Financial Assets and Liabilities | Financial Assets and Liabilities Financial Instruments Measured at Fair Value The fair value of equities, options, on-the-run U.S. government obligations and exchange traded notes is estimated using recently executed transactions and market price quotations in active markets and are categorized as Level 1 with the exception of inactively traded equities and certain other financial instruments, which are categorized as Level 2. The Company’s corporate bonds, derivative contracts and other U.S. and non-U.S. government obligations have been categorized as Level 2. Fair value of the Company’s derivative contracts is based on the indicative prices obtained from a number of banks and broker-dealers, as well as management’s own analyses. The indicative prices have been independently validated through the Company’s risk management systems, which are designed to check prices with information independently obtained from exchanges and venues where such financial instruments are listed or to compare prices of similar instruments with similar maturities for listed financial futures in foreign exchange. The Company prices certain financial instruments held for trading at fair value based on theoretical prices, which can differ from quoted market prices. The theoretical prices reflect price adjustments primarily caused by the fact that the Company continuously prices its financial instruments based on all available information. This information includes prices for identical and near-identical positions, as well as the prices for securities underlying the Company’s positions, on other exchanges that are open after the exchange on which the financial instruments is traded closes. The Company validates that all price adjustments can be substantiated with market inputs and checks the theoretical prices independently. Consequently, such financial instruments are classified as Level 2. There were no transfers of financial instruments between levels during the three months ended March 31, 2019 and 2018 . Fair value measurements for those items measured on a recurring basis are summarized below as of March 31, 2019 : March 31, 2019 (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Counterparty and Cash Collateral Netting Total Fair Value Assets Financial instruments owned, at fair value: Equity securities $ 733,310 $ 1,198,175 $ — $ — $ 1,931,485 U.S. and Non-U.S. government obligations 152,884 17,558 — — 170,442 Corporate Bonds — 82,412 — — 82,412 Exchange traded notes 14,360 5,801 — — 20,161 Currency forwards — 1,212,911 — (1,209,506 ) 3,405 Options 3,914 — — — 3,914 904,468 2,516,857 — (1,209,506 ) 2,211,819 Financial instruments owned, pledged as collateral: Equity securities 376,711 320,379 — — 697,090 Exchange traded notes 18 43,522 — — 43,540 376,729 363,901 — — 740,630 Other Assets Equity investment — — 46,529 — 46,529 Exchange stock 2,517 — — — 2,517 2,517 — 46,529 — 49,046 Liabilities Financial instruments sold, not yet purchased, at fair value: Equity securities 1,005,560 1,082,273 — — 2,087,833 U.S. and Non-U.S. government obligations 69,364 834 — — 70,198 Corporate Bonds — 99,587 — — 99,587 Exchange traded notes 3,843 28,805 — — 32,648 Currency forwards — 1,219,684 — (1,219,684 ) — Options 4,359 — — — 4,359 $ 1,083,126 $ 2,431,183 $ — $ (1,219,684 ) $ 2,294,625 Fair value measurements for those items measured on a recurring basis are summarized below as of December 31, 2018 : December 31, 2018 (in thousands) Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Counterparty and Cash Collateral Netting Total Fair Value Assets Financial instruments owned, at fair value: Equity securities $ 587,680 $ 1,022,221 $ — $ — $ 1,609,901 U.S. and Non-U.S. government obligations 91,466 14,547 — — 106,013 Corporate Bonds — 87,500 — — 87,500 Exchange traded notes 3,396 27,966 — — 31,362 Currency forwards — 2,792,373 — (2,790,242 ) 2,131 Options 11,899 — — — 11,899 694,441 3,944,607 — (2,790,242 ) 1,848,806 Financial instruments owned, pledged as collateral: Equity securities 389,810 359,036 — — 748,846 U.S. and Non-U.S. government obligations — — — — — Exchange traded notes 6,968 35,301 — — 42,269 396,778 394,337 — — 791,115 Other Assets Equity investment — — 45,856 — 45,856 Exchange stock 2,417 — — — 2,417 2,417 — 45,856 — 48,273 Liabilities Financial instruments sold, not yet purchased, at fair value: Equity securities 931,992 1,336,338 — — 2,268,330 U.S. and Non-U.S. government obligations 112,058 3,054 — — 115,112 Corporate Bonds — 40,123 — — 40,123 Exchange traded notes 371 39,613 — — 39,984 Currency forwards — 2,720,749 — (2,719,954 ) 795 Options 11,051 — — — 11,051 $ 1,055,472 $ 4,139,877 $ — $ (2,719,954 ) $ 2,475,395 SBI Investment The Company has a minority investment (the “SBI Investment”) in SBI Japannext Co., Ltd. (“SBI”), a proprietary trading system based in Tokyo. In connection with the SBI Investment, the Company issued the SBI Bonds (as described in Note 10 “Borrowings” ) and used the proceeds to partially finance the transaction. As of March 31, 2019 , the fair value of the SBI Investment was determined using the discounted cash flow method, an income approach, with the discount rate of 15.0% applied to the cash flow forecasts. The Company also used a market approach based on 12.6 x average price/earnings multiples of comparable companies to corroborate the income approach. The fair value of the SBI Investment at March 31, 2019 was determined by taking the weighted average of enterprise valuations based on discounted cash flow on projected income from the next five years , the implied enterprise valuations on comparable companies, and the implied enterprise valuations on comparable transactions. The fair value measurement is highly sensitive to significant changes in the unobservable inputs and significant increases (decreases) in discount rate or decreases (increases) in price/earnings multiples would result in a significantly lower (higher) fair value measurement. Changes in the fair value of the SBI Investment are reflected in Other, net in the condensed consolidated statements of comprehensive income. Financial Instruments Not Measured at Fair Value The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the condensed consolidated statement of financial condition. The table below excludes non-financial assets and liabilities. The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 and Level 2 approximates fair value due to the relatively short-term nature of the underlying assets. The fair value of the Company’s long-term borrowings is based on quoted prices from the market for similar instruments, and is categorized as Level 2 in the fair value hierarchy. The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of March 31, 2019 : March 31, 2019 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (in thousands) Carrying Value Fair Value (Level 1) (Level 2) (Level 3) Assets Cash and cash equivalents $ 771,003 $ 771,003 $ 771,003 $ — $ — Cash restricted or segregated under regulations and other 17,324 17,324 17,324 — — Securities borrowed 1,282,867 1,282,867 — 1,282,867 — Securities purchased under agreements to resell 5,655 5,655 — 5,655 — Receivables from broker-dealers and clearing organizations 1,187,720 1,187,720 5,001 1,182,719 — Total Assets 3,264,569 3,264,569 793,328 2,471,241 — Liabilities Short-term borrowings 159,716 159,716 — 159,716 — Long-term borrowings 1,977,716 2,052,816 — 2,052,816 — Securities loaned 819,903 819,903 — 819,903 — Securities sold under agreements to repurchase 290,000 290,000 — 290,000 — Payables to broker-dealers and clearing organizations 987,842 987,842 3,836 984,006 — Total Liabilities $ 4,235,177 $ 4,310,277 $ 3,836 $ 4,306,441 $ — The table below summarizes financial assets and liabilities not carried at fair value on a recurring basis as of December 31, 2018 : December 31, 2018 Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs (in thousands) Carrying Value Fair Value (Level 1) (Level 2) (Level 3) Assets Cash and cash equivalents $ 736,047 $ 736,047 $ 736,047 $ — $ — Securities borrowed 1,399,684 1,399,684 — 1,399,684 — Securities purchased under agreements to resell 15,475 15,475 — 15,475 — Receivables from broker-dealers and clearing organizations 1,101,449 1,101,449 71,288 1,030,161 — Total Assets 3,252,655 3,252,655 807,335 2,445,320 — Liabilities Short-term borrowings 15,128 15,128 — 15,128 — Long-term borrowings 907,037 916,465 — 916,465 — Securities loaned 1,130,039 1,130,039 — 1,130,039 — Securities sold under agreements to repurchase 281,861 281,861 — 281,861 — Payables to broker dealer and clearing organizations 567,441 567,441 1,031 566,410 — Total Liabilities $ 2,901,506 $ 2,910,934 $ 1,031 $ 2,909,903 $ — The following presents the changes in Level 3 financial instruments measured at fair value on a recurring basis: Three Months Ended March 31, 2019 (in thousands) Balance at December 31, 2018 Purchases Total Realized and Unrealized Gains / (Losses) Net Transfers into (out of) Level 3 Settlement Balance at March 31, 2019 Change in Net Unrealized Gains / (Losses) on Investments still held at March 31, 2019 Assets Other assets: Equity investment $ 45,856 $ — $ 673 $ — $ — $ 46,529 $ 673 Total 45,856 — 673 — — 46,529 673 Three months ended March 31, 2018 (in thousands) Balance at December 31, 2017 Purchases Total Realized and Unrealized Gains / (Losses) Net Transfers into (out of) Level 3 Settlement Balance at March 31, 2018 Change in Net Unrealized Gains / (Losses) on Investments still held at March 31, 2018 Assets Other assets: Equity investment $ 40,588 $ — $ 1,890 $ — $ — $ 42,478 $ 1,890 Total 40,588 — 1,890 — — 42,478 1,890 Offsetting of Financial Assets and Liabilities The Company does not net securities borrowed and securities loaned, or securities purchased under agreements to resell and securities sold under agreements to repurchase. These financial instruments are presented on a gross basis in the condensed consolidated statements of financial condition. In the tables below, the amounts of financial instruments owned that are not offset in the condensed consolidated statements of financial condition, but could be netted against financial liabilities with specific counterparties under legally enforceable master netting agreements in the event of default, are presented to provide financial statement readers with the Company’s estimate of its net exposure to counterparties for these financial instruments. The following tables set forth the gross and net presentation of certain financial assets and financial liabilities as of March 31, 2019 and December 31, 2018 : March 31, 2019 Gross Amounts of Recognized Assets Gross Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Assets Presented in the Condensed Consolidated Statement of Financial Condition Gross Amounts Not Offset In the Condensed Consolidated Statement of Financial Condition (in thousands) Financial Instruments Cash Collateral Received Net Amount Offsetting of Financial Assets: Securities borrowed $ 1,282,867 $ — $ 1,282,867 $ (1,246,913 ) $ (698 ) $ 35,256 Securities purchased under agreements to resell 5,655 — 5,655 (5,650 ) — 5 Trading assets, at fair value: Currency forwards 1,212,911 (1,209,506 ) 3,405 — — 3,405 Options 3,914 — 3,914 (3,914 ) — — Total $ 2,505,347 $ (1,209,506 ) $ 1,295,841 $ (1,256,477 ) $ (698 ) $ 38,666 Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Condensed Consolidated Statement of Financial Condition Net Amounts of Liabilities Presented in the Condensed Consolidated Statement of Financial Condition Gross Amounts Not Offset In the Condensed Consolidated Statement of Financial Condition (in thousands) Financial Instruments Cash Collateral Pledged Net Amount Offsetting of Financial Liabilities: Securities loaned $ 819,903 $ — $ 819,903 $ (806,960 ) $ (5,242 ) $ 7,701 Securities sold under agreements to repurchase 290,000 — 290,000 (290,000 ) — — Trading liabilities, at fair value: Currency forwards 1,219,684 (1,219,684 ) — — — — Options 4,359 — 4,359 (3,914 ) — 445 Total $ 2,333,946 $ (1,219,684 ) $ 1,114,262 $ (1,100,874 ) $ (5,242 ) $ 8,146 December 31, 2018 Gross Amounts of Recognized Assets Gross Amounts Offset in the Consolidated Statement of Financial Condition Net Amounts of Assets Presented in the Consolidated Statement of Financial Condition Gross Amounts Not Offset In the Consolidated Statement of Financial Condition (in thousands) Financial Instruments Cash Collateral Received Net Amount Offsetting of Financial Assets: Securities borrowed $ 1,399,684 $ — $ 1,399,684 $ (1,361,635 ) $ (8,822 ) $ 29,227 Securities purchased under agreements to resell 15,475 — 15,475 (15,475 ) — — Trading assets, at fair value: Currency forwards 2,792,373 (2,790,242 ) 2,131 — — 2,131 Options 11,899 — 11,899 (11,899 ) — — Total $ 4,219,431 $ (2,790,242 ) $ 1,429,189 $ (1,389,009 ) $ (8,822 ) $ 31,358 Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Consolidated Statement of Financial Condition Net Amounts of Liabilities Presented in the Consolidated Statement of Financial Condition Gross Amounts Not Offset In the Statement of Financial Condition (in thousands) Financial Instruments Cash Collateral Pledged Net Amount Offsetting of Financial Liabilities: Securities loaned $ 1,130,039 $ — $ 1,130,039 $ (1,108,461 ) $ (8,822 ) $ 12,756 Securities sold under agreements to repurchase 281,861 — 281,861 (281,861 ) — — Trading liabilities, at fair value: Currency forwards 2,720,749 (2,719,954 ) 795 — (792 ) 3 Options 11,051 — 11,051 (11,051 ) — — Total $ 4,143,700 $ (2,719,954 ) $ 1,423,746 $ (1,401,373 ) $ (9,614 ) $ 12,759 The following table presents gross obligations for securities sold under agreements to repurchase and for securities lending transactions by remaining contractual maturity and the class of collateral pledged: March 31, 2019 Remaining Contractual Maturity (in thousands) Overnight and Continuous Less than 30 days 30 - 60 days 61 - 90 Days Total Securities sold under agreements to repurchase: Equity securities $ — $ 90,000 $ 40,000 $ 160,000 $ 290,000 U.S. and Non-U.S. government obligations — — — — — Total — 90,000 40,000 160,000 290,000 Securities lending transactions: Equity securities 819,903 — — — 819,903 Total $ 819,903 $ — $ — $ — $ 819,903 December 31, 2018 Remaining Contractual Maturity (in thousands) Overnight and Continuous Less than 30 days 30 - 60 days 61 - 90 Days Total Securities sold under agreements to repurchase: Equity securities $ — $ 45,000 $ 65,000 $ 160,000 $ 270,000 U.S. and Non-U.S. government obligations 11,861 — — — 11,861 Total 11,861 45,000 65,000 160,000 281,861 Securities loaned: Equity securities 1,130,039 — — — 1,130,039 Total $ 1,130,039 $ — $ — $ — $ 1,130,039 |