# AQUA SECURITIES L.P. X-17A-5 (2021-03-01) — Broker-dealer annual report - Company: AQUA SECURITIES L.P. - Form: X-17A-5 - Filed: 2021-03-01 - Period: 2020-12-31 - Accession: 0000825904-21-000002 - CIK: 1088943 - File #: 8-51866 - Material weakness: No - Auditor: Ernst & Young - Auditor location: New York, NY - Contact: Chun Hom - Phone: 12129151735 - Signed by: Kenneth Paulson (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1088943/000082590421000002/AQUABS.pdf --- {0}------------------------------------------------ ![](_page_0_Picture_0.jpeg) STATEMENT OF FINANCIAL CONDITION Aqua Securities, L.P. December 31, 2020 With Report of!ndependent Registered Public Accounting Firm {1}------------------------------------------------ | | | | 0MB APPROVAL | |--------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------| | | | | 0MB Number: 3235-0123 | | | UNITED STATES | | Expires: October 31, 2023 | | | SECURITIES AND EXCHANGE COMMISSION | | Estimated
average
burder | | | Washington, D.C. 20549 | | nours per response 12.00 | | | ANNUAL AUDITED REPORT | | SEC FILE NUMBER | | | FORM X-17A-5 | | 8-51866 | | | PART III | | | | | FACING PAGE | | | | | Information Required of Brokers and Dealers Pursuant to Section 17 of the
Securities Exchange Act of 1934 and Rule 17a-5 Thereunder | | | | REPORT FOR THE PERIOD BEGINNING | 01/01/20 | AND ENDING | 12/31/20 | | | MM/DD/YY | | MM/DD/YY | | | A.
REGISTRANT IDENTIFICATION | | | | NAME OF BROKER -DEALER: | | | | | | | | OFFICIAL USE ONLY | | Aqua Securities, L.P. | | | FIRM ID. NO. | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use PO Box No.) | | | | | 110 East 59th Street | | | | | | (No. and Street) | | | | New York | New York | | 10022 | | (City) | (State) | | (Zip Code) | | NAME AND TELEPHONE NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT | | | | | Kenneth Paulson | | | 212-294-7922 | | | | | (Area Code -Telephone Number) | | | B. ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT REGISTERED PUBLIC ACCOUNT ANT whose opinion is contained in this Report* | | | | | Ernst & Young LLP | | | | | | (Name -if individual, state last, first, middle name) | | | | 5 Times Square | New York | New York | I 0036-6530 | | (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 | | | | | | | | *\*Claims for exemption from 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 240.17a-5{e){2). SEC 1410 {11-05).* {2}------------------------------------------------ #### **AFFIRMATION** I, Kenneth Paulson, affirm that, to the best of my knowledge and belief, the accompanying statement of financial condition pertaining to Aqua Securities, L.P. (the "Partnership"), as of December 31, 2020, is true and conect. I further affirm that neither the Partnership nor any paitner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer. Kenneth Paulson Chief Financial Officer STATE OF NEW YORK ) SS.: COUNTY OF NEW YORK ) On this 26th day of February, 2021, Kenneth Paulson, to me known and known to me to be the person described in and who executed the foregoing instrument and he acknowledged to me that he executed the same. *�LL* ![](_page_2_Picture_8.jpeg) {3}------------------------------------------------ This report contains (check all applicable boxes): - 0 Facing Page - 0 Report oflndependent Registered Public Accounting Finn. - 0 Statement of Financial Condition. - **D** Statement of Operations. - **D** Statement of Cash Flows. - **D** Statement of Changes in Partners' Capital. - **D** Statement of Changes in Subordinated Borrowings. - 0 Notes to Statement of Financial Condition. - **D** Computation of Net Capital Pursuant to Rule 15c3-1 - **D** Computation for Detennination of the Reserve Requirements under Exhibit A of SEC Rule 15c3-3 and Infonnation Relating to the Possession or Control Requirements under SEC Rule 15c3-3. - DA Reconciliation, including appropriate explanation of the Computation of Net Capital Under Rule 15c3-1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. - 0 An Oath or Affinn ation. - DA copy of the SIPC Supplemental Report. - **D** A report describing any material inadequacies found to exist or found to have existed since the date of the previous audit. {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) **Ernst & \bUrt: llP Ti?l :+121277330:0 ST!T)?SSqwre R:lx:+12127736350 1<¥.twYork, r•N10036-615:U ey.com** #### Report of Independent Registered Public Accounting Firm To the Partners and Management of Aqua Secur ties, L.P. #### 0 pinion on the Financial Statement We have aud ted the accompanying statement of financial cond tion of Aqua Secur ties, L.P. (the "Partnership") as of December 31 , 2020 and the related notes (the "financial statement"). In our opinion, the f nancial statement presents fair y, in all mater a I respects, the fin a nc a I p osdio n of the Partners hip at De ce mbe r 31 , 2020, in conform ty w th U.S. generally accepted account ng pr nc ples. #### Basis for Opinion This financ al statement is the responsibil ty of the Partnership's management. Our respons b ili ty is to express an opinion on the Partnership'sfinancial statement based on our audd. We are a public account ng firm registered w th the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be in dep en dent wth respect to the Partnership in accordance wdh the U.S. fed era I secur ties laws and the a pp Ii cab le rules and regulations of the Secur t es and Exchange Commission and the PCAOB. We conducted our aud t in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance ab out whether the financial statement is free of mate r al misstatement, whether due to error or fraud. Our aud t included p erfo rmin g procedures to assess the r sks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those r sks. Such procedures ncluded examining, on a test bas s. evide nee regarding the amounts and d sc osures in the financial state men!. 0 ur aud t a so included evaluat ng the accounting pr nciples used and sign ficant estimates made by management, as we II as evaluating the over all fin a nc a I statement presentation. We believe that our aud d prov ides a re a son ab e basis for our opin on. We have served as the Partnersh p's aud tor s nce 2008. February 26, 2021 {5}------------------------------------------------ ## Aqua Securities, L.P. ## Statement of Financial Condition December 31, 2020 *(In Thousands)* | Assets | | |------------------------------------------------------------------|-------------| | Cash | \$
237 | | Fixed assets, net | 1,463 | | Intangible assets, net | 36 | | Accrued commissions receivable | 15 | | Receivables from clearing brokers and related broker-dealers | 2,023 | | Other assets | 38 | | Total assets | \$
3,812 | | Liabilities, Subordinated Borrowings and Partners' Capital | | | Accounts payable and accrued liabilities | \$
1,553 | | Payables to related parties | 207 | | Total liabilities | 1,760 | | Commitments and contingencies (Note 7) | | | Subordinated borrowings | 2,000 | | Partners' capital: | | | Limited partners | 109 | | General partner | (57) | | Total partners' capital | 52 | | Total liabilities, subordinated borrowings and partners' capital | \$
3,812 | *See notes to statement of financial condition* {6}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition December 31, 2020 *(In Thousands)* ## **1. General and Summary of Significant Accounting Policies** **Description of Business** - Aqua Securities, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of Delaware. The Partnership is 50.49% owned by Cantor Fitzgerald Securities ("Cantor Securities"), a Limited Partner which is a wholly owned subsidiary of Cantor Fitzgerald, L.P. ("Cantor"); 48. 51 % owned by BGC Partners, L.P. ("BGC"), a Limited Partner; and 1 % owned by Aqua Securities Holdings, LLC ("Holding Company"), the General Partner, which is owned 51 % by Cantor and 49% by BGC. The Partnership operates an Alternative Trading System ("A TS") to provide anonymous access to pools of block and basket liquidity to institutional buy-side and sell-side firms. The ATS' participants consist of broker-dealers and qualified institutional buyers within the meaning of the Securities and Exchange Commission ("SEC") Rule 144(a)(l). Only equity securities are traded via the ATS. **Basis of Presentation** - The statement of financial condition is presented in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). **Use of Estimates** - Management makes estimates and assumptions that affect the reported amounts of the assets and liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Management believes that the estimates utilized in preparing the statement of financial condition are reasonable. Estimates, by their nature, are based on judgment and available information. As such, actual results could differ materially from the estimates included in the statement of financial condition. **Revenue Recognition** - The Partnership derives its revenues primarily through commissions from brokerage services. Commissions revenue is derived from securities whereby the Partnership connects buyers and sellers in the OTC and exchange markets and assists in the negotiation of the price and other material terms. These transactions result from the provision of service related to executing and settling transactions for clients. Commissions revenue is recognized at a point in time on the trade-date, when the customer obtains control of the asset and can direct the use of, and obtain substantially all of the remaining benefits from the asset. The Partnership records a receivable between the trade-date and settlement date, when payment is received. **Cash and Cash Equivalents** - The Partnership considers all highly liquid investments with maturity dates of 90 days or less at the date of acquisition to be cash equivalents. **Fixed Assets, net** - Fixed assets are recorded at historical cost and depreciated over their estimated economic useful lives, generally three to five years, using the straight-line method. In accordance {7}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) December 31, 2020 *(In Thousands)* ## **1. General and Summary of Significant Accounting Policies** *(continued)* with U.S. GAAP guidance, the Partnership capitalizes qualifying computer software costs incurred during the application development stage and amortizes them over an estimated useful life of three years on a straight-line basis. **Intangible Assets, net** - Intangible assets consist of costs incurred in connection with the filing and registration of patents. Capitalized costs related to the filing of patents are generally amortized on a straight-line basis over their estimated useful lives, generally three years. **Receivables from Clearing Brokers and Related Broker-Dealers** - Receivables from clearing brokers and related broker-dealers primarily represents principal transactions which have not yet settled, commissions receivable and cash deposited with various clearing brokers in order to conduct ongoing clearance activities. **Income Taxes** - Income taxes are accounted for under U.S. GAAP Accounting Standards Codification ("ASC") Topic 740, *Income Taxes,* using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the statement of financial condition carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities 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 on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. To the extent that it is more likely than not that deferred tax assets will not be recognized, a valuation allowance would be established to offset their benefit. *ASC Topic 740, Income Taxes,* clarifies the accounting for income taxes by prescribing a "more likely than not" recognition threshold that a tax position is required to meet before being recognized in the statement of financial condition. In addition, the guidance clarifies the measurement of uncertain tax positions, classification of interest and penalties, and requires additional disclosures on tax reserves. **Accrued Commissions Receivable** - Accrued commissions receivable represent amounts due from brokers, dealers, banks and other financial and non-financial institutions for the execution of securities, foreign exchange and derivative agency transactions. ## **Recently Adopted Accounting Pronouncements** In June 2016, the FASB issuedASU *No. 2016-13, Financial Instruments Credit Losses (Topic 326)-Measurement of Credit Losses on Financial Instruments,* which requires financial assets {8}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) December 31, 2020 *(In Thousands)* ## **1. General and Summary of Significant Accounting Policies** *(continued)* that are measured at amortized cost to be presented, net of an allowance for credit losses, at the amount expected to be collected over their estimated life. Expected credit losses for newly recognized financial assets, as well as changes to credit losses during the period, are recognized in earnings. For certain purchased financial assets with deterioration in credit quality since origination ("PCD assets"), the initial allowance for expected credit losses will be recorded as an increase to the purchase price. Expected credit losses, including losses on off-balance-sheet exposures such as lending commitments, will be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. Subsequent amendments issued by the FASB during 2018 and 2019 *inASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses ASU No. 2019- 04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, ASU No. 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief* and *ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments Credit Losses* provided additional guidance with regards to the application of the credit losses standard. The amendments in *ASUs No. 2018-19, 2019-04, 2019-05 and 2019-11* were required to be adopted concurrently with the guidance in *ASU No. 2016-13.* The Partnership adopted the standards on their required effective date beginning January 1, 2020 using a modified retrospective approach. The adoption of this guidance did not have a material impact on the Partnership's statement of financial condition. In March 2020, the FASB issued *ASU No. 2020-03, Codification Improvements to Financial Instruments.* This ASU which makes narrow-scope amendments related to various aspects pertaining to financial instruments and related disclosures by clarifying or improving the Codification. For the most part, the guidance was effective upon issuance, and the adoption of the standard did not have a material impact on the Partnership's statement of financial condition. ## **New Accounting Pronouncements** In December 2019, the FASB issued *ASU No. 2019-12, Income Taxes (Topic 740): Simplifying theAccounting for Income Taxes.* The ASU is part of the FASB's simplification initiative; and it is expected to reduce cost and complexity related to accounting for income taxes by eliminating certain exceptions to the guidance *inASC 740, Income Taxes* related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, if applicable, the allocation of income tax expense to separate statements of financial condition of entities not subject to tax and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates, and clarifies the accounting for transactions that result in a step-up in the tax basis {9}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) December 31, 2020 *(In Thousands)* ## **1. General and Summary of Significant Accounting Policies** *(continued)* of goodwill. The new standard became effective for the Partnership beginning January 1, 2021 and with certain exceptions, will be applied prospectively. Adoption of ASU 2019-12 is not expected to have a material impact on the Partnership's statement of financial condition. In March 2020, the FASB issued *ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.* The guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements ( e.g., loans, debt securities, derivatives, and borrowings) necessitated by reference rate reform as entities transition away from LIBOR and other interbank offered rates to alternative reference rates. This ASU also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional and only available in certain situations. The ASU is effective upon issuance and generally can be applied through December 31, 2022. In January 2021, the FASB issued *ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope.* The amendments in this standard are elective and principally apply to entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform (referred to as the "discounting transition"). The standard expands the scope of *ASC 848, Reference Rate Reform* and allows entities to elect optional expedients to derivative contracts impacted by the discounting transition. Similar to *ASU No. 2020-04,* provisions of this ASU are effective upon issuance and generally can be applied through December 31, 2022. Management is evaluating and planning for adoption of the new guidance, including forming a cross-functional LIBOR transition team to detem1ine the Partnership's transition plan and facilitate an orderly transition to alternative reference rates, and continuing its assessment on the Partnership's statement of financial condition. ## **2. Fixed Assets, net** Fixed assets, net consisted of the following: | | December 31,
2020 | | |-------------------------------------------------|----------------------|-------| | Software, including software development costs | \$ | 3,710 | | Computer and communication equipment | | 204 | | Leasehold improvements and other fixed assets | | 110 | | | | 4,024 | | Less: accumulated depreciation and amortization | | 2,561 | | Fixed assets, net | \$ | 1,463 | {10}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) ## December 31, 2020 *(In Thousands)* ## **2. Fixed Assets, net** *(continued)* At December 31, 2020, unamortized software development costs were \$1,447. ## **3. Receivables from Clearing Brokers and Related Broker-Dealers** Re**c**eivables from **c**learing brokers and related broker-dealers primarily represent amounts due on undelivered mortgage ba**c**ked se**c**urities, government se**c**urities, equities and **c**orporate bonds, **c**ash on deposit with **c**learing brokers and re**c**eivables from **c**learing brokers. At **D**e**c**ember 31, **2**0**2**0, Re**c**eiva*b*les from **c**learing *b*rokers and related *b*roke**r**-deale**r**s was \$**2**,*0***2**3, of whi**c**h \$1,774 is **r**e**c**eiva*b*le from an affiliated *b***r**oke**r**-deale**r** (see Note 5 - Related Pa**r**ty T**r**ansa**c**tions, fo**r** additional info**r**mation **r**elated to these **r**e**c**eiva*b*les). ## **4. Intangibles Assets, net** Intangi*b*le assets, net **c**onsisted of the following: | | December 31,
2020 | | |-------------------------------------------------|----------------------|-----| | Patents | \$ | 437 | | Less: accumulated depreciation and amortization | | 401 | | Intangible assets, net | \$ | 36 | As of **D**e**c**em*b*e**r** 31, **2***0***2***0*, the weighted ave**r**age **r**emaining life of intangi*b*le assets was 3 yea**r**s. ## **5. Related Party Transactions** Canto**r** and othe**r** affiliates p**r**ovide the Pa**r**tne**r**ship with administ**r**ative se**r**vi**c**es and othe**r** suppo**r**t fo**r** whi**c**h they **c**ha**r**ge the Pa**r**tne**r**ship *b*ased on the **c**ost of p**r**oviding su**c**h se**r**vi**c**es. Su**c**h suppo**r**t in**c**ludes allo**c**ations fo**r** utilization of fixed assets, a**cc**ounting, t**r**easu**r**y, ope**r**ations, human **r**esou**rc**es, legal, and te**c**hnology se**r**vi**c**es. In addition, fo**r** the yea**r** ended **D**e**c**em*b*e**r** 31, **2***0***2***0*, the Pa**r**tne**r**ship was **c**ha**r**ged fo**r** allo**c**a*t*ed **r**en*t*, u*t*ili*t*ies, main*t*enan**c**e and o*t*he**r** o**cc**upan**c**y **r**ela*t*ed **c**os*t*s, whi**c**h *t*he unpaid *b*alan**c**es a**r**e in**c**luded in Paya*b*les *t*o **r**ela*t*ed pa**r**ties on *t*he Pa**r**tne**r**ship's s*t*a*t*emen*t* of finan**c**ial **c**ondi*t*ion*.* *A* Can*t*o**r** affilia*t*e p**r**ovides **c**lea**r**ing and se*t*tlemen*t* se**r**vi**c**es, unde**r c**on*t***r**a**c***t*ual agreemen*t*s, *t*o *t*he Pa**r**tne**r**ship*.* In **c**onne**c***t*ion wi*t*h *t*hese se**r**vi**c**es, *t*he Pa**r**tne**r**ship earns *b***r**oke**r**a**g**e **r**evenue whi**c**h is **c**olle**c***t*ed *by* Can*t*o**r** and se*tt*led on a mon*t*hl*y b*asis*.* The unpaid *b*alan**c**es a**r**e in**c**luded in Pa*y*a*b*les *t*o **r**ela*t*ed pa**r**ties in *t*he Pa**r**tne**r**ship's s*t*a*t*emen*t* of finan**c**ial **c**ondi*t*ion*.* {11}------------------------------------------------ ## Aqua Securities, L.P. ## Notes to Statement of Financial Condition (continued) December 31, 2020 *(In Thousands)* ## **5. Related Party Transactions** *(continued)* The Partnership has subordinated borrowings with affiliates. See Note 9 - Subordinated Borrowings for further detail related to these transactions. ## **6. Income Taxes** The Partnership recorded no net provision for income taxes due to the establishmen*t* **o**f val**u**a*t*i**o**n all**ow**ance a*g*ains*t t*he benefi*t* for ne*t t*axable l**o**sses for *t*he year ended December 31, 2020*.* As **o**f December 31, 2020, *t*he Partnership rec**o**rded deferred *t*ax asse*t*s **o**f \$1*.***9** milli**o**n, **w**hich c**o**nsis*t* primarily **o**f ne*t* **o**pera*t*in*g* l**o**ss carryfor**w**ards and *g*r**o**ss deferred *t*ax liabili*t*ies **o**f \$0*.*1 milli**o**n primarily rela*t*ed *t***o** deprecia*t*i**o**n*.* Deferred *t*ax asse*t*s are available for **o**ffse*t* a*g*ains*t* fut**u**re pr**o**fi*t*s, if and **w**hen *t*hey arise*.* The Partnership believes *t*ha*t* i*t* is m**o**re likely *t*han n**o***t t*ha*t t*he ne*t* deferred *t*ax asse*t* **w**ill n**o***t* be realized*.* Acc**o**rdin*g*ly, as **o**f December 31, 2020, *t*he Partnership has pr**o**vided a val**u**a*t*i**o**n all**ow**ance **o**f \$1*.*8 milli**o**n a*g*ains*t t*his ne*t* deferred *t*ax asse*t.* The Partnership's U**B**T ne*t* **o**pera*t*in*g* l**o**ss **o**f \$1*.***9** milli**o**n **w**ill be*g*in *t***o** expire in 2028*.* The Partnership has analyzed i*t*s *t*ax p**o**si*t*i**o**ns **w**i*t*h respec*t t***o** applicable inc**o**me *t*ax iss**u**es for **o**pen *t*ax years (in each respec*t*ive j**u**risdic*t*i**o**n) and de*t*ermined *t*ha*t* n**o** ma*t*erial *t*ax liabili*t*ies exis*t*ed as **o**f December 31, 2020*.* As **o**f December 31, 2020, *t*he Partnership did n**o***t* accr**u**e any in*t*eres*t* **o**r penal*t*ies*.* The Partnership is n**o***t* presen*t*ly **u**nder examina*t*i**o**n for Uni*t*ed S*t*a*t*es federal, s*t*a*t*e, and l**o**cal inc**o**me *t*ax p**u**rp**o**ses, and is n**o** l**o**n*g*er s**u**bjec*t t***o** examina*t*i**o**n by *t*ax a**u***t*h**o**ri*t*ies for *t*he years pri**o**r *t***o** 2017 in all j**u**risdic*t*i**o**ns*.* ## 7. **Commitments and Contingencies** ## **Legal Matters** In *t*he **o**rdinary c**ou**rse **o**f b**u**siness, vari**ou**s le*g*al ac*t*i**o**ns are br**ou***g*h*t* and may be pendin*g* a*g*ains*t t*he Partnership*.* The Partnership is als**o** inv**o**lved, fr**o**m *t*ime *t***o** *t*ime, in **o***t*her revie**w**s, inves*t*i*g*a*t*i**o**ns and pr**o**ceedin*g*s by *g***o**vernmen*t*al and self-re*g***u**la*t***o**ry a*g*encies (b**o***t*h formal and informal) re*g*ardin*g t*he Partnership's b**u**siness*.* Any **o**f s**u**ch ac*t*i**o**ns may res**u**l*t* in j**u**d*g*men*t*s, se*t*tlemen*t*s, fines, penal*t*ies, inj**u**nc*t*i**o**ns **o**r **o***t*her relief. As **o**f December 31, 2020, n**o** s**u**ch claims **o**r ac*t*i**o**ns have been br**ou***g*h*t* a*g*ains*t t*he Par*t*nership and *t*herefore n**o** reserves **w**ere rec**o**rded*.* Le*g*al reserves are es*t*ablished in acc**o**rdance **w**i*t*h U*.*S*.* GAAP *g***u**idance **o**n ASC T**o**pic 450, *Accounting for Contingencies,* **w**hen a ma*t*erial le*g*al liabili*t*y is b**o***t*h pr**o**bable and reas**o**nably es*t*imable*.* Once es*t*ablished, le*g*al reserves are adj**u**s*t*ed **w**hen addi*t*i**o**nal informa*t*i**o**n bec**o**mes available **o**r **w**hen an even*t* **o**cc**u**rs req**u**irin*g* a chan*g*e*.* {12}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) December 31, 2020 *(In Thousands)* ## 7. **Commitments and Contingencies** *(continued)* ## **Risks and Uncertainties** The Partnership generates revenues by providing securities brokerage to institutional customers. Revenues for these services are transaction based. As a result, the Partnership's revenue could vary based on the transaction volume of the global financial markets. ## **8. Regulatory Requirements** As a registered broker-dealer, the Partnership is subject to the SEC Uniform Net Capital Rule (Rule 15c3-l ). The Partnership has elected to compute its net capital using the basic method which requires the maintaining of minimum net capital, be the greater of \$5 or 6 2/3% of aggregate indebtedness. As of December 31, 2020, the Partnership had net capital of \$260, which was \$237 in excess of required net capital. ## **9. Financial Instruments and Off-Balance Sheet Risks** **Guarantees** - The Partnership is a member of various securities clearinghouses and exchanges. Under the standard membership agreement, members are required to guarantee the performance of other members and, accordingly, if another member becomes unable to satisfy its obligations to the clearinghouse or exchange, all other members would be required to meet the shortfall. The Partnership's liability under these arrangements is not quantifiable and could exceed the cash and securities it has posted as collateral. However, the potential for the Partnership to be required to make payments under these arrangements is remote. Accordingly, no liability was required to be recorded in the Partnership's statement of financial condition. **Credit Risk** - Credit risk arises from potential non-performance by counterparties. The Partnership has established policies and procedures to manage the exposure to credit risk. The Partnership maintains a thorough credit approval process to limit exposure to counterparty risk and employ stringent monitoring to control the counterparty risk for the matched principal businesses. The Partnership's account opening and counterparty approval process includes verification of key customer identification, anti-money laundering verification checks and a credit review of financial and operating data. The credit review process includes establishing an internal rating and any other information deemed necessary to make an informed credit decision, which may include financials, correspondence, due diligence calls and a visit to the entity's premises, as necessary. **Customer Activities** - Certain market and credit risks are inherent in the Partnership's business. In the normal course of business, the Partnership's customer activities include the execution of equity securities on behalf of customers. These activities may expose the Partnership to credit risk in the event the customer is unable to fulfill its contractual obligations. {13}------------------------------------------------ # Aqua Securities, L.P. Notes to Statement of Financial Condition (continued) #### December 31, 2020 *(In Thousands)* ## **9. Financial Instruments and Off-Balance Sheet Risks** *(continued)* **Operational Risk** - In providing services, the Partnership may be exposed to operational risk. Operational risk may result from, but is not limited to, errors related to transaction processing, breaches of internal control systems and compliance requirements, fraud by employees or persons outside the Partnership, business interruption due to systems failures or other events. Operational risk may also include breaches of the Partnership's technology and information systems resulting from unauthorized access to confidential information or from internal or external threats, such as cyber at*t*acks. Operational risk also includes potential legal or regulatory actions that could arise as a result of noncompliance with applicable laws and/or regulatory requirements. In the case of an operational event, the Par*t*nership could suffer a financial loss as well as reputational damage. **Coronavirus Disease 2019 (COVID-19) Pandemic** - Management has evaluated the impact of the COVID-19 pandemic on the industry and concluded that, while it is reasonably possible that the virus could have an effect on the Par*t*nership's financial condition, the specific impact is not readily determinable as of the date of the statement of financial condition. The statement of financial condition does not include any adjustments that might result from the outcome of this uncer*t*ainty. ## **10. Subordinated Borrowings** The Par*t*nership has two subordinated borrowings. The first borrowing is with Cantor Securities in the sum of \$1,020 and the second borrowing is with BGC in the sum of \$980. The current rate of interest on both borrowings is three month LIBOR plus 600 basis points. The scheduled maturity date on both borrowings is September 1, 2022. These borrowings are subordinated to the claims of general creditors, approved by Financial Industry Regulatory Authority ("FINRA") and other regulators, and are included in the Par*t*nership's calculation of net capital and the capital requirements of FINRA 4120. ## **11. Revenue from Contracts with Customers** See Note 1 - General and Summary of Significant Accounting Policies for detailed information on the recognition of the Par*t*nership's revenue from contracts with customers. **Contract Balances** - The timing of the Par*t*nership's revenue recognition may differ from the timing of payment by its customers. The Par*t*nership records a receivable when revenue is recognized prior to payment and the Partnership has an unconditional right to payment. If payment precedes the provision of the related services, the Par*t*nership records deferred revenue until the per*f*ormance obligations are satisfied. {14}------------------------------------------------ ## Aqua Securities, L.P. ## Notes to Statement of Financial Condition (continued) ## December 31, 2020 *(In Thousands)* ## **11. Revenue from Contracts with Customers** *(continued)* The Partnership had receivables related to revenue from contracts with customers of \$9 at December 31, 2020. The Partnership had deferred revenue of \$1,413 at December 31, 2020. ## **12. Subsequent Events** The Partnership has evaluated subsequent events through the date the statement of financial condition was issued. There have been no material subsequent events that would require recognition in the statement of financial condition or disclosure in the notes to the statement of financial condition. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.