# SCOTIA CAPITAL (USA) INC. X-17A-5 (2024-12-20) — Broker-dealer annual report - Company: SCOTIA CAPITAL (USA) INC. - Form: X-17A-5 - Filed: 2024-12-20 - Period: 2024-10-31 - Accession: 0000064241-24-000019 - CIK: 64241 - File #: 8-03716 - Type: Broker-dealer - Material weakness: No - Auditor: KPMG LLP - Auditor location: New York, NY - Contact: Christos Kyriacou - Phone: 212-225-6366 - Signed by: Anthony Galante (Scotia Capital (USA) Inc. CFO) Original filing: https://www.sec.gov/Archives/edgar/data/64241/000006424124000019/SCUSA.SOFC.10.31.24.pdf --- {0}------------------------------------------------ # SCOTIA CAPITAL (USA) INC. (A Wholly Owned Subsidiary of Scotia Holdings (USA) LLC) Statement of Financial Condition October 31, 2024 (With Report of Independent Registered Public Accounting Firm Thereon) {1}------------------------------------------------ ![](_page_1_Picture_0.jpeg) KPMG LLP 345 Park Avenue New York, NY 10154-0102 # Report of Independent Registered Public Accounting Firm To the Stockholder and the Board of Directors Scotia Capital (USA) Inc.: ### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of Scotia Capital (USA) Inc. (a wholly owned subsidiary of Scotia Holdings (USA) LLC) (the Company) as of October 31, 2024, and the related notes (collectively, the financial statement). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of October 31, 2024, in conformity with U.S. generally accepted accounting principles. ### Basis for Opinion This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company's auditor since 1988. New York, New York December 20, 2024 {2}------------------------------------------------ ### SCOTIA CAPITAL (USA) INC. # (A Wholly Owned Subsidiary of Scotia Holdings (USA) LLC) Statement of Financial Condition | SCOTIA CAPITAL (USA) INC. | | |----------------------------------------------------------------------------------------------|-------------------------| | (A Wholly Owned Subsidiary of Scotia Holdings (USA) LLC)
Statement of Financial Condition | | | October 31, 2024 | | | | | | (dollars in thousands, except share and per share amounts) | | | Assets | | | Cash and cash equivalents
Cash on deposit with clearing organizations | \$
32,541
399,820 | | Deposits paid for securities borrowed | 21,363,267 | | Securities received as collateral, at fair value | 2,428,880 | | Securities purchased under agreements to resell | 632,952 | | Securities owned, at fair value (including \$569,275 pledged to creditors) | 1,910,001 | | Receivable from brokers, dealers, and clearing organizations | 452,718 | | Receivable from customers
Accrued fees, interest, and other receivables | 185,748
218,659 | | Furniture, equipment, and leasehold improvements, at cost, net of accumulated | | | depreciation and amortization of \$2,970 | 2,241 | | Goodwill | 72,305 | | Other assets | 21,955 | | Total assets | \$
27,721,087 | | Liabilities and Stockholder's Equity | | | Liabilities: | | | Deposits received for securities loaned | \$
12,735,482 | | Obligation to return securities received as collateral, at fair value | 2,428,880 | | Securities sold under agreements to repurchase | 6,936,077 | | Bank loans payable
Payable to customers | 1,026,749
325,085 | | Payable to brokers, dealers, and clearing organizations | 464,705 | | Securities sold, not yet purchased, at fair value | 1,334,792 | | Accounts payable, accrued expenses, and other liabilities | 284,213 | | Total liabilities | 25,535,983 | | Commitments and contingencies (see Note 9) | | | Stockholder's equity: | | | Common stock (\$10 par value per share, 3,000 shares | | | authorized, issued, and outstanding) | 30 | | Additional paid-in capital
Retained earnings | 1,297,469
887,605 | | | | | Total stockholder's equity | 2,185,104 | | Total liabilities and stockholder's equity | \$
27,721,087 | {3}------------------------------------------------ # (1) Organization Scotia Capital (USA) Inc. (the Company) is a wholly-owned subsidiary of Scotia Holdings (USA) LLC, a Delaware limited liability company (SHUSA or the Parent). The Company's ultimate parent is The Bank of Nova Scotia, a Canadian bank chartered under the Bank Act (Canada). The Company is a registered brokerdealer with the U.S. Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority (FINRA), the Securities Investor Protection Corporation (SIPC), the Options Clearing Corp (OCC), the New York Stock Exchange (NYSE) as well as other exchanges. The Company is also a registered futures commission merchant with the Commodity Futures Trading Commission (CFTC) and a member of the National Futures Association (NFA). The Company's primary business activities include debt and equity securities underwriting, fixed income sales and trading, equity sales and trading, securities borrowing and lending, repurchase agreement activities, investment banking, and equity research. The Company's customers and counterparties comprise a diverse group of domestic and foreign corporations, governments, and institutional investors. # (2) Summary of Significant Accounting Policies ### (a) Basis of Presentation The Company's statement of financial condition is prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP), which requires management to make estimates and assumptions that may affect the amounts reported in the statement of financial condition and accompanying notes. These estimates and the underlying assumptions affect the amounts of assets and liabilities reported, and disclosures about contingent assets and liabilities. Such estimates, including the fair value of financial instruments, goodwill, and litigation reserves are, by their nature, based on judgment and available information and, therefore, may vary from actual results. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. #### (b) Cash and Cash Equivalents Cash includes demand deposits held in banks. No cash equivalents were held at October 31, 2024. # (c) Cash on Deposit with Clearing Organizations The Company is a member of various clearing organizations and exchanges at which it maintains cash required for the conduct of its day-to-day clearing activities. Cash on deposit with clearing organizations is considered restricted cash by the Company. #### (d) Collateralized Financing Transactions Securities borrowed and securities loaned transactions are reported as collateralized financings. Securities borrowed and loaned transactions are entered into with other broker-dealers or financial institutions and are recorded at the amount of cash collateral advanced or received. Securities borrowed transactions require the Company to deposit cash with the lender and are reflected in the statement of financial condition as Deposits paid for securities borrowed. With respect to securities loaned, the Company receives collateral in the form of cash in an amount in excess of the market value of securities loaned and is reflected in the statement of financial condition as Deposits received for securities loaned. The Company also acts as a securities lender in transactions where it receives securities collateral that can be repledged or sold and such transactions are reflected in the statement of financial condition as Securities received as collateral, at fair value with a corresponding obligation {4}------------------------------------------------ to return those securities reflected in Obligation to return securities received as collateral, at fair value. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained, posted, or refunded as necessary. Securities sold under agreements to repurchase and Securities purchased under agreements to resell are also treated as collateralized financing transactions. The agreements provide that the transferor will receive substantially the same securities in return at the maturity of the agreement and that the transferor will obtain from the transferee sufficient cash or collateral to purchase such securities during the term of the agreement. The liabilities and assets which result from these agreements are initially recognized at amortized cost in the accompanying statement of financial condition. The collateral maintenance practical expedient was elected to estimate expected credit losses for reverse repurchase agreements, securities borrowed transactions, and margin loans. Expected credit losses are estimated based on the amount by which the asset's amortized cost basis exceeds the fair value of the collateral. The Company reasonably expects the borrower to continually replenish the collateral securing these transactions in accordance with the contractual terms. ### (e) Securities Owned, Securities Sold, Not Yet Purchased at Fair Value, and Principal Transactions Securities owned and securities sold, not yet purchased are recorded at fair value. Amounts receivable and payable for regular-way securities transactions that have not yet reached their contractual settlement date are recorded net on the statement of financial condition in Receivable from or Payable to brokers, dealers, and clearing organizations. # (f) Receivable from and Payables to Customers Receivables from and Payables to customers include amounts due on cash and margin transactions, including balances related to futures transactions cleared on behalf of affiliates. Securities owned by customers, including those that collateralize margin or other similar transactions, are not reflected on the statement of financial condition. #### (g) Receivable and Payable – Brokers, Dealers, and Clearing Organizations Receivables from brokers, dealers and clearing organization include amounts receivable for securities failed to deliver by the Company to a purchaser by the settlement date, margin deposits, commissions, and balances related to futures transactions. Payable to brokers, dealers, and clearing organizations include amounts payable for securities failed to receive by the Company from a seller by the settlement date and also include balances related to futures transactions. Brokers, dealers, and clearing organization receivables and payables additionally include net receivables or net payables arising from unsettled regular-way transactions. ## (h) Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as the estimated future tax consequences attributable to net operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. If appropriate, deferred tax assets are {5}------------------------------------------------ adjusted by a valuation allowance, which reflects expectations to the extent which such assets will be realized. The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. # (i) Furniture, Equipment, and Leasehold Improvements Following is a summary of the net carrying value and accumulated depreciation of furniture, equipment, and leasehold improvements at October 31, 2024: | October 31, 2024 | Notes to Statement of Financial Condition | | | |------------------|-------------------------------------------|-------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | | | | | | | | | | | | | | | | | | | | | | | | | | | | Net Carrying
Value | | | \$ | 1,246 | 546 | | | | 1,724 | 1,695 | | | | | | | | | | equipment, and leasehold improvements at October 31, 2024:
Accumulated
Depreciation | adjusted by a valuation allowance, which reflects expectations to the extent which such assets will be
The Company recognizes the effect of income tax positions only if those positions are more likely
than not of being sustained. Recognized income tax positions are measured at the largest amount that
is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in
Following is a summary of the net carrying value and accumulated depreciation of furniture, | # (j) Goodwill Goodwill is the excess of purchase price over the fair value of net identifiable assets acquired. Goodwill is reviewed for impairment annually, or whenever events or circumstances suggest that it may be more likely than not the fair value of the reporting unit is below its carrying amount. Goodwill impairment tests may involve judgments in determining the estimate of future cash flows, discount rates, long-term growth rates, economic forecasts, similar guideline companies, control premiums, and other assumptions. The Company performed its annual goodwill impairment test as of June 30, 2024, and determined that there was no impairment. The carrying amount of goodwill was \$72.3 million at October 31, 2024. # (k) Leases The Company, as lessee, enters into operating lease arrangements for premises primarily consisting of a sublease arrangement with The Bank of Nova Scotia. Under these arrangements, the Company records right-of-use assets and lease liabilities which are included in Other assets and Other payables, accrued expenses, and other liabilities, respectively, on the statement of financial condition. The Company uses its incremental borrowing rate to determine the lease liability, which is measured at the present value of the remaining lease payments excluding non-lease components. The lease terms exclude options to extend the lease as the Company is not reasonably certain to exercise the options. A right-of-use asset is initially determined based on the lease liability, adjusted for lease payments made at or before the commencement date, lease incentives, and initial direct costs, as applicable. Refer to Note 9 for further information. The Company's accounting policy is to not recognize shortterm leases on the statement of financial condition. # Recent Accounting Pronouncements #### New Accounting Pronouncements In November 2023, the Financial Accounting Standards Board ("FASB") issued a new Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment {6}------------------------------------------------ Disclosures that amends the segment reporting requirements to add incremental disclosures of significant segment expenses and other segment items. The amendments will be effective for the fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects of this new standard on its disclosures. In December 2023, the FASB issued a new ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures to improve income tax disclosures primarily for the rate reconciliation and income taxes paid information. The amendments will be effective for the annual periods beginning after December 15, 2024. The Company is currently evaluating the effects of this new standard on its tax disclosures. # (3) Related-Party Transactions The Company has financing transactions with affiliates and The Bank of Nova Scotia, loans with The Bank of Nova Scotia, and other arrangements with The Bank of Nova Scotia. For further information, refer to the Collateralized Financing Transactions (Note 5), Credit Facilities (Note 6), Subordinated Borrowings (Note 7), and Employee Benefit and Incentive Plans (Note 8) notes herein. The related party balances with affiliates are typically settled quarterly. Included in the accompanying statement of financial condition are the following related party balances: | Company is currently evaluating the effects of this new standard on its disclosures. | | | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|--| | In December 2023, the FASB issued a new ASU 2023-09, Income Taxes (Topic 740): Improvements to
Income Tax Disclosures to improve income tax disclosures primarily for the rate reconciliation and income
taxes paid information. The amendments will be effective for the annual periods beginning after December
15, 2024. The Company is currently evaluating the effects of this new standard on its tax disclosures. | | | | | | | | The Company has financing transactions with affiliates and The Bank of Nova Scotia, loans with The Bank
of Nova Scotia, and other arrangements with The Bank of Nova Scotia. For further information, refer to the
Collateralized Financing Transactions (Note 5), Credit Facilities (Note 6), Subordinated Borrowings (Note
7), and Employee Benefit and Incentive Plans (Note 8) notes herein. The related party balances with affiliates
are typically settled quarterly. | | | | Included in the accompanying statement of financial condition are the following related party balances: | | | | (dollars in thousands) | | | | Description | Total | | | Assets | | | | Cash and cash equivalents | \$
22,310 | | | Deposits paid for securities borrowed | 13,355,786 | | | Securities received as collateral, at fair value | 69,601 | | | Securities owned, at fair value | 48,262 | | | Receivable from brokers, dealers, and clearing organizations | 156,939 | | | Receivable from customers | 78,768 | | | Accrued fees, interest, and other receivables | 114,979 | | | Other assets | 3,695 | | | Total | \$
13,850,340 | | | (dollars in thousands) | | | | Description | Total | | | Liabilities | | | | Deposits received for securities loaned | \$
9,821,513 | | | Obligation to return securities received as collateral, at fair value | 69,601 | | | Bank loans payable | 1,026,749 | | | Payable to customers | 164,803 | | | Payable to brokers, dealers, and clearing organizations | 179 | | | Securities sold, not yet purchased, at fair value | 39,929 | | | Accounts payable, accrued expenses, and other liabilities | 67,171 | | | | | | | | Total | |-----------------------------------------------------------------------|------------| | | | | \$ | 9,821,513 | | Obligation to return securities received as collateral, at fair value | 69,601 | | | 1,026,749 | | | 164,803 | | | 179 | | | 39,929 | | | 67,171 | | | 11,189,945 | | | \$ | {7}------------------------------------------------ # (4) Receivable From and Payable to Brokers, Dealers, and Clearing Organizations Amounts Receivable from and Payable to brokers, dealers, and clearing organizations at October 31, 2024 consist of the following: | SCOTIA CAPITAL (USA) INC. | | | |---------------------------------------------------------------------------------------------------------|--------------|---------| | (A Wholly Owned Subsidiary of Scotia Holdings (USA) LLC) | | | | Notes to Statement of Financial Condition | | | | October 31, 2024 | | | | Receivable From and Payable to Brokers, Dealers, and Clearing Organizations | | | | | | | | | | | | Amounts Receivable from and Payable to brokers, dealers, and clearing organizations at October 31, 2024 | | | | consist of the following: | | | | | | | | (dollars in thousands) | Receivable | Payable | | Receivable from/payable to clearing organizations | \$
91,722 | 16,313 | | Receivable from/payable to brokers and dealers | 163,388 | — | | Securities failed-to-deliver/receive | 197,608 | 224,079 | | Unsettled regular-way transactions, net | — | 224,313 | # (5) Collateralized Financing Transactions The Company enters into collateralized financing transactions to meet customers' needs, settle other securities obligations and finance a portion of its inventory positions. Refer to Note 3 for collateralized financing transactions with affiliates. To maintain reliable funding under a wide range of market conditions, including under periods of stress, the Company manages these activities by taking into consideration the quality of the underlying collateral, and stipulating financing tenor. Additionally, the Company manages liquidity risk related to these transactions by maintaining counterparty diversification through assessing counterparty reliability and stability under stress. It is the Company's policy to have a perfected, first priority security interest over the underlying collateral, monitor its market value relative to the amounts due under the agreements and, when necessary, require prompt transfer of additional collateral in order to maintain contractual margin protection. For resell and repurchase agreements, when necessary, the Company requests or posts additional collateral in order to maintain contractual margin protection. With respect to securities loaned, the Company receives cash and securities collateral in an amount generally in excess of the market value of the securities loaned. The Company monitors the market value of securities borrowed and securities loaned on a daily basis and obtains or posts additional collateral in order to maintain contractual margin protection. Collateralized financing transactions are documented under industry standard agreements that allow the prompt close-out of all transactions (including the liquidation of securities held) and the offsetting of obligations to return cash or securities by the non-defaulting party, following a payment default or other type of default under the relevant master agreement. The counterparty that receives the securities in these transactions is generally unrestricted in its use of the securities, with the exception of transactions executed on a tri-party basis, where the collateral is maintained by a custodian. At October 31, 2024, the approximate fair value of securities collateral received in conjunction with the Company's collateralized financing transactions was \$24.0 billion, of which \$21.5 billion was sold or repledged. {8}------------------------------------------------ # Offsetting of Certain Financing Transactions | Net
Financial
Gross
Amounts
Amounts
Instruments1
Amounts
Offset
Presented | Net
Securities purchased under agreements to resell
\$
632,952
-
632,952
(632,952)
-
Deposits paid for securities borrowed
21,363,267
-
21,363,267
(20,607,429)
Securities received as collateral, at fair value
2,428,880
-
2,428,880
(2,387,895)
Total
\$
24,425,099
-
24,425,099
(23,628,276)
796,823
As of October 31, 2024 (dollars in thousands) | Offsetting of Certain Financing Transactions
As of October 31, 2024 (dollars in thousands) | | | | |---------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|--|--|---------| | | | | | | Amounts | | | | | | | | | | | | | | | | | | | | | 755,838 | | | | | | | 40,985 | | | October 31, 2024 | | | | | |----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|-------------------|-----------------------------|---------------------------|----------------| | Offsetting of Certain Financing Transactions | | | | | | | As of October 31, 2024 (dollars in thousands) | | | | | | | | Gross
Amounts | Amounts
Offset | Net
Amounts
Presented | Financial
Instruments1 | Net
Amounts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gross | Amounts | Net
Amounts | Financial | Net | | | Amounts | Offset | Presented | Instruments1 | Amounts | | Securities sold under agreements to repurchase
\$ | 6,936,077 | - | 6,936,077 | (6,936,077) | - | | Deposits received for securities loaned | 12,735,482 | - | 12,735,482 | (12,350,489) | 384,993 | | Obligation to return securities received
as collateral, at fair value | 2,428,880 | - | 2,428,880 | (2,387,895) | 40,985 | | Total | \$
22,100,439 | - | 22,100,439 | (21,674,461) | 425,978 | | 1
Amount includes financial instruments collateral received or pledged subject to a legally enforceable master netting
agreement. Although shown as a reduction to Net Amounts Presented they are not offset in the statement of financial
condition. Amount does not include securities collateral received or pledged where the legal enforceability of the master netting
agreement is uncertain.
Maturities and Collateral Pledged
Gross Financing Transaction Balances by Remaining Contractual Maturity
As of October 31, 2024 (dollars in thousands) | Overnight and | Up to 30 | | Greater than | | | Securities sold under agreements | Continuous | Days | 31-90 Days | 90 Days1 | Total | | to repurchase
\$ | 1,225,000 | - | 4,255,000 | 1,456,077 | 6,936,077 | | Deposits received for securities
loaned | 10,278,928 | 1,407,020 | 2,454 | 1,047,080 | 12,735,482 | #### Maturities and Collateral Pledged #### Gross Financing Transaction Balances by Remaining Contractual Maturity | condition. Amount does not include securities collateral received or pledged where the legal enforceability of the master netting | | | | | | |-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|-----------|------------|--------------|------------| | agreement is uncertain.
Maturities and Collateral Pledged
Gross Financing Transaction Balances by Remaining Contractual Maturity
As of October 31, 2024 (dollars in thousands) | Overnight and | Up to 30 | | Greater than | | | | Continuous | Days | 31-90 Days | 90 Days1 | Total | | Securities sold under agreements
to repurchase
Deposits received for securities | \$
1,225,000 | - | 4,255,000 | 1,456,077 | 6,936,077 | | loaned | 10,278,928 | 1,407,020 | 2,454 | 1,047,080 | 12,735,482 | | Obligation to return securities
received as collateral, at fair value | 1,618,599 | 2,833 | - | 807,448 | 2,428,880 | {9}------------------------------------------------ | Gross Financing Transaction Balances by Class of Collateral Pledged
As of October 31, 2024 (dollars in thousands) | October 31, 2024
Securities sold | Notes to Statement of Financial Condition | (A Wholly Owned Subsidiary of Scotia Holdings (USA) LLC)
Obligation to return | | |----------------------------------------------------------------------------------------------------------------------|-------------------------------------|-------------------------------------------|----------------------------------------------------------------------------------|---------------------------------------| | | | | | | | | under
agreements to | Deposits
received for | securities received
as collateral, at fair | | | | repurchase | securities loaned | value | Total | | U.S. and Canadian government | | | | | | obligations | \$
- | 752,679 | | 34,192
786,871 | | Corporate debt obligations | 3,070,349 | 1,647,982 | | 14,711
4,733,042 | | Common stock
Other debt obligations | 3,865,728
- | 10,332,803
2,018 | | 2,379,977
16,578,508
-
2,018 | ### Gross Financing Transaction Balances by Class of Collateral Pledged ### (6) Credit Facilities The Company has established borrowing agreements with The Bank of Nova Scotia in the normal course of business. Amounts outstanding under these arrangements are included within Bank loans payable. Refer to Note 3 for balances with affiliates. The arrangements are summarized below: A \$1.2 billion 31-day evergreen revolving senior unsecured line of credit. Interest on the line of credit is based on Daily Simple Secured Overnight Financing Rate (SOFR) plus applicable margin. The credit line matures on March 20, 2025, but may be renewed by the Company for an additional 364 days upon written notice to The Bank of Nova Scotia at least 91 days prior to the existing expiration date (See Note 14). At October 31, 2024, \$700.0 million was outstanding on the line of credit. A \$500.0 million 12-month revolving senior unsecured line of credit. Interest on the line of credit is based on Daily Simple SOFR plus applicable margin. The credit line matures on March 20, 2025, but may be renewed by the Company for an additional 364 days upon written notice to The Bank of Nova Scotia at least 91 days prior to the existing expiration date (See Note 14). At October 31, 2024, \$45.0 million was outstanding on the line of credit. A \$1.0 billion 61-day evergreen revolving senior unsecured line of credit. Interest on the line of credit is based on Daily Simple SOFR plus applicable margin. The credit line matures on March 31, 2025, but shall automatically renew for an additional 364 days, without amendment, unless The Bank of Nova Scotia gives written notice of termination of the facility at least 60 days prior to the then applicable maturity date. The Bank of Nova Scotia reserves the right to demand payment on amounts borrowed under the credit line with no less than 61 days prior written notice. At October 31, 2024, \$281.0 million was outstanding on the line of credit. A \$3.0 billion 61-day evergreen revolving senior unsecured line of credit. Interest on the line of credit is based on Daily Simple SOFR plus applicable margin. The credit line matures on June 24, 2025, but may be renewed by the Company for an additional 364 days upon written notice to The Bank of Nova Scotia at least 60 days prior to the then current expiry date. The Bank of Nova Scotia reserves the right to demand payment on amounts borrowed under the credit line with no less than 61 days prior written notice. At October 31, 2024, no borrowings were outstanding on the line of credit. A CAD\$100 million 12-month revolving senior unsecured line of credit. Interest on the line of credit is based on Daily Simple Canadian Overnight Repo Rate Average (CORRA) plus applicable margin. The credit line matures on July 1, 2025, but shall automatically renew for an additional 364 days without amendments, unless The Bank of Nova Scotia gives written notice of termination of the facility at least 60 days prior to the expiration of the current term. At October 31, 2024, no borrowings were outstanding on the line of credit. {10}------------------------------------------------ # (7) Subordinated Borrowings The Company has a revolving note and cash subordination agreement (the note) with The Bank of Nova Scotia amounting to \$1.0 billion. The note, which has been approved for regulatory capital purposes, bears a fixed rate of interest on the amount drawn, derived utilizing a relevant benchmark rate (Daily Simple SOFR) plus an applicable margin, and is scheduled to mature on October 23, 2028. At October 31, 2024, no borrowings were outstanding on the note. Refer to Note 3 for balances with affiliates. ### (8) Employee Benefit and Incentive Plans The Company participates in defined contribution, defined benefit, postretirement benefit plans and incentive plans provided by The Bank of Nova Scotia. # Defined Contribution Plan The Company participates in a 401(k) salary deferral and profit sharing plan sponsored by The Bank of Nova Scotia (the 401(k) plan) covering eligible employees. Employees are permitted within limitations imposed by tax law to make pretax as well as Roth contributions to the 401(k) plan pursuant to salary reduction agreements. The Company contributes to the plan pursuant to predetermined formulas. # Defined Benefit and Postretirement Benefit Plans The Company participates in defined benefit and postretirement benefit plans sponsored by The Bank of Nova Scotia that are closed to new entrants. The defined benefit expense covering the employees of the Company is recorded by The Bank of Nova Scotia and allocated to the Company. #### Incentive Plans The Company participates in incentive plans sponsored by The Bank of Nova Scotia. The expense covering the employees of the Company is recorded by The Bank of Nova Scotia and allocated to the Company. #### (9) Commitments, Contingencies, and Leases #### Commitments and Contingencies The Company provides representations and warranties to counterparties in connection with a variety of commercial transactions and occasionally indemnifies them against potential losses caused by the breach of those representations and warranties. These indemnifications generally are standard contractual terms and are entered into in the normal course of business. The maximum potential amount of future payments that the Company could be required to make under these indemnifications cannot be estimated. However, the Company believes that it is unlikely it will have to make material payments under these arrangements and has not recorded any contingent liability in the statement of financial condition for these indemnifications. The Company is a member of various exchanges that trade and clear securities or futures contracts or both. Associated with its membership, the Company may be required to pay a proportionate share of the financial obligations of another member who may default on its obligations to the exchange. Although the rules governing different exchange memberships vary, in general the Company's guarantee obligations would arise only if the exchange had previously exhausted its resources. In addition, any such guarantee obligation would be apportioned among the other non-defaulting members of the exchange. Any potential contingent liability under these membership agreements cannot be estimated. The Company has not recorded any contingent liability in the statement of financial condition for these agreements and believes that any potential requirement to make payments under these agreements is remote. {11}------------------------------------------------ In the normal course of business, the Company, from time to time, may be named as a defendant in litigation actions, including actions relating to its underwriting business. The Company may also be subject to various governmental and regulatory examinations and information-gathering requests. Where available information indicates that it is probable a liability had been incurred at the date of the statement of financial condition and the Company can reasonably estimate the amount of that loss, the Company accrues an estimated loss. After reviewing these actions with its counsel, management does not believe that the outcome of such actions will have any material effect on its financial position. 2025 \$ 1,035 2026 1,010 2027 1,035 2028 1,061 # Leases At October 31, 2024, right-of-use assets were \$4.1 million, and the related lease liabilities were \$4.8 million. The following table sets out maturity analysis of lease payments, showing the undiscounted lease payments on an annual basis for a minimum of each of the first five years and a total of the remaining years, and reconciliation of the undiscounted cash flows to operating lease liabilities as of October, 31, 2024: | At October 31, 2024, right-of-use assets were \$4.1 million, and the related lease liabilities were \$4.8 million.
(dollars in thousands)
2025
\$
1,035
2026
1,010
2027
1,035
2028
1,061
2029
973
Total undiscounted lease payments
5,114
Less imputed interest
(310)
Total operating lease liabilities
\$
4,804
Weighted average remaining lease term
4.9 years
Weighted average discount rate
2.6% | actions, including actions relating to its underwriting business. The Company may also be subject to various
governmental and regulatory examinations and information-gathering requests. Where available information
indicates that it is probable a liability had been incurred at the date of the statement of financial condition
and the Company can reasonably estimate the amount of that loss, the Company accrues an estimated loss.
After reviewing these actions with its counsel, management does not believe that the outcome of such actions | | | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--| | The following table sets out maturity analysis of lease payments, showing the undiscounted lease payments
The Company is a registered broker-dealer and registered futures commission merchant and, accordingly, is | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | # (10) Regulatory Requirements The Company is a registered broker-dealer and registered futures commission merchant and, accordingly, is subject to the net capital requirements of Rule 15c3-1 of the Securities Exchange Act of 1934 (SEA Rule 15c3-1) and Regulation 1.17 of the Commodity Exchange Act (CFTC Rule). The Company has elected to use the alternative method permitted by the SEA Rule 15c3-1, which requires that it maintain minimum net capital of the greater of \$1,500,000 or 2% of aggregate debit items arising from customer transactions, plus excess margin collateral on reverse repurchase agreements or the CFTC Rule requirement representing the sum of 8% of customer risk maintenance margin requirement and 8% of non-customer risk maintenance margin requirement, as defined. FINRA may require a member firm to reduce its business if net capital is less than 4% of such aggregate debit items and may prohibit a firm from expanding its business if net capital is less than 5% of such aggregate debit items. In addition, the Company is subject to certain notification requirements related to withdrawals of excess net capital. At October 31, 2024, the Company's net capital was \$1.1 billion which was \$937.6 million in excess of its required net capital of \$120.8 million as of October 31, 2024. The Company may use qualified securities to satisfy regulatory requirements. At October 31, 2024, approximately \$444.8 million of such qualified securities had been segregated in special reserve accounts for the benefit of customers as required by Rule 15c3-3 under the Securities Exchange Act of 1934. The {12}------------------------------------------------ qualified securities were received from Deposits paid for securities borrowed on the statement of financial condition. ### (11) Income Taxes The Company provides for income taxes in accordance with the asset and liability method of accounting and recognizes deferred income taxes for the expected future tax consequences of differences in the book and tax basis of assets and liabilities. At October 31, 2024, the deferred tax assets of \$11.5 million were composed of temporary differences principally due to deferred compensation accruals and other compensation related expenses. Management has not recorded a valuation allowance against its deferred tax assets as management believes it is more likely than not that they will be realized through future taxable earnings. At October 31, 2024, the deferred tax liability of \$15.2 million was composed of temporary differences principally due to the tax effect of non-depreciable goodwill. The Company remains open to Federal, California, New York State, Louisiana, Texas, Massachusetts, and New Jersey examinations for the years ended October 31, 2021 and forward; the Company is open to New York City examinations from the year ended October 31, 2016 forward. The Company does not anticipate any settlements that would result in a material effect to the statement of financial position. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is presented below. | recognizes deferred income taxes for the expected future tax consequences of differences in the book and | | | |----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------|--| | At October 31, 2024, the deferred tax assets of \$11.5 million were composed of temporary differences
principally due to deferred compensation accruals and other compensation related expenses. Management
has not recorded a valuation allowance against its deferred tax assets as management believes it is more | | | | At October 31, 2024, the deferred tax liability of \$15.2 million was composed of temporary differences | | | | The Company remains open to Federal, California, New York State, Louisiana, Texas, Massachusetts, and
New Jersey examinations for the years ended October 31, 2021 and forward; the Company is open to New | | | | York City examinations from the year ended October 31, 2016 forward. The Company does not anticipate
any settlements that would result in a material effect to the statement of financial position.
The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is presented | | | | (dollars in thousands) | | | | Balance at October 31, 2023 | \$
544 | | | Increases related to prior year tax positions | 39 | | | Decreases related to prior year tax positions | - | | | Increases related to current year tax positions | 73 | | | Lapse of statute
Balance at October 31, 2024 | \$
(142)
514 | | # (12) Fair Value Measurements Fair value is defined as the amount that would be received to sell an asset or paid to transfer a liability, or the "exit price," in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation techniques and establishes a hierarchy for inputs used in measuring fair value. The Company's securities owned, securities received as collateral, securities sold, but not yet purchased, and obligation to return securities received as collateral are recorded at fair value on a recurring basis. #### Fair Value Hierarchy The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure an asset or a liability fall to different levels within the hierarchy, the classification of the entire asset or liability will be based on the lowest level input that is significant to the overall fair value measurement of {13}------------------------------------------------ | Notes to Statement of Financial Condition | | October 31, 2024 | | | | |--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------|------------------|---------|---------|-----------| | the asset or liability. The Company categorizes assets and liabilities based on the inputs to the valuation
techniques used to measure fair value as follows: | | | | | | | Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities. | | | | | | | Level 2 – Quoted prices for similar instruments in active markets, quoted prices in markets that are not active
or financial instruments for which all significant inputs are observable, either directly or indirectly. | | | | | | | Level 3 – Valuation is generated from model-based techniques that use significant assumptions not
observable in the market. These unobservable assumptions would reflect the Company's own estimates of
assumptions that market participants would use in pricing the asset or liability. Such valuation techniques
include the use of option pricing models, discounted cash flow models, and similar techniques.
The following table represents the Company's fair value hierarchy for those assets and liabilities measured | | | | | | | at fair value on a recurring basis as of October 31, 2024: | | | | | | | (dollars in thousands) | | Level 1 | Level 2 | Level 3 | Total | | Assets: | | | | | | | U.S. and Canadian government obligations | \$ | 15,734 | - | - | 15,734 | | Corporate debt obligations | | 887,497 | 618,839 | - | 1,506,336 | | Common and preferred stock | | 6,089 | - | - | 6,089 | | Derivatives | | - | 1,115 | - | 1,115 | | Asset-backed securities | | - | 344,876 | - | 344,876 | | Other debt obligations | | 20,862 | 14,989 | - | 35,851 | | Total securities owned | | 930,182 | 979,819 | - | 1,910,001 | | Securities received as collateral | | 2,414,169 | 14,711 | - | 2,428,880 | | Total assets at fair value | \$ | 3,344,351 | 994,530 | - | 4,338,881 | | Liabilities: | | | | | | | U.S. and Canadian government obligations | \$ | 300,242 | - | - | 300,242 | | Corporate debt obligations | | 292,096 | 137,012 | - | 429,108 | | Common and preferred stock | | 600,691 | - | - | 600,691 | | | | 4,067 | 684 | - | 4,751 | | Other debt obligations | Total securities sold, not yet purchased | | 137,696 | - | 1,334,792 | | | | 1,197,096 | | | | | Obligation to return securities | | | | | | | received as collateral | | 2,414,169 | 14,711 | - | 2,428,880 | The fair value of the Company's securities was determined using a variety of sources as follows: For U.S. and Canadian government obligations, fair value was determined based on quoted prices in active markets and are included in Level 1. For Common and preferred stock and Derivatives, which include exchange-traded equity options, fair value was determined by the closing price of the primary exchanges and is included in Level 1 and from observable trades and/or external quotes for those included in Level 2. {14}------------------------------------------------ For Corporate debt obligations, Asset-backed securities, and Other debt obligations, fair value was determined using prices from independent market data providers or third party broker quotes and are included in Level 1 and Level 2. For Securities received as collateral and the Obligation to return securities received as collateral, fair value was determined by the closing price of the primary exchanges for those included in Level 1 and from third party broker quotes for those included in Level 2. # Financial Instruments Not Measured at Fair Value The carrying value approximates fair value for the following financial instruments: cash and cash equivalents, cash on deposits with clearing organizations, deposits paid for securities borrowed, securities purchased under agreements to resell, receivables and payables from brokers, dealers, clearing organizations and customers, deposits received for securities loaned, securities sold under agreements to repurchase, and bank loans payables. These financial instruments are primarily short term in nature. Under the fair value hierarchy, cash and cash equivalents and cash on deposit with clearing organizations are classified as Level 1. Deposits paid for securities borrowed, securities purchased under agreements to resell, receivables and payables from brokers, dealers, clearing organizations and customers, deposits received for securities loaned, securities sold under agreements to repurchase, accounts payable, accrued expenses, and other liabilities, and bank loans payables are classified as Level 2. ### (13) Off-Balance-Sheet Credit Risk As a securities broker-dealer, the Company is engaged in securities trading and brokerage activities with a diverse group of domestic and foreign corporations, governments, and institutional investors, including other broker-dealers, commercial banks, insurance companies, pension plans, mutual funds, and other financial institutions. The Company's customer securities activities are generally processed on a delivery versus payment and receipt versus payment (DVP/RVP) basis. The Company records these transactions on a settlement-date basis, which is generally one business day for U.S. government securities transactions and up to two business days for equity and debt securities transactions. As a result, the Company is exposed to risk of loss on these transactions in the event of the customer's inability to meet the terms of the contracts, in which case, the Company may be required to purchase or sell the underlying securities at prevailing market prices. In connection with the Company's customer and proprietary financing and securities settlement activities, the Company pledges securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contracted obligation to return securities pledged as collateral, the Company may be exposed to the risk of acquiring securities at prevailing market prices in order to satisfy its obligations. The Company controls this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. At October 31, 2024, the market value of securities pledged under these secured financing transactions approximated the amount due, which is recorded as Deposits received for securities loaned in the statement of financial condition. As a securities broker-dealer, the Company is engaged in various securities trading and brokerage activities as principal. In the normal course of business, the Company has sold securities that it does not currently own and will, therefore, be obligated to purchase such securities at a future date. The Company has recorded this \$1.3 billion obligation in the accompanying statement of financial condition at the October 31, 2024 fair value of the related securities. The Company will incur a trading loss on the securities if the market price increases, and a trading gain if the market price decreases subsequent to October 31, 2024. {15}------------------------------------------------ In security sales transactions, the Company is subject to risk if the security is not received and the market value has increased over the contract amount of the transaction. As a securities broker-dealer, the Company is engaged in various securities trading activities and substantially all of the Company's financial assets and liabilities are carried at or approximate fair value. #### (14) Subsequent Events The Company has evaluated whether any events or transactions occurred subsequent to the date of the statement of financial condition and through December 20, 2024. In December 2024, the Company provided written notice to The Bank of Nova Scotia to extend the \$1.2 billion 31-day evergreen revolving unsecured line of credit and \$500 million 12-month revolving senior unsecured line of credit. There were no other material events or transactions that would require recognition or disclosure in the statement of financial condition. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.