Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2015

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



(Expressed in thousands)
	As of March 31, 2015				As of December 31, 2014
	Owned		Sold		Owned		Sold
U.S. Government, agency and sovereign obligations	$	662,364	$	131,588	$	570,607	$	30,615
Corporate debt and other obligations	14,813		4,533		19,795		2,646
Mortgage and other asset-backed securities	3,982		1		6,689		255
Municipal obligations	83,942		51		60,833		51
Convertible bonds	41,054		11,453		49,813		11,369
Corporate equities	49,760		37,023		42,751		47,574
Money markets	391		—		1,245		—
Auction rate securities	99,057		—		91,422		—
Total	$	955,363	$	184,649	$	843,155	$	92,510

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 March 31, 2015
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	83,700	$	3,783	$	79,917	Discounted Cash Flow	Discount Rate ⁽²⁾	1.24% to 1.69%	1.45%
								Duration	4.0 years	4.0 years
								Current Yield ⁽³⁾	0.10% to 0.48%	0.28%
Municipal Auction Rate Securities	11,575		972		10,603		Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.18%	2.18%
								Duration	4.5 years	4.5 years
								Current Yield ⁽³⁾	0.21%	0.21%
	5,975		538		5,437		Secondary Market Trading Activity	Observable trades in inactive market for in portfolio securities	91.00% of par	91.00% of par
Student Loan Auction Rate Securities	375		47		328		Discounted Cash Flow	Discount Rate ⁽⁵⁾	2.91%	2.91%
								Duration	7.0 years	7.0 years
								Current Yield⁽³⁾	0.79%	0.79%
Other ⁽⁷⁾	3,625		853		2,772		Secondary Market Trading Activity	Observable trades in inactive market for in portfolio securities	76.46% of par	76.46% of par
	$	105,250	$	6,193	$	99,057
Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	$	10,116	$	449	$	9,667	Discounted Cash Flow	Discount Rate ⁽²⁾	1.24% to 1.69%	1.45%
								Duration	4.0 years	4.0 years
								Current Yield ⁽³⁾	0.10% to 0.48%	0.28%
Municipal Auction Rate Securities	4,116		346		3,770		Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.18%	2.18%
								Duration	4.5 years	4.5 years
								Current Yield ⁽³⁾	0.21%	0.21%
Student Loan Auction Rate Securities	18		2		16		Discounted Cash Flow	Discount Rate ⁽⁵⁾	2.91%	2.91%
								Duration	7.0 years	7.0 years
								Current Yield ⁽³⁾	0.79%	0.79%
	$	14,250	$	797	$	13,453
Total	$	119,500	$	6,990	$	112,510


(1)	Principal amount represents the par value of the ARS and is included in securities owned in the condensed consolidated balance sheet at March 31, 2015. The valuation adjustment amount is included as a reduction to securities owned in the condensed consolidated balance sheet as well as principal transactions revenue in the statement of income at March 31, 2015.

(2)Derived by applying a multiple to the spread between 110% to 150% to the U.S. Treasury rate of 1.13%.

(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 1.25%.

(5)Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 1.71%.


(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 condensed consolidated balance sheet at March 31, 2015.


(7)	Represents ARS issued by a 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 March 31, 2015:



(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds ⁽¹⁾	$	2,092	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds ⁽²⁾	6,373		1,251		N/A	N/A
	$	8,465	$	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 March 31, 2015 and December 31, 2014, 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 March 31, 2015



(Expressed in thousands)
	Fair Value Measurements at March 31, 2015
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	28,075	$	—	$	—	$	28,075
Deposits with clearing organizations	28,194		—		—		28,194
Securities owned:
U.S. Treasury securities	641,665		—		—		641,665
U.S. Agency securities	2,919		17,008		—		19,927
Sovereign obligations	—		772		—		772
Corporate debt and other obligations	—		14,813		—		14,813
Mortgage and other asset-backed securities	—		3,982		—		3,982
Municipal obligations	—		83,838		104		83,942
Convertible bonds	—		41,054		—		41,054
Corporate equities	49,760		—		—		49,760
Money markets	391		—		—		391
Auction rate securities	—		—		99,057		99,057
Securities owned, at fair value	694,735		161,467		99,161		955,363
Investments ⁽¹⁾	—		52,488		9,149		61,637
Loans held for sale	—		95,876		—		95,876
Derivative contracts:
TBAs	—		5,358		—		5,358
Interest rate lock commitments	—		—		11,424		11,424
Derivative contracts, total	—		5,358		11,424		16,782
Total	$	751,004	$	315,189	$	119,734	$	1,185,927
Liabilities
Securities sold, but not yet purchased:
U.S. Treasury securities	$	128,927	$	—	$	—	$	128,927
U.S. Agency securities	—		22		—		22
Sovereign obligations	—		2,639		—		2,639
Corporate debt and other obligations	—		4,533		—		4,533
Mortgage and other asset-backed securities	—		1		—		1
Municipal obligations	—		51		—		51
Convertible bonds	—		11,453		—		11,453
Corporate equities	37,023		—		—		37,023
Securities sold, but not yet purchased at fair value	165,950		18,699		—		184,649
Derivative contracts:
Futures	482		—		—		482
Foreign currency forward contracts	3		—		—		3
TBAs	—		199		—		199
Interest rate lock commitments	—		—		544		544
ARS purchase commitments	—		—		797		797
Derivative contracts, total	485		199		1,341		2,025
Total	$	166,435	$	18,898	$	1,341	$	186,674


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

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
Securities sold, but not yet purchased at fair value	78,155		14,355		—		92,510
Derivative contracts:
Futures	353		—		—		353
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 condensed 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

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2015 and 2014:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2015
			Total Realized
			and Unrealized
	Beginning		Gains			Purchases		Sales and			Transfers			Ending
	Balance		(Losses) ⁽⁵⁾⁽⁶⁾			and Issuances		Settlements			In (Out)			Balance
Assets
Municipals	$	164	$	(60	)	$	—	$	—		$	—		$	104
Auction rate securities ^(1)(7)(8)	91,422		935			8,225		(1,525		)	—			99,057
Interest rate lock commitments ⁽²⁾	7,576		3,848			—					—			11,424
Investments ⁽³⁾	9,508		(231		)	198		(215		)	(111		)	9,149
Liabilities
Interest rate lock commitments ⁽²⁾	1,222		678			—		—			—			544
ARS purchase commitments ⁽⁴⁾	902		105			—		—			—			797


(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 period.


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


(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 period for regulatory and legal ARS settlements and awards.



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2014
			Total Realized
			and Unrealized
	Beginning		Gains			Purchases		Sales and			Transfers			Ending
	Balance		(Losses) ⁽⁵⁾⁽⁶⁾			and Issuances		Settlements			In (Out)			Balance
Assets
Municipals	$	236	$	(166	)	$	—	$	—		$	—		$	70
Auction rate securities^(1)(7)(8)	85,124		1			3,200		(3,300		)	—			85,025
Interest rate lock commitments ⁽²⁾	2,375		663			—		—			—			3,038
Investments ⁽³⁾	5,946		(169		)	4,052		(503		)	(620		)	8,706
Liabilities
Interest rate lock commitments ⁽²⁾	3,653		(749		)	—		—			—			4,402
ARS purchase commitments ⁽⁴⁾	2,600		395			—		—			—			2,205

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 March 31, 2015



(Expressed in thousands)
					Fair Value Measurement: Assets
	As of March 31, 2015				As of March 31, 2015
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Cash	$	38,843	$	38,843	$	38,843	$	—	$	—	$	38,843
Cash segregated for regulatory and other purposes	1,517		1,517		1,517		—		—		1,517
Deposits with clearing organization	22,064		22,064		22,064		—		—		22,064
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	266,563		266,563		—		266,563		—		266,563
Receivables from brokers	25,663		25,663		—		25,663		—		25,663
Securities failed to deliver	19,248		19,248		—		19,248		—		19,248
Clearing organizations	23,857		23,857		—		23,857		—		23,857
Other	2,772		2,772		—		2,772		—		2,772
	338,103		338,103		—		338,103		—		338,103
Receivable from customers	890,260		890,260		—		890,260		—		890,260
Mortgage servicing rights	28,391		40,772		—		—		40,772		40,772



(Expressed in thousands)
					Fair Value Measurement: Liabilities
	As of March 31, 2015				As of March 31, 2015
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Drafts payable	$	34,615	$	34,615	$	34,615	$	—	$	—	$	34,615
Bank call loans	101,400		101,400		—		101,400		—		101,400
Payables to brokers, dealers and clearing organizations:
Securities loaned	165,005		165,005		—		165,005		—		165,005
Payable to brokers	7,347		7,347		—		7,347		—		7,347
Securities failed to receive	18,557		18,557		—		18,557		—		18,557
Other	159,321		159,321		—		159,321		—		159,321
	350,230		350,230		—		350,230		—		350,230
Payables to customers	704,087		704,087		—		704,087		—		704,087
Securities sold under agreements to repurchase	397,389		397,389		—		397,389		—		397,389
Warehouse payable	87,562		87,562		—		87,562		—		87,562
Senior secured notes	150,000		157,407		—		157,407		—		157,407

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 31, 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
Payable to brokers	4,559		4,559		—		4,559		—		4,559
Securities failed to receive	23,573		23,573		—		23,573		—		23,573
Other	91,137		91,137		—		91,137		—		91,137
	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	16,683		16,683		—		16,683		—		16,683
Senior secured notes	150,000		157,782		—		157,782		—		157,782

Notional Amounts and Fair Values of Derivatives by Product

The notional amounts and fair values of the Company’s derivatives at March 31, 2015 and December 31, 2014 by product were as follows:



(Expressed in thousands)
	Fair Value of Derivative Instruments at March 31, 2015
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	44,295	$	230
	TBA sale contracts	340,494		5,128
	Interest rate lock commitments	238,734		11,424
		$	623,523	$	16,782
Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts ⁽²⁾	Futures	$	3,145,200	$	482
Other contracts	Forward currency forward contracts	1,000		3
	TBAs	38,345		199
	Interest rate lock commitments	13,345		544
	ARS purchase commitments	14,249		797
		$	3,212,139	$	2,025


(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 condensed consolidated balance sheet.



(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⁾	Futures	$	3,835,600	$	353
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 condensed 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 condensed consolidated statements of income for the three months ended March 31, 2015 and 2014:



(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Income
	For the Three Months Ended March 31, 2015
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	(1,480	)
Other contracts	Foreign exchange forward contracts	Other revenue	3
	TBAs	Principal transactions revenue	(14		)
	TBA sale contracts	Other revenue	(1,619		)
	Interest rate lock commitments	Other revenue	4,526
	ARS purchase commitments	Principal transactions revenue	105
			$	1,521



(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Income
	For the Three Months Ended March 31, 2014
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	(673	)
Other contracts	TBAs	Principal transactions revenue	(786		)
	TBA sale contracts	Other revenue	(4,325		)
	Interest rate lock commitments	Other revenue	(86		)
	ARS purchase commitments	Principal transactions revenue	395
			$	(5,475	)