# GOLDMAN SACHS FINANCIAL MARKETS, L.P. X-17A-5 (2022-02-28) — Broker-dealer annual report
- Company: GOLDMAN SACHS FINANCIAL MARKETS, L.P.
- Form: X-17A-5
- Filed: 2022-02-28
- Period: 2021-12-31
- Accession: 0000042352-22-000006
- CIK: 1085407
- File #: 8-51753
- Type: Broker-dealer
- Material weakness: No
- Auditor: PricewaterhouseCoopers LLP
- Auditor location: New York, NY
- Contact: Thomas Favia
- Phone: 2129021710
- Email: thomas.favia@gs.com
- Website: gs.com
- Signed by: Thomas Favia (Chief Financial Officer)
Original filing: https://www.sec.gov/Archives/edgar/data/1085407/000004235222000006/gsfmpub1.pdf
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Goldman Sachs Financial Markets, L.P.
Statement of Financial Condition as of December 31, 2021
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## **UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549**
# **ANNUAL REPORTS FORM X-17A-5 PART III**
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| | | SEC FILE NUMBER |
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| 8-51753 | | |
**FACING PAGE**
**Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934**
FILING FOR THE PERIOD BEGINNING 1/1/2021 AND ENDING 12/31/2021 MM/DD/YY MM/DD/YY
## **A. REGISTRANT IDENTIFICATION**
NAME OF FIRM: Goldman Sachs Financial Markets, L.P.
TYPE OF REGISTRANT (check all applicable boxes):
Broker-dealer Security-based swap dealer Major security-based swap participant Check here if respondent is also an OTC derivatives dealer
ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.)
| 200 West Street | | | |
|--------------------------------------------------|---------------------------------------------------------------------------|---------------------|--------------------------------------------|
| | (No. and Street) | | |
| New York | New York | 10282 | |
| (City) | (State) | | (Zip Code) |
| | PERSON TO CONTACT WITH REGARD TO THIS FILING | | |
| Thomas J. Favia | (212) 902-1710 | thomas.favia@gs.com | |
| (Name) | (Area Code – Telephone Number) | (Email Address) | |
| | B. ACCOUNTANT IDENTIFICATION | | |
| PricewaterhouseCoopers LLP | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing* | | |
| | (Name – if individual, state last, first, and middle name) | | |
| 300 Madison Avenue | New York | New York | 10017 |
| (Address) | (City) | (State) | (Zip Code) |
| (Date of Registration with PCAOB)(if applicable) | | | (PCAOB Registration Number, if applicable) |
| | FOR OFFICIAL USE
ONLY | | |
\* Claims for exemption from the requirement that the annual reports be covered by the reports of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption. See 17 CFR 240.17a-5(e)(1)(ii), if applicable.
**Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.**
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## **This filing\*\* contains (check all applicable boxes):**
- (a) Statement of financial condition.
- (b) Notes to consolidated statement of financial condition.
- (c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in § 210.1-02 of Regulation S-X).
- (d) Statement of cash flows.
- (e) Statement of changes in stockholders' or partners' or sole proprietor's equity.
- (f) Statement of changes in liabilities subordinated to claims of creditors.
- (g) Notes to consolidated financial statements.
- (h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable.
- (i) Computation of tangible net worth under 17 CFR 240.18a-2.
- (j) Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.15c3-3.
- (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable.
- (l) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3.
- (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3.
- (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable.
- (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-1, or 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist.
- (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition.
- (q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.17a-12, or 17 CFR 240.18a-7, as applicable.
- (r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- (s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- (t) Independent public accountant's report based on an examination of the statement of financial condition.
- (u) Independent public accountant's report based on an examination of the financial report or financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable.
- (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.15c3-1e or 17 CFR 240.17a-12, as applicable.
- (y) Report describing any material inadequacies found to exist or found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k).
- (z) Other:
- *\*\*To request confidential treatment of certain portions of this filing, see 17 CFR 240.17a-5(e)(3) or 17 CFR 240.18a-7(d)(2), as applicable.*
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#### **INDEX**
| | Page No. |
|-------------------------------------------------------------------------------------------|----------|
| Report of Independent Auditors | 1 |
| Financial Statement | 3 |
| Statement of Financial Condition | 3 |
| Notes to Statement of Financial Condition | 4 |
| Note 1. Description of Business | 4 |
| Note 2. Basis of Presentation | 4 |
| Note 3. Significant Accounting Policies | 4 |
| Note 4. Fair Value Measurements | 6 |
| Note 5. Financial Instruments Owned and Financial Instruments Sold, But Not Yet Purchased | 8 |
| Note 6. Cash Instruments | 9 |
| Note 7. Derivatives and Hedging Activities | 9 |
| Note 8. Fair Value Option | 10 |
| Note 9. Collateralized Agreements and Financings | 11 |
| Note 10. Unsecured Borrowings | 12 |
| Note 11. Subordinated Borrowings | 12 |
| Note 12. Commitments, Contingencies and Guarantees | 13 |
| Note 13. Transactions with Related Parties | 13 |
| Note 14. Income Taxes | 13 |
| Note 15. Credit Concentrations | 14 |
| Note 16. Legal Proceedings | 14 |
| Note 17. Net Capital Requirements | 15 |
| Note 18. Subsequent Events | 15 |
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#### **Report of Independent Auditors**
To the Partners of Goldman Sachs Financial Markets, L.P.:
## *Opinion*
We have audited the accompanying statement of financial condition of Goldman Sachs Financial Markets, L.P. (the "Company") as of December 31, 2021, including the related notes (referred to as the "statement of financial condition").
In our opinion, the accompanying statement of financial condition presents fairly, in all material respects, the financial position of the Company as of December 31, 2021 in accordance with accounting principles generally accepted in the United States of America.
## *Basis for Opinion*
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (US GAAS). Our responsibilities under those standards are further described in the Auditors' Responsibilities for the Audit of the Statement of Financial Condition section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
#### *Responsibilities of Management for the Statement of Financial Condition*
Management is responsible for the preparation and fair presentation of the statement of financial condition in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of a statement of financial condition that is free from material misstatement, whether due to fraud or error.
In preparing the statement of financial condition, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date the statement of financial condition is available to be issued.
### *Auditors' Responsibilities for the Audit of the Statement of Financial Condition*
Our objectives are to obtain reasonable assurance about whether the statement of financial condition as a whole is free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with US GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
PricewaterhouseCoopers LLP, PricewaterhouseCoopers Center, 300 Madison Avenue, New York, NY 10017 T: (646) 471 3000, F: (813) 286 6000, www.pwc.com/us
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Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the statement of financial condition.
In performing an audit in accordance with US GAAS, we:
- Ɣ Exercise professional judgment and maintain professional skepticism throughout the audit.
- Ɣ Identify and assess the risks of material misstatement of the statement of financial condition, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the statement of financial condition**.**
- Ɣ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
- Ɣ Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the statement of financial condition.
- Ɣ Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
New York, New York February 28, 2022
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## **As of** *\$ in thousands* **December 2021 Assets** Cash **\$ 35,083** Collateralized agreements: Securities purchased under agreements to resell (at fair value) **1,535,770** Receivables: Brokers, dealers and clearing organizations **1,305** Customers and counterparties **4,172** Financial instruments owned (at fair value and includes **\$2,769** pledged as collateral) **111,607** Other assets **3,967 Total assets \$ 1,691,904 Liabilities and partners' capital** Collateralized financings: Securities loaned **\$ 2,768** Other secured financings (at fair value) **41,727** Payables: Brokers, dealers and clearing organizations **1,240** Customers and counterparties **222,075** Financial instruments sold, but not yet purchased (at fair value) **309,049** Unsecured short-term borrowings **620,152** Other liabilities **1,560** Subordinated borrowings **365,000** Total liabilities **1,563,571**
#### **Commitments, contingencies and guarantees**
#### **Partners' capital**
| Partners' capital | 128,333 |
|-----------------------------------------|-----------------|
| Total liabilities and partners' capital | \$
1,691,904 |
The accompanying notes are an integral part of this statement of financial condition.
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## **Note 1.**
## **Description of Business**
Goldman Sachs Financial Markets, L.P. (the firm), is a limited partnership which is a registered U.S. broker-dealer and security-based swap dealer with the Securities and Exchange Commission (SEC) and registered swap dealer with the U.S. Commodity Futures Trading Commission (CFTC). The firm is a wholly-owned subsidiary of The Goldman Sachs Group, Inc. (Group Inc.), a Delaware corporation. The firm's business consists of dealer activities in eligible over-the-counter (OTC) derivative instruments, as defined by SEC Rule 3b-13. The firm facilitates client transactions and makes markets in eligible OTC derivative instruments.
## **Note 2.**
## **Basis of Presentation**
This statement of financial condition is prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP).
All references to 2021 refer to the date December 31, 2021. Any reference to a future year refers to a year ending on December 31 of that year.
## **Note 3.**
# **Significant Accounting Policies**
The firm's significant accounting policies include when and how to measure the fair value of assets and liabilities. See Note 4 for policies on fair value measurements. All other significant accounting policies are either described below or included in the following footnotes:
| Fair Value Measurements | Note 4 |
|--------------------------------------------------------------------------------------|---------|
| Financial Instruments Owned and Financial
Instruments Sold, But Not Yet Purchased | Note 5 |
| Cash Instruments | Note 6 |
| Derivatives and Hedging Activities | Note 7 |
| Fair Value Option | Note 8 |
| Collateralized Agreements and Financings | Note 9 |
| Unsecured Borrowings | Note 10 |
| Subordinated Borrowings | Note 11 |
| Commitments, Contingencies and Guarantees | Note 12 |
| Transactions with Related Parties | Note 13 |
| Income Taxes | Note 14 |
| Credit Concentrations | Note 15 |
| Legal Proceedings | Note 16 |
## **Use of Estimates**
Preparation of this statement of financial condition requires management to make certain estimates and assumptions, the most important of which relate to fair value measurements, provisions for losses that may arise from litigation and regulatory proceedings (including governmental investigations), and provisions for losses that may arise from tax audits. These estimates and assumptions are based on the best available information but actual results could be materially different.
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#### **Financial Assets and Liabilities at Fair Value**
Financial instruments owned and financial instruments sold, but not yet purchased are recorded at fair value either under the fair value option or in accordance with other U.S. GAAP. In addition, the firm has elected to account for certain of its other financial assets and liabilities at fair value by electing the fair value option. The fair value of a financial instrument is the amount 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. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. See Note 4 for further information about fair value measurements.
#### **Cash**
Cash included cash and due from banks of \$18.6 million and interest-bearing deposits with banks of \$16.5 million as of December 2021.
#### **Receivables from and Payables to Brokers, Dealers and Clearing Organizations**
Receivables from and payables to brokers, dealers and clearing organizations are accounted for at cost plus accrued interest, which generally approximates fair value. As of December 2021, substantially all of these receivables consisted of margin held with an affiliate. As these receivables generally do not give rise to material credit risk for the firm, no allowance for credit losses is held against them. As these receivables and payables are not accounted for at fair value, they are not included in the firm's fair value hierarchy in Notes 4 through 8. Had these receivables and payables been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of December 2021.
#### **Receivables from Customers and Counterparties**
Substantially all receivables from customers and counterparties relate to certain derivative transactions. These receivables are accounted for at amortized cost net of estimated uncollectible amounts, which generally approximates fair value. As these receivables are not accounted for at fair value, they are not included in the firm's fair value hierarchy in Notes 4 through 8. Had these receivables been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of December 2021. Interest on receivables from customers and counterparties is recognized over the life of the transaction.
#### **Payables to Customers and Counterparties**
Substantially all payables to customers and counterparties consist of collateral received in connection with certain derivative transactions. These payables are accounted for at cost plus accrued interest, which generally approximates fair value. As these payables are not accounted for at fair value, they are not included in the firm's fair value hierarchy in Notes 4 through 8. Had these payables been included in the firm's fair value hierarchy, substantially all would have been classified in level 2 as of December 2021. Interest on payables to customers and counterparties is recognized over the life of the transaction.
#### **Offsetting Assets and Liabilities**
To reduce credit exposures on derivatives and securities financing transactions, the firm may enter into master netting agreements or similar arrangements (collectively, netting agreements) with counterparties that permit it to offset receivables and payables with such counterparties. A netting agreement is a contract with a counterparty that permits net settlement of multiple transactions with that counterparty, including upon the exercise of termination rights by a nondefaulting party. Upon exercise of such termination rights, all transactions governed by the netting agreement are terminated and a net settlement amount is calculated. In addition, the firm receives and posts cash and securities collateral with respect to its derivatives and securities financing transactions, subject to the terms of the related credit support agreements or similar arrangements (collectively, credit support agreements). An enforceable credit support agreement grants the non-defaulting party exercising termination rights the right to liquidate the collateral and apply the proceeds to any amounts owed. In order to assess enforceability of the firm's right of setoff under netting and credit support agreements, the firm evaluates various factors, including applicable bankruptcy laws, local statutes and regulatory provisions in the jurisdiction of the parties to the agreement.
Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) in the statement of financial condition when a legal right of setoff exists under an enforceable netting agreement.
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In the statement of financial condition, derivatives are reported net of cash collateral received and posted under enforceable credit support agreements, when transacted under an enforceable netting agreement. In the statement of financial condition, securities purchased under agreements to resell (resale agreements) and securities loaned are not reported net of the related cash and securities received or posted as collateral. See Note 9 for further information about collateral received and pledged, including rights to deliver or repledge collateral. See Notes 7 and 9 for further information about offsetting assets and liabilities.
#### **Foreign Currency Translation**
Assets and liabilities denominated in non-U.S. currencies are translated at rates of exchange prevailing on the date of the statement of financial condition.
#### **Recent Accounting Developments**
**Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASC 848).** In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform – Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides optional relief from applying generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform. In addition, in January 2021 the FASB issued ASU No. 2021-01 "Reference Rate Reform – Scope," which clarified the scope of ASC 848 relating to contract modifications. The firm adopted these ASUs upon issuance and elected to apply the relief available to certain modified derivatives. The adoption of these ASUs did not have a material impact on the firm's statement of financial condition.
#### **Note 4.**
## **Fair Value Measurements**
The fair value of a financial instrument is the amount 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. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs.
The best evidence of fair value is a quoted price in an active market. If quoted prices in active markets are not available, fair value is determined by reference to prices for similar instruments, quoted prices or recent transactions in less active markets, or internally developed models that primarily use market-based or independently sourced inputs, including, but not limited to, interest rates, volatilities, equity or debt prices, foreign exchange rates, credit spreads and funding spreads (i.e., the spread or difference between the interest rate at which a borrower could finance a given financial instrument relative to a benchmark interest rate).
U.S. GAAP has a three-level hierarchy for disclosure of fair value measurements. This hierarchy prioritizes inputs to the valuation techniques used to measure fair value, giving the highest priority to level 1 inputs and the lowest priority to level 3 inputs. A financial instrument's level in this hierarchy is based on the lowest level of input that is significant to its fair value measurement. In evaluating the significance of a valuation input, the firm considers, among other factors, a portfolio's net risk exposure to that input. The fair value hierarchy is as follows:
**Level 1.** Inputs are unadjusted quoted prices in active markets to which the firm had access at the measurement date for identical, unrestricted assets or liabilities.
**Level 2.** Inputs to valuation techniques are observable, either directly or indirectly.
**Level 3.** One or more inputs to valuation techniques are significant and unobservable.
The fair values for substantially all of the firm's financial assets and liabilities are based on observable prices and inputs and are classified in levels 1 and 2 of the fair value hierarchy. Certain level 2 and level 3 financial assets and liabilities may require valuation adjustments that a market participant would require to arrive at fair value for factors such as counterparty and the firm's credit quality, funding risk, transfer restrictions, liquidity and bid/offer spreads. Valuation adjustments are generally based on market evidence.
The valuation techniques and nature of significant inputs used to determine the fair value of the firm's financial instruments are described below. See Notes 5 through 8 for further information about significant unobservable inputs used to value level 3 financial instruments.
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### **Valuation Techniques for Cash Instruments**
**Level 1.** Level 1 cash instruments include actively traded listed equity securities. These instruments are valued using quoted prices for identical unrestricted instruments in active markets. The firm defines active markets for equity instruments based on the average daily trading volume both in absolute terms and relative to the market capitalization for the instrument.
**Level 2.** Level 2 cash instruments include other debt obligations. Valuations of level 2 cash instruments can be verified to quoted prices, recent trading activity for identical or similar instruments, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or executable) and the relationship of recent market activity to the prices provided from alternative pricing sources.
Valuation adjustments are typically made to level 2 cash instruments (i) if the cash instrument is subject to transfer restrictions and/or (ii) for other premiums and liquidity discounts that a market participant would require to arrive at fair value. Valuation adjustments are generally based on market evidence.
**Level 3.** Level 3 cash instruments have one or more significant valuation inputs that are not observable. Absent evidence to the contrary, level 3 cash instruments are initially valued at transaction price, which is considered to be the best initial estimate of fair value. Subsequently, the firm uses other methodologies to determine fair value, which vary based on the type of instrument. Valuation inputs and assumptions are changed when corroborated by substantive observable evidence, including values realized on sales.
#### **Valuation Techniques for Derivatives**
The firm's level 2 and level 3 derivatives are valued using derivative pricing models (e.g., discounted cash flow models, correlation models and models that incorporate option pricing methodologies, such as Monte Carlo simulations).
Price transparency for equity derivatives varies by market and underlier. Options on indices and the common stock of corporates included in major equity indices exhibit the most price transparency. Equity derivatives generally have observable market prices, except for contracts with long tenors or reference prices that differ significantly from current market prices. More complex equity derivatives, such as those sensitive to the correlation between two or more individual stocks, generally have less price transparency.
Liquidity is essential to observability. If transaction volumes decline, previously transparent prices and other inputs may become unobservable. Conversely, even highly structured products may at times have trading volumes large enough to provide observability of prices and other inputs.
**Level 1.** Level 1 derivatives include short-term contracts for future delivery of securities when the underlying security is a level 1 instrument, and exchange-traded derivatives if they are actively traded and are valued at their quoted market price.
**Level 2.** Level 2 derivatives include OTC derivatives for which all significant valuation inputs are corroborated by market evidence and exchange-traded derivatives that are not actively traded and/or that are valued using models that calibrate to market-clearing levels of OTC derivatives.
The selection of a particular model to value a derivative depends on the contractual terms of and specific risks inherent in the instrument, as well as the availability of pricing information in the market. For derivatives that trade in liquid markets, model selection does not involve significant management judgment because outputs of models can be calibrated to market-clearing levels.
Valuation models require a variety of inputs, such as contractual terms, market prices, yield curves, discount rates (including those derived from interest rates on collateral received and posted as specified in credit support agreements for collateralized derivatives), measures of volatility and correlations of such inputs. Significant inputs to the valuations of level 2 derivatives can be verified to market transactions, broker or dealer quotations or other alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g., indicative or executable) and the relationship of recent market activity to the prices provided from alternative pricing sources.
**Level 3.** Level 3 derivatives are valued using models which utilize observable level 1 and/or level 2 inputs, as well as unobservable level 3 inputs.
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# **Notes to Statement of Financial Condition**
## **Valuation Techniques and Significant Inputs for Other Financial Instruments at Fair Value**
In addition to cash instruments and derivatives, the firm accounts for certain of its other financial assets and liabilities at fair value under the fair value option. Such instruments include resale agreements and other secured financings. These instruments are generally valued based on discounted cash flow techniques, which incorporate inputs with reasonable levels of price transparency, and are generally classified in level 2 because the inputs are observable. Valuation adjustments may be made for liquidity and for counterparty and the firm's credit quality. The significant inputs used to value the firm's other financial instruments are described below.
**Resale Agreements.** The significant inputs to the valuation of resale agreements are funding spreads, the amount and timing of expected future cash flows and interest rates.
**Other Secured Financings.** The significant inputs to the valuation of other secured financings are the amount and timing of expected future cash flows, interest rates, funding spreads, the fair value of the collateral delivered by the firm (determined using the amount and timing of expected future cash flows, market prices, market yields and recovery assumptions) and the frequency of additional collateral calls. See Note 9 for further information about other secured financings.
#### **Financial Assets and Liabilities at Fair Value**
The table below presents financial assets and liabilities accounted for at fair value.
| | As of |
|-------------------------------------------------|---------------|
| \$ in thousands | December 2021 |
| Total level 1 financial assets | \$
2,987 |
| Total level 2 financial assets | 2,625,567 |
| Total level 3 financial assets | 46,030 |
| Cash collateral netting | (1,027,207) |
| Total financial assets at fair value | \$ 1,647,377 |
| Total assets | \$ 1,691,904 |
| Total level 3 financial assets divided by: | |
| Total assets | 2.72% |
| Total financial assets at fair value | 2.79% |
| Total level 1 financial liabilities | \$
1,294 |
| Total level 2 financial liabilities | 1,089,642 |
| Total level 3 financial liabilities | 46,029 |
| Cash collateral netting | (786,189) |
| Total financial liabilities at fair value | \$
350,776 |
| Total liabilities | \$ 1,563,571 |
| Total level 3 financial liabilities divided by: | |
| Total liabilities | 2.94% |
| Total financial liabilities at fair value | 13.12% |
| | |
In the table above:
- x Counterparty netting among positions classified in the same level is included in that level.
- x Cash collateral netting represents the impact on derivatives of netting across levels.
#### **Note 5.**
# **Financial Instruments Owned and Financial Instruments Sold, But Not Yet Purchased**
Financial instruments owned and financial instruments sold, but not yet purchased include cash instruments and derivatives primarily held in connection with the firm's market-making or risk management activities. These assets and liabilities are accounted for at fair value either under the fair value option or in accordance with other U.S. GAAP.
The table below presents a summary of financial instruments owned and financial instruments sold, but not yet purchased.
| | As of December 2021 | | | | | |
|------------------|---------------------|-------------|----|-------------|--|--|
| | | | | Financial | | |
| | | | | Instruments | | |
| | Financial | | | Sold, But | | |
| | | Instruments | | Not Yet | | |
| \$ in thousands | | Owned | | Purchased | | |
| Cash instruments | \$ | 44,716 | \$ | 1,295 | | |
| Derivatives | | 66,891 | | 307,754 | | |
| Total | \$ | 111,607 | \$ | 309,049 | | |
See Note 6 for further information about cash instruments and Note 7 for further information about derivatives.
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# **Notes to Statement of Financial Condition**
#### **Note 6.**
## **Cash Instruments**
Cash instruments consists of instruments primarily held in connection with the firm's risk management or market-making activities. These instruments are accounted for at fair value.
#### **Fair Value of Cash Instruments by Level**
The table below presents cash instruments by level within the fair value hierarchy.
| | As of December 2021 | | | | | | | |
|------------------------|---------------------|------------|--|--------------------|------|--------|--|---------|
| \$ in thousands | | Level 1 | | Level 2 Level 3 | | | | Total |
| Assets | | | | | | | | |
| Equity securities | \$ | 2,987 \$ | | | – \$ | 2 \$ | | 2,989 |
| Other debt obligations | | – | | 41,727 | | – | | 41,727 |
| Total | \$ | | | 2,987 \$ 41,727 \$ | | 2 \$ | | 44,716 |
| Liabilities | | | | | | | | |
| Equity securities | \$ | (1,294) \$ | | | – \$ | (1) \$ | | (1,295) |
| Total | \$ | (1,294) \$ | | | – \$ | (1) \$ | | (1,295) |
In the table above, cash instrument assets are shown as positive amounts and cash instrument liabilities are shown as negative amounts.
See Note 4 for an overview of the firm's fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of cash instruments.
#### **Note 7.**
## **Derivatives and Hedging Activities**
### **Derivative Activities**
Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. The firm's OTC derivatives are bilateral contracts between two counterparties (bilateral OTC).
**Market Making.** As a market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this role, the firm typically acts as principal and is required to commit capital to provide execution, and maintains market-making positions in response to, or in anticipation of, client demand.
**Risk Management.** The firm also enters into derivatives to actively manage risk exposures that arise from its marketmaking activities.
The firm enters into various types of derivatives, including:
- x **Forwards.** Contracts that commit counterparties to purchase or sell financial instruments in the future.
- x **Swaps.** Contracts that require counterparties to exchange cash flows, such as currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, financial instruments or indices.
- x **Options.** Contracts in which the option purchaser has the right, but not the obligation, to purchase from or sell to the option writer financial instruments within a defined time period for a specified price.
Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting). Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements (cash collateral netting). Derivative assets are included in financial instruments owned and derivative liabilities are included in financial instruments sold, but not yet purchased. The tables below present the gross fair value and the notional amounts of derivative contracts by major product type, the amounts of netting in the statement of financial condition, as well as collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under U.S. GAAP.
| | As of December 2021 | | | | | | | |
|----------------------------------------------------|---------------------|----------------|----|----------------|--|--|--|--|
| | Derivative | | | Derivative | | | | |
| \$ in thousands | | Assets | | Liabilities | | | | |
| Not accounted for as hedges | | | | | | | | |
| Equities - bilateral OTC | | \$ 3,669,079 | | \$ 3,668,924 | | | | |
| Total gross fair value | | \$ 3,669,079 | | \$ 3,668,924 | | | | |
| Offset in the statement of financial condition | | | | | | | | |
| Counterparty netting | | \$ (2,574,981) | | \$ (2,574,981) | | | | |
| Cash collateral | | (1,027,207) | | (786,189) | | | | |
| Total amounts offset | | \$ (3,602,188) | | \$ (3,361,170) | | | | |
| Included in the statement of financial condition | | | | | | | | |
| Bilateral OTC | \$ | 66,891 | \$ | 307,754 | | | | |
| Total | \$ | 66,891 | \$ | 307,754 | | | | |
| Not offset in the statement of financial condition | | | | | | | | |
| Cash collateral | \$ | – | \$ | – | | | | |
| Total | \$ | 66,891 | \$ | 307,754 | | | | |
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# **Notes to Statement of Financial Condition**
| | Notional Amounts as of | | |
|--------------------------|------------------------|--|--|
| \$ in thousands | December 2021 | | |
| Equities - bilateral OTC | \$ 63,349,516 | | |
| Total notional amounts | \$ 63,349,516 | | |
In the tables above:
- x Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firm's exposure.
- x Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firm's derivative activity and do not represent anticipated losses.
- x Total gross fair value of derivatives included derivative assets of \$6.7 million and derivative liabilities of \$10.0 million which are not subject to an enforceable netting agreement.
#### **Fair Value of Derivatives by Level**
The table below presents derivatives on a gross basis by level and product type, as well as the impact of netting.
| | As of December 2021 | | | | | | | | |
|-------------------------|---------------------|---|-------------|----------|-------------------------------------------|--|--|--|--|
| \$ in thousands | Level 1 | | Level 2 | Level 3 | Total | | | | |
| Assets | | | | | | | | | |
| Equities | \$ | – | | | \$ 3,620,433 \$ 48,646 \$ 3,669,079 | | | | |
| Gross fair value | | – | 3,620,433 | 48,646 | 3,669,079 | | | | |
| Counterparty netting | | – | (2,572,363) | (2,618) | (2,574,981) | | | | |
| Subtotal | \$ | – | | | \$ 1,048,070 \$ 46,028 \$ 1,094,098 | | | | |
| Cash collateral netting | | | | | (1,027,207) | | | | |
| Net fair value | | | | | \$
66,891 | | | | |
| Liabilities | | | | | | | | | |
| Equities | \$ | – | | | \$ (3,620,278) \$ (48,646) \$ (3,668,924) | | | | |
| Gross fair value | | – | (3,620,278) | (48,646) | (3,668,924) | | | | |
| Counterparty netting | | – | 2,572,363 | 2,618 | 2,574,981 | | | | |
| Subtotal | \$ | – | | | \$ (1,047,915) \$ (46,028) \$ (1,093,943) | | | | |
| Cash collateral netting | | | | | 786,189 | | | | |
| Net fair value | | | | | \$ (307,754) | | | | |
In the table above:
- x Gross fair values exclude the effects of both counterparty netting and collateral netting, and therefore are not representative of the firm's exposure.
- x Counterparty netting is reflected in each level to the extent that receivable and payable balances are netted within the same level and is included in counterparty netting in levels.
- x Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts.
See Note 4 for an overview of the firm's fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of derivatives.
#### **Derivatives with Credit-Related Contingent Features**
Certain of the firm's derivatives have been transacted under bilateral agreements with counterparties who may require the firm to post collateral or terminate the transactions based on changes in Group Inc.'s credit ratings. The firm assesses the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a Group Inc. downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency's relative ratings of Group Inc. at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies.
The table below presents information about net derivative liabilities under bilateral agreements (excluding collateral posted) and the fair value of collateral posted. No additional collateral or termination payments could have been called at the reporting date by counterparties in the event of a one-or twonotch downgrade in Group Inc.'s credit ratings.
| | As of |
|-------------------------------------------------------|---------------|
| \$ in thousands | December 2021 |
| Net derivative liabilities under bilateral agreements | \$
47,198 |
| Collateral posted | \$
– |
#### **Note 8.**
## **Fair Value Option**
#### **Other Financial Assets and Liabilities at Fair Value**
In addition to financial instruments owned and financial instruments sold, but not yet purchased, the firm accounts for certain of its other financial assets and liabilities at fair value under the fair value option. The primary reasons for electing the fair value option are to:
- x Reflect economic events in earnings on a timely basis; and
- x Mitigate volatility in earnings from using different measurement attributes.
Other financial assets and liabilities accounted for at fair value under the fair value option include:
- x Resale agreements; and
- x Other secured financings.
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## **Fair Value of Other Financial Assets and Liabilities by Level**
Other financial assets consists of \$1.54 billion of resale agreements and other financial liabilities consists of \$41.7 million of other secured financings, all of which are accounted for at fair value under the fair value option and were classified in level 2 within the fair value hierarchy as of December 2021.
See Note 4 for an overview of the firm's fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of financial assets and liabilities.
### **Note 9.**
# **Collateralized Agreements and Financings**
Collateralized agreements are resale agreements. Collateralized financings are securities loaned and other secured financings. The firm enters into these transactions in order to, among other things, facilitate client activities, invest excess cash and finance certain firm activities.
Collateralized agreements and financings are presented on a netby-counterparty basis when a legal right of setoff exists. Interest on collateralized agreements and collateralized financings is recognized over the life of the transaction.
#### **Resale Agreements**
A resale agreement is a transaction in which the firm purchases financial instruments from a seller, typically in exchange for cash, and simultaneously enters into an agreement to resell the same or substantially the same financial instruments to the seller at a stated price plus accrued interest at a future date.
Even though resale agreements involve the legal transfer of ownership of financial instruments, they are accounted for as financing arrangements because they require the financial instruments to be resold before or at the maturity of the agreement. The financial instruments purchased in resale agreements typically include U.S. government and agency obligations.
The firm receives financial instruments purchased under resale agreements. To mitigate credit exposure, the firm monitors the market value of these financial instruments on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the financial instruments, as appropriate. For resale agreements, the firm typically requires collateral with a fair value approximately equal to the carrying value of the relevant assets in the statement of financial condition.
The firm enters into all of its resale agreements with Goldman Sachs & Co. LLC (GS&Co.).
## **Securities Loaned Transactions**
In a securities loaned transaction, the firm lends securities to a counterparty in exchange for cash or securities. When the counterparty returns the securities, the firm returns the cash or securities posted as collateral. Interest is generally paid periodically over the life of the transaction.
The firm makes delivery of securities loaned. To mitigate credit exposure, the firm monitors the market value of these securities on a daily basis, and delivers or obtains additional collateral due to changes in the market value of the securities, as appropriate.
Securities loaned are recorded based on the amount of cash collateral received plus accrued interest. As these agreements generally can be terminated on demand, they exhibit little, if any, sensitivity to changes in interest rates. Therefore, the carrying value of such agreements approximates fair value. As these agreements are not accounted for at fair value, they are not included in the firm's fair value hierarchy in Notes 5 through 8. Had these agreements been included in the firm's fair value hierarchy, they would have been classified in level 2 as of December 2021.
The firm enters into all of its securities loaned transactions with GS&Co.
## **Offsetting Arrangements**
The table below presents resale agreements and securities loaned transactions included in the statement of financial condition, as well as the amounts not offset in the statement of financial condition.
| | As of December 2021 | | |
|--------------------------------------------------|---------------------|----|-------------|
| | Assets | | Liabilities |
| | Resale | | Securities |
| \$ in thousands | agreements | | loaned |
| Included in the statement of financial condition | | | |
| Gross carrying value | \$ 1,535,770 | \$ | 2,768 |
| Total | 1,535,770 | | 2,768 |
| Amounts not offset | | | |
| Collateral | (1,535,770) | | (2,768) |
| Total | \$
– | \$ | – |
In the table above:
- x The collateral pledged for securities loaned is equity securities.
- x Resale agreements are carried at fair value under the fair value option. See Note 4 for further information about the valuation techniques and significant inputs used to determine fair value.
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### **Other Secured Financings**
In addition to securities loaned transactions, the firm funds certain assets through the use of other secured financings and pledges financial instruments as collateral in these transactions. These other secured financings consist of structured financing arrangements.
The firm has elected to apply the fair value option to all other secured financings because the use of fair value eliminates non-economic volatility in earnings that would arise from using different measurement attributes. See Note 8 for further information about other secured financings that are accounted for at fair value.
As of December 2021, the firm had \$41.7 million of other secured financings, of which \$23.8 million are short-term and mature in less than one year and \$17.9 million matures in 2023.
#### **Collateral Received and Pledged**
The firm receives cash and securities (e.g., corporate obligations) as collateral, primarily in connection with resale agreements and derivative transactions. The firm obtains cash and securities as collateral on an upfront or contingent basis for derivative instruments and collateralized agreements to reduce its credit exposure to individual counterparties.
In many cases, the firm is permitted to deliver or repledge financial instruments received as collateral when entering into securities loaned transactions, primarily in connection with secured financing activities.
The firm also pledges certain financial instruments owned in connection with securities loaned transactions to counterparties who may or may not have the right to deliver or repledge them.
The table below presents financial instruments at fair value received as collateral that were available to be delivered or repledged and were delivered or repledged.
| | As of |
|---------------------------------------------------|-----------------|
| \$ in thousands | December 2021 |
| Collateral available to be delivered or repledged | \$
1,535,767 |
| Collateral that was delivered or repledged | \$
550,836 |
The table below presents information about assets pledged.
| | | As of |
|-------------------------------------------------------------|---------------|-------|
| \$ in thousands | December 2021 | |
| Financial instruments owned pledged to counterparties that: | | |
| Had the right to deliver or repledge | \$ | 2,769 |
| Did not have the right to deliver or repledge | \$ | – |
| | | |
### **Note 10.**
## **Unsecured Borrowings**
### **Unsecured Short-Term Borrowings**
The firm's unsecured short-term borrowings outstanding as of December 2021 were \$620.2 million. The firm obtains unsecured short-term borrowings from Group Inc. The carrying value of unsecured short-term borrowings that are not recorded at fair value generally approximates fair value due to the short-term nature of the obligations. As these unsecured short-term borrowings are not accounted for at fair value, they are not included in the firm's fair value hierarchy in Notes 5 through 8. Had these borrowings been included in the firm's fair value hierarchy, they would have been classified in level 2 as of December 2021.
### **Note 11.**
# **Subordinated Borrowings**
As of December 2021, the firm had outstanding borrowings of \$100.0 million from Group Inc. under a subordinated loan agreement, maturing in 2023. In addition, the firm has a \$440.0 million revolving subordinated loan agreement with Group Inc., maturing in 2023. As of December 2021, \$265.0 million was outstanding.
The interest rate on these subordinated loan agreements is the Secured Overnight Financing Rate plus 3.23% per annum. The carrying value of these borrowings approximates fair value. As these subordinated loan agreements are not accounted for at fair value, they are not included in the firm's fair value hierarchy in Notes 5 through 8. Had these borrowings been included in the firm's fair value hierarchy, they would have been classified in level 2 as of December 2021.
The subordinated borrowings from Group Inc. are available in computing net capital under the SEC's uniform net capital rule. To the extent that such borrowings are required for the firm's continued compliance with minimum net capital requirements, they may not be repaid.
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#### **Note 12.**
# **Commitments, Contingencies and Guarantees**
Pursuant to an agreement, Group Inc. guarantees and meets the firm's margin requirement with GS&Co., as required under Regulation T of the Federal Reserve. As of December 2021, Group Inc. posted \$883.8 million of margin with GS&Co. on behalf of the firm. In the unlikely event that Group Inc. does not post margin to GS&Co., the firm would need to post margin to GS&Co. This balance is not included in the firm's statement of financial condition.
The firm has commitments to return collateral of \$44.3 million and to post collateral of \$16.4 million as of December 2021 related to derivatives. These commitments expire in 2022.
#### **Note 13.**
## **Transactions with Related Parties**
The firm enters into transactions with Group Inc. and affiliates in the normal course of business as part of market making and general operations.
The table below presents assets and liabilities with affiliates.
| | | As of |
|---------------------------------------------------|---------------|-----------|
| \$ in thousands | December 2021 | |
| Assets | | |
| Collateralized agreements: | | |
| Resale agreements | \$ | 1,535,770 |
| Receivables: | | |
| Brokers, dealers and clearing organizations | | 1,302 |
| Financial instruments owned | | 53,279 |
| Other assets | | 2,584 |
| Total | \$ | 1,592,935 |
| Liabilities | | |
| Collateralized financings: | | |
| Securities loaned | \$ | 2,768 |
| Other secured financings | | 41,727 |
| Payables: | | |
| Brokers, dealers and clearing organizations | | 1,240 |
| Customers and counterparties | | 57 |
| Financial instruments sold, but not yet purchased | | 3,959 |
| Unsecured short-term borrowings | | 620,152 |
| Subordinated borrowings | | 365,000 |
| Total | \$ | 1,034,903 |
In the table above, financial instruments owned consists of derivative contracts with affiliates.
The firm receives operational, administrative and management support from GS&Co. under a service agreement.
The firm has revenue sharing agreements with affiliated entities related to certain activities under which it transfers revenues to, and receives revenues from, such entities. Revenue related to market and credit risk exposures held by the firm or by affiliated entities that arise from activities covered by these agreements are shared among the firm and these entities.
### **Note 14.**
## **Income Taxes**
In March 2021, the American Rescue Plan Act of 2021 (Rescue Plan) was signed into law. The Rescue Plan is a \$1.9 trillion stimulus package enacted to help address the economic and health impacts of the coronavirus pandemic. The legislation did not have a material impact on the firm for 2021.
In April 2021, the New York State (NYS) FY 2022 budget was enacted. The legislation temporarily increased the NYS corporate income tax rate from 6.5% to 7.25% for calendar years 2021 through 2023. The legislation did not have a material impact on the firm for 2021.
#### **Provision for Income Taxes**
The firm has elected to be taxed as a corporation for U.S. federal income tax purposes. As a corporation for tax purposes, the firm is subject to U.S. Federal and various state and local income taxes on its earnings. The firm is included with Group Inc. and subsidiaries in the consolidated corporate federal as well as consolidated or combined state and local tax returns. The firm computes its tax liability on a modified separate company basis and settles such liability with Group Inc. pursuant to a tax sharing arrangement. To the extent the firm generates tax benefits from losses, it will be reimbursed by Group Inc. pursuant to the tax sharing arrangement. The firm's state and local tax liabilities are allocated to reflect its share of the consolidated or combined state and local income tax liability.
Income taxes are provided for using the asset and liability method under which deferred tax assets and liabilities are recognized for temporary differences between the financial reporting and tax bases of assets and liabilities.
#### **Deferred Income Taxes**
Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities. These temporary differences result in taxable or deductible amounts in future years and are measured using the tax rates and laws that will be in effect when such differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets to the amount that more likely than not will be realized.
{17}------------------------------------------------
As of December 2021, the firm had no deferred tax assets or liabilities. The firm had no valuation allowance to reduce deferred tax assets.
### **Unrecognized Tax Benefits**
The firm recognizes tax positions in the statement of financial condition only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the statement of financial condition. As of December 2021, the firm had an immaterial liability related to unrecognized tax benefits.
### **Regulatory Tax Examinations**
The firm is subject to examination by the U.S. Internal Revenue Service (IRS) and other taxing authorities in jurisdictions where the firm has significant business operations, such as New York State and City. The tax years under examination vary by jurisdiction.
Group Inc. has been accepted into the Compliance Assurance Process program by the IRS for each of the tax years from 2013 through 2022. This program allows Group Inc. to work with the IRS to identify and resolve potential U.S. Federal tax issues before the filing of tax returns. The fieldwork for tax years 2011 through 2018 has been completed and the final resolution is not expected to have a material impact on the effective tax rate of Group Inc. or the firm. The 2019 and 2020 tax years remain subject to post-filing review.
New York State and City examinations of Group Inc. and subsidiaries for 2015 through 2018 commenced during 2021. All years, including and subsequent to 2015 for New York State and City, remain open to examination by the taxing authorities.
The firm believes that no liability for unrecognized tax benefits is required to be established in relation to the potential for additional assessments.
# **Note 15. Credit Concentrations**
The firm's concentrations of credit risk arise from market making activities and collateralized transactions and may be impacted by changes in economic, industry or political factors. These activities expose the firm to many different industries and counterparties, and may also subject the firm to a concentration of credit risk to a particular counterparty or issuer. The firm seeks to mitigate credit risk by actively monitoring exposures and obtaining collateral from counterparties as deemed appropriate.
Other than to GS&Co., the firm did not have credit exposure to any other counterparty that exceeded 2% of total assets as of December 2021.
## **Note 16.**
# **Legal Proceedings**
The firm is involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of the firm's businesses. Many of these proceedings are in early stages, and many of these cases seek an indeterminate amount of damages.
With respect to material proceedings, management is generally unable to estimate a range of reasonably possible loss for matters, including where (i) actual or potential plaintiffs have not claimed an amount of money damages, except in those instances where management can otherwise determine an appropriate amount, (ii) matters are in early stages, (iii) matters relate to regulatory investigations or reviews, except in those instances where management can otherwise determine an appropriate amount, (iv) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (v) there is uncertainty as to the outcome of pending appeals or motions, (vi) there are significant factual issues to be resolved, and/or (vii) there are novel legal issues presented.
Management does not believe, based on currently available information, that the outcomes of any matters will have a material adverse effect on the firm's financial condition, though the outcomes could be material to the firm's operating results for any particular period, depending, in part, upon the operating results for such period.
{18}------------------------------------------------
## **Note 17.**
# **Net Capital Requirements**
The firm is a registered U.S. broker-dealer, swap dealer, security-based swap dealer, and therefore is subject to regulatory capital requirements including those imposed by the SEC, the CFTC and the National Futures Association. Rule 18a-1 of the SEC and Part 23 Subpart E of the CFTC specify uniform minimum net capital requirements, as defined, for their registrants, and also effectively require that a significant part of the registrants' assets be kept in relatively liquid form. As of December 2021, the firm had regulatory net capital, as defined by Rule 18a-1, of \$424.0 million, which exceeded the amount required by \$392.8 million.
The U.S. Dodd Frank Wall Street Reform and Consumer Protection Act contains provisions that require the registration of all swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. The CFTC rules establishing capital requirements for swap dealers that are not subject to the capital rules of a prudential regulator, such as the Board of Governors of the Federal Reserve System, became effective in October 2021. The CFTC also adopted financial reporting requirements for covered swap entities and amended existing capital rules for CFTC-registered futures commission merchants to provide explicit capital requirements for proprietary positions in swaps and security-based swaps that are not cleared by a clearing organization. As a registered swap dealer with the CFTC, as of December 2021, the firm was subject to and is in compliance with these capital requirements.
SEC rules govern the registration and regulation of securitybased swap dealers. The SEC adopted a number of rules and rule amendments for security-based swap dealers in 2019, including (i) capital, margin and segregation requirements, (ii) record-keeping, reporting and notification requirements, and (iii) the application of risk mitigation techniques to uncleared portfolios of security-based swaps and the cross-border application of certain security-based swap requirements. The compliance date for these SEC rules, as well as SEC rules addressing registration requirements and business conduct standards, was generally October 2021. The firm registered with the SEC as a security-based swap dealer and became subject to the SEC's regulations regarding security-based swaps.
These rules did not have a material impact on the firm.
### **Note 18.**
# **Subsequent Events**
Management has evaluated whether any events or transactions occurred subsequent to the date of the statement of financial condition and through February 28, 2022, the date the statement of financial condition was issued, and determined that there were no material events or transactions that would require recognition or disclosure in this statement of financial condition.
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.