Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Financial Instruments

Schedule of categorization of the financial instruments within the fair value hierarchy including those for which the company accounts for under the FVO

The following tables summarize the categorization of the financial instruments within the fair value hierarchy including those for which the Company accounts for under the FVO, at September 30, 2012:

	Assets at Fair Value
(In thousands of dollars)	Level 1		Level 2		Level 3		Total
Financial instruments owned
Agency mortgage-backed securities	$	—	$	863,143	$	8	$	863,151
Loans	—		80,961		—		80,961
Federal agency obligations	—		69,973		—		69,973
Corporate debt securities	—		22,725		—		22,725
Residential mortgage-backed securities	—		11,053		11,281		22,334
U.S. government obligations	21,758		99		—		21,857
Other debt obligations	—		377		10,487		10,864
Commercial mortgage-backed securities	—		97		3,819		3,916
Equity securities	664		—		98		762
Collateralized debt obligations	—		—		551		551
Derivatives	684		—		2,953		3,637
Investments	—		—		19,253		19,253
Total financial assets at fair value	$	23,106	$	1,048,428	$	48,450	$	1,119,984

	Liabilities at Fair Value
(In thousands of dollars)	Level 1		Level 2		Level 3		Total
Securities sold but not yet purchased
U.S. Government obligations	$	249,516	$	—	$	—	$	249,516
Corporate debt securities	—		5,673		—		5,673
Preferred stock	1,864		—		—		1,864
Derivatives	5,221		—		—		5,221
Total financial liabilities at fair value	$	256,601	$	5,673	$	—	$	262,274

The following table summarizes the categorization of the financial instruments within the fair value hierarchy including those for which the Company accounts for under the FVO at December 31, 2011:

	Assets at Fair Value
(In thousands of dollars)	Level 1		Level 2		Level 3		Total
Financial instruments owned
Agency mortgage-backed securities	$	—	$	1,084,254	$	1,367	$	1,085,621
Loans	—		228,226		—		228,226
Federal agency obligations	—		158,774		—		158,774
Commercial mortgage-backed securities	—		—		38,154		38,154
Residential mortgage-backed securities	—		—		18,419		18,419
Corporate debt securities	—		14,524		—		14,524
U.S. Government obligations	5,789		—		—		5,789
Preferred stock	316		—		1,301		1,617
Equity securities	889		—		112		1,001
Collateralized debt obligations	—		—		647		647
Other debt obligations	—		—		192		192
Derivatives	—		—		1,696		1,696
Investments	—		—		18,310		18,310
Total financial assets at fair value	$	6,994	$	1,485,778	$	80,198	$	1,572,970

	Liabilities at Fair Value
(In thousands of dollars)	Level 1		Level 2		Level 3		Total
Securities sold but not yet purchased
U.S. Government obligations	$	158,059	$	—	$	—	$	158,059
Corporate debt securities	—		12,254		—		12,254
Federal agency obligations	—		11,796		—		11,796
Preferred stock	184		—		730		914
Equity securities	2		—		—		2
Derivatives	1,971		—		—		1,971
Total financial liabilities at fair value	$	160,216	$	24,050	$	730	$	184,996

Schedule of Disclosure About Significant Unobservable Inputs

Non-Agency Residential Mortgage Backed Securities – Disclosure About Significant Unobservable Inputs

(Dollars in thousands)

Valuation Technique	Fair Value at September 30, 2012		Unobservable Input	Range (Weighted Average)
Discounted cash flow	$	11,281	Default rate(1)	6.0%-18.0% (9.8%)
			Prepayment rate(2)	0.5%-15% (6.3%)
			Loss severity(1)	50%-65% (55.5%)
			Discount rate(1)	5.4%-8.6% (6.8%)

(1)Increases in this assumption would result in a lower fair value, whereas decreases in this assumption would result in a higher fair value.

(2)Increases in this assumption would result in a higher fair value, whereas decreases in this assumption would result in a lower fair value.

Commercial Mortgage Backed Securities – Disclosure About Significant Unobservable Inputs

Valuation Technique

(Dollars in thousands)	Fair Value at September 30, 2012		Unobservable Input	Range (Weighted Average)
Comparable market data	$	3,819	Spread over benchmark(1)	+3.0 to +13.0 (+9.0%)

(1)Increases in this assumption would result in a higher fair value, whereas decreases in this assumption would result in a lower fair value.

Other Debt Obligations – Disclosure About Significant Unobservable Inputs

Valuation Technique

(Dollars in thousands)	Fair Value at September 30, 2012		Unobservable Input	Range (Weighted Average)
Discounted cash flow	$	10,487	Default rate(1)	0.0%-0.5% (0.4%)
			Prepayment rate(2)	1.2%-15.0% (2.9%)
			Loss severity(1)	0.0%-25.0% (22.2%)
			Discount rate(1)	0.6%-1.9% (0.6%)

(1)Increases in this assumption would result in a lower fair value, whereas decreases in this assumption would result in a higher fair value.

(2)Increases in this assumption would result in a higher fair value, whereas decreases in this assumption would result in a lower fair value.

Investments – Quantitative Disclosure About Significant Unobservable Inputs

The Company’s investments of approximately $19.3 million classified as Level 3, includes the Company’s investment in FATV of approximately $16.0 million.  Refer to Note 10 herein for additional information.

Valuation Technique	Unobservable Input	Range (Weighted Average)
Market comparable companies	Enterprise value/Revenue multiple	1.5x – 7.2x (5.9x)
	Discount applied to multiples	0.0% - 45.0% (23.0%)

Schedule of changes in the company's Level 3 financial instruments

(In thousands of dollars)	Balance at June 30, 2012		Total gains or (losses) (realized and unrealized) (1)			Purchases		Sales			Settlements			Transfers in and/or out of Level 3		Balance at September 30, 2012		Changes in unrealized gains/(losses) on Level 3 assets still held at the reporting date (1)
Commercial mortgage-backed securities	$	5,682	$	(424	)	$	133	$	(1,568	)	$	(4	)	$	—	$	3,819	$	(380	)
Residential mortgage-backed securities	10,355		331			12,700		(11,482		)	(623		)	—		11,281		37
Other debt obligations	2,553		20			11,362		(3,420		)	(28		)	—		10,487		3
Agency mortgage-backed securities	1,486		(80		)	3		(1,401		)	—			—		8		35
Collateralized debt obligations	554		(3		)	—		—			—			—		551		234
Equities	112		(14		)	—		—			—			—		98		(14		)
Investments	19,090		163			—		—			—			—		19,253		32
Derivatives	1,737		2,953			—		—			(1,737		)	—		2,953		2,953
Total	$	41,569	$	2,946		$	24,198	$	(17,871	)	$	(2,392	)	$	—	$	48,450	$	2,900

(1)Realized and unrealized gains/(losses) are reported in Principal transactions in the Consolidated Statements of Operations.

(In thousands of dollars)	Balance at June 30, 2011		Total gains or (losses) (realized and unrealized) (1)			Purchases		Sales			Settlements			Transfers in and/or out of Level 3 (2)		Balance at September 30, 2011		Changes in unrealized gains/(losses) on Level 3 assets still held at the reporting date (1)
Commercial mortgage-backed securities	$	56,359	$	(6,258	)	$	—	$	(22,353	)	$	(32	)	$	—	$	27,716	$	(4,355	)
Residential mortgage-backed securities	27,193		75			28,568		(21,289		)	(1,652		)	—		32,895		(379		)
Other debt obligations	15,998		(94		)	27,464		(23,299		)	(1,160		)	—		18,909		(3		)
Agency mortgage-backed securities	8,013		(95		)	2,839		(9,709		)	—			—		1,048		(124		)
Collateralized debt obligations	1,424		99			—		(877		)	—			—		646		136
Equities	60		165			—		—			—			—		225		(55		)
Investments	16,098		2,857			1,264		—			(1,196		)	—		19,023		2,872
Derivatives	574		3,349			—		—			(574		)	—		3,349		3,349
Total	$	125,719	$	98		$	60,135	$	(77,527	)	$	(4,614	)	$	—	$	103,811	$	1,441

(1)Realized and unrealized gains/(losses) are reported in Principal transactions in the Consolidated Statements of Operations.

(2)During the three months ended September 30, 2011, there were no transfers in or out of Level 3.

(In thousands of dollars)	Balance at December 31, 2011		Total gains or (losses) (realized and unrealized) (1)			Purchases		Sales			Settlements			Transfers in and/or out of Level 3(2)			Balance at September 30, 2012		Changes in unrealized gains/(losses) on Level 3 assets still held at the reporting date (1)
Commercial mortgage-backed securities	$	38,154	$	(6,497	)	$	7,383	$	(33,058	)	$	(62	)	$	(2,101	)	$	3,819	$	(1,322	)
Residential mortgage-backed securities	18,419		(555		)	11,680		(17,329		)	(934		)	—			11,281		12
Other debt obligations	192		10			16,153		(5,848		)	(20		)	—			10,487		(1		)
Agency mortgage-backed securities	1,367		(140		)	15		(1,232		)	(2		)	—			8		4
Collateralized debt obligations	647		(96		)	60		(60		)	—			—			551		(93		)
Equities	112		(14		)	—		—			—			—			98		(14		)
Preferred stock	571		188			5,624		(6,383		)	—			—			—		—
Investments	18,310		156			800		—			(13		)	—			19,253		210
Derivatives	1,696		5,575			—		—			(4,318		)	—			2,953		2,953
Total	$	79,468	$	(1,373	)	$	41,715	$	(63,910	)	$	(5,349	)	$	(2,101	)	$	48,450	$	1,749

(1)Realized and unrealized gains/(losses) are reported in Principal transactions in the Consolidated Statements of Operations.

(2)During the nine months ended September 30, 2012, the Company transferred approximately $2.1 million of commercial mortgage backed securities from Level 3 to Level 2 due to price discovery resulting from Company trading activity occurring in close proximity to the respective quarter-end.

(In thousands of dollars)	Balance at December 31, 2010		Total gains or (losses) (realized and unrealized) (1)			Purchases		Sales			Settlements			Transfers in and/or out of Level 3(2)			Balance at September 30, 2011		Changes in unrealized gains/(losses) on Level 3 assets still held at the reporting date (1)
Commercial mortgage-backed securities	$	46,571	$	8,828		$	67,742	$	(91,668	)	$	(107	)	$	(3,650	)	$	27,716	$	(6,889	)
Residential mortgage-backed securities	33,604		(79		)	32,923		(30,564		)	(2,989		)	—			32,895		(379		)
Other debt obligations	5,843		(14		)	32,005		(18,765		)	(160		)	—			18,909		54
Agency mortgage-backed securities	806		(147		)	1,111		(722		)	—			—			1,048		(187		)
Collateralized debt obligations	23,235		11,570			9,056		(39,122		)	(525		)	(3,568		)	646		61
Equities	60		165			—		—			—			—			225		(55		)
Investments	18,084		2,539			1,367		—			(2,967		)	—			19,023		2,446
Derivatives	—		4,608			—		—			(1,259		)	—			3,349		3,349
Total	$	128,203	$	27,470		$	144,204	$	(180,841	)	$	(8,007	)	$	(7,218	)	$	103,811	$	(1,600	)

(1)Realized and unrealized gains/(losses) are reported in Principal transactions in the Consolidated Statements of Operations.

(2)During the nine months ended September 30, 2011, the Company transferred approximately $3.7 million of commercial mortgage backed securities and approximately $3.6 million of collateralized debt obligations from Level 3 to Level 2 due to price discovery resulting from Company trading activity occurring in close proximity to the respective quarter-end.