Fair Value Disclosures

The following is a summary of our financial instruments, trading liabilities, short-term borrowings, long-term debt and other secured financings that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value ("NAV") (within trading assets) of $24.2 million and $24.3 million, respectively, by level within the fair value hierarchy at September 30, 2017 and December 31, 2016 (in thousands):



	September 30, 2017
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,740,135	$	83,565	$	22,174	$	—		$	2,845,874
Corporate debt securities	—		2,732,943		25,015		—			2,757,958
Collateralized debt obligations and collateralized loan obligations	—		54,433		50,070		—			104,503
U.S. government and federal agency securities	1,834,270		95,175		—		—			1,929,445
Municipal securities	—		680,634		—		—			680,634
Sovereign obligations	1,384,264		668,053		—		—			2,052,317
Residential mortgage-backed securities	—		1,671,170		20,649		—			1,691,819
Commercial mortgage-backed securities	—		508,665		17,636		—			526,301
Other asset-backed securities	—		157,354		68,946		—			226,300
Loans and other receivables	—		2,014,650		62,656		—			2,077,306
Derivatives	67,929		2,713,413		2,671		(2,595,355		)	188,658
Investments at fair value	—		—		328,969		—			328,969
FXCM term loan	—		—		70,800		—			70,800
Total trading assets, excluding investments at fair value based on NAV	$	6,026,598	$	11,380,055	$	669,586	$	(2,595,355	)	$	15,480,884

Available for sale securities:
Corporate equity securities	$	93,355	$	—	$	—	$	—		$	93,355
Corporate debt securities	—		179		—		—			179
U.S. government securities	345,740		—		—		—			345,740
Residential mortgage-backed securities	—		37,090		—		—			37,090
Commercial mortgage-backed securities	—		10,908		—		—			10,908
Other asset-backed securities	—		33,225		—		—			33,225
Total available for sale securities	$	439,095	$	81,402	$	—	$	—		$	520,497

Liabilities:
Trading liabilities:
Corporate equity securities	$	1,585,186	$	23,821	$	119	$	—		$	1,609,126
Corporate debt securities	—		1,574,931		522		—			1,575,453
U.S. government and federal agency securities	1,314,800		—		—		—			1,314,800
Municipal securities	—		44		—		—			44
Sovereign obligations	1,600,423		653,106		—		—			2,253,529
Commercial mortgage-backed securities	—		979		35		—			1,014
Loans	—		1,434,380		3,285		—			1,437,665
Derivatives	148,296		3,134,145		7,753		(2,714,115		)	576,079
Total trading liabilities	$	4,648,705	$	6,821,406	$	11,714	$	(2,714,115	)	$	8,767,710
Short-term borrowings	$	—	$	4,281	$	—	$	—		$	4,281
Long-term debt - structured notes	$	—	$	553,870	$	—	$	—		$	553,870



	December 31, 2016
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,522,977	$	92,839	$	21,739	$	—		$	2,637,555
Corporate debt securities	—		2,675,020		25,005		—			2,700,025
Collateralized debt obligations and collateralized loan obligations	—		54,306		54,354		—			108,660
U.S. government and federal agency securities	2,389,397		56,726		—		—			2,446,123
Municipal securities	—		708,469		27,257		—			735,726
Sovereign obligations	1,432,556		990,492		—		—			2,423,048
Residential mortgage-backed securities	—		960,494		38,772		—			999,266
Commercial mortgage-backed securities	—		296,405		20,580		—			316,985
Other asset-backed securities	—		63,587		40,911		—			104,498
Loans and other receivables	—		1,557,233		81,872		—			1,639,105
Derivatives	3,825		4,616,822		6,429		(4,255,998		)	371,078
Investments at fair value	—		—		314,359		—			314,359
FXCM term loan	—		—		164,500		—			164,500
Total trading assets, excluding investments at fair value based on NAV	$	6,348,755	$	12,072,393	$	795,778	$	(4,255,998	)	$	14,960,928

Available for sale securities:
Corporate equity securities	$	79,425	$	—	$	—	$	—		$	79,425
Corporate debt securities	—		179		—		—			179
U.S. government securities	174,933		—		—		—			174,933
Residential mortgage-backed securities	—		19,133		—		—			19,133
Commercial mortgage-backed securities	—		8,337		—		—			8,337
Other asset-backed securities	—		19,042		—		—			19,042
Total available for sale securities	$	254,358	$	46,691	$	—	$	—		$	301,049

Liabilities:
Trading liabilities:
Corporate equity securities	$	1,593,548	$	16,806	$	313	$	—		$	1,610,667
Corporate debt securities	—		1,718,424		523		—			1,718,947
U.S. government and federal agency securities	976,497		—		—		—			976,497
Sovereign obligations	1,375,590		1,253,754		—		—			2,629,344
Loans	—		801,977		378		—			802,355
Derivatives	2,566		4,867,586		9,870		(4,229,213		)	650,809
Total trading liabilities	$	3,948,201	$	8,658,547	$	11,084	$	(4,229,213	)	$	8,388,619
Other secured financings	$	—	$	41,350	$	418	$	—		$	41,768
Long-term debt - structured notes	$	—	$	248,856	$	—	$	—		$	248,856


(1)	Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.

The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

Corporate Equity Securities


•	Exchange Traded Equity Securities: Exchange traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 of the fair value hierarchy.

•

Non-exchange Traded Equity Securities: Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed from recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/Earnings before interest, taxes, depreciation and amortization ("EBITDA"), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by Jefferies. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).

•

Equity Warrants: Non-exchange traded equity warrants are measured primarily using pricing data from external pricing services, prices observed from recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

•

Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and are a limited portion of our corporate bonds.

•

High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed from recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations and Collateralized Loan Obligations

Collateralized debt obligations (“CDOs”) and collateralized loan obligations (“CLOs”) are measured based on prices observed from recently executed market transactions of the same or similar security or based on valuations received from third party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transactions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria including, but not limited to, collateral type, tranche type, rating, origination year, prepayment rates, default rates, and loss severity.

U.S. Government and Federal Agency Securities


•	U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy.


•	U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.

Sovereign Obligations

Foreign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, Level 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.

Residential Mortgage-Backed Securities


•	Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.

•

Agency Residential Interest-Only and Inverse Interest-Only Securities ("Agency Inverse IOs"): The fair value of Agency Inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed from recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency Inverse IOs are categorized within Level 2 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

•

Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields.

Commercial Mortgage-Backed Securities

•

Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association (“GNMA”) project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.


•	Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed from recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.

Other Asset-Backed Securities

Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 and Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services and broker quotes and prices observed from recently executed market transactions.

Loans and Other Receivables

•

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.

•

Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.

•

Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations of assets with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.

•

Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions incorporating additional valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.

•

Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.

Derivatives

•

Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy.

•

OTC Derivative Contracts: Over-the-counter ("OTC") derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.

OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

•

National Beef Derivatives: National Beef uses futures contracts in order to reduce its exposure associated with entering into firm commitments to purchase live cattle at prices determined prior to the delivery of the cattle as well as firm commitments to sell certain beef products at sales prices determined prior to shipment. The futures contracts and their related firm purchase commitments are accounted for at fair value, which are classified as Level 1 or Level 2 within the fair value hierarchy. Certain firm commitments for live cattle purchases and all firm commitments for sales are treated as normal purchases and sales and therefore not marked to market. Fair values classified as Level 1 are calculated based on the quoted market prices of identical assets or liabilities compared to National Beef's cost of those same assets or liabilities. Fair values classified as Level 2 are calculated based on the difference between the contracted price for live cattle and the relevant quoted market price for live cattle futures.

•

Oil Futures Derivatives: Vitesse uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse accounts for the derivative instruments at fair value, which are classified as Level 2 within the fair value hierarchy. Fair values classified as Level 2 are determined under the income valuation technique using an option-pricing model that is based on directly or indirectly observable inputs.

Investments at Fair Value

Investments at fair value included in Trading assets on the Consolidated Statements of Financial Condition include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analysis and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. Additionally, investments at fair value include investments in insurance contracts relating to Jefferies defined benefit plan in Germany. Fair value for the insurance contracts are determined using a third party and is categorized within Level 3 of the fair value hierarchy.

Investment in FXCM

FXCM is an online provider of foreign exchange trading services. In January 2015, we entered into a credit agreement with FXCM, and provided FXCM a $300 million senior secured term loan due January 2017 (the term of which was subsequently extended by one year to January 2018), with rights to a variable proportion of certain future distributions in connection with an FXCM sale of assets or certain other events, and to require a sale of FXCM beginning in January 2018. The loan had an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter, not to exceed 20.5% per annum. During the nine months ended September 30, 2017, interest accrued at 20.5% per annum. During the nine months ended September 30, 2017, we received $111.3 million of principal and interest from FXCM and $67.6 million of principal remained outstanding under the term loan as of September 30, 2017. Through September 30, 2017, we have received cumulatively $328.0 million of principal, interest and fees from our initial $279.0 million investment in FXCM.

Through September 1, 2016, the total amount of our investment in FXCM was reported within Trading assets, at fair value in our Consolidated Statements of Financial Condition, and unrealized and realized changes in value, including the component related to interest income on the loan, were included within Principal transactions in the Consolidated Statements of Operations. We recorded gains (losses) in Principal transactions of $2.3 million and $17.6 million during the three and nine months ended September 30, 2017, respectively, from our term loan and $42.7 million and $(58.3) million during the three and nine months ended September 30, 2016, respectively, from our term loan and related rights.

On September 1, 2016, we, Global Brokerage Inc. ("Global Brokerage" and formerly FXCM Inc.) and Global Brokerage Holdings entered into an agreement that amended the terms of our loan and associated rights. Among other changes, the amendments extended the maturity of the term loan by one year to January 2018 to allow FXCM more time to optimize remaining asset sales; gave Leucadia a 49.9% common membership interest in FXCM, and up to 65% of all distributions; created a six-member board for FXCM, comprised of three directors appointed by Leucadia and three directors appointed by Global Brokerage Holdings; put in place a long-term incentive program for FXCM's senior management; and gave Global Brokerage Holdings the same right Leucadia has to require a sale of FXCM beginning in January 2018. Distributions to Leucadia under the amended agreements are now: 100% until amounts due under the loan are repaid; 45% of the next $350 million; then 79.2% of the next $500 million; and 51.6% of all amounts thereafter.

During February 2017, Global Brokerage Holdings and FXCM's U.S. subsidiary, Forex Capital Markets LLC ("FXCM U.S.") settled complaints filed by the National Futures Association ("NFA") and the Commodity Futures Trading Commission ("CFTC") against FXCM U.S. and certain of its principals relating to matters that occurred between 2010 and 2014. The NFA settlement has no monetary fine and the CFTC settlement has a $7 million fine. As part of the settlements, FXCM U.S. withdrew from business and agreed to sell FXCM U.S.'s customer accounts to Gain Capital Holdings, Inc. FXCM U.S. generated approximately 20% of FXCM's revenue, but was not profitable. FXCM also announced the implementation of a restructuring plan that included the termination of approximately 170 employees, which represented approximately 22% of its global workforce. The proceeds from the sale of the U.S. accounts, net of closure and severance costs, as well as regulatory capital released after a sale, has been used to pay down the Leucadia term loan. As part of the settlement, Leucadia, Global Brokerage Holdings and FXCM have amended the management and incentive compensation agreements, giving any three directors of the FXCM board the right to terminate management and any unvested incentive compensation at any time. On October 1, 2017, the management agreement between FXCM and Global Brokerage Holdings was terminated.

We do not hold any equity interest in Global Brokerage, a publicly traded company and an issuer of senior convertible notes. Global Brokerage holds an economic interest of 74.5% in Global Brokerage Holdings, which in turn holds 50.1% of FXCM. As more fully described above, we own the remaining 49.9% of FXCM, and our senior secured term loan is also with FXCM, which is a holding company for all of FXCM's affiliated operating subsidiaries. Net profits and proceeds generated by these subsidiaries, and from the sales of these subsidiaries, flow first to FXCM, where they are applied to the outstanding balance of our term loan and then, in accordance with the agreement described above, to us and Global Brokerage Holdings. A portion of the profits and proceeds that flow to Global Brokerage Holdings then flow to Global Brokerage, in accordance with its economic interest.

Through the amendments on September 1, 2016, our derivative rights were exchanged for a 49.9% common membership interest in FXCM and up to 65% of all distributions. We gained the ability to significantly influence FXCM through our common membership interest and our seats on the board of directors. As a result, we classify our equity investment in FXCM in our September 30, 2017 Consolidated Statement of Financial Condition as Loans to and investments in associated companies. We account for our equity interest on a one month lag. As the amendments only extended the maturity of the term loan, we continue to use the fair value option and classify our term loan within Trading assets, at fair value.

FXCM is considered a variable interest entity ("VIE") and our term loan and equity ownership are variable interests. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM's performance. Therefore, we do not consolidate FXCM and we account for our equity interest as an investment in an associated company.

Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($70.8 million) and the investment in associated company ($170.6 million), which totaled $241.4 million at September 30, 2017.

We estimate the fair value of our term loan by using a valuation model with inputs including management’s assumptions concerning the amount and timing of expected cash flows, the loan’s implied credit rating and effective yield. Because of these inputs and the degree of judgment involved, we have categorized our term loan within Level 3 of the fair value hierarchy.

Nonrecurring Fair Value Measurements

As described further in Note 9, in the first quarter of 2017 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in FXCM. Our first quarter estimate of fair value was based on a discounted cash flow and comparable public company analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management's projections of future FXCM cash flows and a discount rate of approximately 15%. The comparable public company model used market data for comparable companies including a price to EBITDA multiple of 5.4 and a price to revenue multiple of 1.5. The estimated fair value of our equity investment in FXCM was $186.7 million, which was $130.2 million lower than the carrying value at the end of the first quarter 2017. As a result, an impairment charge of $130.2 million was recorded in the first quarter of 2017.

JETX owns unproved oil and gas properties that are included in Other assets in our Consolidated Statements of Financial Condition. As described further in Note 2, in the third quarter of 2016, JETX curtailed development of its southern acreage in the East Eagle Ford and its Houston County acreage and performed an impairment analysis of these unproved oil and gas properties. To measure the estimated fair value of the unproved properties, we used unobservable Level 3 inputs, which took into account the following factors: remaining lease terms, drilling results and/or future plans to develop the acreage. The estimated fair value of JETX's southern acreage in the East Eagle Ford and its Houston County acreage totaled $51.6 million, which was $55.0 million lower than the carrying value as of the end of third quarter of 2016. As a result, an impairment charge of $55.0 million was recorded in the third quarter of 2016.

In the third quarter of 2017, JETX decided to focus on its other higher returning acreage and as a result JETX wrote off the remaining carrying value for its Houston County acreage. JETX recorded an impairment charge of $10.1 million in Selling, general and other expenses in the third quarter of 2017 related to the write-down of unproved oil and gas properties.

Investments at Fair Value Based on NAV and Investments in Managed Funds

Investments at fair value based on NAV and Investments in managed funds include investments in hedge funds, fund of funds, private equity funds and other funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy.

The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands).



	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
September 30, 2017
Equity Long/Short Hedge Funds (2)	$	406,280	$	—	(2)
Fixed Income and High Yield Hedge Funds (3)	421		—		—
Fund of Funds (4)	183		—		—
Equity Funds (5)	33,568		19,084		—
Multi-asset Funds (6)	125,004		—		—
Total	$	565,456	$	19,084

December 31, 2016
Equity Long/Short Hedge Funds (2)	$	363,256	$	—	(2)
Fixed Income and High Yield Hedge Funds (3)	772		—		—
Fund of Funds (4)	230		—		—
Equity Funds (5)	42,179		20,295		—
Multi-asset Funds (6)	133,190		—		—
Total	$	539,627	$	20,295


(1)	Where fair value is calculated based on NAV, fair value has been derived from each of the funds' capital statements.

(2)

This category includes investments in hedge funds that invest, long and short, in primarily equity securities in domestic and international markets in both the public and private sectors. At September 30, 2017 and December 31, 2016, 74% and 83%, respectively, of these investments are redeemable with 10 business days or less prior written notice, and 15% and 17%, respectively, of these investments are redeemable with 30 to 60 days prior written notice.


(3)	This category includes investments in funds that invest in loans secured by a first trust deed on property, domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions.


(4)	This category includes investments in fund of funds that invest in various private equity funds. The investments in this category are managed by us and have no redemption provisions. These investments are gradually being liquidated or we have requested redemption, however, we are unable to estimate when these funds will be received.

(5)

The investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed; instead distributions are received through the liquidation of the underlying assets of the funds, which are expected to liquidate in one to six years.

(6)

This category includes investments in hedge funds that invest, long and short, primarily in multiple classes of securities in domestic and international markets in both the public and private sectors. At September 30, 2017 and December 31, 2016, investments representing approximately 15% and 12%, respectively, of the fair value of investments in this category are redeemable with 30 to 90 days prior written notice.

Other Secured Financings

Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets.

Short-term Borrowings/Long-term Debt - Structured Notes

Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized as Level 2 within the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, CMS (constant maturity swap) and Bermuda structured notes. These are valued using various valuation models that include Jefferies own credit spreads. These models incorporate market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs and are generally categorized within Level 2 of the fair value hierarchy. In addition, pricing transparency has been evidenced based on the transaction data on recently issued notes.

Transfers Between Levels 1 and 2 for Instruments Carried at Fair Value

There were no material transfers between Level 1 and Level 2 for the three and nine months ended September 30, 2017 and 2016.

Level 3 Rollforwards

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended September 30, 2017 (in thousands):



Three months ended September 30, 2017
	Balance, June 30, 2017		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance at September 30, 2017		Changes in unrealized gains/ losses relating to instruments still held at September 30, 2017 (1)
Assets:
Trading assets:
Corporate equity securities	$	20,548	$	4,344		$	4		$	(645	)	$	(55	)	$	—	$	(2,022	)	$	22,174	$	4,319
Corporate debt securities	24,727		(2,350		)	5,901			(5,551		)	(31		)	—		2,319			25,015		(2,224		)
CDOs and CLOs	48,208		(15,205		)	52,918			(36,564		)	245			—		468			50,070		(12,638		)
Residential mortgage-backed securities	33,032		(263		)	494			(732		)	(291		)	—		(11,591		)	20,649		188
Commercial mortgage-backed securities	16,263		(125		)	—			(676		)	(637		)	—		2,811			17,636		(161		)
Other asset-backed securities	43,349		(6,454		)	5,798			(3,789		)	(2,924		)	—		32,966			68,946		(3,570		)
Loans and other receivables	49,365		15,261			9,265			(5,854		)	(8,249		)	—		2,868			62,656		14,005
Investments at fair value	315,297		3,964			10,000			—			(292		)	—		—			328,969		3,964
FXCM term loan	129,050		2,330			—			—			(60,580		)	—		—			70,800		(2,401		)

Liabilities:
Trading liabilities:
Corporate equity securities	$	354	$	107		$	(369	)	$	27		$	—		$	—	$	—		$	119	$	(92	)
Corporate debt securities	522		—			—			—			—			—		—			522		—
Commercial mortgage-backed securities	70		(35		)	—			—			—			—		—			35		(35		)
Net derivatives (2)	3,022		(2,980		)	—			—			5,040			—		—			5,082		(2,474		)
Loans	4,967		(3,071		)	—			333			—			—		1,056			3,285		3,018


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended September 30, 2017

During the three months ended September 30, 2017, transfers of assets of $63.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Other asset-backed securities of $46.4 million due to a lack of observable market transactions.

During the three months ended September 30, 2017, transfers of assets of $35.7 million from Level 3 to Level 2 are primarily attributed to:


•	Residential mortgage-backed securities of $14.6 million and other asset-backed securities of $13.5 million due to greater pricing transparency supporting classification into Level 2.

Net gains on Level 3 assets were $1.5 million and net gains on Level 3 liabilities were $6.0 million for the three months ended September 30, 2017. Net gains on Level 3 assets were primarily due to increased valuations of our FXCM term loan, loans and other receivables, corporate equity securities and certain investments at fair value, partially offset by decreased valuations of other asset-backed securities, CDOs and CLOs and corporate debt securities. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives and decreased valuations of certain loans.

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the nine months ended September 30, 2017 (in thousands):



Nine Months Ended September 30, 2017
	Balance, December 31, 2016		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance at September 30, 2017		Changes in unrealized gains/losses relating to instruments still held at September 30, 2017 (1)
Assets:
Trading assets:
Corporate equity securities	$	21,739	$	3,416		$	945		$	(1,502	)	$	(356	)	$	—	$	(2,068	)	$	22,174	$	2,689
Corporate debt securities	25,005		(3,280		)	19,610			(18,364		)	(1,724		)	—		3,768			25,015		(3,424		)
CDOs and CLOs	54,354		(21,595		)	65,523			(62,441		)	239			—		13,990			50,070		(21,998		)
Municipal securities	27,257		(1,547		)	—			(25,710		)	—			—		—			—		—
Residential mortgage-backed securities	38,772		(1,446		)	113,391			(125,731		)	(572		)	—		(3,765		)	20,649		(2,005		)
Commercial mortgage-backed securities	20,580		(1,180		)	2,033			(5,199		)	(985		)	—		2,387			17,636		(952		)
Other asset-backed securities	40,911		(15,338		)	67,611			(4,121		)	(16,891		)	—		(3,226		)	68,946		(8,872		)
Loans and other receivables	81,872		27,709			84,342			(83,791		)	(23,241		)	—		(24,235		)	62,656		16,294
Investments at fair value	314,359		12,760			12,800			(10,119		)	(831		)	—		—			328,969		14,783
FXCM term loan	164,500		17,638			—			—			(111,338		)	—		—			70,800		(930		)

Liabilities:
Trading liabilities:
Corporate equity securities	$	313	$	134		$	(355	)	$	27		$	—		$	—	$	—		$	119	$	(92	)
Corporate debt securities	523		(1		)	—			—			—			—		—			522		1
Commercial mortgage-backed securities	—		35			—			—			—			—		—			35		(35		)
Net derivatives (2)	3,441		(2,854		)	—			—			5,162			404		(1,071		)	5,082		(2,333		)
Loans	378		1,604			(364		)	333			—			—		1,334			3,285		(1,583		)
Other secured financings	418		(418		)	—			—			—			—		—			—		—


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the nine months ended September 30, 2017

During the nine months ended September 30, 2017, transfers of assets of $30.9 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	CDOs and CLOs of $14.0 million and corporate debt securities of $8.1 million due to a lack of observable market transactions.

During the nine months ended September 30, 2017, transfers of assets of $44.0 million from Level 3 to Level 2 are primarily attributed to:


•	Loans and other receivables of $28.3 million due to greater pricing transparency supporting classification into Level 2.

Net gains on Level 3 assets were $17.1 million and net gains on Level 3 liabilities were $1.5 million for the nine months ended September 30, 2017. Net gains on Level 3 assets were primarily due to increased valuations of our FXCM term loan, certain loans and other receivables and certain investments at fair value, partially offset by decreased valuations of other asset-backed securities and CDOs and CLOs. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives partially offset by increased valuations of certain loans.



Three Months Ended September 30, 2016
	Balance, June 30, 2016		Total gains/ losses (realized and unrealized) (1)			Purchases		Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, September 30, 2016		Changes in unrealized gains/ losses relating to instruments still held at September 30, 2016 (1)
Assets:
Trading assets:
Corporate equity securities	$	48,816	$	(6,492	)	$	291	$	(49	)	$	—		$	—	$	(20,371	)	$	22,195	$	(892	)
Corporate debt securities	24,113		(145		)	10,696		(5,046		)	—			—		5,389			35,007		405
CDOs and CLOs	52,710		(4,067		)	4,205		(5,203		)	—			—		(3,575		)	44,070		(4,606		)
Municipal securities	—		(7,074		)	—		—			—			—		34,331			27,257		(7,074		)
Sovereign obligations	120		5			—		(125		)	—			—		—			—		—
Residential mortgage-backed securities	63,308		(2,343		)	1,884		(10,874		)	(463		)	—		(4,631		)	46,881		(183		)
Commercial mortgage-backed securities	24,983		(1,531		)	—		—			—			—		1,141			24,593		(236		)
Other asset-backed securities	43,033		(2,247		)	3,416		(2,727		)	(1,429		)	—		21,066			61,112		(2,202		)
Loans and other receivables	104,399		(23,445		)	31,512		(10,140		)	(16,804		)	—		(7,065		)	78,457		(16,044		)
Investments at fair value	273,271		(599		)	—		(485		)	(278		)	—		29,000			300,909		(746		)
Investment in FXCM (2)	508,400		42,721			—		—			(343,721		)	—		—			207,400		(2,000		)
Liabilities:
Trading liabilities:
Corporate equity securities	$	—	$	—		$	—	$	—		$	—		$	—	$	38		$	38	$	—
Corporate debt securities	—		(27		)	—		550			—			—		—			523		—
Net derivatives (3)	4,424		(4,736		)	—		11,101			32			601		(375		)	11,047		(1,589		)
Loans	1,896		(402		)	—		170			—			—		(816		)	848		(400		)
Other secured financings	468		(200		)	—		—			—			—		—			268		200


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Includes $334.5 million related to the settlement of our participation rights for equity ownership in FXCM on September 1, 2016. We classify the equity ownership as a Loan to and investment in associated company at September 30, 2016.


(3)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended September 30, 2016

During the three months ended September 30, 2016, transfers of assets of $147.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Other asset-backed securities of $27.3 million, CDOs and CLOs of $23.7 million and residential mortgage-backed securities of $13.7 million, for which no recent trade activity was observed for purposes of determining observable inputs; and


•	Municipal securities of $34.3 million and investments at fair value of $29.0 million due to a lack of observable market transactions.

During the three months ended September 30, 2016, transfers of assets of $91.8 million from Level 3 to Level 2 are primarily attributed to:


•	CDOs and CLOs of $27.3 million and residential mortgage-backed securities of $18.3 million for which market trades were observed in the period for either identical or similar securities;


•	Corporate equity securities of $20.5 million due to an increase in observable market transactions; and


•	Loans and other receivables of $15.8 million due to a greater number of contributors for certain vendor quotes to support classification within Level 2.

Net losses on Level 3 assets were $5.2 million and net gains on Level 3 liabilities were $5.4 million for the three months ended September 30, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of loans and other receivables, municipal securities, corporate equity securities, CDOs and CLOs, residential mortgage-backed securities, other asset-backed securities and commercial mortgage-backed securities partially offset by increased valuations of our investment in FXCM. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivative.



Nine Months Ended September 30, 2016
	Balance, December 31, 2015			Total gains/ losses (realized and unrealized) (1)			Purchases		Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, September 30, 2016		Changes in unrealized gains/ losses relating to instruments still held at September 30, 2016 (1)
Assets:
Trading assets:
Corporate equity securities	$	40,906		$	(8,388	)	$	5,225	$	(49	)	$	—		$	—	$	(15,499	)	$	22,195	$	(727	)
Corporate debt securities	25,876			5,239			29,629		(20,331		)	—			—		(5,406		)	35,007		1,456
CDOs and CLOs	85,092			(24,356		)	61,707		(69,397		)	(605		)	—		(8,371		)	44,070		(13,196		)
Municipal securities	—			(1,462		)	—		—			—			—		28,719			27,257		(1,462		)
Sovereign obligations	120			5			—		(125		)	—			—		—			—		—
Residential mortgage-backed securities	70,263			(7,243		)	1,948		(13,203		)	(1,078		)	—		(3,806		)	46,881		228
Commercial mortgage-backed securities	14,326			(4,606		)	1,256		(2,023		)	—			—		15,640			24,593		(3,337		)
Other asset-backed securities	42,925			(2,420		)	66,503		(60,525		)	(6,678		)	—		21,307			61,112		(9,993		)
Loans and other receivables	189,289			(30,843		)	305,920		(206,587		)	(163,913		)	—		(15,409		)	78,457		(27,714		)
Investments at fair value	199,794			46,644			29,727		(485		)	(834		)	—		26,063			300,909		53,711
Investment in FXCM (2)	625,689			(58,335		)	—		—			(359,954		)	—		—			207,400		3,852
Liabilities:
Trading liabilities:
Corporate equity securities	$	38		$	—		$	—	$	—		$	—		$	—	$	—		$	38	$	—
Corporate debt securities	—			(27		)	—		550			—			—		—			523		—
Net derivatives (3)	(242		)	3,104			—		11,101			(14		)	1,606		(4,508		)	11,047		(5,745		)
Loans	10,469			7			—		681			(213		)	—		(10,096		)	848		45
Other secured financings	544			(276		)	—		—			—			—		—			268		276


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Includes $334.5 million related to the settlement of our participation rights for equity ownership in FXCM on September 1, 2016. We classify the equity ownership as a Loan to and investment in associated company at September 30, 2016.


(3)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the nine months ended September 30, 2016

During the nine months ended September 30, 2016, transfers of assets of $157.8 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	CDOs and CLOs of $16.9 million, other asset-backed securities of $38.5 million, residential mortgage-backed securities of $21.7 million and commercial mortgage-backed securities of $17.2 million, for which no recent trade activity was observed for purposes of determining observable inputs; and


•	Municipal securities of $28.7 million and investments at fair value of $26.1 million due to lack of observable market transactions.

During the nine months ended September 30, 2016, transfers of assets of $114.5 million from Level 3 to Level 2 are primarily attributed to:


•	CDOs and CLOs of $25.3 million, residential mortgage-backed securities of $25.5 million and other asset-backed securities of $17.0 million, for which market trades were observed in the period for either identical or similar securities;


•	Loans and other receivables of $19.8 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2; and


•	Corporate equity securities of $19.2 million due to an increase in observable market transactions.

During the nine months ended September 30, 2016, there were $10.2 million transfers of loan liabilities from Level 3 to Level 2 due to an increase in observable inputs in the valuation.

Net losses on Level 3 assets were $85.8 million and net losses on Level 3 liabilities were $2.8 million for the nine months ended September 30, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of our investment in FXCM, loans and other receivables, CDOs and CLOs, corporate equity securities, residential mortgage-backed securities and municipal securities partially offset by increased valuations of investments at fair value. Net losses on Level 3 liabilities were primarily due to increased valuations of certain net derivatives.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.



September 30, 2017
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	17,964
Non-exchange traded securities			Market approach	Price	$3 to $75	$59.0
				Underlying stock price	$6	—
			Comparable pricing	Comparable asset price	$9	—

Corporate debt securities	$	25,015	Convertible bond model	Discount rate/yield	8%	—
				Volatility	40%	—
			Market approach	Estimated recovery percentage	17%	—
				Price	$15	—

CDOs and CLOs	$	43,153	Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25% to 30%	27	%
				Discount rate/yield	9% to 23%	12	%
			Scenario analysis	Estimated recovery percentage	6% to 45%	29	%

Residential mortgage-backed securities	$	20,649	Discounted cash flows	Cumulative loss rate	5% to 30%	13	%
				Duration (years)	3 to 10	5
				Discount rate/yield	8% to 10%	9	%

Commercial mortgage-backed securities	$	17,636	Discounted cash flows	Cumulative loss rate	0% to 58%	29	%
				Duration (years)	1 to 3	2
				Discount rate/yield	2% to 21%	11	%

Other asset-backed securities	$	68,946	Discounted cash flows	Cumulative loss rate	0% to 25%	20	%
				Duration (years)	1 to 10	2
				Discount rate/yield	4% to 12%	8	%
			Market approach	Price	$100	—
			Scenario analysis	Estimated recovery percentage	23%	—

Loans and other receivables	$	59,398	Market approach	EBITDA (a) multiple	1.6	—
				Price	$60 to $100	$95.0
			Scenario analysis	Estimated recovery percentage	10% to 107%	67	%

Derivatives	$	2,671
Interest rate swaps			Market approach	Credit spread	800 bps	—

Investments at fair value	$	100,446
Private equity securities			Market approach	Price	$7 to $250	$123.0
				Transaction level	$3	—
				Discount rate	20%	—

Investment in FXCM
Term loan	$	70,800	Discounted cash flows	Term based on the pay off	0 months to .3 years	0.3 years

Trading Liabilities	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Derivatives	$	7,753
Equity options			Option model/default rate	Default probability	0%	—
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Discount rate/yield	23%	—



December 31, 2016
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	19,799
Non-exchange traded securities			Market approach	Underlying stock price	$3 to $75	$15.0
			Comparable pricing	Underlying stock price	$218	—
				Comparable asset price	$11	—
			Present value	Average silver production (tons per day)	666	—

Corporate debt securities	$	25,005	Convertible bond model	Discount rate/yield	9%	—
				Volatility	40%	—
			Market approach	Transaction level	$30	—

CDOs and CLOs	$	33,016	Discounted cash flows	Constant prepayment rate	10% to 20%	19	%
				Constant default rate	2% to 4%	2	%
				Loss severity	25% to 70%	40	%
				Yield	7% to 17%	12	%
			Scenario analysis	Estimated recovery percentage	28% to 38%	31	%

Residential mortgage-backed securities	$	38,772	Discounted cash flows	Constant prepayment rate	0% to 11%	5	%
				Constant default rate	1% to 7%	3	%
				Loss severity	35% to 100%	62	%
				Yield	2% to 10%	6	%

Commercial mortgage-backed securities	$	20,580	Discounted cash flows	Yield	6% to 11%	8	%
				Cumulative loss rate	5% to 95%	39	%

Other asset-backed securities	$	40,911	Discounted cash flows	Constant prepayment rate	4% to 20%	14	%
				Constant default rate	0% to 31%	13	%
				Loss severity	0% to 100%	90	%
				Yield	4% to 17%	15	%
			Market approach	Price	$72	—

Loans and other receivables	$	54,347	Market approach	Discount rate/yield	2% to 4%	3	%
				EBITDA (a) multiple	3.3	—
				Transaction level	$0.42	—
			Present value	Average silver production (tons per day)	666	—
			Scenario analysis	Estimated recovery percentage	6% to 50%	37	%

Derivatives	$	6,429
Equity swaps			Comparable pricing	Comparable asset price	$102	—
Credit default swaps			Market approach	Credit spread	265 bps	—

Investments at fair value	$	67,383
Private equity securities			Market approach	Transaction level	$250	—
				Price	$25,815,720	—
				Discount rate	15% to 30%	23	%

Investment in FXCM
Term loan	$	164,500	Discounted cash flows	Term based on the pay off	0 months to .5 years	0.4 years

Trading Liabilities	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Derivatives	$	9,870
Equity options			Option model	Volatility	45%	—
			Default rate	Default probability	0%	—
Equity swaps			Comparable pricing	Comparable asset price	$102	—
Unfunded commitments			Market approach	Discount rate/yield	4%	—
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Yield	16%	—


(a)	Earnings before interest, taxes, depreciation and amortization (“EBITDA”).

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above table. At September 30, 2017 and December 31, 2016, asset exclusions consisted of $242.9 million and $325.0 million, respectively, primarily comprised of investments at fair value, private equity securities, municipal securities, non-exchange traded securities, CDOs and CLOs and loans and other receivables. At September 30, 2017 and December 31, 2016, liability exclusions consisted of $4.0 million and $1.6 million, respectively, of other secured financings, commercial mortgage-backed securities, loans and corporate debt and equity securities.

Sensitivity of Fair Values to Changes in Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:


•	Non-exchange traded securities and equity swaps using comparable pricing valuation techniques. A significant increase (decrease) in the comparable asset and underlying stock price in isolation would result in a significantly higher (lower) fair value measurement.


•	Corporate debt securities using a convertible bond model. A significant increase (decrease) in the bond discount rate/yield would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.

•

Non-exchange traded securities, corporate debt securities, loans and other receivables, unfunded commitments, credit default swaps, interest rate swaps, other asset-backed securities, private equity securities and loans using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the discount rate/yield of a loan and other receivable or certain derivatives would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the transaction level of a private equity security, corporate debt security or loan and other receivable would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of the non-exchange traded securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of certain derivatives would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the price of the private equity securities, non-exchange traded securities, corporate debt securities, other asset-backed securities or loans and other receivables would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the estimated recovery rates of the cash flow outcomes underlying the corporate debt securities would result in a significantly higher (lower) fair value measurement.


•	Loans and other receivables, CDOs and CLOs and other asset-backed securities using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.

•

CDOs and CLOs, residential and commercial mortgage-backed securities, other asset-backed securities and variable funding notes using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement.


•	Derivative equity options using an option model. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.


•	Derivative equity options using a default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) fair value measurement.


•	Non-exchange traded securities and loans and other receivables using a present value model. A significant increase (decrease) in average silver production would result in a significantly higher (lower) fair value measurement.


•	FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in term based on the time to pay off the loan would result in a higher (lower) fair value measurement.

Fair Value Option Election

We have elected the fair value option for all loans and loan commitments made by Jefferies capital markets businesses. These loans and loan commitments include loans entered into by Jefferies Investment Banking division in connection with client bridge financing and loan syndications, loans purchased by Jefferies leveraged credit trading desk as part of its bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage- and other asset-backed securitization activities. Loans and loan commitments originated or purchased by Jefferies leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Trading assets and loan commitments are included in Trading liabilities. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in associated companies on the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. Jefferies has also elected the fair value option for certain of its structured notes which are managed by Jefferies capital markets business and are included in Long-term debt and Short-term borrowings in the Consolidated Statements of Financial Condition. Jefferies has elected the fair value option for certain financial instruments held by its subsidiaries as the investments are risk managed on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with Jefferies securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.

The following is a summary of Jefferies gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on long-term debt and short-term borrowing measured at fair value under the fair value option (in thousands):



	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Financial Instruments Owned:
Loans and other receivables	$	24,846		$	(24,874	)	$	27,715		$	(48,658	)

Financial Instruments Sold:
Loans	$	3,436		$	212		$	(7,286	)	$	229
Loan commitments	$	82		$	4,769		$	229		$	2,196

Long-term Debt:
Changes in instrument specific credit risk (1)	$	5,638		$	(4,093	)	$	(14,141	)	$	(7,848	)
Other changes in fair value (2)	$	(1,854	)	$	4,474		$	2,786		$	15,225

Short-term Borrowings:
Changes in instrument specific credit risk (1)	$	19		$	—		$	1		$	—
Other changes in fair value (2)	$	(2,570	)	$	—		$	(37	)	$	—

(1) Changes in instrument specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss), net of tax.

(2) Other changes in fair value are principally included within Principal transactions revenues in the Consolidated Statements of Operations.

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables and long-term debt measured at fair value under the fair value option (in thousands):



	September 30, 2017		December 31, 2016
Financial Instruments Owned:
Loans and other receivables (1)	$	663,618	$	1,325,938
Loans and other receivables on nonaccrual status and/or greater than 90 days past due (1) (2)	$	159,000	$	205,746
Long-term Debt	$	9,725	$	20,202


(1)	Interest income is recognized separately from other changes in fair value and is included within Interest income in the Consolidated Statements of Operations.


(2)	Amounts include all loans and other receivables greater than 90 days past due of $48.3 million and $64.6 million at September 30, 2017 and December 31, 2016, respectively.

The aggregate fair value of Jefferies loans and other receivables on nonaccrual status and/or greater than 90 days or more past due was $62.6 million and $29.8 million at September 30, 2017 and December 31, 2016, respectively, which includes loans and other receivables greater than 90 days past due of $41.9 million and $18.9 million at September 30, 2017 and December 31, 2016, respectively.

Jefferies has elected the fair value option for its investment in KCG Holdings, Inc. ("KCG"). The change in the fair value of this investment were gains of $2.2 million and $6.1 million for the three months ended September 30, 2017 and 2016, respectively, and $93.4 million and $24.6 million for the nine months ended September 30, 2017 and 2016, respectively. Jefferies has also separately entered into securities lending transactions with KCG in the normal course of its capital markets activities. The balances of Securities borrowed and Securities loaned were $9.2 million and $9.2 million, respectively, at December 31, 2016. In April 2017, Virtu Financial agreed to acquire KCG at a price of $20.00 per share in cash and the transaction closed July 20, 2017.

As of September 30, 2017 and December 31, 2016, we owned approximately 46.6 million common shares of HRG, representing approximately 23% of HRG’s outstanding common shares, which are accounted for under the fair value option. The shares are included in our Consolidated Statements of Financial Condition at fair value of $727.4 million and $725.1 million at September 30, 2017 and December 31, 2016, respectively. The shares were acquired at an aggregate cost of $475.6 million. The change in the fair value of our investment in HRG aggregated $(97.9) million and $91.8 million for the three months ended September 30, 2017 and 2016, respectively, and $2.3 million and $99.7 million for the nine months ended September 30, 2017 and 2016, respectively. As reported in its Form 10-Q, for the nine months ended June 30, 2017 and 2016, HRG's revenues were $3,686.7 million and $3,798.8 million, respectively; net income from continuing operations was $53.8 million and $152.5 million, respectively; net income (loss) was $249.2 million and $(70.1) million, respectively; and net income (loss) attributable to HRG was $132.2 million and $(191.5) million, respectively. We currently have two directors on HRG’s board, including our Chairman who serves as HRG's Chairman and CEO.

We believe accounting for these investments at fair value better reflects the economics of these investments, and quoted market prices for these investments provides an objectively determined fair value at each balance sheet date. Our investment in HomeFed, which is a publicly traded company, is accounted for under the equity method of accounting rather than the fair value option. HomeFed’s common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system. It is traded in the over-the-counter market with high and low bid prices published by the NASD OTC Bulletin Board Service; however, trading volume is minimal. For these reasons, we did not elect the fair value option for HomeFed.

Financial Instruments Not Measured at Fair Value

Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented in Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. treasury securities of $99.8 million and $99.9 million at September 30, 2017 and December 31, 2016, respectively. See Note 22 for additional information related to financial instruments not measured at fair value.