Fair Value Measurements

12 Months Ended

Dec. 31, 2021

5. Fair Value Measurements

The fair value of financial instruments 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. ASC 820,

Fair Value Measurement

, 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.

The tables below summarize the categorization of the Company’s assets and liabilities measured at fair value. During the years ended December 31, 2021 and 2020, there were no transfers between Levels 2 and 3.


	December 31, 2021
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	11,488	$	11,488	$	—	$	—
Securities owned, at fair value
ETFs		18,812		18,812		—		—
Pass-through GSEs		106,245		24,720		81,525		—
Corporate bonds		2,109		—		2,109		—

Total	$	138,654	$	55,020	$	83,634	$	—
Non-recurring fair value measurements:
Securrency, Inc. – Series A convertible preferred stock (1)	$	8,488	$	—	$	—	$	8,488

Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 10)	$	228,062	$	—	$	—	$	228,062

(1)	Fair value of $8,488 and $8,349 determined on June 9, 2021 and March 8, 2021, respectively (Note 8 ).


	December 31, 2020
	Total		Level 1		Level 2		Level 3
Assets:
Recurring fair value measurements:
Cash equivalents	$	660	$	660	$	—	$	—
Securities owned, at fair value
ETFs		24,165		24,165		—		—
Pass-through GSEs		8,613		—		8,613		—
Corporate bonds		2,117		—		2,117		—

Total	$	35,555	$	24,825	$	10,730	$	—
Non-recurring fair value measurements:
AdvisorEngine Inc. (“AdvisorEngine”) – Financial interests (1)	$	—	$	—	$	—	$	—
Thesys Group, Inc. (“Thesys”) – Series Y Preferred Stock (1)		—		—		—		—

Total	$	—	$	—	$	—	$	—
Liabilities:
Recurring fair value measurements:
Deferred consideration (Note 10)	$	230,137	$	—	$	—	$	230,137

Non-recurring fair value measurements:
Convertible notes (2)	$	170,191	$	—	$	170,191	$	—

(1)	The fair value of the AdvisorEngine financial interests of $9,592 was determined on May 4, 2020, the date on which these financial interests were sold. Thesys was written down to zero on September 30, 2020.

(2)	Fair value of $145,847 and $24,344 determined for convertible notes issued on June 16, 2020 and August 13, 2020, respectively (Note 12).

Recurring Fair Value Measurements - Methodology

Cash Equivalents (Note 4)

– These financial assets represent cash invested in highly liquid investments with original maturities of less than 90 days. These investments are valued at par, which approximates fair value, and are classified as Level 1 in the fair value hierarchy.

Securities Owned (Note 6)

– Securities owned are investments in ETFs, pass-through GSEs and corporate bonds. ETFs are generally traded in active, quoted and highly liquid markets and are therefore classified as Level 1 in the fair value hierarchy. Pricing of pass-through GSEs and corporate bonds include consideration given to collateral characteristics and market assumptions related to yields, credit risk and prepayments and are therefore classified as Level 2. Pass-through GSE positions invested in through a fund structure with a quoted market price on an exchange are generally classified as Level 1.

Deferred Consideration (Note 10)

– Deferred consideration represents the present value of an obligation to pay gold into perpetuity.

The following table presents a reconciliation of beginning and ending balances of recurring fair value measurements classified as Level 3:


	Years Ended December 31,
	2021			2020
Deferred consideration (Note 10)
Beginning balance	$	230,137		$	173,024
Net realized losses (1)		17,096			16,811
Net unrealized (gains)/losses (2)		(2,018	)		56,821
Settlements		(17,153	)		(16,519	)

Ending balance	$	228,062		$	230,137

(1)	Recorded as contractual gold payments expense on the Company’s Consolidated Statements of Operations.

(2)	Recorded as gain/(loss) on revaluation of deferred consideration – gold payments on the Company’s Consolidated Statements of Operations.