# INVESCO CAPITAL MARKETS, INC. X-17A-5 (2020-02-25) — Broker-dealer annual report - Company: INVESCO CAPITAL MARKETS, INC. - Form: X-17A-5 - Filed: 2020-02-25 - Period: 2019-12-31 - Accession: 0000102786-20-000001 - CIK: 102786 - File #: 8-19412 - Material weakness: No - Auditor: PricewaterhouseCoopers LLP - Auditor location: Atlanta, GA - Contact: Mark Gregson - Phone: 4044393485 - Signed by: Mark Gregson (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/102786/000010278620000001/2019_stmt_fin_cond.pdf --- {0}------------------------------------------------ # **Invesco Capital Markets, Inc.** **Statement of Financial Condition December 31, 2019** Filed pursuant to Rule 17a-5(e)(3) under the Securities Exchange Act of 1934 as a Public Document. {1}------------------------------------------------ | SEC FILE NUMBER | |-----------------| | | | 8-19412 | | | AND ENDING 12/31/19
report for the period beginning 01/01/19 | | | | |-----------------------------------------------------------------------------------------|-----------------------------------------------------------------|---------------------------------------------------------------------|---------------|--------------------------------| | | | MM/DD/YY | | MM/DD/YY | | | | A. REGISTRANT IDENTIFICATION | | | | NAME OF BROKER-DEALER: Invesco Capital Markets, Inc. | | OFFICIAL USE ONLY | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | FIRM I.D. No. | | | 11 Greenway Plaza, Suite 1000 | | | | | | | | (No and Street) | | | | Houston | | IX | | 77046 | | (City) | | (State) | | (Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Mark Gregson | | | | (404) 439-3405 | | | | | | (Area Code - Telephone Number) | | | | B. ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | | PricewaterhouseCoopers LLP | | | | | | | | (Name - if individual, state last, first, middle name) | | | | 1075 Peachtree St. NE, Suite 2600 Atlanta | | | GA | 30309 | | (Address) | | (City) | (State) | (Zip Code) | | CHECK ONE:
Certified Public Accountant | | | | | | Public Accountant | | | | | | | | Accountant not resident in United States or any of its possessions. | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | | | | | | | | | | | | {2}------------------------------------------------ | Mark Gregson | sweather and swear (or affirm) that, to the best of | |-------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------| | Invesco Capital Markets, Inc. | my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of | | of December 31 | 20 19 | | | neither the company nor any partner, principal officer or director has any proprietary interest in any account | | classified solely as that of a customer, except as follows: | | | | | | | Signature | | | Chief Financial Officer | | | Title | | | | | | | | Notary Public | | | This report ** contains (check all applicable | | | (a) Facing Page. | | | (b) Statement of Financial Condition. | | | (c) Statement of Income (Loss).
(d) Statement of Changes in Financial Condition. | | | | (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. | | (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. | | | (g) Computation of Net Capital. | | | | (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3. | | | (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3. | | | (i) A Reconciliation, including appropriate explanation of Net Capital Under Rule 15c3-1 and the | | | Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. | | consolidation. | (k) A Reconciliation between the audited Statements of Financial Condition with respect to methods of | | (1) An Oath or Affirmation. | | | (m) A copy of the SIPC Supplemental Report. | | | | (n) A report describing any material inadequacies found to exist or found to have existed since the date of the previous audit. | | | ** For conditions of confidential treatment of certain portions of this filing, see section 240.17a-5(c)(3), | {3}------------------------------------------------ ## **Invesco Capital Markets, Inc. Index December 31, 2019** | | Page | |---------------------------------------------------------|------| | Report of Independent Registered Public Accounting Firm | 1 | | Statement of Financial Condition | 2 | | Notes to Statement of Financial Condition | 3-11 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) ### **Report of Independent Registered Public Accounting Firm** To the Board of Directors and Stockholder of Invesco Capital Markets, Inc. #### *Opinion on the Financial Statement – Statement of Financial Condition* We have audited the accompanying statement of financial condition of Invesco Capital Markets, Inc. (the "Company") as of December 31, 2019, including the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. ### *Basis for Opinion* The financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's 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 of this financial statement 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. Atlanta, Georgia February 24, 2020 We have served as the Company's auditor since 2013. {5}------------------------------------------------ *(in thousands of dollars, except share data)* | Assets | | |-----------------------------------------------------------------------------------------------------------------|---------------| | Cash and cash equivalents | \$
32,510 | | Cash deposited with clearing organizations or segregated under federal and other
regulations or requirements | 11,342 | | Financial instruments owned, at fair value | 2,824 | | Receivable from customers | 13,239 | | Receivable from brokers, dealers and clearing organizations | 20,382 | | Loan due from parent | 40,000 | | Deferred tax assets, net | 389 | | Other assets | 499 | | Total assets | \$
121,185 | | | | | Liabilities and stockholders' equity | | | Liabilities: | | | Financial instruments sold, not yet purchased, at fair value | \$
2,116 | | Due to affiliated companies | 1,495 | | Payables to customers | 12,480 | | Payables to brokers, dealers and clearing organizations | 14,177 | | Other liabilities and accrued expenses | 439 | | Total liabilities | 30,707 | | | | | Stockholder's equity: | | | Common stock (\$100 par value, 2,500 shares authorized, issued and
outstanding) | 250 | | Additional paid-in capital | 61,712 | | Retained earnings | 28,516 | | Total stockholder's equity | 90,478 | | Total liabilities and stockholder's equity | \$
121,185 | The accompanying notes are an integral part of this statement of financial condition. {6}------------------------------------------------ *(in thousands of dollars)* #### **1. Organization and Description of Business** Invesco Capital Markets, Inc. (the Company), is a Delaware corporation and a wholly owned subsidiary of Invesco Advisers, Inc. (IAI), a wholly-owned subsidiary of Invesco Group Services, Inc. (IGS), which is owned by Invesco Holding Company (US), Inc. (IHC), the ultimate U.S. parent of the Company. IHC is ultimately owned by Invesco Ltd., a publicly traded Bermuda holding company that, through its subsidiaries, is primarily engaged in investment management worldwide. The Company is a registered broker/dealer with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 and is a member of the Financial Industry Regulatory Authority, Inc. (FINRA), the Municipal Securities Rulemaking Board (MSRB), the Securities Investor Protection Corporation (SIPC) and the Investors' Exchange LLC (IEX). In its capacity as a broker/dealer, the Company is a sponsor of Unit Investment Trusts (UITs). The Company also serves as an introducing broker, and introduces transactions on a fully disclosed basis for affiliated products to which affiliated entities are the investment advisers. As an introducing broker, the Company trades equity securities solely on an agency basis and does not hold positions in these securities on behalf of the affiliated products. The Company utilizes the services of third-party clearing firms to provide custodial and clearing services for these transactions. #### **2. Summary of Significant Accounting Policies** #### **Basis of Financial Information** This Statement of Financial Condition has been prepared in conformity with U.S. generally accepted accounting principles (US GAAP) and, in the opinion of management, reflects all adjustments necessary for a fair statement of financial condition. All amounts reflected in this Statement of Financial Condition are presented in thousands of dollars, except where indicated. #### **Use of Estimates** The preparation of a Statement of Financial Condition in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Statement of Financial Condition. Management believes that the estimates utilized in preparing its Statement of Financial Condition are reasonable and prudent. Actual results could differ from those estimates. #### **Cash and Cash Equivalents** The Company defines cash equivalents as highly liquid investments with original maturities of three months or less. Cash and cash equivalents consist of cash and investments in affiliated money market funds. The Company maintains depository accounts with certain financial institutions. Although these account balances exceed federally insured depository limits, the Company has evaluated the credit worthiness of these applicable financial institutions and determined the risk of material financial loss due to exposure from credit risk to be minimal. {7}------------------------------------------------ #### *(in thousands of dollars)* #### **Cash Deposited With Clearing Organizations or Segregated Under Federal and Other Regulations or Requirements** Cash deposited with clearing organizations, or segregated under federal and other regulations or requirements, includes the clearing fund requirement held with the National Securities Clearing Corporation (NSCC) and Depository Trust & Clearing Corporation (DTCC) in accordance with the Company's sponsorship of the UITs. It also includes deposits segregated in a special reserve bank account for the benefit of customers under Rule 15c3-3 of the Securities Exchange Act of 1934. In the Company's capacity as introducing broker, cash is on deposit with third-party broker/dealers providing custodial and clearing services. With regard to these cash deposits, the Company has entered into proprietary accounts of introducing brokers (PAIB) and proprietary accounts of broker/dealers (PAB) agreements with the third-party brokers, pursuant to the applicable rules in effect at the time of the establishment of the custodial and clearing relationships. #### **Financial Instruments and Fair Value** #### *Fair Value Measurement - Definition and Hierarchy* Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches and establishes a hierarchy for inputs used in measuring fair value that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the observability of inputs as follows: - Level 1 Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. - Level 2 Valuations based on one or more quoted price in markets that are not active or for which all significant inputs are observable, either directly or indirectly. - Level 3 Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The availability of observable inputs may vary from product to product and may be affected by a wide variety of factors, such as; the type of product, whether the product is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. {8}------------------------------------------------ #### *(in thousands of dollars)* The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3 (see Note 4). In addition, a downturn in market conditions could lead to further declines in the valuation of many instruments. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety is determined based on the lowest level input that is significant to the fair value measurement in its entirety. #### *Valuation Techniques* Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company's own assumptions are set to reflect those the Company believes that market participants would use in pricing the asset or liability at the measurement date. Refer to Note 4 for product-specific valuation techniques. #### *Financial Instruments Measured at Fair Value* All of the instruments within financial instruments owned and financial instruments sold, not yet purchased, are measured at fair value. These instruments primarily represent the Company's trading and investment activities. The Company, as sponsor of UITs, selects and can hold various debt and equity securities that are then transferred to a UIT. In return, the Company receives a beneficial interest in the trust backed by the securities. The Company has continuing involvement with the securities upon transfer of the securities to the trust and the Company does not provide the trust with any substantive rights to control, pledge, or exchange the securities. Accordingly, all such transfers to the trust are accounted for as secured borrowings, rather than sales, by the Company. Generally, the Company's transfer of the securities to the trust and receipt of the units from the trust occurs simultaneously. The Company classifies the various debt and equity securities held by major security type within the Statement of Financial Condition. The Company classifies the units of UITs received from the trust within financial instruments owned, at fair value. #### **Receivables and Payables - Customers** Receivables and payables due to/from customers represent unsettled trades of securities and UITs, which are recorded on a trade date basis. #### **Receivables and Payables - Brokers, Dealers, and Clearing Organizations** Receivables and payables due to/from brokers, dealers and clearing organizations represent unsettled trades of securities and UITs, which are recorded on a trade date basis. It also includes the margin deposits with brokers related to the Company's hedging of UITs and its security inventory. #### **Related Party Transactions** #### *Loan Due From Parent* The Company entered into an intercompany loan agreement with IAI on September 16, 2013, allowing the Company to lend up to \$50,000 to IAI, which was renewed and extended on September 16, 2018. As of December 31, 2019, the Company has executed \$40,000 of loans under this agreement. Executed loans under this agreement are unsecured, bear interest at a rate of 4% per annum and are payable on demand. The expiration date of the current agreement is September 16, 2023. Interest receivable of \$77 is included in the Company's Statement of Financial Condition within Other Assets. {9}------------------------------------------------ #### *(in thousands of dollars)* #### *Distribution Costs* The sale of Company-sponsored UITs, which involves a deferred sales charge and a creation and development fee for specific trusts, results in receivables that are due to the Company from the UITs. The Company sells such receivables to IHC at cost and accounts for these transactions in accordance with ASC 860-20, *Sales of Financial Assets*. During the year ended December 31, 2019, the Company sold \$67,307 of deferred sales charge and creation and development fee receivables to IHC. The balance sheet impact of these sales is reflected in Due from affiliated companies within the Company's Statement of Financial Condition. As of December 31, 2019, amounts due from IHC associated with the sale had been fully collected by the Company. #### *Due to/from Affiliated Companies* Amounts due to/from affiliates are unsecured and are payable on demand. The balance consists primarily of intercompany funding from IHC, as well as other intercompany activity. #### **Intangible Assets** Intangible assets identified on the acquisition of a business are capitalized separately from goodwill if the fair value can be measured reliably on initial recognition (transaction date). If they are definite‑lived, the intangible assets are amortized and recorded as operating expenses on a straight‑line basis over their useful lives, which reflects the pattern in which the economic benefits are realized. The Company considers its own assumptions, which require management's judgment, about renewal or extension of the term of the arrangement, consistent with its expected use of the asset. A change in the useful life of an intangible asset could have a significant impact on the Company's amortization expense. The Company evaluates the useful life determination for intangible assets each reporting period to determine whether events and circumstances warrant a revision to the remaining useful life or an indication of impairment. Definite-lived intangible assets are reviewed quarterly for impairment or whenever events or changes in circumstances indicate that their carrying amount may not be recoverable (i.e., carrying amount exceeds the sum of the fair value of the intangible). #### **Income Taxes** For federal income tax purposes, the Company's income or loss is included in the consolidated income tax return filed by IHC. Federal income taxes are calculated as if the Company filed on a separate return basis, and the amount of current tax or benefit calculated is either remitted to or received from IHC. The amount of current and deferred taxes payable or refundable is recognized as of the date of the Statement of Financial Condition, utilizing currently enacted tax laws and rates. The Company records deferred tax assets and liabilities relating to temporary differences in the recognition of revenues and expenses for book versus tax purposes. The Company recognizes and measures its unrecognized tax benefits in accordance with FASB Accounting Standards Codification (ASC) Topic 740, *Income Taxes*. Under that guidance the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances, and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available, or when an event occurs that requires a change. The Company does not have any unrecognized tax benefits as of December 31, 2019. {10}------------------------------------------------ #### *(in thousands of dollars)* #### **Concentration of Credit Risk** The Company is engaged in brokerage activities in which counterparties primarily include broker/dealers. In the event that counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty. The Company manages such exposures by its policy to review, as necessary, the credit standing of each counterparty. #### **Accounting Pronouncements Recently Adopted and Pending Accounting Pronouncements** **Income Taxes**. In December of 2019, the FASB issued Accounting Standards Update 2019-12, "Simplifying Accounting for Income Taxes" (ASU 2019-12). The standard is intended to simplify various aspects related to income taxes and removes certain exceptions to the general principles in Topic 740. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company is currently in the process of evaluating the effects of this pronouncement on our consolidated financial statements. #### **3. Cash Deposited With Clearing Organizations or Segregated** The Company has cash deposited with clearing organizations of \$10,342, as well as segregated cash of \$1,000, at December 31, 2019. #### **4. Fair Value Disclosure** The Company's assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. See Note 2 for a discussion of the Company's policies regarding this hierarchy. The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy. #### **Cash Equivalents** Cash equivalents include cash investments in affiliate money market funds. Cash investments in money market funds are valued under the market approach through the use of quoted market prices in an active market, which is the net asset value of the underlying funds, and are classified within Level 1 of the valuation hierarchy. #### **UITs** The Company may hold units of its sponsored UITs at period-end for sale in the primary market or secondary market. Equity UITs are valued under the market approach through use of quoted prices on an exchange. Fixed income UITs are valued using recently executed transaction prices, market price quotations (where observable), bond spreads, or credit default swap spreads. The spread data used is for the same maturities as the underlying bonds. If the spread data does not reference the issuers, then data that references comparable issuers is used. When observable price quotations are not available, fair value is determined based on cash flow models with yield curves, bond or single name credit default spreads, and recovery rates based on collateral value as key inputs. Depending on the nature of the inputs, these investments are categorized as Level 1, 2, or 3. {11}------------------------------------------------ #### *(in thousands of dollars)* #### **Financial Instruments Sold, Not Yet Purchased, and Derivative Assets and Liabilities** The Company uses U.S. Treasury futures, which are types of derivative financial instruments, to hedge economically fixed income UIT inventory and securities in order to mitigate market risk. Open futures contracts are marked-to-market daily through earnings along with the mark-to-market on the underlying trading securities held. Fair values of derivative contracts in an asset position are included in financial instruments owned, at fair value in the Company's Statement of Financial Condition. Fair values of derivative contracts in a liability position are included in financial instruments sold, not yet purchased, at fair value in the Company's Statement of Financial Condition. These derivative contracts are valued under the market approach through use of quoted prices in an active market and are classified within Level 1 of the valuation hierarchy. Additionally, to hedge economically the market risk associated with equity and debt securities and UITs temporarily held as trading investments, the Company will hold short corporate stocks, exchange-traded funds, or U.S. treasury security positions. These transactions are recorded as financial instruments sold, not yet purchased and are included in financial instruments sold, not yet purchased, at fair value in the Company's Statement of Financial Condition. To the extent these securities are actively traded, valuation adjustments are not applied and they are categorized within Level 1 of the valuation hierarchy; otherwise, they are categorized in Level 2. The following table presents the carrying value of the Company's assets and liabilities, including major security type for equity and debt securities, which are measured at fair value on the face of the Statement of Financial Condition as of December 31, 2019. | | Fair Value
Measurements | | |--------------------------------------------------------|----------------------------|--------| | Assets | | | | Cash equivalents | \$ | 16,355 | | Financial instruments owned: | | | | UITs | | | | Fixed income | | 2,189 | | Equity | | 635 | | Total cash equivalents and financial instruments owned | | 19,179 | | | | | | Liabilities | | | | Financial instruments sold, not yet purchased: | | | | Municipal securities | | 75 | | Corporate equities | | 370 | | Exchange-traded funds | | 1,671 | | Financial instruments sold, not yet purchased | | 2,116 | All financial assets, including Cash equivalents, Financial instruments owned, and Financial instruments sold, not yet purchased, are classified as Level 1 financial instruments at December 31, 2019. The Company had no transfers between Level 1 and Level 2 or between Level 2 and Level 3 during 2019. The Company had no Level 2 or Level 3 assets or liabilities measured at fair value on a recurring basis for the period ended December 31, 2019. {12}------------------------------------------------ *(in thousands of dollars)* #### **5. Intangible Assets** The Company's only major class of intangible assets during the year was customer relationships. Customer relationships primarily relate to UIT-specific distribution relationships that exist with third‑party brokers. The intangible asset is amortized and recorded as an operating expense on a straight-line basis over its useful life of 12 years, which reflects the pattern in which the economic benefits are realized. The Company considers its own assumptions, which require management's judgment, about renewal or extension of the term of the arrangement, consistent with its expected use of the asset. The annual impairment review performed as of October 1, 2019 determined that a full impairment existed at the review date. The impairment is primarily due to lower UIT sales in 2019 compared to recent years, and lower projected future sales. The Company has no intangible asset balance as of December 31, 2019. #### **6. Income Taxes** Federal current income taxes are provided at the statutory rate in effect during the year of 21% by the members of the consolidated group based on the amount that the respective member would pay or have refunded if it were to file a separate return. The effective tax rate was approximately 20%. The deferred tax asset of \$389 primarily relates to the timing of deductibility of compensation for tax purposes. At December 31, 2019, a \$341 payable related to settlement of tax payments was reflected in Due to affiliated companies. The Company is subject to income tax examinations by various taxing authorities. The Company is no longer subject to income tax examinations by the primary tax authorities for years prior to 2013. #### **7. Derivative Instruments and Hedging Activities** The Company manages its positions by employing a variety of risk mitigation strategies. These strategies include diversification of risk exposures and hedging. Hedging activities consist of the purchase or sale of positions in related securities and financial instruments, including U.S. Treasury futures, which are types of derivative financial instruments. The Company manages the market risk associated with its hedging activities on a Company-wide basis and on an individual product basis. The open equity in futures transactions is included within Financial instruments owned, at fair value. The gross notional amount of futures contracts is \$128 as of December 31, 2019. {13}------------------------------------------------ *(in thousands of dollars)* #### **8. Commitments and Contingencies** ### **Underwriting Commitments and Letters of Credit** In the normal course of business, the Company enters into when-issued, delayed delivery and underwriting commitments. As a result of these commitments the Company enters into standby letters of credit with a bank as part of its contractual commitment to deliver securities to the UITs that it sponsors. Upon entry into such commitments, the Company is charged an annual interest rate of 1.0% on amounts outstanding. These credit agreements are unsecured and do not contain restrictive covenants. As of December 31, 2019, there were no outstanding net purchase commitments. #### **Legal** The investment management industry is subject to extensive levels of ongoing regulatory oversight and examination. Governmental authorities regularly make inquiries, hold investigations and administer market conduct examinations with respect to the Company's compliance with applicable laws and regulations. Lawsuits or regulatory enforcement actions arising out of these inquiries may in the future be filed against the Company and related entities and individuals in jurisdictions in which the Company and its affiliates operate. The Company is from time to time involved in litigation relating to other claims arising in the ordinary course of its business. Management is of the opinion that the ultimate resolution of such claims, if any, will not materially affect the Company's business, financial position, results of operations or liquidity. In management's opinion, no accrual is necessary as of December 31, 2019 to provide for any such losses that may arise from matters for which the Company could reasonably estimate an amount. #### **9. Regulatory Requirements** The Company is a registered broker-dealer, and accordingly, is subject to the net capital rules of the SEC and FINRA. The Company utilizes the Alternative Standard method of Net Capital Computation pursuant to SEC Rule 15c3-1, which requires the Company to maintain minimum net capital equal to the greater of \$250 or 2% of aggregate debit balances arising from customer transactions, as defined. However, the Company intends to maintain regulatory net capital of at least \$300 in order to be in compliance with the early warning rules. 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. At December 31, 2019, the Company's Net Capital was \$44,579 which exceeded required net capital of \$250 by \$44,329. Advances to the Parent and its affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals are subject to certain notification and other provisions of the Net Capital rule of the SEC. #### **10. Subsequent Events** Management of the Company has performed an evaluation of subsequent events through February 24, 2020, which is the date the financial statements were issued. No subsequent events were noted in management's evaluation which would require disclosure. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.