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Derivative Financial Instruments

3 Months Ended

Feb. 28, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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) interest rate swaps that have been designated as fair value hedges 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 16, 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, 2020 for additional information regarding the offsetting of derivative contracts.

The following tables present the fair value and related number of derivative contracts at February 28, 2021 and November 30, 2020 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).


	February 28, 2021 (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	$	45,638	1	$	32,653	1

Foreign exchange contracts:
Bilateral OTC	—		—	45,420		18
Total derivatives designated as accounting hedges	45,638			78,073

Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	2,626		46,454	2,305		16,056
Cleared OTC	404,775		4,746	305,691		4,364
Bilateral OTC	489,918		660	450,254		1,491
Foreign exchange contracts:
Exchange-traded	—		—	—		195
Bilateral OTC	470,949		18,733	450,054		18,609
Equity contracts:
Exchange-traded	1,185,344		951,246	1,220,922		845,486
Bilateral OTC	495,951		2,435	1,529,978		2,487
Commodity contracts:
Exchange-traded	304		3,057	—		2,070

Bilateral OTC	—		1	—		—
Credit contracts:
Cleared OTC	34,377		80	36,129		56
Bilateral OTC	4,648		13	8,635		15
Total derivatives not designated as accounting hedges	3,088,892			4,003,968
Total gross derivative assets/ liabilities:
Exchange-traded	1,188,274			1,223,227
Cleared OTC	484,790			374,473
Bilateral OTC	1,461,466			2,484,341
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded	(1,137,116)			(1,137,116)
Cleared OTC	(372,819)			(374,358)
Bilateral OTC	(1,094,672)			(1,485,629)
Net amounts per Consolidated Statements of Financial Condition (4)	$	529,923		$	1,084,938

(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, 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	$	67,381	1	$	6,891	1
Foreign exchange contracts:
Bilateral OTC	—		—	3,306		11
Total derivatives designated as accounting hedges	67,381			10,197

Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	2,442		52,620	439		42,611
Cleared OTC	17,379		3,785	114,524		4,307
Bilateral OTC	626,210		1,493	317,534		466
Foreign exchange contracts:
Exchange-traded	—		—	—		180

Bilateral OTC	297,165		15,005	277,628		15,049
Equity contracts:
Exchange-traded	558,304		1,147,486	564,951		971,938
Bilateral OTC	429,304		2,374	1,125,944		2,421
Commodity contracts:
Exchange-traded	64		3,207	—		2,654

Credit contracts:
Cleared OTC	24,696		39	26,298		31
Bilateral OTC	1,008		11	2,209		11
Total derivatives not designated as accounting hedges	1,956,572			2,429,527
Total gross derivative assets/liabilities:
Exchange-traded	560,810			565,390
Cleared OTC	109,456			147,713
Bilateral OTC	1,353,687			1,726,621
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded	(546,989)			(546,989)
Cleared OTC	(109,228)			(111,654)
Bilateral OTC	(899,919)			(1,140,016)
Net amounts per Consolidated Statements of Financial Condition (4)	$	467,817		$	641,065

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

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


	Three Months Ended
Gains (Losses)	February 28, 2021		February 29, 2020


Interest rate swaps	$	(43,791)	$	24,465
Long-term debt	46,811		(24,867)
Total	$	3,020	$	(402)

The following table provides information related to gains (losses) on our net investment hedges recognized in Currency translation and other adjustments, a component of Other comprehensive income (loss), in our Consolidated Statements of Comprehensive Income (in thousands):


	Three Months Ended
Gains (Losses)	February 28, 2021		February 29, 2020


Foreign exchange contracts	$	(41,500)	$	—

Total	$	(41,500)	$	—

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
Gains (Losses)	February 28, 2021		February 29, 2020



Interest rate contracts	$	(42,124)	$	(1,089)
Foreign exchange contracts	47,030		(2,900)
Equity contracts	(89,697)		136,888
Commodity contracts	809		(6,072)
Credit contracts	821		1,830
Total	$	(83,161)	$	128,657

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 February 28, 2021 (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	$	29,936	$	1,526	$	13,544	$	(20,365)	$	24,641
Credit default swaps	2		759		—		—		761
Total return swaps	130,651		16,711		—		(4,147)		143,215
Foreign currency forwards, swaps and options	85,919		13,318		—		(5,524)		93,713

Interest rate swaps, options and forwards	163,707		138,245		154,279		(29,567)		426,664
Total	$	410,215	$	170,559	$	167,823	$	(59,603)	688,994
Cross product counterparty netting									(24,263)
Total OTC derivative assets included in Financial instruments owned									$	664,731

(1)At February 28, 2021, we held net exchange-traded derivative assets and other credit agreements with a fair value of $61.4 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 February 28, 2021, cash collateral received was $196.2 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	$	19,834	$	522,218	$	143,586	$	(20,365)	$	665,273
Credit default swaps	20		3,530		—		—		3,550
Total return swaps	152,604		382,556		1,641		(4,147)		532,654
Foreign currency forwards, swaps and options	114,279		8,811		—		(5,524)		117,566
Fixed income forwards	5,359		—		—		—		5,359
Interest rate swaps, options and forwards	140,177		56,586		114,364		(29,567)		281,560
Total	$	432,273	$	973,701	$	259,591	$	(59,603)	1,605,962
Cross product counterparty netting									(24,263)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased									$	1,581,699

(1)At February 28, 2021, we held net exchange-traded derivative liabilities and other credit agreements with a fair value of $91.9 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 February 28, 2021, cash collateral pledged was $588.7 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 February 28, 2021 (in thousands):


Counterparty credit quality (1):
A- or higher	$	162,505
BBB- to BBB+	38,774
BB+ or lower	201,073
Unrated	262,379
Total	$	664,731

(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):


	February 28, 2021
	External Credit Rating
	Investment Grade		Non-investment Grade		Unrated		Total Notional
Credit protection sold:
Index credit default swaps	$	921.0	$	459.0	$	—	$	1,380.0
Single name credit default swaps	87.2		6.2		0.2		93.6


	November 30, 2020
	External Credit Rating
	Investment Grade		Non-investment Grade		Unrated		Total Notional
Credit protection sold:
Index credit default swaps	$	62.0	$	262.8	$	—	$	324.8
Single name credit default swaps	—		6.2		0.2		6.4

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):


	February 28, 2021		November 30, 2020
Derivative instrument liabilities with credit-risk-related contingent features	$	464.6	$	284.6
Collateral posted	(33.0)		(129.8)
Collateral received	244.1		141.4
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)	675.7		296.2

(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.