Fair Value Measurements

9 Months Ended

Sep. 30, 2021

4. Fair Value Measurements

The following table summarizes the valuation of the Company’s assets and liabilities measured at fair value as categorized based on the hierarchy described in Note 2:


	Level 1		Level 2		Level 3		Total
	(In thousands)
As of September 30, 2021
Assets
Money market funds	$	4,454	$	—	$	—	$	4,454
Trading securities
U.S. Treasuries		—		24,964		—		24,964
Mutual funds held in rabbi trust		—		10,803		—		10,803
Foreign currency forward position		—		1,813		—		1,813
Total assets	$	4,454	$	37,580	$	—	$	42,034

Liabilities
Contingent consideration payable	$	—	$	—	$	41,084	$	41,084

As of December 31, 2020
Assets
Money market funds	$	20,856	$	—	$	—	$	20,856
Trading securities
Corporate debt		—		19,222		—		19,222
Mutual funds held in rabbi trust		—		8,889		—		8,889
Total assets	$	20,856	$	28,111	$	—	$	48,967

Liabilities
Contingent consideration payable	$	—	$	—	$	15,026	$	15,026
Foreign currency forward position		—		805		—		805
Total liabilities	$	—	$	805	$	15,026	$	15,831

Securities classified within Level 2 were valued using a market approach utilizing prices and other relevant information generated by market transactions involving comparable assets. The foreign currency forward contracts are classified within Level 2 as the valuation inputs are based on quoted market prices. The mutual funds held in a rabbi trust represent investments associated with the Company’s deferred cash incentive plan.

Liabilities classified within Level 3 reflect contingent consideration payable assumed as part of acquisitions. During the nine months ended September 30, 2021, $26.9 million of contingent consideration payable was recognized in connection with a business combination and a revaluation related to an asset acquisition. Significant unobservable inputs used in the valuation of contingent consideration payable include estimates of client retention, electronic order flow and license fees over periods of 18 to 24 months from the acquisition dates. The following table summarizes the change in the Company's Level 3 liabilities for the nine months ended September 30, 2021:


	December 31, 2020		Additions - acquisitions		Revaluations		Foreign Currency Translation			September 30, 2021
	(In thousands)
Contingent consideration payable	$	15,026	$	22,500	$	4,448	$	(890	)	$	41,084

The table below presents the carrying value, fair value and fair value hierarchy category of the Company's financial assets and liabilities that are not measured at fair value on the Consolidated Statement of Financial Condition. The carrying values of the Company's financial assets and liabilities not measured at fair value categorized in the fair value hierarchy as Level 1 and Level 2 approximate fair value due to the short-term nature of the underlying assets and liabilities.


	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
	(In thousands)
As of September 30, 2021
Financial assets not measured at fair value:
Cash and cash equivalents	$	432,715	$	432,715	$	432,715	$	—	$	—	$	432,715
Cash segregated under federal regulations		50,134		50,134		50,134		—		—		50,134
Accounts receivable, net of allowance		67,766		67,766		—		67,766		—		67,766
Receivables from broker-dealers, clearing organizations and customers		551,841		551,841		80,862		470,979		—		551,841
Total	$	1,102,456	$	1,102,456	$	563,711	$	538,745	$	—	$	1,102,456

Financial liabilities not measured at fair value:
Payables to broker-dealers, clearing organizations and customers	$	303,439	$	303,439	$	—	$	303,439	$	—	$	303,439

As of December 31, 2020
Financial assets not measured at fair value:
Cash and cash equivalents	$	460,858	$	460,858	$	460,858	$	—	$	—	$	460,858
Cash segregated under federal regulations		50,059		50,059		50,059		—		—		50,059
Accounts receivable, net of allowance		79,577		79,577		—		79,577		—		79,577
Receivables from broker-dealers, clearing organizations and customers		279,915		279,915		97,043		182,872		—		279,915
Total	$	870,409	$	870,409	$	607,960	$	262,449	$	—	$	870,409

Financial liabilities not measured at fair value:
Payables to broker-dealers, clearing organizations and customers	$	133,326	$	133,326	$	—	$	133,326	$	—	$	133,326

The Company enters into foreign currency forward contracts to hedge the net investment in the Company’s U.K. subsidiaries. The Company designates each foreign currency forward contract as a hedge and assesses the risk management objective and strategy, including identification of the hedging instrument, the hedged item and the risk exposure and how effectiveness is to be assessed prospectively and retrospectively. These hedges are for a one-month period and are used to limit exposure to foreign currency exchange rate fluctuations. The fair value of the asset is included in prepaid expenses and other assets and the fair value of the liability is included in accounts payable, accrued expenses and other liabilities in the Consolidated Statements of Financial Condition. Gains or losses on foreign currency forward contracts designated as hedges are included in accumulated other comprehensive loss in the Consolidated Statements of Financial Condition. The following table summarizes the Company’s foreign currency forward position:


	As of
	September 30, 2021		December 31, 2020
	(In thousands)
Notional value	$	198,299	$	157,057
Fair value of notional		196,486		157,862
Fair value of the asset (liability)	$	1,813	$	(805	)

The following table summarizes the Company’s investments:


	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
As of September 30, 2021
Trading securities
U.S. Treasuries	$	24,989	$	-	$	(25	)	$	24,964
Mutual funds held in rabbi trust		9,941		862		—			10,803
Total investments	$	34,930	$	862	$	(25	)	$	35,767

As of December 31, 2020
Trading securities
Corporate debt	$	19,081	$	141	$	—		$	19,222
Mutual funds held in rabbi trust		7,680		1,209		—			8,889
Total investments	$	26,761	$	1,350	$	—		$	28,111

The following table summarizes the fair value of the investments based upon the contractual maturities:


	As of
	September 30, 2021		December 31, 2020
	(In thousands)
Less than one year	$	10,803	$	18,290
Due in 1 - 5 years		24,964		9,821
Total	$	35,767	$	28,111

Proceeds from the sales and maturities of investments during the nine months ended September 30, 2021 and 2020 were $19.4 million and $252.2 million, respectively.

- 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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