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. Predominantly, we 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. In addition, we apply hedge accounting to an interest rate swap that has been designated as a fair value hedge of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt.

See Note 4, Fair Value Disclosures, and Note 16, 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 February 28, 2017 and November 30, 2016 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).



	February 28, 2017 (1)
	Assets				Liabilities
	Fair Value			Number of Contracts	Fair Value			Number of Contracts
Derivatives designated as accounting hedges:
Interest rate contracts:
Cleared OTC	$	—		—	$	3,456		1
Total derivatives designated as accounting hedges	—				3,456

Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	2,797			23,014	635			41,259
Cleared OTC	1,715,306			3,258	1,604,811			3,301
Bilateral OTC	360,402			1,524	366,006			682
Foreign exchange contracts:
Exchange-traded	140			734	3			431
Bilateral OTC	308,556			5,797	300,816			5,971
Equity contracts:
Exchange-traded	537,971			1,822,926	773,258			1,595,727
Bilateral OTC	65,189			1,139	91,216			1,367
Commodity contracts:
Exchange-traded	7			4,851	—			4,711
Credit contracts:
Cleared OTC	3,071			23	12,555			34
Bilateral OTC	19,826			191	15,257			122
Total derivatives not designated as hedges	3,013,265				3,164,557

Total gross derivative assets/ liabilities:
Exchange-traded	540,915				773,896
Cleared OTC	1,718,377				1,620,822
Bilateral OTC	753,973				773,295
Amounts offset in the Consolidated Statements of Financial Condition (2):
Exchange-traded	(526,103		)		(526,103		)
Cleared OTC	(1,701,815		)		(1,608,805		)
Bilateral OTC	(598,845		)		(659,524		)
Net amounts per Consolidated Statements of Financial Condition (3)	$	186,502			$	373,581


(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, 2016 (1)
	Assets				Liabilities
	Fair Value			Number of Contracts	Fair Value			Number of Contracts
Derivatives not designated as accounting hedges:
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.

The following table provides information related to gains (losses) recognized in Interest expense in the Consolidated Statements of Earnings on a fair value hedge (in thousands):



	Three Months Ended
Gains (Losses)	February 28, 2017			February 29, 2016
Interest rate swaps	$	(4,609	)	$	—
Long-term debt	5,405			—
Total	$	796		$	—

The following table presents unrealized and realized gains (losses) on derivative contracts recognized in Principal transactions revenue in the Consolidated Statements of Earnings, which are utilized in connection with our client activities and our economic risk management activities (in thousands):



	Three Months Ended
Gains (Losses)	February 28, 2017			February 29, 2016
Interest rate contracts	$	9,997		$	(72,525	)
Foreign exchange contracts	2,008			1,589
Equity contracts	(169,116		)	(225,666		)
Commodity contracts	(511		)	(1,875		)
Credit contracts	12,041			(12,889		)
Total	$	(145,581	)	$	(311,366	)

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 February 28, 2017 (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	$	18,536	$	3,271	$	—	$	—		$	21,807
Credit default swaps	—		14,487		—		—			14,487
Total return swaps	6,384		771		—		(38		)	7,117
Foreign currency forwards, swaps and options	37,502		37,500		—		(13,111		)	61,891
Interest rate swaps, options and forwards	32,212		153,246		124,873		(66,627		)	243,704
Total	$	94,634	$	209,275	$	124,873	$	(79,776	)	349,006
Cross product counterparty netting										(1,512		)
Total OTC derivative assets included in Financial instruments owned										$	347,494


(1)	At February 28, 2017, we held exchange-traded derivative assets and other credit agreements with a fair value of $15.5 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 February 28, 2017, cash collateral received was $176.5 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	$	13,148	$	17,187	$	1,908	$	—		$	32,243
Credit default swaps	178		13,155		—		—			13,333
Total return swaps	20,221		2,391		—		(38		)	22,574
Foreign currency forwards, swaps and options	39,883		27,382		—		(13,111		)	54,154
Fixed income forwards	275		—		—		—			275
Interest rate swaps, options and forwards	19,346		92,177		96,958		(66,627		)	141,854
Total	$	93,051	$	152,292	$	98,866	$	(79,776	)	264,433
Cross product counterparty netting										(1,512		)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased										$	262,921


(1)	At February 28, 2017, we held exchange-traded derivative liabilities and other credit agreements with a fair value of $254.9 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 February 28, 2017, cash collateral pledged was $144.2 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 February 28, 2017, 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	$	218,007
BBB- to BBB+	62,994
BB+ or lower	28,130
Unrated	38,363
Total	$	347,494


(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 February 28, 2017 and November 30, 2016 is $19.4 million and $70.6 million, respectively, for which we have received collateral of $3.7 million and posted collateral of $44.4 million, respectively, in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on February 28, 2017 and November 30, 2016, we would have been required to post an additional $23.1 million and $26.1 million, respectively, of collateral to our counterparties.