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Fair value measurements (Tables)
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]    
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 December 31, 2018
Product
 
Principal
 
Valuation
Adjustment
 
Fair
Value
 
Valuation
Technique
 
Unobservable
Input
 
Range
 
Weighted
Average
Auction Rate Securities Owned (1)
Auction Rate Preferred Securities
 
$
21,350

 
$
1

 
$
21,349

 
Discounted Cash Flow
 
Discount Rate (2)
 
2.86% to 3.89%
 
3.88%
 
 


 


 
—

 
 
 
Duration
 
1 Year
 
1 Year
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
2.69% to 4.05%
 
4.03%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Auction Rate Preferred Securities
 
18,950

 
2,697

 
16,253

 
Tender Offer (4)
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipal Auction Rate Securities
 
75

 
—

 
75

 
Discounted Cash Flow
 
Discount Rate (5)
 
4.35%
 
4.35%
 
 
 
 
 
 
 
 
 
 
Duration
 
2 years
 
2 years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
5.51%
 
5.51%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Student Loan Auction Rate Securities
 
275

 
—

 
275

 
Discounted Cash Flow
 
Discount Rate (6)
 
3.68%
 
3.68%
 
 
 
 
 
 
 
 
 
 
Duration
 
4.0 Years
 
4.0 Years
 
 
 
 
 
 
 
 
 
 
Current Yield (3)
 
3.64%
 
3.64%
 
 
$
40,650

 
$
2,698

 
$
37,952

 
 
 
 
 
 
 
 
Auction Rate Securities Commitments to Purchase (7)
 
 
 
 
 
 
 
 
Auction Rate Preferred Securities
 
7,305

 
1,096

 
6,209

 
Tender Offer (4)
 
N/A
 
N/A
 
N/A
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
7,305

 
$
1,096

 
$
6,209

 
 
 
 
 
 
 
 
Total
 
$
47,955

 
$
3,794

 
$
44,161

 
 
 
 
 
 
 
 
 
(1)
Principal amount represents the par value of the ARS and is included in securities owned on the consolidated balance sheet as of December 31, 2018. The valuation adjustment amount is included as a reduction to securities owned on the consolidated balance sheet as of December 31, 2018.
(2)
Derived by applying a multiple to a spread between 110% to 150% to the U.S. Treasury rate of 2.60%.
(3)
Based on current yields for ARS positions owned.
(4)
Residual ARS amounts owned and ARS commitments to purchase that were subject to tender offers were priced at the tender offer price. Included in Level 2 of the fair value hierarchy.
(5)
Derived by applying the sum of the spread of 175% to the U.S. Treasury rate of 2.49%.
(6)
Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.48%.
(7)
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 consolidated balance sheet as of December 31, 2018.

 
Investments in Company-Sponsored Funds
The following table provides information about the Company's investments in Company-sponsored funds as of December 31, 2018:
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value
 
Unfunded
Commitments
 
Redemption
Frequency
 
Redemption
Notice Period
Hedge funds (1)
$
1,596

 
$
—

 
Quarterly - Annually
 
30 - 120 Days
Private equity funds (2)
4,908

 
1,399

 
N/A
 
N/A
 
$
6,504

 
$
1,399

 
 
 
 
(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 December 31, 2018 and 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 December 31, 2018
(Expressed in thousands)
 
 
 
 
 
 
 
 
Fair Value Measurements as of December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets
 
 
 
 
 
 
 
Cash equivalents
$
10,500

 
$
—

 
$
—

 
$
10,500

Deposits with clearing organizations
34,599

 
—

 
—

 
34,599

Securities owned:
 
 
 
 
 
 
 
U.S. Treasury securities
657,208

 
—

 
—

 
657,208

U.S. Agency securities
812

 
6,494

 
—

 
7,306

Sovereign obligations
—

 
214

 
—

 
214

Corporate debt and other obligations
—

 
20,665

 
—

 
20,665

Mortgage and other asset-backed securities
—

 
2,486

 
—

 
2,486

Municipal obligations
—

 
52,261

 
—

 
52,261

Convertible bonds
—

 
31,270

 
—

 
31,270

Corporate equities
28,215

 
—

 
—

 
28,215

Money markets
7

 
—

 
—

 
7

Auction rate securities
—

 
16,253

 
21,699

 
37,952

Securities owned, at fair value
686,242

 
129,643

 
21,699

 
837,584

Investments (1)
—

 
—

 
101

 
101

Derivative contracts:
 
 
 
 
 
 
 
TBAs
—

 
4,873

 
—

 
4,873

Total
$
731,341

 
$
134,516

 
$
21,800

 
$
887,657

Liabilities
 
 
 
 
 
 
 
Securities sold but not yet purchased:
 
 
 
 
 
 
 
U.S. Treasury securities
$
53,646

 
$
—

 
$
—

 
$
53,646

U.S. Agency securities
—

 
3

 
—

 
3

Sovereign obligations
—

 
78

 
—

 
78

Corporate debt and other obligations
—

 
7,236

 
—

 
7,236

Convertible bonds
—

 
9,709

 
—

 
9,709

Corporate equities
14,774

 
—

 
—

 
14,774

Securities sold but not yet purchased, at fair value
68,420

 
17,026

 
—

 
85,446

Derivative contracts:
 
 
 
 
 
 
 
Futures
807

 
—

 
—

 
807

Foreign exchange forward contracts
4

 
—

 
—

 
4

TBAs
—

 
4,873

 
—

 
4,873

ARS purchase commitments
—

 
1,096

 
—

 
1,096

Derivative contracts, total
811

 
5,969

 
—

 
6,780

Total
$
69,231

 
$
22,995

 
$
—

 
$
92,226

 
(1)Included in other assets on the 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 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 years ended December 31, 2018 and 2017:
(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Year Ended December 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) (5)
87,398

 
1,351

 
6,300

 
(35,675
)
 
(37,675
)
 
21,699

Investments
169

 
(8
)
 
—

 
—

 
(60
)
 
101

Liabilities
 
 
 
 
 
 
 
 
 
 
 
ARS purchase commitments (2) (5)
8

 
(1,088
)
 
—

 
—

 
1,096

 
—

 
(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 consolidated statement of operations, except for gains (losses) from investments which are included in other income in the consolidated statement of operations.
(4)
Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.
(5)
Represents transfers from Level 3 to Level 2 of the fair value hierarchy. Transfers were due to tender offers by issuers of ARS.
(Expressed in thousands)
 
Level 3 Assets and Liabilities
 
For the Year Ended December 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

 
$
(9
)
 
$
—

 
$
—

 
$
—

 
$
35

Auction rate securities (1)
84,926

 
1,177

 
27,225

 
(1,475
)
 
(24,455
)
 
87,398

Investments
158

 
11

 
—

 
—

 
—

 
169

ARS purchase commitments (2)
849

 
(849
)
 
—

 
—

 
—

 
—

Liabilities

 

 

 

 

 

ARS purchase commitments (2)
645

 
637

 
—

 
—

 
—

 
8


(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 consolidated statement of operations, except for gains (losses) from investments which are included in other income in the 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 December 31, 2018
(Expressed in thousands)
 
 
Fair Value Measurement: Assets
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash
$
80,175

 
$
80,175

 
$
—

 
$
—

 
$
80,175

Deposits with clearing organization
33,079

 
33,079

 
—

 
—

 
33,079

Receivable from brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities borrowed
108,144

 
—

 
108,144

 
—

 
108,144

Receivables from brokers
20,140

 
—

 
20,140

 
—

 
20,140

Securities failed to deliver
7,021

 
—

 
7,021

 
—

 
7,021

Clearing organizations
28,777

 
—

 
28,777

 
—

 
28,777

Other
2,411

 
—

 
2,411

 
—

 
2,411

 
166,493

 
—

 
166,493

 
—

 
166,493

Receivable from customers
720,777

 
—

 
720,777

 
—

 
720,777

Securities purchased under agreements to resell
290

 


 
290

 
—

 
290

Notes receivable, net
44,058

 


 
44,058

 
—

 
44,058

Investments (1)
59,765

 
—

 
59,765

 
—

 
59,765

 
(1)
Included in other assets on the consolidated balance sheet.
(Expressed in thousands)
 
 
Fair Value Measurement: Liabilities
 
Carrying Value
 
Level 1
 
Level 2
 
Level 3
 
Total
Drafts payable
$
16,348

 
$
16,348

 
$
—

 
$
—

 
$
16,348

Bank call loans
15,000

 
—

 
15,000

 
—

 
15,000

Payables to brokers, dealers and clearing organizations:
 
 
 
 
 
 
 
 
 
Securities loaned
146,815

 
—

 
146,815

 
—

 
146,815

Payable to brokers
158

 
—

 
158

 
—

 
158

Securities failed to receive
27,799

 
—

 
27,799

 
—

 
27,799

Other
113,628

 
—

 
113,628

 
—

 
113,628

 
288,400

 
—

 
288,400

 
—

 
288,400

Payables to customers
336,616

 
—

 
336,616

 
—

 
336,616

Securities sold under agreements to repurchase
484,218

 
—

 
484,218

 
—

 
484,218

Senior secured notes
200,000

 
—

 
199,722

 
—

 
199,722

 
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 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


F
 
Notional Amounts and Fair Values of Derivatives by Product
The notional amounts and fair values of the Company's derivatives as of December 31, 2018 and 2017 by product were as follows:
(Expressed in thousands)
 
 
 
 
 
 
Fair Value of Derivative Instruments as of December 31, 2018
 
Description
 
Notional
 
Fair Value
Assets:
 
 
 
 
 
Derivatives not designated as hedging instruments (1)
 
 
 
 
 
Other contracts
TBAs
 
$
729,500

 
$
4,873

 
 
 
$
729,500

 
$
4,873

Liabilities:
 
 
 
 
 
Derivatives not designated as hedging instruments (1)
 
 
 
 
 
Commodity contracts
Futures
 
$
4,580,800

 
$
807

Other contracts
Foreign exchange forward contracts
 
200

 
4

 
TBAs
 
729,500

 
4,873

 
ARS purchase commitments
 
7,305

 
1,096

 
 
 
$
5,317,805

 
$
6,780

 
(1)
See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments. Such derivate instruments are not subject to master netting agreements, thus the related amounts are not offset.
(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. Such derivate 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 consolidated statements of operations for the years ended December 31, 2018 and 2017:
(Expressed in thousands)
 
 
 
 
 
 
The Effect of Derivative Instruments in the Statement of Operations
 
For the Year Ended December 31, 2018
 
 
 
Recognized in Income on Derivatives
(pre-tax)
Types
Description
 
Location
 
Net Gain (Loss)
Commodity contracts
Futures
 
Principal transactions revenue
 
$
592

Other contracts
Foreign exchange forward contracts
 
Other revenue
 
(7
)
 
TBAs
 
Principal transactions revenue
 
371

 
ARS purchase commitments
 
Principal transactions revenue
 
(1,088
)
 
 
 
 
 
$
(132
)
 
 
 
 
 
 
(Expressed in thousands)
 
 
 
 
 
 
The Effect of Derivative Instruments in the Statement of Operations
 
For the Year Ended December 31, 2017
 
 
 
Recognized in Income on Derivatives
(pre-tax)
Types
Description
 
Location
 
Net Gain (Loss)
Commodity contracts
Futures
 
Principal transactions revenue
 
$
987

Other contracts
Foreign exchange forward contracts
 
Other revenue
 
12

 
TBAs
 
Principal transactions revenue
 
(167
)
 
Other TBAs
 
Other revenue
 
(338
)
 
ARS purchase commitments
 
Principal transactions revenue
 
(212
)
 
 
 
 
 
$
282