Derivatives

9 Months Ended

Sep. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

In the normal course of operations, the Company enters into derivative contracts to facilitate client transactions, hedge principal positions and facilitate hedging activities of affiliated companies. These derivative contracts primarily consist of FX swaps, FX/commodities options, futures and forwards.

Derivative contracts can be exchange-traded or OTC. Exchange-traded derivatives typically fall within Level 1 or Level 2 of the fair value hierarchy depending on whether they are deemed to be actively traded or not. The Company generally values exchange-traded derivatives using their closing prices. OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. For OTC derivatives that trade in liquid markets, such as forwards, swaps and options, model inputs can generally be verified and model selection does not involve significant management judgment. Such instruments are typically classified within Level 2 of the fair value hierarchy.

The Company does not designate any derivative contracts as hedges for accounting purposes. U.S. GAAP guidance requires that an entity recognize all derivative contracts as either assets or liabilities in the unaudited Condensed Consolidated Statements of Financial Condition and measure those instruments at fair value. The fair value of all derivative contracts is presented on a net-by-counterparty basis where a legal right to offset exists under an enforceable netting agreement. Derivative contracts are recorded as part of “Receivables from broker-dealers, clearing organizations, customers and related broker-dealers” and “Payables to broker-dealers, clearing organizations, customers and related broker-dealers” in the Company’s unaudited Condensed Consolidated Statements of Financial Condition.

The fair value of derivative contracts, presented in accordance with the Company’s netting policy, is set forth below (in thousands):


	September 30, 2023						December 31, 2022
Derivative contract	Assets		Liabilities		Notional Amounts1		Assets		Liabilities		Notional Amounts1
FX swaps	$	2,838	$	3,901	$	560,009	$	3,134	$	5,796	$	586,020
Futures	684		—		6,145,380		—		1,268		4,253,088
Interest rate swaps	547		—		185,701,672		25		—		2,114,412
Forwards	274		1,034		211,199		603		569		197,278
Total	$	4,343	$	4,935	$	192,618,260	$	3,762	$	7,633	$	7,150,798

1Notional amounts represent the sum of gross long and short derivative contracts, an indication of the volume of the Company’s derivative activity, and do not represent anticipated losses.

Certain of the Company’s FX swaps are with Cantor. See Note 13—“Related Party Transactions,” for additional information related to these transactions.

The replacement costs of contracts in a gain position were $4.3 million and $3.8 million, as of September 30, 2023 and December 31, 2022, respectively.

The following tables present information about the offsetting of derivative instruments (in thousands):


	September 30, 2023
	Gross Amounts		Gross Amounts Offset		Net Amounts Presented in the Statements of Financial Condition1
Assets
FX swaps	$	3,214	$	(376)	$	2,838
Futures	70,737		(70,053)		684
Interest rate swaps	66,637		(66,090)		547
Forwards	375		(101)		274
Total derivative assets	$	140,963	$	(136,620)	$	4,343
Liabilities
FX swaps	$	4,277	$	(376)	$	3,901
Forwards	1,135		(101)		1,034
Futures	70,053		(70,053)		—
Interest rate swaps	66,090		$	(66,090)	—
Total derivative liabilities	$	141,555	$	(136,620)	$	4,935


	December 31, 2022
	Gross Amounts		Gross Amounts Offset		Net Amounts Presented in the Statements of Financial Condition1
Assets
FX swaps	$	3,623	$	(489)	$	3,134
Forwards	746		(143)		603
Interest Rate Swaps	895		(870)		25
Futures	64,769		(64,769)		—
Total derivative assets	$	70,033	$	(66,271)	$	3,762
Liabilities
FX swaps	$	6,285	$	(489)	$	5,796
Futures	66,037		(64,769)		1,268
Forwards	712		(143)		569
Interest Rate Swaps	870		(870)		—
Total derivative liabilities	$	73,904	$	(66,271)	$	7,633

1There were no additional balances in gross amounts not offset as of either September 30, 2023 or December 31, 2022.

The change in fair value of derivative contracts is reported as part of “Principal transactions” in the Company’s unaudited Condensed Consolidated Statements of Operations.

The table below summarizes gains and (losses) on derivative contracts (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
Derivative contract	2023		2022		2023		2022
Futures	$	3,379	$	4,054	$	10,156	$	12,295
FX swaps	1,046		750		1,942		1,680
Interest rate swaps	330		5		547		5
FX/commodities options	61		55		143		203
Gains	$	4,816	$	4,864	$	12,788	$	14,183