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Collateralized Securities Transactions | 9 Months Ended
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Sep. 30, 2018
Collateralized Securities Transactions [Abstract] |
Collateralized Securities Transactions | 11. COLLATERALIZED SECURITIES TRANSACTIONS Matched Book Repo Business The Company enters into repurchase and reverse repurchase agreements as part of its matched book repo business. In general, the Company will lend money to a counterparty after obtaining collateral securities from that counterparty pursuant to a reverse repurchase agreement. The Company will borrow money from another counterparty using those same collateral securities pursuant to a repurchase agreement. The Company seeks to earn net interest income on these transactions. Currently, the Company categorizes its matched book repo business into two major groups: gestational repo and GCF repo. Gestational Repo For several years, the Company has run a matched book gestational repo program. Gestational repo involves entering into repurchase and reverse repurchase agreements where the underlying collateral security represents a pool of newly issued mortgage loans. The borrowers (the reverse repurchase agreement counterparties) are generally mortgage originators. The lenders (the repurchase agreement counterparties) are a diverse group of the counterparties comprised of banks, insurance companies, and other financial institutions. The Company’s gestational repo transactions were cleared through Industrial and Commercial Bank of China (“ICBC”) through April 1, 2018. Subsequent to that date, the Company has self-cleared its gestational repo transactions. GCF Repo On October 18, 2017, the Company was notified that it had been approved as a full netting member of the Fixed Income Clearing Corporation’s (“FICC”) Government Securities Division. As a member of the FICC, the Company has access to the FICC’s GCF repo service that provides netting and settlement services for repurchase transactions where the underlying security is general collateral (primarily U.S. Treasuries and U.S. Agency securities). The Company began entering into matched book GCF repo transactions in November 2017. The borrowers (the reverse repurchase agreement counterparties) are a diverse group of financial institutions including hedge funds, registered investment funds, REITs, and other similar counterparties. The lender (the repurchase agreement counterparty) is primarily the FICC itself. The Company uses Bank of New York (“BONY”) as its settlement agent for its GCF repo matched book transactions. The Company is considered self-clearing for this business. In connection with the Company’s full netting membership of the FICC, the Company agreed to establish and maintain a committed line of credit in a minimum amount of $25,000 on or prior to April 30, 2018. The Company entered into a $25,000 line of credit arrangement on April 25, 2018. See note 15. Other Repo Transactions In addition to the Company’s matched book repo business, the Company may also enter into reverse repurchase agreements to acquire securities to cover short positions or as an investment. Additionally, the Company may enter into repurchase agreements to finance the Company’s securities positions held in inventory. These repurchase and reverse repurchase agreements are generally cleared on a bilateral or triparty basis; no clearing broker is involved. These transactions are not matched. Repo Information At September 30, 2018 and December 31, 2017, the Company held reverse repurchase agreements of $4,464,324 and $1,680,883, respectively, and the fair value of collateral received under reverse repurchase agreements was $4,654,319 and $1,753,978, respectively. As of September 30, 2018, the reverse repurchase agreement balance was comprised of receivables collateralized by securities with 37 counterparties. As of December 31, 2017, the reverse repurchase agreements balance was comprised of receivables collateralized by securities with 1 9 counterparties. At September 30, 2018 and December 31, 2017, the Company held repurchase agreements of $4,506,628 and $1,692,279, respectively, and the fair value of securities and cash pledged as collateral under repurchase agreements was $4,528,074 and $1,708,154, respectively. These amounts include collateral for reverse repurchase agreements that were re-pledged as collateral for repurchase agreements. Intraday Lending Facility In conjunction with the Company’s GCF repo business, on October 19, 2018, the Company and BONY renewed an intraday lending facility. The lending facility allows for BONY to advance funds to JVB in order to facilitate the settlement of GCF repo transactions. The total committed amount is $100,000. The new termination date is October 19, 2019. It is expected that this facility will be renewed for successive 364-day periods provided that the Company continues its GCF matched book repo business. ﻿ The BONY lending facility is structured so that advances are generally repaid before the end of each business day. However, if an advance is not repaid by the end of any business day, the advance is converted to an overnight loan. Intraday loans accrue interest at an annual rate of 0.12%. Interest is charged based on the number of minutes in a day the advance is outstanding. Overnight loans are charged interest at the base rate plus 3% on a daily basis. The base rate is the higher of the federal funds rate plus 0.50% or the prime rate in effect at that time. For the nine months ended September 30, 2018, the Company received no advances under the intraday lending facility. ﻿ Concentration ﻿ In the matched book repo business, the demand for borrowed funds is generated by the reverse repurchase agreement counterparty and the supply of funds is provided by the repurchase agreement counterparty. ﻿ On the demand side, the Company does not consider its GCF repo business to be concentrated. The Company’s reverse repo counterparties are a diverse group of financial institutions. On the supply side, the Company obtains nearly all of its funds from the FICC. If the FICC were to reduce its repo lending activities or make significant adverse changes to the cost of such lending, the Company may not be able to replace the FICC funding, or if the Company does so, it may be at a higher cost of funding. Therefore, the Company considers its GCF repo business to be concentrated from the funding side of the business. ﻿ The gestational repo business has been and continues to be concentrated as to reverse repurchase counterparties. The Company conducts this business with a limited number of reverse repo counterparties. As of September 30, 2018 and December 31, 2017, the Company’s gestational reverse repurchase agreements shown in the tables below represented balances from six counterparties. The Company also has a limited number of repurchase agreement counterparties in the gestational repo business. However, that is primarily a function of the limited number of reverse repurchase agreement counterparties with whom the Company conducts this business rather than a reflection of a limited supply of funds. Therefore, the Company considers the gestational repo business to be concentrated on the demand side. ﻿ The total net revenue earned by the Company on its matched book repo business (both gestational repo and GCF Repo) was $1,401 and $3,450 for the three and nine months ended September 30, 2018, respectively. The total net revenue earned by the Company on its matched book repo business (both gestational repo and GCF Repo) was $1,091 and $2,633 for the three and nine months ended September 30, 2017, respectively. ﻿ The following table is a summary of the remaining contractual maturity of the gross obligations under repurchase agreements accounted for as secured borrowings segregated by the underlying collateral pledged as of each date shown. The table reconciles the gross amounts to the net amounts presented in the statement of financial condition. All gross amounts as well as counterparty cash collateral (see note 12) are subject to master netting arrangements; however, there is no offsetting other than the balances with the FICC, as shown below. ﻿ ﻿ ﻿
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﻿SECURED BORROWINGS
﻿(Dollars in Thousands)
﻿September 30, 2018
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﻿ | Repurchase Agreements
﻿ | Remaining Contractual Maturity of the Agreements
﻿Collateral Type: | Overnight and Continuous |  | Up to 30 days |  | 30 - 90 days |  | Greater than 90 days |  | Total
﻿U.S. government agency MBS (GCF repo) | $ | 5,936,630 |  | $ | 27,879 |  | $ | - |  | $ | 1,027,318 |  | $ | 6,991,827
﻿MBS (gestational repo) |  | - |  |  | 93,842 |  |  | 252,126 |  |  | - |  |  | 345,968
﻿SBA loans |  | 20,125 |  |  | - |  |  | - |  |  | - |  |  | 20,125
﻿ | $ | 5,956,755 |  | $ | 121,721 |  | $ | 252,126 |  | $ | 1,027,318 |  | $ | 7,357,920
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﻿Reverse repurchase agreements with FICC netted with repurchase agreements with FICC |  | $ | (2,851,292)
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﻿Securities sold under agreements to repurchase |  |  |  |  |  |  |  |  |  |  |  |  | $ | 4,506,628
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﻿ | Reverse Repurchase Agreements
﻿ | Remaining Contractual Maturity of the Agreements
﻿Collateral Type: | Overnight and Continuous |  | Up to 30 days |  | 30 - 90 days |  | Greater than 90 days |  | Total
﻿U.S. government agency MBS (GCF repo) | $ | 1,502,941 |  | $ | 3,595,560 |  | $ | 847,596 |  | $ | 1,024,615 |  | $ | 6,970,712
﻿MBS (gestational repo) |  | - |  |  | 92,856 |  |  | 252,048 |  |  | - |  |  | 344,904
﻿SBA loans |  | - |  |  | - |  |  | - |  |  | - |  |  | -
﻿ | $ | 1,502,941 |  | $ | 3,688,416 |  | $ | 1,099,644 |  | $ | 1,024,615 |  | $ | 7,315,616
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﻿Reverse repurchase agreements with FICC netted with repurchase agreements with FICC |  | $ | (2,851,292)
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﻿Receivables under resale agreements |  |  |  |  |  |  |  |  |  |  |  |  | $ | 4,464,324
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﻿SECURED BORROWINGS
﻿(Dollars in Thousands)
﻿December 31, 2017
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﻿ | Repurchase Agreements
﻿ | Remaining Contractual Maturity of the Agreements
﻿Collateral Type: | Overnight and Continuous |  | Up to 30 days |  | 30 - 90 days |  | Greater than 90 days |  | Total
﻿U.S. government agency MBS (GCF repo) | $ | 1,174,637 |  | $ | 475,430 |  | $ | - |  | $ | - |  | $ | 1,650,067
﻿MBS (gestational repo) |  | - |  |  | 411,685 |  |  | - |  |  | - |  |  | 411,685
﻿SBA loans |  | 4,847 |  |  | - |  |  | - |  |  | - |  |  | 4,847
﻿ | $ | 1,179,484 |  | $ | 887,115 |  | $ | - |  | $ | - |  | $ | 2,066,599
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﻿Reverse repurchase agreements with FICC netted with repurchase agreements with FICC |  | $ | (374,320)
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﻿Securities sold under agreements to repurchase |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,692,279
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﻿ | Reverse Repurchase Agreements
﻿ | Remaining Contractual Maturity of the Agreements
﻿Collateral Type: | Overnight and Continuous |  | Up to 30 days |  | 30 - 90 days |  | Greater than 90 days |  | Total
﻿U.S. government agency MBS (GCF repo) | $ | 25,004 |  | $ | 514,780 |  | $ | 750,018 |  | $ | 353,790 |  | $ | 1,643,592
﻿MBS (gestational repo) |  | - |  |  | 411,611 |  |  | - |  |  | - |  |  | 411,611
﻿SBA loans |  | - |  |  | - |  |  | - |  |  | - |  |  | -
﻿ | $ | 25,004 |  | $ | 926,391 |  | $ | 750,018 |  | $ | 353,790 |  | $ | 2,055,203
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﻿Reverse repurchase agreements with FICC netted with repurchase agreements with FICC |  | $ | (374,320)
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﻿Receivables under resale agreements |  |  |  |  |  |  |  |  |  |  |  |  | $ | 1,680,883
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- Definition The entire disclosure for repurchase agreements (also known as repos), resale agreements (also known as reverse repurchase agreements or reverse repos), securities borrowed transactions, and securities loaned transactions. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 860 -URI http://asc.fasb.org/topic&trid=2197590 + Details
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