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 values non-agency securities collateralized by home equity and various other types of collateral 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 June 30, 2018, the Company had $5.0 million in 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 June 30, 2018, the Company purchased and holds (net of redemptions) approximately $92.3 million in ARS from its clients. In addition, the Company is committed to purchase another $7.2 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 that are municipal bonds wrapped by municipal bond insurance and student loan auction rate securities that 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 classified 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 June 30, 2018
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	73,275	$	941	$	72,334	Discounted Cash Flow	Discount Rate ⁽²⁾	2.83% to 3.86%	3.22%
								Duration	2.5 Years	2.5 Years
								Current Yield ⁽³⁾	2.36% to 3.21%	2.68%

Auction Rate Preferred Securities	18,725		1,123		17,602		Tender Offer ⁽⁴⁾	N/A	N/A	N/A

Municipal Auction Rate Securities	25		—		25		Par	N/A	N/A	N/A

Student Loan Auction Rate Securities	275		13		262		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.96%	3.96%
								Duration	5.5 Years	5.5 Years
								Current Yield ⁽³⁾	2.95%	2.95%
	$	92,300	$	2,077	$	90,223
Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	$	10,620	$	130	$	10,490	Discounted Cash Flow	Discount Rate ⁽²⁾	2.83% to 3.86%	3.22%
								Duration	2.5 Years	2.5 Years
								Current Yield ⁽³⁾	2.36% to 3.21%	2.68%

Auction Rate Preferred Securities	1,515		91		1,424		Tender Offer ⁽⁴⁾	N/A	N/A	N/A

Municipal Auction Rate Securities	2		—		2		Par	N/A	N/A	N/A

Student Loan Auction Rate Securities	25		1		24		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.96%	3.96%
								Duration	5.5 Years	5.5 Years
								Current Yield ⁽³⁾	2.95%	2.95%
	$	12,162	$	222	$	11,940
Total	$	104,462	$	2,299	$	102,163


(1)	Principal amount represents the par value of the ARS and is included in securities owned on the condensed consolidated balance sheet as of June 30, 2018. The valuation adjustment amount is included as a reduction to securities owned on the condensed consolidated balance sheet as of June 30, 2018.


(2)	Derived by applying a multiple to a spread between 110% to 150% to the U.S. Treasury rate of 2.58%.


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


(4)	ARS issuer announced tender offer at 94% of par. Included in Level 2 of the fair value hierarchy.


(5)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.76%.


(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 June 30, 2018.

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 June 30, 2018 would result in a decrease in the fair value of $493,000 (does not consider a corresponding reduction in duration as discussed above).


•	The impact of a 50 basis point increase in the discount rate at June 30, 2018 would result in a decrease in the fair value of $982,000 (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, ARS are primarily categorized in Level 3 of the fair value hierarchy. As of June 30, 2018, the Company had a valuation adjustment (unrealized loss) of $2.1 million for ARS owned which is included as a reduction to securities owned on the condensed consolidated balance sheet. As of June 30, 2018, the Company also had a valuation adjustment of $222,000 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 $2.3 million as of June 30, 2018. 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 June 30, 2018:



(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds ⁽¹⁾	$	2,624	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds ⁽²⁾	5,008		1,400		N/A	N/A
	$	7,632	$	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.

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 with 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 June 30, 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 June 30, 2018



(Expressed in thousands)
	Fair Value Measurements as of June 30, 2018
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	10,500	$	—	$	—	$	10,500
Deposits with clearing organizations	31,135		—		—		31,135
Securities owned:
U.S. Treasury securities	690,988		—		—		690,988
U.S. Agency securities	8,541		7,906		—		16,447
Sovereign obligations	—		204		—		204
Corporate debt and other obligations	—		24,813		—		24,813
Mortgage and other asset-backed securities	—		6,870		—		6,870
Municipal obligations	—		116,612		—		116,612
Convertible bonds	—		41,135		—		41,135
Corporate equities	33,112		—		—		33,112
Auction rate securities	—		17,602		72,621		90,223
Securities owned, at fair value	732,641		215,142		72,621		1,020,404
Investments ⁽¹⁾	—		—		164		164
Derivative contracts:
TBAs	—		2,815		—		2,815
Total	$	774,276	$	217,957	$	72,785	$	1,065,018
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	115,465	$	—	$	—	$	115,465
U.S. Agency securities	—		6		—		6
Corporate debt and other obligations	—		5,289		—		5,289
Mortgage and other asset-backed securities	—		6,808		—		6,808
Convertible bonds	—		7,496		—		7,496
Corporate equities	26,978		—		—		26,978
Securities sold but not yet purchased, at fair value	142,443		19,599		—		162,042
Derivative contracts:
Futures	942		—		—		942
Foreign exchange forward contracts	5		—		—		5
TBAs	—		2,715		—		2,715
ARS purchase commitments	—		91		131		222
Derivative contracts, total	947		2,806		131		3,884
Total	$	143,390	$	22,405	$	131	$	165,926


(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.

During the three and six months ended June 30, 2018, the Company transferred $17.6 million and $91,000 in ARS and ARS purchase commitments, respectively, from Level 3 to Level 2 of the fair value hierarchy due to tender offer announcements by issuer of auction rate preferred securities. There were no transfers between any of the levels during the three and six months ended June 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 June 30, 2018 and 2017:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended June 30, 2018
	Beginning Balance		Total Realized and Unrealized Gains (Losses) ⁽³⁾⁽⁴⁾			Purchases and Issuances		Sales and Settlements			Transfers In (Out)			Ending Balance


Assets
Auction rate securities ⁽¹⁾	$	87,350	$	(902	)	$	4,050	$	(275	)	$	(17,602	)	$	72,621
Investments	168		(4		)	—		—			—			164
Liabilities
ARS purchase commitments ⁽²⁾	183		(39		)	—		—			91			131


(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 June 30, 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	$	36	$	—		$	—	$	—		$	—	$	36
Auction rate securities ⁽¹⁾	89,743		502			17,050		(125		)	—		107,170
Investments	164		4			—		—			—		168
ARS purchase commitments ⁽²⁾	878		(878		)	—		—			—		—
Liabilities
ARS purchase commitments ⁽²⁾	359		105			—		—			—		254


(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.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the six months ended June 30, 2018 and 2017:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Six Months Ended June 30, 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		(55		)	4,100		(1,220		)	(17,602		)	72,621
Investments	169		(5		)	—		—			—			164
Liabilities
ARS purchase commitments ⁽²⁾	8		(214		)	—		—			91			131


(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 Six Months Ended June 30, 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⁾	84,926		1,144			22,050		(950		)	—		107,170
Investments	158		10			—		—			—		168
ARS purchase commitments ⁽²⁾	849		(849		)	—		—			—		—
Liabilities
ARS purchase commitments ⁽²⁾	645		391			—		—			—		254


(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.

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 June 30, 2018



(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	28,461	$	28,461	$	—	$	—	$	28,461
Deposits with clearing organization	25,729		25,729		—		—		25,729
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	122,238		—		122,238		—		122,238
Receivables from brokers	31,962		—		31,962		—		31,962
Securities failed to deliver	24,227		—		24,227		—		24,227
Clearing organizations	23,459		—		23,459		—		23,459
Other	1,603		—		1,603		—		1,603
	203,489		—		203,489		—		203,489
Receivable from customers	835,708		—		835,708		—		835,708
Securities purchased under agreements to resell	6,738		—		6,738		—		6,738
Notes receivable, net	42,410		—		42,410		—		42,410
Investments ⁽¹⁾	65,601		—		65,601		—		65,601


(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	$	21,632	$	21,632	$	—	$	—	$	21,632
Bank call loans	107,500		—		107,500		—		107,500
Payables to brokers, dealers and clearing organizations:
Securities loaned	199,598		—		199,598		—		199,598
Payable to brokers	18,984		—		18,984		—		18,984
Securities failed to receive	16,894		—		16,894		—		16,894
Other	45,186		—		45,186		—		45,186
	280,662		—		280,662		—		280,662
Payables to customers	373,664		—		373,664		—		373,664
Securities sold under agreements to repurchase	599,151		—		599,151		—		599,151
Senior secured notes	200,000		—		204,174		—		204,174

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

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 reflect more accurately 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 June 30, 2018, the Company did not have any repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date.

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 Company uses futures contracts, including U.S. Treasury notes, Federal Funds, General Collateral futures and Eurodollar contracts 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. Net unrealized gains and losses on TBAs are recorded on the condensed consolidated balance sheet in receivable from brokers, dealers and clearing organizations or payable to brokers, dealers and clearing organizations 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 June 30, 2018 and December 31, 2017 by product were as follows:



(Expressed in thousands)
	Fair Value of Derivative Instruments as of June 30, 2018
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments⁽¹⁾
Other contracts	TBAs	$	821,000	$	1,777
	Other TBAs ⁽²⁾	31,366		1,038
		$	852,366	$	2,815
Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts	Futures	$	4,981,000	$	942
Other contracts	Foreign exchange forward contracts	400		5
	TBAs	821,000		1,749
	Other TBAs ⁽²⁾	31,366		966
	ARS purchase commitments	12,162		222
		$	5,845,928	$	3,884


(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.

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 June 30, 2018 and 2017:



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Three Months Ended June 30, 2018
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	322
Other contracts	Foreign exchange forward contracts	Other revenue	(5		)
Other contracts	TBAs	Principal transactions revenue	162
	Other TBAs	Other revenue	72
	ARS purchase commitments	Principal transactions revenue	(39		)
			$	512

(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Three Months Ended June 30, 2017
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	(8	)
Other contracts	Foreign exchange forward contracts	Other revenue	8
	TBAs	Principal transactions revenue	204
	Other TBAs	Other revenue	191
	ARS purchase commitments	Principal transactions revenue	(773		)
			$	(378	)



(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Six Months Ended June 30, 2018
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	1,351
Other contracts	Foreign exchange forward contracts	Other revenue	(5		)
Other contracts	TBAs	Principal transactions revenue	196
	Other TBAs	Other revenue	147
	ARS purchase commitments	Principal transactions revenue	(214		)
			$	1,475

(Expressed in thousands)
	The Effect of Derivative Instruments in the Statement of Operations
	For the Six Months Ended June 30, 2017
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	234
Other contracts	Foreign exchange forward contracts	Other revenue	12
	TBAs	Principal transactions revenue	77
	Other TBAs	Other revenue	511
	ARS purchase commitments	Principal transactions revenue	(458		)
			$	376