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 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 and sold, not yet purchased


•	Physical commodities inventory


•	Accounts payable and other accrued liabilities


•	Payable to broker-dealers, clearing organizations and counterparties

Fair Value Hierarchy

As required by the Fair Value Measurement Topic of the ASC, financial and nonfinancial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A market is active if there are sufficient transactions on an ongoing basis to provide current pricing information for the asset or liability, pricing information is released publicly, and price quotations do not vary substantially either over time or among market makers. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. The guidance requires the Company to consider counterparty credit risk of all parties to outstanding derivative instruments that would be considered by a market participant in the transfer or settlement of such contracts (exit price). The Company’s exposure to credit risk on derivative financial instruments relates to the portfolio of OTC derivative contracts as all exchange-traded contracts held can be settled on an active market with the credit guarantee by the respective exchange. The Company requires each counterparty to deposit margin collateral for all OTC instruments and is also required to deposit margin collateral with counterparties. The Company has assessed the nature of these deposits and used its discretion to adjust each based on the underlying credit considerations for the counterparty and determined that the collateral deposits minimize the exposure to counterparty credit risk in the evaluation of the fair value of OTC instruments as determined by a market participant.

The majority of financial assets and liabilities on the 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 and mortgage-backed securities. 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, mutual funds and investments in managed 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 $46.6 million (carrying value of $45.5 million) as of September 30, 2015, based on the transaction prices at public exchanges for the same or similar issues.

As part of the acquisition of G.X. Clarke, 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. 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, 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 herein are based on pertinent information available to management as of September 30, 2015 and 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 financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein.

Cash equivalents, securities, commodities warehouse receipts, derivative financial instruments 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. The Company did not have any fair value adjustments for assets or liabilities measured at fair value on a non-recurring basis during the years ended September 30, 2015 and 2014. The three levels of the fair value hierarchy under the Fair Value Measurement 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 1 consists of financial assets and liabilities whose fair values are estimated using quoted market prices. Included in Level 1 are money market funds, certificates of deposit, commodities warehouse receipts, common stock and American Depositary Receipts (“ADRs”), some U.S. and foreign obligations, physical precious metals commodities, equity investments in exchange firms, some mutual funds, as well as futures and options on futures contracts traded on national exchanges, exchange-cleared swaps and options which are valued using exchange closing prices, and OTC swaps and options contracts using quoted prices from national exchanges in which the Company executes transactions for customer and proprietary accounts;

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. Included in Level 2 are those financial assets and liabilities for which fair values are estimated using models or other valuation methodologies. These models are primarily industry-standard models that consider various observable inputs, including time value, yield curve, volatility factors, observable current market and contractual prices for the underlying financial instruments, as well as other relevant economic measures. Included in Level 2 are U.S. and foreign government obligations, mortgage-backed securities, some common stock and ADRs, corporate and municipal bonds, some mutual funds, investments in managed funds and OTC forwards, swaps, and options; 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). Level 3 comprises financial assets and liabilities whose fair value is estimated based on internally developed models or methodologies utilizing significant inputs that are not readily observable from objective sources. Included in Level 3 are common stock and ADRs, some corporate and municipal bonds, some other investments and contingent liabilities.

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 September 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 September 30, 2015 and 2014.



	September 30, 2015
(in millions)	Level 1		Level 2		Level 3		Netting and Collateral (1)			Total
Assets:
Unrestricted cash equivalents - certificates of deposits	$	1.3	$	—	$	—	$	—		$	1.3
Commodities warehouse receipts	22.1		—		—		—			22.1
U.S. government obligations	—		493.4		—		—			493.4
Securities and other assets segregated under federal and other regulations	22.1		493.4		—		—			515.5
Money market funds	431.8		—		—		—			431.8
U.S. government obligations	—		501.4		—		—			501.4
Derivatives	3,615.9		—		—		(3,539.7		)	76.2
Deposits and receivables from exchange-clearing organizations	4,047.7		501.4		—		(3,539.7		)	1,009.4
“To be announced” (TBA) and forward settling securities	—		1.2		—		(1.0		)	0.2
Derivatives	0.1		537.9		—		(591.1		)	(53.1		)
Deposits and receivables from broker-dealers, clearing organizations and counterparties	0.1		539.1		—		(592.1		)	(52.9		)
Common and preferred stock and ADRs	23.7		1.9		0.5		—			26.1
Exchangeable foreign ordinary equities and ADRs	82.9		6.6		—		—			89.5
Corporate and municipal bonds	26.1		2.0		3.2		—			31.3
U.S. government obligations	—		513.4		—		—			513.4
Foreign government obligations	—		12.1		—		—			12.1
Mortgage-backed securities	—		699.5		—		—			699.5
Derivatives	278.5		1,702.0		—		(1,949.9		)	30.6
Commodities leases	—		64.6		—		(57.0		)	7.6
Commodities warehouse receipts	2.8		—		—		—			2.8
Exchange firm common stock	5.6		—		—		—			5.6
Mutual funds and other	3.4		—		—		—			3.4
Financial instruments owned	423.0		3,002.1		3.7		(2,006.9		)	1,421.9
Physical commodities inventory - precious metals	15.2		—		—		—			15.2
Total assets at fair value	$	4,509.4	$	4,536.0	$	3.7	$	(6,138.7	)	$	2,910.4
Liabilities:
Accounts payable and other accrued liabilities - contingent liabilities	$	—	$	—	$	3.3	$	—		$	3.3
TBA and forward settling securities	—		2.6		—		(1.0		)	1.6
Derivatives	3,491.3		528.7		—		(4,020.0		)	—
Payables to broker-dealers, clearing organizations and counterparties	3,491.3		531.3		—		(4,021.0		)	1.6
Common and preferred stock and ADRs	18.0		0.6		—		—			18.6
Exchangeable foreign ordinary equities and ADRs	89.0		1.0		—		—			90.0
U.S. government obligations	—		341.0		—		—			341.0
Foreign government obligations	—		6.4		—		—			6.4
Mortgage-backed securities	—		2.8		—		—			2.8
Derivatives	264.0		1,723.5		—		(1,933.4		)	54.1
Commodities leases	—		99.1		—		(43.7		)	55.4
Financial instruments sold, not yet purchased	371.0		2,174.4		—		(1,977.1		)	568.3
Total liabilities at fair value	$	3,862.3	$	2,705.7	$	3.3	$	(5,998.1	)	$	573.2


(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 are 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 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 are included in that level.

Realized and unrealized gains and losses are included in ‘trading gains, net’ in the consolidated income statements.

Information on Level 3 Financial Assets and Liabilities

The Company’s financial assets at fair value classified within level 3 of the fair value hierarchy as of September 30, 2015 and 2014 are summarized below:



(in millions)	September 30, 2015			September 30, 2014
Total level 3 assets	$	3.7		$	4.3
Level 3 assets for which the Company bears economic exposure	$	3.7		$	4.3
Total assets	$	5,070.0		$	3,039.7
Total financial assets at fair value	$	2,910.4		$	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 fiscal years ended September 30, 2015 and 2014, including a summary of unrealized gains (losses) during the fiscal year ended on the Company’s level 3 financial assets and liabilities still held as of September 30, 2015.



	Level 3 Financial Assets and Financial Liabilities For the Year Ended September 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 and preferred stock and ADRs	$	0.7	$	—	$	(0.2	)	$	—	$	—		$	—	$	0.5
Corporate and municipal bonds	3.6		—		(0.4		)	—		—			—		3.2
	$	4.3	$	—	$	(0.6	)	$	—	$	—		$	—	$	3.7

(in millions)	Balances at beginning of period		Realized gains (losses) during period		Remeasurement gains (losses) during period			Acquisitions		Settlements			Transfers in or (out) of Level 3		Balances at end of period
Liabilities:
Contingent liabilities	$	5.5	$	—	$	1.8		$	0.1	$	(4.1	)	$	—	$	3.3



	Level 3 Financial Assets and Financial Liabilities For the Year Ended September 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 and preferred stock and ADRs	$	0.7	$	—	$	—		$	—	$	—		$	—	$	0.7
Corporate and municipal bonds	3.5		—		0.1			—		—			—		3.6
	$	4.2	$	—	$	0.1		$	—	$	—		$	—	$	4.3

(in millions)	Balances at beginning of period		Realized gains (losses) during period		Remeasurement gains (losses) during period			Acquisitions		Settlements			Transfers in or (out) of Level 3		Balances at end of period
Liabilities:
Contingent liabilities	$	9.6	$	—	$	(2.3	)	$	0.5	$	(2.3	)	$	—	$	5.5

In accordance with the Fair Value Measurement 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 September 30, 2015, the Company’s investment in the hotel is $3.2 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. The Company continues to monitor the hotel renovation process and evaluate the fair value of the debentures. There has been no significant change in the fair value of the debentures, and no additional loss has been recognized during the years ended September 30, 2015, 2014 and 2013.

The Company is required to make additional future cash payments based on certain financial performance measures of its acquired businesses. 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 September 30, 2015, certain acquisitions have had changes in the estimates of undiscounted cash flows, based on actual performances fluctuating from estimates. During the fiscal years ended September 30, 2015 and 2014, the fair value of the contingent consideration increased $1.8 million and decreased $2.3 million, respectively, with the corresponding income or expense classified as ‘other’ in the consolidated income statements.

The value of an exchange-traded derivative contract is equal to the unrealized gain or loss on the contract determined by marking the contract to the current settlement price for a like contract on the valuation date of the contract. A settlement price may not be used if the market makes a limit move with respect to a particular derivative contract or if the securities underlying the contract experience significant price fluctuations after the determination of the settlement price. When a settlement price cannot be used, derivative contracts will be valued at their fair value as determined in good faith pursuant to procedures adopted by management of the Company.

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 additional significant transfers between level 1 and level 2 fair value measurements for the fiscal years ended September 30, 2015 and 2014.

The Company has classified equity investments in exchange firms’ common stock not pledged for clearing purposes as trading. The investments are recorded at fair value, with unrealized gains and losses recorded, net of taxes, included in earnings. As of September 30, 2015, the cost and fair value of the equity investments in exchange firms is $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 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 year ended September 30, 2015, in connection with the sale of these shares.

For the fiscal year ended September 30, 2015, the Company reclassified the unrealized gain remaining in AOCI of approximately $3.3 million, net of income tax expense of $2.0 million, into earnings.

In December 2012, the Company sold its exchange membership seats in the Board of Trade of Kansas City, Missouri, Inc. (“KCBT”), in connection with the acquisition of the KCBT by Chicago Mercantile Exchange (“CME”). The Company was required to hold these exchange membership seats for clearing purposes and, as a result, the associated KCBT shares were being held at cost on the consolidated balance sheet. The Company received proceeds of $1.5 million and recognized a gain of $0.9 million before taxes, during the fiscal year ended September 30, 2013, in connection with the sale of these seats.

During the year ended September 30, 2014, the Company sold all of its investments in mortgage-backed securities and the U.S. government obligations there were held as of September 30, 2014, matured, and as a result, realized gains of $0.1 million, net of tax, were reclassified from OCI for the year ended September 30, 2014.

Except as discussed previously, there were no other sales of AFS Securities during years ended September 30, 2015 and September 30, 2014, and as a result, no additional realized gains or losses were recorded for the years ended September 30, 2015 and September 30, 2014. The company recognized changes in unrealized gains on available-for-sale securities of $2.7 million during the year ended September 30, 2015.