# INSTINET, LLC X-17A-5 (2024-05-31) — Broker-dealer annual report - Company: INSTINET, LLC - Form: X-17A-5 - Filed: 2024-05-31 - Period: 2024-03-31 - Accession: 0000310607-24-000014 - CIK: 310607 - File #: 8-23669 - Type: Broker-dealer - Material weakness: No - Auditor: Ernst & Young LLP - Auditor location: New York, NY - Contact: Christy Schaffner - Phone: 212-667-8903 - Email: christy.schaffner@nomura.com - Website: nomura.com - Signed by: Eugene Chiulli (Chief Financial Officer, Instinet, LLC) Original filing: https://www.sec.gov/Archives/edgar/data/310607/000031060724000014/illc202403sfc2.pdf --- {0}------------------------------------------------ ![](_page_0_Picture_0.jpeg) #### STATEMENT OF FINANCIAL CONDITION Instinet, LLC (A Wholly Owned Subsidiary of Instinet Holdings Incorporated) March 31, 2024 With Report of Independent Registered Public Accounting Firm {1}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 OMB APPROVAI OMB Number: 3235-0123 Expires: Nov. 30, 2026 Estimated average burden hours per response: 12 # ANNUAL REPORTS FORM X-17A-5 PART III | | SEC FILE NUMBER | | |--|-----------------|--| | | 8-23669 | | 03/31/24 FACING PAGE Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934 04/01/23 FILING FOR THE PERIOD BEGINNING AND ENDING MM/DD/YY MM/DD/YY A. REGISTRANT IDENTIFICATION NAME OF FIRM: Instinet, LLC TYPE OF REGISTRANT (check all applicable boxes): Broker-dealer □ Check here if respondent is also an OTC derivatives dealer (PCAOB Registration Number, if applicable) ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) ## Worldwide Plaza, 309 West 49th Street | | (No. and Street) | | | | |----------------------------------------------|---------------------------------------------------------------------------|-----------------|------------------------------|--| | New York | New York | | 10019 | | | (City) | (State) | | (Zip Code) | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | Christy Schaffner | (212) 667-8903 | | christy.schaffner@nomura.com | | | (Name) | (Area Code - Telephone Number) | (Email Address) | | | | | B. Accountant Identification | | | | | Ernst & Young LLP | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing* | | | | | | (Name - if individual, state last, first, and middle name) | | | | | 1 Manhattan West | New York | NY | 10001 | | | (Address)
10/20/2003 | (City) | (State)
42 | (Zip Code) | | (Date of Registration with PCAOB)(if applicable) FOR OFFICIAL USE ONLY \* Claims for exemption from the requirement that the annual 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. {2}------------------------------------------------ #### OATH OR AFFIRMATION | Eugene Chiulli | swear (or affirm) that, to the best of my knowledge and belief, the | | |------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|--| | financial report pertaining to the firm of Instinet, LLC | as of | | | 3/31 | , 2 024____ is true and correct. I further swear (or affirm) that neither the company nor any | | | partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely | | | | as that of a customer. | | | | | | | | | Signature; | | | | | | | | Title:
Chief Financial Officer, Instinet, LLC | | | arent | | | | Votary Public | JILL KAREN FISHER | | | | Notary Public State of New York | | | This filing** contains (check all applicable boxes): | No. 01F16142862
Qualified in New York County | | | (a) Statement of financial condition. | Commission Expires March 27, 204 | | | (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 (d) Statement of cash flows. | | | | ا (e) Statement of changes in stockholders' or partners' or sole proprietor's equity. | | | | Jf) Statement of changes in liabilities subordinated to claims of creditors. | | | | ا | | | | [ | | | | ال (i) Computation of tangible net worth under 17 CFR 240.18a-2. | | | | | | | | | | | | Exhibit A to 17 CFR 240.18a-4, as applicable. | | | | (1) Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3. | | | | ال (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.
ഥ (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of 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. | | | | പ (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-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. | | | | ا (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 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 240.17a-12,
as applicable. | | | | ് (y) Report describing any material inadequacies 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)(2) or 17 CFR 240.18c-7(d)(2), as applicable. {3}------------------------------------------------ # Statement of Financial Condition March 31, 2024 # Contents | Report of Independent Registered Public Accounting Firm | | |---------------------------------------------------------|--| | Statement of Financial Condition | | | Notes to the Statement of Financial Condition | | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) Ernst & Young LLP One Manhattan West New York, NY 10001-8604 Tel: +1 212 773 3000 ey.com #### Report of Independent Registered Public Accounting Firm To the Member of Instinet, LLC and the Board of Directors of Instinet Incorporated #### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of Instinet, LLC (the "Company") as of March 31, 2024 and the related notes (the "financial statement"). In our opinion, the financial statement presents, the financial position of the Company at March 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 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 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, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement, 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company's auditor since 2006. New York, New York May 29, 2024 {5}------------------------------------------------ ## Statement of Financial Condition March 31, 2024 (in thousands) #### Assets | Cash and cash equivalents | S | 87,667 | |------------------------------------------------------------------|---|---------| | Restricted cash | | 1,200 | | Cash segregated in compliance with federal regulations | | 23,800 | | Securities borrowed | | 128,050 | | Receivable from broker-dealers and clearing organizations | | 157,980 | | Receivable from customers | | 45.721 | | Transaction fees and other receivables, net of a \$480 allowance | | 62,103 | | Deferred tax assets | | 5,791 | | Receivable from affiliates | | 4,088 | | Other assets | | 18,535 | | Total assets | S | 534,935 | | | | | | Liabilities and member's equity | | | | Securities loaned | S | 27.489 | | Payable to broker-dealers and clearing organizations | | 74.529 | | Payable to customers | | 70.125 | | Accounts payable | | 62,131 | | Accrued compensation | | 8,101 | | Payable to affiliates | | 34,014 | | Accrued expenses and other liabilities | | 39.169 | | Subordinated borrowing | | 100,000 | | Total liabilities | | 415,558 | | Commitments and contingent liabilities (See note 8) | | | | Total member's equity | | 119,377 | | Total liabilities and member's equity | S | 534.935 | See accompanying notes to the statement of financial condition. {6}------------------------------------------------ ## Notes to the Statement of Financial Condition ### March 31, 2024 #### 1. Nature of Business Instinet, LLC ("Instinet" or the "Company") is an electronic agency focused securities broker which offers sales trading support, sophisticated trading tools and advanced technology to institutional clients and broker-dealers for the execution of securities orders in global market centers or with other clients. The Company offers commission management services. Instinet settles and clears transactions with clients at prime brokers and custodian banks, but does not offer prime brokerage or custody services. The Company operates as a single operating segment. Instinet is a limited liability company and wholly owned subsidiary of Instinet Holdings Incorporated ("IHI" or "Member"), which is ultimately owned by Nomura Holding America Inc. ("NHA"). The Company is a broker-dealer and investment advisor registered with the Securities and Exchange Commission ("SEC") and is a member of the Financial Industry Regulatory Authority ("FINRA"). FINRA is the Company's designated examining authority. Further, Instinet is an introducing broker registered with the Commodity Futures Trading Commission ("CFTC") and a member of the National Futures Association ("NFA"). Additionally the Company is a member of BOX Exchange LLC, Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Cboe C2 Exchange, Inc., Cboe EDGA Exchange, Inc., Cboe EDGX Exchange, Inc., Cboe Exchange, Inc., Investors' Exchange LLC, Long-Term Stock Exchange, Inc., MEMX LLC, MIAX Emerald, LLC, MIAX PEARL, LLC, Miami International Securities Exchange, LLC, NYSE American LLC, NYSE Arca, Inc., NYSE Chicago, Inc., NYSE National, Inc, Nasdaq BX, Inc., Nasdaq GEMX, LLC, Nasdaq ISE, LLC, Nasdaq MRX, LLC, Nasdaq PHLX LLC, Nasdaq Stock Market, and New York Stock Exchange. {7}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) ## 2. Significant Accounting Policies ### Accounting Estimates The preparation of the Company's statement of financial condition in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts in the statement of financial condition and accompanying notes. Management believes that the estimates used in the preparation of the statement of financial condition are prudent and reasonable. Actual results could differ from those estimates. ### Cash and Cash Equivalents (including Restricted Cash) The Company considers all highly-liquid investments with original maturities of three months or less to be cash equivalents. At March 31, 2024, restricted cash is comprised of \$1.2 million invested in a money market mutual fund defined under Rule 2a-7 of the Investment Company Act of 1940 and this money market deposit is held at one major U.S. financial institution which, at times, may exceed federally insured limits. As this money market fund is valued based on quoted net asset values, the carrying value of this instrument at March 31, 2024 approximated fair value. ### Restricted Cash The \$1.2 million of restricted cash is fully securing a letter of credit. During the year, the Company had a \$1.0 million letter of credit that expired on December 31, 2023 and a \$3.8 million letter of credit that was amended to \$1.2 million along with an extension of the final expiration date to December 31, 2024. This letter of credit was issued by a major U.S. financial institution on behalf of the Company to secure certain of the Company's customers' soft dollar credit balances, only in the event of the Company's bankruptcy or default. At March 31, 2024, no amounts had been drawn under the letter of credit. The Company expects the letter of credit to be renewed. ### Cash Segregated in Compliance with Federal Regulations At March 31, 2024, cash of approximately \$23.4 million has been segregated on behalf of securities customers pursuant to the reserve formula requirements of SEC Rule 15c3-3. The Company had \$400 thousand in cash at March 31, 2024 segregated in a special reserve bank account for the exclusive benefit of broker dealers under Rule 15c3-3 of the SFC. {8}------------------------------------------------ Notes to the Statement of Financial Condition (continued) ### Securities Borrowed and Loaned Securities borrowed and securities loaned are financing arrangements collateralized by US equities that are recorded at the amount of cash collateral advanced or received in accordance with ASC 860, Transfers and Servicing. Securities borrowed and securities loaned transactions are used by the Company to facilitate the settlement process and require the Company to deposit cash with the lender or to receive cash from the borrower. The Company also has a securities borrowing and lending matched book business, in which it borrows securities from one party and lends them to another party. The amount of collateral required to be deposited for securities borrowed is an amount generally in excess of the fair value of the securities borrowed. For securities loaned, the Company receives collateral in the form of cash that is typically equivalent to the fair value of securities loaned. The Company has established policies and procedures for mitigating credit risk on securities borrowed transactions, including reviewing and establishing limits for credit exposure, maintaining collateral, and continually assessing the creditworthiness of counterparties. The Company minimizes credit risks by monitoring the fair value of securities borrowed and loaned daily, with additional collateral obtained, or refunded, when deemed appropriate. The Company estimates expected credit losses over the contractual term of the securities borrowed transactions as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts. As a result of the short-term nature of the transactions, the amount of unsettled credit exposure is limited to the amount owed to the Company for a short period of time. Further, the Company has not experienced any significant defaults. As such, the Company has not recorded a credit loss allowance on securities borrowed. When the Company borrows securities, it provides cash to the lenders as collateral and earns interest income. Similarly, when the Company lends securities to another party, that party provides cash to the Company as collateral and the Company pays interest expense. Interest income and interest expense are recorded in income for these securities borrowing/lending activities. ### Receivable from and Payable to Customers Amounts receivable from and payable to customers include amounts due on delivery versus payment/receipt versus payment of customer fails transactions and are reported on a settlement-date basis, in accordance with ASC 940, Financial Services - Broker and Dealers ("ASC 940"). Securities owned by customers, other than those fully paid for, are held as collateral for {9}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) receivables. Such collateral is not reflected on the statement of financial condition. The Company estimates expected credit losses over the contractual term of the receivables from customers as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts. As a result of the short-term nature of the receivables, the amount of unsettled credit exposure is limited to the amount owed to the Company for a short period of time. Further, the Company has not experienced any significant defaults. As such, the Company has not recorded a credit loss allowance on these receivables. #### Transaction Fees and Other Receivables, Net Transaction fees and other receivables, net as of March 31, 2024, consisted of the following: | in \$000 | | | |------------------------------|---|--------| | Transaction fees receivables | ക | 29.519 | | T*Share receivables | | 24,888 | | Broker neutral receivables | | 3,698 | | Prepaid soft dollars | | 3.661 | | Other receivables | | 337 | | | S | 62,103 | | | | | Transaction fees and other receivables are reported net of an allowance for credit losses of \$0.5 million. The allowance for credit losses is based on the Company's assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the account receivable balances, as well as forecasts of future economic conditions that may affect a customer's ability to pay. As of March 31, 2023, \$1 thousand of allowance was related to prepaid soft dollar balances and \$0.7 million was related to transaction fees receivables. As of March 31, 2024, there is no allowance related to prepaid soft dollar balances and \$0.5 million is related to transaction fees receivables. Under its T\*Share program, the Company arranges for customers to trade with multiple brokers while centralizing the payment of soft dollar expenses at the Company. Participating brokers reach an agreement with Instinet to transfer soft dollar credits generated from the client trading activity with the brokers. The Company recorded a receivable of \$24.9 million from executing brokers in transaction fees and other receivables, net and a corresponding payable in accounts payable on the statement of financial condition related to the T\*Share program. The Company estimates expected {10}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) credit losses over the contractual term of the T\*share receivables as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts. T\*Share receivables have no history of write off. There is no history of significant aged receivable from T\*Share receivables and the soft dollar credits would be offset from the client soft dollar account in the event of non-payment. As such, the Company has not recorded a credit loss allowance on T\*share receivables nor has the Company recorded any credit losses for the period ended March 31, 2024. #### Accrued expenses and other liabilities Accrued expenses and other liabilities as of March 31, 2024, consisted of the following: In \$000 | Clearing, brokerage and exchange fees liabilities | ಕೊ | 25,250 | |---------------------------------------------------|----|--------| | Market data, connectivity and telecommunication | | 7.216 | | Accrued professional fees | | 1.151 | | Rebates due to customers | | 1.856 | | Short securities | | 337 | | Other general accruals | | 3.359 | | | ಕೆ | 39.169 | Clearing, brokerage and exchange fees liabilities and rebates due to customers are recognized on a trade date basis, once the performance obligation has been satisfied. Market data, connectivity and telecommunication expenses are monthly or usage fees for these services which are accounted for on an accrual basis. #### Account payables Account payables primarily includes accumulated soft dollar credits related to soft dollars arrangements and the T\*Share program on the statement of financial condition. The liability is recognized on a trade date basis. {11}------------------------------------------------ Revenue from Contracts with Customers ## Transaction Fees ## Rebates from Market Centers and Exchanges and Rebates to Customers and Broker-Dealers {12}------------------------------------------------ #### Broker Neutral Revenues #### Interest income #### Other revenues {13}------------------------------------------------ Notes to the Statement of Financial Condition (continued) ### Clearing, Brokerage and Exchange Fees Clearing, brokerage and exchange fees relate primarily to the fees charged by market centers or regulators for trading and clearing transactions, and the costs incurred for market data content for U.S.-based clients. Trading-related costs are recorded on a trade-date basis, in line with related transaction fees. ### Interest expense Interest expense is incurred primarily on securities loaned and subordinated borrowings and is accounted for on an accrual basis. ### Professional Fees Professional fees primarily includes legal, audit, research and IT contractor expenses that are accounted for on an accrual basis. ### Foreign Currency Transactions The Company's functional currency is the U.S. dollar. Assets and liabilities denominated in foreign currencies are re-measured into the U.S. dollar equivalents using period-end spot foreign exchange rates while income and expenses are re-measured at the average foreign exchange rates during the year. Gains and losses resulting from foreign currency re-measurements are included in income. ### Derivatives From time to time, the Company may enter into forward foreign currency contracts to facilitate customers' settling transactions in various currencies. The Company enters into forward foreign currency contracts with third parties, with terms generally identical to its customers' transactions. thereby mitigating its exposure to currency risk. These typically do not extend beyond 14 days. All derivative instruments are presented at their fair value. At March 31, 2024, the Company recorded \$36 thousand in payable to and \$2 thousand in receivable from broker-dealers and clearing organizations in the statement of financial condition to reflect the fair value of its derivatives. The notional of the open contracts amount to \$19.2 million. {14}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) ### Income Taxes The Company is included in the consolidated federal and certain combined state and local income tax returns filed by Nomura Holding America Inc. & Subsidiaries (the "Group"). The Company and the Group have a practice whereby federal, state and local taxable income and tax liability is determined for financial reporting purposes on a separate company basis. Compensation is provided to the members of the Group, including the Company, on a modified benefits for loss approach, which is to the extent the member produces tax benefit items which are eligible to be utilized by the Group. ASC 740 prescribes an asset and liability approach to accounting for taxes that requires the recognition of deferred tax assets ("DTAs") and deferred tax liabilities ("DTLs") for the expected future tax consequences of events that have been recognized in the financial statements or tax returns. DTAs and DTLs are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized in income in the period that includes the enactment date. In accordance with ASC 740, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. These income tax positions are measured at the largest amount that is greater than 50% likely of being realized based on a cumulative probability approach. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. As of March 31, 2024, the Company did not identify any unrecognized tax benefits and/or related interest and penalties that should be recorded with respect to its tax positions in accordance with ASC 740-10. ### 3. Receivable from and Payable to Broker-Dealers and Clearing Organizations Amounts receivable from and payable to broker-dealers and clearing organizations as of March 31, 2024, consist of the following: | In \$000 | Receivable | Payable | | |--------------------------------------|-------------|-----------|--| | Securities failed-to-deliver/receive | A
11.168 | \$ 50.252 | | | Clearing deposits | 118.322 | | | | Trade-date receivable/payable, net | 27,809 | 22,406 | | | Fees and other receivable/payable | 681 | 1,871 | | | | \$ 157.980 | \$ 74,529 | | {15}------------------------------------------------ # Notes to the Statement of Financial Condition (continued) Securities failed-to-deliver/receive represents the contract value of securities which have not been delivered or received by the Company on settlement date. The Company records the selling price of the security as a receivable due from the purchasing broker-dealer. The receivable is collected upon delivery of the securities. The Company records the amount of the purchase price of the security as a payable due to the selling broker. The liability is paid upon receipt of the securities. The failed-to-deliver/receive have settled in the normal course. Clearing deposits are required by clearing organizations to clear and settle transactions. The clearing organizations determine the amount of such deposits typically based on the transaction volume and other measures. The Company provides additional deposits as requested by clearing organizations. Trade-date receivable/payable, net relates to trades done by certain clients that settle their trades with Instinet prior to the regular-way settlement date. Instinet records the net by security of all such transactions with clearing organizations as a receivable or a payable. The Company estimates expected credit losses over the contractual term of the receivables from broker-dealers and clearing organizations as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts. Because of the short term nature of the receivables, the amount of unsettled credit exposures is limited to the amount owed to the Company for a very short period of time. As such, generally no allowance for credit losses is held against these receivables. No allowance is held against clearing deposits that are posted with clearing organizations, due to the remote probability of default by the clearing organization and the robust multi-layered credit protection inherent in its design and operations. Fees and other receivable/payable relates to open derivatives positions and suspense accounts. ### 4. Collateralized Financing Agreements In the normal course of business, the Company obtains securities borrowed on terms that permit it to repledge or resell the securities to others. In connection with its securities borrowing activities at March 31, 2024, the Company obtained securities with a fair value of \$123.8 million of which \$107.4 million have been either repledged or otherwise transferred to others in connection with the Company's financing activities or to meet customers' needs. At March 31, 2024, the Company pledged securities to securities loaned transactions that can be sold or repledged by the third party with a fair value of \$27.2 million. {16}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) These transactions are documented under industry standard master netting agreements which reduce the Company's credit exposure to counterparties as they permit the close-out and offset of transactions and collateral amounts in the event of default of the counterparty. These transactions are short term in nature and have a maturity of less than 30 days. The following table presents information about offsetting of these transactions in the statement of financial condition, together with the extent to which master netting agreements entered into with counterparties and central clearing parties permit additional offsetting in the event of counterparty default: | In \$000 | | Securities
Borrowed | | Securities
Loaned | | |----------------------------------------------------------------|---|------------------------|---|----------------------|--| | Gross Balance | ಳ | 128.050 | ಳ | 27.489 | | | Amounts offset in the statement of financial condition | | | | | | | Net amounts presented in the statement of financial condition | | 128.050 | | 27.489 | | | Amounts not offset in the statement of financial condition (1) | | | | | | | Financial instruments | | (123.810) | | (27.228) | | | Cash collateral | | | | | | | Net amount | S | 4.240 | | S
261 | | (1) Represents amounts which are not permitted to be offset on the face of the statement of financial condition in accordance with ASC 210-20 but which provide the Company with the right of offset in the event of counterparty default. Amounts relating to agreements where the Company has not yet determined with sufficient certainty whether the right of offset is legally enforceable are excluded. ## 5. Deferred Compensation Certain of the Company's employees participate in cash settled deferred compensation awards based on Nomura Holdings, Inc. ("NHI") stock. Granted awards are Notional Stock Units ("NSU") which vest annually in equal increments over a three year period and Collared Notional Stock Units ("CSU") which vest every six months in equal increments over a three year period. The Company's ultimate payment is contingent on the relevant fair value calculation at the vesting date. The Company accrues compensation over time as employees progress toward vesting of each award, recognizing forfeitures as they occur. The total amount of unvested cash settled deferred compensation awards not yet recognized in the statement of financial condition is \$0.8 million. The Company recorded \$0.3 million as a reduction in accrued compensation on the statement of financial condition for the amounts paid to employees during the year ended March 31, 2024. {17}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) In addition to cash settled deferred compensation awards, certain of the Company's employees are granted the right to receive NHI stock under Restricted Stock Units ("RSU awards"). RSUs vest annually in equal increments over a three year period. RSU awards do not receive dividends or dividend equivalent amounts that would have been paid had actual NHI shares been granted during the vesting period. RSU's are measured at fair value based on the number of units granted multiplied by the stock price at the grant date, adjusted for a discount related to the present value of the expected dividends to be paid on NHI shares during the vesting period (and which will not be paid on the unvested RSU) and net of estimated forfeitures. Compensation cost is recognized on a straight-line basis over the service period from the grant date to the vesting date. The Company accounts for the RSU awards as an expense. Cash settled deferred compensation awards and RSUs include Full Career Retirement ("FCR") provisions which permit recipients of the awards to continue to vest in the awards upon voluntary termination if certain criteria based on corporate title and length of service within Nomura are met, provided the retiring employee does not work for a competitor. The related deferred award amortization expense of an employee eligible for FCR is fully recognized in the first year of issuance if the employee's FCR date has either passed or is within six (6) months of the issuance date, as long as the employee has not submitted notification to Nomura of an election to retire during a specific window. If the employee's FCR date is beyond six (6) months of issuance but prior to a component award's vest date, the associated amortization period of the issued deferred awards may not exceed the FCR date. Replacement deferred cash awards were issued to some new hires. A total of \$0.1 million was recorded as a reduction in accrued compensation on the statement of financial condition for amounts paid to those employees during the year ended March 31, 2024. ## 6. Retirement Saving Plan The Company offers all employees the option to participate in a defined contribution pension plan sponsored by Instinet Incorporated. The Instinet Savings Plan ("401(k) Plan") was established under Section 401(k) of the Internal Revenue Code. Eligible employees can contribute up to 50% of their annual base salary to the 401(k) Plan. Instinet Incorporated matches a discretionary amount of the employees' pre-tax contributions. To be eligible for the contribution, an employee needs to be an active employee as of December 31, 2023 with at least three months' service. The plan is managed by Instinet Group, LLC ("IGLLC"), a wholly owned subsidiary of IHI. and the related cost is allocated to the Company based on headcount (refer to Note 7 - related-party transactions). {18}------------------------------------------------ Notes to the Statement of Financial Condition (continued) ## 7. Related-Party Transactions At March 31, 2024, balances with related parties are included in the following statement of financial condition captions: | Assets | | | |---------------------------------------------|---|---------| | Receivable from affiliates | ಕ | 4.088 | | Transaction fees and other receivables, net | | 990 | | Liabilities | | | | Payable to affiliates | ಕ | 34.014 | | Subordinated borrowings | | 100.000 | ## Cross Border and Profit Sharing Instinet is a party to a cross border agreement and a profit sharing agreement with IHI and its affiliates. The cross border agreement requires each affiliate to record revenue and associated expenses for all securities cleared and settled by each affiliate. The global profit sharing agreement provides for a routine return on non-revenue driving expenses along with a sharing of the global residual profit allocated based on the revenue drivers (customer relationships and technology). The methods are designed to be compliant with the relevant tax rules in all jurisdictions in which IHI and its affiliates does business. At March 31, 2024, the Company recorded \$2.0 million in receivable from affiliates and \$10.5 million in payable to affiliates on the statement of financial condition. The Company settles these monthly . ## Operational and Administrative Agreements IGLLC provides various services to the Company. Pursuant to an operating agreement, IGLLC provides the Company with operational, management and administrative personnel, facilities and other services necessary to conduct its business in exchange for a fee. The service fee is equal to IGLLC's eligible expenses, net of interest income, plus 6%. IGLLC also manages employees' benefit, facilities and IT support for IHI and its US affiliates and allocates related expenses to the Company based on headcount. {19}------------------------------------------------ # Notes to the Statement of Financial Condition (continued) At March 31, 2024, the Company recorded \$15.4 million in payable to affiliates on the statement of financial condition for services and payments for expenses paid on behalf of the Company. These amounts were payable to IGLLC and settled monthly. Instinet Technology Solutions Inc. ("ITS"), a wholly owned subsidiary of IHI, provides various services to the Company. Pursuant to an expense sharing agreement, ITS provides the Company with operational, management and administrative personnel to support its business in exchange for a fee. The service fee is equal to ITS's eligible expenses. Additionally, the Company reimbursed by ITS for direct expenses paid by or credited to ITS on behalf of the Company. Payable to affiliates at March 31, 2024 includes \$3.1 million due to ITS. The Company settles these monthly. Pursuant to various service fee arrangements, the Company provides and receives services to and from NHI's non-Instinet affiliates. Services include legal and compliance and clearing services. Payable to affiliates at March 31, 2024 includes \$0.8 million payable to NHI's non-Instinet affiliates for the above services. The Company settles these periodically. Additionally, the Company reimbursed by IHI for direct expenses paid by or credited to IHI on behalf of the Company. Receivable from affiliates at March 31, 2024 includes \$1.3 million due from IHI. The Company settles monthly. ### Financing activities On June 23, 2020, Instinet, LLC amended its revolving credit facility agreement with IGLLC to increase the facility to \$500 million. The agreement automatically renews for successive one year terms subject to a written notice of termination from either party. No notice by either party has been made. As of March 31, 2024, the Company has no outstanding borrowing. On April 10, 2023, the Company entered into a subordinated loan agreement with NHA for \$100 million. (see Note 12). ### Execution Services The Company earns revenue for certain execution services provided to NHI's non-Instinet subsidiaries for trading in U.S. securities. Transaction fees and other receivables, net on the statement of financial condition at March 31, 2024 includes \$1.0 million due from NHI's non-Instinet subsidiaries. {20}------------------------------------------------ ## Commission Sharing Cross Border and Profit Sharing". ## Research Services {21}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) downward through spoofing. Plaintiff seeks an injunction preventing defendants from spoofing and unspecified monetary damages relating to the sale of 49 million shares of common stock at prices that plaintiff claims were artificially depressed through spoofing. On March 20, 2023 defendants filed a motion to dismiss the compliant and on April 10, 2023 plaintiffs filed an amended complaint. Instinet filed a motion to dismiss the amended complaint on July 12, 2023. On February 14, 2024, defendant's motion to dismiss was granted with leave for plaintiff to amend and refile the complaint. Plaintiff refiled their complaint on March 18, 2024 and defendants moved to dismiss the complaint on May 1, 2024. On March 13, 2023, Global Tech Industries Group, Inc. filed suit in US District Court for the Southern District of New York against the Company, four other entities, and fifty unnamed individuals. In its complaint, plaintiff alleges that defendants were engaged in a scheme to manipulate Global's share price downward through spoofing. Plaintiff seeks unspecified monetary damages relating to the sale of 18 million shares of common stock at prices that plaintiff claims were artificially depressed through spoofing. The Company settled the matter for \$50,000 on October 25, 2023. Since June 2020, the Company has been under review by FINRA relating to its compliance with rules relating to FINRA's Consolidated Audit Trail ("CAT") reporting requirements. The Company did not timely comply with the new CAT reporting requirements and, once it commenced reporting, submitted a substantial number of reports containing errors. The Company has settled this matter for a fine of \$3,800,000, which was accrued for in the prior fiscal year. The Company is also required to retain a monitor to test the Company's CAT reporting for compliance with applicable rules. On May 6, 2024, FINRA, on behalf of the CBOE exchanges, notified the Company that they have reached the preliminary determination that disciplinary action be brought against Instinet for alleged violations of the CBOE's supervision rule. This determination is in connection with an investigation relating to Instinet's practices, policies and procedures relating to detecting and preventing potentially manipulative customer trading. The ultimate outcome of this matter cannot be determined at this time and, consequently, it is not possible to assess its impact, if any, on the Company. At March 31, 2024, there were no matters for which a legal reserve was required and no items where an estimable material loss is reasonably possible. {22}------------------------------------------------ Notes to the Statement of Financial Condition (continued) ## 9. Credit, Market and Other Risks The Company is exposed to market risk from its customers' securities transactions during the period between the transaction date and the settlement date. The settlement cycle is generally two business days in the U.S. equities markets and can be as much as five days in some international markets. In addition, the Company may have exposure that extends beyond the settlement date in the case of a party that does not settle in a timely manner by failing either to make payment or to deliver securities. The Company holds the securities that are the subject of the transaction as collateral for its customer receivables. Adverse movements in the prices of these securities can increase the Company's market risk. The majority of the Company's transactions, including derivatives and, consequently, the concentration of its credit exposure are with broker-dealers and other financial institutions, primarily located in the United States. The Company seeks to manage its risks through a variety of reporting and control procedures, including establishing credit limits and credit standards based upon a review of the counterparty's financial condition and credit ratings. The Company monitors trading activity and collateral levels on a daily basis for compliance with regulatory and internal guidelines and obtains additional collateral, if appropriate. The Company uses securities borrowed and loaned transactions to facilitate the settlement process to meet its customers' needs and to enter into equity finance transactions. Under these transactions, the Company either receives or provides collateral. generally cash or securities. In the event the counterparty is unable to meet its contractual obligations to return the pledged collateral, the Company may be exposed to the market risk of acquiring the collateral at prevailing market prices. The Company is subject to operational, technological and settlement risks. These include the risk of potential financial loss attributable to operational factors such as untimely or inaccurate trade execution, clearance or settlement or the inability to process large volumes or transactions. The Company is also subject to risk of loss attributable to technological limitations or computer failures that may constrain the Company's ability to gather, process and communicate information efficiently, securely and without interruption. {23}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) ### 10. Income Taxes Effective April 1, 2022, the Company changed its income tax calculation from a separate return method to a modified separate return method. The Company is treated as a disregarded entity for tax purposes and its income and deductions are included with and reported as part of its direct parent, IHI's, tax return. IHI is included in the consolidated federal and certain combined state and local income tax returns filed by NHA and its subsidiaries (the "Group"). The Company and the Group have a practice whereby federal, state and local taxable income and tax liability is determined for financial reporting purposes on a separate company basis. Compensation is provided to the members of the Group, including the Company, on a modified benefits for loss approach, which is to the extent the member produces tax benefit items which are eligible to be utilized by the Group. Any such losses (current or carried forward) compensated for by the group are not recognized as deferred tax assets on the company's statement of financial condition. The accrual for unrecognized tax benefits, on the other hand, is accrued on a weighted basis of the Company's share of the Group's unrecognized tax benefits. Federal, and certain state and local income and capital taxes are paid to NHA in accordance with this practice. As such, accrued income taxes receivable from affiliates of \$1.7 million is shown on the statement of financial condition as of March 31, 2024. The Company's effective tax rate differs from the federal statutory income tax rate due to state and local income taxes, changes in valuation allowance, return-to-provision adjustments, and foreign tax expense. The components of the Company's net DTAs at March 31, 2024, are as follows (in thousands): | Deferred tax assets | \$6.997 | |--------------------------------------|-----------| | Less valuation allowance | \$(1,206) | | | \$5.791 | | Deferred tax liabilities | | | Net deferred tax asset / (liability) | \$5,791 | | | | The Company's DTAs primarily relate to temporary differences primarily consisting of soft dollar liabilities and compensation-based accruals. Management believes that it is more likely than not that these deferred tax assets will be realized. There is a valuation allowance of \$1,206 against the tax loss carry forward of the Company. This amount increased from \$1,090 in the previous year. {24}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) IHI's tax returns are subject to routine examination by the Internal Revenue Service ("IRS") and by various state and local tax authorities. The IRS audit of tax years from March 31, 2011 to March 31, 2015 has been finalized. The audit resulted in a change to the net operating loss of the Federal consolidated group, which includes IHI, but does not impact the Company. The tax years ended March 31, 2021 through March 31, 2023 are open under the normal federal statute of limitations. The tax audit for New York State for tax periods ended March 31, 2011 through March 31, 2015 was finalized during fiscal year end March 31, 2024. The audit resulted in a change to the net operating loss carry forward for the combined group in New York State but does not impact the Company. Additionally, the Company is currently under routine audits by various state and local tax jurisdictions for the tax years ended March 31, 2016 through March 31, 2018. The various state and local tax jurisdictions have not proposed any adjustments as of the date of this report. Waivers to extend the statute of limitation have been executed with a certain tax jurisdiction for the tax years ended March 31, 2016 through March 31, 2020. The years ended March 31, 2021 through March 31, 2023 are open under the normal statute of limitations. The Company did not identify any material unrecognized tax positions and/or related interest and penalties that should be recorded. Although no interest or penalties were accrued, the Company's policy is to treat interest and/or penalties related to income tax matters and uncertain tax positions as part of pretax income, if applicable. The Company does not believe that it is reasonably possible that any significant unrecognized tax benefits will be recorded within the next twelve months. ### 11. Fair Value of Financial Instruments ASC 820. Fair Value Measurements, requires the disclosure of the fair value of financial instruments, including assets and liabilities recognized on the statement of financial condition. Fair value is defined as the price at which an asset or liability could be exchanged in a current transaction between knowledgeable, willing parties. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments' complexity. ASC 820 establishes the following three hierarchies for fair value: {25}------------------------------------------------ # Notes to the Statement of Financial Condition (continued) Level I - Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. Level II - Inputs other than quoted prices included in Level I that are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument's anticipated life. Level III - Inputs reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date. Assumptions include those of risk, both the risk inherent in the valuation technique and the risk inherent in the inputs to the model. An instrument's categorization within the fair value hierarchy is based on the lowest level of significant input to its valuation. As of March 31, 2024, the Company had no financial instruments carried at fair value on a recurring basis, except for the derivatives described in Note 2, which are classified as Level II in the fair value hierarchy. ## Estimated Fair Value of Financial Instruments not Carried at Fair Value Certain financial instruments are not carried at fair value on a recurring basis in the statement of financial condition since they are neither held for trading purposes nor are elected for the fair value option. These are typically carried at contractual amounts due. The carrying value of the majority of the following financial instruments will approximate fair value since they are liquid, short-term in nature and / or contain minimal credit risk. These include cash and cash equivalents, securities borrowed, other assets and securities loaned. However, the fair value of other financial instruments may be different than carrying value if they are longer term in nature or contain more than minimal credit risk. These financial assets and financial liabilities would be generally classified as Level II or III within the fair value hierarchy. Other assets included in the table below primarily relate to a membership in DTCC. The fair value of DTCC is estimated using the stock Price valuation provided by the issuer. The fair value of subordinated borrowings is estimated by a proxy valuation using NHI's public debt and industry benchmarks. The following table presents carrying values, estimated fair values and classification within the fair value hierarchy of those for financial instruments which were carried on a basis other than fair value within the statement of financial condition as of March 31, 2024. {26}------------------------------------------------ ## Notes to the Statement of Financial Condition (continued) | In \$000 | Carrying
Value | Fair
Value | Fair Value
of Level I | Fair Value
of Level II | Fair Value
of Level III | |-------------------------|-------------------|---------------|--------------------------|---------------------------|----------------------------| | Assets | | | | | | | Cash & cash equivalents | 87,667
ಕ | ക
87,667 | 87,667
A | ନ୍ତ | ಳೂ | | Restricted cash | 1.200 | 1.200 | 1.200 | | | | Securities borrowed | 128,050 | 128.050 | | 128.050 | | | Other assets | 11,084 | 27,858 | | | 27.858 | | Liabilities | | | | | | | Securities loaned | \$ 27.489 | ಳ
27.489 | S | 27.489
es | S | | Subordinated borrowings | 100,000 | 99,257 | | | 99.257 | ### 12. Subordinated Borrowing The Company's subordinated borrowing is a term loan covered by an agreement approved by FINRA and is included by the Company in regulatory net capital, as defined, under the SEC's Uniform Net Capital Rule ("SEC Rule 15c3-1"). Under this agreement, NHA agrees that the obligations of the Company with respect to the payment of principal and interest are subordinate in right to claims of present and future creditors of the Company. The loan agreement contains an evergreen provision that automatically extends the maturity by one year unless specified actions are taken prior to maturity date. To the extent that the loan is required for the Company's continued compliance with minimum regulatory net capital requirements, repayment is deferred. Borrowings at March 31, 2024 is as follows (dollars in thousands): | Lender | Par Value | | Type | Maturity Date | Interest Rate | |--------|-----------|----|------|----------------|---------------| | NHA | | \$ | | April 10. 2025 | Variable | At March 31, 2024, the interest rate on this borrowing was 6.52%, which is based on SOFR plus a spread. At March 31, 2024, interest payable was \$0.6 million. ### 13. Regulatory Requirements The Company is a registered broker-dealer and, accordingly, is subject to the SEC's Uniform Net Capital Rule ("Rule 15c3-1") under the Securities Exchange Act of 1934, which requires the maintenance of minimum net capital. The Company has elected to use the alternative net capital method, permitted by Rule 15c3-1, which requires that the Company maintain minimum net capital {27}------------------------------------------------ # Notes to the Statement of Financial Condition (continued) equal to the greater of \$1 million, 2% of aggregate debit items arising from customer transactions, or the CFTC minimum required further discussed below. At March 31, 2024, the Company had regulatory net capital of \$130.8 million which was \$127.9 million in excess of its required net capital of \$2.9 million. The Company's ratio of net capital to aggregate debit items was 91.44%. The Company was required to have cash on deposit of \$23.4 million in the special reserve bank accounts for the exclusive benefit of customers under Rule 15c3-3 at March 31, 2024. Additionally, under Rule 15c3-3, the Company had cash on deposit of \$400 thousand in a special reserve bank account for the exclusive benefit of broker dealers ("PAB reserve bank account"). The Company performed the customer reserve calculation as of March 31, 2024 under Rule 15c3-3, reducing the existing balance in the special reserve bank account to \$13.7 million as of April 2nd, 2024. The cash on deposit in the PAB reserve bank account remained at \$400 thousand. Advances to affiliates, dividend payments, and other equity withdrawals are subject to certain notification and other provisions of the SEC Uniform Net Capital Rule and other regulatory bodies. The Company did not require any such notification during the year ended March 31, 2024. Instinet is also registered as an introducing broker with the CFTC and introduces all its commodity futures activity to an affiliate who executes and facilitates clearing of the transactions. The Company is subject to the greater of the following when determining its minimum net capital requirement under CFTC rules: - · \$45 thousand minimum net capital required as a CFTC introducing broker; - · the amount of adjusted net capital required by a futures association of which it is a member: - · the amount of net capital required by Rule 15c3-1(a) of the Securities and Exchange Commission (17 CFR 240.15c3-1(a)). At March 31, 2024, the Company had a \$2.9 million minimum capital requirement with the CFTC driven by its minimum requirement under the Securities Exchange Act ("SEA") rule 15c3-1. ## 14. Subsequent Events The Company has evaluated subsequent events through May 29, 2024, the date as of which this statement of financial statement is available to be issued and has concluded that no additional disclosure is required. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.