6. Financial Assets and Financial Liabilities

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables set forth, by level within the fair value hierarchy (see Note 2), financial assets and liabilities, measured at fair value on a recurring basis as of September 30, 2016 and December 31, 2015. As required by ASC Topic 820, financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the respective fair value measurement.



	Financial Assets At Fair Value as of September 30, 2016

	Level 1		Level 2		Level 3		Total

	(in millions)
Securities segregated for regulatory purposes	$	12,063	$	—	$	—	$	12,063
Financial instruments owned
Stocks		1,884		—		—		1,884
Options		1,578		—		—		1,578
Warrants and discount certificates		57		—		—		57
U.S. and foreign government securities		296		—		—		296
Corporate and municipal bonds		—		3		—		3
Currency forward contracts		—		5		—		5
Total financial instruments owned, at fair value		3,815		8		—		3,823
Total financial assets at fair value	$	15,878	$	8	$	—	$	15,886



	Financial Liabilities At Fair Value as of September 30, 2016
	Level 1		Level 2		Level 3		Total

	(in millions)
Financial instruments sold, but not yet purchased, at fair value
Stocks	$	1,398	$	—	$	1	$	1,399
Options		1,058		—		—		1,058
Warrants and discount certificates		1		—		—		1
Currency forward contracts		—		1		—		1
Total financial instruments sold, but not yet purchased, at fair value		2,457		1		1		2,459
Total financial liabilities at fair value	$	2,457	$	1	$	1	$	2,459




	Financial Assets At Fair Value as of December 31, 2015
	Level 1		Level 2		Level 3		Total

	(in millions)
Securities segregated for regulatory purposes	$	15,214	$	—	$	—	$	15,214
Financial instruments owned, at fair value
Stocks		1,650		—		—		1,650
Options		1,156		—		—		1,156
Warrants and discount certificates		81		—		—		81
U.S. and foreign government securities		527		—		—		527
Corporate and municipal bonds		—		3		—		3
Currency forward contracts		—		3		—		3
Total financial instruments owned, at fair value		3,414		6		—		3,420
Total financial assets at fair value	$	18,628	$	6	$	—	$	18,634



	Financial Liabilities At Fair Value as of December 31, 2015
	Level 1		Level 2		Level 3		Total

	(in millions)
Financial instruments sold, but not yet purchased, at fair value
Stocks	$	1,565	$	—	$	—	$	1,565
Options		1,042		—		—		1,042
Warrants and discount certificates		1		—		—		1
Currency forward contracts		—		9		—		9
Total financial instruments sold, but not yet purchased, at fair value		2,608		9		—		2,617
Total financial liabilities at fair value	$	2,608	$	9	$	—	$	2,617

Transfers between Level 1 and Level 2

Transfers of financial assets and financial liabilities at fair value to or from Levels 1 and 2 arise where the market for a specific financial instrument has become active or inactive during the period. The fair values transferred are ascribed as if the financial assets or financial liabilities had been transferred as of the end of the period. During the nine months ended September 30, 2016 and 2015, there were no transfers between levels for financial assets and liabilities, at fair value.

Level 3 Financial Assets and Financial Liabilities

The Company’s Level 3 financial assets and financial liabilities were comprised of delisted securities reported within financial instruments sold, but not yet purchased, at fair value in the condensed consolidated statements of financial condition. As of December 31, 2014 financial liabilities included $1 million of Level 3 securities which were transferred to Level 1 during the nine months ended September 30, 2015 as a result of the completion of a corporate action. During the nine months ended September 30, 2016 financial liabilities included $1 million of Level 3 securities which were transferred from Level 1 as a result of delisting of a security.

Trading Gains from Market Making Transactions

Trading gains and losses from market making transactions reported in the statements of comprehensive income, by major product type, are comprised of:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015

	(in millions)
Equities	$	34	$	83	$	119	$	204
Fixed income		—		—		—		—
Foreign exchange		4		4		5		12
Total trading gains, net	$	38	$	87	$	124	$	216

These transactions are related to the Company’s financial instruments owned and financial instruments sold, but not yet purchased, at fair value and include both derivative and non‑derivative financial instruments, including exchange traded options and futures. These gains and losses also include market making related dividend and fixed income trading related interest income and expense.

The gains in the table above are not representative of the integrated trading strategies applied by the Company, which utilizes financial instruments across various product types. Gains and losses in one product type frequently offset gains and losses in other product types.

Financial Assets and Liabilities Not Measured at Fair Value

The following table represents the carrying value, fair value, and fair value hierarchy category of certain financial assets and liabilities that are not recorded at fair value in the Company's condensed consolidated statements of financial condition. The following table excludes certain financial instruments such as equity investments and all non-financial assets and liabilities.



	September 30, 2016
	Carrying Value		Fair Value		Level 1		Level 2		Level 3

	(in millions)
Financial assets, not measured at fair value
Cash and cash equivalents	$	1,550	$	1,550	$	1,550	$	-	$	-
Cash and securities segregated for regulatory purposes		13,187		13,187		6,224		6,963		-
Securities borrowed		4,785		4,785		-		4,785		-
Securities purchased under agreements to resell		148		148		-		148		-
Receivables from customer		18,223		18,223		-		18,223		-
Receivables from broker, dealers, and clearing organizations		764		764		-		764		-
Interest receivable		66		66		-		66		-
Other assets		29		32		-		32		-
Total financial assets, not measured at fair value	$	38,752	$	38,755	$	7,774	$	30,981	$	—



Financial liabilities, not measured at fair value
Short-term borrowings	$	24	$	24	$	-	$	24	$	-
Securities loaned		3,617		3,617		-		3,617		-
Payables to customer		42,486		42,486		-		42,486		-
Payables to brokers, dealers and clearing organizations		210		210		-		210		-
Interest payable		4		4		-		4		-
Total financial liabilities, not measured at fair value	$	46,341	$	46,341	$	-	$	46,341	$	-



	December 31, 2015
	Carrying Value		Fair Value		Level 1		Level 2		Level 3

	(in millions)
Financial assets, not measured at fair value
Cash and cash equivalents	$	1,601	$	1,601	$	1,601	$	-	$	-
Cash and securities segregated for regulatory purposes		6,095		6,095		5,533		562		-
Securities borrowed		3,924		3,924		-		3,924		-
Securities purchased under agreements to resell		195		195		-		195		-
Receivables from customer		17,050		17,050		-		17,050
Receivables from broker, dealers, and clearing organizations		692		692		-		692		-
Interest receivable		63		63		-		63		-
Other assets		28		31		-		31		-
Total financial assets, not measured at fair value	$	29,648	$	29,651	$	7,134	$	22,517	$	—



Financial liabilities, not measured at fair value
Securities loaned	$	2,894	$	2,894	$	-	$	2,894	$	-
Payables to customer		37,084		37,084		-		37,084		-
Payables to brokers, dealers and clearing organizations		423		423		-		423		-
Interest payable		3		3		-		3		-
Total financial liabilities, not measured at fair value	$	40,404	$	40,404	$	—	$	40,404	$	—

Netting of Financial Assets and Financial Liabilities

It is the Company’s policy to net securities borrowed and securities loaned, and securities purchased under agreements to resell and securities sold under agreements to repurchase that meet the offsetting requirements prescribed in ASC Topic 210-20. In the tables below, the amounts of financial instruments that are not offset in the condensed consolidated statements of financial condition, but could be netted against cash or financial instruments with specific counterparties under master netting agreements, according to the terms of the agreements, including clearing houses (exchange traded options, warrants and discount certificates) or over the counter currency forward contract counterparties, are presented to provide financial statement readers with the Company’s net payable or receivable with counterparties for these financial instruments.

The following tables sets forth the netting of financial assets and of financial liabilities as of September 30, 2016 and December 31, 2015.



	September 30, 2016
	Gross			Amounts			Net Amounts		Amounts Not Offset
	Amounts			Offset in the			Presented in		in the Condensed
	of Financial			Condensed			Condensed		Consolidated Statement
	Assets and			Consolidated			Consolidated		of Financial Condition
	Liabilities			Statement of			Statement of		Cash or Financial
	Recognized			Financial Condition		2	Financial Condition		Instruments		Net Amount

	(in millions)
Offsetting of Financial Assets
Securities segregated for regulatory purposes - purchased under agreements to resell	$	6,963	1	$	—		$	6,963	$	(6,963)	$	—
Securities borrowed		4,785			—			4,785		(4,640)		145
Securities purchased under agreements to resell		148			—			148		(148)		—
Financial Instruments owned, at fair value
Options		1,578			—			1,578		(1,031)		547
Warrants and discount certificates		57			—			57		(1)		56
Currency forward contracts		5			—			5		—		5
Total	$	13,536		$	—		$	13,536	$	(12,783)	$	753


	(in millions)
Offsetting of Financial Liabilities
Securities loaned	$	3,617	$	—	$	3,617	$	(3,520)	$	97
Financial instruments sold, but not yet purchased, at fair value
Options		1,058		—		1,058		(1,031)		27
Warrants and discount certificates		1		—		1		(1)		—
Currency forward contracts		1		—		1		—		1
Total	$	4,677	$	—	$	4,677	$	(4,552)	$	125



	December 31, 2015
		Gross		Amounts			Net Amounts		Amounts Not Offset
		Amounts		Offset in the			Presented in		in the Condensed
		of Financial		Condensed			Condensed		Consolidated Statement
		Assets and		Consolidated			Consolidated		of Financial Condition
		Liabilities		Statement of			Statement of		Cash or Financial
		Recognized		Financial Condition		2	Financial Condition		Instruments		Net Amount

	(in millions)
Offsetting of Financial Assets
Securities segregated for regulatory purposes - purchased under agreements to resell	$	562	1	$	—		$	562	$	(562)	$	—
Securities borrowed		3,924			—			3,924		(3,816)		108
Securities purchased under agreements to resell		195			—			195		(195)		—
Financial Instruments owned, at fair value
Options		1,156			—			1,156		(1,032)		124
Warrants and discount certificates		81			—			81		(1)		80
Currency forward contracts		3			—			3		—		3
Total	$	5,921		$	—		$	5,921	$	(5,606)	$	315


	(in millions)
Offsetting of Financial Liabilities
Securities loaned	$	2,894	$	—	$	2,894	$	(2,773)	$	121
Financial instruments sold, but not yet purchased, at fair value
Options		1,042		—		1,042		(1,032)		10
Warrants and discount certificates		1		—		1		(1)		—
Currency forward contracts		9		—		9		—		9
Total	$	3,946	$	—	$	3,946	$	(3,806)	$	140

(1)

As of September 30, 2016 and December 31, 2015, the Company had $7.0 billion and $0.6 billion, respectively, of securities purchased under agreements to resell that were segregated to satisfy regulatory requirements. These securities are included in “Cash and securities - segregated for regulatory purposes” in the condensed consolidated statements of financial condition.

(2)

The Company did not have any balances eligible for netting in accordance with ASC Topic 210-20 at September 30, 2016 and December 31, 2015.

Secured Financing Transactions – Maturities and Collateral Pledged

The following table presents gross obligations for securities loaned transactions by remaining contractual maturity and class of collateral pledged.



	September 30, 2016
	Remaining Contractual Maturity
	Overnight		Less than		30 – 90		Over 90
	and Open		30 days		days		days		Total

	(in millions)
Securities Loaned
Stocks	$	3,590	$	-	$	-	$	-	$	3,590
Corporate bonds		27		-		-		-		27
Total	$	3,617	$	-	$	-	$	-	$	3,617



	December 31, 2015
	Remaining Contractual Maturity
	Overnight		Less than		30 – 90		Over 90
	and Open		30 days		days		days		Total

	(in millions)
Securities Loaned
Stocks	$	2,873	$	-	$	-	$	-	$	2,873
Corporate bonds		21		-		-		-		21
Total	$	2,894	$	-	$	-	$	-	$	2,894