Jefferies 10-Q 2020 Q2 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended May 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 1-14947

JEFFERIES GROUP LLC

(Exact name of registrant as specified in its charter)

Delaware			95-4719745
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
520 Madison Avenue,	New York,	New York	10022
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (212) 284-2550

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
4.850% Senior Notes Due 2027	JEF/27A	New York Stock Exchange
5.125% Senior Notes Due 2023	JEF/23	New York Stock Exchange

The Registrant is a wholly-owned subsidiary of Jefferies Financial Group Inc. and meets the conditions set forth in General Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q with a reduced disclosure format as permitted by Instruction H(2).

JEFFERIES GROUP LLC

INDEX TO QUARTERLY REPORT ON FORM 10-Q

May 31, 2020

PART I. FINANCIAL INFORMATION
	Page
Item 1. Financial Statements	2
Consolidated Statements of Financial Condition (Unaudited)	2
Consolidated Statements of Earnings (Unaudited)	3
Consolidated Statements of Comprehensive Income (Unaudited)	4
Consolidated Statements of Changes in Equity (Unaudited)	5
Consolidated Statements of Cash Flows (Unaudited)	6
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	61
Item 3. Quantitative and Qualitative Disclosures About Market Risk	97
Item 4. Controls and Procedures	97
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	98
Item 1A. Risk Factors	98
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	99
Item 6. Exhibits	99

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)

(In thousands)

	May 31, 2020			November 30, 2019
ASSETS
Cash and cash equivalents ($616 and $1,154 at May 31, 2020 and November 30, 2019, respectively, related to consolidated VIEs)	$	5,251,869		$	5,567,903
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations	668,925			796,797
Financial instruments owned, at fair value (including securities pledged of $12,843,162 and $12,058,522 at May 31, 2020 and November 30, 2019, respectively; and $3,443 and $339 at May 31, 2020 and November 30, 2019, respectively, related to consolidated VIEs)	18,124,883			16,363,374
Loans to and investments in related parties	909,781			944,509
Securities borrowed	6,457,035			7,624,642
Securities purchased under agreements to resell (includes $0 and $25,000 at fair value at May 31, 2020 and November 30, 2019, respectively)	4,284,062			4,299,598
Securities received as collateral, at fair value	9,909			9,500
Receivables:
Brokers, dealers and clearing organizations ($17,783 and $0 at May 31, 2020 and November 30, 2019, respectively, related to consolidated VIEs)	4,205,256			3,007,949
Customers	1,077,355			1,490,876
Fees, interest and other	334,897			323,067
Premises and equipment	862,060			350,433
Goodwill	1,637,111			1,643,599
Other assets ($163 and $0 at May 31, 2020 and November 30, 2019, respectively, related to consolidated VIEs)	1,261,274			1,093,868
Total assets	$	45,084,417		$	43,516,115
LIABILITIES AND EQUITY
Short-term borrowings (includes $15,671 and $20,981 at fair value at May 31, 2020 and November 30, 2019, respectively)	$	656,855		$	548,490
Financial instruments sold, not yet purchased, at fair value ($5,296 and $0 at May 31, 2020 and November 30, 2019, respectively, related to consolidated VIEs)	9,645,826			10,532,460
Collateralized financings:
Securities loaned	1,941,468			1,525,140
Securities sold under agreements to repurchase	8,631,143			7,504,670
Other secured financings (includes $2,096,732 and $2,465,800 at May 31, 2020 and November 30, 2019, respectively, related to consolidated VIEs)	2,098,134			2,467,819
Obligation to return securities received as collateral, at fair value	9,909			9,500
Payables:
Brokers, dealers and clearing organizations	3,006,522			2,555,178
Customers	3,655,467			3,808,609
Lease liabilities	571,282			—
Accrued expenses and other liabilities (includes $898 and $1,546 at May 31, 2020 and November 30, 2019, respectively, related to consolidated VIEs)	1,760,781			1,431,144
Long-term debt (includes $1,245,486 and $1,215,285 at fair value at May 31, 2020 and November 30, 2019, respectively)	6,677,252			7,003,358
Total liabilities	38,654,639			37,386,368
EQUITY
Member’s paid-in capital	6,481,740			6,329,677
Accumulated other comprehensive income (loss):
Currency translation adjustments	(216,993		)	(179,378		)
Changes in instrument specific credit risk	152,845			(18,889		)
Additional minimum pension liability	(5,986		)	(6,079		)
Available-for-sale securities	574			141
Total accumulated other comprehensive loss	(69,560		)	(204,205		)
Total Jefferies Group LLC member’s equity	6,412,180			6,125,472
Noncontrolling interests	17,598			4,275
Total equity	6,429,778			6,129,747
Total liabilities and equity	$	45,084,417		$	43,516,115

See accompanying notes to consolidated financial statements.

2

JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)

(In thousands)

	Three Months Ended   May 31,						Six Months Ended   May 31,
	2020			2019			2020			2019
Revenues:
Commissions and other fees	$	243,267		$	167,698		$	422,802		$	322,840
Principal transactions	467,283			248,831			839,185			483,129
Investment banking	387,491			430,087			979,493			715,683
Asset management and revenues	4,576			5,099			16,296			12,130
Interest	211,941			418,451			506,609			779,426
Other	(47,275		)	44,327			(17,546		)	56,157
Total revenues	1,267,283			1,314,493			2,746,839			2,369,365
Interest expense	232,916			412,642			541,776			781,796
Net revenues	1,034,367			901,851			2,205,063			1,587,569
Non-interest expenses:
Compensation and benefits	571,547			477,885			1,206,777			849,570
Non-compensation expenses:
Floor brokerage and clearing fees	77,619			62,474			138,199			114,451
Technology and communications	95,594			81,645			184,778			160,815
Occupancy and equipment rental	24,395			29,748			51,898			58,287
Business development	8,359			36,349			38,316			66,904
Professional services	41,994			38,066			86,659			74,993
Underwriting costs	12,485			12,823			30,014			21,398
Other	29,506			7,723			60,176			23,428
Total non-compensation expenses	289,952			268,828			590,040			520,276
Total non-interest expenses	861,499			746,713			1,796,817			1,369,846
Earnings before income taxes	172,868			155,138			408,246			217,723
Income tax expense	43,972			45,319			107,985			61,539
Net earnings	128,896			109,819			300,261			156,184
Net earnings (loss) attributable to noncontrolling interests	(1,842		)	(101		)	(3,866		)	283
Net earnings attributable to Jefferies Group LLC	$	130,738		$	109,920		$	304,127		$	155,901

See accompanying notes to consolidated financial statements.

3

JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

	Three Months Ended May 31,						Six Months Ended May 31,
	2020			2019			2020			2019
Net earnings	$	128,896		$	109,819		$	300,261		$	156,184
Other comprehensive income (loss), net of tax:
Currency translation adjustments and other (1)	(28,526		)	(36,245		)	(37,522		)	(6,185		)
Changes in instrument specific credit risk (2)	148,738			2,815			171,734			20,644
Cash flow hedges (3)	—			(219		)	—			(470		)
Unrealized gain on available-for-sale securities (4)	196			233			433			379
Total other comprehensive income (loss), net of tax (5)	120,408			(33,416		)	134,645			14,368
Comprehensive income	249,304			76,403			434,906			170,552
Net earnings (loss) attributable to noncontrolling interests	(1,842		)	(101		)	(3,866		)	283
Comprehensive income attributable to Jefferies Group LLC	$	251,146		$	76,504		$	438,772		$	170,269

(1) The amounts include income tax benefits of approximately $8.8 million and $11.9 million during the three and six months ended May 31, 2020, respectively, and income tax benefits of $9.1 million and $1.7 million during the three and six months ended May 31, 2019, respectively.

(2) The amounts include income tax expenses of approximately $50.7 million and $58.6 million during the three and six months ended May 31, 2020, respectively, and income tax expense of approximately $1.0 million and $7.0 million for the three and six months ended May 31, 2019. The amounts during the three and six months ended May 31, 2020 includes losses of $1.7 million and $2.0 million, respectively, net of income tax benefits of $0.4 million and $0.5 million, respectively, related to changes in instrument specific risk, which was reclassified to Principal transactions revenues in our Consolidated Statements of Earnings. The amounts during the three and six months ended May 31, 2019 include gains of $0.2 million and $0.5 million, respectively, net of taxes of $0.1 million and $0.2 million, respectively, related to changes in instrument specific risk, which was reclassified to Principal transactions revenues in our Consolidated Statements of Earnings.

(3) The amount during the three and six months ended May 31, 2019 includes income tax benefits of $0.1 million and $0.2 million, respectively. The cash flow hedge losses of $0.2 million and $0.5 million, respectively, were reclassified to Other revenues within the Consolidated Statement of Earnings due to the sale of all of our common shares of Epic Gas Ltd. (“Epic Gas”). Refer to Note 9, Investments for further information.

(4) The amounts include income tax expenses of $0.1 million and $0.2 million during the three and six months ended May 31, 2020, respectively, and income tax expenses of $0.1 million and $0.2 million during the three and six months ended May 31, 2019, respectively.

(5) None of the components of other comprehensive income (loss) are attributable to noncontrolling interests.

See accompanying notes to consolidated financial statements.

4

JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)

(In thousands)

	Three Months Ended   May 31,						Six Months Ended   May 31,
	2020			2019			2020			2019
Member’s paid-in capital:
Balance, beginning of period	$	6,503,066		$	6,299,653		$	6,329,677		$	6,376,662
Net earnings attributable to Jefferies Group LLC	130,738			109,920			304,127			155,901
Distributions to Jefferies Financial Group Inc.	(152,064		)	(54,960		)	(152,064		)	(177,950		)
Balance, end of period	$	6,481,740		$	6,354,613		$	6,481,740		$	6,354,613
Accumulated other comprehensive income (loss), net of tax:
Balance, beginning of period	$	(189,968	)	$	(148,385	)	$	(204,205	)	$	(196,169	)
Currency translation adjustments and other	(28,526		)	(36,245		)	(37,522		)	(6,185		)
Changes in instrument specific credit risk	148,738			2,815			171,734			20,644
Cash flow hedges	—			(219		)	—			(470		)
Unrealized gain on available-for-sale securities	196			233			433			379
Balance, end of period	$	(69,560	)	$	(181,801	)	$	(69,560	)	$	(181,801	)
Total Jefferies Group LLC member’s equity	$	6,412,180		$	6,172,812		$	6,412,180		$	6,172,812
Noncontrolling interests:
Balance, beginning of period	$	19,351		$	5,914		$	4,275		$	1,911
Net earnings (loss) attributable to noncontrolling interests	(1,842		)	(101		)	(3,866		)	283
Contributions	305			2,000			17,405			6,600
Distributions	(216		)	(1,500		)	(216		)	(2,481		)
Balance, end of period	$	17,598		$	6,313		$	17,598		$	6,313
Total equity	$	6,429,778		$	6,179,125		$	6,429,778		$	6,179,125

See accompanying notes to consolidated financial statements.

5

JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Six Months Ended   May 31,
	2020			2019
Cash flows from operating activities:
Net earnings	$	300,261		$	156,184
Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:
Depreciation and amortization	31,056			12,145
Goodwill impairment	3,000			—
(Income) loss on loans to and investments in related parties	26,186			(54,321		)
Distributions received on investments in related parties	35,949			94,041
Other adjustments	124,607			79,143
Net change in assets and liabilities:
Securities deposited with clearing and depository organizations	(61,212		)	(3		)
Receivables:
Brokers, dealers and clearing organizations	(1,221,248		)	(680,585		)
Customers	413,489			228,919
Fees, interest and other	(13,663		)	(107,883		)
Securities borrowed	1,142,449			(1,192,513		)
Financial instruments owned	(1,862,147		)	279,277
Securities purchased under agreements to resell	(14,988		)	(1,253,866		)
Other assets	(238,505		)	(128,689		)
Payables:
Brokers, dealers and clearing organizations	471,213			25,116
Customers	(153,116		)	(38,618		)
Securities loaned	438,246			500,307
Financial instruments sold, not yet purchased	(809,925		)	654,851
Securities sold under agreements to repurchase	1,159,948			233,115
Accrued expenses and other liabilities	294,139			(302,050		)
Net cash provided by (used in) operating activities	65,739			(1,495,430		)
Cash flows from investing activities:
Contributions to loans to and investments in related parties	(1,334,785		)	(18,648		)
Capital distributions from investments and repayments of loans from related parties	1,307,239			24,629
Net payments on premises and equipment	(66,953		)	(48,655		)
Net cash used in investing activities	(94,499		)	(42,674		)

Continued on next page.

6

JEFFERIES GROUP LLC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUED (UNAUDITED)

(In thousands)

	Six Months Ended   May 31,
	2020			2019
Cash flows from financing activities:
Proceeds from short-term borrowings	1,226,800			950,000
Payments on short-term borrowings	(1,114,871		)	(812,000		)
Proceeds from issuance of long-term debt, net of issuance costs	440,951			144,250
Repayment of long-term debt	(647,489		)	(58,506		)
Distributions to Jefferies Financial Group Inc.	(12,580		)	(153,687		)
Net proceeds from (payments on) other secured financings	(369,685		)	384,953
Net change in bank overdrafts	(3,126		)	(14,352		)
Proceeds from contributions of noncontrolling interests	17,405			6,600
Payments on distributions to noncontrolling interests	(216		)	(2,481		)
Net cash provided by (used in) financing activities	(462,811		)	444,777
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(13,547		)	(3,892		)
Net decrease in cash, cash equivalents and restricted cash	(505,118		)	(1,097,219		)
Cash, cash equivalents and restricted cash at beginning of period	6,329,712			5,819,027
Cash, cash equivalents and restricted cash at end of period	$	5,824,594		$	4,721,808
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest	$	543,337		$	764,693
Income taxes, net	37,449			40,151

The following presents our cash, cash equivalents and restricted cash by category in our Consolidated Statements of Financial Condition (in thousands):

	May 31, 2020		November 30, 2019
Cash and cash equivalents	$	5,251,869	$	5,567,903
Cash and securities segregated and on deposit for regulatory purposes with clearing and depository organizations	572,725		761,809
Total cash, cash equivalents and restricted cash	$	5,824,594	$	6,329,712

See accompanying notes to consolidated financial statements.

7

JEFFERIES GROUP LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Index

Note	Page
Note 1. Organization and Basis of Presentation	9
Note 2. Summary of Significant Accounting Policies	10
Note 3. Accounting Developments	10
Note 4. Fair Value Disclosures	12
Note 5. Derivative Financial Instruments	28
Note 6. Collateralized Transactions	33
Note 7. Securitization Activities	36
Note 8. Variable Interest Entities	38
Note 9. Investments	41
Note 10. Goodwill and Intangible Assets	44
Note 11. Short-Term Borrowings	46
Note 12. Long-Term Debt	47
Note 13. Leases	48
Note 14. Revenues from Contracts with Customers	50
Note 15. Compensation Plans	53
Note 16. Income Taxes	54
Note 17. Commitments, Contingencies and Guarantees	55
Note 18. Net Capital Requirements	57
Note 19. Segment Reporting	57
Note 20. Related Party Transactions	59

8

JEFFERIES GROUP LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Note 1. Organization and Basis of Presentation

Organization

Jefferies Group LLC is the largest independent U.S.-headquartered global full service, integrated investment banking and securities firm. The accompanying Consolidated Financial Statements represent the accounts of Jefferies Group LLC and all our subsidiaries (together “we” or “us”). The subsidiaries of Jefferies Group LLC include Jefferies LLC, Jefferies International Limited, Jefferies Hong Kong Limited, Jefferies Financial Services, Inc., Jefferies Funding LLC, Jefferies Leveraged Credit Products, LLC and all other entities in which we have a controlling financial interest or are the primary beneficiary.

Jefferies Group LLC is a direct wholly owned subsidiary of publicly traded Jefferies Financial Group Inc. (“Jefferies”). Jefferies does not guarantee any of our outstanding debt securities. Jefferies Group LLC is a Securities and Exchange Commission (“SEC”) reporting company, filing annual, quarterly and periodic financial reports. Richard Handler, our Chief Executive Officer and Chairman, is the Chief Executive Officer of Jefferies, as well as a Director of Jefferies. Brian P. Friedman, our Chairman of the Executive Committee, is Jefferies’ President and a Director of Jefferies.

We operate in 2 reportable business segments: (1) Investment Banking and Capital Markets and (2) Asset Management. For further information on our reportable business segments, refer to Note 19, Segment Reporting.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended November 30, 2019. Certain footnote disclosures included in our Annual Report on Form 10-K for the year ended November 30, 2019 have been condensed or omitted from the consolidated financial statements as they are not required for interim reporting under U.S. GAAP. The Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for the fair presentation of the results for the interim period. The results presented in our Consolidated Financial Statements for interim periods are not necessarily indicative of the results for the entire year.

We have made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses during the reporting period to prepare these consolidated financial statements in conformity with U.S. GAAP. The most important of these estimates and assumptions relate to fair value measurements, compensation and benefits, goodwill and intangible assets, the ability to realize certain deferred tax assets and the recognition and measurement of uncertain tax positions. Although these and other estimates and assumptions are based on the best available information, actual results could be materially different from these estimates.

During the third quarter of 2019, we reclassified the presentation of certain other fees, primarily related to prime brokerage services offered to clients. These fees were previously presented as Other revenues in our Consolidated Statements of Earnings and are now presented within Commissions and other fees. Previously reported results are presented on a comparable basis. This change had the impact of increasing Commissions and other fees and reducing Other revenues by $7.9 million and $15.7 million for the three and six months ended May 31, 2019, respectively. There is no impact on Total revenues as a result of this change in presentation.

Consolidation

Our policy is to consolidate all entities that we control by ownership of a majority of the outstanding voting stock. In addition, we consolidate entities that meet the definition of a variable interest entity (“VIE”) for which we are the primary beneficiary. The primary beneficiary is the party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity. For consolidated entities that are less than wholly owned, the third party’s holding of equity interest is presented as Noncontrolling interests in our Consolidated Statements of Financial Condition and Consolidated Statements of Changes in Equity. The portion of net earnings attributable to the noncontrolling interests is presented as Net earnings (loss) attributable to noncontrolling interests in our Consolidated Statements of Earnings.

In situations in which we have significant influence, but not control, of an entity that does not qualify as a VIE, we apply either the equity method of accounting or fair value accounting pursuant to the fair value option election under U.S. GAAP, with our portion of net earnings or gains and losses recorded in Other revenues or Principal transactions revenues, respectively. We also have formed nonconsolidated investment vehicles with third-party investors that are typically organized as partnerships or limited liability companies and are carried at fair value. We act as general partner or managing member for these investment vehicles and have generally provided the third-party investors with termination or “kick-out” rights.

Intercompany accounts and transactions are eliminated in consolidation.

9

JEFFERIES GROUP LLC AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Note 2. Summary of Significant Accounting Policies

For a detailed discussion about the Company’s significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019.

During the six months ended May 31, 2020, other than the following, there were no significant changes made to the Company’s significant accounting policies. The accounting policy changes are attributable to the adoption of the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2016-02, Leases (the “new lease standard”) on December 1, 2019. These lease policy updates are applied using a modified retrospective approach. Reported financial information for the historical comparable period was not revised and continues to be reported under the accounting standards in effect during the historical periods.

For leases with an original term longer than one year, lease liabilities are initially recognized on the lease commencement date based on the present value of the future minimum lease payments over the lease term, including non-lease components such as fixed common area maintenance costs and other fixed costs for generally all leases. A corresponding right-of-use (“ROU”) asset is initially recognized equal to the lease liability adjusted for any lease prepayments, initial direct costs and lease incentives. The ROU assets are included in Premises and equipment and the lease liabilities are included in Lease liabilities in our Consolidated Statement of Financial Condition.

The discount rates used in determining the present value of leases represent our collateralized borrowing rate considering each lease’s term and currency of payment. The lease term includes options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Certain leases have renewal options that can be exercised at the discretion of the Company. Lease expense is generally recognized on a straight-line basis over the lease term and included in Occupancy and equipment rental expense in our Consolidated Statement of Earnings.

Refer to Note 3, Accounting Developments, and Note 13, Leases, for further information.

Note 3. Accounting Developments

Accounting Standards to be Adopted in Future Periods

Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04 Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This guidance provides optional exceptions for applying U.S. GAAP to  contracts, hedge accounting relationships or other transactions affected by reference rate reform. The optional exceptions can be elected through December 31, 2022. We are currently evaluating the impact of applying the optional exceptions on our consolidated financial statements.

Income Taxes. In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The objective of the guidance is to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and to provide more consistent application to improve the comparability of financial statements. The guidance is effective in the first quarter of fiscal 2022. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Consolidation. In October 2018, the FASB issued ASU No. 2018-17, Consolidation: Targeted Improvements to Related Party Guidance for Variable Interest Entities. The guidance requires indirect interests held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Internal-Use Software. In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The guidance amends the definition of a hosting arrangement and requires that the customer in a hosting arrangement that is a service contract capitalize certain implementation costs as if the arrangement was an internal-use software project. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

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Defined Benefit Plans. In August 2018, the FASB issued ASU No. 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General: Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans. The objective of the guidance is to improve the effectiveness of disclosure requirements on defined benefit pension plans and other postretirement plans. The guidance is effective in the first quarter of fiscal 2021. We do not believe the new guidance will have a material impact on our consolidated financial statements.

Goodwill. In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment, which simplifies goodwill impairment testing. The guidance is effective in the first quarter of fiscal 2021. We do not believe the new guidance will have a material impact on our consolidated financial statements.

Financial Instruments—Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The guidance provides for estimating credit losses on certain types of financial instruments by introducing an approach based on expected losses. The guidance is effective in the first quarter of fiscal 2021. We are currently evaluating the impact of the new guidance on our consolidated financial statements.

Adopted Accounting Standards

Leases. We adopted the new lease standard on December 1, 2019 using a modified retrospective transition approach. Accordingly, reported financial information for historical comparable periods is not revised and continues to be reported under the accounting standards in effect during those historical periods. We elected not to reassess whether existing contracts are or contain leases, or the lease classification and initial direct costs of existing leases upon transition. At transition on December 1, 2019, the adoption of this standard resulted in the recognition of operating ROU assets of $519.9 million and operating lease liabilities of $586.3 million reflected in Premises and equipment and Lease liabilities in our Consolidated Statement of Financial Condition, respectively. Finance lease ROU assets and finance lease liabilities were not material and are reflected in Premises and equipment and Lease liabilities in our Consolidated Statement of Financial Condition, respectively.

Derivatives and Hedging. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The objective of the guidance is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. We adopted the guidance in the first quarter of fiscal 2020 and the adoption did not have a material impact on our consolidated financial statements.

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Note 4. Fair Value Disclosures

The following is a summary of our financial assets and liabilities that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value (“NAV”) of $905.5 million and $570.3 million at May 31, 2020 and November 30, 2019, respectively, by level within the fair value hierarchy (in thousands):

	May 31, 2020
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	2,461,993	$	61,387	$	76,100	$	—		$	2,599,480
Corporate debt securities	—		2,979,793		25,178		—			3,004,971
Collateralized debt obligations and collateralized loan obligations	—		68,748		23,139		—			91,887
U.S. government and federal agency securities	1,808,192		72,411		—		—			1,880,603
Municipal securities	—		462,420		—		—			462,420
Sovereign obligations	2,088,074		1,307,336		—		—			3,395,410
Residential mortgage-backed securities	—		1,688,379		22,339		—			1,710,718
Commercial mortgage-backed securities	—		355,161		4,461		—			359,622
Other asset-backed securities	—		292,158		86,062		—			378,220
Loans and other receivables	—		2,546,340		68,429		—			2,614,769
Derivatives	515		2,070,181		43,124		(1,528,340		)	585,480
Investments at fair value	—		71,860		63,959		—			135,819
Total financial instruments owned, excluding Investments at fair value based on NAV	$	6,358,774	$	11,976,174	$	412,791	$	(1,528,340	)	$	17,219,399
Securities received as collateral	$	9,909	$	—	$	—	$	—		$	9,909
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,772,771	$	1,283	$	4,190	$	—		$	1,778,244
Corporate debt securities	—		1,491,089		163		—			1,491,252
U.S. government and federal agency securities	2,140,501		—		—		—			2,140,501
Sovereign obligations	1,132,662		878,059		—		—			2,010,721
Commercial mortgage-backed securities	—		—		140		—			140
Loans	—		1,796,591		10,674		—			1,807,265
Derivatives	277		2,012,054		88,255		(1,682,883		)	417,703
Total financial instruments sold, not yet purchased	$	5,046,211	$	6,179,076	$	103,422	$	(1,682,883	)	$	9,645,826
Short-term borrowings	$	—	$	15,671	$	—	$	—		$	15,671
Obligation to return securities received as collateral	$	9,909	$	—	$	—	$	—		$	9,909
Long-term debt	$	—	$	748,446	$	497,040	$	—		$	1,245,486

(1) Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.

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	November 30, 2019
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	2,325,116	$	218,403	$	58,301	$	—		$	2,601,820
Corporate debt securities	—		2,472,213		7,490		—			2,479,703
Collateralized debt obligations and collateralized loan obligations	—		124,225		20,081		—			144,306
U.S. government and federal agency securities	2,101,624		158,618		—		—			2,260,242
Municipal securities	—		742,326		—		—			742,326
Sovereign obligations	1,330,026		1,405,827		—		—			2,735,853
Residential mortgage-backed securities	—		1,069,066		17,740		—			1,086,806
Commercial mortgage-backed securities	—		424,060		6,110		—			430,170
Other asset-backed securities	—		303,847		42,563		—			346,410
Loans and other receivables	—		2,395,211		64,240		—			2,459,451
Derivatives	2,809		1,812,659		14,889		(1,432,806		)	397,551
Investments at fair value	—		32,688		75,738		—			108,426
Total financial instruments owned, excluding Investments at fair value based on NAV	$	5,759,575	$	11,159,143	$	307,152	$	(1,432,806	)	$	15,793,064
Securities purchased under agreements to resell	$	—	$	—	$	25,000	$	—		$	25,000
Securities received as collateral	$	9,500	$	—	$	—	$	—		$	9,500
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	2,755,601	$	7,438	$	4,487	$	—		$	2,767,526
Corporate debt securities	—		1,471,142		340		—			1,471,482
U.S. government and federal agency securities	1,851,981		—		—		—			1,851,981
Sovereign obligations	1,363,475		941,065		—		—			2,304,540
Commercial mortgage-backed securities	—		—		35		—			35
Loans	—		1,600,228		9,463		—			1,609,691
Derivatives	871		2,066,064		92,057		(1,631,787		)	527,205
Total financial instruments sold, not yet purchased	$	5,971,928	$	6,085,937	$	106,382	$	(1,631,787	)	$	10,532,460
Short-term borrowings	$	—	$	20,981	$	—	$	—		$	20,981
Obligation to return securities received as collateral	$	9,500	$	—	$	—	$	—		$	9,500
Long-term debt	$	—	$	735,216	$	480,069	$	—		$	1,215,285

(1) Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.

The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

Corporate Equity Securities

• Exchange-Traded Equity Securities: Exchange-traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied.

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• Non-Exchange-Traded Equity Securities: Non-exchange-traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed from recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/Earnings before interest, taxes, depreciation and amortization (“EBITDA”), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).

• Equity Warrants: Non-exchange-traded equity warrants are measured primarily using pricing data from external pricing services, prices observed from recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange-traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and can be measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

• Investment Grade Corporate Bonds: Investment grade corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed from recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Investment grade corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Investment grade corporate bonds measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade corporate bonds.

• High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed from recently executed market transactions of institutional size. Where pricing data is less observable, valuations are categorized within Level 3 of the fair value hierarchy and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations and Collateralized Loan Obligations

Collateralized debt obligations (“CDOs”) and collateralized loan obligations (“CLOs”) are measured based on prices observed from recently executed market transactions of the same or similar security or based on valuations received from third-party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transactions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria, including, but not limited to, collateral type, tranche type, rating, origination year, prepayment rates, default rates and loss severity.

U.S. Government and Federal Agency Securities

• U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices obtained from external pricing services and categorized within Level 1 of the fair value hierarchy.

• U.S. Agency Debt Securities: Callable and non-callable U.S. agency debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.

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Sovereign Obligations

Sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. Sovereign government obligations, with consideration given to the country of issuance, are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Residential Mortgage-Backed Securities

• Agency Residential Mortgage-Backed Securities (“RMBS”): Agency RMBS include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and principal-only and interest-only (including inverse interest-only) securities. Agency RMBS are generally measured using recent transactions, pricing data from external pricing services or expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral and are categorized within Level 2 or Level 3 of the fair value hierarchy. We use prices observed from recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age.

• Non-Agency RMBS: The fair value of non-agency RMBS is determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities.

Commercial Mortgage-Backed Securities

• Agency Commercial Mortgage-Backed Securities (“CMBS”): Government National Mortgage Association (“GNMA”) project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of various factors, including prepayment speeds, default rates and cash flow structures, as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed from recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.

• Non-Agency CMBS: Non-agency CMBS are measured using pricing data obtained from external pricing services, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-Agency CMBS are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs.

Other Asset-Backed Securities

Other asset-backed securities (“ABS”) include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal.

Loans and Other Receivables

• Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they are supported by transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on price quotations that are considered to be less transparent, market prices for debt securities of the same creditor and estimates of future cash flows incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.

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• Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans and data provider pricing. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.

• Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans to account for the arbitrage that is realized at the time of securitization. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.

• Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions and incorporating valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.

• Escrow and Claim Receivables: Escrow and claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent observations in the same receivable.

Derivatives

• Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy.

• Over-the-Counter (“OTC”) Derivative Contracts: OTC derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current transaction. Where available, valuation inputs are calibrated from observable market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.

OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as Black-Scholes, with key inputs including the underlying security price, foreign exchange spot rate, commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporates constant prepayment rate, constant default rate and loss severity assumptions. Credit default swaps include both index and single-name credit default swaps. Where available, external data is used in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are generally observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

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Investments at Fair Value

Investments at fair value includes investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy. Investments at fair value also include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy.

The following tables present information about our investments in entities that have the characteristics of an investment company (in thousands):

	May 31, 2020
	Fair Value (1)		Unfunded Commitments
Equity Long/Short Hedge Funds (2)	$	302,790	$	—
Equity Funds (3)	21,182		11,823
Commodity Funds (4)	13,593		—
Multi-asset Funds (5)	543,191		—
Other Funds (6)	24,728		—
Total	$	905,484	$	11,823

	November 30, 2019
	Fair Value (1)		Unfunded Commitments
Equity Long/Short Hedge Funds (2)	$	291,593	$	—
Equity Funds (3)	27,952		12,108
Commodity Funds (4)	16,025		—
Multi-asset Funds (5)	234,583		—
Other Funds (6)	157		—
Total	$	570,310	$	12,108

(1) Where fair value is calculated based on NAV, fair value has been derived from each of the funds’ capital statements.

(2) This category includes investments in hedge funds that invest, long and short, primarily in both public and private equity securities in domestic and international markets. At both May 31, 2020 and November 30, 2019, approximately 6% of the fair value of investments in this category are redeemable quarterly with 60 days prior written notice.

(3) At May 31, 2020 and November 30, 2019, the investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed; instead, distributions are received through the liquidation of the underlying assets of the funds which are primarily expected to be liquidated in approximately one to nine years.

(4) This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice.

(5) This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At May 31, 2020 and November 30, 2019, investments representing approximately 58% and 5%, respectively, of the fair value of investments in this category are redeemable monthly with 30 or 60 days prior written notice.

(6) This category includes investments in a fund that trades and invests in structured finance securities. At May 31, 2020 and November 30, 2019, investments in this category representing approximately 99% and 0%, respectively, are redeemable quarterly with 12 months prior written notice.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell may include embedded call features. The valuation of these instruments is based on review of expected future cash flows, interest rates, funding spreads and the fair value of the underlying collateral. Securities

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purchased under agreements to resell are categorized within Level 3 of the fair value hierarchy due to limited observability of the embedded derivative and unobservable credit spreads.

Securities Received as Collateral / Obligations to Return Securities Received as Collateral

In connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral. Valuation is based on the price of the underlying security and is categorized within Level 1 of the fair value hierarchy.

Short-term Borrowings / Long-term Debt

Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized within Level 2 of the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, constant maturity swap, digital and Bermudan structured notes. These are valued using various valuation models that incorporate our own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs as well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy where market trades have been observed during the quarter, otherwise categorized within Level 3.

Level 3 Rollforwards

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended May 31, 2020 (in thousands):

	Three Months Ended May 31, 2020
	Balance at February 29, 2020		Total gains/losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of) Level 3			Balance at May 31, 2020		For instruments still held at May 31, 2020 changes in unrealized  gains/(losses) included in:
																						Earnings (1)			Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	103,643	$	(5,319	)	$	36		$	(68	)	$	—		$	—	$	(22,192	)	$	76,100	$	(5,220	)	$	—
Corporate debt securities	25,090		(1,480		)	328			(365		)	(1		)	—		1,606			25,178		(1,464		)	—
CDOs and CLOs	20,952		(12,879		)	—			(8,471		)	(1,673		)	—		25,210			23,139		(16,031		)	—
RMBS	16,970		(1,773		)	1,380			—			(7		)	—		5,769			22,339		(1,733		)	—
CMBS	4,264		53			—			—			—			—		144			4,461		53			—
Other ABS	41,903		(2,380		)	11,038			—			(8,490		)	—		43,991			86,062		(5,087		)	—
Loans and other receivables	54,321		(4,891		)	45,984			(46,939		)	(128		)	—		20,082			68,429		(4,847		)	—
Investments at fair value	55,270		(10,805		)	400			(91		)	—			—		19,185			63,959		(10,805		)	—
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	4,275	$	(60	)	$	—		$	—		$	—		$	—	$	(25	)	$	4,190	$	60		$	—
Corporate debt securities	767		(23		)	(20		)	—			—			—		(561		)	163		—			—
CMBS	35		—			—			105			—			—		—			140		—			—
Loans	7,859		1,015			(2,785		)	3,290			—			—		1,295			10,674		(1,015		)	—
Net derivatives (2)	110,843		(32,744		)	(10,810		)	33,196			(603		)	—		(54,751		)	45,131		34,259			—
Long-term debt	543,463		(92,480		)	—			—			—			66,916		(20,859		)	497,040		664			91,816

(1) Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in our Consolidated Statements of Earnings. Changes in instrument-specific credit risk related to structured notes are included in our Consolidated Statement of Comprehensive Income, net of tax.

(2) Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.

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(Unaudited)

Analysis of Level 3 Assets and Liabilities for the three months ended May 31, 2020

During the three months ended May 31, 2020, transfers of assets of $127.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

• Other ABS of $44.5 million, CDOs and CLOs of $29.6 million, Loans and other receivables of $20.7 million and Investment at fair value of $19.2 million a due to reduced pricing transparency.

During the three months ended May 31, 2020, transfers of assets of $33.7 million from Level 3 to Level 2 are primarily attributed to:

• Corporate equity securities of $26.2 million and CDOs and CLOs of $4.4 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended May 31, 2020, transfers of liabilities of $23.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

• Net derivatives of $11.4 million and structured notes of $11.1 million due to reduced pricing and market transparency.

During the three months ended May 31, 2020, transfers of liabilities of $98.6 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:

• Net derivatives of $66.1 million and structured notes of $31.9 million due to greater pricing and market transparency.

Net losses on Level 3 assets were $39.5 million and net gains on Level 3 liabilities were $124.3 million for the three months ended May 31, 2020. Net losses on Level 3 assets were primarily due to decreased market values across CDOs and CLOs, Investments at fair value, Corporate equity securities and Loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain structured notes and market values across derivatives.

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(Unaudited)

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the six months ended May 31, 2020 (in thousands):

	Six Months Ended May 31, 2020
			Total gains/losses (realized and unrealized) (1)														Net transfers into/  (out of) Level 3					For instruments still held at May 31, 2020, changes in unrealized gains/(losses) included in:
	Balance at November 30, 2019					Purchases			Sales			Settlements			Issuances					Balance at May 31, 2020		Earnings (1)			Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	58,301	$	(12,860	)	$	2,989		$	(2,017	)	$	—		$	—	$	29,687		$	76,100	$	(12,787	)	$	—
Corporate debt securities	7,490		1,560			766			(479		)	(602		)	—		16,443			25,178		1,190			—
CDOs and CLOs	20,081		(14,223		)	9,426			(11,849		)	(3,193		)	—		22,897			23,139		(17,115		)	—
RMBS	17,740		(2,248		)	2,062			—			(10		)	—		4,795			22,339		(2,195		)	—
CMBS	6,110		(95		)	—			—			(1,660		)	—		106			4,461		(680		)	—
Other ABS	42,563		(2,848		)	33,917			(664		)	(17,361		)	—		30,455			86,062		(7,226		)	—
Loans and other receivables	64,240		(8,600		)	66,047			(76,227		)	(6,606		)	—		29,575			68,429		(11,689		)	—
Investments at fair value	75,738		(30,496		)	18,885			(168		)	—			—		—			63,959		(30,496		)	—
Securities purchased under agreements to resell	25,000		—			—			—			(25,000		)	—		—			—		—			—
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	4,487	$	216		$	(513	)	$	—		$	—		$	—	$	—		$	4,190	$	140		$	—
Corporate debt securities	340		(27		)	(150		)	—			—			—		—			163		5			—
CMBS	35		—			(35		)	140			—			—		—			140		—			—
Loans	9,463		1,072			(12,958		)	3,290			—			—		9,807			10,674		(1,075		)	—
Net derivatives (2)	77,168		(44,729		)	(11,088		)	38,823			(1,010		)	—		(14,033		)	45,131		32,211			—
Long-term debt	480,069		(101,267		)	—			—			—			175,498		(57,260		)	497,040		(4,802		)	106,069

(1) Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in our Consolidated Statements of Earnings. Changes in instrument-specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income, net of tax.

(2) Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.

Analysis of Level 3 Assets and Liabilities for the Six Months Ended May 31, 2020

During the six months ended May 31, 2020, transfers of assets of $148.5 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

• Corporate equity securities of $37.0 million, Loans and other receivables of $33.5 million, Other ABS of $31.1 million, CDOs and CLOs of $22.9 million and Corporate debt securities of $18.3 million due to reduced pricing transparency.

During the six months ended May 31, 2020, transfers of assets of $14.6 million from Level 3 to Level 2 are primarily attributed to:

• Corporate equity securities of $7.3 million and Loans and other receivables of $4.0 million due to greater pricing transparency supporting classification into Level 2.

During the six months ended May 31, 2020, transfers of liabilities of $37.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

• Net derivatives of $26.2 million and Loans and other receivables of $10.8 million due to reduced pricing transparency.

During the six months ended May 31, 2020, transfers of liabilities of $98.5 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:

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(Unaudited)

• Structured notes of $57.3 million and net derivatives of $40.2 million due to greater market and pricing transparency.

Net losses on Level 3 assets were $69.8 million and net gains on Level 3 liabilities were $144.7 million for the six months ended May 31, 2020. Net losses on Level 3 assets were primarily due to decreased market values across Investments at fair value, CDOs and CLOs, Corporate equity securities and Loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain structured notes and market values across derivatives.

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended May 31, 2019 (in thousands):

	Three Months Ended May 31, 2019
	Balance at February 28, 2019		Total gains/losses (realized and unrealized) (1)				Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of) Level 3			Balance at May 31, 2019		For instruments still held at May 31, 2019, changes in unrealized gains/(losses) included in:
																							Earnings (1)			Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	54,766	$	2,353			$	221		$	(179	)	$	(551	)	$	—	$	2,697		$	59,307	$	2,454		$	—
Corporate debt securities	10,930		(587		)		180			—			(325		)	—		(2,769		)	7,429		(588		)	—
CDOs and CLOs	32,566		(1,793		)		—			—			—			—		(14,578		)	16,195		(1,795		)	—
RMBS	20,963		(802		)		—			—			(18		)	—		(2,877		)	17,266		(759		)	—
CMBS	12,820		(357		)		—			(331		)	(3,238		)	—		3,636			12,530		(1,292		)	—
Other ABS	35,886		3,070				16,531			(8,868		)	(8,549		)	—		5,115			43,185		3,563			—
Loans and other receivables	78,051		(2,753		)		38,780			(13,898		)	(2,438		)	—		742			98,484		(1,277		)	—
Investments at fair value	140,812		2,841				—			—			—			—		(39,820		)	103,833		2,841			—
Securities purchased under agreements to resell	—		—				—			—			—			25,000		—			25,000		—			—
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	78	$	(74	)		$	(1,520	)	$	1,737		$	—		$	—	$	—		$	221	$	—		$	—
Corporate debt securities	730		(148		)	��	(7		)	1			22			—		71			669		90			—
CMBS	70		(70		)		—			—			—			—		—			—		—			—
Loans	3,420		(191		)		(1,678		)	1,537			—			—		6,340			9,428		364			—
Net derivatives (2)	28,975		(14,760		)		(25		)	4,175			1,974			—		27,110			47,449		7,565			—
Long-term debt	283,139		1,163				—			—			(5,585		)	39,385		(81,540		)	236,562		(813		)	(350		)

(1) Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in our Consolidated Statements of Earnings. Changes in instrument-specific credit risk related to structured notes are included in our Consolidated Statement of Comprehensive Income, net of tax.

(2) Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended May 31, 2019

During the three months ended May 31, 2019, transfers of assets of $31.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

• Loans and other receivables of $11.3 million and other ABS of $7.6 million due to reduced pricing transparency.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

During the three months ended May 31, 2019, transfers of assets of $79.5 million from Level 3 to Level 2 are primarily attributed to:

• Investment at fair value of $39.8 million, CDOs and CLOs of $17.6 million and loans and other receivables of $10.5 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended May 31, 2019, transfers of liabilities of $57.4 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

• Net derivatives of $41.5 million and structured notes of $9.5 million due to reduced market and pricing transparency.

During the three months ended May 31, 2019, transfers of liabilities of $105.4 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:

• Structured notes of $91.0 million and Net derivatives of $14.4 million due to greater market transparency.

Net gains on Level 3 assets were $2.0 million and net gains on Level 3 liabilities were $14.1 million for the three months ended May 31, 2019. Net gains on Level 3 assets were primarily due to increased market values across other ABS and Investments at fair value, partially offset by decreased market values across Loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased market values across certain derivatives.

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the six months ended May 31, 2019 (in thousands):

	Six Months Ended May 31, 2019
	Balance at November 30, 2018		Total gains/losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of) Level 3			Balance at May 31, 2019		For instruments still held at May 31, 2019, changes in unrealized gains/(losses) included in:
																						Earnings (1)			Other comprehensive income (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	51,040	$	6,126		$	785		$	(2,031	)	$	(720	)	$	—	$	4,107		$	59,307	$	7,972		$	—
Corporate debt securities	9,484		(389		)	1,545			(2,130		)	(1,177		)	—		96			7,429		(334		)	—
CDOs and CLOs	25,815		(2,790		)	4,782			—			—			—		(11,612		)	16,195		(2,554		)	—
RMBS	19,603		(316		)	39			—			(45		)	—		(2,015		)	17,266		(271		)	—
CMBS	10,886		(180		)	11			(331		)	(3,278		)	—		5,422			12,530		(1,183		)	—
Other ABS	53,175		(1,014		)	25,316			(13,247		)	(9,529		)	—		(11,516		)	43,185		(522		)	—
Loans and other receivables	46,985		2,434			77,004			(33,549		)	(3,378		)	—		8,988			98,484		844			—
Investments at fair value	113,831		(1,162		)	31,343			—			—			—		(40,179		)	103,833		(1,162		)	—
Securities purchased under agreements to resell	—		—			—			—			—			25,000		—			25,000		—			—
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	—	$	(76	)	$	(1,546	)	$	1,843		$	—		$	—	$	—		$	221	$	—		$	—
Corporate debt securities	522		(382		)	(73		)	93			22			—		487			669		305			—
Loans	6,376		(401		)	(3,946		)	7,963			—			—		(564		)	9,428		579			—
Net derivatives (2)	21,614		(29,079		)	(2,829		)	7,259			2,031			—		48,453			47,449		19,607			—
Long-term debt	200,745		(12,854		)	—			—			(11,250		)	101,872		(41,951		)	236,562		3,827			9,027

(1) Realized and unrealized gains/losses are primarily reported in Principal transactions revenues in our Consolidated Statements of Earnings. Changes in instrument-specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income, net of tax.

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(Unaudited)

(2) Net derivatives represent Financial instruments owned—Derivatives and Financial instruments sold, not yet purchased—Derivatives.

Analysis of Level 3 Assets and Liabilities for the Six Months Ended May 31, 2019

During the six months ended May 31, 2019, transfers of assets of $42.3 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:

• Loans and other receivables of $15.7 million and other ABS of $10.8 million due to reduced pricing transparency.

During the six months ended May 31, 2019, transfers of assets of $89.0 million from Level 3 to Level 2 are primarily attributed

to:

• Investments at fair value of $40.2 million, other ABS of $22.3 million and CDOs and CLOs of $12.5 million due to greater pricing transparency supporting classification into Level 2.

During the six months ended May 31, 2019, transfers of liabilities of $69.6 million from Level 2 to Level 3 of the fair value

hierarchy are primarily attributed to:

• Net derivatives of $58.7 million and structured notes of $10.3 million due to reduced market and pricing transparency.

During the six months ended May 31, 2019, transfers of liabilities of $63.2 million from Level 3 to Level 2 of the fair value

hierarchy are primarily attributed to:

• Structured notes of $52.3 million due to greater market transparency.

Net gains on Level 3 assets were $2.7 million and net gains on Level 3 liabilities were $42.8 million for the six months ended May 31, 2019. Net gains on Level 3 assets were primarily due to increased market values across Corporate equity securities, partially offset by decreased market values across CDOs and CLOs. Net gains on Level 3 liabilities were primarily due to decreased market values across derivatives and valuations of certain structured notes.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at May 31, 2020 and November 30, 2019

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products across different firms in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument (i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class). Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather, the range of inputs is reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other periods should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

May 31, 2020
Financial Instruments Owned:	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range				Weighted Average
Corporate equity securities	$	75,712
Non-exchange traded securities			Market approach	Price	$1		-	$213	$94
				Underlying stock price	$3				—
				EBITDA multiple	$3		-	$8	$4
Corporate debt securities	$	25,178	Market approach	Price	$69				—
			Scenario analysis	Estimated recovery percentage	22%				—
CDOs and CLOs	$	23,139	Discounted cash flows	Constant prepayment rate	10	%	-	20%	16%
				Constant default rate	2%				—
				Loss severity	25	%	-	30%	28%
				Discount rate/yield	14	%	-	32%	22%
RMBS	$	22,339	Discounted cash flows	Cumulative loss rate	3	%	-	33%	11
				Duration (years)	2.0		-	6.1	5.6
				Discount rate/yield	4	%	-	15%	5%
CMBS	$	4,461	Scenario analysis	Estimated recovery percentage	44%				—
Other ABS	$	86,062	Discounted cash flows	Cumulative loss rate	7	%	-	31%	14%
				Duration (years)	0.4		-	2.8	1.4
				Discount rate/yield	5	%	-	15%	9%
			Market approach	Price	$100				—
Loans and other receivables	$	67,207	Market approach	Price	$1		-	$100	$81
			Scenario analysis	Estimated recovery percentage	1	%	-	100%	61%
Derivatives	$	41,769
Equity options			Volatility benchmarking	Volatility	49%				—
Interest rate swaps			Market approach	Basis points upfront	1		-	16	8
Investments at fair value	$	63,959
Private equity securities			Market approach	Price	$6		-	$169	$49
			Scenario analysis	Estimated recovery percentage	86%				—
Financial Instruments Sold, Not Yet Purchased:
Corporate equity securities	$	4,190	Market approach	Transaction level	$1				—
Corporate debt securities	$	163	Scenario analysis	Estimated recovery percentage	22%				—
Loans	$	10,674	Market approach	Price	$1		-	$50	$33
			Scenario analysis	Estimated recovery percentage	1%				—
Derivatives	$	83,576
Equity options			Volatility benchmarking	Volatility	33	%	-	62%	47%
Interest rate swaps			Market approach	Basis points upfront	0		-	16	7
Unfunded commitments				Price	$90				—
Long-term debt
Structured notes	$	497,040	Market approach	Price	$78		-	$94	$84
				Price	€63		-	€109	€85

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

November 30, 2019
Financial Instruments Owned	Fair Value (in thousands)	Valuation Technique	Significant Unobservable Input(s)	Input / Range				Weighted Average
Corporate equity securities	$29,017
Non-exchange-traded securities		Market approach	Price	$1		-	$140	$55
			Underlying stock price	$3		-	$5	$4
Corporate debt securities	$7,490	Scenario analysis	Estimated recovery percentage	23	%	-	85%	46%
			Volatility	44%				—
			Credit spread	750				—
			Underlying stock price	£0.4				—
CDOs and CLOs	$20,081	Discounted cash flows	Constant prepayment rate	20%				—
			Constant default rate	1	%	-	2%	2%
			Loss severity	25	%	-	37%	29%
			Discount rate/yield	12	%	-	21%	15%
RMBS	$17,740	Discounted cash flows	Cumulative loss rate	2%				—
			Duration (years)	6.3				—
			Discount rate/yield	3%				—
CMBS	$6,110	Discounted cash flows	Cumulative loss rate	7.3%				—
			Duration (years)	0.2				—
			Discount rate/yield	85%				—
		Scenario analysis	Estimated recovery percentage	44%				—
Other ABS	$42,563	Discounted cash flows	Cumulative loss rate	7	%	-	31%	16%
			Duration (years)	0.5		-	3.0	1.5
			Discount rate/yield	7	%	-	15%	11%
Loans and other receivables	$62,734	Market approach	Price	$36		-	$100	$90
		Scenario analysis	Estimated recovery percentage	87	%	-	104%	99%
Derivatives	$13,826
Interest rate swaps		Market approach	Basis points upfront	0		-	16	6
Unfunded commitments			Price	$88				—
Equity options		Volatility benchmarking	Volatility	45%				—
Investments at fair value	$75,736
Private equity securities		Market approach	Price	$8		-	$250	$125
Securities purchased under agreements to resell	$25,000
		Market approach	Spread to 6 month LIBOR	500				—
			Duration (years)	1.5				—
Financial Instruments Sold, Not Yet Purchased:
Corporate equity securities	$4,487	Market approach	Transaction level	$1				—
Loans	$9,463	Market approach	Price	$50		-	$100	$88
		Scenario analysis	Estimated recovery percentage	1%				—
Derivatives	$92,057
Equity options		Volatility benchmarking	Volatility	21	%	-	61%	43%
Interest rate swaps		Market approach	Basis points upfront	0		-	22	13
Cross currency swaps			Basis points upfront	2				—
Unfunded commitments			Price	$88				—
Long-term debt
Structured notes	$480,069	Market approach	Price	$84		-	$108	$96
			Price	€74		-	€103	€91

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices or a percentage of the reported enterprise fair value are excluded from the above tables. At May 31, 2020 and November 30, 2019, asset exclusions consisted of $3.0 million and $31.9 million, respectively, primarily comprised of corporate equity securities, certain derivatives and loans and other receivables. At May 31, 2020 and November 30, 2019, liability exclusions consisted of $4.8 million and $0.4 million, respectively, primarily comprised of certain derivatives, corporate debt and CMBS.

25

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the uncertainty of the fair value measurement due to the use of significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:

• Corporate equity securities, corporate debt securities, loans and other receivables, certain derivatives, other ABS, private equity securities, securities purchased under agreements to resell and structured notes using a market approach valuation technique. A significant increase (decrease) in the transaction level of corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the price of the private equity securities, non-exchange-traded securities, unfunded commitments, corporate debt securities, other ABS, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the EBITDA multiple related to corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of corporate equity securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the yield or duration, in isolation, of securities purchased under agreements to resell would result in a significantly lower (higher) fair value measurement. Depending on whether we are a receiver or (payer) of basis points upfront, a significant increase in basis points would result in a significant increase (decrease) in the fair value measurement of cross currency and interest rate swaps.

• Loans and other receivables, CMBS, corporate debt securities and private equity securities using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the financial instrument would result in a significantly higher (lower) fair value measurement for the financial instrument. A significant increase (decrease) in the price of the underlying assets of the financial instrument would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the volatility of the underlying stock price would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of the financial instrument would result in a significantly lower (higher) fair value measurement.

• CDOs and CLOs, RMBS, CMBS and other ABS using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) fair value measurement.

• Derivative equity options using volatility benchmarking. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.

Fair Value Option Election

We have elected the fair value option for all loans and loan commitments made by our investment banking and capital markets businesses. These loans and loan commitments include loans entered into by our investment banking division in connection with client bridge financing and loan syndications, loans purchased by our leveraged credit trading desk as part of its bank loan trading activities and mortgage and consumer loan commitments, purchases and fundings in connection with mortgage-backed and other asset-backed securitization activities. Loans and loan commitments originated or purchased by our leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Financial instruments owned and loan commitments are included in Financial instruments owned and Financial instruments sold, not yet purchased in our Consolidated Statements of Financial Condition. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. We have also elected the fair value option for certain of our structured notes, which are managed by our investment banking and capital markets businesses and are included in Long-term debt and Short-term borrowings in our Consolidated Statements of Financial Condition. We have elected the fair value option for certain financial instruments held by subsidiaries as the investments are risk managed by us on a fair value basis. The fair value option may be elected for certain secured financings that arise in connection with our securitization activities and other structured financings. Other secured financings, Receivables – Brokers, dealers and clearing organizations, Receivables – Customers, Receivables – Fees, interest and other, Payables – Brokers, dealers and clearing organizations and Payables – Customers, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.

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The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on Long-term debt and Short-term borrowings measured at fair value under the fair value option (in thousands):

	Three Months Ended   May 31,						Six Months Ended   May 31,
	2020			2019			2020			2019
Financial instruments owned:
Loans and other receivables	$	(13,926	)	$	(2,352	)	$	(10,830	)	$	(3,072	)
Financial instruments sold, not yet purchased:
Loans	$	127		$	—		$	127		$	—
Loan commitments	1,750			(757		)	1,089			(678		)
Long-term debt:
Changes in instrument specific credit risk (1)	$	197,737		$	4,009		$	227,169		$	27,492
Other changes in fair value (2)	(30,982		)	(36,665		)	(68,624		)	(47,308		)
Short-term borrowings:
Changes in instrument specific credit risk (1)	$	35		$	—		$	91		$	—
Other changes in fair value (2)	(644		)	—			(881		)	—

(1) Changes in instrument specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income, net of tax.

(2) Other changes in fair value are included in Principal transactions revenues in our Consolidated Statements of Earnings.

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables, long-term debt and short-term borrowings measured at fair value under the fair value option (in thousands):

	May 31, 2020		November 30, 2019
Financial instruments owned:
Loans and other receivables (1)	$	1,881,470	$	1,546,516
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)	331,340		197,215
Long-term debt and short-term borrowings	241,295		74,408

(1) Interest income is recognized separately from other changes in fair value and is included in Interest revenues in our Consolidated Statements of Earnings.

(2) Amounts include loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $27.2 million and $22.2 million at May 31, 2020 and November 30, 2019, respectively.

The aggregate fair value of loans and other receivables on nonaccrual status and/or 90 days or greater past due was $175.8 million and $127.0 million at May 31, 2020 and November 30, 2019, respectively, which includes loans and other receivables 90 days or greater past due of $16.6 million and $24.8 million at May 31, 2020 and November 30, 2019, respectively.

Financial Instruments Not Measured at Fair Value

Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented within Level 1 of the fair value hierarchy. Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. Treasury securities with a fair value of $96.2 million and $35.0 million at May 31, 2020 and November 30, 2019, respectively.

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Note 5. Derivative Financial Instruments

Derivative Financial Instruments

Our derivative activities are recorded at fair value in our Consolidated Statements of Financial Condition in Financial instruments owned and Financial instruments sold, not yet purchased, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. We enter into derivative transactions to satisfy the needs of our clients and to manage our own exposure to market and credit risks resulting from our trading activities. In addition, we apply hedge accounting to an interest rate swap that has been designated as a fair value hedge of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt.

See Note 4, Fair Value Disclosures, and Note 17, Commitments, Contingencies and Guarantees, for additional disclosures about derivative financial instruments.

Derivatives are subject to various risks similar to other financial instruments, including market, credit and operational risk. The risks of derivatives should not be viewed in isolation, but rather should be considered on an aggregate basis along with our other trading-related activities. We manage the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of our firm wide risk management policies.

In connection with our derivative activities, we may enter into International Swaps and Derivatives Association, Inc. master netting agreements or similar agreements with counterparties. See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019 for additional information regarding the offsetting of derivative contracts.

The following tables present the fair value and related number of derivative contracts at May 31, 2020 and November 30, 2019 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in our Consolidated Statements of Financial Condition as appropriate under U.S. GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts).

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	May 31, 2020 (1)
	Assets				Liabilities
	Fair Value			Number of Contracts (2)	Fair Value			Number of Contracts (2)
Derivatives designated as accounting hedges:
Interest rate contracts:
Cleared OTC	$	74,227		1	$	—		—
Total derivatives designated as accounting hedges	74,227				—
Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	515			43,775	277			56,844
Cleared OTC	226,248			4,332	326,475			4,585
Bilateral OTC	732,046			1,244	315,023			601
Foreign exchange contracts:
Exchange-traded	—			—	—			139
Bilateral OTC	324,486			12,874	341,814			12,669
Equity contracts:
Exchange-traded	422,377			986,001	501,975			872,216
Bilateral OTC	330,034			1,398	610,146			1,574
Commodity contracts:
Exchange-traded	—			3,251	—			4,572
Credit contracts:
Cleared OTC	190			14	915			6
Bilateral OTC	3,697			11	3,961			7
Total derivatives not designated as accounting hedges	2,039,593				2,100,586
Total gross derivative assets/ liabilities:
Exchange-traded	422,892				502,252
Cleared OTC	300,665				327,390
Bilateral OTC	1,390,263				1,270,944
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded	(409,622		)		(409,622		)
Cleared OTC	(286,069		)		(287,244		)
Bilateral OTC	(832,649		)		(986,017		)
Net amounts per Consolidated Statements of Financial Condition (4)	$	585,480			$	417,703

(1) Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.

(2) Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.

(3) Amounts netted include both netting by counterparty and for cash collateral paid or received.

(4) We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in our Consolidated Statements of Financial Condition.

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(Unaudited)

	November 30, 2019 (1)
	Assets				Liabilities
	Fair Value			Number of Contracts (2)	Fair Value			Number of Contracts (2)
Derivatives designated as accounting hedges:
Interest rate contracts:
Cleared OTC	$	28,663		1	$	—		—
Total derivatives designated as accounting hedges	28,663				—
Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	1,191			65,226	103			38,464
Cleared OTC	213,224			3,329	284,433			3,443
Bilateral OTC	421,700			1,325	258,857			738
Foreign exchange contracts:
Exchange-traded	—			256	—			199
Bilateral OTC	190,570			9,255	187,836			9,187
Equity contracts:
Exchange-traded	717,494			1,714,538	962,535			1,481,388
Bilateral OTC	248,720			4,731	445,241			4,271
Commodity contracts:
Exchange-traded	—			5,524	—			4,646
Credit contracts:
Cleared OTC	2,514			13	5,768			12
Bilateral OTC	6,281			25	14,219			28
Total derivatives not designated as accounting hedges	1,801,694				2,158,992
Total gross derivative assets/liabilities:
Exchange-traded	718,685				962,638
Cleared OTC	244,401				290,201
Bilateral OTC	867,271				906,153
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded	(688,871		)		(688,871		)
Cleared OTC	(222,869		)		(266,900		)
Bilateral OTC	(521,066		)		(676,016		)
Net amounts per Consolidated Statements of Financial Condition (4)	$	397,551			$	527,205

(1) Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.

(2) Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.

(3) Amounts netted include both netting by counterparty and for cash collateral paid or received.

(4) We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in our Consolidated Statements of Financial Condition.

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(Unaudited)

The following table provides information related to gains (losses) recognized in Interest expense in our Consolidated Statements of Earnings on a fair value hedge (in thousands):

	Three Months Ended   May 31,						Six Months Ended   May 31,
Gains (Losses)	2020			2019			2020			2019
Interest rate swaps	$	22,004		$	27,204		$	46,469		$	41,791
Long-term debt	(22,306		)	(28,213		)	(47,173		)	(43,769		)
Total	$	(302	)	$	(1,009	)	$	(704	)	$	(1,978	)

The following table presents unrealized and realized gains (losses) on derivative contracts recognized in Principal transactions revenues in our Consolidated Statements of Earnings, which are utilized in connection with our client activities and our economic risk management activities (in thousands):

	Three Months Ended   May 31,						Six Months Ended   May 31,
Gains (Losses)	2020			2019			2020			2019
Interest rate contracts	$	(4,079	)	$	(34,020	)	$	(5,168	)	$	(103,851	)
Foreign exchange contracts	2,053			1,594			(847		)	1,418
Equity contracts	9,147			(92,109		)	146,035			(120,590		)
Commodity contracts	5,291			(1,117		)	(781		)	1,375
Credit contracts	12,554			4,818			14,384			8,913
Total	$	24,966		$	(120,834	)	$	153,623		$	(212,735	)

The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising our business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. We substantially mitigate our exposure to market risk on our cash instruments through derivative contracts, which generally provide offsetting revenues, and we manage the risk associated with these contracts in the context of our overall risk management framework.

OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities at May 31, 2020 (in thousands):

	OTC Derivative Assets (1) (2) (3)
	0 – 12 Months		1 – 5 Years		Greater Than 5 Years		Cross-Maturity Netting (4)			Total
Equity forwards, swaps and options	$	46,129	$	200	$	18,280	$	(13,218	)	$	51,391
Credit default swaps	11		900		133		(11		)	1,033
Total return swaps	83,333		63,660		—		(8,838		)	138,155
Foreign currency forwards, swaps and options	55,197		11,655		113		(6,611		)	60,354
Interest rate swaps, options and forwards	70,849		242,525		253,402		(36,319		)	530,457
Total	$	255,519	$	318,940	$	271,928	$	(64,997	)	781,390
Cross product counterparty netting										(37,469		)
Total OTC derivative assets included in Financial instruments owned										$	743,921

(1) At May 31, 2020, we held net exchange-traded derivative assets and other credit agreements with a fair value of $34.1 million, which are not included in this table.

(2) OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in our Consolidated Statements of Financial Condition. At May 31, 2020, cash collateral received was $192.6 million.

(3) Derivative fair values include counterparty netting within product category.

(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.

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(Unaudited)

	OTC Derivative Liabilities (1) (2) (3)
	0 – 12 Months		1 – 5 Years		Greater Than 5 Years		Cross-Maturity Netting (4)			Total
Equity, forwards, swaps and options	$	14,944	$	251,025	$	101,362	$	(13,218	)	$	354,113
Credit default swaps	—		1,489		69		(11		)	1,547
Total return swaps	61,841		56,238		—		(8,838		)	109,241
Foreign currency forwards, swaps and options	74,272		10,196		92		(6,611		)	77,949
Interest rate swaps, options and forwards	28,449		84,262		80,673		(36,319		)	157,065
Total	$	179,506	$	403,210	$	182,196	$	(64,997	)	699,915
Cross product counterparty netting										(37,469		)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased										$	662,446

(1) At May 31, 2020, we held net exchange-traded derivative liabilities and other credit agreements with a fair value of $102.4 million, which are not included in this table.

(2) OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in our Consolidated Statements of Financial Condition. At May 31, 2020, cash collateral pledged was $347.1 million.

(3) Derivative fair values include counterparty netting within product category.

(4) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.

The following table presents the counterparty credit quality with respect to the fair value of our OTC derivative assets at May 31, 2020 (in thousands):

Counterparty credit quality (1):
A- or higher	$	133,783
BBB- to BBB+	32,975
BB+ or lower	336,290
Unrated	240,873
Total	$	743,921

(1) We utilize internal credit ratings determined by our Risk Management department. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.

Credit Related Derivative Contracts

The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts (in millions):

	May 31, 2020
	External Credit Rating
	Investment Grade		Non-investment Grade		Total Notional
Credit protection sold:
Index credit default swaps	$	2.0	$	12.1	$	14.1
Single name credit default swaps	—		7.4		7.4

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(Unaudited)

	November 30, 2019
	External Credit Rating
	Investment Grade		Non-investment Grade		Unrated		Total Notional
Credit protection sold:
Index credit default swaps	$	3.0	$	32.0	$	—	$	35.0
Single name credit default swaps	3.4		29.0		1.5		33.9

Contingent Features

Certain of our derivative instruments contain provisions that require our debt to maintain an investment grade credit rating from each of the major credit rating agencies. If our debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on our derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts we have posted or received in the normal course of business and the potential collateral we would have been required to return and/or post additionally to our counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions):

	May 31, 2020			November 30, 2019
Derivative instrument liabilities with credit-risk-related contingent features	$	180.9		$	42.9
Collateral posted	(139.3		)	(3.1		)
Collateral received	50.9			114.1
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)	92.6			154.0

(1) These potential outflows include initial margin received from counterparties at the execution of the derivative contract. The initial margin will be returned if counterparties elect to terminate the contract after a downgrade.

Note 6. Collateralized Transactions

Our repurchase agreements and securities borrowing and lending arrangements are generally recorded at cost in our Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their short-term nature. We enter into secured borrowing and lending arrangements to obtain collateral necessary to effect settlement, finance inventory positions, meet customer needs or re-lend as part of our dealer operations. We monitor the fair value of the securities loaned and borrowed on a daily basis as compared with the related payable or receivable, and request additional collateral or return excess collateral, as appropriate. We pledge financial instruments as collateral under repurchase agreements, securities lending agreements and other secured arrangements, including clearing arrangements. Our agreements with counterparties generally contain contractual provisions allowing the counterparty the right to sell or repledge the collateral. Pledged securities owned that can be sold or repledged by the counterparty are included in Financial instruments owned, at fair value, and noted parenthetically as Securities pledged in our Consolidated Statements of Financial Condition.

In instances where we receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities and are permitted to sell or repledge the securities received as collateral, we report the fair value of the collateral received and the related obligation to return the collateral in our Consolidated Statements of Financial Condition.

The following tables set forth the carrying value of securities lending arrangements, repurchase agreements and obligation to return securities received as collateral, at fair value, by class of collateral pledged (in thousands):

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(Unaudited)

	May 31, 2020
	Securities Lending Arrangements		Repurchase Agreements		Obligation To Return Securities Received As Collateral, at fair value		Total
Collateral Pledged:
Corporate equity securities	$	1,361,027	$	19,560	$	—	$	1,380,587
Corporate debt securities	574,834		1,774,184		—		2,349,018
Mortgage-backed and asset-backed securities	—		1,604,243		—		1,604,243
U.S. government and federal agency securities	5,607		10,924,983		9,909		10,940,499
Municipal securities	—		359,159		—		359,159
Sovereign obligations	—		4,138,647		—		4,138,647
Loans and other receivables	—		1,127,416		—		1,127,416
Total	$	1,941,468	$	19,948,192	$	9,909	$	21,899,569

	November 30, 2019
	Securities Lending Arrangements		Repurchase Agreements		Obligation To Return Securities Received As Collateral, at fair value		Total
Collateral Pledged:
Corporate equity securities	$	1,314,395	$	129,558	$	—	$	1,443,953
Corporate debt securities	191,311		1,730,526		—		1,921,837
Mortgage-backed and asset-backed securities	—		1,745,145		—		1,745,145
U.S. government and federal agency securities	19,434		10,863,997		9,500		10,892,931
Municipal securities	—		498,202		—		498,202
Sovereign obligations	—		3,016,563		—		3,016,563
Loans and other receivables	—		772,926		—		772,926
Total	$	1,525,140	$	18,756,917	$	9,500	$	20,291,557

The following tables set forth the carrying value of securities lending arrangements, repurchase agreements and obligation to return securities received as collateral, at fair value, by remaining contractual maturity (in thousands):

	May 31, 2020
	Overnight and Continuous		Up to 30 Days		31-90 Days		Greater than 90 Days		Total
Securities lending arrangements	$	846,023	$	83,582	$	492,010	$	519,853	$	1,941,468
Repurchase agreements	9,380,493		4,037,094		3,663,073		2,867,532		19,948,192
Obligation to return securities received as collateral, at fair value	—		—		—		9,909		9,909
Total	$	10,226,516	$	4,120,676	$	4,155,083	$	3,397,294	$	21,899,569

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(Unaudited)

	November 30, 2019
	Overnight and Continuous		Up to 30 Days		31-90 Days		Greater than 90 Days		Total
Securities lending arrangements	$	694,821	$	—	$	672,969	$	157,350	$	1,525,140
Repurchase agreements	6,614,026		1,556,260		8,988,528		1,598,103		18,756,917
Obligation to return securities received as collateral, at fair value	—		—		9,500		—		9,500
Total	$	7,308,847	$	1,556,260	$	9,670,997	$	1,755,453	$	20,291,557

We receive securities as collateral under resale agreements, securities borrowing transactions and customer margin loans. We also receive securities as collateral in connection with securities-for-securities transactions in which we are the lender of securities. In many instances, we are permitted by contract to rehypothecate the securities received as collateral. These securities may be used to secure repurchase agreements, enter into securities lending transactions, satisfy margin requirements on derivative transactions or cover short positions. At May 31, 2020 and November 30, 2019, the approximate fair value of securities received as collateral by us that may be sold or repledged was $26.8 billion and $28.7 billion, respectively. At May 31, 2020 and November 30, 2019, a substantial portion of the securities received by us had been sold or repledged.

Offsetting of Securities Financing Agreements

To manage our exposure to credit risk associated with securities financing transactions, we may enter into master netting agreements and collateral arrangements with counterparties. Generally, transactions are executed under standard industry agreements, including, but not limited to, master securities lending agreements (securities lending transactions) and master repurchase agreements (repurchase transactions). See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019 for additional information regarding the offsetting of securities financing agreements.

The following tables provide information regarding repurchase agreements, securities borrowing and lending arrangements and securities received as collateral, at fair value, and obligation to return securities received as collateral, at fair value, that are recognized in our Consolidated Statements of Financial Condition and 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in our Consolidated Statements of Financial Condition as appropriate under U.S. GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands).

	May 31, 2020
	Gross Amounts		Netting in Consolidated Statement of Financial Condition			Net Amounts in Consolidated Statement of Financial Condition		Additional Amounts Available for Setoff (1)			Available Collateral (2)			Net Amount (3)
Assets:
Securities borrowing arrangements	$	6,457,035	$	—		$	6,457,035	$	(500,270	)	$	(1,464,411	)	$	4,492,354
Reverse repurchase agreements	15,601,111		(11,317,049		)	4,284,062		(783,427		)	(3,474,933		)	25,702
Securities received as collateral, at fair value	9,909		—			9,909		—			—			9,909
Liabilities:
Securities lending arrangements	$	1,941,468	$	—		$	1,941,468	$	(500,270	)	$	(1,414,097	)	$	27,101
Repurchase agreements	19,948,192		(11,317,049		)	8,631,143		(783,427		)	(7,350,643		)	497,073
Obligation to return securities received as collateral, at fair value	9,909		—			9,909		—			—			9,909

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	November 30, 2019
	Gross Amounts		Netting in Consolidated Statement of Financial Condition			Net Amounts in Consolidated Statement of Financial Condition		Additional Amounts Available for Setoff (1)			Available Collateral (2)			Net Amount (4)
Assets:
Securities borrowing arrangements	$	7,624,642	$	—		$	7,624,642	$	(361,394	)	$	(1,479,433	)	$	5,783,815
Reverse repurchase agreements	15,551,845		(11,252,247		)	4,299,598		(291,316		)	(3,929,977		)	78,305
Securities received as collateral, at fair value	9,500		—			9,500		—			—			9,500
Liabilities:
Securities lending arrangements	$	1,525,140	$	—		$	1,525,140	$	(361,394	)	$	(970,799	)	$	192,947
Repurchase agreements	18,756,917		(11,252,247		)	7,504,670		(291,316		)	(6,663,807		)	549,547
Obligation to return securities received as collateral, at fair value	9,500		—			9,500		—			—			9,500

(1) Under master netting agreements with our counterparties, we have the legal right of offset with a counterparty, which incorporates all of the counterparty’s outstanding rights and obligations under the arrangement. These balances reflect additional credit risk mitigation that is available by a counterparty in the event of a counterparty’s default, but which are not netted in the balance sheet because other netting provisions of U.S. GAAP are not met.

(2) Includes securities received or paid under collateral arrangements with counterparties that could be liquidated in the event of a counterparty default and thus offset against a counterparty’s rights and obligations under the respective repurchase agreements or securities borrowing or lending arrangements.

(3) Amounts include $4,444.7 million of securities borrowing arrangements, for which we have received securities collateral of $4,337.7 million, and $470.0 million of repurchase agreements, for which we have pledged securities collateral of $480.3 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable.

(4) Amounts include $5,683.4 million of securities borrowing arrangements, for which we have received securities collateral of $5,523.6 million, and $439.7 million of repurchase agreements, for which we have pledged securities collateral of $447.5 million, which are subject to master netting agreements, but we have not determined the agreements to be legally enforceable.

Cash and Securities Segregated and on Deposit for Regulatory Purposes or Deposited with Clearing and Depository Organizations

Cash and securities deposited with clearing and depository organizations and segregated in accordance with regulatory regulations totaled $668.9 million and $796.8 million at May 31, 2020 and November 30, 2019, respectively. Segregated cash and securities consist of deposits in accordance with Rule 15c3-3 of the Securities Exchange Act of 1934, which subjects Jefferies LLC as a broker-dealer carrying customer accounts to requirements related to maintaining cash or qualified securities in segregated special reserve bank accounts for the exclusive benefit of its customers.

Note 7. Securitization Activities

We engage in securitization activities related to corporate loans, mortgage loans, consumer loans and mortgage-backed and other asset-backed securities. In our securitization transactions, we transfer these assets to special purpose entities (“SPEs”) and act as the placement or structuring agent for the beneficial interests sold to investors by the SPE. A significant portion of our securitization transactions are the securitization of assets issued or guaranteed by U.S. government agencies. These SPEs generally meet the criteria of VIEs; however, we generally do not consolidate the SPEs as we are not considered the primary beneficiary for these SPEs. See Note 8, Variable Interest Entities, for further discussion on VIEs and our determination of the primary beneficiary.

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We account for our securitization transactions as sales, provided we have relinquished control over the transferred assets. Transferred assets are carried at fair value with unrealized gains and losses reflected in Principal transactions revenues in our Consolidated Statements of Earnings prior to the identification and isolation for securitization. Subsequently, revenues recognized upon securitization are reflected as net underwriting revenues. We generally receive cash proceeds in connection with the transfer of assets to an SPE. We may, however, have continuing involvement with the transferred assets, which is limited to retaining one or more tranches of the securitization (primarily senior and subordinated debt securities in the form of mortgage-backed and other-asset backed securities or CLOs). These securities are included in Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition and are generally initially categorized as Level 2 within the fair value hierarchy. For further information on fair value measurements and the fair value hierarchy, refer to Note 4, Fair Value Disclosures, herein, and Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019.

The following table presents activity related to our securitizations that were accounted for as sales in which we had continuing involvement (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Transferred assets	$	1,475.8	$	844.5	$	3,810.4	$	2,105.1
Proceeds on new securitizations	1,475.7		845.8		3,810.4		2,177.0
Cash flows received on retained interests	7.2		24.3		11.7		36.6

We have no explicit or implicit arrangements to provide additional financial support to these SPEs, have no liabilities related to these SPEs and do not have any outstanding derivative contracts executed in connection with these securitization activities at May 31, 2020 and November 30, 2019.

The following tables summarize our retained interests in SPEs where we transferred assets and have continuing involvement and received sale accounting treatment (in millions):

	May 31, 2020				November 30, 2019
Securitization Type	Total Assets		Retained Interests		Total Assets		Retained Interests
U.S. government agency RMBS	$	1,028.5	$	55.6	$	10,671.7	$	103.3
U.S. government agency CMBS	672.3		55.2		1,374.8		45.8
CLOs	1,468.1		121.6		3,006.7		58.4
Consumer and other loans	707.6		67.5		1,149.3		71.8

Total assets represent the unpaid principal amount of assets in the SPEs in which we have continuing involvement and are presented solely to provide information regarding the size of the transactions and the size of the underlying assets supporting our retained interests, and are not considered representative of the risk of potential loss. Assets retained in connection with a securitization transaction represent the fair value of the securities of one or more tranches issued by an SPE, including senior and subordinated tranches. Our risk of loss is limited to this fair value amount which is included in total Financial instruments owned in our Consolidated Statements of Financial Condition.

Although not obligated, in connection with secondary market-making activities we may make a market in the securities issued by these SPEs. In these market-making transactions, we buy these securities from and sell these securities to investors. Securities purchased through these market-making activities are not considered to be continuing involvement in these SPEs. To the extent we purchased securities through these market-making activities and we are not deemed to be the primary beneficiary of the VIE, these securities are included in agency and non-agency mortgage-backed and asset-backed securitizations in the nonconsolidated VIEs section presented in Note 8, Variable Interest Entities.

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Note 8. Variable Interest Entities

VIEs are entities in which equity investors lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary. The primary beneficiary is the party who has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant to the entity.

Our variable interests in VIEs include debt and equity interests, commitments, guarantees and certain fees. Our involvement with VIEs arises primarily from:

• Purchases of securities in connection with our trading and secondary market-making activities;

• Retained interests held as a result of securitization activities, including the resecuritization of mortgage-backed and other asset-backed securities and the securitization of mortgage, corporate and consumer loans;

• Acting as placement agent and/or underwriter in connection with client-sponsored securitizations;

• Financing of agency and non-agency mortgage-backed and other asset-backed securities;

• Warehouse funding arrangements for client-sponsored consumer and mortgage loan vehicles and CLOs through participation agreements, forward sale agreements and revolving loan and note commitments; and

• Loans to, investments in and fees from various investment vehicles.

We determine whether we are the primary beneficiary of a VIE upon our initial involvement with the VIE and we reassess whether we are the primary beneficiary of a VIE on an ongoing basis. Our determination of whether we are the primary beneficiary of a VIE is based upon the facts and circumstances for each VIE and requires judgment. Our considerations in determining the VIE’s most significant activities and whether we have power to direct those activities include, but are not limited to, the VIE’s purpose and design and the risks passed through to investors, the voting interests of the VIE, management, service and/or other agreements of the VIE, involvement in the VIE’s initial design and the existence of explicit or implicit financial guarantees. In situations where we have determined that the power over the VIE’s significant activities is shared, we assess whether we are the party with the power over the most significant activities. If we are the party with the power over the most significant activities, we meet the “power” criteria of the primary beneficiary. If we do not have the power over the most significant activities or we determine that decisions require consent of each sharing party, we do not meet the “power” criteria of the primary beneficiary.

We assess our variable interests in a VIE both individually and in aggregate to determine whether we have an obligation to absorb losses of or a right to receive benefits from the VIE that could potentially be significant to the VIE. The determination of whether our variable interest is significant to the VIE requires judgment. In determining the significance of our variable interest, we consider the terms, characteristics and size of the variable interests, the design and characteristics of the VIE, our involvement in the VIE and our market-making activities related to the variable interests.

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Consolidated VIEs

The following table presents information about our consolidated VIEs at May 31, 2020 and November 30, 2019 (in millions). The assets and liabilities in the tables below are presented prior to consolidation and thus a portion of these assets and liabilities are eliminated in consolidation.

	May 31, 2020				November 30, 2019
	Secured Funding Vehicles		Other		Secured Funding Vehicles		Other
Cash (1)	$	—	$	1.2	$	—	$	1.2
Financial instruments owned	—		3.4		—		0.3
Securities purchased under agreements to resell (2)	2,097.5		—		2,467.3		—
Receivable from brokers	—		17.8		—		—
Other assets	—		0.2		—		—
Total assets	$	2,097.5	$	22.6	$	2,467.3	$	1.5
Financial instruments sold, not yet purchased	$	—	$	5.3	$	—	$	—
Other secured financings	2,096.7		—		2,465.8		—
Other liabilities (3)	0.8		0.4		1.5		0.2
Total liabilities	$	2,097.5	$	5.7	$	2,467.3	$	0.2

(1) Approximately $0.6 million of the cash amount at May 31, 2020 represents cash on deposit with a related consolidated entity and is eliminated in consolidation.

(2) Securities purchased under agreements to resell primarily represent amounts due under collateralized transactions on related consolidated entities, which are eliminated in consolidation.

(3) Approximately $0.3 million and $0.2 million of the other liabilities amount represents intercompany payables and is eliminated in consolidation at May 31, 2020 and November 30, 2019, respectively.

Secured Funding Vehicles. We are the primary beneficiary of asset-backed financing vehicles to which we sell agency and non-agency residential and commercial mortgage loans, and asset-backed securities pursuant to the terms of a master repurchase agreement. Our variable interests in these vehicles consist of our collateral margin maintenance obligations under the master repurchase agreement, which we manage, and retained interests in securities issued. The assets of these VIEs consist of reverse repurchase agreements, which are available for the benefit of the vehicle’s debt holders.

Other. We are the primary beneficiary of certain investment vehicles set up for the benefit of our employees. We manage and invest alongside our employees in these vehicles. The assets of these VIEs consist of private equity securities and are available for the benefit of the entities’ equity holders. Our variable interests in these vehicles consist of equity securities. The creditors of these VIEs do not have recourse to our general credit and each such VIE’s assets are not available to satisfy any other debt.

Nonconsolidated VIEs

The following tables present information about our variable interests in nonconsolidated VIEs (in millions):

	May 31, 2020
	Carrying Amount				Maximum Exposure to Loss		VIE Assets
	Assets		Liabilities
CLOs	$	64.9	$	—	$	70.9	$	5,874.8
Consumer loan and other asset-backed vehicles	336.4		—		472.9		2,499.8
Related party private equity vehicles	16.6		—		27.7		45.6
Other investment vehicles	773.4		—		780.5		11,648.1
Total	$	1,191.3	$	—	$	1,352.0	$	20,068.3

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	November 30, 2019
	Carrying Amount				Maximum Exposure to Loss		VIE Assets
	Assets		Liabilities
CLOs	$	152.6	$	0.6	$	505.3	$	7,845.0
Consumer loan and other asset-backed vehicles	358.3		—		490.6		2,354.8
Related party private equity vehicles	23.0		—		34.3		71.4
Other investment vehicles	404.1		—		411.9		6,102.7
Total	$	938.0	$	0.6	$	1,442.1	$	16,373.9

Our maximum exposure to loss often differs from the carrying value of the variable interests. The maximum exposure to loss is dependent on the nature of our variable interests in the VIEs and is limited to the notional amounts of certain loan and equity commitments and guarantees. Our maximum exposure to loss does not include the offsetting benefit of any financial instruments that may be utilized to hedge the risks associated with our variable interests and is not reduced by the amount of collateral held as part of a transaction with a VIE.

Collateralized Loan Obligations. Assets collateralizing the CLOs include bank loans, participation interests and sub-investment grade and senior secured U.S. loans. We underwrite securities issued in CLO transactions on behalf of sponsors and provide advisory services to the sponsors. We may also sell corporate loans to the CLOs. Our variable interests in connection with CLOs where we have been involved in providing underwriting and/or advisory services consist of the following:

• Forward sale agreements whereby we commit to sell, at a fixed price, corporate loans and ownership interests in an entity holding such corporate loans to CLOs;

• Warehouse funding arrangements in the form of participation interests in corporate loans held by CLOs and commitments to fund such participation interests;

• Trading positions in securities issued in a CLO transaction; and

• Investments in variable funding notes issued by CLOs.

Asset-Backed Vehicles. We provide financing and lending related services to certain client-sponsored VIEs in the form of revolving funding note agreements, revolving credit facilities, forward purchase agreements and reverse repurchase agreements. The underlying assets, which are collateralizing the vehicles, are primarily composed of unsecured consumer loans, mortgage loans, and trade claims. In addition, we may provide structuring and advisory services and act as an underwriter or placement agent for securities issued by the vehicles. We do not control the activities of these entities.

Related Party Private Equity Vehicles. We committed to invest in private equity funds, (the “JCP Funds”, including JCP Fund V (see Note 9, Investments)) managed by Jefferies Capital Partners, LLC (the “JCP Manager”). Additionally, we committed to invest in the general partners of the JCP Funds (the “JCP General Partners”) and the JCP Manager. Our variable interests in the JCP Funds, JCP General Partners and JCP Manager (collectively, the “JCP Entities”) consist of equity interests that, in total, provide us with limited and general partner investment returns of the JCP Funds, a portion of the carried interest earned by the JCP General Partners and a portion of the management fees earned by the JCP Manager. At both May 31, 2020 and November 30, 2019, our total equity commitment in the JCP Entities was $133.0 million, of which $121.9 million and $121.7 million had been funded, respectively. The carrying value of our equity investments in the JCP Entities was $16.6 million and $23.0 million at May 31, 2020 and November 30, 2019, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. The assets of the JCP Entities primarily consist of private equity and equity related investments.

Other Investment Vehicles. At May 31, 2020 and November 30, 2019, we had equity commitments to invest $770.6 million and $398.6 million, respectively, in various other investment vehicles, of which $763.5 million and $390.8 million was funded, respectively. The carrying value of our equity investments was $773.4 million and $404.1 million at May 31, 2020 and November 30, 2019, respectively. Our exposure to loss is limited to the total of our carrying value and unfunded equity commitment. These investment vehicles have assets primarily consisting of private and public equity investments, debt instruments, trade and insurance claims and various oil and gas assets.

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Mortgage-Backed and Other Asset-Backed Secured Funding Vehicles. In connection with our secondary trading and market-making activities, we buy and sell agency and non-agency mortgage-backed securities and other asset-backed securities, which are issued by third-party securitization SPEs and are generally considered variable interests in VIEs. Securities issued by securitization SPEs are backed by residential mortgage loans, U.S. agency collateralized mortgage obligations, commercial mortgage loans, CDOs and CLOs and other consumer loans, such as installment receivables, auto loans and student loans. These securities are accounted for at fair value and included in Financial instruments owned in our Consolidated Statements of Financial Condition. We have no other involvement with the related SPEs and therefore do not consolidate these entities.

We also engage in underwriting, placement and structuring activities for third-party-sponsored securitization trusts generally through agency (FNMA (“Fannie Mae”), Federal Home Loan Mortgage Corporation (“Freddie Mac”) or GNMA (“Ginnie Mae”)) or non-agency-sponsored SPEs and may purchase loans or mortgage-backed securities from third parties that are subsequently transferred into the securitization trusts. The securitizations are backed by residential and commercial mortgage, home equity and auto loans. We do not consolidate agency-sponsored securitizations as we do not have the power to direct the activities of the SPEs that most significantly impact their economic performance. Further, we are not the servicer of non-agency-sponsored securitizations and therefore do not have power to direct the most significant activities of the SPEs and accordingly, do not consolidate these entities. We may retain unsold senior and/or subordinated interests at the time of securitization in the form of securities issued by the SPEs.

At May 31, 2020 and November 30, 2019, we held $2,004.2 million and $1,453.5 million of agency mortgage-backed securities, respectively, and $140.4 million and $134.8 million of non-agency mortgage-backed and other asset-backed securities, respectively, as a result of our secondary trading and market-making activities, and underwriting, placement and structuring activities. Our maximum exposure to loss on these securities is limited to the carrying value of our investments in these securities. These mortgage-backed and other asset-backed secured funding vehicles discussed are not included in the above table containing information about our variable interests in nonconsolidated VIEs.

Note 9. Investments

At May 31, 2020, we had investments in Jefferies Finance LLC (“Jefferies Finance”) and Berkadia. In addition, we had an investment in Epic Gas, which was sold on March 19, 2019. Our investments in Jefferies Finance, Berkadia and Epic Gas have been accounted for under the equity method and have been included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition with our share of the investees’ earnings recognized in Other revenues in our Consolidated Statements of Earnings. We have limited partnership interests of 11% and 50% in Jefferies Capital Partners V L.P. and the Jefferies SBI USA Fund L.P. (together, “JCP Fund V”), respectively, which are private equity funds managed by a team led by one of our directors and our Chairman of the Executive Committee.

Jefferies Finance

Jefferies Finance, a joint venture entity pursuant to an agreement with Massachusetts Mutual Life Insurance Company (“MassMutual”), is a commercial finance company that structures, underwrites and arranges primarily senior secured loans to corporate borrowers. Loans are originated primarily through the investment banking efforts of Jefferies LLC. Jefferies Finance may also underwrite and arrange other debt products such as second lien term, bridge and mezzanine loans, as well as related equity co-investments. In addition, Jefferies Finance is a registered investment advisor under the Investment Advisers Act of 1940 and, through two of its wholly-owned subsidiaries, Apex Credit Partners LLC and JFIN Asset Management LLC, acts as an investment advisor for various loan funds and CLOs managing direct lending and broadly syndicated loan products.

At May 31, 2020, we and MassMutual each had equity commitments to Jefferies Finance of $750.0 million, for a combined total commitment of $1.5 billion. At May 31, 2020, we had funded $652.4 million of our $750.0 million commitment, leaving $97.6 million unfunded. The investment commitment is scheduled to expire on March 1, 2021 with automatic one year extensions absent a 60 days termination notice by either party.

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Jefferies Finance has executed a Secured Revolving Credit Facility with us and MassMutual, to be funded equally, to support loan underwritings by Jefferies Finance, which bears interest based on the interest rates of the related Jefferies Finance underwritten loans and is secured by the underlying loans funded by the proceeds of the facility. The total Secured Revolving Credit Facility is a committed amount of $500.0 million at May 31, 2020. Advances are shared equally between us and MassMutual. The facility is scheduled to mature on March 1, 2021 with automatic one year extensions absent a 60 days termination notice by either party. At May 31, 2020, we had funded $20.0 million of our $250.0 million commitment. The following summarizes the activity included in our Consolidated Statements of Earnings related to the facility (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Interest income	$	1.4	$	—	$	2.2	$	—
Unfunded commitment fees	0.1		0.3		0.4		0.6

The following is a summary of selected financial information for Jefferies Finance (in millions):

	May 31, 2020		November 30, 2019
Our total equity balance	$	602.8	$	642.0

	Three Months Ended   May 31,					Six Months Ended   May 31,
	2020			2019		2020			2019
Net earnings (loss)	$	(99.2	)	$	50.2	$	(78.5	)	$	47.8

The following summarizes activity related to our other transactions with Jefferies Finance (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Origination and syndication fee revenues (1)	$	43.8	$	69.3	$	81.5	$	91.2
Origination fee expenses (1)	3.0		8.2		8.6		13.6
CLO placement fee revenues (2)	—		—		0.4		1.3
Underwriting fees (3)	—		1.0		0.3		1.0
Service fees (4)	10.7		11.2		35.9		38.3

(1) We engage in debt underwriting transactions with Jefferies Finance related to the originations and syndications of loans by Jefferies Finance. In connection with such services, we earned fees, which are recognized in Investment banking revenues in our Consolidated Statements of Earnings. In addition, we paid fees to Jefferies Finance in respect of certain loans originated by Jefferies Finance, which are recognized as Business development expenses in our Consolidated Statements of Earnings.

(2) We act as a placement agent for CLOs managed by Jefferies Finance, for which we recognized fees, which are included in Investment banking revenues in our Consolidated Statements of Earnings. At May 31, 2020 and November 30, 2019, we held securities issued by CLOs managed by Jefferies Finance, which are included in Financial instruments owned, at fair value.

(3) We acted as underwriter in connection with term loans issued by Jefferies Finance.

(4) Under a service agreement, we charge Jefferies Finance for services provided.

In connection with non-U.S. dollar loans originated by Jefferies Finance to borrowers who are investment banking clients of ours, we have entered into an agreement to indemnify Jefferies Finance with respect to any foreign currency exposure.

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Receivables from Jefferies Finance, included in Other assets in our Consolidated Statements of Financial Condition, were $27.0 million and $17.2 million at May 31, 2020 and November 30, 2019, respectively. Payables to Jefferies Finance related to cash deposited with us and included in Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition, were $13.7 million at both May 31, 2020 and November 30, 2019. At November 30, 2019, a payable to Jefferies Finance of $17.6 million related to its lending transactions is included in Payables to customers in our Consolidated Statements of Financial Condition.

On March 28, 2019, we entered into a promissory note with Jefferies Finance with a principal amount of $1.0 billion, the proceeds of which were used in connection with our investment banking loan syndication activities. We repaid Jefferies Finance the entire outstanding principal amount of this note on May 15, 2019. Interest paid on the note of $3.8 million is included in Interest expense within our Consolidated Statements of Earnings for the three and six months ended May 31, 2019.

Berkadia

Berkadia is a commercial mortgage banking and servicing joint venture that was formed in 2009 by Jefferies and Berkshire Hathaway Inc. On October 1, 2018, Jefferies transferred its 50% voting equity interest in Berkadia and related arrangements to us. As a result, we are entitled to receive 45% of the profits of Berkadia. Berkadia originates commercial/multifamily real estate loans that are sold to U.S. government agencies, and originates and brokers commercial/multifamily mortgage loans which are not part of government agency programs. Berkadia is an investment sales advisor focused on the multifamily industry. Berkadia is a servicer of commercial real estate loans in the U.S., performing primary, master and special servicing functions for U.S. government agency programs, commercial mortgage-backed securities transactions, banks, insurance companies and other financial institutions.

The following is a summary of selected financial information for Berkadia (in millions):

	May 31, 2020		November 30, 2019
Our total equity balance	$	254.8	$	268.9

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Net earnings	$	—	$	56.2	$	48.7	$	106.5

At May 31, 2020 and November 30, 2019, we had commitments to purchase $209.7 million and $360.4 million, respectively, in agency CMBS from Berkadia.

We received distributions from Berkadia on our equity interest as follows (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Distributions	$	0.4	$	0.8	$	36.6	$	18.1

JCP Fund V

The amount of our investments in JCP Fund V included in Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition was $14.8 million and $20.6 million at May 31, 2020 and November 30, 2019, respectively. We account for these investments at fair value based on the NAV of the funds provided by the fund managers (see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019). The following summarizes the results from these investments which are included in Principal transactions revenues in our Consolidated Statements of Earnings (in millions):

	Three Months Ended   May 31,					Six Months Ended   May 31,
	2020			2019		2020			2019
Net gains (losses) from our investments in JCP Fund V	$	(7.0	)	$	3.8	$	(5.5	)	$	0.6

At both May 31, 2020 and November 30, 2019, we were committed to invest equity of up to $85.0 million in JCP Fund V. At May 31, 2020 and November 30, 2019, our unfunded commitment relating to JCP Fund V was $9.2 million and $9.4 million, respectively.

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The following is a summary of the Net change in net assets resulting from operations for 100.0% of JCP Fund V, in which we owned effectively 35.2% of the combined equity interests (in thousands):

	Three Months Ended
	March 31, 2020 (1)			December 31, 2019 (1)			March 31, 2019 (1)			December 31, 2018 (1)
Net decrease in net assets resulting from operations	$	(19,893	)	$	(1,397	)	$	(1,169	)	$	(8,412	)

(1) Financial information for JCP Fund V within our results of operations for the three and six months ended May 31, 2020 and May 31, 2019 is included based on the presented periods.

Epic Gas

On July 14, 2015, Jefferies LLC purchased common shares of Epic Gas. At February 28, 2019, we owned approximately 21.1% of the outstanding common stock of Epic Gas and one of our directors served on the Board of Directors of Epic Gas and owned common shares of Epic Gas. During the three months ended May 31, 2019, we sold all of our common shares of Epic Gas, at fair value, for a total of $24.6 million. There was a gain of $2.8 million on this transaction, which is included in Other revenue in our Consolidated Statements of Earnings for the three and six months ended May 31, 2019. At February 28, 2019, our investment in Epic Gas of $22.1 million was included in Loans to and investments in related parties in our Consolidated Statements of Financial Condition. For the three months ended December 31, 2018, Epic Gas reported net earnings of $0.9 million, which was included in our results of operations for the six months ended May 31, 2019.

Note 10. Goodwill and Intangible Assets

Goodwill

Goodwill attributed to our reportable business segments are as follows (in thousands):

	May 31, 2020		November 30, 2019
Investment Banking and Capital Markets	$	1,636,732	$	1,640,201
Asset Management	379		3,398
Total goodwill	$	1,637,111	$	1,643,599

The following table is a summary of the changes to goodwill for the six months ended May 31, 2020 (in thousands):

Balance at November 30, 2019	$	1,643,599
Translation adjustments	(3,488		)
Impairment losses (1)	(3,000		)
Balance at May 31, 2020	$	1,637,111

(1)    Impairment losses are related to our wind down of an asset management platform.

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Intangible Assets

Intangible assets are included in Other assets in our Consolidated Statements of Financial Condition. The following tables present the gross carrying amount, changes in carrying amount, net carrying amount and weighted average amortization period of identifiable intangible assets at May 31, 2020 and November 30, 2019 (dollars in thousands):

	May 31, 2020										Weighted average remaining lives (years)
	Gross cost		Impairment losses			Accumulated amortization			Net carrying amount
Customer relationships (1)	$	125,125	$	(26	)	$	(71,023	)	$	54,076	9.6
Trade name (1)	127,822		(274		)	(26,477		)	101,071		27.8
Exchange and clearing organization membership interests and registrations	8,215		(146		)	—			8,069		N/A
Total	$	261,162	$	(446	)	$	(97,500	)	$	163,216

(1)    Impairment losses are related to our wind down of an asset management platform.

	November 30, 2019							Weighted average remaining lives (years)
	Gross cost		Accumulated amortization			Net carrying amount
Customer relationships	$	125,736	$	(67,257	)	$	58,479	9.9
Trade name	128,590		(24,800		)	103,790		28.3
Exchange and clearing organization membership interests and registrations	8,273		—			8,273		N/A
Total	$	262,599	$	(92,057	)	$	170,542

Our annual impairment testing date for our intangible assets with an indefinite useful life, which consists of exchange and clearing organization membership interests and registrations, is August 1. We deemed it appropriate to consider the impact of the global novel coronavirus pandemic as a triggering event and performed an interim impairment test for our indefinite-lived intangible assets at May 31, 2020. We elected to perform a quantitative assessment of membership interests and registrations that have available quoted sales prices as well as certain other membership interests and registrations that have declined in utilization. A qualitative assessment was performed on the remainder of our indefinite-life intangible assets. In applying our quantitative assessment at May 31, 2020, we recognized an impairment loss on certain exchange membership interests and registrations. With regard to our qualitative assessment of the remaining indefinite-life intangible assets, based on our assessment of market conditions, the utilization of the assets and the replacement costs associated with the assets, we have concluded that it is not more likely than not that the intangible assets are impaired.

Amortization Expense

For finite life intangible assets, aggregate amortization expense amounted to $3.3 million and $6.3 million for the three and six months ended May 31, 2020, respectively, and $3.0 million and $6.0 million for the three and six months ended May 31, 2019, respectively. These expenses are included in Other expenses in our Consolidated Statements of Earnings.

The estimated future amortization expense for the five succeeding fiscal years is as follows (in thousands):

Remainder of fiscal 2020	$	6,091
Year ending November 30, 2021	12,181
Year ending November 30, 2022	9,239
Year ending November 30, 2023	8,258
Year ending November 30, 2024	8,258

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Note 11. Short-Term Borrowings

Short-term borrowings at May 31, 2020 and November 30, 2019 include the following and mature in one year or less (in thousands):

	May 31, 2020		November 30, 2019
Bank loans (1)	$	634,384	$	527,509
Floating rate puttable notes (1)	6,800		—
Equity-linked notes (2)	15,671		20,981
Total short-term borrowings	$	656,855	$	548,490

(1) These Short-term borrowings are recorded at cost in our Consolidated Statements of Financial Condition, which is a reasonable approximation of their fair values due to their liquid and short-term nature.

(2) See Note 4, Fair Value Disclosures, for further information on these notes.

At May 31, 2020, the weighted average interest rate on short-term borrowings outstanding is 2.38% per annum.

During the six months ended May 31, 2020, we issued floating rate puttable notes with a principal amount of $6.8 million and our equity-linked notes with a principal amount of $5.2 million matured on March 13, 2020.

One of our subsidiaries has a credit facility agreement (“Credit Facility”) with JPMorgan Chase Bank, N.A. for a committed amount of $296.0 million, which is included in bank loans. Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate (“LIBOR”), as defined in the Credit Facility. The Credit Facility contains certain covenants that, among other things, require Jefferies Group LLC to maintain a specified level of tangible net worth. The covenants also require the borrower to maintain specified leverage amounts and impose certain restrictions on the borrower’s future indebtedness. During the six months ended May 31, 2020, we were in compliance with all debt covenants under the Credit Facility.

The Bank of New York Mellon has agreed to make revolving intraday credit advances (“Intraday Credit Facility”) for an aggregate committed amount of $150.0 million. The Intraday Credit 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 a 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. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies LLC. At May 31, 2020, we were in compliance with debt covenants under the Intraday Credit Facility.

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Note 12. Long-Term Debt

The following summarizes our long-term debt carrying values (including unamortized discounts and premiums, valuation adjustments and debt issuance costs, where applicable) (in thousands):

	Maturity	Effective Interest Rate	May 31,   2020		November 30,    2019
Unsecured long-term debt:
2.375% Euro Medium Term Notes	May 20, 2020	—%	$	—	$	550,622
6.875% Senior Notes	April 15, 2021	4.40%	765,915		774,738
2.250% Euro Medium Term Notes	July 13, 2022	4.08%	4,272		4,204
5.125% Senior Notes	January 20, 2023	4.47%	762,084		610,023
1.000% Euro Medium Term Notes	July 19, 2024	1.00%	553,257		548,880
4.850% Senior Notes (1)	January 15, 2027	4.93%	816,371		768,931
6.450% Senior Debentures	June 8, 2027	5.46%	370,258		371,426
4.150% Senior Notes	January 23, 2030	4.26%	989,113		988,662
6.250% Senior Debentures	January 15, 2036	6.03%	511,051		511,260
6.500% Senior Notes	January 20, 2043	6.09%	420,035		420,239
Structured notes (2)	Various	Various	1,245,486		1,215,285
Total unsecured long-term debt			6,437,842		6,764,270
Secured long-term debt:
Revolving Credit Facility			189,410		189,088
Secured Bank Loan	September 27, 2021		50,000		50,000
Total long-term debt (3)			$	6,677,252	$	7,003,358

(1) The carrying value of these senior notes includes losses of $47.2 million and $43.8 million in the six months ended May 31, 2020 and 2019, respectively, associated with an interest rate swap based on its designation as a fair value hedge. See Note 5, Derivative Financial Instruments, for further information.

(2) These structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument-specific credit risk presented in other comprehensive income and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. A weighted average coupon rate is not meaningful, as all of the structured notes are carried at fair value.

(3) The Total Long-term debt has a fair value of $6,755.8 million and $7,280.4 million at May 31, 2020 and November 30, 2019, respectively, which would be classified as Level 2 and Level 3 in the fair value hierarchy.

During the six months ended May 31, 2020, long-term debt decreased $326.1 million. This decrease is primarily due to the maturity and repayment of our 2.375% Euro Medium Term Notes and changes in instrument specific credit risk related to our structured notes, partially offset by approximately $191.3 million structured notes issuances, net of retirements, and a $150.0 million principal amount issuance of additional 5.125% Senior Notes due 2023.

We have a senior secured revolving credit facility (“Revolving Credit Facility”) with a group of commercial banks for an aggregate principal amount of $190.0 million. The Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of our subsidiaries. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Revolving Credit Facility agreement. The obligations of certain of our subsidiaries under the Revolving Credit Facility are secured by substantially all its assets. At May 31, 2020, we were in compliance with the debt covenants under the Revolving Credit Facility.

On September 27, 2019, one of our subsidiaries entered into a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (“Secured Bank Loan”). This Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At May 31, 2020, we were in compliance with all covenants under the Loan and Security Agreement.

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Note 13. Leases

We enter into lease and sublease agreements, primarily for office space, across our geographic locations. Finance lease ROU assets and finance lease liabilities are not material. Information related to operating leases in our Consolidated Statement of Financial Condition at May 31, 2020 was as follows (in thousands, except lease term and discount rate):

Premises and equipment - ROU assets	$	500,830
Weighted average:
Remaining lease term (in years)	11.1
Discount rate	2.9		%

The following table presents the maturities of our operating lease liabilities and a reconciliation to the Lease liabilities included in our Consolidated Statement of Financial Condition at May 31, 2020 (in thousands):

Fiscal Year	Lease Liabilities
Remainder of 2020	$	28,312
2021	70,201
2022	68,025
2023	60,882
2024	59,596
2025 and thereafter	388,589
Total undiscounted cash flows	675,605
Less: Difference between undiscounted and discounted cash flows	(104,613		)
Operating leases amount in our Consolidated Statement of Financial Condition	570,992
Finance leases amount in our Consolidated Statement of Financial Condition	290
Total amount in our Consolidated Statement of Financial Condition	$	571,282

In addition to the table above, at May 31, 2020, we have a lease agreement that we have entered into that was signed but has not yet commenced. We expect this operating lease to commence by the end of 2020 with a lease term of seven years. Lease payments for this lease agreement will be $0.8 million for the period from lease commencement to the end of the lease term.

The following table presents our lease costs (in thousands):

	Three Months Ended   May 31, 2020			Six Months Ended   May 31, 2020
Operating lease costs (1)	$	17,762		$	35,389
Variable lease costs (2)	2,499			5,966
Less: Sublease income	(1,500		)	(3,000		)
Total lease cost, net	$	18,761		$	38,355

(1) Includes short-term leases, which are not material.

(2) Includes property taxes, insurance costs, common area maintenance, utilities, and other costs that are not fixed. The amount also includes rent increases resulting from inflation indices and periodic market rent reviews.

Consolidated Statement of Cash Flows supplemental information was as follows (in thousands):

	Six Months Ended   May 31, 2020
Cash outflows - lease liabilities	$	37,536
Non-cash - ROU assets recorded for new and modified leases	19,463

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Minimum Future Lease Commitments (under Previous GAAP). As lessee, we lease certain premises and equipment under non-cancelable agreements expiring at various dates through 2039 which are operating leases. At November 30, 2019, future minimum aggregate annual lease payments under such leases (net of subleases) for fiscal years ended November 30, 2020 through 2024 and the aggregate amount thereafter, were as follows (in thousands):

Fiscal Year	Operating Leases
2020	$	57,952
2021	60,395
2022	62,916
2023	57,574
2024	56,878
Thereafter	389,245
Total	$	684,960

The total minimum payments to be received in the future under non-cancelable subleases at November 30, 2019 was $16.2 million.

Rental expense, net of subleases, amounted to $61.2 million, $52.3 million, and $56.1 million for the years ended November 30, 2019, 2018 and 2017, respectively.

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Note 14. Revenues from Contracts with Customers

The following table presents our total revenues separated for our revenues from contracts with customers and our other sources of revenues (in thousands):

	Three Months Ended   May 31,					Six Months Ended   May 31,
	2020			2019		2020			2019
Revenues from contracts with customers:
Commissions and other fees (1)	$	243,267		$	167,698	$	422,802		$	322,840
Investment banking	387,491			430,087		979,493			715,683
Asset management fees	2,237			4,550		6,641			11,219
Total revenue from contracts with customers	632,995			602,335		1,408,936			1,049,742
Other sources of revenue:
Principal transactions	467,283			248,831		839,185			483,129
Revenues from arrangements with strategic partners	2,339			549		9,655			911
Interest	211,941			418,451		506,609			779,426
Other	(47,275		)	44,327		(17,546		)	56,157
Total revenues	$	1,267,283		$	1,314,493	$	2,746,839		$	2,369,365

(1) During the third quarter of 2019, we have reclassified the presentation of certain other fees, primarily related to prime brokerage services offered to clients. These fees were previously presented as Other revenues in our Consolidated Statements of Earnings and are now presented within Commissions and other fees. There is no impact on Total revenues as a result of this change in presentation. Previously reported results are presented on a comparable basis.

Revenue from contracts with customers is recognized when, or as, we satisfy our performance obligations by transferring the promised goods or services to the customers. A good or service is transferred to a customer when, or as, the customer obtains control of that good or service. A performance obligation may be satisfied over time or at a point in time. Revenue from a performance obligation satisfied over time is recognized by measuring our progress in satisfying the performance obligation in a manner that depicts the transfer of the goods or services to the customer. Revenue from a performance obligation satisfied at a point in time is recognized at the point in time that we determine the customer obtains control over the promised good or service. The amount of revenue recognized reflects the consideration we expect to be entitled to in exchange for those promised goods or services (i.e., the “transaction price”). In determining the transaction price, we consider multiple factors, including the effects of variable consideration. Variable consideration is included in the transaction price only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainties with respect to the amount are resolved. In determining when to include variable consideration in the transaction price, we consider the range of possible outcomes, the predictive value of our past experiences, the time period of when uncertainties expect to be resolved and the amount of consideration that is susceptible to factors outside of our influence, such as market volatility or the judgment and actions of third parties.

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The following provides detailed information on the recognition of our revenues from contracts with customers:

Commissions and Other Fees. We earn commission and other fee revenue by executing, settling and clearing transactions for clients primarily in equity, equity-related and futures products. Trade execution and clearing services, when provided together, represent a single performance obligation as the services are not separately identifiable in the context of the contract. Commission revenues associated with combined trade execution and clearing services, as well as trade execution services on a standalone basis, are recognized at a point in time on trade-date. Commissions revenues are generally paid on settlement date and we record a receivable between trade-date and payment on settlement date. We permit institutional customers to allocate a portion of their gross commissions to pay for research products and other services provided by third parties. The amounts allocated for those purposes are commonly referred to as soft dollar arrangements. We act as an agent in the soft dollar arrangements as the customer controls the use of the soft dollars and directs our payments to third-party service providers on its behalf. Accordingly, amounts allocated to soft dollar arrangements are netted against commission revenues in our Consolidated Statements of Earnings.

We earn account advisory and distribution fees in connection with wealth management services. Account advisory fees are recognized over time using the time-elapsed method as we determined that the customer simultaneously receives and consumes the benefits of investment advisory services as they are provided. Account advisory fees may be paid in advance of a specified service period or in arrears at the end of the specified service period (e.g., quarterly). Account advisory fees paid in advance are initially deferred within Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. Distribution fees are variable and recognized when the uncertainties with respect to the amounts are resolved.

Investment Banking. We provide our clients with a full range of financial advisory and underwriting services. Revenues from financial advisory services primarily consist of fees generated in connection with merger, acquisition and restructuring transactions. Advisory fees from mergers and acquisitions engagements are recognized at a point in time when the related transaction is completed, as the performance obligation is to successfully broker a specific transaction. Fees received prior to the completion of the transaction are deferred within Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. Advisory fees from restructuring engagements are recognized over time using a time elapsed measure of progress as our clients simultaneously receive and consume the benefits of those services as they are provided. A significant portion of the fees we receive for our advisory services are considered variable as they are contingent upon a future event (e.g., completion of a transaction or third-party emergence from bankruptcy) and are excluded from the transaction price until the uncertainty associated with the variable consideration is subsequently resolved, which is expected to occur upon achievement of the specified milestone. Payment for advisory services are generally due promptly upon completion of a specified milestone or, for retainer fees, periodically over the course of the engagement. We recognize a receivable between the date of completion of the milestone and payment by the customer. Expenses associated with investment banking advisory engagements are deferred only to the extent they are explicitly reimbursable by the client and the related revenue is recognized at a point in time. All other investment banking advisory related expenses, including expenses incurred related to restructuring assignments, are expensed as incurred. All investment banking advisory expenses are recognized within their respective expense category in our Consolidated Statements of Earnings and any expenses reimbursed by our clients are recognized as Investment banking revenues.

Underwriting services include underwriting and placement agent services in both the equity and debt capital markets, including private equity placements, initial public offerings, follow-on offerings and equity-linked convertible securities transactions and structuring, underwriting and distributing public and private debt, including investment grade debt, high yield bonds, leveraged loans, municipal bonds and mortgage-backed and asset-backed securities. Underwriting and placement agent revenues are recognized at a point in time on trade-date, as the client obtains the control and benefit of the underwriting offering at that point. Costs associated with underwriting transactions are deferred until the related revenue is recognized or the engagement is otherwise concluded, and are recorded on a gross basis within Underwriting costs in our Consolidated Statements of Earnings as we are acting as a principal in the arrangement. Any expenses reimbursed by our clients are recognized as Investment banking revenues.

Asset Management Fees. We earn management and performance fees in connection with investment advisory services provided to various funds and accounts, which are satisfied over time and measured using a time elapsed measure of progress as the customer receives the benefits of the services evenly throughout the term of the contract. Management and performance fees are considered variable as they are subject to fluctuation (e.g., changes in assets under management, market performance) and/ or are contingent on a future event during the measurement period (e.g., meeting a specified benchmark) and are recognized only to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty is resolved. Management fees are generally based on month-end assets under management or an agreed upon notional amount and are included in the transaction price at the end of each month when the assets under management or notional amount is known. Performance fees are received when the return on assets under management for a specified performance period exceed certain benchmark returns, “high-water marks” or other performance targets. The performance period related to our performance fees is annual or semi-annual. Accordingly, performance fee revenue will generally be recognized only at the end of the performance period to the extent that the benchmark return has been met.

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Disaggregation of Revenue

The following presents our revenues from contracts with customers disaggregated by major business activity and primary geographic regions (in thousands):

	Three Months Ended May 31,												Six Months Ended May 31,
	2020						2019						2020						2019
	Reportable Segment						Reportable Segment						Reportable Segment						Reportable Segment
	Investment Banking and Capital Markets		Asset Management		Total		Investment Banking and Capital Markets		Asset Management		Total		Investment Banking and Capital Markets		Asset Management		Total		Investment Banking and Capital Markets		Asset Management		Total
Major business activity:
Equities (1)	$	236,683	$	—	$	236,683	$	164,169	$	—	$	164,169	$	412,932	$	—	$	412,932	$	316,243	$	—	$	316,243
Fixed income (1)	6,584		—		6,584		3,529		—		3,529		9,870		—		9,870		6,597		—		6,597
Investment banking - Advisory	182,081		—		182,081		178,554		—		178,554		525,239		—		525,239		359,036		—		359,036
Investment banking - Underwriting	205,410		—		205,410		251,533		—		251,533		454,254		—		454,254		356,647		—		356,647
Asset management	—		2,237		2,237		—		4,550		4,550		—		6,641		6,641		—		11,219		11,219
Total	$	630,758	$	2,237	$	632,995	$	597,785	$	4,550	$	602,335	$	1,402,295	$	6,641	$	1,408,936	$	1,038,523	$	11,219	$	1,049,742
Primary geographic region:
Americas	$	524,627	$	566	$	525,193	$	487,674	$	3,500	$	491,174	$	1,173,696	$	1,546	$	1,175,242	$	811,063	$	6,881	$	817,944
Europe	68,082		1,671		69,753		91,510		1,050		92,560		147,520		5,095		152,615		191,715		4,338		196,053
Asia	38,049		—		38,049		18,601		—		18,601		81,079		—		81,079		35,745		—		35,745
Total	$	630,758	$	2,237	$	632,995	$	597,785	$	4,550	$	602,335	$	1,402,295	$	6,641	$	1,408,936	$	1,038,523	$	11,219	$	1,049,742

(1) Revenues from contracts with customers associated with the equities and fixed income businesses primarily represent commissions and other fee revenue.

Refer to Note 19, Segment Reporting, for a further discussion on the allocation of revenues to geographic regions.

Information on Remaining Performance Obligations and Revenue Recognized from Past Performance

We do not disclose information about remaining performance obligations pertaining to contracts that have an original expected duration of one year or less. The transaction price allocated to remaining unsatisfied or partially unsatisfied performance obligations with an original expected duration exceeding one year was not material at May 31, 2020. Investment banking advisory fees that are contingent upon completion of a specific milestone and fees associated with certain distribution services are also excluded as the fees are considered variable and not included in the transaction price at May 31, 2020.

During the three and six months ended May 31, 2020, we recognized $7.4 million and $10.5 million, respectively, compared with $15.3 million and $23.0 million, during the three and six months ended May 31, 2019, respectively, of revenue related to performance obligations satisfied (or partially satisfied) in previous periods, mainly due to resolving uncertainties in variable consideration that was constrained in prior periods. In addition, we recognized $4.5 million, and $10.1 million, during the three and six months ended May 31, 2020, respectively, compared with $4.8 million and $9.8 million during the three and six months ended May 31, 2019, respectively, of revenues primarily associated with distribution services, a portion of which relates to prior periods.

Contract Balances

The timing of our revenue recognition may differ from the timing of payment by our customers. We record a receivable when revenue is recognized prior to payment and we have an unconditional right to payment. Alternatively, when payment precedes the provision of the related services, we record deferred revenue until the performance obligations are satisfied.

We had receivables related to revenues from contracts with customers of $180.0 million and $209.3 million at May 31, 2020 and November 30, 2019, respectively. We had no significant impairments related to these receivables during the three and six months ended May 31, 2020 and 2019.

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(Unaudited)

Our deferred revenue primarily relates to retainer and milestone fees received in investment banking advisory engagements where the performance obligation has not yet been satisfied. Deferred revenues at May 31, 2020 and November 30, 2019 were $23.3 million and $9.0 million, respectively, which are recorded in Accrued expenses and other liabilities in our Consolidated Statements of Financial Condition. During the three and six months ended May 31, 2020, we recognized revenues of $3.2 million and $4.9 million, respectively, compared with $1.2 million and $4.6 million, respectively, during the three and six months ended May 31, 2019, respectively, that were recorded as deferred revenue at the beginning of the periods.

Contract Costs

We capitalize costs to fulfill contracts associated with investment banking advisory engagements where the revenue is recognized at a point in time and the costs are determined to be recoverable. Capitalized costs to fulfill a contract are recognized at the point in time that the related revenue is recognized.

At May 31, 2020 and November 30, 2019, capitalized costs to fulfill a contract were $3.2 million and $4.8 million, respectively, which are recorded in Receivables – Fees, interest and other in our Consolidated Statements of Financial Condition. For the three and six months ended May 31, 2020, we recognized expenses of $1.8 million and $3.7 million, respectively, compared with $1.8 million and $3.4 million for the three and six months ended May 31, 2019, respectively, related to costs to fulfill a contract that were capitalized as of the beginning of the period. There were no significant impairment charges recognized in relation to these capitalized costs during the three and six months ended May 31, 2020 and 2019.

Note 15. Compensation Plans

Jefferies sponsors our following share-based compensation plans: Incentive Compensation Plan, Employee Stock Purchase Plan and the Deferred Compensation Plan. The outstanding and future share-based awards relating to these plans relate to Jefferies common shares. The fair value of share-based awards is estimated on the date of grant based on the market price of the underlying common stock less the impact of market conditions and selling restrictions subsequent to vesting, if any, and is amortized as compensation expense over the related requisite service periods. We are allocated costs associated with awards granted to our employees under such plans.

In addition, we sponsor non-share-based compensation plans. Non-share-based compensation plans sponsored by us include a profit sharing plan and other forms of restricted cash awards.

The components of total compensation cost associated with certain of our compensation plans are as follows (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Components of compensation cost:
Restricted cash awards	$	78.7	$	66.6	$	156.0	$	132.8
Restricted stock and RSUs (1)	6.0		6.5		12.5		13.0
Profit sharing plan	1.3		1.3		5.4		5.2
Total compensation cost	$	86.0	$	74.4	$	173.9	$	151.0

(1) Total compensation cost associated with restricted stock and restricted stock units (“RSUs”) includes the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks.

Remaining unamortized amounts related to certain compensation plans at May 31, 2020 are as follows (dollars in millions):

	Remaining Unamortized Amounts		Weighted Average Vesting Period (in Years)
Non-vested share-based awards	$	41.4	2
Restricted cash awards (1)	627.4		3
Total	$	668.8

(1)    The remaining unamortized amount is included within Other assets in the Consolidated Statement of Financial Condition.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

For detailed descriptions on the Company’s compensation plans, see Note 15, Compensation Plans, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019.

Note 16. Income Taxes

At May 31, 2020 and November 30, 2019, we had approximately $156.3 million and $125.6 million, respectively, of total gross unrecognized tax benefits. The total amount of unrecognized benefits that, if recognized, would favorably affect the effective tax rate was $123.9 million and $99.5 million (net of Federal benefit) at May 31, 2020 and November 30, 2019, respectively.

We recognize interest accrued related to unrecognized tax benefits in Interest expense. Penalties, if any, are recognized in Other expenses in our Consolidated Statements of Earnings. At May 31, 2020 and November 30, 2019, we had interest accrued of approximately $61.5 million and $55.6 million, respectively, included in Accrued expenses and other liabilities. NaN penalties were accrued for the six months ended May 31, 2020 and the year ended November 30, 2019.

We are currently under examination in a number of major tax jurisdictions. Though we do not expect that resolution of these examinations will have a material effect on our consolidated financial position, they may have a material impact on our consolidated results of operations for the period in which resolution occurs.

The table below summarizes the earliest tax years that remain subject to examination in the major tax jurisdictions in which we operate:

Jurisdiction	Tax Year
United States	2016
California	2009
New Jersey	2010
New York State	2001
New York City	2006
United Kingdom	2018
Hong Kong	2014
India	2010
Italy	2012

For the six months ended May 31, 2020, the provision for income taxes was $108.0 million, equating to an effective tax rate of 26.5%. For the six months ended May 31, 2019, the provision for income taxes was $61.5 million, equating to an effective tax rate of 28.3%.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Note 17. Commitments, Contingencies and Guarantees

Commitments

The following table summarizes our commitments at May 31, 2020 (in millions):

	Expected Maturity Date (fiscal years)
	2020		2021		2022   and   2023		2024   and   2025		2026   and   Later		Maximum Payout
Equity commitments (1)	$	29.3	$	99.0	$	—	$	—	$	7.7	$	136.0
Loan commitments (1)	—		275.0		35.0		—		—		310.0
Underwriting commitments	58.0		—		—		—		—		58.0
Forward starting reverse repos (2)	3,300.0		—		—		—		—		3,300.0
Forward starting repos (2)	4,048.1		—		—		—		—		4,048.1
Other unfunded commitments (1)	—		136.4		—		4.9		—		141.3
Total commitments	$	7,435.4	$	510.4	$	35.0	$	4.9	$	7.7	$	7,993.4

(1) Equity, loan and other unfunded commitments are presented by contractual maturity date. The amounts, however, are available on demand.

(2) At May 31, 2020, all of the forward starting securities purchased under agreements to resell and forward starting securities sold under agreements to repurchase settled within three business days.

Equity Commitments. Includes a commitment to invest in our joint venture, Jefferies Finance, and commitments to invest in private equity funds and in Jefferies Capital Partners, LLC, the manager of the private equity funds, which consists of a team led by one of our directors and Chairman of the Executive Committee. At May 31, 2020, our outstanding commitments relating to Jefferies Capital Partners, LLC and its private equity funds were $11.3 million.

See Note 9, Investments, for additional information regarding our investments in Jefferies Finance.

Additionally, at May 31, 2020, we had other outstanding equity commitments to invest up to $27.1 million in various other investments.

Loan Commitments. From time to time we make commitments to extend credit to investment banking and other clients in loan syndication, acquisition finance and securities transactions and to SPE sponsors in connection with the funding of CLO and other asset-backed transactions. These commitments and any related drawdowns of these facilities typically have fixed maturity dates and are contingent on certain representations, warranties and contractual conditions applicable to the borrower. At May 31, 2020, we had $80.0 million of outstanding loan commitments to clients.

Loan commitments outstanding at May 31, 2020 also include our portion of the outstanding secured revolving credit facility provided to Jefferies Finance to support loan underwritings by Jefferies Finance. See Note 9, Investments, for additional information.

Underwriting Commitments. In connection with investment banking activities, we may from time to time provide underwriting commitments to our clients in connection with capital raising transactions.

Forward Starting Reverse Repos and Repos. We enter into commitments to take possession of securities with agreements to resell on a forward starting basis and to sell securities with agreements to repurchase on a forward starting basis that are primarily secured by U.S. government and agency securities.

Other Unfunded Commitments. Other unfunded commitments include obligations in the form of revolving notes, warehouse financings and debt securities to provide financing to asset-backed and CLO vehicles. Upon advancing funds, drawn amounts are collateralized by the assets of an entity.

Guarantees

Derivative Contracts. As a dealer, we make markets and trade in a variety of derivative instruments. Certain derivative contracts that we have entered into meet the accounting definition of a guarantee under U.S. GAAP, including credit default swaps, written foreign currency options and written equity put options. On certain of these contracts, such as written interest rate caps and foreign currency options, the maximum payout cannot be quantified since the increase in interest or foreign exchange rates are not contractually limited by the terms of the contract. As such, we have disclosed notional values as a measure of our maximum potential payout under these contracts.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

The following table summarizes the notional amounts associated with our derivative contracts meeting the definition of a guarantee under U.S. GAAP at May 31, 2020 (in millions):

	Expected Maturity Date (Fiscal Years)
	2020		2021		2022   and   2023		2024   and   2025		2026   and   Later		Notional/ Maximum Payout
Guarantee Type:
Derivative contracts—non-credit related	$	7,632.6	$	3,542.2	$	5,003.2	$	1,266.4	$	48.5	$	17,492.9
Written derivative contracts—credit related	1.0		—		1.0		5.4		—		7.4
Total derivative contracts	$	7,633.6	$	3,542.2	$	5,004.2	$	1,271.8	$	48.5	$	17,500.3

The derivative contracts deemed to meet the definition of a guarantee under U.S. GAAP are before consideration of hedging transactions and only reflect a partial or “one-sided” component of any risk exposure. Written equity options and written credit default swaps are often executed in a strategy that is in tandem with long cash instruments (e.g., equity and debt securities). We substantially mitigate our exposure to market risk on these contracts through hedges, such as other derivative contracts and/or cash instruments, and we manage the risk associated with these contracts in the context of our overall risk management framework. We believe notional amounts overstate our expected payout and that fair value of these contracts is a more relevant measure of our obligations. At May 31, 2020, the fair value of derivative contracts meeting the definition of a guarantee is approximately $192.7 million.

Standby Letters of Credit. At May 31, 2020, we provided guarantees to certain counterparties in the form of standby letters of credit in the amount of $36.9 million, all of which expire within one year. Standby letters of credit commit us to make payment to the beneficiary if the guaranteed party fails to fulfill its obligation under a contractual arrangement with that beneficiary. Since commitments associated with these collateral instruments may expire unused, the amount shown does not necessarily reflect the actual future cash funding requirement.

Other Guarantees. We are members of various exchanges and clearing houses. In the normal course of business, we provide guarantees to securities clearing houses and exchanges. These guarantees generally are required under the standard membership agreements, such that members are required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearing house, other members would be required to meet these shortfalls. To mitigate these performance risks, the exchanges and clearing houses often require members to post collateral. Our obligations under such guarantees could exceed the collateral amounts posted. Our maximum potential liability under these arrangements cannot be quantified; however, the potential for us to be required to make payments under such guarantees is deemed remote. Accordingly, no liability has been recognized for these arrangements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Note 18. Net Capital Requirements

As a broker-dealer registered with the SEC and a member firm of the Financial Industry Regulatory Authority (“FINRA”), Jefferies LLC is subject to the SEC Uniform Net Capital Rule (“Rule 15c3-1”), which requires the maintenance of minimum net capital, and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S broker-dealer and futures commission merchant (“FCM”), is also subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.

At May 31, 2020, Jefferies LLC’s net capital and excess net capital were as follows (in thousands):

	Net Capital		Excess Net Capital
Jefferies LLC	$	1,507,685	$	1,430,678

FINRA is the designated examining authority for Jefferies LLC and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM.

Certain other U.S. and non-U.S. subsidiaries are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited, which is authorized and regulated by the Financial Conduct Authority in the U.K.

The regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.

Note 19. Segment Reporting

We operate in 2 reportable business segments – (1) Investment Banking and Capital Markets and (2) Asset Management. The Investment Banking and Capital Markets reportable business segment includes our securities, commodities, futures and foreign exchange capital markets activities and investment banking business, which is composed of financial advisory and underwriting activities. The Investment Banking and Capital Markets reportable business segment provides the sales, trading, origination and advisory effort for various fixed income, equity and advisory products and services. The Asset Management reportable business segment provides investment management services to investors in the U.S. and overseas and invests capital in hedge funds, separately managed accounts and third-party asset managers.

Our reportable business segment information is prepared using the following methodologies:

• Net revenues and non-interest expenses directly associated with each reportable business segment are included in determining earnings (loss) before income taxes.

• Net revenues and non-interest expenses not directly associated with specific reportable business segments are allocated based on the most relevant measures applicable, including each reportable business segment’s net revenues, headcount and other factors.

• Reportable business segment assets include an allocation of indirect corporate assets that have been fully allocated to our reportable business segments, generally based on each reportable business segment’s capital utilization.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Our net revenues, non-interest expenses and earnings (loss) before income taxes by reportable business segment are summarized below (in millions):

	Three Months Ended   May 31,					Six Months Ended   May 31,
	2020			2019		2020			2019
Investment Banking and Capital Markets:
Net revenues	$	1,028.9		$	859.3	$	2,177.7		$	1,517.5
Non-interest expenses	814.3			716.8		1,713.3			1,319.9
Earnings before income taxes	$	214.6		$	142.5	$	464.4		$	197.6
Asset Management:
Net revenues	$	5.5		$	42.6	$	27.4		$	70.1
Non-interest expenses	47.2			30.0		83.6			50.0
Earnings (loss) before income taxes	$	(41.7	)	$	12.6	$	(56.2	)	$	20.1
Total:
Net revenues	$	1,034.4		$	901.9	$	2,205.1		$	1,587.6
Non-interest expenses	861.5			746.8		1,796.9			1,369.9
Earnings before income taxes	$	172.9		$	155.1	$	408.2		$	217.7

The following table summarizes our total assets by reportable business segment (in millions):

	May 31, 2020		November 30, 2019
Investment Banking and Capital Markets	$	42,152.5	$	40,565.8
Asset Management	2,931.9		2,950.3
Total assets	$	45,084.4	$	43,516.1

Net Revenues by Geographic Region

Net revenues for the Investment Banking and Capital Markets reportable business segment are recorded in the geographic region in which the position was risk-managed or, in the case of investment banking, in which the senior coverage banker is located. For the Asset Management reportable business segment, net revenues are allocated according to the location of the investment advisor. Net revenues by geographic region were as follows (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Americas (1)	$	754.3	$	749.4	$	1,704.4	$	1,258.0
Europe (2)	189.6		125.2		348.9		276.7
Asia	90.5		27.3		151.8		52.9
Net revenues	$	1,034.4	$	901.9	$	2,205.1	$	1,587.6

(1) Substantially all relates to U.S. results.

(2) Substantially all relates to U.K. results.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

Note 20. Related Party Transactions

Officers, Directors and Employees. The following sets forth information regarding related party transactions with our officers, directors and employees:

• At May 31, 2020 and November 30, 2019, we had $32.3 million and $34.8 million, respectively, of loans outstanding to certain of our officers and employees (none of whom are executive officers or directors) that are included in Other assets in our Consolidated Statements of Financial Condition.

• Receivables from and payables to customers include balances arising from officers’, directors’ and employees’ individual security transactions. These transactions are subject to the same regulations as all customer transactions and are provided on substantially the same terms.

• One of our directors had an investment in a hedge fund managed by us of approximately $3.6 million at November 30, 2019. In May 2020, the director fully redeemed his interest in this fund due to the wind down of an asset management platform.

See Note 8, Variable Interest Entities, and Note 17, Commitments, Contingencies and Guarantees, for further information regarding related party transactions with our officers, directors and employees.

Jefferies. The following is a description of our related party transactions with Jefferies and its affiliates:

• We provide services to and receive services from Jefferies under service agreements (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Charges to Jefferies for services provided	$	10.1	$	9.6	$	20.5	$	26.1
Charges from Jefferies for services received	7.5		0.6		15.4		1.3

• We also provide investment banking and capital markets and asset management services to Jefferies and its affiliates. The following table presents the revenues earned by type of services provided (in millions):

	Three Months Ended   May 31,					Six Months Ended   May 31,
	2020		2019			2020		2019
Investment banking	$	—	$	7.9		$	—	$	7.9
Commissions and other fees	0.4		0.6			0.7		1.2
Other revenues	—		(0.1		)	—		—

• Receivables from and payables to Jefferies, included in Other assets and Accrued expenses and other liabilities, respectively, in our Consolidated Statements of Financial Condition (in millions):

	May 31,   2020		November 30,    2019
Receivable from Jefferies	$	0.3	$	0.9
Payable to Jefferies	5.5		4.3

• During the six months ended May 31, 2020, we paid distributions of $12.6 million to Jefferies, based on our results for the three months ended November 30, 2019. At May 31, 2020, we have accrued a distribution payable of $152.1 million, based on our results for the six months ended May 31, 2020.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

(Unaudited)

• Pursuant to a tax sharing agreement entered into between us and Jefferies, payments are made between us and Jefferies to settle current tax receivables and payables. At May 31, 2020, a net current tax payable to Jefferies of $55.3 million is included in Accrued expenses and other liabilities, in our Consolidated Statements of Financial Condition. At November 30, 2019, a net current tax receivable from Jefferies of $24.4 million is included in Other assets, in our Consolidated Statements of Financial Condition. In May 2020, we made a payment of $32.0 million to Jefferies, which reduced the cumulative net current tax payable.

• We purchase securities from and sell securities to Jefferies, at fair value (in millions). There were 0 gains or losses on these transactions.

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Securities purchased from Jefferies	$	13.9	$	—	$	39.9	$	885.6
Securities sold to Jefferies	—		17.9		—		17.9

• In connection with foreign exchange contracts entered into under a prime brokerage agreement with an affiliate of Jefferies, we have $2.1 million and $9.9 million at May 31, 2020 and November 30, 2019, respectively, included in Payables— brokers, dealers and clearing organizations.

• We enter into OTC foreign exchange contracts with a subsidiary of Jefferies. In connection with these contracts, we had $0.2 million included in Financial instruments owned, at fair value and $0.6 million included in Financial instruments sold, not yet purchased, at fair value, in our Consolidated Statements of Financial Condition at May 31, 2020 and November 30, 2019, respectively. Net gains (losses) relating to these contracts, which are included in Principal transactions revenues in our Consolidated Statements of Earnings, are as follows (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Net gains (losses) on foreign exchange contracts	$	1.6	$	0.7	$	1.0	$	0.7

• Two of our directors had investments totaling $0.4 million at November 30, 2019 in a hedge fund managed by Jefferies. In December 2019, both directors fully redeemed their interests in this fund.

• We have investments in hedge funds managed by Jefferies of $229.5 million and $223.5 million at May 31, 2020 and November 30, 2019, respectively, included in Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition. Net gains on our investments in these hedge funds, which are included in Principal transactions revenues in our Consolidated Statements of Earnings, are as follows (in millions):

	Three Months Ended   May 31,				Six Months Ended   May 31,
	2020		2019		2020		2019
Net gains from our investments	$	2.5	$	1.3	$	6.3	$	2.3

• In connection with our capital markets activities, from time to time we make a market in long-term debt securities of Jefferies (i.e., we buy and sell debt securities issued by Jefferies). At November 30, 2019, approximately $0.1 million of debt issued by Jefferies is included in Financial instruments owned, at fair value in our Consolidated Statements of Financial Condition.

• We have entered into a sublease agreement with an affiliate of Jefferies for office space. For the three and six months ended May 31, 2020, we received payments for rent and other expenses of $0.2 million and $0.4 million, respectively, from this affiliate.

For information on transactions with our equity method investees, see Note 9, Investments.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report contains or incorporates by reference “forward looking statements” within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements about our future and statements that are not historical facts. These forward looking statements are usually preceded by the words “believe,” “intend,” “may,” “will,” or similar expressions. Forward looking statements may contain expectations regarding revenues, earnings, operations and other results, and may include statements of future performance, plans and objectives. Forward looking statements also include statements pertaining to our strategies for future development of our business and products. Forward looking statements represent only our belief regarding future events, many of which by their nature are inherently uncertain. It is possible that the actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Information regarding important factors that could cause actual results to differ, perhaps materially, from those in our forward looking statements is contained in this report and other documents we file. You should read and interpret any forward looking statement together with these documents, including the following:

• the description of our business and risk factors contained in our Annual Report on Form 10-K for the year ended November 30, 2019 and filed with the Securities and Exchange Commission (“SEC”) on January 29, 2020;

• the discussion of our analysis of financial condition and results of operations contained in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein;

• the discussion of our risk management policies, procedures and methodologies contained in this report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” herein;

• the notes to the consolidated financial statements contained in this report; and

• cautionary statements we make in our public documents, reports and announcements.

Any forward looking statement speaks only as of the date on which that statement is made. We will not update any forward looking statement to reflect events or circumstances that occur after the date on which the statement is made, except as required by applicable law.

Our business, by its nature, does not produce predictable or necessarily recurring earnings. Our results in any given period can be materially affected by conditions in global financial markets, economic conditions generally and our own activities and positions. For a further discussion of the factors that may affect our future operating results, see “Risk Factors” in Part II, Item 1A in this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the year ended November 30, 2019.

During March 2020, the global novel coronavirus (“COVID-19”) pandemic and initial actions taken in response wreaked havoc on the global economy and all financial markets, and adversely affected our businesses. In April and May 2020, the unprecedented interventions of the U.S. Federal Reserve Bank, other central banks and various governments drove a sharp rebound in the financial markets and spurred renewed activity in the equity and debt new issue capital markets. As a result, our performance improved considerably in April and May. We experienced strong market volumes and volatility was significantly higher during the quarter ended May 31, 2020 than in the prior year quarter, resulting in increased client activity across our capital markets businesses. Our investment banking net revenues were below normal for the quarter, but our backlog remains solid and our current level of incoming new business is strong. 

Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. Peg Broadbent, our longstanding, esteemed Chief Financial Officer (“CFO”), tragically died from complications of COVID-19 in March. We lost an incredible individual whom we all cherished and miss dearly. In Peg's memory, our clients, employees and firm came together to contribute $9.25 million to over 85 front line charities aiding those most affected by COVID-19 and in the greatest need. Throughout the quarter ended May 31, 2020, we have announced a number of important initiatives to support our employees, our clients and the broader public during this crisis:

• We have worked proactively providing our clients with advice, execution and liquidity during the market disruption. In May 2020, Greenwich Associates named us as the top firm in helping clients navigate the markets as COVID-19 significantly impacted equity markets in mid-March, causing volatility and increased trading volumes. These results were based on a survey they had recently conducted of more than 75 buy-side institutions evaluating brokers’ performances in providing clients with liquidity, hedging solutions, market color and insights.

• We have monitored the health and welfare of our employees and worked actively with many individuals diagnosed with COVID-19.

• We are working with a newly established public-private consortium combining the U.S. Department of Health and Human Services (through its Office of the Assistant Secretary for Preparedness and Response) and ApiJect Systems America, a public-benefit corporation, to raise up to $1 billion to build sterile manufacturing facilities worldwide.

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• We have adopted enhanced cleaning practices across our offices and have restricted business travel.

• We implemented our Business Continuity Planning plan and have largely moved to a remote working environment across all functions without any significant disruptions to our business or control processes.

• We are working continuously with all of our critical vendors regarding their own pandemic responses to ensure there is minimal impact on our business operations.

• We have honored the full financial commitment to our summer intern class who will have a truncated program.

Consolidated Results of Operations

Overview

The following table provides an overview of our consolidated results of operations (dollars in thousands):

	Three Months Ended   May 31,						% Change		Six Months Ended   May 31,						% Change
	2020			2019					2020			2019
Net revenues	$	1,034,367		$	901,851		14.7	%	$	2,205,063		$	1,587,569		38.9	%
Non-interest expenses	861,499			746,713			15.4	%	1,796,817			1,369,846			31.2	%
Earnings before income taxes	172,868			155,138			11.4	%	408,246			217,723			87.5	%
Income tax expense	43,972			45,319			(3.0	)%	107,985			61,539			75.5	%
Net earnings	128,896			109,819			17.4	%	300,261			156,184			92.2	%
Net earnings (loss) attributable to noncontrolling interests	(1,842		)	(101		)	N/M		(3,866		)	283			N/M
Net earnings attributable to Jefferies Group LLC	130,738			109,920			18.9	%	304,127			155,901			95.1	%
Effective tax rate	25.4		%	29.2		%			26.5		%	28.3		%

N/M — Not Meaningful

Executive Summary

Three Months Ended May 31, 2020

Consolidated Results

• Net revenues for the three months ended May 31, 2020 were $1,034.4 million, up 14.7% compared with $901.9 million for the three months ended May 31, 2019.

• Our results in the three months ended May 31, 2020 reflect record results in our combined capital markets businesses, with record fixed income net revenues, strong equities net revenues, and solid performance in investment banking. Our record combined capital markets net revenues were due to assisting our clients and the rest of the market with advice, execution and liquidity, which drove record volumes and allowed us to extend our client franchise in both the equity and fixed income markets.

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Business Results

• Our investment banking net revenues of $316.3 million for the three months ended May 31, 2020 reflect solid performance in mergers, acquisitions and advisory and equity underwriting, lower revenues in debt underwriting and a net loss of $49.7 million from our share of the net earnings of our Jefferies Finance LLC (“Jefferies Finance”) joint venture, reflecting unrealized losses related to the write-down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year quarter, primarily due to the impact of COVID-19 on the markets and the economy. This compares with net revenues of $25.1 million from our share of the net earnings from our Jefferies Finance joint venture in the prior year quarter. Other investment banking revenues during the three months ended May 31, 2020 also includes a $9.5 million write-down of an investment. Our advisory revenues were $182.1 million, or 2.0% higher than the prior year quarter, and our equity underwriting revenues were 15.1% higher than the prior year quarter. Our results in mergers and acquisitions and equity underwriting were offset by lower revenues in debt underwriting, impacted by less acquisition finance activity and volatile debt markets. Our investment banking net revenues were below normal for the quarter, but our backlog remains solid and our current level of incoming new business is strong. 

• Our equities net revenues increased 15.1% compared to the prior year quarter, primarily due to increased trading volumes and higher levels of volatility in certain of our core equities businesses. We believe we continued to extend our client franchise as we were in a position to provide consistent and strong service to our clients throughout this unprecedented period.

• Our fixed income net revenues were a record and improved by 184.6% compared to the prior year quarter, primarily due to strong trading volumes across many of our core fixed income businesses, as governments and central banks took intervening actions to stabilize the markets during the quarter.

• Asset management revenues of $5.5 million for the three months ended May 31, 2020, compared with $42.6 million in the prior year quarter, primarily due to lower investment returns in certain of our investments in separately managed accounts and funds, as a result of the significant impact of COVID-19 on the markets and economy during the current year quarter.

• Net losses in our other business category in the three months ended May 31, 2020 were $17.7 million, compared with net revenues of $32.2 million in the prior year quarter. Results in the prior year quarter include net revenues of $25.3 million from our share of the net income of Berkadia Commercial Mortgage Holding LLC (“Berkadia”), compared with negligible net revenues from Berkadia in the current year quarter. The results in the current year quarter also include unrealized net mark-to-market losses related to certain investments, compared with mark-to-market gains in the prior year quarter.

Expenses

• Non-interest expenses for the three months ended May 31, 2020 increased $114.8 million to $861.5 million, compared with $746.7 million for the prior year quarter, primarily due to $93.6 million of increased Compensation and benefits expense, consistent with the higher net revenues in our core operating businesses.

• Compensation and benefits expense for the three months ended May 31, 2020 was $571.5 million, an increase of $93.6 million, or 19.6%, from the comparable prior year quarter, consistent with higher net revenues in our core operating businesses. Compensation and benefits expense as a percentage of Net revenues was 55.3% for the three months ended May 31, 2020, compared with 53.0%, in the prior year quarter, or 2.3% of net revenues higher, due to the change in the mix of our net revenues, with higher revenues in our core operating businesses and lower net revenues from our Jefferies Finance joint venture and our Other businesses, including our investment in Berkadia.

• Non-compensation expenses for the three months ended May 31, 2020 increased $21.2 million, or 7.9%, to $290.0 million, compared with $268.8 million for the three months ended May 31, 2019. The increase in non-compensation expenses was primarily due to higher Floor brokerage and clearing fees due to the increase in trading volumes across our equities and fixed income businesses and higher Other expenses, which included our charitable donations of $8.6 million, in memory of Peg Broadbent, our longstanding, esteemed Chief CFO who tragically died from complications of COVID-19 in March, which was partially offset by lower Business development expenses as business travel and events were curtailed due to COVID-19.

Six Months Ended May 31, 2020

Consolidated Results

• Net revenues for the six months ended May 31, 2020 were a record of $2,205.1 million, compared with $1,587.6 million for the six months ended May 31, 2019.

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• Our results in the six months ended May 31, 2020 reflect strong performance in investment banking, particularly in the first quarter of the year, and record six months results in equities and fixed income. We believe our record equities and fixed income net revenues were primarily due to extending our client franchise as well as higher trading volumes and increased levels of volatility resulting primarily from the impact of COVID-19 and the policy response on the markets in the second quarter of the current year.

Business Results

• Our net revenues for the six months ended May 31, 2020 increased 38.9% as compared to the prior six months ended May 31, 2019. These results reflect record six months performance in mergers, acquisitions and advisory, record net revenues in equity underwriting and solid performance in debt underwriting, as well as record net revenues in equities and fixed income.

• Our investment banking results were strong during the six months ended May 31, 2020, reflecting record six month performance in mergers and acquisitions, record results in equity underwriting, solid performance in debt underwriting and a net loss of $39.3 million in the current year period from our share of the net earnings of our Jefferies Finance joint venture, reflecting unrealized losses related to the write-down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year period, primarily due to the impact of COVID-19 on the markets and the economy. This compares with net revenues of $23.9 million from our share of the net earnings from our Jefferies Finance joint venture in the prior year period. Other investment banking results during the six months ended May 31, 2020 also includes a $24.5 million write-down of an investment. Our advisory revenues were a record $525.2 million, an increase of 46.3%, or $166.2 million, compared to the prior six months ended May 31, 2019, while our underwriting revenues for the six months period ended May 31, 2020 were $454.3 million, up $89.6 million, or 24.6%, with broad contribution from our sector teams and regional presence.

• Our record equities net revenues reflect an increase of 26.8% compared to the prior year period, primarily due to strong results in most of our core equities businesses due to increased trading volumes and higher levels of volatility. We believe we increased our market share in the first quarter of this year and additionally as we were in a position to provide consistent and strong service to our clients throughout this unprecedented period, we continued to extend our client franchise.

• Our record fixed income net revenues improved by 100.4% compared to the prior year period, primarily due to strong trading volumes, as markets were more active, and the fixed income businesses’ results reflect having successfully managed through the markets’ high level of volatility during the period.

• Asset management revenues of $27.4 million for the six months ended May 31, 2020 were lower than the $70.0 million recorded in the prior year period, primarily due to lower investment returns in certain of our investments in separately managed accounts and funds, as a result of the significant impact of COVID-19 on the markets during the second quarter of the current year.

• Net revenues in our other business category in the six months ended May 31, 2020 were $59.8 million, compared with $41.2 million in the prior year period. Results in the current year period include gains of $61.5 million from hedges that were bought and sold in February to offset the anticipated severe drop in the equity markets at the end of the first quarter. Results in the current year period also include net revenues of $21.9 million due to our share of the net income of Berkadia, compared with net revenues of $47.9 million from Berkadia in the prior year period.

Expenses

• Non-interest expenses for the six months ended May 31, 2020 increased $427.0 million to $1,796.8 million, compared with $1,369.8 million for the prior year period, primarily due to $357.2 million of increased Compensation and benefits expense, consistent with the higher net revenues in our core operating businesses.

• Compensation and benefits expense for the six months ended May 31, 2020 was $1,206.8 million, an increase of $357.2 million, or 42.0%, from the comparable prior year period, consistent with the 38.9% growth in net revenues. Compensation and benefits expense as a percentage of Net revenues was 54.7% for the six months ended May 31, 2020, compared with 53.5% in the prior year period, or 1.2% of net revenues higher, due to the change in the mix of our net revenues, with higher revenues in our core operating businesses and lower net revenues from our Jefferies Finance joint venture and our Other businesses, including our investment in Berkadia.

• Non-compensation expenses for the six months ended May 31, 2020 increased $69.7 million, or 13.4%, to $590.0 million, compared with $520.3 million for the six months ended May 31, 2019.

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Headcount

• At May 31, 2020, we had 3,850 employees globally, an increase of 194 employees from our headcount of 3,656 at May 31, 2019. Our headcount increased by 136 employees in Asia over this period, primarily as a result of our expansion in equities in Asia. We also had continued additions in our investment banking and asset management businesses, as well as additions in corporate services due to continued business growth.

Revenues by Source

For presentation purposes, the remainder of “Results of Operations” is presented on a detailed product and expense basis, rather than on a business segment basis. Net revenues presented for our Investment Banking and Capital Markets businesses include allocations of interest income and interest expense as we assess the profitability of these businesses inclusive of the net interest revenue or expense associated with the respective activities, which is a function of the mix of each business’s associated assets and liabilities and the related funding costs.

The composition of our net revenues has varied over time as financial markets and the scope of our operations have changed. The composition of net revenues can also vary from period to period due to fluctuations in economic and market conditions, and our own performance. The following provides a summary of “Net Revenues by Source” (dollars in thousands):

	Three Months Ended May 31,												Six Months Ended May 31,
	2020					2019							2020					2019
	Amount			% of Net Revenues		Amount			% of Net Revenues		% Change		Amount			% of Net Revenues		Amount			% of Net Revenues		% Change
Advisory	$	182,081		17.6	%	$	178,554		19.8	%	2.0	%	$	525,239		23.8	%	$	359,036		22.6	%	46.3	%
Equity underwriting	124,383			12.0		108,022			12.0		15.1	%	256,075			11.6		159,359			10.0		60.7	%
Debt underwriting	81,027			7.8		151,511			16.8		(46.5	)%	198,179			9.0		205,288			12.9		(3.5	)%
Total underwriting	205,410			19.8		259,533			28.8		(20.9	)%	454,254			20.6		364,647			22.9		24.6	%
Other investment banking	(71,234		)	(6.9	)	9,634			1.0		N/M		(85,763		)	(3.9	)	1,992			0.1		N/M
Total investment banking	316,257			30.5		447,721			49.6		(29.4	)%	893,730			40.5		725,675			45.6		23.2	%
Equities	237,131			22.9		206,083			22.9		15.1	%	482,772			21.9		380,622			24.0		26.8	%
Fixed income	493,144			47.7		173,253			19.2		184.6	%	741,326			33.6		370,012			23.4		100.4	%
Total capital markets	730,275			70.6		379,336			42.1		92.5	%	1,224,098			55.5		750,634			47.4		63.1	%
Other	(17,700		)	(1.6	)	32,218			3.6		N/M		59,833			2.8		41,213			2.6		45.2	%
Total Investment Banking and Capital Markets (1) (2)	1,028,832			99.5		859,275			95.3		19.7	%	2,177,661			98.8		1,517,522			95.6		43.5	%
Asset management fees and revenues	4,576			0.4		5,099			0.6		(10.3	)%	16,296			0.7		12,130			0.8		34.3	%
Investment return (3) (4)	13,944			1.3		47,526			5.2		(70.7	)%	34,783			1.6		79,576			5.0		(56.3	)%
Allocated net interest (3) (5)	(12,985		)	(1.2	)	(10,049		)	(1.1	)	29.2	%	(23,677		)	(1.1	)	(21,659		)	(1.4	)	9.3	%
Total Asset Management	5,535			0.5		42,576			4.7		(87.0	)%	27,402			1.2		70,047			4.4		(60.9	)%
Net revenues	$	1,034,367		100.0	%	$	901,851		100.0	%	14.7	%	$	2,205,063		100.0	%	$	1,587,569		100.0	%	38.9	%

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(1) Includes net interest revenue (expense) of $(0.8) million and $2.1 million for the three and six months ended May 31, 2020, respectively, and $16.4 million and $21.0 million for the three and six months ended May 31, 2019, respectively.

(2) Allocated net interest is not separately disaggregated in presenting our Investment Banking and Capital Markets reportable segment within our Net Revenues by Source. This presentation is aligned to our Investment Banking and Capital Markets internal performance measurement.

(3) Net revenues attributed to the Investment return in our Asset Management reportable segment have been disaggregated to separately present Investment return and Allocated net interest (see footnote 5 below). This disaggregation is intended to increase transparency and to make clearer actual Investment return. We believe that aggregating Investment return and Allocated net interest would obscure the Investment return by including an amount that is unique to our credit spreads, debt maturity profile, capital structure, liquidity risks and allocation methods, none of which are pertinent to the Investment returns generated by the performance of the portfolio.

(4) Includes net interest expenses of $7.2 million and $13.6 million for the three and six months ended May 31, 2020, respectively, and $0.6 million and $1.7 million for the three and six months ended May 31, 2019, respectively.

(5) Allocated net interest represents the allocation of our long-term debt interest expense to our Asset Management reportable segment, net of interest income on our Cash and cash equivalents and other sources of liquidity. For discussion of our sources of liquidity, refer to the “Liquidity, Financial Condition and Capital Resources” section herein.

Investment Banking Revenues

Investment banking is comprised of revenues from:

• advisory services with respect to mergers and acquisitions and restructurings and recapitalizations;

• underwriting services, which include underwriting and placement services related to corporate debt, municipal bonds, mortgage-backed and asset-backed securities and equity and equity-linked securities and loan syndication;

• our share of net earnings from our corporate lending joint venture Jefferies Finance; and

• securities and loans received or acquired in connection with our investment banking activities.

The following table sets forth our investment banking revenues (dollars in thousands):

	Three Months Ended   May 31,					% Change		Six Months Ended   May 31,					% Change
	2020			2019				2020			2019
Advisory	$	182,081		$	178,554	2.0	%	$	525,239		$	359,036	46.3	%
Equity underwriting	124,383			108,022		15.1	%	256,075			159,359		60.7	%
Debt underwriting	81,027			151,511		(46.5	)%	198,179			205,288		(3.5	)%
Total underwriting	205,410			259,533		(20.9	)%	454,254			364,647		24.6	%
Other investment banking	(71,234		)	9,634		N/M		(85,763		)	1,992		N/M
Total investment banking	$	316,257		$	447,721	(29.4	)%	$	893,730		$	725,675	23.2	%

The following table sets forth our investment banking activities (dollars in billions):

	Deals Completed				Aggregate Value
	Three Months Ended   May 31,		Six Months Ended   May 31,		Three Months Ended   May 31,				Six Months Ended   May 31,
	2020	2019	2020	2019	2020		2019		2020		2019
Advisory transactions (1)	35	52	101	96	$	23.3	$	48.9	$	81.0	$	101.1
Public and private debt financings	84	159	236	273	43.6		53.7		113.2		81.0
Public and private equity and convertible offerings (2)	50	49	106	70	25.4		17.4		37.2		20.4

(1) The number of advisory deals completed includes seven and ten restructuring and recapitalization transactions during the three and six months ended May 31, 2020, respectively, and five and nine restructuring and recapitalization transactions during the three and six months ended May 31, 2019, respectively.

(2) We acted as sole or joint bookrunner on 44 and 100 offerings during the three and six months ended May 31, 2020, respectively, and 47 and 68 offerings during the three and six and May 31, 2019, respectively.

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Three Months Ended May 31, 2020

• Investment banking revenues for the three months ended May 31, 2020 were $316.3 million, compared with $447.7 million for the three months ended May 31, 2019, reflecting solid performance in mergers, acquisitions and advisory and equity underwriting, offset by lower revenues in debt underwriting and writedowns and reserves from our Jefferies Finance joint venture.

• Our advisory revenues were $182.1 million, or 2.0% higher than the prior year quarter, and our equity underwriting revenues were 15.1% higher than the prior year quarter. Our results in mergers and acquisitions and equity underwriting were offset by lower revenues in debt underwriting, impacted by less acquisition finance activity and volatile debt markets. From equity and debt underwriting activities, we generated $124.4 million and $81.0 million in revenues, respectively, for the three months ended May 31, 2020, compared with $108.0 million and $151.5 million in revenues, respectively, in the prior year quarter.

• Other investment banking revenues were a loss of $71.2 million for the three months ended May 31, 2020, compared with revenues of $9.6 million for the three months ended May 31, 2019. Other investment banking revenues during the three months ended May 31, 2020 include a net loss of $49.7 million from our share of the net earnings of our Jefferies Finance joint venture, reflecting unrealized losses related to the write-down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year quarter, primarily due to the impact of COVID-19 on the markets and economy. This compares with net revenues of $25.1 million from our share of the net earnings from our Jefferies Finance joint venture in the prior year quarter. Results in the current year quarter also includes a $9.5 million write-down of a private equity investment. The results in both quarters also include the amortization of costs and allocated interest expense related to our investment in the Jefferies Finance business.

Six Months Ended May 31, 2020

• Investment banking revenues for the six months ended May 31, 2020 were $893.7 million for the six months ended May 31, 2020, compared with $725.7 million in the prior year period, reflecting record performance in mergers and acquisitions, record results in equity underwriting and solid performance in debt underwriting. The prior year period results were also impacted by the severe market downturn in the early part of the prior year period, which heavily muted issuance activity, which was exacerbated by the five-week shutdown of the U.S. Government in late December and January, which further dampened new issue underwriting transactions.

• Our advisory revenues were a record $525.2 million, up $166.2 million, or 46.3% higher than the prior year period, reflecting record performance in our mergers and acquisitions business. Our underwriting revenues for the six months ended May 31, 2020 were $454.3 million, an increase of $89.6 million, or 24.6%, from the same period last year, due to record results in equity underwriting and solid performance in debt underwriting, with broad contribution from our sector teams and regional presence. From equity and debt underwriting activities, we generated $256.1 million and $198.2 million in revenues, respectively, for the six months ended May 31, 2020, compared with $159.4 million and $205.3 million in revenues, respectively, in the prior year period.

• Other investment banking revenues were a loss of $85.8 million for the six months ended May 31, 2020, compared with revenues of $2.0 million for the six months ended May 31, 2019. Other investment banking revenues during the six months ended May 31, 2020 include a net loss of $39.3 million from our share of the net earnings of our Jefferies Finance joint venture, reflecting unrealized losses related to the write-down of commitments and loans held-for-sale, as well as reserves recorded on the loan portfolio during the current year period, primarily due to the impact of COVID-19 on the markets and the economy. This compares with net revenues of $23.9 million in the prior year period from our share of the net earnings from our Jefferies Finance joint venture. Other investment banking results during the six months ended May 31, 2020 also includes a $24.5 million write-down of a private equity investment. The results in the six months ended May 31, 2020 and May 31, 2019 also included an aggregate of $39.3 million and $46.5 million, respectively, representing the amortization of costs and allocated interest expense related to our investment in the Jefferies Finance business.

Equities Net Revenues

Equities is comprised of net revenues from:

• services provided to our clients from which we earn commissions or spread revenue by executing, settling and clearing transactions for clients;

• advisory services offered to clients;

• financing, securities lending, outsourced trading and other prime brokerage services offered to clients; and

• wealth management services, which includes providing clients access to all of our institutional execution capabilities.

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Three Months Ended May 31, 2020

• In May, Greenwich Associates named us as the top firm in helping clients navigate the markets as COVID-19 significantly impacted equity markets in mid-March, causing volatility and increased trading volumes. These results were based on a survey they had recently conducted of more than 75 buy-side institutions evaluating brokers’ performances in providing clients with liquidity, hedging solutions, market color and insights.

• Total equities net revenues were $237.1 million for the three months ended May 31, 2020, an increase of 15.1%, compared with $206.1 million for the prior year quarter, primarily due to record results in certain of our equities businesses, as a result of increased volumes and client activity, as well as the continued diversification of our business both from a product and geographic perspective. We believe we continued to extend our client franchise as we were in a position to provide consistent and strong service to our clients throughout this unprecedented period.

• Our results include record net revenues in our International cash equities businesses across both Europe and Asia-Pacific, as well as across every region in our market-leading global electronic trading franchise. We also had record net revenues in our prime brokerage business.

• Results in our European and Asian cash equities businesses were driven by increased client activity and trading revenue, which is a result of higher market volumes and the expansion we’ve made in advisory and execution capabilities across Asia-Pacific. The record results in our global electronic trading business were driven by increased global market volumes, volatility, and the continued strength of the global platform. Our prime brokerage business also had record quarterly results as the business benefited from the continued growth and expansion of our outsourced trading business. Our equity options business had double-digit growth, driven by improved trading results and higher volatility.

• Our Americas cash equities business posted lower results driven by trading activity and the COVID-19 related market sell-off, partially offset by higher levels of client activity. Our global convertibles business had lower results driven by trading conditions as a result of the COVID-19 market environment. Results in our Securities Finance business were lower due to reduced trading activity and the overall market environment.

• The increase in our global equities net revenues was partially offset by higher losses on certain block positions in the current year quarter.

Six Months Ended May 31, 2020

• Total equities net revenues were a record $482.8 million for the six months ended May 31, 2020, an increase of 26.8%, compared with $380.6 million for the prior year period, primarily due to strong results in most of our equities businesses, as a result of increased market volumes and client activity, higher levels of volatility, and the continued diversification of our business both from a product as well as geographic perspective. We believe we increased our market share in the first quarter of this year and additionally as we were in a position to provide consistent and strong service to our clients throughout this unprecedented period, we continued to extend our client franchise.

• Our overall results include record net revenues in our International cash equities businesses across both Europe and Asia-Pacific, as well as across every region in our market-leading global electronic trading franchise.

• Results in our global cash equities businesses were driven by increased client activity, market volumes and improved trading. While global market volumes and higher volatility drove an increase in commissions, our results in Asia-Pacific were also driven by our expansion and investment in the region across advisory and execution capabilities. Our global electronic trading business achieved record results, which were driven by increased global market volumes, volatility, and the continued strength of the global platform. Our equity options business had double-digit growth, driven by higher volatility and improved trading. Our domestic and international convertibles business also had increased growth, driven by strong secondary trading activity, primarily in the U.S., and exceptional strength in the first quarter, globally.

• The increase and record results in our global equities business was partially offset by lower revenues in our prime services businesses, driven by client activity in prime brokerage and reduced trading activity in our securities finance business due to the impact of COVID-19.

• The increase and record results in our global equities net revenues was partially offset by higher losses on certain block positions in the current year period.

Fixed Income Net Revenues

Fixed income is comprised of net revenues from:

• executing transactions for clients and making markets in securitized products, investment grade, high-yield, emerging markets, municipal and sovereign securities and bank loans, as well as foreign exchange execution on behalf of clients; and

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• interest rate derivatives and credit derivatives.

Three Months Ended May 31, 2020

• Fixed income record net revenues totaled $493.1 million for the three months ended May 31, 2020, an increase of 184.6% from net revenues of $173.3 million for the three months ended May 31, 2019, due to strong trading volumes from the impact of COVID-19 on the markets across many of our fixed income businesses. The following highlights the main components of the results:

◦ Fixed income record net revenues for the three months ended May 31, 2020 were a record in our U.S. and international rates, leveraged credit, Europe and Asia credit, investment grade corporates and emerging markets businesses.

◦ Our U.S. and international rates businesses delivered record net revenues in the current year quarter, primarily due to increased trading opportunities as a result of the U.S. Federal Reserve Bank and other government interventions to support the markets during the quarter. Our international rates business in the prior year quarter underperformed due to a subdued market environment.

◦ Similarly, our leveraged credit, European and Asian credit and investment grade corporates businesses performed well due to increased client activity, higher levels of volatility and trading opportunities that presented in April and May of the current year quarter as compared with the prior year quarter. Our global emerging markets business similarly benefited in the current year quarter, with government support of the credit markets driving increased trading activity, especially in the latter part of the quarter.

◦ The current year quarter results were partially offset by trading losses in our municipal securities business, which was impacted by the significant sell-off in this business due to the impact of COVID-19. Revenues in our U.S. and international securitized markets groups were also lower in the current year quarter due to a decline in demand in the securitization markets for those product classes and trading losses in certain asset classes as credit spreads widened for structured products.

Six Months Ended May 31, 2020

• Fixed income net revenues totaled a record $741.3 million for the six months ended May 31, 2020, an increase of 100.4% from net revenues of $370.0 million for the six months ended May 31, 2019, primarily due to strong trading volumes, as markets were more active, and the fixed income businesses’ results reflect having successfully managed through the markets’ high level of volatility during the period. The following highlights the main components of the results:

◦ Our U.S. and international rates businesses had record net revenues in the current year period, as there were more trading opportunities in the U.S. treasuries trading market in the first half of the period and increased trading opportunities as a result of the U.S. Federal Reserve Bank and other government interventions due to the impact of COVID-19 in the second half of the period. Our international rates business in the prior year period underperformed as concerns over Brexit and economic challenges in other countries limited trading opportunities in the prior year period.

◦ Similarly, our leveraged credit, European and Asian credit and investment grade corporates businesses performed well due to increased client activity and higher levels of volatility throughout most of the current year period. Our global emerging markets business similarly benefited in the current year period, with more favorable market conditions which drove strong investor demand and an increase in new issuance in certain countries in the first half of the period, while government support of the credit markets drove increased trading activity in the second half of the period.

◦ The current year period results were partially offset by trading losses in our municipal securities business, which was impacted by the significant sell-off in this business due to the impact of COVID-19 in the second half of the current year period. Revenues in our U.S. and international securitized markets groups were also lower in the current year period due to a decline in demand in the securitization markets for those product classes and trading losses in certain asset classes as credit spreads widened for structured products.

Other

Other is comprised of revenues from:

• Berkadia and other investments (other than Jefferies Finance);

• principal investments in private equity and hedge funds managed by third parties or related parties and are not part of our Leucadia Asset Management platform; and

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• investments held as part of employee benefit plans, including deferred compensation plans (for which we incur equal and offsetting compensation expenses).

Three Months Ended May 31, 2020

• Net revenues from our other business category were a net loss of $17.7 million for the three months ended May 31, 2020, a decrease of $49.9 million compared with net revenues of $32.2 million for the three months ended May 31, 2019.

• Results in the prior year quarter include net revenues of $25.3 million due to our share of the net income of Berkadia, compared with negligible net revenues in the current year quarter due to the impairment of mortgage servicing rights as a result of lower interest rates, higher loan loss provisions and a decline in loan originations due to the impact of COVID-19.

• The results in the current year quarter also include unrealized net mark-to-market losses related to certain investments compared with mark-to-market gains in the prior year quarter.

Six Months Ended May 31, 2020

• Net revenues from our other business category totaled $59.8 million for the six months ended May 31, 2020, an increase of $18.6 million compared with net revenues of $41.2 million for the six months ended May 31, 2019.

• Results in the current year period include gains of $61.5 million from hedges that were bought and sold in February to offset the anticipated severe drop in the equity markets at the end of the first quarter.

• Results in the current year period also include net revenues of $21.9 million due to our share of the net income of Berkadia, compared with net revenues of $47.9 million in the prior year period, as the second half of the current year period includes the impairment of mortgage servicing rights as a result of lower interest rates, higher loan loss provisions and a decline in loan originations due to the impact of COVID-19.

Asset Management

Asset management revenue includes the following:

• management and performance fees from funds and accounts managed by us;

• revenue from strategic partners pursuant to agreements which entitle us to portions of our partner’ revenues and/or profits; and

• investment income from our investments managed by our asset management business and other strategic partners.

The key components of asset management revenues are the level of assets under management and the performance return, whether on an absolute basis or relative to a benchmark or hurdle. These components can be affected by financial markets, profits and losses in the applicable investment portfolios and client capital activity. Further, asset management fees vary with the nature of investment management services. The terms under which clients may terminate our investment management authority, and the requisite notice period for such termination, varies depending on the nature of the investment vehicle and the liquidity of the portfolio assets. Performance fees are generally recognized once a year, typically in December, at the end of the relevant performance period, to the extent that the benchmark return has been met.

The following summarizes the results of our Asset Management businesses by asset class (dollars in thousands):

	Three Months Ended   May 31,						% Change		Six Months Ended   May 31,						% Change
	2020			2019					2020			2019
Asset management fees:
Equities	$	1,073		$	168		538.7	%	$	3,947		$	2,712		45.5	%
Multi-asset	1,164			4,382			(73.4	)%	2,694			8,507			(68.3	)%
Total asset management fees	2,237			4,550			(50.8	)%	6,641			11,219			(40.8	)%
Revenue from arrangements with strategic partners (1)	2,339			549			326.0	%	9,655			911			959.8	%
Total asset management fees and revenues	4,576			5,099			(10.3	)%	16,296			12,130			34.3	%
Investment return	13,944			47,526			(70.7	)%	34,783			79,576			(56.3	)%
Allocated net interest	(12,985		)	(10,049		)	29.2	%	(23,677		)	(21,659		)	9.3	%
Total Asset Management	$	5,535		$	42,576		(87.0	)%	$	27,402		$	70,047		(60.9	)%

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(1) These amounts include our share of fees received by third party asset management companies with which we have revenue and profit share arrangements.

Three Months Ended May 31, 2020

• Asset management net revenues in the three months ended May 31, 2020 were $5.5 million, compared with $42.6 million in the prior year quarter. The decrease was primarily due to lower investment returns in certain of our investments in separately managed accounts and funds due to the impact of COVID-19 on the markets and economy during the current year quarter.

Six Months Ended May 31, 2020

• Asset management net revenues in the six months ended May 31, 2020 were $27.4 million, compared with $70.0 million in the prior year period. The decrease was due to lower investment returns in certain of our investments in separately managed accounts and funds due to the impact of COVID-19 on the markets and economy during the second half of the current year period, partially offset by higher revenues from our share of fees received by third party asset management companies with which we have revenue and profit share arrangements. Asset management fees and revenues from arrangements with strategic partners increased from $12.1 million for the prior year period to $16.3 million for the six months ended May 31, 2020.

Assets under Management

Assets under management by predominant asset class were as follows (in millions):

	May 31, 2020		November 30, 2019
Assets under management (1):
Equities	$	483	$	110
Multi-asset (2)	396		730
Total	$	879	$	840

(1) Assets under management include third-party net assets actively managed by us, including hedge funds and certain managed accounts. The amounts at May 31, 2020 and November 30, 2019 also include $149 million and $150 million, respectively, of assets under management in a strategy, which represents a net asset value equivalent of an asset management strategy where we earn performance fees. We may consolidate certain funds and for such consolidated funds, assets under management includes the pro-rata portion of third-party net assets in consolidated funds based on the percentage ownership of third-party investors in the consolidated fund. The above amounts do not include assets under management at non-consolidated strategic partners or investments or Jefferies Financial Group Inc. (“Jefferies”).

(2) Subsequent to May 31, 2020, these assets under management are in the process of being liquidated and the funds will be returned to the third-party investors.

Change in assets under management were as follows (in millions):

	Three Months Ended   May 31,						Six Months Ended   May 31,
	2020			2019			2020			2019
Asset under management:
Balance, beginning of period	$	924		$	1,110		$	840		$	1,463
Net cash flow in (out)	(19		)	(152		)	120			(525		)
Net market appreciation (depreciation)	(26		)	(6		)	(81		)	14
Balance, end of period	$	879		$	952		$	879		$	952

The change in assets under management during the three months ended May 31, 2020 is primarily due to redemptions from certain funds and market depreciation due to the impact of COVID-19 on the markets and economy. The change in assets under management during the six months ended May 31, 2020 is primarily due to new subscriptions and investments from third-parties, partially offset by market depreciation due to the impact of COVID-19 on the markets and economy. The change in assets under management during the three and six months ended May 31, 2019 is primarily due to redemptions from certain funds and separately managed accounts.

Our definition of assets under management is not based on any definition contained in any of our investment management agreements and differs from the manner in which “Regulatory Assets Under Management” is reported to the SEC on Form ADV.

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Asset Management Investments

Our asset management business invests directly in hedge funds and separately managed accounts where we or our Parent acts as the asset manager. Additionally, we make investments in and enter into revenue sharing arrangements with third-party asset managers. Subsequent to May 31, 2020, $78.8 million of the asset management investments included in the table below at May 31, 2020 are in the process of being liquidated due to the wind down of an asset management platform and the liquidation of funds. The following table represents our investments by asset manager (in thousands):

	May 31, 2020		November 30, 2019
Jefferies Group LLC; as manager:
Fund investments (1)	$	17,652	$	22,695
Separately managed accounts (2)	300,475		344,549
Total	$	318,127	$	367,244
Jefferies Financial Group Inc.; as manager:
Fund investments	$	224,166	$	218,109
Separately managed accounts (2)	46,072		43,153
Total	$	270,238	$	261,262
Third-party as asset manager:
Fund investments (3)	$	605,415	$	289,930
Separately managed accounts (2)	232,069		266,484
Total	$	837,484	$	556,414
Total asset management investments (4)	$	1,425,849	$	1,184,920

(1) Due to the level or nature of an investment in a fund, we may consolidate that fund; and accordingly, the assets and liabilities of the fund are included in the representative line items in our consolidated financial statements. At May 31, 2020 and November 30, 2019, $17.5 million and $22.6 million, respectively, represents net investments in funds that have been consolidated in our financial statements.

(2) Where we have investments in a separately managed account, the assets and liabilities of such account are presented on our balance sheet within each respective line item.

(3) The increase for the six months ended May 31, 2020 was primarily due to an investment in a new fund in the current year period.

(4) Of the $1,425.8 million total invested in the funds at May 31, 2020, $1,129.8 million was sourced from the proceeds of long-term and permanent capital. At May 31, 2020 and November 30, 2019, we have borrowed $296.0 million and $135.0 million, respectively, under a credit facility agreement (“Credit Facility”) with JPMorgan Chase Bank, N.A., which is secured by our investment in a fund managed by Jefferies, with a carrying value of $224.2 million and $218.1 million at May 31, 2020 and November 30, 2019, respectively, and our investment in a fund managed by a third-party with a carrying value of $284.7 million at May 31, 2020. 

Our asset management investments generated an investment return of $13.9 million and $34.8 million for the three and six months ended May 31, 2020, respectively, and $47.5 million and $79.6 million for the three and six May 31, 2019, respectively.

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Non-interest Expenses

Non-interest expenses were as follows (dollars in thousands):

	Three Months Ended   May 31,				% Change		Six Months Ended   May 31,				% Change
	2020		2019				2020		2019
Compensation and benefits	$	571,547	$	477,885	19.6	%	$	1,206,777	$	849,570	42.0	%
Non-compensation expenses:
Floor brokerage and clearing fees	77,619		62,474		24.2	%	138,199		114,451		20.7	%
Technology and communications	95,594		81,645		17.1	%	184,778		160,815		14.9	%
Occupancy and equipment rental	24,395		29,748		(18.0	)%	51,898		58,287		(11.0	)%
Business development	8,359		36,349		(77.0	)%	38,316		66,904		(42.7	)%
Professional services	41,994		38,066		10.3	%	86,659		74,993		15.6	%
Underwriting costs	12,485		12,823		(2.6	)%	30,014		21,398		40.3	%
Other	29,506		7,723		282.1	%	60,176		23,428		156.9	%
Total non-compensation expenses	289,952		268,828		7.9	%	590,040		520,276		13.4	%
Total non-interest expenses	$	861,499	$	746,713	15.4	%	$	1,796,817	$	1,369,846	31.2	%

Compensation and Benefits

• Compensation and benefits expense consists of salaries, benefits, commissions, annual cash compensation awards and the amortization of share-based and cash compensation awards to employees.

• Cash and share-based awards and a portion of cash awards granted to employees as part of year end compensation generally contain provisions such that employees who terminate their employment or are terminated without cause may continue to vest in their awards, so long as those awards are not forfeited as a result of other forfeiture provisions (primarily non-compete clauses) of those awards. Accordingly, the compensation expense for a portion of awards granted at year end as part of annual compensation is recorded in the year of the award. Compensation and benefits expense includes amortization expense associated with these awards to the extent there are respective future service periods. In addition, the senior executive awards contain market and performance conditions.

• Compensation and benefits expense was $571.5 million and $1,206.8 million for the three and six months ended May 31, 2020, respectively, compared with $477.9 million and $849.6 million for the three and six months ended May 31, 2019, respectively, increasing in line with our increase in net revenues. A significant portion of our compensation expense remains highly variable.

• Compensation and benefits expense as a percentage of Net revenues was 55.3% and 54.7% for the three and six months ended May 31, 2020, respectively, compared with 53.0% and 53.5% for the three and six months ended May 31, 2019, respectively, or 2.3% and 1.2% of net revenues higher, in the three and six month periods, respectively, due to the change in the mix of our net revenues, with higher revenues in our core operating businesses and lower net revenues from our Jefferies Finance joint venture and Other businesses, including our investment in Berkadia.

• Compensation expense related to the amortization of share- and cash-based awards amounted to $84.7 million and $168.5 million for the three and six months ended May 31, 2020, respectively, compared with $73.1 million and $145.8 million for the three and six months ended May 31, 2019, respectively, reflecting our hiring in recent periods.

• Employee headcount was 3,850 at May 31, 2020 and 3,656 at May 31, 2019. Since May 31, 2019, our headcount increased by 136 employees in Asia over this period, primarily as a result of our expansion in equities in Asia. We also had continued additions in our investment banking and asset management businesses, as well as additions in corporate services due to continued business growth.

• Refer to Note 15, Compensation Plans, in our consolidated financial statements included in this Quarterly Report on Form 10-Q, for further details on compensation and benefits.

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Non-Compensation Expenses

Three Months Ended May 31, 2020

• Non-compensation expenses were $290.0 million for the three months ended May 31, 2020, an increase of $21.2 million, or 7.9%, compared with $268.8 million in the three months ended May 31, 2019. The increase in non-compensation expenses was primarily due to higher Floor brokerage and clearing fees due to an increase in trading volumes across the equities and fixed income businesses. The increase was also due to higher Technology and communication expenses primarily related to increased market data and connectivity usage and costs associated with the development of various trading systems and costs associated with our move to a largely remote working environment. The increase in Technology and communication expenses also included the acceleration of certain costs related to the wind down of an asset management business. Non-compensation expense also increased due to higher Other expenses, which included our charitable donations of $8.6 million, in memory of Peg Broadbent, our longstanding, esteemed CFO who tragically died from complications of COVID-19 in March. The increase in Other expenses also included a write-off of goodwill and intangible assets related to the wind down of the same asset management platform. The increase in non-compensation expenses was partially offset by lower Business development expenses as business travel and hosted events were curtailed due to COVID-19.

• Non-compensation expenses as a percentage of Net revenues was 28.0% and 29.8% for the three months ended May 31, 2020 and May 31, 2019, respectively, demonstrating the operating leverage inherent in our business.

Six Months Ended May 31, 2020

• Non-compensation expenses were $590.0 million for the six months ended May 31, 2020, an increase of $69.7 million, or 13.4%, compared with $520.3 million in the six months ended May 31, 2019. The increase in non-compensation expenses was primarily due to higher Floor brokerage and clearing fees due to an increase in trading volumes primarily across our equities businesses, as well as in the fixed income businesses. The increase was also due to higher Technology and communication expenses primarily related to costs associated with the development of various trading systems, increased market data and connectivity usage and costs associated with our move to a largely remote working environment. The increase also included higher Professional services expenses primarily due to an increase in consulting fees and higher Underwriting costs primarily due to an increase in investment banking engagements in the first quarter of the period. Non-compensation expense also increased due to higher Other expenses, which included our charitable donations of $8.6 million, in memory of Peg Broadbent, our longstanding, esteemed CFO who tragically died from complications of COVID-19 in March and our donation made to various charities in support of the Australian wildfire relief effort. The increase in Other expenses also included a write-off of goodwill and intangible assets related to the wind down of the same asset management platform. The increase in non-compensation expenses was partially offset by lower Business development expenses as business travel and hosted events were curtailed due to COVID-19.

• Non-compensation expenses as a percentage of Net revenues was 26.8% and 32.8% for the six months ended May 31, 2020 and May 31, 2019, respectively, demonstrating the operating leverage inherent in our business.

Income Taxes

• For the three and six months ended May 31, 2020, the provision for income taxes was $44.0 million and $108.0 million, respectively, equating to an effective tax rate of 25.4% and 26.5%, respectively. For the three and six months ended May 31, 2019, the provision for income taxes was $45.3 million and $61.5 million, respectively, equating to an effective tax rate of 29.2% and 28.3%, respectively.

• The decrease in the effective tax rate for the three and six months ended May 31, 2020, as compared to the prior year periods, is primarily related to benefits for revaluing our U.K. deferred tax asset that were recorded during the current year quarter.

• Refer to Note 16, Income Taxes, in our consolidated financial statements included in this Quarterly Report on Form 10-Q, for further details on income taxes.

Accounting Developments

For a discussion of recently issued accounting developments and their impact on our consolidated financial statements, see Note 3, Accounting Developments, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Critical Accounting Policies

Our consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and related notes. Actual results can and may differ from estimates. These differences could be material to our consolidated financial statements.

We believe our application of U.S. GAAP and the associated estimates are reasonable. Our accounting estimates are reevaluated, and adjustments are made when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.

We believe our critical accounting policies (policies that are both material to the financial condition and results of operations and require our most subjective or complex judgments) are our valuation of certain financial instruments and assessment of goodwill.

For further discussions of the following significant accounting policies and other significant accounting policies, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019 and Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Valuation of Financial Instruments

Financial instruments owned and Financial instruments sold, not yet purchased are recorded at fair value. The fair value of a financial instrument is the amount 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 (the exit price). Unrealized gains or losses are generally recognized in Principal transactions revenues in our Consolidated Statements of Earnings.

For information on the composition of our Financial instruments owned and Financial instruments sold, not yet purchased recorded at fair value, see Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Fair Value Hierarchy – In determining fair value, we maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect our assumptions that market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. We apply a hierarchy to categorize our fair value measurements broken down into three levels based on the transparency of inputs, where Level 1 uses observable prices in active markets and Level 3 uses valuation techniques that incorporate significant unobservable inputs. Greater use of management judgment is required in determining fair value when inputs are less observable or unobservable in the marketplace, such as when the volume or level of trading activity for a financial instrument has decreased and when certain factors suggest that observed transactions may not be reflective of orderly market transactions. Judgment must be applied in determining the appropriateness of available prices, particularly in assessing whether available data reflects current prices and/or reflects the results of recent market transactions. Prices or quotes are weighed when estimating fair value with greater reliability placed on information from transactions that are considered to be representative of orderly market transactions.

Fair value is a market based measure; therefore, when market observable inputs are not available, our judgment is applied to reflect those judgments that a market participant would use in valuing the same asset or liability. The availability of observable inputs can vary for different products. We use prices and inputs that are current as of the measurement date even in periods of market disruption or illiquidity. The valuation of financial instruments categorized within Level 3 of the fair value hierarchy involves the greatest extent of management judgment. (See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019 and Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q for further information on the definitions of fair value, Level 1, Level 2 and Level 3 and related valuation techniques.)

Level 3 Assets and Liabilities – For information on the composition and activity of our Level 3 assets and Level 3 liabilities, see Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Controls Over the Valuation Process for Financial Instruments – Our Independent Price Verification Group, independent of the trading function, plays an important role in determining that our financial instruments are appropriately valued and that fair value measurements are reliable. This is particularly important where prices or valuations that require inputs are less observable. In the event that observable inputs are not available, the control processes are designed to assure that the valuation approach utilized is appropriate and consistently applied and that the assumptions are reasonable. Where a pricing model is used to determine fair value, these control processes include reviews of the pricing model’s theoretical soundness and appropriateness by risk management personnel with relevant expertise who are independent from the trading desks. In addition, recently executed comparable transactions and other observable market data are considered for purposes of validating assumptions underlying the model.

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Goodwill

At May 31, 2020, Goodwill recorded in our Consolidated Statement of Financial Condition is $1,637.1 million (3.6% of total assets). The nature and accounting for goodwill is discussed in Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019 and Note 10, Goodwill and Intangible Assets, in our consolidated financial statements included in this Quarterly Report on Form 10-Q. Goodwill must be allocated to reporting units and tested for impairment at least annually, or when circumstances or events make it more likely than not that an impairment occurred. Goodwill is tested by comparing the estimated fair value of each reporting unit with its carrying value. Our annual goodwill impairment testing date is August 1, which did not indicate any goodwill impairment in any of our reporting units at August 1, 2019.

We use allocated tangible equity plus allocated goodwill and intangible assets for the carrying amount of each reporting unit. The amount of tangible equity allocated to a reporting unit is based on our cash capital model deployed in managing our businesses, which seeks to approximate the capital a business would require if it were operating independently. For further information on our Cash Capital Policy, refer to the Liquidity, Financial Condition and Capital Resources section herein. Intangible assets are allocated to a reporting unit based on either specifically identifying a particular intangible asset as pertaining to a reporting unit or, if shared among reporting units, based on an assessment of the reporting unit’s benefit from the intangible asset in order to generate results.

Estimating the fair value of a reporting unit requires management judgment and often involves the use of estimates and assumptions that could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Estimated fair values for our reporting units utilize market valuation methods that incorporate price-to-earnings and price-to-book multiples of comparable public companies. Under the market approach, the key assumptions are the selected multiples and our internally developed forecasts of future profitability, growth and return on equity for each reporting unit. The weight assigned to the multiples requires judgment in qualitatively and quantitatively evaluating the size, profitability and the nature of the business activities of the reporting units as compared to the comparable publicly-traded companies. In addition, as the fair values determined under the market approach represent a noncontrolling interest, we apply a control premium to arrive at the estimate fair value of each reporting unit on a controlling basis.

The carrying values of goodwill by reporting unit at May 31, 2020 are as follows: $562.9 million in Investment Banking, $159.8 million in Equities and Wealth Management, $914.0 million in Fixed Income and $0.4 million in Asset Management. Refer to Note 10, Goodwill and Intangible Assets, in our consolidated financial statements included in this Quarterly Report on Form 10-Q, for details on the write-off of certain goodwill and intangible assets related to the wind down of an asset management platform.

During the three months ended May 31, 2020, COVID-19 broadly impacted the global operating environment, including a contraction in economic activity and significant volatility in the financial markets. Given the significance of this event and its adverse impact on the global economic outlook and market valuations, particularly in March 2020, we performed an interim test of goodwill for impairment at May 31, 2020. The results of our assessment at May 31, 2020 indicated that all our reporting units had a fair value in excess of their respective carrying amounts based on current projections. Additionally, the interim test indicated that the fair values of our Fixed Income and Equities and Wealth Management reporting units exceeded their carrying values by 15% or more. The valuation methodology for our reporting units are sensitive to management’s forecasts of future profitability, which are significant components of the valuation, and come with a level of uncertainty regarding trading volumes, capital market transaction levels and the expected growth prospects for certain business lines. The impact of COVID-19 also remains uncertain and increases the subjectivity involved in our forecasts and other assumptions used in evaluating our goodwill for potential impairment. At May 31, 2020, our Investment Banking reporting unit is the most sensitive to the forecast assumptions used in our market approach valuation. Declines from our estimated level of client transaction activity and variability in the timing of such activity assumed in our forecasts, both of which are affected by our economic outlook, could cause a decline in the estimated fair value of our Investment Banking reporting unit, which could result in an impairment of a portion of our goodwill.

Refer to Note 10, Goodwill and Intangible Assets, in our consolidated financial statements included in this Quarterly Report on Form 10-Q, for further details on goodwill.

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Liquidity, Financial Condition and Capital Resources

Our Interim CFO and Global Treasurer are responsible for developing and implementing our liquidity, funding and capital management strategies. These policies are determined by the nature and needs of our day to day business operations, business opportunities, regulatory obligations, and liquidity requirements.

Our actual levels of capital, total assets and financial leverage are a function of a number of factors, including asset composition, business initiatives and opportunities, regulatory requirements and cost and availability of both long term and short term funding. We have historically maintained a balance sheet consisting of a large portion of our total assets in cash and liquid marketable securities, arising principally from traditional securities brokerage and trading activity. The liquid nature of these assets provides us with flexibility in financing and managing our business.

We maintain modest leverage to support our investment grade ratings. The growth of our balance sheet is supported by our equity and we have quantitative metrics in place to monitor leverage and double leverage. Our capital plan is robust, in order to sustain our operating model through stressed conditions. We maintain adequate financial resources to support business activities in both normal and stressed market conditions, including a buffer in excess of our regulatory, or other internal or external, requirements. Our access to funding and liquidity is stable and efficient to ensure that there is sufficient liquidity to meet our financial obligations in normal and stressed market conditions.

During the three months ended May 31, 2020, the global capital markets experienced a higher level of stress due to the COVID-19 pandemic. Higher volumes and price volatility led to increased margin requirements at clearing corporations and exchanges, along with increased levels of fails due to operational friction in the financial system. Margin requirements moderated as the quarter progressed, but remain elevated relative to pre-COVID-19 markets. Operational friction has been reduced, as the counterparties have adapted to a work from home environment.

During the second quarter, we increased the frequency and timing of our daily reporting for excess liquidity, cash and capital usage and excess secured funding capacity. We worked closely with the business units and management to closely monitor fails, exchange margin requirements and all changes to secured funding arrangements. During the quarter, our business units generally operated within defined balance sheet and capital limits. These limits and results were reported to senior management on a daily basis during the height of the stress period.

We were in regular dialogue during the quarter with all regulatory bodies and all three rating agencies. On April 14, 2020, Standard and Poor’s (“S&P”) affirmed our rating of BBB, but revised our rating outlook and the rating outlooks of our principal operating broker-dealers from stable to negative. On April 15, 2020, Moody’s Investors Service (“Moody’s”) affirmed our rating of Baa3 and our rating outlook of stable.

In general, the liquidity outflows experienced during the peak of the market stress were well within the assumptions of our liquidity stress model, or Maximum Liquidity Outflow (“MLO”). Due to increased volumes and heightened volatility in March, we experienced outsized margin requirements on some exchanges. Based on that experience, we increased the stress liquidity buffer during the quarter for the affected exchanges on a go forward basis.

Our secured funding model operated efficiently during this stress period. Some counterparties exited secured funding trades and were replaced with new counterparties or with excess capacity from existing lenders. We have tracked all changes in secured funding haircuts by product and have adjusted capital assumptions as needed. During this time, we extended the term of our secured funding arrangements and created additional funding capacity for various product groups. The weighted average maturity of our secured funding at May 31, 2020 increased by approximately 35 days as compared to the weighted average maturity at February 29, 2020. Our U.S. broker-dealer, Jefferies LLC, as a primary dealer, has access to the Federal Reserve’s Primary Dealer Credit Facility (“PDCF”). During the three months ended May 31, 2020, Jefferies LLC accessed the PDCF for up to $50.0 million. The amount drawn under the facility at May 31, 2020 was $8.0 million.

Our Balance Sheet

A business unit level balance sheet and cash capital analysis is prepared and reviewed with senior management on a weekly basis. As a part of this balance sheet review process, capital is allocated to all assets and gross balance sheet limits are adjusted, as necessary. This process ensures that the allocation of capital and costs of capital are incorporated into business decisions. The goals of this process are to protect the firm’s platform, enable our businesses to remain competitive, maintain the ability to manage capital proactively and hold businesses accountable for both balance sheet and capital usage.

We actively monitor and evaluate our financial condition and the composition of our assets and liabilities. We continually monitor our overall securities inventory, including the inventory turnover rate, which confirms the liquidity of our overall assets. Substantially all of our financial instruments are valued on a daily basis and we monitor and employ balance sheet limits for our various businesses.

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The following table provides detail on key balance sheet asset and liability items (dollars in millions):

	May 31,   2020		November 30,    2019		% Change
Total assets	$	45,084.4	$	43,516.1	3.6	%
Cash and cash equivalents	5,251.9		5,567.9		(5.7	)%
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations	668.9		796.8		(16.1	)%
Financial instruments owned	18,124.9		16,363.4		10.8	%
Financial instruments sold, not yet purchased	9,645.8		10,532.5		(8.4	)%
Total Level 3 assets	412.8		332.2		24.3	%
Securities borrowed	$	6,457.0	$	7,624.6	(15.3	)%
Securities purchased under agreements to resell	4,284.1		4,299.6		(0.4	)%
Total securities borrowed and securities purchased under agreements to resell	$	10,741.1	$	11,924.2	(9.9	)%
Securities loaned	$	1,941.5	$	1,525.1	27.3	%
Securities sold under agreements to repurchase	8,631.1		7,504.7		15.0	%
Total securities loaned and securities sold under agreements to repurchase	$	10,572.6	$	9,029.8	17.1	%

Total assets at May 31, 2020 and November 30, 2019 were $45.1 billion and $43.5 billion, respectively, an increase of 3.6%. During the three and six months ended May 31, 2020, average total assets were approximately 25.3% and 24.1% higher, respectively, than total assets at May 31, 2020.

Our total Financial instruments owned inventory was $18.1 billion at May 31, 2020, an increase of 10.8%, from $16.4 billion at November 30, 2019, respectively. During the six months ended May 31, 2020, our total Financial instruments owned inventory increased primarily due to an increase in sovereign obligations, mortgage-backed and other asset-backed securities, corporate debt securities and investments at fair value, partially offset by decreases in government and federal agency obligations and municipal securities. Financial instruments sold, not yet purchased inventory was $9.6 billion at May 31, 2020, a decrease of 8.4% from $10.5 billion at November 30, 2019, with the decrease primarily driven by decreases in corporate equity securities and sovereign obligations, partially offset by increases in government and federal agency obligations. Our overall net inventory position was $8.5 billion and $5.8 billion at May 31, 2020 and November 30, 2019, respectively, with the increases primarily in corporate equity and corporate debt securities, sovereign obligations and mortgage-backed and other asset-backed securities, partially offset by decreases in government and federal agency obligations. Our Level 3 Financial instruments owned as a percentage of total Financial instruments owned was 2.3% and 1.9% at May 31, 2020 and November 30, 2019, respectively. The increase in our total Level 3 Financial instruments owned at May 31, 2020 as compared to November 30, 2019 is reflective of the reduced pricing transparency experienced for certain financial assets during the quarter given the disruptive market impact of COVID-19.

Securities financing assets and liabilities include financing for our financial instruments trading activity, matched book transactions and mortgage finance transactions. Matched book transactions accommodate customers, as well as obtain securities for the settlement and financing of inventory positions. The aggregate outstanding balance of our securities borrowed and securities purchased under agreements to resell decreased by 9.9% from November 30, 2019 to May 31, 2020, primarily due to decreases in our matched book transactions and firm financing of our inventory. The outstanding balance of our securities loaned and securities sold under agreement to repurchase increased by 17.1% from November 30, 2019 to May 31, 2020, primarily due to an increase in firm financing of our inventory, partially offset by a decrease in our matched book transactions. Our average month end balance of total reverse repos and stock borrows during the three and six months ended May 31, 2020 were 47.8% and 58.2% higher, respectively, than the May 31, 2020 balance. Our average month end balance of total repos and stock loans during the three and six months ended May 31, 2020 were 53.0% and 57.5% higher, respectively, than the May 31, 2020 balance.

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The following table presents our period end balance, average balance and maximum balance at any month end within the periods presented for Securities purchased under agreements to resell and Securities sold under agreements to repurchase (dollars in millions):

	Six Months Ended   May 31,   2020		Year Ended   November 30,    2019
Securities Purchased Under Agreements to Resell:
Period end	$	4,284	$	4,300
Month end average	8,488		7,762
Maximum month end	12,061		11,589
Securities Sold Under Agreements to Repurchase:
Period end	$	8,631	$	7,505
Month end average	14,631		14,686
Maximum month end	18,979		19,654

Fluctuations in the balance of our repurchase agreements from period to period and intraperiod are dependent on business activity in those periods. Additionally, the fluctuations in the balances of our securities purchased under agreements to resell are influenced in any given period by our clients’ balances and our clients’ desires to execute collateralized financing arrangements via the repurchase market or via other financing products. Average balances and period end balances will fluctuate based on market and liquidity conditions and we consider the fluctuations intraperiod to be typical for the repurchase market.

Leverage Ratios

The following table presents total assets, total equity, total Jefferies Group LLC member’s equity and tangible Jefferies Group LLC member’s equity with the resulting leverage ratios (dollars in thousands):

		May 31,   2020			November 30,    2019
Total assets		$	45,084,417		$	43,516,115
Total equity		$	6,429,778		$	6,129,747
Total Jefferies Group LLC member’s equity		$	6,412,180		$	6,125,472
Deduct:	Goodwill and intangible assets	(1,800,327		)	(1,814,141		)
Tangible Jefferies Group LLC member’s equity		$	4,611,853		$	4,311,331
Leverage ratio (1)		7.0			7.1
Tangible gross leverage ratio (2)		9.4			9.7

(1) Leverage ratio equals total assets divided by total equity.

(2) Tangible gross leverage ratio (a non-GAAP financial measure) equals total assets less goodwill and identifiable intangible assets divided by tangible Jefferies Group LLC member’s equity. The tangible gross leverage ratio is used by rating agencies in assessing our leverage ratio.

Liquidity Management

The key objectives of the liquidity management framework are to support the successful execution of our business strategies while ensuring sufficient liquidity through the business cycle and during periods of financial distress. Our liquidity management policies are designed to mitigate the potential risk that we may be unable to access adequate financing to service our financial obligations without material franchise or business impact.

The principal elements of our liquidity management framework are our Contingency Funding Plan, our Cash Capital Policy and our assessment of Maximum Liquidity Outflow.

Contingency Funding Plan. Our Contingency Funding Plan is based on a model of a potential liquidity contraction over a one year time period. This incorporates potential cash outflows during a liquidity stress event, including, but not limited to, the following:

• Repayment of all unsecured debt maturing within one year and no incremental unsecured debt issuance;

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• Maturity rolloff of outstanding letters of credit with no further issuance and replacement with cash collateral;

• Higher margin requirements than currently exist on assets on securities financing activity, including repurchase agreements;

• Liquidity outflows related to possible credit downgrade;

• Lower availability of secured funding;

• Client cash withdrawals;

• The anticipated funding of outstanding investment and loan commitments; and

• Certain accrued expenses and other liabilities and fixed costs.

Cash Capital Policy. We maintain a cash capital model that measures long-term funding sources against requirements. Sources of cash capital include our equity and the noncurrent portion of long-term borrowings. Uses of cash capital include the following:

• Illiquid assets such as equipment, goodwill, net intangible assets, exchange memberships, deferred tax assets and certain investments;

• A portion of securities inventory that is not expected to be financed on a secured basis in a credit stressed environment (i.e., margin requirements); and

• Drawdowns of unfunded commitments.

To ensure that we do not need to liquidate inventory in the event of a funding crisis, we seek to maintain surplus cash capital, which is reflected in the leverage ratios we maintain. Our total long-term capital of $12.1 billion at May 31, 2020 exceeded our cash capital requirements.

MLO. Our businesses are diverse, and our liquidity needs are determined by many factors, including market movements, collateral requirements and client commitments, all of which can change dramatically in a difficult funding environment. During a liquidity crisis, credit-sensitive funding, including unsecured debt and some types of secured financing agreements, may be unavailable, and the terms (e.g., interest rates, collateral provisions and tenor) or availability of other types of secured financing may change. As a result of our policy to ensure we have sufficient funds to cover what we estimate may be needed in a liquidity crisis, we hold more cash and unencumbered securities and have greater long-term debt balances than our businesses would otherwise require. As part of this estimation process, we calculate an MLO that could be experienced in a liquidity crisis. MLO is based on a scenario that includes both a market-wide stress and firm-specific stress, characterized by some or all of the following elements:

• Global recession, default by a medium-sized sovereign, low consumer and corporate confidence, and general financial instability.

• Severely challenged market environment with material declines in equity markets and widening of credit spreads.

• Damaging follow-on impacts to financial institutions leading to the failure of a large bank.

• A firm-specific crisis potentially triggered by material losses, reputational damage, litigation, executive departure, and/or a ratings downgrade.

The following are the critical modeling parameters of the MLO:

• Liquidity needs over a 30-day scenario.

• A two-notch downgrade of our long-term senior unsecured credit ratings.

• No support from government funding facilities.

• A combination of contractual outflows, such as upcoming maturities of unsecured debt, and contingent outflows (e.g., actions though not contractually required, we may deem necessary in a crisis). We assume that most contingent outflows will occur within the initial days and weeks of a crisis.

• No diversification benefit across liquidity risks. We assume that liquidity risks are additive.

The calculation of our MLO under the above stresses and modeling parameters considers the following potential contractual and contingent cash and collateral outflows:

• All upcoming maturities of unsecured long-term debt, commercial paper, promissory notes and other unsecured funding products assuming we will be unable to issue new unsecured debt or rollover any maturing debt.

• Repurchases of our outstanding long-term debt in the ordinary course of business as a market maker.

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• A portion of upcoming contractual maturities of secured funding trades due to either the inability to refinance or the ability to refinance only at wider haircuts (i.e., on terms which require us to post additional collateral). Our assumptions reflect, among other factors, the quality of the underlying collateral and counterparty concentration.

• Collateral postings to counterparties due to adverse changes in the value of our over-the-counter (“OTC”) derivatives and other outflows due to trade terminations, collateral substitutions, collateral disputes, collateral calls or termination payments required by a two-notch downgrade in our credit ratings.

• Variation margin postings required due to adverse changes in the value of our outstanding exchange-traded derivatives and any increase in initial margin and guarantee fund requirements by derivative clearing houses.

• Liquidity outflows associated with our prime services business, including withdrawals of customer credit balances, and a reduction in customer short positions.

• Liquidity outflows to clearing banks to ensure timely settlements of cash and securities transactions.

• Draws on our unfunded commitments considering, among other things, the type of commitment and counterparty.

• Other upcoming large cash outflows, such as tax payments.

Based on the sources and uses of liquidity calculated under the MLO scenarios, we determine, based on a calculated surplus or deficit, additional long-term funding that may be needed versus funding through the repurchase financing market and consider any adjustments that may be necessary to our inventory balances and cash holdings. At May 31, 2020, we had sufficient excess liquidity to meet all contingent cash outflows detailed in the MLO. We regularly refine our model to reflect changes in market or economic conditions and our business mix. As a result of the experience and knowledge we gathered during the COVID-19 stress period, beginning in February 2020, we have adjusted certain assumptions in our MLO scenarios.

Sources of Liquidity

The following are financial instruments that are cash and cash equivalents or are deemed by management to be generally readily convertible into cash, marginable or accessible for liquidity purposes within a relatively short period of time (dollars in thousands):

	May 31, 2020			Average Balance Three Months ended May 31, 2020 (1)		November 30, 2019
Cash and cash equivalents:
Cash in banks	$	1,105,499		$	2,236,977	$	983,816
Money market investments (2)	4,146,370			2,140,959		4,584,087
Total cash and cash equivalents	5,251,869			4,377,936		5,567,903
Other sources of liquidity:
Debt securities owned and securities purchased under agreements to resell (3)	998,216			940,165		972,624
Other (4)	292,311			384,885		377,296
Total other sources	1,290,527			1,325,050		1,349,920
Total cash and cash equivalents and other liquidity sources	$	6,542,396		$	5,702,986	$	6,917,823
Total cash and cash equivalents and other liquidity sources as % of Total assets	14.5		%			15.9		%
Total cash and cash equivalents and other liquidity sources as % of Total assets less goodwill and intangible assets	15.1		%			16.6		%

(1) Average balances are calculated based on weekly balances.

(2) At May 31, 2020 and November 30, 2019, $4,134.0 million and $4,496.7 million, respectively, was invested in U.S. government money funds that invest at least 99.5% of its total assets in cash, securities issued by the U.S. government and U.S. government-sponsored entities, and repurchase agreements that are fully collateralized by cash or government securities. The remaining $12.4 million and $87.4 million at May 31, 2020 and November 30, 2019, respectively, are invested in AAA rated prime money funds. The average balance of U.S. government money funds for the three months ended May 31, 2020 was $2,113.3 million. 

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(3) Consists of high quality sovereign government securities and reverse repurchase agreements collateralized by U.S. government securities and other high quality sovereign government securities; deposits with a central bank within the European Economic Area, Canada, Australia, Japan, Switzerland or the U.S.; and securities issued by a designated multilateral development bank and reverse repurchase agreements with underlying collateral comprised of these securities.

(4) Other includes unencumbered inventory representing an estimate of the amount of additional secured financing that could be reasonably expected to be obtained from our Financial instruments owned that are currently not pledged after considering reasonable financing haircuts.

In addition to the cash balances and liquidity pool presented above, the majority of financial instruments (both long and short) in our trading accounts are actively traded and readily marketable. At May 31, 2020, we had the ability to readily obtain repurchase financing for 72.7% of our inventory at haircuts of 10% or less, which reflects the liquidity of our inventory. In addition, as a matter of our policy, all of these assets have internal capital assessed, which is in addition to the funding haircuts provided in the securities finance markets. Additionally, certain of our Financial instruments owned, primarily consisting of bank loans, consumer loans and investments are predominantly funded by long term capital. Under our cash capital policy, we model capital allocation levels that are more stringent than the haircuts used in the market for secured funding; and we maintain surplus capital at these more stringent levels. We continually assess the liquidity of our inventory based on the level at which we could obtain financing in the marketplace for a given asset. Assets are considered to be liquid if financing can be obtained in the repurchase market or the securities lending market at collateral haircut levels of 10% or less. The following summarizes our financial instruments by asset class that we consider to be of a liquid nature and the amount of such assets that have not been pledged as collateral at May 31, 2020 and November 30, 2019 (in thousands):

	May 31, 2020				November 30, 2019
	Liquid Financial Instruments		Unencumbered Liquid Financial Instruments (2)		Liquid Financial Instruments		Unencumbered Liquid Financial Instruments (2)
Corporate equity securities	$	2,399,326	$	252,313	$	2,403,589	$	256,624
Corporate debt securities	2,436,108		44,895		1,893,605		29,412
U.S. government, agency and municipal securities	2,305,139		101,566		2,894,264		151,414
Other sovereign obligations	3,363,870		929,339		2,633,636		969,800
Agency mortgage-backed securities (1)	2,169,220		—		1,757,077		—
Loans and other receivables	508,383		—		655,120		—
Total	$	13,182,046	$	1,328,113	$	12,237,291	$	1,407,250

(1) Consists solely of agency mortgage-backed securities issued by Freddie Mac, Fannie Mae and Ginnie Mae. These securities include pass-through securities, securities backed by adjustable rate mortgages, collateralized mortgage obligations, commercial mortgage-backed securities and interest- and principal-only securities.

(2) Unencumbered liquid balances represent assets that can be sold or used as collateral for a loan, but have not been.

Average liquid financial instruments were $17.3 billion and $16.5 billion for the three and six months ended May 31, 2020, respectively, and $15.2 billion and $16.3 billion for the three and twelve months ended November 30, 2019, respectively. Average unencumbered liquid financial instruments were $1.3 billion and $1.4 billion for the three and six months ended May 31, 2020, respectively, and $1.5 billion and $1.6 billion for the three and twelve months ended November 30, 2019, respectively.

In addition to being able to be readily financed at modest haircut levels, we estimate that each of the individual securities within each asset class above could be sold into the market and converted into cash within three business days under normal market conditions, assuming that the entire portfolio of a given asset class was not simultaneously liquidated. There are no restrictions on the unencumbered liquid securities, nor have they been pledged as collateral.

Sources of Funding and Capital Resources

Our assets are funded by equity capital, senior debt, securities loaned, securities sold under agreements to repurchase, customer free credit balances, bank loans and other payables.

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Secured Financing

We rely principally on readily available secured funding to finance our inventory of financial instruments. Our ability to support increases in total assets is largely a function of our ability to obtain short and intermediate-term secured funding, primarily through securities financing transactions. We finance a portion of our long inventory and cover some of our short inventory by pledging and borrowing securities in the form of repurchase or reverse repurchase agreements (collectively “repos”), respectively. Approximately 71.4% of our cash and noncash repurchase financing activities use collateral that is considered eligible collateral by central clearing corporations. Central clearing corporations are situated between participating members who borrow cash and lend securities (or vice versa); accordingly, repo participants contract with the central clearing corporation and not one another individually. Therefore, counterparty credit risk is borne by the central clearing corporation which mitigates the risk through initial margin demands and variation margin calls from repo participants. The comparatively large proportion of our total repo activity that is eligible for central clearing reflects the high quality and liquid composition of the inventory we carry in our trading books. For those asset classes not eligible for central clearing house financing, we seek to execute our bi-lateral financings on an extended term basis and the tenor of our repurchase and reverse repurchase agreements generally exceeds the expected holding period of the assets we are financing. The weighted average maturity of cash and noncash repurchase agreements for non-clearing corporation eligible funded inventory is approximately six months at May 31, 2020.

Our ability to finance our inventory via central clearinghouses and bi-lateral arrangements is augmented by our ability to draw bank loans on an uncommitted basis under our various banking arrangements. At May 31, 2020, short-term borrowings, which must be repaid within one year or less and include bank loans and overdrafts, borrowings under revolving credit facilities, floating rate puttable notes and equity-linked notes totaled $656.9 million. Interest under the bank lines is generally at a spread over the federal funds rate. Letters of credit are used in the normal course of business mostly to satisfy various collateral requirements in favor of exchanges in lieu of depositing cash or securities. Average daily short-term borrowings outstanding were $642.9 million and $566.6 million for the three and six months ended May 31, 2020, respectively.

Our short-term borrowings include the following facilities:

• Credit Facility. One of our subsidiaries has a Credit Facility with JPMorgan Chase Bank, N.A. for a committed amount of $296.0 million. Interest is based on an annual alternative base rate or an adjusted London Interbank Offered Rate (“LIBOR”), as defined in the Credit Facility. The Credit Facility contains certain covenants that, among other things, require Jefferies Group LLC to maintain a specified level of tangible net worth. The covenants also require the borrower to maintain specified leverage amounts and impose certain restrictions on the borrower’s future indebtedness. At May 31, 2020, we were in compliance with all debt covenants under the Credit Facility.

• Intraday Credit Facility. The Bank of New York Mellon has agreed to make revolving intraday credit advances (“Intraday Credit Facility”) for an aggregate committed amount of $150.0 million. The Intraday Credit 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 a 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. The Intraday Credit Facility contains financial covenants, which include a minimum regulatory net capital requirement for Jefferies LLC. At May 31, 2020, we were in compliance with all debt covenants under the Intraday Credit Facility.

For additional details on our short-term borrowings, refer to Note 11, Short-Term Borrowings, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

In addition to the above financing arrangements, we issue notes backed by eligible collateral under a master repurchase agreement, which provides an additional financing source for our inventory (our “repurchase agreement financing program”). The notes issued under the program are presented within Other secured financings in our Consolidated Statements of Financial Condition. At May 31, 2020, the outstanding notes were $2.1 billion, bear interest at a spread over LIBOR and mature from June 2020 to May 2022.

For additional details on our repurchase agreement financing program, refer to Note 8, Variable Interest Entities, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Total Long-Term Capital

At May 31, 2020 and November 30, 2019, we had total long-term capital of $12.1 billion and $12.3 billion, respectively, resulting in a long-term debt to equity capital ratio of 0.88:1 and 1.01:1, respectively. See “Equity Capital” herein for further information on our change in total equity. Our total long-term capital base at May 31, 2020 and November 30, 2019 was as follows (in thousands):

	May 31, 2020		November 30, 2019
Long-Term Debt (1)	$	5,671,927	$	6,213,648
Total Equity	6,429,778		6,129,747
Total Long-Term Capital	$	12,101,705	$	12,343,395

(1) Long-term debt at May 31, 2020 excludes $765.9 million of our 6.875% Senior Notes, as these notes mature on April 15, 2021, $189.4 million of our outstanding borrowings under our senior secured revolving credit facility (“Revolving Credit Facility”) and $50.0 million of our secured bank loan. Long-term debt at November 30, 2019 excludes $550.6 million of our 2.375% Euro Medium Term Notes, as these notes matured on May 20, 2020, $189.1 million of our outstanding borrowings under our senior secured revolving credit facility (“Revolving Credit Facility”) and $50.0 million of our secured bank loan.

Long-Term Debt

During the six months ended May 31, 2020, long-term debt decreased $326.1 million primarily due to the maturity and repayment of our 2.375% Euro Medium Term Notes and changes in instrument specific credit risk related to our structured notes, partially offset by approximately $191.3 million structured notes issuances, net of retirements, and a $150.0 million principal amount issuance of additional 5.125% Senior Notes due 2023. At May 31, 2020, all of our structured notes contain various interest rate payment terms and are accounted for at fair value, with changes in fair value resulting from a change in the instrument-specific credit risk presented in other comprehensive income and changes in fair value resulting from non-credit components recognized in Principal transactions revenues. The fair value of all of our structured notes at May 31, 2020 was $1,245.5 million. For further information, see Note 12, Long-Term Debt, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

We have a Revolving Credit Facility with a group of commercial banks for an aggregate principal amount of $190.0 million. At May 31, 2020, borrowings under the Revolving Credit Facility amounted to $189.4 million. Interest is based on an annual alternative base rate or an adjusted LIBOR, as defined in the Revolving Credit Facility agreement. The Revolving Credit Facility contains certain covenants that, among other things, requires Jefferies Group LLC to maintain specified level of tangible net worth and liquidity amounts, and imposes certain restrictions on future indebtedness of and requires specified levels of regulated capital for certain of our subsidiaries. Throughout the period and at May 31, 2020, no instances of noncompliance with the Revolving Credit Facility covenants occurred and we expect to remain in compliance given our current liquidity, and anticipated funding requirements given our business plan and profitability expectations. For further information, see Note 12, Long-Term Debt, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

On September 27, 2019, one of our subsidiaries entered into a Loan and Security Agreement with a bank for a term loan with a principal amount of $50.0 million (“Secured Bank Loan”). This Secured Bank Loan matures on September 27, 2021 and is collateralized by certain trading securities. Interest on the Secured Bank Loan is 1.25% plus LIBOR. The agreement contains certain covenants that, among other things, restrict lien or encumbrance upon any of the pledged collateral. At May 31, 2020, we were in compliance with all covenants under the Loan and Security Agreement.

At May 31, 2020, our long-term debt, excluding the Revolving Credit Facility and the Secured Bank Loan, has a weighted average maturity of approximately 9.5 years.

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Our long-term debt ratings at May 31, 2020 are as follows:

	Rating	Outlook
Moody’s (1)	Baa3	Stable
S&P (2)	BBB	Negative
Fitch Ratings	BBB	Stable

(1) On April 15, 2020, Moody’s affirmed our rating of Baa3 and rating outlook of stable.

(2) On April 14, 2020, S&P affirmed our rating of BBB and revised our rating outlook from stable to negative.

At May 31, 2020, the long-term ratings on our principal operating broker-dealers, Jefferies LLC and Jefferies International Limited (a U.K. broker-dealer) are as follows:

	Jefferies LLC		Jefferies International Limited
	Rating	Outlook	Rating	Outlook
Moody’s (1)	Baa2	Stable	Baa2	Stable
S&P (2)	BBB+	Negative	BBB+	Negative

(1) On April 15, 2020, Moody’s affirmed our rating of Baa2 and rating outlook of stable on Jefferies LLC and Jefferies International Limited.

(2) On April 14, 2020, S&P affirmed our rating of BBB+ and revised our rating outlook from stable to negative on Jefferies LLC and Jefferies International Limited.

Access to external financing to finance our day to day operations, as well as the cost of that financing, is dependent upon various factors, including our debt ratings. Our current debt ratings are dependent upon many factors, including industry dynamics, operating and economic environment, operating results, operating margins, earnings trend and volatility, balance sheet composition, liquidity and liquidity management, our capital structure, our overall risk management, business diversification and our market share and competitive position in the markets in which we operate. Deteriorations in any of these factors could impact our credit ratings. While certain aspects of a credit rating downgrade are quantifiable pursuant to contractual provisions, the impact on our business and trading results in future periods is inherently uncertain and depends on a number of factors, including the magnitude of the downgrade, the behavior of individual clients and future mitigating action taken by us.

In connection with certain over-the-counter derivative contract arrangements and certain other trading arrangements, we may be required to provide additional collateral to counterparties, exchanges and clearing organizations in the event of a credit rating downgrade. At May 31, 2020, the amount of additional collateral that could be called by counterparties, exchanges and clearing organizations under the terms of such agreements in the event of a downgrade of our long-term credit rating below investment grade was $81.0 million. For certain foreign clearing organizations, credit rating is only one of several factors employed in determining collateral that could be called. The above represents management’s best estimate for additional collateral to be called in the event of a credit rating downgrade. The impact of additional collateral requirements is considered in our Contingency Funding Plan and calculation of MLO, as described above.

Equity Capital

As compared to November 30, 2019, the $286.7 million increase to total Jefferies Group LLC member’s equity at May 31, 2020 is primarily attributed to net earnings and Other comprehensive income recognized as a result of changes in the fair value of our issued structured notes due to changes in instrument specific credit risk, partially offset by distributions to Jefferies. During the three and six months ended May 31, 2020, we recognized losses due to foreign currency translation adjustments of $37.6 million, the majority of which is due to our £844.1 million investment in our London subsidiaries at May 31, 2020. The gains or losses resulting from translating foreign currency financial statements into U.S. dollars, net of hedging gains or losses and taxes, if any, are included in Other comprehensive income. For further information on foreign currency translations, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019.

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During the six months ended May 31, 2020, we paid distributions of $12.6 million to Jefferies, based on our results for the three months ended November 30, 2019. At May 31, 2020, we have accrued a distribution payable of $152.1 million, based on our results for the six months ended May 31, 2020.

Net Capital

As a broker-dealer registered with the SEC and member firms of the Financial Industry Regulatory Authority (“FINRA”), Jefferies LLC is subject to the Securities and Exchange Commission Uniform Net Capital Rule (“Rule 15c3-1”), which requires the maintenance of minimum net capital, and has elected to calculate minimum capital requirements using the alternative method permitted by Rule 15c3-1 in calculating net capital. Jefferies LLC, as a dually-registered U.S. broker-dealer and futures commission merchant (“FCM”), is also subject to Rule 1.17 of the Commodity Futures Trading Commission (“CFTC”), which sets forth minimum financial requirements. The minimum net capital requirement in determining excess net capital for a dually-registered U.S. broker-dealer and FCM is equal to the greater of the requirement under Rule 15c3-1 or CFTC Rule 1.17.

At May 31, 2020, Jefferies LLC’s net capital and excess net capital were as follows (in thousands):

	Net Capital		Excess Net Capital
Jefferies LLC	$	1,507,685	$	1,430,678

FINRA is the designated examining authority for Jefferies LLC and the National Futures Association is the designated self-regulatory organization for Jefferies LLC as an FCM.

Certain other U.S. and non-U.S. subsidiaries are subject to capital adequacy requirements as prescribed by the regulatory authorities in their respective jurisdictions, including Jefferies International Limited which is subject to the regulatory supervision and requirements of the Financial Conduct Authority in the United Kingdom. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law on July 21, 2010. The Dodd-Frank Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers, and/or major security-based swap participants. While entities that register under these provisions will be subject to regulatory capital requirements, these regulatory capital requirements have not yet been finalized. We expect that these provisions will result in modifications to the regulatory capital requirements of some of our entities, and will result in some of our other entities becoming subject to regulatory capital requirements for the first time, including Jefferies Financial Services, Inc., which registered as a swap dealer with the CFTC during January 2013 and Jefferies Financial Products LLC, which registered during August 2014.

The regulatory capital requirements referred to above may restrict our ability to withdraw capital from our regulated subsidiaries.

The U.K. formally withdrew from the European Union (“EU”) on January 31, 2020 and entered a transition period that is scheduled to expire on December 31, 2020. During the transition period, existing arrangements between the U.K. and EU will remain in place while the U.K. and EU seek to negotiate a free trade agreement that will govern their future trading relationship. We have taken steps to ensure our ability to provide services to our European clients without interruption. As such, we have established a wholly-owned subsidiary of our U.K. broker-dealer in Germany, which has been approved as an authorized MiFID investment firm by the German regulator and which will enable us to conduct business across all of our European investment banking, fixed income and equity platforms. The new entity started trading in 2019 with EU clients with further clients migrating throughout 2020, and our plans contemplate providing sufficient capital pursuant to the regulatory requirements for the planned operations as well pursuant to requirements of relevant clearing organizations.

Off-Balance Sheet Arrangements and Contractual Obligations

Off-Balance Sheet Arrangements

We have contractual commitments arising in the ordinary course of business for securities loaned or purchased under agreements to resell, repurchase agreements, future purchases and sales of foreign currencies, securities transactions on a when-issued basis and underwriting. Each of these financial instruments and activities contains varying degrees of off-balance sheet risk whereby the fair values of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The settlement of these transactions is not expected to have a material effect upon our consolidated financial statements.

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In the normal course of business, we engage in other off-balance sheet arrangements, including derivative contracts. Neither derivatives’ notional amounts nor underlying instrument values are reflected as assets or liabilities in our Consolidated Statements of Financial Condition. Rather, the fair values of derivative contracts are reported in our Consolidated Statements of Financial Condition as Financial instruments owned or Financial instruments sold, not yet purchased as applicable. Derivative contracts are reflected net of cash paid or received pursuant to credit support agreements and are reported on a net by counterparty basis when a legal right of offset exists under an enforceable master netting agreement. For additional information about our accounting policies and our derivative activities, see Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019 and Note 4, Fair Value Disclosures, and Note 5, Derivative Financial Instruments, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

We are routinely involved with variable interest entities (“VIEs”) in the normal course of business. At May 31, 2020, we did not have any commitments to purchase assets from these VIEs. For additional information regarding our involvement with VIEs, see Note 7, Securitization Activities, and Note 8, Variable Interest Entities, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Due to the uncertainty regarding the timing and amounts that will ultimately be paid, our liability for unrecognized tax benefits has been excluded from the below contractual obligations table. See Note 16, Income Taxes, in our consolidated financial statements included in this Quarterly Report on Form 10-Q for further information for further information.

For information on our commitments and guarantees, see Note 17, Commitments, Contingencies and Guarantees, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Contractual Obligations

The table below provides information about our contractual obligations at May 31, 2020. The table presents principal cash flows with expected maturity dates (in millions):

	Expected Maturity Date
	2020		2021		2022   and   2023		2024   and   2025		2026   and   Later		Total
Debt obligations:
Unsecured long-term debt (contractual principal payments net of unamortized discounts and premiums) (1)	$	—	$	765.9	$	769.4	$	575.4	$	4,327.1	$	6,437.8
Revolving credit facility (1)	—		189.4		—		—		—		189.4
Secured bank loan (1)	—		50.0		—		—		—		50.0
Interest payment obligations on long-term debt (2)	174.7		284.3		479.4		420.5		1,616.7		2,975.6
Total	$	174.7	$	1,289.6	$	1,248.8	$	995.9	$	5,943.8	$	9,652.8

(1) For additional information on long-term debt, see Note 12, Long-Term Debt, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

(2) Amounts based on applicable interest rates at May 31, 2020.

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Risk Management

Overview

Risk is an inherent part of our business and activities. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our activities is critical to our financial soundness, viability and profitability. Accordingly, we have a comprehensive risk management approach, with a formal governance structure and processes to identify, assess, monitor and manage risk. Principal risks involved in our business activities include market, credit, liquidity and capital, operational, legal and compliance, new business and reputational risk.

Risk management is a multifaceted process that requires communication, judgment and knowledge of financial products and markets. Our risk management process encompasses the active involvement of executive and senior management, and also many departments independent of the revenue-producing business units, including the Risk Management, Operations, Compliance, Legal and Finance Departments. Our risk management policies, procedures and methodologies are flexible in nature and are subject to ongoing review and modification.

In achieving our strategic business objectives, our risk appetite incorporates keeping our clients’ interests at the top of our priority list and ensuring we are in compliance with applicable laws, rules and regulations, as well as adhering to the highest ethical standards. We undertake prudent and conservative risk-taking that protects the capital base and franchise, utilizing risk limits and tolerances that avoid outsized risk-taking. We maintain a diversified business mix and avoid significant concentrations to any sector, product, geography, or activity and set quantitative concentration limits to manage this risk. We consider contagion, second order effects and correlation in our risk assessment process and actively seek out value opportunities of all sizes. We manage the risk of opportunities larger than our approved risk levels through risk sharing and risk distribution, sell-down and hedging as appropriate. We have a limited appetite for illiquid assets and complex derivative financial instruments. We maintain the asset quality of our balance sheet through conducting trading activity in liquid markets and generally ensure high turnover of our inventory. We subject less liquid positions and derivative financial instruments to oversight and use a wide variety of specific metrics, limits, and constraints to manage these risks. We protect our reputation and franchise, as well as our standing within the market. We operate a federated approach to risk management with risk oversight responsibilities assigned to those areas of the business that have the appropriate knowledge.

For discussion of liquidity and capital risk management, refer to the “Liquidity, Financial Condition and Capital Resources” section herein.

Governance and Risk Management Structure and Risk Policy Framework

For a discussion of our governance and risk management structure and our risk management framework, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Management” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended November 30, 2019.

Risk Considerations

We apply a comprehensive framework of limits on a variety of key metrics to constrain the risk profile of our business activities. The size of the limits reflects our risk tolerance for a certain activity under normal business conditions. Key metrics included in our risk management framework include inventory position and exposure limits on a gross and net basis, scenario analysis and stress tests, Value-at-Risk (“VaR”), sensitivities, exposure concentrations, aged inventory, amount of Level 3 assets, counterparty exposure, leverage and cash capital.

Market Risk

Market risk is defined as the risk of loss due to fluctuations in the market value of financial assets and liabilities attributable to changes in market variables.

Our market risk principally arises from interest rate risk, from exposure to changes in the yield curve, the volatility of interest rates, and credit spreads, and from equity price risks from exposure to changes in prices and volatilities of individual equities, equity baskets and equity indices. In addition, commodity price risk results from exposure to the changes in prices and volatilities of individual commodities, commodity baskets and commodity indices, and foreign exchange risk results from changes in foreign currency rates.

Market risk is present in our market making, proprietary trading, underwriting, specialist and investing activities and is principally managed by diversifying exposures, controlling position sizes, and establishing economic hedges in related securities or derivatives. Due to imperfections in correlations, gains and losses can occur even for positions that are economically hedged. Position limits in trading and inventory accounts are established and monitored on an ongoing basis. Each day, consolidated position and exposure reports are prepared and distributed to various levels of management, which enable management to monitor inventory levels and the results of our trading businesses.

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VaR

VaR is a statistical estimate of the potential loss from adverse market movements over a specified time horizon within a specified probability (confidence level). It provides a common risk measure across financial instruments, markets and asset classes. We estimate VaR using a model that simulates revenue and loss distributions on our trading portfolios by applying historical market changes to the current portfolio. We calculate a one-day VaR using a one year look-back period measured at a 95% confidence level.

As with all measures of VaR, our estimate has inherent limitations due to the assumption that historical changes in market conditions are representative of the future. Furthermore, the VaR model measures the risk of a current static position over a one-day horizon and might not capture the market risk over a longer time horizon where moves may be more extreme. Previous changes in market risk factors may not generate accurate predictions of future market movements. While we believe the assumptions and inputs in our risk model are reasonable, we could incur losses greater than the reported VaR. Consequently, this VaR estimate is only one of a number of tools we use in our daily risk management activities.

Our average daily VaR increased to $9.16 million for the three months ended May 31, 2020 from $7.39 million for the three months ended February 29, 2020. The VaR increase was primarily driven by increased market volatility due to the rapid spread of the global COVID-19 outbreak, partially offset by an increase in the diversification benefit across asset classes and business divisions. Interest rate VaR was higher due to increased market volatility, while equity price VaR was lower as de-risking and hedging more than offset the impact of increased market moves.

The following table illustrates each separate component of VaR for each component of market risk by interest rate, equity, currency and commodity products, as well as for our overall trading positions using the past 365 days of historical data (in millions):

				Daily VaR (1) Value-at-Risk in Trading Portfolios
	VaR at May 31, 2020										VaR at February 29, 2020
				Daily VaR for the Three Months Ended May 31, 2020										Daily VaR for the Three Months Ended February 29, 2020
Risk Categories				Average			High		Low					Average			High		Low
Interest Rates	$	10.34		$	9.31		$	12.50	$	5.96	$	5.91		$	4.81		$	7.01	$	3.93
Equity Prices	8.69			5.89			9.30		3.68		6.13			6.79			8.54		4.34
Currency Rates	0.21			0.20			0.39		0.10		0.39			0.29			0.69		0.13
Commodity Prices	1.18			0.64			1.18		0.28		0.66			0.84			1.30		0.49
Diversification Effect (2)	(10.25		)	(6.88		)	N/A		N/A		(6.44		)	(5.34		)	N/A		N/A
Firmwide	$	10.17		$	9.16		$	10.81	$	6.81	$	6.65		$	7.39		$	10.51	$	5.02

(1) For the VaR numbers reported above, a one-day time horizon, with a one year look-back period, and a 95% confidence level were used.

(2) The diversification effect is not applicable for the maximum and minimum VaR values as the firmwide VaR and the VaR values for the four risk categories might have occurred on different days during the period.

The aggregated VaR presented here is less than the sum of the individual components (i.e., interest rate risk, foreign exchange rate risk, equity risk and commodity price risk) due to the benefit of diversification among the four risk categories. Diversification benefit equals the difference between aggregated VaR and the sum of VaRs for the four risk categories and arises because the market risk categories are not perfectly correlated.

The primary method used to test the efficacy of the VaR model is to compare our actual daily net revenue for those positions included in our VaR calculation with the daily VaR estimate. This evaluation is performed at various levels of the trading portfolio, from the overall level down to specific business lines. For the VaR model, trading related revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization activities and net interest income.

For a 95% confidence one day VaR model (i.e., no intra-day trading), assuming current changes in market value are consistent with the historical changes used in the calculation, net trading losses would not be expected to exceed the VaR estimates more than twelve times on an annual basis (i.e., once in every 20 days). During the three months ended May 31, 2020, results of the evaluation at the aggregate level demonstrated eight days when the net trading loss exceeded the 95% one day VaR, as the rapid spread of the global COVID-19 outbreak resulted in extreme market volatility across asset classes.

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The chart below reflects our daily VaR over the last four quarters with the increase in the beginning of the three months ended August 31, 2019 due to an equity block position.

Daily Net Trading Revenue

There were 11 days with trading losses out of a total of 63 trading days in the three months ended May 31, 2020. The histogram below presents the distribution of our actual daily net trading revenue for substantially all of our trading activities for the three months ended May 31, 2020 (in millions).

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Other Risk Measures

Certain positions within financial instruments are not included in the VaR model because VaR is not the most appropriate measure of risk. Accordingly, Risk Management has additional procedures in place to assure that the level of potential loss that would arise from market movements are within acceptable levels. Such procedures include performing stress tests, monitoring concentration risk and tracking price target/stop loss levels. The table below presents the potential reduction in net income associated with a 10% stress of the fair value of the positions that are not included in the VaR model at May 31, 2020 (in thousands):

	10% Sensitivity
Investment in funds (1)	$	94,507
Private investments	21,680
Corporate debt securities in default	7,201
Trade claims	3,242

(1) Includes investments in hedge funds, fund of funds and private equity funds. For additional details on these investments refer to “Investments at Fair Value” within Note 4, Fair Value Disclosures, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

The impact of changes in our own credit spreads on our structured notes for which the fair value option was elected is not included in VaR. The estimated credit spread risk sensitivity for each one basis point widening in our own credit spreads on financial liabilities for which the fair value option was elected was an increase in value of approximately $1.7 million at May 31, 2020, which is included in other comprehensive income.

Stress Tests and Scenario Analysis

Stress tests are used to analyze the potential impact of specific events or extreme market moves on the current portfolio both firm-wide and within business segments. Stress testing is an important part of our risk management approach because it allows us to quantify our exposure to tail risks, highlight potential loss concentrations, undertake risk/reward analysis, set risk controls and overall assess and mitigate our risk.

We employ a range of stress scenarios, which comprise both historical market price and rate changes and hypothetical market environments, and generally involve simultaneous changes of many risk factors. Indicative market changes in the scenarios include, but are not limited to, a large widening of credit spreads, a substantial decline in equities markets, significant moves in selected emerging markets, large moves in interest rates and changes in the shape of the yield curve.

Unlike our VaR, which measures potential losses within a given confidence interval, stress scenarios do not have an associated implied probability. Rather, stress testing is used to estimate the potential loss from market moves that tend to be larger than those embedded in the VaR calculation. Stress testing complements VaR to cover for potential limitations of VaR such as the breakdown in correlations, non-linear risks, tail risk and extreme events and capturing market moves beyond the confidence levels assumed in the VaR calculations.

Stress testing is performed and reported at least weekly as part of our risk management process and on an ad hoc basis in response to market events or concerns. Current stress tests provide estimated revenue and loss of the current portfolio through a range of both historical and hypothetical events. The stress scenarios are reviewed and assessed at least annually so that they remain relevant and up to date with market developments. Additional hypothetical scenarios are also conducted on a sub-portfolio basis to assess the impact of any relevant idiosyncratic stress events as needed.

Counterparty Credit Risk

Credit risk is the risk of loss due to adverse changes in a counterparty’s credit worthiness or its ability or willingness to meet its financial obligations in accordance with the terms and conditions of a financial contract.

We are exposed to credit risk as a trading counterparty to other broker-dealers and customers, as a direct lender and through extending loan commitments, as a holder of securities and as a member of exchanges and clearing organizations. Credit exposure exists across a wide-range of products, including cash and cash equivalents, loans, securities finance transactions and over-the-counter derivative contracts. The main sources of credit risk are:

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• Loans and lending arising in connection with our investment banking and capital markets activities, which reflects our exposure at risk on a default event with no recovery of loans. Current exposure represents loans that have been drawn by the borrower and lending commitments that are outstanding. In addition, credit exposures on forward settling traded loans are included within our loans and lending exposures for consistency with the balance sheet categorization of these items. Loans and lending also arise in connection with our portion of a Secured Revolving Credit Facility that is with us and Massachusetts Mutual Life Insurance Company, to be funded equally, to support loan underwritings by Jefferies Finance. For further information on this facility, refer to Note 9, Investments, in our consolidated financial statements included in this Quarterly Report on Form 10-Q. In addition, we have loans outstanding to certain of our officers and employees (none of whom are executive officers or directors). For further information on these employee loans, refer to Note 20, Related Party Transactions, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

• Securities and margin financing transactions, which reflect our credit exposure arising from reverse repurchase agreements, repurchase agreements and securities lending agreements to the extent the fair value of the underlying collateral differs from the contractual agreement amount and from margin provided to customers.

• OTC derivatives, which are reported net by counterparty when a legal right of setoff exists under an enforceable master netting agreement. OTC derivative exposure is based on a contract at fair value, net of cash collateral received or posted under credit support agreements. In addition, credit exposures on forward settling trades are included within our derivative credit exposures.

• Cash and cash equivalents, which includes both interest-bearing and non-interest-bearing deposits at banks.

Credit is extended to counterparties in a controlled manner and in order to generate acceptable returns, whether such credit is granted directly or is incidental to a transaction. All extensions of credit are monitored and managed as a whole to limit exposure to loss related to credit risk. Credit risk is managed according to the Credit Risk Policy, which sets out the process for identifying counterparty credit risk, establishing counterparty limits, and managing and monitoring credit limits. The policy includes our approach for:

• Client on-boarding and approving counterparty credit limits;

• Negotiating, approving and monitoring credit terms in legal and master documentation;

• Determining the analytical standards and risk parameters for ongoing management and monitoring credit risk books;

• Actively managing daily exposure, exceptions and breaches; and

• Monitoring daily margin call activity and counterparty performance.

Counterparty credit exposure limits are granted within our credit ratings framework, as detailed in the Credit Risk Policy. The Credit Risk Department assesses counterparty credit risk and sets credit limits at the counterparty master agreement level. Limits must be approved by appropriate credit officers and initiated in our credit and trading systems before trading commences. All credit exposures are reviewed against approved limits on a daily basis.

Our Secured Revolving Credit Facility, which supports loan underwritings by Jefferies Finance, is governed under separate policies other than the Credit Risk Policy and is approved by our Board of Directors. The loans outstanding to certain of our officers and employees are extended pursuant to a review by our most senior management.

Current counterparty credit exposures at May 31, 2020 and November 30, 2019 are summarized in the tables below and provided by credit quality, region and industry (in millions). Credit exposures presented take netting and collateral into consideration by counterparty and master agreement. Collateral taken into consideration includes both collateral received as cash as well as collateral received in the form of securities or other arrangements. Current exposure is the loss that would be incurred on a particular set of positions in the event of default by the counterparty, assuming no recovery. Current exposure equals the fair value of the positions less collateral. Issuer risk is the credit risk arising from inventory positions (for example, corporate debt securities and secondary bank loans). Issuer risk is included in our country risk exposure tables below.

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Counterparty Credit Exposure by Credit Rating
	Loans and Lending				Securities and Margin Finance				OTC Derivatives				Total				Cash and Cash Equivalents				Total with Cash and Cash Equivalents
	At				At				At				At				At				At
	May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019
AAA Range	$	—	$	—	$	0.6	$	1.5	$	—	$	—	$	0.6	$	1.5	$	4,146.4	$	4,584.1	$	4,147.0	$	4,585.6
AA Range	47.5		45.2		81.2		43.0		4.5		3.7		133.2		91.9		4.2		5.3		137.4		97.2
A Range	0.3		1.1		561.9		531.9		87.3		152.4		649.5		685.4		1,100.4		976.3		1,749.9		1,661.7
BBB Range	250.1		250.2		118.7		140.9		21.0		48.3		389.8		439.4		0.8		1.6		390.6		441.0
BB or Lower	46.5		15.0		6.6		6.6		255.9		154.1		309.0		175.7		0.1		—		309.1		175.7
Unrated	182.8		94.2		—		—		—		6.8		182.8		101.0		—		0.6		182.8		101.6
Total	$	527.2	$	405.7	$	769.0	$	723.9	$	368.7	$	365.3	$	1,664.9	$	1,494.9	$	5,251.9	$	5,567.9	$	6,916.8	$	7,062.8
Counterparty Credit Exposure by Region
	Loans and Lending				Securities and Margin Finance				OTC Derivatives				Total				Cash and Cash Equivalents				Total with Cash and Cash Equivalents
	At				At				At				At				At				At
	May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019
Asia/Latin America/Other	$	15.0	$	15.0	$	49.7	$	50.5	$	0.1	$	0.3	$	64.8	$	65.8	$	157.8	$	100.4	$	222.6	$	166.2
Europe	0.1		—		325.6		324.1		72.5		101.1		398.2		425.2		126.3		74.1		524.5		499.3
North America	512.1		390.7		393.7		349.3		296.1		263.9		1,201.9		1,003.9		4,967.8		5,393.4		6,169.7		6,397.3
Total	$	527.2	$	405.7	$	769.0	$	723.9	$	368.7	$	365.3	$	1,664.9	$	1,494.9	$	5,251.9	$	5,567.9	$	6,916.8	$	7,062.8
Counterparty Credit Exposure by Industry
	Loans and Lending				Securities and Margin Finance				OTC Derivatives				Total				Cash and Cash Equivalents				Total with Cash and Cash Equivalents
	At				At				At				At				At				At
	May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019		May 31, 2020		November 30, 2019
Asset Managers	$	2.5	$	—	$	—	$	1.7	$	—	$	—	$	2.5	$	1.7	$	4,146.4	$	4,584.1	$	4,148.9	$	4,585.8
Banks, Broker-dealers	250.4		250.7		589.9		526.7		115.3		206.8		955.6		984.2		1,105.5		983.8		2,061.1		1,968.0
Corporates	113.1		81.3		—		—		247.6		154.4		360.7		235.7		—		—		360.7		235.7
Other	161.2		73.7		179.1		195.5		5.8		4.1		346.1		273.3		—		—		346.1		273.3
Total	$	527.2	$	405.7	$	769.0	$	723.9	$	368.7	$	365.3	$	1,664.9	$	1,494.9	$	5,251.9	$	5,567.9	$	6,916.8	$	7,062.8

For additional information regarding credit exposure to OTC derivative contracts, refer to Note 5, Derivative Financial Instruments, in our consolidated financial statements included in this Quarterly Report on Form 10-Q.

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Country Risk Exposure

Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic, political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations. We define the country of risk as the country of jurisdiction or domicile of the obligor, and monitor country risk resulting from both trading positions and counterparty exposure. The following tables reflect our top exposure at May 31, 2020 and November 30, 2019 to the sovereign governments, corporations and financial institutions in those non- U.S. countries in which we have a net long issuer and counterparty exposure (in millions):

	May 31, 2020
	Issuer Risk								Counterparty Risk								Issuer and Counterparty Risk
	Fair Value of Long Debt Securities		Fair Value of Short Debt Securities			Net Derivative Notional Exposure			Loans and Lending		Securities and Margin Finance		OTC Derivatives		Cash and Cash Equivalents		Excluding Cash and Cash Equivalents		Including Cash and Cash Equivalents
Italy	$	1,676.3	$	(882.6	)	$	(303.9	)	$	—	$	—	$	0.4	$	—	$	490.2	$	490.2
Netherlands	576.3		(199.6		)	1.0			—		4.2		0.1		—		382.0		382.0
United Kingdom	351.0		(179.2		)	(36.0		)	0.1		76.9		12.0		107.1		224.8		331.9
Germany	352.3		(268.2		)	112.0			—		66.8		8.2		13.5		271.1		284.6
Japan	150.6		(127.3		)	168.1			—		21.4		—		15.4		212.8		228.2
Canada	155.1		(94.3		)	8.6			—		38.6		22.7		1.1		130.7		131.8
Hong Kong	19.3		(15.5		)	—			—		0.2		0.1		104.0		4.1		108.1
Switzerland	97.9		(57.5		)	—			—		37.2		2.6		4.5		80.2		84.7
China	354.7		(267.9		)	(22.3		)	—		—		—		—		64.5		64.5
Luxembourg	94.4		(49.3		)	—			—		0.7		—		—		45.8		45.8
Total	$	3,827.9	$	(2,141.4	)	$	(72.5	)	$	0.1	$	246.0	$	46.1	$	245.6	$	1,906.2	$	2,151.8

	November 30, 2019
	Issuer Risk								Counterparty Risk								Issuer and Counterparty Risk
	Fair Value of Long Debt Securities		Fair Value of Short Debt Securities			Net Derivative Notional Exposure			Loans and Lending		Securities and Margin Finance		OTC Derivatives		Cash and Cash Equivalents		Excluding Cash and Cash Equivalents		Including Cash and Cash Equivalents
Netherlands	$	946.0	$	(329.7	)	$	(100.1	)	$	—	$	42.6	$	0.5	$	—	$	559.3	$	559.3
United Kingdom	416.1		(199.9		)	(124.4		)	—		60.7		37.6		54.1		190.1		244.2
Italy	1,262.3		(1,192.4		)	105.4			—		—		0.4		—		175.7		175.7
France	423.4		(296.2		)	(93.1		)	—		94.2		40.9		—		169.2		169.2
Canada	380.4		(362.2		)	7.4			—		0.3		81.2		1.9		107.1		109.0
Spain	249.2		(137.3		)	(25.7		)	—		3.3		—		—		89.5		89.5
Japan	76.0		(171.6		)	133.8			—		24.7		—		13.2		62.9		76.1
China	283.3		(236.9		)	25.6			—		—		—		—		72.0		72.0
Mexico	112.0		(68.3		)	13.0			—		—		—		—		56.7		56.7
Germany	238.2		(321.3		)	19.3			—		88.3		14.4		13.6		38.9		52.5
Total	$	4,386.9	$	(3,315.8	)	$	(38.8	)	$	—	$	314.1	$	175.0	$	82.8	$	1,521.4	$	1,604.2

We have no material exposure to countries where either sovereign or non-sovereign sectors pose potential default risk as the result of liquidity concerns.

Operational Risk

Operational risk refers to the risk of loss resulting from our operations, including, but not limited to, improper or unauthorized execution and processing of transactions, deficiencies in our operating systems, business disruptions and inadequacies or breaches in our internal control processes. Our businesses are highly dependent on our ability to process, on a daily basis, a large number of transactions across numerous and diverse markets in many currencies. In addition, the transactions we process have become increasingly complex. If our financial, accounting or other data processing systems do not operate properly or are disabled or if there are other shortcomings or failures in our internal processes, people or systems, we could suffer an impairment to our liquidity, financial loss, a disruption of our businesses, liability to clients, regulatory intervention or reputational damage.

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These systems may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, including a disruption of electrical or communications services or our inability to occupy one or more of our buildings. The inability of our systems to accommodate an increasing volume of transactions could also constrain our ability to expand our businesses.

We also face the risk of operational failure or termination of any of the clearing agents, exchanges, clearing houses or other financial intermediaries we use to facilitate our securities transactions. Any such failure or termination could adversely affect our ability to effect transactions and manage our exposure to risk. In addition, despite the contingency plans we have in place, our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supports our businesses and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services used by us or third parties with which we conduct business.

Our operations rely on the secure processing, storage and transmission of confidential and other information in our computer systems and networks. Although we take protective measures and endeavor to modify them as circumstances warrant, our computer systems, software and networks may be vulnerable to unauthorized access, computer viruses or other malicious code, and other events that could have a security impact. If one or more of such events occur, this potentially could jeopardize our or our clients’ or counterparties’ confidential and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our, our clients’, our counterparties’ or third parties’ operations. We may be required to expend significant additional resources to modify our protective measures or to investigate and remediate vulnerabilities or other exposures, and we may be subject to litigation and financial losses that are either not insured against or not fully covered through any insurance maintained by us.

Our Operational Risk framework includes governance, collection of operational risk incidents, proactive operational risk management, and periodic review and analysis of business metrics to identify and recommend controls and process-related enhancements. Each revenue producing and support department is responsible for the management and reporting of operational risks and the implementation of the Operational Risk policy and processes within the department. Operational Risk policy, framework, infrastructure, methodology, processes, guidance and oversight of the operational risk processes are centralized and consistent firm wide and also subject to regional operational risk governance.

Our leadership is continuously monitoring circumstances around COVID-19, as well as economic and capital market conditions, and providing frequent communications to both our clients and our employees. We have adopted enhanced cleaning practices across our offices, have restricted business travel, and have monitored the health and welfare of our employees and worked actively with many individuals diagnosed with COVID-19. We implemented our Business Continuity Planning plan and have largely moved to a remote working environment across all functions without any significant disruptions to our business or control processes. Additionally, we are working continuously with all of our critical vendors regarding their own pandemic responses to ensure there is minimal impact on our business operations.

Model Risk

Model risk refers to the risk of losses resulting from decisions that are based on the output of models, due to errors or weaknesses in the design and development, implementation, or improper use of models. We use quantitative models primarily to value certain financial assets and liabilities and to monitor and manage our risk. Model risk is a function of the model materiality, frequency of use, complexity and uncertainty around inputs and assumptions used in a given model. Robust model risk management is a core part of our risk management approach and is overseen through our risk governance structure and risk management controls.

Legal and Compliance Risk

Legal and compliance risk includes the risk of noncompliance with applicable legal and regulatory requirements. We are subject to extensive regulation in the different jurisdictions in which we conduct our business. We have various procedures addressing issues such as regulatory capital requirements, sales and trading practices, use of and safekeeping of customer funds, credit granting, collection activities, anti-money laundering and record keeping. These risks also reflect the potential impact that changes in local and international laws and tax statutes have on the economics and viability of current or future transactions. In an effort to mitigate these risks, we continuously review new and pending regulations and legislation and participate in various industry interest groups. We also maintain an anonymous hotline for employees or others to report suspected inappropriate actions by us or by our employees or agents.

New Business Risk

New business risk refers to the risks of entering into a new line of business or offering a new product. By entering a new line of business or offering a new product, we may face risks that we are unaccustomed to dealing with and may increase the magnitude of the risks we currently face. The New Business Committee reviews proposals for new businesses and new products to determine if we are prepared to handle the additional or increased risks associated with entering into such activities.

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Reputational Risk

We recognize that maintaining our reputation among clients, investors, regulators and the general public is an important aspect of minimizing legal and operational risks. Maintaining our reputation depends on a large number of factors, including the selection of our clients and the conduct of our business activities. We seek to maintain our reputation by screening potential clients and by conducting our business activities in accordance with high ethical standards. Our reputation and business activity can be affected by statements and actions of third parties, even false or misleading statements by them. We actively monitor public comment concerning us and are vigilant in seeking to assure accurate information and perception prevails.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Quantitative and qualitative disclosures about market risk are set forth under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Risk Management” in Part I, Item 2 of this Form 10-Q.

Item 4. Controls and Procedures.

Our Management, under the direction of our Chief Executive Officer and Interim Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate, to allow timely decisions regarding disclosure. A controls system cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

No change in our internal control over financial reporting occurred during the quarter ended May 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Many aspects of our business involve substantial risks of legal and regulatory liability. In the normal course of business, we have been named as defendants or co-defendants in lawsuits involving primarily claims for damages. We are also involved in a number of judicial and regulatory matters, including exams, investigations and similar reviews, arising out of the conduct of our business. Based on currently available information, we do not believe that any matter will have a material adverse effect on our consolidated financial statements.

Item 1A. Risk Factors

Information regarding our risk factors appears in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended November 30, 2019 filed with the SEC on January 29, 2020. These risk factors describe some of the assumptions, risks, uncertainties and other factors that could adversely affect our business or that could otherwise result in changes that differ materially from our expectations. In addition, the following risk factors have occurred since previously reporting our risk factors in Item 1A. of our Annual Report on Form 10-K for the fiscal year ended November 30, 2019.

The effects of the outbreak of the novel coronavirus (“COVID-19”) have negatively affected the global economy, the United States economy and the global financial markets, and may disrupt our operations and our clients’ operations, which could have an adverse effect on our business, financial condition and results of operations.

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. On March 11, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability. The United States now has the world’s most reported COVID-19 cases, and all 50 states and the District of Columbia have reported cases of infected individuals. Several states, including New York, where we are headquartered, have declared states of emergency. Similar impacts have been experienced in every country in which we do business. Impacts to our business could be widespread and global, and material impacts may be possible, including the following:

• Employees contracting COVID-19

• Reductions in our operating effectiveness as our employees work from home or disaster-recovery locations

• Unavailability of key personnel necessary to conduct our business activities

• Unprecedented volatility in global financial markets

• Reductions in revenue across our operating businesses

• Delay in planned entry into, or expansion of, investments or projects in China and surrounding areas

• Closure of our offices or the offices of our clients

• De-globalization

We are taking precautions to protect the safety and well-being of our employees and customers. However, no assurance can be given that the steps being taken will be deemed to be adequate or appropriate, nor can we predict the level of disruption which will occur to our employee’s ability to provide customer support and service.

The ongoing COVID-19 pandemic has resulted in meaningfully lower stock prices for many companies, as well as the trading prices for our own securities. The further spread of the COVID-19 outbreak may materially disrupt banking and other financial activity generally and in the areas in which we operate. This would likely result in a decline in demand for our products and services, which would negatively impact our liquidity position and our growth strategy. Any one or more of these developments could have a material adverse effect on our and our consolidated subsidiaries’ business, operations, consolidated financial condition, and consolidated results of operations.

We may incur losses as a result of unforeseen or catastrophic events, including the emergence of a pandemic, terrorist attacks, extreme weather events or other natural disasters.

The occurrence of unforeseen or catastrophic events, including the emergence of a pandemic, such as COVID-19, or other widespread health emergency (or concerns over the possibility of such an emergency), terrorist attacks, extreme terrestrial or solar weather events or other natural disasters, could create economic and financial disruptions, and could lead to operational difficulties (including travel limitations) that could impair our ability to manage our businesses.

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Abrupt changes in market and general economic conditions have in the past adversely affected, and may in the future adversely affect, our business and profitability and cause volatility in our results of operations.

Economic and market conditions have had, and will continue to have, a direct and material impact on our results of operations and financial condition because performance in the financial services industry is heavily influenced by the overall strength of general economic conditions and financial market activity.

Our investment banking revenue, in the form of advisory services and underwriting, is directly related to general economic conditions and corresponding financial market activity. When the outlook for such economic conditions is uncertain or negative, financial market activity generally tends to decrease, which reduces our investment banking revenues. Reduced expectations of U.S. economic growth or a decline in the global economic outlook could cause financial market activity to decrease and negatively affect our investment banking revenues.

A sustained and continuing market downturn could lead to or exacerbate declines in the number of securities transactions executed for customers and, therefore, to a decline in the revenues we receive from commissions and spreads. Correspondingly, a reduction of prices of the securities we hold in inventory or as investments would lead to reduced revenues.

Revenues from our asset management businesses have been and may continue to be negatively impacted by declining securities prices, as well as widely fluctuating securities prices. Because our asset management businesses hold long and short positions in equity and debt securities, changes in the prices of these securities, as well as any decrease in the liquidity of these securities, may materially and adversely affect our revenues from asset management.

In addition, global economic conditions and global financial markets remain vulnerable to the potential risks posed by certain events, which could include, among other things, political and financial uncertainty in the United States and the European Union, renewed concern about China's economy, complications involving terrorism and armed conflicts around the world, or other challenges to global trade or travel, such as might occur in the event of a wider pandemic involving COVID-19. More generally, because our business is closely correlated to the general economic outlook, a significant deterioration in that outlook or realization of certain events would likely have an immediate and significant negative impact on our business and overall results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 6. Exhibits

Exhibit No.	Description
3.1	Certificate of Formation of Jefferies Group LLC effective as of March 1, 2013 is incorporated herein by reference to Exhibit 3.2 of Registrant’s Form 8-K filed on March 1, 2013.
3.2	Certificate of Conversion of Jefferies Group LLC effective as of March 1, 2013 is incorporated herein by reference to Exhibit 3.1 of Registrant’s Form 8-K filed on March 1, 2013.
3.3	Limited Liability Company Agreement of Jefferies Group LLC dated as of March 1, 2013 (with Schedule A supplemented effective May 23, 2018) is incorporated herein by reference to Exhibit 3.3 of Registrant’s Form 10-K filed on January 29, 2019.
4	Instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Registrant hereby agrees to furnish copies of these instruments to the Commission upon request.
31.1*	Rule 13a-14(a)/15d-14(a) Certification by Chief Financial Officer.
31.2*	Rule 13a-14(a)/15d-14(a) Certification by Chief Executive Officer.
32*	Rule 13a-14(b)/15d-14(b) and Section 1350 of Title 18 U.S.C. Certification by the Chief Executive Officer and Chief Financial Officer.
101*	Interactive data files pursuant to Rule 405 of Regulation S-T, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Financial Condition as of May 31, 2020 and November 30, 2019; (ii) the Consolidated Statements of Earnings for the three and six months ended May 31, 2020 and 2019; (iii) the Consolidated Statements of Comprehensive Income for the three and six months ended May 31, 2020 and 2019; (iv) the Consolidated Statements of Changes in Equity for the three and six months ended May 31, 2020 and 2019; (v) the Consolidated Statements of Cash Flows for the six months ended May 31, 2020 and 2019 and (vi) the Notes to Consolidated Financial Statements.
104	Cover page interactive data file pursuant to Rule 406 of Regulation S-T, formatted in iXBRL (included in Exhibit 101)

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

			JEFFERIES GROUP LLC           (Registrant)
Date:	July 9, 2020	By:	/s/ Teresa S. Gendron
			Teresa S. Gendron Interim Chief Financial Officer (duly authorized officer)

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