# SOUTH STREET SECURITIES LLC X-17A-5 (2024-02-28) — Broker-dealer annual report
- Company: SOUTH STREET SECURITIES LLC
- Form: X-17A-5
- Filed: 2024-02-28
- Period: 2023-12-31
- Accession: 0001215680-24-000002
- CIK: 1215680
- File #: 8-65770
- Type: Broker-dealer
- Material weakness: No
- Auditor: PricewaterhouseCoopers llp
- Auditor location: New York, NY
- Contact: John Kelly
- Phone: 6468082189
- Email: leonard.lubrano@sssnyc.com
- Website: sssnyc.com
- Signed by: Leonard G Lubrano (CFO)
Original filing: https://www.sec.gov/Archives/edgar/data/1215680/000121568024000002/public.pdf
---
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# **South Street Securities LLC**
**Statement of Financial Condition December 31, 2023**
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| | Page(s) |
|------------------------------------------------------------|---------|
| Report of Independent Registered Public Accounting Firm 1 | |
| Financial Statements | |
| Statement of Financial Condition 2 | |
| Notes to the Statement of Financial Condition 3-14 | |
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## **UNITED STATES SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**
0MB APPROVAL 0MB Number: 3235-0123 Expires: Nov. 30, 2026 Estimated average burden hours per response: 12
> SEC FILE NUMBER 8-65770
## **ANNUAL REPORTS FORM X-17 A-5 PART Ill**
**FACING PAGE**
**Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934**
FILING FOR THE PERIOD BEGINNING **01/01/23** AND ENDING **12/31 /23** MM/DD/VY
MM/DD/VY
**A. REGISTRANT IDENTIFICATION**
## NAME oF FIRM: South Street Securities, LLC
TYPE OF REGISTRANT (check all applicable boxes):
[!] Broker-dealer D Security-based swap dealer D Major security-based swap participant D Check here if respondent is also an OTC derivatives dealer
ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.)
## 1155 Avenue of the Americas
| | (No. and Street) | | | |
|---------------------------------------------------------------------------------------------------------|------------------------------------------------------------|-----------------------------------------|----------------------------|--|
| New York | NY | | 10036 | |
| (City) | (State) | | (Zip Code) | |
| PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | |
| Leonard G. Lubrano | 646-809-6924 | | leonard.lubrano@sssnyc.com | |
| (Name) | (Area Code - Telephone Number) | | (Email Address) | |
| | B. ACCOUNTANT IDENTIFICATION | | | |
| INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing*
PricewaterhouseCoopers LLP | | | | |
| | (Name - if individual, state last, first, and middle name) | | | |
| 300 Madison Avenue
(Address) | New York
(City) | NY
(State) | 10017
(Zip Code) | |
| l"
October 20, 2003 | | 0238 | | |
| of Reg•tcatioo w;th PCAOB)l;f appUcable) | | (PCAO B R,g;mafoo N,mbec, ;fa ppUcable) | | |
| | FOR OFFICIAL USE ONLY | | | |
| | | | | |
| | | | | |
\* Claims for exemption from the requirement that the annual reports be covered by the reports of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis of the exemption. See 17 CFR 240.17a-S(e)(l)(ii), if applicable.
**Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid 0MB control number.**
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#### **OATH OR AFFIRMATION**
| I, Leonard G. Lubrano | swear (or affirm) that, to the best of my knowledge and belief, the | |
|-------------------------------------------------------------------------|---------------------------------------------------------------------|-------|
| financial report pertaining to the firm of South Street Securities, LLC | | as of |
**12/31** 2�, is true and correct. I further swear ( or affirm) that neither the company nor any partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely as that of a customer.
Signature:
Title: Chief Financial Officer
Notary Public
#### **This filing\*\* contains (check all applicable boxes):**
- ii!!ii (a) Statement of financial condition.
- ii!!ii (b) Notes to consolidated statement of financial condition.
- D (c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in§ 210.1-02 of Regulation S-X).
- D (d) Statement of cash flows.
- D (e) Statement of changes in stockholders' or partners' or sole proprietor's equity.
- D (f) Statement of changes in liabilities subordinated to claims of creditors.
- D (g) Notes to consolidated financial statements.
- D (h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable.
- D (i) Computation of tangible net worth under 17 CFR 240.18a-2.
- D (j) Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.15c3-3.
- D (k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable.
- D (I) Computation for Determination of PAB Requirements under Exhibit A to§ 240.15c3-3.
- D (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3.
- D (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable.
- D (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-1, or 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist.
- D (p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition.
- ii!!ii (q) Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.17a-12, or 17 CFR 240.18a-7, as applicable.
- D (r) Compliance report in accordance with 17 CFR 240.l 7a-5 or 17 CFR 240.18a-7, as applicable.
- D (s) Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- ii!!ii (t) Independent public accountant's report based on an examination of the statement of financial condition.
- D (u) Independent public accountant's report based on an examination of the financial report or financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable.
- D (v) Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- D (w) Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable.
- D (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.15c3-le or 17 CFR 240.17a-12, as applicable.
- D (y) Report describing any material inadequacies found to exist or found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k).
- D (z) Other: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ \_
- *\*\*To request confidential treatment of certain portions of this filing, see 17 CFR 240.17a-5{e}{3) or 17 CFR 240.18a-7(d){2}, as applicable.*
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#### **Report of Independent Registered Public Accounting Firm**
To the Members of the Board of Managers and the Member of South Street Securities LLC
#### *Opinion on the Financial Statement* - *Statement of Financial Condition*
We have audited the accompanying statement of financial condition of South Street Securities LLC (the "Company") as of December 31, 2023, 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, 2023 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.
February 28, 2024
We have served as the Company's auditor since 2002.
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| Assets |
|--------|
|--------|
| Cash | \$
192,908,128 |
|-----------------------------------------------------------------|----------------------|
| Financial instruments owned, at fair value (cost \$539,205,424) | 539,669,143 |
| Securities purchased under agreements to resell (at fair value) | 42,370,370,915 |
| Securities borrowed | 1,938,200,709 |
| Receivables from brokers, dealers and clearing organization | 16,551,514 |
| Other trading assets | 37,672,292 |
| Right of use asset | 5,006,557 |
| Other assets | 13,000,524 |
| Total assets | \$
45,113,379,782 |
| Liabilities and Member's Equity | |
| Liabilities | |
| Securities sold under agreements to repurchase (at fair value) | \$
42,758,857,943 |
| Securities loaned | 1,938,513,052 |
| Payable to clearing organization | 87,799,338 |
| Other trading liabilities | 44,113,710 |
| Lease liability | 5,469,309 |
| Accrued expenses | 11,396,077 |
| Total liabilities | 44,846,149,429 |
| Commitments and contingencies (refer to Note 6) | |
| Member's equity | 267,230,353 |
| Total liabilities and member's equity | \$
45,113,379,782 |
**The accompanying notes are an integral part of these financial statements.**
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#### **1. Organization and Nature of Business**
**South Street Securities LLC ("South Street" or the "Company") is a limited liability company established in the state of Delaware. The Company is a registered broker-dealer subject to the rules and regulations of the Securities and Exchange Commission ("SEC") and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). The Company was formed to create and manage for its own account a matched-book portfolio of repurchase agreements, reverse repurchase agreements, stock lending and borrowing, and to be announced securities transactions, including bond borrowing and related hedging activities (the ''Repo Program").**
**The Company is a wholly owned subsidiary of South Street Securities Funding LLC ("SSSF" or the "Parent"), which owns the Member Interest in South Street. The Company, SSSF, Capital Markets Trading LLC ("CMT LLC") and other third parties have entered into a Program Agreement dated April 19, 2004 and as amended thereafter, (collectively the "Program Agreement"), which details the business arrangement related to the Repo Program (Note 5). SSSF and CMT LLC are both wholly owned subsidiaries of South Street Securities Holdings Inc. ("SSSH" or the "Ultimate Parent").**
#### **2. Summary of Significant Accounting Policies**
#### **Cash**
**Cash consists of cash in banks, which is held primarily at one major U.S. financial institution. The Company holds a certificate of deposit, a requirement of its office lease agreement, which has a maturity greater than 90 days, therefore, is not considered a cash equivalent and is included in other assets in the accompanying statement of financial condition.**
#### **Receivables from and Payables to Brokers, Dealers and Clearing Organizations**
**Deposits with brokers, dealers and clearing organization at December 31, 2023 consist of the following:**
| Stock loan locate fees receivable | \$
103,056 |
|------------------------------------|------------------|
| Deposit with clearing organization | 16,448,458 |
| | \$
16,551,514 |
**Amounts payable to clearing organization at December 31, 2023 consist of the following:**
### **Payable to clearing organization \$ 87,799,338**
#### **Other Trading Assets and Liabilities**
**The Company enters into futures contracts and to be announced securities ("TBAs") which represent commitments to purchase or sell securities, mortgage-backed securities or other commodities at a future date and at a specified price. These contracts are accounted for as derivatives, recorded on a trade basis and carried at fair value with changes in fair value recognized in the statement of operations.**
#### **Income Taxes**
**The Company is a single member LLC and is treated as a disregarded entity for income tax purposes. Accordingly, no income tax provision is reflected in the Company's financial statements. Any income tax liabilities or assets that result from the operations of the Company are reflected in the financial statements of SSSH.**
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#### **Securities Purchased and Sold Under Agreements to Resell and Repurchase**
**Securities purchased under agreements to resell ("reverse repurchase agreements" or "resale agreements") and securities sold under agreements to repurchase ("repurchase agreements") are accounted for as collateralized financing transactions and are carried at fair value in accordance with the fair value option. See Note 9 for further information on the fair value option for reverse repurchase agreements and repurchase agreements. It is the policy of the Company to obtain possession of collateral with market values equal to or in excess of the principal amount loaned under reverse repurchase agreements. Collateral is valued daily, and the Company may require counterparties to deposit additional collateral when appropriate. The Company manages liquidity risks related to these agreements by sourcing funding from a diverse group of counterparties, providing a range of securities collateral and pursuing longer durations, when appropriate. Reverse repurchase agreements and repurchase agreements are reported net by counterparty when permitted under applicable accounting standards.**
**Interest earned on reverse repurchase agreements and unrealized gains are reported as interest income. Interest paid on repurchase agreements and unrealized losses are reported as interest expense.**
**As of December 3 1, 2023, the Company has the right to sell or repledge all of the securities it has received under reverse repurchase agreements. These repledged securities have been used in the normal course of business.**
**As of December 31, 2023, the Company has received securities with market values of \$52,372,660,1 88 under resale agreements and pledged securities with market values of \$52,902,064,276 under repurchase agreements. The securities pledged and received by the Company are U.S. Treasury and government agency securities. The Company's counterparties to its repurchase agreements have the right by contract to sell or repledge the Company's pledged securities.**
#### **Financial Instruments Owned**
**As of December 31, 2023, the Company has pledged all of its financial instruments owned.**
#### **Securities Borrowed and Securities Loaned**
**Securities borrowed and securities loaned transactions are recorded at the amount of cash collateral advanced or received and are carried at either contract value or at fair value in accordance with the fair value option. None of the securities borrowed and securities loaned are carried at fair value as of December 31, 2023, and were carried at contract value. As of December 31, 2023, all contracts were held on an overnight basis. Securities borrowed transactions require the Company to deposit cash or other collateral with the lender and in securities loaned transactions, the Company receives collateral, in the form of cash, an amount generally in excess of the market value of securities loaned. The Company monitors the market value of securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as required. Securities borrowed/ loaned fees represent interest (rebate) on the cash received or paid as collateral on the securities borrowed or loaned. Interest on such contract amounts is accrued and is included in the statement of operations in interest income, where interest receivable is included in the statement of financial condition in receivable from broker-dealers, and interest payable is included in the statement of financial condition in accrued expenses.**
**As of December 31, 2023, the Company has pledged cash of \$1,938,200,709 under securities borrowed agreements and received cash of \$ 1,938,5 13,05 1 under securities loaned agreements.**
#### **Use of Estimates**
**The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company's management to make estimates**
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**and assumptions. These estimates and assumptions** *affect* **certain 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.**
#### **Related Party Transactions**
**The Company operates as an affiliated entity with its ultimate parent's wholly owned subsidiaries. The accompanying financial statements have been prepared from the separate records maintained by South Street. Related party transactions include transactions between South Street and its common control relationships. Refer to Note 5 for additional details.**
#### **Other Assets and Accrued Expenses**
**Other assets include the security deposit held in relation to the operating lease, plant property and equipment, net of depreciation, and the prepaid balance for membership to an exchange. Accrued expenses include cash collateral for TSAs, commissions, professional fees, referral fees, and execution and clearing fees payable.**
#### **Leases**
**The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets and lease liability in the statement of financial condition. ROU assets represent the Company's right to use an underlying asset for the lease term and the lease liability represents its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. As the Company's lease does not provide an implicit rate, the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset includes any lease payments made and lease incentives. The Company's lease terms may include options to extend or terminate when it is reasonably certain the Company will exercise that option. Lease expense for lease payments is recognized on a straightline basis over the lease term. The Company has lease agreements with lease and non-lease components, and has elected the option to apply the practical expedient to combine these components.**
#### **Accounting for Credit Losses**
**The Company accounts for estimated credit losses on financial assets measured at an amortized cost basis in accordance with FASS ASC 326-20, Financial Instruments- Credit Losses. FASS ASC 326-20 requires the Company to estimate expected credit losses over the life of its financial assets as of the reporting date based on relevant information about past events, current conditions, and reasonable and supportable forecasts.**
**Many of the Company's financial assets are eligible for the collateral maintenance practical expedient as described in FASS ASC 326-20-35-6. The practical expedient may be elected for contracts when the counterparty is contractually obligated to continue to fully replenish the collateral to meet the requirements of the contract and the Company reasonably expects the counterparty to continue to replenish the collateral. The Company elects to use the practical expedient when eligible. If it is eligible for the collateral maintenance provision practical expedient, the Company considers the credit quality of these assets, and the related need for an allowance for credit losses, based on several factors, including: 1) the daily revaluation of the underlying collateral used to secure the customer's borrowings and collateral, 2) the customer's continuing ability to meet additional collateral requests based on decreases in the market value of the collateral, and 3) its right to sell the securities collateralizing the borrowings, if additional collateral requests are not met by the customer or the amounts borrowed are not returned on demand. Under the collateral maintenance provision practical expedient, the Company compares the amortized cost basis with the fair value of collateral at the reporting date. When the fair value of the collateral is equal to or exceeds the amortized cost basis of the financial asset and the Company reasonably expects the counterparty to continue to replenish**
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**the collateral as necessary to meet the requirements of the contract, the practical expedient permits the Company to consider that the expectation of nonpayment of the amortized cost basis is zero. The Company has established policies and procedures for mitigating credit risk on reverse repo transactions including reviewing and establishing limits for credit exposure, maintaining collateral, and continually assessing the creditworthiness of counterparties. The Company minimizes credit risk associated with reverse repo activities by daily monitoring type and grade of securities posted as collateral and requiring additional collateral to be deposited with the Company.**
#### **3. Clearing Arrangement with FICC and Concentration of Credit Risk**
**The Company is a netting member of the Government Securities Division of the Fixed Income Clearing Corporation ("FICC"), an industry clearinghouse for repurchase and reverse repurchase transactions. At the end of each business day, for every trade submitted to and matched by FICC, the transaction is novated to FICC, thereby FICC becomes the Company's counterparty. A portion of repurchase and resale activities are transacted under legally enforceable master repurchase agreements that give the Company, in the event of default by the counterparty, the right to liquidate securities held and to offset receivables and payables with the same counterparty. The Company offsets repurchase and resale transactions with the same counterparty on the Company's statement of financial condition where it has such a legally enforceable master netting agreement, and the transactions have the same maturity date.**
**The table below represents reverse repurchase and repurchase agreements by remaining contractual term to maturity, before netting:**
| Balance as of | Open and | | | Greater than 95 | |
|-----------------------|----------------|---------------|----------------|-----------------|----------------|
| December 31, 2023 | O-emight | 1 to 30 days | 31 -95 days | days | Total |
| Securities purchased | | | | | |
| under agreements to | | | | | |
| resell | 19,508,916,911 | 8,938,687,133 | 18,705,319,884 | 4,922,663,567 | 52,075,587,495 |
| Securities sold under | | | | | |
| agreements to | | | | | |
| repurchase | 41,747,372,567 | 7,904,680,771 | 1,635,361,547 | 1,176,659,638 | 52,464,074,523 |
**The following table presents as of December 31, 2023, the gross and net securities purchased under agreements to resell and the securities sold under agreements to repurchase for all counterparties.**
| | Gross balance | Amounts netted on the Statement
of Financial Condition | Net balance | | |
|------------------------------------------------------------------|-------------------|-----------------------------------------------------------|-------------------|--|--|
| Assets
Securities purchased under
agreements to resell | \$ 52,075,587,495 | (9,705,216,580) | \$ 42,370,370,915 | | |
| Liabilities
Securities sold under
agreements to repurchase | \$ 52,464,074,523 | (9,705,216,580) | \$ 42,758,857,943 | | |
**No other netting has been applied to the reverse repurchase agreement and repurchase agreement balances. At December 31, 2023, the Company had a balance with the central counterparty, FICC, which accounted for 1 0% or more of total securities purchased under agreements to resell on the statement of financial condition with balance totaling \$25,793,552,992 prior to netting.**
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**As of December 31, 2023, the Company had pledged \$129,1 68,1 02 of securities obtained under resale agreements to FICC. The size of the pledged amount is subject to change from time to time and is dependent upon the volume of business transacted.**
#### **4. Member's Equity**
**During the year ended December 31, 2023, the Company made distributions of \$22,773,482 to SSSF.**
#### **5. Related Parties**
#### **Program Agreement**
**In accordance with the Program Agreement, the Company is required to make quarterly distributions to SSSF based upon (i) a return on certain obligations of SSSF, (ii) certain expenses of SSSF, and (iii) the Program Cash Flow, as defined in the Program Agreement.**
**The Company is required to pay to CMT LLC, the program administrator, an administrative fee for providing certain portfolio management, operational and administrative services to the Company.**
#### **Referral Fees**
**The Company has entered into a referral arrangement with a shareholder of its ultimate parent.**
#### **Data Processing**
**For the year ended December 31, 2023, the Company incurred costs related to data processing that was provided by Matrix Applications LLC, an entity that is an affiliate.**
#### **Rent**
**The Company entered into an operating lease starting June 1, 2018 for a new office space (the "Lease"). Subsequent to the Company entering into the Lease, a sublease agreement was entered into with affiliates. See Note 7 for disclosures related to the Lease.**
#### **Securities Purchased Under Agreements to Resell**
**During 2023, the Company entered into reverse repurchase agreements and repurchase agreements with counterparties that were also shareholders of SSSH. As of December 31, 2023, the Company had \$ 1,372,235,788 of open reverse repurchase agreements with these counterparties. As of December 31, 2023, the Company had \$101,1 67,444 of open repurchase agreements with these counterparties. For the year ended December 31, 2023, the Company recorded interest income of \$8,561,788 and interest expense of \$1,1 67,444, respectively, related to these transactions.**
#### **6. Commitments and Contingencies**
#### **Commitments**
**As of December 31, 2023, the Company had forward commitments to enter into repurchase agreements in the amount of \$1 5,995,250,589 and reverse repurchase agreements in the amount of \$6,62 1,247,386.**
**Forward commitments for these transactions follow the same credit risk monitoring policies and procedures which are outlined in Note 2 under the Securities Purchased and Sold Under Agreements to Resell and Repurchase section.**
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#### **Software License and Technology Commitments**
**Matrix Applications LLC has entered into an open-ended software license and maintenance agreement with a third-party software vendor (the "Software Provider"), whereby the Software Provider agreed to provide the Company certain software and maintenance services used to operate the Repo Program. This arrangement was terminated in July 2023, and the services are now provided directly by Matrix Applications LLC.**
#### **Operating Lease Commitments**
**The Company has an operating lease for their corporate offices. See Note 7 for future minimum lease payments as of December 31, 2023.**
#### **Legal**
**The Company is a registered broker-dealer subject to legal and regulatory requirements. The Company may be a party to legal proceedings and regulatory matters and enquiries arising out of its normal business operations. Based on current knowledge and after consultation with counsel, the Company is not aware of any pending matters that will have a material adverse** *effect* **on the financial statements of the Company.**
#### **General**
**In the normal course of business, the Company enters into contracts that contain a variety of representations and warranties and which provide general indemnifications. The Company's potential exposure under these arrangements would involve potential future claims that may be made against the Company that have not yet occurred. However, the Company expects the risk of loss to be remote based on currently available information.**
#### **7. Leases**
**The Company entered into a non-cancelable operating lease starting June 1, 2018 for a new office space. In accordance with the provision of the lease, the monthly rent payments escalate over the term of the lease, which is ten years. ROU assets and lease liabilities for this operating lease are recognized at commencement date based on the present value of lease payments over the lease term, discounted using the Company's incremental borrowing rate at the effective commencement date of the lease. The Company has not entered into any finance leases.**
**The lease agreement contains both lease and non-lease components, such as maintenance costs, which are accounted for together. Operating lease cost for fixed lease payments is recognized on a straight-line basis over the lease term. Variable lease payments for real estate taxes, insurance, maintenance and utilities, which are generally based on the Company's pro rata share of the total property, are not included in the measurement of the ROU assets or lease liabilities and are expensed as incurred. In addition, short-term leases with a term of 12 months or less are also expensed as incurred.**
**The Company has entered into agreements to sublease certain office space, including agreements to receive rental income from its affiliates for rent. As owner or lessee of the properties, the Company has entered into agreements with affiliates to charge them rent based on the office space utilized by their employees during the period. See Note 5 for further disclosure.**
**The following table summarizes the components of total operating lease costs, net and provides supplemental cash flow information related to leases:**
**Other information: Remaining lease term Discount rate**
**4.5 years 5.53%**
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**Future minimum lease payments as of December 31, 2023 are as follows:**
#### **Year ending December 31,**
| 2024 | 1,490,670 |
|---------------------------------|-----------------|
| 2025 | 1,490,670 |
| 2026 | 1,490,670 |
| 2027 | 1,490,670 |
| thereafter | 683,224 |
| Total future lease payments | \$
6,645,904 |
| Less: imputed interest | 1,176,595 |
| Total operating lease liability | \$
5,469,309 |
#### **8. Other Trading Assets and Liabilities Used for Trading and Financial Activities**
**Futures contracts represent commitments to purchase or sell securities or other commodities at a future date and at a specified price. Market risk exists with respect to these instruments. The futures contracts used by the Company include primarily SOFR futures contracts. At December 31, 2023, the Company used these contracts primarily as an economic hedge of interest rate risk associated with its financing activities of fixed income instruments.**
**TBA's are forward-settling mortgage-backed securities (MBS) trades. Market risk exists with respect to these instruments.**
**The Company has evaluated the potential for the fair value of the instruments to be affected by counterparty risk and its own credit risk and has determined that no adjustments were significant to the overall fair value measurements.**
**Derivatives are classified as other trading assets and other trading liabilities in the statement of financial condition. The following table presents the location and fair value amounts of the Company's derivatives and their** *effect* **on the statement of operations for the year ended December 31, 2023.**
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#### **Fair Value of Derivative Instruments As of December 31, 2023**
| | Descrietion | Number of
Contracts | Fair Value |
|-------------|-----------------------------------------------------------------|------------------------|--------------------|
| Assets | | | |
| | Futures contracts: | | |
| | Futures contract balance | 18,736 | \$
16,509,808 |
| | Less: Futures margin deposit | | |
| | TBA's: | | |
| | Gross TBA balance
Less: Gross amount payable, | 2,648 | \$
72,720,708 |
| | subject to offsetting
Less: Collateral posted, | | 26,964,1 63 |
| | subject to offsetting | | 24,528,679 |
| | Less: Provision for Credit Loss | | 65,382 |
| | | 21,384 | \$
37,672,292 |
| Liabilities | | | |
| | Futures contracts: | | |
| | SOFR | | |
| | TBA's: | | |
| | Gross TBA balance
Less: Gross amount | 2,394 | \$
7 1 ,821,155 |
| | receivable, subject to offsetting
Less: Collateral recei-ed, | | 26,964,1 63 |
| | subject to offsetting | | 743,282 |
| | | 2,394 | \$
44,113,710 |
#### **9. Fair Value Option for Resale and Repurchase Agreements**
**ASC 825,** *Financial Instruments* **("ASC 825"), provides an option that allows entities to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. Changes in fair value are recognized in earnings as they occur for those assets and liabilities for which the election is made. The election is made on an instrument by instrument basis at initial recognition of an asset or liability or upon an event that gives rise to a new basis of accounting for that instrument. The Company has elected the fair value option for all resale agreements and repurchase agreements. The Company economically hedges these transactions with futures contracts that are also accounted for at fair value. Accordingly, this option has been elected as the Company believes that its overall performance is more accurately measured when such resale and repurchase agreements and their related economic hedges are both reported at their fair values.**
#### **10. Fair Value of Measurement**
**ASC 820,** *Fair Value Measurements and Disclosures* **("ASC 820"), establishes a fair value hierarchy that prioritizes the significant inputs to valuation techniques used to measure fair value. The**
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**hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to significant unobservable inputs ( Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are as follows:**
- **Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;**
- **Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active;**
- **Level 3 Inputs that are unobservable.**
**Inputs broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. The Company uses actively quoted market prices as the primary input to its valuation.**
**Classification within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes "observable" may require judgment by the Company's management. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by multiple, independent sources that are actively involved in the relevant market. The categorization of an investment within the hierarchy is based upon the pricing transparency of that investment and does not necessarily correspond to the Company's perceived risk of that investment.**
**The Company's investments were within either Level 1, as quoted prices for identical securities were readily available, or Level 2, as inputs other than quoted prices are observable for the asset or liability either directly or indirectly. For the year ending December 31, 2023, the Company held no Level 3 investments. During the year ending December 31, 2023, there were no changes to the valuation techniques or approaches utilized by management.**
**The following table presents the financial instruments carried at fair value on the statement of financial condition by level within the fair value hierarchy as of December 31, 2023.**
| | Level 1 | Level 2 | | Level 3 | Netting (1) | Balance as of
December 31,
2023 | | |
|-----------------------------------------------------------------------|---------------------------------------|---------------------------------------------|----|------------|---------------------|---------------------------------------|---------------------|--|
| Assets | | | | | | | | |
| U.S. Treasury Notes | \$ 539,669, 1 43 | -
\$ | \$ | - | \$
- | \$ | 539,669, 1 43 | |
| Securities purchased under agreements to resell
Futures contracts: | | 52, 075,587,495 | | | (9,705,216, 580) | | 42, 370,370, 91 5 | |
| SOFR | 1 6,509,808 | | | | | | 1 6,509, 808 | |
| TBA's | | 72,720, 708 | | | {51 , 558, 224) | | 21 , 162,484 | |
| | -----------------
\$ 556, 1 78,951 | ___ \$ 52,_ 148_______ , 308, 203 --------- | \$ | - | \$ {9,756,774, 804) | | \$ 42, 947,712, 350 | |
| Liabilities | | | | | | | | |
| Securities purchased under agreements to repurchase \$ | | \$ 52,464,074, 523 | \$ | - | \$ (9,705,216, 580) | | \$ 42,758,857, 943 | |
| TBA's | | 71 , 821,1 55 | | | {27,707,445) | | 44,1 1 3,710 | |
| | \$ | \$ 52, 535, 895,678 | | _\$ ___ -_ | \$ (9,732,924, 025) | | \$ 42, 802,971 ,653 | |
(1 ) Represents counterparty and cash collateral netting, which allow the offsetting of amounts relating to certain contracts, as certain conditions allowing netting ha-.e been met.
**Certain financial instruments that are not carried at fair value on the statement of financial condition are carried at amounts that approximate fair value due to their short-term nature and generally negligible credit risk. These instruments include cash, securities loaned, securities borrowed, deposits with brokers, dealers and clearing organizations, and payable to clearing organization. The following table presents these financial instruments by measurement level as of December 31, 2023.**
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| | Estimated Fair Value Hierarch:t | | | | | | | | | |
|-------------------------------------------------------------|---------------------------------|----------------------------------|---------|---------------|---------|-------------------|---------|--|-----------------------------------------|---------------------------------|
| | Car!)'.ing Value | | Level 1 | | Level 2 | | Level 3 | | Total Fair Value
December 31
2023 | |
| Financial Assets | | | | | | | | | | |
| Cash
Securities borrowed | \$ | 1 92,908, 1 28
1 ,938,200,709 | \$ | 1 92,908, 128 | \$ | 1 ,938,200,709 | \$ | | \$ | 1 92,908,1 28
1 ,938,200,709 |
| Deposits with brokers, dealers
and clearing organization | | 1 6,551,514 | | | | 1 6,551 ,514 | | | | 1 6,551 ,514 |
| | \$ | 2,147,660,351 | \$ | 1 92,908, 128 | | \$ 1 ,954,752,223 | \$ | | | \$ 2,147,660,351 |
| Liabilities | | | | | | | | | | |
| Securities loaned
Payable to clearing | | 1 ,938,513,052 | | | | 1 ,938,51 3,052 | | | | 1 ,938,513,052 |
| organization | | 87,799,338 | | | | 87,799,338 | | | | 87,799,338 |
| | \$ | 2,026,312,390 | \$ | | | \$ 2,026,312,390 | \$ | | | \$ 2,026,312,390 |
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#### **11. Net Capital Requirements**
**South Street is subject to the SEC Uniform Net Capital Rule ("Rule 1 5c3-1 "), which requires the maintenance of minimum net capital. Under Rule 1 5c3-1, South Street is required to maintain minimum net capital equal to the greater of \$250,000 or 2 percent of aggregate debit balances arising from customer transactions plus certain additional capital requirements on reverse repurchase agreements, as defined. At December 31, 2023, South Street had net capital of \$24 1,490,9 19, which was \$240,91 8,088 above its required net capital of \$572,83 1.**
**According to footnote 74 of the SEC Release No. 34-70073 adopting amendments to 1 7C.F.R. §240.17a-5, the Company limits its business activities exclusively to proprietary trading and the Company (1) did not directly or indirectly receive, hold, or otherwise owe funds or securities for or to customers; (2) did not carry accounts of or for customers; and (3) did not carry PAB accounts (as defined in Rule 1 5c3-3) throughout the most recent fiscal year without exception. As of December 31, 2023, the Company was not required to and did not hold any customer money or securities. The Company is therefore exempt from 17 C.F.R. § 240.15c3-3.**
#### **12. Subsequent Events**
**On January 04, 2024 the Company made a distribution in the amount of \$25,000,000 to SSSF. On January 26, 2024 the Company made a distribution in the amount of \$5,000,000 to SSSF. On January 30, 2024 the Company made a distribution in the amount of \$5,000,000 to SSSF.**
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.