12.	Derivatives

The Company enters into commitments to extend credit for mortgage loans at a specific rate (“Rate lock commitments”) and commitments to deliver these loans to third party investors at a fixed price (which are included in forwards in the below disclosure). In the normal course of operations, the Company also enters into other derivative contracts. These derivative contracts primarily consist of foreign exchange swaps, foreign exchange/commodities options, and interest rate swaps. The Company enters into derivative contracts to facilitate client transactions, hedge principal positions and facilitate hedging activities of affiliated companies.

Derivative contracts can be exchange-traded or OTC. Exchange-traded derivatives typically fall within Level 1 or Level 2 of the fair value hierarchy depending on whether they are deemed to be actively traded or not. The Company generally values exchange-traded derivatives using their closing prices. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy. However, some derivative contracts held by the Company, such as rate lock commitments and forwards related to mortgage loans, are valued by the Company using pricing models that entail unobservable inputs, which are significant to the fair value measurement of the derivative contracts. Accordingly, such derivative contracts are generally classified within Level 3 of the fair value hierarchy.

The Company does not designate any derivative contracts as hedges for accounting purposes. U.S GAAP guidance requires that an entity recognize all derivative contracts as either assets or liabilities in the unaudited condensed consolidated statements of financial condition and measure those instruments at fair value. The fair value of all derivative contracts is recorded on a net-by-counterparty basis where a legal right to offset exists under an enforceable netting agreement. Derivative contracts are recorded as part of “Receivables from broker-dealers, clearing organizations, customers and related broker-dealers” and “Payables to broker-dealers, clearing organizations, customers and related broker-dealers” in the Company’s unaudited condensed consolidated statements of financial condition.

The fair value of derivative contracts, computed in accordance with the Company’s netting policy, is set forth below (in thousands):

	June 30, 2018						December 31, 2017
Derivative contract	Assets		Liabilities		Notional Amounts¹		Assets		Liabilities		Notional Amounts¹
Forwards	$	35,917	$	1,647	$	1,835,242	$	4,262	$	1,483	$	642,802
Rate lock commitments		14,448		13,945		959,295		2,923		2,390		180,918
Foreign exchange swaps		896		2,075		577,988		801		2,846		407,600
Futures		159		632		9,866,559		25		1,066		13,023,030
Foreign exchange/commodities options		137		33,849		3,704,117		4,416		130		2,442,200
Interest rate swaps		—		—		—		242		—		12,092
Equity options		—		—		—		—		18		961,000
Total	$	51,557	$	52,148	$	16,943,201	$	12,669	$	7,933	$	17,669,642

¹Notional amounts represent the sum of gross long and short derivative contracts, an indication of the volume of the Company’s derivative activity and does not represent anticipated losses.

The interest rate swaps represent matched customer transactions settled through and guaranteed by a central clearing organization. Certain of the Company’s foreign exchange swaps are with Cantor. See Note 17—“Related Party Transactions,” for additional information related to these transactions.

The replacement cost of contracts in a gain position were $51.6 million and $12.7 million, as of June 30, 2018, and December 31, 2017, respectively.

The following tables present information about the offsetting of derivative instruments as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
						Net Amounts Presented in the		Gross Amounts Not Offset
	Gross Amounts		Gross Amounts Offset			Statements of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amounts
Assets
Forwards	$	36,022	$	(105	)	$	35,917	$	—	$	—	$	35,917
Rate lock commitments		14,448		—			14,448		—		—		14,448
Foreign exchange swaps		1,399		(503	)		896		—		—		896
Futures		14,310		(14,151	)		159		—		—		159
Foreign exchange/commodities options		192,311		(192,174	)		137		—		—		137
Total	$	258,490	$	(206,933	)	$	51,557	$	—	$	—	$	51,557
Liabilities
Foreign exchange/commodities options	$	226,023	$	(192,174	)	$	33,849	$	—	$	—	$	33,849
Rate lock commitments		13,945		—			13,945		—		—		13,945
Foreign exchange swaps		2,578		(503	)		2,075		—		—		2,075
Forwards		1,752		(105	)		1,647		—		—		1,647
Futures		14,783		(14,151	)		632		—		—		632
Total	$	259,081	$	(206,933	)	$	52,148	$	—	$	—	$	52,148

	December 31, 2017
						Net Amounts Presented in the		Gross Amounts Not Offset
	Gross Amounts		Gross Amounts Offset			Statements of Financial Condition		Financial Instruments		Cash Collateral Received		Net Amounts
Assets
Foreign exchange/commodities options	$	31,834	$	(27,418	)	$	4,416	$	—	$	—	$	4,416
Forwards		4,363		(101	)		4,262		—		—		4,262
Rate lock commitments		2,923		—			2,923		—		—		2,923
Foreign exchange swaps		1,135		(334	)		801		—		—		801
Interest rate swaps		242		—			242		—		—		242
Futures		78,969		(78,944	)		25		—		—		25
Total	$	119,466	$	(106,797	)	$	12,669	$	—	$	—	$	12,669
Liabilities
Foreign exchange swaps	$	3,180	$	(334	)	$	2,846	$	—	$	—	$	2,846
Rate lock commitments		2,390		—			2,390		—		—		2,390
Forwards		1,584		(101	)		1,483		—		—		1,483
Futures		80,010		(78,944	)		1,066		—		—		1,066
Foreign exchange/commodities options		27,548		(27,418	)		130		—		—		130
Equity options		18		—			18		—		—		18
Total	$	114,730	$	(106,797	)	$	7,933	$	—	$	—	$	7,933

The change in fair value of interest rate swaps, futures, foreign exchange/commodities options, foreign exchange swaps, and generic forwards is reported as part of “Principal transactions” in the Company’s unaudited condensed consolidated statements of operations. The change in fair value of equity options related to marketable securities is included as part of “Other income (loss)” in the Company’s unaudited condensed consolidated statements of operations. The change in fair value of rate lock commitments and forwards related to mortgage loans are reported as part of “Gains from mortgage banking activities/originations, net” in the Company’s consolidated statements of operations. The change in fair value of rate lock commitments are disclosed net of $0.8 million and $1.0 million of expenses for the three months ended June 30, 2018 and 2017, respectively. For six months ended June 30, 2018 and 2017 the change in fair value of rate lock commitments are disclosed net of $3.2 million and $1.8 million of expenses, respectively, which are reported as part of “Compensation and employee benefits” in the Company’s unaudited condensed consolidated statements of operations. The table below summarizes gains and losses on derivative contracts for the three and six months ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Derivative contract	2018		2017		2018			2017
Rate lock commitments and forwards	$	11,918	$	8,104	$	19,245		$	10,566
Foreign exchange/commodities options		6,062		3,025		10,660			6,628
Futures		5,740		1,749		11,648			3,698
Foreign exchange swaps		212		342		590			969
Equity options		—		—		102			—
Interest rate swaps		—		3		(5	)		31
Gain	$	23,932	$	13,223	$	42,240		$	21,892