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Derivative Financial Instruments (Tables)

6 Months Ended

May 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value and Related Number of Derivative Contracts Categorized by Predominant Risk Exposure

The following tables present the fair value and related number of derivative contracts at May 31, 2020 and November 30, 2019 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding (1) the extent to which, under enforceable master netting arrangements, such balances are presented net in the Consolidated Statements of Financial Condition as appropriate under GAAP and (2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts):


	Assets					Liabilities
	Fair Value		Number of Contracts (2)	Fair Value		Number of Contracts (2)
May 31, 2020 (1)
Derivatives designated as accounting hedges:
Interest rate contracts:
Cleared OTC	$	74,227	1	$	—	—
Total derivatives designated as accounting hedges	74,227			—

Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	515		43,775	277		56,844
Cleared OTC	226,248		4,332	326,475		4,585
Bilateral OTC	732,046		1,244	315,023		601
Foreign exchange contracts:
Exchange-traded	—		—	—		139

Bilateral OTC	324,486		12,874	342,011		12,671
Equity contracts:
Exchange-traded	422,377		986,001	501,975		872,216

Bilateral OTC	330,034		1,398	610,146		1,574
Commodity contracts:
Exchange-traded	—		3,251	—		4,572

Bilateral OTC	55,113		2,968	—		—
Credit contracts:

Cleared OTC	190		14	915		6
Bilateral OTC	3,697		11	3,961		7
Total derivatives not designated as accounting hedges	2,094,706			2,100,783

Total gross derivative assets/liabilities:
Exchange-traded	422,892			502,252
Cleared OTC	300,665			327,390
Bilateral OTC	1,445,376			1,271,141
Amounts offset in Consolidated Statement of Financial Condition (3):
Exchange-traded	(409,622)			(409,622)
Cleared OTC	(286,069)			(287,244)
Bilateral OTC	(832,649)			(986,017)
Net amounts in the Consolidated Statement of Financial Condition (4)	$	640,593		$	417,900

(continued)


	Assets					Liabilities
	Fair Value		Number of Contracts (2)	Fair Value		Number of Contracts (2)
November 30, 2019 (1)
Derivatives designated as accounting hedges:
Interest rate contracts:
Cleared OTC	$	28,663	1	$	—	—
Total derivatives designated as accounting hedges	28,663			—

Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	1,191		65,226	103		38,464
Cleared OTC	213,224		3,329	284,433		3,443
Bilateral OTC	421,700		1,325	258,857		738
Foreign exchange contracts:
Exchange-traded	—		256	—		199

Bilateral OTC	191,218		9,257	187,836		9,187
Equity contracts:
Exchange-traded	717,494		1,714,538	962,535		1,481,388

Bilateral OTC	248,720		4,731	445,241		4,271
Commodity contracts:
Exchange-traded	—		5,524	—		4,646

Bilateral OTC	20,600		4,084	391		359
Credit contracts:

Cleared OTC	2,514		13	5,768		12
Bilateral OTC	6,281		25	14,219		28
Total derivatives not designated as accounting hedges	1,822,942			2,159,383

Total gross derivative assets/liabilities:
Exchange-traded	718,685			962,638
Cleared OTC	244,401			290,201
Bilateral OTC	888,519			906,544
Amounts offset in Consolidated Statement of Financial Condition (3):
Exchange-traded	(688,871)			(688,871)
Cleared OTC	(222,869)			(266,900)
Bilateral OTC	(521,457)			(676,407)
Net amounts in the Consolidated Statement of Financial Condition (4)	$	418,408		$	527,205

(1) Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.

(2) Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables and Payables, expense accruals and other liabilities in the Consolidated Statements of Financial Condition.

(3) Amounts netted include both netting by counterparty and for cash collateral paid or received.

(4) We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in the Consolidated Statements of Financial Condition.

Unrealized and Realized Gains (Losses) on Derivative Contracts

The following table provides information related to gains (losses) recognized in Interest expense of Jefferies Group in the Consolidated Statements of Operations on a fair value hedge (in thousands):


	For the Three Months Ended						For the Six Months Ended
	May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
Interest rate swaps	$	22,004	$	27,204	$	46,469	$	41,791
Long-term debt	(22,306)		(28,213)		(47,173)		(43,769)
Total	$	(302)	$	(1,009)	$	(704)	$	(1,978)

The following table presents unrealized and realized gains (losses) on derivative contracts which are primarily recognized in Principal transactions revenues in the Consolidated Statements of Operations, which are utilized in connection with our client activities and our economic risk management activities (in thousands):


	For the Three Months Ended						For the Six Months Ended
	May 31, 2020		May 31, 2019		May 31, 2020		May 31, 2019
Interest rate contracts	$	(4,079)	$	(34,020)	$	(5,168)	$	(103,851)
Foreign exchange contracts	437		2,284		(1,884)		2,108
Equity contracts	9,147		(92,109)		146,035		(120,590)
Commodity contracts	44,172		21,045		60,765		1,772
Credit contracts	12,554		4,818		14,384		8,913
Total	$	62,231	$	(97,982)	$	214,132	$	(211,648)

Remaining Contract Maturity of Fair Value of OTC Derivative Assets and Liabilities

The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities as reflected in the Consolidated Statement of Financial Condition at May 31, 2020 (in thousands):


	OTC Derivative Assets (1) (2) (3)
	0-12 Months		1-5 Years		Greater Than 5 Years		Cross- Maturity Netting (4)		Total
Commodity swaps, options and forwards	$	44,360	$	10,753	$	—	$	—	$	55,113
Equity forwards, swaps and options	46,129		200		18,280		(13,218)		51,391
Credit default swaps	11		900		133		(11)		1,033
Total return swaps	83,333		63,660		—		(8,838)		138,155
Foreign currency forwards, swaps and options	55,197		11,655		113		(6,611)		60,354

Interest rate swaps, options and forwards	70,849		242,525		253,402		(36,319)		530,457
Total	$	299,879	$	329,693	$	271,928	$	(64,997)	836,503
Cross product counterparty netting									(37,469)
Total OTC derivative assets included in Financial instruments owned, at fair value									$	799,034

(1)At May 31, 2020, we held net exchange-traded derivative assets, other derivative assets and other credit agreements with a fair value of $34.1 million, which are not included in this table.

(2)OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in the Consolidated Statements of Financial Condition. At May 31, 2020, cash collateral received was $192.6 million.

(3)Derivative fair values include counterparty netting within product category.

(4)Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.


	OTC Derivative Liabilities (1) (2) (3)
	0-12 Months		1-5 Years		Greater Than 5 Years		Cross-Maturity Netting (4)		Total

Equity forwards, swaps and options	$	14,944	$	251,025	$	101,362	$	(13,218)	$	354,113
Credit default swaps	—		1,489		69		(11)		1,547
Total return swaps	61,841		56,238		—		(8,838)		109,241
Foreign currency forwards, swaps and options	74,469		10,196		92		(6,611)		78,146

Interest rate swaps, options and forwards	28,449		84,262		80,673		(36,319)		157,065
Total	$	179,703	$	403,210	$	182,196	$	(64,997)	700,112
Cross product counterparty netting									(37,469)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased, at fair value									$	662,643

(1)At May 31, 2020, we held net exchange-traded derivative liabilities, other derivative liabilities and other credit agreements with a fair value of $102.4 million, which are not included in this table.

(2)OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in the Consolidated Statements of Financial Condition. At May 31, 2020, cash collateral pledged was $347.1 million.

(3)Derivative fair values include counterparty netting within product category.

(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.

Counterparty Credit Quality with Respect to Fair Value of OTC Derivatives Assets

At May 31, 2020, the counterparty credit quality with respect to the fair value of our OTC derivative assets was as follows (in thousands):


Counterparty credit quality (1):
A- or higher	$	188,896
BBB- to BBB+	32,975
BB+ or lower	336,290
Unrated	240,873
Total	$	799,034

(1) We utilize internal credit ratings determined by the Jefferies Group's Risk Management department. Credit ratings determined by Jefferies Group Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.

Credit Related Derivative Contracts

The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts are as follows (in millions):


	External Credit Rating
	Investment Grade		Non-investment grade		Unrated		Total Notional
May 31, 2020
Credit protection sold:
Index credit default swaps	$	2.0	$	12.1	$	—	$	14.1
Single name credit default swaps	—		7.4		—		7.4

November 30, 2019
Credit protection sold:
Index credit default swaps	$	3.0	$	32.0	$	—	$	35.0
Single name credit default swaps	3.4		29.0		1.5		33.9

Derivative Instruments with Contingent Features

The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts posted or received in the normal course of business and the potential collateral we would have been required to return and/or post additionally to our counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions):


	May 31, 2020		November 30, 2019
Derivative instrument liabilities with credit-risk-related contingent features	$	180.9	$	42.9
Collateral posted	(139.3)		(3.1)
Collateral received	50.9		114.1
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)	92.6		154.0

(1) These potential outflows include initial margin received from counterparties at the execution of the derivative contract. The initial margin will be returned if counterparties elect to terminate the contract after a downgrade.

- Definition

Tabular disclosure of credit derivatives which includes information by sellers of credit derivatives, about each credit derivative, or each group of similar credit derivatives, including (a) the nature of the credit derivative - its term, how it arose, the events or circumstances that would require the seller to perform under the credit derivative, and the current status of the payment/performance risk of the credit derivative; (b) the maximum potential amount of future payments (undiscounted) the seller could be required to make under the credit derivative; (c) the current fair value of the credit derivative; and (d) the nature of any recourse provisions under the credit derivative, and any assets held either as collateral or by third parties. A credit derivative is a derivative instrument (1) in which one or more of its underlyings are related to the credit risk of a specified entity (or a group of entities) or an index based on the credit risk of a group of entities and (2) that exposes the seller to potential loss from credit-risk-related events specified in the contract. Examples of credit derivatives within the scope of this paragraph include, but are not limited to, credit default swaps, credit spread options, and credit index products; also includes a hybrid instrument that has an embedded credit derivative (for example, but not limited to, a credit-linked note).

+ References + Details