XML 30 R15.htm IDEA: XBRL DOCUMENT
v3.7.0.1

Financial Assets and Liabilities | 3 Months Ended
--- | ---
Mar. 31, 2017
Financial Assets and Liabilities |
Financial Assets and Liabilities | 9. Financial Assets and Liabilities At March 31, 2017 and December 31, 2016, substantially all of Company's financial assets and liabilities, except for the long-term borrowings, short-term borrowings, securities borrowed and loaned, and certain exchange memberships, which would all be categorized as Level 2, were carried at fair value based on published market prices and are marked to market daily or were short-term in nature and were carried at amounts that approximate fair value. The Company determined that the carrying value of the Company’s long-term borrowings approximates fair value as of March 31, 2017 and December 31, 2016 based on the recent transaction date of the SBI Bonds and the quoted over-the-counter market prices provided by the issuer of the senior secured credit facility, and would be categorized as Level 2. As of March 31, 2017, the Company began pricing certain financial instruments held for trading at fair value based on theoretical prices which can differ from quoted market prices. The theoretical prices reflect price adjustments primarily caused by the fact that the Company continuously prices its financial instruments based on all available information. This includes prices for identical and near-identical positions, as well as the prices for securities underlying the Company’s positions, on other exchanges that are open after the exchange on which the financial instruments is traded closes. The Company’s middle office department validates that all price adjustments can be substantiated with market inputs and checks the theoretical prices independently. Consequently, such financial instruments are classified as Level 2. The Company concluded that this is a change in accounting estimate and no retrospective adjustments were necessary. The fair value of equities, U.S. government obligations and exchange traded notes is estimated using recently executed transactions and market price quotations in active markets and are categorized as Level 1 with the exception of inactively traded equities and certain financial instruments noted in the preceding paragraph which are categorized as Level 2. Fair value of the Company’s derivative contracts is based on the indicative prices obtained from broadly distributed bank and broker dealers, as well as management’s own analyses. The indicative prices have been independently validated through the Company’s risk management systems, which are designed to check prices with information independently obtained from exchanges and venues where such financial instruments are listed or to compare prices of similar instruments with similar maturities for listed financial futures in foreign exchange. At March 31, 2017 and December 31, 2016, the Company’s derivative contracts and non-U.S. government obligations have been categorized as Level 2. In July 2016, the Company made an additional minority investment in SBI, a proprietary trading system based in Tokyo, which is further described later in this footnote. The Company elected the fair value option to account for this equity method investment because it believes that fair value is the most relevant measurement attribute for this investment, as well as to reduce operational and accounting complexity. This investment has been categorized as Level 3. The valuation process involved for Level 3 measurements is completed on a quarterly basis. The Company employs two valuation methodologies when determining the fair value of investments categorized as Level 3, market comparable analysis and discounted cash flow analysis. The market comparable analysis considers key financial inputs, recent public and private transactions and other available measures. The discounted cash flow analysis incorporates significant assumptions and judgments and the estimates of key inputs used in this methodology include the discount rate for the investment and assumed inputs used to calculate terminal values, such as price/earnings multiples. Upon completion of the valuations conducted using these methodologies, a weighting is ascribed to each method and the ultimate fair value recorded for a particular investment will generally be within a range suggested by the two methodologies. When determining the weighting ascribed to each valuation methodology, the Company considers, among other factors, the availability of direct market comparables, the applicability of a discounted cash flow analysis and the expected holding period. There were no transfers of financial instruments between levels during the three months ended March 31, 2017 and 2016. Fair value measurements for those items measured on a recurring basis are summarized below as of March 31, 2017:
|  | March 31, 2017 |
|  | Quoted Prices |  | Significant |  |  |  |  |  |  |  |
|  | in Active |  | Other |  | Significant |  | Counterparty |  |  |  |
|  | Markets for |  | Observable |  | Unobservable |  | and Cash |  |  |  |
|  | Identical Assets |  | Inputs |  | Inputs |  | Collateral |  | Total Fair |
(in thousands) |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | Netting |  | Value |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments owned, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 184,003 |  | $ | 1,414,065 |  | $ | — |  | $ | — |  | $ | 1,598,068 |
Non-U.S. government obligations |  |  | — |  |  | 9,007 |  |  | — |  |  | — |  |  | 9,007 |
Exchange traded notes |  |  | 1,081 |  |  | 21,103 |  |  | — |  |  | — |  |  | 22,184 |
Currency forwards |  |  | — |  |  | 1,756,179 |  |  | — |  |  | (1,755,123) |  |  | 1,056 |
Options |  |  | — |  |  | 266 |  |  | — |  |  | — |  |  | 266 |
|  | $ | 185,084 |  | $ | 3,200,620 |  | $ | — |  | $ | (1,755,123) |  | $ | 1,630,581 |
Financial instruments owned, pledged as collateral: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 32,168 |  | $ | 232,318 |  | $ | — |  | $ | — |  | $ | 264,486 |
Exchange traded notes |  |  | — |  |  | 4,903 |  |  | — |  |  | — |  |  | 4,903 |
|  | $ | 32,168 |  | $ | 237,221 |  | $ | — |  | $ | — |  | $ | 269,389 |
Other Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity investment |  | $ | — |  | $ | — |  | $ | 37,588 |  | $ | — |  | $ | 37,588 |
Exchange stock |  |  | 467 |  |  | — |  |  | — |  |  | — |  |  | 467 |
|  | $ | 467 |  | $ | — |  | $ | 37,588 |  | $ | — |  | $ | 38,055 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments sold, not yet purchased, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 604,260 |  | $ | 1,014,410 |  | $ | — |  | $ | — |  | $ | 1,618,670 |
Exchange traded notes |  |  | — |  |  | 54,904 |  |  | — |  |  | — |  |  | 54,904 |
Currency forwards |  |  | — |  |  | 1,792,466 |  |  | — |  |  | (1,792,466) |  |  | — |
Options |  |  | — |  |  | 228 |  |  | — |  |  | — |  |  | 228 |
|  | $ | 604,260 |  | $ | 2,862,008 |  | $ | — |  | $ | (1,792,466) |  | $ | 1,673,802 |
Fair value measurements for those items measured on a recurring basis are summarized below as of December 31, 2016:
|  | December 31, 2016 |
|  | Quoted |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Prices in |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Active |  | Significant |  |  |  |  |  |  |  |  |  |
|  | Markets for |  | Other |  | Significant |  | Counterparty |  |  |  |
|  | Identical |  | Observable |  | Unobservable |  | and Cash |  |  |  |
|  | Assets |  | Inputs |  | Inputs |  | Collateral |  | Total Fair |
(in thousands) |  | (Level 1) |  | (Level 2) |  | (Level 3) |  | Netting |  | Value |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments owned, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 1,597,049 |  | $ | 31,988 |  | $ | — |  | $ | — |  | $ | 1,629,037 |
Non-U.S. government obligations |  |  | — |  |  | 10,765 |  |  | — |  |  | — |  |  | 10,765 |
Exchange traded notes |  |  | 37,034 |  |  | — |  |  | — |  |  | — |  |  | 37,034 |
Currency forwards |  |  | — |  |  | 1,147,261 |  |  | — |  |  | (1,140,239) |  |  | 7,022 |
Options |  |  | — |  |  | 141 |  |  | — |  |  | — |  |  | 141 |
|  | $ | 1,634,083 |  | $ | 1,190,155 |  | $ | — |  | $ | (1,140,239) |  | $ | 1,683,999 |
Financial instruments owned, pledged as collateral: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 128,202 |  | $ | — |  | $ | — |  | $ | — |  | $ | 128,202 |
Exchange traded notes |  |  | 15,681 |  |  | — |  |  | — |  |  | — |  |  | 15,681 |
|  | $ | 143,883 |  | $ | — |  | $ | — |  | $ | — |  | $ | 143,883 |
Other Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity investment |  | $ | — |  | $ | — |  | $ | 36,031 |  | $ | — |  | $ | 36,031 |
Exchange stock |  |  | 449 |  |  | — |  |  | — |  |  | — |  |  | 449 |
|  | $ | 449 |  | $ | — |  | $ | 36,031 |  | $ | — |  | $ | 36,480 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments sold, not yet purchased, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 1,323,693 |  | $ | 6,638 |  | $ | — |  | $ | — |  | $ | 1,330,331 |
Exchange traded notes |  |  | 18,744 |  |  | — |  |  | — |  |  | — |  |  | 18,744 |
Currency forwards |  |  | — |  |  | 1,009,038 |  |  | — |  |  | (1,009,038) |  |  | — |
Options |  |  | — |  |  | 80 |  |  | — |  |  | — |  |  | 80 |
|  | $ | 1,342,437 |  | $ | 1,015,756 |  | $ | — |  | $ | (1,009,038) |  | $ | 1,349,155 |
Investment in SBI Japannext Co., Ltd. On July 27, 2016, the Company purchased an additional minority interest (29.4%) in SBI Japannext (“SBI”), a proprietary trading system based in Tokyo, for $38.8 million in cash. In connection with the investment, VFH issued bonds to certain affiliates of SBI Japannext and used the proceeds to finance the transaction (Note 8). As of March 31, 2017, the Company determined the fair value of SBI using the discounted cash flow method, an income approach, with the discount rate of 15.9% applied to the cash flow forecasts. The Company also used a market approach based on 19x average price/earnings multiples of comparable companies to corroborate the income approach. The fair value of SBI at December 31, 2016 was determined to approximate the purchase price paid for the SBI investment, adjusted for the changes in the Japanese Yen currency rate, given the proximity to the transaction date and lack of significant events subsequent to the transaction date. The fair value measurement is highly sensitive to significant changes in the unobservable inputs and significant increases (decreases) in discount rate or decreases (increases) in price/earnings multiples would result in a significantly lower (higher) fair value measurement. Changes in the fair value of SBI are reflected in other revenues, net in the consolidated statements of comprehensive income. The following presents the changes in Level 3 financial instruments measured at fair value on a recurring basis:
|  |  | Three Months Ended March 31, 2017
|  |  |  |  |  |  |  |  |  |  |  | Change in Net
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Unrealized Gains
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | / (Losses) on
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Investments
|  | Balance at |  |  |  | Total Realized |  | Net Transfers |  | Balance at |  | still held at
|  | December 31, |  |  |  | and Unrealized |  | into (out of) |  | March 31, |  | March 31,
(in thousands) |  | 2016 |  | Purchases |  | Gains / (Losses) |  | Level 3 |  | 2017 |  | 2017
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity investment |  | $ | 36,031 |  | $ | — |  | $ | 1,557 |  | $ | — |  | $ | 37,588 |  | $ | 1,557
Total |  | $ | 36,031 |  | $ | — |  | $ | 1,557 |  | $ | — |  | $ | 37,588 |  | $ | 1,557
Offsetting of Financial Assets and Liabilities The Company does not net securities borrowed and securities loaned, or securities purchased under agreements to resell and securities sold under agreements to repurchase. These financial instruments are presented on a gross basis in the condensed consolidated statements of financial condition. In the tables below, the amounts of financial instruments owned that are not offset in the condensed consolidated statements of financial condition, but could be netted against financial liabilities with specific counterparties under legally enforceable master netting agreements in the event of default, are presented to provide financial statement readers with the Company’s estimate of its net exposure to counterparties for these financial instruments. The following tables set forth the gross and net presentation of certain financial assets and financial liabilities as of March 31, 2017 and December 31, 2016
|  | March 31, 2017 |
|  |  |  |  |  |  | Net Amounts of |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Gross Amounts |  | Assets Presented |  |  |  |  |  |  |  |  |  |
|  |  |  | Offset in the |  | in the |  | Gross Amounts Not Offset In the |  |  |  |
|  | Gross Amounts |  | Consolidated |  | Consolidated |  | Statement of Financial Condition |  |  |  |
|  | of Recognized |  | Statement of |  | Statement of |  | Financial |  | Cash Collateral |  |  |
(in thousands) |  | Assets |  | Financial Condition |  | Financial Condition |  | Instruments |  | Received |  | Net Amount |
Offsetting of Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities borrowed |  | $ | 358,463 |  | $ | — |  | $ | 358,463 |  | $ | (350,923) |  | $ | (1,272) |  | $ | 6,268 |
Trading assets, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Currency forwards |  |  | 1,756,179 |  |  | (1,755,123) |  |  | 1,056 |  |  | — |  |  | — |  |  | 1,056 |
Options |  |  | 266 |  |  | — |  |  | 266 |  |  | (214) |  |  | (2) |  |  | 50 |
Total |  | $ | 2,114,908 |  | $ | (1,755,123) |  | $ | 359,785 |  | $ | (351,137) |  | $ | (1,274) |  | $ | 7,374 |
|  |  |  |  |  |  | Net Amounts of |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Gross Amounts |  | Liabilities Presented |  |  |  |  |  |  |  |  |  |
|  |  |  | Offset in the |  | in the |  | Gross Amounts Not Offset In the |  |  |  |
|  | Gross Amounts |  | Consolidated |  | Consolidated |  | Statement of Financial Condition |  |  |  |
|  | of Recognized |  | Statement of |  | Statement of |  | Financial |  | Cash Collateral |  |  |
|  | Liabilities |  | Financial Condition |  | Financial Condition |  | Instruments |  | Pledged |  | Net Amount |
Offsetting of Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities loaned |  | $ | 423,672 |  | $ | — |  | $ | 423,672 |  | $ | (423,408) |  | $ | — |  | $ | 264 |
Trading liabilities, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Currency forwards |  |  | 1,792,466 |  |  | (1,792,466) |  |  | — |  |  | — |  |  | — |  |  | — |
Options |  |  | 228 |  |  | — |  |  | 228 |  |  | (214) |  |  | — |  |  | 14 |
Total |  | $ | 2,216,366 |  | $ | (1,792,466) |  | $ | 423,900 |  | $ | (423,622) |  | $ | — |  | $ | 278 |
|  | December 31, 2016 |
|  |  |  |  |  |  | Net Amounts of |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Gross Amounts |  | Assets Presented |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Offset in the |  | in the |  | Gross Amounts Not Offset In the |  |  |  |
|  | Gross Amounts |  | Consolidated |  | Consolidated |  | Statement of Financial Condition |  |  |  |
|  | of Recognized |  | Statement of |  | Statement of |  | Financial |  | Cash Collateral |  |  |
(in thousands) |  | Assets |  | Financial Condition |  | Financial Condition |  | Instruments |  | Received |  | Net Amount |
Offsetting of Financial Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities borrowed |  | $ | 220,005 |  | $ | — |  | $ | 220,005 |  | $ | (216,778) |  | $ | (248) |  | $ | 2,979 |
Trading assets, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Currency forwards |  |  | 1,147,261 |  |  | (1,140,239) |  |  | 7,022 |  |  | — |  |  | — |  |  | 7,022 |
Options |  |  | 141 |  |  | — |  |  | 141 |  |  | (80) |  |  | (13) |  |  | 48 |
Total |  | $ | 1,367,407 |  | $ | (1,140,239) |  | $ | 227,168 |  | $ | (216,858) |  | $ | (261) |  | $ | 10,049 |
|  |  |  |  |  |  | Net Amounts of |  |  |  |  |  |
|  |  |  |  |  |  | Liabilities |  |  |  |  |  |  |  |  |  |
|  |  |  |  | Gross Amounts |  | Presented |  | Gross Amounts Not Offset In the |  |  |  |
|  |  |  |  | Offset in the |  | in the |  | Consolidated |  |  |  |
|  |  |  |  | Condensed |  | Condensed |  | Condensed Consolidated |  |  |  |
|  | Gross Amounts |  | Consolidated |  | Consolidated |  | Statement of Financial Condition |  |  |  |
|  | of Recognized |  | Statement of |  | Statement of |  | Financial |  | Cash Collateral |  |  |
(in thousands) |  | Liabilities |  | Financial Condition |  | Financial Condition |  | Instruments |  | Pledged |  | Net Amount |
Offsetting of Financial Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities loaned |  | $ | 222,203 |  | $ | — |  | $ | 222,203 |  | $ | (221,792) |  | $ | — |  | $ | 411 |
Trading liabilities, at fair value: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Currency forwards |  |  | 1,009,038 |  |  | (1,009,038) |  |  | — |  |  | — |  |  | — |  |  | — |
Options |  |  | 80 |  |  | — |  |  | 80 |  |  | (80) |  |  | — |  |  | — |
Total |  | $ | 1,231,321 |  | $ | (1,009,038) |  | $ | 222,283 |  | $ | (221,872) |  | $ | — |  | $ | 411 |
Excluded from the fair value and offsetting tables above is net unsettled fair value on long and short futures contracts in the amounts of $(10.4) million and $18.0 million, which are included within receivables from broker-dealers and clearing organizations as of March 31, 2017 and December 31, 2016, respectively, and $(4.7) million and $(3.5) million, which are included within payables to broker-dealers and clearing organizations as of March 31, 2017 and December 31, 2016, respectively, and would be categorized as Level 1. The following table presents gross obligations for securities lending transactions by remaining contractual maturity and the class of collateral pledged.
|  |  | March 31, 2017 |
|  |  | Remaining Contractual Maturity |
|  | Overnight and |  | Less than |  | 30 - 90 |  | Over 90 |  |  |
(in thousands) |  | Continuous |  | 30 days |  | days |  | Days |  | Total |
Securities lending transactions: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 423,672 |  | $ | — |  | $ | — |  | $ | — |  | $ | 423,672 |
Total |  | $ | 423,672 |  | $ | — |  | $ | — |  | $ | — |  | $ | 423,672 |
|  |  | December 31, 2016
|  |  | Remaining Contractual Maturity
|  | Overnight and |  | Less than |  | 30 - 90 |  | Over 90 |  |
(in thousands) |  | Continuous |  | 30 days |  | days |  | Days |  | Total
Repurchase agreements: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 222,203 |  | $ | — |  | $ | — |  | $ | — |  | $ | 222,203
Total |  | $ | 222,203 |  | $ | — |  | $ | — |  | $ | — |  | $ | 222,203

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=66048111&loc=d3e19207-110258 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 30 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 28 -URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13537-108611 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 16 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13504-108611 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 825 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=73719730&loc=d3e13433-108611 + Details
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration