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Assets and Liabilities, at Fair Value (Notes)
 9 Months Ended
Jun. 30, 2015
Assets and Liabilities, at Fair Value [Abstract]  
Fair Value Disclosures [Text Block]
Assets and Liabilities, at Fair Value
The Company’s financial and nonfinancial assets and liabilities reported at fair value are included in the following captions on the condensed consolidated balance sheets:
•
Cash and cash equivalents
•
Cash, securities and other assets segregated under federal and other regulations
•
Deposits and receivables from exchange-clearing organizations, broker-dealers, clearing organizations and counterparties
•
Financial instruments owned
•
Physical commodities inventory
•
Accounts payable and other accrued liabilities
•
Payables to customers
•
Payables to broker-dealers, clearing organizations and counterparties
•
Financial instruments sold, not yet purchased
Fair Value Hierarchy
The majority of financial assets and liabilities on the condensed consolidated balance sheets are reported at fair value. Cash is reported at the balance held at financial institutions. Cash equivalents includes money market funds, which are valued at period-end at the net asset value provided by the fund’s administrator, and certificates of deposit, which are stated at cost plus accrued interest, which approximates fair value. Cash, securities and other assets segregated under federal and other regulations include the value of cash collateral as well as the value of other pledged investments, primarily U.S. Treasury bills and obligations issued by government sponsored entities and commodities warehouse receipts. Deposits with and receivables from exchange-clearing organizations and broker-dealers, clearing organizations and counterparties and payable to customers and broker-dealers, clearing organizations and counterparties include the value of cash collateral as well as the value of money market funds and other pledged investments, primarily U.S. Treasury bills and obligations issued by government sponsored entities. These balances also include the fair value of exchange-traded futures and options on futures and exchange-cleared swaps and options determined by prices on the applicable exchange. Financial instruments owned and sold, not yet purchased include the value of U.S. and foreign government obligations, corporate debt securities, derivative financial instruments, commodities and mutual funds. The fair value of exchange common stock is determined by quoted market prices, and the fair value of exchange memberships is determined by recent sale transactions. Physical commodities inventory includes precious metals that are a part of the trading activities of the regulated broker-dealer subsidiary and is recorded at fair value using spot prices. The carrying value of receivables from customers, net and notes receivable, net approximates fair value, given their short duration. Payables to lenders under loans carry variable rates of interest and thus approximate fair value. The fair value of the Company’s senior unsecured notes is estimated to be $47.1 million (carrying value of $45.5 million) as of June 30, 2015, based on the transaction prices at public exchanges for this issuance.
As part of the acquisition of G.X. Clarke & Co. (“G.X. Clarke”) (see Note 17), the Company acquired amounts receivable from and payable to broker-dealers, clearing organizations and counterparties in connection with U.S. Treasury obligations, U.S. Government agency obligations, and agency mortgage-backed obligations. Receivables from broker-dealers, clearing organizations and counterparties primarily include amounts receivable for securities sold but not yet delivered by the Company on settlement date (“fails-to-deliver”) and net receivables arising from unsettled trades. Payables to broker-dealers, clearing organizations and counterparties primarily include amounts payable for securities purchased, but not yet received by the Company on settlement date (“fails-to-receive”), net payables arising from unsettled trades and bonds loaned transactions. Due to their short-term nature, receivables from and payables to broker-dealers, clearing organizations and counterparties approximate fair value.
Also as part of the acquisition of G.X. Clarke (see Note 17), the Company acquired a significant amount of trading assets and liabilities. G.X. Clarke’s trading activities consists primarily of securities trading in connection with U.S. Treasury obligations, U.S. Government agency obligations, and agency mortgage-backed obligations. The acquired assets and liabilities, including derivatives, are recorded on a trade date basis at fair value.
The fair value estimates presented in the condensed consolidated financial statements are based on pertinent information available to management as of June 30, 2015 and September 30, 2014. Although management is not aware of any factors that would significantly affect the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these condensed consolidated financial statements since that date and current estimates of fair value may differ significantly from the amounts presented in the condensed consolidated financial statements.
Cash equivalents, securities, commodities warehouse receipts, derivative financial instruments, commodities leases, exchange common stock and contingent liabilities are carried at fair value, on a recurring basis, and are classified and disclosed into three levels in the fair value hierarchy. Except as disclosed in Note 6, the Company did not have any fair value adjustments for assets or liabilities measured at fair value on a non-recurring basis during the nine months ended June 30, 2015. The three levels of the fair value hierarchy under the Fair Value Measurements and Disclosures Topic of the ASC are:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 - Quoted prices for identical or similar assets or liabilities in markets that are less active, that is, markets in which there are few transactions for the asset or liability that are observable for substantially the full term; and
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).
The following tables set forth the Company’s financial and nonfinancial assets and liabilities accounted for at fair value, on a recurring basis, as of June 30, 2015 and September 30, 2014 by level in the fair value hierarchy. There were no assets or liabilities that were measured at fair value on a nonrecurring basis as of June 30, 2015 and September 30, 2014.
 
June 30, 2015
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
(1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Unrestricted cash equivalents - certificate of deposits
$
1.9

 
$
—

 
$
—

 
$
—

 
$
1.9

Commodities warehouse receipts
18.9

 
—

 
—

 
—

 
18.9

U.S. government obligations
—

 
492.9

 
—

 
—

 
492.9

Securities and other assets segregated under federal and other regulations
18.9

 
492.9

 
—

 
—

 
511.8

Money market funds
289.7

 
—

 
—

 
—

 
289.7

U.S. government obligations
—

 
478.2

 
—

 
—

 
478.2

Derivatives
3,063.2

 
—

 
—

 
(2,828.3
)
 
234.9

Deposits and receivables from exchange-clearing organizations
3,352.9

 
478.2

 
—

 
(2,828.3
)
 
1,002.8

Foreign government obligations
—

 
1.3

 
—

 
—

 
1.3

Derivatives
304.6

 
1.5

 
—

 
(323.6
)
 
(17.5
)
Deposits and receivables from broker-dealers, clearing organizations and counterparties - derivatives
304.6

 
2.8

 
—

 
(323.6
)
 
(16.2
)
Common and preferred stock and American Depositary Receipts (“ADRs”)
22.1

 
1.5

 
0.5

 
—

 
24.1

Exchangeable foreign ordinary equities and ADRs
67.3

 
5.0

 
—

 
—

 
72.3

Corporate and municipal bonds
16.0

 
2.9

 
3.5

 
—

 
22.4

U.S. government obligations
—

 
479.6

 
—

 
—

 
479.6

Foreign government obligations
—

 
10.5

 
—

 
—

 
10.5

Derivatives
365.1

 
1,103.4

 
—

 
(1,428.4
)
 
40.1

Commodities leases
—

 
93.9

 
—

 
(92.7
)
 
1.2

Exchange firm common stock
5.6

 
—

 
—

 
—

 
5.6

Mutual funds and other
1.9

 
—

 
—

 
—

 
1.9

Mortgage-backed securities
—

 
652.3

 
—

 
—

 
652.3

Financial instruments owned
478.0

 
2,349.1

 
4.0

 
(1,521.1
)
 
1,310.0

Physical commodities inventory - precious metals
14.0

 
—

 
—

 
—

 
14.0

Total assets at fair value
$
4,170.3

 
$
3,323.0

 
$
4.0

 
$
(4,673.0
)
 
$
2,824.3

Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and other accrued liabilities - contingent liabilities
$
—

 
$
—

 
$
3.3

 
$
—

 
$
3.3

Payable to broker-dealers, clearing organizations and counterparties - derivatives
3,611.9

 
1.4

 
—

 
(3,613.3
)
 
—

Common and preferred stock and ADRs
24.1

 
0.4

 
—

 
—

 
24.5

Exchangeable foreign ordinary equities and ADRs
60.9

 
8.5

 
—

 
—

 
69.4

U.S. government obligations
—

 
321.7

 
—

 
—

 
321.7

Foreign government obligations
—

 
0.3

 
—

 
—

 
0.3

Mortgage-backed securities
—

 
0.2

 
—

 
—

 
0.2

Derivatives
357.7

 
1,192.9

 
—

 
(1,498.0
)
 
52.6

Commodities leases
—

 
128.2

 
—

 
(73.8
)
 
54.4

Financial instruments sold, not yet purchased
442.7

 
1,652.2

 
—

 
(1,571.8
)
 
523.1

Total liabilities at fair value
$
4,054.6

 
$
1,653.6

 
$
3.3

 
$
(5,185.1
)
 
$
526.4

 
(1)
Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.
 
September 30, 2014
(in millions)
Level 1
 
Level 2
 
Level 3
 
Netting and
Collateral
(1)
 
Total
Assets:
 
 
 
 
 
 
 
 
 
Unrestricted cash equivalents - certificates of deposits
$
1.5

 
$
—

 
$
—

 
$
—

 
$
1.5

Commodities warehouse receipts
14.8

 
—

 
—

 
—

 
14.8

U.S. government obligations
—

 
0.5

 
—

 
—

 
0.5

Securities and other assets segregated under federal and other regulations
14.8

 
0.5

 
—

 
—

 
15.3

Money market funds
826.8

 
—

 
—

 
—

 
826.8

U.S. government obligations
—

 
702.5

 
—

 
—

 
702.5

Derivatives
3,397.1

 
—

 
—

 
(3,671.0
)
 
(273.9
)
Deposits and receivables from exchange-clearing organizations
4,223.9

 
702.5

 
—

 
(3,671.0
)
 
1,255.4

Deposits and receivables from broker-dealers, clearing organizations and counterparties - derivatives
549.0

 
—

 
—

 
(550.1
)
 
(1.1
)
Common and preferred stock and American Depositary Receipts (“ADRs”)
66.8

 
15.0

 
0.7

 
—

 
82.5

Exchangeable foreign ordinary equities and ADRs
27.2

 
—

 
—

 
—

 
27.2

Corporate and municipal bonds
7.1

 
9.0

 
3.6

 
—

 
19.7

U.S. government obligations
—

 
0.3

 
—

 
—

 
0.3

Foreign government obligations
—

 
10.7

 
—

 
—

 
10.7

Derivatives
332.4

 
2,328.3

 
—

 
(2,616.4
)
 
44.3

Commodities leases
—

 
60.1

 
—

 
(58.0
)
 
2.1

Commodities warehouse receipts
3.6

 
—

 
—

 
—

 
3.6

Exchange firm common stock
4.8

 
—

 
—

 
—

 
4.8

Mutual funds and other
2.7

 
—

 
—

 
—

 
2.7

Financial instruments owned
444.6

 
2,423.4

 
4.3

 
(2,674.4
)
 
197.9

Total assets at fair value
$
5,233.8

 
$
3,126.4

 
$
4.3

 
$
(6,895.5
)
 
$
1,469.0

Liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and other accrued liabilities - contingent liabilities
$
—

 
$
—

 
$
5.5

 
$
—

 
$
5.5

Payable to broker-dealers, clearing organizations and counterparties - derivatives
3,469.8

 
—

 
—

 
(3,469.8
)
 
—

Common and preferred stock and ADRs
92.8

 
2.6

 
—

 
—

 
95.4

Exchangeable foreign ordinary equities and ADRs
5.8

 
—

 
—

 
—

 
5.8

Corporate and municipal bonds
2.8

 
—

 
—

 
—

 
2.8

Derivatives
327.0

 
2,257.7

 
—

 
(2,500.3
)
 
84.4

Commodities leases
—

 
176.0

 
—

 
(100.4
)
 
75.6

Financial instruments sold, not yet purchased
428.4

 
2,436.3

 
—

 
(2,600.7
)
 
264.0

Total liabilities at fair value
$
3,898.2

 
$
2,436.3

 
$
5.5

 
$
(6,070.5
)
 
$
269.5

(1)
Represents cash collateral and the impact of netting across the levels of the fair value hierarchy. Netting among positions classified within the same level is included in that level.
Realized and unrealized gains and losses are included in ‘trading gains, net’ in the condensed consolidated income statements.
Information on Level 3 Financial Assets and Liabilities
The Company’s financial assets at fair value classified in level 3 of the fair value hierarchy as of June 30, 2015 and September 30, 2014 are summarized below:
(in millions)
June 30, 2015
 
September 30, 2014
Total level 3 assets
$
4.0

 
$
4.3

Level 3 assets for which the Company bears economic exposure
$
4.0

 
$
4.3

Total assets
$
4,486.8

 
$
3,039.7

Total financial assets at fair value
$
2,824.3

 
$
1,469.0

Total level 3 assets as a percentage of total assets
0.1
%
 
0.1
%
Level 3 assets for which the Company bears economic exposure as a percentage of total assets
0.1
%
 
0.1
%
Total level 3 assets as a percentage of total financial assets at fair value
0.1
%
 
0.3
%
The following tables set forth a summary of changes in the fair value of the Company’s level 3 financial assets and liabilities during the three months ended June 30, 2015 and 2014, including a summary of unrealized gains (losses) during the respective periods on the Company’s level 3 financial assets and liabilities still held as of June 30, 2015.
 
Level 3 Financial Assets and Financial Liabilities
For the Three Months Ended June 30, 2015
 
 
(in millions)
Balances at
beginning of
period
 
Realized gains
(losses) during
period
 
Unrealized
gains (losses)
during period
 
Purchases/issuances
 
Settlements
 
Transfers in
or (out) of
Level 3
 
Balances at
end of period
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock and ADRs
$
0.5

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
0.5

Corporate and municipal bonds
3.6

 
—

 
(0.1
)
 
—

 
—

 
—

 
3.5

 
$
4.1

 
$
—

 
$
(0.1
)
 
$
—

 
$
—

 
$
—

 
$
4.0

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liabilities
$
3.1

 
$
—

 
$
0.2

 
$
—

 
$
—

 
$
—

 
$
3.3

 
Level 3 Financial Assets and Financial Liabilities
For the Nine Months Ended June 30, 2015
 
 
(in millions)
Balances at
beginning of
period
 
Realized gains
(losses) during
period
 
Unrealized
gains (losses)
during period
 
Purchases/issuances
 
Settlements
 
Transfers in
or (out) of
Level 3
 
Balances at
end of period
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock and ADRs
$
0.7

 
$
—

 
$
(0.2
)
 
$
—

 
$
—

 
$
—

 
$
0.5

Corporate and municipal bonds
3.6

 
—

 
(0.1
)
 
—

 
—

 
—

 
3.5

 
$
4.3

 
$
—

 
$
(0.3
)
 
$
—

 
$
—

 
$
—

 
$
4.0

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liabilities
$
5.5

 
$
—

 
$
0.4

 
$
1.5

 
$
(4.1
)
 
$
—

 
$
3.3

 
Level 3 Financial Assets and Financial Liabilities
For the Three Months Ended June 30, 2014
 
 
(in millions)
Balances at
beginning of
period
 
Realized gains
(losses) during
period
 
Unrealized
gains (losses)
during period
 
Purchases/issuances
 
Settlements
 
Transfers in
or (out) of
Level 3
 
Balances at
end of period
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock and ADRs
$
0.7

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
0.7

Corporate and municipal bonds
3.4

 
—

 
—

 
—

 
—

 
—

 
3.4

 
$
4.1

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
4.1

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liabilities
$
9.2

 
$
—

 
$
(0.2
)
 
$
0.5

 
$
(1.5
)
 
$
—

 
$
8.0

 
Level 3 Financial Assets and Financial Liabilities
For the Nine Months Ended June 30, 2014
 
 
(in millions)
Balances at
beginning of
period
 
Realized gains
(losses) during
period
 
Unrealized
gains (losses)
during period
 
Purchases/issuances
 
Settlements
 
Transfers in
or (out) of
Level 3
 
Balances at
end of period
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock and ADRs
$
0.7

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
0.7

Corporate and municipal bonds
3.5

 
—

 
(0.1
)
 
—

 
—

 
—

 
3.4

 
$
4.2

 
$
—

 
$
(0.1
)
 
$
—

 
$
—

 
$
—

 
$
4.1

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
Contingent liabilities
$
9.6

 
$
—

 
$
0.1

 
$
0.5

 
$
(2.2
)
 
$
—

 
$
8.0


In accordance with the Fair Value Measurements Topic of the ASC, the Company has estimated on a recurring basis each period the fair value of debentures issued by a single asset owning company of Suriwongse Hotel located in Chiang Mai, Thailand. As of June 30, 2015, the Company’s investment in the hotel is $3.5 million, and included within the corporate and municipal bonds classification in the level 3 financial assets and financial liabilities tables. The Company has classified its investment in the hotel within level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which include projected cash flows. These cash flows are discounted employing present value techniques. The Company estimates the fair value of its investment in these debentures by using a management-developed forecast, which is based on the income approach. There has been no significant change in the fair value of the debentures, and no additional loss has been recognized during the three months ended June 30, 2015 and 2014.
The Company is required to make additional future cash payments based on certain financial performance measures of its acquired businesses. During the nine months ended June 30, 2015, the Company paid $3.4 million, related to the final balance of contingent liability for the Hencorp acquisition. The Company is required to remeasure the fair value of the cash earnout arrangements on a recurring basis in accordance with the guidance in the Business Combinations Topic of the ASC. The Company has classified its liabilities for the contingent earnout arrangements within level 3 of the fair value hierarchy because the fair value is determined using significant unobservable inputs, which include projected cash flows. The estimated fair value of the contingent purchase consideration is based upon management-developed forecasts, a level 3 input in the fair value hierarchy. These cash flows are discounted employing present value techniques in arriving at fair value. The discount rate was developed using market participant company data and there have been no significant changes in the discount rate environment. From the dates of acquisition to June 30, 2015, certain acquisitions have had changes in the estimates of undiscounted cash flows, based on actual performances fluctuating from estimates. The fair value of the contingent consideration increased $0.2 million and decreased $0.2 million during the three months ended June 30, 2015 and 2014, respectively, and increased $0.4 million and $0.1 million during the nine months ended June 30, 2015 and 2014, respectively, with the corresponding amount classified as ‘other expense’ in the condensed consolidated income statements.
The Company reports transfers in and out of levels 1, 2 and 3, as applicable, using the fair value of the securities as of the beginning of the reporting period in which the transfer occurred. The Company did not have any transfers between level 1 and level 2 fair value measurements during the three and nine months ended June 30, 2015.
The Company has also classified equity investments in exchange firms’ common stock not pledged for clearing purposes as available-for-sale. The investments are recorded at fair value, with unrealized gains and losses recorded, net of taxes, as a component of other comprehensive income (“OCI”) until realized. As of June 30, 2015, the cost and fair value of all the equity investments in exchange firms was $3.7 million and $5.6 million, respectively. As of September 30, 2014, the cost and fair value of the equity investments in exchange firms was $3.7 million and $4.8 million, respectively.
In June 2015, the Company sold shares of common stock in the Intercontinental Exchange, Inc. (“ICE”). The Company was required to hold these ICE shares for clearing purposes and, as a result, the shares were being held at cost on the condensed consolidated balance sheet. The Company recorded a receivable for the proceeds of $2.1 million, which was received in July 2015, and recognized a gain of $1.2 million before taxes, during the nine months ended June 30, 2015, in connection with the sale of these shares.
The Company recorded unrealized gains of $3.4 million, net of income tax expense of $2.0 million as of June 30, 2015, and unrealized gains of $0.7 million, net of income tax expense of $0.4 million as of September 30, 2014, in OCI related to U.S. government obligations and the remaining equity investments in exchange firms classified as available-for-sale securities.
The following tables summarize the amortized cost basis, the aggregate fair value and gross unrealized holding gains and losses of the Company’s investment securities classified as available-for-sale as of June 30, 2015 and September 30, 2014:
June 30, 2015
Amounts included in deposits with and receivables from exchange-clearing organizations and securities segregated:
 
Amortized
Cost
 
Unrealized Holding
 
Estimated
Fair Value
(in millions)
Gains
 
(Losses)
 
U.S. government obligations
$
929.7

 
$
3.5

 
$
—

 
$
933.2

September 30, 2014
Amounts included in deposits with and receivables from exchange-clearing organizations:
 
Amortized
Cost
 
Unrealized Holding(1)
 
Estimated
Fair Value
(in millions)
Gains
 
(Losses)
 
U.S. government obligations
$
666.8

 
$
—

 
$
—

 
$
666.8

(1) Unrealized gain/loss on U.S. government obligations as of September 30, 2014, was less than $0.1 million.
As of June 30, 2015 and September 30, 2014, investments in debt securities classified as available-for-sale (“AFS”) mature as follows:
June 30, 2015
 
Due in
 
Estimated
Fair Value
(in millions)
Less than 1 year
 
1 year or more
 
U.S. government obligations
$
451.5

 
$
481.7

 
$
933.2

September 30, 2014
 
Due in
 
Estimated
Fair Value
(in millions)
Less than 1 year
 
1 year or more
 
U.S. government obligations
$
287.6

 
$
379.2

 
$
666.8

There were no sales of AFS securities during the three and nine months ended June 30, 2015 and 2014, and as a result, no realized gains or losses were recorded for the three and nine months ended June 30, 2015 and 2014.
For the purposes of the maturity schedule, mortgage-backed securities, which are not due at a single maturity date, have been allocated over maturity groupings based on the expected maturity of the underlying collateral. Mortgage-backed securities may mature earlier than their stated contractual maturities because of accelerated principal repayments of the underlying loans.