12.

Fair Value of Financial Assets and Liabilities

FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

Level 1 measurements—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 measurements—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 measurements—Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

As required by FASB guidance, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The following tables set forth by level within the fair value hierarchy financial assets and liabilities accounted for at fair value under FASB guidance at June 30, 2016 and December 31, 2015 (in thousands):


	Assets at Fair Value at June 30, 2016
	Level 1		Level 2		Level 3		Netting and Collateral			Total
Marketable securities	$	152,995	$	—	$	—	$	—		$	152,995
Government debt		318,494		—		—		—			318,494
Securities owned—Equities		86		—		—		—			86
Foreign exchange swaps		—		400		—		(209	)		191
Interest rate swaps		—		344		—		(17	)		327
Futures		—		808		—		—			808
Foreign exchange/commodities options		108		—		—		—			108

Total	$	471,683	$	1,552	$	—	$	(226	)	$	473,009


	Liabilities at Fair Value at June 30, 2016
	Level 1		Level 2		Level 3		Netting and Collateral			Total
Futures	$	—	$	273	$	—	$	—		$	273
Foreign exchange/commodities options		3		—		—		—			3
Foreign exchange swaps		—		220		—		(209	)		11
Interest rate swaps		—		17		—		(17	)		—
Contingent consideration		—		—		62,272		—			62,272

Total	$	3	$	510	$	62,272	$	(226	)	$	62,559


	Assets at Fair Value at December 31, 2015
	Level 1		Level 2		Level 3		Netting and Collateral			Total
Marketable securities	$	650,315	$	85	$	—	$	—		$	650,400
Government debt		32,352		—		—		—			32,352
Securities owned—Equities		9		—		—		—			9
Forwards		—		869		—		(48	)		821
Foreign exchange swaps		—		1,256		—		(373	)		883
Interest rate swaps		—		283		—		(27	)		256
Futures		—		39		—		—			39
Foreign exchange/commodities options		309		—		—		(309	)		—

Total	$	682,985	$	2,532	$	—	$	(757	)	$	684,760


	Liabilities at Fair Value at December 31, 2015
	Level 1		Level 2		Level 3		Netting and Collateral			Total
Forwards	$	—	$	226	$	—	$	(48	)	$	178
Futures		—		44		—		—			44
Government debt		12		—		—		—			12
Foreign exchange/commodities options		846		—		—		(309	)		537
Foreign exchange swaps		—		748		—		(373	)		375
Interest rate swaps		—		27		—		(27	)		—
Contingent consideration		—		—		65,043		—			65,043

Total	$	858	$	1,045	$	65,043	$	(757	)	$	66,189

Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the three months ended June 30, 2016 are as follows (in thousands):


	Opening Balance		Total realized and unrealized gains (losses) included in Net income⁽¹⁾			Unrealized gains (losses) included in Other comprehensive income (loss)		Issuances		Settlements			Closing Balance at June 30, 2016		Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at June 30, 2016
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration	$	64,337	$	(749	)	$	80	$	578	$	(3,312	)	$	62,272	$	(669	)

⁽¹⁾	Realized and unrealized gains (losses) are reported in “Other income (loss)” in the Company’s unaudited condensed consolidated statements of operations.

Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the three months ended June 30, 2015 are as follows (in thousands):


	Opening Balance		Total realized and unrealized gains (losses) included in Net income⁽¹⁾			Unrealized gains (losses) included in Other comprehensive income (loss)			Issuances		Settlements			Closing Balance at June 30, 2015		Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at June 30, 2015
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration	$	63,514	$	(197	)	$	(116	)	$	16,544	$	(2,678	)	$	77,693	$	(313	)

⁽¹⁾	Realized and unrealized gains (losses) are reported in “Other income (loss)” in the Company’s unaudited condensed consolidated statements of operations.

Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the six months ended June 30, 2016 are as follows (in thousands):


	Opening Balance		Total realized and unrealized gains (losses) included in Net income⁽¹⁾			Unrealized gains (losses) included in Other comprehensive income (loss)		Issuances		Settlements			Closing Balance at June 30, 2016		Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at June 30, 2016
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration	$	65,043	$	(748	)	$	78	$	1,411	$	(4,852	)	$	62,272	$	(670	)

⁽¹⁾	Realized and unrealized gains (losses) are reported in “Other income (loss)” in the Company’s unaudited condensed consolidated statements of operations.

Changes in Level 3 contingent consideration measured at fair value on a recurring basis for the six months ended June 30, 2015 are as follows (in thousands):


	Opening Balance		Total realized and unrealized gains (losses) included in Net income⁽¹⁾			Unrealized gains (losses) included in Other comprehensive income (loss)		Issuances		Settlements			Closing Balance at June 30, 2015		Unrealized gains (losses) for Level 3 Assets / Liabilities Outstanding at June 30, 2015
Liabilities
Accounts payable, accrued and other liabilities:
Contingent consideration	$	56,299	$	(1,490	)	$	131	$	24,219	$	(4,184	)	$	77,693	$	(1,359	)

⁽¹⁾	Realized and unrealized gains (losses) are reported in “Other income (loss)” in the Company’s unaudited condensed consolidated statements of operations.

The following tables present information about the offsetting of derivative instruments and collateralized transactions as of June 30, 2016 and December 31, 2015 (in thousands):


	June 30, 2016
	Gross Amounts		Gross Amounts Offset		Net Amounts Presented in the Statements of Financial Condition		Gross Amounts Not Offset				Net Amount
	Gross Amounts		Gross Amounts Offset				Financial Instruments		Cash Collateral Received		Net Amount
Assets
Foreign exchange swaps	$	400	$	209	$	191	$	—	$	—	$	191
Interest rate swaps		344		17		327		—		—		327
Futures		808		—		808		—		—		808
Foreign exchange /commodities options		108		—		108		—		—		108

Total	$	1,660	$	226	$	1,434	$	—	$	—	$	1,434

Liabilities
Foreign exchange swaps	$	220	$	209	$	11	$	—	$	—	$	11
Interest rate swaps		17		17		—		—		—		—
Futures		273		—		273		—		—		273
Foreign exchange /commodities options		3		—		3		—		—		3

Total	$	513	$	226	$	287	$	—	$	—	$	287


	December 31, 2015
	Gross Amounts		Gross Amounts Offset		Net Amounts Presented in the Statements of Financial Condition		Gross Amounts Not Offset				Net Amount
	Gross Amounts		Gross Amounts Offset				Financial Instruments		Cash Collateral Received		Net Amount
Assets
Forwards	$	869	$	48	$	821	$	—	$	—	$	821
Foreign exchange swaps		1,256		373		883		—		—		883
Interest rate swaps		283		27		256		—		—		256
Futures		39		—		39		—		—		39
Foreign exchange /commodities options		309		309		—		—		—		—

Total	$	2,756	$	757	$	1,999	$	—	$	—	$	1,999

Liabilities
Forwards	$	226	$	48	$	178	$	—	$	—	$	178
Foreign exchange swaps		748		373		375		—		—		375
Interest rate swaps		27		27		—		—		—		—
Futures		44		—		44		—		—		44
Foreign exchange /commodities options		846		309		537		—		—		537

Total	$	1,891	$	757	$	1,134	$	—	$	—	$	1,134

Certain of the Company’s foreign exchange swaps are with Cantor. See Note 13—“Related Party Transactions,” for additional information related to these transactions.

Quantitative Information About Level 3 Fair Value Measurements

The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurement of Level 3 assets and liabilities measured at fair value on a recurring basis (in thousands):

Fair Value as of
June 30, 2016

Valuation Technique

Unobservable Inputs

Weighted Average

Liabilities

Accounts payable, accrued and other liabilities:

Contingent consideration

62,272

Present value of expected payments

Discount rate

Forecasted financial information

5.4

% (a)

(a)	The Company’s estimate of contingent consideration as of June 30, 2016 was based on the acquired businesses’ projected future financial performance, including revenues.

Fair Value as of
December 31,
2015

Valuation Technique

Unobservable Inputs

Weighted Average

Liabilities

Accounts payable, accrued and other liabilities:

Contingent consideration

65,043

Present value of expected payments

Discount rate

Forecasted financial information

5.6

% (a)

(a)	The Company’s estimate of contingent consideration as of December 31, 2015 was based on the acquired businesses’ projected future financial performance, including revenues.

Valuation Processes – Level 3 Measurements

Valuations for contingent consideration are conducted by the Company. Each reporting period, the Company updates unobservable inputs. The Company has a formal process to review changes in fair value for satisfactory explanation.

Sensitivity Analysis – Level 3 Measurements

The significant unobservable inputs used in the fair value of the Company’s contingent consideration are the discount rate and forecasted financial information. Significant increases (decreases) in the discount rate would have resulted in a lower (higher) fair value measurement. Significant increases (decreases) in the forecasted financial information would have resulted in a higher (lower) fair value measurement. As of June 30, 2016 and December 31, 2015, the present value of expected payments related to the Company’s contingent consideration was $62.3 million and $65.0 million, respectively. The undiscounted value of the payments, assuming that all contingencies are met, would be $69.6 million and $76.1 million, respectively.