Fair value measurements (Tables)

12 Months Ended

Dec. 31, 2014

Securities Owned and Securities Sold, But Not Yet Purchased at Fair Value



(Expressed in thousands)
	As of December 31,
	2014				2013
	Owned		Sold		Owned		Sold
U.S. Government, agency and sovereign obligations	$	570,607	$	30,615	$	596,114	$	11,889
Corporate debt and other obligations	19,795		2,646		14,673		4,847
Mortgage and other asset-backed securities	6,689		255		3,395		7
Municipal obligations	60,833		51		40,166		72
Convertible bonds	49,813		11,369		53,719		13,922
Corporate equities	42,751		47,574		61,634		45,336
Money markets	1,245		—		1,263		241
Auction rate securities	91,422		—		85,124		—
Total	$	843,155	$	92,510	$	856,088	$	76,314

Quantitative Information about Level 3 Fair Value Measurements

Additional information regarding the valuation technique and inputs for level 3 financial instruments used is as follows:



(Expressed in thousands)
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2014
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	77,025	$	4,339	$	72,686	Discounted Cash Flow	Discount Rate ⁽²⁾	1.50% to 2.04%	1.78%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	0.012% to 0.48%	0.30%
Municipal Auction Rate Securities	11,475		1,157		10,318		Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.64%	2.64%
								Duration	4.5 Years	4.5 Years
								Current Yield ⁽³⁾	0.23%	0.23%
	5,975		627		5,348		Secondary Market Trading Activity	Observable trades in inactive market for in-portfolio securities	89.50% of par	89.50% of par
Student Loan Auction Rate Securities	450		66		384		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.17%	3.17%
								Duration	7.0 Years	7.0 Years
								Current Yield ⁽³⁾	0.79%	0.79%
Other ⁽⁷⁾	3,625		939		2,686		Secondary Market Trading Activity	Observable trades in inactive market for in portfolio securities	74.11% of par	74.11% of par
	$	98,550	$	7,128	$	91,422
Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	$	7,626	$	410	$	7,216	Discounted Cash Flow	Discount Rate ⁽²⁾	1.50% to 2.04%	1.78%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	0.12% to 0.48%	0.30%
Municipal Auction Rate Securities	4,065		410		3,655		Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.64%	2.64%
								Duration	4.5 Years	4.5 Years
								Current Yield ⁽³⁾	0.23%	0.23%
Student Loan Auction Rate Securities	558		82		476		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.17%	3.17%
								Duration	7.0 Years	7.0 Years
								Current Yield ⁽³⁾	0.79%	0.79%
	$	12,249	$	902	$	11,347
Total	$	110,799	$	8,030	$	102,769


(1)	Principal amount represents the par value of the ARS and is included in securities owned in the consolidated balance sheet at December 31, 2014. The valuation adjustment amount is included as a reduction to securities owned in the consolidated balance sheet at December 31, 2014.


(2)	Derived by applying a multiple to the spread between 110% to 150% to the U.S. Treasury rate of 1.36%.


(3)	Based on current auctions in comparable securities that have not failed.


(4)	Derived by applying a multiple to the spread of 175% to the U.S. Treasury rate of 1.51%.


(5)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 1.97%.


(6)	Principal amount represents the present value of the ARS par value that the Company is committed to purchase at a future date. This principal amount is presented as an off-balance sheet item. The valuation adjustment amount is included in accounts payable and other liabilities on the consolidated balance sheet at December 31, 2014.


(7)	Represents ARS issued by credit default obligation structure that the Company has purchased and is committed to purchase as a result of a legal settlement.

Investments in Company-Sponsored Funds

The following table provides information about the Company’s investments in Company-sponsored funds at December 31, 2014:



(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds ⁽¹⁾	$	2,159	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds ⁽²⁾	6,668		1,251		N/A	N/A
	$	8,827	$	1,251


(1)	Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies. Each hedge fund has various restrictions regarding redemption; no investment is locked-up for a period greater than one year.


(2)	Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and global natural resources. Due to the illiquid nature of these funds, investors are not permitted to make withdrawals without consent of the general partner. The lock-up period of the private equity funds can extend to 10 years.

Assets and Liabilities Measured at Fair Value on Recurring Basis

The Company’s assets and liabilities, recorded at fair value on a recurring basis as of December 31, 2014 and December 31, 2013, have been categorized based upon the above fair value hierarchy as follows:

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2014



(Expressed in thousands)
	Fair Value Measurements at December 31, 2014
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	31,175	$	—	$	—	$	31,175
Deposits with clearing organizations	24,188		—		—		24,188
Securities owned:
U.S. Treasury securities	540,223		—		—		540,223
U.S. Agency securities	—		26,261		—		26,261
Sovereign obligations	—		4,123		—		4,123
Corporate debt and other obligations	—		19,795		—		19,795
Mortgage and other asset-backed securities	—		6,689		—		6,689
Municipal obligations	—		60,669		164		60,833
Convertible bonds	—		49,813		—		49,813
Corporate equities	42,751		—		—		42,751
Money markets	1,245		—		—		1,245
Auction rate securities	—		—		91,422		91,422
Securities owned, at fair value	584,219		167,350		91,586		843,155
Investments ⁽¹⁾	—		51,246		9,508		60,754
Loans held for sale	—		19,243		—		19,243
Securities purchased under agreements to resell ⁽²⁾	—		250,000		—		250,000
Derivative contracts:
TBAs	—		4,535		—		4,535
Interest rate lock commitments	—		—		7,576		7,576
Derivative contracts, total	—		4,535		7,576		12,111
Total	$	639,582	$	492,374	$	108,670	$	1,240,626
Liabilities
Securities sold, but not yet purchased:
U.S. Treasury securities	$	30,581	$	—	$	—	$	30,581
U.S. Agency securities	—		34		—		34
Corporate debt and other obligations	—		2,646		—		2,646
Mortgage and other asset-backed securities	—		255		—		255
Municipal obligations	—		51		—		51
Convertible bonds	—		11,369		—		11,369
Corporate equities	47,574		—		—		47,574
Money markets	—		—		—		—
Securities sold, but not yet purchased at fair value	78,155		14,355		—		92,510
Investments	—		—		—		—
Derivative contracts:
U.S. treasury futures	252		—		—		252
Federal funds futures	43		—		—		43
Eurodollars futures	55		—		—		55
General collateral futures	3		—		—		3
Foreign currency forward contracts	10		—		—		10
TBAs	—		1,018		—		1,018
Interest rate lock commitments	—		—		1,222		1,222
ARS purchase commitments	—		—		902		902
Derivative contracts, total	363		1,018		2,124		3,505
Total	$	78,518	$	15,373	$	2,124	$	96,015


(1)	Included in other assets on the consolidated balance sheet.


(2)	Included in securities purchased under agreements to resell where the Company has elected fair value option treatment.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2013



(Expressed in thousands)
	Fair Value Measurements at December 31, 2013
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	60,268	$	—	$	—	$	60,268
Securities segregated for regulatory and other purposes	11,495		—		—		11,495
Deposits with clearing organizations	10,492		—		—		10,492
Securities owned:
U.S. Treasury securities	566,346		—		—		566,346
U.S. Agency securities	—		29,448		—		29,448
Sovereign obligations	—		320		—		320
Corporate debt and other obligations	—		14,673		—		14,673
Mortgage and other asset-backed securities	—		3,395		—		3,395
Municipal obligations	—		39,930		236		40,166
Convertible bonds	—		53,719		—		53,719
Corporate equities	61,634		—		—		61,634
Money markets	1,263		—		—		1,263
Auction rate securities	—		—		85,124		85,124
Securities owned, at fair value	629,243		141,485		85,360		856,088
Investments ⁽¹⁾	10,775		47,726		5,946		64,447
Loans held for sale	—		75,989		—		75,989
Securities purchased under agreements to resell ⁽²⁾	—		184,000		—		184,000
Derivative contracts:
TBAs	—		2,155		—		2,155
Interest lock commitments	—		—		2,375		2,375
Derivative contracts, total	—		2,155		2,375		4,530
Total	$	722,273	$	451,355	$	93,681	$	1,267,309
Liabilities
Securities sold, but not yet purchased:
U.S. Treasury securities	$	11,837	$	—	$	—	$	11,837
U.S. Agency securities	—		52		—		52
Corporate debt and other obligations	—		4,847		—		4,847
Mortgage and other asset-backed securities	—		7		—		7
Municipal obligations	—		72		—		72
Convertible bonds	—		13,922		—		13,922
Corporate equities	45,336		—		—		45,336
Money markets	241		—		—		241
Securities sold, but not yet purchased at fair value	57,414		18,900		—		76,314
Investments	648		—		—		648
Derivative contracts:
U.S. treasury futures	186		—		—		186
Federal funds futures	18		—		—		18
Eurodollars futures	44		—		—		44
TBAs	—		73		—		73
Interest rate lock commitments	—		—		3,653		3,653
ARS purchase commitments	—		—		2,600		2,600
Derivative contracts, total	248		73		6,253		6,574
Total	$	58,310	$	18,973	$	6,253	$	83,536


(1)	Included in other assets on the consolidated balance sheet.


(2)	Included in securities purchased under agreements to resell where the Company has elected fair value option treatment.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis

he following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2014 and 2013:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Year Ended December 31, 2014
	Beginning Balance	Total Realized and Unrealized Gains (Losses) ⁽⁵⁾⁽⁶⁾		Purchases and Issuances ⁽⁷⁾	Sales and Settlements		Transfers In (Out)		Ending Balance


Assets
Municipals	236	(72	)	—	—		—		164
Auction rate securities ⁽¹⁾⁽⁸⁾	85,124	(622	)	20,625	(13,705	)	—		91,422
Interest rate lock commitments ⁽²⁾	2,375	5,201		—	—		—		7,576
Investments ⁽³⁾	5,946	101		5,178	(1,097	)	(620	)	9,508
Liabilities
Interest rate lock commitments ⁽²⁾	3,653	2,431		—	—		—		1,222
ARS purchase commitments ⁽⁴⁾	2,600	1,698		—	—		—		902


(1)	Represents auction rate preferred securities, municipal auction rate securities and student loan auction rate securities that failed in the auction rate market.

(2)

Interest rate lock commitment assets and liabilities are recorded upon the commitment to originate a loan with a borrower and sell the loan to an investor. The commitment assets and liabilities are recognized at fair value, which reflects the fair value of the contractual loan origination related fees and sale premiums, net of co-broker fees, and the estimated fair value of the expected net future cash flows associated with the servicing of the loan.


(3)	Primarily represents general partner ownership and limited partner interests in hedge funds and private equity funds sponsored by the Company.


(4)	Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the year.


(5)	Included in principal transactions on the consolidated statement of operations, except for investments which are included in other income on the consolidated statement of operations.


(6)	Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

(7)

Purchases and issuances in connection with ARS purchase commitments represent instances in which the Company purchased ARS securities from clients during the period pursuant to regulatory and legal settlements and awards that satisfy the outstanding commitment to purchase obligation. This also includes instances where the ARS issuer has redeemed ARS where the Company had an outstanding purchase commitment prior to the Company purchasing those ARS.


(8)	Sales and settlements for the ARS purchase commitments represent additional purchase commitments made during the year for regulatory and legal ARS settlements and awards.



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Year Ended December 31, 2013
	Beginning Balance		Total Realized and Unrealized Gains (Losses) ⁽⁶⁾⁽⁷⁾			Purchases and Issuances ⁽⁸⁾		Sales and Settlements			Transfers In (Out)			Ending Balance


Assets
Mortgage and other asset-backed securities ⁽¹⁾	$	40	$	—		$	—	$	(8	)	$	(32	)	$	—
Municipals	239		(3		)	—		—			—			236
Auction rate securities ⁽²⁾⁽⁹⁾	72,118		(1,409		)	21,875		(7,460		)	—			85,124
Interest rate lock commitments ⁽³⁾	—		2,375			—		—			—			2,375
Investments ⁽⁴⁾	12,954		929			1,414		(8,898		)	(453		)	5,946
Liabilities
Auction rate securities ⁽²⁾	100		—			100		—			—			—
Interest rate lock commitments ⁽³⁾	—		(3,653		)	—		—			—			3,653
ARS purchase commitments ⁽⁵⁾	2,647		47			—		—			—			2,600


(1)	Represents private placements of non-agency collateralized mortgage obligations.


(2)	Represents auction rate preferred securities, municipal auction rate securities and student loan auction rate securities that failed in the auction rate market.

(3)


(4)	Primarily represents general partner ownership and limited partner interests in hedge funds and private equity funds sponsored by the Company.


(5)	Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the year.


(6)	Included in principal transactions on the consolidated statement of operations, except for investments which are included in other income on the consolidated statement of operations.


(7)	Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

(8)


(9)	Sales and settlements for the ARS purchase commitments represent additional purchase commitments made during the year for regulatory and legal ARS settlements and awards.

Assets and Liabilities Not Measured at Fair Value on Recurring Basis

Assets and liabilities not measured at fair value on a recurring basis as of December 31, 2014



(Expressed in thousands)					Fair Value Measurement: Assets
	As of December 31, 2014				As of December 31, 2014
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Cash	$	32,632	$	32,632	$	32,632	$	—	$	—	$	32,632
Cash segregated for regulatory and other purposes	18,594		18,594		18,594		—		—		18,594
Deposits with clearing organization	12,322		12,322		12,322		—		—		12,322
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	242,172		242,172		—		242,172		—		242,172
Receivables from brokers	38,149		38,149		—		38,149		—		38,149
Securities failed to deliver	11,055		11,055		—		11,055		—		11,055
Clearing organizations	21,106		21,106		—		21,106		—		21,106
Other	1,993		1,993		—		1,993		—		1,993
	314,475		314,475		—		314,475		—		314,475
Receivable from customers	864,189		864,189		—		864,189		—		864,189
Securities purchased under agreements to resell	1,606		1,606		1,606		—		—		1,606
Mortgage servicing rights	30,140		42,279		—		—		42,279		42,279



(Expressed in thousands)					Fair Value Measurement: Liabilities
	As of December 31, 2014				As of December, 2014
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Drafts payable	$	35,373	$	35,373	$	35,373	$	—	$	—	$	35,373
Bank call loans	59,400		59,400		59,400		—		—		59,400
Payables to brokers, dealers and clearing organizations:
Securities loaned	137,892		137,892		—		137,892		—		137,892
Securities failed to receive	23,573		23,573		—		23,573		—		23,573
Clearing organizations and other	95,696		95,696		—		95,696		—		95,696
	257,161		257,161		—		257,161		—		257,161
Payables to customers	652,256		652,256		—		652,256		—		652,256
Securities sold under agreements to repurchase	687,440		687,440		—		687,440		—		687,440
Warehouse payable ⁽¹⁾	16,683		16,683		—		16,683		—		16,683
Senior secured notes	150,000		157,782		—		157,782		—		157,782

(1)

Included in accounts payable and other liabilities on the consolidated balance sheet and cash flows from operating activities on the consolidated statement of cash flows. Warehouse payable represents the warehouse line amount outstanding with the third-party commercial bank. The borrowing rates on the warehouse facility is based upon a variable interest rate of 1-month LIBOR plus a spread. The Company earns a spread between the interest earned on the loans originated by the Company and the interest incurred on amounts drawn from the warehouse facility. The warehouse facility is used in connection with funding loans held for sale which is included in other assets on the consolidated balance sheet and cash flows from operating activities on the consolidated statement of cash flows.

Assets and liabilities not measured at fair value on a recurring basis as of December 31, 2013



(Expressed in thousands)					Fair Value Measurement: Assets
	As of December 31, 2013				As of December 31, 2013
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Cash	$	38,026	$	38,026	$	38,026	$	—	$	—	$	38,026
Cash segregated for regulatory and other purposes	24,828		24,828		24,828		—		—		24,828
Deposits with clearing organization	13,187		13,187		13,187		—		—		13,187
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	274,127		274,127		—		274,127		—		274,127
Receivables from brokers	23,384		23,384		—		23,384		—		23,384
Securities failed to deliver	9,628		9,628		—		9,628		—		9,628
Clearing organizations	26,446		26,446		—		26,446		—		26,446
Omnibus accounts	18,086		18,086		—		18,086		—		18,086
Other	13,202		13,202		—		13,202		—		13,202
	364,873		364,873		—		364,873		—		364,873
Receivable from customers	868,869		868,869		—		868,869		—		868,869
Securities purchased under agreements to resell	825		825		825		—		—		825
Mortgage servicing rights	28,879		40,084		—		—		40,084		40,084
Escrow deposit ⁽¹⁾	25,006		25,006		25,006		—		—		25,006


(1)	Included in other assets on the consolidated balance sheet. Represents escrow monies deposited with a commercial bank. Corresponds with payable to third party in accounts payable and other liabilities on the consolidated balance sheet (see note 3 below).



(Expressed in thousands)					Fair Value Measurement: Liabilities
	As of December 31, 2013				As of December 31, 2013
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Drafts payable	$	48,198	$	48,198	$	48,198	$	—	$	—	$	48,198
Bank call loans	118,200		118,200		118,200		—		—		118,200
Payables to brokers, dealers and clearing organizations:
Securities loaned	211,621		211,621		—		211,621		—		211,621
Securities failed to receive	5,346		5,346		—		5,346		—		5,346
Clearing organizations and other	6,348		6,348		—		6,348		—		6,348
	223,315		223,315		—		223,315		—		223,315
Payables to customers	626,564		626,564		—		626,564		—		626,564
Securities sold under agreements to repurchase	757,491		757,491		—		757,491		—		757,491
Accounts payable and other liabilities:
Warehouse payable ⁽²⁾	54,614		54,614		—		54,614		—		54,614
Payable to third party ⁽³⁾	25,006		25,006		25,006		—		—		25,006
Senior secured notes	195,000		208,529		—		208,529		—		208,529

(2)


(3)	Corresponds with escrow deposit in other assets on the consolidated balance sheet (see note 1 above).

Notional Amounts and Fair Values of Derivatives by Product

The notional amounts and fair values of the Company’s derivatives at December 31, 2014 and 2013 by product were as follows:



(Expressed in thousands)
	Fair Value of Derivative Instruments at December 31, 2014
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments⁽¹⁾
Other contracts	TBAs	$	105,185	$	1,026
	TBA sale contracts	188,178		3,509
	Interest rate lock commitments	147,521		7,576
		$	440,884	$	12,111
Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts ⁽²⁾	U.S. treasury futures	$	102,600	$	252
	Federal funds futures	3,260,000		43
	Eurodollars futures	333,000		55
	General collateral futures	140,000		3
Other contracts	Foreign currency forward contracts	400,000		10
	TBAs	105,186		1,018
	Interest rate lock commitments	22,269		1,222
	Forward start repurchase agreements	636,000		—
	ARS purchase commitments	12,249		902
		$	5,011,304	$	3,505


(1)	See “Derivative Instruments and Hedging Activities” above for description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the related amounts are not offset.


(2)	Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.



(Expressed in thousands)
	Fair Value of Derivative Instruments at December 31, 2013
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	25,262	$	134
	TBA sale contracts	266,415		2,021
	Interest rate lock commitments	115,569		2,375
		$	407,246	$	4,530
Liabilities:
Derivatives not designated as hedging instruments⁽¹⁾
Commodity contracts ⁽²⁾	U.S. treasury futures	$	60,000	$	186
	Federal funds futures	6,155,000		18
	Eurodollars futures	347,000		44
Other contracts	TBAs	14,547		73
	Interest rate lock commitments	76,604		3,653
	Forward start repurchase agreements	506,000		—
	ARS purchase commitments	29,056		2,600
		$	7,188,207	$	6,574


(1)	See “Derivative Instruments and Hedging Activities” above for description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the related amounts are not offset.


(2)	Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.

Fair Value Amounts of Derivative Instruments and their Effect on Statement of Operations

The following table presents the location and fair value amounts of the Company’s derivative instruments and their effect on the consolidated statement of operations for the years ended December 31, 2014 and 2013:



(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Operations
	For the Year Ended December 31, 2014
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Commodity contracts	U.S. treasury futures	Principal transactions revenue	$	(1,687	)
	Federal funds futures	Principal transactions revenue	(272		)
	Eurodollars futures	Principal transactions revenue	(161		)
	General Collateral Futures	Principal transactions revenue	11
Other contracts	TBAs	Principal transactions revenue	(17		)
	TBA sale contracts	Other revenue	(5,530		)
	Interest rate lock commitments	Other revenue	7,632
	ARS purchase commitments	Principal transactions revenue	1,698
	Options	Other revenue	10
			$	1,684

(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Operations
	For the Year Ended December 31, 2013
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Commodity contracts	U.S. treasury futures	Principal transactions revenue	$	906
	Federal funds futures	Principal transactions revenue	(289		)
	Eurodollars futures	Principal transactions revenue	5
Other contracts	TBAs	Principal transactions revenue	61
	TBA sale contracts	Other revenue	2,021
	Interest rate lock commitments	Other revenue	(1,277		)
	ARS purchase commitments	Principal transactions revenue	46
			$	1,473