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Financial instruments (Tables)
 12 Months Ended
Dec. 31, 2012
Securities Owned and Securities Sold, But Not Yet Purchased at Fair Value

Securities Owned and Securities Sold, But Not Yet Purchased at Fair Value

Expressed in thousands of dollars.

 

     December 31,
2012		      December 31,
2011		  
     Owned      Sold      Owned      Sold  

U.S. Treasury, agency and sovereign obligations

    $ 525,255       $ 131,930       $ 682,805       $ 27,509   

Corporate debt and other obligations

      14,428         1,858         27,188         3,696   

Mortgage and other asset-backed securities

      2,920         18         4,609         14   

Municipal obligations

      59,010         467         54,963         485   

Convertible bonds

      49,130         8,868         50,157         8,533   

Corporate equities

      43,708         29,884         38,634         29,056   

Other

      65,291         425         66,185         122   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 759,742       $ 173,450       $ 924,541       $ 69,415   
  

 

 

     

 

 

     

 

 

     

 

 

  
Quantitative Information about Level 3 Fair Value Measurements

Additional information regarding the valuation technique and inputs used is as follows:

Expressed in thousands of dollars.

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2012

 

Product

   Principal     Valuation
Adjustment		     Fair Value     Valuation
Technique		   Unobservable Input   Range

Auction Rate Securities(1)

   $ 115,308      $ 7,744      $ 107,564      Discounted Cash Flow   Discount Rate   0.80% to 2.57%
          Duration   5 to 8 Years
          Current Yield(2)   0.18% to 1.34%

 

(1) Includes ARS owned by the Company of $77.1 million included in the consolidated balance sheet at December 31, 2012 as well as additional commitments to purchase ARS from clients of $38.3 million which is disclosed in the notes to the consolidated balance sheet.
(2) Based on current auctions in comparable securities that have not failed.
Investments in Company-Sponsored Funds

The following table provides information about the Company’s investments in Company-sponsored funds at December 31, 2012:

Expressed in thousands of dollars.

 

     Fair Value      Unfunded
Commit-
ments		      Redemption
Frequency		    Redemption
Notice Period

Hedge Funds(1)

    $ 1,118       $ —         Quarterly - Annually    30 - 120 Days

Private Equity Funds(2)

      3,499         927       N/A    N/A

Distressed Opportunities Investment Trust(3)

      7,492         —         N/A    N/A
  

 

 

     

 

 

        

Total

    $ 12,109       $ 927         
  

 

 

     

 

 

        

 

(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.
(2) Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and global natural resources.
(3) Special purpose vehicle that invests in distressed debt of U.S. companies.
Assets and Liabilities Measured at Fair Value on Recurring Basis

The Company’s assets and liabilities, recorded at fair value on a recurring basis as of December 31, 2012 and 2011, have been categorized based upon the above fair value hierarchy as follows:

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2012

Expressed in thousands of dollars.

 

     Fair Value Measurement: Assets  
     As of December 31, 2012  
     Level 1      Level 2      Level 3      Total  

Cash equivalents

    $ 58,945       $ —         $ —         $ 58,945   

Cash and securities segregated for regulatory and other purposes

      11,499         —           —           11,499   

Deposits with clearing organization

      9,095         —           —           9,095   

Securities owned:

            

U.S. Treasury securities

      497,546         —           —           497,546   

U.S. Agency securities

      —           27,690         —           27,690   

Sovereign obligations

      —           19         —           19   

Corporate debt and other obligations

      2,459         11,969         —           14,428   

Mortgage and other asset-backed securities

      —           2,880         40         2,920   

Municipal obligations

      —           49,616         9,394         59,010   

Convertible bonds

      —           49,130         —           49,130   

Corporate equities

      31,958         11,750         —           43,708   

Other

      2,328         —           62,963         65,291   
  

 

 

     

 

 

     

 

 

     

 

 

  

Securities owned, at fair value

      534,291         153,054         72,397         759,742   

Investments(1)

      10,477         37,088         12,954         60,519   

TBAs

      —           3,188         —           3,188   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 624,307       $ 193,330       $ 85,351       $ 902,988   
  

 

 

     

 

 

     

 

 

     

 

 

  
     Fair Value Measurement: Liabilities  
     As of December 31, 2012  
     Level 1      Level 2      Level 3      Total  

Securities sold, not yet purchased:

            

U.S. Treasury securities

    $ 131,899       $ —         $ —         $ 131,899   

U.S. Agency securities

      —           31         —           31   

Corporate debt and other obligations

      —           1,858         —           1,858   

Mortgage and other asset-backed securities

      —           18         —           18   

Municipal obligations

      —           467         —           467   

Convertible bonds

      —           8,868         —           8,868   

Corporate equities

      20,946         8,938         —           29,884   

Other

      325         —           100         425   
  

 

 

     

 

 

     

 

 

     

 

 

  

Securities sold, not yet purchased at fair value

      153,170         20,180         100         173,450   

Investments

      258         —           —           258   

Derivative contracts

      286         124         2,647         3,057   

TBAs

      —           175         —           175   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 153,714       $ 20,479       $ 2,747       $ 176,940   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Included in other assets on the consolidated balance sheet.

 

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2011

Expressed in thousands of dollars.

 

     Fair Value Measurement: Assets  
     As of December 31, 2011  
     Level 1      Level 2      Level 3      Total  

Cash equivalents

    $ 30,924       $ —         $ —         $ 30,924   

Cash and securities segregated for regulatory and other purposes

      11,500         —           —           11,500   

Deposits with clearing organizations

      9,095         —           —           9,095   

Securities owned:

            

U.S. Treasury securities

      627,870         —           —           627,870   

U.S. Agency securities

      32,663         21,695         —           54,358   

Sovereign obligations

      —           577         —           577   

Corporate debt and other obligations

      12,538         14,650         —           27,188   

Mortgage and other asset-backed securities

      —           4,593         16         4,609   

Municipal obligations

      —           51,401         3,562         54,963   

Convertible bonds

      —           50,157         —           50,157   

Corporate equities

      29,150         9,484         —           38,634   

Other

      1,184         —           65,001         66,185   
  

 

 

     

 

 

     

 

 

     

 

 

  

Securities owned, at fair value

      703,405         152,557         68,579         924,541   

Investments(1)

      1,512         32,964         12,482         46,958   

Derivative contracts

      —           20         —           20   

TBAs

      —           5,791         —           5,791   

Securities purchased under agreements to resell (2)

      —           847,610         —           847,610   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 756,436       $ 1,038,942       $ 81,061       $ 1,876,439   
  

 

 

     

 

 

     

 

 

     

 

 

  
     Fair Value Measurement: Liabilities  
     As of December 31, 2011  
     Level 1      Level 2      Level 3      Total  

Securities sold, not yet purchased:

            

U.S. Treasury securities

    $ 27,462       $ —         $ —         $ 27,462   

U.S. Agency securities

      —           47         —           47   

Sovereign obligations

      —           —           —           —     

Corporate debt and other obligations

      —           3,696         —           3,696   

Mortgage and other asset-backed securities

      —           14         —           14   

Municipal obligations

      —           485         —           485   

Convertible bonds

      —           8,533         —           8,533   

Corporate equities

      16,467         12,589         —           29,056   

Other

      72         —           50         122   
  

 

 

     

 

 

     

 

 

     

 

 

  

Securities sold, not yet purchased at fair value

      44,001         25,364         50         69,415   

Investments

      26         —           —           26   

Derivative contracts

      66         8         2,347         2,421   

TBAs

      —           2,254         —           2,254   
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 44,093       $ 27,626       $ 2,397       $ 74,116   
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

Included in other assets on the consolidated balance sheet.
(2) 

Includes securities purchased under agreements to resell where the Company has elected fair value option treatment.
Changes in Level 3 Assets and Liabilities Measured at Fair Value on Recurring Basis

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2012 and 2011:

Expressed in thousands of dollars.

 

     Level 3 Assets and Liabilities  
     For the Year Ended December 31, 2012  
     Beginning
Balance		      Realized
Gains
(Losses)(4)		     Unrealized
Gains
(Losses)(4)(5)		     Purchases &
Issuances		     Sales &
Settlements		     Transfers
In / Out		     Ending
Balance		  

Assets:

                

Mortgage and other asset-backed securities(1)

    $ 16         (7 )      6        116        (89 )      (2 )    $ 40   

Municipals

    $ 3,562         (4 )      (1,757 )      10,035        (2,442 )      —        $ 9,394   

Other(2)

    $ 65,001         —          (1,192 )      24,875        (25,721 )      —        $ 62,963   

Investments(3)

    $ 12,482         (9 )      424        488        (442 )      11      $ 12,954   

Liabilities:

                

Mortgage and other asset-backed securities(1)

    $ —           —          —          —          —          —        $ —     

Other(2)

    $ 50         —          —          (50 )      100        —        $ 100   

Derivative contracts

    $ 2,347         —          300        —          —          —        $ 2,647   

 

(1)

Represents private placements of non-agency collateralized mortgage obligations.
(2)

Represents auction rate securities that failed in the auction rate market.
(3)

Primarily represents general partner ownership interests in hedge funds and private equity funds sponsored by the Company.
(4) 

Included in principal transactions on the consolidated statement of operations, except for investments which are included in other income on the consolidated statement of operations.
(5) 

Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

 

     Level 3 Assets and Liabilities  
     For the Year Ended December 31, 2011  
     Beginning
Balance		      Realized
Gains
(Losses)(4)		     Unrealized
Gains
(Losses)(4)(5)		     Purchases &
Issuances		      Sales &
Settlements		     Transfers
In / Out		     Ending
Balance		  

Assets:

                 

Mortgage and other asset-backed securities(1)

    $ 14         70        —          14,365         (14,433 )      —        $ 16   

Municipals

    $ 1,787         (52 )      (256 )      2,982         (899 )      —        $ 3,562   

Other(2)

    $ 35,908         —          (178 )      41,178         (11,907 )      —        $ 65,001   

Investments(3)

    $ 17,208         —          (1,150 )      803         (4,366 )      (13 )    $ 12,482   

Liabilities:

                 

Mortgage and other asset-backed securities(1)

    $ —           —          —          11         (11 )      —        $ —     

Other(2)

    $ —           —          —          —           50        —        $ 50   

Derivative contracts

    $ —           —          —          2,347         —          —        $ 2,347   

 

(1)

Represents private placements of non-agency collateralized mortgage obligations.
(2)

Represents auction rate securities that failed in the auction rate market.
(3) 

Primarily represents general partner ownership interests in hedge funds and private equity funds sponsored by the Company.
(4) 

Included in principal transactions on the consolidated statement of operations, except for investments which are included in other income on the consolidated statement of operations.
(5) 

Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.
Notional and Fair Values of TBAs

The following table summarizes the notional and fair values of the TBAs as of December 31, 2012 and 2011:

Expressed in thousands of dollars.

 

     December 31, 2012      December 31, 2011  
     Notional      Fair Value      Notional      Fair Value  

Sale of TBAs (1)

    $ 449,065       $ 3,188       $ 574,365       $ 5,791   

Purchase of TBAs

    $ 117,573       $ 175       $ 137,572       $ 2,254   

 

(1)

TBAs are used to offset exposures related to commitments to provide funding for Federal Housing Administration (“FHA”) loans at OMHHF. At December 31, 2012, the loan commitments balance was $304.4 million ($326.7 million at December 31, 2011). In addition, at December 31, 2012, OMHHF had a loan receivable balance (included in other assets in the consolidated balance sheet) of $22.9 million ($109.3 million at December 31, 2011) which relates to prior loan commitments that have been funded but have not yet been securitized. The “when issued” securitizations of these loans have been sold to market counter-parties.
Notional Amounts and Fair Values of Derivatives by Product

The notional amounts and fair values of the Company’s derivatives at December 31, 2012 and 2011 by product were as follows:

Expressed in thousands of dollars.

Fair Value of Derivative Instruments

As of December 31, 2012

 

    Description   Notional     Fair Value  

Liabilities:

      

Derivatives not designated as hedging instruments (1)

      

Commodity contracts

   U.S Treasury Futures (2)   $ 56,000      $ 286   
  Federal Funds Futures (2)     6,070,000        120   
  Euro Dollars Futures(2)     15,000        4   

Other contracts

   Auction rate securities purchase commitment (3)     38,343        2,647   
   

 

 

    

 

 

  

Total Liabilities

     $ 6,179,343      $ 3,057   
   

 

 

    

 

 

  

 

(1) See “Fair Value of Derivative Instruments” above for description of derivative financial instruments.
(2) Included in payable to brokers and clearing organizations on the consolidated balance sheet.
(3) Included in other liabilities on the consolidated balance sheet.

 

Expressed in thousands of dollars.

Fair Value of Derivative Instruments

As of December 31, 2011

 

    Description   Notional     Fair Value  

Assets:

      

Derivatives not designated as hedging instruments (1)

      

Interest rate contracts

   Cap (2)   $ 100,000      $ 20   
   

 

 

    

 

 

  

Total Assets

     $ 100,000      $ 20   
   

 

 

    

 

 

  

Liabilities:

      

Derivatives not designated as hedging instruments (1)

      

Commodity contracts

   U.S Treasury Futures (3)   $ 20,000      $ 66   
  Federal Funds Futures (3)     5,985,000        8   

Other contracts

   Auction rate securities purchase commitment (4)     57,292        2,347   
   

 

 

    

 

 

  

Total Liabilities

     $ 6,062,292      $ 2,421   
   

 

 

    

 

 

  

 

(1) See “Fair Value of Derivative Instruments” above for description of derivative financial instruments.
(2) Included in receivable from brokers and clearing organizations on the consolidated balance sheet.
(3) Included in payable to brokers and clearing organizations on the consolidated balance sheet.
(4) Included in securities owned on the consolidated balance sheet.
Fair Value Amounts of Derivative Instruments and Their Effect on Statement of Operations

The following table presents the location and fair value amounts of the Company’s derivative instruments and their effect on the consolidated statement of operations for the year ended December 31, 2012:

Expressed in thousands of dollars.

 

        

Recognized in Income on
Derivatives

(pre-tax)

    

Reclassified from
Accumulated Other
Comprehensive Income
into Income – Effective
Portion (1)

(after–tax)

  

Hedging Relationship

    Description   Location    Gain/ (Loss)     Location    Gain/ (Loss)  

Interest rate contracts

    Caps (2)   Interest expense    $ (12 )    None    $ —     

Commodity contracts

    U.S Treasury Futures   Principal transaction revenue      (972 )    None      —     
   Federal Funds Futures   Principal transaction revenue      (17 )    None      —     
   Euro-dollar Futures   Principal transaction revenue      (10 )    None      —     

Foreign exchange contracts

    Options   Other      28      Other      —     

Other contracts

    Auction rate securities purchase
commitment		   Principal transaction revenue      (300 )    None      —     
       

 

 

       

 

 

  

Total

         $ (1,283 )       $ —     
       

 

 

       

 

 

  

 

(1) There is no ineffective portion included in income for the year ended December 31, 2012.
(2) As noted above in “Cash flow hedges used for asset and liability management”, interest rate caps are used to hedge interest rate risk associated with the Subordinated Note. With the repayment of the Subordinated Note in the second quarter of 2011, this cap is no longer designated as a cash flow hedge. The cap expired worthless on December 31, 2012.
Variable Interest Entities

The following tables set forth the total VIE assets, the carrying value of the subsidiaries’ variable interests, and the Company’s maximum exposure to loss in Company-sponsored non-consolidated VIEs in which the Company holds variable interests and other non-consolidated VIEs in which the Company holds variable interests at December 31, 2012 and 2011:

As of December 31, 2012

Expressed in thousands of dollars.

 

     Total
VIE Assets  (1)		      Carrying Value of the
Company’s Variable
Interest		      Capital
Commitments		      Maximum
Exposure
to Loss in Non-
consolidated VIEs		  
      Assets (2)      Liabilities        

Hedge Funds

    $ 1,868,178       $ 372       $ —         $ —         $ 372   

Private Equity Funds

      171,169         32         —           8         40   

Total

    $ 2,039,347       $ 404       $ —         $ 8       $ 412   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

As of December 31, 2011

Expressed in thousands of dollars.

 

     Total
VIE Assets  (1)		      Carrying Value of the
Company’s Variable
Interest		      Capital
Commitments		      Maximum
Exposure
to Loss in Non-
consolidated VIEs		  
      Assets (2)      Liabilities        

Hedge Funds

    $ 1,668,508       $ 393       $ —         $ —         $ 393   

Private Equity Funds

      142,275         27         —           13         40   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 1,810,783       $ 420       $ —         $ 13       $ 433   
  

 

 

     

 

 

     

 

 

     

 

 

     

 

 

  

 

(1) Represents the total assets of the VIEs and does not represent the Company’s interests in the VIEs.
(2) Represents the Company’s interests in the VIEs and is included in other assets on the consolidated balance sheet.