Fair value measurements (Tables)

3 Months Ended

Mar. 31, 2017

Quantitative Information about Level 3 Fair Value Measurements

Additional information regarding the valuation technique and inputs for ARS used is as follows:



(Expressed in thousands)
Quantitative Information about ARS Level 3 Fair Value Measurements as of March 31, 2017
Product	Principal		Valuation Adjustment			Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	91,975	$	2,530		$	89,445	Discounted Cash Flow	Discount Rate ⁽²⁾	1.88% to 2.56%	2.21%
									Duration	4.0 Years	4.0 Years
									Current Yield ⁽³⁾	1.40% to 1.56%	1.48%
Municipal Auction Rate Securities	25		1			24		Discounted Cash Flow	Discount Rate ⁽⁴⁾	3.17%	3.17%
									Duration	4.5 Years	4.5 Years
									Current Yield ⁽³⁾	2.61%	2.61%
Student Loan Auction Rate Securities	300		26			274		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.41%	3.41%
									Duration	7.0 Years	7.0 Years
									Current Yield ⁽³⁾	1.98%	1.98%
	$	92,300	$	2,557		$	89,743
Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	$	6,654	$	(878	)	$	7,532	Discounted Cash Flow	Discount Rate ⁽²⁾	1.88% to 2.56%	2.21%
									Duration	4.0 Years	4.0 Years
									Current Yield ⁽³⁾	1.40% to 1.56%	1.48%
Auction Rate Preferred Securities	19,781		359			19,422		Discounted Cash Flow	Discount Rate ⁽²⁾	1.88% to 2.56%	2.21%
									Duration	4.0 Years	4.0 Years
									Current Yield ⁽³⁾	1.40% to 1.56%	1.48%
	$	26,435	$	(519	)	$	26,954
Total	$	118,735	$	2,038		$	116,697


(1)	Principal amount represents the par value of the ARS and is included in securities owned on the condensed consolidated balance sheet as of March 31, 2017. The valuation adjustment amount is included as a reduction to securities owned on the condensed consolidated balance sheet as of March 31, 2017.


(2)	Derived by applying a multiple to the spread between 110% to 150% to the U.S. Treasury rate of 1.71%.


(3)	Based on current yields for ARS positions owned.


(4)	Derived by applying a multiple to the spread of 175% to the U.S. Treasury rate of 1.81%.


(5)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.21%.

(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 amounts, and unrealized gains and losses, are included in other assets and accounts payable and other liabilities, respectively, on the condensed consolidated balance sheet as of March 31, 2017.

Investments in Company-Sponsored Funds

The following table provides information about the Company's investments in Company-sponsored funds as of March 31, 2017:



(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds ⁽¹⁾	$	2,662	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds ⁽²⁾	4,693		1,251		N/A	N/A
	$	7,355	$	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 the 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, 2017 and December 31, 2016, 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, 2017



(Expressed in thousands)
	Fair Value Measurements as of March 31, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	21,831	$	—	$	—	$	21,831
Deposits with clearing organizations	27,459		—		—		27,459
Securities owned:
U.S. Treasury securities ⁽¹⁾	660,164		—		—		660,164
U.S. Agency securities	21,089		23,796		—		44,885
Sovereign obligations	—		1,451		—		1,451
Corporate debt and other obligations	—		33,078		—		33,078
Mortgage and other asset-backed securities	—		2,387		—		2,387
Municipal obligations	—		81,694		36		81,730
Convertible bonds	—		44,848		—		44,848
Corporate equities	44,330		—		—		44,330
Money markets	651		—		—		651
Auction rate securities	—		—		89,743		89,743
Securities owned, at fair value	726,234		187,254		89,779		1,003,267
Investments ⁽²⁾	—		—		164		164
Securities purchased under agreements to resell⁽³⁾	—		3,896		—		3,896
Derivative contracts:
TBAs	—		549		—		549
ARS purchase commitments	—		—		878		878
Derivative contracts, total	—		549		878		1,427
Total	$	775,524	$	191,699	$	90,821	$	1,058,044
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	234,072	$	—	$	—	$	234,072
U.S. Agency securities	—		5		—		5
Sovereign obligations	—		1,108		—		1,108
Corporate debt and other obligations	—		17,059		—		17,059
Mortgage and other asset-backed securities	—		156		—		156
Convertible bonds	—		7,700		—		7,700
Corporate equities	39,372		—		—		39,372
Securities sold but not yet purchased, at fair value	273,444		26,028		—		299,472
Derivative contracts:
Futures	726		—		—		726
Foreign exchange forward contracts	4		—		—		4
TBAs	—		785		—		785
ARS purchase commitments	—		—		359		359
Derivative contracts, total	730		785		359		1,874
Total	$	274,174	$	26,813	$	359	$	301,346


(1)	$562,000 is included in assets held for sale on the condensed consolidated balance sheet. See Note 3 for details.


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


(3)	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, 2016



(Expressed in thousands)
	Fair Value Measurements as of December 31, 2016
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	16,242	$	—	$	—	$	16,242
Deposits with clearing organizations	26,437		—		—		26,437
Securities owned:
U.S. Treasury securities ⁽¹⁾	418,888		—		—		418,888
U.S. Agency securities	5,878		32,391		—		38,269
Sovereign obligations	—		1,894		—		1,894
Corporate debt and other obligations	—		17,074		—		17,074
Mortgage and other asset-backed securities	—		5,024		—		5,024
Municipal obligations	—		56,706		44		56,750
Convertible bonds	—		56,480		—		56,480
Corporate equities	31,174		—		—		31,174
Money markets	189		—		—		189
Auction rate securities	—		—		84,926		84,926
Securities owned, at fair value	456,129		169,569		84,970		710,668
Investments ⁽²⁾	—		—		158		158
Securities purchased under agreements to resell ⁽³⁾	—		24,006		—		24,006
Derivative contracts:
TBAs	—		814		—		814
ARS purchase commitments	—		—		849		849
Derivative contracts, total	—		814		849		1,663
Total	$	498,808	$	194,389	$	85,977	$	779,174
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	28,662	$	—	$	—	$	28,662
U.S. Agency securities	—		12		—		12
Corporate debt and other obligations	—		2,536		—		2,536
Mortgage and other asset-backed securities	—		31		—		31
Municipal obligations	—		516		—		516
Convertible bonds	—		11,604		—		11,604
Corporate equities	41,689		—		—		41,689
Securities sold but not yet purchased, at fair value	70,351		14,699		—		85,050
Derivative contracts:
Futures	166		—		—		166
Foreign exchange forward contracts	1		—		—		1
TBAs	—		1,212		—		1,212
ARS purchase commitments	—		—		645		645
Derivative contracts, total	167		1,212		645		2,024
Total	$	70,518	$	15,911	$	645	$	87,074


(1)	$3.6 million is included in assets held for sale on the condensed consolidated balance sheet. See Note 3 for details.


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


(3)	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, 2017 and 2016:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2017
	Beginning Balance		Total Realized and Unrealized Gains (Losses) ⁽³⁾⁽⁴⁾			Purchases and Issuances		Sales and Settlements			Transfers In (Out)		Ending Balance


Assets
Municipal obligations	$	44	$	(8	)	$	—	$	—		$	—	$	36
Auction rate securities ^(1)(5)(6)	84,926		642			5,000		(825		)	—		89,743
Investments	158		6			—		—			—		164
ARS purchase commitments ⁽²⁾	849		29			—		—			—		878
Liabilities
ARS purchase commitments ⁽²⁾	645		286			—		—			—		359


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


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


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


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

(5)

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.


(6)	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, 2016
	Beginning Balance		Total Realized and Unrealized Gains (Losses) ⁽⁴⁾⁽⁵⁾		Purchases and Issuances		Sales and Settlements			Transfers In (Out)		Ending Balance


Assets
Municipal obligations	$	81	$	4	$	—	$	—		$	—	$	85
Auction rate securities ^(1)(6)(7)	86,802		2,233		6,775		(11,625		)	—		84,185
Interest rate lock commitments ⁽²⁾	9,161		4,863		—		—			—		14,024
Investments	157		4		—		—			—		161
ARS purchase commitments ⁽³⁾	—		1,540		—		—			—		1,540
Liabilities
Interest rate lock commitments ⁽²⁾	923		923		—		—			—		—
ARS purchase commitments ⁽³⁾	1,369		810		—		—			—		559


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


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


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

(6)


(7)	Sales and settlements for the ARS purchase commitments represent additional purchase commitments made during the period 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 as of March 31, 2017



(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	40,590	$	40,590	$	—	$	—	$	40,590
Deposits with clearing organization	14,443		14,443		—		—		14,443
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	160,295		—		160,295		—		160,295
Receivables from brokers	39,408		—		39,408		—		39,408
Securities failed to deliver	10,195		—		10,195		—		10,195
Clearing organizations	20,450		—		20,450		—		20,450
Other	2,334		—		2,334		—		2,334
	232,682		—		232,682		—		232,682
Receivable from customers	830,084		—		830,084		—		830,084
Investments ⁽¹⁾	59,057		—		59,057		—		59,057


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



(Expressed in thousands)			Fair Value Measurement: Liabilities
	Carrying Value		Level 1		Level 2		Level 3		Total
Drafts payable	$	32,783	$	32,783	$	—	$	—	$	32,783
Bank call loans	195,700		—		195,700		—		195,700
Payables to brokers, dealers and clearing organizations:
Securities loaned	142,121		—		142,121		—		142,121
Payable to brokers	3,153		—		3,153		—		3,153
Securities failed to receive	13,173		—		13,173		—		13,173
Other	16,757		—		16,757		—		16,757
	175,204		—		175,204		—		175,204
Payables to customers	504,348		—		504,348		—		504,348
Securities sold under agreements to repurchase	456,090		—		456,090		—		456,090
Senior secured notes	150,000		—		150,282		—		150,282

Assets and liabilities not measured at fair value as of December 31, 2016



(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	48,671	$	48,671	$	—	$	—	$	48,671
Deposits with clearing organization	11,748		11,748		—		—		11,748
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	154,090		—		154,090		—		154,090
Receivables from brokers	25,768		—		25,768		—		25,768
Securities failed to deliver	6,172		—		6,172		—		6,172
Clearing organizations	26,081		—		26,081		—		26,081
Other	2,823		—		2,823		—		2,823
	214,934		—		214,934		—		214,934
Receivable from customers	847,386		—		847,386		—		847,386
Investments ⁽¹⁾	56,300		—		56,300		—		56,300


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



(Expressed in thousands)			Fair Value Measurement: Liabilities
	Carrying Value		Level 1		Level 2		Level 3		Total
Drafts payable	$	39,228	$	39,228	$	—	$	—	$	39,228
Bank call loans	145,800		—		145,800		—		145,800
Payables to brokers, dealers and clearing organizations:
Securities loaned	179,875		—		179,875		—		179,875
Payable to brokers	610		—		610		—		610
Securities failed to receive	11,523		—		11,523		—		11,523
Other	29,381		—		29,381		—		29,381
	221,389		—		221,389		—		221,389
Payables to customers	449,946		—		449,946		—		449,946
Securities sold under agreements to repurchase	378,084		—		378,084		—		378,084
Senior secured notes	150,000		—		151,782		—		151,782

Notional Amounts and Fair Values of Derivatives by Product

The notional amounts and fair values of the Company's derivatives as of March 31, 2017 and December 31, 2016 by product were as follows:



(Expressed in thousands)
	Fair Value of Derivative Instruments as of March 31, 2017
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments⁽¹⁾
Other contracts	TBAs	$	62,550	$	333
	TBA sale contracts	90,871		216
	ARS purchase commitments	6,654		878
		$	160,075	$	1,427
Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts	Futures	$	4,345,000	$	726
Other contracts	Foreign exchange forward contracts	400		4
	TBAs	55,650		249
	TBA purchase contracts	90,871		536
	Forward start repurchase agreements	627,000		—
	ARS purchase commitments	19,781		359
		$	5,138,702	$	1,874


(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.



(Expressed in thousands)
	Fair Value of Derivative Instruments as of December 31, 2016
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	169,500	$	332
	TBA sale contracts	121,573		482
	ARS purchase commitments	6,654		849
		$	297,727	$	1,663
Liabilities:
Derivatives not designated as hedging instruments⁽¹⁾
Commodity contracts	Futures	$	4,059,000	$	166
Other contracts	Foreign exchange forward contracts	200		1
	TBAs	169,500		289
	TBA purchase contracts	121,573		923
	Forward start repurchase agreements	382,000		—
	ARS purchase commitments	24,358		645
		$	4,756,631	$	2,024


(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 offse

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 in the condensed consolidated statements of operations for the three months ended March 31, 2017 and 2016:



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Three Months Ended March 31, 2017
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	242
Other contracts	Foreign exchange forward contracts	Other revenue	4
	TBAs	Principal transactions revenue	(127		)
	TBA sale contracts	Other revenue	(216		)
	TBA purchase contracts	Other revenue	536
	ARS purchase commitments	Principal transactions revenue	315
			$	754

(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Three Months Ended March 31, 2016
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	(1,754	)
Other contracts	Foreign exchange forward contracts	Other revenue	17
	TBAs	Principal transactions revenue	(9		)
	TBA sale contracts	Other revenue	(7,901		)
	Interest rate lock commitments	Other revenue	5,786
	ARS purchase commitments	Principal transactions revenue	2,350
			$	(1,511	)