XML 25 R13.htm IDEA: XBRL DOCUMENT

Derivative Financial Instruments

6 Months Ended

May 31, 2022

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 3, Fair Value Disclosures, and Note 15, 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, 2021 for additional information regarding the offsetting of derivative contracts.

The following tables present the fair value and related number of derivative contracts at May 31, 2022 and November 30, 2021 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).


	May 31, 2022 (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	$	—	—	$	152,090	3

Foreign exchange contracts:
Bilateral OTC	51,845		5	—		—
Total derivatives designated as accounting hedges	51,845			152,090

Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	9,052		76,999	2,015		41,098
Cleared OTC	691,397		3,974	541,001		3,875
Bilateral OTC	528,364		819	944,289		851
Foreign exchange contracts:

Bilateral OTC	500,922		11,847	512,817		11,879
Equity contracts:
Exchange-traded	1,005,732		1,363,436	766,134		1,397,278
Bilateral OTC	281,493		4,656	1,122,597		5,305
Commodity contracts:
Exchange-traded	66		1,365	36		1,534


Credit contracts:
Cleared OTC	32,646		95	41,949		95
Bilateral OTC	34,999		14	37,235		13
Total derivatives not designated as accounting hedges	3,084,671			3,968,073
Total gross derivative assets/ liabilities:
Exchange-traded	1,014,850			768,185
Cleared OTC	724,043			735,040
Bilateral OTC	1,397,623			2,616,938
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded	(764,932)			(764,932)
Cleared OTC	(719,960)			(735,040)
Bilateral OTC	(1,243,524)			(1,384,564)
Net amounts per Consolidated Statements of Financial Condition (4)	$	408,100		$	1,235,627

(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, 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	$	35,726	2	$	32,200	1
Foreign exchange contracts:
Bilateral OTC	30,462		4	—		—
Total derivatives designated as accounting hedges	66,188			32,200

Derivatives not designated as accounting hedges:
Interest rate contracts:
Exchange-traded	1,262		23,888	756		39,195
Cleared OTC	373,355		4,505	367,134		4,467
Bilateral OTC	322,353		1,037	283,481		967
Foreign exchange contracts:


Bilateral OTC	1,428,712		17,792	1,437,116		17,576
Equity contracts:
Exchange-traded	1,206,606		1,582,713	1,036,019		1,450,624
Bilateral OTC	377,132		2,888	1,824,418		2,682
Commodity contracts:
Exchange-traded	448		1,394	223		1,457
Bilateral OTC	—		1	—		—
Credit contracts:
Cleared OTC	84,180		132	108,999		128
Bilateral OTC	13,289		14	14,168		17
Total derivatives not designated as accounting hedges	3,807,337			5,072,314
Total gross derivative assets/liabilities:
Exchange-traded	1,208,316			1,036,998
Cleared OTC	493,261			508,333
Bilateral OTC	2,171,948			3,559,183
Amounts offset in our Consolidated Statements of Financial Condition (3):
Exchange-traded	(1,008,091)			(1,008,091)
Cleared OTC	(483,339)			(508,333)
Bilateral OTC	(1,813,136)			(2,184,586)
Net amounts per Consolidated Statements of Financial Condition (4)	$	568,959		$	1,403,504

(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 May 31,				Six Months Ended May 31,
Gains (Losses)	2022		2021		2022		2021
Interest rate swaps	$	(100,415)	$	(1,671)	$	(144,413)	$	(45,462)
Long-term debt	105,041		5,215		155,583		52,026
Total	$	4,626	$	3,544	$	11,170	$	6,564

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 May 31,				Six Months Ended May 31,
Gains (Losses)	2022		2021		2022		2021
Foreign exchange contracts	$	73,498	$	(21,906)	$	62,560	$	(63,406)

Total	$	73,498	$	(21,906)	$	62,560	$	(63,406)

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 May 31,				Six Months Ended May 31,

Gains (Losses)	2022		2021		2022		2021
Interest rate contracts	$	(87,871)	$	21,364	$	(129,463)	$	(20,760)
Foreign exchange contracts	(112,157)		24,243		(109,533)		71,273
Equity contracts	(16,776)		(3,315)		194,161		(93,012)
Commodity contracts	2,232		1,754		424		2,563
Credit contracts	7,013		(2,864)		11,445		(2,043)
Total	$	(207,559)	$	41,182	$	(32,966)	$	(41,979)

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 May 31, 2022 (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	$	15,292	$	3,514	$	—	$	(14,945)	$	3,861
Credit default swaps	—		8		4,177		(8)		4,177
Total return swaps	69,436		39,246		46		(9,812)		98,916
Foreign currency forwards, swaps and options	120,957		3,836		284		(3,128)		121,949
Fixed income forwards	30,634		—		—		—		30,634
Interest rate swaps, options and forwards	67,393		351,584		29,597		(114,610)		333,964
Total	$	303,712	$	398,188	$	34,104	$	(142,503)	593,501
Cross product counterparty netting									(19,797)
Total OTC derivative assets included in Financial instruments owned									$	573,704

(1)At May 31, 2022, we held net exchange-traded derivative assets and other credit agreements with a fair value of $249.9 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 May 31, 2022, cash collateral received was $415.5 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.


	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	$	78,364	$	393,463	$	22,849	$	(14,945)	$	479,731
Credit default swaps	—		594		8,717		(8)		9,303
Total return swaps	387,018		122,606		100		(9,812)		499,912
Foreign currency forwards, swaps and options	81,886		3,192		49		(3,128)		81,999
Fixed income forwards	845		—		—		—		845
Interest rate swaps, options and forwards	64,166		351,796		428,428		(114,610)		729,780
Total	$	612,279	$	871,651	$	460,143	$	(142,503)	1,801,570
Cross product counterparty netting									(19,797)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased									$	1,781,773

(1)At May 31, 2022, we held net exchange-traded derivative liabilities and other credit agreements with a fair value of $25.5 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 May 31, 2022, cash collateral pledged was $571.6 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.

The following table presents the counterparty credit quality with respect to the fair value of our OTC derivative assets at May 31, 2022 (in thousands):


Counterparty credit quality (1):
A- or higher	$	371,914
BBB- to BBB+	36,799
BB+ or lower	73,680
Unrated	91,311
Total	$	573,704

(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):


	May 31, 2022
	External Credit Rating
	Investment Grade		Non-investment Grade		Unrated		Total Notional
Credit protection sold:
Index credit default swaps	$	2,428.4	$	898.9	$	—	$	3,327.3
Single name credit default swaps	—		—		0.2		0.2


	November 30, 2021
	External Credit Rating
	Investment Grade		Non-investment Grade		Unrated		Total Notional
Credit protection sold:
Index credit default swaps	$	2,612.0	$	1,298.8	$	—	$	3,910.8
Single name credit default swaps	—		17.6		0.2		17.8

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):


	May 31, 2022		November 30, 2021
Derivative instrument liabilities with credit-risk-related contingent features	$	411.7	$	821.5
Collateral posted	(112.6)		(160.5)
Collateral received	138.0		369.3
Return of and additional collateral required in the event of a credit rating downgrade below investment grade (1)	437.1		1,030.4

(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.