Derivative Instruments

12 Months Ended

Dec. 31, 2012

Derivative Instruments

Derivative Instruments

(5)   Derivative Instruments

Derivative Contracts

        All derivative instruments are recorded on the Consolidated Statements of Financial Condition at fair value in other assets or accounts payable and accrued expenses. Recognition of the gain or loss that results from recording and adjusting a derivative to fair value depends on the intended purpose for entering into the derivative contract and the formal designation for accounting purposes. Gains and losses from derivatives that are not formally designated as hedges are recognized immediately in income. For derivative instruments that are formally designated and qualify as a fair value hedge, the gains or losses from adjusting the derivative to its fair value will be immediately recognized in income and, to the extent the hedge is effective, offset the concurrent recognition of changes in the fair value of the hedged item. Gains or losses from derivative instruments that are formally designated and qualify as a cash flow hedge will be recorded on the Consolidated Statements of Financial Condition in accumulated other comprehensive income ("OCI") until the hedged transaction is recognized in income. However, to the extent the hedge is deemed ineffective, the ineffective portion of the change in fair value of the derivative will be recognized immediately in income. For discontinued cash flow hedges, prospective changes in the fair value of the derivative are recognized in income. Any gain or loss in accumulated OCI at the time the hedge is discontinued will continue to be deferred until the original forecasted transaction occurs. However, if it is determined that the likelihood of the original forecasted transaction is no longer probable, the entire related gain or loss in accumulated OCI is immediately reclassified into income.

        The Company periodically enters into three month forward contracts to sell Euros and buy British Pounds to economically manage the risk of currency movements on Euro deposits held in banks across Europe for equity trade settlement. When a contract matures, an assessment is made as to whether or not the contract value needs to be amended prior to entering into another, to ensure continued economic hedge effectiveness. As these contracts are not formally designated as hedges for accounting purposes, the changes to their fair value are recognized immediately in income. The related counterparty agreements do not contain any credit-risk related contingent features. There were no open three month forward contracts outstanding at December 31, 2012 and 2011.

        When clients request trade settlement in a currency other than the currency in which the trade was executed, the Company enters into foreign exchange contracts in order to close out the resulting foreign currency position. The foreign exchange contracts are executed the same day as the underlying trade. As these contracts are not formally designated as hedges for accounting purposes, the changes to their fair value are recognized immediately in income.

        Asset derivatives are included in other assets while liability derivatives are included in accounts payable and accrued expenses on the Consolidated Statements of Financial Condition. The fair values of the Company's derivative instruments at December 31, 2012 and 2011 were not material. There were no derivatives designated as hedging instruments in either period.

        The impact that derivative instruments not formally designated as hedging instruments had on the results of operations at December 31, 2012 and 2011, which are recorded in other general and administrative expense in the Consolidated Statements of Operations was not material.