Jefferies Financial Group Inc.

Overview

Risk is an inherent part of our business and activities. The extent

to which we properly and effectively identify, assess, monitor and

manage each of the various types of risk involved in our activities

is critical to our financial soundness, viability and profitability.

Accordingly, we have a comprehensive risk management

approach, with a formal governance structure and policies and

procedures outlining frameworks and processes to identify,

assess, monitor and manage risk. Principal risks involved in our

business activities include market, credit, liquidity and capital,

operational, model and strategic risk. Legal and compliance, new

business and reputational risk are also included within our

principal risks.

Risk management is a multifaceted process that requires

communication, judgment and knowledge of financial products

and markets. Our risk management process encompasses the

active involvement of executive and senior management, and

also many departments independent of the revenue-producing

business units, including Risk Management, Operations,

Information Technology, Compliance, Legal and Finance. Our risk

management policies, procedures and methodologies are flexible

in nature and are subject to ongoing review and modification.

In achieving our strategic business objectives, our risk appetite

incorporates keeping our clients’ interests as top priority and

ensuring we are in compliance with applicable laws, rules and

regulations, as well as adhering to the highest ethical standards.

We undertake prudent risk-taking that protects the capital base

and franchise, utilizing risk limits and tolerances that avoid

outsized risk-taking. We maintain a diversified business mix and

avoid significant concentrations to any sector, product,

geography or activity and set quantitative concentration limits to

manage this risk. We consider contagion, second order effects

and correlation in our risk assessment process and actively seek

out value opportunities of all sizes. We manage the risk of

opportunities larger than our approved risk levels through risk

sharing and risk distribution, sell-down and hedging as

appropriate. We have a limited appetite for illiquid assets and

complex derivative financial instruments. We maintain the asset

quality of our balance sheet through conducting trading activity in

liquid markets and generally ensure high turnover of our

inventory. We subject less liquid positions and derivative financial

instruments to particular scrutiny and use a wide variety of

specific metrics, limits and constraints to manage these risks.

We protect our reputation and franchise, as well as our standing

within the market. We operate a federated approach to risk

management and assign risk oversight responsibilities to a

number of functions with specific areas of focus.

For discussion of liquidity and capital risk management, refer to

the “Liquidity, Financial Condition and Capital Resources” section

herein.

Governance and Risk Management Structure

Our Board of Directors (“Board”) and Risk and Liquidity Oversight

Committee (“Committee”). Our Board and Committee play an

important role in reviewing our risk management process and

risk appetite. The Committee assists the Board in its oversight of:

(i) our enterprise risk management, (ii) our capital, liquidity and

funding guidelines and policies and (iii) the performance of our

Global Chief Risk Officer (“CRO”). Our CRO and Global Treasurer

meet with the Committee on no less than a quarterly basis to

present our risk profile and liquidity profile and to respond to

questions. Our Chief Information Officer also meets with the

Committee at least semi-annually to receive and review reports

related to any exposure to cybersecurity risk and our plans and

programs to mitigate and respond to cybersecurity risks.

Additionally, our risk management team continuously monitors

our various businesses, the level of risk the businesses are taking

and the efficacy of potential risk mitigation strategies and

presents this information to our senior management and the

Committee.

Our Board also fulfills its risk oversight role through the

operations of its various committees, including its Audit

Committee, through review of our financial statements, internal

audit function and internal control over financial reporting, as well

as through assisting the Board with our legal and regulatory

compliance and overseeing our Code of Business Practice. The

Audit Committee is also updated on risk controls at each of its

regularly scheduled meetings.

Internal Audit, which reports to the Audit Committee of the Board

and includes professionals with a broad range of audit and

industry experience, including risk management expertise, is

responsible for independently assessing and validating key

controls within our risk management framework.

We make extensive use of internal committees to govern risk

taking and ensure that business activities are properly identified,

assessed, monitored and managed. The Risk Management

Committee (“RMC”) and membership comprises our Chief

Executive Officer, President, CFO, CRO and Global Treasurer. Our

other risk related committees govern risk taking and ensure that

business activities are properly managed for their area of

oversight.

Risk Committees

•Risk Management Committee (RMC) -the principal committee

that governs our risk taking activities. The RMC meets weekly

to discuss our risk profile and discuss business or market

trends and their potential impact on the business. The RMC

approves our limits as a whole and across risk categories and

business lines, reviews limit breaches, approves risk policies

and stress testing methodologies and is supported by other

Committees including:

◦Credit Risk Committee - provides review and approval of

counterparties and credit limits.

◦Model Governance Committee - oversees all model risk

matters throughout the model life cycle, from model

identification and initiation, model development, model

validation/approval and model risk control.

◦Stress Testing Committee - provides review, approval and

oversees implementation of our stress testing framework

and methodologies.

•Operating Committee - brings together the managers of all

control areas and the business line chief operating officers,

whereby each department presents issues regarding current

and proposed business. This committee provides the key

forum for coordination and communication between the

control managers entirely focused on our activities as a whole.

•Asset / Liability Committee - seeks to ensure effective

management and control of the balance sheet in terms of risk

profile, adequacy of capital and liquidity resources and funding

profile and strategy. The committee is responsible for

developing, implementing and enforcing our liquidity, funding

and capital policies. This includes recommendations for

capital and balance sheet size, as well as the allocation of

capital to our businesses.

•Independent Price Verification Committee - establishes our

valuation policies and procedures and is responsible for

independently validating the fair value of our financial

instruments. The committee, which comprises stakeholders

represented by the CFO, Internal Audit, Risk Management and

Controllers, meets monthly to assess and approve the results

of our inventory price testing.

•New Business Committee - reviews new business, products and

activities and extensions of existing businesses, products and

activities that may introduce materially different or greater

risks than those of a business’ existing activities. The new

business approval process is a key control over new business

activity. The objectives are to notify all relevant functions of the

intention to introduce a new product, business or activity, to

share information between functions and to ensure there is a

thorough understanding of the proposal.

Risk Considerations

We apply a comprehensive framework of limits on a variety of

key metrics to constrain the risk profile of our business activities.

The size of the limits reflects our risk appetite for a certain

activity under normal business conditions. Key metrics included

in our risk management framework include inventory position

and exposure limits on a gross and net basis, scenario analysis

and stress tests, Value-at-Risk (“VaR”), sensitivities, exposure

concentrations, aged inventory, Level 3 assets, counterparty

exposure, leverage and cash capital.

Market Risk

Market risk is defined as the risk of loss due to fluctuations in the

market value of financial assets and liabilities attributable to

changes in market variables.

Our market risk principally arises from interest rate risk, from

exposure to changes in the yield curve, the volatility of interest

rates, and credit spreads, and from equity price risks from

exposure to changes in prices and volatilities of individual

equities, equity baskets and equity indices. In addition,

commodity price risk results from exposure to the changes in

prices and volatilities of individual commodities, commodity

baskets and commodity indices, and foreign exchange risk

results from changes in foreign currency rates.

Market risk is present in our capital markets business through

market making, proprietary trading, underwriting and investing

activities and is present in our asset management business

through investments in separately managed accounts and direct

investments in funds. Given our involvement in a broad set of

financial products and markets, market risk exposures are

diversified and economic hedges are established as appropriate.

Market risk is monitored and managed through a set of key risk

metrics such as VaR, stress scenarios, risk sensitivities and

position exposures. Limits are set on the key risk metrics to

monitor and control the risk exposure ensuring that it is in line

with our risk appetite. Our risk appetite, including the market risk

limits, is periodically reviewed to reflect business strategy and

market environment. Material risk changes, top/emerging risks

and limit utilizations/breaches are highlighted through risk

reporting and escalated as necessary.

Trading is principally managed through front office trader

mandates, where each trader is provided a specific mandate in

line with our product registry. Mandates set out the activities,

currencies, countries and products that a desk is permitted to

trade in and set the limits applicable to a desk. Traders are

responsible for knowing their trading limits and trading in a

manner consistent with their mandate.

VaR

VaR is a statistical estimate of the potential loss from adverse

market movements over a specified time horizon within a

specified probability (confidence level). It provides a common

risk measure across financial instruments, markets and asset

classes. We estimate VaR using a model that simulates revenue

and loss distributions by applying historical market changes to

the current portfolio. We calculate a one-day VaR using a one-

year look-back period measured at a 95% confidence level.

As with all measures of VaR, our estimate has inherent

limitations due to the assumption that historical changes in

market conditions are representative of the future. Furthermore,

the VaR model measures the risk of a current static position over

a one-day horizon and might not capture the market risk over a

longer time horizon where moves may be more extreme.

Previous changes in market risk factors may not generate

accurate predictions of future market movements. While we

believe the assumptions and inputs in our risk model are

reasonable, we could incur losses greater than the reported VaR.

Consequently, this VaR estimate is only one of a number of tools

we use in our daily risk management activities.

(1)The diversification effect is not applicable for the maximum and minimum

VaR values as the firmwide VaR and the VaR values for the four risk categories

might have occurred on different days during the period.

(2)The aggregated VaR presented here is less than the sum of the individual

components (i.e., interest rate risk, foreign exchange rate risk, equity risk and

commodity price risk) due to the benefit of diversification among the four risk

categories. Diversification benefit equals the difference between aggregated

VaR and the sum of VaRs for the four risk categories and arises because the

market risk categories are not perfectly correlated.

VaR for our capital markets trading activities, which excludes the

impact on VaR for each component of market risk from our asset

management activities, by interest rate and credit spreads, equity,

currency and commodity products using the past 365 days of

historical data:

(1)The diversification effect is not applicable for the maximum and minimum

VaR values as the capital markets VaR and the VaR values for the four risk

categories might have occurred on different days during the period.

(2)The aggregated VaR presented here is less than the sum of the individual

components (i.e., interest rate risk, foreign exchange rate risk, equity risk and

commodity price risk) due to the benefit of diversification among the four risk

categories. Diversification benefit equals the difference between aggregated

VaR and the sum of VaRs for the four risk categories and arises because the

market risk categories are not perfectly correlated.

Our average daily firmwide VaRdecreased to$11.23 million for 2025 from$13.13 million for 2024, driven by lower equity exposures,

partially offset by an increase in exposures to movements in currency rates. The average daily capital markets VaR decreased to$7.64

million for 2025 from$8.53 million for 2024 driven by lower equity exposures, partially offset by an increase in exposures to movements

in currency rates and a lower diversification effect.

The efficacy of the VaR model is tested by comparing our actual daily net revenues for those positions included in the calculation of

VaR with the daily VaR estimate. This evaluation is performed at various levels, from the overall level down to specific business lines.

For the VaR model, revenue is defined as principal transactions revenues, trading related commissions, revenue from securitization

activities and net interest income. VaR backtesting methodologies differ for regulated entities with approved capital models.

For a 95% confidence one day VaR model (i.e., no intra-day trading), assuming current changes in market value are consistent with the

historical changes used in the calculation, losses would not be expected to exceed the VaR estimates more than twelve times on an

annual basis (i.e., once in every 20 days). During 2025, there were three days when the aggregate net trading loss exceeded the 95% one

day VaR.

The chart below presents our daily firmwide VaR and capital markets VaR over the last four quarters. In the last quarter of 2025, the

firmwide VaR decrease wasdriven by lower equity exposures, partially offset by an increase in exposures to movements in currency

rates.

Daily Net Trading Revenue

There were 23 days with firmwide trading losses out of a total of 250 trading days in 2025. The histogram below presents the

distribution of our actual daily net trading revenue for substantially all of our activities (in millions):

Other Risk Measures

The VaR model does not include certain positions that are best measured and monitored using sensitivity analysis. Risk Management

has additional procedures in place to assure that the level of potential loss driven by those positions not in the VaR model arising from

market movements are within acceptable levels. Such procedures include performing stress tests and profit and loss analysis. The

table below presents the potential reduction in earnings associated with a 10% stress of the fair value of the positions that are not

included in the VaR model at November 30, 2025:

(1)Primarily includes investments in hedge funds, fund of funds and private equity funds classified within Level 3 of the fair value hierarchy and excluded from the fair value

hierarchy based on net asset value.

The impact of changes in our own credit spreads on our structured notes for which the fair value option was elected is not included in

VaR. The estimated credit spread risk sensitivity for each one basis point widening in our own credit spreads on financial liabilities for

which the fair value option was elected was an increase in value of approximately$2.0 million at November 30, 2025, which is included

in other comprehensive income.

Other Risk

We are also subject to interest rate risk on our long-term fixed interest rate debt. Generally, the fair market value of debt securities with

a fixed interest rate will increase as interest rates fall, and the fair market value will decrease as interest rates rise. The following table

represents principal cash flows by expected maturity dates and the related weighted-average interest rate on those maturities for our

consolidated long-term debt obligations, inclusive of any related interest rate hedges. For the variable rate borrowings, the weighted-

average interest rates are based on the rates in effect at the reporting date. Our market risk with respect to foreign currency exposure

on our long-term debt is also presented in the table below. For additional information, refer to Note 17, Borrowings in our consolidated

financial statements included in this Annual Report on Form 10-K.

Stress Tests and Scenario Analysis

Stress tests are used to analyze the potential impact of specific

events or extreme market moves on the current portfolio both

firm-wide and within business segments. Stress testing is an

important part of our risk management approach because it

allows us to quantify our exposure to tail risks, highlight potential

loss concentrations, undertake risk/reward analysis, set risk

controls and overall assess and mitigate our risk.

We employ a range of stress scenarios, which comprise both

historical market price and rate changes and hypothetical market

environments, and generally involve simultaneous changes of

many risk factors. Indicative market changes in the scenarios

include, but are not limited to, a large widening of credit spreads,

a substantial decline in equities markets, significant moves in

selected emerging markets, large moves in interest rates and

changes in the shape of the yield curve.

Unlike our VaR, which measures potential losses within a given

confidence interval, stress scenarios do not have an associated

implied probability. Rather, stress testing is used to estimate the

potential loss from market moves that tend to be larger than

those embedded in the VaR calculation. Stress testing

complements VaR to cover for potential limitations of VaR such

as the breakdown in correlations, non-linear risks, tail risk and

extreme events and capturing market moves beyond the

confidence levels assumed in the VaR calculations.

Stress testing is performed and reported at least weekly as part

of our risk management process and on an ad hoc basis in

response to market events or concerns. Current stress tests

provide estimated revenue and loss of the current portfolio

through a range of both historical and hypothetical events. The

stress scenarios are reviewed and assessed at least annually so

that they remain relevant and up to date with market

developments. Additional hypothetical scenarios are also

conducted on a sub-portfolio basis to assess the impact of any

relevant idiosyncratic stress events as needed.

Counterparty Credit Risk

Credit risk is the risk of loss due to adverse changes in a

counterparty’s credit worthiness or its ability or willingness to

meet its financial obligations in accordance with the terms and

conditions of a financial contract.

We are exposed to credit risk as a trading counterparty to other

broker-dealers and customers, as a counterparty to derivative

contracts, as a direct lender and through extending loan

commitments and providing securities-based lending and as a

member of exchanges and clearing organizations. Credit

exposure exists across a wide range of products, including cash

and cash equivalents, loans, securities finance transactions and

over-the-counter derivative contracts. The main sources of credit

risk are:

•Loans and lending arising in connection with our investment

banking and capital markets activities, which reflects our

exposure at risk on a default event with no recovery of loans.

Current exposure represents loans that have been drawn by the

borrower and lending commitments that are outstanding. In

addition, credit exposures on forward settling traded loans are

included within our loans and lending exposures for

consistency with the balance sheet categorization of these

items. Loans and lending also arise in connection with our

portion of a Secured Revolving Credit Facility that is with us

and Massachusetts Mutual Life Insurance Company, to be

funded equally, to support loan underwritings by Jefferies

Finance. For further information on this facility, refer to Note

10, Investments in our consolidated financial statements

included in this Annual Report on Form 10-K. In addition, we

have loans outstanding to certain of our officers and

employees (none of whom are executive officers or directors).

For further information on these employee loans, refer to Note

23, Related Party Transactions in our consolidated financial

•Securities and margin financing transactions, which reflect our

credit exposure arising from reverse repurchase agreements,

repurchase agreements and securities lending agreements to

the extent the fair value of the underlying collateral differs from

the contractual agreement amount and from margin provided

to customers.

•OTC derivatives, which are reported net by counterparty when a

legal right of setoff exists under an enforceable master netting

agreement. OTC derivative exposure is based on a contract at

fair value, net of cash collateral received or posted under credit

support agreements. In addition, credit exposures on forward

settling trades are included within our derivative credit

exposures.

•Cash and cash equivalents, which includes both interest-

bearing and non-interest-bearing deposits at banks.

Credit is extended to counterparties in a controlled manner and in

order to generate acceptable returns, whether such credit is

granted directly or is incidental to a transaction. All extensions of

credit are monitored and managed as a whole to limit exposure

to loss related to credit risk. Credit risk is managed according to

the Credit Risk Management Policy, which sets out the process

for identifying counterparty credit risk, establishing counterparty

limits, and managing and monitoring credit limits. The policy

includes our approach for:

•Client on-boarding and approving counterparty credit limits;

•Negotiating, approving and monitoring credit terms in legal and

master documentation;

•Determining the analytical standards and risk parameters for

ongoing management and monitoring credit risk books;

•Actively managing daily exposure, exceptions and breaches;

and

•Monitoring daily margin call activity and counterparty

performance.

Counterparty credit exposure limits are granted within our credit

ratings framework, as detailed in the Credit Risk Management

Policy. The Credit Risk Department assesses counterparty credit

risk and sets credit limits at the counterparty master agreement

level. Limits must be approved by appropriate credit officers and

initiated in our credit and trading systems before trading

commences. All credit exposures are reviewed against approved

limits on a daily basis.

Our Secured Revolving Credit Facility, which supports loan

underwritings by Jefferies Finance, is governed under separate

policies other than the Credit Risk Management Policy and is

approved by our Board. The loans outstanding to certain of our

officers and employees are extended pursuant to a review by our

most senior management.

Current counterparty credit exposures at November 30, 2025 and

2024 are summarized in the tables below and provided by credit

quality, region and industry. Credit exposures presented take

netting and collateral into consideration by counterparty and

master agreement. Collateral taken into consideration includes

both collateral received as cash as well as collateral received in

the form of securities or other arrangements. Current exposure is

the loss that would be incurred on a particular set of positions in

the event of default by the counterparty, assuming no recovery.

Current exposure equals the fair value of the positions less

collateral. Issuer risk is the credit risk arising from inventory

positions (for example, corporate debt securities and secondary

bank loans). Issuer risk is included in our country risk exposure

within the following tables.

(1)Includes a $250.0 million secured revolving credit facility to Jefferies Finance at November 30, 2025.

(2)Prior period amounts have been revised to conform with the current period presentation.

Country Risk Exposure

Country risk is the risk that events or developments that occur in the general environment of a country or countries due to economic,

political, social, regulatory, legal or other factors, will affect the ability of obligors of the country to honor their obligations. We define the

country of risk as the country of jurisdiction or domicile of the obligor and monitor country risk resulting from both trading positions and

counterparty exposure, which may not include the offsetting benefit of any financial instruments utilized to manage market risk. The

following tables reflect our top exposures at November 30, 2025 and 2024 to the sovereign governments, corporations and financial

institutions in those non- U.S. countries in which we have net long issuer and counterparty exposure:

Operational Risk

Operational risk is the risk of financial or non-financial impact,

resulting from inadequate or failed internal processes, people

and systems or from external events. We interpret this definition

as including not only financial loss or gain but also other negative

impacts to our objectives such as reputational impact, legal/

regulatory impact and impact on our clients. Third-party risk is

also included as a subset of operational risk and is defined as the

potential threat presented to us, our employees or clients from

our supply chain and other third parties used to perform a

process, service or activity on our behalf.

Our Operational Risk framework includes governance as well as

operational risk processes, comprises operational risk event

capture and analysis, risk and control self-assessments,

operational risk key indicators, action tracking, risk monitoring

and reporting, deep dive risk assessments, new business

approvals and vendor risk management. Each revenue producing

and support department is responsible for the management and

reporting of operational risks and the implementation of the

Operational Risk Management Policy and processes within the

department with regular operational risk training provided to our

employees.

Operational risk events are mapped to risk categories used for

the consistent classification of risk data to support root cause

and trend analysis, which includes:

•Fraud and Theft

•Clients and Business Practices

•Market Conduct / Regulatory Compliance

•Business Disruption

•Technology

•Data Protection and Privacy

•Trading

•Transaction and Process Management

•People

•Cybersecurity

•Vendor Risk

Our Operational Risk Management Policy and operational risk

management framework, infrastructure, methodology, processes,

guidance and oversight of the operational risk processes are

centralized and consistent firmwide and, additionally, subject to

regional and legal entity operational risk governance, as required.

We also maintain a Third-Party (“Vendor”) Risk Management

Policy and Framework to ensure adequate control and monitoring

over our critical third parties, which includes processes for

conducting periodic reviews covering areas of risk including

financial health, information security, privacy, business continuity

management, disaster recovery and operational risk of our

vendors.

Model Risk

Model risk refers to the risk of loss resulting from decisions that

are based on the output of models, due to errors or weaknesses

in the design and development, implementation or improper use

of models. We use quantitative models primarily to value certain

financial assets and liabilities and to monitor and manage our

risk. Model risk is a function of the model materiality, frequency

of use, complexity and uncertainty around inputs and

assumptions used in a given model. Robust model risk

management is a core part of our risk management approach

and is overseen through our risk governance structure and risk

management controls.

Legal and Compliance Risk

Legal and compliance risk includes the risk of noncompliance

with applicable legal and regulatory requirements. We are subject

to extensive regulation in the different jurisdictions in which we

conduct our business. We have various procedures addressing

issues such as regulatory capital requirements, sales and trading

practices, use of and safekeeping of customer funds, credit

granting, collection activities, anti-money laundering and record

keeping. These risks also reflect the potential impact that

changes in local and international laws and tax statutes have on

the economics and viability of current or future transactions. In

an effort to mitigate these risks, we continuously review new and

pending regulations and legislation and participate in various

industry interest groups. We also maintain an anonymous hotline

for employees or others to report suspected inappropriate

actions by us or by our employees or agents.

New Business Risk

New business risk refers to the risks of entering into a new line of

business or offering a new product. By entering a new line of

business or offering a new product, we may face risks that we are

unaccustomed to dealing with and may increase the magnitude

of the risks we currently face. The New Business Committee

reviews proposals for new businesses and new products to

determine if we are prepared to handle the additional or

increased risks associated with entering into such activities.

Reputational Risk

We recognize that maintaining our reputation among clients,

investors, regulators and the general public is an important

aspect of minimizing legal and operational risks. Maintaining our

reputation depends on a large number of factors, including the

selection of our clients and the conduct of our business

activities. We seek to maintain our reputation by screening

potential clients and by conducting our business activities in

accordance with high ethical standards. Our reputation and

business activity can be affected by statements and actions of

third parties, even false or misleading statements by them. We

actively monitor public comment concerning us and are vigilant

in seeking to assure accurate information and perception

prevails.