Derivative Financial Instruments

Off-Balance Sheet Risk

We have contractual commitments arising in the ordinary course of business for securities loaned or purchased under agreements to resell, repurchase agreements, future purchases and sales of foreign currencies, securities transactions on a when-issued basis and underwriting. Each of these financial instruments and activities contains varying degrees of off-balance sheet risk whereby the fair values of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The settlement of these transactions is not expected to have a material effect upon our consolidated financial statements.

Derivative Financial Instruments

Our derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Financial instruments owned and Financial instruments sold, not yet purchased, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. Net realized and unrealized gains and losses are recognized in Principal transaction revenues in the Consolidated Statements of Earnings on a trade date basis and as a component of cash flows from operating activities in the Consolidated Statements of Cash Flows. Acting in a trading capacity, we may enter into derivative transactions to satisfy the needs of our clients and to manage our own exposure to market and credit risks resulting from our trading activities. (See Note 4, Fair Value Disclosures, and Note 18, Commitments, Contingencies and Guarantees, for additional disclosures about derivative financial instruments.)

Derivatives are subject to various risks similar to other financial instruments, including market, credit and operational risk. The risks of derivatives should not be viewed in isolation, but rather should be considered on an aggregate basis along with our other trading-related activities. We manage the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of our firm wide risk management policies.

In connection with our derivative activities, we may enter into ISDA master netting agreements or similar agreements with counterparties. See Note 2, Summary of Significant Accounting Policies, for additional information regarding the offsetting of derivative contracts.

The following tables present the fair value and related number of derivative contracts at November 30, 2016 and 2015 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under U.S. GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts).



	November 30, 2016 (1)
	Assets				Liabilities
	Fair Value			Number of Contracts	Fair Value			Number of Contracts
Interest rate contracts:
Exchange-traded	$	2,275		24,300	$	24		29,773
Cleared OTC	2,835,812			3,596	2,636,469			3,445
Bilateral OTC	444,159			1,136	522,965			1,627
Foreign exchange contracts:
Exchange-traded	—			376	—			686
Bilateral OTC	529,609			7,448	516,869			7,633
Equity contracts:
Exchange-traded	712,767			2,820,702	1,095,582			2,410,956
Bilateral OTC	72,041			1,077	67,033			1,191
Commodity contracts:
Exchange-traded	—			1,356	—			920
Credit contracts:
Cleared OTC	645			6	2,304			8
Bilateral OTC	19,225			213	25,503			184
Total gross derivative assets/ liabilities:
Exchange-traded	715,042				1,095,606
Cleared OTC	2,836,457				2,638,773
Bilateral OTC	1,065,034				1,132,370
Amounts offset in the Consolidated Statements of Financial Condition (2):
Exchange-traded	(691,009		)		(691,009		)
Cleared OTC	(2,751,650		)		(2,638,774		)
Bilateral OTC	(813,340		)		(899,431		)
Net amounts per Consolidated Statements of Financial Condition (3)	$	360,534			$	637,535


(1)	Exchange traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.


(2)	Amounts netted include both netting by counterparty and for cash collateral paid or received.


(3)	We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition.



	November 30, 2015 (1)
	Assets				Liabilities
	Fair Value			Number of Contracts	Fair Value			Number of Contracts
Interest rate contracts:
Exchange-traded	$	998		52,605	$	364		70,672
Cleared OTC	2,213,730			2,742	2,202,836			2,869
Bilateral OTC	695,365			1,401	646,758			1,363
Foreign exchange contracts:
Exchange-traded	—			441	—			112
Bilateral OTC (4)	453,202			7,646	466,021			7,264
Equity contracts:
Exchange-traded	955,287			3,054,315	1,004,699			2,943,657
Bilateral OTC	61,004			1,039	81,085			1,070
Commodity contracts:
Exchange-traded	—			1,726	—			1,684
Bilateral OTC (4)	19,342			29	4,628			28
Credit contracts:
Cleared OTC	621			39	841			44
Bilateral OTC	16,977			100	59,314			135
Total gross derivative assets/liabilities:
Exchange-traded	956,285				1,005,063
Cleared OTC	2,214,351				2,203,677
Bilateral OTC	1,245,890				1,257,806
Amounts offset in the Consolidated Statements of Financial Condition (2):
Exchange-traded	(938,482		)		(938,482		)
Cleared OTC	(2,184,438		)		(2,184,438		)
Bilateral OTC	(1,042,526		)		(1,135,078		)
Net amounts per Consolidated Statements of Financial Condition (3)	$	251,080			$	208,548


(1)	Exchange traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.


(2)	Amounts netted include both netting by counterparty and for cash collateral paid or received.


(3)	We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition.

(4)

Bilateral OTC commodity contracts increased in assets by a fair value of $19.3 million and by 29 contracts and in liabilities by a fair value of $4.6 million and by 28 contracts with corresponding decreases in bilateral OTC foreign exchange contracts from those amounts previously reported to correct for the classification of certain contracts. The total amount of bilateral OTC contracts remained unchanged.

The following table presents unrealized and realized gains (losses) on derivative contracts (in thousands):



	Year Ended November 30,
Gains (Losses)	2016			2015			2014
Interest rate contracts	$	(34,319	)	$	(37,601	)	$	(149,587	)
Foreign exchange contracts	18,122			36,101			39,872
Equity contracts	(650,815		)	(137,636		)	(327,978		)
Commodity contracts	1,310			21,409			58,746
Credit contracts	13,039			(14,397		)	(23,934		)
Total	$	(652,663	)	$	(132,124	)	$	(402,881	)

The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising our business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. We substantially mitigate our exposure to market risk on our cash instruments through derivative contracts, which generally provide offsetting revenues, and we manage the risk associated with these contracts in the context of our overall risk management framework.

OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities at November 30, 2016 (in thousands):



	OTC Derivative Assets (1) (2) (3)
	0 – 12 Months		1 – 5 Years		Greater Than 5 Years		Cross-Maturity Netting (4)			Total
Equity swaps and options	$	27,436	$	5,727	$	—	$	—		$	33,163
Credit default swaps	—		4,542		3,463		(1,588		)	6,417
Total return swaps	20,749		389		—		(200		)	20,938
Foreign currency forwards, swaps and options	95,052		35,988		—		(10,547		)	120,493
Interest rate swaps, options and forwards	120,053		189,153		134,507		(71,604		)	372,109
Total	$	263,290	$	235,799	$	137,970	$	(83,939	)	553,120
Cross product counterparty netting										(623		)
Total OTC derivative assets included in Financial instruments owned										$	552,497


(1)	At November 30, 2016, we held exchange traded derivative assets and other credit agreements with a fair value of $25.4 million, which are not included in this table.


(2)	OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received on the Consolidated Statements of Financial Condition. At November 30, 2016, cash collateral received was $217.4 million.


(3)	Derivative fair values include counterparty netting within product category.


(4)	Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.



	OTC Derivative Liabilities (1) (2) (3)
	0 – 12 Months		1 – 5 Years		Greater Than 5 Years		Cross-Maturity Netting (4)			Total
Equity swaps and options	$	10,993	$	20,354	$	—	$	—		$	31,347
Credit default swaps	16		1,594		7,147		(1,588		)	7,169
Total return swaps	12,088		2,407		—		(200		)	14,295
Foreign currency forwards, swaps and options	92,375		26,011		—		(10,547		)	107,839
Fixed income forwards	3,401		—		—		—			3,401
Interest rate swaps, options and forwards	108,085		121,975		92,029		(71,604		)	250,485
Total	$	226,958	$	172,341	$	99,176	$	(83,939	)	414,536
Cross product counterparty netting										(623		)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased										$	413,913


(1)	At November 30, 2016, we held exchange traded derivative liabilities and other credit agreements with a fair value of $414.2 million, which are not included in this table.


(2)	OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged on the Consolidated Statements of Financial Condition. At November 30, 2016, cash collateral pledged was $190.6 million.


(3)	Derivative fair values include counterparty netting within product category.


(4)	Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.

At November 30, 2016, the counterparty credit quality with respect to the fair value of our OTC derivatives assets was as follows (in thousands):



Counterparty credit quality (1):
A- or higher	$	380,574
BBB- to BBB+	39,535
BB+ or lower	51,834
Unrated	80,554
Total	$	552,497


(1)	We utilize internal credit ratings determined by our Risk Management department. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.

Contingent Features

Certain of our derivative instruments contain provisions that require our debt to maintain an investment grade credit rating from each of the major credit rating agencies. If our debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on our derivative instruments in liability positions. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position at November 30, 2016 and 2015 is $70.6 million and $114.5 million, respectively, for which we have posted collateral of $44.4 million and $97.2 million, respectively, in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on November 30, 2016 and 2015, we would have been required to post an additional $26.1 million and $19.7 million, respectively, of collateral to our counterparties.