Fair Value Measurements

9 Months Ended

Sep. 30, 2022

4. Fair Value Measurements

The following table summarizes the valuation of the Company’s assets and liabilities measured at fair value as categorized based on the hierarchy described in Note 2:


	Level 1		Level 2		Level 3		Total
	(In thousands)
As of September 30, 2022
Assets
Money market funds	$	1,105	$	—	$	—	$	1,105
Trading securities
U.S. Treasuries		—		24,438		—		24,438
Mutual funds held in rabbi trust		—		8,856		—		8,856
Total assets	$	1,105	$	33,294	$	—	$	34,399

Liabilities
Contingent consideration payable	$	—	$	—	$	12,230	$	12,230
Foreign currency forward position		—		2,795		—		2,795
Total liabilities	$	—	$	2,795	$	12,230	$	15,025

As of December 31, 2021
Assets
Money market funds	$	14,206	$	—	$	—	$	14,206
Trading securities
U.S. Treasuries		—		24,883		—		24,883
Mutual funds held in rabbi trust		—		11,195		—		11,195
Total assets	$	14,206	$	36,078	$	—	$	50,284

Liabilities
Contingent consideration payable	$	—	$	—	$	41,090	$	41,090

Securities classified within Level 2 were valued using a market approach utilizing prices and other relevant information generated by market transactions involving comparable assets. The foreign currency forward contracts are classified within Level 2 as the valuation inputs are based on quoted market prices. The mutual funds held in a rabbi trust represent investments associated with the Company’s deferred cash incentive plan.

Liabilities classified within Level 3 reflect contingent consideration payable recognized in connection with acquisitions. Significant unobservable inputs used in the valuation of contingent consideration payable include estimates of client retention, electronic trading volume and variable fees over periods of 18 to 24 months from the acquisition dates. The following table summarizes the change in the Company's Level 3 liabilities for the nine months ended September 30, 2022:


	December 31, 2021		Payments			Unrealized (Gain)/Loss		Realized (Gain)/Loss			Foreign Currency Translation			September 30, 2022
	(In thousands)
Contingent consideration payable	$	41,090	$	(26,164	)	$	422	$	(1,769	)	$	(1,349	)	$	12,230

The table below presents the range and average significant unobservable inputs used in the valuation of the Company's Level 3 liabilities:


	Valuation Technique	Unobservable Inputs	Range	Average
	($ in thousands)
As of September 30, 2022
Contingent consideration payable	Discounted cash flows	Present value factor	0.98		0.98
		April 2022-March 2023 variable fee	$3,556 - $5,658	$4,607
		Percentage of electronic trading volume	86.0% - 96.6%	91.3%

As of December 31, 2021
Contingent consideration payable	Discounted cash flows	Present value factor	0.95 - 1		0.98
		Customer retention rate	84.0%	84.0%
		April 2021-March 2022 variable fee	$2,703 - $3,086	$2,895
		Percentage of electronic trading volume	86.0% - 96.6%	91.3%

The table below presents the carrying value, fair value and fair value hierarchy category of the Company's financial assets and liabilities that are not measured at fair value on the Consolidated Statements of Financial Condition. The carrying values of the Company's financial assets and liabilities not measured at fair value categorized in the fair value hierarchy as Level 1 and Level 2 approximate fair value due to the short-term nature of the underlying assets and liabilities.


	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Total
	(In thousands)
As of September 30, 2022
Financial assets not measured at fair value:
Cash and cash equivalents	$	318,699	$	318,699	$	318,699	$	—	$	—	$	318,699
Cash segregated under federal regulations		50,523		50,523		50,523		—		—		50,523
Accounts receivable, net of allowance		87,550		87,550		—		87,550		—		87,550
Receivables from broker-dealers, clearing organizations and customers		584,654		584,654		96,315		488,339		—		584,654
Total	$	1,041,426	$	1,041,426	$	465,537	$	575,889	$	—	$	1,041,426

Financial liabilities not measured at fair value:
Payables to broker-dealers, clearing organizations and customers	$	336,885	$	336,885	$	—	$	336,885	$	—	$	336,885

As of December 31, 2021
Financial assets not measured at fair value:
Cash and cash equivalents	$	506,735	$	506,735	$	506,735	$	—	$	—	$	506,735
Cash segregated under federal regulations		50,159		50,159		50,159		—		—		50,159
Accounts receivable, net of allowance		63,881		63,881		—		63,881		—		63,881
Receivables from broker-dealers, clearing organizations and customers		408,346		408,346		68,565		339,781		—		408,346
Total	$	1,029,121	$	1,029,121	$	625,459	$	403,662	$	—	$	1,029,121

Financial liabilities not measured at fair value:
Payables to broker-dealers, clearing organizations and customers	$	229,325	$	229,325	$	—	$	229,325	$	—	$	229,325

The Company enters into foreign currency forward contracts as an economic hedge against foreign currency transaction gains and losses in the Consolidated Statements of Operations. These forward contracts are for one-month periods and are used to limit exposure to foreign currency exchange rate fluctuations. The Company records the fair value of the asset in prepaid expenses and other assets or the fair value of the liability in accounts payable, accrued expenses and other liabilities in the Consolidated Statements of Financial Condition. The following table summarizes the Company’s foreign currency forward position:


	As of
	September 30, 2022		December 31, 2021
	(In thousands)
Notional value	$	58,585	$	—
Fair value of notional		55,790		—
Fair value of the liability	$	2,795	$	—

Realized and unrealized gains and losses on foreign currency forward contracts are included in other, net in the Consolidated Statements of Operations. The Company recorded realized and unrealized losses of $2.1 million and $2.8 million, respectively, for the three months ended September 30, 2022. The Company maintained a collateral deposit of $3.2 million with its counterparty bank as of September 30, 2022, which is included within prepaid expenses and other assets on the Consolidated Statements of Financial Condition.

The following table summarizes the Company’s investments:


	Amortized cost		Gross unrealized gains		Gross unrealized losses			Fair value
	(In thousands)
As of September 30, 2022
Trading securities
U.S. Treasuries	$	24,883	$	—	$	(445	)	$	24,438
Mutual funds held in rabbi trust		11,474		—		(2,618	)		8,856
Total investments	$	36,357	$	—	$	(3,063	)	$	33,294

As of December 31, 2021
Trading securities
U.S. Treasuries	$	24,994	$	—	$	(111	)	$	24,883
Mutual funds held in rabbi trust		9,941		1,254		—			11,195
Total investments	$	34,935	$	1,254	$	(111	)	$	36,078

The following table summarizes the fair value of the investments based upon the contractual maturities:


	As of
	September 30, 2022		December 31, 2021
	(In thousands)
Less than one year	$	33,294	$	11,195
Due in 1 - 5 years		—		24,883
Total	$	33,294	$	36,078

There were no proceeds from the sales and maturities of investments during the nine months ended September 30, 2022. Proceeds from the sales and maturities of investments during the nine months ended September 30, 2021 were $19.4 million. Net unrealized losses on trading securities were $3.1 million for the nine months ended September 30, 2022. Net unrealized gains on trading securities were $0.9 million for the nine months ended September 30, 2021.

- 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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