# INCAPITAL LLC X-17A-5 (2021-02-26) — Broker-dealer annual report - Company: INCAPITAL LLC - Form: X-17A-5 - Filed: 2021-02-26 - Period: 2020-12-31 - Accession: 0001095944-21-000003 - CIK: 1095944 - File #: 8-52081 - Material weakness: No - Auditor: PricewaterhouseCoopers LLC - Auditor location: Chicago, IL - Contact: James Papagiannis - Phone: 312-379-3764 - Signed by: Tom Belka (Chief Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1095944/000109594421000003/incapitalllcfspublic20.pdf --- {0}------------------------------------------------ # Incapital LLC (SEC I.D. No. 8-52081) Statement of Financial Condition as of December 31, 2020 and Report of Independent Registered Public Accounting Firm {1}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 OMB APPROVAL OMB Number: 3235-0123 Expires: March 31, 2021 Estimated average burden hours per response…12.00 ## **ANNUAL AUDITED REPORT** SEC FILE NUMBER **FORM X-17A-5** 8-52081 **PART III** | SEC FILE NUMBER | |-----------------| | 8-52081 | ### **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
MM/DD/YY | AND ENDING | 12/31/20
MM/DD/YY | |--------------------------------------------------------------------------|--------------------------------------------------------|-------------------|------------------------------------| | | A. REGISTRANT IDENTIFICATION | | | | NAME OF BROKER - DEALER: Incapital LLC | | OFFICIAL USE ONLY | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | __________________
FIRM ID. NO. | | 200 South Wacker Drive, Suite 3400 | | | | | (No. and Street) | | | | | Chicago | Illinois | | 60606 | | (City) | (State) | | (Zip Code) | | | B. ACCOUNTANT IDENTIFICATION | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | PricewaterhouseCoopers LLP | | | | | | (Name - if individual, state last, first, middle name) | | | | 1 N. Wacker Drive | Chicago | Illinois | 60606 | | (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).* {2}------------------------------------------------ ### **OATH OR AFFIRMATION** I. Tom Belka, affirm that, to the best of my knowledge and be lief, the statement of fi nancial condition pertaining to lncapital LLC (the '"Company"'), as of December 3 1, 2020, are true and correct. I fu rther affirm that neither the Company, nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of a customer. Title: Chief Financial Officer OFFICIAL SEAL PATRICIA E ALLEN NOTARY PUBLIC- STATE OF ILLINOIS MY COMMISSION EXPIRES:04/19/22 {3}------------------------------------------------ # **TABLE OF CONTENTS** This report\*\* contains (check all applicable boxes): | (x) | Report of Independent Registered Public Accounting Firm | |-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | (x) | Facing Page | | (x) | Statement of Financial Condition | | (x) | Statement of Operations | | (x) | Statement of Cash Flow | | (x) | Statement of Changes in Member's Equity | | (x) | Statement of Changes in Subordinated Liabilities or Claims of General Creditors | | (x) | Notes to Financial Statements | | (x) | Computation of Net Capital for Brokers and Dealers Pursuant to Rule 15c3-1 under the
Securities Exchange Act of 1934 | | (x) | Computation for Determination of Reserve Requirements for Brokers and Dealers Pursuant to
Rule 15c3-3 under the Securities Exchange Act of 1934 | | (x) | Information Relating to the Possession or Control Requirements for Brokers and Dealers Under
Rule 15c3-3 under the Securities Exchange Act of 1934 | | (x) | A Reconciliation, including appropriate explanations, of the Computation of Net Capital Under
Rule 15c3-1 and the Computation for Determination of the Reserve Requirements of Rule 15c3-3
(not applicable) | | (x) | A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to
methods of consolidation (not applicable) | | (x) | An Oath or Affirmation | | (x) | A Copy of the SIPC Supplemental Report (filed separately) | | (x) | Exemption Report Required by SEC Rule 17a-5(d)(1) and (4) | | (x) | Report of Independent Registered Public Accounting Firm | | | | \*\* For conditions of confidential treatment of certain portions of this filing, see section 240.17a-5(e)(3) {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) # **Report of Independent Registered Public Accounting Firm** To the Board of Directors and Member of Incapital LLC ### *Opinion on the Financial Statement – Statement of financial condition* We have audited the accompanying statement of financial condition of Incapital LLC (the "Company") as of December 31, 2020, including the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2020 in conformity with accounting principles generally accepted in the United States of America. ### *Basis for Opinion* The financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit of this financial statement in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. r················•u••·············•u••·············•u••············••u••············••u••············••u••············••u••············••u••············••u••············••u••············••u••············••u••············••u••··· February 26, 2021 We have served as the Company's auditor since 2011. *PricewaterhouseCoopers LLP, One North Wacker, Chicago, IL 60606 T: (312) 298 2000, F: (312) 298 2001, www.pwc.com/us* {5}------------------------------------------------ ### **STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2020** # **ASSETS** | Cash | \$
509,966 | |-------------------------------------------------|----------------| | Securities owned — at fair value | 90,750,708 | | Securities purchased under agreements to resell | 11,181,975 | | Operating lease right of use assets | 2,434,199 | | Receivable from broker dealers | 692,740 | | Receivable from affiliate | 2,000 | | Other assets | 1,500,494 | | | | | Total assets | \$ 107,072,082 | # **LIABILITIES AND MEMBER'S EQUITY** | LIABILITIES: | | |----------------------------------------------------|-----------------| | Payable to Parent | \$
1,038,078 | | Payable to broker dealers | 23,464,920 | | Securities sold, not yet purchased — at fair value | 22,180,718 | | Securities sold under agreements to repurchase | 29,501,250 | | Operating lease liabilities | 2,891,900 | | Other liabilities | 7,646,147 | | Total liabilities | 86,723,013 | | MEMBER'S EQUITY | 20,349,069 | | Total liabilities and member's equity | \$ 107,072,082 | The accompanying notes are an integral part of these financial statements. {6}------------------------------------------------ ### **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** #### **1. ORGANIZATION AND NATURE OF BUSINESS** Incapital LLC (the "Company"), an Illinois limited liability company, is a broker-dealer registered with the Securities and Exchange Commission ("SEC") and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). The Company engages in the underwriting and trading of debt and preferred equity securities. The Company is a wholly owned subsidiary of Incapital Holdings LLC (the "Parent"). #### **2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** **Use of Estimates** — The preparation of the financial statements 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 statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. **Securities Owned and Securities Sold, Not Yet Purchased** — Securities owned and securities sold, not yet purchased, consist of securities underwritten by the Company or purchased in the secondary market. They are reported in the Statement of Financial Condition at fair value based on quoted market prices, prices for similar securities, or prices based on models using observable inputs. Pricing inputs include US Treasury rates, credit spreads, and observable trades from both the Trade Reporting and Compliance Engine developed by FINRA and dealers. **Derivative Financial Instruments** — Derivative financial instruments ("Derivatives") used for trading purposes, including economic hedges of trading instruments, are carried at fair value. Fair values for exchangetraded derivatives, principally futures, are based on quoted market prices. Realized gains or losses on Derivatives are recognized in the Statement of Operations with trading revenues. Fair values of exchange-traded futures are recorded in payable to broker dealers on the Statement of Financial Condition. **Cash** — Cash includes cash on hand. As of December 31, 2020, the Company had cash accounts which exceeded federally insured limits and are therefore not subject to FDIC insurance. **Risks** — Credit risk represents the potential financial loss that the Company would incur if a counterparty fails to meet its contractual obligation. The Company is engaged in various trading and brokerage activities with other financial institutions. The risk of default depends on the creditworthiness of the counterparty or issuer of the financial instrument. The Company periodically reviews the credit standing of each counterparty. The current coronavirus (COVID-19) pandemic and the ongoing response of the U.S. government and various state, local and foreign governments have adversely affected global business activities and have resulted in significant uncertainty in the global economy and volatility in financial markets. Given the significant global health, market, employment and economic impacts of COVID-19 and the uncertainty of its duration, the Company cannot reliably predict the total impact of COVID-19 on financial markets or its financial results. The Company has several ongoing measures to support the health and well-being of its customers and employees, as well as measures to optimize firm resources and control costs. The ongoing measures include, among other things, the closure and phased reopening of offices, and establishing the technological capability for all employees to work remotely. **Resale and Repurchase Agreements** — Transactions involving purchases of securities under agreements to resell (reverse repurchase agreements or reverse repos) or sales of securities under agreements to repurchase (repurchase agreements or repos) are accounted for as collateralized financings. It is the policy of the Company to obtain possession of collateral with a fair value approximately equal to or in excess of the principal amount {7}------------------------------------------------ # **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** loaned under reverse repurchase agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral or return collateral pledged when appropriate. The Company may also be required by counterparties to deposit additional collateral on a daily basis on sales of securities under agreements to repurchase. **Adoption of New Accounting Standards** —In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, *Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments* ("ASU 2016-13"). ASU 2016-13 replaces the "incurred loss" credit losses framework with a new accounting standard that requires management's measurement of the allowance for credit losses to be based on a broader range of reasonable and supportable information for lifetime credit loss estimates. The Company has adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on the Company's Statement of Financial Condition. The Company individually assessed the current expected credit loss for assets in scope of ASU 2016-13 below. ### *Securities Purchased under Agreements to Resell* The Company participates in short-term resale agreements collateralized by government and agency securities. These transactions are reported as collateralized financing and are carried at cost with accrued interest within the Statement of Financial Condition. See *"Resale and Repurchase Agreements"* for more information. To estimate expected credit losses on the resale agreements, the Company applied the collateral maintenance practical expedient by comparing the amortized cost basis of the resale agreements with the fair value of collateral at the reporting date. The counterparties are all financial institutions that the Company considers to be reputable and reliable, and the Company reasonably expects the counterparties will be able to continually replenish collateral securing the financial asset and does not expect the fair value of collateral to fall below the value of the resale agreements. The fair value of collateral, plus accrued interest, was approximately 100% of the related assets as of December 31, 2020, and the expected credit loss was zero. ### *Receivable from Broker Dealers* The Company's receivable from broker dealers includes amounts receivable from unsettled trades, including amounts related to futures and options on futures contracts, and cash deposits. The Company's trades and contracts are cleared through a clearing organization and settled daily between the clearing organization and the Company. Because of this daily settlement, the amount of unsettled credit exposures is limited to the amount owed to the Company for a very short period of time. The Company continually reviews the credit quality of its counterparties and has not experienced a default. As of December 31, 2020, the expected credit loss was immaterial. **Income Taxes** — The Company is treated as a partnership for U.S. tax purposes. ASC No. 740, *Income Taxes*, requires the Company to determine whether a tax position has a greater than fifty percent likelihood of being realized upon settlement with the applicable taxing authority, which could result in the Company recording a tax liability that would reduce net income. The Company does not have any significant uncertain tax positions as of December 31, 2020 and is not aware of any tax positions that will significantly change during the next twelve months. The tax information for the years ending December 31, 2017 through December 31, 2020 remain open to examination by federal authorities under the statute of limitations. The years open to examination by state and other local government authorities vary by jurisdiction, but the statute of limitations is generally three to four years from the date the tax return is filed. {8}------------------------------------------------ ### **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** ### **3. LEASES** The Company has several operating leases for office space and office equipment. The Company determines if an operating lease exists at the inception of a contract and when the terms of an existing contract are modified. Leases with an initial term of 12 months or less are not recorded on the Statement of Financial Condition. All other operating leases are recorded on the Statement of Financial Condition, with right of use assets representing the right to use the underlying asset for the lease term and lease liabilities representing the obligation to make lease payments. The lease liability and right of use asset are initially recognized on the commencement date. The lease liability is based on the net present value of the future lease payments. Net present value is calculated using the Company's incremental borrowing rate. The right-of-use asset is based on the lease liability and any deferred rent balances accumulated prior to the commencement date. The lease liability and right of use asset will subsequently be remeasured when an existing contract is modified, or any impairment is recognized. Lease expenses are recognized on a straight-line basis over the lease term. The weighted-average remaining lease term was nine years as of December 31, 2020, and the weighted-average discount rate was 5.6%. The following table illustrates the maturities of lease liabilities related to operating leases: | for the Years Ending December 31 | | |-----------------------------------|-----------------| | 2021 | \$
1,081,372 | | 2022 | 1,109,029 | | 2023 | 1,138,086 | | 2024 | 1,172,225 | | 2025 | 1,087,302 | | Thereafter | 5,098,997 | | Total undiscounted lease payments | \$ 10,687,011 | | Less: Imputed interest | (546,385) | | Future lease payments | (7,248,726) | | Total lease liabilities | \$
2,891,900 | | | | # **Maturities of Lease Liabilities** The right of use asset is considered to be a non-allowable asset and the lease liability is considered to be aggregate indebtedness when calculating net capital. However, the right of use asset can be deducted from total non-allowable assets up to the amount of the corresponding lease liability per FINRA Regulatory Notice 19-08. {9}------------------------------------------------ ### **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** ### **4. FAIR VALUE MEASUREMENTS** Securities owned and securities sold, not yet purchased, as of December 31, 2020, are as follows: | | Owned | Sold, Not
Yet Purchased | | | |----------------------------------|------------------|----------------------------|----|------------| | Level 1 | | | | | | Preferred equity securities | \$
5,041,260 | | \$ | 2,722,461 | | Futures contracts | - | * | | 1,070 | | Total Level 1 | 5,041,260 | | | 2,723,531 | | Level 2 | | | | | | Corporate debt securities | 1,480,436 | | | - | | U.S. Treasuries | - | | | 19,163,492 | | Agency securities | 73,214,860 | | | - | | Mortgage backed securities | 10,774,011 | | | - | | Brokered certificates of deposit | 240,141 | | | 294,765 | | Total Level 2 | 85,709,448 | | | 19,458,257 | | Level 3 | - | | | - | | Total | \$
90,750,708 | | \$ | 22,181,788 | \*Included in payable to broker dealers on the Statement of Financial Condition. The Company held no Level 3 securities during the year ended December 31, 2020. There were no transfers between the fair value hierarchy levels during the year ended December 31, 2020. ASC 820-10, *Fair Value Measurements and Disclosures* which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820-10 applies to reported balances that are required or permitted to be measured at fair value under existing accounting pronouncements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820-10 establishes a fair value hierarchy. The three levels of the fair value hierarchy are described below: - *Level 1* Quoted prices in active markets for identical securities. - *Level 2* Other significant observable inputs other than quoted prices in active markets (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). - *Level 3* Significant unobservable inputs (including the Company's own assumptions in determining the fair value of investments). The following is a description of the valuation methodologies used for securities measured at fair value, based on the Statement of Financial Condition classification. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Company's security positions as of December 31, 2020 were as follows: • *Preferred equity securities and futures* — Based on quoted market prices in active markets. {10}------------------------------------------------ ### **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** - *Corporate debt, U.S. Treasuries and Agency securities* Based on quoted market prices, prices for similar securities, or prices based on models using observable inputs. Pricing inputs include US Treasury rates, credit spreads, and observable trades from both the Trade Reporting and Compliance Engine developed by FINRA and dealers. - *Mortgage backed securities* Based on quoted market prices, prices for similar securities, or prices based on models using observable inputs. Pricing inputs include U.S. Treasury rates, To-Be-Announced mortgage pool prices, credit spreads, and prepayment forecasts. - *Brokered certificates of deposit* Based on quoted market prices, prices for similar securities, or prices based on models using observable inputs. Pricing inputs include U.S. Treasury rates, and credit spreads. ### **5. MANAGEMENT FEES** The Company has entered into a management agreement (the "Agreement") with the Parent, whereby the Parent provides the Company with administrative services and office facilities in exchange for a management fee determined in accordance with the terms of the Agreement. As of December 31, 2020, \$1,038,078 was unpaid and is included in payable to parent on the Statement of Financial Condition. The Company has entered into a management agreement (the "Affiliate Agreement") with an affiliate company, whereby the affiliate is a wholly owned subsidiary of the Parent. The Company provides the affiliate with administrative and management services in exchange for a management fee determined in accordance with the terms of the Affiliate Agreement. As of December 31, 2020, \$2,000 was unpaid and is included in receivable from affiliate on the Statement of Financial Condition. ### **6. OFF-BALANCE SHEET RISK** The Company enters into various transactions involving derivatives and other off-balance sheet financial instruments. These financial instruments include futures, which are used to manage market risks. Market risk is substantially dependent upon the value of the underlying financial instruments and is affected by market forces such as volatility and changes in interest rates. Derivative transactions are entered into in an attempt to hedge other positions or transactions. Futures contracts provide for the delayed delivery or purchase of securities at a specified future date at a specified price or yield. Futures contracts are executed on an exchange. The credit risk of exchange-traded financial instruments is reduced by the regulatory requirements of the individual exchanges. Cash settlement on futures contracts is made on a daily basis for market movements. The clearing organization acts as the counterparty to specific transactions and bears the risk of delivery to and from counterparties to specific positions. During the year ended December 31, 2020, the Company had an average monthly notional amount of \$27,600,000 of derivative contracts outstanding. At December 31, 2020, the Company had a notional amount of \$44,900,000 outstanding in derivative contracts, composed of 79 long interest rate futures contracts, 15 short interest rate futures contracts, and 355 long put option futures contracts, which had one day of variation margin not settled of \$1,070 and is included in payable to broker dealers on the Statement of Financial Condition. The net realized gains and losses on the derivative contracts for the year ended December 31, 2020 were \$944,769, which is included in trading revenue in the Statement of Operations. Futures are recorded at fair value, which represents the difference between the contract price at the trade date and the closing price on the valuation date as reported on the exchange on which the futures contracts are traded. Futures contracts are classified as Level 1 within the fair value hierarchy. The Company has sold securities that it does not currently own and is, therefore, obligated to purchase such securities at a future date. The Company has recorded these obligations in the Statement of Financial Condition {11}------------------------------------------------ ## **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** at December 31, 2020 at the fair values of the related securities and will incur a loss if the fair value of the securities increases subsequent to December 31, 2020. Substantially all of the Company's securities owned, at fair value at December 31, 2020 have been pledged as margin with the firm's clearing broker dealer. The Company finances a significant portion of its securities transactions. Financing risks include the exposure the Company has to margin requirements in place with clearing brokers and counterparties, and the risk that ongoing financing arrangements may not be available in the future at rates which are desirable to the Company. Changes in margin requirements, including the related changes in fair value of investments, may result in the Company having to pledge additional margin or to sell securities to meet required margin. These activities may take place when market conditions are not optimal and may result in a realized loss on securities transactions and additional margin requirements with clearing brokers and counterparties. ### **7. REGULATORY REQUIREMENTS** The Company, as a registered broker-dealer, is subject to the Uniform Net Capital Rule ("Rule 15c3-1") under the Securities Exchange Act of 1934 and computes its net capital requirements under the basic method, which requires that the Company maintain minimum net capital equivalent to the greater of \$100,000 or 6-2/3% of aggregate indebtedness, as these terms are defined. At December 31, 2020, the Company had net capital, as defined, of \$15,060,731, which was \$14,457,043 in excess of its required net capital of \$603,688. The Company's ratio of aggregate indebtedness to net capital was 0.60 to 1. As an introducing broker-dealer, the Company does not take possession or control of cash or securities for customers and, therefore, claims exemption from the possession or control and reserve requirements based on Rule 15c3-3(k)(2)(ii) under the Securities Exchange Act of 1934. ### **8. RELATED PARTIES** One of the Company's corporate issuers is a unit holder of the Parent. The Company entered into a \$10,000,000 revolving loan agreement on December 1, 2018 with its Parent with a maturity date of December 31, 2023. All accrued interest on the loan is due July 31 of each year until maturity or until paid in full. As of December 31, 2020, there has been no activity and there were no amounts outstanding related to this loan agreement. ### **9. EMPLOYEE COMPENSATION AND BENEFITS** In April 2009, the Parent adopted the Incapital Holdings LLC Equity Incentive Plan (the "Plan"). The Plan provides the grant of equity-based awards in the form of restricted share units, options, or bonus shares of the Parent (collectively, "the Awards") to employees of the Company. The total number of shares authorized under the Plan is 1,250,000. The Plan is administered by the Parent's Compensation Committee (the "Committee"). The Committee has the authority and discretion to determine the extent and terms (including vesting) of the Awards granted, as well as those eligible to receive the Awards. The plan is classified as an equity-based plan. In January 2017, the Parent adopted the Incapital Holdings LLC Equity Tracking Incentive Plan (the "Tracking Plan"). The Tracking Plan provides the grant of Equity Tracking Units ("the ETU Awards") of the Parent to employees of the Company. The Tracking Plan is administered by the Equity Tracking Incentive Plan Review Committee (the "ETI Committee") appointed by the board of the Parent but, with oversight from the Parent's Compensation Committee. The ETI Committee has the authority and discretion to determine the extent and terms (including vesting) of the ETU Awards granted, as well as those eligible to receive the ETU Awards. The Tracking Plan is classified as a liability-based plan. {12}------------------------------------------------ ### **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** Effective January 20, 2020, the Parent entered into a unit option award agreement, which provides for the granting of options to purchase 1,250,000 units. The options vest equally over 5 years, ending in 2025. Option terms were determined by the compensation committee of the Company's executive board. The estimated fair value of the awards totaled approximately \$3,131,739 at the grant date. #### **10. COLLATERAL** Securities purchased under agreements to resell and securities sold under agreements to repurchase result from transactions with other brokers and dealers. These are accounted for as collateralized financing transactions and are recorded at the amount of cash collateral advanced or received. Securities purchased under agreements to resell transactions require the Company to deposit cash or other collateral with the lender. As of December 31, 2020, the Company advanced \$11,181,975 of cash collateral with other brokers and dealers and received U.S. Treasury Securities with a market value of approximately \$11,196,425 related to those transactions. Securities sold under agreement to repurchase transactions require the borrower to deposit cash or other collateral with the Company. As of December 31, 2020, the Company received \$29,501,250 of cash from security borrowers and loaned securities with a market value of \$30,976,440 related to those transactions. The Company monitors the market value of securities sold under agreements to repurchase and loaned on a daily basis, with additional collateral obtained or refunded as necessary. Interest is accrued on securities purchased under agreements to resell and securities sold under agreement to repurchase and the related amounts are included in other assets or liabilities in the Statement of Financial Condition. The following tables present, as of December 31, 2020, the gross liability for securities sold under repurchase agreements disaggregated by classes of collateral pledged and by remaining contractual maturity of the agreements. | Collateral | Repurchase
Agreements | |--------------------------|--------------------------| | U.S. Government Agencies | \$
29,501,250 | #### **Contractual Maturity** | | Overnight
and Open | Up to 30
days | | 30-90
days | | Greater than
90 days | | Total | | |-----------------------|-----------------------|------------------|---|---------------|---|-------------------------|---|-------|------------| | Repurchase Agreements | \$
29,501,250 | \$ | - | \$ | - | \$ | - | \$ | 29,501,250 | The following table presents the gross and net repurchase agreements and futures contracts and the related offsetting amounts. {13}------------------------------------------------ ### **NOTES TO FINANCIAL STATEMENT OF CONDITION AS OF DECEMBER 31, 2020** #### **Offsetting of Financial Liabilities** | | | | | Gross
Net amounts
amounts
of assets | | | Gross
amounts | * | | | |-----------------------|------------|---------------------------|---------------------------|----------------------------------------------|---------------------------|---------------|---------------------------|---------------|---------------|---| | | | Gross | | offset in the | | presented in | | not offset in | | | | | amounts of | | statement | | | the statement | the statement | | | | | | | recognized
liabilities | of financial
condition | | of financial
condition | | of financial
condition | | Net
amount | | | Repurchase agreements | \$ | 29,501,250 | \$ | - | \$ | 29,501,250 | \$ | 29,501,250 | \$ | - | #### **Offsetting of Financial Assets and Derivative Assets** | | Gross
amounts of
recognized
assets | | | Gross
amounts
offset in the | Net amounts
of assets
presented in | | | Gross
amounts
not offset in | * | | |-----------------------|---------------------------------------------|------------|----------------------------------------|-----------------------------------|--------------------------------------------|------------|--------------------------------------------|-----------------------------------|---------------|-------| | | | | statement
of financial
condition | | the statement
of financial
condition | | the statement
of financial
condition | | Net
amount | | | Futures contracts | \$ | 1,070 | \$ | - | \$ | 1,070 | \$ | - | \$ | 1,070 | | Reverse | | | | | | | | | | | | Repurchase agreements | | 11,181,975 | | - | | 11,181,975 | | 11,181,975 | | - | | Total | \$ | 11,183,045 | \$ | - | \$ | 11,183,045 | \$ | 11,181,975 | \$ | 1,070 | \*The amount of collateral is limited to the total net exposure (prior to collateral) by counterparty. #### **11. COMMITMENTS AND CONTINGENCIES** In the normal course of business, the Company is involved in legal, regulatory and arbitration proceedings, including class actions, primarily concerning matters arising in connection with the conduct of its broker dealer activities. These include proceedings specific to the Company, as well as proceedings generally applicable to business practices in the industries in which it operates. Uncertain economic conditions, heightened and sustained volatility in the financial markets, and significant financial reform legislation may increase the likelihood that clients and other persons or regulators may present or threaten legal claims or that regulators increase the scope or frequency of examinations of the Company or the financial services industry generally. In the normal course of business, the Company enters underwriting commitments. There were no open transactions related to these underwriting commitments as of December 31, 2020. #### **12. SUBSEQUENT EVENTS** The Company has evaluated subsequent events through the date the financial statements were available for issuance. No events requiring disclosure or recognition were identified. \*\*\*\*\*\* Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.