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Fair Value of Financial Assets and Liabilities

9 Months Ended

Sep. 30, 2019

Fair Value of Financial Assets and Liabilities

12.	Fair Value of Financial Assets and Liabilities

Fair Value Measurements on a Recurring Basis

U.S. GAAP guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

As required by U.S. GAAP guidance, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The following tables set forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under U.S. GAAP guidance (in thousands):

	Assets at Fair Value at September 30, 2019
	Level 1		Level 2 ¹		Level 3		Netting and Collateral			Total
Marketable securities	$	13,220	$	—	$	—	$	—		$	13,220
Government debt		58,405		—		—		—			58,405
Securities owned—Equities		658		—		—		—			658
Foreign exchange/commodities options		1,022		—		—		(1,020	)		2
Forwards		—		349		—		(11	)		338
Foreign exchange swaps		—		3,569		—		(221	)		3,348
Futures		—		779		—		(652	)		127
Corporate Bonds		—		1,335		—		—			1,335
Total	$	73,305	$	6,032	$	—	$	(1,904	)	$	77,433

^{In addition, the Company has equity securities with a fair value of $24.4 million, which are presented in “Other Assets” in the Company’s unaudited condensed consolidated statements of financial condition as of September 30, 2019. These investments are remeasured to fair value on a non-recurring basis and are classified within Level 2 in the fair value hierarchy. See section below titled “Fair Value Measurements on a Non-Recurring Basis” for additional information.}

	Liabilities at Fair Value at September 30, 2019
	Level 1		Level 2		Level 3		Netting and Collateral			Total
Foreign exchange/commodities options	$	1,091	$	—	$	—	$	(1,020	)	$	71
Foreign exchange swaps		—		2,503		—		(221	)		2,282
Forwards		—		2,615		—		(11	)		2,604
Futures		—		1,056		—		(652	)		404
Contingent consideration		—		—		41,026		—			41,026
Total	$	1,091	$	6,174	$	41,026	$	(1,904	)	$	46,387

	Assets at Fair Value at December 31, 2018
	Level 1		Level 2		Level 3		Netting and Collateral			Total
Marketable securities	$	32,064	$	—	$	—	$	—		$	32,064
Government debt		57,788		—		—		—			57,788
Securities owned—Equities		620		—		—		—			620
Foreign exchange/commodities options		482,751	—		—			(482,712	)		39
Forwards		—		253	—			(17	)		236
Foreign exchange swaps		—		1,938		—		(327	)		1,611
Futures		—		57,479		—		(57,386	)		93
Total	$	573,223	$	59,670	$	—	$	(540,442	)	$	92,451

	Liabilities at Fair Value at December 31, 2018
	Level 1		Level 2		Level 3		Netting and Collateral			Total
Foreign exchange/commodities options	$	570,728	$	—	$	—	$	(482,712	)	$	88,016
Foreign exchange swaps		—		2,399		—		(327	)		2,072
Forwards		—		656		—		(17	)		639
Futures		—		57,788		—		(57,386	)		402
Contingent consideration		—		—		45,984		—			45,984
Total	$	570,728	$	60,843	$	45,984	$	(540,442	)	$	137,113

Level 3 Financial Liabilities

Changes in Level 3 liabilities measured at fair value on a recurring basis for the three months ended September 30, 2019 were as follows (in thousands):

	Opening Balance as of July 1, 2019		Total realized and unrealized gains (losses) included in Net income (loss)			Unrealized gains (losses) included in Other comprehensive income (loss)		Purchases/ Issuances		Sales/ Settlements			Closing Balance at September 30, 2019		Unrealized gains (losses) for the period on Level 3 Assets / Liabilities Outstanding at September 30, 2019
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration¹	$	42,152	$	(533	)	$	7	$	—	$	(1,652	)	$	41,026	$	(533	)

¹	^{Realized and unrealized gains (losses) included in Net income (loss) are reported in “Other expenses” and “Other income (loss),” as applicable, in the Company’s unaudited condensed consolidated statements of operations.}

Changes in Level 3 liabilities measured at fair value on a recurring basis for the three months ended September 30, 2018 were as follows (in thousands):

	Opening Balance as of July 1, 2018		Total realized and unrealized gains (losses) included in Net income (loss)			Unrealized gains (losses) included in Other comprehensive income (loss)		Purchases/ Issuances		Sales/ Settlements		Closing Balance at September 30, 2018		Unrealized gains (losses) for the period on Level 3 Assets / Liabilities Outstanding at September 30, 2018
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration¹	$	29,784	$	(437	)	$	15	$	—	$	—	$	30,206	$	(437	)

¹	Realized and unrealized gains (losses) included in Net income (loss) are reported in “Other expenses” and “Other income (loss),” as applicable, in the Company’s unaudited condensed consolidated statements of operations.

Changes in Level 3 liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2019 are as follows (in thousands):

	Opening Balance as of January 1, 2019		Total realized and unrealized gains (losses) included in Net income (loss)			Unrealized gains (losses) included in Other comprehensive income (loss)		Purchases/ Issuances		Sales/ Settlements			Closing Balance at September 30, 2019		Unrealized gains (losses) for the period on Level 3 Assets / Liabilities Outstanding at September 30, 2019
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration¹	$	45,984	$	(4,242	)	$	14	$	—	$	(9,186	)	$	41,026	$	(4,242	)

¹	^{Realized and unrealized gains (losses) included in Net income (loss) are reported in “Other expenses” and “Other income (loss),” as applicable, in the Company’s unaudited condensed consolidated statements of operations.}

Changes in Level 3 liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2018 are as follows (in thousands):

	Opening Balance as of January 1, 2018		Total realized and unrealized gains (losses) included in Net income (loss)			Unrealized gains (losses) included in Other comprehensive income (loss)		Purchases/ Issuances		Sales/ Settlements			Closing Balance at September 30, 2018		Unrealized gains (losses) for the period on Level 3 Assets / Liabilities Outstanding at September 30, 2018
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration¹	$	41,386	$	(761	)	$	12	$	22	$	(11,951	)	$	30,206	$	(761	)

¹	Realized and unrealized gains (losses) included in Net income (loss) are reported in “Other expenses” and “Other income (loss),” as applicable, in the Company’s unaudited condensed consolidated statements of operations.

Quantitative Information About Level 3 Fair Value Measurements on a Recurring Basis

The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurement of Level 3 liabilities measured at fair value on a recurring basis (in thousands):

Fair Value as of September 30, 2019

Assets

Liabilities

Valuation Technique

Unobservable Inputs

Range

Weighted

Average

Contingent consideration

—

41,026

Present value of

expected payments

Discount rate

Probability

of meeting earnout

and contingencies

9.2%-10.3%

65%-100%

9.7%

89.5%¹

¹	The probability of meeting the earnout targets was based on the acquired businesses’ projected future financial performance, including revenues.

Fair Value as of

December 31, 2018

Assets

Liabilities

Valuation Technique

Unobservable Inputs

Range

Weighted

Average

Contingent consideration

—

45,984

Present value of

expected payments

Discount rate

Probability

of meeting earnout

and contingencies

9.2%-10.3%

75%-100%

9.6%

95%¹

¹	The probability of meeting the earnout targets was based on the acquired businesses’ projected future financial performance, including revenues.

Information About Uncertainty of Level 3 Fair Value Measurements

The significant unobservable inputs used in the fair value of the Company’s contingent consideration are the discount rate and forecasted financial information. Significant increases (decreases) in the discount rate would have resulted in a significantly lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would have resulted in a significantly higher (lower) fair value measurement. As of September 30, 2019 and December 31, 2018, the present value of expected payments related to the Company’s contingent consideration was $41.0 million and $46.0 million, respectively. The undiscounted value of the payments, assuming that all contingencies are met, would be $58.9 million and $66.1 million, as of September 30, 2019 and December 31, 2018, respectively.

Fair Value Measurements on a Non-Recurring Basis

Pursuant to the recognition and measurement guidance for equity investments, effective January 1, 2018, equity investments carried under the measurement alternative are remeasured at fair value on a non-recurring basis to reflect observable transactions which occurred during the period. The Company applied the measurement alternative to equity securities with the fair value of $24.4 million and $55.8 million, which were included in “Other assets” in the Company’s unaudited condensed consolidated statements of financial condition as of September 30, 2019 and December 31, 2018, respectively. These investments are classified within Level 2 in the fair value hierarchy, because their estimated fair value is based on valuation methods using the observable transaction price at the transaction date.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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