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 $327.5 million and $215.4 million at February 28, 2018 and November 30, 2017, respectively, by level within the fair value hierarchy (in thousands):



	February 28, 2018
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	2,127,451	$	65,101	$	35,412	$	—		$	2,227,964
Corporate debt securities	—		2,865,547		26,103		—			2,891,650
Collateralized debt obligations and collateralized loan obligations	—		144,505		26,433		—			170,938
U.S. government and federal agency securities	844,212		42,943		—		—			887,155
Municipal securities	—		713,643		—		—			713,643
Sovereign obligations	1,312,317		1,139,803		—		—			2,452,120
Residential mortgage-backed securities	—		2,357,081		21,762		—			2,378,843
Commercial mortgage-backed securities	—		505,552		15,103		—			520,655
Other asset-backed securities	—		286,459		51,288		—			337,747
Loans and other receivables	—		2,118,571		62,043		—			2,180,614
Derivatives (2)	8,651		2,545,221		4,712		(2,409,046		)	149,538
Investments at fair value	—		—		79,879		—			79,879
Total financial instruments owned, excluding Investments at fair value based on NAV	$	4,292,631	$	12,784,426	$	322,735	$	(2,409,046	)	$	14,990,746

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,768,112	$	6,592	$	61	$	—		$	1,774,765
Corporate debt securities	—		1,595,775		522		—			1,596,297
U.S. government and federal agency securities	1,398,020		—		—		—			1,398,020
Municipal securities	—		7,659		—		—			7,659
Sovereign obligations	1,208,396		923,899		—		—			2,132,295
Commercial mortgage-backed securities	—		—		35		—			35
Loans	—		1,861,278		10,323		—			1,871,601
Derivatives	11,451		3,476,824		11,594		(2,650,128		)	849,741
Total financial instruments sold, not yet purchased	$	4,385,979	$	7,872,027	$	22,535	$	(2,650,128	)	$	9,630,413
Long-term debt	$	—	$	735,456	$	—	$	—		$	735,456


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


(2)	During the three months ended February 28, 2018, we transferred from Level 1 to Level 2 $20.8 million of listed options included in Financial instruments owned—Derivatives, which are measured based on broker quotes or mid-market valuations. There were no other material transfers between Level 1 and Level 2 for three months ended February 28, 2018 and 2017.



	November 30, 2017
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Financial instruments owned:
Corporate equity securities	$	1,801,453	$	57,091	$	22,009	$	—		$	1,880,553
Corporate debt securities	—		3,261,300		26,036		—			3,287,336
Collateralized debt obligations and collateralized loan obligations	—		139,166		30,004		—			169,170
U.S. government and federal agency securities	1,269,230		39,443		—		—			1,308,673
Municipal securities	—		710,513		—		—			710,513
Sovereign obligations	1,381,552		1,035,907		—		—			2,417,459
Residential mortgage-backed securities	—		1,453,294		26,077		—			1,479,371
Commercial mortgage-backed securities	—		508,115		12,419		—			520,534
Other asset-backed securities	—		217,111		61,129		—			278,240
Loans and other receivables	—		1,620,581		47,304		—			1,667,885
Derivatives	160,168		3,248,586		9,295		(3,254,216		)	163,833
Investments at fair value	—		946		93,454		—			94,400
Total financial instruments owned, excluding Investments at fair value based on NAV	$	4,612,403	$	12,292,053	$	327,727	$	(3,254,216	)	$	13,977,967
Securities received as collateral	$	103	$	—	$	—	$	—		$	103

Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	1,456,675	$	32,122	$	48	$	—		$	1,488,845
Corporate debt securities	—		1,688,825		522		—			1,689,347
U.S. government and federal agency securities	1,430,737		—		—		—			1,430,737
Sovereign obligations	1,216,643		956,992		—		—			2,173,635
Commercial mortgage-backed securities	—		—		105		—			105
Loans	—		1,148,824		3,486		—			1,152,310
Derivatives	247,919		3,399,239		16,041		(3,426,249		)	236,950
Total financial instruments sold, not yet purchased	$	4,351,974	$	7,226,002	$	20,202	$	(3,426,249	)	$	8,171,929
Short-term borrowings	$	—	$	23,324	$	—	$	—		$	23,324
Long-term debt	$	—	$	606,956	$	—	$	—		$	606,956
Obligation to return securities received as collateral	$	103	$	—	$	—	$	—		$	103


(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.

•

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 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 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. 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 from recently executed market transactions of institutional 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 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 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.

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. 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. Sovereign government obligations are classified in Level 1 or Level 2 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 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: The fair value 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 from 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 Residential Interest-Only and Inverse Interest-Only Securities are categorized within Level 2 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

•

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 and prices observed from 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 from 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 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 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 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. 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. 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 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. 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 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.

Investments at Fair Value

Investments at fair value based on NAV 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. 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, 2018
	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds (2)	$	34,623	$	—	Monthly, Quarterly
Fixed Income and High Yield Hedge Funds (3)	405		—		—
Fund of Funds (4)	186		—		—
Equity Funds (5)	32,839		18,176		—
Multi-asset Funds (6)	259,424		—		—
Total	$	327,477	$	18,176



	November 30, 2017
	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
Equity Long/Short Hedge Funds (2)	$	33,176	$	—	Monthly, Quarterly
Fixed Income and High Yield Hedge Funds (3)	417		—		—
Fund of Funds (4)	189		—		—
Equity Funds (5)	26,798		19,084		—
Multi-asset Funds (6)	154,805		—		—
Total	$	215,385	$	19,084


(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 both February 28, 2018 and November 30, 2017, approximately 1% 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, 2018 and November 30, 2017, 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 be liquidated 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, 2018 and November 30, 2017, investments representing approximately 17% and 12%, respectively, of the fair value of investments in this category are redeemable with 30 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.

Short-term Borrowings / Long-term Debt

Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized as Level 2 within 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, CMS (constant maturity swap) 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 and are generally categorized within Level 2 of the fair value hierarchy. In addition, pricing transparency has been evidenced based on transaction data from recently issued notes.

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 February 28, 2018 (in thousands):



	Three Months Ended February 28, 2018
	Balance at November 30, 2017		Total gains/losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into/ (out of) Level 3			Balance at February 28, 2018		Change in unrealized gains/ (losses) relating to instruments still held at February 28, 2018 (1)
Assets:
Financial instruments owned:
Corporate equity securities	$	22,009	$	11,684		$	2,733		$	(1,381	)	$	(1,687	)	$	—	$	2,054		$	35,412	$	10,674
Corporate debt securities	26,036		(9		)	928			(346		)	(2,049		)	—		1,543			26,103		(1,086		)
CDOs and CLOs	30,004		(3,782		)	43,796			(34,168		)	(3,838		)	—		(5,579		)	26,433		(3,006		)
RMBS	26,077		(3,212		)	—			—			(3		)	—		(1,100		)	21,762		(2,366		)
CMBS	12,419		(231		)	1,260			(508		)	(1,285		)	—		3,448			15,103		(622		)
Other ABS	61,129		(1,385		)	57,095			(53,459		)	(3,776		)	—		(8,316		)	51,288		127
Loans and other receivables	47,304		1,598			15,635			(803		)	(9,730		)	—		8,039			62,043		(190		)
Investments at fair value	93,454		499			240			(16,624		)	—			—		2,310			79,879		(95		)
Liabilities:
Financial instruments sold, not yet purchased:
Corporate equity securities	$	48	$	13		$	—		$	—		$	—		$	—	$	—		$	61	$	(13	)
Corporate debt securities	522		—			—			—			—			—		—			522		—
CMBS	105		(70		)	—			—			—			—		—			35		(35		)
Loans	3,486		6			(25		)	3,442			—			—		3,414			10,323		(6		)
Net derivatives (2)	6,746		(1,166		)	(6		)	—			1,012			296		—			6,882		(5,609		)


(1)	Realized and unrealized gains/losses are reported in Principal transaction revenues in our 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, 2018

During the three months ended February 28, 2018, transfers of assets of $31.9 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	CDOs and CLOs of $9.1 million and loans and other receivables of $8.6 million due to reduced pricing transparency.

During the three months ended February 28, 2018, transfers of assets of $29.5 million from Level 3 to Level 2 are primarily attributed to:


•	CDOs and CLOs of $14.7 million and other ABS of $8.3 million due to greater pricing transparency supporting classification into Level 2.

Net gains on Level 3 assets were $5.2 million and net gains on Level 3 liabilities were $1.2 million for the three months ended February 28, 2018. Net gains on Level 3 assets were primarily due to increased market values across corporate equity securities and certain loans and other receivables, partially offset by decreased market values across CDOs and CLOs, RMBS and other ABS. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives.



	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		—
Loans	378		189			(323		)	—			—			—		792			1,036		(189		)
Net derivatives (2)	3,441		(4,384		)	—			—			3,373			186		3,797			6,413		1,347
Other secured financings	418		(8		)	—			—			—			—		(323		)	87		11


(1)	Realized and unrealized gains/losses are reported in Principal transaction revenues in our 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, RMBS of $13.7 million and 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.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements at February 28, 2018 and November 30, 2017

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, 2018
Financial Instruments Owned:	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range	Weighted Average
Corporate equity securities	$	30,335
Non-exchange-traded securities			Market approach	Price	$3-$750	$	183
				Underlying stock price	$11	—
			Comparable pricing	Comparable asset price	$10	—
Corporate debt securities	$	26,103	Convertible bond model	Discount rate/yield	9%	—
				Volatility	40%	—
			Market approach	Estimated recovery percentage	2%-32%	25		%
				Price	$10	—
			Comparable pricing	Comparable asset price	$47	—
CDOs and CLOs	$	26,433	Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%-30%	26		%
				Discount rate/yield	6%-31%	17		%
			Scenario analysis	Estimated recovery percentage	7%-40%	23		%
RMBS	$	21,762	Discounted cash flows	Cumulative loss rate	3%-19%	9		%
				Duration (years)	2-4	3
				Discount rate/yield	3%-9%	7		%
CMBS	$	15,103	Discounted cash flows	Cumulative loss rate	7%-65%	33		%
				Duration (years)	0-2	1
				Discount rate/yield	3%-24%	17		%
			Scenario analysis	Estimated recovery percentage	26%-32%	28		%
				Price	$49-$52	$	50
Other ABS	$	51,288	Discounted cash flows	Cumulative loss rate	0%-27%	22		%
				Duration (years)	1-6	2
				Discount rate/yield	5%-11%	8		%
			Scenario analysis	Estimated recovery percentage	11%	—
Loans and other receivables	$	54,004	Market approach	Estimated recovery percentage	23%-79%	36		%
				Price	$97	—
				Transaction level	$100	—
			Scenario analysis	Estimated recovery percentage	62%-107%	90		%
Derivatives	$	4,712
Total return swaps			Market approach	Price	$102	—
Investments at fair value	$	79,879
Private equity securities			Market approach	Price	$0-$250	$	104
Financial Instruments Sold, Not Yet Purchased:
Derivatives	$	11,594
Equity options			Option model/default rate	Default probability	0%	—
Unfunded commitments			Market approach	Price	$97	—
Total return swaps			Market approach	Price	$102	—
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Discount rate/yield	31%	—



November 30, 2017
Financial Instruments Owned:	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input / Range	Weighted Average
Corporate equity securities	$	18,109
Non-exchange-traded securities			Market approach	Price	$3-$75	$	33
				Underlying stock price	$6	—
			Comparable pricing	Comparable asset price	$7	—
Corporate debt securities	$	26,036	Convertible bond model	Discount rate/yield	8%	—
				Volatility	40%	—
			Market approach	Estimated recovery percentage	17%	—
				Price	$10	—
CDOs and CLOs	$	30,004	Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%-30%	26		%
				Discount rate/yield	3%-26%	12		%
			Scenario analysis	Estimated recovery percentage	8%-40%	22		%
RMBS	$	26,077	Discounted cash flows	Cumulative loss rate	3%-19%	10		%
				Duration (years)	2-4	3
				Discount rate/yield	6%-10%	8		%
CMBS	$	12,419	Discounted cash flows	Cumulative loss rate	8%-65%	44		%
				Duration (years)	1-3	2
				Discount rate/yield	2%-26%	12		%
			Scenario analysis	Estimated recovery percentage	26%-32%	28		%
				Price	$52-$56	$	54
Other ABS	$	61,129	Discounted cash flows	Cumulative loss rate	0%-33%	23		%
				Duration (years)	1-6	2
				Discount rate/yield	5%-39%	9		%
			Market approach	Price	$100	—
			Scenario analysis	Estimated recovery percentage	14%	—
Loans and other receivables	$	46,121	Market approach	Estimated recovery percentage	76%	—
				Price	$54-$100	$	95
			Scenario analysis	Estimated recovery percentage	13%-107%	78		%
Derivatives	$	9,295
Total return swaps			Market approach	Price	$101-$106	$	103
Interest rate swaps			Market approach	Credit spread	800 bps	—
Investments at fair value	$	77,423
Private equity securities			Market approach	Transaction level	$3-$250	$	172
				Price	$7	—
Financial Instruments Sold, Not Yet Purchased:
Derivatives	$	16,041
Equity options			Option model/default rate	Default probability	0%	—
Unfunded commitments			Market approach	Price	$99	—
Total return swaps			Market approach	Price	$101-$106	$	103
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Discount rate/yield	26%	—

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, 2018 and November 30, 2017, asset exclusions consisted of $13.1 million and $21.1 million, respectively, primarily comprised of private equity securities, non-exchange-traded securities and loans and other receivables. At February 28, 2018 and November 30, 2017, liability exclusions consisted of $10.9 million and $4.2 million, respectively, of loans, CMBS, 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 corporate debt securities using comparable pricing valuation techniques. A significant increase (decrease) in the comparable asset 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, interest rate swaps, total return swaps, other ABS and private equity securities using a market approach valuation technique. A significant increase (decrease) in the transaction level of a private equity security or loan and other receivable 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, unfunded commitments, total return swaps, other ABS or loans and other receivables 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 corporate debt securities or loans and other receivables would result in a significantly higher (lower) fair value measurement.

•

Loans and other receivables, CDOs and CLOs, CMBS 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. A significant increase (decrease) in the price of the CMBS would result in a significantly higher (lower) fair value measurement.

•

CDOs and CLOs, RMBS and CMBS and other ABS and variable funding note swaps 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 an option/default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) 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 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 capital markets business 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 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,
	2018			2017
Financial instruments owned:
Loans and other receivables	$	2,628		$	(5,127	)
Financial instruments sold:
Loans	$	250		$	(27	)
Loan commitments	(129		)	871
Long-term debt:
Changes in instrument specific credit risk (1)	$	(16,202	)	$	(16,040	)
Other changes in fair value (2)	41,154			3,417


(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):



	February 28, 2018		November 30, 2017
Financial instruments owned:
Loans and other receivables (1)	$	933,508	$	752,076
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)	222,548		159,462
Long-term debt and short-term borrowings	62,094		32,839


(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 $33.8 million and $38.7 million at February 28, 2018 and November 30, 2017, respectively.

The aggregate fair value of loans and other receivables on nonaccrual status and/or 90 days or greater past due was $253.0 million and $55.1 million at February 28, 2018 and November 30, 2017, respectively, which includes loans and other receivables 90 days or greater past due of $77.6 million and $37.4 million at February 28, 2018 and November 30, 2017, 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 $34.9 million and $99.7 million at February 28, 2018 and November 30, 2017, respectively.