3. ADDITIONAL FINANCIAL INFORMATION:

Fair Value Measurements on a Recurring Basis

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis during the period and the related hierarchy levels (amounts in thousands):


	Fair Value Measurements on a Recurring Basis as of September 30, 2012
	Level 1		Level 2		Level 3		Total
Assets:
Money market accounts	$	11,912	$	—	$	—	$	11,912
U.S. Treasury Bills	$	59,952	$	—	$	—	$	59,952
Certificates of deposit	$	82	$	—	$	—	$	82
Futures contracts	$	40	$	—	$	—	$	40
Investment in gold	$	177	$	—	$	—	$	177


	Fair Value Measurements on a Recurring Basis as of December 31, 2011
	Level 1		Level 2		Level 3		Total
Assets:
Money market accounts	$	14,201	$	—	$	—	$	14,201
Certificates of deposit	$	82	$	—	$	—	$	82
Futures contracts	$	42	$	—	$	—	$	42
Investment in gold	$	156	$	—	$	—	$	156

The Company has not changed its valuation techniques in measuring the fair value of any financial assets and liabilities during the nine months ended September 30, 2012. There were no transfers between levels for the nine months ended September 30, 2012 or for the year ended December 31, 2011.

Level 1 Financial Assets

The Company has money market accounts, United States treasury bills, certificates of deposit, futures contracts and an investment in gold that are Level 1 financial instruments and are recorded based upon listed or quoted market rates. The money market accounts are recorded in Cash and cash equivalents and Cash and cash equivalents held for customers, the treasury bills are recorded in Cash and cash equivalents and Short term investments, based upon their maturity, the certificates of deposit are recorded in Short term investments and the futures contracts and investment in gold are recorded in Receivables from banks and brokers.

Financial Instruments Not Measured at Fair Value

The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value in the Condensed Consolidated Balance Sheet (amounts in thousands).

The carrying values of Cash and cash equivalents and Receivables from banks and brokers approximate fair value because of the relatively short period of time between their origination and expected maturity.

The carrying values of Payables to brokers, dealers, FCMs, and other regulated entities includes amounts deposited by these financial institutions in order for the Company to act as clearing broker. The carrying value of Payables to customers includes amounts due on cash and margin transactions. The carrying values of Payables to brokers, dealers, FCMs, and other regulated entities and Payables to customers are based on observable market prices and approximate fair value. The Company’s investment in Kapitall, Inc. is carried at cost.


					Fair Value Measurements using:
					Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

	At September 30, 2012
	Carrying Value		Fair Value
Financial Assets:
Cash and cash equivalents	$	407,306	$	407,306	$	407,306	$	—	$	—
Receivables from banks and brokers		83,700		83,700		—		83,700		—
Investment in Kapitall, Inc.		500		500		—		—		500
Financial Liabilities:
Payables to brokers, dealers, FCMs and other regulated entities	$	12,554	$	12,554	$	—	$	12,554	$	—
Payables to customers		414,011		414,011		—		414,011		—
Note payable to dbFX		2,730		2,730		—		—		2,730

Receivables from Banks and Brokers

Amounts receivable from banks and brokers consisted of the following as of the dates indicated (amounts in thousands):


	September 30, 2012		December 31, 2011
Required collateral	$	29,900	$	26,411
Cash in excess of required collateral		52,437		58,791
Open spot foreign exchange positions		1,580		199

	$	83,917	$	85,401

The Company has posted funds with banks and brokers as collateral pursuant to the terms of applicable agreements for holding spot foreign exchange positions. In addition, the Company has deposited with such banks and brokers cash in excess of required collateral. Open foreign exchange positions include the unrealized gains or losses due to the differences in exchange rates between the dates at which a trade was initiated compared to the exchange rates in effect at the date of the condensed consolidated financial statements. These amounts are reflected as Receivables from banks and brokers on the Condensed Consolidated Balance Sheet.

Allowance for Doubtful Accounts

The Company records an increase in the allowance for doubtful accounts when the prospect of collecting a specific customer account balance becomes doubtful. Management specifically analyzes accounts receivable and historical bad debt experience when evaluating the adequacy of the allowance for doubtful accounts. Should any of these factors change, the estimates made by management will also change, which could affect the level of the Company’s future provision for doubtful accounts. The customer receivables, net of allowance for doubtful accounts, is included in other assets on the Condensed Consolidated Balance Sheets. Receivables from customers are reserved for and recorded in bad debt provision on the Condensed Consolidated Statements of Operations and Comprehensive Income. The allowance for doubtful accounts consisted of the following as of the dates indicated (amounts in thousands):


Balance as of January 1, 2012	$	(55	)
Addition to provision		(248	)
Amounts written off		32

Balance as of September 30, 2012	$	(271	)

Property and Equipment

Property and equipment, including leasehold improvements and capitalized software development costs, consisted of the following as of the dates indicated (amounts in thousands):


	September 30, 2012			December 31, 2011
Software	$	17,334		$	12,998
Computer equipment		5,208			4,897
Leasehold improvements		1,863			1,760
Telephone equipment		728			707
Office equipment		1,432			625
Furniture and fixtures		241			224
Web site development costs		626			655

		27,432			21,866
Less: Accumulated depreciation and amortization		(17,525	)		(14,335	)

Property and equipment, net	$	9,907		$	7,531

Depreciation and amortization expense for property and equipment was $3.2 million and $2.9 million for the nine months ended September 30, 2012 and 2011, respectively, and $1.1 million and $1.0 million for the three months ended September 30, 2012 and 2011, respectively.

Intangible Assets

The Company’s intangible assets consisted of the following as of the dates indicated (amounts in thousands):


	September 30, 2012					December 31, 2011
	Cost		Accumulated Amortization			Cost		Accumulated Amortization
Customer list	$	20,195	$	(11,731	)	$	17,776	$	(8,646	)
Non-compete agreement		1,859		(1,278	)		1,859		(581	)
URLs purchased		333		—			333		—
Other intangibles		1,350		—			30		—

	$	23,737	$	(13,009	)	$	19,998	$	(9,227	)

As mentioned in Note 1 above, in August 2012, the Company purchased all of the outstanding shares of capital stock of Paragon, which owns all of the membership interests of OEC. The allocation of the preliminary purchase price to intangible assets is detailed below in Note 5, “Acquisition”.

In April 2011, the Company acquired customer account balances and effective customer agreements from Deutsche Bank AG, relating to Deutsche Bank’s “dbFX” business, for an upfront payment and additional contractual future payments to be made to Deutsche Bank based upon volume generated from the acquired customers over a two-year period following the closing of the acquisition. The Company also acquired a marketing list from Deutsche Bank and agreed to make certain payments to Deutsche Bank if new customers are obtained from such list over the same two-year period. In accordance with ASC 835-30, Interest, the Company is accounting for the payments due to dbFX as a note payable. As such, the total payments due to dbFX under the agreement were discounted to their present value using an imputed rate of interest upon inception. Through September 30, 2012, the Company had recognized $0.3 million in interest expense related to the total payments required to be made under the agreement. The fair value of the assets acquired was $9.7 million and approximately $7.8 million was allocated to the customer list and $1.9 million was allocated to a non-compete agreement. The portion allocated to the customer list is being amortized over its useful life of six years. The portion allocated to the non-compete agreement, an intangible asset, is being amortized over its useful life of two years.

Amortization expense for the purchased intangibles for the three months and nine months ended September 30, 2012 was $0.6 million and $3.5 million, respectively. Amortization expense for the purchased intangibles for the three months and nine months ended September 30, 2011 was $2.7 million and $6.4 million, respectively. The Company’s remaining estimated amortization expense for each of the five fiscal years ending subsequent to September 30, 2012 is as follows (amounts in thousands):


Years ended December 31:
2012	$	690
2013		2,049
2014		1,701
2015		1,701
2016		1,701

Goodwill

As of September 30, 2012 and December 31, 2011, the Company had recorded goodwill of $10.2 million and $3.1 million, respectively. Goodwill increased $7.1 million as a result of the acquisition of Paragon in August 2012.

Goodwill is tested for impairment annually, generally in the fourth quarter of each year, or earlier in the event that impairment indicators are present. In the event that goodwill is impaired, it is written down to fair value. As of the most recent review of goodwill, the fair value of the Company’s sole reporting unit was significantly in excess of the carrying value of goodwill, indicating there was no impairment.

Other Assets

Other assets consisted of the following as of the dates indicated (amounts in thousands):


	September 30, 2012		December 31, 2011
Vendor and security deposits	$	3,682	$	3,774
Current tax receivable		6,762		6,762
Deferred tax assets		3,449		4,471
Investment in Kapitall, Inc.⁽¹⁾		500		500
Miscellaneous receivables		2,846		2,630

	$	17,239	$	18,137

(1)	The cost method of accounting is used to account for the Company’s investment in Kapitall, Inc., because the Company does not have the ability to exercise significant influence over Kapitall, Inc.’s operating and financial policies.