Fair value measurements (Tables)

3 Months Ended

Mar. 31, 2018

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, 2018
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	87,950	$	1,158	$	86,792	Discounted Cash Flow	Discount Rate ⁽²⁾	2.56% to 3.49%	3.05%
								Duration	2.5 Years	2.5 Years
								Current Yield ⁽³⁾	2.15% to 2.79%	2.49%
Municipal Auction Rate Securities	300		10		290		Discounted Cash Flow	Discount Rate ⁽⁴⁾	4.17%	4.17%
								Duration	3 Years	3 Years
								Current Yield ⁽³⁾	3.00%	3.00%
Student Loan Auction Rate Securities	275		7		268		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.79%	3.79%
								Duration	5.5 Years	5.5 Years
								Current Yield ⁽³⁾	3.23%	3.23%
	$	88,525	$	1,175	$	87,350
Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	$	15,974	$	181	$	15,793	Discounted Cash Flow	Discount Rate ⁽²⁾	2.56% to 3.49%	3.05%
								Duration	2.5 Years	2.5 Years
								Current Yield ⁽³⁾	2.15% to 2.79%	2.49%
Municipal Auction Rate Securities	27		1		26		Discounted Cash Flow	Discount Rate ⁽⁴⁾	4.17%	4.17%
								Duration	3 Years	3 Years
								Current Yield ⁽³⁾	3.00%	3.00%
Student Loan Auction Rate Securities	25		1		24		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.79%	3.79%
								Duration	5.5 Years	5.5 Years
								Current Yield ⁽³⁾	3.23%	3.23%
	$	16,026	$	183	$	15,843
Total	$	104,551	$	1,358	$	103,193


(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, 2018. The valuation adjustment amount is included as a reduction to securities owned on the condensed consolidated balance sheet as of March 31, 2018.


(2)	Derived by applying a multiple to a spread between 110% to 150% to the U.S. Treasury rate of 2.32%.


(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 2.38%.


(5)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.59%.


(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 as of March 31, 2018.

Investments in Company-Sponsored Funds

The following table provides information about the Company's investments in Company-sponsored funds as of March 31, 2018:



(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds ⁽¹⁾	$	2,556	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds ⁽²⁾	4,980		1,400		N/A	N/A
	$	7,536	$	1,400


(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, 2018 and December 31, 2017, 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, 2018



(Expressed in thousands)
	Fair Value Measurements as of March 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	10,490	$	—	$	—	$	10,490
Deposits with clearing organizations	41,387		—		—		41,387
Securities owned:
U.S. Treasury securities	708,250		—		—		708,250
U.S. Agency securities	13,556		10,740		—		24,296
Sovereign obligations	—		557		—		557
Corporate debt and other obligations	—		21,659		—		21,659
Mortgage and other asset-backed securities	—		1,980		—		1,980
Municipal obligations	—		91,523		—		91,523
Convertible bonds	—		31,465		—		31,465
Corporate equities	31,974		—		—		31,974
Money markets	573		—		—		573
Auction rate securities	—		—		87,350		87,350
Securities owned, at fair value	754,353		157,924		87,350		999,627
Investments ⁽¹⁾	—		—		168		168
Derivative contracts:
TBAs	—		3,752		—		3,752
Total	$	806,230	$	161,676	$	87,518	$	1,055,424
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	108,819	$	—	$	—	$	108,819
U.S. Agency securities	—		5		—		5
Sovereign obligations	—		1,336		—		1,336
Corporate debt and other obligations	—		5,048		—		5,048
Mortgage and other asset-backed securities	—		8		—		8
Convertible bonds	—		8,237		—		8,237
Corporate equities	—		24,433		—		24,433
Securities sold but not yet purchased, at fair value	108,819		39,067		—		147,886
Derivative contracts:
Futures	1,218		—		—		1,218
TBAs	—		3,667		—		3,667
ARS purchase commitments	—		—		183		183
Derivative contracts, total	1,218		3,667		183		5,068
Total	$	110,037	$	42,734	$	183	$	152,954


(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, 2017



(Expressed in thousands)
	Fair Value Measurements as of December 31, 2017
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	10,490	$	—	$	—	$	10,490
Deposits with clearing organizations	34,293		—		—		34,293
Securities owned:
U.S. Treasury securities	640,337		—		—		640,337
U.S. Agency securities	3,011		6,894		—		9,905
Sovereign obligations	—		608		—		608
Corporate debt and other obligations	—		12,538		—		12,538
Mortgage and other asset-backed securities	—		4,037		—		4,037
Municipal obligations	—		89,618		35		89,653
Convertible bonds	—		23,216		—		23,216
Corporate equities	34,067		—		—		34,067
Money markets	383		—		—		383
Auction rate securities	—		24,455		87,398		111,853
Securities owned, at fair value	677,798		161,366		87,433		926,597
Investments ⁽¹⁾	—		—		169		169
Derivative contracts:
TBAs	—		716		—		716
Total	$	722,581	$	162,082	$	87,602	$	972,265
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	53,425	$	—	$	—	$	53,425
U.S. Agency securities	—		13		—		13
Sovereign obligations	—		1,179		—		1,179
Corporate debt and other obligations	—		4,357		—		4,357
Mortgage and other asset-backed securities	—		10		—		10
Convertible bonds	—		10,109		—		10,109
Corporate equities	25,393		—		—		25,393
Securities sold but not yet purchased, at fair value	78,818		15,668		—		94,486
Derivative contracts:
Futures	766		—		—		766
TBAs	—		614		—		614
ARS purchase commitments	—		—		8		8
Derivative contracts, total	766		614		8		1,388
Total	$	79,584	$	16,282	$	8	$	95,874


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

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, 2018 and 2017:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2018
	Beginning Balance		Total Realized and Unrealized Gains (Losses) ⁽³⁾⁽⁴⁾			Purchases and Issuances		Sales and Settlements			Transfers In (Out)		Ending Balance


Assets
Municipal obligations	$	35	$	14		$	76	$	(125	)	$	—	$	—
Auction rate securities ⁽¹⁾	87,398		847			50		(945		)	—		87,350
Investments	169		(1		)	—		—			—		168
Liabilities
ARS purchase commitments ⁽²⁾	8		(175		)	—		—			—		183


(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 gains (losses) from 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 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

Assets and Liabilities Not Measured at Fair Value on Recurring Basis

Assets and liabilities not measured at fair value as of March 31, 2018



(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	32,225	$	32,225	$	—	$	—	$	32,225
Deposits with clearing organization	29,551		29,551		—		—		29,551
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	112,272		—		112,272		—		112,272
Receivables from brokers	15,333		—		15,333		—		15,333
Securities failed to deliver	16,862		—		16,862		—		16,862
Clearing organizations	24,296		—		24,296		—		24,296
Other	2,007		—		2,007		—		2,007
	170,770		—		170,770		—		170,770
Receivable from customers	881,941		—		881,941		—		881,941
Notes receivable, net	42,386		—		42,386		—		42,386
Investments ⁽¹⁾	65,563		—		65,563		—		65,563


(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	$	20,993	$	20,993	$	—	$	—	$	20,993
Bank call loans	147,400		—		147,400		—		147,400
Payables to brokers, dealers and clearing organizations:
Securities loaned	174,567		—		174,567		—		174,567
Payable to brokers	3,405		—		3,405		—		3,405
Securities failed to receive	23,677		—		23,677		—		23,677
Other	51,984		—		51,984		—		51,984
	253,633		—		253,633		—		253,633
Payables to customers	445,085		—		445,085		—		445,085
Securities sold under agreements to repurchase	576,017		—		576,017		—		576,017
Senior secured notes	200,000		—		206,488		—		206,488

Assets and liabilities not measured at fair value as of December 31, 2017



(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	37,664	$	37,664	$	—	$	—	$	37,664
Deposits with clearing organization	7,929		7,929		—		—		7,929
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	132,368		—		132,368		—		132,368
Receivables from brokers	19,298		—		19,298		—		19,298
Securities failed to deliver	9,442		—		9,442		—		9,442
Clearing organizations	24,361		—		24,361		—		24,361
Other	930		—		930		—		930
	186,399		—		186,399		—		186,399
Receivable from customers	848,226		—		848,226		—		848,226
Securities purchased under agreements to resell	658		—		658		—		658
Notes receivable, net	40,520		—		40,520		—		40,520
Investments ⁽¹⁾	65,404		—		65,404		—		65,404


(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	$	42,212	$	42,212	$	—	$	—	$	42,212
Bank call loans	118,300		—		118,300		—		118,300
Payables to brokers, dealers and clearing organizations:
Securities loaned	180,270		—		180,270		—		180,270
Payable to brokers	1,567		—		1,567		—		1,567
Securities failed to receive	17,559		—		17,559		—		17,559
Other	10,707		—		10,707		—		10,707
	210,103		—		210,103		—		210,103
Payables to customers	385,907		—		385,907		—		385,907
Securities sold under agreements to repurchase	586,478		—		586,478		—		586,478
Senior secured notes	200,000		—		206,380		—		206,380

Notional Amounts and Fair Values of Derivatives by Product

The notional amounts and fair values of the Company's derivatives as of March 31, 2018 and December 31, 2017 by product were as follows:



(Expressed in thousands)
	Fair Value of Derivative Instruments as of March 31, 2018
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments⁽¹⁾
Other contracts	TBAs	$	909,200	$	3,392
	Other TBAs ⁽²⁾	32,198		360
		$	941,398	$	3,752
Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts	Futures	$	5,076,000	$	1,218
	TBAs	909,200		3,382
	Other TBAs ⁽²⁾	32,198		285
	ARS purchase commitments	16,026		183
		$	6,033,424	$	5,068


(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, 2017
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	26,000	$	22
	Other TBAs ⁽²⁾	39,576		694
		$	65,576	$	716
Liabilities:
Derivatives not designated as hedging instruments⁽¹⁾
Commodity contracts	Futures	$	5,844,000	$	766
Other contracts	TBAs	26,000		22
	Other TBAs ⁽²⁾	39,576		592
	ARS purchase commitments	10,992		8
		$	5,920,568	$	1,388


(1)	See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments.


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

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

2017:



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Three Months Ended March 31, 2018
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	1,029
Other contracts	TBAs	Principal transactions revenue	34
	Other TBAs	Other revenue	75
	ARS purchase commitments	Principal transactions revenue	(175		)
			$	963

(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		)
	Other TBAs	Other revenue	320
	ARS purchase commitments	Principal transactions revenue	315
			$	754