Fair value measurements (Tables)

6 Months Ended

Jun. 30, 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 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.

Investments in Company-Sponsored Funds

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.

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 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.

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 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.

Assets and Liabilities Not Measured at Fair Value on Recurring Basis

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

Notional Amounts and Fair Values of Derivatives by Product

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.

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 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