Arbitrage Trading Account

3 Months Ended

Mar. 31, 2020

Debt Securities, Trading, and Equity Securities, FV-NI [Abstract]

Arbitrage Trading Account

Arbitrage Trading Account

At March 31, 2020 and December 31, 2019, the fair and carrying values of the arbitrage trading account were $667 million and $401 million, respectively. The primary focus of the trading account is merger arbitrage. Merger arbitrage is the business of investing in the securities of publicly held companies which are the targets in announced tender offers and mergers. Arbitrage investing differs from other types of investing in its focus on transactions and events believed likely to bring about a change in value over a relatively short time period (usually four months or less).

The Company uses put options and call options in order to mitigate the impact of potential changes in market conditions on the merger arbitrage trading account. These options are reported at fair value. As of March 31, 2020, the fair value of long option contracts outstanding was $917 thousand (notional amount of $23.5 million) and the fair value of short option contracts outstanding was $545 thousand (notional amount of $29.8 million). Other than with respect to the use of these trading account securities, the Company does not make use of derivatives.