# HAYWOOD SECURITIES (USA) INC. X-17A-5 (2023-11-24) — Broker-dealer annual report - Company: HAYWOOD SECURITIES (USA) INC. - Form: X-17A-5 - Filed: 2023-11-24 - Period: 2023-09-30 - Accession: 0001025827-23-000008 - CIK: 1025827 - File #: 8-49696 - Type: Broker-dealer - Material weakness: No - Auditor: Grant Thornton LLP - Auditor location: Vancouver, A1 - Contact: Cindy Wong - Phone: 6046977466 - Signed by: BERNADETTE BANARES (CHIEF FINANCIAL OFFICER) Original filing: https://www.sec.gov/Archives/edgar/data/1025827/000102582723000008/02fullsfc2023.pdf --- {0}------------------------------------------------ ![](_page_0_Picture_0.jpeg) ## HAYWOOD SECURITIES (USA) INC # STATEMENT OF FINANCIAL CONDITION (IN U.S. DOLLARS) September 30, 2023 {1}------------------------------------------------ ![](_page_1_Picture_0.jpeg) Grant Thornton LLP Suite 1600 333 Seymour Street Vancouver, BC V6B 0A4 T÷1 6046872711 F +1 604 685 6569 # Report of Independent Registered Public Accounting Firm To the Stockholder and Board of Directors of Haywood Securities (USA) Inc. #### Opinion on the financial statements We have audited the accompanying statement of financial condition of Haywood Securities (USA) Inc. (the Company) as of September 30, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of September 30, 2023 in conformity with accounting principles generally accepted in the United States of America. #### Basis for opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit 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. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, 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 statements. 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. I -,hj,r, 1,',,,,, I {2}------------------------------------------------ ![](_page_2_Picture_0.jpeg) We have served as the Company's auditor since 2022. lip Vancouver, Canada Chartered Professional Accountants November 22, 2023 {3}------------------------------------------------ #### STATEMENT OF FINANCIAL CONDITION | As
of
Se
be
30
pt
em
r | | |--------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------| | (IS
do
l/a
ii)
(cv
'ss
e/
in
prc | 20
23 | | | S | | | | | AS
SE
TS | | | Ca
sh | 4.3
25
.44
1 | | Ca
sh
d
de
r f
ed
l a
lat
io
5J
nd
oth
[n
ate
ot
se
gr
eg
un
era
er
re
gu
ns
e | 78
45
4.
45
4 | | iv
ab
le
Ac
ts
re
ce
co
un | 10
0.4
13 | | aid
Pr
ep
ex
pe
ns
es | 28
.24
0 | | Du
fro
sto
e
m
cu
m
er
s | 27
.36
5 | | To
tal
ts
as
se | 82
.93
5.9
13 | | LI
A
BI
LI
TI
ES
A%
D
ST
OC
OL
'S
UI
TY
KH
DE
R | | | EQ
Ac
bl
d | | | ed
9]
ts
lia
bi
lit
ies
l,z
co
un
pa
ya
e
an
ac
cru
ot
e | 49
3,3
73 | | bl
In
tax
co
me
pa
ya
e | 42
3.8
10 | | Du
sto
to
cu
m
er
s
e | 74
.92
2.9
45 | | Du
H
d
Se
rit
ies
In
v. i
tho
int
to
ut
st
cu
e
ay
oo
c
ere | | | ted
of
sta
ter
t
or
m
s
rep
ay
m
en | 77
.23
1 | | De
fer
d
lia
bi
lit
ies
[no
7
tax
te
re | 1.6
05 | | 8J
Su
bo
rd
in
d
loa
[no
ate
te
n | 2.
11
6.6
03 | | tal
lia
bi
lit
ie
To
s | 78
.03
5.5
67 | | St
kh
ol
de
r's
ui
ty
oc
eq | | | Co
ck
sto
61
m
m
on
[11
0/C | 10
0 | | in
Re
tai
d
ne
ea
rn | 4.9
00
.24
6 | | gs
To
tal
ck
ho
ld
's
ui
sto
er | 4.9
00
.34
6 | | ty
eq
tal
lia
bi
lit
ie
d
To
ck
ho
ld
's
ui
sto
an | 82
.93
59
13 | | ty
s
er
eq | | See accompanying notes Director Hariioocl Securities ((ISA) Inc. {4}------------------------------------------------ September 30, 2023 [Expressed in U.S. dollars] #### 1. NATURE OF OPERATIONS Haywood Securities (USA) Inc. [the "Company"] is a broker/dealer registered with the Securities and Exchange Commission ["SEC"] and is a member ofthe Financial Industry Regulatory Authority ["FINRA"] and the Securities Investor Protection Corporation. The Company was incorporated under the laws of British Columbia, Canada on September 20, 1996. The Company is a wholly owned subsidiary of Haywood Securities Inc. ["HSI"], a Canadian company regulated by the Canadian Investment Regulatory Organization ["CIRO"j. The Company's primary source of revenue is commission income relating to securities trade execution for U.S. resident clients. The Company self-clears all retail and institutional businesses directly. #### 2. SIGNIFICANT ACCOUNTING POLICIES This financial statement has been prepared in accordance with accounting principles generally accepted in the United States of America ["US GAAP"]. The significant accounting policies are as follows: #### Revenue recognition Commission revenue consists of revenue generated through traditional commission-based brokerage services. Commission revenue is recognized on a settlement date basis as the performance obligation is satisfied when the underlying financial instrument or purchaser is identified, the price is agreed upon and risks and rewards of ownership of the securities have been transferred to/from the customer. Investment banking revenue consists of new issue and private placements revenue consisting of commissions earned on initial and secondary public offerings and private placements of securities. Revenue from commissions earned on initial and secondary public offerings and private placements of securities are recorded upon closing of the underlying transaction, which represents completion of the performance obligation as that is when the purchaser is identified, the price is agreed upon and risks and rewards of ownership of the securities have been transferred to/from the customer. Research fee income consists of fee income earned by the Company for services performed in connection with research activities for institutional clients. Research fee income is recognized over time in line with the satisfaction of the performance obligation. Interest revenue consists of amounts earned on cash deposited in bank, Interest is recognized on an accrual basis. ![](_page_4_Figure_13.jpeg) Haj-wood Securities ((iSA) Inc. {5}------------------------------------------------ #### NOTES TO FINANCIAL STATEMENT September 30, 2023 [Expressed in U.S. dollars] Fee income includes fees charged to clients for processing wires and legend removals. Revenue is recognized when wires and legend removals are processed which is when the performance obligation is satisfied. #### Securities transactions and commissions Customers' securities transactions are recorded on a settlement-date basis. The Company accounts for credit losses on financial assets measured at amortized cost basis in accordance with Financial Accounting Standards Board ["FASB"] Accounting Standards Codification ["ASC"j 326, Financial Instruments — Credit Losses ["FASB ASC 326"]. FASB ASC 326 requires the Company to estimate expected credit losses over the contractual term of its financial assets as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts. #### Use of estimates The preparation of this financial statement in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates. #### Derivative financial instruments The Company accounts for derivative financial instruments in accordance with FASB ASC 815, Derivatives and Hedging ["FASB ASC 815"]. Upon initially entering into a contract with an embedded derivative, the Company considers whether or not the embedded derivative shall be separated from the host contract and accounted for as a derivative instrument by determining if the economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics and risks of the host contract. During the year ended September 30, 2023, the Company did not enter into any contracts with embedded derivatives that were not clearly and closely related to the host contract. #### Foreign currency translation The functional currency of the Company is the U.S. dollar which is also the reporting currency of the Company. Monetary asset and liability accounts denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect at the financial statement and reporting date. #### Income taxes The Company provides for income taxes and the related accounts under the asset and liability method. ![](_page_5_Picture_13.jpeg) Hayu'ood Securities (L'S,4) Inc. {6}------------------------------------------------ September 30, 2023 [Expressed in U.S. dollars] Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the year in which the basis differences reverse. Valuation allowances are established when management determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company recognizes a tax benefit if it is more likely than not that a tax position taken or expected to be taken in a tax return will be sustained upon examination by taxing authorities based on the merits of the position. The tax benefit recognized in the financial statement is measured based on the largest amount of benefit that is more likely than not to be realized upon settlement. The difference between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured pursuant to this guidance represents an unrecognized tax benefit. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in operating expenses. #### Fair value measurements ["FASB ASC 820"l, Fair Value ,feasure,nents and Disclosures, defines fair value, establishes a framework for measuring fair value, and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, as specified by FASB ASC 820. are used to measure fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level I inputs are quoted prices [unadjustedi in active markets for identical assets or liabilities the Company has the ability to access. Level 2 inputs are inputs [other than quoted prices included within Level I] that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability and rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data. As at September 30, 2023, the valuation of the Company's financial assets and liabilities recorded at fair value meet the definition of Level I inputs. ![](_page_6_Figure_11.jpeg) Hapi'ood Securities (LS4) inc. {7}------------------------------------------------ September 30, 2023 [Expressed in U.S. dollarsi #### 3. ADOPTION AND FUTURE CHANGES IN ACCOUNTING POLICIES There were no new accounting policies adopted for the year ended September 30, 2023. There were also no new standards issued, which may reasonably be expected to materially impact the Company's financial statements, but which were not yet effective as of September 30, 2023. #### 4. FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash, cash segregated under federal and other regulations, accounts receivable, amounts due to/from customers, amounts due to HSI, subordinated loan, and accounts payable and accrued liabilities. It is management's opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximates their carrying values, unless otherwise noted. #### Credit risk The Company's exposure to credit risk arises from the possibility that a counterparty to a transaction might fail to perform tinder its contractual commitment, resulting in a financial loss to the Company. The risk is managed by the Company's overall credit risk management framework, including monitoring credit exposures, obtaining collateral, limiting transactions with specific counterparties and assessing the creditworthiness of counterparties. As at September 30, 2023, the maximum exposure to credit risk relating to cash, cash segregated under federal and other regulations, amounts due from customers, and accounts receivable without consideration of collateral is represented by the carrying values on the Company's statement of financial condition. #### Liquidity risk Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. The Company's management is responsible for reviewing liquidity resources to ensure funds are readily available to meet its financial obligations as they come due, as well as ensuring adequate funds exist to support business strategies and operational growth. The Company holds its cash with a number of highly rated financial institutions. All of the cash are readily available. Balances due from customers are secured by readily marketable securities and are reviewed daily for impairment in value and collectability. As the Company's subordinated loan agreement is with its parent company and requires prior approval from FINRA before it is repaid, the timing of any impacts on the Company's liquidity is not determinable. ![](_page_7_Figure_13.jpeg) Hayiiood Securities (US.4) Inc. {8}------------------------------------------------ September 30, 2023 [Expressed in U.S. dollarsj #### Market risk Market risk is the risk that the fair value of financial instruments will fluctuate because of changes in market prices. The Company separates market risk into two categories: interest rate risk and foreign exchange risk. #### Interest rate risk Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The Company incurs interest rate risk on its own cash. #### Foreign exchange risk Foreign exchange risk arises from the possibility that changes in the price of foreign currencies will result in a loss. The Company's primary foreign exchange risk results from pending settlements in foreign currencies and cash balances denominated in foreign currencies. The Company minimizes its exposure to foreign exchange risk through daily monitoring. The following table summarizes the effects on net income as a result of a 5% change in the value of the Canadian dollar, which is the only foreign currency where the Company has significant exposure. The analysis assumes all other variables remain constant. | | Ef
fe
of
5%
ct
a
ia
tio
in
ap
pr
ec
n
fo
i
ch | Ef
fe
of
5%
ct
a
de
ia
tio
in
pr
ec
n
fo
i
ch | |--------------------------|--------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------| | C
ur
re
nc
y | re
gn
ex
an
ge
te
ra
\$ | re
gn
ex
an
ge
te
ra
\$ | | Ca
di
na
an | | | | do
lla
r | 30
.35
8 | (3
0.
35
8
) | #### 5. CASH SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS Cash on deposit of \$78,454,454 is segregated in a special reserve bank account for the exclusive benefit of clients under Rule l5c3-3 of the SEC, which ensures that the broker-dealer has set aside sufficient funds to facilitate self-liquidation and to satisfy customer claims in the event that the broker-dealer fails. ![](_page_8_Figure_12.jpeg) {9}------------------------------------------------ September 30, 2023 [Expressed in U.S. dollars] #### 6. COMMON STOCK 2023 \$ #### Authorized 10,000 common shares without par value #### Issued and outstanding 10 common shares at par value 100 #### 7. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. At September 30, 2023, deferred tax liability of \$1,605 is recognized on taxable temporary differences relating to the timing of revenue recognition for tax purposes. The Company files income tax returns in the Canadian jurisdiction. The Company is no longer subject to Federal or Provincial examinations by tax authorities for years before 2017. The Company does not have any unrecognized tax assets as at September 30, 2023. #### 8. SUBORDINATED LOAN On December 1, 2022, FINRA approved a USD \$2 million subordinated loan agreement between the Company and the Company's parent, HSI, effective December 1, 2022. The subordinated loan bears interest of 7% per annum and may not be repaid without prior approval from FINRA. Interest is accrued and applied to the loan value. As at September 30, 2023, total subordinated loan balance is \$2,116,603. The Company has considered the prepayment option within the subordinated loan agreement as to whether it should be accounted for separately from the host contract and concluded that the prepayment option was clearly and closely related to the host contract and was therefore not accounted for separately. #### 9. PROVISIONS Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, when it is probable that an outflow of resources will be required to settle the obligation and when a reliable estimate of the amount can be made. At each reporting date, the Company assesses the adequacy of its pre-existing provisions and adjusts the amounts as necessary. flapioodSecwOies (USA) Inc. ![](_page_9_Picture_18.jpeg) {10}------------------------------------------------ September 30, 2023 [Expressed in U.S. dollars] A provision ofS 1 75,000 has been recorded in the financial statements relating to a FINRA sanction. Based on assessment by external legal counsel, it is probable that the Company will settle at the stated provision amount. #### 10. REGULATORY NET CAPITAL REQUIREMENTS As a registered broker-dealer, the Company is subject to the net capital rule ofthe SEC ["Rule I 5c3- I"]. Rule l5c3-I requires that the Company maintain a regulatory net capital equal to the greater of6 2/3% of aggregate indebtedness, as defined, or \$250,000. At September 30, 2023, the Company had net capital of \$6,833,774 an excess of \$6,583,774 over the minimum requirements. 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 the rules and requirements of other regulatory bodies. ![](_page_10_Figure_6.jpeg) HajioodSecui-ities (L54) Inc Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.