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Derivative Financial Instruments
 9 Months Ended
Aug. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
Derivative Financial Instruments
Our derivative activities are recorded at fair value in our Consolidated Statements of Financial Condition in Financial instruments owned and Financial instruments sold, not yet purchased, net of cash paid or received under credit support agreements and on a net counterparty basis when a legally enforceable right to offset exists under a master netting agreement. We enter into derivative transactions to satisfy the needs of our clients and to manage our own exposure to market and credit risks resulting from our trading activities. In addition, we apply hedge accounting to: (1) an interest rate swap that has been designated as a fair value hedge of the changes in fair value due to the benchmark interest rate for certain fixed rate senior long-term debt, and (2) forward foreign exchange contracts designated as hedges to offset the change in the value of certain net investments in foreign operations.
See Note 4, Fair Value Disclosures, and Note 17, Commitments, Contingencies and Guarantees, for additional disclosures about derivative financial instruments.
Derivatives are subject to various risks similar to other financial instruments, including market, credit and operational risk. The risks of derivatives should not be viewed in isolation, but rather should be considered on an aggregate basis along with our other trading-related activities. We manage the risks associated with derivatives on an aggregate basis along with the risks associated with proprietary trading as part of our firm wide risk management policies.
In connection with our derivative activities, we may enter into International Swaps and Derivatives Association, Inc. master netting agreements or similar agreements with counterparties. See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended November 30, 2019 for additional information regarding the offsetting of derivative contracts.
The following tables present the fair value and related number of derivative contracts at August 31, 2020 and November 30, 2019 categorized by type of derivative contract and the platform on which these derivatives are transacted. The fair value of assets/liabilities represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged. The following tables also provide information regarding 1) the extent to which, under enforceable master netting arrangements, such balances are presented net in our Consolidated Statements of Financial Condition as appropriate under U.S. GAAP and 2) the extent to which other rights of setoff associated with these arrangements exist and could have an effect on our financial position (in thousands, except contract amounts).
 
August 31, 2020 (1)
 
Assets
 
Liabilities
 
Fair Value
 
Number of Contracts (2)
 
Fair Value
 
Number of Contracts (2)
Derivatives designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Cleared OTC
$
70,159

 
1

 
$
—

 
—

Foreign exchange contracts:
 
 
 
 
 
 
 
Bilateral OTC
—

 
—

 
393

 
2

Total derivatives designated as accounting hedges
70,159

 
 
 
393

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Exchange-traded
781

 
48,453

 
73

 
69,918

Cleared OTC
75,125

 
3,894

 
168,467

 
4,199

Bilateral OTC
689,581

 
1,480

 
316,196

 
621

Foreign exchange contracts:
 
 
 
 
 
 
 
Exchange-traded
—

 
—

 
—

 
245

Bilateral OTC
416,298

 
13,561

 
391,431

 
13,449

Equity contracts:
 
 
 
 
 
 
 
Exchange-traded
507,083

 
906,465

 
517,384

 
775,309

Bilateral OTC
351,744

 
1,939

 
879,876

 
1,945

Commodity contracts:
 
 
 
 
 
 
 
Exchange-traded
—

 
2,073

 
—

 
1,503

Bilateral OTC
—

 
1

 
—

 
—

Credit contracts:
 
 
 
 
 
 
 
Cleared OTC
3,165

 
15

 
5,567

 
13

Bilateral OTC
2,116

 
11

 
3,518

 
10

Total derivatives not designated as accounting hedges
2,045,893

 
 
 
2,282,512

 
 
Total gross derivative assets/ liabilities:
 
 
 
 
 
 
 
Exchange-traded
507,864

 
 
 
517,457

 

Cleared OTC
148,449

 
 
 
174,034

 

Bilateral OTC
1,459,739

 
 
 
1,591,414

 

Amounts offset in our Consolidated Statements of Financial Condition (3):
 
 
 
 
 
 
 
Exchange-traded
(504,400
)
 
 
 
(504,400
)
 
 
Cleared OTC
(144,200
)
 
 
 
(145,706
)
 
 
Bilateral OTC
(963,215
)
 
 
 
(1,149,575
)
 
 
Net amounts per Consolidated Statements of Financial Condition (4)
$
504,237

 
 
 
$
483,224

 
 
(1)
Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.
(2)
Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.
(3)
Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)
We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in our Consolidated Statements of Financial Condition.
 
November 30, 2019 (1)
 
Assets
 
Liabilities
 
Fair Value
 
Number of Contracts (2)
 
Fair Value
 
Number of Contracts (2)
Derivatives designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Cleared OTC
$
28,663

 
1

 
$
—

 
—

Total derivatives designated as accounting hedges
28,663

 
 
 
—

 
 
 
 
 
 
 
 
 
 
Derivatives not designated as accounting hedges:
 
 
 
 
 
 
 
Interest rate contracts:
 
 
 
 
 
 
 
Exchange-traded
1,191

 
65,226

 
103

 
38,464

Cleared OTC
213,224

 
3,329

 
284,433

 
3,443

Bilateral OTC
421,700

 
1,325

 
258,857

 
738

Foreign exchange contracts:
 
 
 
 
 
 
 
Exchange-traded
—

 
256

 
—

 
199

Bilateral OTC
190,570

 
9,255

 
187,836

 
9,187

Equity contracts:
 
 
 
 
 
 
 
Exchange-traded
717,494

 
1,714,538

 
962,535

 
1,481,388

Bilateral OTC
248,720

 
4,731

 
445,241

 
4,271

Commodity contracts:
 
 
 
 
 
 
 
Exchange-traded
—

 
5,524

 
—

 
4,646

Credit contracts:
 
 
 
 
 
 
 
Cleared OTC
2,514

 
13

 
5,768

 
12

Bilateral OTC
6,281

 
25

 
14,219

 
28

Total derivatives not designated as accounting hedges
1,801,694

 
 
 
2,158,992

 
 
Total gross derivative assets/liabilities:
 
 
 
 
 
 
 
Exchange-traded
718,685

 
 
 
962,638

 
 
Cleared OTC
244,401

 
 
 
290,201

 
 
Bilateral OTC
867,271

 
 
 
906,153

 
 
Amounts offset in our Consolidated Statements of Financial Condition (3):
 
 
 
 
 
 
 
Exchange-traded
(688,871
)
 
 
 
(688,871
)
 
 
Cleared OTC
(222,869
)
 
 
 
(266,900
)
 
 
Bilateral OTC
(521,066
)
 
 
 
(676,016
)
 
 
Net amounts per Consolidated Statements of Financial Condition (4)
$
397,551

 
 
 
$
527,205

 
 
(1)
Exchange-traded derivatives include derivatives executed on an organized exchange. Cleared OTC derivatives include derivatives executed bilaterally and subsequently novated to and cleared through central clearing counterparties. Bilateral OTC derivatives include derivatives executed and settled bilaterally without the use of an organized exchange or central clearing counterparty.
(2)
Number of exchange-traded contracts may include open futures contracts. The unsettled fair value of these futures contracts is included in Receivables from/Payables to brokers, dealers and clearing organizations in our Consolidated Statements of Financial Condition.
(3)
Amounts netted include both netting by counterparty and for cash collateral paid or received.
(4)
We have not received or pledged additional collateral under master netting agreements and/or other credit support agreements that is eligible to be offset beyond what has been offset in our Consolidated Statements of Financial Condition.
The following table provides information related to gains (losses) recognized in Interest expense in our Consolidated Statements of Earnings on a fair value hedge (in thousands):
 
Three Months Ended 
 August 31,
 
Nine Months Ended 
 August 31,
Gains (Losses)
2020
 
2019
 
2020
 
2019
Interest rate swaps
$
834

 
$
28,052

 
$
47,303

 
$
69,843

Long-term debt
1,634

 
(28,519
)
 
(45,539
)
 
(72,288
)
Total
$
2,468

 
$
(467
)
 
$
1,764

 
$
(2,445
)
The following table provides information related to gains (losses) on our net investment hedges recognized in Currency translation adjustments and other, a component of Other comprehensive income (loss), in our Consolidated Statements of Comprehensive Income (in thousands):
 
Three Months Ended 
 August 31,
 
Nine Months Ended 
 August 31,
Gains (Losses)
2020
 
2019
 
2020
 
2019
Foreign exchange contracts
$
(393
)
 
$
—

 
$
(393
)
 
$
—

Total
$
(393
)
 
$
—

 
$
(393
)
 
$
—

The following table presents unrealized and realized gains (losses) on derivative contracts recognized in Principal transactions revenues in our Consolidated Statements of Earnings, which are utilized in connection with our client activities and our economic risk management activities (in thousands):
 
Three Months Ended 
 August 31,
 
Nine Months Ended 
 August 31,
Gains (Losses)
2020
 
2019
 
2020
 
2019
Interest rate contracts
$
(35,462
)
 
$
(89,864
)
 
$
(40,630
)
 
$
(193,715
)
Foreign exchange contracts
4,973

 
(3,022
)
 
4,126

 
(1,604
)
Equity contracts
(32,782
)
 
2,236

 
113,253

 
(118,354
)
Commodity contracts
(2,064
)
 
3,400

 
(2,845
)
 
4,775

Credit contracts
(179
)
 
2,687

 
14,205

 
11,600

Total
$
(65,514
)
 
$
(84,563
)
 
$
88,109

 
$
(297,298
)

The net gains (losses) on derivative contracts in the table above are one of a number of activities comprising our business activities and are before consideration of economic hedging transactions, which generally offset the net gains (losses) included above. We substantially mitigate our exposure to market risk on our cash instruments through derivative contracts, which generally provide offsetting revenues, and we manage the risk associated with these contracts in the context of our overall risk management framework.
OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities at August 31, 2020 (in thousands):
 
OTC Derivative Assets (1) (2) (3)
 
0 – 12 Months
 
1 – 5 Years
 
Greater Than 5 Years
 
Cross-Maturity Netting (4)
 
Total
Equity options and forwards
$
21,437

 
$
44,672

 
$
15,160

 
$
(25,445
)
 
$
55,824

Total return swaps
74,923

 
19,764

 
2,872

 
(14,666
)
 
82,893

Foreign currency forwards, swaps and options
63,570

 
28,993

 
—

 
(4,477
)
 
88,086

Interest rate swaps, options and forwards
94,956

 
204,309

 
222,482

 
(45,025
)
 
476,722

Total
$
254,886

 
$
297,738

 
$
240,514

 
$
(89,613
)
 
703,525

Cross product counterparty netting
 
 
 
 
 
 
 
 
(22,759
)
Total OTC derivative assets included in Financial instruments owned
 
 
 
 
 
 
 
 
$
680,766

(1)
At August 31, 2020, we held net exchange-traded derivative assets and other credit agreements with a fair value of $25.1 million, which are not included in this table.
(2)
OTC derivative assets in the table above are gross of collateral received. OTC derivative assets are recorded net of collateral received in our Consolidated Statements of Financial Condition. At August 31, 2020, cash collateral received was $201.6 million.
(3)
Derivative fair values include counterparty netting within product category.
(4)
Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
 
OTC Derivative Liabilities (1) (2) (3)
 
0 – 12 Months
 
1 – 5 Years
 
Greater Than 5 Years
 
Cross-Maturity Netting (4)
 
Total
Equity options and forwards
$
15,474

 
$
370,915

 
$
156,839

 
$
(25,445
)
 
$
517,783

Credit default swaps
12

 
1,108

 
—

 
—

 
1,120

Total return swaps
58,888

 
103,567

 
—

 
(14,666
)
 
147,789

Foreign currency forwards, swaps and options
55,430

 
11,792

 
34

 
(4,477
)
 
62,779

Fixed income forwards
1,404

 
—

 
—

 
—

 
1,404

Interest rate swaps, options and forwards
42,132

 
80,469

 
72,462

 
(45,025
)
 
150,038

Total
$
173,340

 
$
567,851

 
$
229,335

 
$
(89,613
)
 
880,913

Cross product counterparty netting
 
 
 
 
 
 
 
 
(22,759
)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased
 
 
 
 
 
 
 
 
$
858,154

(1)
At August 31, 2020, we held net exchange-traded derivative liabilities and other credit agreements with a fair value of $14.5 million, which are not included in this table.
(2)
OTC derivative liabilities in the table above are gross of collateral pledged. OTC derivative liabilities are recorded net of collateral pledged in our Consolidated Statements of Financial Condition. At August 31, 2020, cash collateral pledged was $389.5 million.
(3)
Derivative fair values include counterparty netting within product category.
(4)
Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.
The following table presents the counterparty credit quality with respect to the fair value of our OTC derivative assets at August 31, 2020 (in thousands):
Counterparty credit quality (1):
 
A- or higher
$
113,989

BBB- to BBB+
15,949

BB+ or lower
353,564

Unrated
197,264

Total
$
680,766

(1)
We utilize internal credit ratings determined by our Risk Management department. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.
Credit Related Derivative Contracts
The external credit ratings of the underlyings or referenced assets for our written credit related derivative contracts (in millions):
 
August 31, 2020
 
External Credit Rating
 
 
 
 
 
Investment Grade
 
Non-investment Grade
 
Unrated
 
Total Notional
Credit protection sold:
 
 
 
 
 
 
 
Index credit default swaps
$
2.0

 
$
45.9

 
$
—

 
$
47.9

Single name credit default swaps
—

 
6.2

 
0.2

 
6.4

 
November 30, 2019
 
External Credit Rating
 
 
 
 
 
Investment Grade
 
Non-investment Grade
 
Unrated
 
Total Notional
Credit protection sold:
 
 
 
 
 
 
 
Index credit default swaps
$
3.0

 
$
32.0

 
$
—

 
$
35.0

Single name credit default swaps
3.4

 
29.0

 
1.5

 
33.9


Contingent Features
Certain of our derivative instruments contain provisions that require our debt to maintain an investment grade credit rating from each of the major credit rating agencies. If our debt were to fall below investment grade, it would be in violation of these provisions and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on our derivative instruments in liability positions. The following table presents the aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position, the collateral amounts we have posted or received in the normal course of business and the potential collateral we would have been required to return and/or post additionally to our counterparties if the credit-risk-related contingent features underlying these agreements were triggered (in millions):
 
August 31, 2020
 
November 30, 2019
Derivative instrument liabilities with credit-risk-related contingent features
$
191.4

 
$
42.9

Collateral posted
(120.6
)
 
(3.1
)
Collateral received
64.5

 
114.1

Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)
135.3

 
154.0


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