4. Securities Owned and Securities Sold, But Not Yet Purchased

The components of securities owned and securities sold, but not yet purchased as of December 31, 2012 and 2011 are as follows:


	Securities Owned		Securities Sold, But Not Yet Purchased
December 31, 2012
Certificates of deposit	$	14	$	—
Debt securities		1,098		(123	)
U.S. Treasury notes		—		(99	)
Common stock and warrants		384		(70	)
Restricted common stock and warrants		582		—
	$	2,078	$	(292	)


December 31, 2011
Common stock and warrants	$	191	$	(78	)
Restricted common stock and warrants		1,823		—
	$	2,014	$	(78	)

As of December 31, 2012 and 2011, approximately $1,787 and $542, respectively, of securities owned were deposited with the Company’s subsidiaries’ clearing brokers. Under the clearing agreements with such clearing brokers, the securities may be sold or hypothecated by the clearing brokers. Securities sold, but not yet purchased, at fair value represents obligations of the Company’s subsidiaries to purchase the specified financial instrument at the then current market price. Accordingly, these transactions result in off-balance-sheet risk as the Company’s subsidiaries’ ultimate obligation to repurchase such securities may exceed the amount recognized in the consolidated statements of financial condition.

Authoritative accounting guidance defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach are used to measure fair value.

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

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Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities.

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Level 2 — Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

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Level 3 — Unobservable inputs. Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

Securities are recorded at fair value and classified as follows:


	December 31, 2012
Securities owned, at fair value	Level 1		Level 2		Level 3		Total
Debt securities	$	—	$	1,098	$	—	$	1,098
Certificates of deposit		14		—		—		14
Common stock and warrants		384		582		—		966
Total	$	398	$	1,680	$	—	$	2,078


	December 31, 2012
Securities sold, but not yet purchased, at fair value	Level 1		Level 2		Level 3		Total
Debt securities	$	—	$	123	$	—	$	123
U.S. Treasury notes		—		99		—		99
Common stock and warrants		70		—		—		70
Total	$	70	$	222	$	—	$	292


	December 31, 2011
Securities owned, at fair value	Level 1		Level 2		Level 3		Total
Common stock and warrants	$	191	$	1,823	$	—	$	2,014


	December 31, 2011
Securities sold, but not yet purchased, at fair value	Level 1		Level 2		Level 3		Total
Common stock and warrants	$	68	$	10	$	—	$	78

Debt securities and U.S. Treasury notes are valued based on recently executed transactions, market price quotation, and pricing models that factor in, where applicable, interest rates and bond default risk spreads.

Warrants are carried at a discount to fair value as determined by using the Black-Scholes option pricing model due to illiquidity. This model takes into account the underlying securities current market value, the underlying securities market volatility, the term of the warrants, exercise price, and risk free return rate. As of December 31, 2012 and 2011, the fair value of the warrants are $160 and $1,005, respectively, and are included in common stock and warrants (level 2) above.

Common stock may be received as compensation for investment banking services. These securities are restricted and may be freely traded only upon the effectiveness of a registration statement covering them or upon the satisfaction of the requirements of Rule 144, including the requisite holding period. Restricted common stock is classified as Level 2 securities.