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Fair value measurements

9 Months Ended

Sep. 30, 2021

Securities owned, securities sold but not yet purchased, investments and derivative contracts are carried at fair value with changes in fair value recognized in earnings each period.

Valuation Techniques

A description of the valuation techniques applied, and inputs used in measuring the fair value of the Company's financial instruments, is as follows:

U.S. Government Obligations

U.S. Treasury securities are valued using quoted market prices obtained from active market makers and inter-dealer brokers.

U.S. Agency Obligations

U.S. agency securities consist of agency issued debt securities and mortgage pass-through securities. Non-callable agency issued debt securities are generally valued using quoted market prices. Callable agency issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. The fair value of mortgage pass-through securities is model driven with respect to spreads of the comparable to-be-announced ("TBA") security.

Sovereign Obligations

The fair value of sovereign obligations is determined based on quoted market prices when available or a valuation model that generally utilizes interest rate yield curves and credit spreads as inputs.

Corporate Debt and Other Obligations

The fair value of corporate bonds is estimated using recent transactions, broker quotations and bond spread information.

Mortgage and Other Asset-Backed Securities

The Company values non-agency securities collateralized by home equity and various other types of collateral based on external pricing and spread data provided by independent pricing services. When specific external pricing is not observable, the valuation is based on yields and spreads for comparable bonds.

Municipal Obligations

The fair value of municipal obligations is estimated using recently executed transactions, broker quotations, and bond spread information.

Convertible Bonds

The fair value of convertible bonds is estimated using recently executed transactions and dollar-neutral price quotations, where observable. When observable price quotations are not available, fair value is determined based on cash flow models using yield curves and bond spreads as key inputs.

Corporate Equities

Equity securities and options are generally valued based on quoted prices from the exchange or market where traded. To the extent quoted prices are not available, fair values are generally derived using bid/ask spreads.

Auction Rate Securities ("ARS")

Background

In February 2010, Oppenheimer finalized settlements with each of the New York Attorney General's office ("NYAG") and the Massachusetts Securities Division ("MSD") and, together (the "Regulators") concluding proceedings by the Regulators concerning Oppenheimer's marketing and sale of ARS. Pursuant to the settlements with the Regulators, Oppenheimer agreed to extend offers to repurchase ARS from certain of its clients. As of September 30, 2021, the Company has completed its ARS purchase obligations related to the settlements with the Regulators. In addition to the settlements with the Regulators, Oppenheimer had also reached settlements of and received adverse awards in legal proceedings with various clients where the Company was obligated to purchase ARS. As of September 30, 2021, the Company no longer had any obligations to purchase ARS from such legal settlements or adverse awards.

As of September 30, 2021, the Company owned $31.8 million of ARS. This amount represents the unredeemed or unsold amount that the Company holds as a result of ARS buybacks pursuant to the settlements with the Regulators and legal settlements and awards referred to above.

Valuation

The Company’s ARS owned referred to above have, for the most part, been subject to issuer tender offers. The Company has valued the ARS securities owned at the tender offer price and categorized them in Level 3 of the fair value hierarchy due to the illiquid nature of the securities and the period of time since the last tender offer. The fair value of ARS is particularly sensitive to movements in interest rates. However, an increase or decrease in short-term interest rates may or may not result in a higher or lower tender offer in the future or the tender offer price may not provide a reasonable estimate of the fair value of the securities. In such cases, other valuation techniques might be necessary.

As of September 30, 2021, the Company had a valuation adjustment totaling $5.2 million relating to ARS owned (which is included as a reduction to securities owned on the condensed consolidated balance sheet).

Investments

In its role as general partner in certain hedge funds and private equity funds, the Company, through its subsidiaries, holds direct investments in such funds. The Company uses the net asset value of the underlying fund as a basis for estimating the fair value of its investment.

The following table provides information about the Company's investments in Company-sponsored funds as of September 30, 2021:


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	1,138	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds (2)	4,432		4,379		N/A	N/A
	$	5,570	$	4,379

(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies

(2) Includes private equity funds and private equity fund of funds with diversified portfolios focusing on but not limited to

technology companies, venture capital and global natural resources

The following table provides information about the Company's investments in Company-sponsored funds as of December 31, 2020:


(Expressed in thousands)
	Fair Value		Unfunded Commitments		Redemption Frequency	Redemption Notice Period
Hedge funds (1)	$	1,126	$	—	Quarterly - Annually	30 - 120 Days
Private equity funds (2)	3,710		1,238		N/A	N/A
	$	4,836	$	1,238

(1) Includes investments in hedge funds and hedge fund of funds that pursue long/short, event-driven, and activist strategies.

(2) Includes private equity funds and private equity fund of funds with a focus on diversified portfolios, real estate and

global natural resources.

During 2020, the Company made an investment in a financial technologies firm. The Company elected the fair value option for this investment and it is included in other assets on the condensed consolidated balance sheet. The Company determined the fair value of the investment based on an implied market-multiple approach and observable market data, including comparable company transactions. As of September 30, 2021, the fair value of the investment was $4.8 million and was categorized in Level 2 of the fair value hierarchy.

Assets and Liabilities Measured at Fair Value

The Company's assets and liabilities, recorded at fair value on a recurring basis as of September 30, 2021 and December 31, 2020, have been categorized based upon the above fair value hierarchy as follows:

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2021:


(Expressed in thousands)
	Fair Value Measurements as of September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets

Deposits with clearing organizations	$	27,899	$	—	$	—	$	27,899
Securities owned:
U.S. Treasury securities	402,698		—		—		402,698
U.S. Agency securities	—		7,849		—		7,849
Sovereign obligations	—		3,657		—		3,657
Corporate debt and other obligations	—		17,983		—		17,983
Mortgage and other asset-backed securities	—		2,609		—		2,609
Municipal obligations	—		28,393		—		28,393
Convertible bonds	—		17,152		—		17,152
Corporate equities	48,744		—		—		48,744
Money markets	794		—		—		794
Auction rate securities	—		—		31,804		31,804
Securities owned, at fair value	452,236		77,643		31,804		561,683
Investment (1)	—		4,771		—		4,771

Derivative contracts:

TBAs	—		526		—		526

Derivative contracts, total	—		526		—		526
Total	$	480,135	$	82,940	$	31,804	$	594,879
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	43,972	$	—	$	—	$	43,972
U.S. Agency securities	—		4		—		4

Corporate debt and other obligations	—		10,286		—		10,286
Mortgage and other asset-backed securities	—		4		—		4

Convertible bonds	—		13,647		—		13,647
Corporate equities	16,232		—		—		16,232

Securities sold but not yet purchased, at fair value	60,204		23,941		—		84,145

Derivative contracts:
Futures	11		—		—		11

TBAs	—		520		—		520


Derivative contracts, total	11		520		—		531
Total	$	60,215	$	24,461	$	—	$	84,676

(1) Included in other assets on the condensed consolidated balance sheet.

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2020:


(Expressed in thousands)
	Fair Value Measurements as of December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets


Deposits with clearing organizations	$	23,991	$	—	$	—	$	23,991
Securities owned:
U.S. Treasury securities	448,312		—		—		448,312
U.S. Agency securities	—		24,616		—		24,616
Sovereign obligations	—		367		—		367
Corporate debt and other obligations	—		23,977		—		23,977
Mortgage and other asset-backed securities	—		3,103		—		3,103
Municipal obligations	—		25,190		—		25,190
Convertible bonds	—		17,497		—		17,497
Corporate equities	36,554		—		—		36,554
Money markets	200		—		—		200
Auction rate securities	—		—		30,701		30,701
Securities owned, at fair value	485,066		94,750		30,701		610,517
Investment (1)	—		4,181		—		4,181

Derivative contracts:
TBAs	—		15		—		15


Total	$	509,057	$	98,946	$	30,701	$	638,704
Liabilities
Securities sold but not yet purchased:
U.S. Treasury securities	$	93,261	$	—	$	—	$	93,261
U.S. Agency securities	—		9		—		9
Sovereign obligations	—		623		—		623
Corporate debt and other obligations	—		5,283		—		5,283


Convertible bonds	—		9,103		—		9,103
Corporate equities	17,892		—		—		17,892

Securities sold but not yet purchased, at fair value	111,153		15,018		—		126,171

Derivative contracts:
Futures	22		—		—		22

TBAs	—		3		—		3
ARS purchase commitments	—		—		195		195
Derivative contracts, total	22		3		195		220
Total	$	111,175	$	15,021	$	195	$	126,391

(1) Included in other assets on the condensed consolidated balance sheet.

The following tables present changes in Level 3 assets and liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2021 and 2020:


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended September 30, 2021
			Total Realized
	Beginning		and Unrealized		Purchases		Sales and		Transfers		Ending
	Balance		Losses(3)(4)		and Issuances		Settlements		In (Out)		Balance
Assets
Auction rate securities (1)	$	31,422	$	(68)	$	450	$	—	$	—	$	31,804

Liabilities
ARS Purchase Commitments (2)	66		—		—		(66)		—		—

(1) Represents auction rate securities that failed in the auction rate market.

(2) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.

(3) Included in principal transactions in the condensed consolidated income statement.

(4) Unrealized losses are attributable to assets or liabilities that are still held at the reporting date.


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Three Months Ended September 30, 2020
			Total Realized
	Beginning		and Unrealized		Purchases		Sales and		Transfers		Ending
	Balance		Gains (Losses)(3)(4)		and Issuances		Settlements		In (Out)		Balance
Assets
Auction rate securities (1)	$	29,566	$	(165)	$	1,300	$	—	$	—	$	30,701

Liabilities
ARS Purchase Commitments (2)	332		140		—		—		—		192

(1) Represents auction rate securities that failed in the auction rate market.

(2) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.

(3) Included in principal transactions in the condensed consolidated income statement.

(4) Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Nine Months Ended September 30, 2021
			Total Realized
	Beginning		and Unrealized		Purchases		Sales and		Transfers		Ending
	Balance		Losses(3)(4)		and Issuances		Settlements		In (Out)		Balance
Assets
Auction rate securities (1)	$	30,701	$	(197)	$	2,325	$	(1,025)	$	—	$	31,804

Liabilities
ARS Purchase Commitments (2)	195		(1)		—		(196)		—		—

(1) Represents auction rate securities that failed in the auction rate market.

(2) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.

(3) Included in principal transactions in the condensed consolidated income statement.

(4) Unrealized losses are attributable to assets or liabilities that are still held at the reporting date.


(Expressed in thousands)
	Level 3 Assets and Liabilities
	For the Nine Months Ended September 30, 2020
			Total Realized
	Beginning		and Unrealized		Purchases		Sales and		Transfers		Ending
	Balance		Gains (Losses)(4)(5)		and Issuances		Settlements		In (Out)		Balance
Assets
Auction rate securities (1)(2)	$	—	$	(165)	$	1,300	$	—	$	29,566	$	30,701

Liabilities
ARS Purchase Commitments (1)(3)	—		140		—		—		332		192

(1) Transferred to Level 3 of the fair value hierarchy due to the illiquid nature of the securities as result of the length of time since the last tender offer.

(2) Represents auction rate securities that failed in the auction rate market.

(3) Represents the difference in principal and fair value for auction rate securities purchase commitments outstanding at the end of the period.

(4) Included in principal transactions in the condensed consolidated income statement.

(5) Unrealized gains (losses) are attributable to assets or liabilities that are still held at the reporting date.

Financial Instruments Not Measured at Fair Value

The table below presents the carrying value, fair value and fair value hierarchy category of certain financial instruments that are not measured at fair value on the condensed consolidated balance sheets. The table below excludes non-financial assets and liabilities (e.g., right-of-use lease assets, lease liabilities, furniture, equipment and leasehold improvements and accrued compensation).

The carrying value of financial instruments not measured at fair value categorized in the fair value hierarchy as Level 1 or Level 2 (e.g., cash and receivables from customers) approximates fair value because of the relatively short-term nature of the underlying assets. The fair value of the Company's senior secured notes, categorized in Level 2 of the fair value hierarchy, is based on quoted prices from the market in which the notes trade.

Assets and liabilities not measured at fair value as of September 30, 2021:


(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	140,819	$	140,819	$	—	$	—	$	140,819
Deposits with clearing organization	57,196		57,196		—		—		57,196
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	119,616		—		119,616		—		119,616
Receivables from brokers	34,143		—		34,143		—		34,143
Securities failed to deliver	52,402		—		52,402		—		52,402
Clearing organizations	32,914		—		32,914		—		32,914
Other	3,444		—		3,444		—		3,444
	242,519		—		242,519		—		242,519
Receivable from customers	1,273,445		—		1,273,445		—		1,273,445

Notes receivable, net	55,098		—		55,098		—		55,098
Investments (1)	93,175		—		93,175		—		93,175

(1) Included in other assets on the condensed consolidated balance sheet.


(Expressed in thousands)			Fair Value Measurement: Liabilities
	Carrying Value		Level 1		Level 2		Level 3		Total

Bank call loans	$	72,300	$	—	$	72,300	$	—	$	72,300
Payables to brokers, dealers and clearing organizations:
Securities loaned	286,180		—		286,180		—		286,180
Payable to brokers	15,379		—		15,379		—		15,379
Securities failed to receive	22,493		—		22,493		—		22,493

	324,052		—		324,052		—		324,052
Payables to customers	551,419		—		551,419		—		551,419
Securities sold under agreements to repurchase	343,925		—		343,925		—		343,925
Senior secured notes	125,000		—		131,263		—		131,263

Assets and liabilities not measured at fair value as of December 31, 2020:


(Expressed in thousands)			Fair Value Measurement: Assets
	Carrying Value		Level 1		Level 2		Level 3		Total
Cash	$	35,424	$	35,424	$	—	$	—	$	35,424
Deposits with clearing organization	59,352		59,352		—		—		59,352
Receivable from brokers, dealers and clearing organizations:
Securities borrowed	110,932		—		110,932		—		110,932
Receivables from brokers	30,133		—		30,133		—		30,133
Securities failed to deliver	17,840		—		17,840		—		17,840
Clearing organizations	28,955		—		28,955		—		28,955
Other	15,622		—		15,622		—		15,622
	203,482		—		203,482		—		203,482
Receivable from customers	1,110,835		—		1,110,835		—		1,110,835

Notes receivable, net	46,161		—		46,161		—		46,161
Investments (1)	85,552		—		85,552		—		85,552

(1) Included in other assets on the condensed consolidated balance sheet.


(Expressed in thousands)			Fair Value Measurement: Liabilities
	Carrying Value		Level 1		Level 2		Level 3		Total

Bank call loans	$	82,000	$	—	$	82,000	$	—	$	82,000
Payables to brokers, dealers and clearing organizations:
Securities loaned	249,499		—		249,499		—		249,499
Payable to brokers	4,102		—		4,102		—		4,102
Securities failed to receive	6,218		—		6,218		—		6,218
Other	70		—		70		—		70
	259,889		—		259,889		—		259,889
Payables to customers	502,807		—		502,807		—		502,807
Securities sold under agreements to repurchase	342,438		—		342,438		—		342,438
Senior secured notes	125,000		—		127,033		—		127,033

Fair Value Option

The Company elected the fair value option for securities sold under agreements to repurchase ("repurchase agreements") and securities purchased under agreements to resell ("reverse repurchase agreements") that do not settle overnight or have an open settlement date. The Company has elected the fair value option for these instruments to reflect more accurately market and economic events in its earnings and to mitigate a potential mismatch in earnings caused by using different measurement attributes (i.e. fair value versus carrying value) for certain assets and liabilities. As of September 30, 2021, the Company did not have any repurchase agreements and reverse repurchase agreements that do not settle overnight or have an open settlement date.

Derivative Instruments and Hedging Activities

The Company transacts, on a limited basis, in exchange traded and over-the-counter derivatives for both asset and liability management as well as for trading and investment purposes. Risks managed using derivative instruments include interest rate risk and, to a lesser extent, foreign exchange risk. All derivative instruments are measured at fair value and are recognized as either assets or liabilities on the condensed consolidated balance sheet.

Foreign exchange hedges

From time to time, the Company also utilizes forward and options contracts to hedge the foreign currency risk associated with compensation obligations to Oppenheimer Israel (OPCO) Ltd. employees denominated in New Israeli Shekel ("NIS"). Such hedges have not been designated as accounting hedges. Unrealized gains and losses on foreign exchange forward contracts are recorded in other assets on the condensed consolidated balance sheet and other income in the condensed consolidated income statement.

Derivatives used for trading and investment purposes

Futures contracts represent commitments to purchase or sell securities or other commodities at a future date and at a specified price. Market risk exists with respect to these instruments. Notional or contractual amounts are used to express the volume of these transactions and do not represent the amounts potentially subject to market risk. The Company uses futures contracts, including U.S. Treasury notes, Federal Funds, general collateral futures and Eurodollar contracts primarily as an economic hedge of interest rate risk associated with government trading activities. Unrealized gains and losses on futures contracts are recorded on the condensed consolidated balance sheet in payable to brokers, dealers and clearing organizations and in the condensed consolidated income statement as principal transactions revenue, net.

To-be-announced securities

The Company also transacts in pass-through mortgage-backed securities eligible to be sold in the TBA market as economic hedges against mortgage-backed securities that it owns or has sold but not yet purchased. TBAs provide for the forward or delayed delivery of the underlying instrument with settlement up to 180 days. The contractual or notional amounts related to these financial instruments reflect the volume of activity and do not reflect the amounts at risk. Net unrealized gains and losses on TBAs are recorded on the condensed consolidated balance sheet in receivable from brokers, dealers and clearing organizations or payable to brokers, dealers and clearing organizations and in the condensed consolidated income statement as principal transactions revenue, net.

The notional amounts and fair values of the Company's derivatives as of September 30, 2021 and December 31, 2020 by product were as follows:


(Expressed in thousands)
	Fair Value of Derivative Instruments as of September 30, 2021
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments (1)
Other contracts	TBAs	$	24,100	$	526


		$	24,100	$	526
Liabilities:
Derivatives not designated as hedging instruments (1)
Commodity contracts	Futures	$	2,585,000	$	10

Other contracts	TBAs	24,100		520



		$	2,609,100	$	530

(1)See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the

related amounts are not offset.


(Expressed in thousands)
	Fair Value of Derivative Instruments as of December 31, 2020
	Description	Notional		Fair Value
Assets:
Derivatives not designated as hedging instruments (1)
Other contracts	TBAs	$	7,970	$	15

		$	7,970	$	15
Liabilities:
Derivatives not designated as hedging instruments (1)
Commodity contracts	Futures	$	3,440,000	$	22


Other contracts	TBAs	7,936		3

	ARS purchase commitments	1,313		195
		$	3,449,249	$	220

(1)See "Derivative Instruments and Hedging Activities" above for a description of derivative financial instruments. Such derivative instruments are not subject to master netting agreements, thus the related amounts are not offset.

The following table presents the location and fair value amounts of the Company's derivative instruments and their effect in the condensed consolidated income statements for the three and nine months ended September 30, 2021 and 2020:

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Three Months Ended September 30, 2021

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain (Loss)

Commodity contracts

Futures

Principal transactions revenue

(13)

Other contracts

TBAs

Principal transactions revenue

(15)

Purchase commitments

Principal transactions revenue

(497)

(525)

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Three Months Ended September 30, 2020

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain (Loss)

Commodity contracts

Futures

Principal transactions revenue

(15)

Other contracts

Foreign exchange forward contracts

Other revenue

TBAs

Principal transactions revenue

(17)

ARS purchase commitments

Principal transactions revenue

140

175

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Nine Months Ended September 30, 2021

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain (Loss)

Commodity contracts

Futures

Principal transactions revenue

482

Other contracts

Foreign exchange forward contracts

Other revenue

(8)

TBAs

Principal transactions revenue

146

Purchase commitments

Principal transactions revenue

(987)

ARS purchase commitments

Principal transactions revenue

(1)

(368)

(Expressed in thousands)

The Effect of Derivative Instruments in the Income Statement

For the Nine Months Ended September 30, 2020

Recognized in Income on Derivatives
(pre-tax)

Types

Description

Location

Net Gain (Loss)

Commodity contracts

Futures

Principal transactions revenue

(8,362)

Other contracts

Foreign exchange forward contracts

Other revenue

TBAs

Principal transactions revenue

(31)

ARS purchase commitments

Principal transactions revenue

831

(7,473)

- 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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