# E\*TRADE SECURITIES LLC X-17A-5 (2023-02-24) — Broker-dealer annual report - Company: E\*TRADE SECURITIES LLC - Form: X-17A-5 - Filed: 2023-02-24 - Accession: 0001193125-23-048865 - CIK: 879018 - File #: 8-44112 Original filing: https://www.sec.gov/Archives/edgar/data/879018/000119312523048865/d423063dfull.pdf --- {0}------------------------------------------------ # E\*TRADE SECURITIES LLC (SEC I.D. No. 8-44112) ## STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2022 AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM \*\*\*\*\*\*\* ## PUBLIC DOCUMENT Filed pursuant to Rule 17a-5(e)(3) under the Securities Exchange Act of 1934 as a Public Document. {1}------------------------------------------------ -- - ! "#\$ %&' ! !()!( \*+&' ! !(,) -,. /0122/3 4567895:;<5=>:?:@8;A:?<>8BC8;5=DE4FGHDI8JK;L6L8AMMN O87:P8:K5;@:?I6:?S8RIBL679:;?8RMMNTh>II9iVT678 h4;:?A=8;iV\>II9LA:?L?5;@:?I6:?S8R\IKCA8dK8?6SRY:A5=g8C;K:;RZjYZ[ZWY 678N5BQ:?R`A95:;<5=>:?:@8;A:QQ;5P8<6784;:?A=8;:?II9Y^7LJ7LAAJ782022 | | | |------------------------------------------------------|-------------------------|-------|--| | Assets and receivables from affiliated
companies: | | | | | Cash | ತಿ | 60 | | | Restricted Cash | | 10 | | | Securities purchased under agreements to
resell | | 4.401 | | | Securities borrowed | | 128 | | | Receivables - Fees, interest and other | | 1 | | | Receivables - affiliates | | 3 | | | | | | | | Liabilities and payables to affiliated
companies: | | | | | Securities loaned | ക | 2,631 | | | Payable - Interest and dividends | | 174 | | | Payables - Affiliates | | 185 | | | Other liabilities and accrued expenses | | 6 | | | Borrowings | | 30 | | | Subordinated liabilities | | 6 000 | | {7}------------------------------------------------ # 4. Fair Values Fair Value Measurement Assets and Liabilities Measured at Fair Value | | At December 31, 2022 | | | | | | | |----------------------------------------------------------|----------------------|--|-------------------------|--------|--|-----|-------| | | | | Level 1 Level 2 Level 3 | | | | Total | | Assets at fair value: | | | | | | | | | Financial
instruments owned:
Corporate equities \$ | | | 274 \$ = | | | -\$ | 274 | | Liabilities at fair
value: | | | | | | | | | Other secured
financings- | S | | မခ | 274 \$ | | S | 274 | 1. Represents investments in fractional shares held by customers 2. Repurchase obligation for investments held by customers #### Valuation Techniques for Assets and Liabilities Measured at Fair Value #### Corporate Equities Valuation Techniques: · Exchange-traded equity securities are generally valued based on quoted prices from the exchange. Valuation Hierarchy Classification: • Level 1 - - actively traded exchange-traded securities. #### Other secured financings Valuation Techniques: · Other secured financings represent repurchase obligations for investments held by customers. Valuation Hierarchy Classification: 。 Level 2 - classified as Level 2 as the liability is not actively traded in the market. {8}------------------------------------------------ ## Financial Instruments Not Measured At Fair Value | | At December 31, 2022 | | | | | | |---------------------------------------------|----------------------|----------|---------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------| | | Fair Value | | | | | | | | Carrying
Value | | Level 1 | Level 2 | Level 3 | Total | | Financial Assets | | | | | | | | Cash | ക | 74 | 74 | इ | ക
ക
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 74 | | Restricted cash | | 613 | 613 | | | 613 | | Reverse repurchase agreements | | 4,401 | | 4,401 | | 4,401 | | Securities borrowed | | 438 | | 438 | | 438 | | Receivables: | | | | | | | | Customers | | 12,603 | | 12,603 | | 12,603 | | Brokers, dealers and clearing organizations | | 75 | | 75 | | 75 | | Fees, interest and other | | 44 | | 44 | | 44 | | Affiliates | | 3 | | 3 | | 3 | | Financial Liabilities | | | | | | | | Securities loaned | ക | 2,631 \$ | | ക
2,631 | \$
ക
- | 2,631 | | Payables: | | | | | | | | Customers | | 12,298 | | 12,298 | | 12,298 | | Brokers, dealers and clearing organizations | | 99 | | පිරිම | | පිරිම | | Interest and dividends | | 174 | | 174 | | 174 | | Affiliates | | 185 | | 185 | | 185 | | Other liabilities and accrued expenses | | 55 | | રક | | 55 | | Borrowings | | 94 | | 94 | | 94 | | Subordinated liabilities | | 6,000 | | 5,618 | | 5,618 | The previous table excludes certain financial instruments such as deferred compensation arrangements. {9}------------------------------------------------ ## 5. Receivables from Contracts with Customers Receivables from contracts with customers, which are included across the various types of Receivables balances on the Company's statement of financial condition, arise when the Company has both recorded revenues and has the right per the contract to bill customers. At January 1, 2022 and December 31, 2022, the balance related to Receivables from contracts with customers was \$46 and \$40, respectively. # 6. Collateralized Transactions The Company enters into reverse repurchase agreements with MS&Co for the exclusive benefit of customers pursuant to SEA Rule 15c3-3; and securities borrowed and securities loaned transactions with MS&Co and other counterparties to, among other things, acquire securities to cover short positions, settle other securities obligations and accommodate customers' needs. The Company monitors the fair value of the underlying securities as compared with the related receivable or payable, including accrued interest and requests or posts additional collateral, as provided under the applicable agreement to ensure such transactions are adequately collateralized, or that excess collateral is returned. The risk related to a decline in the market value of collateral pledged or received is managed by setting appropriate market-based margin requirements. Increases in collateral margin calls on securities loaned transactions due to market value declines may be mitigated by increases in collateral margin calls on reverse repurchase agreements and securities borrowed transactions with similar quality collateral. Additionally, the Company may request lower quality collateral pledged be replaced with higher quality collateral through collateral substitution rights in the underlying agreements. Securities borrowed also includes cash collateral provided to customers for fully paid lending. The fully paid lending program offered by the Company allows customers to earn income on certain securities when they permit the Company to lend these securities. #### Offsetting of Collateralized Transactions | | At December 31, 2022 | | | | | | | | | |--------------------------------------|----------------------|------------------|--|--|----|------------------------|-------------------------------------------|---------------|----| | | | Gross
Amounts | | | | Net
Amounts Amounts | Amounts
Not
Offset Presented Offset | Net
Amount | | | Assets: | | | | | | | | | | | Reverse
repurchase
agreements- | ക | 4,401 \$ | | | ಳಿ | | 4,401 \$ (4,380) \$ | | 21 | | Securities | | | | | | | | | | | borrowed | | 438 | | | | 438 | (432) | | 6 | | Liabilities: | | | | | | | | | | | Securities
loaned3 | | 2,631 | | | | 2,631 | (2,570) | | 61 | | Other | | | | | | | | | | | secured | | | | | | | | | | | financings, | | | | | | | | | | | at fair value | | 274 | | | | 274 | (274) | | | 1. For presentation purposes, these amounts presented are based on the counterparties under the Company's master securities loan agreements. 2. Reverse repurchase agreements are overnight and open maturity. 3. The company's securities loaned transactions represent equities with an overnight and open maturity. # Fair Value of Collateral Received with Right to Sell or Repledge | | At December 31.
2022 | | | |-------------------------------------------------------|-------------------------|--------|--| | Collateral received with right to sell or
repledge | ಿ | 21,826 | | | Collateral that was sold or repledged | ಕಾ | 4.286 | | 1. Does not include securities segregated under federal and other regulations or requirements. The Company receives collateral in the form of securities in connection with reverse repurchase agreements, securities borrowed, and customer margin loans. In many cases, the Company is permitted to sell or repledge these securities held as collateral and use the securities to collateralize repurchase agreements, securities loaned, and derivatives, as well as for delivery to counterparties to cover short positions held by customers. As part of the secured borrowing transactions, financial instruments owned, representing fractional shares investments held by the customer, collateralize the related repurchase obligation that is recorded as other secured financings in the statement of financial condition. The repurchase obligation is collateralized by the customer's equity securities. {10}------------------------------------------------ #### Customer Margin Lending The Company provides margin lending arrangements which allow customers to borrow against the value of qualifying securities. Customer receivables representing margin loans are included within Receivables - Customers in the Company's statement of financial condition. Under these agreements, the Company receives collateral, including U.S. Treasury and agency securities, corporate and other debt, and corporate equities. Margin loans are collateralized by customer-owned securities held by the Company. The Company monitors required margin levels and established credit terms daily and, pursuant to such guidelines, requires customers to deposit additional collateral, or reduce positions, when necessary. Margin loans are extended on a demand basis and generally are not committed facilities. Factors considered in the review of margin loans are the amount of the loan, the intended purpose, the degree of leverage being employed in the account and the amount of collateral, as well as an overall evaluation of the portfolio to ensure proper diversification or, in the case of concentrated positions, appropriate liquidity of the underlying collateral or potential hedging strategies to reduce risk. Underlying collateral for margin loans is reviewed with respect to the liquidity of the proposed collateral positions, valuation of securities, historic trading range, volatility analysis and an evaluation of industry concentrations. For these transactions, adherence to the Company's collateral policies significantly limits its credit exposure in the event of a customer default. The Company may request additional margin collateral from customers, if appropriate, and, if necessary, may sell securities that have not been paid for or purchase securities sold but not delivered from customers. ## 7. Goodwill and Intangibles The Company completed its annual goodwill impairment test as of July 1, 2022. There have been no changes in the carrying amount of the Company's goodwill, which was \$3,609 at December 31, 2022. Adverse market or economic events could result in impairment charges in future periods. # 8. Borrowings Borrowings of \$94 at December 31, 2022 primarily consist of cash overdrafts as well as unsecured borrowings from the Parent, at variable rates. The interest rates for the borrowings are in line with the rate of interest that the Firm incurs in funding its business (the "Firm proxy rate"). #### Borrowings | | | Variable Rate
At December 31, 2022 | | |-----------------------------------------------|----|---------------------------------------|--------| | Original maturities of one year or
ess: | | | | | Next 12 months | ea | | 64 | | Original maturities greater than one
year: | | | | | Due in 2024 | | | 30 | | Total Borrowings | S | | 94 | | Weighted average coupon at
period-end | | | 5.75 % | | Weighted average stated maturity,
in years | | | 1.1 | | | | | | # 9. Subordinated Liabilities On January 26, 2022, the Company entered into a \$6,000 Subordination Agreement with the Parent. On November 21, 2022 the Company entered into a \$5,000 Subordinated Revolving Credit Agreement with the Parent. The interest rate for the agreement is in line with the Firm proxy rate. The maturity date, interest rate and book value of the outstanding balance at December 31, 2022 are as follows: | Subordinated
Liabilities | Maturity Date | Interest
Rate | Book
Value | |-----------------------------------------------|----------------------|------------------|---------------| | Subordinated Loan | January 26, 2032 | | 5.75 \$ 6,000 | | Subordinated
Revolving Credit
Agreement | November 21,
2022 | 5.75 | | | Total | | | \$
6.000 | {11}------------------------------------------------ # 10. Contingencies # Contingencies ## Legal In addition to the matter described below, in the normal course of business, the Company has been named, from time to time, as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities as a financial services institution. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. In some cases, the entities that would otherwise be the primary defendants in such cases are bankrupt or are in financial distress. The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental and self-regulatory agencies regarding the Company's business, and involving, among other matters, sales, trading, financing, prime brokerage, market-making activities, investment banking advisory services, capital market activities, financial products or offerings sponsored, underwritten or sold by the Company, wealth and investment management services, and accounting and operational matters, certain of which may result in adverse judgments, settlements, fines, penalties, injunctions, limitations on our ability to conduct certain business, or other relief. While the Company has identified below any individual proceedings or investigations that the Company believes a material loss to be reasonably possible and reasonably estimate, there can be no assurance that additional material losses will not be incurred from claims that have not yet been asserted or those where potential losses have not yet been determined to be probable or possible and reasonably estimable. The Company contests liability and/or the amount of damages as appropriate in each pending matter. Where available information indicates that it is probable a liability had been incurred at the date of the statement of financial condition and the Company can reasonably estimate the amount of that loss, the Company accrues the estimated loss by a charge to income. In many proceedings and investigations, however, it is inherently difficult to determine whether any loss is probable or even possible, or to estimate the amount of any loss. In addition, even where a loss is possible or an exposure to loss exists in excess of the liability already accrued with respect to a previously recognized loss contingency, it is not always possible to reasonably estimate the size of the possible loss or range of loss, particularly for proceedings and investigations where the factual record is being developed or contested or where plaintiffs or government entities seek substantial or indeterminate damages, restitution, disgorgement or penalties. Numerous issues may need to be resolved before a loss or additional loss, or range of loss or additional range of loss, can be reasonably estimated for a proceeding or investigation, including through potentially lengthy discovery and determination of important factual matters, determination of issues related to class certification and the calculation of damages or other relief, and consideration of novel or unsettled legal questions relevant to the proceedings or investigations in question. For certain other legal proceedings and investigations, the Firm can estimate reasonably possible losses, additional losses, ranges of loss or ranges of additional loss in excess of amounts accrued but does not believe, based on current knowledge and after consultation with counsel, that such losses could have a material adverse effect on the Firm's statement of financial condition as a whole, other than the matters referred to in the following paragraph. On November 16, 2019, the Company was named in a putative class action styled Joshua Rupnow v. E\*TRADE Securities LLC, which is pending in the United States District Court for the Southern District of New York. The claim alleged that E\*TRADE breached its contract with customers by failing to disclose in a timely manner the interest rates charged on short sales of certain Hard to Borrow Securities. The complaint seeks unspecified damages, and certification of a class of plaintiffs. E\*TRADE moved to dismiss the complaint pursuant to the Private Securities Litigation Reform Act of 1995. On December 9, 2021, the court denied E\*TRADE's motion, and set a date for the filing of an answer. On February 7, 2023, E\*TRADE reached a settlement with the class representatives, agreeing to pay \$1.4 million in exchange for a class release. The proposed settlement is subject to court review and approval. # 11. Risk Management Risk is an inherent part of the Company's business activities. Management believes effective risk management is vital to the success of the Company's business activities. Accordingly, the Company has policies and procedures in place to identify, measure, monitor, advise, challenge and control the principal risks involved in the activities of its business and support functions. The principal risks involved in the Company's business activities include credit, operational, model, compliance, cybersecurity, liquidity, strategic and reputational risk. The Company's risk management policies and related procedures are aligned with the risk appetite of the Firm. {12}------------------------------------------------ These policies and related procedures are administered on a coordinated global and legal entity basis with consideration given to each subsidiary's, including the Company's, specific capital and regulatory requirements. For the Risk Management discussion which follows, the term "Company" includes the Ultimate Parent and its subsidiaries. The cornerstone of the Company's risk management philosophy is the pursuit of risk-adjusted returns through prudent risk-taking that protects the Company's capital base and franchise. This is implemented utilizing five key principles: integrity, comprehensiveness, independence, accountability, and transparency. To help ensure the efficacy of risk management, which is an essential component of the Company's reputation, senior management requires thorough and frequent communication and the appropriate escalation of risk matters. The fast-paced, complex, and constantly evolving nature of global financial markets requires the Company to maintain a risk management culture that is incisive, knowledgeable about specialized products and markets, and subject to ongoing review and enhancement. ## Credit Risk Credit risk refers to the risk of loss arising when a borrower, counterparty or issuer does not meet its financial obligations to the Company. Credit Risk includes Country Risk, which is the risk that the events in, or that affect a foreign country (any country other than the U.S.) might adversely affect the Company. The Company primarily incurs credit risk exposure to institutions and individuals. This risk may arise from a variety of business activities, including, but not limited to, extending credit to clients through lending commitments; providing short- or longterm funding that is secured by physical or financial collateral whose value may at times be insufficient to fully cover the loan repayment amount; posting margin and/or collateral to clearinghouses, clearing agencies, exchanges, banks, securities firms and other financial counterparties; placing funds on deposit at other financial institutions to support its clearing and settlement obligations; and investing or trading in securities, whereby the value of these assets may fluctuate based on realized or expected defaults on the underlying obligations or loans. This type of risk requires credit analysis of specific counterparties, both initially and on an ongoing basis. The Company also incurs credit risk through margin and other customer securities-based lending transactions, which are collateralized by securities. The Company establishes practices to evaluate, monitor and control credit risk exposure both within and across its business activities. The Company's credit risk exposure is actively managed by credit professionals (and the Business Unit's Risk Management, as appropriate) who monitor risk exposures, including margin loans and credit-sensitive, higher risk transactions. The Company is responsible for ensuring timely and transparent communication of material credit risks, approving certain extensions of credit and escalating of risk concentrations to appropriate senior management. The Firm is monitoring the war in Ukraine and its impact on both the Ukrainian and Russian economies, as well as related impacts on other world economies and the financial markets. The Company has limited exposure to Russia and Ukraine. The Company will continue to monitor for any exposures associated with Russia and Ukraine, including any impact to its counterparties. ## Operational Risk Operational risk refers to the risk of loss, or of damage to the Company's reputation, resulting from inadequate or failed processes or systems, from human factors or from external events (e.g., fraud, theft, legal and compliance risks, cyber attacks or damage to physical assets). The Company may incur operational risk across the full scope of its business activities, including revenue-generating activities (e.g., providing financial advice) and support and control groups (e.g., information technology and trade processing). The Company's operational risk framework is established to identify, measure, monitor and control risk. Effective operational risk management is essential to reducing the impact of operational risk incidents and mitigating legal, regulatory and reputational risks. The framework is continually evolving to account for changes in the Company and to respond to the changing regulatory and business environment. # Model Risk Model risk refers to the potential for adverse consequences from decisions based on incorrect or misused model outputs. Model risk can lead to financial loss, poor business and strategic decision making or damage to the Company's reputation. The risk inherent in a model is a function of the materiality, complexity and uncertainty around inputs and assumptions. Model risk is generated from the use of models impacting financial statements, regulatory filings capital adequacy assessments and the formulation of strategy. Sound model risk management is an integral part of the Company's Risk Management Framework. Model Risk Management (MRM) is a distinct department in Firm Risk {13}------------------------------------------------ Management responsible for the oversight of model risk. MRM establishes a model risk tolerance in line with the Ultimate Parent's risk appetite. The tolerance is based on an assessment of the materiality of the risk of financial loss or reputational damage due to errors in design, implementation and/or inappropriate use of models. The tolerance is monitored through model-specific and aggregate business-level assessments, which are based upon qualitative and quantitative factors. A guiding principle for managing model risk is the "effective challenge" of models. The effective challenge of models is defined as critical analysis by objective, informed parties who can identify model limitations and assumptions and drive appropriate changes. MRM provides effective challenge of models, independently validates and approves models for use, annually recertifies models, identifies and tracks remediation plans for model limitations and reports on model risk metrics. The department also oversees the development of controls to support a complete and accurate Firm-wide model inventory. # Liquidity Risk Liquidity risk refers to the risk that the Company will be unable to finance its operations due to a loss of access to the capital markets or difficulty in liquidating its assets. Liquidity risk also encompasses the Company's ability (or perceived ability) to meet its financial obligations without experiencing significant business disruption or reputational damage that may threaten its viability as a going concern. Generally, the Company incurs liquidity and funding risk as a result of its trading, lending, investing and client facilitation activities. The Company's Liquidity Risk Management Framework is critical to help ensure that the Company maintains sufficient liquidity reserves and durable funding sources to meet the Company's daily obligations and to withstand unanticipated stress events. The Liquidity Risk Department ensures transparency of material liquidity and funding risks, compliance with established risk limits and escalation of risk concentrations to appropriate senior management. To execute these responsibilities, the Liquidity Risk Department establishes limits in line with its risk appetite, identifies and analyzes emerging liquidity and funding risks to ensure such risks are appropriately mitigated, monitors and reports risk exposures against metrics and limits, and reviews the methodologies and assumptions underpinning its Liquidity Stress Tests to ensure sufficient liquidity and funding under a range of adverse scenarios # 12. Income Taxes The Company is a single-member limited liability company that is treated as a disregarded entity for federal income tax purposes, but has elected to continue to include its allocated amount of current and deferred taxes in the statement of financial condition. As such, the Company has a Tax Sharing Agreement with the Ultimate Parent in order to record its related current and deferred federal, state and local taxes. The Company is included in the consolidated federal income tax return filed by the Ultimate Parent. Federal income taxes have generally been provided on a modified separate entity basis. The Company is included in the combined state and local income tax returns with the Ultimate Parent and certain other subsidiaries of the Ultimate Parent. State and local income taxes have been provided on separate entity income at the effective tax rate of the Company's combined filing group. In accordance with the terms of the Tax Sharing Agreement, current taxes (federal, combined and unitary states) are settled periodically with the Ultimate Parent, who pays these taxes on behalf of the Company. # Deferred Tax Assets and Liabilities | | At December 31,
2022 | | |---------------------------------------------------|-------------------------|-------| | Gross deferred tax assets: | | | | Allowance for credit losses and other
reserves | ಕಾ | 3 | | Employee compensation and benefit plans | | 3 | | Total deferred tax assets | | 6 | | Deferred tax assets valuation allowance | | | | Deferred tax assets after valuation
allowance | ક | 6 | | Gross deferred tax liabilities: | | | | Intangibles and Goodwill | | (561) | | Total deferred tax liabilities | ક | (561) | | Net deferred tax liabilities | S | (555 | Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the applicable enacted tax rates and laws that will be in effect when such differences are expected to reverse. The Company's net deferred tax liabilities are included in Other liabilities and accrued expenses within the statement of financial condition. The Company is subject to the income and indirect tax laws of the U.S., its states and municipalities in which the Company has significant business operations. These tax laws are complex and subject to interpretations by the taxpayer and the relevant governmental taxing authorities. {14}------------------------------------------------ The Company must make judgments and interpretations about the application of these inherently complex tax laws when determining the provision for income taxes and the expense for indirect taxes and must also make estimates about when certain items affect taxable income in the various tax jurisdictions. Disputes over interpretations of the tax laws may be settled with the taxing authority upon examination or audit. The Company periodically evaluates the likelihood of assessments in each taxing jurisdiction resulting from current and subsequent years' examinations, and unrecognized tax benefits related to potential losses that may arise from tax audits are established in accordance with the relevant accounting guidance. Once established, unrecognized tax benefits are adjusted when there is more information available or when an event occurs requiring a change. #### Rollforward of Unrecognized Tax Benefits. | Balance at December 31, 2021 | S | 4 | |-------------------------------------------------------------------|---|---| | Increases based on tax positions related to the
current period | | 2 | | Decreases based on tax positions related to prior
periods | | | | Balance at December 31, 2022 | S | 5 | | Net unrecognized tax benefits | S | | 1. Represents ending unrecognized tax benefits adjusted for the impact of the federal benefit of state issues. If recognized, these net benefits would favorably impact the effective tax rate in future periods. It is reasonably possible that significant changes in the balance of unrecognized tax benefits may occur within the next 12 months. At this time, however, it is not possible to reasonably estimate the expected change to the total amount of unrecognized tax benefits and the impact on the Company's effective tax rate over the next 12 months. #### Earliest Tax Year Subject to Examination in Major Tax Jurisdictions | Jurisdiction | Tax Year | |----------------|----------| | United States | 2019 | | Various States | 2013 | 1 Major state and local tax jurisdictions include California, Illinois, New York, New York City and Virginia The Company, through its inclusion in the return of the Ultimate Parent, is routinely under examination by the Internal Revenue Service (the "IRS") and other tax authorities in certain states and localities in which the Company has significant business operations, such as New York. The Company believes that the resolution of these tax examinations will not have a material effect on statement of financial condition. ### 13. Regulatory Requirements #### Regulatory Capital The Company is subject to the Uniform Net Capital Rule (the Rule) under the Securities Exchange Act of 1934 administered by the SEC and FINRA, which requires the maintenance of minimum net capital. The Company has elected to use the alternative method permitted by the Rule, which requires that the Company maintain net capital equal to the greater of \$0.25 or 2% of aggregate debit balances arising from customer transactions. Under the alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured advances or loans to its Ultimate Parent or employees if such payment would result in net capital of less than 5% of aggregate debit balances or less than 120% of its minimum dollar amount requirement. At December 31, 2022, the Company had net capital of \$2,496 (18.22% of aggregate debit balances), which exceeded the minimum requirement of \$274 by \$2,222. #### Customer Protection As a registered U.S. broker-dealer, the Company is subject to the customer protection provisions under SEA Rule 15c3-3, which requires the Company to compute a reserve requirement for customers and deposit cash or securities into a special reserve bank account for the exclusive benefit of customers. As of December 31, 2022, the Company had \$3,413 in the special reserve bank account for the exclusive benefit of customers consisting of \$39 in cash and \$3,374 in qualified U.S. Government securities. These qualified securities were sourced from reverse repurchase agreements in the Company's statement of financial condition. {15}------------------------------------------------ # Glossary of Common Acronyms | ASU | Accounting Standard Update | | |-----------|-------------------------------------------------------------------------------------------------------------------------------------------------|--| | DRIP | Dividend Reinvestment Programs | | | ETCM | E*TRADE Capital Management, LLC | | | ETF | E*TRADE Futures LLC | | | ETFCS | E*TRADE Financial Corporate Services, Inc. | | | ETTIS | E*TRADE Information Services, LLC | | | ETS | E*TRADE Securities LLC | | | FASB | Financial Accounting Standards Board | | | FINRA | The Financial Industry Regulatory Authority | | | TRS | Internal Revenue Service | | | MRM | Model Risk Management | | | MS&Co. | Morgan Stanley & Co. LLC | | | MSBNA | Morgan Stanley Bank, N.A | | | MSDHI | Morgan Stanley Domestic Holdings, Inc. | | | MSPBNA | Morgan Stanley Private Bank, National Association | | | MSSB | Morgan Stanley Smith Barney, LLC | | | MSSBF | MS Smith Barney Financing LLC | | | MSSG | Morgan Stanley Services Group Inc. | | | SEA | U.S. Securities and Exchange Act | | | SEC | U.S. Securities and Exchange Commission | | | SIPC | Securities Investor Protection Corporation | | | TDR | Troubled Debt Restructurings | | | VWAP | Volume-weighted average price | | | U.S. | United States of America, which includes the District of Columbia, Puerto Rico, and the U.S. territories and
in the United States of America | | | U.S. GAAP | Accounting principles generally accepted in the United States of America | | | VWAP | Volume-weighted average price | | Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.