16. FAIR VALUE OF FINANCIAL INSTRUMENTS

Certain of the Company’s assets and liabilities are carried at fair value or contracted amounts that approximate fair value. Assets and liabilities that are recorded at contracted amounts approximating fair value consist primarily of receivables from and payables to brokers, dealers and clearing organizations and payables to clearing services customers. These receivables and payables to brokers, dealers and clearing organizations are short-term in nature, and following December 31, 2012, substantially all have settled at the contracted amounts. The Company’s marketable equity securities, included in Other assets, are recorded at fair value based on their quoted market price. The Company’s investments that are accounted for under the cost and equity methods are investments in companies that are not publicly traded and for which no established market for their securities exists. The fair value of these investments is only estimated if there are identified events or changes in circumstances that may have a significant adverse effect on the carrying value of the investment.

The Company’s financial assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC 820-10. In accordance with ASC 820-10, the Company has categorized its financial assets and liabilities, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below.

Level 1—Financial assets and liabilities whose values are based on unadjusted quoted prices for identifiable assets or liabilities in an active market that the company has the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

Level 2—Financial assets and liabilities whose values are based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

· Quoted prices for identifiable or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds which trade infrequently);

· Inputs other than quoted prices that are observable for substantially the full term of the asset or liability (examples include interest rate and currency swaps), and

Level 3—Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability.

The Company’s debt obligations are carried at historical amounts. The fair value of the Company’s Long-term obligations, categorized within Level 2 of the fair value hierarchy and measured primarily using pricing service data from external providers as of December 31, 2012 and December 31, 2011, was as follows:

	December 31,
	2012		2011
Long-term obligations, at estimated fair value:
8.375% Senior Notes	$	220,720	$	231,250

Valuation Techniques

A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis are as follows:

U.S. Treasury Securities - U.S. Treasury securities are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. Treasury securities are generally categorized in Level 1 of the fair value hierarchy.

Equity Securities - Equity securities include mostly exchange-traded securities and are valued based on quoted market prices. Accordingly, exchange-traded equity securities are generally categorized in Level 1 of the fair value hierarchy. Non-exchange traded equity securities are measured primarily using broker quotations, pricing service data from external providers and prices observed for recently executed market transactions. Non-exchange traded equity securities are generally categorized within Level 2 of the fair value hierarchy.

Corporate Bonds — Corporate bonds are measured primarily using broker quotations, pricing service data from external providers and prices observed for recently executed market transactions. Corporate bonds are generally categorized in Level 2 of the fair value hierarchy.

Foreign government bonds — Foreign government bonds are mostly valued using quoted market prices. Accordingly, foreign government bonds are generally categorized in Level 1 of the fair value hierarchy.

Derivative Contracts — Derivative contracts include instruments such as foreign exchange, commodity, fixed income and equity derivative contracts.

Listed Derivative Contracts - Listed derivatives that are actively traded are valued based on quoted prices from the exchange and are categorized in Level 1 of the fair value hierarchy.

OTC Derivative Contracts - OTC derivative contracts include forwards, swaps, and options contracts related to foreign currencies. Depending on the product and the terms of the transaction, the fair value of OTC derivative products can be either observed or modeled using a series of techniques and model inputs from comparable benchmarks, including closed-form analytic formulas, such as the Black-Scholes option-pricing model, and simulation models or a combination thereof. Many pricing models do not entail material subjectivity because the methodologies employed do not necessitate significant judgment, and the pricing inputs are observed from actively quoted markets. In the case of more established derivative products, the pricing models used by the Company are widely accepted by the financial services industry. OTC derivative products valued by the Company using pricing models generally fall into this category and are categorized in Level 2 of the fair value hierarchy.

Equity warrants - Non-exchange traded equity warrants are classified within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Convertible note receivable, available-for-sale — As discussed in Note 7, during the fourth quarter of 2011, the Company exchanged its membership interest in a third party brokerage firm for a convertible senior secured promissory note in that company. This security was previously measured using valuation techniques involving quoted prices of or market data for comparable companies, including credit ratings, peer company ratios and discounted cash flow analyses. As the inputs used in estimating the fair value of this convertible debt security were both unobservable and significant to the overall fair value measurement of this asset, the asset was categorized within Level 3 of the fair value hierarchy. During the three months ended September 30, 2012, the third party brokerage firm notified the Company that they had immediate liquidity concerns and that there was the prospect of insolvency in the near future. Based upon this information, the Company determined its estimated fair value of the convertible senior secured promissory note to be zero. See Note 7 for further details.

Future Purchase Commitment - In connection with the acquisition of 70% of the equity ownership interests in Kyte, the Company agreed to purchase the residual 30% equity interest in Kyte for an additional cash payment in an amount to be determined pursuant to a formula based on Kyte’s earnings, such payment to be made following June 30, 2013. In applying the income approach, the Company assumed a 15.5% and 16.0% discount rate as of December 31, 2012 and December 31, 2011, respectively, and used forecasted financial information for Kyte for the remaining period ended June 30, 2013. As the inputs used in estimating the fair value of this future purchase commitment are both unobservable and significant to the overall fair value measurement of this liability, the liability is categorized in Level 3 of the fair value hierarchy.

Contingent Consideration —The category consists primarily of contingent consideration related to the acquisition of a retail energy brokerage business, completed on November 1, 2009. This contingent liability is remeasured at fair value and is based on estimated future collections of accounts receivable of the business through October 31, 2013.

As the inputs used in estimating the fair value of this contingent consideration are both unobservable and significant to the overall fair value measurement of this liability, the liability is categorized in Level 3 of the fair value hierarchy.

In the year ended December 30, 2012 and 2011, the Company did not have any material transfers amongst Level 1, Level 2, and Level 3.

Financial Assets and Liabilities measured at fair value on a recurring basis as of December 31, 2012 are as follows:

	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance at December 31, 2012
Assets
Other assets: Financial instruments owned:
Equity securities	$	1,223		$	199		$	—	$	1,422
Derivative contracts:
Foreign exchange derivative contracts	$	—		$	182,343		$	—	$	182,343
Fixed income derivative contracts	394			—			—		394
Equity derivative contracts	40,578			—			28		40,606
Commodity derivative contracts	—			1,401			—		1,401
Netting (1)	(17,961		)	(182,955		)	—		(200,916		)
Total derivative contracts	$	23,011		$	789		$	28	$	23,828
Total financial instruments owned	$	24,234		$	988		$	28	$	25,250
Other assets: Other:
Equity security, available-for-sale	$	3,356		$	—		$	—	$	3,356
Convertible note receivable, available-for-sale	—			—			—		—
Total	$	27,590		$	988		$	28	$	28,606

Liabilities
Other liabilities: Financial instruments sold, not yet purchased:
Equity securities	$	205		$	—		$	—	$	205
Derivative contracts:
Foreign exchange derivative contracts	$	14		$	182,573		$	—	$	182,587
Fixed income derivative contracts	595			—			—		595
Equity derivative contracts	17,567			—			—		17,567
Commodity derivative contracts	—			1,400			—		1,400
Netting (1)	(17,961		)	(182,912		)	—		(200,873		)
Total derivative contracts	$	215		$	1,061		$	—	$	1,276
Total financial instruments sold, not yet purchased	$	420		$	1,061		$	—	$	1,481
Other liabilities: Future purchase commitment	$	—		$	—		$	3,209	$	3,209
Other liabilities: Contingent consideration	$	—		$	—		$	518	$	518
Total	$	420		$	1,061		$	3,727	$	5,208

(1) Represents the impact of netting on a net-by-counterparty basis.

Excluded from the table above is variation margin on net long derivative contracts related to exchange traded futures in the amount of $49 and net short derivative contracts related to exchange traded futures in the amount of $14,986. These amounts were included within Receivables from brokers, dealers and clearing organizations.

Financial Assets and Liabilities measured at fair value on a recurring basis as of December 31, 2011 are as follows:

	Quoted Prices in Active Markets for Identical Assets (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Balance at December 31, 2011
Assets
Receivables from brokers, dealers and clearing organizations:
U.S. Treasury securities	$	500		$	—		$	—	$	500
Other assets: Financial instruments owned:
Equity securities	$	480		$	208		$	—	$	688
Derivative contracts:
Foreign exchange derivative contracts	$	16		$	185,933		$	—	$	185,949
Fixed income derivative contracts	1,628			—			—		1,628
Equity derivative contracts	1,453			—			1,937		3,390
Netting (1)	(1,210		)	(183,581		)	—		(184,791		)
Total derivative contracts	$	1,887		$	2,352		$	1,937	$	6,176
Total financial instruments owned	$	2,367		$	2,560		$	1,937	$	6,864
Other assets: Other:
Equity security, available-for-sale	$	2,901		$	—		$	—	$	2,901
Convertible note receivable, available-for-sale	$	—		$	—		$	5,362	$	5,362
Total	$	5,768		$	2,560		$	7,299	$	15,627

Liabilities
Other liabilities: Financial instruments sold, not yet purchased:
Equity securities	$	129		$	22		$	—	$	151
Derivative contracts:
Foreign exchange derivative contracts	$	7		$	184,354		$	—	$	184,361
Fixed income derivative contracts	384			—			—		384
Equity derivative contracts	819			—			—		819
Netting (1)	(1,210		)	(183,529		)	—		(184,739		)
Total derivative contracts	$	—		$	825		$	—	$	825
Total financial instruments sold, not yet purchased	$	129		$	847		$	—	$	976
Other liabilities: Future purchase commitment	$	—		$	—		$	12,562	$	12,562
Other liabilities: Contingent consideration	$	—		$	—		$	1,119	$	1,119
Total	$	129		$	847		$	13,681	$	14,657

(1) Represents the impact of netting on a net-by-counterparty basis.

Excluded from the table above is variation margin on long and short derivative contracts related to exchange traded futures in the amount of $1,125 which are included within Receivables from brokers, dealers and clearing organizations.

Changes in Level 3 Financial Assets and Liabilities measured at fair value on a recurring basis for the year ended December 31, 2012 are as follows:

	Beginning Balance		Total realized and unrealized gains (losses) included in Income (1)			Unrealized gains (losses) included in Other comprehensive (income) loss			Purchases		Issuances		Sales		Settlements			Ending Balance at December 31, 2012		Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at December 31, 2012
Assets
Other assets:
Financial instruments owned:
Equity derivative contracts	$	1,937	$	(2,475	)	$	—		$	566	$	—	$	—	$	—		$	28	$	(2,475	)
Other assets:
Other:
Convertible note receivable, available-for- sale	$	5,362	$	(5,362	)	$	—		$	—	$	—	—		$	—		$	—	$	(5,362	)

Liabilities
Other liabilities:
Future purchase commitment:	$	12,562	$	9,545		$	(192	)	$	—	$	—	$	—	$	—		$	3,209	$	9,545
Other liabilities:
Contingent consideration:	$	1,119	$	(168	)	$	—		$	—	$	—	$	—	$	(769	)	$	518	$	(168	)

(1) Realized and unrealized gains (losses) are reported in Other income in the Consolidated Statements of Operations.

Changes in Level 3 Financial Assets and Liabilities measured at fair value on a recurring basis for the year ended December, 2011 are as follows:

	Beginning Balance		Total realized and unrealized gains(losses) included in Income (1)		Unrealized gains (losses) included in Other comprehensive (income) loss		Purchases		Issuances		Sales		Settlements			Ending Balance at December 31, 2011		Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at December 31, 2011
Assets
Other assets:
Financial instruments owned:
Equity derivative contracts	$	—	$	—	$	—	$	1,937	$	—	$	—	$	—		$	1,937	$	—
Other assets:
Other:
Convertible note receivable, available-for- sale	$	—	$	—	$	—	$	5,362	$	—	$	—	$	—		$	5,362	$	—

Liabilities
Other liabilities:
Future purchase commitment:	$	19,603	$	6,941	$	100	$	—	$	—	$	—	$	—		$	12,562	$	6,941
Other liabilities:
Contingent consideration:	$	2,812	$	—	$	—	$	—	$	—	$	—	$	(1,693	)	$	1,119	$	—

(1) Realized and unrealized gains (losses) are reported in Other income in the Consolidated Statements of Operations.

Quantitative Information about Level 3 Fair Value Measurements

The following table presents quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurement of Level 3 Assets and Liabilities measured at fair value on a recurring basis.

	Fair Value as of December 31, 2012		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average) (a)
Assets
Equity derivative contracts	$	28	Black-Scholes-Merton Model	Expected volatility	55		%
				Estimated share price	$	0.01
Convertible note receivable, available-for-sale	$	—	Discounted cash flow	Estimated credit spread	19		%
			Black-Scholes-Merton Model	Expected volatility	45		%
				Estimated price per convertible unit	(b)
Liabilities
Future purchase commitment	$	3,209	Present value of expected payments	Discount rate	15.5		%
				Forecasted financial information	(c)

(a) As of December 31, 2012, each asset and liability type consists of one security.

(b) To determine the estimated price per convertible unit, the Company estimated the fair value of a non-controlling interest in the entity utilizing a discounted cash flow, appropriate discount rate and combined discount for lack of control and marketability.

(c) The Company’s future purchase commitment is based on Kyte’s projected earnings through June 30, 2013. In estimating the fair value, the Company utilized post-tax projected earnings for the remaining period through June 30, 2013.

Valuation Processes—Level 3 Measurements—Depending on the instrument, the Company utilizes a valuation technique, including discounted cash flow methods, option pricing methods and present value methods, as indicated above. Valuations are generally conducted by the Company, with consultation of a third-party valuation expert to develop the valuation model when the asset or liability is initially recorded. Each reporting period, the Company updates unobservable inputs utilizing relevant published information, where applicable. The Company has a formal process to review changes in fair value for satisfactory explanation.

Sensitivity Analysis—Level 3 Measurements

Equity derivative contracts - The significant unobservable inputs used in the fair value of the Company’s equity derivative contracts are the expected volatility and an estimated share price. Significant increases (decreases) in expected volatility or estimated share price would result in a higher (lower) fair value measurement.

Convertible note receivable, available-for-sale - The significant unobservable inputs used in the fair value of the Company’s convertible note receivable, available-for-sale, are an estimated credit spread, expected volatility and the estimated price per convertible unit. Significant increases (decreases) in expected volatility or estimated price per convertible unit would result in a higher (lower) fair value measurement. Significant increases (decreases) in the estimated credit spread would result in a lower (higher) fair value measurement.

Future purchase commitment - The significant unobservable inputs used in the fair value of the Company’s future purchase commitment for the residual 30% equity interest in Kyte are the discount rate and forecasted financial information. Significant increases (decreases) in the discount rate would result in a lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would result in a higher (lower) fair value measurement.

For all significant unobservable inputs used in the fair value measurement of all Level 3 assets and liabilities, a change in one of the inputs would not necessarily result in a directionally similar change in the other.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

The Company has cost and equity method investments which are monitored for indicators of impairment each reporting period. If the Company determines that an other-than-temporary impairment has occurred, the investment will be written down to its estimated fair value. There were no assets or liabilities measured at fair value on a non-recurring basis at December 31, 2012.

For the year ended December 31, 2011, in accordance with the provisions of ASC 323-10, the Company determined that certain equity method investments were other-than-temporarily impaired and were written down to their estimated fair value. The Company primarily utilized the income approach by assuming an estimated discount rate and forecasted financial information to determine its estimated fair value. The Company measured this equity method investment at fair value on a non-recurring basis and it is not included in the tables above.

The following table presents the balance of the equity method investments at December 31, 2011 that have been measured at fair value on a non-recurring basis, using the process described above, and the impairment charges recorded during the year ended December 31, 2011:

	Balance at December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Losses for the Year Ended, 2011
Other Assets: Investments accounted for under the cost method and equity method (1)	$	—	$	—	$	—	$	—	$	(4,717	)

(1) Impairment losses are recorded within Other expenses in the Consolidated Statements of Operations for the year ended December 31, 2011.

There were no liabilities measured at fair value on a non-recurring basis at December 31, 2011.