Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2017

The following table presents our financial assets that are measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016. We did not have any financial liabilities measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016.



	March 31, 2017
	Total		Level 1		Level 2		Level 3
	(in millions)
Financial investments, at fair value	$	220	$	203	$	17	$	—
Default fund and margin deposit investments	2,186		1,610		576		—
Total	$	2,406	$	1,813	$	593	$	—



	December 31, 2016
	Total		Level 1		Level 2		Level 3
	(in millions)
Financial investments, at fair value	$	245	$	228	$	17	$	—
Default fund and margin deposit investments	1,900		1,763		137		—
Total	$	2,145	$	1,991	$	154	$	—

Our Level 1 financial investments, at fair value were primarily comprised of trading securities, mainly highly rated European government debt securities. Of these securities, $154 million as of March 31, 2017 and $172 million as of December 31, 2016 are assets utilized to meet regulatory capital requirements, primarily for our clearing operations at Nasdaq Clearing. Level 2 financial investments, at fair value were primarily comprised of available-for-sale investment securities in short-term certificates of deposit as of March 31, 2017 and were primarily comprised of available-for-sale investment securities in short-term commercial paper as of December 31, 2016.

Our default fund and margin deposit investments include cash contributions invested by Nasdaq Clearing, in accordance with its investment policy. Of the total balance of $3,633 million recorded in the Condensed Consolidated Balance Sheets as of March 31, 2017, $576 million of cash contributions have been invested in reverse repurchase agreements and $1,610 million of cash contributions have been invested in highly rated European, and to a lesser extent, U.S. government debt securities or central bank certificates. The remainder of this balance is held in cash. Of the total balance of $3,301 million recorded in the Condensed Consolidated Balance Sheets as of December 31, 2016, $137 million of cash contributions have been invested in reverse repurchase agreements and $1,763 million of cash contributions have been invested in highly rated European, and to a lesser extent, U.S. government debt securities and central bank certificates. The remainder of this balance is held in cash. See Note 14, “Clearing Operations,” for further discussion of default fund contributions and margin deposits.

There were no transfers between Level 1 and Level 2 of the fair value hierarchy as of March 31, 2017 and December 31, 2016.

Financial Instruments Not Measured at Fair Value on a Recurring Basis

Some of our financial instruments are not measured at fair value on a recurring basis but are recorded at amounts that approximate fair value due to their liquid or short-term nature. Such financial assets and financial liabilities include: cash and cash equivalents, restricted cash, receivables, net, certain other current assets, accounts payable and accrued expenses, Section 31 fees payable to SEC, accrued personnel costs, and certain other current liabilities.

In addition, our investments in OCC and EuroCCP N.V. are accounted for under the equity method of accounting and our investments in Borsa Istanbul and LCH.Clearnet Group Limited are carried at cost. See “Equity Method Investments,” and “Cost Method Investments,” of Note 6, “Investments,” for further discussion.

We also consider our debt obligations to be financial instruments. The fair value of our debt, utilizing discounted cash flow analyses for our floating rate debt and prevailing market rates for our fixed rate debt, was $3.8 billion at March 31, 2017 and December 31, 2016. The discounted cash flow analyses are based on borrowing rates currently available to us for debt with similar terms and maturities. Our fixed rate and our floating rate debt is categorized as Level 2 in the fair value hierarchy. For further discussion of our debt obligations, see Note 8, “Debt Obligations.”

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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