Fair value measurements (Tables)

12 Months Ended

Dec. 31, 2013

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)
	As of December 31,
	2013				2012
	Owned		Sold		Owned		Sold
U.S. Government, agency and sovereign obligations	$	596,114	$	11,889	$	525,255	$	131,930
Corporate debt and other obligations		14,673		4,847		14,428		1,858
Mortgage and other asset-backed securities		3,395		7		2,920		18
Municipal obligations		40,166		72		49,855		467
Convertible bonds		53,719		13,922		49,130		8,868
Corporate equities		61,634		45,336		43,708		29,884
Money markets		1,263		241		2,328		325
Auction rate securities		85,124		—		72,118		100

Total	$	856,088	$	76,314	$	759,742	$	173,450

Quantitative Information about Level 3 Fair Value Measurements

Additional information regarding the valuation technique and inputs for level 3 financial instruments used is as follows:


(Expressed in thousands)
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2013
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	74,075	$	3,752	$	70,323	Discounted Cash Flow	Discount Rate ⁽²⁾	1.38% to 1.88%	1.65%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	0.10% to 0.53%	0.33%
Municipal Auction Rate Securities		8,230		813		7,417	Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.62%	2.62%
								Duration	4.5 Years	4.5 Years
								Current Yield ⁽³⁾	0.27%	0.27%
		5,975		866		5,109	Secondary Market Trading Activity	Observable trades in inactive market for in-portfolio securities	85.50% of par	85.50% of par
Student Loan Auction Rate Securities		525		75		450	Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.65%	3.65%
								Duration	7.0 Years	7.0 Years
								Current Yield ⁽³⁾	1.31%	1.31%
Other⁽⁴⁾		2,825		1,000		1,825	Secondary Market Trading Activity	Observable trades in inactive market for in portfolio securities	64.60% of par	64.60% of par

	$	91,630	$	6,506	$	85,124

Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	$	10,746	$	535	$	10,211	Discounted Cash Flow	Discount Rate ⁽²⁾	1.38% to 1.88%	1.65%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	0.10% to 0.53%	0.33%
Municipal Auction Rate Securities		16,221		1,603		14,619	Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.62%	2.62%
								Duration	4.5 Years	4.5 Years
								Current Yield ⁽³⁾	0.27%	0.27%
Student Loan Auction Rate Securities		1,304		185		1,119	Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.65%	3.65%
								Duration	7.0 Years	7.0 Years
								Current Yield ⁽³⁾	1.31%	1.31%
Other ⁽⁷⁾		783		277		506	Secondary Market Trading Activity	Observable trades in inactive market for in-portfolio securities	64.60% of par	64.60% of par

	$	29,054	$	2,600	$	26,455

Total	$	120,684	$	9,106	$	111,579

(1)	Principal amount represents the par value of the ARS and is included in securities owned in the consolidated balance sheet at December 31, 2013. The valuation adjustment amount is included as a reduction to securities owned in the consolidated balance sheet at December 31, 2013.

(2)	Derived by applying a multiple to the spread between 110% to 150% to the U.S. Treasury rate of 1.25%.

(3)	Based on current auctions in comparable securities that have not failed.

(4)	Derived by applying a multiple to the spread of 175% to the U.S. Treasury rate of 1.50%.

(5)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.45%.

(6)

Principal amount represents the present value of the ARS par value that the Company is committed to purchase at a future date. This principal amount is presented as an off-balance sheet item. The valuation adjustment amount is included in accounts payable and other liabilities on the consolidated balance sheet at December 31, 2013.

(7)	Represents ARS issued by credit default obligation structure that the Company has purchased and is committed to purchase as a result of a legal settlement.

Investments in Company-Sponsored Funds

The following table provides information about the Company’s investments in Company-sponsored funds at December 31, 2013:


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds⁽¹⁾	$	1,796	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds⁽²⁾		3,451		800	N/A	N/A

	$	5,247	$	800

(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. Due to the illiquid nature of these funds, investors are not permitted to make withdrawals without consent of the general partner.

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, 2013 and December 31, 2012, 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, 2013


(Expressed in thousands)
	Fair Value Measurements at December 31, 2013
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	60,268	$	—	$	—	$	60,268
Securities segregated for regulatory and other purposes		11,495		—		—		11,495
Deposits with clearing organizations		10,492		—		—		10,492
Securities owned:
U.S Treasury securities		566,346		—		—		566,346
U.S. Agency securities		—		29,448		—		29,448
Sovereign obligations		—		320		—		320
Corporate debt and other obligations		—		14,673		—		14,673
Mortgage and other asset-backed securities		—		3,395		—		3,395
Municipal obligations		—		39,930		236		40,166
Convertible bonds		—		53,719		—		53,719
Corporate equities		61,634		—		—		61,634
Money markets		1,263		—		—		1,263
Auction rate securities		—		—		85,124		85,124

Securities owned, at fair value		629,243		141,485		85,360		856,088

Investments ⁽¹⁾		10,775		47,726		5,946		64,447
Loans held for sale		—		75,989		—		75,989
Securities purchased under agreements to resell ⁽²⁾				184,000				184,000
Derivative contracts:
TBAs		—		2,155		—		2,155
Interest rate lock commitments		—		—		2,375		2,375

Derivative contracts, total		—		2,155		2,375		4,530

Total	$	722,273	$	451,355	$	93,681	$	1,267,309

Liabilities
Securities sold, but not yet purchased:
U.S Treasury securities	$	11,837	$	—	$	—	$	11,837
U.S. Agency securities		—		52		—		52
Corporate debt and other obligations		—		4,847		—		4,847
Mortgage and other asset-backed securities		—		7		—		7
Municipal obligations		—		72		—		72
Convertible bonds		—		13,922		—		13,922
Corporate equities		45,336		—		—		45,336
Money markets		241		—		—		241

Securities sold, but not yet purchased at fair value		57,414		18,900		—		76,314

Investments		648		—		—		648
Derivative contracts:
U.S. treasury futures		186		—		—		186
Federal funds futures		—		18		—		18
Euro dollars futures		—		44		—		44
TBAs		—		73		—		73
Interest rate lock commitments		—		—		3,653		3,653
ARS purchase commitments		—		—		2,600		2,600

Derivative contracts, total		186		135		6,253		6,574

Total	$	58,248	$	19,035	$	6,253	$	83,536

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

(2)	Included in securities purchased under agreements to resell where the Company has elected fair value option treatment.

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


(Expressed in thousands)
	Fair Value Measurements at December 31, 2012
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	58,945	$	—	$	—	$	58,945
Securities segregated for regulatory and other purposes		11,499		—		—		11,499
Deposits with clearing organizations		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		239		49,855
Convertible bonds		—		49,130		—		49,130
Corporate equities		31,958		11,750		—		43,708
Money markets		2,328		—		—		2,328
Auction rate securities		—		—		72,118		72,118

Securities owned, at fair value		534,291		153,054		72,397		759,742

Investments ⁽¹⁾		10,477		37,088		12,954		60,519
Derivative contracts - TBAs		—		3,188		—		3,188

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

Liabilities
Securities sold, but 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
Money markets		325		—		—		325
Auction rate securities		—		—		100		100

Securities sold, but not yet purchased at fair value		153,170		20,180		100		173,450

Investments		258		—		—		258
Derivative contracts:
TBAs		—		175		—		175
U.S. treasury futures		286		—		—		286
Federal funds futures		—		120		—		120
Euro dollars futures		—		4		—		4
ARS purchase commitments		—		—		2,647		2,647

Derivative contracts, total		286		299		2,647		3,232

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

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

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, 2013 and 2012:


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Year Ended December 31, 2013
			Total Realized
			and Unrealized
	Beginning		Gains			Purchases		Sales and			Transfers			Ending
	Balance		(Losses)⁽⁵⁾⁽⁶⁾			and Issuances ⁽⁷⁾		Settlements ⁽⁸⁾			In (Out)			Balance
Assets
Mortgage and other asset-backed securities ⁽¹⁾	$	40	$	—		$	—	$	(8	)	$	(32	)	$	—
Municipals		239		(3	)		—		—			—			236
Auction rate securities ⁽²⁾		72,118		(1,409	)		21,875		(7,460	)		—			85,124
Interest rate lock commitments		—		2,375			—		—			—			2,375
Investments ⁽³⁾		12,954		929			1,414		(8,898	)		(453	)		5,946

Liabilities
Auction rate securities ⁽²⁾		100		—			100		—			—			—
Interest rate lock commitments		—		(3,653	)		—		—			—			3,653
ARS purchase commitments ⁽⁴⁾		2,647		47			—		—			—			2,600

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

(2)	Represents auction rate preferred securities, municipal auction rate securities and student loan 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)	Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.

(5)	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.

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

(7)

Purchases and issuances in connection with ARS purchase commitments represent instances in which the Company purchased ARS securities from clients during the period pursuant to regulatory and legal settlements and awards that satisfy the outstanding commitment to purchase obligation. This also includes instances where the ARS issuer has redeemed ARS where the Company had an outstanding purchase commitment prior to the Company purchasing those ARS.

(8)	Sales and settlements for the ARS purchase commitments represent additional purchase commitments made during the period for regulatory and legal ARS settlements and awards.


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Year Ended December 31, 2012
			Total Realized
			and Unrealized
	Beginning		Gains			Purchases		Sales and			Transfers			Ending
	Balance		(Losses)⁽⁵⁾⁽⁶⁾			and Issuances ⁽⁷⁾		Settlements ⁽⁸⁾			In (Out)			Balance
Assets
Mortgage and other asset-backed securities ⁽¹⁾	$	16	$	(1	)	$	116	$	(89	)	$	(2	)	$	40
Municipals		402		21			8		(192	)		—			239
Auction rate securities ⁽²⁾		68,161		(2,974	)		34,902		(27,971	)		—			72,118
Investments ⁽³⁾		12,482		415			488		(442	)		11			12,954

Liabilities
Auction rate securities ⁽²⁾		50		—			50		(100	)		—			100
ARS purchase commitments ⁽⁴⁾		2,347		(300	)		—		—			—			2,647

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

(2)	Represents auction rate preferred securities, municipal auction rate securities and student loan 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)	Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.

(5)	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.

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

(7)

(8)	Sales and settlements for the ARS purchase commitments represent additional purchase commitments made during the period for regulatory and legal ARS settlements and awards.

Assets and Liabilities Not Measured at Fair Value on Recurring Basis

Assets and liabilities not measured at fair value on a recurring basis as of December 31, 2013


(Expressed in thousands)					Fair Value Measurement: Assets
	As of December 31, 2013				As of December 31, 2013
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Cash	$	38,026	$	38,026	$	38,026	$	—	$	—	$	38,026
Cash segregated for regulatory and other purposes		24,828		24,828		24,828		—		—		24,828
Deposits with clearing organization		13,187		13,187		13,187		—		—		13,187
Receivable from brokers, dealers and clearing organizations
Deposits paid for securities borrowed		274,127		274,127		—		274,127		—		274,127
Receivables from brokers		49,803		49,803		—		49,803		—		49,803
Securities failed to deliver		9,628		9,628		—		9,628		—		9,628
Clearing organizations		27		27		—		27		—		27
Omnibus accounts		18,086		18,086		—		18,086		—		18,086
Other		13,202		13,202		—		13,202		—		13,202

		364,873		364,873		—		364,873		—		364,873
Receivable from customers		868,869		868,869		—		868,869		—		868,869

Securities purchased under agreements to resell		825		825		825						825
Other assets
Mortgage servicing rights (MSRs)		28,879		40,084		—		—		40,084		40,084
Escrow deposit ⁽¹⁾		25,006		25,006		25,006		—		—		25,006

(1)	Represents escrow monies deposited with a commercial bank. Corresponds with payable to third party in accounts payable and other liabilities on the consolidated balance sheet (see note 3 below).


(Expressed in thousands)					Fair Value Measurement: Liabilities
	As of December 31, 2013				As of December, 2013
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Drafts payable	$	48,198	$	48,198	$	48,198	$	—	$	—	$	48,198
Bank call loans		118,200		118,200		118,200		—		—		118,200
Payables to brokers, dealers and clearing organizations
Deposits received for securities loaned		211,621		211,621		—		211,621		—		211,621
Securities failed to receive		5,346		5,346		—		5,346		—		5,346
Clearing organizations and other		6,348		6,348		—		6,348		—		6,348

		223,315		223,315		—		223,315		—		223,315
Payables to customers		626,564		626,564		—		626,564		—		626,564
Securities sold under agreements to repurchase		757,491		757,491		—		757,491		—		757,491
Accounts payable and other liabilities
Warehouse payable ⁽²⁾		54,614		54,614		—		54,614		—		54,614
Payable to third party ⁽³⁾		25,006		25,006		25,006		—		—		25,006
Senior secured notes		195,000		208,529		—		208,529		—		208,529

(2)

Warehouse payable represents loans outstanding under a warehouse facility provided by a commercial bank but prior to GNMA securitization. The borrowing rates on the warehouse facility is based upon a variable interest rate of 1 month LIBOR plus a spread. The carrying amounts approximate fair value because of the short maturity of these intruments. Used to fund loans held for sale in other assets on the consolidated balance sheet.

(3)	Corresponds with escrow deposit in other assets on the consolidated balance sheet (see note 1 above).

Notional Amounts and Fair Values of Derivatives by Product

The notional amounts and fair values of the Company’s derivatives at December 31, 2013 and 2012 by product were as follows:


(Expressed in thousands)
	Fair Value of Derivative Instruments at December 31, 2013
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	25,262	$	134
	TBA sale contracts		266,415		2,021
	Interest rate lock commitments		115,569		2,375

		$	407,246	$	4,530

Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts ⁽²⁾	U.S. treasury futures	$	60,000	$	186
	Federal funds futures		6,155,000		18
	Euro dollars futures		347,000		44
Other contracts	TBAs		14,547		73
	Interest rate lock commitments		76,604		3,653
	Forward start repurchase agreements		506,000		—
	ARS purchase commitments ⁽³⁾		29,056		2,600

		$	7,188,207	$	6,574

(1)	See “Fair Value of Derivative Instruments” above for description of derivative financial instruments.

(2)	Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.

(3)	Included in other liabilities on the consolidated balance sheet.


(Expressed in thousands)
	Fair Value of Derivative Instruments at December 31, 2012
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	121,823	$	160
	TBA sale contracts		327,242		3,028

		$	449,065	$	3,188

Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts ⁽²⁾	U.S. treasury futures	$	56,000	$	286
	Federal funds futures		6,070,000		120
	Euro dollars futures		15,000		4
Other contracts	TBAs		117,573		175
	ARS purchase commitments ⁽³⁾		38,343		2,647

		$	6,296,916	$	3,232

(1)	See “Fair Value of Derivative Instruments” above for description of derivative financial instruments.

(2)	Included in payable to brokers, dealers and clearing organizations on the consolidated balance sheet.

(3)	Included in other liabilities 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 years ended December 31, 2013 and 2012:


(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Operations
	For the Year Ended December 31, 2013
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Commodity contracts	U.S. treasury futures	Principal transaction revenue	$	906
	Federal funds futures	Principal transaction revenue		(289	)
	Euro dollars futures	Principal transaction revenue		5
Other contracts	TBAs	Principal transaction revenue		61
	TBAs sale contracts	Other		2,021
	Interest rate lock commitments	Other		(1,277	)
	ARS purchase commitments	Principal transaction revenue		46

			$	1,473


(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Operations
	For the Year Ended December 31, 2012
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Interest rate contracts	Caps	N/A	$	(12	)
Commodity contracts	U.S. treasury futures	Principal transaction revenue		(972	)
	Federal funds futures	Principal transaction revenue		(17	)
	Euro dollars futures	Principal transaction revenue		(10	)
Foreign exchange contracts	Options	Other		28
Other contracts	TBAs	Principal transaction revenue		(15	)
	TBA sale contracts	Other		3,028
	ARS purchase commitments	Principal transaction revenue		(300	)

			$	1,730