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 June 30, 2018 and December 31, 2017. 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 June 30, 2018

	Level 1		Level 2		Level 3		Total

	(in millions)
Securities segregated for regulatory purposes	$	4,370	$	—	$	—	$	4,370
Financial instruments owned, at fair value
Stocks		712		—		1		713
Options		1,207		—		—		1,207
Warrants and discount certificates		2		—		—		2
U.S. and foreign government securities		156		—		—		156
Corporate and municipal bonds		—		1		3		4
Currency forward contracts		—		6		—		6
Total financial instruments owned, at fair value		2,077		7		4		2,088
Total financial assets at fair value	$	6,447	$	7	$	4	$	6,458



	Financial Liabilities At Fair Value as of June 30, 2018
	Level 1		Level 2		Level 3		Total

	(in millions)
Financial instruments sold, but not yet purchased, at fair value
Stocks	$	199	$	—	$	—	$	199
Options		426		—		—		426
Currency forward contracts		—		5		—		5
Total financial instruments sold, but not yet purchased, at fair value		625		5		—		630
Total financial liabilities at fair value	$	625	$	5	$	—	$	630




	Financial Assets At Fair Value as of December 31, 2017
	Level 1		Level 2		Level 3		Total

	(in millions)
Securities segregated for regulatory purposes	$	4,519	$	—	$	—	$	4,519
Financial instruments owned, at fair value
Stocks		2,000		—		1		2,001
Options		1,052		—		—		1,052
Warrants and discount certificates		5		—		—		5
U.S. and foreign government securities		60		—		—		60
Corporate and municipal bonds		—		1		3		4
Currency forward contracts		—		32		—		32
Total financial instruments owned, at fair value		3,117		33		4		3,154
Total financial assets at fair value	$	7,636	$	33	$	4	$	7,673



	Financial Liabilities At Fair Value as of December 31, 2017
	Level 1		Level 2		Level 3		Total

	(in millions)
Financial instruments sold, but not yet purchased, at fair value
Stocks	$	302	$	—	$	—	$	302
Options		464		—		—		464
Currency forward contracts		—		1		—		1
Total financial instruments sold, but not yet purchased, at fair value		766		1		—		767
Total financial liabilities at fair value	$	766	$	1	$	—	$	767

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 six months ended June 30, 2018 and 2017, 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 are comprised of delisted and illiquid securities reported within financial instruments owned, at fair value in the condensed consolidated statements of financial condition. As of June 30, 2018, Level 3 financial assets included $1 million in stocks and $3 million in corporate and municipal bonds, which were not traded in active markets and were valued by the Company based on internal estimates. During the six months ended June 30, 2018 and 2017, there were no transfers between levels for financial assets and liabilities, at fair value.

Trading Gains from Market Making Transactions

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



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in millions)
Equities	$	12	$	17	$	25	$	20
Foreign exchange		—		(4)		—		(5)
Total trading gains, net	$	12	$	13	$	25	$	15

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 income and expense.

Financial Assets and Liabilities Not Measured at Fair Value

The following tables represent 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:



	June 30, 2018
	Carrying Value		Fair Value		Level 1		Level 2		Level 3

	(in millions)
Financial assets, not measured at fair value
Cash and cash equivalents	$	2,500	$	2,500	$	2,500	$	-	$	-
Cash - segregated for regulatory purposes		7,686		7,686		7,686		-		-
Securities - segregated for regulatory purposes		8,998		8,998		-		8,998		-
Securities borrowed		3,588		3,588		-		3,588		-
Securities purchased under agreements to resell		533		533		-		533		-
Receivables from customer		28,970		28,970		-		28,970		-
Receivables from broker, dealers, and clearing organizations		1,134		1,134		-		1,134		-
Interest receivable		117		117		-		117		-
Other assets		5		6		-		6		-
Total financial assets, not measured at fair value	$	53,531	$	53,532	$	10,186	$	43,346	$	-



Financial liabilities, not measured at fair value
Short-term borrowings	$	193	$	193	$	-	$	193	$	-
Securities loaned		4,091		4,091		-		4,091		-
Securities sold under agreements to repurchase		-		-		-		-		-
Payables to customer		48,239		48,239		-		48,239		-
Payables to brokers, dealers and clearing organizations		100		100		-		100		-
Interest payable		29		29		-		29		-
Total financial liabilities, not measured at fair value	$	52,652	$	52,652	$	-	$	52,652	$	-



	December 31, 2017
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
	(in millions)
Financial assets, not measured at fair value
Cash and cash equivalents	$	1,732	$	1,732	$	1,732	$	-	$	-
Cash - segregated for regulatory purposes		6,547		6,547		6,547		-		-
Securities - segregated for regulatory purposes		9,166		9,166		-		9,166		-
Securities borrowed		2,957		2,957		-		2,957		-
Securities purchased under agreements to resell		2,035		2,035		-		2,035		-
Receivables from customer		29,821		29,821		-		29,821		-
Receivables from broker, dealers, and clearing organizations		823		823		-		823		-
Interest receivable		116		116		-		116		-
Other assets		6		6		-		6		-
Total financial assets, not measured at fair value	$	53,203	$	53,203	$	8,279	$	44,924	$	-



Financial liabilities, not measured at fair value
Short-term borrowings	$	15	$	15	$	-	$	15	$	-
Securities loaned		4,444		4,444		-		4,444		-
Securities sold under agreements to repurchase		1,316		1,316		-		1,316		-
Payables to customer		47,548		47,548		-		47,548		-
Payables to brokers, dealers and clearing organizations		283		283		-		283		-
Interest payable		22		22		-		22		-
Total financial liabilities, not measured at fair value	$	53,628	$	53,628	$	-	$	53,628	$	-

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 set forth the netting of financial assets and of financial liabilities as of June 30, 2018 and December 31, 2017:



	June 30, 2018
	Gross			Amounts			Net Amounts		Amounts Not Offset
	Amounts			Offset in the			Presented in		in the Condensed
	of Financial			Condensed			the 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	$	8,998	1	$	—		$	8,998	$	(8,998)	$	—
Securities borrowed		3,588			—			3,588		(3,451)		137
Securities purchased under agreements to resell		533			—			533		(533)		—
Financial Instruments owned, at fair value
Options		1,207			—			1,207		(425)		782
Warrants and discount certificates		2			—			2		—		2
Currency forward contracts		6			—			6		—		6
Total	$	14,334		$	—		$	14,334	$	(13,407)	$	927


	(in millions)
Offsetting of Financial Liabilities
Securities loaned	$	4,091	$	—	$	4,091	$	(3,885)	$	206
Securities sold under agreements to repurchase		—		—		—		—		—
Financial instruments sold, but not yet purchased, at fair value
Options		426		—		426		(425)		1
Warrants and discount certificates		—		—		—		—		—
Currency forward contracts		5		—		5		—		5
Total	$	4,522	$	—	$	4,522	$	(4,310)	$	212



	December 31, 2017
		Gross		Amounts			Net Amounts		Amounts Not Offset
		Amounts		Offset in the			Presented in		in the Condensed
		of Financial		Condensed			the 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	$	9,166	1	$	—		$	9,166	$	(9,166)	$	—
Securities borrowed		2,957			—			2,957		(2,822)		135
Securities purchased under agreements to resell		2,035			—			2,035		(2,035)		—
Financial Instruments owned, at fair value
Options		1,052			—			1,052		(451)		601
Warrants and discount certificates		5			—			5		—		5
Currency forward contracts		32			—			32		—		32
Total	$	15,247		$	—		$	15,247	$	(14,474)	$	773


	(in millions)
Offsetting of Financial Liabilities
Securities loaned	$	4,444	$	—	$	4,444	$	(4,201)	$	243
Securities sold under agreements to repurchase		1,316		—		1,316		(1,316)		—
Financial instruments sold, but not yet purchased, at fair value
Options		464		—		464		(451)		13
Warrants and discount certificates		—		—		—		—		—
Currency forward contracts		1		—		1		—		1
Total	$	6,225	$	—	$	6,225	$	(5,968)	$	257

(1)

As of June 30, 2018 and December 31, 2017, the Company had $9.0 billion and $9.2 billion, respectively, of securities purchased under agreements to resell that were segregated to satisfy regulatory requirements. These securities are included in “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 June 30, 2018 and December 31, 2017.

Secured Financing Transactions – Maturities and Collateral Pledged

The following tables present gross obligations for securities loaned transactions by remaining contractual maturity and class of collateral pledged as of June 30, 2018 and December 31, 2017:



	June 30, 2018
	Remaining Contractual Maturity
	Overnight		Less than		30 – 90		Over 90
	and Open		30 days		days		days		Total

	(in millions)
Securities loaned
Stocks	$	4,039	$	-	$	-	$	-	$	4,039
Corporate bonds		52		-		-		-		52
Foreign government securities		-		-		-		-		-
Total securities loaned	$	4,091	$	-	$	-	$	-	$	4,091


	December 31, 2017
	Remaining Contractual Maturity
	Overnight		Less than		30 – 90		Over 90
	and Open		30 days		days		days		Total

	(in millions)
Securities Loaned
Stocks	$	4,389	$	-	$	-	$	-	$	4,389
Corporate bonds		55		-		-		-		55
Total securities loaned		4,444		-		-		-		4,444

Securities sold under agreements to repurchase
U.S. government securities		1,316		-		-		-		1,316
Total	$	5,760	$	-	$	-	$	-	$	5,760