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 and sold, not yet purchased


•	Physical commodities inventory


•	Accounts payable and other accrued liabilities


•	Payables to broker-dealers, clearing organizations and counterparties

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 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 $47.3 million (carrying value of $45.5 million) as of December 31, 2015, based on the transaction prices at public exchanges for this issuance.

Receivables from broker-dealers, clearing organizations and counterparties 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.

The fair value estimates presented in the condensed consolidated financial statements are based on pertinent information available to management as of December 31, 2015 and September 30, 2015. 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 three months ended December 31, 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 December 31, 2015 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 December 31, 2015.



	December 31, 2015
(in millions)	Level 1		Level 2		Level 3		Netting and Collateral (1)			Total
Assets:
Unrestricted cash equivalents - certificate of deposits	$	2.3	$	—	$	—	$	—		$	2.3
Commodities warehouse receipts	25.5		—		—		—			25.5
U.S. government obligations	—		498.0		—		—			498.0
Securities and other assets segregated under federal and other regulations	25.5		498.0		—		—			523.5
Money market funds	671.8		—		—		—			671.8
U.S. government obligations	—		451.2		—		—			451.2
Derivatives	2,455.8		—		—		(2,461.0		)	(5.2		)
Deposits and receivables from exchange-clearing organizations	3,127.6		451.2		—		(2,461.0		)	1,117.8
TBA and forward settling securities	—		2.9		—		(1.1		)	1.8
Derivatives	—		315.3		—		(358.6		)	(43.3		)
Deposits and receivables from broker-dealers, clearing organizations and counterparties	—		318.2		—		(359.7		)	(41.5		)
Common and preferred stock and American Depositary Receipts (“ADRs”)	43.7		1.8		0.3		—			45.8
Exchangeable foreign ordinary equities and ADRs	72.6		0.8		—		—			73.4
Corporate and municipal bonds	22.3		2.0		3.2		—			27.5
U.S. government obligations	—		498.1		—		—			498.1
Foreign government obligations	—		12.6		—		—			12.6
Mortgage-backed securities	—		780.3		—		—			780.3
Derivatives	278.5		1,397.3		—		(1,598.0		)	77.8
Commodities leases	—		96.4		—		(95.8		)	0.6
Commodities warehouse receipts	35.7		—		—		—			35.7
Exchange firm common stock	5.4		—		—		—			5.4
Mutual funds and other	6.0		—		—		—			6.0
Financial instruments owned	464.2		2,789.3		3.5		(1,693.8		)	1,563.2
Physical commodities inventory - precious metals	9.6		—		—		—			9.6
Total assets at fair value	$	3,629.2	$	4,056.7	$	3.5	$	(4,514.5	)	$	3,174.9
Liabilities:
Accounts payable and other accrued liabilities - contingent liabilities	$	—	$	—	$	3.5	$	—		$	3.5
TBA and forward settling securities	—		1.4		—		(1.1		)	0.3
Derivatives	2,360.5		376.6		—		(2,737.1		)	—
Payable to broker-dealers, clearing organizations and counterparties	2,360.5		378.0		—		(2,738.2		)	0.3
Common and preferred stock and ADRs	37.0		0.9		—		—			37.9
Exchangeable foreign ordinary equities and ADRs	71.9		1.5		—		—			73.4
Corporate and municipal bonds	—		0.8		—		—			0.8
U.S. government obligations	—		404.7		—		—			404.7
Foreign government obligations	—		—		—		—			—
Mortgage-backed securities	—		—		—		—			—
Derivatives	271.4		1,574.3		—		(1,728.3		)	117.4
Commodities leases	—		158.9		—		(111.2		)	47.7
Financial instruments sold, not yet purchased	380.3		2,141.1		—		(1,839.5		)	681.9
Total liabilities at fair value	$	2,740.8	$	2,519.1	$	3.5	$	(4,577.7	)	$	685.7


(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.

The following table sets forth the Company’s financial and nonfinancial assets and liabilities accounted for at fair value, on a recurring basis, as of September 30, 2015 by level in the fair value hierarchy.



	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
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		)	—
Payable 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 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 December 31, 2015 and September 30, 2015 are summarized below:



(in millions)	December 31, 2015			September 30, 2015
Total level 3 assets	$	3.5		$	3.7
Level 3 assets for which the Company bears economic exposure	$	3.5		$	3.7
Total assets	$	5,217.3		$	5,070.0
Total financial assets at fair value	$	3,174.9		$	2,910.4
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		%	0.1		%

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 December 31, 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 December 31, 2015.



	Level 3 Financial Assets and Financial Liabilities For the Three Months Ended December 31, 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	$	—	$	(0.2	)	$	—	$	—	$	—	$	0.3
Corporate and municipal bonds	3.2		—		—			—		—		—		3.2
	$	3.7	$	—	$	(0.2	)	$	—	$	—	$	—	$	3.5
Liabilities:
Contingent liabilities	$	3.3	$	—	$	0.2		$	—	$	—	$	—	$	3.5



	Level 3 Financial Assets and Financial Liabilities For the Three Months Ended December 31, 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	$	—	$	(0.1	)	$	—	$	—		$	—	$	0.6
Corporate and municipal bonds	3.6		—		(0.1		)	—		—			—		3.5
	$	4.3	$	—	$	(0.2	)	$	—	$	—		$	—	$	4.1
Liabilities:
Contingent liabilities	$	5.5	$	—	$	0.1		$	—	$	(3.4	)	$	—	$	2.2

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 December 31, 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. 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 December 31, 2015 and 2014.

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 December 31, 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 $0.1 million during the three months ended December 31, 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 months ended December 31, 2015 and 2014.