Document
Table of Contents

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended December 31, 2018
OR
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from
 
 to
 
Commission file number: 1-35509
 
TD Ameritrade Holding Corporation
(Exact name of registrant as specified in its charter)
 
Delaware
 
82-0543156
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
200 South 108th Avenue, Omaha, Nebraska, 68154
(Address of principal executive offices) (Zip Code)
(800) 669-3900
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes   x     No   ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes  x     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
¨ 
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    
Yes  ¨    No  x
As of January 22, 2019, there were 560,363,495 outstanding shares of the registrant's common stock.
 

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TD AMERITRADE HOLDING CORPORATION
INDEX
 
 
 
Page No.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 


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PART I – FINANCIAL INFORMATION
Item 1. – Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of TD Ameritrade Holding Corporation
Results of Review of Interim Financial Statements
We have reviewed the accompanying condensed consolidated balance sheet of TD Ameritrade Holding Corporation and subsidiaries (the Company) as of December 31, 2018, the related condensed consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the three-month periods ended December 31, 2018 and 2017, and the related notes (collectively referred to as the "condensed consolidated interim financial statements").
Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of September 30, 2018, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the year then ended, and the related notes (not presented herein); and in our report dated November 16, 2018, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 2018, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

/s/ ERNST & YOUNG LLP
New York, New York
January 31, 2019


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TD AMERITRADE HOLDING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
December 31,
2018
 
September 30,
2018
 
 
(In millions)
ASSETS
 
 
 
 
Cash and cash equivalents
 
$
5,117

 
$
2,690

Cash and investments segregated and on deposit for regulatory purposes
 
3,185

 
3,185

Receivable from brokers, dealers and clearing organizations
 
1,398

 
1,374

Receivable from clients, net
 
19,439

 
22,616

Receivable from affiliates
 
189

 
151

Other receivables, net
 
286

 
304

Securities owned, at fair value
 
109

 
156

Investments available-for-sale, at fair value (including $98 million of securities pledged as collateral for repurchase agreements at September 30, 2018)
 
884

 
484

Property and equipment at cost, net
 
797

 
792

Goodwill
 
4,227

 
4,227

Acquired intangible assets, net
 
1,298

 
1,329

Other assets
 
262

 
212

Total assets
 
$
37,191

 
$
37,520

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Payable to brokers, dealers and clearing organizations
 
$
2,298

 
$
2,980

Payable to clients
 
22,099

 
22,884

Accounts payable and other liabilities
 
738

 
896

Payable to affiliates
 
4

 
45

Other borrowings
 
—

 
96

Long-term debt
 
3,484

 
2,439

Deferred income taxes
 
211

 
177

Total liabilities
 
28,834

 
29,517

Stockholders' equity:
 
 
 
 
Preferred stock, $0.01 par value; 100 million shares authorized, none issued
 
—

 
—

Common stock, $0.01 par value; one billion shares authorized; 670 million shares issued; December 31, 2018 – 561 million shares outstanding; September 30, 2018 – 563 million shares outstanding
 
7

 
7

Additional paid-in capital
 
3,400

 
3,379

Retained earnings
 
7,475

 
7,011

Treasury stock, common, at cost: December 31, 2018 – 109 million shares;
   September 30, 2018 – 107 million shares
 
(2,515
)
 
(2,371
)
Deferred compensation
 
4

 
4

Accumulated other comprehensive loss
 
(14
)
 
(27
)
Total stockholders' equity
 
8,357

 
8,003

Total liabilities and stockholders' equity
 
$
37,191

 
$
37,520

See notes to condensed consolidated financial statements.


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TD AMERITRADE HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three Months Ended December 31,
 
 
2018
 
2017
 
 
(In millions, except per share amounts)
Revenues:
 
 
 
 
Transaction-based revenues:
 
 
 
 
Commissions and transaction fees
 
$
537

 
$
440

Asset-based revenues:
 
 
 
 
Bank deposit account fees
 
428

 
381

Net interest revenue
 
376

 
276

Investment product fees
 
143

 
133

Total asset-based revenues
 
947

 
790

Other revenues
 
32

 
27

Net revenues
 
1,516

 
1,257

Operating expenses:
 
 
 
 
Employee compensation and benefits
 
317

 
415

Clearing and execution costs
 
49

 
47

Communications
 
42

 
53

Occupancy and equipment costs
 
68

 
80

Depreciation and amortization
 
35

 
34

Amortization of acquired intangible assets
 
31

 
38

Professional services
 
74

 
74

Advertising
 
58

 
64

Other
 
46

 
116

Total operating expenses
 
720

 
921

Operating income
 
796

 
336

Other expense (income):
 
 
 
 
Interest on borrowings
 
32

 
20

Loss on sale of investments
 
—

 
11

Other
 
(14
)
 
2

Total other expense (income)
 
18

 
33

Pre-tax income
 
778

 
303

Provision for income taxes
 
174

 
6

Net income
 
$
604

 
$
297

Earnings per share — basic
 
$
1.07

 
$
0.52

Earnings per share — diluted
 
$
1.07

 
$
0.52

Weighted average shares outstanding — basic
 
562

 
567

Weighted average shares outstanding — diluted
 
564

 
569

Dividends declared per share
 
$
0.30

 
$
0.21

See notes to condensed consolidated financial statements.

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TD AMERITRADE HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
 
 
Three Months Ended 
 December 31,
 
 
2018
 
2017
 
 
(In millions)
Net income
 
$
604

 
$
297

Other comprehensive income, before tax:
 
 
 
 
Investments available-for-sale:
 
 
 
 
Unrealized gain (loss)
 
16

 
(4
)
Reclassification adjustment for realized loss included in net income
 
—

 
11

Net change in investments available-for-sale
 
16

 
7

Cash flow hedging instruments:
 
 
 
 
Reclassification adjustment for portion of realized loss amortized to net income
 
1

 
1

Total other comprehensive income, before tax
 
17

 
8

Income tax effect
 
(4
)
 
(3
)
Total other comprehensive income, net of tax
 
13

 
5

Comprehensive income
 
$
617

 
$
302

See notes to condensed consolidated financial statements.


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TD AMERITRADE HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
 
 
Three Months Ended December 31, 2017
 
 
Total Common
Shares Outstanding
 
Total Stockholders' Equity
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Deferred Compensation
 
Accumulated Other
Comprehensive Loss
 
 
(In Millions)
Balance, September 30, 2017
 
567

 
$
7,247

 
$
7

 
$
3,369

 
$
6,011

 
$
(2,116
)
 
$
1

 
$
(25
)
Net income
 
—

 
297

 
—

 
—

 
297

 
—

 
—

 
—

Other comprehensive income, net of tax
 
—

 
5

 
—

 
—

 
—

 
—

 
—

 
5

Payment of cash dividends
 
—

 
(119
)
 
—

 
—

 
(119
)
 
—

 
—

 
—

Repurchases of common stock for income tax withholding on stock-based compensation
 
—

 
(8
)
 
—

 
—

 
—

 
(8
)
 
—

 
—

Common stock issued for stock-based compensation, including tax effects
 
—

 
—

 
—

 
(6
)
 
—

 
6

 
—

 
—

Deferred compensation
 
—

 
1

 
—

 
2

 
—

 
(1
)
 
—

 
—

Stock-based compensation
 
—

 
10

 
—

 
10

 
—

 
—

 
—

 
—

Balance, December 31, 2017
 
567

 
$
7,433

 
$
7

 
$
3,375

 
$
6,189

 
$
(2,119
)
 
$
1

 
$
(20
)
 
 
Three Months Ended December 31, 2018
 
 
Total Common
Shares Outstanding
 
Total Stockholders' Equity
 
Common Stock
 
Additional Paid-In Capital
 
Retained Earnings
 
Treasury Stock
 
Deferred Compensation
 
Accumulated Other
Comprehensive Loss
 
 
(In Millions)
Balance, September 30, 2018
 
563

 
$
8,003

 
$
7

 
$
3,379

 
$
7,011

 
$
(2,371
)
 
$
4

 
$
(27
)
Net income
 
—

 
604

 
—

 
—

 
604

 
—

 
—

 
—

Other comprehensive income, net of tax
 
—

 
13

 
—

 
—

 
—

 
—

 
—

 
13

Payment of cash dividends
 
—

 
(168
)
 
—

 
—

 
(168
)
 
—

 
—

 
—

Repurchases of common stock
 
(3
)
 
(114
)
 
—

 
31

 
—

 
(145
)
 
—

 
—

Future treasury stock purchases under accelerated stock repurchase agreement
 
—

 
(12
)
 
—

 
(12
)
 
—

 
—

 
—

 
—

Repurchases of common stock for income tax withholding on stock-based compensation
 
—

 
(8
)
 
—

 
—

 
—

 
(8
)
 
—

 
—

Common stock issued for stock-based compensation, including tax effects
 
1

 
—

 
—

 
(9
)
 
—

 
9

 
—

 
—

Stock-based compensation
 
—

 
11

 
—

 
11

 
—

 
—

 
—

 
—

Adoption of Accounting Standards Update 2014-09 (Note 15)
 
—

 
28

 
—

 
—

 
28

 
—

 
—

 
—

Balance, December 31, 2018
 
561

 
$
8,357

 
$
7

 
$
3,400

 
$
7,475

 
$
(2,515
)
 
$
4

 
$
(14
)
See notes to condensed consolidated financial statements.


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TD AMERITRADE HOLDING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) 
 
 
Three Months Ended December 31,
 
 
2018
 
2017
 
 
(In millions)
Cash flows from operating activities:
 
 
 
 
Net income
 
$
604

 
$
297

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
35

 
34

Amortization of acquired intangible assets
 
31

 
38

Deferred income taxes
 
25

 
(13
)
Loss on sale of investments
 
—

 
11

Stock-based compensation
 
11

 
10

Provision for doubtful accounts on client and other receivables
 
5

 
—

Other, net
 
7

 
5

Changes in operating assets and liabilities:
 
 
 
 
Investments segregated and on deposit for regulatory purposes
 
503

 
278

Receivable from brokers, dealers and clearing organizations
 
(24
)
 
43

Receivable from clients, net
 
3,172

 
(1,428
)
Receivable from/payable to affiliates, net
 
(79
)
 
(101
)
Other receivables, net
 
18

 
(24
)
Securities owned, at fair value
 
47

 
(90
)
Other assets
 
(16
)
 
(90
)
Payable to brokers, dealers and clearing organizations
 
(682
)
 
560

Payable to clients
 
(785
)
 
179

Accounts payable and other liabilities
 
(110
)
 
(127
)
Net cash provided by (used in) operating activities
 
2,762

 
(418
)
Cash flows from investing activities:
 
 
 
 
Purchase of property and equipment
 
(44
)
 
(63
)
Proceeds from sale of property and equipment
 
11

 
—

Cash paid in business acquisition
 
—

 
(12
)
Purchase of investments available-for-sale, at fair value
 
(383
)
 
—

Proceeds from sale of investments available-for-sale, at fair value
 
—

 
643

Purchase of other investments
 
(11
)
 
—

Proceeds from sale of other investments
 
1

 
—

Proceeds from sale and maturity of short-term investments
 
—

 
65

Net cash provided by (used in) investing activities
 
(426
)
 
633

Cash flows from financing activities:
 
 
 
 
Proceeds from issuance of long-term debt
 
999

 
—

Payment of debt issuance costs
 
(7
)
 
—

Net proceeds from secured uncommitted lines of credit
 
—

 
50

Net payments on securities sold under agreements to repurchase
 
(96
)
 
—

Payment of cash dividends
 
(168
)
 
(119
)
Purchase of treasury stock
 
(114
)
 
—

Purchase of treasury stock for income tax withholding on stock-based compensation
 
(8
)
 
(8
)
Payment for future treasury stock purchases under accelerated stock repurchase agreement
 
(12
)
 
—

Other
 
—

 
2

Net cash provided by (used in) financing activities
 
594

 
(75
)
Net increase in cash, cash equivalents, restricted cash and restricted cash equivalents
 
2,930

 
140

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of period
 
4,548

 
9,760

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period
 
$
7,478

 
$
9,900

Supplemental cash flow information:
 
 
 
 
Interest paid
 
$
31

 
$
36

Income taxes paid
 
$
139

 
$
112

 
See notes to condensed consolidated financial statements.

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TD AMERITRADE HOLDING CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended December 31, 2018 and 2017
(Unaudited)
1. Basis of Presentation
The condensed consolidated financial statements include the accounts of TD Ameritrade Holding Corporation (the "Parent") and its wholly-owned subsidiaries (collectively, the "Company"). Intercompany balances and transactions have been eliminated.
These financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and, in the opinion of management, reflect all adjustments, which are all of a normal recurring nature, necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with U.S. generally accepted accounting principles ("GAAP"). These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's annual report filed on Form 10-K for the fiscal year ended September 30, 2018.
Recently Adopted Accounting Pronouncements
ASU 2016-18 — On October 1, 2018, the Company adopted Accounting Standards Update ("ASU") 2016-18, Restricted Cash, using a retrospective transition method to each period presented. This ASU amends the guidance in Accounting Standards Codification ("ASC") Topic 230, Statement of Cash Flows, and is intended to reduce the diversity in the classification and presentation of changes in restricted cash on the statement of cash flows. The amendments within this ASU require that the reconciliation of the beginning-of-period and end-of-period cash and cash equivalents amounts shown on the statement of cash flows include restricted cash and restricted cash equivalents. If restricted cash and restricted cash equivalents are presented separately from cash and cash equivalents on the balance sheet, an entity is required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet. An entity is also required to disclose information regarding the nature of the restrictions. Upon the adoption of this standard, the Company recorded a decrease of $32 million in cash flows from operating activities for the three months ended December 31, 2017 to reflect the reclassification of changes in restricted cash and restricted cash equivalents amounts from the operating section to the beginning-of-period and end-of-period cash, cash equivalents, restricted cash and restricted cash equivalents amounts within the Condensed Consolidated Statements of Cash Flows. See Note 2 for additional information regarding restricted cash and restricted cash equivalents.
ASU 2016-16 — On October 1, 2018, the Company adopted ASU 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. This ASU amends the guidance in ASC Topic 740, Income Taxes. The amendments in this ASU are intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory by requiring an entity to recognize the income tax consequences when a transfer occurs, instead of when the asset is sold to a third party. The adoption of ASU 2016-16 did not have an impact on the Company's condensed consolidated financial statements.
ASU 2014-09 — On October 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, using a modified retrospective approach, which requires the standard be applied only to the most current period presented, with the cumulative effect of initially applying the standard recognized at the date of initial application. The new revenue recognition standard is intended to clarify the principles of recognizing revenue from contracts with customers and to improve financial reporting by creating common revenue recognition guidance for U.S. GAAP and International Financial Reporting Standards. This ASU supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and most industry-specific guidance. Entities are required to apply the following steps when recognizing revenue under ASU 2014-09: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. This ASU also requires additional disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.
The adoption of this standard did not have a material impact on the Company's financial condition, results of operations or cash flows, as the satisfaction of performance obligations under the new guidance is materially consistent with the Company's previous revenue recognition policies. However, the adoption of this standard did impact the Company by: (1) requiring the capitalization of sales commissions paid to employees for obtaining new contracts with clients and (2) accounting for revenues from certain contracts on a gross basis when the Company is acting as a principal, as compared to the prior guidance, which allowed for these contracts to be accounted for on a net basis. For additional information on the Company's adoption of the amended guidance, see Note 15, Revenue Recognition. The new guidance does not apply to revenue associated with financial instruments, such as interest revenue, which is accounted for under other GAAP. Accordingly, net interest revenue was not impacted.

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Recently Issued Accounting Pronouncements
ASU 2017-12 — In August 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities, which will amend the guidance in ASC Topic 815, Derivatives and Hedging. The objective of this ASU is to improve the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements through changes to both the designation and measurement guidance for qualifying hedging relationships and to the presentation of hedge results. In addition, the amendments in this ASU make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. All transition requirements and elections under ASU 2017-12 should be applied to hedging relationships existing on the date of adoption, with the effect of the adoption reflected as of the beginning of the fiscal year of adoption. The amended presentation and disclosure guidance is required only prospectively. Subsequent to issuing ASU 2017-12, the FASB issued 2018-16, Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes, for the purpose of introducing an additional benchmark interest rate for hedge accounting purposes. SOFR is a volume-weighted median interest rate that is calculated daily based on overnight transactions from the prior day's trading activity in specified segments of the U.S. Treasury repo market. The subsequently issued ASU has the same effective date and transition requirements as ASU 2017-12. ASU 2017-12 will be effective for the Company's fiscal year beginning October 1, 2019, with early adoption permitted. The Company is currently assessing the impact this ASU will have on its condensed consolidated financial statements.
ASU 2016-13 — In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The main objective of ASU 2016-13 is to provide financial statement users with more decision-useful information about an entity's expected credit losses on financial instruments and other commitments to extend credit at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to develop credit loss estimates. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, for the purpose of clarifying certain aspects of ASU 2016-13. ASU 2018-19 has the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 will be effective for the Company's fiscal year beginning October 1, 2020, using a modified retrospective approach. Early adoption is permitted. The Company is currently assessing the impact this ASU will have on its condensed consolidated financial statements.
ASU 2016-02 — In February 2016, the FASB issued ASU 2016-02, Leases. This ASU will supersede the guidance in ASC Topic 840, Leases. Under ASU 2016-02, for lease arrangements exceeding a 12-month term, a lessee will be required to recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. ASU 2016-02 will retain a distinction between finance and operating leases; however, the principal difference from the previous guidance is that lease assets and liabilities arising from operating leases will be recognized in the balance sheet. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee will not significantly change from current GAAP. The accounting applied by a lessor will be largely unchanged from that applied under current GAAP. Subsequent to issuing ASU 2016-02, the FASB has issued additional standards for the purpose of clarifying certain aspects of ASU 2016-02 and providing an additional (optional) transition method with which to adopt the new leases standard. The subsequently issued ASUs have the same effective date and transition requirements as ASU 2016-02. Under ASU 2016-02, an entity may apply the amendments by using one of the following two methods: (1) recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach or (2) apply the standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. ASU 2016-02 will be effective for the Company's fiscal year beginning October 1, 2019, with early adoption permitted. The Company has not selected a transition method and is currently assessing the impact this ASU will have on its condensed consolidated financial statements, but does not expect the standard to have a material impact on its net income. Upon adoption of ASU 2016-02, the Company expects to recognize right-of-use assets and lease liabilities for its operating leases, with initial measurement as defined by the ASU, in its Condensed Consolidated Balance Sheets.
2. Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents
The Company's cash and cash equivalents is summarized in the following table (dollars in millions):
 
 
December 31,
2018
 
September 30,
2018
Broker-dealer subsidiaries
 
$
4,058

 
$
2,094

Corporate
 
848

 
342

Futures commission merchant and forex dealer member subsidiary
 
97

 
89

Trust company subsidiary
 
92

 
124

Investment advisory subsidiaries
 
22

 
41

Total cash and cash equivalents
 
$
5,117

 
$
2,690


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Capital requirements may limit the amount of cash available for dividend from the broker-dealer, futures commission merchant ("FCM")/forex dealer member ("FDM") and trust company subsidiaries to the Parent.
The following table provides a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents reported within the Condensed Consolidated Balance Sheets to the total of the same amounts shown in the Condensed Consolidated Statements of Cash Flows (dollars in millions):
 
 
December 31,
2018
 
September 30,
2018
Cash and cash equivalents
 
$
5,117

 
$
2,690

Restricted cash and restricted cash equivalents included in cash and investments segregated and on deposit for regulatory purposes
 
2,361

 
1,858

Total cash, cash equivalents, restricted cash and restricted cash equivalents shown in the Condensed Consolidated Statements of Cash Flows
 
$
7,478

 
$
4,548

Amounts included in restricted cash and restricted cash equivalents consist primarily of qualified deposits in special reserve bank accounts for the exclusive benefit of clients under Rule 15c3-3 of the Securities Exchange Act of 1934 (the "Exchange Act") and other regulations.
3. Cash and Investments Segregated and on Deposit for Regulatory Purposes
Cash and investments segregated and on deposit for regulatory purposes consists of the following (dollars in millions):
 
 
December 31,
2018
 
September 30,
2018
Cash in demand deposit accounts
 
$
1,546

 
$
956

U.S. government agency mortgage-backed securities
 
799

 
1,302

Reverse repurchase agreements (collateralized by U.S. government debt securities)
 
500

 
500

U.S. government debt securities
 
175

 
200

Cash on deposit with futures commission merchants
 
140

 
202

U.S. government debt securities on deposit with futures commission merchant
 
25

 
25

Total
 
$
3,185

 
$
3,185

4. Exit Liabilities
As of September 18, 2017, the date the Company completed its acquisition of Scottrade Financial Services, Inc. ("Scottrade"), the Company began to incur costs in connection with actions taken to attain synergies from combining the operations of the Company and Scottrade. These costs, collectively referred to as "acquisition-related exit costs," include severance and other costs associated with consolidating facilities and administrative functions. As of September 30, 2018, substantially all of the acquisition-related exit costs had been incurred.

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The following tables summarize activity in the Company's exit liabilities for the three month periods ended December 31, 2018 and 2017, which are included in accounts payable and other liabilities on the Condensed Consolidated Balance Sheets (dollars in millions):
 
 
Severance Pay and Other Employment Benefits
 
Contract Termination and Other Costs
 
Total
Balance, September 30, 2018
 
$
21

 
$
48

 
$
69

Costs incurred and charged to expense
 
2

(1) 
(2
)
(2) 
—

Costs paid or otherwise settled
 
(15
)
 
(39
)
 
(54
)
Balance, December 31, 2018
 
$
8

 
$
7

 
$
15

 
 
Severance Pay and Other Employment Benefits
 
Contract Termination and Other Costs
 
Total
Balance, September 30, 2017
 
$
138

 
$
—

 
$
138

Exit liabilities assumed - post closing adjustments
 
—

 
9

 
9

Costs incurred and charged to expense
 
82

(1) 
98

(2) 
180

Costs paid or otherwise settled
 
(20
)
 
(95
)
 
(115
)
Balance, December 31, 2017
 
$
200

 
$
12

 
$
212

 
(1) Costs incurred for severance pay and other employment benefits are included in employee compensation and benefits on the Condensed Consolidated Statements of Income.
(2) Costs incurred for contract termination and other costs are primarily included in other operating expense and professional services on the Condensed Consolidated Statements of Income.
The following table summarizes the cumulative amount of acquisition-related exit costs incurred by the Company related to the Scottrade acquisition as of December 31, 2018 (dollars in millions):
 
 
Severance Pay and Other Employment Benefits
 
Contract Termination and Other Costs
 
Total
Exit liabilities assumed in business acquisition
 
$
100

 
$
9

 
$
109

Employee compensation and benefits
 
267

 
—

 
267

Clearing and execution costs
 
—

 
1

 
1

Communications
 
—

 
1

 
1

Occupancy and equipment costs
 
—

 
7

 
7

Professional services
 
—

 
30

 
30

Other operating expense
 
—

 
171

 
171

Other non-operating expense
 
—

 
2

 
2

Total
 
$
367

 
$
221

 
$
588

5. Income Taxes
The Company's effective income tax rate for the three months ended December 31, 2018 and 2017 was 22.4% and 2.0%, respectively. The provision for income taxes for the three months ended December 31, 2018 included $18 million of favorable adjustments related to state income tax matters. This item had a favorable impact on the Company's earnings for the three months ended December 31, 2018 of approximately $0.03 per share. The provision for income taxes for the three months ended December 31, 2017 included an estimated net favorable adjustment of $68 million related to the remeasurement of the Company's deferred income tax balances as it pertained to the Tax Cuts and Jobs Act (the "Act"), a $3 million income tax benefit resulting from the change in accounting for income taxes related to equity-based compensation under ASU 2016-09, $10 million of favorable resolutions of state income tax matters and a $6 million favorable benefit resulting from accelerating certain deductions, including acquisition-related exit costs, to leverage higher 2017 pre-enactment tax rates. The effective income tax rate was also impacted by a $9 million unfavorable remeasurement of uncertain tax positions related to certain federal incentives. The Act was enacted

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on December 22, 2017, reducing the U.S. federal corporate income tax rate from 35% to 21%. These items had a net favorable impact on the Company's earnings for the three months ended December 31, 2017 of approximately $0.14 per share.
6. Long-term Debt and Other Borrowings
Long-term debt and other borrowings consist of the following (dollars in millions):
December 31, 2018
 
Face
Value
 
Unamortized Discounts and Debt Issuance Costs
 
Fair Value
Adjustment (1)
 
Net Carrying
Value
Long-term debt:
 
 
 
 
 
 
 
 
Senior Notes:
 
 
 
 
 
 
 
 
5.600% Notes due 2019
 
$
500

 
$
(1
)
 
$
2

 
$
501

Variable-rate Notes due 2021
 
600

 
(3
)
 
—

 
597

2.950% Notes due 2022
 
750

 
(4
)
 
(14
)
 
732

3.75% Notes due 2024
 
400

 
(4
)
 
—

 
396

3.625% Notes due 2025
 
500

 
(3
)
 
(5
)
 
492

3.300% Notes due 2027
 
800

 
(9
)
 
(25
)
 
766

Total long-term debt
 
$
3,550

 
$
(24
)
 
$
(42
)
 
$
3,484

September 30, 2018
 
Face
Value
 
Unamortized Discounts and Debt Issuance Costs
 
Fair Value
Adjustment (1)
 
Net Carrying
Value
Other borrowings:
 
 
 
 
 
 
 
 
Securities sold under agreements to repurchase
 
$
96

 
$
—

 
$
—

 
$
96

Long-term debt:
 
 
 
 
 
 
 
 
Senior Notes:
 
 
 
 
 
 
 
 
5.600% Notes due 2019
 
500

 
(1
)
 
2

 
501

2.950% Notes due 2022
 
750

 
(4
)
 
(27
)
 
719

3.625% Notes due 2025
 
500

 
(3
)
 
(17
)
 
480

3.300% Notes due 2027
 
800

 
(9
)
 
(52
)
 
739

Subtotal - Long-term debt
 
2,550

 
(17
)
 
(94
)
 
2,439

Total long-term debt and other borrowings
 
$
2,646

 
$
(17
)
 
$
(94
)
 
$
2,535

 
(1)
Fair value adjustments relate to changes in the fair value of the debt while in a fair value hedging relationship. See "Fair Value Hedging" below.
Fiscal year maturities on long-term debt outstanding at December 31, 2018 are as follows (dollars in millions):
2019 Remaining
 
$
—

2020
 
500

2021
 
—

2022
 
1,350

2023
 
—

Thereafter
 
1,700

Total
 
$
3,550


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Senior Notes — As of December 31, 2018, the Company had $3.55 billion aggregate principal amount of unsecured Senior Notes (together, the "Senior Notes"). On October 30, 2018, the Company sold, through a public offering, $600 million aggregate principal amount of unsecured variable-rate senior notes due November 1, 2021 (the "2021 Notes") and $400 million aggregate principal amount of unsecured 3.750% senior notes due April 1, 2024 (the "2024 Notes"). The Company intends to use the net proceeds from the issuance of the 2021 Notes and 2024 Notes for general corporate purposes, including to augment liquidity.
The 2021 Notes will bear interest at a variable rate, reset quarterly, equal to three-month LIBOR plus 0.430% per annum, payable quarterly on February 1, May 1, August 1 and November 1 of each year, beginning on February 1, 2019. Interest on the fixed-rate 2024 Notes will be payable in arrears semi-annually on April 1 and October 1 of each year, beginning on April 1, 2019.
The Company's obligations in respect to the 2021 Notes and the 2024 Notes are not guaranteed by any of its subsidiaries. The Company may redeem the 2024 Notes, in whole or in part, at any time prior to March 2, 2024 at a redemption price equal to the greater of (a) 100% of the principal amount of the notes being redeemed, and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes being redeemed, discounted to the date of redemption on a semi-annual basis at the comparable U.S. Treasury rate, plus 15 basis points, plus accrued and unpaid interest to the date of redemption. The Company may redeem the 2021 Notes and 2024 Notes, in whole or in part, at any time on or after October 2, 2021 and March 2, 2024, respectively, at a redemption price equal to 100% of the principal amount of the notes being redeemed, plus, in each case, accrued and unpaid interest to the date of redemption.
Lines of Credit — TD Ameritrade Clearing, Inc. ("TDAC"), a clearing broker-dealer subsidiary of the Company, utilizes secured uncommitted lines of credit for short-term liquidity. Under these secured uncommitted lines, TDAC borrows on a demand basis from two unaffiliated banks and pledges client margin securities as collateral. Advances under the secured uncommitted lines are dependent on having acceptable collateral as determined by each secured uncommitted credit agreement. At December 31, 2018, the terms of the secured uncommitted credit agreements do not specify borrowing limits. The availability of TDAC's secured uncommitted lines is subject to approval by the individual banks each time an advance is requested and may be denied. There were no borrowings outstanding under the secured uncommitted lines of credit as of December 31, 2018 and September 30, 2018.
Securities Sold Under Agreements to Repurchase (repurchase agreements) — Under repurchase agreements, the Company receives cash from the counterparty and provides U.S. government debt securities as collateral. The Company's repurchase agreements generally mature between 30 and 90 days following the transaction date and are accounted for as secured borrowings. There were no borrowings outstanding under repurchase agreements as of December 31, 2018. The remaining contractual maturities of the repurchase agreements with outstanding balances as of September 30, 2018 were less than 30 days. The weighted average interest rate on the balances outstanding as of September 30, 2018 was 2.35%. See "General Contingencies" in Note 8 for a discussion of the potential risks associated with repurchase agreements and how the Company mitigates those risks.
Fair Value Hedging — The Company is exposed to changes in the fair value of its fixed-rate Senior Notes resulting from interest rate fluctuations. To hedge a vast majority of this exposure, the Company has entered into fixed-for-variable interest rate swaps on each of the 2019 Notes, 2022 Notes, 2025 Notes and 2027 Notes (together, the "Hedged Senior Notes"). Each fixed-for-variable interest rate swap has a notional amount and a maturity date matching the aggregate principal amount and maturity date, respectively, for each of the respective Hedged Senior Notes.
The interest rate swaps effectively change the fixed-rate interest on the Hedged Senior Notes to variable-rate interest. Under the terms of the interest rate swap agreements, the Company receives semi-annual fixed-rate interest payments based on the same rates applicable to the Hedged Senior Notes, and makes quarterly variable-rate interest payments based on three-month LIBOR plus (a) 2.3745% for the swap on the 2019 Notes, (b) 0.9486% for the swap on the 2022 Notes, (c) 1.1022% for the swap on the 2025 Notes and (d) 1.0340% for the swap on the 2027 Notes. As of December 31, 2018, the weighted average interest rate on the aggregate principal balance of the Senior Notes was 3.27%.
The interest rate swaps are accounted for as fair value hedges and qualify for the shortcut method of accounting. Changes in the payment of interest resulting from the interest rate swaps are recorded in interest on borrowings on the Condensed Consolidated Statements of Income. Changes in fair value of the interest rate swaps are completely offset by changes in fair value of the related notes, resulting in no effect on net income. The following table summarizes gains and losses resulting from changes in the fair value of interest rate swaps designated as fair value hedges and the hedged fixed-rate debt for the periods indicated (dollars in millions):
 
 
Three Months Ended December 31,
 
 
2018
 
2017
Gain (loss) on fair value of interest rate swaps
 
$
52

 
$
(24
)
Gain (loss) on fair value of hedged fixed-rate debt
 
(52
)
 
24

Net gain (loss) recorded in interest on borrowings
 
$
—

 
$
—


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Balance Sheet Impact of Hedging Instruments — The following table summarizes the classification and the fair value of outstanding derivatives designated as hedging instruments on the Condensed Consolidated Balance Sheets (dollars in millions):
 
 
December 31,
2018
 
September 30,
2018
Pay-variable interest rate swaps designated as fair value hedges:
 
 
 
 
Other assets
 
$
2

 
$
2

Accounts payable and other liabilities
 
$
(44
)
 
$
(96
)
The interest rate swaps are subject to counterparty credit risk. Credit risk is managed by limiting activity to approved counterparties that meet a minimum credit rating threshold, by entering into credit support agreements, or by utilizing approved central clearing counterparties registered with the Commodity Futures Trading Commission ("CFTC"). The interest rate swaps require daily collateral coverage, in the form of cash or U.S. Treasury securities, for the aggregate fair value of the interest rate swaps (including accrued interest). As of December 31, 2018 and September 30, 2018, the pay-variable interest rate swap counterparties had pledged $2 million and $10 million of collateral, respectively, to the Company in the form of cash. A liability for collateral pledged to the Company in the form of cash is recorded in accounts payable and other liabilities on the Condensed Consolidated Balance Sheets. As of December 31, 2018 and September 30, 2018, the Company had pledged $50 million and $82 million of collateral, respectively, to the pay-variable interest rate swap counterparties in the form of cash. An asset for collateral pledged to the swap counterparties in the form of cash is recorded in other receivables on the Condensed Consolidated Balance Sheets.
Intercompany Credit Agreements — The Parent has entered into credit agreements with each of its primary broker-dealer and FCM/FDM subsidiaries, under which the Parent may make loans of cash or securities under committed and/or uncommitted lines of credit. Key information about the committed and/or uncommitted lines of credit is summarized in the following table (dollars in millions):
Borrower Subsidiary
 
Committed Facility
 
Uncommitted Facility(1)
 
Termination Date
TD Ameritrade Clearing, Inc.
 
$1,200
 
$300
 
March 1, 2022
TD Ameritrade, Inc.
 
N/A
 
$300
 
March 1, 2022
TD Ameritrade Futures & Forex LLC
 
$45
 
N/A
 
August 11, 2021
 
(1) The Parent is permitted, but under no obligation, to make loans under uncommitted facilities.
There were no borrowings outstanding under any of the intercompany credit agreements as of December 31, 2018 and September 30, 2018.
7. Capital Requirements
The Company's broker-dealer subsidiaries are subject to the SEC Uniform Net Capital Rule (Rule 15c3-1 under the Exchange Act), administered by the SEC and the Financial Industry Regulatory Authority ("FINRA"), which requires the maintenance of minimum net capital, as defined. Net capital and the related net capital requirement may fluctuate on a daily basis. TDAC, the Company's clearing broker-dealer subsidiary, and TD Ameritrade, Inc., an introducing broker-dealer subsidiary of the Company, compute net capital under the alternative method as permitted by Rule 15c3-1. TDAC is required to maintain minimum net capital of the greater of $1.5 million, which is based on the type of business conducted by the broker-dealer, or 2% of aggregate debit balances arising from client transactions. TD Ameritrade, Inc. is required to maintain minimum net capital of the greater of $250,000 or 2% of aggregate debit balances arising from client transactions. In addition, under the alternative method, a broker-dealer may not repay any subordinated borrowings, pay cash dividends or make any unsecured advances or loans to its parent company or employees if such payment would result in net capital of less than (a) 5% of aggregate debit balances or (b) 120% of its minimum dollar requirement.
TD Ameritrade Futures & Forex LLC ("TDAFF"), the Company's FCM and FDM subsidiary registered with the CFTC, is subject to CFTC Regulations 1.17 and 5.7 under the Commodity Exchange Act, administered by the CFTC and the National Futures Association ("NFA"). As an FCM, TDAFF is required to maintain minimum adjusted net capital under CFTC Regulation 1.17 of the greater of (a) $1.0 million or (b) its futures risk-based capital requirement, equal to 8% of the total risk margin requirement for all futures positions carried by the FCM in client and nonclient accounts. As an FDM, TDAFF is also subject to the net capital requirements under CFTC Regulation 5.7, which requires TDAFF to maintain minimum adjusted net capital of the greater of (a) any amount required under CFTC Regulation 1.17 as described above or (b) $20.0 million plus 5% of all foreign exchange liabilities owed to forex clients in excess of $10.0 million. In addition, an FCM and FDM must provide notice to the CFTC if its adjusted net capital amounts to less than (a) 110% of its risk-based capital requirement under CFTC Regulation 1.17, (b) 150% of its $1.0

15
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million minimum dollar requirement, or (c) 110% of $20.0 million plus 5% of all foreign exchange liabilities owed to forex clients in excess of $10.0 million.
Net capital and net capital requirements for the Company's broker-dealer subsidiaries are summarized in the following tables (dollars in millions):
TD Ameritrade Clearing, Inc.
Date
 
Net
Capital
 
Required
Net Capital
(2% of
Aggregate
Debit Balances)
 
Net Capital
in Excess of
Required
Net Capital
 
Ratio of Net
Capital to
Aggregate
Debit Balances
December 31, 2018
 
$
3,040

 
$
446

 
$
2,594

 
13.64
%
September 30, 2018
 
$
2,831

 
$
525

 
$
2,306

 
10.79
%
TD Ameritrade, Inc.
Date
 
Net
Capital
 
Required
Net Capital
(Minimum Dollar
Requirement)
 
Net Capital
in Excess of
Required
Net Capital
December 31, 2018
 
$
192

 
$
0.25

 
$
191

September 30, 2018
 
$
181

 
$
0.25

 
$
181

Adjusted net capital and adjusted net capital requirements for the Company's FCM and FDM subsidiary are summarized in the following table (dollars in millions):
TD Ameritrade Futures & Forex LLC
Date
 
Adjusted Net
Capital
 
Required Adjusted Net Capital
($20 Million Plus 5% of All Foreign Exchange Liabilities Owed to Forex Clients in Excess of $10 Million)
 
Adjusted Net
Capital
in Excess of
Required
Adjusted Net
Capital
December 31, 2018
 
$
140

 
$
23

 
$
117

September 30, 2018
 
$
129

 
$
23

 
$
106

The Company's non-depository trust company subsidiary, TD Ameritrade Trust Company ("TDATC"), is subject to capital requirements established by the State of Maine, which require TDATC to maintain minimum Tier 1 capital. TDATC's Tier 1 capital was $41 million and $39 million as of December 31, 2018 and September 30, 2018, respectively, which exceeded the required Tier 1 capital by $22 million and $18 million, respectively.
8. Commitments and Contingencies
Legal and Regulatory Matters
Order Routing Matters — In 2014, five putative class action complaints were filed regarding TD Ameritrade, Inc.'s routing of client orders and one putative class action was filed regarding Scottrade, Inc.'s routing of client orders. Five of the six cases were dismissed and the United States Court of Appeals, 8th Circuit, affirmed the dismissals in those cases that were appealed. The one remaining case is Roderick Ford (replacing Gerald Klein) v. TD Ameritrade Holding Corporation, et al., Case No. 8:14CV396 (U.S. District Court, District of Nebraska). Plaintiff alleges that, when routing client orders to various market centers, defendants did not seek best execution, and instead routed clients' orders to market venues that paid TD Ameritrade, Inc. the most money for order flow. Plaintiff alleges that defendants made misrepresentations and omissions regarding the Company's order routing practices. The complaint asserts claims of violations of Section 10(b) and 20 of the Exchange Act and SEC Rule 10b-5. The complaint seeks damages, injunctive relief, and other relief. Plaintiff filed a motion for class certification, which defendants opposed. On July 12, 2018, the Magistrate Judge issued findings and a recommendation that plaintiff's motion for class certification be denied. Plaintiff filed objections to the Magistrate Judge's findings and recommendation, which defendants opposed. On September 14, 2018, the District Judge sustained plaintiff's objections, rejected the Magistrate Judge's recommendation and granted plaintiff's motion for class certification. On September 28, 2018, defendants filed a petition requesting that the U.S. Court of Appeals, 8th Circuit, grant an immediate appeal of the District Court's class certification decision. The Securities Industry and Financial Markets Association and the U.S. Chamber of Commerce filed amicus curiae briefs in support of the petition together with motions for permission to file the briefs. On October 9, 2018, plaintiff filed an opposition to the petition. On December 18, 2018, the U.S. Court of Appeals, 8th Circuit, granted defendants' petition and set a briefing schedule. The Company intends to

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vigorously defend against this lawsuit and is unable to predict the outcome or the timing of the ultimate resolution of the lawsuit, or the potential loss, if any, that may result.
Certain regulatory authorities are conducting examinations and investigations regarding the routing of client orders. TD Ameritrade, Inc., TDAC and Scottrade, Inc. have received requests for documents and information from the regulatory authorities. TD Ameritrade, Inc., TDAC and Scottrade, Inc. are cooperating with the requests.
Lawsuit regarding Scottrade Acquisition — On April 6, 2017, a stockholder of the Company filed a stockholder derivative complaint regarding the acquisition of Scottrade by the Company and the acquisition of Scottrade Bank by TD. The suit filed in the Delaware Chancery Court is captioned Vero Beach Police Officers' Retirement Fund, derivatively on behalf of nominal defendant TD Ameritrade Holding Corp. v. Larry Bettino et al., C.A. No. 2017-0264-JRS. On December 18, 2017, the plaintiff filed an amended complaint. The suit named as defendants TD and the members of the Company's board of directors. It also named the Company as a nominal defendant. The complaint alleged that the Company's acquisition of Scottrade and TD's acquisition of Scottrade Bank were unfair from the perspective of the Company because TD Bank, N.A. acquired Scottrade Bank for an allegedly low price, which in turn caused the Company to pay an allegedly high price to acquire Scottrade. The complaint claimed that the Company's directors and TD, as the Company's alleged controlling stockholder, breached their fiduciary duties to the Company and its stockholders, and that TD aided and abetted the Company directors' breach of fiduciary duty and was unjustly enriched. The complaint sought a declaration that demand on the Company's board was excused as futile and sought corporate governance reforms, damages, interest and fees. On August 9, 2018, the parties submitted to the court for its approval a stipulation of settlement of this action. Under the settlement, TD and an insurer on behalf of the Company's directors agreed to make a settlement payment; plaintiff could apply for an award of attorneys' fees and expenses in an amount not to exceed 20% of the settlement payment; the balance of the settlement payment was to be paid to the Company; and the lawsuit would be dismissed and the claims released. Following a December 3, 2018 hearing, the court issued an order approving the settlement and the award of attorneys' fees and expenses and dismissed the case with prejudice. As a result of the settlement, the Company recorded $14 million in other non-operating income on the Condensed Consolidated Statements of Income for the three months ended December 31, 2018. The Company received the $14 million settlement payment in January 2019.
Aequitas Securities Litigation — An amended putative class action complaint was filed in the U.S. District Court for the District of Oregon in Lawrence Ciuffitelli et al. v. Deloitte & Touche LLP, EisnerAmper LLP, Sidley Austin LLP, Tonkon Torp LLP, TD Ameritrade, Inc., and Integrity Bank & Trust, Case No. 3:16CV580, on May 19, 2016. A second amended putative class action complaint was filed on September 8, 2017, in which Duff & Phelps was added as a defendant. The putative class includes all persons who purchased securities of Aequitas Commercial Finance, LLC and its affiliates on or after June 9, 2010. Other groups of plaintiffs have filed five non-class action lawsuits in Oregon Circuit Court, Multnomah County, against these and other defendants: Walter Wurster, et al. v. Deloitte & Touche et al., Case No. 16CV25920 (filed Aug. 11, 2016), Kenneth Pommier, et al. v. Deloitte & Touche et al., Case No. 16CV36439 (filed Nov. 3, 2016), Charles Ramsdell, et al. v. Deloitte & Touche et al., Case No. 16CV40659 (filed Dec. 2, 2016), Charles Layton, et al. v. Deloitte & Touche et al., Case No. 17CV42915 (filed October 2, 2017) and John Cavanagh, et al. v. Deloitte & Touche et al., Case No. 18CV09052 (filed March 7, 2018). FINRA arbitrations have also been filed against TD Ameritrade, Inc. The claims in these actions include allegations that the sales of Aequitas securities were unlawful, the defendants participated and materially aided in such sales in violation of the Oregon securities laws, and material misstatements and omissions were made. While the factual allegations differ in various respects among the cases, plaintiffs' allegations include assertions that: TD Ameritrade customers purchased more than $140 million of Aequitas securities; TD Ameritrade served as custodian for Aequitas securities; recommended and referred investors to financial advisors as part of its advisor referral program for the purpose of purchasing Aequitas securities; participated in marketing the securities; recommended the securities; provided assurances to investors about the safety of the securities; and developed a market for the securities. In the Ciuffitelli putative class action, plaintiffs allege that more than 1,500 investors were owed more than $600 million on the Aequitas securities they purchased. On August 1, 2018, the Magistrate Judge in that case issued findings and a recommendation that defendants' motions to dismiss the pending complaint be denied with limited exceptions not applicable to the Company. TD Ameritrade and other defendants filed objections to the Magistrate Judge's findings and recommendation, which plaintiffs opposed. On September 24, 2018, the District Judge issued an opinion and order adopting the Magistrate Judge's findings and recommendation. Discovery is ongoing. In the five non-class action lawsuits, approximately 200 named plaintiffs collectively allege a total of approximately $125 million in losses plus other damages. In the Wurster and Pommier cases, the Court, on TD Ameritrade's motion, dismissed the claims by those plaintiffs who were TD Ameritrade customers, in favor of arbitration. Discovery is ongoing. The Court in the Wurster and Pommier cases denied TD Ameritrade's motion to dismiss the claims by the plaintiffs who were not TD Ameritrade customers. Plaintiffs in the Ramsdell case have filed a second amended complaint in which TD Ameritrade is not named as a defendant. On September 24, 2018, plaintiffs in the Cavanagh case dismissed their claims against TD Ameritrade. On July 17, 2018, plaintiffs in the Ciuffitelli case filed a motion for preliminary approval of an $18.5 million settlement with the defendant Tonkon Torp law firm of the claims against it in all the pending cases. On September 24, 2018, defendants filed a response requesting the Court to defer considering the plaintiffs' motion or to deny it as presented. The Company intends to vigorously defend against this litigation. The Company is unable to predict the outcome or the timing of the ultimate resolution of this litigation, or the potential losses, if any, that may result.

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Other Legal and Regulatory Matters — The Company is subject to a number of other lawsuits, arbitrations, claims and other legal proceedings in connection with its business. Some of these legal actions include claims for substantial or unspecified compensatory and/or punitive damages. In addition, in the normal course of business, the Company discusses matters with its regulators raised during regulatory examinations or otherwise subject to their inquiry. These matters could result in censures, fines, penalties or other sanctions. ASC 450, Loss Contingencies, governs the recognition and disclosure of loss contingencies, including potential losses from legal and regulatory matters. ASC 450 categorizes loss contingencies using three terms based on the likelihood of occurrence of events that result in a loss: "probable" means that "the future event or events are likely to occur;" "remote" means that "the chance of the future event or events occurring is slight;" and "reasonably possible" means that "the chance of the future event or events occurring is more than remote but less than likely." Under ASC 450, the Company accrues for losses that are considered both probable and reasonably estimable. The Company may incur losses in addition to the amounts accrued where the losses are greater than estimated by management, or for matters for which an unfavorable outcome is considered reasonably possible, but not probable.
The Company estimates that the aggregate range of reasonably possible losses in excess of amounts accrued is from $0 to $180 million as of December 31, 2018. This estimated aggregate range of reasonably possible losses is based upon currently available information for those legal and regulatory matters in which the Company is involved, taking into account the Company's best estimate of reasonably possible losses for those matters as to which an estimate can be made. For certain matters, the Company does not believe an estimate can currently be made, as some matters are in preliminary stages and some matters have no specific amounts claimed. The Company's estimate involves significant judgment, given the varying stages of the proceedings and the inherent uncertainty of predicting outcomes. The estimated range will change from time to time as the underlying matters, stages of proceedings and available information change. Actual losses may vary significantly from the current estimated range.
The Company believes, based on its current knowledge and after consultation with counsel, that the ultimate disposition of these legal and regulatory matters, individually or in the aggregate, is not likely to have a material adverse effect on the financial condition or cash flows of the Company. However, in light of the uncertainties involved in such matters, the Company is unable to predict the timing or the ultimate resolution of these matters, or the potential losses, fines, penalties or equitable relief, if any, that may result, and it is possible that the ultimate resolution of one or more of these matters may be material to the Company's results of operations for a particular reporting period.
Income Taxes
The Company's federal and state income tax returns are subject to examination by taxing authorities. Because the application of tax laws and regulations to many types of transactions is subject to varying interpretations, amounts reported in the condensed consolidated financial statements could be significantly changed at a later date upon final determinations by taxing authorities.
General Contingencies
In the ordinary course of business, there are various contingencies that are not reflected in the condensed consolidated financial statements. These include the Company's broker-dealer and FCM/FDM subsidiaries' client activities involving the execution, settlement and financing of various client securities, options, futures and foreign exchange transactions. These activities may expose the Company to credit risk in the event the clients are unable to fulfill their contractual obligations.
The Company extends margin credit and leverage to its clients. In margin transactions, the Company extends credit to the client, subject to various regulatory and internal margin requirements, collateralized by cash and securities in the client's account. In connection with these activities, the Company also routes client orders for execution and clears client transactions involving the sale of securities not yet purchased ("short sales"). Such margin-related transactions may expose the Company to credit risk in the event a client's assets are not sufficient to fully cover losses that the client may incur. Leverage involves securing a large potential future obligation with a lesser amount of collateral. The risks associated with margin credit and leverage increase during periods of rapid market movements, or in cases where leverage or collateral is concentrated and market movements occur. In the event the client fails to satisfy its obligations, the Company has the authority to liquidate certain positions in the client's account(s) at prevailing market prices in order to fulfill the client's obligations. However, during periods of rapid market movements, clients who utilize margin credit or leverage and who have collateralized their obligations with securities may find that the securities have a rapidly depreciating value and may not be sufficient to cover their obligations in the event of liquidation. The Company seeks to mitigate the risks associated with its client margin and leverage activities by requiring clients to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels throughout each trading day and, pursuant to such guidelines, requires clients to deposit additional collateral, or to reduce positions, when necessary.
The Company contracts with unaffiliated FCM, FDM and broker-dealer entities to clear and execute futures, options on futures and foreign exchange transactions for its clients. This can result in concentrations of credit risk with one or more of these counterparties. This risk is partially mitigated by the counterparties' obligation to comply with rules and regulations governing FCMs, FDMs and broker-dealers in the United States. These rules generally require maintenance of net capital and segregation of client funds and securities. In addition, the Company manages this risk by requiring credit approvals for counterparties and by

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utilizing account funding and sweep arrangement agreements that generally specify that all client cash in excess of futures funding requirements be transferred back to the clients' securities brokerage accounts at the Company on a daily basis.
The Company loans securities temporarily to other broker-dealers in connection with its broker-dealer business. The Company receives cash as collateral for the securities loaned. Increases in securities prices may cause the market value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its client obligations. The Company mitigates this risk by requiring credit approvals for counterparties, by monitoring the market value of securities loaned on a daily basis and requiring additional cash as collateral when necessary, and by participating in a risk-sharing program offered through the Options Clearing Corporation ("OCC").
The Company borrows securities temporarily from other broker-dealers in connection with its broker-dealer business. The Company deposits cash as collateral for the securities borrowed. Decreases in securities prices may cause the market value of the securities borrowed to fall below the amount of cash deposited as collateral. In the event the counterparty to these transactions does not return the cash deposited, the Company may be exposed to the risk of selling the securities at prevailing market prices. The Company mitigates this risk by requiring credit approvals for counterparties, by monitoring the collateral values on a daily basis and requiring collateral to be returned by the counterparties when necessary, and by participating in a risk-sharing program offered through the OCC.
The Company transacts in reverse repurchase agreements (securities purchased under agreements to resell) in connection with its broker-dealer business. The Company's policy is to take possession or control of securities with a market value in excess of the principal amount loaned, plus accrued interest, in order to collateralize resale agreements. The Company monitors the market value of the underlying securities that collateralize the related receivable on resale agreements on a daily basis and may require additional collateral when deemed appropriate.
The Company utilizes securities sold under agreements to repurchase (repurchase agreements) to finance its short-term liquidity and capital needs. Under these agreements, the Company receives cash from the counterparties and provides U.S. Treasury securities as collateral, allowing the counterparties the right to sell or repledge the collateral. These agreements expose the Company to credit losses in the event the counterparties cannot meet their obligations. The Company mitigates this risk by requiring credit approvals for counterparties, by monitoring the market value of pledged securities owned on a daily basis and requiring the counterparties to return cash or excess collateral pledged when necessary.
The Company has accepted collateral in connection with client margin loans and securities borrowed. Under applicable agreements, the Company is generally permitted to repledge securities held as collateral and use them to enter into securities lending arrangements. The following table summarizes the fair values of client margin securities and stock borrowings that were available to the Company to utilize as collateral on various borrowings or for other purposes, and the amount of that collateral loaned or repledged by the Company (dollars in billions):
 
 
December 31,
2018
 
September 30,
2018
Client margin securities
 
$
26.9

 
$
31.4

Stock borrowings
 
0.4

 
0.8

Total collateral available
 
$
27.3

 
$
32.2

 
 
 
 
 
Collateral loaned
 
$
2.2

 
$
2.9

Collateral repledged
 
5.6

 
6.3

Total collateral loaned or repledged
 
$
7.8

 
$
9.2


The Company is subject to cash deposit and collateral requirements with clearinghouses based on its clients' trading activity. The following table summarizes cash deposited with and securities pledged to clearinghouses by the Company (dollars in millions):
Assets
 
Condensed Consolidated Balance Sheet Classification
 
December 31,
2018
 
September 30,
2018
Cash
 
Receivable from brokers, dealers and clearing
organizations
 
$
955

 
$
545

U.S. government debt securities
 
Securities owned, at fair value
 
—

 
50

Total
 
$
955

 
$
595

The Company manages its sweep program through off-balance sheet arrangements with TD and unaffiliated third-party depository financial institutions (together, the "Sweep Program Counterparties"). The sweep program is offered to eligible clients whereby

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the client's uninvested cash is swept into FDIC-insured (up to specified limits) money market deposit accounts at the Sweep Program Counterparties. The Company earns revenue on client cash at the Sweep Program Counterparties based on the return of floating-rate and fixed-rate notional investments. The Company designates amounts and maturity dates for the fixed-rate notional investments within the sweep program portfolios, subject to certain limitations. In the event the Company instructs the Sweep Program Counterparties to withdraw a fixed-rate notional investment prior to its maturity, the Company may be required to reimburse the Sweep Program Counterparties for any losses incurred as a result of the early withdrawal. In order to mitigate the risk of potential loss due to an early withdrawal of fixed-rate notional investments, the Company maintains a certain level of short-term floating-rate investments within the sweep program portfolios to meet client cash demands. See "Insured Deposit Account Agreement" in Note 13 for a description of the sweep arrangement between the Company and TD.
Guarantees
The Company is a member of and provides guarantees to securities clearinghouses and exchanges in connection with client trading activities. Under related agreements, the Company is generally required to guarantee the performance of other members. Under these agreements, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. The Company's liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted to the clearinghouse as collateral. However, the likelihood that the Company would be required to make payments under these agreements is considered remote. Accordingly, no contingent liability is carried on the Condensed Consolidated Balance Sheets for these guarantees.
The Company clears its clients' futures and options on futures transactions on an omnibus account basis through unaffiliated FCMs. The Company also contracts with an external provider to facilitate foreign exchange trading for its clients. The Company has agreed to indemnify these unaffiliated FCMs and the external provider for any loss that they may incur from the client transactions introduced to them by the Company.
See "Insured Deposit Account Agreement" in Note 13 for a description of the guarantees included in that agreement.
9. Fair Value Disclosures
Fair Value Measurement — Definition and Hierarchy
ASC 820-10, Fair Value Measurement, defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.
ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:
•
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. This category includes active exchange-traded funds, money market mutual funds, mutual funds and equity securities.
•
Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Such inputs include quoted prices in markets that are not active, quoted prices for similar assets and liabilities in active and inactive markets, inputs other than quoted prices that are observable for the asset or liability and inputs that are derived principally from or corroborated by observable market data by correlation or other means. This category includes most debt securities, U.S. government agency mortgage-backed securities, which consist of Ginnie Mae Home Equity Conversion Mortgages, and other interest-sensitive financial instruments.
•
Level 3 — Unobservable inputs for the asset or liability, where there is little, if any, observable market activity or data for the asset or liability.

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The following tables present the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 and September 30, 2018 (dollars in millions):
 
 
December 31, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Assets:
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market mutual funds
 
$
4,524

 
$
—

 
$
—

 
$
4,524

Investments segregated and on deposit for regulatory purposes:
 
 
 
 
 
 
 
 
U.S. government debt securities
 
—

 
200

 
—

 
200

U.S. government agency mortgage-backed securities
 
—

 
799

 
—

 
799

Subtotal - Investments segregated for regulatory purposes
 
—

 
999

 
—

 
999

Securities owned:
 
 
 
 
 
 
 
 
U.S. government debt securities
 
—

 
100

 
—

 
100

Other
 
3

 
6

 
—

 
9

Subtotal - Securities owned
 
3

 
106

 
—

 
109

Investments available-for-sale:
 
 
 
 
 
 
 
 
U.S. government debt securities
 
—

 
884

 
—

 
884

Other assets:
 
 
 
 
 
 
 
 
Pay-variable interest rate swaps(1)
 
—

 
2

 
—

 
2

U.S. government debt securities
 
—

 
1

 
—

 
1

Subtotal - Other assets
 
—

 
3

 
—

 
3

Total assets at fair value
 
$
4,527

 
$
1,992

 
$
—

 
$
6,519

Liabilities:
 
 
 
 
 
 
 
 
Accounts payable and other liabilities:
 
 
 
 
 
 
 
 
Pay-variable interest rate swaps(1)
 
$
—

 
$
44

 
$
—

 
$
44

 
(1)
See "Fair Value Hedging" in Note 6 for details.


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September 30, 2018
 
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Assets:
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
Money market mutual funds
 
$
2,373

 
$
—

 
$
—

 
$
2,373

Investments segregated and on deposit for regulatory purposes:
 
 
 
 
 
 
 
 
U.S. government debt securities
 
—

 
225

 
—

 
225

U.S. government agency mortgage-backed securities
 
—

 
1,302

 
—

 
1,302

Subtotal - Investments segregated for regulatory purposes
 
—

 
1,527

 
—

 
1,527

Securities owned:
 
 
 
 
 
 
 
 
U.S. government debt securities
 
—

 
149

 
—

 
149

Other
 
1

 
6

 
—

 
7

Subtotal - Securities owned
 
1

 
155

 
—

 
156

Investments available-for-sale:
 
 
 
 
 
 
 
 
U.S. government debt securities
 
—

 
484

 
—

 
484

Other assets:
 
 
 
 
 
 
 
 
Pay-variable interest rate swaps(1)
 
—

 
2

 
—

 
2

U.S. government debt securities
 
—

 
1

 
—

 
1

Auction rate securities
 
—

 
—

 
1

 
1

Subtotal - Other assets
 
—

 
3

 
1

 
4

Total assets at fair value
 
$
2,374

 
$
2,169

 
$
1

 
$
4,544

Liabilities:
 
 
 
 
 
 
 
 
Accounts payable and other liabilities:
 
 
 
 
 
 
 
 
Pay-variable interest rate swaps(1)
 
$
—

 
$
96

 
$
—

 
$
96

 
 
(1)
See "Fair Value Hedging" in Note 6 for details.
There were no transfers between any levels of the fair value hierarchy during the periods covered by this report.
Valuation Techniques
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology applies to the Company's Level 1 assets and liabilities. If quoted prices in active markets for identical assets and liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable, either directly or indirectly. This pricing methodology applies to the Company's Level 2 assets and liabilities.
Level 2 Measurements:
Debt securities — Fair values for debt securities are based on prices obtained from an independent pricing vendor. The primary inputs to the valuation include quoted prices for similar assets in active markets, quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. The Company validates the vendor pricing by periodically comparing it to pricing from another independent pricing service. The Company has not adjusted prices obtained from the independent pricing vendor for any periods presented in the condensed consolidated financial statements because no significant pricing differences have been observed.
U.S. government agency mortgage-backed securities — Fair values for mortgage-backed securities are based on prices obtained from an independent pricing vendor. The primary inputs to the valuation include quoted prices for similar assets in active markets and in markets that are not active, a market derived prepayment curve, weighted average yields on the underlying collateral and spreads to benchmark indices. The Company validates the vendor pricing by periodically comparing it to pricing from two other

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independent sources. The Company has not adjusted prices obtained from the independent pricing vendor for any periods presented in the condensed consolidated financial statements because no significant pricing differences have been observed.
Interest rate swaps — These derivatives are valued by the Company using a valuation model provided by a third-party service that incorporates interest rate yield curves, which are observable for substantially the full term of the contract. The valuation model is widely accepted in the financial services industry and does not involve significant judgment because most of the inputs are observable in the marketplace. Credit risk is not an input to the valuation because in each case the Company or counterparty has possession of collateral, in the form of cash or U.S. Treasury securities, in amounts equal to or exceeding the fair value of the interest rate swaps. The Company validates the third-party service valuations by comparing them to valuation models provided by the swap counterparties.
Level 3 Measurements:
The Company has no material assets or liabilities classified as Level 3 of the fair value hierarchy.
Fair Value of Financial Instruments Not Recorded at Fair Value
Receivable from/payable to brokers, dealers and clearing organizations, receivable from/payable to clients, receivable from/payable to affiliates, other receivables, accounts payable and other liabilities and certain other borrowings are short-term in nature and accordingly are carried at amounts that approximate fair value. These financial instruments are recorded at or near their respective transaction prices and historically have been settled or converted to cash at approximately that value (categorized as Level 2 of the fair value hierarchy).
Cash and investments segregated and on deposit for regulatory purposes includes reverse repurchase agreements (securities purchased under agreements to resell). Reverse repurchase agreements are treated as collateralized financing transactions and are carried at amounts at which the securities will subsequently be resold, plus accrued interest. The Company's reverse repurchase agreements generally have a maturity of seven days and are collateralized by securities in amounts exceeding the carrying value of the resale agreements. Accordingly, the carrying value of reverse repurchase agreements approximates fair value (categorized as Level 2 of the fair value hierarchy). Cash and investments segregated and on deposit for regulatory purposes also includes cash held in demand deposit accounts and on deposit with futures commission merchants, for which the carrying values approximate the fair value (categorized as Level 1 of the fair value hierarchy). See Note 3 for a summary of cash and investments segregated and on deposit for regulatory purposes.
Securities sold under agreements to repurchase (repurchase agreements) included within other borrowings — Under repurchase agreements the Company receives cash from the counterparties and provides U.S. Treasury securities as collateral. The obligations to repurchase securities sold are reflected as a liability on the Condensed Consolidated Balance Sheets. Repurchase agreements are treated as collateralized financing transactions and are carried at amounts at which the securities will subsequently be repurchased, plus accrued interest. The Company's repurchase agreements are short-term in nature and accordingly the carrying value is a reasonable estimate of fair value (categorized as Level 2 of the fair value hierarchy).
Long-term debt — As of December 31, 2018, the Company's Senior Notes had an aggregate estimated fair value, based on quoted market prices (categorized as Level 1 of the fair value hierarchy), of approximately $3.52 billion, compared to the aggregate carrying value of the Senior Notes on the Condensed Consolidated Balance Sheet of $3.48 billion. As of September 30, 2018, the Company's Senior Notes had an aggregate estimated fair value, based on quoted market prices, of approximately $2.51 billion, compared to the aggregate carrying value of the Senior Notes on the Condensed Consolidated Balance Sheet of $2.44 billion.

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10. Offsetting Assets and Liabilities
Substantially all of the Company's securities sold under agreements to repurchase (repurchase agreements), reverse repurchase agreements, securities borrowing and securities lending activity and derivative financial instruments are transacted under master agreements that may allow for net settlement in the ordinary course of business, as well as offsetting of all contracts with a given counterparty in the event of default by one of the parties. However, for financial statement purposes, the Company does not net balances related to these financial instruments.
The following tables present information about the potential effect of rights of setoff associated with the Company's recognized assets and liabilities as of December 31, 2018 and September 30, 2018 (dollars in millions):
 
 
December 31, 2018
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheet
 
 
 
 
Gross Amounts
of Recognized
Assets and
Liabilities
 
Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheet
 
Net Amounts
Presented in
the Condensed
Consolidated
Balance Sheet
 
Financial
Instruments(5)
 
Collateral
Received or
Pledged
(Including
Cash)(6)
 
Net
Amount(7)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Investments segregated for
regulatory purposes:
 
 
 
 
 
 
 
 
 
 
 
 
Reverse repurchase agreements
 
$
500

 
$
—

 
$
500

 
$
—

 
$
(500
)
 
$
—

Receivable from brokers, dealers
   and clearing organizations:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits paid for
securities borrowed(1)
 
389

 
—

 
389

 
(16
)
 
(362
)
 
11

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
Pay-variable interest rate swaps
 
2

 
—

 
2

 
(2
)
 
—

 
—

Total
 
$
891

 
$
—

 
$
891

 
$
(18
)
 
$
(862
)
 
$
11

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Payable to brokers, dealers
and clearing organizations:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits received for
securities loaned(2)(3)
 
$
2,172

 
$
—

 
$
2,172

 
$
(20
)
 
$
(1,890
)
 
$
262

Accounts payable and other liabilities:
 
 
 
 
 


 
 
 
 
 


Pay-variable interest rate swaps
 
44

 
—

 
44

 
(46
)
 
—

 
(2
)
Total
 
$
2,216

 
$
—

 
$
2,216

 
$
(66
)
 
$
(1,890
)
 
$
260


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Table of Contents

 
 
September 30, 2018
 
 
 
 
 
 
 
 
Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheet
 
 
 
 
Gross Amounts
of Recognized
Assets and
Liabilities
 
Gross Amounts
Offset in the
Condensed
Consolidated
Balance Sheet
 
Net Amounts
Presented in
the Condensed
Consolidated
Balance Sheet
 
Financial
Instruments(5)
 
Collateral
Received or
Pledged
(Including
Cash)(6)
 
Net
Amount(7)
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Investments segregated for
regulatory purposes:
 
 
 
 
 
 
 
 
 
 
 
 
Reverse repurchase agreements
 
$
500

 
$
—

 
$
500

 
$
—

 
$
(500
)
 
$
—

Receivable from brokers, dealers
and clearing organizations:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits paid for
securities borrowed(1)
 
803

 
—

 
803

 
(41
)
 
(744
)
 
18

Other assets:
 
 
 
 
 
 
 
 
 
 
 
 
Pay-variable interest rate swaps
 
2

 
—

 
2

 
(2
)
 
—

 
—

Total
 
$
1,305

 
$
—

 
$
1,305

 
$
(43
)
 
$
(1,244
)
 
$
18

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Payable to brokers, dealers
and clearing organizations:
 
 
 
 
 
 
 
 
 
 
 
 
Deposits received for
securities loaned(2)(3)
 
$
2,914

 
$
—

 
$
2,914

 
$
(43
)
 
$
(2,544
)
 
$
327

Securities sold under agreements to repurchase(4)
 
96

 
—

 
96

 
(96
)
 
—

 
—

Accounts payable and other liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Pay-variable interest rate swaps
 
96

 
—

 
96

 
(82
)
 
—

 
14

Total
 
$
3,106

 
$
—

 
$
3,106

 
$
(221
)
 
$
(2,544
)
 
$
341

 
(1)
Included in the gross amounts of deposits paid for securities borrowed is $227 million and $462 million as of December 31, 2018 and September 30, 2018, respectively, transacted through a risk-sharing program with the OCC, which guarantees the return of cash to the Company. See "General Contingencies" in Note 8 for a discussion of the potential risks associated with securities borrowing transactions and how the Company mitigates those risks.
(2)
Included in the gross amounts of deposits received for securities loaned is $1.41 billion and $2.01 billion as of December 31, 2018 and September 30, 2018, respectively, transacted through a risk-sharing program with the OCC, which guarantees the return of securities to the Company. See "General Contingencies" in Note 8 for a discussion of the potential risks associated with securities lending transactions and how the Company mitigates those risks.
(3)
Substantially all of the Company's securities lending transactions have a continuous contractual term and, upon notice by either party, may be terminated within two business days. The following table summarizes the Company's gross liability for securities lending transactions by the class of securities loaned (dollars in millions):
 
 
December 31,
2018