Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2018

The following tables present our financial assets and financial liabilities that are measured at fair value on a recurring basis as of September 30, 2018 and December 31, 2017. We did not have any financial liabilities measured at fair value on a recurring basis as of December 31, 2017.



	September 30, 2018
	Total		Level 1		Level 2		Level 3
	(in millions)
Assets at Fair Value
Financial investments, at fair value	$	202	$	148	$	54	$	—
Default fund and margin deposit investments	1,617		215		1,402		—
Total Assets at Fair Value	$	1,819	$	363	$	1,456	$	—
Liabilities at Fair Value
Other financial instruments	$	56	$	—	$	56	$	—
Total Liabilities at Fair Value	$	56	$	—	$	56	$	—



	December 31, 2017
	Total		Level 1		Level 2		Level 3
	(in millions)
Assets at Fair Value
Financial investments, at fair value	$	235	$	135	$	100	$	—
Default fund and margin deposit investments	2,129		371		1,758		—
Total Assets at Fair Value	$	2,364	$	506	$	1,858	$	—

As of September 30, 2018 and December 31, 2017, Level 1 financial investments, at fair value were primarily comprised of trading securities, mainly highly rated European government debt securities. As of September 30, 2018 and December 31, 2017, Level 2 financial investments, at fair value were primarily comprised of trading securities, mainly corporate bonds and European mortgage bonds. Of the Level 1 and Level 2 financial investments, at fair value, $174 million as of September 30, 2018 and $160 million as of December 31, 2017 are assets utilized to meet regulatory capital requirements, primarily for our clearing operations at Nasdaq Clearing.

Our Level 1 default fund and margin deposit investments were primarily comprised of highly rated European and U.S. government debt securities. Level 2 default fund and margin deposit investments were primarily comprised of central bank certificates and reverse repurchase agreements, as of September 30, 2018 and December 31, 2017.

Our Level 2 other financial instruments include a liability associated with Nasdaq Clearing's requirement to fulfill the settlement of certain contracts of a defaulted member. As of September 30, 2018, the fair value of this guarantee was $56 million and is included in other current liabilities in the Condensed Consolidated Balance Sheets. See Note 15, “Clearing Operations,” for further discussion of default fund contributions and margin deposits.

Financial Instruments Not Measured at Fair Value on a Recurring Basis

Some of our financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, receivables, net, certain other current assets, accounts payable and accrued expenses, Section 31 fees payable to SEC, accrued personnel costs, commercial paper and certain other current liabilities.

Our investments in OCC and EuroCCP N.V. are accounted for under the equity method of accounting. Our investment in LCH is accounted for using the measurement alternative as this investment does not have a readily determinable fair value. See “Equity Securities,” of Note 3, “Significant Accounting Policies Update,” and “Equity Method Investments,” and “Equity Securities,” of Note 7, “Investments,” for further discussion.

We also consider our debt obligations to be financial instruments. The fair value of our debt obligations, utilizing discounted cash flow analyses for our floating rate debt and prevailing market rates for our fixed rate debt, was $4.0 billion as of September 30, 2018 and $4.4 billion as of December 31, 2017. The discounted cash flow analyses are based on borrowing rates currently available to us for debt with similar terms and maturities. The fair value of our commercial paper approximates the carrying value since the rates of interest on this short-term debt approximate market rates as of September 30, 2018. Our commercial paper and our fixed rate and floating rate debt are categorized as Level 2 in the fair value hierarchy.

For further discussion of our debt obligations, see Note 9, “Debt Obligations.”

Non-Financial Assets Measured at Fair Value on a Non-Recurring Basis

Our non-financial assets, which include goodwill, intangible assets, and other long-lived assets, are not required to be carried at fair value on a recurring basis. Fair value measures of non-financial assets are primarily used in the impairment analysis of these assets. Any resulting asset impairment would require that the non-financial asset be recorded at its fair value. Nasdaq uses Level 3 inputs to measure the fair value of the above assets on a non-recurring basis. As of September 30, 2018 and December 31, 2017, there were no non-financial assets measured at fair value on a non-recurring basis.

- Definition

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

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