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Derivative Financial Instruments
 6 Months Ended
May 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
Derivative Financial Instruments
Our derivative activities are recorded at fair value in our 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. 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 International Swaps and Derivatives Association, Inc. master netting agreements or similar agreements with counterparties. See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2018 for additional information regarding the offsetting of derivative contracts.
The following tables present the fair value and related number of derivative contracts at May 31, 2019 and November 30, 2018 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 our 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).
 
May 31, 2019 (1)
 
Assets
 
Liabilities
 
Fair Value
 
Number of Contracts (2)
 
Fair Value
 
Number of Contracts (2)
Derivatives designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Cleared OTC
$
13,348

 
1

 
$
—

 
—

Total derivatives designated as accounting hedges
13,348

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Exchange-traded
1,070

 
41,702

 
1,835

 
64,221

Cleared OTC
897,615

 
2,907

 
952,865

 
3,360

Bilateral OTC
405,268

 
2,002

 
239,880

 
752

Foreign exchange contracts:
 
 
 
 
 
 
 
Exchange-traded
—

 
36

 
—

 
59

Bilateral OTC
399,803

 
12,319

 
412,485

 
12,544

Equity contracts:
 
 
 
 
 
 
 
Exchange-traded
621,087

 
1,703,475

 
921,170

 
1,327,055

Bilateral OTC
166,068

 
3,195

 
374,665

 
3,835

Commodity contracts:
 
 
 
 
 
 
 
Exchange-traded
340

 
5,285

 
503

 
6,904

Credit contracts:
 
 
 
 
 
 
 
Cleared OTC
3,177

 
24

 
4,595

 
24

Bilateral OTC
9,075

 
98

 
11,898

 
58

Total derivatives not designated as accounting hedges
2,503,503

 
 
 
2,919,896

 
 
Total gross derivative assets/ liabilities:
 
 
 
 
 
 
 
Exchange-traded
622,497

 
 
 
923,508

 

Cleared OTC
914,140

 
 
 
957,460

 

Bilateral OTC
980,214

 
 
 
1,038,928

 

Amounts offset in our Consolidated Statements of Financial Condition (3):
 
 
 
 
 
 
 
Exchange-traded
(603,556
)
 
 
 
(603,556
)
 
 
Cleared OTC
(897,715
)
 
 
 
(902,183
)
 
 
Bilateral OTC
(692,137
)
 
 
 
(859,914
)
 
 
Net amounts per Consolidated Statements of Financial Condition (4)
$
323,443

 
 
 
$
554,243

 
 
(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)
Number of exchange traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.
(3)
Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)
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 our Consolidated Statements of Financial Condition.
 
November 30, 2018 (1)
 
Assets
 
Liabilities
 
Fair Value
 
Number of Contracts (2)
 
Fair Value
 
Number of Contracts (2)
Derivatives designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Cleared OTC
$
—

 
—

 
$
29,647

 
1

Total derivatives designated as accounting hedges
—

 
 
 
29,647

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Exchange-traded
924

 
32,159

 
513

 
66,095

Cleared OTC
422,670

 
2,095

 
411,833

 
2,394

Bilateral OTC
372,899

 
1,398

 
491,697

 
816

Foreign exchange contracts:
 
 
 
 
 
 
 
Exchange-traded
42

 
538

 
2

 
690

Cleared OTC
—

 
—

 
36

 
3

Bilateral OTC
311,228

 
9,548

 
314,951

 
9,909

Equity contracts:
 
 
 
 
 
 
 
Exchange-traded
1,202,927

 
2,104,684

 
2,061,137

 
1,779,836

Bilateral OTC
207,221

 
5,126

 
315,996

 
2,764

Commodity contracts:
 
 
 
 
 
 
 
Exchange-traded
213

 
3,927

 
270

 
4,012

Credit contracts:
 
 
 
 
 
 
 
Cleared OTC
11,204

 
7

 
1,556

 
14

Bilateral OTC
13,768

 
123

 
11,618

 
79

Total derivatives not designated as accounting hedges
2,543,096

 
 
 
3,609,609

 
 
Total gross derivative assets/liabilities:
 
 
 
 
 
 
 
Exchange-traded
1,204,106

 
 
 
2,061,922

 
 
Cleared OTC
433,874

 
 
 
443,072

 
 
Bilateral OTC
905,116

 
 
 
1,134,262

 
 
Amounts offset in our Consolidated Statements of Financial Condition (3):
 
 
 
 
 
 
 
Exchange-traded
(1,190,951
)
 
 
 
(1,190,951
)
 
 
Cleared OTC
(407,351
)
 
 
 
(418,779
)
 
 
Bilateral OTC
(814,184
)
 
 
 
(901,875
)
 
 
Net amounts per Consolidated Statements of Financial Condition (4)
$
130,610

 
 
 
$
1,127,651

 
 
(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)
Number of exchange traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.
(3)
Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)
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 our Consolidated Statements of Financial Condition.
The following table provides information related to gains (losses) recognized in Interest expense in our Consolidated Statements of Earnings on a fair value hedge (in thousands):
 
Three Months Ended 
 May 31,
 
Six Months Ended 
 May 31,
Gains (Losses)
2019
 
2018
 
2019
 
2018
Interest rate swaps
$
27,204

 
$
19

 
$
41,791

 
$
(21,202
)
Long-term debt
(28,213
)
 
120

 
(43,769
)
 
22,835

Total
$
(1,009
)
 
$
139

 
$
(1,978
)
 
$
1,633

The following table presents unrealized and realized gains (losses) on derivative contracts recognized in Principal transactions revenues in our Consolidated Statements of Earnings, which are utilized in connection with our client activities and our economic risk management activities (in thousands):
 
Three Months Ended 
 May 31,
 
Six Months Ended 
 May 31,
Gains (Losses)
2019
 
2018
 
2019
 
2018
Interest rate contracts
$
(34,020
)
 
$
(4,860
)
 
$
(103,851
)
 
$
22,102

Foreign exchange contracts
1,594

 
6,365

 
1,418

 
10,628

Equity contracts
(92,109
)
 
(53,598
)
 
(120,590
)
 
(217,039
)
Commodity contracts
(1,117
)
 
2,921

 
1,375

 
2,744

Credit contracts
4,818

 
2,024

 
8,913

 
2,406

Total
$
(120,834
)
 
$
(47,148
)
 
$
(212,735
)
 
$
(179,159
)

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 May 31, 2019 (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
$
40,703

 
$
26

 
$
4,031

 
$
(2,233
)
 
$
42,527

Credit default swaps
807

 
966

 
2,294

 
(469
)
 
3,598

Total return swaps
9,675

 
51,481

 
—

 
(1,607
)
 
59,549

Foreign currency forwards, swaps and options
52,486

 
21,850

 
—

 
(15,480
)
 
58,856

Interest rate swaps, options and forwards
75,339

 
169,577

 
118,624

 
(70,534
)
 
293,006

Total
$
179,010

 
$
243,900

 
$
124,949

 
$
(90,323
)
 
457,536

Cross product counterparty netting
 
 
 
 
 
 
 
 
(39,313
)
Total OTC derivative assets included in Financial instruments owned
 
 
 
 
 
 
 
 
$
418,223

(1)
At May 31, 2019, we held exchange-traded derivative assets and other credit agreements with a fair value of $22.3 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 in our Consolidated Statements of Financial Condition. At May 31, 2019, cash collateral received was $117.1 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
$
28,465

 
$
118,560

 
$
40,591

 
$
(2,233
)
 
$
185,383

Credit default swaps
40

 
2,535

 
3,583

 
(469
)
 
5,689

Total return swaps
89,603

 
37,003

 
—

 
(1,607
)
 
124,999

Foreign currency forwards, swaps and options
67,386

 
18,225

 
1,404

 
(15,480
)
 
71,535

Fixed income forwards
600

 
—

 
—

 
—

 
600

Interest rate swaps, options and forwards
46,443

 
81,306

 
116,012

 
(70,534
)
 
173,227

Total
$
232,537

 
$
257,629

 
$
161,590

 
$
(90,323
)
 
561,433

Cross product counterparty netting
 
 
 
 
 
 
 
 
(39,313
)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased
 
 
 
 
 
 
 
 
$
522,120

(1)
At May 31, 2019, we held exchange-traded derivative liabilities and other credit agreements with a fair value of $321.4 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 in our Consolidated Statements of Financial Condition. At May 31, 2019, cash collateral pledged was $289.3 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.
The following table presents the counterparty credit quality with respect to the fair value of our OTC derivative assets at May 31, 2019 (in thousands):
Counterparty credit quality (1):
 
A- or higher
$
73,860

BBB- to BBB+
18,788

BB+ or lower
194,336

Unrated
131,239

Total
$
418,223

(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.
Credit Related Derivative Contracts
The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts (in millions):
 
May 31, 2019
 
External Credit Rating
 
 
 
 
 
Investment Grade
 
Non-investment Grade
 
Unrated
 
Total Notional
Credit protection sold:
 
 
 
 
 
 
 
Index credit default swaps
$
3.0

 
$
76.0

 
$
—

 
$
79.0

Single name credit default swaps
14.1

 
50.4

 
32.9

 
97.4

 
November 30, 2018
 
External Credit Rating
 
 
 
 
 
Investment Grade
 
Non-investment Grade
 
Unrated
 
Total Notional
Credit protection sold:
 
 
 
 
 
 
 
Index credit default swaps
$
25.7

 
$
167.4

 
$
—

 
$
193.1

Single name credit default swaps
57.7

 
84.5

 
3.0

 
145.2


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 following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts we have posted or received in the normal course of business and the potential collateral we would have been required to return and/or post additionally to our counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions):
 
May 31, 2019
 
November 30, 2018
Derivative instrument liabilities with credit-risk-related contingent features
$
41.1

 
$
93.5

Collateral posted
(11.6
)
 
(61.5
)
Collateral received
30.5

 
91.5

Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)
59.9

 
123.3


(1)
These potential outflows include initial margin received from counterparties at the execution of the derivative contract. The initial margin will be returned if counterparties elect to terminate the contract after a downgrade.