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Fair value measurements | 9 Months Ended
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Sep. 30, 2019
Fair Value Disclosures [Abstract] |
Fair value measurements | Fair value measurements Securities owned, securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period. Valuation Techniques A description of the valuation techniques applied and inputs used in measuring the fair value of the Company's financial instruments is as follows: U.S. Government Obligations U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers. U.S. Agency Obligations U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mortgage pass-through securities are model driven with respect to spreads of the comparable to-be-announced ("TBA") security. Sovereign Obligations The fair value of sovereign obligations is determined based on quoted market prices when available or a valuation model that generally utilizes interest rate yield curves and credit spreads as inputs. Corporate Debt and Other Obligations The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information. Mortgage and Other Asset-Backed Securities The Company values non-agency securities collateralized by home equity and various other types of collateral based on external pricing and spread data provided by independent pricing services. When specific external pricing is not observable, the valuation is based on yields and spreads for comparable bonds. Municipal Obligations The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information. Convertible Bonds The fair value of convertible bonds is estimated using recently executed transactions and dollar-neutral price quotations, where observable. When observable price quotations are not available, fair value is determined based on cash flow models using yield curves and bond spreads as key inputs. Corporate Equities Equity securities and options are generally valued based on quoted prices from the exchange or market where traded. To the extent quoted prices are not available, fair values are generally derived using bid/ask spreads. Auction Rate Securities ("ARS") Background In February 2010, Oppenheimer finalized settlements with each of the New York Attorney General's office ("NYAG") and the Massachusetts Securities Division ("MSD") and, together (the "Regulators") concluding proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients. Over the last nine years, the Company has bought back $140.2 million of ARS pursuant to these settlements. These buybacks coupled with ARS issuer redemptions and tender offers have significantly reduced the level of ARS held by Eligible Investors. As of September 30, 2019, the Company had $3.4 million of ARS to purchase from Eligible Investors related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer has also reached settlements of and received adverse awards in legal proceedings with various clients where the Company is obligated to purchase ARS. Over the last nine years, the Company has purchased $102.3 million of ARS pursuant to these legal settlements and awards. As of September 30, 2019, the Company had one remaining commitment to purchase $3.6 million in ARS by June 30, 2020. As of September 30, 2019, the Company owned $29.4 million of ARS. This amount represents the unredeemed or unsold amount that the Company holds as a result of ARS buybacks pursuant to the settlements with the Regulators and legal settlements and awards referred to above. Valuation The Company’s ARS owned and ARS purchase commitments referred to above have, for the most part, been subject to recent issuer tender offers. As a result, the Company has valued the ARS securities owned and the ARS purchase commitments at the observable tender offer price which provides the basis to categorize them in Level 2 of the fair value hierarchy. The ARS purchase commitments related to the settlements with the Regulators and legal settlements and awards are considered derivative assets or liabilities. The ARS purchase commitments represent the difference between the principal value and the fair value of the ARS the Company is committed to purchase. As of September 30, 2019, the Company had a valuation adjustment (unrealized loss) totaling $5.1 million which consists of $4.1 million for ARS owned (which is included as a reduction to securities owned on the condensed consolidated balance sheet) and $1.0 million for ARS purchase commitments from legal settlements and awards and settlements with regulators (which is included in accounts payable and other liabilities on the condensed consolidated balance sheet). Investments In its role as general partner in certain hedge funds and private equity funds, the Company, through its subsidiaries, holds direct investments in such funds. The Company uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment. The following table provides information about the Company's investments in Company-sponsored funds as of September 30, 2019:
(Expressed in thousands) |  |  |  |  |  |  |
| Fair Value |  | Unfunded Commitments |  | Redemption Frequency |  | Redemption Notice Period
Hedge funds (1) | $ | 1,577 |  |  | $ | — |  |  | Quarterly - Annually |  | 30 - 120 Days
Private equity funds (2) | 4,335 |  |  | 1,399 |  |  | N/A |  | N/A
| $ | 5,912 |  |  | $ | 1,399 |  |  |  |  |
(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. Valuation Process The Company's Finance & Accounting ("F&A") group is responsible for the Company's fair value policies, processes and procedures. F&A is independent from the business units and trading desks and is headed by the Company's Chief Financial Officer ("CFO"), who has final authority over the valuation of the Company's financial instruments. The Finance Control Group ("FCG") within F&A is responsible for daily profit and loss reporting, front-end trading system position reconciliations, monthly profit and loss reporting, and independent price verification procedures. For financial instruments categorized in Levels 1 and 2 of the fair value hierarchy, the FCG performs a monthly independent price verification to determine the reasonableness of the prices provided by the Company's independent pricing vendor. The FCG uses its third-party pricing vendor, executed transactions, and broker-dealer quotes for validating the fair values of financial instruments. Assets and Liabilities Measured at Fair Value The Company's assets and liabilities, recorded at fair value on a recurring basis as of September 30, 2019 and December 31, 2018, 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 September 30, 2019
(Expressed in thousands) |  |  |  |  |  |  |
| Fair Value Measurements as of September 30, 2019
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Deposits with clearing organizations | $ | 36,461 |  |  | $ | — |  |  | $ | — |  |  | $ | 36,461 |
Securities owned: |  |  |  |  |  |  |
U.S. Treasury securities | 462,298 |  |  | — |  |  | — |  |  | 462,298 |
U.S. Agency securities | 1,605 |  |  | 7,135 |  |  | — |  |  | 8,740 |
Sovereign obligations | — |  |  | 2,571 |  |  | — |  |  | 2,571 |
Corporate debt and other obligations | — |  |  | 24,448 |  |  | — |  |  | 24,448 |
Mortgage and other asset-backed securities | — |  |  | 2,292 |  |  | — |  |  | 2,292 |
Municipal obligations | — |  |  | 66,550 |  |  | — |  |  | 66,550 |
Convertible bonds | — |  |  | 28,796 |  |  | — |  |  | 28,796 |
Corporate equities | 31,822 |  |  | — |  |  | — |  |  | 31,822 |
Money markets | 363 |  |  | — |  |  | — |  |  | 363 |
Auction rate securities | — |  |  | 25,314 |  |  | — |  |  | 25,314 |
Securities owned, at fair value | 496,088 |  |  | 157,106 |  |  | — |  |  | 653,194 |
Derivative contracts: |  |  |  |  |  |  |
TBAs | — |  |  | 12 |  |  | — |  |  | 12 |
Total | $ | 532,549 |  |  | $ | 157,118 |  |  | $ | — |  |  | $ | 689,667 |
Liabilities |  |  |  |  |  |  |
Securities sold but not yet purchased: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 74,020 |  |  | $ | — |  |  | $ | — |  |  | $ | 74,020 |
U.S. Agency securities | — |  |  | 7 |  |  | — |  |  | 7 |
Sovereign obligations | — |  |  | 2,503 |  |  | — |  |  | 2,503 |
Corporate debt and other obligations | — |  |  | 11,683 |  |  | — |  |  | 11,683 |
Mortgage and other asset-backed securities | — |  |  | 1 |  |  | — |  |  | 1 |
Convertible bonds | — |  |  | 16,216 |  |  | — |  |  | 16,216 |
Corporate equities | 17,450 |  |  | — |  |  | — |  |  | 17,450 |
Securities sold but not yet purchased, at fair value | 91,470 |  |  | 30,410 |  |  | — |  |  | 121,880 |
Derivative contracts: |  |  |  |  |  |  |
Futures | 322 |  |  | — |  |  | — |  |  | 322 |
TBAs | — |  |  | 9 |  |  | — |  |  | 9 |
ARS purchase commitments | — |  |  | 1,006 |  |  | — |  |  | 1,006 |
Derivative contracts, total | 322 |  |  | 1,015 |  |  | — |  |  | 1,337 |
Total | $ | 91,792 |  |  | $ | 31,425 |  |  | $ | — |  |  | $ | 123,217 |
(1) Included in other assets on the condensed consolidated balance sheet. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2018
(Expressed in thousands) |  |  |  |  |  |  |
| Fair Value Measurements as of December 31, 2018
| Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |
Cash equivalents | $ | 10,500 |  |  | $ | — |  |  | $ | — |  |  | $ | 10,500 |
Deposits with clearing organizations | 34,599 |  |  | — |  |  | — |  |  | 34,599 |
Securities owned: |  |  |  |  |  |  |
U.S. Treasury securities | 657,208 |  |  | — |  |  | — |  |  | 657,208 |
U.S. Agency securities | 812 |  |  | 6,494 |  |  | — |  |  | 7,306 |
Sovereign obligations | — |  |  | 214 |  |  | — |  |  | 214 |
Corporate debt and other obligations | — |  |  | 20,665 |  |  | — |  |  | 20,665 |
Mortgage and other asset-backed securities | — |  |  | 2,486 |  |  | — |  |  | 2,486 |
Municipal obligations | — |  |  | 52,261 |  |  | — |  |  | 52,261 |
Convertible bonds | — |  |  | 31,270 |  |  | — |  |  | 31,270 |
Corporate equities | 28,215 |  |  | — |  |  | — |  |  | 28,215 |
Money markets | 7 |  |  | — |  |  | — |  |  | 7 |
Auction rate securities | — |  |  | 16,253 |  |  | 21,699 |  |  | 37,952 |
Securities owned, at fair value | 686,242 |  |  | 129,643 |  |  | 21,699 |  |  | 837,584 |
Investments (1) | — |  |  | — |  |  | 101 |  |  | 101 |
Derivative contracts: |  |  |  |  |  |  |  |  |  |  |
TBAs | — |  |  | 4,873 |  |  | — |  |  | 4,873 |
Total | $ | 731,341 |  |  | $ | 134,516 |  |  | $ | 21,800 |  |  | $ | 887,657 |
Liabilities |  |  |  |  |  |  |
Securities sold but not yet purchased: |  |  |  |  |  |  |
U.S. Treasury securities | $ | 53,646 |  |  | $ | — |  |  | $ | — |  |  | $ | 53,646 |
U.S. Agency securities | — |  |  | 3 |  |  | — |  |  | 3 |
Sovereign obligations | — |  |  | 78 |  |  | — |  |  | 78 |
Corporate debt and other obligations | — |  |  | 7,236 |  |  | — |  |  | 7,236 |
Convertible bonds | — |  |  | 9,709 |  |  | — |  |  | 9,709 |
Corporate equities | 14,774 |  |  | — |  |  | — |  |  | 14,774 |
Securities sold but not yet purchased, at fair value | 68,420 |  |  | 17,026 |  |  | — |  |  | 85,446 |
Derivative contracts: |  |  |  |  |  |  |
Futures | 807 |  |  | — |  |  | — |  |  | 807 |
Foreign exchange forward contracts | 4 |  |  | — |  |  | — |  |  | 4 |
TBAs | — |  |  | 4,873 |  |  | — |  |  | 4,873 |
ARS purchase commitments | — |  |  | 1,096 |  |  | — |  |  | 1,096 |
Derivative contracts, total | 811 |  |  | 5,969 |  |  | — |  |  | 6,780 |
Total | $ | 69,231 |  |  | $ | 22,995 |  |  | $ | — |  |  | $ | 92,226 |
(1) Included in other assets on the condensed consolidated balance sheet. For the three months ended September 30, 2019, there were no balances or changes in Level 3 assets and liabilities. The following table presents changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended September 30, 2018:
(Expressed in thousands)
| Level 3 Assets and Liabilities
| For the Three Months Ended September 30, 2018
| Beginning Balance |  | Total Realized and Unrealized Losses (3)(4) |  | Purchases and Issuances |  | Sales and Settlements |  | Transfers In/Out |  | Ending Balance
Assets |  |  |  |  |  |  |  |  |  |  |
Auction rate securities (1)(5) | $ | 72,621 |  |  | $ | (2,163 | ) |  | $ | 2,150 |  |  | $ | (34,925 | ) |  | $ | (16,253 | ) |  | $ | 21,430 |
Investments | 164 |  |  | — |  |  | — |  |  | — |  |  | (60 | ) |  | 104 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
ARS purchase commitments (2)(5) | 131 |  |  | (948 | ) |  | — |  |  | — |  |  | 1,078 |  |  | 1 |
(1) | Represents auction rate preferred securities, municipal auction rate securities and student loan
auction rate securities that failed in the auction rate market.
(2) | Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.
(3) | Included in principal transactions in the condensed consolidated statement of income, except for losses
from investments which are included in other income in the condensed consolidated statement of income.
(4) | Unrealized losses are attributable to assets or liabilities that are still held at the reporting date.
(5) | Represents transfers from Level 3 to Level 2 of the fair value hierarchy. Transfers were due to tender
offers by issuers of ARS. The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the nine months ended September 30, 2019 and 2018:
(Expressed in thousands)
| Level 3 Assets and Liabilities
| For the Nine Months Ended September 30, 2019
| Beginning Balance |  | Total Realized and Unrealized Gains (2)(3) |  | Purchases and Issuances |  | Sales and Settlements |  | Transfers Out |  | Ending Balance
Assets |  |  |  |  |  |  |  |  |  |  |
Auction rate securities (1) | $ | 21,699 |  |  | $ | 1 |  |  | $ | — |  |  | $ | (350 | ) |  | $ | (21,350 | ) |  | $ | — |
Investments | 101 |  |  | 5 |  |  | — |  |  | — |  |  | (106 | ) |  | — |
(1) | Represents auction rate preferred securities that failed in the auction rate market.
(2) | Included in principal transactions in the condensed consolidated statement of income, except for
gains from investments which are included in other income in the condensed consolidated statement of income.
(3) | Unrealized gains are attributable to assets or liabilities that are still held at the reporting date.
(Expressed in thousands)
| Level 3 Assets and Liabilities
| For the Nine Months Ended September 30, 2018
| Beginning Balance |  | Total Realized and Unrealized Gains (Losses) (3)(4) |  | Purchases and Issuances |  | Sales and Settlements |  | Transfers In/Out |  | Ending Balance
Assets |  |  |  |  |  |  |  |  |  |  |
Municipal obligations | $ | 35 |  |  | $ | 14 |  |  | $ | 76 |  |  | $ | (125 | ) |  | $ | — |  |  | $ | — |
Auction rate securities (1) (5) | 87,398 |  |  | (2,218 | ) |  | 6,250 |  |  | (36,145 | ) |  | (33,855 | ) |  | 21,430 |
Investments | 169 |  |  | (5 | ) |  | — |  |  | — |  |  | (60 | ) |  | 104 |
Liabilities |  |  |  |  |  |  |  |  |  |  |
ARS purchase commitments (2) (5) | 8 |  |  | (1,162 | ) |  | — |  |  | — |  |  | 1,169 |  |  | 1 |
(1) | Represents auction rate preferred securities, municipal auction rate securities and student loan
auction rate securities that failed in the auction rate market.
(2) | Represents the difference in principal and fair value for auction rate securities purchase
commitments outstanding at the end of the period.
(3) | Included in principal transactions in the condensed consolidated statement of income, except
for gains (losses) from investments which are included in other income in the condensed consolidated statement of income.
(4) | Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.
(5) | Represents transfers from Level 3 to Level 2 of the fair value hierarchy. Transfers were due to tender
offers by issuers of ARS. Financial Instruments Not Measured at Fair Value The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the condensed consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., right-of-use lease assets, lease liabilities, furniture, equipment and leasehold improvements and accrued compensation). The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 approximates fair value because of the relatively short-term nature of the underlying assets. The fair value of the Company's senior secured notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the notes trade. Assets and liabilities not measured at fair value as of September 30, 2019
(Expressed in thousands) |  |  | Fair Value Measurement: Assets
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash | $ | 26,193 |  |  | $ | 26,193 |  |  | $ | — |  |  | $ | — |  |  | $ | 26,193 |
Deposits with clearing organization | 37,269 |  |  | 37,269 |  |  | — |  |  | — |  |  | 37,269 |
Receivable from brokers, dealers and clearing organizations: |  |  |  |  |  |  |  |  |
Securities borrowed | 103,738 |  |  | — |  |  | 103,738 |  |  | — |  |  | 103,738 |
Receivables from brokers | 13,839 |  |  | — |  |  | 13,839 |  |  | — |  |  | 13,839 |
Securities failed to deliver | 13,362 |  |  | — |  |  | 13,362 |  |  | — |  |  | 13,362 |
Clearing organizations | 24,775 |  |  | — |  |  | 24,775 |  |  | — |  |  | 24,775 |
Other | 2,017 |  |  | — |  |  | 2,017 |  |  | — |  |  | 2,017 |
| 157,731 |  |  | — |  |  | 157,731 |  |  | — |  |  | 157,731 |
Receivable from customers | 754,927 |  |  | — |  |  | 754,927 |  |  | — |  |  | 754,927 |
Notes receivable, net | 43,920 |  |  | — |  |  | 43,920 |  |  | — |  |  | 43,920 |
Investments (1) | 68,919 |  |  | — |  |  | 68,919 |  |  | — |  |  | 68,919 |
(1) Included in other assets on the condensed consolidated balance sheet.
(Expressed in thousands) |  |  | Fair Value Measurement: Liabilities
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Drafts payable | $ | 17,794 |  |  | $ | 17,794 |  |  | $ | — |  |  | $ | — |  |  | $ | 17,794 |
Payables to brokers, dealers and clearing organizations: |  |  |  |  |  |  |  |  |
Securities loaned | 209,298 |  |  | — |  |  | 209,298 |  |  | — |  |  | 209,298 |
Payable to brokers | 7,040 |  |  | — |  |  | 7,040 |  |  | — |  |  | 7,040 |
Securities failed to receive | 13,228 |  |  | — |  |  | 13,228 |  |  | — |  |  | 13,228 |
Other | 134,707 |  |  | — |  |  | 134,707 |  |  | — |  |  | 134,707 |
| 364,273 |  |  | — |  |  | 364,273 |  |  | — |  |  | 364,273 |
Payables to customers | 313,056 |  |  | — |  |  | 313,056 |  |  | — |  |  | 313,056 |
Securities sold under agreements to repurchase | 253,720 |  |  | — |  |  | 253,720 |  |  | — |  |  | 253,720 |
Senior secured notes | 150,000 |  |  | — |  |  | 154,907 |  |  | — |  |  | 154,907 |
Assets and liabilities not measured at fair value as of December 31, 2018
(Expressed in thousands) |  |  | Fair Value Measurement: Assets
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Cash | $ | 80,175 |  |  | $ | 80,175 |  |  | $ | — |  |  | $ | — |  |  | $ | 80,175 |
Deposits with clearing organization | 33,079 |  |  | 33,079 |  |  | — |  |  | — |  |  | 33,079 |
Receivable from brokers, dealers and clearing organizations: |  |  |  |  |  |  |  |  |
Securities borrowed | 108,144 |  |  | — |  |  | 108,144 |  |  | — |  |  | 108,144 |
Receivables from brokers | 20,140 |  |  | — |  |  | 20,140 |  |  | — |  |  | 20,140 |
Securities failed to deliver | 7,021 |  |  | — |  |  | 7,021 |  |  | — |  |  | 7,021 |
Clearing organizations | 28,777 |  |  | — |  |  | 28,777 |  |  | — |  |  | 28,777 |
Other | 2,411 |  |  | — |  |  | 2,411 |  |  | — |  |  | 2,411 |
| 166,493 |  |  | — |  |  | 166,493 |  |  | — |  |  | 166,493 |
Receivable from customers | 720,777 |  |  | — |  |  | 720,777 |  |  | — |  |  | 720,777 |
Securities purchased under agreements to resell | 290 |  |  | — |  |  | 290 |  |  | — |  |  | 290 |
Notes receivable, net | 44,058 |  |  | — |  |  | 44,058 |  |  | — |  |  | 44,058 |
Investments (1) | 59,765 |  |  | — |  |  | 59,765 |  |  | — |  |  | 59,765 |
(1) Included in other assets on the condensed consolidated balance sheet.
(Expressed in thousands) |  |  | Fair Value Measurement: Liabilities
| Carrying Value |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Drafts payable | $ | 16,348 |  |  | $ | 16,348 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,348 |
Bank call loans | 15,000 |  |  | — |  |  | 15,000 |  |  | — |  |  | 15,000 |
Payables to brokers, dealers and clearing organizations: |  |  |  |  |  |  |  |  |
Securities loaned | 146,815 |  |  | — |  |  | 146,815 |  |  | — |  |  | 146,815 |
Payable to brokers | 158 |  |  | — |  |  | 158 |  |  | — |  |  | 158 |
Securities failed to receive | 27,799 |  |  | — |  |  | 27,799 |  |  | — |  |  | 27,799 |
Other | 113,628 |  |  | — |  |  | 113,628 |  |  | — |  |  | 113,628 |
| 288,400 |  |  | — |  |  | 288,400 |  |  | — |  |  | 288,400 |
Payables to customers | 336,616 |  |  | — |  |  | 336,616 |  |  | — |  |  | 336,616 |
Securities sold under agreements to repurchase | 484,218 |  |  | — |  |  | 484,218 |  |  | — |  |  | 484,218 |
Senior secured notes | 200,000 |  |  | — |  |  | 199,722 |  |  | — |  |  | 199,722 |
Fair Value Option The Company elected the fair value option for securities sold under agreements to repurchase ("repurchase agreements") and securities purchased under agreements to resell ("reverse repurchase agreements") that do not settle overnight or have an open settlement date. The Company has elected the fair value option for these instruments to reflect more accurately market and economic events in its earnings and to mitigate a potential mismatch in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. As of September 30, 2019, the Company did not have any repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date. Derivative Instruments and Hedging Activities The Company transacts, on a limited basis, in exchange traded and over-the-counter derivatives for both asset and liability management as well as for trading and investment purposes. Risks managed using derivative instruments include interest rate risk and, to a lesser extent, foreign exchange risk. All derivative instruments are measured at fair value and are recognized as either assets or liabilities on the condensed consolidated balance sheet. Foreign exchange hedges From time to time, the Company also utilizes forward and options contracts to hedge the foreign currency risk associated with compensation obligations to Oppenheimer Israel (OPCO) Ltd. employees denominated in New Israeli Shekel ("NIS"). Such hedges have not been designated as accounting hedges. Unrealized gains and losses on foreign exchange forward contracts are recorded in other assets on the condensed consolidated balance sheet and other income in the condensed consolidated statement of income. Derivatives used for trading and investment purposes Futures contracts represent commitments to purchase or sell securities or other commodities at a future date and at a specified price. Market risk exists with respect to these instruments. Notional or contractual amounts are used to express the volume of these transactions and do not represent the amounts potentially subject to market risk. The Company uses futures contracts, including U.S. Treasury notes, Federal Funds, General Collateral futures and Eurodollar contracts primarily as an economic hedge of interest rate risk associated with government trading activities. Unrealized gains and losses on futures contracts are recorded on the condensed consolidated balance sheet in payable to brokers, dealers and clearing organizations and in the condensed consolidated statement of income as principal transactions revenue, net. To-be-announced securities The Company also transacts in pass-through mortgage-backed securities eligible to be sold in the TBA market as economic hedges against mortgage-backed securities that it owns or has sold but not yet purchased. TBAs provide for the forward or delayed delivery of the underlying instrument with settlement up to 180 days. The contractual or notional amounts related to these financial instruments reflect the volume of activity and do not reflect the amounts at risk. Net unrealized gains and losses on TBAs are recorded on the condensed consolidated balance sheet in receivable from brokers, dealers and clearing organizations or payable to brokers, dealers and clearing organizations and in the condensed consolidated statement of income as principal transactions revenue, net. The notional amounts and fair values of the Company's derivatives as of September 30, 2019 and December 31, 2018 by product were as follows:
(Expressed in thousands) |  |  |  |  |
| Fair Value of Derivative Instruments as of September 30, 2019
| Description |  | Notional |  | Fair Value
Assets: |  |  |  |  |
Derivatives not designated as hedging instruments (1) |  |  |  |  |
Other contracts | TBAs |  | $ | 15,742 |  |  | $ | 12 |
|  |  | $ | 15,742 |  |  | $ | 12 |
Liabilities: |  |  |  |  |
Derivatives not designated as hedging instruments (1) |  |  |  |  |
Commodity contracts | Futures |  | $ | 2,846,000 |  |  | $ | 322 |
Other contracts | TBAs |  | 12,240 |  |  | 9 |
| ARS purchase commitments |  | 7,010 |  |  | 1,006 |
|  |  | $ | 2,865,250 |  |  | $ | 1,337 |
(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.
(Expressed in thousands) |  |  |  |  |
| Fair Value of Derivative Instruments as of December 31, 2018
| Description |  | Notional |  | Fair Value
Assets: |  |  |  |  |
Derivatives not designated as hedging instruments (1) |  |  |  |  |
Other contracts | TBAs |  | $ | 729,500 |  |  | $ | 4,873 |
|  |  | $ | 729,500 |  |  | $ | 4,873 |
Liabilities: |  |  |  |  |
Derivatives not designated as hedging instruments (1) |  |  |  |  |
Commodity contracts | Futures |  | $ | 4,580,800 |  |  | $ | 807 |
Other contracts | Foreign exchange forward contracts |  | 200 |  |  | 4 |
| TBAs |  | 729,500 |  |  | 4,873 |
| ARS purchase commitments |  | 7,305 |  |  | 1,096 |
|  |  | $ | 5,317,805 |  |  | $ | 6,780 |
(1) | See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements,
thus the related amounts are not offset. The following table presents the location and fair value amounts of the Company's derivative instruments and their effect in the condensed consolidated statements of income for the three and nine months ended September 30, 2019 and 2018:
(Expressed in thousands) |  |  |  |  |  |
|  | The Effect of Derivative Instruments in the Income Statement
|  | For the Three Months Ended September 30, 2019
|  |  |  | Recognized in Income on Derivatives (pre-tax)
Types |  | Description |  | Location |  | Net Gain (Loss)
Commodity contracts |  | Futures |  | Principal transactions revenue |  | $ | (443 | )
Other contracts |  | Foreign exchange forward contracts |  | Other revenue |  | 5 |
|  | TBAs |  | Principal transactions revenue |  | (9 | )
|  | ARS purchase commitments |  | Principal transactions revenue |  | (242 | )
|  |  |  |  |  | $ | (689 | )
(Expressed in thousands) |  |  |  |  |  |
|  | The Effect of Derivative Instruments in the Income Statement
|  | For the Three Months Ended September 30, 2018
|  |  |  | Recognized in Income on Derivatives (pre-tax)
Types |  | Description |  | Location |  | Net Gain (Loss)
Commodity contracts |  | Futures |  | Principal transactions revenue |  | $ | 413 |
Other contracts |  | Foreign exchange forward contracts |  | Other revenue |  | 2 |
|  | TBAs |  | Principal transactions revenue |  | 73 |
|  | Other TBAs |  | Other revenue |  | 62 |
|  | ARS purchase commitments |  | Principal transactions revenue |  | (857 | )
|  |  |  |  |  | $ | (307 | )
(Expressed in thousands) |  |  |  |  |  |
|  | The Effect of Derivative Instruments in the Income Statement
|  | For the Nine Months Ended September 30, 2019
|  |  |  | Recognized in Income on Derivatives (pre-tax)
Types |  | Description |  | Location |  | Net Gain (Loss)
Commodity contracts |  | Futures |  | Principal transactions revenue |  | $ | (3,109 | )
Other contracts |  | Foreign exchange forward contracts |  | Other revenue |  | 15 |
|  | TBAs |  | Principal transactions revenue |  | (85 | )
|  | ARS purchase commitments |  | Principal transactions revenue |  | 90 |
|  |  |  |  |  | $ | (3,089 | )
(Expressed in thousands) |  |  |  |  |  |
|  | The Effect of Derivative Instruments in the Income Statement
|  | For the Nine Months Ended September 30, 2018
|  |  |  | Recognized in Income on Derivatives (pre-tax)
Types |  | Description |  | Location |  | Net Gain (Loss)
Commodity contracts |  | Futures |  | Principal transactions revenue |  | $ | 1,764 |
Other contracts |  | Foreign exchange forward contracts |  | Other revenue |  | (3 | )
|  | TBAs |  | Principal transactions revenue |  | 269 |
|  | Other TBAs |  | Other revenue |  | 209 |
|  | ARS purchase commitments |  | Principal transactions revenue |  | (1,071 | )
|  |  |  |  |  | $ | 1,168 |

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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