4. Securities Owned and Securities Sold, but not yet Purchased (and Fair Value Measurement)

Securities owned and securities sold, but not yet purchased are measured at fair value. The fair value of securities is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., “the exit price”) in an orderly transaction between market participants at the measurement date. Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the transparency of inputs as follows:


Level 1	–	Quoted prices for identical instruments in active markets.

Level 2	–	Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3	–	Instruments whose significant drivers are unobservable.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by management in determining fair value is greatest for instruments categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Fair Valuation Methodology

Cash and Cash Equivalents (Note 3) – These financial assets represent cash in banks or cash invested in highly liquid investments with original maturities less than 90 days. These investments are valued at par, which approximates fair value, and are considered Level 1.

Note Receivable (Note 6) – The note receivable is an unsecured promissory note issued to AdvisorEngine Inc. which is carried at amortized cost, net of original issue discount. The carrying amount of the note receivable approximates fair value, as the implied discount rate of the note is similar to observable high yield credit spreads. The note receivable is classified as Level 2 within the fair value hierarchy.

Securities Held-to-Maturity (Note 5) – These securities are Federal agency debt instruments which are instruments that are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 within the fair value hierarchy (See Note 5).

Securities Owned/Sold But Not Yet Purchased – These securities consist of securities classified as trading and AFS, as follows:


	March 31, 2018		December 31, 2017
Securities Owned
Trading securities	$	585	$	1,691
Available-for-sale debt securities		4,000		64,603

Total	$	4,585	$	66,294

Securities Sold, but not yet Purchased
Trading securities	$	—	$	950
Available-for-sale debt securities		—		—

Total	$	—	$	950

Trading securities are investments in ETFs. These instruments are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy. AFS debt securities are investments in short-term investment grade corporate bonds and are classified as Level 2. Fair value is generally derived from observable bids for these Level 2 financial instruments.

AFS Debt Securities

The following table summarizes unrealized gains, losses and fair value of the AFS debt securities:


	March 31, 2018			December 31, 2017
Cost	$	4,022		$	65,237
Gross unrealized gains in other comprehensive income		—			—
Gross unrealized losses in other comprehensive income		(22	)		(634	)

Fair value	$	4,000		$	64,603

All the Company’s AFS debt securities are due within one year. The Company assesses the AFS debt securities for other-than-temporary impairment on a quarterly basis. No AFS debt securities were determined to be other-than-temporarily impaired at March 31, 2018 or December 31, 2017.

During the three months ended March 31, 2018 and 2017, the Company received $60,498 and $21,000, respectively, of proceeds from the sale and maturity of available-for-sale securities and recognized gross realized losses of $716 and $176, respectively. These losses have been reclassified out of accumulated other comprehensive income and into the Consolidated Statements of Operations.