Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2014

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 March 31, 2014				As of December 31, 2013
	Owned		Sold		Owned		Sold
U.S. Government, agency and sovereign obligations	$	689,584	$	85,502	$	596,114	$	11,889
Corporate debt and other obligations		15,151		2,325		14,673		4,847
Mortgage and other asset-backed securities		5,245		4		3,395		7
Municipal obligations		43,494		113		40,166		72
Convertible bonds		55,965		8,052		53,719		13,922
Corporate equities		40,443		47,249		61,634		45,336
Money markets		1,109		208		1,263		241
Auction rate securities		85,025		—		85,124		—

Total	$	936,016	$	143,453	$	856,088	$	76,314

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 March 31, 2014
Product	Principal		Valuation Adjustment		Fair Value		Valuation Technique	Unobservable Input	Range	Weighted Average
Auction Rate Securities Owned ⁽¹⁾
Auction Rate Preferred Securities	$	73,325	$	3,895	$	69,430	Discounted Cash Flow	Discount Rate ⁽²⁾	1.42% to 1.94%	1.70%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	0.17% to 0.43%	0.31%
Municipal Auction Rate Securities		8,180		817		7,363	Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.64%	2.64%
								Duration	4.5 Years	4.5 Years
								Current Yield ⁽³⁾	0.25%	0.25%
		5,975		441		5,534	Secondary Market Trading Activity	Observable trades in inactive market for in-portfolio securities	92.60% of par	92.60% of par
Student Loan Auction Rate Securities		425		69		356	Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.50%	3.50%
								Duration	7.0 Years	7.0 Years
								Current Yield ⁽³⁾	0.84%	0.84%
Other⁽⁴⁾		3,625		1,283		2,342	Secondary Market Trading Activity	Observable trades in inactive market for in portfolio securities	64.60% of par	64.60% of par

	$	91,530	$	6,505	$	85,025

Auction Rate Securities Commitments to Purchase ⁽⁶⁾
Auction Rate Preferred Securities	$	14,946	$	763	$	14,183	Discounted Cash Flow	Discount Rate ⁽²⁾	1.42% to 1.94%	1.70%
								Duration	4.0 Years	4.0 Years
								Current Yield ⁽³⁾	0.17% to 0.43%	0.31%
Municipal Auction Rate Securities		13,511		1,351		12,160	Discounted Cash Flow	Discount Rate ⁽⁴⁾	2.64%	2.64%
								Duration	4.5 Years	4.5 Years
								Current Yield ⁽³⁾	0.25%	0.25%
Student Loan Auction Rate Securities		567		92		475	Discounted Cash Flow	Discount Rate ⁽⁵⁾	3.50%	3.50%
								Duration	7.0 Years	7.0 Years
								Current Yield ⁽³⁾	0.84%	0.84%

	$	29,024	$	2,206	$	26,818

Total	$	120,554	$	8,711	$	111,843

(1)	Principal amount represents the par value of the ARS and is included in securities owned in the condensed consolidated balance sheet at March 31, 2014. The valuation adjustment amount is included as a reduction to securities owned in the condensed consolidated balance sheet at March 31, 2014.

(2)	Derived by applying a multiple to the spread between 110% to 150% to the U.S. Treasury rate of 1.29%.

(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 1.51%.

(5)	Derived by applying the sum of the spread of 1.20% to the U.S. Treasury rate of 2.30%.

(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 condensed consolidated balance sheet at March 31, 2014.

(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 March 31, 2014:


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds⁽¹⁾	$	1,211	$	—	Quarterly – Annually	30 – 120 Days
Private equity funds⁽²⁾		6,776		1,836	N/A	N/A

	$	7,987	$	1,836

(1)	Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies. Each hedge fund has various restrictions regarding redemption, no investment is locked-up for a period greater than one year.

(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. The lock-up period of the private equity fund is expected to be 10 years.

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 March 31, 2014 and December 31, 2013, 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 March 31, 2014


(Expressed in thousands)
	Fair Value Measurements at March 31, 2014
	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents	$	86,242	$	—	$	—	$	86,242
Securities segregated for regulatory and other purposes		11,499		—		—		11,499
Deposits with clearing organizations		15,094		—		—		15,094
Securities owned:
U.S Treasury securities		638,664		—		—		638,664
U.S. Agency securities		—		50,205		—		50,205
Sovereign obligations		—		715		—		715
Corporate debt and other obligations		—		15,151		—		15,151
Mortgage and other asset-backed securities		—		5,245		—		5,245
Municipal obligations		—		43,424		70		43,494
Convertible bonds		—		55,965		—		55,965
Corporate equities		40,443		—		—		40,443
Money markets		1,109		—		—		1,109
Auction rate securities		—		—		85,025		85,025

Securities owned, at fair value		680,216		170,705		85,095		936,016
Investments ⁽¹⁾		1,066		48,328		8,706		58,100
Loans held for sale		—		9,438		—		9,438
Securities purchased under agreements to resell ⁽²⁾		—		250,000		—		250,000
Derivative contracts:
TBAs		—		6,787		—		6,787
Interest rate lock commitments		—		—		3,038		3,038

Derivative contracts, total		—		6,787		3,038		9,825

Total	$	794,117	$	485,258	$	96,839	$	1,376,214

Liabilities
Securities sold, but not yet purchased:
U.S Treasury securities	$	85,043	$	—	$	—	$	85,043
U.S. Agency securities		—		17		—		17
Sovereign obligations		—		442		—		442
Corporate debt and other obligations		—		2,325		—		2,325
Mortgage and other asset-backed securities		—		4		—		4
Municipal obligations		—		113		—		113
Convertible bonds		—		8,052		—		8,052
Corporate equities		47,249		—		—		47,249
Money markets		208		—		—		208

Securities sold, but not yet purchased at fair value		132,500		10,953		—		143,453
Investments		101		—		—		101
Derivative contracts:
U.S. treasury futures		179		—		—		179
Federal funds futures		—		105				105
Euro dollars futures		—		105		—		105
TBAs		—		344		—		344
Interest rate lock commitments		—		—		4,402		4,402
ARS purchase commitments		—		—		2,205		2,205

Derivative contracts, total		179		554		6,607		7,340

Total	$	132,780	$	11,507	$	6,607	$	150,894

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

(2)	Included in 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 three months ended March 31, 2014 and 2013:


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended March 31, 2014
			Total Realized
			and Unrealized
	Beginning		Gains			Purchases		Sales and			Transfers			Ending
	Balance		(Losses)⁽⁵⁾⁽⁶⁾			and Issuances ⁽⁷⁾		Settlements ⁽⁸⁾			In (Out)			Balance
Assets
Municipals	$	236	$	(166	)	$	—	$	—		$	—		$	70
Auction rate securities ⁽¹⁾		85,124		1			3,200		(3,300	)		—			85,025
Interest rate lock commitments ⁽²⁾		2,375		663			—		—			—			3,038
Investments ⁽³⁾		5,946		(169	)		4,052		(503	)		(620	)		8,706
Liabilities
Interest rate lock commitments ⁽²⁾		3,653		(749	)		—		—			—			4,402
ARS purchase commitments ⁽⁴⁾		2,600		395			—		—			—			2,205

(1)	Represents auction rate preferred securities, municipal auction rate securities and student loan auction rate securities that failed in the auction rate market.

(2)

Interest rate lock commitment is recorded upon the commitment to originate a loan with a borrower and sell the loan to an investor. This commitment asset is recognized at fair value, which reflects the fair value of the contractual loan origination related fees and sale premiums, net of co-broker fees, and the estimated fair value of the expected net future cash flows associated with the servicing of the loan.

(3)	Primarily represents general partner ownership and limited partner 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 condensed consolidated statement of income, except for investments which are included in other income on the condensed consolidated statement of income.

(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 Three Months Ended March 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	$	7		$	23	$	(18	)	$	—	$	52
Municipals		239		—			—		—			—		239
Auction rate securities ⁽²⁾		72,118		(690	)		4,250		(3,125	)		—		72,553
Investments ⁽³⁾		12,954		329			—		(504	)		—		12,779
Liabilities
Auction rate securities ⁽²⁾		100		—			—		—			—		100
ARS purchase commitments ⁽⁴⁾		2,647		553			—		—			—		2,094

(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 condensed consolidated statement of income, except for investments which are included in other income on the condensed consolidated statement of income.

(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 March 31, 2014


(Expressed in thousands)
					Fair Value Measurement: Assets
	As of March 31, 2014				As of March 31, 2014
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Cash	$	36,800	$	36,800	$	36,800	$	—	$	—	$	36,800
Cash segregated for regulatory and other purposes		24,782		24,782		24,782		—		—		24,782
Deposits with clearing organization		16,341		16,341		16,341		—		—		16,341
Receivable from brokers, dealers and clearing organizations
Deposits paid for securities borrowed		231,990		231,990		—		231,990		—		231,990
Receivables from brokers		42,767		42,767		—		42,767		—		42,767
Securities failed to deliver		29,298		29,298		—		29,298		—		29,298
Clearing organizations		18		18		—		18		—		18
Omnibus accounts		16,628		16,628		—		16,628		—		16,628
Other		9,662		9,662		—		9,662		—		9,662

		330,363		330,363		—		330,363		—		330,363
Receivable from customers		954,650		954,650		—		954,650		—		954,650
Securities purchased under agreements to resell		548		548		548		—		—		548
Mortgage servicing rights (“MSRs”)		29,226		40,882		—		—		40,882		40,882
Escrow deposit ⁽¹⁾		25,006		25,006		25,006		—		—		25,006

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


(Expressed in thousands)
					Fair Value Measurement: Liabilities
	As of March 31, 2014				As of March 31, 2014
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
Drafts payable	$	41,306	$	41,306	$	41,306	$	—	$	—	$	41,306
Bank call loans		197,000		197,000		197,000		—		—		197,000
Payables to brokers, dealers and clearing organizations
Deposits received for securities loaned		209,153		209,153		—		209,153		—		209,153
Securities failed to receive		26,071		26,071		—		26,071		—		26,071
Clearing organizations and other		140,280		140,280		—		140,280		—		140,280

		375,504		375,504		—		375,504		—		375,504
Payables to customers		629,564		629,564		—		629,564		—		629,564
Securities sold under agreements to repurchase		705,727		705,727		—		705,727		—		705,727
Accounts payable and other liabilities
Warehouse payable ⁽²⁾		2,417		2,417		—		2,417		—		2,417
Payable to third party ⁽³⁾		25,006		25,006		25,006		—		—		25,006
Senior secured notes		195,000		208,285		—		208,285		—		208,285

(2)

Warehouse payable represents loans outstanding under a warehouse facility provided by a commercial bank but prior to GNMA securitization. The borrowing rate 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 instruments. Used to fund loans held for sale in other assets on the condensed consolidated balance sheet.

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

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
Mortgage servicing rights (“MSRs”)		28,879		40,084		—		—		40,084		40,084
Escrow deposit ⁽¹⁾		25,006		25,006		25,006		—		—		25,006

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


(Expressed in thousands)
					Fair Value Measurement: Liabilities
	As of December 31, 2013				As of December 31, 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)

(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 March 31, 2014 and December 31, 2013 by product were as follows:


(Expressed in thousands)
	Fair Value of Derivative Instruments at March 31, 2014
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments ⁽¹⁾
Other contracts	TBAs	$	75,994	$	441
	TBA sale contracts		192,110		6,346
	Interest rate lock commitments		108,067		3,038

		$	376,171	$	9,825

Liabilities:
Derivatives not designated as hedging instruments ⁽¹⁾
Commodity contracts ⁽²⁾	U.S. treasury futures	$	46,000	$	179
	Federal funds futures		5,625,000		105
	Euro dollars futures		299,000		105
Other contracts	TBAs		47,194		344
	Interest rate lock commitments		74,300		4,402
	Forward start repurchase agreements		200,000		—
	ARS purchase commitments ⁽³⁾		29,024		2,205

		$	6,320,518	$	7,340

(1)	See “Derivative Instruments and Hedging Activities” above for description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the related amounts are not offset.

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

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


(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 “Derivative Instruments and Hedging Activities” above for description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the related amounts are not offset.

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

(3)	Included in other liabilities on the condensed 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 condensed consolidated statements of income for the three months ended March 31, 2014 and 2013:


(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Income
	For the Three Months Ended March 31, 2014
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Commodity contracts	U.S. treasury futures	Principal transaction revenue	$	(424	)
	Federal funds futures	Principal transaction revenue		(160	)
	Euro dollars futures	Principal transaction revenue		(89	)
Other contracts	TBAs	Principal transaction revenue		(786	)
	TBAs sale contracts	Other		(4,325	)
	Interest rate lock commitments	Other		(86	)
	ARS purchase commitments	Principal transaction revenue		395

			$	(5,475	)


(Expressed in thousands)
	The Effect of Derivative Instruments on the Statement of Income
	For the Three Months Ended March 31, 2013
		Recognized in Income on Derivatives (pre-tax)
Types	Description	Location	Gain (Loss)
Commodity contracts	U.S. treasury futures	Principal transaction revenue	$	(119	)
	Federal funds futures	Principal transaction revenue		55
	Euro dollars futures	Principal transaction revenue		—
Other contracts	TBAs	Principal transaction revenue		98
	TBA sale contracts	Other		2,928
	ARS purchase commitments	Principal transaction revenue		1,794

			$	4,756