Fair value measurements

Securities owned, securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period.

Valuation Techniques

A description of the valuation techniques applied and inputs used in measuring the fair value of the Company's financial instruments is as follows:

U.S. Government Obligations

U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers.

U.S. Agency Obligations

U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mortgage pass-through securities are model driven with respect to spreads of the comparable to-be-announced ("TBA") security.

Sovereign Obligations

The fair value of sovereign obligations is determined based on quoted market prices when available or a valuation model that generally utilizes interest rate yield curves and credit spreads as inputs.

Corporate Debt and Other Obligations

The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information.

Mortgage and Other Asset-Backed Securities

The Company holds non-agency securities collateralized by home equity and various other types of collateral which are valued based on external pricing and spread data provided by independent pricing services. When specific external pricing is not observable, the valuation is based on yields and spreads for comparable bonds.

Municipal Obligations

The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information.

Convertible Bonds

The fair value of convertible bonds is estimated using recently executed transactions and dollar-neutral price quotations, where observable. When observable price quotations are not available, fair value is determined based on cash flow models using yield curves and bond spreads as key inputs.

Corporate Equities

Equity securities and options are generally valued based on quoted prices from the exchange or market where traded. To the extent quoted prices are not available, fair values are generally derived using bid/ask spreads.

Auction Rate Securities ("ARS")

In February 2010, Oppenheimer finalized settlements with each of the New York Attorney General's office ("NYAG") and the Massachusetts Securities Division ("MSD" and, together with the NYAG, the "Regulators") concluding investigations and administrative proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients subject to certain terms and conditions more fully described below. As of September 30, 2017, the Company had $5.0 million of outstanding ARS purchase commitments related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Pursuant to completed Purchase Offers (as defined) under the settlements with the Regulators and client related legal settlements and awards to purchase ARS, as of September 30, 2017, the Company purchased and holds (net of redemptions) approximately $109.0 million in ARS from its clients. In addition, the Company is committed to purchase another $10.5 million in ARS from clients through 2020 under legal settlements and awards.

The ARS positions that the Company owns and is committed to purchase primarily represent auction rate preferred securities issued by closed-end funds and, to a lesser extent, municipal auction rate securities which are municipal bonds wrapped by municipal bond insurance and student loan auction rate securities which are asset-backed securities backed by student loans.

Interest rates on ARS typically reset through periodic auctions. Due to the auction mechanism and generally liquid markets, ARS have historically been categorized as Level 1 of the fair value hierarchy. Beginning in February 2008, uncertainties in the credit markets resulted in substantially all of the ARS market experiencing failed auctions. Once the auctions failed, the ARS could no longer be valued using observable prices set in the auctions. The Company has used less observable determinants of the fair value of ARS, including the strength in the underlying credits, announced issuer redemptions, completed issuer redemptions, and announcements from issuers regarding their intentions with respect to their outstanding ARS. The Company has also developed an internal methodology to discount for the lack of liquidity and non-performance risk of the failed auctions. Due to liquidity problems associated with the ARS market, ARS that lack liquidity are setting their interest rates according to a maximum rate formula. For example, an auction rate preferred security maximum rate may be set at 200% of a short-term index such as LIBOR or U.S. Treasury yield. For fair value purposes, the Company has determined that the maximum spread would be an adequate risk premium to account for illiquidity in the market. Accordingly, the Company applies a spread to the short-term index for each asset class to derive the discount rate. The Company uses short-term U.S. Treasury yields as its benchmark short-term index. The risk of non-performance is typically reflected in the prices of ARS positions where the fair value is derived from recent trades in the secondary market.

The ARS purchase commitment, or derivative asset or liability, arises from both the settlements with the Regulators and legal settlements and awards. The ARS purchase commitment represents the difference between the principal value and the fair value of the ARS the Company is committed to purchase. The Company utilizes the same valuation methodology for the ARS purchase commitment as it does for the ARS it owns. Additionally, the present value of the future principal value of ARS purchase commitments under legal settlements and awards is used in the discounted valuation model to reflect the time value of money over the period of time that the commitments are outstanding. The amount of the ARS purchase commitment only becomes determinable once the Company has met with its primary regulator and the NYAG and agreed upon a buyback amount, commenced the ARS buyback offer to clients, and received notice from its clients which ARS they are tendering. As a result, it is not possible to observe the current yields actually paid on the ARS until all of these events have happened which is typically very close to the time that the Company actually purchases the ARS. For ARS purchase commitments pursuant to legal settlements and awards, the criteria for purchasing ARS from clients is based on the nature of the settlement or award which will stipulate a time period and amount for each repurchase. The Company will not know which ARS will be tendered by the client until the stipulated time for repurchase is reached. Therefore, the Company uses the current yields of ARS owned in its discounted valuation model to determine a fair value of ARS purchase commitments. The Company also uses these current yields by asset class (i.e., auction rate preferred securities, municipal auction rate securities, and student loan auction rate securities) in its discounted valuation model to determine the fair value of ARS purchase commitments. In addition, the Company uses the discount rate and duration of ARS owned, by asset class, as a proxy for the duration of ARS purchase commitments.

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 September 30, 2017
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	108,675	$	2,198	$	106,477	Discounted Cash Flow	Discount Rate ⁽²⁾	1.96% to 2.67%	2.25%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	1.56% to 1.93%	1.71%
Municipal Auction Rate Securities	25		2		23		Secondary Market Trading Activity	Trades in Inactive Market for in-Portfolio Securities	90.25% of Par	90.25% of Par
Student Loan Auction Rate Securities	300		16		284		Discounted Cash Flow	Discount Rate ⁽⁴⁾	3.37%	3.37%
								Duration	7.0 Years	7.0 Years
								Current Yield⁽³⁾	2.52%	2.52%
	$	109,000	$	2,216	$	106,784
Auction Rate Securities Commitments to Purchase ⁽⁵⁾
Auction Rate Preferred Securities	$	15,496	$	275	$	15,221	Discounted Cash Flow	Discount Rate ⁽²⁾	1.96% to 2.67%	2.25%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	1.56% to 1.93%	1.71%
Municipal Auction Rate Securities	2		—		2		Secondary Market Trading Activity	Trades in Inactive Market for in-Portfolio Securities	90.25% of Par	90.25% of Par
Student Loan Auction Rate Securities	25		1		24		Discounted Cash Flow	Discount Rate ⁽⁴⁾	3.37%	3.37%
								Duration	7.0 Years	7.0 Years
								Current Yield ⁽³⁾	2.52%	2.52%
	$	15,523	$	276	$	15,247
Total	$	124,523	$	2,492	$	122,031


(1)	Principal amount represents the par value of the ARS and is included in securities owned on the condensed consolidated balance sheet as of September 30, 2017. The valuation adjustment amount is included as a reduction to securities owned on the condensed consolidated balance sheet as of September 30, 2017.


(2)	Derived by applying a multiple to the spread between 110% to 150% to the U.S. Treasury rate of 1.78%


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


(4)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.17%.


(5)	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 as of September 30, 2017.

The fair value of ARS and ARS purchase commitments is particularly sensitive to movements in interest rates. Increases in short-term interest rates would increase the discount rate input used in the ARS valuation and thus reduce the fair value of the ARS (increase the valuation adjustment). Conversely, decreases in short-term interest rates would decrease the discount rate and thus increase the fair value of ARS (decrease the valuation adjustment). However, an increase (decrease) in the discount rate input would be partially mitigated by an increase (decrease) in the current yield earned on the underlying ARS asset increasing the cash flows and thus the fair value. Furthermore, movements in short-term interest rates would likely impact the ARS duration (i.e., sensitivity of the price to a change in interest rates), which would also have a mitigating effect on interest rate movements. For example, as interest rates increase, issuers of ARS have an incentive to redeem outstanding securities as servicing the interest payments gets prohibitively expensive which would lower the duration assumption thereby increasing the ARS fair value. Alternatively, ARS issuers are less likely to redeem ARS in a lower interest rate environment as it is a relatively inexpensive source of financing which would increase the duration assumption thereby decreasing the ARS fair value. For example, see the following sensitivities:


•	The impact of a 25 basis point increase in the discount rate at September 30, 2017 would result in a decrease in the fair value of $1.2 million (does not consider a corresponding reduction in duration as discussed above).


•	The impact of a 50 basis point increase in the discount rate at September 30, 2017 would result in a decrease in the fair value of $2.3 million (does not consider a corresponding reduction in duration as discussed above).

These sensitivities are hypothetical and are based on scenarios where they are "stressed" and should be used with caution. These estimates do not include all of the interplay among assumptions and are estimated as a portfolio rather than as individual assets.

Due to the less observable nature of these inputs, the Company categorizes ARS in Level 3 of the fair value hierarchy. As of September 30, 2017, the Company had a valuation adjustment (unrealized loss) of $2.2 million for ARS owned which is included as a reduction to securities owned on the condensed consolidated balance sheet. As of September 30, 2017, the Company also had a valuation adjustment of $276,000 on ARS purchase commitments from settlements with the Regulators and legal settlements and awards which is included in accounts payable and other liabilities on the condensed consolidated balance sheet. The total valuation adjustment was $2.5 million as of September 30, 2017. The valuation adjustment represents the difference between the principal value and the fair value of the ARS owned and ARS purchase commitments.

Investments

In its role as general partner in certain hedge funds and private equity funds, the Company, through its subsidiaries, holds direct investments in such funds. The Company uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment.

The following table provides information about the Company's investments in Company-sponsored funds as of September 30, 2017:



(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds ⁽¹⁾	$	2,566	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds ⁽²⁾	4,907		1,401		N/A	N/A
	$	7,473	$	1,401


(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.

Valuation Process

The Company's Finance & Accounting ("F&A") group is responsible for the Company's fair value policies, processes and procedures. F&A is independent from the business units and trading desks and is headed by the Company's Chief Financial Officer ("CFO"), who has final authority over the valuation of the Company's financial instruments. The Finance Control Group ("FCG") within F&A is responsible for daily profit and loss reporting, front-end trading system position reconciliations, monthly profit and loss reporting, and independent price verification procedures.

For financial instruments categorized in Levels 1 and 2 of the fair value hierarchy, the FCG performs a monthly independent price verification to determine the reasonableness of the prices provided by the Company's independent pricing vendor. The FCG uses its third-party pricing vendor, executed transactions, and broker-dealer quotes for validating the fair values of financial instruments.

For financial instruments categorized in Level 3 of the fair value hierarchy measured on a recurring basis, primarily for ARS, a group comprised of the CFO, the Controller, and an Operations Director are responsible for the ARS valuation model and resulting fair valuations. Procedures performed include aggregating all ARS owned by type from firm inventory accounts and ARS purchase commitments from regulatory and legal settlements and awards provided by the Legal Department. Observable and unobservable inputs are aggregated from various sources and entered into the ARS valuation model. For unobservable inputs, the group reviews the appropriateness of the inputs to ensure consistency with how a market participant would arrive at the unobservable input. For example, for the duration assumption, the group would consider recent policy statements regarding short-term interest rates by the Federal Reserve and recent ARS issuer redemptions and announcements for future redemptions. The model output is reviewed for reasonableness and consistency. Where available, comparisons are performed between ARS owned or committed to purchase to ARS that are trading in the secondary market.

Assets and Liabilities Measured at Fair Value

The Company's assets and liabilities, recorded at fair value on a recurring basis as of September 30, 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 September 30, 2017



(Expressed in thousands)
	Fair Value Measurements as of September 30, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	10,490	$	—	$	—	$	10,490
Deposits with clearing organizations	29,448		—		—		29,448
Securities owned:
U.S. Treasury securities	731,902		—				731,902
U.S. Agency securities	10,030		10,491		—		20,521
Sovereign obligations	—		18,439		—		18,439
Corporate debt and other obligations	—		18,181		—		18,181
Mortgage and other asset-backed securities	—		2,483		—		2,483
Municipal obligations	—		42,886		35		42,921
Convertible bonds	—		49,819		—		49,819
Corporate equities	46,239		—		—		46,239
Money markets	174		—		—		174
Auction rate securities	—		—		106,784		106,784
Securities owned, at fair value	788,345		142,299		106,819		1,037,463
Investments ⁽¹⁾	—		—		167		167
Derivative contracts:
TBAs	—		1,339		—		1,339
Total	$	828,283	$	143,638	$	106,986	$	1,078,907
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	272,071	$	—	$	—	$	272,071
U.S. Agency securities	—		3		—		3
Sovereign obligations	—		18,453		—		18,453
Corporate debt and other obligations	—		10,459		—		10,459
Mortgage and other asset-backed securities	—		13		—		13
Convertible bonds	—		23,432		—		23,432
Corporate equities	42,150		—		—		42,150
Securities sold but not yet purchased, at fair value	314,221		52,360		—		366,581
Derivative contracts:
Futures	663		—		—		663
TBAs	—		1,230		—		1,230
ARS purchase commitments	—		—		276		276
Derivative contracts, total	663		1,230		276		2,169
Total	$	314,884	$	53,590	$	276	$	368,750


(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, 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 other assets on the condensed consolidated balance sheet.


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


(3)	Included in securities purchased under agreements to resell on the condensed consolidated balance sheet where the Company has elected fair value option treatment.

There were no transfers between any of the levels in the three and nine months ended September 30, 2017.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2017 and 2016:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended September 30, 2017
			Total Realized
	Beginning		and Unrealized			Purchases		Sales and			Transfers		Ending
	Balance		Losses ⁽³⁾⁽⁴⁾			and Issuances		Settlements			In (Out)		Balance
Assets
Municipal obligations	$	36	$	(1	)	$	—	$	—		$	—	$	35
Auction rate securities ⁽¹⁾	107,170		(161		)	25		(250		)	—		106,784
Investments	168		(1		)	—		—			—		167
Liabilities
ARS purchase commitments ⁽²⁾	254		(22		)	—		—			—		276


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



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended September 30, 2016
			Total Realized
			and Unrealized
	Beginning		Gains			Purchases		Sales and			Transfers		Ending
	Balance		(Losses) ⁽⁴⁾⁽⁵⁾			and Issuances		Settlements			In (Out)		Balance
Assets
Municipal obligations	$	25	$	—		$	—	$	—		$	—	$	25
Auction rate securities⁽¹⁾	89,101		(417		)	2,000		(675		)	—		90,009
Interest rate lock commitments ⁽²⁾	13,453		53			—		(13,453		)	—		53
Investments	158		31			—		—			—		189
ARS purchase commitments ⁽³⁾	911		(6		)	—		—			—		905
Liabilities
ARS purchase commitments ⁽³⁾	142		(134		)	—		—			—		276


(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.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2017 and 2016:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Nine Months Ended September 30, 2017
			Total Realized
			and Unrealized
	Beginning		Gains			Purchases		Sales and			Transfers		Ending
	Balance		(Losses)⁽³⁾⁽⁴⁾			and Issuances		Settlements			In (Out)		Balance
Assets
Municipal obligations	$	44	$	(9	)	$	—	$	—		$	—	$	35
Auction rate securities ⁽¹⁾	84,926		983			22,075		(1,200		)	—		106,784
Investments	158		9			—		—			—		167
ARS purchase commitments ⁽²⁾	849		(849		)	—		—			—		—
Liabilities
ARS purchase commitments ⁽²⁾	645		369			—		—			—		276


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



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Nine Months Ended September 30, 2016
			Total Realized
	Beginning		and Unrealized		Purchases		Sales and			Transfers		Ending
	Balance		Gains⁽⁴⁾⁽⁵⁾		and Issuances		Settlements			In (Out)		Balance
Assets
Municipal obligations	$	81	$	6	$	—	$	(62	)	$	—	$	25
Auction rate securities⁽¹⁾	86,802		3,157		13,775		(13,725		)	—		90,009
Interest rate lock commitments ⁽²⁾	9,161		4,345		—		(13,453		)	—		53
Investments	157		32		—		—			—		189
ARS purchase commitments ⁽³⁾	—		905		—		—			—		905
Liabilities
Interest rate lock commitments ⁽²⁾	923		923		—		—			—		—
ARS purchase commitments ⁽³⁾	1,369		1,093		—		—			—		276


(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 are attributable to assets or liabilities that are still held at the reporting date.

Financial Instruments Not Measured at Fair Value

The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the condensed consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., furniture, equipment and leasehold improvements and accrued compensation).

The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 (e.g., cash and receivables from customers) approximates fair value because of the relatively short term nature of the underlying assets. The fair value of the Company's Senior Secured Notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the Notes trade.

Assets and liabilities not measured at fair value as of September 30, 2017



(Expressed in thousands)
			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	34,304	$	34,304	$	—	$	—	$	34,304
Deposits with clearing organization	14,753		14,753		—		—		14,753
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	159,230		—		159,230		—		159,230
Receivables from brokers	30,964		—		30,964		—		30,964
Securities failed to deliver	34,305		—		34,305		—		34,305
Clearing organizations	21,921		—		21,921		—		21,921
Other	1,132		—		1,132		—		1,132
	247,552		—		247,552		—		247,552
Receivable from customers	775,602		—		775,602		—		775,602
Investments ⁽¹⁾	62,410		—		62,410		—		62,410


(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	$	26,480	$	26,480	$	—	$	—	$	26,480
Bank call loans	130,100		—		130,100		—		130,100
Payables to brokers, dealers and clearing organizations:
Securities loaned	179,159		—		179,159		—		179,159
Payable to brokers	5,997		—		5,997		—		5,997
Securities failed to receive	9,253		—		9,253		—		9,253
Other	51,177		—		51,177		—		51,177
	245,586		—		245,586		—		245,586
Payables to customers	396,515		—		396,515		—		396,515
Securities sold under agreements to repurchase	398,650		—		398,650		—		398,650
Senior secured notes	200,000		—		203,044		—		203,044

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

Fair Value Option

The Company elected the fair value option for securities sold under agreements to repurchase ("repurchase agreements") and securities purchased under agreements to resell ("reverse repurchase agreements") that do not settle overnight or have an open settlement date. The Company has elected the fair value option for these instruments to more accurately reflect market and economic events in its earnings and to mitigate a potential mismatch in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. As of September 30, 2017, the Company did not have any reverse repurchase agreements and repurchase agreements for which the fair value option was elected.

Derivative Instruments and Hedging Activities

The Company transacts, on a limited basis, in exchange traded and over-the-counter derivatives for both asset and liability management as well as for trading and investment purposes. Risks managed using derivative instruments include interest rate risk and, to a lesser extent, foreign exchange risk. All derivative instruments are measured at fair value and are recognized as either assets or liabilities on the condensed consolidated balance sheet.

Foreign exchange hedges

From time to time, the Company also utilizes forward and options contracts to hedge the foreign currency risk associated with compensation obligations to Oppenheimer Israel (OPCO) Ltd. employees denominated in New Israeli Shekel ("NIS"). Such hedges have not been designated as accounting hedges. Unrealized gains and losses on foreign exchange forward contracts are recorded in other assets on the condensed consolidated balance sheet and other income in the condensed consolidated statement of operations.

Derivatives used for trading and investment purposes

Futures contracts represent commitments to purchase or sell securities or other commodities at a future date and at a specified price. Market risk exists with respect to these instruments. Notional or contractual amounts are used to express the volume of these transactions and do not represent the amounts potentially subject to market risk. The futures contracts the Company used include U.S. Treasury notes, Federal Funds, General Collateral futures and Eurodollar contracts which are used primarily as an economic hedge of interest rate risk associated with government trading activities. Unrealized gains and losses on futures contracts are recorded on the condensed consolidated balance sheet in payable to brokers, dealers and clearing organizations and in the condensed consolidated statement of operations as principal transactions revenue, net.

To-be-announced securities

The Company also transacts in pass-through mortgage-backed securities eligible to be sold in the TBA market as economic hedges against mortgage-backed securities that it owns or has sold but not yet purchased. TBAs provide for the forward or delayed delivery of the underlying instrument with settlement up to 180 days. The contractual or notional amounts related to these financial instruments reflect the volume of activity and do not reflect the amounts at risk. Unrealized gains and losses on TBAs are recorded on the condensed consolidated balance sheet in receivable from brokers, dealers and clearing organizations and payable to brokers, dealers and clearing organizations, respectively, and in the condensed consolidated statement of operations as principal transactions revenue, net.

The notional amounts and fair values of the Company's derivatives as of September 30, 2017 and December 31, 2016 by product were as follows:



(Expressed in thousands)
	Fair Value of Derivative Instruments as of September 30, 2017
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	1,451	$	89
	Other TBAs ⁽²⁾	44,739		1,250
		$	46,190	$	1,339
Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts	Futures	$	3,452,000	$	663
Other contracts	TBAs	2,223		100
	Other TBAs ⁽²⁾	44,739		1,130
	ARS purchase commitments	15,523		276
		$	3,514,485	$	2,169


(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)	Represents TBA purchase and sale contracts related to the legacy OMHHF business.



(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
	Other TBAs ⁽²⁾	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
	Other TBAs ⁽²⁾	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 offset.


(2)	Represents TBA purchase and sale contracts related to the legacy OMHHF business.

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 September 30, 2017 and 2016:



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Three Months Ended September 30, 2017
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	(20	)
Other contracts	TBAs	Principal transactions revenue	(26		)
	Other TBAs	Other revenue	(70		)
	ARS purchase commitments	Principal transactions revenue	(22		)
			$	(138	)



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Three Months Ended September 30, 2016
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	733
Other contracts	Foreign exchange forward contracts	Other revenue	1
	TBAs	Principal transactions revenue	32
	Other TBAs	Other revenue	(39		)
	Interest rate lock commitments	Other revenue	53
	ARS purchase commitments	Principal transactions revenue	(140		)
			$	640

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 operations for the nine months ended September 30, 2017 and 2016:



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Nine Months Ended September 30, 2017
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	214
Other contracts	Foreign exchange forward contracts	Other revenue	12
	TBAs	Principal transactions revenue	(184		)
	Other TBAs	Other revenue	(320		)
	ARS purchase commitments	Principal transactions revenue	(480		)
			$	(758	)



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Nine Months Ended September 30, 2016
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	(2,328	)
Other contracts	Foreign exchange forward contracts	Other revenue	12
	TBAs	Principal transactions revenue	19
	Other TBAs	Other revenue	(8,168		)
	Interest rate lock commitments	Other revenue	5,268
	ARS purchase commitments	Principal transactions revenue	1,998
			$	(3,199	)