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 NAV of $24.2 million and $24.3 million at February 28, 2017 and November 30, 2016, respectively, by level within the fair value hierarchy (in thousands):



	February 28, 2017
	Level 1 (1)		Level 2 (1)		Level 3		Counterparty and Cash Collateral Netting (2)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	1,637,621	$	86,344	$	20,580	$	—		$	1,744,545
Corporate debt securities	—		2,422,480		33,467		—			2,455,947
CDOs and CLOs	—		39,899		45,354		—			85,253
U.S. government and federal agency securities	1,124,343		28,702		—		—			1,153,045
Municipal securities	—		714,104		26,554		—			740,658
Sovereign obligations	1,506,428		1,312,799		—		—			2,819,227
Residential mortgage-backed securities	—		1,400,215		39,259		—			1,439,474
Commercial mortgage-backed securities	—		565,494		20,653		—			586,147
Other asset-backed securities	—		113,881		37,702		—			151,583
Loans and other receivables	—		1,729,227		53,172		—			1,782,399
Derivatives	4,470		3,003,890		4,905		(2,826,763		)	186,502
Investments at fair value	—		—		83,785		—			83,785
Total financial instruments owned, excluding Investments at fair value based on NAV	$	4,272,862	$	11,417,035	$	365,431	$	(2,826,763	)	$	13,228,565

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,455,823	$	32,576	$	324	$	—		$	1,488,723
Corporate debt securities	—		1,544,945		523		—			1,545,468
U.S. government and federal agency securities	841,725		—		—		—			841,725
Sovereign obligations	1,500,854		1,485,616		—		—			2,986,470
Loans	—		1,491,488		1,036		—			1,492,524
Derivatives	4,110		3,152,585		11,318		(2,794,432		)	373,581
Total financial instruments sold, not yet purchased	$	3,802,512	$	7,707,210	$	13,201	$	(2,794,432	)	$	8,728,491
Other secured financings	$	—	$	34,100	$	87	$	—		$	34,187
Long-term debt	$	—	$	310,057	$	—	$	—		$	310,057


(1)	There were no material transfers between Level 1 and Level 2 for the three months ended February 28, 2017.


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



	November 30, 2016
	Level 1 (1)		Level 2 (1)		Level 3		Counterparty and Cash Collateral Netting (2)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	1,742,463	$	90,662	$	21,739	$	—		$	1,854,864
Corporate debt securities	—		2,675,020		25,005		—			2,700,025
CDOs and CLOs	—		54,306		54,354		—			108,660
U.S. government and federal agency securities	2,389,397		56,726		—		—			2,446,123
Municipal securities	—		708,469		27,257		—			735,726
Sovereign obligations	1,432,556		990,492		—		—			2,423,048
Residential mortgage-backed securities	—		960,494		38,772		—			999,266
Commercial mortgage-backed securities	—		296,405		20,580		—			316,985
Other asset-backed securities	—		63,587		40,911		—			104,498
Loans and other receivables	—		1,557,233		81,872		—			1,639,105
Derivatives	3,825		4,606,278		6,429		(4,255,998		)	360,534
Investments at fair value	—		—		96,369		—			96,369
Total financial instruments owned, excluding Investments at fair value based on NAV	$	5,568,241	$	12,059,672	$	413,288	$	(4,255,998	)	$	13,785,203
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,577,405	$	16,806	$	313	$	—		$	1,594,524
Corporate debt securities	—		1,718,424		523		—			1,718,947
U.S. government and federal agency securities	976,497		—		—		—			976,497
Sovereign obligations	1,375,590		1,253,754		—		—			2,629,344
Loans	—		801,977		378		—			802,355
Derivatives	568		4,856,310		9,870		(4,229,213		)	637,535
Total financial instruments sold, not yet purchased	$	3,930,060	$	8,647,271	$	11,084	$	(4,229,213	)	$	8,359,202
Other secured financings	$	—	$	41,350	$	418	$	—		$	41,768
Long-term debt	$	—	$	248,856	$	—	$	—		$	248,856


(1)	There were no material transfers between Level 1 and Level 2 for the year ended November 30, 2016.


(2)	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.

•

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 for 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 for 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 for recently executed market transactions and broker quotations 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 are 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

•

Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for 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. 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. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and are a limited portion of our 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 for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

CDOs and CLOs

CDOs and CLOs are measured based on prices observed for 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 and categorized within Level 1 of the fair value hierarchy.


•	U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued 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.

Sovereign Obligations

Foreign 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. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, Level 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.

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 interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.

•

Agency Residential Interest-Only and Inverse Interest-Only Securities (“Agency Inverse IOs”): The fair value of Agency Inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency Inverse IOs are categorized within Level 2 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

•

Non-Agency RMBS: Fair values are 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.

Commercial Mortgage-Backed Securities

•

Agency Commercial Mortgage-Backed Securities (“CMBS”): Government National Mortgage Association (“GNMA”) project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for 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 for 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 and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.

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 and Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services and broker quotes and prices observed for recently executed market transactions.

Loans and Other Receivables

•

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services 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 flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.

•

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. 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 of assets with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. 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 incorporating additional 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 Trade Claim Receivables: Escrow and trade 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 trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.

Derivatives

•

Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy.

•

OTC Derivative Contracts: Over-the-counter (“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 period transaction. Inputs to valuation models are appropriately calibrated to 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 the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or 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. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are 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.

Investments at Fair Value and Investments in Managed Funds

Investments at fair value based on NAV and Investments in Managed Funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and commodity 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. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany. Fair value for the insurance contracts is determined using a third party and is categorized within 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):



	February 28, 2017
	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds (2)	$	35,103	$	—	Monthly, Quarterly
Fixed Income and High Yield Hedge Funds (3)	761		—		—
Fund of Funds (4)	169		—		—
Equity Funds (5)	40,688		20,040		—
Multi-asset Funds (6)	118,211		—		—
Total	$	194,932	$	20,040



	November 30, 2016
	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds (2)	$	34,446	$	—	Monthly, Quarterly
Fixed Income and High Yield Hedge Funds (3)	772		—		—
Fund of Funds (4)	230		—		—
Equity Funds (5)	42,179		20,295		—
Multi-asset Funds (6)	133,190		—		—
Total	$	210,817	$	20,295


(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 equity securities in domestic and international markets in both the public and private sectors. At February 28, 2017 and November 30, 2016, approximately 1% and 2%, respectively, of the fair value of investments in this category are classified as being in liquidation.


(3)	This category includes investments in funds that invest in loans secured by a first trust deed on property, domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt and private equity investments. There are no redemption provisions.


(4)	This category includes investments in fund of funds that invest in various private equity funds. The investments in this category are managed by us and have no redemption provisions. These investments are gradually being liquidated or we have requested redemption, however, we are unable to estimate when these funds will be received.

(5)

At February 28, 2017 and November 30, 2016, 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 expected to liquidate in one to six years.

(6)

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 February 28, 2017 and November 30, 2016, investments representing approximately 13% and 12%, respectively, of the fair value of investments in this category are redeemable with 30-90 days prior written notice.

Other Secured Financings

Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets.

Long-term Debt-Structured Notes

Long-term debt includes variable rate and fixed to floating rate structured notes that contain various interest rate payment terms and are generally measured using valuation models for the derivative and debt portions of the notes. These models incorporate market price quotations from external pricing sources referencing the appropriate interest rate curves and are generally categorized within Level 2 of the fair value hierarchy. The impact of the Company’s own credit spreads is also included based on observed secondary bond market spreads and asset-swap spreads.

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 February 28, 2017 (in thousands):



	Three Months Ended February 28, 2017
	Balance at November 30, 2016		Total gains/losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of) Level 3			Balance at February 28, 2017		Change in unrealized gains/(losses) relating to instruments still held at February 28, 2017 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	21,739	$	532		$	847		$	(145	)	$	(186	)	$	—	$	(2,207	)	$	20,580	$	362
Corporate debt securities	25,005		(1,793		)	3,002			(3,157		)	(1,207		)	—		11,617			33,467		(1,662		)
CDOs and CLOs	54,354		(7,594		)	8,663			(22,633		)	(45		)	—		12,609			45,354		(8,525		)
Municipal securities	27,257		(636		)	—			(67		)	—			—		—			26,554		(641		)
RMBS	38,772		(253		)	263			(12,411		)	(210		)	—		13,098			39,259		(440		)
CMBS	20,580		(1,420		)	—			(412		)	—			—		1,905			20,653		(1,421		)
Other ABS	40,911		(1,788		)	3,553			(299		)	(3,335		)	—		(1,340		)	37,702		(1,717		)
Loans and other receivables	81,872		4,950			9,489			(9,778		)	(7,764		)	—		(25,597		)	53,172		836
Investments at fair value	96,369		(2,199		)	—			(10,119		)	(266		)	—		—			83,785		(176		)
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	313	$	11		$	—		$	—		$	—		$	—	$	—		$	324	$	(11	)
Corporate debt securities	523		—			—			—			—			—		—			523		—
Net derivatives (2)	3,441		(4,384		)	—			—			3,373			186		3,797			6,413		1,347
Loans	378		189			(323		)	—			—			—		792			1,036		(189		)
Other secured financings	418		(8		)	—			—			—			—		(323		)	87		11


(1)	Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.


(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 February 28, 2017

During the three months ended February 28, 2017, transfers of assets of $49.9 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	CDOs and CLOs of $18.1 million and RMBS of $13.7 million due to a lack of observable market transactions;


•	Corporate debt securities of $11.6 million due to a lack of observable market transactions.

During the three months ended February 28, 2017, transfers of assets of $39.8 million from Level 3 to Level 2 are primarily attributed to:


•	Loans and other receivables of $28.2 million due to greater pricing transparency supporting classification into Level 2.

Net losses on Level 3 assets were $10.2 million and net gains on Level 3 liabilities were $4.2 million for the three months ended February 28, 2017. Net losses on Level 3 assets were primarily due to decreased valuations of CDOs and CLOs, certain investments at fair value, corporate debt securities, other ABS and CMBS, partially offset by increased valuations in loans and other receivables. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives.



	Three Months Ended February 29, 2016
	Balance at November 30, 2015			Total gains/losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of)Level 3			Balance at February 29, 2016		Change in unrealized gains/(losses) relating to instruments still held at February 29, 2016 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	40,906		$	3,071		$	2,087		$	—		$	—		$	—	$	(15,524	)	$	30,540	$	3,560
Corporate debt securities	25,876			(2,602		)	15,337			(15,129		)	(111		)	—		2,263			25,634		(2,540		)
CDOs and CLOs	85,092			(16,573		)	1,021			(20,178		)	(463		)	—		18,449			67,348		(17,003		)
Sovereign obligations	120			(1		)	—			—			—			—		—			119		(1		)
RMBS	70,263			(4,548		)	62,844			(64,926		)	(114		)	—		4,500			68,019		(3,358		)
CMBS	14,326			(971		)	2,962			—			(878		)	—		6,555			21,994		(1,387		)
Other ABS	42,925			1,662			15,425			(2,100		)	(1		)	—		(24,787		)	33,124		1,679
Loans and other receivables	189,289			(5,772		)	181,264			(114,667		)	(95,354		)	—		682			155,442		(9,113		)
Investments at fair value	53,120			(16,515		)	1,187			—			(273		)	—		26,063			63,582		(16,515		)
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	38		$	—		$	—		$	—		$	—		$	—	$	—		$	38	$	—
Net derivatives (2)	(242		)	10,304			—			—			2,558			554		(1,417		)	11,757		(8,135		)
Loans	10,469			(345		)	(2,240		)	1,033			(1,077		)	—		(96		)	7,744		345
Other secured financings	544			(6		)	—			—			—			—		—			538		—


(1)	Realized and unrealized gains/losses are reported in Principal transaction revenues in the Consolidated Statements of Earnings.


(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 February 29, 2016

During the three months ended February 29, 2016, transfers of assets of $119.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	CDOs and CLOs of $39.5 million and non-agency RMBS of $20.4 million, for which no recent trade activity was observed for purposes of determining observable inputs;


•	Investments at fair value of $26.1 million due to a lack of observable market transactions.

During the three months ended February 29, 2016, transfers of assets of $100.8 million from Level 3 to Level 2 are primarily attributed to:


•	Other ABS of $28.8 million and non-agency RMBS of $15.9 million, for which market trades were observed in the period for either identical or similar securities;


•	CDOs and CLOs of $21.0 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


•	Corporate equity securities of $19.2 million due to an increase in observable market transactions.

Net losses on Level 3 assets were $42.2 million and net losses on Level 3 liabilities were $10.0 million for the three months ended February 29, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of CDOs and CLOs, investments at fair value, loans and other receivables, RMBS and corporate debt securities, partially offset by an increase in valuation of corporate equity securities and other ABS. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at February 28, 2017 and November 30, 2016

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.



February 28, 2017
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range	Weighted Average
Corporate equity securities	$	18,834
Non-exchange-traded securities			Market approach	Price	$3-$75	$	44
				Underlying stock price	$6	—
			Comparable pricing	Comparable asset price	$9	—
			Option model	Volatility	40%	—
Corporate debt securities	$	33,467
			Convertible bond model	Discount rate/yield	8%	—
				Volatility	40%	—
			Market approach	Price	$18-$98	$	53
			Scenario analysis	Estimated recovery percentage	1%-3%	2		%
CDOs and CLOs	$	45,354	Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%-8%	3		%
				Loss severity	25%-70%	29		%
				Discount rate/yield	9%-18%	13		%
			Scenario analysis	Estimated recovery percentage	4%-45%	30		%
RMBS	$	39,259	Discounted cash flows	Cumulative loss rate	0%-22%	7		%
				Duration (years)	4-18	10
				Discount rate/yield	5%-11%	7		%
CMBS	$	20,653	Discounted cash flows	Cumulative loss rate	15%-68%	30		%
				Duration (years)	1-5	3
				Discount rate/yield	7%-19%	11		%
Other ABS	$	37,702	Discounted cash flows	Cumulative loss rate	0%-30%	18		%
				Duration (years)	1-11	2
				Discount rate/yield	4%-15%	14		%
			Market approach	Price	$100	—
			Scenario analysis	Estimated recovery percentage	51%	—
Loans and other receivables	$	51,929	Discounted cash flows	Discount rate/yield	32%	—
				Cumulative loss rate	0%	—
				Duration (years)	0.1	—
			Market approach	EBITDA (a) multiple	3.3	—
				Transaction level	$1-$42	$	32
				Price	$98-$100	$	99
				Estimated recovery percentage	103%	—
			Present value	Average silver production (tons per day)	642	—
			Scenario analysis	Estimated recovery percentage	3%-45%	31		%
Derivatives	$	4,905
Unfunded commitments			Market approach	Price	$82-$97	$	94
Credit default swaps				Credit spread	265 bps	—
Interest rate swaps				Credit spread	800 bps	—
Investments at fair value
Private equity securities	$	68,809	Market approach	Transaction level	$3-$250	$	116
Liabilities
Financial Instruments Sold, Not Yet Purchased:
Derivatives	$	11,318
Equity options			Option model/default rate	Default probability	0%	—
Unfunded commitments			Market approach	Price	$82-$98	$	87
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Discount rate/yield	18%	—


(a)	Earnings before interest, taxes, depreciation and amortization (“EBITDA”).



November 30, 2016
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range	Weighted Average
Corporate equity securities	$	19,799
Non-exchange-traded securities			Market approach	Underlying stock price	$3-$75	$	15
			Comparable pricing	Underlying stock price	$218	—
				Comparable asset price	$11	—
			Present value	Average silver production (tons per day)	666	—
Corporate debt securities	$	25,005	Convertible bond model	Discount rate/yield	9%	—
				Volatility	40%	—
			Market approach	Transaction level	$30	—
CDOs and CLOs	$	33,016	Discounted cash flows	Constant prepayment rate	10%-20%	19		%
				Constant default rate	2%-4%	2		%
				Loss severity	25%-70%	40		%
				Yield	7%-17%	12		%
			Scenario analysis	Estimated recovery percentage	28%-38%	31		%
RMBS	$	38,772	Discounted cash flows	Constant prepayment rate	0%-11%	5		%
				Constant default rate	1%-7%	3		%
				Loss severity	35%-100%	62		%
				Yield	2%-10%	6		%
CMBS	$	20,580	Discounted cash flows	Yield	6%-11%	8		%
				Cumulative loss rate	5%-95%	39		%
Other ABS	$	40,911	Discounted cash flows	Constant prepayment rate	4%-20%	14		%
				Constant default rate	0%-31%	13		%
				Loss severity	0%-100%	90		%
				Yield	4%-17%	15		%
			Market approach	Price	$72	—
Loans and other receivables	$	54,347	Market approach	EBITDA (a) multiple	3.3	$	—
				Discount rate/yield	2%-4%	3		%
				Transaction level	$0.42	—
			Present value	Average silver production (tons per day)	666	—
			Scenario analysis	Estimated recovery percentage	6%-50%	37		%
Derivatives	$	6,429
Equity swaps			Comparable pricing	Comparable asset price	$102	—
Credit default swaps			Market approach	Credit spread	265 bps	—
Investments at fair value	$	42,907
Private equity securities			Market approach	Transaction level	$250	—
				Price	$25,815,720	—
Liabilities
Financial Instruments Sold, Not Yet Purchased:
Derivatives	$	9,870
Equity options			Option model	Volatility	45%	—
			Default rate	Default probability	0%	—
Equity swaps			Comparable pricing	Comparable asset price	$102	—
Unfunded commitments			Market approach	Discount rate/yield	4%	—
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Yield	16%	—

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported NAV or a percentage of the reported enterprise fair value are excluded from the above tables. At February 28, 2017 and November 30, 2016, asset exclusions consisted of $44.5 million and $131.5 million, respectively, primarily comprised of private equity securities, CDOs and CLOs, municipal securities, non-exchange traded securities and loans and other receivables. At February 28, 2017 and November 30, 2016, liability exclusions consisted of $2.0 million and $1.6 million, respectively, of other secured financings, loans and other receivables and corporate debt and equity securities.

Sensitivity of Fair Values to Changes in Significant Unobservable Inputs

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


•	Non-exchange traded securities and equity swaps using comparable pricing valuation techniques. A significant increase (decrease) in the comparable asset and underlying stock price in isolation would result in a significantly higher (lower) fair value measurement.


•	Corporate debt securities using a convertible bond model. A significant increase (decrease) in the bond discount rate/yield would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.

•

Non-exchange traded securities, corporate debt securities, loans and other receivables, unfunded commitments, credit default swaps, interest rate swaps, other ABS and private equity securities using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the discount rate/yield of a loan and other receivable or certain derivatives would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the transaction level of a private equity security, corporate debt security, loan and other receivable or certain derivatives would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of the non-exchange traded securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of certain derivatives would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the price of the private equity securities, non-exchange traded securities, corporate debt securities, other ABS, loans and other receivables or certain derivatives would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the estimated recovery rates of the cash flow outcomes underlying the loans and other receivables would result in a significantly higher (lower) fair value measurement.


•	Corporate debt securities, Loans and other receivables, CDOs and CLOs and other ABS using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.

•

Loans and other receivables, CDOs and CLOs, RMBS and CMBS and other ABS and variable funding notes 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.


•	Non-exchange traded securities and derivative equity options using an option model. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.


•	Derivative equity options using a default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) fair value measurement.


•	Non-exchange-traded securities and loans and other receivables using a present value model. A significant increase (decrease) in average silver production 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 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- 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 on the 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 within Loans to and investments in related parties on the 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 capital markets business and are included in Long-term debt on the 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 has also been 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.

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 measured at fair value under the fair value option (in thousands):



	Three Months Ended
	February 28, 2017			February 29, 2016
Financial Instruments Owned:
Loans and other receivables	$	(5,127	)	$	(15,462	)
Financial Instruments Sold:
Loans	$	(27	)	$	48
Loan commitments	871			(3,746		)
Long-term Debt:
Changes in instrument specific credit risk (1)	$	(16,040	)	$	(302	)
Other changes in fair value (2)	3,417			6,858


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


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

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



	February 28, 2017		November 30, 2016
Financial Instruments Owned:
Loans and other receivables (1)	$	1,078,397	$	1,325,938
Loans and other receivables on nonaccrual status and/or greater than 90 days past due (1) (2)	242,022		205,746
Long-term debt	7,582		20,202


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


(2)	Amounts include loans and other receivables greater than 90 days past due of $68.5 million and $64.6 million at February 28, 2017 and November 30, 2016, respectively.

The aggregate fair value of loans and other receivables on nonaccrual status and/or greater than 90 days past due was $253.8 million and $29.8 million at February 28, 2017 and November 30, 2016, respectively, which includes loans and other receivables greater than 90 days past due of $25.8 million and $18.9 million at February 28, 2017 and November 30, 2016, 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 in 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 $99.9 million at February 28, 2017 and November 30, 2016.