Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 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 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.

Investments in Company-Sponsored Funds

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.

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 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.

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 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.

Assets and Liabilities Not Measured at Fair Value on Recurring Basis

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

Notional Amounts and Fair Values of Derivatives by Product

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.

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 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	)