# T. ROWE PRICE INVESTMENT SERVICES, INC. X-17A-5 (2021-03-01) — Broker-dealer annual report
- Company: T. ROWE PRICE INVESTMENT SERVICES, INC.
- Form: X-17A-5
- Filed: 2021-03-01
- Period: 2020-12-31
- Accession: 0000318463-21-000002
- CIK: 318463
- File #: 8-25130
- Material weakness: No
- Auditor: KPMG LLP
- Auditor location: Baltimore, MD
- Contact: Susanne Piccirillo Voelker
- Phone: 410-294-0083
- Signed by: Susanne Piccirillo Voelker (Vice President and Controller)
Original filing: https://www.sec.gov/Archives/edgar/data/318463/000031846321000002/secshortfin1220201rectxt.pdf
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T. ROWE PRICE INVESTMENT SERVICES, INC. STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 2020 (FOR PUBLIC DISCLOSURE)
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| | | UNITED STATES | | | OMB AP PROV AL | |
|--------------------------------------------------------------------------|-----------|---------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|--------------------------------------------------------|--|
| SECURITIES AND EXCHANGE COMMISSION | | | | OMB Number: 3235-0123 | | |
| | | Washington, D.C. 20549 | | | Expires: October 31, 2023
Estimated average burden | |
| | | ANNUAL AUDITED REPORT | | | hours per response 12.00 | |
| | | FORM X-17 A-5 | | | | |
| | | PART ID | | | SEC FILE NUMBER | |
| FACING PAGE | | | 8-25130 | | | |
| | | Information Required of Brokers and Dealers Pursuant to Section 17 of the
Securities Exchange Act of1934 and Rule 17a-5 Thereunder | | | | |
| REPORT FOR THE PERIOD BEGINNING | | O 1/01/2020
MM/DD/YY | AND ENDING | 12/31/2020
MM/DD/YY | | |
| | | A. REGISTRANT IDENTIFICATION | | | | |
| NAME OF BROKER-DEALER: T. Rowe Price Investment Services, Inc. | | | | | OFFICIAL USE ONLY | |
| ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | | | FIRM I.D. NO. | |
| 100 East Pratt Street | | | | | | |
| | | (No. and Street) | | | | |
| Baltimore | | MD | | | 21202 | |
| (City) | | (State) | | (Zip Code) | | |
| NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT | | | | | | |
| Susanne Piccirillo Voelker | | | | | 410-345-6634 | |
| | | | | | (Area Code - Telephone Number) | |
| | | B. ACCOUNTANT IDENTIFICATION | | | | |
| INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | | |
| KPMGLLP | | | | | | |
| | (Name - | if individual, state, last,first, middle name) | | | | |
| 7 50 East Pratt Street | Baltimore | | MD | | 21202 | |
| (Address) | (City) | | (State) | | (Zip Code) | |
| CHECK ONE: | | | | | | |
| 00 Certified Public Accountant | | | | | | |
| D Public Accountant | | | | | | |
| D Accountant not resident in United States or any of its possessions. | | | | | | |
| | | FOR OFFICIAL USE ONLY | | | | |
| | | | | | | |
*\*Claimsforexemptionfrom the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis for the exemption. See Section 240 l 7a-5(e)(2)*
SEC 1410 (11-05)
Potential persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.
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#### OATH OR AFFIRMATION
I, Susanne P. Voelker, swear (or affirm) that, to the best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of T. Rowe Price Investment Services, Inc. as of December 31, 2020, are true and correct. I further swear (or affirm) that neither the Company, nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified so lely as that of a customer.
Susanne P. Voelker
Vice President
Title
NOTARY otary Public OUTH CAROUN
This report \*\* contains (check all applicable boxes):
- 区 (a) Facing Page.
- 区 Statement of Financial Condition . (b)
- 0 Statement of Income (Loss).
- [ (d) Statement of Changes in Financial Condition.
- [ (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital.
- 0 Statement of Changes in Liabilities Subordinated to Claims of Creditors.
- Computation of Net Capital. (g)
- (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3.
- 三 (i) Information Relating to the Possession or Control Requirements Under Rule 15c3-3.
- () the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3.
- (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of consolidation.
- K (1) An Oath or Affirmation.
- ロ (m) A copy of the SIPC Supplemental Report.
(n) A report describing any material inadequacies 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(e)(3).
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KPMG LLP 750 East Pratt Street, 18th Floor Baltimore, MD 21202
## **Report of Independent Registered Public Accounting Firm**
To the Stockholder and the Board of Directors T. Rowe Price Investment Services, Inc.:
### *Opinion on the Financial Statement*
We have audited the accompanying statement of financial condition of T. Rowe Price Investment Services, Inc. (the Company) as of December 31, 2020, and the related notes (collectively, the financial statement). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2020, in conformity with U.S. generally accepted accounting principles.
#### *Basis for Opinion*
This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion.
We have served as the Company's auditor since 2001.
Baltimore, Maryland February 26, 2021
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# T. ROWE PRICE INVESTMENT SERVICES, INC. STATEMENT OF FINANCIAL CONDITION December 31, 2020
(in thousands, except share data)
| ASSETS | | |
|-------------------------------------------------------------------------------------------------|----|--------|
| Cash and cash equivalents | S | 77,882 |
| Other receivables | | 326 |
| Other assets | | 4,921 |
| Prepaid expenses | | 6,204 |
| Computer and communications equipment,
net of accumulated depreciation of \$406 | | 228 |
| Distribution and servicing fees receivable from Price Funds | | 10,072 |
| Total assets | S | 99,633 |
| LIABILITIES AND STOCKHOLDER'S EQUITY | | |
| Liabilities | | |
| Payable to parent company | ಕಾ | 26,031 |
| Accounts payable and accrued expenses | | 3,201 |
| Distribution and servicing fees payable | | 10,072 |
| Supplemental savings plan liability | | 10,030 |
| Total liabilities | | 49,334 |
| Stockholder's equity | | |
| Common stock, \$5.00 par value - 20,000 shares authorized;
300 shares issued and outstanding | | 2 |
| Additional capital in excess of par value | | 38,300 |
| Retained earnings | | 11,997 |
| Total stockholder's equity | | 50,299 |
| Total liabilities and stockholder's equity | S | 99,633 |
The accompanying notes are an integral part of this financial statement.
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#### T. ROWE PRICE INVESTMENT SERVICES, INC. NOTES TO FINANCIAL STATEMENTS
## NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Investment Services, Inc. (Investment Services), a wholly-owned subsidiary of T. Rowe Price Associates, Inc. (Price Associates), provides introducing brokerage services on a fully-disclosed basis through Pershing LLC, an affiliate of the Bank of New York Mellon. We also are the underwriter and distributor of the T. Rowe Price U.S. mutual funds (Price Funds) and the distributor of the Alaska and the Maryland college savings plans for which Price Associates acts as investment adviser. We also provide distribution services for T. Rowe Price Associates.
Price Associates is the sponsor of the Price Funds and is a wholly-owned subsidiary of T. Rowe Price Group, Inc. (Price Group), a publicly-traded company.
### Basis of preparation
These financial statements have been prepared by our management in accordance with accounting principles generally accepted in the United States. These principles require that we make certain estimates and assumptions. Actual results may vary from our estimates.
## Cash and cash equivalents
Cash equivalents consist of short-term, highly liquid investments in T. Rowe Price money market mutual funds. The cost of these funds is equivalent to their fair value of \$1 per share, which is the quoted closing net asset value, or NAV, per share for these funds. These quoted values are considered Level 1 inputs, that is, quoted prices in active markets for identical securities. Cash equivalent investments in our money market mutual funds aggregate \$77,882,000 at December 31, 2020.
## Concentration of credit risk
As the introducing broker, we indemnify the clearing broker for losses sustained when customers fail to settle trades or default on margin calls. Our related risk is believed to be minimal in that customer assets held in accounts at Pershing collateralize receivable balances.
### Computer and communications equipment
Computer and communications equipment are stated at cost net of accumulated depreciation computed using the straight-line method. Provisions for amortization and depreciation are based on weighted average estimated useful lives of 3.0 years for computer and communications equipment.
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#### T. ROWE PRICE INVESTMENT SERVICES, INC. NOTES TO FINANCIAL STATEMENTS
# NOTE 2 - NET CAPITAL AND RESERVE REQUIREMENTS
We are subject to the Securities and Exchange Commission (SEC) Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital and requires that the ratio of our aggregate indebtedness to net capital, both as defined, not exceed 15 to 1. At December 31, 2020, our statutorily computed net capital of \$27,516,637 was in excess of required net capital of \$3,328,916. The aggregate indebtedness to net capital ratio was 1 8 to 1 at the end of 2020
Price Associates has committed to contribute additional capital to Investment Services, if necessary, to ensure that Investment Services maintains an aggregate indebtedness to net capital ratio of no more than 10 to 1.
We claim an exemption per the provisions in paragraph (k)(2)(i) of SEC Rule 15c3-3. Additionally, we also file the Exemption Report because our other business activities contemplated by Footnote 74 of the SEC Release No. 34-70073 adopting amendments to 17 C.F.R. § 240.17a-5 are limited to participating in distributions of securities. As stated in the Exemption Report filed on February 26, 2021, we have met exemption provisions throughout the year except as disclosed in the report. The firm has segregated \$200,000 in a special reserve bank account for the benefit of customers and is included in other assets.
# NOTE 3 - RECEIVABLES
Receivables from contracts with customers at December 31, 2020 are detailed below:
| Distribution and servicing fees receivable trom Price Funds | \$ 10.072 |
|-------------------------------------------------------------|-----------|
| Other receivables | |
| Total receivables from contracts with customers | \$ 10,398 |
# NOTE 4 - RELATED PARTY TRANSACTIONS
Investment Services is an affiliate of Price Group and has extensive transactions as part of its ordinary course of business with affiliates of Price Group. We earn revenue from Price Associates to distribute the Price Funds and the Alaska and Maryland college savings plans. Related party expenses that we recognize include fees charged to us by our affiliates, primarily our parent company, for the use of facilities, technology services, and other administrative services. These costs are allocated among all members of the affiliated group on a consistent basis. Price Associates serves as the paying agent for all U.S. subsidiaries, including Investment Services, of Price Group. For the period ended December 31, 2020, the payable to Price Associates is primarily comprised of year-end compensation costs offset by receivables from Price Associates for distribution and servicing activities of \$18,900,000. We periodically settle our intercompany account due to or from Price Associates by cash transfer.
We also earn distribution and servicing fees directly from the Price Funds. These fees are offset entirely by the distribution and servicing costs paid to third-party financial intermediaries that distribute certain share classes of the Price Funds. We enter into a tri-party agreement with each intermediary and Price Fund and, as such, recognize the fees earned from the 12b-1 Plans as distribution and servicing fees in our income statement. The fees paid to thirdparty financial intermediaries are recognized as distribution and servicing costs in our income statement. At December 31, 2020, the receivable from the Price Funds for the fees earned was \$10,072,000.
# NOTE 5 - STOCK-BASED COMPENSATION
As part of the employee compensation program for its subsidiaries, Price Group may award stock-based incentives in the form of restricted shares, restricted stock units or stock options with a maximum contractual term of 10 years. In general, vesting of these awards is based on the individual continuing to render service to an affiliated company and generally occurs over an average 5.0-year graded schedule. Price Group did not grant stock options or restricted stock awards to our employees in 2020.
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#### T. ROWE PRICE INVESTMENT SERVICES, INC. NOTES TO FINANCIAL STATEMENTS
We recognize the grant-date fair value of these stock-based awards as compensation expense and additional stockholder's equity in the form of contributed capital over the requisite service period. The fair value of the restricted shares or units is determined on the grant-date based on the closing market price of Price Group's common stock. The weighted-average fair value per-share of the 56,655 restricted stock units granted to our employees in 2020 was \$151.14.
Our future stock-based compensation expense before income taxes to be recognized over the remaining requisite service periods of the restricted shares and unvested options outstanding at December 31, 2020, is \$12,858,000. Actual expense will vary as additional stock-based awards are made, employees terminate prior to vesting, and employees transfer to or from Investment Services from or to another Price Group affiliate.
# NOTE 6 - INCOME TAXES
Our results of operations are included in Price Group's consolidated U.S. federal tax return and several state combined tax returns. We separately determine our relative contribution of either tax expense or benefit to the consolidated or combined income tax expenses and, accordingly, recognize our current and deferred tax expense or benefit.
The provision for income taxes differs from the amount computed by applying the federal statutory income tax rates to income before income taxes primarily due to state income taxes for the current year, net of federal income tax benefits and the effects of permanent differences.
Our U.S. federal income tax liability as well as our liability for state combined in our payable to parent company. As stated in Note 4 - Related Party Transactions, we periodically settle our payable to parent company which is inclusive of these returns. We also file stand-alone tax returns in several states that do not have combined reporting.
Deferred income taxes and benefits arise from temporary differences between taxable income for financial statement and income tax return purposes. The net deferred tax asset of \$4,373,000 at December 31, 2020, is included in other assets and arises primarily from temporary differences associated with stock-based and other compensation. A valuation allowance has not been recorded against Investment Services' gross deferred tax assets as management believes it is more likely than not that the deferred tax assets will be fully realized.
There are no material uncertain tax positions as of December 31, 2020.
# NOTE 7 - SUPPLEMENTAL SAVINGS PLAN
The Supplemental Savings Plan provides certain senior officers of Price Group and its subsidiaries the opportunity to defer receipt of up to 100% of their cash incentive compensation earned for a respective calendar year during which services are provided. The amounts deferred are adjusted in accordance with the hypothetical investments chosen by the officer from a list of mutual funds. The officer can initially defer these amounts for a period of two to fifteen years. For the year-ended December 31, 2020, our senior officers elected to defer \$2,155,000.
# NOTE 8 - SUBSEQUENT EVENTS
On February 24, 2021, the board of directors of Investment Services declared an aggregate dividend of \$11,900,000 payable on March 2, 2021 to its stockholder of record on March 1, 2021. We evaluated all subsequent events through February 26, 2021, the date these financial statements were available to be issued, and did not identify any other recordable or disclosable events that were not otherwise reported herein.
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.