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Revenue Recognition | 9 Months Ended
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Sep. 30, 2020
Revenue from Contract with Customer [Abstract] |
Revenue Recognition | 11. Revenue Recognition Overview of Revenue The primary sources of revenue for the Company are as follows: Margin Interest, Marketing and Distribution fees Margin interest, marketing and distribution fees consists of two components: margin interest and 12b1 fees resulting from rebates in money market funds. Margin interest is the net interest charged to customers for holding financed margin positions, and 12b1 fees are fees paid to the Company related to trailing payments from money market funds. Margin interest, marketing and distribution fees are recorded as earned. Commissions and Fees The Company earns commission revenue for executing trades for clients in individual equities, options, insurance products, futures, fixed income securities, as well as certain third-party mutual funds and ETFs. Commission revenue associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, is recognized at a point in time on the trade date when the performance obligation is satisfied. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks and rewards of ownership have been transferred to / from the customer. Principal Transactions Principal transactions primarily represent riskless transactions in which the Company, after executing a solicited order, buys or sells securities as principal and at the same time buys or sells the securities with a markup or markdown to satisfy the order. Principal transactions are recognized at a point in time on the trade date when the performance obligation is satisfied. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon and the risks and rewards of ownership have been transferred to / from the customer. Market Making Market making is revenue generated from the buying and selling of securities. Market making transactions are recorded on a trade-date basis as the securities transactions occur. The performance obligation is satisfied on the trade date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty. Securities owned are recorded at fair market value at the end of the reporting period. Stock Borrow / Stock Loan The Company borrows securities on behalf of retail clients to facilitate short trading, loans excess margin securities from client accounts, facilitates borrow and loan contracts for broker-dealer counterparties, and provides stock locate services to broker-dealer counterparties. The Company does not utilize stock borrow / stock loan activities for the purpose of financing transactions. Stock borrow / stock loan revenue is reported on a monthly basis net of expense. The performance obligation is satisfied on the contract date because that is when the underlying financial instrument or purchaser is identified, the pricing is agreed upon, and the risks and rewards of ownership have been transferred to / from the counterparty. For the three months ended September 30, 2020, stock borrow / stock loan revenue was $1,267,000 ($2,499,000 gross revenue less $1,232,000 expenses). For the three months ended September 30, 2019, stock borrow / stock loan revenue was $349,000 ($2,111,000 gross revenue minus $1,762,000 expenses). For the nine months ended September 30, 2020, stock borrow / stock loan revenue was $2,482,000 ($6,170,000 gross revenue less $3,688,000 expenses). For the nine months ended September 30, 2019, stock borrow / stock loan revenue was $1,353,000 ($8,381,000 gross revenue minus $7,028,000 expenses). Advisory Fees The Company earns advisory fees associated with managing client assets. The performance obligation related to this revenue stream is satisfied over time; however, the advisory fees are variable as they are charged as a percentage of the client’s total asset value, which is determined at the end of the quarter. Interest Income The Company earns interest from clients’ accounts, net of payments to clients’ accounts, and on the Company’s bank balances and is recorded as earned. Other Income Other income represents fees generated from correspondent clearing fees, corporate services client fees, payment for order flow, and transactional fees generated from client accounts. Transactional fees are recorded concurrently with the related activity. Other income is recorded as earned. Categorization of Revenue The following table presents the Company’s major revenue categories and when each category is recognized:
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |  |
Revenue Category |  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |  | Timing of Recognition
Trading Execution and Clearing Services |  |  |  |  |  |  |  |  |  |  |  |  |
Commissions and fees |  | $ | 4,679,000 |  |  | $ | 2,273,000 |  |  | $ | 15,149,000 |  |  | $ | 7,132,000 |  | Recorded on trade date
Principal transactions |  |  | 2,342,000 |  |  |  | 2,327,000 |  |  |  | 8,126,000 |  |  |  | 6,138,000 |  | Recorded on trade date
Market making |  |  | 423,000 |  |  |  | 330,000 |  |  |  | 1,508,000 |  |  |  | 1,303,000 |  | Recorded on trade date
Stock borrow / stock loan |  |  | 1,267,000 |  |  |  | 349,000 |  |  |  | 2,482,000 |  |  |  | 1,353,000 |  | Recorded as earned
Advisory fees |  |  | 305,000 |  |  |  | 211,000 |  |  |  | 810,000 |  |  |  | 572,000 |  | Recorded as earned
Total Trading Execution and Clearing Services |  |  | 9,016,000 |  |  |  | 5,490,000 |  |  |  | 28,075,000 |  |  |  | 16,498,000 |  |
Other Income |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Margin interest, marketing and distribution fees |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Margin interest |  |  | 2,130,000 |  |  |  | 3,068,000 |  |  |  | 6,465,000 |  |  |  | 8,755,000 |  | Recorded as earned
12b1 fees |  |  | 181,000 |  |  |  | 844,000 |  |  |  | 1,265,000 |  |  |  | 2,406,000 |  | Recorded as earned
Total Margin interest, marketing and distribution fees |  |  | 2,311,000 |  |  |  | 3,912,000 |  |  |  | 7,730,000 |  |  |  | 11,161,000 |  |
Interest income |  |  | 915,000 |  |  |  | 1,061,000 |  |  |  | 3,155,000 |  |  |  | 3,417,000 |  | Recorded as earned
Other income |  |  | 333,000 |  |  |  | 290,000 |  |  |  | 1,035,000 |  |  |  | 633,000 |  | Recorded as earned
Total Other Income |  |  | 3,559,000 |  |  |  | 5,263,000 |  |  |  | 11,920,000 |  |  |  | 15,211,000 |  |
Total Revenue |  | $ | 12,575,000 |  |  | $ | 10,753,000 |  |  | $ | 39,995,000 |  |  | $ | 31,709,000 |  |
The following table presents each revenue category and its related performance obligation:
Revenue Stream | Performance Obligation
Commissions and fees, Principal transactions, Market making, Stock borrow / stock loan, Advisory fees | Provide financial services to customers and counterparties
Margin interest, marketing and distribution fees, Interest income, Other income | n / a
Soft Dollar Arrangement As a result of the acquisition of WP, the Company has soft dollar and commission sharing arrangements with customers that fall both within, and outside of, the safe harbor provisions of Rule 28(e) of the Securities Exchange Act of 1934 ("Rule 28(e)"), as amended. These soft dollar arrangements were determined to be a separate performance obligation that should be allocated a portion of the transaction price. Under these arrangements, the Company charges additional dollars on customer trades and uses these fees to pay third parties for research, brokerage services, market data, and related expenses (“research services”) on behalf of clients. The Company is an agent in these arrangements, as it does not control the research services before they are transferred to the customer. As such, the revenue from these agreements are recognized net of cost in the statements of income in the line item “Commissions and fees.” The Company paid client expenses of approximately $142,000 and $494,000 for the three months and nine months ended September 30, 2020, respectively. The Company had an outstanding receivable and payable of approximately $5,000 and $150,000, respectively, as of September 30, 2020. The receivable and payable are in the line items “Other receivables” and “Accounts payable and accrued liabilities,” respectively, on the statement of financial condition. As of September 30, 2020 and December 31, 2019, no allowance for uncollectible commissions was necessary as the Company believes all commissions receivable and prepaid research services expenses will be realized. Other Items For the nine months ended September 30, 2020 and 2019, there were no costs capitalized related to obtaining or fulfilling a contract with a customer, and thus the Company has no balances for contract assets or contract liabilities. The Company concludes that its revenue streams have the same underlying economic factors, and as such, no disaggregation of revenue is required.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 10 -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130551-203045 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 13 -Subparagraph (b)(2) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130556-203045 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130550-203045 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (e) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (d) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130558-203045 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -SubTopic 10 -Section 50 -Paragraph 12 -Subparagraph (c) -URI http://asc.fasb.org/extlink&oid=121604090&loc=SL49130554-203045 + Details
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