Fair value measurements (Tables)

3 Months Ended

Mar. 31, 2019

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, 2019
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	21,350	$	—	$	21,350	Discounted Cash Flow	Discount Rate ⁽²⁾	2.63% to 3.58%	3.57%
								Duration	1 Year	1 Year
								Current Yield ⁽³⁾	2.72% to 4.09%	4.07%

Auction Rate Preferred Securities	18,950		2,697		16,253		Tender Offer ⁽⁷⁾	N/A	N/A	N/A

Municipal Auction Rate Securities	75		—		75		Discounted Cash Flow	Discount Rate ⁽⁴⁾	3.96%	3.96%
								Duration	2 Years	2 Years
								Current Yield ⁽³⁾	5.50%	5.50%

Student Loan Auction Rate Securities	275		—		275		Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.42%	3.42%
								Duration	4 Years	4 Years
								Current Yield ⁽³⁾	3.95%	3.95%
	$	40,650	$	2,697	$	37,953
Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	7,429		1,114		6,315		Tender Offer ⁽⁷⁾	N/A	N/A	N/A

	$	7,429	$	1,114	$	6,315
Total	$	48,079	$	3,811	$	44,268


(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, 2019. The valuation adjustment amount is

included as a reduction to Securities Owned on the condensed consolidated balance sheet as of

March 31, 2019.


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

of 2.60%.


(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 2.49%.


(5)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.48%.


(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, 2019.


(7)	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.

Investments in Company-Sponsored Funds

The following table provides information about the Company's investments in Company-sponsored funds as of March 31, 2019:



(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds ⁽¹⁾	$	1,647	$	—	Annually	30 - 120 Days
Private equity funds ⁽²⁾	4,765		1,399		N/A	N/A
	$	6,412	$	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 March 31, 2019 and December 31, 2018, 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, 2019



(Expressed in thousands)
	Fair Value Measurements as of March 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	10,500	$	—	$	—	$	10,500
Deposits with clearing organizations	30,340		—		—		30,340
Securities owned:
U.S. Treasury securities	747,130		—		—		747,130
U.S. Agency securities	987		10,223		—		11,210
Sovereign obligations	—		305		—		305
Corporate debt and other obligations	—		7,921		—		7,921
Mortgage and other asset-backed securities	—		8,905		—		8,905
Municipal obligations	—		45,193		—		45,193
Convertible bonds	—		21,906		—		21,906
Corporate equities	27,795		—		—		27,795
Money markets	3,150		—		—		3,150
Auction rate securities	—		16,253		21,700		37,953
Securities owned, at fair value	779,062		110,706		21,700		911,468
Investments ⁽¹⁾	—		—		104		104
Total	$	819,902	$	110,706	$	21,804	$	952,412
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	108,527	$	—	$	—	$	108,527
U.S. Agency securities	—		3		—		3
Sovereign obligations	—		240		—		240
Corporate debt and other obligations			5,324				5,324
Convertible bonds	—		9,218		—		9,218
Corporate equities	13,974		—		—		13,974
Securities sold but not yet purchased, at fair value	122,501		14,785		—		137,286
Derivative contracts:
Futures	959		—		—		959
Foreign exchange forward contracts	2		—		—		2
TBAs	—		47		—		47
ARS purchase commitments	—		1,114		—		1,114
Derivative contracts, total	961		1,161		—		2,122
Total	$	123,462	$	15,946	$	—	$	139,408

(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, 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 condensed consolidated balance sheet.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis

llowing tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2019 and 2018:



(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2019
	Beginning Balance		Total Realized and Unrealized Gains⁽²⁾⁽³⁾		Purchases and Issuances		Sales and Settlements		Transfers In / Out		Ending Balance


Assets
Auction rate securities ⁽¹⁾	$	21,699	$	1	$	—	$	—	$	—	$	21,700
Investments	101		3		—		—		—		104


(1)	Represents auction rate preferred securities, municipal auction rate securities and student loan

auction rate securities that failed in the auction rate market.


(2)	Included in principal transactions in the condensed consolidated statement of income, except for

gains from investments which are included in other income in the condensed consolidated

statement of income.


(3)	Unrealized gains 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, 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 income, except

for gains (losses) from investments which are included in other income in the condensed

consolidated statement of income.


(4)	Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

Financial Instruments, Estimate Not Practicable, Fair Value

and liabilities not measured at fair value as of March 31, 2019



(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	72,573	$	72,573	$	—	$	—	$	72,573
Deposits with clearing organization	24,729		24,729		—		—		24,729
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	109,712		—		109,712		—		109,712
Receivables from brokers	17,438		—		17,438		—		17,438
Securities failed to deliver	23,524		—		23,524		—		23,524
Clearing organizations	27,874		—		27,874		—		27,874
Other	1,720		—		1,720		—		1,720
	180,268		—		180,268		—		180,268
Receivable from customers	753,625		—		753,625		—		753,625
Securities purchased under agreements to resell	589		—		589		—		589
Notes receivable, net	43,921		—		43,921		—		43,921
Investments ⁽¹⁾	67,093		—		67,093		—		67,093

(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	$	13,533	$	13,533	$	—	$	—	$	13,533
Bank call loans			—				—		—
Payables to brokers, dealers and clearing organizations:
Securities loaned	232,370		—		232,370		—		232,370
Payable to brokers	2,256		—		2,256		—		2,256
Securities failed to receive	30,064		—		30,064		—		30,064
Other	368,684		—		368,684		—		368,684
	633,374		—		633,374		—		633,374
Payables to customers	334,376		—		334,376		—		334,376
Securities sold under agreements to repurchase	268,621		—		268,621		—		268,621
Senior secured notes	200,000		—		203,904		—		203,904

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 condensed 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

Notional Amounts and Fair Values of Derivatives by Product

tional amounts and fair values of the Company's derivatives as of March 31, 2019 and December 31, 2018 by product were as follows:



(Expressed in thousands)
	Fair Value of Derivative Instruments as of March 31, 2019
	Description	Notional		Fair Value
Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts	Futures	$	4,473,000	$	959
Other contracts	Foreign exchange forward contracts	600		2
	TBAs	3,400		47
	ARS purchase commitments	7,429		1,114
		$	4,484,429	$	2,122


(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.



(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 derivative instruments are not subject to master netting agreements, thus the

related amounts are not offset.

The f

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 income for the three months ended March 31, 2019 and 2018:



(Expressed in thousands)
	The Effect of Derivative Instruments in the Income Statement
	For the Three Months Ended March 31, 2019
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Net Gain (Loss)
Commodity contracts	Futures	Principal transactions revenue	$	(576	)
Other contracts	Foreign exchange forward contracts	Other revenue	(2		)
	TBAs	Principal transactions revenue	10
	ARS purchase commitments	Principal transactions revenue	(18		)
			$	(586	)

(Expressed in thousands)
	The Effect of Derivative Instruments in the Income Statement
	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