Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2014

The Company’s financial instruments recorded at fair value have been categorized based upon a fair value hierarchy in accordance with accounting guidance, as described in Footnote 3 “Significant Accounting Policies.” 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
December 31, 2014	Level 1		Level 2		Level 3		Total
Assets
Financial instruments owned, at fair value:
Equities ⁽¹⁾	$	2,479,910	$	—	$	—	$	2,479,910
Listed options	144,586		—		—		144,586
U.S. government and Non-U.S. government obligations	22,983		—		—		22,983
Corporate debt ⁽²⁾	59,832		—		—		59,832
Foreign currency forward contracts	—		60		—		60
Total Financial instruments owned, at fair value	2,707,311		60		—		2,707,371
Investment in CME Group ⁽³⁾	4,435		—		—		4,435
Deferred compensation investments ⁽³⁾	—		868		—		868
Investment in Deephaven Funds ⁽³⁾	—		146		—		146
Total assets held at fair value	$	2,711,746	$	1,074	$	—	$	2,712,820
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities ⁽¹⁾	$	2,069,342	$	—	$	—	$	2,069,342
Listed options	115,362		—		—		115,362
U.S. government obligations	18,953		—		—		18,953
Corporate debt ⁽²⁾	82,050		—		—		82,050
Total liabilities held at fair value	$	2,285,707	$	—	$	—	$	2,285,707


⁽¹⁾	Equities of $743.1 million have been netted by their respective long and short positions by CUSIP number.


⁽²⁾	Corporate debt instruments of $0.3 million have been netted by their respective long and short positions by CUSIP number.


⁽³⁾	Investment in CME Group, Deferred compensation investments and Investment in 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, 2013	Level 1		Level 2		Level 3		Total
Assets
Financial instruments owned, at fair value:
Equities ⁽¹⁾	$	2,298,785	$	—	$	—	$	2,298,785
Listed options	339,798		—		—		339,798
U.S. government and Non-U.S. government obligations	40,053		—		—		40,053
Corporate debt	43,203		—		—		43,203
Total Financial instruments owned, at fair value	2,721,839		—		—		2,721,839
Securities on deposit with clearing organizations ⁽²⁾	170,235		—		—		170,235
Investment in CME Group ⁽³⁾	3,925		—		—		3,925
Deferred compensation investments ⁽³⁾	—		117		—		117
Investment in Deephaven Funds ⁽³⁾	—		1,958		—		1,958
Total assets held at fair value	$	2,895,999	$	2,075	$	—	$	2,898,074
Liabilities
Financial instruments sold, not yet purchased, at fair value:
Equities ⁽¹⁾	$	1,851,006	$	—	$	—	$	1,851,006
Listed options	252,282		—		—		252,282
U.S. government obligations	15,076		—		—		15,076
Corporate debt	42,122		—		—		42,122
Foreign currency forward contracts	—		5,014		—		5,014
Total liabilities held at fair value	$	2,160,486	$	5,014	$	—	$	2,165,500

⁽¹⁾ Equities of $697.9 million have been netted by their respective long and short positions by CUSIP number.


⁽²⁾	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.

⁽³⁾ Investment in CME Group, Deferred compensation investments and Investment in Deephaven Funds are included within Investments on the Consolidated Statements of Financial Condition.

The Company’s equities, listed options, U.S. government and non-U.S. government obligations, corporate debt and strategic investments that are publicly traded are generally classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices or broker or dealer quotations with reasonable levels of price transparency.

The types of instruments that trade in markets that are not considered to be active, but are valued based on observable inputs such as quoted market prices or alternative pricing sources with reasonable levels of price transparency are generally classified within Level 2 of the fair value hierarchy.

As of December 31, 2014 and December 31, 2013 the Company had no financial instruments classified within Level 3 of the fair value hierarchy.

The Company’s assets measured at fair value on a nonrecurring basis solely relate to goodwill and intangible assets arising from various acquisitions which would be classified as Level 3 within the fair value hierarchy. See Footnote 12 “Goodwill and Intangible Assets” for additional information.

There were no transfers of assets or liabilities held at fair value between levels of the fair value hierarchy for any periods presented.

The Company’s foreign currency forward contracts, deferred compensation investments and remaining investment in the Deephaven Funds are classified within Level 2 of the fair value hierarchy.

The following is a description of the valuation basis, techniques and significant inputs used by the Company in valuing its Level 2 assets and liabilities:

Foreign currency forward contracts

At December 31, 2014, the Company had a foreign currency forward contract with a notional value of 700.0 million Indian Rupees ($10.9 million U.S. dollars). This forward contract is used to hedge the Company’s investment in its Indian subsidiary. The Indian Rupee foreign currency forward contract does not qualify as a net investment hedge and any gains and losses are recorded in Investment income and other, net on the Consolidated Statements of Operations for the year ended December 31, 2014.

At December 31, 2013, the Company had foreign currency contracts with a notional value of 80.0 million British Pounds. These forward contracts were used to hedge the Company's investment in its European subsidiaries. These forward contracts expired in the first quarter of 2014 and were not renewed.

The fair value of these forward contracts were determined based upon spot foreign exchange rates, LIBOR interest rates and dealer quotations.

Deferred compensation investments

Deferred compensation investments comprise investments in liquid mutual funds that the Company acquires to hedge its obligations to employees and directors under certain non-qualified deferred compensation arrangements. These mutual fund investments can generally be redeemed at any time and are valued based upon quoted market prices.

Investment in Deephaven Funds

Investment in Deephaven Funds represents the Company's residual investment in certain funds that were formerly managed by Deephaven Capital Management, a former Knight subsidiary. These investments are in the process of liquidation and are valued based upon the fair value of the underlying investments within such funds.

- 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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