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Fair Value Disclosures

6 Months Ended

May 31, 2019

The following is a summary of our financial instruments, securities purchased under agreements to resell, trading liabilities and long-term debt that are accounted for at fair value on a recurring basis, excluding Investments at fair value based on net asset value ("NAV") (within trading assets) of $646.4 million and $394.4 million at May 31, 2019 and November 30, 2018, respectively, by level within the fair value hierarchy (in thousands):



	May 31, 2019
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,701,693	$	132,121	$	59,572	$	—		$	2,893,386
Corporate debt securities	—		2,978,062		8,346		—			2,986,408
Collateralized debt obligations and collateralized loan obligations	—		123,840		25,912		—			149,752
U.S. government and federal agency securities	1,505,882		114,761		—		—			1,620,643
Municipal securities	—		980,138		—		—			980,138
Sovereign obligations	1,866,301		1,020,111		—		—			2,886,412
Residential mortgage-backed securities	—		1,159,961		17,266		—			1,177,227
Commercial mortgage-backed securities	—		404,897		12,530		—			417,427
Other asset-backed securities	—		267,565		43,185		—			310,750
Loans and other receivables	—		2,105,642		98,484		—			2,204,126
Derivatives	16,348		2,529,500		8,414		(2,197,763		)	356,499
Investments at fair value	—		84,058		408,739		—			492,797
FXCM term loan	—		—		56,600		—			56,600
Total trading assets, excluding investments at fair value based on NAV	$	6,090,224	$	11,900,656	$	739,048	$	(2,197,763	)	$	16,532,165
Securities purchased under agreements to resell	$	—	$	—	$	25,000	$	—		$	25,000

Liabilities:
Trading liabilities:
Corporate equity securities	$	2,664,846	$	4,820	$	221	$	—		$	2,669,887
Corporate debt securities	—		1,919,466		669		—			1,920,135
U.S. government and federal agency securities	1,236,461		—		—		—			1,236,461
Sovereign obligations	1,328,132		870,039		—		—			2,198,171
Commercial mortgage-backed securities	—		724		—		—			724
Loans	—		1,524,341		9,428		—			1,533,769
Derivatives	24,578		2,843,810		55,863		(2,370,008		)	554,243
Total trading liabilities	$	5,254,017	$	7,163,200	$	66,181	$	(2,370,008	)	$	10,113,390
Long-term debt	$	—	$	582,947	$	236,562	$	—		$	819,509



	November 30, 2018
	Level 1		Level 2		Level 3		Counterparty and Cash Collateral Netting (1)			Total
Assets:
Trading assets, at fair value:
Corporate equity securities	$	2,497,045	$	118,681	$	52,192	$	—		$	2,667,918
Corporate debt securities	—		2,683,180		9,484		—			2,692,664
Collateralized debt obligations and collateralized loan obligations	—		72,949		36,105		—			109,054
U.S. government and federal agency securities	1,789,614		56,592		—		—			1,846,206
Municipal securities	—		894,253		—		—			894,253
Sovereign obligations	1,769,556		1,043,409		—		—			2,812,965
Residential mortgage-backed securities	—		2,163,629		19,603		—			2,183,232
Commercial mortgage-backed securities	—		819,406		10,886		—			830,292
Other asset-backed securities	—		239,381		53,175		—			292,556
Loans and other receivables	—		2,056,593		46,985		—			2,103,578
Derivatives	34,841		2,539,943		5,922		(2,413,931		)	166,775
Investments at fair value	—		—		396,254		—			396,254
FXCM term loan	—		—		73,150		—			73,150
Total trading assets, excluding investments at fair value based on NAV	$	6,091,056	$	12,688,016	$	703,756	$	(2,413,931	)	$	17,068,897

Available for sale securities:
U.S. government securities	$	1,072,856	$	—	$	—	$	—		$	1,072,856
Residential mortgage-backed securities	—		210,518		—		—			210,518
Commercial mortgage-backed securities	—		15,642		—		—			15,642
Other asset-backed securities	—		110,870		—		—			110,870
Total available for sale securities	$	1,072,856	$	337,030	$	—	$	—		$	1,409,886

Liabilities:
Trading liabilities:
Corporate equity securities	$	1,685,071	$	1,444	$	—	$	—		$	1,686,515
Corporate debt securities	—		1,505,618		522		—			1,506,140
U.S. government and federal agency securities	1,384,295		—		—		—			1,384,295
Sovereign obligations	1,735,242		661,095		—		—			2,396,337
Loans	—		1,371,630		6,376		—			1,378,006
Derivatives	26,473		3,586,694		27,536		(2,513,050		)	1,127,653
Total trading liabilities	$	4,831,081	$	7,126,481	$	34,434	$	(2,513,050	)	$	9,478,946
Long-term debt	$	—	$	485,425	$	200,745	$	—		$	686,170


(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 Group. 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

•

Investment Grade Corporate Bonds: Investment grade 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. Investment grade 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. Investment grade corporate bonds measured using alternative valuation techniques are categorized within Level 2 or Level 3 of the fair value hierarchy and are a limited portion of our investment grade 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 of the fair value hierarchy 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

Collateralized debt obligations ("CDOs") and collateralized loan obligations ("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 obtained from external pricing services 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. Sovereign government obligations, with consideration given to the country of issuance, are generally categorized in Level 1 or Level 2 of the fair value hierarchy.

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 and interest-only (including inverse interest-only) securities. Agency residential mortgage-backed securities are generally measured using recent transactions, pricing data from external pricing services or expected future cash flow techniques that incorporate prepayment models and other prepayment assumptions to amortize the underlying mortgage loan collateral and are categorized within Level 2 of the fair value hierarchy. 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 factors such as weighted average coupon, loan-to-value, credit scores, geographic location, maximum and average loan size, originator, servicer and weighted average loan age.

•

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 from 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, prices observed from recently executed market transactions or based on expected cash flow models that incorporate underlying loan collateral characteristics and performance. Non-agency commercial mortgage-backed securities are categorized within Level 2 or Level 3 of the fair value hierarchy depending on the observability of the underlying inputs.

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 or Level 3 of the fair value hierarchy. Valuations are primarily determined using pricing data obtained from external pricing services, broker quotes and prices observed from recently executed market transactions. In addition, recent transaction data from comparable deals is deployed to develop market clearing yields and cumulative loss assumptions. The cumulative loss assumptions are based on the analysis of the underlying collateral and comparisons to earlier deals from the same issuer to gauge the relative performance of the deal.

Loans and Other Receivables

•

Corporate Loans: Corporate loans categorized within Level 2 of the fair value hierarchy are measured based on market consensus pricing service quotations. Where available, market price quotations from external pricing services are reviewed to ensure they 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 flows 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 and data provider pricing. 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 to account for the arbitrage that is realized at the time of securitization. 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 observations 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 valuation models, such as Black-Scholes, using observable valuation inputs from the principal market or consensus pricing services. Exchange quotes and/or valuation inputs are generally obtained from external vendors and pricing services. Broker quotes are validated directly through observable and tradeable quotes. Listed derivative contracts that use unadjusted exchange close prices are generally categorized 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. Where available, valuation inputs are calibrated from observable 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 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. Where available, external data is used 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.

•

Oil Futures Derivatives: Vitesse Energy Finance uses swaps and call and put options in order to reduce exposure to future oil price fluctuations. Vitesse Energy Finance accounts for the derivative instruments at fair value, which are classified as either Level 1 or Level 2 within the fair value hierarchy. Fair values classified as Level 1 are measured based on quoted closing exchange prices obtained from external pricing services and 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 include investments in hedge funds, fund of funds and private equity funds, which are measured at the NAV of the funds, provided by the fund managers and are excluded from the fair value hierarchy. Investments at fair value also 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, contingent claims 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.

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
May 31, 2019
Equity Long/Short Hedge Funds (2)	$	361,046	$	—
Equity Funds (3)	35,863		19,679
Commodity Funds (4)	15,672		—
Multi-asset Funds (5)	233,512		—
Other funds (6)	326		—
Total	$	646,419	$	19,679

November 30, 2018
Equity Long/Short Hedge Funds (2)	$	86,788	$	—
Equity Funds (3)	40,070		20,996
Commodity Funds (4)	10,129		—
Multi-asset Funds (5)	256,972		—
Other funds (6)	400		—
Total	$	394,359	$	20,996


(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, primarily in equity securities in domestic and international markets in both the public and private sectors. At May 31, 2019 and November 30, 2018, approximately 73% and 0%, respectively, of the fair value of investments in this category cannot be redeemed because these investments include restrictions that do not allow for redemption in the first 36 months after acquisition. At the end of this restriction period, which is in approximately 31 months at May 31, 2019, these investments are redeemable monthly with 45 to 90 days prior written notice. At May 31, 2019 and November 30, 2018, 22% and 82%, respectively, of these investments are redeemable in 2020. At May 31, 2019 and November 30, 2018, 5% and 17%, respectively, of these investments are redeemable quarterly with 60 days prior written notice.

(3)

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 be liquidated in approximately one to ten years.


(4)	This category includes investments in a hedge fund that invests, long and short, primarily in commodities. Investments in this category are redeemable quarterly with 60 days prior written notice.

(5)

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 May 31, 2019 and November 30, 2018, investments representing approximately 5% and 15%, respectively, of the fair value of investments in this category are redeemable monthly with 30 days prior written notice.

(6)

This category includes investments in a fund that invests 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 and there are no redemption provisions. This category also includes investments in a fund of funds that invests in various private equity funds that are managed by Jefferies Group and have no redemption provisions. Investments in the fund of funds are gradually being liquidated, however, the timing of when the proceeds will be received is uncertain.

Investments at fair value also include our investment in WeWork. We invested $9.0 million in WeWork in 2013 and currently own less than 1% of the company. Our interest in WeWork is reflected in Trading assets, at fair value of $269.2 million and $254.4 million at May 31, 2019 and November 30, 2018, respectively.

Investment in FXCM

Our investment in FXCM and associated companies consists of a senior secured term loan due February 15, 2021 ($71.9 million principal outstanding at May 31, 2019), a 50% voting interest in FXCM and a majority of all distributions in respect of the equity of FXCM. Our investment in the FXCM term loan is reported within Trading assets, at fair value in our Consolidated Statements of Financial Condition. We classify our equity investment in FXCM in our May 31, 2019 and November 30, 2018 Consolidated Statements of Financial Condition as Loans to and investments in associated companies, as we have the ability to significantly influence FXCM through our seats on the board of directors.

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.

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell may include embedded call features. The valuation of these instruments is based

on review of expected future cash flows, interest rates, funding spreads and the fair value of the underlying collateral. Securities

purchased under agreements to resell are categorized within Level 3 of the fair value hierarchy due to limited observability of the

embedded derivative and unobservable credit spreads.

Long-term Debt

Long-term debt includes variable rate, fixed-to-floating rate, constant maturity swap, digital and Bermudan structured notes. These are valued using various valuation models that incorporate Jefferies Group's own credit spread, market price quotations from external pricing sources referencing the appropriate interest rate curves, volatilities and other inputs as well as prices for transactions in a given note during the period. Long-term debt notes are generally categorized within Level 2 of the fair value hierarchy where market trades have been observed during the quarter, otherwise they are categorized within Level 3.

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 three months ended May 31, 2019 (in thousands):



Three Months Ended May 31, 2019
	Balance, February 28, 2019		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, May 31, 2019		Changes in unrealized gains/losses included in earnings relating to instruments still held at May 31, 2019 (1)
Assets:
Trading assets:
Corporate equity securities	$	55,576	$	1,808		$	221		$	(179	)	$	(551	)	$	—	$	2,697		$	59,572	$	1,909
Corporate debt securities	10,930		(306		)	816			—			(325		)	—		(2,769		)	8,346		(307		)
CDOs and CLOs	43,144		(1,663		)	—			—			(991		)	—		(14,578		)	25,912		(2,656		)
Residential mortgage-backed securities	20,963		(802		)	—			—			(18		)	—		(2,877		)	17,266		(759		)
Commercial mortgage-backed securities	12,820		(357		)	—			(331		)	(3,238		)	—		3,636			12,530		(1,292		)
Other asset-backed securities	35,886		3,070			16,531			(8,868		)	(8,549		)	—		5,115			43,185		3,563
Loans and other receivables	78,051		(2,753		)	38,780			(13,898		)	(2,438		)	—		742			98,484		(1,277		)
Investments at fair value	421,098		35,594			10,169			(18,302		)	—			—		(39,820		)	408,739		35,594
FXCM term loan	73,600		(11,412		)	1,500			—			(7,088		)	—		—			56,600		(11,412		)
Securities purchased under agreements to resell	—		—			—			—			—			25,000		—			25,000		—

Liabilities:
Trading liabilities:
Corporate equity securities	$	78	$	(74	)	$	(1,520	)	$	1,737		$	—		$	—	$	—		$	221	$	—
Corporate debt securities	730		(148		)	(7		)	1			22			—		71			669		90
Commercial mortgage-backed securities	70		(70		)	—			—			—			—		—			—		—
Loans	3,420		(191		)	(1,678		)	1,537			—			—		6,340			9,428		364
Net derivatives (2)	28,975		(14,760		)	(25		)	4,175			1,974			—		27,110			47,449		7,565
Long-term debt (1)	283,139		1,163			—			—			(5,585		)	39,385		(81,540		)	236,562		(813		)

(1)

Realized and unrealized gains (losses) are primarily reported in Principal transactions revenues in the Consolidated Statements of Operations. Changes in instrument-specific credit risk related to structured notes are included in our Consolidated Statements of Comprehensive Income (Loss), net of tax. Changes in unrealized gains (losses) included in other comprehensive income (loss) for instruments still held at May 31, 2019 were losses of $0.4 million.


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

Analysis of Level 3 Assets and Liabilities for the three months ended May 31, 2019

During the three months ended May 31, 2019, transfers of assets of $31.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Loans and other receivables of $11.3 million and other asset-backed securities of $7.6 million due to reduced pricing transparency.

During the three months ended May 31, 2019, transfers of assets of $79.5 million from Level 3 to Level 2 are primarily attributed to:


•	Investments at fair value of $39.8 million, CDOs and CLOs of $17.6 million and loans and other receivables of $10.5 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended May 31, 2019, transfers of liabilities of $57.4 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Structured notes of $9.5 million and net derivatives of $41.5 million due to reduced market and pricing transparency.

During the three months ended May 31, 2019, transfers of liabilities of $105.4 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:


•	Structured notes of $91.0 million and net derivatives of $14.4 million due to greater market transparency.

Net gains on Level 3 assets were $23.2 million and net gains on Level 3 liabilities were $14.1 million for the three months ended May 31, 2019. Net gains on Level 3 assets were primarily due to increased market values across investments at fair value and other asset-backed securities, partially offset by decreased market values in the FXCM term loan and across loans and other receivables. Net gains on Level 3 liabilities were primarily due to decreased market values across certain 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 six months ended May 31, 2019 (in thousands):



Six Months Ended May 31, 2019
	Balance, November 30, 2018		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, May 31, 2019		Changes in unrealized gains/losses included in earnings relating to instruments still held at May 31, 2019 (1)
Assets:
Trading assets:
Corporate equity securities	$	52,192	$	5,239		$	785		$	(2,031	)	$	(720	)	$	—	$	4,107		$	59,572	$	7,085
Corporate debt securities	9,484		(108		)	2,181			(2,130		)	(1,177		)	—		96			8,346		(53		)
CDOs and CLOs	36,105		(1,233		)	4,782			—			(2,130		)	—		(11,612		)	25,912		(3,127		)
Residential mortgage-backed securities	19,603		(316		)	39			—			(45		)	—		(2,015		)	17,266		(271		)
Commercial mortgage-backed securities	10,886		(180		)	11			(331		)	(3,278		)	—		5,422			12,530		(1,183		)
Other asset-backed securities	53,175		(1,014		)	25,316			(13,247		)	(9,529		)	—		(11,516		)	43,185		(522		)
Loans and other receivables	46,985		2,434			77,004			(33,549		)	(3,378		)	—		8,988			98,484		844
Investments at fair value	396,254		29,454			41,512			(18,302		)	—			—		(40,179		)	408,739		29,454
FXCM term loan	73,150		(10,962		)	1,500			—			(7,088		)	—		—			56,600		(10,962		)
Securities purchased under agreements to resell	—		—			—			—			—			25,000		—			25,000		—

Liabilities:
Trading liabilities:
Corporate equity securities	$	—	$	(76	)	$	(1,546	)	$	1,843		$	—		$	—	$	—		$	221	$	—
Corporate debt securities	522		(382		)	(73		)	93			22			—		487			669		305
Loans	6,376		(401		)	(3,946		)	7,963			—			—		(564		)	9,428		579
Net derivatives (2)	21,614		(29,079		)	(2,829		)	7,259			2,031			—		48,453			47,449		19,607
Long-term debt (1)	200,745		(12,854		)	—			—			(11,250		)	101,872		(41,951		)	236,562		3,827

(1)


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

Analysis of Level 3 Assets and Liabilities for the six months ended May 31, 2019

During the six months ended May 31, 2019, transfers of assets of $42.3 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Loans and other receivables of $15.7 million and other asset-backed securities of $10.8 million due to reduced pricing transparency.

During the six months ended May 31, 2019, transfers of assets of $89.0 million from Level 3 to Level 2 are primarily attributed to:


•	CDOs and CLOs of $12.5 million, other asset-backed securities of $22.3 million and investments at fair value of $40.2 million due to greater pricing transparency supporting classification into Level 2.

During the six months ended May 31, 2019, transfers of liabilities of $69.6 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Structured notes of $10.3 million and net derivatives of $58.7 million due to reduced market and pricing transparency.

During the six months ended May 31, 2019, transfers of liabilities of $63.2 million from Level 3 to Level 2 of the fair value hierarchy are primarily attributed to:


•	Structured notes of $52.3 million due to greater market transparency.

Net gains on Level 3 assets were $23.3 million and net gains on Level 3 liabilities were $42.8 million for the six months ended May 31, 2019. Net losses on Level 3 assets were primarily due to increased market values across investments at fair value and corporate equity securities, partially offset by decreased market values in the FXCM term loan and across CDOs and CLOs. Net gains on Level 3 liabilities were primarily due to decreased market values across derivatives and valuations of certain structured notes.



Three Months Ended June 30, 2018
	Balance, March 31, 2018		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, June 30, 2018		Changes in unrealized gains/ losses relating to instruments still held at June 30, 2018 (1)
Assets:
Trading assets:
Corporate equity securities	$	35,753	$	2,951		$	1,485		$	(75	)	$	(110	)	$	—	$	4,867		$	44,871	$	3,241
Corporate debt securities	26,103		923			17,058			(13,481		)	—			—		(2,537		)	28,066		543
CDOs and CLOs	38,613		(2,616		)	251			(1,905		)	(431		)	—		8,605			42,517		(2,688		)
Residential mortgage-backed securities	21,762		(5,416		)	112			(13,113		)	(35		)	—		345			3,655		423
Commercial mortgage-backed securities	15,103		(2,213		)	—			—			(1,924		)	—		16,273			27,239		(2,706		)
Other asset-backed securities	51,288		(4,001		)	59,057			(62,905		)	(3,846		)	—		15,942			55,535		(2,670		)
Loans and other receivables	62,043		(6,051		)	19,029			(16,237		)	(1,940		)	—		7,192			64,036		(5,185		)
Investments at fair value	318,159		(807		)	3,501			(2,310		)	—			—		—			318,543		(807		)
FXCM term loan	73,200		6,488			—			—			(3,588		)	—		—			76,100		2,900
Liabilities:
Trading liabilities:
Corporate equity securities	$	61	$	26		$	—		$	—		$	—		$	—	$	—		$	87	$	(26	)
Corporate debt securities	522		—			—			—			—			—		—			522		—
Commercial mortgage-backed securities	35		(35		)	—			—			—			—		—			—		—
Loans	10,323		(3,416		)	(10,543		)	8,685			(29		)	—		7,861			12,881		3,231
Net derivatives (2)	6,882		(1,580		)	—			—			569			—		3			5,874		(115		)
Long-term debt	—		(20,838		)	—			—			—			23,362		158,102			160,626		20,838


(1)	Realized and unrealized gains (losses) are reported in Principal transactions revenues 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, 2018

During the three months ended June 30, 2018, transfers of assets of $78.7 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	CDOs and CLOs of $20.3 million, commercial mortgage-backed securities of $17.1 million, loans and other receivables of $16.4 million and other asset-backed securities of $15.9 million due to a reduced pricing transparency.

During the three months ended June 30, 2018, transfers of assets of $28.0 million from Level 3 to Level 2 are primarily attributed to:


•	CDOs and CLOs of $11.7 million and loans and other receivables of $9.2 million due to greater pricing transparency supporting classification into Level 2.

During the three months ended June 30, 2018, there were transfers of long-term debt of $158.1 million from Level 2 to Level 3 due to a decrease in market observability.

Net losses on Level 3 assets were $10.7 million and net gains on Level 3 liabilities were $25.8 million for the three months ended June 30, 2018. Net losses on Level 3 assets were primarily due to decreased market values across certain loans and other receivables, residential mortgage-backed securities and other asset-backed securities, partially offset by an increased valuation of our FXCM term loan. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain long-term debt.



Six Months Ended June 30, 2018
	Balance, December 31, 2017		Total gains/ losses (realized and unrealized) (1)			Purchases			Sales			Settlements			Issuances		Net transfers into (out of) Level 3			Balance, June 30, 2018		Changes in unrealized gains/ losses relating to instruments still held at June 30, 2018 (1)
Assets:
Trading assets:
Corporate equity securities	$	22,270	$	15,052		$	5,383		$	(520	)	$	(1,779	)	$	—	$	4,465		$	44,871	$	14,419
Corporate debt securities	26,036		434			19,304			(15,704		)	(2,049		)	—		45			28,066		(1,048		)
CDOs and CLOs	42,184		(3,227		)	568			(2,374		)	(3,765		)	—		9,131			42,517		(5,641		)
Residential mortgage-backed securities	26,077		(4,193		)	112			(10,959		)	(88		)	—		(7,294		)	3,655		419
Commercial mortgage-backed securities	12,419		(2,292		)	1,208			(487		)	(3,209		)	—		19,600			27,239		(3,176		)
Other asset-backed securities	61,129		(5,476		)	132,291			(124,787		)	(7,622		)	—		—			55,535		(2,498		)
Loans and other receivables	47,304		(201		)	46,682			(25,456		)	(11,648		)	—		7,355			64,036		(1,756		)
Investments at fair value	329,944		1,483			3,740			(17,570		)	—			—		946			318,543		889
FXCM term loan	72,800		15,085			—			—			(11,785		)	—		—			76,100		7,839
Liabilities:
Trading liabilities:
Corporate equity securities	$	48	$	39		$	—		$	—		$	—		$	—	$	—		$	87	$	(39	)
Corporate debt securities	522		—			—			—			—			—		—			522		—
Commercial mortgage-backed securities	105		(105		)	—			—			—			—		—			—		—
Loans	3,486		1,226			(5,100		)	12,092			—			—		1,177			12,881		106
Net derivatives (2)	6,746		(668		)	(6		)	—			(494		)	296		—			5,874		535
Long-term debt	—		(28,082		)	—			—			—			81,284		107,424			160,626		20,082


(1)	Realized and unrealized gains (losses) are reported in Principal transactions revenues 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, 2018

During the six months ended June 30, 2018, transfers of assets of $49.1 million from Level 2 to Level 3 of the fair value hierarchy are primarily attributed to:


•	Commercial mortgage-backed securities of $19.7 million and CDOs and CLOs of $12.7 million due to reduced pricing transparency.

During the six months ended June 30, 2018, transfers of assets of $14.9 million from Level 3 to Level 2 are primarily attributed to:


•	Residential mortgage-backed securities of $9.0 million due to greater pricing transparency supporting classification into Level 2.

During the six months ended June 30, 2018, there were transfers of long-term debt of $107.4 million from Level 2 to Level 3 due to a decrease in market observability.

Net gains on Level 3 assets were $16.7 million and net gains on Level 3 liabilities were $27.6 million for the six months ended June 30, 2018. Net gains on Level 3 assets were primarily due to an increased valuation of our FXCM term loan and increased market values across corporate equity securities, partially offset by decreased market values across other asset-backed securities, residential mortgage-backed securities, CDOs and CLOs and commercial mortgage-backed securities. Net gains on Level 3 liabilities were primarily due to decreased valuations of certain long-term debt.

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.



May 31, 2019
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	53,000
Non-exchange-traded securities			Market approach	Price	$3 to $85	$55
				Underlying stock price	$3 to $13	$10

Corporate debt securities	$	8,346	Market approach	Discount rate/yield	32%	—
				Estimated recovery percentage	49%	—
				Price	$8 to $88	$57

CDOs and CLOs	$	25,912	Discounted cash flows	Constant prepayment rate	10% to 20%	16	%
				Constant default rate	1% to 2%	2	%
				Loss severity	25% to 30%	27	%
				Discount rate/yield	11% to 17%	13	%
			Scenario analysis	Estimated recovery percentage	2% to 38%	26	%

Residential mortgage-backed securities	$	17,266	Discounted cash flows	Cumulative loss rate	2%	—
				Duration (years)	7 years	—
				Discount rate/yield	3%	—

Commercial mortgage-backed securities	$	12,530	Discounted cash flows	Cumulative loss rate	8% to 86%	32	%
				Duration (years)	0 years to 1 year	1 year
				Discount rate/yield	3% to 28%	19	%
			Scenario analysis	Estimated recovery percentage	12% to 83%	47	%
				Price	$39 to $60	$50

Other asset-backed securities	$	43,185	Discounted cash flows	Cumulative loss rate	11% to 31%	20	%
				Duration (years)	1 year to 2 years	1 year
				Discount rate/yield	5% to 12%	12	%
			Market approach	Price	$100	—

Loans and other receivables	$	98,484	Market approach	Estimated recovery percentage	1%	—
				Price	$50 to $101	$91
				Comparable price	$33	—
			Scenario analysis	Estimated recovery percentage	13% to 117%	105	%

Derivatives	$	8,414
Interest rate swaps			Market approach	Basis points upfront	0 to 12	5

Investments at fair value	$	341,690
Private equity securities			Market approach	Price	$169 to $250	$229
			Scenario analysis	Discount rate	20%	—
				Revenue growth	0%	—
			Contingent claims analysis	Volatility	25% to 35%	30	%
				Duration (years)	0.5 years	—

Investment in FXCM	$	56,600
Term loan			Discounted cash flows	Term based on the pay off (years)	0 months to 1.7 years	1.7 years

Securities purchased under agreements to resell	$	25,000	Market approach	Spread to 6 month LIBOR	500	—
				Duration (years)	2 years	—

Trading Liabilities
Loans	$	9,428	Market approach	Price	$50 to $80	$66

Derivatives	$	55,863
Equity options			Volatility benchmarking	Volatility	3% to 63%	46	%
Interest rate swaps			Market approach	Basis points upfront	0 to 21	12

Long-term debt	$	236,562
Structured notes			Market approach	Price	$83 to $100	$92
				Price	€78 to €107	€94



November 30, 2018
Financial Instruments Owned	Fair Value (in thousands)		Valuation Technique	Significant Unobservable Input(s)	Input/Range	Weighted Average
Corporate equity securities	$	43,644
Non-exchange-traded securities			Market approach	Price	$1 to $75	$12
				Transaction level	$47	—

Corporate debt securities	$	9,484	Market approach	Estimated recovery percentage	46%	—
				Transaction level	$80	—

CDOs and CLOs	$	36,105	Discounted cash flows	Constant prepayment rate	10% to 20%	18	%
				Constant default rate	1% to 2%	2	%
				Loss severity	25% to 30%	26	%
				Discount rate/yield	11% to 16%	14	%
			Scenario analysis	Estimated recovery percentage	2% to 41%	23	%

Residential mortgage-backed securities	$	19,603	Discounted cash flows	Cumulative loss rate	4%	—
				Duration (years)	13 years	—
				Discount rate/yield	3%	—
				Loss severity	0%	—
			Market approach	Price	$100	—

Commercial mortgage-backed securities	$	9,444	Discounted cash flows	Cumulative loss rate	8% to 85%	45	%
				Duration (years)	1 year to 3 years	1 year
				Discount rate/yield	2% to 15%	6	%
				Loss severity	64%	—
			Scenario analysis	Estimated recovery percentage	26%	—
				Price	$49	—

Other asset-backed securities	$	53,175	Discounted cash flows	Cumulative loss rate	12% to 30%	22	%
				Duration (years)	1 year to 2 years	1 year
				Discount rate/yield	6% to 12%	8	%
			Market approach	Price	$100	—

Loans and other receivables	$	46,078	Market approach	Price	$50 to $100	$96
			Scenario analysis	Estimated recovery percentage	13% to 117%	105	%

Derivatives	$	4,602
Total return swaps			Market approach	Price	$97	—

Investments at fair value	$	368,231
Private equity securities			Market approach	Price	$3 to $250	$108
				Transaction level	$169	—
			Scenario analysis	Discount rate/yield	20%	—
				Revenue growth	0%	—
			Contingent claims analysis	Volatility	25% to 35%	30	%
				Duration (years)	4 years	—

Investment in FXCM	$	73,150
Term loan			Discounted cash flows	Term based on the pay off (years)	0 months to 0.3 years	0.3 years

Trading Liabilities
Loans	$	6,376	Market approach	Price	$50 to $101	$74

Derivatives	$	27,536
Equity options			Option model/default rate	Default probability	0%	—
			Volatility benchmarking	Volatility	39% to 62%	50	%
Interest rate swaps			Market approach	Price	$20	—
Total return swaps			Market approach	Price	$97	—

Long-term Debt	$	200,745
Structured notes			Market approach	Price	$78 to $94	$86
				Price	€68 to €110	€96

The fair values of certain Level 3 assets and liabilities that were determined based on third-party pricing information, unadjusted past transaction prices, reported NAV or a percentage of the reported enterprise fair value are excluded from the above tables. At May 31, 2019 and November 30, 2018, asset exclusions consisted of $73.6 million and $40.3 million, respectively, primarily comprised of investments at fair value, private equity securities, corporate equity securities, commercial mortgage-backed securities, loans and other receivables and certain derivatives. At May 31, 2019 and November 30, 2018, liability exclusions consisted of $0.9 million and $0.5 million, respectively, primarily comprised of commercial mortgage-backed securities and corporate debt and equity securities.

Uncertainty of Fair Value Measurement from Use of Significant Unobservable Inputs

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

•

Non-exchange-traded securities, corporate debt securities, loans and other receivables, interest rate swaps, total return swaps, residential mortgage-backed securities, other asset-backed securities, private equity securities, securities purchased under agreements to resell and structured notes using a market approach valuation technique. A significant increase (decrease) in the transaction level of a non-exchange-traded security, corporate debt security and 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 price of the private equity securities, non-exchange-traded securities, corporate debt securities, total return swaps, interest rate swaps, residential mortgage-backed securities, other asset-backed securities, loans and other receivables or structured notes would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the comparable price of 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 or loans and other receivables would result in a significantly higher (lower) fair value measurement. A significant increase (decrease) in the discount rate/security yield of corporate debt securities would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the yield or duration, in isolation, of securities purchased under agreements to resell would result in a significantly lower (higher) fair value measurement. Depending on whether Jefferies Group is a receiver or (payer) of basis points upfront, a significant increase in basis points would result in a significant increase (decrease) in the fair value measurement of interest rate swaps.

•

Loans and other receivables, CDOs and CLOs, commercial mortgage-backed securities and private equity securities using scenario analysis. A significant increase (decrease) in the possible recovery rates of the cash flow outcomes underlying the financial instrument 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. A significant increase (decrease) in the discount rate/yield underlying the investment would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in the revenue growth underlying the investment would result in a significantly higher (lower) fair value measurement.

•

CDOs and CLOs, residential mortgage-backed securities, commercial mortgage-backed securities and other asset-backed securities 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/default rate model. A significant increase (decrease) in default probability would result in a significantly lower (higher) fair value measurement.


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


•	Investments at fair value using contingent claims analysis. A significant increase (decrease) in volatility would result in a significantly lower (higher) fair value measurement. A significant increase (decrease) in duration would result in a significantly lower (higher) 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 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 Group's capital markets businesses. These loans and loan commitments include loans entered into by Jefferies Group's investment banking division in connection with client bridge financing and loan syndications, loans purchased by Jefferies Group's 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 Group's 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 Group has also elected the fair value option for certain of its structured notes and securities purchased under agreements to resell, which are managed by Jefferies Group's capital markets businesses and are included in Long-term debt and Short-term borrowings and Securities purchased under agreements to resell in the Consolidated Statements of Financial Condition. Jefferies Group has elected the fair value option for certain financial instruments held by its subsidiaries as the investments are risk managed by Jefferies Group on a fair value basis. The fair value option may be elected for certain secured financings that arise in connection with Jefferies Group's 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 Group's 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 (in thousands):



	For the Three Months Ended						For the Six Months Ended
	May 31, 2019			June 30, 2018			May 31, 2019			June 30, 2018
Trading Assets:
Loans and other receivables	$	(2,352	)	$	(8,754	)	$	(3,072	)	$	(6,428	)

Trading Liabilities:
Loans	$	—		$	1		$	—		$	260
Loan commitments	$	(757	)	$	26		$	(678	)	$	(103	)

Long-term Debt:
Changes in instrument specific credit risk (1)	$	4,009		$	34,787		$	27,492		$	18,585
Other changes in fair value (2)	$	(36,665	)	$	(175	)	$	(47,308	)	$	40,979

Short-term Borrowings:
Changes in instrument specific credit risk (1)	$	—		$	27		$	—		$	27
Other changes in fair value (2)	$	—		$	1,636		$	—		$	1,636


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


(2)	Other changes in fair value are included in 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):



	May 31, 2019		November 30, 2018
Trading Assets:
Loans and other receivables (1)	$	878,221	$	961,554
Loans and other receivables on nonaccrual status and/or 90 days or greater past due (1) (2)	$	141,474	$	158,392
Long-term Debt	$	95,079	$	114,669


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


(2)	Amounts include all loans and other receivables 90 days or greater past due by which contractual principal exceeds fair value of $18.7 million and $20.5 million at May 31, 2019 and November 30, 2018, respectively.

The aggregate fair value of Jefferies Group's loans and other receivables on nonaccrual status and/or 90 days or greater past due was $119.5 million and $105.3 million at May 31, 2019 and November 30, 2018, respectively, which includes loans and other receivables 90 days or greater past due of $65.2 million and $19.4 million at May 31, 2019 and November 30, 2018, respectively.

As of December 31, 2017, we owned approximately 46.6 million common shares of HRG Group, Inc. ("HRG"), representing approximately 23% of HRG’s outstanding common shares, which were accounted for under the fair value option. On July 13, 2018, HRG merged into its 62% owned subsidiary, Spectrum Brands. Our approximately 23% owned interest in HRG thereby converted into approximately 14% of the outstanding shares of the re-named company, Spectrum Brands, which we account for under the fair value option. As of May 31, 2019, we owned approximately 7.5 million common shares of Spectrum Brands, representing approximately 15% of Spectrum Brands outstanding common shares. The shares are included in our Consolidated Statements of Financial Condition at fair value of $395.8 million and $371.1 million at May 31, 2019 and November 30, 2018, respectively. The shares were acquired at an aggregate cost of $475.6 million. The change in the fair value of our investment in Spectrum Brands/HRG aggregated $(11.3) million and $(158.4) million for the three months ended May 31, 2019 and June 30, 2018, respectively, and $24.7 million and $(179.9) million for the six months ended May 31, 2019 and June 30, 2018, respectively. One of our officers currently serves as a director on Spectrum Brands board.

We believe accounting for these investments at fair value better reflects the economics of these investments, and quoted market prices for these investments provide an objectively determined fair value at each balance sheet date. Our investment in HomeFed, which was a publicly traded company, was accounted for under the equity method of accounting rather than the fair value option method. HomeFed’s common stock was not listed on any stock exchange, and price information for the common stock was not regularly quoted on any automated quotation system. It was traded in the over-the-counter market with high and low bid prices published by the Over-the-Counter Bulletin Board Service; however, trading volume was 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 $34.8 million and $34.8 million at May 31, 2019 and November 30, 2018, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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