DERIVATIVE FINANCIAL INSTRUMENTS

12 Months Ended

Dec. 31, 2012

DERIVATIVE FINANCIAL INSTRUMENTS

DERIVATIVE FINANCIAL INSTRUMENTS

17. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses foreign exchange derivative contracts, including forward contracts and foreign currency swaps, to reduce the effects of fluctuations in certain assets and liabilities denominated in foreign currencies. The Company also hedges a portion of its foreign currency exposures on anticipated foreign currency denominated revenues and expenses by entering into forward foreign exchange contracts. As of December 31, 2012 and December 31, 2011, none of these contracts were designated as foreign currency cash flow hedges under ASC 815-10, Derivatives and Hedging (“ASC 815-10”).

The Company provides brokerage services to its customers for exchange-traded and over-the-counter derivative products, which include futures, forwards and options contracts. The Company may enter into principal transactions for exchange-traded and over-the-counter derivative products to facilitate customer trading activities or to engage in principal trading for the Company’s own account.

The Company monitors market risk exposure from its matched principal business and principal trading business by regularly monitoring its concentration of market risk to financial instruments, countries or counterparties and regularly monitoring trades that have not settled within prescribed settlement periods or volume thresholds. Additionally, market risks are monitored and mitigated by the use of the Company’s proprietary, electronic risk monitoring system, which provides daily credit reports in each of the Company’s geographic regions that analyze credit concentration and facilitates the regular monitoring of transactions against key risk indicators.

For certain derivative contracts, the Company has entered into agreements with counterparties that allow for the netting of positions. The Company reports these derivative contracts on a net-by-counterparty basis when management believes that a legal and enforceable right of offset exists under these agreements.

Fair values of derivative contracts on a gross and net basis as of December 31, 2012 and December 31, 2011 are as follows:

	December 31, 2012						December 31, 2011
Derivatives not designated as hedginginstruments under ASC 815-10	Derivative Assets (1)			Derivative Liabilities (2)			Derivative Assets (1)			DerivativeLiabilities (2)
Foreign exchange derivative contracts	$	182,388		$	182,628		$	185,984		$	184,387
Commodity derivative contracts	23,656			23,680			13,178			12,190
Fixed income derivative contracts	2,990			3,420			4,113			2,904
Equity derivative contracts	42,811			34,460			3,600			866
Total fair value of derivative contracts	$	251,845		$	244,188		$	206,875		$	200,347
Counterparty netting	(227,968		)	(227,925		)	(199,574		)	(199,522		)
Total fair value	$	23,877		$	16,263		$	7,301		$	825

(1) Reflects futures and options on futures contracts within Receivables from brokers, dealers and clearing organizations and options and forwards contracts within Other assets.

(2) Reflects futures and options on futures contracts within Payables to brokers, dealers and clearing organizations and options and forwards contracts within Other liabilities.

In addition, as of December 31, 2012 and December 31, 2011, the Company had outstanding forward foreign exchange contracts with a combined notional value of $96,234 and $128,197, respectively. Approximately $26,390 and $32,743 of these forward foreign exchange contracts represents a hedge of euro-denominated balance sheet positions at December 31, 2012 and December 31, 2011, respectively. The remaining contracts are hedges of anticipated future cash flows.

In addition to the Company’s outstanding forward foreign exchange contracts, the following table includes the outstanding long and short notional amounts on a gross basis of derivative financial instruments as of December 30, 2012 and December 31, 2011:

	December 31, 2012				December 31, 2011
	Long		Short		Long		Short
Foreign exchange derivative contracts	$	13,131,184	$	13,116,622	$	9,967,442	$	9,976,475
Commodity derivative contracts	592,686		592,923		512,233		513,245
Fixed income derivative contracts	5,949,603		6,057,524		3,119,363		3,195,903
Equity derivative contracts	81,841		430,899		31,959		6,605

The following is a summary of the effect of derivative contracts on the Consolidated Statements of Operations for the year ended December 31, 2012 and 2011:

		Amount of Gain (Loss) Recognized in Income on Derivatives
	Location of Gain (Loss)
Derivatives not designated as hedging	Recognized in Income on	For the Year Ended December 31,
instruments under ASC 815-10	Derivatives	2012			2011
Foreign exchange derivative contracts	(1)	$	6,344		$	4,090
Commodity derivative contracts	Principal transactions	16,182			14,388
Fixed income derivative contracts	Principal transactions	9,048			10,636
Equity derivative contracts	(2)	(1,155		)	4,885

(1) For the year ended December 31, 2012, approximately $2,011 of gains on foreign exchange derivative contracts were included within Other income and approximately $4,333 of gains on foreign currency options were included within Total brokerage revenues.  For the year ended December 31, 2011, approximately $415 of losses on foreign exchange derivative contracts were included within Other income and approximately $4,505 of gains on foreign currency options were included within Principal transactions.

(2) For the year ended December 31, 2012, approximately $2,475 of losses on equity derivative contracts were included within Other income and approximately $1,320 of gains on equity derivative contracts were included within Principal transactions. For the year ended December 31, 2011, approximately $4,885 of gains on equity derivative contracts were included within Principal transactions.