Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Fair Value Measurements [Abstract]

Fair Value Measurements

7. Fair Value Measurements

Overview

ASC 820 defines fair value, establishes a framework for measuring fair value as well as a hierarchy of fair value inputs. Refer to the below as well as Note 2 – Summary of Significant Accounting Policies in the Company’s 2022 Form 10-K for further information regarding fair value hierarchy, valuation techniques and other items related to fair value measurements.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

The tables below present, by level within the fair value hierarchy, financial assets and liabilities, measured at fair value on a recurring basis for the periods indicated. As required by ASC Topic 820, financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the respective fair value measurement.

	As of March 31, 2023
	Level 1		Level 2		Level 3		Total
Assets
Cash and securities segregated for regulatory purposes
U.S. government securities	$	195,906,000	$	—	$	—	$	195,906,000
Securities owned, at fair value
U.S. government securities	$	6,856,000	$	—	$	—	$	6,856,000
Certificates of deposit		—		194,000		—		194,000
Municipal securities		—		166,000		—		166,000
Corporate bonds		—		141,000		—		141,000
Equity securities		54,000		198,000		—		252,000
Total Securities owned, at fair value	$	6,910,000	$	699,000	$	—	$	7,609,000
Liabilities
Securities sold, not yet purchased, at fair value
Equity securities	$	2,000	$	—	$	—	$	2,000
Total Securities sold, not yet purchased, at fair value	$	2,000	$	—	$	—	$	2,000

	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets
Cash and securities segregated for regulatory purposes
U.S. government securities	$	140,978,000	$	—	$	—	$	140,978,000
Securities owned, at fair value
U.S. government securities	$	2,808,000	$	—	$	—	$	2,808,000
Certificates of deposit		—		92,000		—		92,000
Municipal securities		—		52,000		—		52,000
Corporate bonds		—		7,000		—		7,000
Equity securities		63,000		182,000		—		245,000
Total Securities owned, at fair value	$	2,871,000	$	333,000	$	—	$	3,204,000
Liabilities
Securities sold, not yet purchased, at fair value
Equity securities	$	2,000	$	—	$	—	$	2,000
Total Securities sold, not yet purchased, at fair value	$	2,000	$	—	$	—	$	2,000

The Company had U.S. government securities with the below market values and maturity dates for the periods indicated:

	As of March 31, 2023
Market value of U.S. government securities
Maturing 05/18/2023, 2.791% Discount Rate		9,942,000
Maturing 06/22/2023, 4.654% Discount Rate		19,795,000
Maturing 07/25/2023, 4.762% Discount Rate		19,705,000
Maturing 08/03/2023, 4.820% Discount Rate		24,602,000
Maturing 08/31/2023, 1.375% Coupon Rate		9,863,000
Maturing 09/21/2023, 4.382% Discount Rate		14,000
Maturing 09/21/2023, 4.865% Discount Rate		14,667,000
Maturing 09/28/2023, 4.709% Discount Rate		4,000,000
Maturing 12/31/2023, 0.750% Coupon Rate		63,093,000
Maturing 01/31/2024, 0.875% Coupon Rate		24,211,000
Maturing 05/31/2024, 2.500% Coupon Rate		9,775,000
Maturing 08/15/2024, 0.375% Coupon Rate		2,841,000
Accrued interest		254,000
Total Market value of investment in U.S. government securities	$	202,762,000

		As of December 31, 2022
Market value of U.S. government securities
Maturing 03/23/2023, 3.750% Discount Rate	$	24,768,000
Maturing 05/18/2023, 2.700% Discount Rate		9,831,000
Maturing 08/31/2023, 1.375% Coupon Rate		9,777,000
Maturing 12/31/2023, 0.750% Coupon Rate		62,497,000
Maturing 01/31/2024, 0.875% Coupon Rate		23,995,000
Maturing 05/31/2024, 2.500% Coupon Rate		9,707,000
Maturing 08/15/2024, 0.375% Coupon Rate		2,808,000
Accrued interest		404,000
Total Market value of investment in U.S. government securities	$	143,787,000

Financial Assets Measured at Fair Value on a Non-Recurring Basis

The following table represents information for assets measured at fair value on a nonrecurring basis and display the carrying value after measurement as of the periods indicated. The fair value measurement is nonrecurring as these assets are measured at fair value only when there is a triggering event (e.g., an evidence of impairment). Assets included in the table are those that were impaired during the respective reporting periods and that are still held as of the reporting date. The estimated fair values for these amounts were determined using significant unobservable inputs (Level 3).

	As of March 31, 2023		As of December 31, 2022
Equity method investment in related party	$	2,622,000	$	2,584,000

As a result of the transaction discussed Note 3 – Transactions with Tigress and Hedge Connection, the Company recognized an impairment charge for its investment in Tigress of approximately $4,015,000 for the year ended December 31, 2022. The fair value of the Company’s investment in Tigress was determined using the income and market approach. For the income approach, the Company utilized estimated discounted future cash flow expected to be generated by Tigress. For the market approach, the Company utilized market multiples of revenue and earnings derived from comparable publicly-traded companies.

Financial Assets and Liabilities Not Carried at Fair Value

The following represents financial instruments in which the ending balances as of March 31, 2023 and December 31, 2022 that are not carried at fair value in the statements of financial condition:

Short-term financial instruments: The carrying value of short-term financial instruments, including cash and cash equivalents as well as cash and securities segregated for regulatory purposes, are recorded at amounts that approximate the fair value of these instruments. These financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. The Company had no cash equivalents for regulatory purposes as of March 31, 2023 and December 31, 2022. Securities segregated for regulatory purposes consist solely of U.S. government securities and are included in the fair value hierarchy table above. Cash and cash equivalents and cash and securities segregated for regulatory purposes are classified as level 1.

Receivables and other assets: Receivables from customers, receivables from non-customers, receivables from and deposits with broker-dealers and clearing organizations, other receivables, and prepaid expenses and other assets are recorded at amounts that approximate fair value and are classified as level 2 under the fair value hierarchy. The Company may hold cash equivalents related to rent deposits in prepaid expenses and other assets that are categorized as level 2 under the fair value hierarchy.

Securities borrowed and securities loaned: Securities borrowed and securities loaned are recorded at amounts which approximate fair value and are primarily classified as level 2 under the fair value hierarchy. The Company’s securities borrowed and securities loaned balances represent amounts of equity securities borrow and loan contracts and are marked-to-market daily in accordance with standard industry practices which approximate fair value.

Investments, cost: The Company’s non-marketable equity securities are investments in privately held companies without readily determinable market values. Due to the absence of quoted market prices, the inherent lack of liquidity and the fact that inputs used to measure fair value are unobservable and require management’s judgment. As there is no readily determinable fair value, the carrying amount of these investments minus impairment approximates the fair value. The cost will be adjusted upwards or downwards in accordance with observable market transactions and is recorded in the line item “Other general and administrative” in the statements of operations. Under the fair value hierarchy, the investments, cost is classified as level 3.

Payables: Payables to customers, payables to non-customers, drafts payable, payables to broker-dealers and clearing organizations, accounts payable and accrued liabilities, and taxes payable are recorded at amounts that approximate fair value due to their short-term nature and are classified as level 2 under the fair value hierarchy.

Deferred contract incentive: The carrying amount of the deferred contract incentive approximates fair value due to the relative short-term nature of the liability. Under the fair value hierarchy, the deferred contract incentive is classified as level 2.

Long-term debt: The carrying amount of the loan and mortgage with East West Bank approximates fair value as they reflect terms that approximate current market terms for similar arrangements. Under the fair value hierarchy, the loan and mortgage are classified as level 2.