7. Financial Instruments

Refer to Note 1 within the footnotes to the consolidated financial statements contained within Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for a detailed discussion of accounting policies related to the Company’s financial instruments & investments.

The Company’s financial instruments are recorded within the Statement of Financial Condition at fair value. ASC 820 “Fair Value Measurements and Disclosures” defines fair value as the price that would be received upon the sale of an asset or paid upon the transfer of a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1: Quoted prices in active markets that the Company has the ability to access at the reporting date, for identical assets or liabilities.

Level 2: Directly or indirectly observable prices in active markets for similar assets or liabilities; quoted prices for identical or similar items in markets that are not active; inputs other than quoted prices (e.g., interest rates, yield curves, credit risks, volatilities); or “market corroborated inputs.”

Level 3: Unobservable inputs that reflect management’s own assumptions about the assumptions market participants would make.

Prices are not adjusted for the effects, if any, of the Company holding a large block relative to the overall trading volume (referred to as a “blockage factor”).

Fair Valuation Methodology

Cash Equivalents — These financial assets represent cash in banks or cash invested in highly liquid investments with original maturities of less than 90 days that are not segregated for regulatory purposes or held for sale in the ordinary course of business. These investments are valued at par, which represent fair value, and are considered Level 1 as these instruments are generally traded in active, quoted and highly liquid markets. The Company’s cash equivalents were $3.5 million and $3.8 million at March 31, 2014 and December 31, 2013, respectively.

Financial Instruments Owned — The financial instruments owned of approximately $0.7 million and $0.7 million at March 31, 2014 and December 31, 2013, respectively, were primarily associated with legacy deferred compensation plans provided by the Company, which are scheduled to be paid out to plan participants between 2014 and 2016. The Company has not permitted new amounts to be deferred under these plans since February 28, 2007. The assets are all Level 1 equity securities, which are traded in active, quoted and highly liquid markets.

Investments — The Company’s investments consist of interests in privately held securities, the valuations of which are based predominantly on unobservable inputs and are therefore classified as Level 3. The Company’s investments were $19.5 million and $18.9 million at March 31, 2014 and December 31, 2013, respectively. Refer to Note 8 herein for additional information.

Investments — Quantitative Disclosure About Significant Unobservable Inputs

The Company’s investments are primarily associated with the Company’s limited partnership investment in FATV of approximately $18.2 million (6 privately held companies) and $17.6 million (6 privately held companies) at March 31, 2014 and December 31, 2013, respectively. Refer to Note 8 herein for additional information.

Unobservable Inputs — March 31, 2014

Valuation Technique	Unobservable Input	Range (Weighted Average)
Market comparable companies	Enterprise value/Revenue multiple	2.4x – 6.6x (4.9x)
	Discount applied to multiples	26% - 35% (27%)

Venture capital method	Enterprise value/EBITDA multiple	5.0x
	Discount applied to enterprise value	55%

Unobservable Inputs — December 31, 2013

Valuation Technique	Unobservable Input	Range (Weighted Average)
Market comparable companies	Enterprise value/Revenue multiple	2.7x – 7.0x (5.5x)
	Discount applied to multiples	30% - 35% (30%)

Venture capital method	Enterprise value/EBITDA multiple	5.0x
	Discount applied to enterprise value	55%

An increase in the enterprise value/revenue and EBITDA multiples would result in a higher fair value for these investments, whereas, an increase in the discounts applied would reduce fair value.

Financial Instrument Classification — Transfers between Levels 1, 2 and 3

The Company reviews its financial instrument classification on a quarterly basis. As the observability and strength of valuation attributes change, reclassifications of certain financial assets or liabilities may occur between levels. The Company’s policy is to utilize an end-of-period convention for determining transfers in or out of Levels 1, 2 and 3. During the three months ended March 31, 2014 there were no transfers among Levels 1, 2 and 3.

The following table summarizes the changes in the Company’s Level 3 financial instruments for the three months ended March 31, 2014:

(In thousands of dollars)	Balance at December 31, 2013		Total gains or (losses) (realized and unrealized)		Purchases		Sales		Settlements		Transfers in and/or out of Level 3		Balance at March 31, 2014		Changes in unrealized gains/(losses) on Level 3 assets still held at the reporting date
Investments	$	18,889	$	587	$	—	$	—	$	—	$	—	$	19,476	$	587