Fair Value Measurement

9 Months Ended

Sep. 30, 2015

Fair Value Measurement [Abstract]

FAIR VALUE MEASUREMENT:

NOTE 3 - FAIR VALUE MEASUREMENT:

The Company measures fair value and discloses fair value measurements for financial and non-financial assets and liabilities. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The accounting standard establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

Items carried at fair value as of September 30, 2015 and December 31, 2014 are classified in the table below in one of the three categories described above.

	Fair value measurements using input type
	September 30, 2015
	U.S. Dollars (in thousands)
	Level 1		Level 2		Level 3			Total
Segregated client cash accounts	$	1,964	$	-	$	-		$	1,964
Restricted cash		41		-		-			41
Financial liabilities		-		-		(497	)		(497	)
	$	2,005	$	-	$	(497	)	$	1,508

The Company measures changes in the fair value of "long term options" (classified as financial liabilities) through profit or loss using valuation techniques.

Total gain for the period recognized in earnings amounted to $2.611 million and total unrealized gain related to those financial liabilities at the end of the period recognized in earnings amounted to $405 thousand. All instruments were issued during the period and no transfers took place into or out of Level 3 during the period.

The following table summarizes the Level 3 Roll-Forward:

Liabilities	December 31, 2014		Net realized / unrealized gain		Issuance			Transfers out of (into) Level 3		Settlements (realized gain)		September 30,  2015			Unrealized gain- still held
	U.S. Dollars (in thousands)
Derivative options based on commodities	$	-	$	130	$	(155	)	$	-	$	110	$	(25	)	$	20
Derivative options based on exchange differences		-		551		(656	)		-		466		(105	)		85
Derivative options based on equity shares		-		1,930		(2,297	)		-		1,630		(367	)		300
Total	$	-	$	2,611	$	(3,108	)	$	-	$	2,206	$	(497	)	$	405

This fair value measurement of the derivatives in the table above is based on significant unobservable inputs (other than quoted prices in active markets that are observable for liability) and thus represents a Level 3 measurement within the fair value hierarchy. The key inputs used in measuring the fair value of financial liabilities depends upon the type of derivative and the nature of the underlying instrument, and includes: risk-free interest rates, quoted foreign- exchange rates, quoted market prices, contractual life of the derivative and expected volatility based on past experience.

The Company’s financial liabilities are evaluated on a quarterly basis by the Company’s Finance Department based upon the Rubenstein and Reiner pricing model for cash-or-nothing options in determining fair value. These evaluations are independently reviewed on an annual basis by an independent third party. Any changes in fair value of financial liabilities are recorded in the consolidated statement of operations. Changes in fair value of financial liability are recorded in consolidated statement of operations.

The measurement of financial liabilities classified within Level 3 of the fair value hierarchy is evaluated by the head of the Company’s risk department and the Company’s Chief Financial Officer. Measurements deemed necessary are reviewed by the Board of Directors.

The following table summarizes the valuation techniques and inputs for Level 3 fair value measurements.

Liabilities	Fair value		Methodology	Input	Weighted Average
	U.S. Dollars (in thousands)
Derivative options based on commodities	$	25	Cash or	Expected volatility		21.8	%
			Nothing- option	Risk-free interest rate		0.01	%
			model	Expected contractual life		0.10
Derivative options based on exchange differences	$	105	Cash or	Expected volatility		32.5	%
			Nothing- option	Risk-free interest rate		0.01	%
			model	Expected contractual life		0.22
Derivative options based on equity shares	$	367	Cash or	Expected volatility		33.4	%
			Nothing- option	Risk-free interest rate		0.01	%
			model	Expected contractual life		0.22

Qualitative Discussion of the Ranges of Significant Unobservable Inputs:

The following section describes the ranges of the most significant unobservable input used by the Company in Level 3 fair value measurements. The level of aggregation and the diversity of instruments held by the Company lead to a wide range of unobservable input that may not be evenly distributed across the Level 3 liabilities.

Volatility generally depends on the tenor of the underlying instrument and the strike price or level defined in the contract. Volatilities for certain combinations of tenor and strike price are not observable. Generally, as the volatility increases in the long term positions the value of the derivative increases; the inverse is also true. Some instruments are more sensitive to changes in volatility than others. For example, an at-the-money option would experience a larger percentage change in its fair value than a deep-in-the-money option. In addition, the fair value of an option with more than one underlying security depends on the volatility of the individual underlying securities. Specific volatility inputs vary widely by asset type. For example, ranges for foreign exchange volatility are generally lower and narrower than equity volatility. Equity instruments (stock) volatilities are wider due to the nature of the stock market and the terms of certain exotic instruments. For most instruments, the interest rate volatility input is on the lower end of the range; however, for certain structured or exotic instruments (such as market-linked asset or exotic interest rate derivatives), the range is much wider. Volatility represents the speed and severity of market price changes and is a key factor in pricing options. Typically, instruments can become more expensive if volatility increases. For example, as an index becomes more volatile, the cost to maintaining a given level of exposure increases because more frequent rebalancing of the portfolio is required.

	Fair value measurements using input type
	December 31, 2014
	U.S. Dollars (in thousands)
	Level 1		Level 2		Level 3		Total
Segregated client cash accounts	$	2,343	$	-	$	-	$	2,343
Restricted cash		42		-		-		42
	$	2,385	$	-	$	-	$	2,385