Fair Value Disclosures

The following is a summary of our financial instruments and trading liabilities that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value ("NAV") of $30.3 million and $36.7 million, respectively, by level within the fair value hierarchy at June 30, 2016 and December 31, 2015 (in thousands):



	June 30, 2016
	Level 1 (1)		Level 2 (1)		Level 3		Counterparty and Cash Collateral Netting (2)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,828,939	$	141,115	$	48,816	$	—		$	3,018,870
Corporate debt securities	—		2,803,167		24,113		—			2,827,280
Collateralized debt obligations	—		62,763		52,710		—			115,473
U.S. government and federal agency securities	2,476,399		93,022		—		—			2,569,421
Municipal securities	—		638,929		—		—			638,929
Sovereign obligations	1,450,033		845,731		120		—			2,295,884
Residential mortgage-backed securities	—		1,353,973		63,308		—			1,417,281
Commercial mortgage-backed securities	—		615,289		24,983		—			640,272
Other asset-backed securities	—		137,396		43,033		—			180,429
Loans and other receivables	—		1,605,319		104,399		—			1,709,718
Derivatives	13,448		5,332,105		16,311		(5,030,887		)	330,977
Investments at fair value	—		29,000		273,271		—			302,271
Investment in FXCM	—		—		508,400		—			508,400
Total trading assets, excluding Investments at fair value based on NAV	$	6,768,819	$	13,657,809	$	1,159,464	$	(5,030,887	)	$	16,555,205

Available for sale securities:
Corporate equity securities	$	69,626	$	—	$	—	$	—		$	69,626
Corporate debt securities	—		2,530		—		—			2,530
U.S. government securities	240,696		—		—		—			240,696
Residential mortgage-backed securities	—		28,142		—		—			28,142
Commercial mortgage-backed securities	—		4,091		—		—			4,091
Other asset-backed securities	—		19,059		—		—			19,059
Total available for sale securities	$	310,322	$	53,822	$	—	$	—		$	364,144
Cash and cash equivalents	$	3,030,936	$	—	$	—	$	—		$	3,030,936
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations (3)	$	836,871	$	—	$	—	$	—		$	836,871

Liabilities:
Trading liabilities:
Corporate equity securities	$	1,846,996	$	88,806	$	—	$	—		$	1,935,802
Corporate debt securities	—		1,964,988		—		—			1,964,988
U.S. government and federal agency securities	1,349,746		—		—		—			1,349,746
Sovereign obligations	678,659		1,093,388		—		—			1,772,047
Residential mortgage-backed securities	—		1,045		—		—			1,045
Loans	—		597,623		1,896		—			599,519
Derivatives	1,878		5,502,360		20,735		(5,118,214		)	406,759
Total trading liabilities	$	3,877,279	$	9,248,210	$	22,631	$	(5,118,214	)	$	8,029,906
Other secured financings	$	—	$	46,305	$	468	$	—		$	46,773
Long-term Debt:
Structured notes	$	—	$	92,993	$	—	$	—		$	92,993



	December 31, 2015
	Level 1 (1)		Level 2 (1)		Level 3		Counterparty and Cash Collateral Netting (2)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,803,243	$	133,732	$	40,906	$	—		$	2,977,881
Corporate debt securities	—		2,867,165		25,876		—			2,893,041
Collateralized debt obligations	—		89,144		85,092		—			174,236
U.S. government and federal agency securities	2,555,018		90,633		—		—			2,645,651
Municipal securities	—		487,141		—		—			487,141
Sovereign obligations	1,251,366		1,407,955		120		—			2,659,441
Residential mortgage-backed securities	—		2,731,070		70,263		—			2,801,333
Commercial mortgage-backed securities	—		1,014,913		14,326		—			1,029,239
Other asset-backed securities	—		118,629		42,925		—			161,554
Loans and other receivables	—		1,123,044		189,289		—			1,312,333
Derivatives	2,253		4,406,207		19,785		(4,165,446		)	262,799
Investments at fair value	—		26,224		199,794		—			226,018
Investment in FXCM	—		—		625,689		—			625,689
Total trading assets, excluding Investments at fair value based on NAV	$	6,611,880	$	14,495,857	$	1,314,065	$	(4,165,446	)	$	18,256,356

Available for sale securities:
Corporate equity securities	$	73,579	$	—	$	—	$	—		$	73,579
Corporate debt securities	—		4,744		—		—			4,744
U.S. government securities	63,945		—		—		—			63,945
Residential mortgage-backed securities	—		23,240		—		—			23,240
Commercial mortgage-backed securities	—		2,374		—		—			2,374
Other asset-backed securities	—		39,473		—		—			39,473
Total available for sale securities	$	137,524	$	69,831	$	—	$	—		$	207,355
Cash and cash equivalents	$	3,638,648	$	—	$	—	$	—		$	3,638,648
Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations	$	751,084	$	—	$	—	$	—		$	751,084

Liabilities:
Trading liabilities:
Corporate equity securities	$	1,428,048	$	36,518	$	38	$	—		$	1,464,604
Corporate debt securities	—		1,556,941		—		—			1,556,941
Collateralized debt obligations	1,488,121		—		—		—			1,488,121
U.S. government and federal agency securities	837,614		505,382		—		—			1,342,996
Sovereign obligations	—		117		—		—			117
Loans	—		758,939		10,469		—			769,408
Derivatives	364		4,456,334		19,543		(4,257,998		)	218,243
Total trading liabilities	$	3,754,147	$	7,314,231	$	30,050	$	(4,257,998	)	$	6,840,430
Other secured financings (4)	$	—	$	67,801	$	544	$	—		$	68,345


(1)	There were no material transfers between Level 1 and Level 2 during the six months ended June 30, 2016 and during the year ended December 31, 2015.


(2)	Represents counterparty and cash collateral netting across the levels of the fair value hierarchy for positions with the same counterparty.


(3)	Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations includes U.S. treasury securities with a fair value of $99.9 million at June 30, 2016.


(4)	Level 2 liabilities include $67.8 million of other secured financings that were previously not disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

The following is a description of the valuation basis, including valuation techniques and inputs, used in measuring our financial assets and liabilities that are accounted for at fair value on a recurring basis:

Corporate Equity Securities


•	Exchange Traded Equity Securities: Exchange traded equity securities are measured based on quoted closing exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy, otherwise they are categorized within Level 2 or Level 3 of the fair value hierarchy.

•

Non-exchange Traded Equity Securities: Non-exchange traded equity securities are measured primarily using broker quotations, pricing data from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, non-exchange traded equity securities are categorized within Level 3 of the fair value hierarchy and measured using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. When using pricing data of comparable companies, judgment must be applied to adjust the pricing data to account for differences between the measured security and the comparable security (e.g., issuer market capitalization, yield, dividend rate, geographical concentration).


•	Equity Warrants: Non-exchange traded equity warrants are generally categorized within Level 3 of the fair value hierarchy and are measured using the Black-Scholes model with key inputs impacting the valuation including the underlying security price, implied volatility, dividend yield, interest rate curve, strike price and maturity date.

Corporate Debt Securities

•

Corporate Bonds: Corporate bonds are measured primarily using pricing data from external pricing services and broker quotations, where available, prices observed for recently executed market transactions and bond spreads or credit default swap spreads of the issuer adjusted for basis differences between the swap curve and the bond curve. Corporate bonds measured using these valuation methods are categorized within Level 2 of the fair value hierarchy. If broker quotes, pricing data or spread data is not available, alternative valuation techniques are used including cash flow models incorporating interest rate curves, single name or index credit default swap curves for comparable issuers and recovery rate assumptions. Corporate bonds measured using alternative valuation techniques are categorized within Level 3 of the fair value hierarchy and comprise a limited portion of our corporate bonds.

•

High Yield Corporate and Convertible Bonds: A significant portion of our high yield corporate and convertible bonds are categorized within Level 2 of the fair value hierarchy and are measured primarily using broker quotations and pricing data from external pricing services, where available, and prices observed for recently executed market transactions of comparable size. Where pricing data is less observable, valuations are categorized within Level 3 and are based on pending transactions involving the issuer or comparable issuers, prices implied from an issuer’s subsequent financings or recapitalizations, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations

Collateralized debt obligations are measured based on prices observed for recently executed market transactions of the same or similar security or based on valuations received from third party brokers or data providers and are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability and significance of the pricing inputs. Valuation that is based on recently executed market transactions of similar securities incorporates additional review and analysis of pricing inputs and comparability criteria including but not limited to collateral type, tranche type, rating, origination year, prepayment rates, default rates, and severities.

U.S. Government and Federal Agency Securities


•	U.S. Treasury Securities: U.S. Treasury securities are measured based on quoted market prices and categorized within Level 1 of the fair value hierarchy.


•	U.S. Agency Issued Debt Securities: Callable and non-callable U.S. agency issued debt securities are measured primarily based on quoted market prices obtained from external pricing services and are generally categorized within Level 1 or Level 2 of the fair value hierarchy.

Municipal Securities

Municipal securities are measured based on quoted prices obtained from external pricing services and are generally categorized within Level 2 of the fair value hierarchy.

Sovereign Obligations

Foreign sovereign government obligations are measured based on quoted market prices obtained from external pricing services, where available, or recently executed independent transactions of comparable size. To the extent external price quotations are not available or recent transactions have not been observed, valuation techniques incorporating interest rate yield curves and country spreads for bonds of similar issuers, seniority and maturity are used to determine fair value of sovereign bonds or obligations. Foreign sovereign government obligations are classified in Level 1, Level 2 or Level 3 of the fair value hierarchy, primarily based on the country of issuance.

Residential Mortgage-Backed Securities


•	Agency Residential Mortgage-Backed Securities: Agency residential mortgage-backed securities include mortgage pass-through securities (fixed and adjustable rate), collateralized mortgage obligations and interest-only and principal-only securities and are generally measured using market price quotations from external pricing services and categorized within Level 2 of the fair value hierarchy.

•

Agency Residential Interest-Only and Inverse Interest-Only Securities ("Agency Inverse IOs"): The fair value of Agency Inverse IOs is estimated using expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral. We use prices observed for recently executed transactions to develop market-clearing spread and yield curve assumptions. Valuation inputs with regard to the underlying collateral incorporate weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer, and weighted average loan age. Agency Inverse IOs are categorized within Level 2 or Level 3 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

•

Non-Agency Residential Mortgage-Backed Securities: Fair values are determined primarily using discounted cash flow methodologies and securities are categorized within Level 2 or Level 3 of the fair value hierarchy based on the observability and significance of the pricing inputs used. Performance attributes of the underlying mortgage loans are evaluated to estimate pricing inputs, such as prepayment rates, default rates and the severity of credit losses. Attributes of the underlying mortgage loans that affect the pricing inputs include, but are not limited to, weighted average coupon; average and maximum loan size; loan-to-value; credit scores; documentation type; geographic location; weighted average loan age; originator; servicer; historical prepayment, default and loss severity experience of the mortgage loan pool; and delinquency rate. Yield curves used in the discounted cash flow models are based on observed market prices for comparable securities and published interest rate data to estimate market yields.

Commercial Mortgage-Backed Securities

•

Agency Commercial Mortgage-Backed Securities: Government National Mortgage Association (“GNMA”) project loans are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. Federal National Mortgage Association (“FNMA”) Delegated Underwriting and Servicing (“DUS”) mortgage-backed securities are generally measured by using prices observed for recently executed market transactions to estimate market-clearing spread levels for purposes of estimating fair value. GNMA project loan bonds and FNMA DUS mortgage-backed securities are categorized within Level 2 of the fair value hierarchy.


•	Non-Agency Commercial Mortgage-Backed Securities: Non-agency commercial mortgage-backed securities are measured using pricing data obtained from external pricing services and prices observed for recently executed market transactions and are categorized within Level 2 and Level 3 of the fair value hierarchy.

Other Asset-Backed Securities

Other asset-backed securities include, but are not limited to, securities backed by auto loans, credit card receivables, student loans and other consumer loans and are categorized within Level 2 and Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services and broker quotes and prices observed for recently executed market transactions.

Loans and Other Receivables

•

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market price quotations where market price quotations from external pricing services are supported by market transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on market price quotations that are considered to be less transparent, market prices for debt securities of the same creditor, and estimates of future cash flow incorporating assumptions regarding creditor default and recovery rates and consideration of the issuer’s capital structure.

•

Participation Certificates in Agency Residential Loans: Valuations of participation certificates in agency residential loans are based on observed market prices of recently executed purchases and sales of similar loans. The loan participation certificates are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions and availability of data provider pricing.

•

Project Loans and Participation Certificates in GNMA Project and Construction Loans: Valuations of participation certificates in GNMA project and construction loans are based on inputs corroborated from and benchmarked to observed prices of recent securitizations of assets with similar underlying loan collateral to derive an implied spread. Securitization prices are adjusted to estimate the fair value of the loans incorporating an evaluation for various factors, including prepayment speeds, default rates, and cash flow structures as well as the likelihood of pricing levels in the current market environment. The measurements are categorized within Level 2 of the fair value hierarchy given the observability and volume of recently executed transactions.

•

Consumer Loans and Funding Facilities: Consumer and small business whole loans and related funding facilities are valued based on observed market transactions incorporating additional valuation inputs including, but not limited to, delinquency and default rates, prepayment rates, borrower characteristics, loan risk grades and loan age. These assets are categorized within Level 2 or Level 3 of the fair value hierarchy.

•

Escrow and Trade Claim Receivables: Escrow and trade claim receivables are categorized within Level 3 of the fair value hierarchy where fair value is estimated based on reference to market prices and implied yields of debt securities of the same or similar issuers. Escrow and trade claim receivables are categorized within Level 2 of the fair value hierarchy where fair value is based on recent trade activity in the same security.

Derivatives

•

Listed Derivative Contracts: Listed derivative contracts that are actively traded are measured based on quoted exchange prices, which are generally obtained from external pricing services, and are categorized within Level 1 of the fair value hierarchy. Listed derivatives for which there is limited trading activity are measured based on incorporating the closing auction price of the underlying equity security, use similar valuation approaches as those applied to over-the-counter derivative contracts and are categorized within Level 2 of the fair value hierarchy.

•

OTC Derivative Contracts: Over-the-counter ("OTC") derivative contracts are generally valued using models, whose inputs reflect assumptions that we believe market participants would use in valuing the derivative in a current period transaction. Inputs to valuation models are appropriately calibrated to market data. For many OTC derivative contracts, the valuation models do not involve material subjectivity as the methodologies do not entail significant judgment and the inputs to valuation models do not involve a high degree of subjectivity as the valuation model inputs are readily observable or can be derived from actively quoted markets. OTC derivative contracts are primarily categorized within Level 2 of the fair value hierarchy given the observability and significance of the inputs to the valuation models. Where significant inputs to the valuation are unobservable, derivative instruments are categorized within Level 3 of the fair value hierarchy.

OTC options include OTC equity, foreign exchange, interest rate and commodity options measured using various valuation models, such as the Black-Scholes, with key inputs impacting the valuation including the underlying security, foreign exchange spot rate or commodity price, implied volatility, dividend yield, interest rate curve, strike price and maturity date. Discounted cash flow models are utilized to measure certain OTC derivative contracts including the valuations of our interest rate swaps, which incorporate observable inputs related to interest rate curves, valuations of our foreign exchange forwards and swaps, which incorporate observable inputs related to foreign currency spot rates and forward curves and valuations of our commodity swaps and forwards, which incorporate observable inputs related to commodity spot prices and forward curves. Credit default swaps include both index and single-name credit default swaps. External prices are available as inputs in measuring index credit default swaps and single-name credit default swaps. For commodity and equity total return swaps, market prices are observable for the underlying asset and used as the basis for measuring the fair value of the derivative contracts. Total return swaps executed on other underlyings are measured based on valuations received from external pricing services.

•

National Beef Derivatives: National Beef uses futures contracts in order to reduce its exposure associated with entering into firm commitments to purchase live cattle at prices determined prior to the delivery of the cattle as well as firm commitments to sell certain beef products at sales prices determined prior to shipment. The futures contracts and their related firm purchase commitments are accounted for at fair value, which are classified as Level 1 or Level 2 within the fair value hierarchy. Certain firm commitments for live cattle purchases and all firm commitments for sales are treated as normal purchases and sales and therefore not marked to market. Fair values classified as Level 1 are calculated based on the quoted market prices of identical assets or liabilities compared to National Beef's cost of those same assets or liabilities. Fair values classified as Level 2 are calculated based on the difference between the contracted price for live cattle and the relevant quoted market price for live cattle futures.

•

Oil Futures Derivatives: Vitesse Energy uses call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy accounts for the derivative instruments at fair value, which are classified as Level 2 within the fair value hierarchy. Fair values classified as Level 2 are determined under the income valuation technique using an option-pricing model that is based on directly or indirectly observable inputs.

Investments at Fair Value

Investments at fair value included in Trading assets on the Consolidated Statements of Financial Condition include direct equity investments in private companies, which are measured at fair value using valuation techniques involving quoted prices of or market data for comparable companies, similar company ratios and multiples (e.g., price/EBITDA, price/book value), discounted cash flow analyses and transaction prices observed for subsequent financing or capital issuance by the company. Direct equity investments in private companies are categorized within Level 2 or Level 3 of the fair value hierarchy. Additionally, investments at fair value include investments in insurance contracts relating to our defined benefit plan in Germany. Fair value for the insurance contracts is determined using a third party and is categorized within Level 3 of the fair value hierarchy.

Investment in FXCM

In January 2015, we entered into a credit agreement with FXCM, and provided FXCM a $300 million senior secured term loan due January 2017, with rights to a variable proportion of certain distributions in connection with an FXCM sale of assets or certain other events, and to require a sale of FXCM beginning in January 2018. FXCM is an online provider of foreign exchange trading and related services. The loan had an initial interest rate of 10% per annum, increasing by 1.5% per annum each quarter, not to exceed 20.5% per annum. The variable proportion of distributions is as follows: 100% until amounts due under the loan are repaid; 50% of the next $350 million; then 90% of the next $500 million (this was an amount initially set at a range between $500 million to $680 million and based on payments made by FXCM to us through April 16, 2015, this amount became $500 million); and 60% of all amounts thereafter. During the six months ended June 30, 2016, we received $16.2 million of principal, interest and fees from FXCM and $192.5 million remained outstanding under the credit agreement as of June 30, 2016. Through the first quarter of 2016 interest accrued at 16.0% per annum and in the second quarter of 2016 interest accrued at 17.5% per annum; in the third quarter of 2016 interest will accrue at 19.0% per annum.

FXCM is considered a variable interest entity and our term loan with rights is a variable interest. We have determined that we are not the primary beneficiary of FXCM because we do not have the power to direct the activities that most significantly impact FXCM’s performance. Therefore, we do not consolidate FXCM.

We view the FXCM loan and associated rights as one integrated transaction; since the rights, as derivatives, are accounted for at fair value, we have elected the fair value option for the loan. The total amount of our investment in FXCM is reported within Trading assets, at fair value in our Consolidated Statements of Financial Condition, and unrealized and realized changes in value, including the component related to interest income on the loan, are included within Principal transactions in the Consolidated Statements of Operations. We recorded in Principal transactions an aggregate $(47.9) million and $(101.1) million during the three and six months ended June 30, 2016, respectively, and $(112.1) million and $574.5 million during the three and six months ended June 30, 2015, respectively, of unrealized and realized gains (losses), interest income and fees relating to our investment in FXCM. Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of our investment ($508.4 million at June 30, 2016).

On March 10, 2016 we and FXCM entered into a nonbinding memorandum of understanding that would amend the terms of the FXCM loan and associated rights. Among other changes, the proposed amendments would extend the maturity of the term loan by one year to January 2018 to allow FXCM more time to optimize remaining asset sales; give Leucadia a 49.9% common membership interest in FXCM Newco, LLC ("FXCM Newco") as well as non-voting preferred shares; create an eight-member board for FXCM Newco, comprised of three directors appointed by Leucadia, three directors appointed by FXCM, and two independent directors; and put in place a long-term incentive program for FXCM senior management. The nonbinding memorandum of understanding remains subject to the execution of definitive agreements and FXCM's Board approval.

We engaged an independent valuation firm to assist management in estimating the fair value of our loan and rights in FXCM. Our estimate of fair value was determined using valuation models with inputs including management’s assumptions concerning the amount and timing of expected cash flows; the loan’s implied credit rating and effective yield; implied total equity value, based primarily on the publicly traded FXCM stock price; volatility; risk-free rate; and term. Because of these inputs and the degree of judgment involved, we have categorized our FXCM investment in Level 3. The valuation is most significantly impacted by the inputs and assumptions related to the publicly traded stock price, volatility and the period of time until a liquidity event. A $1.00 change in the price of FXCM’s shares alone (representing about 12% of the price at June 30, 2016 of its common stock), would result in a change of about $19 million in this valuation, assuming no change in any other factors we considered. Likewise, a 10% change in the assumed volatility would result in a change of about $23 million in this valuation, assuming no other change in any other factors. A three month change in the estimated period of time until a liquidity event would result in a change of about $8 million in this valuation, assuming no change in any other factors. As we adjust to fair value each quarter, we anticipate there could be volatility in the FXCM valuation, which could materially impact our results in a given period.

Investments at Fair Value Based on NAV and Investments in Managed Funds

Investments at fair value based on NAV and Investments in managed funds include investments in hedge funds, fund of funds, private equity funds, convertible bond funds and other funds, which are measured at the NAV of the funds provided by the fund managers and are excluded from the fair value hierarchy. The following tables present information about our investments in entities that have the characteristics of an investment company and are measured based on NAV (in thousands).



	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
June 30, 2016
Equity Long/Short Hedge Funds (2)	$	387,472	$	—	(2)
Fixed Income and High Yield Hedge Funds (3)	999		—		—
Fund of Funds (4)	284		—		—
Equity Funds (5)	35,130		20,512		—
Multi-asset Funds (6)	130,285		—		—
Total	$	554,170	$	20,512


December 31, 2015 (7)
Equity Long/Short Hedge Funds (2)	$	430,207	$	—	(2)
Fixed Income and High Yield Hedge Funds (3)	1,703		—		—
Fund of Funds (4)	287		94		—
Equity Funds (5)	42,111		20,791		—
Multi-asset Funds (6)	165,821		—
Convertible Bond Funds (8)	326		—		At Will
Total	$	640,455	$	20,885


(1)	Where fair value is calculated based on NAV, fair value has been derived from each of the funds' capital statements.

(2)

This category includes investments in hedge funds that invest, long and short, in primarily equity securities in domestic and international markets in both the public and private sectors. At June 30, 2016 and December 31, 2015, investments with a fair value of $44.5 million and $54.7 million are redeemable with 30 to 90 days prior written notice. At June 30, 2016 and December 31, 2015, this category also includes investments in funds with broad industry and geographic diversification. Investment in these funds are subject to a lock-up until August 15, 2019, subject to certain release events and other withdrawal rights. Following this date, investments can be redeemed as of any calendar quarter-end with no less than 45 calendar days’ notice, subject to certain limitations. At June 30, 2016 and December 31, 2015, our investments in these funds had an aggregate fair value of $340.7 million and $375.5 million, respectively.

(3)

This category includes investments in funds that invest in loans secured by a first trust deed on property, domestic and international public high yield debt, private high yield investments, senior bank loans, public leveraged equities, distressed debt, and private equity investments. There are no redemption provisions. At June 30, 2016 and December 31, 2015, the underlying assets of 9% and 8%, respectively, of these funds are being liquidated and we are unable to estimate when the underlying assets will be fully liquidated.

(4)

This category includes investments in fund of funds that invest in various private equity funds. At June 30, 2016 and December 31, 2015, approximately 98% and 95%, respectively, of the fair value of investments in this category is managed by us and has no redemption provisions; instead distributions are received through the liquidation of the underlying assets of the fund of funds, which are estimated to start liquidating in the next six months. For the remaining investments at December 31, 2015, we have requested redemption; however, we are unable to estimate when these funds will be received.

(5)

At June 30, 2016 and December 31, 2015, approximately 99% and 100%, respectively, of the fair value of investments in this category include investments in equity funds that invest in the equity of various U.S. and foreign private companies in the energy, technology, internet service and telecommunication service industries. These investments cannot be redeemed; instead distributions are received through the liquidation of the underlying assets of the funds which are expected to liquidate in one to eight years.

(6)

This category includes investments in hedge funds that invest, long and short, primarily in multi-asset securities in domestic and international markets in both the public and private sectors. At June 30, 2016 and December 31, 2015, investments representing approximately 12% and 32%, respectively, of the fair value of investments in this category are redeemable with 30 to 90 days prior written notice. At June 30, 2016, for the remaining investments in this category, withdrawals during any calendar quarter are limited to 25% of the fund’s net asset value. This restriction can be waived by us, in our sole discretion.


(7)	Certain prior period amounts have been recast to conform to the current year's presentation due to the presentation of multi-asset funds. Previously, these investments had been classified within equity long/short hedge funds.


(8)	Investment in the Jefferies Umbrella Fund, an open-ended investment company managed by Jefferies that invested primarily in convertible bonds. The remaining investments were in liquidation at December 31, 2015 and the underlying assets were fully liquidated during the six months ended June 30, 2016.

Other Secured Financings

Other secured financings that are accounted for at fair value include notes issued by consolidated VIEs, which are classified as Level 2 or Level 3 within the fair value hierarchy. Fair value is based on recent transaction prices for similar assets.

Long-term Debt - Structured Notes

Long-term debt includes variable rate and fixed to floating rate structured notes that contain various interest rate payment terms and are generally measured using valuation models for the derivative and debt portions of the notes. These models incorporate market price quotations from external pricing sources referencing the appropriate interest rate curves and are generally categorized within Level 2 of the fair value hierarchy. The impact of Jefferies credit spreads is also included based on observed secondary bond market spreads and asset-swap spreads.

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the three months ended June 30, 2016 (in thousands):



Three Months Ended June 30, 2016
	Balance, March 31, 2016		Total gains (losses) (realized and unrealized) (1)			Purchases		Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, June 30, 2016		Changes in unrealized gains (losses) relating to instruments still held at June 30, 2016 (1)
Assets:
Trading assets:
Corporate equity securities	$	30,540	$	(927	)	$	200	$	(508	)	$	(2,455	)	$	—	$	21,966		$	48,816	$	(849	)
Corporate debt securities	25,634		474			15		(789		)	—			—		(1,221		)	24,113		347
Collateralized debt obligations	67,348		1,797			943		(21,233		)	—			—		3,855			52,710		2,534
Sovereign obligations	119		1			—		—			—			—		—			120		1
Residential mortgage-backed securities	68,019		(4,915		)	3,422		(2,837		)	(122		)	—		(259		)	63,308		(2,233		)
Commercial mortgage-backed securities	21,994		(1,140		)	—		—			(311		)	—		4,440			24,983		(1,306		)
Other asset-backed securities	33,124		(7,284		)	3,549		(1,068		)	(52		)	—		14,764			43,033		(7,275		)
Loans and other receivables	155,442		(7,792		)	20,836		(13,347		)	(55,541		)	—		4,801			104,399		(6,231		)
Investments at fair value	275,389		(1,375		)	3,540		—			(283		)	—		(4,000		)	273,271		193
Investment in FXCM	564,800		(47,853		)	—		—			(8,547		)	—		—			508,400		(47,853		)

Liabilities:
Trading liabilities:
Corporate equity securities	$	38	$	—		$	—	$	—		$	—		$	—	$	(38	)	$	—	$	—
Net derivatives (2)	11,757		3			—		—			(83		)	451		(7,704		)	4,424		(3		)
Loans	7,744		(261		)	—		—			(71		)	—		(5,516		)	1,896		261
Other secured financings	538		(70		)	—		—			—			—		—			468		70


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended June 30, 2016

During the three months ended June 30, 2016, transfers of assets of $107.1 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Other asset-backed securities of $30.7 million and residential mortgage-backed securities of $19.3 million, for which no recent trade activity was observed for purposes of determining observable inputs;


•	Corporate equity securities of $22.0 million due to a lack of observable market transactions;


•	Loans and other receivables of $15.9 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2.

During the three months ended June 30, 2016, transfers of assets of $62.7 million from Level 3 to Level 2 are primarily attributed to:


•	Non-agency residential mortgage-backed securities of $19.5 million and other asset-backed securities of $16.0 million for which market trades were observed in the period for either identical or similar securities.

Net losses on Level 3 assets were $69.0 million and net gains on Level 3 liabilities were $0.3 million for three months ended June 30, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of our investment in FXCM and decreased valuations of loans and other receivables, other asset-backed securities, residential mortgage-backed securities, corporate equity securities, investments at fair value and commercial mortgage-backed securities, partially offset by an increase in valuations of collateralized debt obligations and corporate debt securities.

The following is a summary of changes in fair value of our financial assets and liabilities that have been categorized within Level 3 of the fair value hierarchy for the six months ended June 30, 2016 (in thousands):



Six Months Ended June 30, 2016
	Balance, December 31, 2015			Total gains (losses) (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance at June 30, 2016		Changes in unrealized gains (losses) relating to instruments still held at June 30, 2016 (1)
Assets:
Trading assets:
Corporate equity securities	$	40,906		$	1,571		$	2,287		$	(508	)	$	(2,455	)	$	—	$	7,015		$	48,816	$	2,080
Corporate debt securities	25,876			(2,378		)	16,564			(16,613		)	(245		)	—		909			24,113		(2,474		)
Collateralized debt obligations	85,092			(20,455		)	24,024			(43,696		)	(473		)	—		8,218			52,710		(12,002		)
Sovereign obligations	120			—			—			—			—			—		—			120		—
Residential mortgage-backed securities	70,263			(8,337		)	1,483			(4,843		)	(235		)	—		4,977			63,308		(4,011		)
Commercial mortgage-backed securities	14,326			(2,589		)	2,951			(2,023		)	(1,208		)	—		13,526			24,983		(3,140		)
Other asset-backed securities	42,925			(202		)	64,833			(74,690		)	(4,713		)	—		14,880			43,033		(7,134		)
Loans and other receivables	189,289			(13,376		)	203,990			(127,944		)	(150,975		)	—		3,415			104,399		(15,693		)
Investments at fair value	199,794			59,242			4,727			—			(555		)	—		10,063			273,271		66,243
Investment in FXCM	625,689			(101,056		)	—			—			(16,233		)	—		—			508,400		(101,056		)

Liabilities:
Trading liabilities:
Corporate equity securities	$	38		$	—		$	—		$	—		$	—		$	—	$	(38	)	$	—	$	—
Net derivatives (2)	(242		)	10,075			—			—			(46		)	1,005		(6,368		)	4,424		(11,008		)
Loans	10,469			(541		)	(2,240		)	1,033			(1,149		)	—		(5,676		)	1,896		250
Other secured financings	544			(76		)	—			—			—			—		—			468		76


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the six months ended June 30, 2016

During the six months ended June 30, 2016, transfers of assets of $155.9 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Collateralized debt obligations of $30.6 million, other asset-backed securities of $28.0 million and non-agency residential mortgage-backed securities of $21.7 million, for which no recent trade activity was observed for purposes of determining observable inputs;


•	Investments at fair value of $26.1 million due to a lack of observable market transactions;


•	Loans and other receivables of $20.2 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2.

During the six months ended June 30, 2016, transfers of assets of $92.9 million from Level 3 to Level 2 are primarily attributed to:


•	Collateralized debt obligations of $22.3 million and loans and other receivables of $16.8 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


•	Non-agency residential mortgage-backed securities of $16.7 million for which market trades were observed in the period for either identical or similar securities;


•	Investments at fair value of $16.1 million due to an increase in observable market transactions.

Net losses on Level 3 assets were $87.6 million and net losses on Level 3 liabilities were $9.5 million for six months ended June 30, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of our investment in FXCM and decreased valuations of collateralized debt obligations, residential mortgage-backed securities, loans and other receivables, commercial mortgage-backed securities and corporate debt securities partially offset by an increase in valuations of investments at fair value. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivative instruments.



Three Months Ended June 30, 2015
	Balance, March 31, 2015		Total gains (losses) (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, June 30, 2015			Changes in unrealized gains (losses) relating to instruments still held at June 30, 2015 (1)
Assets:
Trading assets:
Corporate equity securities	$	18,210	$	8,030		$	—		$	(73	)	$	—		$	—	$	(5,620	)	$	20,547		$	8,073
Corporate debt securities	24,795		(532		)	2,183			(2,368		)	—			—		7,839			31,917			(922		)
Collateralized debt obligations	96,837		(5,120		)	29,021			(25,430		)	—			—		(6,301		)	89,007			(2,328		)
U.S. government and federal agency securities	333		(12		)	320			(641		)	—			—		—			—			—
Residential mortgage-backed securities	79,953		(1,820		)	8,733			(4,915		)	(323		)	—		7,067			88,695			315
Commercial mortgage-backed securities	24,629		(789		)	1,256			(9,237		)	(173		)	—		2,176			17,862			(759		)
Other asset-backed securities	7,146		(19		)	8,322			(80		)	(270		)	—		(3,242		)	11,857			41
Loans and other receivables	111,410		(748		)	40,602			(26,335		)	(16,314		)	—		141			108,756			(669		)
Investments at fair value	151,365		3,766			73			(78		)	(264		)	—		—			154,862			3,868
Investment in FXCM	947,000		(112,093		)	—			—			(75,907		)	—		—			759,000			(112,093		)
Liabilities:
Trading liabilities:
Corporate equity securities	$	38	$	—		$	—		$	—		$	—		$	—	$	—		$	38		$	—
Corporate debt securities	—		339			—			113			—			—		—			452			(339		)
Net derivatives (2)	3,314		(4,912		)	(11,963		)	—			12,078			389		(492		)	(1,586		)	4,912
Loans	9,327		(332		)	(1,170		)	350			2,557			—		—			10,732			332
Other secured financings	65,602		—			—			—			(9,542		)	—		—			56,060			—


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the three months ended June 30, 2015

During the three months ended June 30, 2015, transfers of assets of $98.4 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Collateralized debt obligations of $48.0 million, non-agency residential mortgage-backed securities of $30.0 million, commercial mortgage-backed securities of $7.7 million and other asset-backed securities of $2.1 million for which no recent trade activity was observed for purposes of determining observable inputs;


•	Loans and other receivables of $1.0 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;


•	Corporate debt securities of $8.2 million and corporate equity securities of $1.4 million due to a lack of observable market transactions.

During the three months ended June 30, 2015, transfers of assets of $96.4 million from Level 3 to Level 2 are primarily attributed to:


•	Non-agency residential mortgage-backed securities of $23.0 million, commercial mortgage-backed securities of $5.5 million and other asset-backed securities of $5.4 million for which market trades were observed in the period for either identical or similar securities;


•	Collateralized debt obligations of $54.4 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


•	Corporate equity securities of $7.0 million due to an increase in observable market transactions.

Net losses on Level 3 assets were $109.3 million and net gains on Level 3 liabilities were $4.9 million for three months ended June 30, 2015. Net losses on Level 3 assets were primarily due to decreased valuations of our investment in FXCM and decreased valuations of collateralized debt obligations, residential and commercial mortgage-backed securities and loans and other receivables, partially offset by increased valuations of certain corporate equity securities and investments at fair value. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain derivative instruments.



Six Months Ended June 30, 2015
	Balance, December 31, 2014			Total gains (losses) (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, June 30, 2015			Changes in unrealized gains (losses) relating to instruments still held at June 30, 2015 (1)
Assets:
Trading assets:
Corporate equity securities	$	20,964		$	7,066		$	1,469		$	(262	)	$	—		$	—	$	(8,690	)	$	20,547		$	7,077
Corporate debt securities	22,766			(796		)	3,095			(3,445		)	—			—		10,297			31,917			(929		)
Collateralized debt obligations	124,650			(17,229		)	66,246			(59,532		)	(147		)	—		(24,981		)	89,007			(8,989		)
Residential mortgage-backed securities	82,557			(3,735		)	24,083			(18,899		)	(477		)	—		5,166			88,695			(822		)
Commercial mortgage-backed securities	26,655			(1,124		)	4,685			(12,128		)	(6,971		)	—		6,745			17,862			(496		)
Other asset-backed securities	2,294			(258		)	8,385			(79		)	(207		)	—		1,722			11,857			(97		)
Loans and other receivables	97,258			(5,795		)	71,865			(29,184		)	(33,895		)	—		8,507			108,756			(3,166		)
Investments at fair value	77,047			4,311			5,270			(427		)	(541		)	—		69,202			154,862			4,578
Investment in FXCM	—			574,534			279,000			—			(94,534		)	—		—			759,000			574,534
Liabilities:
Trading liabilities:
Corporate equity securities	$	38		$	—		$	—		$	—		$	—		$	—	$	—		$	38		$	—
Corporate debt securities	223			225			(6,677		)	6,804			—			—		(123		)	452			(339		)
Net derivatives (2)	(4,638		)	1,925			(8,848		)	120			8,395			1,460		—			(1,586		)	(3,586		)
Loans	14,450			(277		)	(759		)	350			—			—		(3,032		)	10,732			277
Other secured financings	30,825			—			—			—			(11,760		)	36,995		—			56,060			—


(1)	Realized and unrealized gains (losses) are reported in Principal transactions in the Consolidated Statements of Operations.


(2)	Net derivatives represent Trading assets - Derivatives and Trading liabilities - Derivatives.

Analysis of Level 3 Assets and Liabilities for the six months ended June 30, 2015

During the six months ended June 30, 2015, transfers of assets of $155.0 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Collateralized debt obligations of $27.3 million, non-agency residential mortgage-backed securities of $20.3 million, commercial mortgage-backed securities of $10.2 million and other asset-backed securities of $2.1 million for which no recent trade activity was observed for purposes of determining observable inputs;


•	Loans and other receivables of $13.9 million due to a lower number of contributors comprising vendor quotes to support classification within Level 2;


•	Corporate debt securities of $10.4 million, corporate equity securities of $1.6 million and investments at fair value of $69.2 million due to lack of observable market transactions.

During the six months ended June 30, 2015, transfers of assets of $87.0 million from Level 3 to Level 2 are primarily attributed to:


•	Non-agency residential mortgage-backed securities of $15.1 million and commercial mortgage-backed securities of $3.5 million for which market trades were observed in the period for either identical or similar securities;


•	Collateralized debt obligations of $52.3 million and loans and other receivables of $5.3 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2;


•	Corporate equity securities of $10.3 million due to an increase in observable market transactions.

During the six months ended June 30, 2015, there were transfers of loan liabilities of $3.0 million from Level 3 to Level 2 due to an increase in observable inputs in the valuation.

Net gains on Level 3 assets were $557.0 million and net losses on Level 3 liabilities were $1.9 million for the six months ended June 30, 2015. Net gains on Level 3 assets were primarily due to increased valuations of our investment in FXCM and increases in valuations of corporate equity securities and certain investments at fair value, partially offset by decreased valuations of collateralized debt obligations, loans and other receivables, and residential and commercial mortgage-backed securities. Net losses on Level 3 liabilities were primarily due to increased valuations of certain derivatives.

Quantitative Information about Significant Unobservable Inputs used in Level 3 Fair Value Measurements

The tables below present information on the valuation techniques, significant unobservable inputs and their ranges for our financial assets and liabilities, subject to threshold levels related to the market value of the positions held, measured at fair value on a recurring basis with a significant Level 3 balance. The range of unobservable inputs could differ significantly across different firms given the range of products offered in the financial services sector. The inputs are not representative of the inputs that could have been used in the valuation of any one financial instrument; i.e., the input used for valuing one financial instrument within a particular class of financial instruments may not be appropriate for valuing other financial instruments within that given class. Additionally, the ranges of inputs presented below should not be construed to represent uncertainty regarding the fair values of our financial instruments; rather the ranges of inputs are reflective of the differences in the underlying characteristics of the financial instruments in each category.

For certain categories, we have provided a weighted average of the inputs allocated based on the fair values of the financial instruments comprising the category. We do not believe that the range or weighted average of the inputs is indicative of the reasonableness of uncertainty of our Level 3 fair values. The range and weighted average are driven by the individual financial instruments within each category and their relative distribution in the population. The disclosed inputs when compared with the inputs as disclosed in other quarters should not be expected to necessarily be indicative of changes in our estimates of unobservable inputs for a particular financial instrument as the population of financial instruments comprising the category will vary from period to period based on purchases and sales of financial instruments during the period as well as transfers into and out of Level 3 each period.



June 30, 2016
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	43,622
Non-exchange traded securities			Market approach	EBITDA (a) multiple	5.0 to 16.0	12.3
				Transaction level	$2
				Underlying stock price	$1 to $102	$	21.0
			Comparable pricing	Discount factor	65%	—
				Underlying stock price	$4	—

Corporate debt securities	$	24,113	Convertible bond model	Discount rate/yield	10%	—
				Volatility	40%	—
			Scenario analysis	Estimated recovery percentage	6.3%	—
			Comparable pricing	Discount factor	91%	—

Collateralized debt obligations	$	33,406	Discounted cash flows	Constant prepayment rate	10% to 20%	19		%
				Constant default rate	2% to 8%	3		%
				Loss severity	25% to 70%	30		%
				Yield	5% to 22%	17		%

Residential mortgage-backed securities	$	63,308	Discounted cash flows	Constant prepayment rate	0% to 50%	15		%
				Constant default rate	1% to 50%	5		%
				Loss severity	15% to 85%	45		%
				Yield	1% to 9%	5		%

Commercial mortgage-backed securities	$	24,983	Discounted cash flows	Yield	7% to 17%	11		%
				Cumulative loss rate	1% to 71%	17		%

Other asset-backed securities	$	21,571	Discounted cash flows	Constant prepayment rate	0% to 30%	17		%
				Constant default rate	0% to 30%	10		%
				Loss severity	0% to 100%	67		%
				Yield	3% to 22%	11		%

Loans and other receivables	$	103,059	Comparable pricing	Comparable loan price	$99	—
			Market approach	Discount rate/yield	2% to 10%	8		%
			Scenario analysis	Estimated recovery percentage	6% to 100%	56		%

Derivatives	$	16,311
Total return swaps			Comparable pricing	Comparable loan price	$86 to $100	$	95.0
Credit default swaps			Market approach	Credit spread	290 bps	—
Interest rate swaps			Market approach	Credit spread	670 bps to 800 bps	710 bps
Commodity forwards			Present value	Average silver production tons per day	783	—

Investments at fair value
Private equity securities	$	30,196	Market approach	Transaction level	$74	—
				Enterprise value	$5,200,000	—
				Discount rate	15% to 30%	23		%

Investment in FXCM
Term loan	$	209,400	Discounted cash flows	Term based on the pay off	0 months to 1.0 year	0.7 years
Rights	299,000		Option pricing model	Volatility	85%	—
	$	508,400

Trading Liabilities	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Derivatives	$	20,735
Equity options			Option model	Volatility	45%	—
			Default rate	Default probability	0%	—
Unfunded commitments			Comparable pricing	Comparable loan price	$99	—
			Market approach	Discount rate/yield	4% to 52%	48		%
Total return swaps			Comparable pricing	Comparable loan price	$86 to $100	$	95.0
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Yield	13%	—
Foreign exchange forwards			Market approach	Credit spread	500 bps	—

Loans	$	1,896	Scenario analysis	Estimated recovery percentage	14%	—



December 31, 2015
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	20,285
Non-exchange traded securities			Market approach	EBITDA (a) multiple	4.4	—
				Transaction level	$1	—
				Underlying stock price	$5 to $102	$19.0
Corporate debt securities	$	20,257	Convertible bond model	Discount rate/yield	86%	—
			Market approach	Transaction level	$59	—
Collateralized debt obligations	$	49,923	Discounted cash flows	Constant prepayment rate	5% to 20%	13	%
				Constant default rate	2% to 8%	2	%
				Loss severity	25% to 90%	52	%
				Yield	6% to 13%	10	%
Residential mortgage-backed securities	$	70,263	Discounted cash flows	Constant prepayment rate	0% to 50%	13	%
				Constant default rate	1% to 9%	3	%
				Loss severity	25% to 70%	39	%
				Yield	1% to 9%	6	%
Commercial mortgage-backed securities	$	14,326	Discounted cash flows	Yield	7% to 30%	16	%
				Cumulative loss rate	2% to 63%	23	%
Other asset-backed securities	$	21,463	Discounted cash flows	Constant prepayment rate	6% to 8%	7	%
				Constant default rate	3% to 5%	4	%
				Loss severity	55% to 75%	62	%
				Yield	7% to 22%	18	%
			Over-collateralization	Over-collateralization percentage	117% to 125%	118	%
Loans and other receivables	$	161,470	Comparable pricing	Comparable loan price	$99 to $100	$99.7
			Market approach	Yield	2% to 17%	12	%
				EBITDA (a) multiple	10.0	—
			Scenario analysis	Estimated recovery percentage	6% to 100%	83	%
Derivatives	$	19,785
Commodity forwards			Market approach	Discount rate/yield	47%	—
				Transaction level	$9,500,000	—
Unfunded commitment			Comparable pricing	Comparable loan price	$100	—
			Market approach	Credit spread	298 bps	—
Total return swap			Comparable pricing	Comparable loan price	$91.7 to $92.4	$92.1
Investments at fair value
Private equity securities	$	29,940	Market approach	Transaction level	$64	—
				Enterprise value	$5,200,000	—
				Discount rate	15% to 30%	23	%
Investment in FXCM
Term loan	$	203,700	Discounted cash flows	Term based on the pay off	0 months to 1.0 year	0.4 years
Rights	422,000		Option pricing model	Volatility	110%	—
	$	625,700

Trading Liabilities	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Derivatives	$	19,543
Equity options			Option model	Volatility	45%	—
			Default rate	Default probability	0%	—
Unfunded commitments			Comparable pricing	Comparable loan price	$79 to $100	$82.6
			Market approach	Discount rate/yield	3% to 10%	10	%
			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Yield	11%	—
Total return swap			Comparable pricing	Comparable loan price	$91.7 to $92.4	$92.1
Loans	$	10,469	Comparable pricing	Comparable loan price	$100	—


(a)	Earnings before interest, taxes, depreciation and amortization (“EBITDA”).

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported net asset value or a percentage of the reported enterprise fair value are excluded from the above table. At June 30, 2016 and December 31, 2015, asset exclusions consisted of $290.5 million and $280.6 million, respectively, primarily comprised of certain corporate equity and debt securities, investments at fair value, private equity securities, derivative contracts, collateralized debt obligations, sovereign obligations and certain loans and other receivables. At June 30, 2016 and December 31, 2015, liability exclusions consisted of $0.5 million and $0.6 million, respectively, of certain corporate debt and equity securities and other secured financings.

Sensitivity of Fair Values to Changes in Significant Unobservable Inputs

For recurring fair value measurements categorized within Level 3 of the fair value hierarchy, the sensitivity of the fair value measurement to changes in significant unobservable inputs and interrelationships between those unobservable inputs (if any) are described below:


•	Loans and other receivables, corporate debt securities, unfunded commitments, corporate equity securities and total return swaps using comparable pricing valuation techniques. A significant increase (decrease) in the comparable loan, bond price or underlying stock price in isolation would result in a significantly higher (lower) fair value measurement.


•	Corporate debt securities using a convertible bond model. A significant increase (decrease) in the bond discount rate/yield would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in volatility or estimated recovery percentage would result in a significantly higher (lower) fair value measurement.

•

Non-exchange traded securities, corporate debt securities, loans and other receivables, unfunded commitments, commodity forwards, credit default swaps, interest rate swaps, foreign exchange forwards and private equity securities using a market approach valuation technique. A significant increase (decrease) in the EBITDA or other multiples in isolation would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the discount rate/yield of a corporate debt security, loan and other receivable or certain derivatives would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the transaction level of a private equity security, loan and other receivable or commodity forward would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the enterprise value of a private equity security would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the underlying stock price of the non-exchange traded securities would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the credit spread of certain derivatives would result in a significantly (lower) higher fair value measurement.


•	Loans and other receivables and corporate debt securities using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the investment would result in a significantly higher (lower) fair value measurement for the financial instrument.

•

Collateralized debt obligations, residential and commercial mortgage-backed securities and other asset-backed securities, variable funding notes and unfunded commitments using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, and loss severities or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate would have differing impacts depending on the capital structure of the security. A significant increase (decrease) in the loan or bond yield would result in a significantly lower (higher) fair value measurement.


•	Certain other asset-backed securities using an over-collateralization model. A significant increase (decrease) in the over-collateralization percentage would result in a significantly higher (lower) fair value measurement.


•	Derivative equity options using an option model. A significant increase (decrease) in volatility would result in a significantly higher (lower) fair value measurement.


•	Derivative equity options using a default rate model. A significant increase (decrease) in default probability would result in a significantly higher (lower) fair value measurement.


•	Derivative commodity forwards using a present value model. A significant increase (decrease) in average silver production would result in higher (lower) fair value measurement.


•	Investment in FXCM using a discounted cash flow valuation technique and an option pricing model. A significant increase (decrease) in term based on the time to pay off the loan would result in a higher (lower) fair value measurement. A significant increase (decrease) in volatility or time to liquidity event would result in a significantly lower (higher) fair value measurement.

Fair Value Option Election

We have elected the fair value option for all loans and loan commitments made by Jefferies capital markets businesses. These loans and loan commitments include loans entered into by Jefferies investment banking division in connection with client bridge financing and loan syndications, loans purchased by Jefferies leveraged credit trading desk as part of its bank loan trading activities and mortgage loan commitments and fundings in connection with mortgage-backed securitization activities. Loans and loan commitments originated or purchased by Jefferies leveraged credit and mortgage-backed businesses are managed on a fair value basis. Loans are included in Trading assets and loan commitments are included in Trading liabilities. The fair value option election is not applied to loans made to affiliate entities as such loans are entered into as part of ongoing, strategic business ventures. Loans to affiliate entities are included within Loans to and investments in associated companies and are accounted for on an amortized cost basis. We have also elected the fair value option for Jefferies structured notes which are managed by Jefferies capital markets businesses and are included in Long-term debt on the Consolidated Statements of Financial Condition. We have elected the fair value option for certain financial instruments held by Jefferies subsidiaries as the investments are risk managed on a fair value basis. The fair value option has also been elected for certain secured financings that arise in connection with Jefferies securitization activities and other structured financings. Other secured financings, receivables from brokers, dealers and clearing organizations, receivables from customers of securities operations, payables to brokers, dealers and clearing organizations and payables to customers of securities operations, are accounted for at cost plus accrued interest rather than at fair value; however, the recorded amounts approximate fair value due to their liquid or short-term nature.

The following is a summary of gains (losses) due to changes in instrument specific credit risk on loans, other receivables and debt instruments and gains (losses) due to other changes in fair value on long-term debt measured at fair value under the fair value option for the three and six months ended June 30, 2016 and 2015 (in thousands):



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Financial Instruments Owned:
Loans and other receivables	$	(10,564	)	$	(5,294	)	$	(24,901	)	$	(2,377	)

Financial Instruments Sold:
Loans	$	407		$	110		$	405		$	238
Loan commitments	$	1,173		$	5,544		$	(2,573	)	$	(1,622	)

Long-term Debt:
Changes in instrument specific credit risk (1)	$	(3,453	)	$	—		$	(3,755	)	$	—
Other changes in fair value (2)	$	3,489		$	—		$	10,305		$	—

(1) Changes in instrument-specific credit risk related to structured notes are included in the Consolidated Statements of Comprehensive Income (Loss).

(2) Other changes in fair value include $3.9 million and $10.7 million for the three and six months ended June 30, 2016, respectively, included within Principal transactions revenues and $0.4 million and $0.4 million for the three and six months ended June 30, 2016, respectively, included within Interest expense on the Consolidated Statements of Operations.

The following is a summary of the amount by which contractual principal exceeds fair value for loans and other receivables and long-term debt measured at fair value under the fair value option (in thousands):



	June 30, 2016		December 31, 2015

Financial Instruments Owned:
Loans and other receivables (1)	$	416,434	$	408,369
Loans and other receivables on nonaccrual status (1) (2)	$	143,620	$	54,652
Long-term Debt	$	7,072	$	—


(1)	Interest income is recognized separately from other changes in fair value and is included within Interest income in the Consolidated Statements of Operations.


(2)	Amounts include all loans and other receivables greater than 90 days past due of $42.9 million and $29.7 million at June 30, 2016 and December 31, 2015, respectively.

The aggregate fair value of loans and other receivables on nonaccrual status and/or greater than 90 days or more past due was $51.8 million and $307.5 million at June 30, 2016 and December 31, 2015, respectively, which includes loans and other receivables greater than 90 days past due of $23.3 million and $11.3 million at June 30, 2016 and December 31, 2015, respectively.

We have elected the fair value option for Jefferies investment in KCG Holdings, Inc. The change in the fair value of this investment was $55.8 million and $20.4 million for three months ended June 30, 2016 and 2015, respectively, and $17.7 million and $55.0 million for six months ended June 30, 2016 and 2015, respectively.

As of June 30, 2016 and December 31, 2015, we owned approximately 46.6 million common shares of HRG, representing approximately 23% of HRG’s outstanding common shares, which are accounted for under the fair value option. The shares are included in our Consolidated Statements of Financial Condition at fair value of $639.8 million and $631.9 million at June 30, 2016 and December 31, 2015, respectively. The shares were acquired at an aggregate cost of $475.6 million. The change in the fair value of our investment in HRG aggregated $(9.3) million and $24.2 million, respectively, during the three months ended June 30, 2016 and 2015, respectively, and $7.9 million and $(54.1) million for six months ended June 30, 2016 and 2015, respectively. We currently have two directors on HRG’s board.

We believe accounting for these investments at fair value better reflects the economics of these investments, and quoted market prices for these investments provides an objectively determined fair value at each balance sheet date. Our investment in HomeFed is the only other investment accounted for under the equity method of accounting that is also a publicly traded company for which we did not elect the fair value option. HomeFed’s common stock is not listed on any stock exchange, and price information for the common stock is not regularly quoted on any automated quotation system. It is traded in the over-the-counter market with high and low bid prices published by the NASD OTC Bulletin Board Service; however, trading volume is minimal. For these reasons we did not elect the fair value option for HomeFed.