Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

12 Months Ended

Dec. 31, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

Derivative Financial Instruments

The Company enters into derivative transactions as part of its trading activities and to manage foreign currency exposure. Cash flows associated with such derivative activities are included in cash flows from operating activities on the Consolidated Statements of Cash Flows.

During the normal course of business, the Company enters into futures contracts. These financial instruments are subject to varying degrees of risks whereby the fair value of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The Company is obligated to post collateral against certain futures contracts.

The Company has entered into and may continue to enter into International Swaps and Derivative Association, Inc. (“ISDA”) master netting agreements with counterparties. Master agreements provide protection in bankruptcy in certain circumstances and, where legally enforceable, enable receivables and payables with the same counterparty to be settled or otherwise eliminated by applying amounts due against all or a portion of an amount due from the counterparty or a third party. The Company may also enter into bilateral trading agreements and other customer agreements that provide for the netting of receivables and payables with a given counterparty as a single net obligation.

Under the ISDA master netting agreements, the Company typically also executes credit support annexes, which provide for collateral, either in the form of cash or securities, to be posted or paid by a counterparty based on the fair value of the derivative receivable or payable based on the rates and parameters established in the credit support annex. In the event of counterparty’s default, provisions of the ISDA master agreement permit acceleration and termination of all outstanding transactions covered by the agreement such that a single amount is owed by, or to, the non-defaulting party. Any collateral posted can be applied to the net obligations, with any excess returned and the collateralized party has a right to liquidate the collateral. Any residual claim after netting is treated along with other unsecured claims in bankruptcy court.

The Company is also a party to clearing agreements with various central clearing parties. Under these arrangements, the central clearing counterparty facilitates settlement between counterparties based on the net payable owed or receivable due and, with respect to daily settlement, cash is generally only required to be deposited to the extent of the net amount. In the event of default, a net termination amount is determined based on the market values of all outstanding positions and the clearing organization or clearing member provides for the liquidation and settlement of the net termination amount among all counterparties to the open derivative contracts.

The following tables summarize the fair value and number of derivative instruments held at December 31, 2016 and December 31, 2015. These instruments include those classified as Financial instruments owned, at fair value, Financial instruments sold, not yet purchased, at fair value, as well as futures contracts and bi-lateral over the counter swaps which are reported within Receivable from brokers, dealers and clearing organizations on the Consolidated Statements of Financial Condition. The fair value of assets/liabilities are shown gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding 1) the extent to which, under enforceable master netting agreements, such balances are presented net on the Consolidated Statements of Financial Condition as appropriate under GAAP, and 2) the extent to which other rights of setoff associated with these agreements exist and could have an effect on our financial position (in thousands, except contract amounts):

		December 31, 2016
	Financial Statements	Assets				Liabilities
	Location	Fair Value			Contracts	Fair Value			Contracts
Foreign currency
Futures contracts	Receivable from brokers, dealers and clearing organizations	$	360		1,285	$	1,663		6,495
Forward contracts (1)	Financial instruments owned, at fair value	30			1	—			—
Equity
Futures contracts	Receivable from brokers, dealers and clearing organizations	1,451			2,056	1,644			2,944
Swap contracts	Receivable from brokers, dealers and clearing organizations	16			1	154			1
Listed options	Financial instruments owned/sold, not yet purchased, at fair value	19,100			85,797	12,961			90,063
Forward contracts (2)	Accrued expenses and other liabilities	—			—	1,599			1
Fixed income
Futures contracts	Receivable from brokers, dealers and clearing organizations	4,627			8,590	5,541			5,165
Commodity
Futures contracts	Receivable from brokers, dealers and clearing organizations	86,393			31,800	86,100			31,906
Gross derivative assets/liabilities, before netting		$	111,977			$	109,662
Less: Legally enforceable master netting agreements
Exchange traded (3)		(92,572		)		(94,948		)
Bi-lateral over-the-counter (4)		—				(154		)
Net amounts per Consolidated Statement of Financial Condition (5)		$	19,405			$	14,560

		December 31, 2015
	Financial Statements	Assets				Liabilities
	Location	Fair Value			Contracts	Fair Value			Contracts
Foreign currency
Futures contracts	Receivable from brokers, dealers and clearing organizations	$	578		3,675	$	955		6,586
Forward contracts (1)	Financial instruments owned, at fair value	445			1	—			—
Equity
Futures contracts	Receivable from brokers, dealers and clearing organizations	1,558			4,038	1,743			3,432
Swap contracts	Receivable from brokers, dealers and clearing organizations	—			—	281			2
Listed options	Financial instruments owned/sold, not yet purchased, at fair value	178,360			360,469	151,893			390,949
Fixed income
Futures contracts	Receivable from brokers, dealers and clearing organizations	4,265			6,195	4,037			4,891
Commodity
Futures contracts	Receivable from brokers, dealers and clearing organizations	35,441			22,424	35,814			24,261
Gross derivative assets/liabilities, before netting		$	220,647			$	194,723
Less: Legally enforceable master netting agreements
Exchange traded (3)		(41,146		)		(42,549		)
Bi-lateral over-the-counter (4)		—				(281		)
Net amounts per Consolidated Statement of Financial Condition (5)		$	179,501			$	151,893

⁽¹⁾  The foreign currency forward contract represents a net investment hedge and is designated as a hedging instrument.

⁽²⁾  The equity forward contract represents a liability to deliver shares of Bats common stock to General Atlantic as described in Footnote 9 "Investments".

⁽³⁾  Exchange traded instruments comprise futures contracts.

⁽⁴⁾  Bi-lateral over-the-counter instruments comprise swaps and forward contracts.

⁽⁵⁾  The Company has not received or pledged additional collateral under master netting agreements and or other credit support agreements that is eligible to be offset beyond what is offset in the Consolidated Statements of Financial Condition.

The fair value of listed options and forward contracts in the tables above are classified as Level 1 and Level 2 in the fair value hierarchy, respectively. The fair value of futures contracts and swaps in the tables above are classified as Level 1 and Level 2 in the fair value hierarchy, respectively.

The following table summarizes the gains and losses included in the Consolidated Statements of Operations for the years ended December 31, 2016, 2015 and 2014.

		Gain (Loss) Recognized
	Financial Statements	For the years ended December 31,
	Location	2016			2015			2014
Derivative instruments not designated as hedging instruments:
Foreign currency
Futures contracts	Trading revenues, net	$	3,043		$	4,273		$	10,535
Forward contracts	Investment income and other, net	—			(10		)	526
Equity
Futures contracts	Trading revenues, net	3,725			30,479			25,247
Swap contracts	Trading revenues, net	3,872			3,789			5,277
Listed options	Trading revenues, net	(1,916		)	(14,278		)	(37,439		)
Fixed income
Futures contracts	Trading revenues, net	26,409			37,710			31,277
Commodity
Futures contracts	Trading revenues, net	36,281			48,604			55,295
		$	71,414		$	110,567		$	90,718
Derivative instruments designated as hedging instruments:
Foreign exchange - forward contract	Accumulated other comprehensive income	$	(540	)	$	208		$	—

Financial instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

As a market maker in global equities, fixed income, futures, options, commodities and currencies, the majority of the Company’s securities transactions are conducted as principal or riskless principal with broker dealers and institutional counterparties primarily located in the United States. The Company self-clears substantially all of its U.S. equity and option securities transactions. The Company clears a portion of its securities transactions through third party clearing brokers. Foreign transactions are settled pursuant to global custody and clearing agreements with major U.S. banks. Substantially all of the Company’s credit exposures are concentrated with its clearing brokers, broker dealer and institutional counterparties. The Company’s policy is to monitor the credit standing of counterparties with which it conducts business.

Financial instruments sold, not yet purchased, at fair value represent obligations to purchase such securities (or underlying securities) at a future date. The Company may incur a loss if the market value of the securities subsequently increases.

The Company currently has no loans outstanding to any former or current executive officer or director.