consolidated statement of financial condition - Barclays Capital

The valuation techniques and significant inputs used indetermining the fair values of cash instruments andderivative contracts classified within level 1 and level 2of the fair value hierarchy are as follows:• Cash instrumentsThe Company’s cash instruments are generallyclassified within level 1 or level 2 of the fair valuehierarchy because they are valued using quotedmarket prices, broker or dealer quotations, oralternative pricing sources with reasonable levels ofprice transparency. The types of instruments valuedbased on quoted market prices in active marketsinclude certain U.S. government obligations, othersovereign government obligations, actively tradedlisted equities and certain money market securities.Such instruments are generally classified within level 1of the fair value hierarchy. The Company does notadjust the quoted price for such instruments, even insituations where the Company holds a large positionand a sale could reasonably impact the quoted price.The types of instruments that trade in markets thatare not considered to be active, but are valued basedon quoted market prices, broker or dealer quotations,or alternative pricing sources with reasonable levels ofprice transparency include most government agencyobligations, investment-grade corporate bonds, certainmortgage products, less liquid publicly listed equities,and state, municipal and provincial obligations. Suchinstruments are generally classified within level 2 ofthe fair value hierarchy, and may be adjusted to reflectilliquidity and/or non-transferability, which aregenerally based on available market evidence, and mayincorporate management’s best estimate based onavailable market evidence.• Derivative ContractsDerivative contracts can be exchange-traded or overthe-counter(“OTC”). Exchange-traded derivatives,including equity options, typically fall within level 1 orlevel 2 of the fair value hierarchy, depending onwhether they are deemed to be actively traded or not.The Company generally values exchange-tradedderivatives using models which are calibrated tomarket clearing levels and eliminate timing differencesbetween the closing price of the exchange-tradedderivatives and their underlying financial instruments.11