Derivative Financial Instruments

9 Months Ended

Aug. 31, 2013

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Note 8. Derivative Financial Instruments

Off-Balance Sheet Risk

We have contractual commitments arising in the ordinary course of business for securities loaned or purchased under agreements to resell, repurchase agreements, future purchases and sales of foreign currencies, securities transactions on a when-issued basis and underwriting. Each of these financial instruments and activities contains varying degrees of off-balance sheet risk whereby the fair values of the securities underlying the financial instruments may be in excess of, or less than, the contract amount. The settlement of these transactions is not expected to have a material effect upon our consolidated financial statements.

Derivative Financial Instruments

Our derivative activities are recorded at fair value in the Consolidated Statements of Financial Condition in Financial instruments owned – derivatives and Financial instruments sold, not yet purchased – derivatives net of cash paid or received under credit support agreements and on a net counterparty basis when a legal right to offset exists under a master netting agreement. Net realized and unrealized gains and losses are recognized in Principal transactions in the Consolidated Statements of Earnings on a trade date basis and as a component of cash flows from operating activities in the Consolidated Statements of Cash Flows. Acting in a trading capacity, we may 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. (See Note 7, Fair Value Disclosures and Note 22, Commitments, Contingencies and Guarantees for additional disclosures about derivative 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 master netting agreements and collateral arrangements with counterparties. These agreements provide us with the ability to offset a counterparty’s rights and obligations, request additional collateral when necessary or liquidate the collateral in the event of counterparty default.

The following tables present the fair value and related number of derivative contracts at August 31, 2013 and November 30, 2012 categorized by type of derivative contract. The fair value of assets/liabilities related to derivative contracts represents our receivable/payable for derivative financial instruments, gross of counterparty netting and cash collateral received and pledged (in thousands, except contract amounts):

	Successor
	August 31, 2013
	Assets					Liabilities
	Fair Value			Number of Contracts		Fair Value			Number of Contracts
Interest rate contracts	$	846,497			32,663	$	881,518			57,449
Foreign exchange contracts		534,443			120,650		548,061			114,965
Equity contracts		447,376			1,853,291		468,562			1,875,348
Commodity contracts		135,866			464,064		130,612			464,679
Credit contracts: centrally cleared swaps		10,015			19		10,855			17
Credit contracts: other credit derivatives		4,580			24		8,910			19
Total		1,978,777					2,048,518
Counterparty/cash-collateral netting		(1,856,908	)				(1,914,691	)
Total per Consolidated Statement of Financial Condition	$	121,869				$	133,827

	Predecessor
	November 30, 2012
	Assets					Liabilities
	Fair Value			Number of Contracts		Fair Value			Number of Contracts
Interest rate contracts	$	927,896			67,410	$	1,065,788			90,831
Foreign exchange contracts		387,325			118,958		357,277			116,758
Equity contracts		577,964			1,526,127		528,979			1,396,213
Commodity contracts		265,703			754,987		278,660			728,696
Credit contracts		4,448			13		11,301			40
Total		2,163,336					2,242,005
Counterparty/cash-collateral netting		(1,865,250	)				(2,012,878	)
Total per Consolidated Statement of Financial Condition	$	298,086				$	229,127

The following table presents unrealized and realized gains (losses) on derivative contracts for the three and six months ended August 31, 2013, three months ended February 28, 2013 and for the three and nine months ended August 31, 2012 (in thousands):

	Successor						Predecessor
Gains (Losses)	Three Months Ended August 31, 2013			Six Months Ended August 31, 2013			Three Months Ended February 28, 2013			Three Months Ended August 31, 2012			Nine Months Ended August 31, 2012
Interest rate contracts	$	65,628		$	95,009		$	25,713		$	38,067		$	(39,667	)
Foreign exchange contracts		(4,149	)		(13	)		11,895			(4,616	)		4,193
Equity contracts		32,918			66,811			(5,436	)		(46,930	)		(72,691	)
Commodity contracts		15,080			36,593			19,585			11,074			57,586
Credit contracts		(904	)		(11,914	)		(3,742	)		(5,887	)		(15,274	)
Total	$	108,573		$	186,486		$	48,015		$	(8,292	)	$	(65,853	)

OTC Derivatives. The following tables set forth by remaining contract maturity the fair value of OTC derivative assets and liabilities as of August 31, 2013 (in thousands):

	Successor
	OTC Derivative Assets (1) (2) (4)
	0 – 12 Months		1 – 5 Years		Greater Than 5 Years		Cross- Maturity Netting (3)			Total
Commodity swaps, options and forwards	$	36,869	$	783	$	—	$	(47	)	$	37,605
Credit default swaps		73		607		—					680
Equity swaps and options		3,650		—		—		—			3,650
Total return swaps		817		—		—		(114	)		703
Foreign currency forwards, swaps and options		70,110		32,782		—		(16,218	)		86,674
Interest rate swaps and options		7,340		64,407		147,654		(82,057	)		137,344
Total	$	118,859	$	98,579	$	147,654	$	(98,436	)		266,656
Cross product counterparty netting											(579	)
Total OTC derivative assets included in Financial instruments owned										$	266,077

(1) At August 31, 2013, we held exchange traded derivative assets and other credit agreements with a fair value of $10.9 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 on the Consolidated Statements of Financial Condition. At August 31, 2013, cash collateral received was $155.1 million.

(3) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.

(4) Derivative fair values include counterparty netting within product category.

	Successor
	OTC Derivative Liabilities (1) (2) (4)
	0 – 12 Months		1 – 5 Years		Greater Than 5 Years		Cross- Maturity Netting (3)			Total
Commodity swaps, options and forwards	$	28,734	$	47	$	—	$	(47	)	$	28,734
Credit default swaps		—		2,062		380		—			2,442
Equity swaps and options		8,455		—		2,852		—			11,307
Total return swaps		650		—		549		(114	)		1,085
Foreign currency forwards, swaps and options		81,858		34,725		—		(16,218	)		100,365
Interest rate swaps and options		16,291		89,710		151,371		(82,057	)		175,315
Total	$	135,988	$	126,544	$	155,152	$	(98,436	)		319,248
Cross product counterparty netting											(579	)
Total OTC derivative liabilities included in Financial instruments sold, not yet purchased										$	318,669

(1) At August 31, 2013, we held exchange traded derivative liabilities and other credit agreements with a fair value of $28.0 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 on the Consolidated Statements of Financial Condition. At August 31, 2013, cash collateral pledged was $212.9 million.

(3) Amounts represent the netting of receivable balances with payable balances for the same counterparty within product category across maturity categories.

(4) Derivative fair values include counterparty netting within product category.

At August 31, 2013, the counterparty credit quality with respect to the fair value of our OTC derivatives assets was as follows (in thousands):

Counterparty credit quality (1):
A- or higher	$	199,298
BBB- to BBB+		9,447
BB+ or lower		51,448
Unrated		5,884
Total	$	266,077

(1) We utilize internal credit ratings determined by our Risk Management. Credit ratings determined by Risk Management use methodologies that produce ratings generally consistent with those produced by external rating agencies.

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 aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a liability position at August 31, 2013 and November 30, 2012 is $67.2 million and $164.8 million, respectively, for which we have posted collateral of $61.3 million and $129.2 million, respectively, in the normal course of business. If the credit-risk-related contingent features underlying these agreements were triggered on August 31, 2013 and November 30, 2012, we would have been required to post an additional $10.6 million and $38.1 million, respectively, of collateral to our counterparties.