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Fair value measurements (Tables)

9 Months Ended

Sep. 30, 2020

The following table provides information about the Company's investments in Company-sponsored funds as of September 30, 2020:


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	1,138	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds (2)	4,351		1,238		N/A	N/A
	$	5,489	$	1,238

(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.

(2) Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and

global natural resources

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


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	1,589	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds (2)	4,227		1,339		N/A	N/A
	$	5,816	$	1,339

(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.

(2) Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and

global natural resources.

During the third quarter of 2020, the Company made an investment in a financial technologies firm. The Company elected the fair value option for this investment and it is included in other assets on the condensed consolidated balance sheet. The Company determined the fair value of the investment based on an implied market-multiple approach and observable market data, including comparable company transactions. The investment is categorized in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value on Recurring Basis

bilities, recorded at fair value on a recurring basis as of September 30, 2020 and December 31, 2019, 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 September 30, 2020:


(Expressed in thousands)
	Fair Value Measurements as of September 30, 2020
	Level 1		Level 2		Level 3		Total
Assets

Deposits with clearing organizations	$	35,344	$	—	$	—	$	35,344
Securities owned:
U.S. Treasury securities	470,683		—		—		470,683
U.S. Agency securities	—		14,787		—		14,787
Sovereign obligations	—		207		—		207
Corporate debt and other obligations	—		27,111		—		27,111
Mortgage and other asset-backed securities	—		2,963		—		2,963
Municipal obligations	—		46,645		—		46,645
Convertible bonds	—		19,992		—		19,992
Corporate equities	32,121		—		—		32,121
Money markets	1,470		—		—		1,470
Auction rate securities	—		—		30,701		30,701
Securities owned, at fair value	504,274		111,705		30,701		646,680
Investments (1)	—		3,961		—		3,961

Derivative contracts:
TBAs	—		275		—		275


Total	$	539,618	$	115,941	$	30,701	$	686,260
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	181,419	$	—	$	—	$	181,419
U.S. Agency securities	—		4,972		—		4,972
Sovereign obligations	—		936		—		936
Corporate debt and other obligations	—		6,049		—		6,049


Convertible bonds	—		6,434		—		6,434
Corporate equities	22,639		—		—		22,639

Securities sold but not yet purchased, at fair value	204,058		18,391		—		222,449

Derivative contracts:
Futures	116		—		—		116

TBAs	—		220		—		220
ARS purchase commitments	—		—		192		192
Derivative contracts, total	116		220		192		528
Total	$	204,174	$	18,611	$	192	$	222,977

(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, 2019:


(Expressed in thousands)
	Fair Value Measurements as of December 31, 2019
	Level 1		Level 2		Level 3		Total
Assets


Deposits with clearing organizations	$	25,118	$	—	$	—	$	25,118
Securities owned:
U.S. Treasury securities	613,030		—		—		613,030
U.S. Agency securities	19,917		15,974		—		35,891
Sovereign obligations	—		11,405		—		11,405
Corporate debt and other obligations	—		8,310		—		8,310
Mortgage and other asset-backed securities	—		2,697		—		2,697
Municipal obligations	—		40,260		—		40,260
Convertible bonds	—		29,816		—		29,816
Corporate equities	32,215		—		—		32,215
Money markets	781		—		—		781
Auction rate securities	—		25,314		—		25,314
Securities owned, at fair value	665,943		133,776		—		799,719






Total	$	691,061	$	133,776	$	—	$	824,837
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	52,882	$	—	$	—	$	52,882
U.S. Agency securities	—		18		—		18
Sovereign obligations	—		6,405		—		6,405
Corporate debt and other obligations	—		664		—		664
Mortgage and other asset-backed securities	—		18,624		—		18,624


Corporate equities	21,978		—		—		21,978

Securities sold but not yet purchased, at fair value	74,860		25,711		—		100,571

Derivative contracts:
Futures	267		—		—		267

TBAs	—		124		—		124
ARS purchase commitments	—		1,023		—		1,023
Derivative contracts, total	267		1,147		—		1,414
Total	$	75,127	$	26,858	$	—	$	101,985

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2020:

(Expressed in thousands)

Level 3 Assets and Liabilities

For the Three Months Ended September 30, 2020

Total Realized

Beginning

and Unrealized

Purchases

Sales and

Transfers

Ending

Balance

Gains (Losses)(3)(4)

and Issuances

Settlements

In (Out)

Balance

Assets

Auction rate securities (1)

29,566

(165)

1,300

—

30,701

Liabilities

ARS Purchase Commitments (2)

332

140

—

192

(1) Represents 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.

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

For the three months ended September 30, 2020, Level 3 assets increased by $1.1 million. There were no balances or changes in Level 3 assets and liabilities during the three months ended September 30, 2019.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2020 and 2019:

(Expressed in thousands)

Level 3 Assets and Liabilities

For the Nine Months Ended September 30, 2020

Total Realized

Beginning

and Unrealized

Purchases

Sales and

Transfers

Ending

Balance

Gains (Losses)(4)(5)

and Issuances

Settlements

In (Out)

Balance

Assets

Auction rate securities (1) (2)

—

(165)

1,300

—

29,566

30,701

Liabilities

ARS Purchase Commitments (1) (3)

—

140

—

332

192

(1) Transferred to Level 3 of the fair value hierarchy due to the illiquid nature of the securities as result of the length of time since the last tender offer.

(2) Represents auction rate securities that failed in the auction rate market.

(3) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.

(4) Included in principal transactions in the condensed consolidated statement of income.

(5) 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 Nine Months Ended September 30, 2019

Total Realized

Beginning

and Unrealized

Purchases

Sales and

Transfers

Ending

Balance

Gains(3)(4)

and Issuances

Settlements

In (Out)

Balance

Assets

Auction rate securities (1) (2)

21,699

—

(350)

(21,350)

—

Investments

101

—

(106)

—

(1) Transferred to Level 2 of the fair value hierarchy as a result of recent tender offer activities.

Financial Instruments, Estimate Not Practicable, Fair Value

d at fair value as of September 30, 2020:


(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	32,080	$	32,080	$	—	$	—	$	32,080
Deposits with clearing organization	41,858		41,858		—		—		41,858
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	128,199		—		128,199		—		128,199
Receivables from brokers	29,088		—		29,088		—		29,088
Securities failed to deliver	14,565		—		14,565		—		14,565
Clearing organizations	34,165		—		34,165		—		34,165
Other	1,184		—		1,184		—		1,184
	207,201		—		207,201		—		207,201
Receivable from customers	1,095,035		—		1,095,035		—		1,095,035

Notes receivable, net	44,723		—		44,723		—		44,723
Investments (1)	75,785		—		75,785		—		75,785

(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	$	18,251	$	18,251	$	—	$	—	$	18,251
Bank call loans	156,900		—		156,900		—		156,900
Payables to brokers, dealers and clearing organizations:
Securities loaned	291,969		—		291,969		—		291,969
Payable to brokers	2,280		—		2,280		—		2,280
Securities failed to receive	19,421		—		19,421		—		19,421
Other	53,163		—		53,163		—		53,163
	366,833		—		366,833		—		366,833
Payables to customers	380,746		—		380,746		—		380,746
Securities sold under agreements to repurchase	252,827		—		252,827		—		252,827
Senior secured notes	125,000		—		126,111		—		126,111

Assets and liabilities not measured at fair value as of December 31, 2019:


(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	79,550	$	79,550	$	—	$	—	$	79,550
Deposits with clearing organization	23,297		23,297		—		—		23,297
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	99,635		—		99,635		—		99,635
Receivables from brokers	19,024		—		19,024		—		19,024
Securities failed to deliver	7,173		—		7,173		—		7,173
Clearing organizations	36,269		—		36,269		—		36,269
Other	1,316		—		1,316		—		1,316
	163,417		—		163,417		—		163,417
Receivable from customers	796,934		—		796,934		—		796,934

Notes receivable, net	43,670		—		43,670		—		43,670
Investments (1)	73,971		—		73,971		—		73,971

(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


Payables to brokers, dealers and clearing organizations:
Securities loaned	$	234,343	$	—	$	234,343	$	—	$	234,343
Payable to brokers	4,548		—		4,548		—		4,548
Securities failed to receive	14,603		—		14,603		—		14,603
Other	267,214		—		267,214		—		267,214
	520,708		—		520,708		—		520,708
Payables to customers	334,735		—		334,735		—		334,735
Securities sold under agreements to repurchase	287,265		—		287,265		—		287,265
Senior secured notes	150,000		—		154,988		—		154,988

Fair Value Option

The Compa

Notional Amounts and Fair Values of Derivatives by Product

es of the Company's derivatives as of September 30, 2020 and December 31, 2019 by product were as follows:


(Expressed in thousands)
	Fair Value of Derivative Instruments as of September 30, 2020
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments (1)
Other contracts	TBAs	$	22,885	$	275


		$	22,885	$	275
Liabilities:
Derivatives not designated as hedging instruments (1)
Commodity contracts	Futures	$	3,630,000	$	116

Other contracts	TBAs	19,585		220


	ARS purchase commitments	1,291		192
		$	3,650,876	$	528

(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, 2019
	Description	Notional		Fair Value





Liabilities:
Derivatives not designated as hedging instruments (1)
Commodity contracts	Futures	$	5,209,000	$	267


Other contracts	TBAs	13,245		124

	ARS purchase commitments	7,128		1,023
		$	5,229,373	$	1,414

(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 following table presents the

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

the location and fair value amounts of the Company's derivative instruments and their effect in the condensed consolidated income statements for the three and nine months ended September 30, 2020 and 2019:

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Three Months Ended September 30, 2020

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain (Loss)

Commodity contracts

Futures

Principal transactions revenue

(15)

Other contracts

Foreign exchange forward contracts

Other revenue

TBAs

Principal transactions revenue

(17)

ARS purchase commitments

Principal transactions revenue

140

175

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Three Months Ended September 30, 2019

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain (Loss)

Commodity contracts

Futures

Principal transactions revenue

(443)

Other contracts

Foreign exchange forward contracts

Other revenue

TBAs

Principal transactions revenue

(9)

ARS purchase commitments

Principal transactions revenue

(242)

(689)