Fair Value Disclosures

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value Disclosures

The following is a summary of our financial instruments, trading liabilities and long-term debt that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on NAV (within trading assets) of $20.2 million and $24.3 million, respectively, by level within the fair value hierarchy at December 31, 2017 and 2016 (in thousands):

	December 31, 2017
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,975,463	$	60,300	$	22,270	$	—		$	3,058,033
Corporate debt securities	—		3,261,300		26,036		—			3,287,336
Collateralized debt obligations and collateralized loan obligations	—		139,166		42,184		—			181,350
U.S. government and federal agency securities	1,269,230		39,443		—		—			1,308,673
Municipal securities	—		710,513		—		—			710,513
Sovereign obligations	1,381,552		1,035,907		—		—			2,417,459
Residential mortgage-backed securities	—		1,453,294		26,077		—			1,479,371
Commercial mortgage-backed securities	—		508,115		12,419		—			520,534
Other asset-backed securities	—		217,111		61,129		—			278,240
Loans and other receivables	—		1,620,581		47,304		—			1,667,885
Derivatives	165,396		3,323,278		9,295		(3,318,481		)	179,488
Investments at fair value	—		946		329,944		—			330,890
FXCM term loan	—		—		72,800		—			72,800
Total trading assets, excluding investments at fair value based on NAV	$	5,791,641	$	12,369,954	$	649,458	$	(3,318,481	)	$	15,492,572
Available for sale securities:
Corporate equity securities	$	88,486	$	—	$	—	$	—		$	88,486
U.S. government securities	552,805		—		—		—			552,805
Residential mortgage-backed securities	—		34,561		—		—			34,561
Commercial mortgage-backed securities	—		5,870		—		—			5,870
Other asset-backed securities	—		34,839		—		—			34,839
Total available for sale securities	$	641,291	$	75,270	$	—	$	—		$	716,561
Liabilities:
Trading liabilities:
Corporate equity securities	$	1,721,267	$	32,122	$	48	$	—		$	1,753,437
Corporate debt securities	—		1,688,825		522		—			1,689,347
U.S. government and federal agency securities	1,430,737		—		—		—			1,430,737
Sovereign obligations	1,216,643		956,992		—		—			2,173,635
Commercial mortgage-backed securities	—		—		105		—			105
Loans	—		1,148,824		3,486		—			1,152,310
Derivatives	249,361		3,480,506		16,041		(3,490,514		)	255,394
Total trading liabilities	$	4,618,008	$	7,307,269	$	20,202	$	(3,490,514	)	$	8,454,965
Short-term borrowings	$	—	$	23,324	$	—	$	—		$	23,324
Long-term debt	$	—	$	606,956	$	—	$	—		$	606,956

	December 31, 2016
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,522,977	$	92,839	$	21,739	$	—		$	2,637,555
Corporate debt securities	—		2,675,020		25,005		—			2,700,025
Collateralized debt obligations and collateralized loan obligations	—		54,306		54,354		—			108,660
U.S. government and federal agency securities	2,389,397		56,726		—		—			2,446,123
Municipal securities	—		708,469		27,257		—			735,726
Sovereign obligations	1,432,556		990,492		—		—			2,423,048
Residential mortgage-backed securities	—		960,494		38,772		—			999,266
Commercial mortgage-backed securities	—		296,405		20,580		—			316,985
Other asset-backed securities	—		63,587		40,911		—			104,498
Loans and other receivables	—		1,557,233		81,872		—			1,639,105
Derivatives	3,825		4,616,822		6,429		(4,255,998		)	371,078
Investments at fair value	—		—		314,359		—			314,359
FXCM term loan	—		—		164,500		—			164,500
Total trading assets, excluding investments at fair value based on NAV	$	6,348,755	$	12,072,393	$	795,778	$	(4,255,998	)	$	14,960,928
Available for sale securities:
Corporate equity securities	$	79,425	$	—	$	—	$	—		$	79,425
Corporate debt securities	—		179		—		—			179
U.S. government securities	174,933		—		—		—			174,933
Residential mortgage-backed securities	—		19,133		—		—			19,133
Commercial mortgage-backed securities	—		8,337		—		—			8,337
Other asset-backed securities	—		19,042		—		—			19,042
Total available for sale securities	$	254,358	$	46,691	$	—	$	—		$	301,049
Liabilities:
Trading liabilities:
Corporate equity securities	$	1,593,548	$	16,806	$	313	$	—		$	1,610,667
Corporate debt securities	—		1,718,424		523		—			1,718,947
U.S. government and federal agency securities	976,497		—		—		—			976,497
Sovereign obligations	1,375,590		1,253,754		—		—			2,629,344
Loans	—		801,977		378		—			802,355
Derivatives	2,566		4,867,586		9,870		(4,229,213		)	650,809
Total trading liabilities	$	3,948,201	$	8,658,547	$	11,084	$	(4,229,213	)	$	8,388,619
Other secured financings	$	—	$	41,350	$	418	$	—		$	41,768
Long-term debt	$	—	$	248,856	$	—	$	—		$	248,856

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

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 of the fair value hierarchy. To the extent these securities are actively traded, valuation adjustments are not applied.

• 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 from 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/Earnings before interest, taxes, depreciation and amortization ("EBITDA"), price/book value), discounted cash flow analyses and transaction prices observed from subsequent financing or capital issuance by Jefferies. 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 measured primarily using pricing data from external pricing services, prices observed from recently executed market transactions and broker quotations and are categorized within Level 2 of the fair value hierarchy. Where such information is not available, 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 from 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 are 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 from recently executed market transactions of Institutional 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 financing or recapitalization, models incorporating financial ratios and projected cash flows of the issuer and market prices for comparable issuers.

Collateralized Debt Obligations and Collateralized Loan Obligations

CDOs and CLOs are measured based on prices observed from 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 loss severity.

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 Debt Securities:  Callable and non-callable U.S. agency 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

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. Sovereign government obligations are classified in Level 1 or Level 2 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 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 from 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 of the fair value hierarchy. We also use vendor data in developing our assumptions, as appropriate.

• Non-Agency Residential Mortgage-Backed Securities:  The fair value of non-agency residential mortgage-backed securities is 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. In addition, broker quotes, where available, are also referenced to compare prices primarily on interest-only securities.

Commercial Mortgage-Backed Securities

• Agency Commercial Mortgage-Backed Securities:  Government National Mortgage Association (“GNMA”) project loan bonds are measured based on inputs corroborated from and benchmarked to observed prices of recent securitization transactions of similar securities with adjustments incorporating an evaluation of 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 from 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 from 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 transaction data. Corporate loans categorized within Level 3 of the fair value hierarchy are measured based on 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 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 and incorporating 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 receivable.

Derivatives

• Listed Derivative Contracts:  Listed derivative contracts that are actively traded are measured based on quoted exchange prices, broker quotes or vanilla option valuations models, such as Black-Scholes, using observable valuation inputs from the principal market. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Brokers quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally classified within Level 1 of the fair value hierarchy. All other listed derivative contracts are generally categorized within Level 2 of the fair value hierarchy.

• Over-the-counter ("OTC") Derivative Contracts:  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 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 including the underlying security price, foreign exchange spot rate, 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. Discounted cash flow models are also utilized to measure certain variable funding note swaps, which are backed by CLOs and incorporate constant prepayment rate, constant default rate and loss severity assumptions. 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 generally 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 uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse 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 analysis 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 Jefferies defined benefit plan in Germany. Fair value for the insurance contracts are determined using a third party and is categorized within Level 3 of the fair value hierarchy. 

Investment in FXCM

FXCM is a provider of online foreign exchange trading services. In January 2015, we entered into a credit agreement with FXCM, and provided FXCM a $300 million senior secured term loan due January 2017 (the term of which was subsequently extended to January 2019), with rights to a variable proportion of certain future distributions in connection with an FXCM sale of assets or certain other events, and to require a sale of FXCM beginning in January 2018. 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. During the year ended December 31, 2017, interest accrued at 20.5% per annum. During the year ended December 31, 2017, we received $114.9 million of principal and interest from FXCM and $69.9 million of principal remained outstanding under the term loan as of December 31, 2017. Through December 31, 2017, we have received cumulatively $331.6 million of principal, interest and fees from our initial $279.0 million investment in FXCM.

Through September 1, 2016, the total amount of our investment in FXCM was 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, were included within Principal transactions in the Consolidated Statements of Operations. We recorded gains (losses) in Principal transactions of $23.2 million during the year ended December 31, 2017 from our term loan and $(54.6) million and $491.3 million during the years ended December 31, 2016 and 2015, respectively, from our term loan and related rights.

On September 1, 2016, we, Global Brokerage Inc. ("Global Brokerage") and Global Brokerage Holdings entered into an agreement that amended the terms of our loan and associated rights. On November 10, 2017, the terms of our loan and associated rights were amended further. Among other changes, the amendments during 2016 and 2017 extended the repayment date of the remaining loan balance to January 2019; and exchanged our rights for a 50% voting interest in FXCM and up to 75% of all distributions. Through these amendments, we also gained the right to appoint three of six board members for FXCM. We have the right, as does Global Brokerage Holdings, the owner of the remaining 50% of FXCM voting interest that is not held by Leucadia, to require a sale of FXCM beginning in January 2018. Distributions to Leucadia under the amended agreements are now: 100% until amounts due under the loan are repaid; 50% of the next $350 million; then 90% of the next $600 million; and 60% of all amounts thereafter.

Through the amendment on September 1, 2016 we gained the ability to significantly influence FXCM through our seats on the board of directors. As a result, we classify our equity investment in FXCM in our December 31, 2017 and 2016 Consolidated Statements of Financial Condition as Loans to and investments in associated companies. We account for our equity interest on a one month lag. As the amendments only extended the maturity of the term loan, we continue to use the fair value option and classify our term loan within Trading assets, at fair value.

During February 2017, Global Brokerage Holdings and FXCM's U.S. subsidiary, Forex Capital Markets LLC ("FXCM U.S.") settled complaints filed by the National Futures Association ("NFA") and the Commodity Futures Trading Commission ("CFTC") against FXCM U.S. and certain of its principals relating to matters that occurred between 2010 and 2014. As part of the settlements, FXCM U.S. withdrew from business and sold FXCM U.S.'s customer accounts. FXCM also implemented a restructuring plan that included the termination of approximately 22% of its global workforce. The proceeds from the sale of the U.S. accounts, net of closure and severance costs, as well as regulatory capital released after the sale, has been used to pay down the Leucadia term loan.

FXCM is considered a variable interest entity ("VIE") and our term loan and equity ownership are variable interests.  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 and we account for our equity interest under the equity method as an investment in an associated company.

Our maximum exposure to loss as a result of our involvement with FXCM is limited to the carrying value of the term loan ($72.8 million) and the investment in associated company ($158.9 million), which totaled $231.7 million at December 31, 2017.

We estimate the fair value of our term loan by using a valuation model with inputs including management’s assumptions concerning the amount and timing of expected cash flows, the loan’s implied credit rating and effective yield. Because of these inputs and the degree of judgment involved, we have categorized our term loan within Level 3 of the fair value hierarchy.

Nonrecurring Fair Value Measurements

As described further in Note 10, in the first quarter of 2017 we engaged an independent valuation firm to assist management in estimating the fair value of our equity investment in FXCM. Our first quarter estimate of fair value was based on a discounted cash flow and comparable public company analysis and is categorized within Level 3 of the fair value hierarchy. The discounted cash flow valuation model used inputs including management's projections of future FXCM cash flows and a discount rate of approximately 15%. The comparable public company model used market data for comparable companies including a price to EBITDA multiple of 5.4 and a price to revenue multiple of 1.5. The estimated fair value of our equity investment in FXCM was $186.7 million, which was $130.2 million lower than the carrying value at the end of the first quarter 2017. As a result, an impairment charge of $130.2 million was recorded in Income (loss) related to associated companies in the first quarter of 2017.

In 2015, we recorded impairment charges in Selling, general and other expenses of $27.7 million, primarily related to a $20.3 million impairment at JETX and an impairment charge related to National Beef's Brawley plant (which was closed in 2014) of $4.7 million. JETX owns both proved and unproved oil and gas properties that are included in Other assets in our Consolidated Statements of Financial Condition. For the oil and gas impairment test related to proved properties, we compare expected undiscounted future net cash flows to the unamortized capitalized cost of the asset. If the future undiscounted net cash flows are lower than the unamortized capital cost, we reduce the capitalized cost to fair market value. We used a third party reserve report in which the cash flows were calculated using West Texas Intermediate (oil) and Henry Hub (gas) NYMEX futures prices as of December 31, 2015. For one of our oil fields, the undiscounted net cash flows were lower than the unamortized capital cost and as a result, we wrote off the total capital cost.

In the third quarter of 2016, JETX curtailed development of both its southern acreage in the East Eagle Ford and its Houston County acreage and performed an impairment analysis of these unproved oil and gas properties. To measure the estimated fair value of the unproved properties, we used unobservable Level 3 inputs, which took into account the following factors: remaining lease terms, drilling results and/or future plans to develop the acreage. The estimated fair value of JETX's southern acreage in the East Eagle Ford and its Houston County acreage totaled $51.6 million, which was $55.0 million lower than the carrying value as of the end of third quarter of 2016. As a result, an impairment charge of $55.0 million was recorded in Selling, general and other expenses in the third quarter of 2016.

In the third quarter of 2017, JETX decided to focus on its other higher returning acreage and as a result JETX wrote off the remaining carrying value for its Houston County acreage. JETX recorded an impairment charge of $10.1 million in Selling, general and other expenses in the third quarter of 2017 related to the write-down of unproved oil and gas properties.

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 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 (in thousands).

	Fair Value (1)		Unfunded Commitments		Redemption Frequency (if currently eligible)
December 31, 2017
Equity Long/Short Hedge Funds (2)	$	407,895	$	—	(2)
Fixed Income and High Yield Hedge Funds (3)	417		—		—
Fund of Funds (4)	189		—		—
Equity Funds (5)	26,798		19,084		—
Multi-asset Fund (6)	154,805		—		—
Total	$	590,104	$	19,084
December 31, 2016
Equity Long/Short Hedge Funds (2)	$	363,256	$	—	(2)
Fixed Income and High Yield Hedge Funds (3)	772		—		—
Fund of Funds (4)	230		—		—
Equity Funds (5)	42,179		20,295		—
Multi-asset Fund (6)	133,190		—		—
Total	$	539,627	$	20,295

(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 December 31, 2017 and 2016, 73% and 83%, respectively, of these investments are redeemable with 10 business days or less prior written notice, and 15% and 17%, respectively, are redeemable with 30 to 60 days prior written notice.

(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. 

(4) This category includes investments in fund of funds that invest in various private equity funds. The investments in this category are managed by us and have no redemption provisions. These investments are gradually being liquidated or we have requested redemption, however, we are unable to estimate when these funds will be received.

(5) The 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 six 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 both December 31, 2017 and 2016, investments representing approximately 12% of the fair value of investments in this category are redeemable with 30 days prior written notice.

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. 

Short-term Borrowings and Long-term Debt

Short-term borrowings that are accounted for at fair value include equity-linked notes, which are generally categorized as Level 2 within the fair value hierarchy, as the fair value is based on the price of the underlying equity security. Long-term debt includes variable rate, fixed-to-floating rate, CMS (constant maturity swap) and Bermudan structured notes. These are valued using various valuation models that incorporate Jefferies own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs and are generally categorized within Level 2 of the fair value hierarchy. In addition, pricing transparency has been evidenced based on transaction data from recently issued notes.

Transfers Between Levels 1 and 2 for Instruments Carried at Fair Value

There were no material transfers between Level 1 and Level 2 for the for the years ended December 31, 2017, 2016 and 2015.

Level 3 Rollforwards

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 year ended December 31, 2017 (in thousands):

Year Ended December 31, 2017
	Balance, December 31, 2016		Total gains (losses) (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance at December 31, 2017		Changes in unrealized gains (losses) relating to instruments still held at December 31, 2017 (1)
Assets:
Trading assets:
Corporate equity securities	$	21,739	$	3,353		$	896		$	(1,623	)	$	52		$	—	$	(2,147	)	$	22,270	$	2,606
Corporate debt securities	25,005		(3,723		)	36,850			(34,077		)	(1,968		)	—		3,949			26,036		(3,768		)
CDOs and CLOs	54,354		(27,238		)	112,239			(101,226		)	(367		)	—		4,422			42,184		(20,262		)
Municipal securities	27,257		(1,547		)	—			(25,710		)	—			—		—			—		—
Residential mortgage-backed securities	38,772		(10,817		)	6,805			(26,193		)	(115		)	—		17,625			26,077		(7,201		)
Commercial mortgage-backed securities	20,580		(5,346		)	3,275			(5,263		)	(1,018		)	—		191			12,419		(6,976		)
Other asset-backed securities	40,911		(17,705		)	77,508			(8,613		)	(25,799		)	—		(5,173		)	61,129		(12,562		)
Loans and other receivables	81,872		24,794			63,768			(53,095		)	(34,622		)	—		(35,413		)	47,304		17,451
Investments at fair value	314,359		20,975			18,528			(22,818		)	(1,100		)	—		—			329,944		22,999
Investment in FXCM	164,500		23,161			—			—			(114,861		)	—		—			72,800		1,070
Liabilities:
Trading liabilities:
Corporate equity securities	$	313	$	60		$	(373	)	$	48		$	—		$	—	$	—		$	48	$	—
Corporate debt securities	523		(1		)	—			—			—			—		—			522		1
Commercial mortgage-backed securities	—		105			—			—			—			—		—			105		(105		)
Net derivatives (2)	3,441		(1,638		)	—			—			5,558			456		(1,071		)	6,746		(17,740		)
Loans	378		196			(385		)	2,485			—			—		812			3,486		(2,639		)
Other secured financings	418		(418		)	—			—			—			—		—			—		—

(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 year ended December 31, 2017

During the year ended December 31, 2017, transfers of assets of $38.2 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

• Residential mortgage-backed securities of $19.6 million and corporate debt securities of $8.3 million due to a lack of observable market transactions.

During the year ended December 31, 2017, transfers of assets of $54.9 million from Level 3 to Level 2 are attributed to:

• Loans and other receivables of $40.9 million due to greater pricing transparency supporting classification into Level 2;

Net gains on Level 3 assets were $5.9 million and net gains on Level 3 liabilities were $1.7 million for the year ended December 31, 2017. Net gains on Level 3 assets were primarily due to increased valuations of our investment in FXCM, investments at fair value and certain loans and other receivables partially offset by decreased valuations of CDOs and CLOs, other asset-backed securities and residential mortgage-backed securities. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives.

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 year ended December 31, 2016 (in thousands):

Year Ended December 31, 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 December 31 ,2016		Changes in unrealized gains (losses) relating to instruments still held at December 31, 2016 (1)
Assets:
Trading assets:
Corporate equity securities	$	40,906		$	(8,463	)	$	3,365	$	(49	)	$	(671	)	$	—	$	(13,349	)	$	21,739	$	291
Corporate debt securities	25,876			(16,230		)	27,242		(29,347		)	(7,223		)	—		24,687			25,005		(18,799		)
CDOs and CLOS	85,092			(14,918		)	52,316		(69,394		)	(2,750		)	—		4,008			54,354		(7,628		)
Municipal securities	—			(1,462		)	—		—			—			—		28,719			27,257		(1,462		)
Sovereign obligations	120			5			—		(125		)	—			—		—			—		—
Residential mortgage backed securities	70,263			(9,612		)	623		(12,249		)	(931		)	—		(9,322		)	38,772		(1,095		)
Commercial mortgage-backed securities	14,326			(7,550		)	3,132		(2,024		)	(2,229		)	—		14,925			20,580		(7,243		)
Other asset-backed securities	42,925			(14,381		)	133,986		(102,952		)	(8,769		)	—		(9,898		)	40,911		(18,056		)
Loans and other receivables	189,289			(42,566		)	75,264		(69,262		)	(46,851		)	—		(24,002		)	81,872		(52,003		)
Investments at fair value	199,794			54,538			29,728		(542		)	(1,107		)	—		31,948			314,359		54,608
Investment in FXCM (2)	625,689			(54,634		)	—		—			(406,555		)	—		—			164,500		(1,014		)
Liabilities:
Trading liabilities:
Corporate equity securities	$	38		$	—		$	—	$	313		$	(38	)	$	—	$	—		$	313	$	—
Corporate debt securities	—			(27		)	—		550			—			—		—			523		—
Net derivatives (3)	(242		)	(1,760		)	—		11,101			31			2,067		(7,756		)	3,441		(6,458		)
Loans	10,469			—			—		378			—			—		(10,469		)	378		—
Other secured financings	544			(126		)	—		—			—			—		—			418		(126		)

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

(2) Includes $334.5 million related to the settlement of our participation rights for equity ownership in FXCM on September 1, 2016. We classify the equity ownership as a Loan to and investment in associated company at December 31, 2017 and 2016.

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

Analysis of Level 3 Assets and Liabilities for the year ended December 31, 2016

During the year ended December 31, 2016, transfers of assets of $179.6 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

• CDOs and CLOs of $19.4 million, residential mortgage-backed securities of $17.5 million, commercial mortgage-backed securities of $17.4 million and other asset-backed securities of $16.9 million, for which no recent trade activity was observed for purposes of determining observable inputs;

• Loans and other receivables of $13.8 million due to a lower number of contributors for certain vendor quotes supporting classification within Level 2; and

• Corporate debt securities of $28.1 million, investments at fair value of $31.9 million and municipal securities of $28.7 million due to a lack of observable market transactions.

During the year ended December 31, 2016, transfers of assets of $133.2 million from Level 3 to Level 2 are attributed to:

• Residential mortgage-backed securities of $26.8 million, other asset-backed securities of $26.8 million and CDOs and CLOs of $15.4 million for which market trades were observed in the year for either identical or similar securities;

• Loans and other receivables of $37.8 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2; and

• Corporate equity securities of $19.2 million due to an increase in observable market transactions.

During the year ended December 31, 2016, there were transfers of loan liabilities of $10.5 million from Level 3 to Level 2 due to an increase in observable inputs in the valuation.

Net losses on Level 3 assets were $115.3 million and net gains on Level 3 liabilities were $1.9 million for the year ended December 31, 2016. Net losses on Level 3 assets were primarily due to decreased valuations of our investment in FXCM, loans and other receivables, corporate debt securities, CDOs and CLOs, other asset-backed securities, residential and commercial mortgage-backed securities and corporate equity securities partially offset by increased valuations of certain investments at fair value. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net derivatives.

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 year ended December 31, 2015 (in thousands).

Year Ended December 31, 2015
	Balance, December 31, 2014			Total gains (losses) (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance at December 31, 2015			Changes in unrealized gains (losses) relating to instruments still held at December 31, 2015 (1)
Assets:
Trading assets:
Corporate equity securities	$	20,964		$	11,154		$	21,385		$	(6,391	)	$	—		$	—	$	(6,206	)	$	40,906		$	11,424
Corporate debt securities	22,766			(11,013		)	21,534			(14,636		)	—			—		7,225			25,876			(9,443		)
CDOs and CLOs	124,650			(66,332		)	104,998			(107,381		)	(5,754		)	—		34,911			85,092			(48,514		)
Municipal securities	—			10			—			—			(21,551		)	—		21,541			—			—
Sovereign Obligations	—			47			1,032			(1,031		)	—			—		72			120			39
Residential mortgage-backed securities	82,557			(12,951		)	18,961			(31,762		)	(597		)	—		14,055			70,263			(4,498		)
Commercial mortgage-backed securities	26,655			(3,813		)	3,480			(10,146		)	(6,861		)	—		5,011			14,326			(3,205		)
Other asset-backed securities	2,294			(990		)	42,922			(1,299		)	(2		)	—		—			42,925			(254		)
Loans and other receivables	97,258			(14,755		)	792,345			(576,536		)	(124,365		)	—		15,342			189,289			(16,802		)
Investments at fair value	77,047			62,804			5,510			(425		)	(4,093		)	—		58,951			199,794			(1,964		)
Investments in FXCM	—			491,341			279,000			—			(144,652		)	—		—			625,689			491,341
Liabilities:
Trading liabilities:
Corporate equity securities	$	38		$	—		$	—		$	—		$	—		$	—	$	—		$	38		$	—
Corporate debt securities	223			(110		)	(6,804		)	6,691			—			—		—			—			—
Net derivatives (2)	(4,638		)	(7,310		)	(6,705		)	13,522			37			2,437		2,415			(242		)	4,754
Loans	14,450			(163		)	(2,059		)	229			—			—		(1,988		)	10,469			104
Other secured financings	30,825			—			—			—			(15,704		)	36,995		(51,572		)	544			—

(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 year ended December 31, 2015

During the year ended December 31, 2015, transfers of assets of $236.7 million from Level 2 to Level 3 of the fair value hierarchy are attributed to:

• CDOs and CLOs of $69.8 million, non-agency residential mortgage-backed securities of $30.4 million and commercial mortgage-backed securities of $11.3 million for which no recent trade activity was observed for purposes of determining observable inputs;

• Municipal securities of $21.5 million and loans and other receivables of $20.1 million due to a lower number of contributors for certain vendor quotes supporting classification within Level 2; and

• Corporate debt securities of $7.4 million and investments at fair value of $74.7 million due to a lack of observable market transactions.

During the year ended December 31, 2015, transfers of assets of $85.8 million from Level 3 to Level 2 are attributed to:

• Non-agency residential mortgage-backed securities of $16.3 million and commercial mortgage-backed securities of $6.3 million for which market trades were observed in the year for either identical or similar securities;

• CDOs and CLOs of $34.9 million and loans and other receivables of $4.7 million due to a greater number of contributors for certain vendor quotes supporting classification into Level 2; and

• Investments at fair value of $15.8 million and corporate equity securities of $7.7 million due to an increase in observable market transactions.

During the year ended December 31, 2015, there were transfers of other secured financings of $51.6 million from Level 3 to Level 2 due to an increase in observable inputs in the valuation.

Net gains on Level 3 assets were $455.5 million and net gains on Level 3 liabilities were $7.6 million for the year ended December 31, 2015. Net gains on Level 3 assets were primarily due to increased valuations of our investment in FXCM and increase in valuation of certain investments at fair value and corporate equity securities partially offset by decreased valuations of CDOs and CLOs, certain loans and other receivables and residential and commercial mortgage-backed securities. Net gains on Level 3 liabilities were primarily due to increased valuations of certain net 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 across different firms 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 range of inputs is 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 periods 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.

December 31, 2017
Financial Instruments Owned	Fair Value (in thousands)		Valuation  Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	18,109
Non-exchange traded securities			Market approach	Price	$3 to $75	$33.0
				Underlying stock price	$6	—
			Comparable pricing	Comparable asset price	$7	—
Corporate debt securities	$	26,036	Convertible bond model	Discount rate/yield	8%	—
				Volatility	40%	—
			Market approach	Estimated recovery percentage	17%	—
				Price	$10	—
CDOs and CLOs	$	38,845	Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25% to 30%	26	%
				Discount rate/yield	3% to 26%	12	%
			Scenario analysis	Estimated recovery percentage	8% to 45%	26	%
Residential mortgage-backed securities	$	26,077	Discounted cash flows	Cumulative loss rate	3% to 19%	10	%
				Duration (years)	2 years to 4 years	3
				Discount rate/yield	6% to 10%	8	%
Commercial mortgage-backed securities	$	12,419	Discounted cash flows	Discount rate/yield	2% to 26%	12	%
				Cumulative loss rate	8% to 65%	44	%
				Duration (years)	1 year to 3 years	2
			Scenario analysis	Estimated recovery percentage	26% to 32%	28	%
				Price	$52 to $56	$54.0
Other asset-backed securities	$	61,129	Discounted cash flows	Cumulative loss rate	0% to 33%	23	%
				Duration (years)	1 year to 6 years	2
				Discount rate/yield	5% to 39%	9	%
			Market approach	Price	$100	—
			Scenario analysis	Estimated recovery percentage	14%	—
Loans and other receivables	$	46,121	Market approach	Estimated recovery percentage	76%	—
				Price	$54 to $100	$95.0
			Scenario analysis	Estimated recovery percentage	13% to 107%	78	%
Derivatives	$	9,295
Total return swaps			Market approach	Price	$101 to $106	$103.0
Interest rate swaps			Market approach	Credit spread	800 bps	—
Investments at fair value	$	110,010
Private equity securities			Market approach	Transaction Level	$3 to $250	$172.0
				Price	$7	—
				Discount rate	20%	—
Investment in FXCM	$	72,800
Term loan			Discounted cash flows	Term based on the pay off (years)	0 months to 1 year	0.2 years
Trading Liabilities	Fair Value (in thousands)		Valuation  Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Derivatives	$	16,041
Equity options			Option model/default rate	Default probability	0%	—
Unfunded commitments			Market approach	Price	$99	—
Total return swaps			Market approach	Price	$101 to $106	$103.0
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Discount rate/yield	26%	—

December 31, 2016
Financial Instruments Owned	Fair Value (in thousands)		Valuation  Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	19,799
Non-exchange traded securities			Market approach	Underlying stock price	$3 to $75	$15.0
			Comparable pricing	Underlying stock price	$218	—
				Comparable asset price	$11	—
			Present value	Average silver production (tons per day)	666	—
Corporate debt securities	$	25,005	Convertible bond model	Discount rate/yield	9%	—
				Volatility	40%	—
			Market approach	Transaction level	$30	—
CDOs and CLOs	$	33,016	Discounted cash flows	Constant prepayment rate	10% to 20%	19	%
				Constant default rate	2% to 4%	2	%
				Loss severity	25% to 70%	40	%
				Yield	7% to 17%	12	%
			Scenario analysis	Estimated recovery percentage	28% to 38%	31	%
Residential mortgage-backed securities	$	38,772	Discounted cash flows	Constant prepayment rate	0% to 11%	5	%
				Constant default rate	1% to 7%	3	%
				Loss severity	35% to 100%	62	%
				Yield	2% to 10%	6	%
Commercial mortgage-backed securities	$	20,580	Discounted cash flows	Yield	6% to 11%	8	%
				Cumulative loss rate	5% to 95%	39	%
Other asset-backed securities	$	40,911	Discounted cash flows	Constant prepayment rate	4% to 20%	14	%
				Constant default rate	0% to 31%	13	%
				Loss severity	0% to 100%	90	%
				Yield	4% to 17%	15	%
			Market approach	Price	$72	—
Loans and other receivables	$	54,347	Market approach	Discount rate/yield	2% to 4%	3	%
				EBITDA (a) multiple	3.3	—
				Transaction level	$0.42	—
			Present value	Average silver production (tons per day)	666	—
			Scenario analysis	Estimated recovery percentage	6% to 50%	37	%
Derivatives	$	6,429
Equity swaps			Comparable pricing	Comparable asset price	$102	—
Credit default swaps			Market approach	Credit spread	265 bps	—
Investments at fair value	$	67,383
Private equity securities			Market approach	Transaction Level	$250	—
				Price	$25,815,720	—
				Discount rate	15% to 30%	23	%
Investment in FXCM	$	164,500
Term loan			Discounted cash flows	Term based on the pay off (years)	0 months to 0.5 years	0.4 years
Trading Liabilities	Fair Value (in thousands)		Valuation  Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Derivatives	$	9,870
Equity options			Option model	Volatility	45%	—
			Default rate	Default probability	0%	—
Equity swaps			Comparable pricing	Comparable asset price	$102	—
Unfunded commitments			Market approach	Discount rate/yield	4%	—
Variable funding note swaps			Discounted cash flows	Constant prepayment rate	20%	—
				Constant default rate	2%	—
				Loss severity	25%	—
				Yield	16%	—

(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 tables. At December 31, 2017 and 2016, asset exclusions consisted of $228.6 million and $325.0 million, respectively, primarily comprised of investments at fair value, private equity securities, CDOs and CLOs, municipal securities, non-exchange traded securities and loans and other receivables. At December 31, 2017 and 2016, liability exclusions consisted of $4.2 million and $1.6 million, respectively, of other secured financings, commercial mortgage-backed securities, loans and corporate debt and equity securities.

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:

• Non-exchange traded securities and equity swaps using comparable pricing valuation techniques. A significant increase (decrease) in the comparable asset and 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 would result in a significantly higher (lower) fair value measurement.

• Non-exchange traded securities, corporate debt securities, loans and other receivables, unfunded commitments, credit default swaps, interest rate swaps, total return swaps, other asset-backed securities 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 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, corporate debt security or loan and other receivable 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. A significant increase (decrease) in the price of the private equity securities, non-exchange traded securities, corporate debt securities, unfunded commitments, total return swaps, other asset-backed securities or loans and other receivables would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the estimated recovery rates of the cash flow outcomes underlying the corporate debt securities and loans and other receivables would result in a significantly higher (lower) fair value measurement.

• Loans and other receivables, CDOs and CLOs, commercial mortgage-backed securities and other asset-backed 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. A significant increase (decrease) in the price of the commercial mortgage-backed securities would result in a significantly higher (lower) fair value measurement.

• CDOs and CLOs, residential and commercial mortgage-backed securities, other asset-backed securities and variable funding notes using a discounted cash flow valuation technique. A significant increase (decrease) in isolation in the constant default rate, loss severity or cumulative loss rate would result in a significantly lower (higher) fair value measurement. The impact of changes in the constant prepayment rate and duration would have differing impacts depending on the capital structure and type of security. A significant increase (decrease) in the discount rate/security yield would result in a significantly lower (higher) 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 lower (higher) fair value measurement.

• Non-exchange traded securities and loans and other receivables using a present value model. A significant increase (decrease) in average silver production would result in a significantly higher (lower) fair value measurement.

• FXCM term loan using a discounted cash flow valuation technique. A significant increase (decrease) in term based on the time to pay off the loan would result in a higher (lower) 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 and consumer loan commitments, purchases and fundings in connection with mortgage-and other asset-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 in Loans to and investments in associated companies in the Consolidated Statements of Financial Condition and are accounted for on an amortized cost basis. Jefferies has also elected the fair value option for certain of its structured notes which are managed by Jefferies capital markets business and are included in Long-term debt and Short-term borrowings in the Consolidated Statements of Financial Condition. Jefferies has elected the fair value option for certain financial instruments held by its 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 Jefferies 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 and short-term borrowings measured at fair value under the fair value option for the years ended December 31, 2017, 2016 and 2015 (in thousands):

	2017			2016			2015
Financial instruments owned:
Loans and other receivables	$	22,088		$	(68,812	)	$	(17,389	)
Financial instruments sold:
Loans	$	—		$	9		$	(162	)
Loan commitments	$	230		$	5,509		$	7,502
Long-term debt:
Changes in instrument specific credit risk (1)	$	(34,609	)	$	(10,745	)	$	—
Other changes in fair value (2)	$	47,291		$	30,995		$	—
Short-term borrowings:
Other changes in fair value (2)	$	(681	)	$	—		$	—

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

(2) Other changes in fair value are included within Principal transactions revenues in 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):

	December 31, 2017		December 31, 2016
Financial instruments owned:
Loans and other receivables (1)	$	752,076	$	1,325,938
Loans and other receivables on nonaccrual status and/or greater than 90 days past due (1) (2)	$	159,462	$	205,746
Long-term debt	$	32,839	$	20,202

(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 or more days past due by which contractual principal exceeds fair value of $38.7 million and $64.6 million at December 31, 2017 and 2016, respectively.

The aggregate fair value of Jefferies loans and other receivables on nonaccrual status and/or greater than 90 days or more past due, was $55.1 million and $29.8 million at December 31, 2017 and 2016, respectively, which includes loans and other receivables greater than 90 days past due of $37.4 million and $18.9 million at December 31, 2017 and 2016, respectively.

Jefferies had elected the fair value option for its investment in KCG Holdings, Inc. ("KCG"). The change in the fair value of this investment was $93.4 million, $19.6 million and $49.1 million for 2017, 2016 and 2015, respectively. Jefferies investment in KCG was sold in July 2017. Additionally, in connection with a KCG shares and warrants exchange transaction, Jefferies earned advisory fees of $2.9 million during the year ended December 31, 2016. Jefferies has also separately entered into securities lending transactions with KCG in the normal course of its capital markets activities. The balances of Securities borrowed and Securities loaned were $9.2 million and $9.2 million, respectively, December 31, 2016.

As of December 31, 2017 and 2016, 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 $789.9 million and $725.1 million at December 31, 2017 and 2016, respectively.  The shares were acquired at an aggregate cost of $475.6 million. The change in the fair value of our investment in HRG was $64.8 million, $93.2 million and $(28.0) millionduring the years ended December 31, 2017, 2016 and 2015, respectively. As reported in its Form 10-K for its fiscal years ended September 30, 2017, 2016 and 2015, HRG's revenues were $5,008.5 million, $5,048.6 million and $4,753.8 million, respectively; net income (loss) from continuing operations was $102.9 million, $144.2 million and $(219.7) million, respectively; net income (loss) was $273.2 million, $(33.9) million and $(512.4) million, respectively; and net income (loss) attributable to HRG was $106.0 million, $(198.8) million and $(556.8) million, respectively. We currently have two directors on HRG’s board, including our Chairman who serves as HRG's Chairman and CEO. 

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, which is a publicly traded company, is accounted for under the equity method of accounting rather than the fair value option method. 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.

Financial Instruments Not Measured at Fair Value

Certain of our financial instruments are not carried at fair value but are recorded at amounts that approximate fair value due to their liquid or short-term nature and generally negligible credit risk. These financial assets include Cash and cash equivalents and Cash and securities segregated and on deposit for regulatory purposes or deposited with clearing and depository organizations and would generally be presented in Level 1 of the fair value hierarchy. 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 $99.7 million and $99.9 million at December 31, 2017 and 2016, respectively. See Note 26 for additional information related to financial instruments not measured at fair value.