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Fair value measurements

3 Months Ended

Mar. 31, 2022

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")

Background

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 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. As of September 30, 2021, the Company had completed its ARS purchase obligations related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer had also reached settlements of and received adverse awards in legal proceedings with various clients where the Company was obligated to purchase ARS. As of March 31, 2022, the Company no longer had any obligations to purchase ARS from such legal settlements or adverse awards.

As of March 31, 2022, the Company owned $31.8 million of ARS. This amount represents the unredeemed or unsold amount that the Company holds as a result of ARS buybacks pursuant to the settlements with the Regulators and legal settlements and awards referred to above.

Valuation

The Company’s ARS owned referred to above have, for the most part, been subject to issuer tender offers. The Company has valued the ARS securities owned at the tender offer price and categorized them in Level 3 of the fair value hierarchy due to the illiquid nature of the securities and the period of time since the last tender offer. The fair value of ARS is particularly sensitive to movements in interest rates. However, an increase or decrease in short-term interest rates may or may not result in a higher or lower tender offer in the future or the tender offer price may not provide a reasonable estimate of the fair value of the securities. In such cases, other valuation techniques might be necessary.

As of March 31, 2022, the Company had a valuation adjustment totaling $5.2 million relating to ARS owned (which is included as a reduction to securities owned on the condensed consolidated balance sheet).

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 March 31, 2022:


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	813	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds (2)	7,592		3,791		N/A	N/A
	$	8,405	$	3,791

(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 diversified portfolios focusing on but not limited to

technology companies, venture capital and global natural resources

The following table provides information about the Company's investments in Company-sponsored funds as of December 31, 2021:


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	900	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds (2)	4,621		4,035		N/A	N/A
	$	5,521	$	4,035

(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 diversified portfolios focusing on but not

limited to technology companies, venture capital and global natural resources.

During 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. As of March 31, 2022, the fair value of the investment was $4.8 million and was categorized in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value

The Company's assets and liabilities, recorded at fair value on a recurring basis as of March 31, 2022 and December 31, 2021, 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, 2022:


(Expressed in thousands)
	Fair Value Measurements as of March 31, 2022
	Level 1		Level 2		Level 3		Total
Assets

Deposits with clearing organizations	$	38,566	$	—	$	—	$	38,566
Securities owned:
U.S. Treasury securities	554,315		—		—		554,315
U.S. Agency securities	—		4,643		—		4,643
Sovereign obligations	—		2,527		—		2,527
Corporate debt and other obligations	—		14,543		—		14,543
Mortgage and other asset-backed securities	—		2,750		—		2,750
Municipal obligations	—		20,136		—		20,136
Convertible bonds	—		23,074		—		23,074
Corporate equities	35,254		—		—		35,254

Auction rate securities	—		—		31,804		31,804
Securities owned, at fair value	589,569		67,673		31,804		689,046
Investments (1)	—		13,934		—		13,934

Derivative contracts:

TBAs	—		6		—		6

Derivative contracts, total	—		6		—		6
Total	$	628,135	$	81,613	$	31,804	$	741,552
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	60,220	$	—	$	—	$	60,220
U.S. Agency securities	—		5		—		5
Sovereign obligations	—		4,171		—		4,171
Corporate debt and other obligations	—		5,805		—		5,805


Convertible bonds	—		6,741		—		6,741
Corporate equities	20,429		—		—		20,429

Securities sold but not yet purchased, at fair value	80,649		16,722		—		97,371

Derivative contracts:
Futures	1,832		—		—		1,832

TBAs	—		26		—		26


Derivative contracts, total	1,832		26		—		1,858
Total	$	82,481	$	16,748	$	—	$	99,229

(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, 2021:


(Expressed in thousands)
	Fair Value Measurements as of December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets


Deposits with clearing organizations	$	29,083	$	—	$	—	$	29,083
Securities owned:
U.S. Treasury securities	505,875		—		—		505,875
U.S. Agency securities	—		5,622		—		5,622
Sovereign obligations	—		1,494		—		1,494
Corporate debt and other obligations	—		8,111		—		8,111
Mortgage and other asset-backed securities	—		3,889		—		3,889
Municipal obligations	—		18,520		—		18,520
Convertible bonds	—		13,778		—		13,778
Corporate equities	45,380		—		—		45,380
Money markets	31		—		—		31
Auction rate securities	—		—		31,804		31,804
Securities owned, at fair value	551,286		51,414		31,804		634,504
Investments (1)	—		12,970		—		12,970

Derivative contracts:
TBAs	—		92		—		92


Total	$	580,369	$	64,476	$	31,804	$	676,649
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	42,298	$	—	$	—	$	42,298
U.S. Agency securities	—		4		—		4

Corporate debt and other obligations	—		2,515		—		2,515


Convertible bonds	—		8,462		—		8,462
Corporate equities	18,679		—		—		18,679

Securities sold but not yet purchased, at fair value	60,977		10,981		—		71,958

Derivative contracts:
Futures	287		—		—		287

TBAs	—		81		—		81

Derivative contracts, total	287		81		—		368
Total	$	61,264	$	11,062	$	—	$	72,326

(1) Included in other assets on the condensed consolidated balance sheet.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2022 and 2021:


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2022
			Total Realized
	Beginning		and Unrealized		Purchases		Sales and		Transfers		Ending
	Balance		Losses		and Issuances		Settlements		In (Out)		Balance
Assets
Auction rate securities (1)	$	31,804	$	—	$	—	$	—	$	—	$	31,804

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


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2021
			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)	$	30,701	$	(131)	$	1,875	$	(975)	$	—	$	31,470

Liabilities
ARS Purchase Commitments (2)	195		—		—		(130)		—		65

(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 income statement.

(4) Unrealized gains 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 March 31, 2022:


(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	47,453	$	47,453	$	—	$	—	$	47,453
Restricted cash	127,781		127,781		—		—		127,781
Deposits with clearing organization	62,805		62,805		—		—		62,805
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	98,276		—		98,276		—		98,276
Receivables from brokers	38,165		—		38,165		—		38,165
Securities failed to deliver	37,028		—		37,028		—		37,028
Clearing organizations	19,758		—		19,758		—		19,758
Other	18,062		—		18,062		—		18,062
	211,289		—		211,289		—		211,289
Receivable from customers	1,261,305		—		1,261,305		—		1,261,305

Notes receivable, net	57,879		—		57,879		—		57,879
Investments (1)	93,055		—		93,055		—		93,055

(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

Bank call loans	$	78,150	$	—	$	78,150	$	—	$	78,150
Payables to brokers, dealers and clearing organizations:
Securities loaned	300,323		—		300,323		—		300,323
Payable to brokers	566		—		566		—		566
Securities failed to receive	18,614		—		18,614		—		18,614

	319,503		—		319,503		—		319,503
Payables to customers	506,988		—		506,988		—		506,988
Securities sold under agreements to repurchase	481,151		—		481,151		—		481,151
Senior secured notes	125,000		—		125,054		—		125,054

Assets and liabilities not measured at fair value as of December 31, 2021:


(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	213,759	$	213,759	$	—	$	—	$	213,759
Restricted cash	127,765		127,765		—		—		127,765
Deposits with clearing organization	37,885		37,885		—		—		37,885
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	99,752		—		99,752		—		99,752
Receivables from brokers	39,716		—		39,716		—		39,716
Securities failed to deliver	9,212		—		9,212		—		9,212
Clearing organizations	19,518		—		19,518		—		19,518
Other	1,693		—		1,693		—		1,693
	169,891		—		169,891		—		169,891
Receivable from customers	1,221,450		—		1,221,450		—		1,221,450
Securities purchased under agreements to resell	935		—		935		—		935
Notes receivable, net	53,983		—		53,983		—		53,983
Investments (1)	99,169		—		99,169		—		99,169

(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

Bank call loans	$	69,500	$	—	$	69,500	$	—	$	69,500
Payables to brokers, dealers and clearing organizations:
Securities loaned	244,223		—		244,223		—		244,223
Payable to brokers	2,077		—		2,077		—		2,077
Securities failed to receive	6,457		—		6,457		—		6,457
Other	169,013		—		169,013		—		169,013
	421,770		—		421,770		—		421,770
Payables to customers	456,958		—		456,958		—		456,958
Securities sold under agreements to repurchase	277,322		—		277,322		—		277,322
Senior secured notes	125,000		—		131,094		—		131,094

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 March 31, 2022, 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 income statement.

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 income statement 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 income statement as principal transactions revenue, net.

The notional amounts and fair values of the Company's derivatives as of March 31, 2022 and December 31, 2021 by product were as follows:


(Expressed in thousands)
	Fair Value of Derivative Instruments as of March 31, 2022
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments (1)
Other contracts	TBAs	$	6,700	$	6


		$	6,700	$	6
Liabilities:
Derivatives not designated as hedging instruments (1)
Commodity contracts	Futures	$	4,460,000	$	1,832

Other contracts	TBAs	6,700		26



		$	4,466,700	$	1,858

(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.


(Expressed in thousands)
	Fair Value of Derivative Instruments as of December 31, 2021
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments (1)
Other contracts	TBAs	$	14,300	$	92

		$	14,300	$	92
Liabilities:
Derivatives not designated as hedging instruments (1)
Commodity contracts	Futures	$	3,520,000	$	287


Other contracts	TBAs	14,300		81


		$	3,534,300	$	368

The following table presents the location and fair value amounts of the Company's derivative instruments and their effect in the condensed consolidated income statements for the three months ended March 31, 2022 and 2021:

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Three Months Ended March 31, 2022

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain

Commodity contracts

Futures

Principal transactions revenue, net

2,191

Other contracts

TBAs

Principal transactions revenue, net

2,254

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Three Months Ended March 31, 2021

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain

Commodity contracts

Futures

Principal transactions revenue, net

1,020

Other contracts

TBAs

Principal transactions revenue, net

1,057

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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