# HARDCASTLE TRADING USA L.L.C. X-17A-5 (2023-03-01) — Broker-dealer annual report - Company: HARDCASTLE TRADING USA L.L.C. - Form: X-17A-5 - Filed: 2023-03-01 - Period: 2022-12-31 - Accession: 0001225155-23-000003 - CIK: 1225155 - File #: 8-65889 - Type: Broker-dealer - Material weakness: No - Auditor: RSM US LLP - Auditor location: Chicago, IL - Contact: James Ward - Phone: 708-670-6154 - Email: jward@peak6.com - Website: peak6.com - Signed by: Allison Stankowicz (CEO) Original filing: https://www.sec.gov/Archives/edgar/data/1225155/000122515523000003/HCUSASOFC2022.pdf --- {0}------------------------------------------------ STATEMENT OF FINANCIAL CONDITION #### EIGHTEEN MONTHS ENDED DECEMBER 31, 2022 (With Report of Independent Registered Public Accounting Firm Thereon) {1}------------------------------------------------ **UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549** OMB APPROVAL OMB Number: 3235-0123 Expires: Oct. 31, 2023 Estimated average burden hours per response: 12 > SEC FILE NUMBER 0-65889 # **ANNUAL REPORTS FORM X-17A-5 PART III** **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 \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ AND ENDING \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 07/01/2021 12/31/2022 MM/DD/YY MM/DD/YY **A. REGISTRANT IDENTIFICATION** #### NAME OF FIRM: \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ Hardcastle Trading USA, LLC TYPE OF REGISTRANT (check all applicable boxes): ☐ Broker-dealer ☐ Security-based swap dealer ☐ Major security-based swap participant ☐ Check here if respondent is also an OTC derivatives dealer ■ ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) #### \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ 141 W. Jackson Blvd., Ste 500 | | (No. and Street) | | | |--------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------|-----------------| | Chicago | Illinois
_____________________________________________________________________________________ | | 60604 | | (City) | (State) | | (Zip Code) | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | James Ward | 708-670-6154
_____________________________________________________________________________________ | | jward@peak6.com | | (Name) | (Area Code – Telephone Number) | (Email Address) | | | | B. ACCOUNTANT IDENTIFICATION | | | | RSM US, LLP | INDEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing*
_____________________________________________________________________________________
(Name – if individual, state last, first, and middle name) | | | | 30 S Wacker Dr., Ste 3300 | Chicago
_____________________________________________________________________________________ | IL | 60606 | | (Address) | (City) | (State) | (Zip Code) | | 09/24/2003 | | PCAOB #49
_____________________________________________________________________________________ | | | (Date of Registration with PCAOB)(if applicable) | | (PCAOB Registration Number, if applicable) | | | | 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-5(e)(1)(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 OMB control number.** {2}------------------------------------------------ | Allison Stankowicz
1. | | |--------------------------|--| |--------------------------|--| - - - - - - - - - - - - - - - - - - - - - - - - - - - {3}------------------------------------------------ #### DECEMBER 31, 2022 #### TABLE OF CONTENTS | | Page | |---------------------------------------------------------|------| | Report of Independent Registered Public Accounting Firm | 1 | | Statement of Financial Condition | 2 | | Notes to Statement of Financial Condition | 3-7 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) 1 #### **Report of Independent Registered Public Accounting Firm** To the Member of Hardcastle Trading USA LLC #### **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of Hardcastle Trading USA LLC (the Company) as of December 31, 2022, and the related notes (collectively, 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, 2022, in conformity with accounting principles generally accepted in the United States of America. #### **Basis for Opinion** This 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 U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial 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. We have served as the Company's auditor since 2022. Chicago, Illinois February 24, 2023 {5}------------------------------------------------ #### STATEMENT OF FINANCIAL CONDITION #### DECEMBER 31, 2022 #### ASSETS | TOTAL ASSETS | \$
1,942,591 | |--------------------|-----------------| | Other assets | 511 | | Refunds receivable | 190,860 | | Cash | \$
1,751,220 | #### LIABILITIES AND MEMBER'S EQUITY | TOTAL LIABILITIES AND MEMBER'S EQUITY | \$
1,942,591 | |---------------------------------------|-----------------| | Member's equity | 1,896,841 | | Total liabilities | 45,750 | | Payable to parent | 10,750 | | Accounts payable and accrued expenses | \$
35,000 | | Liabilities: | | {6}------------------------------------------------ ## NOTES TO FINANCIAL STATEMENTS ## DECEMBER 31, 2022 # 1. Organization and summary of significant accounting policies #### Organization Hardcastle Trading USA, LLC (the "Company") was formed as a limited liability company on January 16, 2003, under the laws of the state of Delaware to manage and operate as a registered securities broker-dealer and to engage in options market making and proprietary trading. During December 2020, the Company was acquired by Peak6 HC Holdings LLC, which is wholly owned by Peak6 Group, LLC (the "Parent"). The Company is registered with the Securities and Exchange Commission (the "SEC") as a broker-dealer. Additionally, the Company is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). Up until September 2021, the Company was a participant or market maker on U.S. securities and options exchanges and had cleared its securities transactions on a fully disclosed basis through another broker-dealer. The Company currently has limited operations and has a commitment from management to operate indefinitely. Since the Company is a limited liability company, the member is not liable for the debts, obligations, or liabilities of the Company, whether arising in contract, tort, or otherwise, unless the member has signed a specific guarantee. ## Basis of Presentation The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management believes that the estimates utilized in preparing its financial statements are reasonable and prudent. Actual results could differ from these estimates. The fiscal year end changed from June 30 to December 31. This change was approved by FINRA on April 1, 2022. The financial statements cover the period from July 1, 2021 to December 31, 2022, which constitutes an eighteen month reporting period. ## Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires the Company's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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. {7}------------------------------------------------ # 1. Organization and summary of significant accounting policies (continued) ## Revenue recognition Securities transactions are recorded on a trade date basis. Dividend income is recognized on the ex-dividend date, and dividends declared on short positions held on the ex-dividend date are recorded as dividend expense. Interest income and expense are recognized on an accrual basis. ## Concentrations of credit risk The Company maintains its cash at major financial institutions in accounts that at times may exceed federally insured limits. The Company has not experienced any losses on such accounts. The Company is engaged in various trading and brokerage activities in which counterparties primarily include broker-dealers, banks, clearing houses, and other financial institutions. In the event counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is the Company's policy to review, as necessary, the credit standing of each counterparty. #### Fair value measurements The Company follows the guidance in FASB ASC 820. Using that guidance, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income, or cost approach, as specified by FASB ASC 820, are used to measure fair value. {8}------------------------------------------------ # 1. Organization and summary of significant accounting policies (continued) ## Income taxes The Company is a limited liability company that has elected to be taxed as a C corporation. The Company files a consolidated U.S. income tax return with Peak6 Group on a calendar year basis and combined or separate returns for state purposes where required. Current and deferred tax expense is allocated to the Company based on "separate return" method. Under this method the Company is assumed to file a separate return with the tax authority, thereby reporting the Company's taxable income or loss and paying the applicable tax to or receiving the appropriate refund from Peak6 Group. The current provision is the amount of tax payable or refundable on the basis of a hypothetical, current-year separate return. We provide deferred taxes on temporary differences and on any carryforwards that we could claim on our hypothetical return and assess the need for a valuation allowance on the basis of our projected separate return results. The Company recognizes and measures its unrecognized tax benefits in accordance with FASB ASC 740, Income Taxes. Under that guidance, the Company assesses the likelihood, based on their technical merit, that tax positions will be sustained upon examination based on the facts, circumstances, and information available at the end of each period. The measurement of unrecognized tax benefits is adjusted when new information is available or when an event occurs that requires a change. The Company uses the asset and liability method of accounting for income taxes pursuant to FASB ASC 740. Under the asset and liability method of FASB ASC 740, deferred tax assets and liabilities shall be recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carryforwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. # 2. Discontinued operations The Company sold its options market making and proprietary trading business to an affiliate in September 2021. Included in the sale were fixed assets, cash, marketable receivables, and other assets. There are no carrying amounts of assets or liabilities remaining from the discontinued operations. # 3. Income taxes The Company will receive tax refunds as a provision of the CARES Act. The following is a summary of the Company's income taxes refunds recorded for the year ended December 31, 2022, which have not been received are included in Refunds receivable in the accompanying statement of financial condition. | Total | \$ 190,360 | |-----------------------------|------------| | Federal | \$ 190,360 | | Current income tax refunds: | | {9}------------------------------------------------ # 4. Related party transactions The Company and the Parent are parties to an intercompany expense-sharing agreement that outlines the allocation of direct and indirect costs between the two entities. The Company reimburses all direct costs, such as compensation, paid by the Parent, which are included in the respective line items on the statement of income. The following is a summary of (a) the indirect transactions covered by this agreement, (b) the amount reported and (c) the respective financial statement line item in which the amount is reported. The Company pays the Parent for consulting services related to shared legal, accounting, and compliance services. At December 31, 2022, payable to the Parent of \$10,750 is reported on the statement of financial condition. Intercompany balances are generally settled on a quarterly basis. Effective February 1, 2004, the Company entered into a licensing agreement with an affiliate. The agreement provides the Company with access to certain software as well as to certain administrative and management services with respect to the Company's trading, risk management, and back office operations. The agreement states that the Company is to pay the affiliate under the agreement based upon its return on utilized capital, as defined in the agreement. This agreement was terminated in September 2021 on the date of the sale. # 5. Credit agreement from parent The Company entered into an unsecured credit agreement with its Parent to fund trading activities, with a maximum principal amount not to exceed \$5,000,000. The note requires monthly interest-only payments. The interest rate is the Federal Funds rate plus 0.32%. The Credit Agreement term expired on May 17, 2022 and was not renewed. # 6. Joint back-office credit agreement The Company had a Joint Back Office ("JBO") clearing agreement with GS. The agreement allowed JBO clearing agreement participants to receive favorable margin treatment as compared to the full customer margin requirements of Federal Reserve Regulation T of the Board of Governors of the Federal Reserve System. As part of this agreement, the Company was required to maintain a minimum liquidating equity (as defined) with GS. This agreement was terminated on November 30th, 2022. # 7. Net capital requirements The Company is subject to the SEC's Uniform Net Capital Rule 15c3-1 (the "Rule") and has elected to compute its net capital in accordance with the Alternative Method permitted by the Rule. Under this alternative, the Company's minimum net capital requirement is equal to the greater of 2% of aggregate debit items, as defined, or \$250,000. At December 31, 2022, the Company had net capital of \$1,705,470 which was \$1,455,470 in excess of the Company's minimum net capital requirement of \$250,000. {10}------------------------------------------------ # 8. Commitments and contingencies ## General contingencies In the ordinary course of business, the Company enters into contracts that contain a variety of representations and warranties that provide indemnifications to the counterparties under certain circumstances. The Company's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. The Company expects the risk of loss to be remote. ## Legal contingencies In the ordinary course of business, the Company is subject to lawsuits, arbitrations, claims, and other legal proceedings. Management cannot predict with certainty the outcome of pending legal proceedings. A substantial adverse judgment or other resolution regarding the proceedings could have a material adverse effect on the Company's financial condition, results of operations, and cash flows. However, in the opinion of management, after consultation with legal counsel, the outcome of any pending proceedings is not likely to have a material adverse effect on the financial condition, results of operations, and cash flows of the Company. # 9. Subsequent events Management has evaluated the possibility of subsequent events existing in the Company's financial statements through the date the financial statements were available to be issued. On February 3, 2023, the Company submitted an entity classification election with the IRS to elect to be taxed for federal tax purposes as an entity disregarded as separate from its owner. The election is effective as of January 1, 2023. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.