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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 6. Fair Value Measurements Overview ASC 820 defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy of fair value inputs. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income, or cost approach, as specified by ASC 820, are used to measure fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 - Quoted prices (unadjusted) in active markets for an identical asset or liability that the Company can assess at the measurement date. Level 2 - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 - Unobservable inputs for the asset or liability. The availability of observable inputs can vary from security to security and is affected by a variety of factors, such as the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. As such, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that the Company believes market participants would use in pricing the asset or liability at the measurement date. A description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis is as follows: U.S. government securities: U.S. government securities are valued using quoted market prices and as such, valuation adjustments are not applied. Accordingly, U.S. government securities are generally categorized in level 1 of the fair value hierarchy. Municipal securities: Municipal securities are valued using recently executed transactions, market price quotations (when observable), bond spreads from independent external parties such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. Municipal securities are generally categorized in level 2 of the fair value hierarchy. Corporate bonds and convertible preferred stock: The fair value of corporate bonds and convertible preferred stock are determined using recently executed transactions, market price quotations (when observable), bond spreads, or credit default swap spreads obtained from independent external parties such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments. The spread data used is for the same maturity as the bond. If the spread data does not reference the issuer, then data that references a comparable issuer is used. When position-specific external price data is not observable, fair value is determined based on either benchmarking to similar instruments or cash flow models with yield curves, bond, or single-name credit default swap spreads and recovery rates as significant inputs. Corporate bonds and convertible preferred stocks are generally categorized in level 2 of the fair value hierarchy. Equity securities: Equity securities are valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in level 1 of the fair value hierarchy. Securities quoted in inactive markets or with observable inputs are categorized into level 2. If there are no observable inputs or quoted prices, securities are categorized as level 3 assets in the fair value hierarchy. Level 3 assets are not actively traded and subjective estimates based on managements’ assumptions are utilized for valuation. Mutual funds: Mutual funds are valued based on the closing net asset value of the publicly traded mutual funds. These securities are actively traded and therefore valuation adjustments are not applied. As such, mutual funds are categorized in level 1 of the fair value hierarchy. Certificates of deposit: Certificates of deposit included in investments are valued at cost, which approximates fair value. When certificates of deposits are held directly with banking institutions and issued directly to the Company, these are categorized within cash and cash equivalents in level 2 of the fair value hierarchy. When certificates of deposits are available for trading, they are categorized within securities owned, at fair value in level 2 of the fair value hierarchy. Fair Value Hierarchy Tables The following tables present the Company's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of the periods presented.
|  | As of September 30, 2020 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | — |  |  | $ | 142,000 |  |  | $ | — |  |  | $ | 142,000 |
Securities owned, at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities* |  | $ | 2,028,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,028,000 |
Certificates of deposit |  |  | — |  |  |  | 91,000 |  |  |  | — |  |  |  | 91,000 |
Corporate bonds |  |  | — |  |  |  | 120,000 |  |  |  | — |  |  |  | 120,000 |
Equity securities |  |  | 765,000 |  |  |  | 343,000 |  |  |  | — |  |  |  | 1,108,000 |
Mutual funds |  |  | 133,000 |  |  |  | — |  |  |  | — |  |  |  | 133,000 |
Total Securities owned, at fair value |  | $ | 2,926,000 |  |  | $ | 554,000 |  |  | $ | — |  |  | $ | 3,480,000 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities sold, not yet purchased, at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | — |  |  | $ | 25,000 |  |  | $ | — |  |  | $ | 25,000 |
Total Securities sold, not yet purchased, at fair value |  | $ | — |  |  | $ | 25,000 |  |  | $ | — |  |  | $ | 25,000 |
*As of September 30, 2020, U.S. government securities mature on 08/31/2021
|  | As of December 31, 2019 |
|  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Assets |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalents |  |  |  |  |  |  |  |  |  |  |  |
Certificates of deposit |  | $ | — |  |  | $ | 142,000 |  |  | $ | — |  |  | $ | 142,000 |
Segregated securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities |  | $ | 1,311,000 |  |  |  | — |  |  |  | — |  |  | $ | 1,311,000 |
Securities owned, at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government securities |  | $ | 2,007,000 |  |  | $ | — |  |  | $ | — |  |  | $ | 2,007,000 |
Corporate bonds |  |  | — |  |  |  | 25,000 |  |  |  | — |  |  |  | 25,000 |
Equity securities |  |  | 453,000 |  |  |  | 245,000 |  |  |  | 288,000 |  |  |  | 986,000 |
Total Securities owned, at fair value |  | $ | 2,460,000 |  |  | $ | 270,000 |  |  | $ | 288,000 |  |  | $ | 3,018,000 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Securities sold, not yet purchased, at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities |  | $ | 88,000 |  |  | $ | 28,000 |  |  | $ | — |  |  | $ | 116,000 |
Total Securities sold, not yet purchased, at fair value |  | $ | 88,000 |  |  | $ | 28,000 |  |  | $ | — |  |  | $ | 116,000 |
|  | Changes in Level 3 Equity Assets |
|  | Nine Months Ended September 30, 2020 |
|  | Amount |  | Valuation Technique | Reason for Change
Balance – January 1, 2020 |  | $ | 288,000 |  | Liquidation value based on valuation report |
Transfers out of level 3 |  |  | (288,000 | ) |  | Sale of equity security
Balance – September 30, 2020 |  | $ | — |  |  |
The following represents financial instruments in which the ending balances as of September 30, 2020 and December 31, 2019 are not carried at fair value in the statements of financial condition: Short-term financial instruments: The carrying value of short-term financial instruments, including cash and securities segregated for regulatory purposes are recorded at amounts that approximate the fair value of these instruments. These financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. Cash and securities segregated for regulatory purposes are classified as level 1. Securities segregated for regulatory purposes consist of treasury notes which are categorized in the above tables as level 1 assets. Receivables and other assets: Receivables from broker-dealers and clearing organizations, receivables from customers, other receivables, and other assets are recorded at amounts that approximate fair value and are classified as level 2 under the fair value hierarchy. Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value and are primarily classified as level 2 under the fair value hierarchy. The Company’s securities borrowed and securities loaned balances represent amounts of equity securities borrow and loan contracts and are marked-to-market daily in accordance with standard industry practices which approximate fair value. Payables: Payables to customers, payables to non-customers, drafts payable, payables to broker-dealers and clearing organizations, accounts payable and accrued liabilities, and interest payable are recorded at amounts that approximate fair value due to their short-term nature and are classified as level 2 under the fair value hierarchy. Notes payable – related party: The carrying amount of the notes payable – related party approximates fair value due to the relative short-term nature of the borrowing. Under the fair value hierarchy, the notes payable – related party is classified as level 2. Line of credit: The carrying amount of the line of credit with East West Bank approximates fair value due to the relative short-term nature of the borrowing. Under the fair value hierarchy, the line of credit is classified as level 2.

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- Definition The entire disclosure of the fair value measurement of assets and liabilities, which includes financial instruments measured at fair value that are classified in shareholders' equity, which may be measured on a recurring or nonrecurring basis. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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