded conversion option	$	693	Option valuation model	Historical volatility	18.9%	—

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above tables. At February 28, 2015 and November 30, 2014, asset exclusions consisted of $216.2 million and $180.0 million, respectively, primarily comprised of investments in non-exchange traded securities, private equity securities, investments in reinsurance contracts, derivatives and certain corporate loans. At February 28, 2015 and November 30, 2014, liability exclusions consisted of $0 and $0.3 million, respectively of corporate loan commitments.

Sensitivity of Fair Values to Changes in Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:


•	Private equity securities, corporate debt securities, other asset-backed securities, loans and other receivables and loan commitments using comparable pricing valuation techniques. A significant increase (decrease) in the comparable share, bond or loan price in isolation would result in a significant higher (lower) fair value measurement.

•

Non-exchange traded securities and loans and other receivables using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield of a corporate debt security, loan and other receivable would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the discount rate of a private equity security would result in a significantly lower (higher) fair value measurement.


•	Corporate debt securities and loans and other receivables using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.

•

Collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, and loss severities or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate would have differing impacts depending on the capital structure of the security. A significant increase (decrease) in the loan or bond yield would result in a significant lower (higher) fair value measurement.


•	Derivative equity options and equity warrants using an option model. A significant increase (decrease) in volatility would result in a significant higher (lower) fair value measurement.


•	Private equity securities using a net asset value technique. A significant increase (decrease) in the discount applied to net asset value would result in a significant (lower) higher fair value measurement.

Fair Value Option Election

We have elected the fair value option for all loans and loan commitments made by our capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of its bank loan trading activities and mortgage loan commitments and fundings in connection with mortgage- and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned and loan commitments are included in Financial instruments owned and Financial instruments sold, not yet purchased on the Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included within Loans to and investments in related parties on the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, Receivables – Brokers, dealers and clearing organizations, Receivables – Customers, Receivables – Fees, interest and other, Payables – Brokers, dealers and clearing organizations and Payables – Customers, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.

The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans and other receivables and loan commitments measured at fair value under the fair value option (in thousands):



	Three Months Ended February 28, 2015			Three Months Ended February 28, 2014
Financial Instruments Owned:
Loans and other receivables	$	5,389		$	4,467
Financial Instruments Sold:
Loans	$	(1,022	)	$	(462	)
Loan commitments	(7,166		)	(2,357		)

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables measured at fair value under the fair value option (in thousands):



	February 28, 2015			November 30, 2014
Financial Instruments Owned:
Loans and other receivables (1)	$	426,425		$	403,119
Loans and other receivables greater than 90 days past due (1)	28,829			5,594
Loans and other receivables on nonaccrual status (1) (2)	(36,471		)	(22,360		)


(1)	Interest income is recognized separately from other changes in fair value and is included within Interest revenues on the Consolidated Statements of Earnings.


(2)	Amounts include all loans and other receivables greater than 90 days past due.

The aggregate fair value of loans and other receivables that were greater than 90 days past due was $14.1 million and $0 at February 28, 2015 and November 30, 2014, respectively.

The aggregate fair value of loans and other receivables on nonaccrual status, which includes all loans and other receivables greater than 90 days past due, was $285.7 million and $274.6 million at February 28, 2015 and November 30, 2014, respectively.