Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Financial Assets and Liabilities Measured at Fair Value on Recurring Basis

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value (in thousands):



	Assets and Liabilities Measured at Fair Value on a Recurring Basis
June 30, 2013	Level 1		Level 2		Level 3		Total
Assets
Financial instruments owned, at fair value:
Equities (1)	$	1,609,957	$	—	$	—	$	1,609,957
U.S. government and Non-U.S. government obligations	24,006		—		—		24,006
Corporate debt	114,724		—		—		114,724
Listed equity options	188,166		—		—		188,166
Loan inventory	—		130,635		—		130,635
Foreign currency forward contracts	—		1,076				1,076
Securitized HECM loan inventory (2)	—		5,327,418		—		5,327,418
Total Financial instruments owned, at fair value	1,936,853		5,459,129		—		7,395,982
Securities on deposit with clearing organizations (3)	155,203		—		—		155,203
Deferred compensation investments (4)	—		21,231		—		21,231
Investment in Deephaven Funds (4)	—		1,327		—		1,327
Total fair value of financial instrument assets	$	2,092,056	$	5,481,687	$	—	$	7,573,743
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities (1)	$	1,290,401	$	—	$	—	$	1,290,401
U.S. government obligations	33,532		—		—		33,532
Corporate debt	56,889		—		—		56,889
Listed equity options	132,161		—		—		132,161
Total Financial instruments sold, not yet purchased, at fair value	1,512,983		—		—		1,512,983
Liability to GNMA trusts, at fair value (2)	—		5,284,303		—		5,284,303
Total fair value of financial instrument liabilities	$	1,512,983	$	5,284,303	$	—	$	6,797,286

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(1)	Equities of $621.0 million have been netted by their respective CUSIP number and their long and short positions.


(2)	Represents HECMs that have been securitized into HECM Mortgage Backed Securities (“HMBS”) where the securitization is not accounted for as a sale of the underlying HECMs. See Securitized HECM loan inventory below for full description.


(3)	Securities on deposit with clearing organizations consist of U.S. government obligations and are recorded within Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition.


(4)	Deferred compensation investments and investment in the Deephaven Funds are included within Investments on the Consolidated Statements of Financial Condition.



	Assets and Liabilities Measured at Fair Value on a Recurring Basis
December 31, 2012	Level 1		Level 2		Level 3		Total
Assets
Financial instruments owned, at fair value:
Equities (1)	$	1,463,916	$	—	$	—	$	1,463,916
U.S. government and Non-U.S. government obligations	34,339		—		—		34,339
Corporate debt (2)	76,818		—		—		76,818
Listed equity options	202,091		—		—		202,091
Loan inventory	—		191,712		—		191,712
Purchased call options	—		237		—		237
Securitized HECM loan inventory (3)	—		4,054,905		—		4,054,905
Total Financial instruments owned, at fair value	1,777,164		4,246,854		—		6,024,018
Securities segregated under federal and other regulations (4)	3,000		—		—		3,000
Securities on deposit with clearing organizations (4)	182,280		—		—		182,280
Deferred compensation investments (5)	—		21,339		—		21,339
Investment in Deephaven Funds (5)	—		1,342		—		1,342
Assets of business held for sale:
Mortgage-backed securities	—		108,999		—		108,999
Corporate debt	29,690		—		—		29,690
Total fair value of financial instrument assets	$	1,992,134	$	4,378,534	$	—	$	6,370,668
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities (1)	$	1,164,999	$	—	$	—	$	1,164,999
U.S. government obligations	71,728		—		—		71,728
Corporate debt (2)	47,263		—		—		47,263
Listed equity options	155,942		—		—		155,942
Embedded conversion derivative	—		237		—		237
Foreign currency forward contracts	—		5,268		—		5,268
Total Financial instruments sold, not yet purchased, at fair value	1,439,932		5,505		—		1,445,437
Liability to GNMA trusts, at fair value (3)	—		4,002,704		—		4,002,704
Liabilities of business held for sale:
Corporate debt	22,858		—		—		22,858
U.S. government obligations	176,309		—		—		176,309
Total fair value of financial instrument liabilities	$	1,639,099	$	4,008,209	$	—	$	5,647,308

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(1)	Equities of $676.8 million have been netted by their respective CUSIP number and their long and short positions.


(2)	Corporate debt of $0.1 million has been netted by respective CUSIP number and their long and short positions.


(3)	Represents HECMs that have been securitized into HMBS where the securitization is not accounted for as a sale of the underlying HECMs. See Securitized HECM loan inventory below for full description.


(4)	Securities segregated under federal and other regulations and Securities on deposit with clearing organizations consist of U.S. government obligations. The securities on deposit with clearing organizations are recorded within Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition.


(5)	Deferred compensation investments and investment in the Deephaven Funds are included within Investments on the Consolidated Statements of Financial Condition.

Fair Value of Derivative Instruments in Consolidated Statements of Financial Condition and Effect of Changes in Fair Value on Consolidated Statements of Operations

The following tables summarize the fair value of derivative instruments in the Consolidated Statements of Financial Condition and the gains and losses included in the Consolidated Statements of Operations (in thousands):



	Statements of Financial Condition Location	Fair Value as of
	Statements of Financial Condition Location	June 30, 2013		December 31, 2012
Asset Derivatives
Derivative instruments not designated as hedging instruments:	Financial instruments owned, at fair value
Purchased call options		$	—	$	237
Listed equity options ⁽¹⁾		188,166		202,091
		$	188,166	$	202,328
Derivative instruments designated as hedging instruments:	Financial instruments owned, at fair value
Foreign currency forward contracts		$	1,076	$	—
Liability Derivatives
Derivative instruments not designated as hedging instruments:	Financial instruments sold, not yet purchased, at fair value
Embedded conversion derivative		$	—	$	237
Listed equity options ⁽¹⁾		132,161		155,942
Foreign currency forward contracts		—		822
		$	132,161	$	157,001
Derivative instruments designated as hedging instruments:	Financial instruments sold, not yet purchased, at fair value
Foreign currency forward contracts		$	—	$	4,446

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(1)	As of June 30, 2013, the Company held 0.6 million each of long and short listed equity option contracts. As of December 31, 2012, the Company held 0.9 million long and 1.0 million short listed equity option contracts. These contracts are not subject to collateral requirements and are not netted.

Fair Value of Derivative Instruments Gain Loss Recognized



	Financial Statements Location	Gain (Loss) Recognized
		For the three months ended June 30,
		2013			2012
Derivative instruments not designated as hedging instruments:
Purchased call options	Investment income and other, net	$	—		$	(4,315	)
Listed equity options ⁽¹⁾	Net trading revenue	(13,217		)	9,784
Embedded conversion derivative	Investment income and other, net	—			4,315
Foreign currency forward contracts	Investment income and other, net	—			400
		$	(13,217	)	$	10,184
Derivative instruments designated as hedging instruments:
Foreign currency forward contracts	Accumulated other comprehensive loss	$	(546	)	$	2,208



	Financial Statements Location	Gain (Loss) Recognized
		For the six months ended June 30,
		2013			2012
Derivative instruments not designated as hedging instruments:
Purchased call options	Investment income and other, net	$	(237	)	$	(9,531	)
Listed equity options (1)	Net trading revenue	(20,970		)	(5,802		)
Embedded conversion derivative	Investment income and other, net	237			9,531
Foreign currency forward contracts	Investment income and other, net	151			197
		$	(20,819	)	$	(5,605	)
Derivative instruments designated as hedging instruments:
Foreign currency forward contracts	Accumulated other comprehensive loss	$	5,795		$	(1,120	)

(1)

Realized gains and losses on listed equity options relate to the Company’s market making activities in such options. Such market making activities also comprise trading in the underlying equity securities with gains and losses on such securities generally offsetting the gains and losses reported in this table. Gains and losses on such equity securities are also included in Net trading revenue on the Company’s Consolidated Statements of Operations

Gross amounts of recognized derivative assets and gross amounts of offsets in the Consolidated Statement of Condition

The gross amounts of assets and liabilities subject to netting and gross amounts offset in the Consolidated Statements of Financial Condition were as follows (in thousands):



June 30, 2013	Gross Amounts Recognized		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts of Assets Presented in the Statements of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition				Net Amount
							Financial Instruments		Cash Collateral Received
							Financial Instruments		Cash Collateral Received
Assets
Listed equity options	$	188,166	$	—	$	188,166	$	—	$	—	$	188,166
Foreign currency forward contracts	1,076		—		1,076		—		—		1,076
Securities borrowed	1,158,981		—		1,158,981		1,126,224		—		32,757
Total Assets	$	1,348,223	$	—	$	1,348,223	$	1,126,224	$	—	$	221,999
Liabilities
Listed equity options	$	132,161	$	—	$	132,161	$	—	$	5,499	$	126,662
Securities loaned	626,891		—		626,891		616,826		—		10,065
Financial instruments sold under agreements to repurchase (1)	561,251		—		561,251		561,251		—		—
Total Liabilities	$	1,320,303	$	—	$	1,320,303	$	1,178,077	$	5,499	$	136,727



December 31, 2012	Gross Amounts Recognized		Gross Amounts Offset in the Statements of Financial Condition		Net Amounts of Assets Presented in the Statements of Financial Condition		Gross Amounts Not Offset in the Statement of Financial Condition				Net Amount
							Financial Instruments		Cash Collateral Received
							Financial Instruments		Cash Collateral Received
Assets
Listed equity options	$	202,091	$	—	$	202,091	$	—	$	—	$	202,091
Securities borrowed	1,008,720		—		1,008,720		991,302				17,418
Total Assets	$	1,210,811	$	—	$	1,210,811	$	991,302	$	—	$	219,509
Liabilities
Listed equity options	$	155,942	$	—	$	155,942	$	—	$	8,439	$	147,503
Foreign currency forward contracts	4,446		—		4,446		—		—		4,446
Securities loaned	504,082		—		504,082		500,545		—		3,537
Financial instruments sold under agreements to repurchase (1)	466,487		—		466,487		466,487		—		—
Total Liabilities	$	1,130,957	$	—	$	1,130,957	$	967,032	$	8,439	$	155,486


(1)	Financial instruments sold under agreements to repurchase includes $16.3 million and $111.5 million at June 30, 2013 and December 31, 2012, respectively, recorded within Liabilities within discontinued operations and Liabilities of business held for sale, respectively.

- Definition

Tabular disclosure of the location and fair value amounts of derivative instruments (and nonderivative instruments that are designated and qualify as hedging instruments) reported in the statement of financial position.

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