# ELECTRONIC TRANSACTION CLEARING, INC. X-17A-5 (2023-02-28) — Broker-dealer annual report
- Company: ELECTRONIC TRANSACTION CLEARING, INC.
- Form: X-17A-5
- Filed: 2023-02-28
- Period: 2022-12-31
- Accession: 0001421924-23-000004
- CIK: 1421924
- File #: 8-67790
- Type: Broker-dealer
- Material weakness: No
- Auditor: RSM US LLP
- Auditor location: Chicago, IL
- Contact: Jarred Beckerman
- Phone: 214-765-1278
- Email: wbrennan@apexfintechsolutions.com
- Website: apexfintechsolutions.com
- Signed by: William Brennan (CEO)
Original filing: https://www.sec.gov/Archives/edgar/data/1421924/000142192423000004/ETC_YE_2022_Public.pdf
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# Electronic Transaction Clearing, Inc. (SEC i.d. no. 8-67790)
## Statement of Financial Condition and Supplemental Schedules With Report of Independent Registered Public Accounting Firm
December 31, 2022
Files as public information pursuant to Rule 17A-5(d) under the Securities Exchange Act of 1934.
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Chief Executive Officer
#### dŚŝƐĨŝůŝŶŐΎΎĐŽŶƚĂŝŶƐ;ĐŚĞĐŬĂůůĂƉƉůŝĐĂďůĞďŽdžĞƐͿ͗
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- džŚŝďŝƚƚŽϭϳ&ZϮϰϬ͘ϭϴĂͲϰ͕ĂƐĂƉƉůŝĐĂďů
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#### Electronic Transaction Clearing, Inc. Table of Contents
| | Report of Independent Registered Public Accounting Firm | |
|-----------------------------------------------|-------------------------------------------------------------------------------------------|----|
| | Statement of Financial Condition | 3 |
| Notes to the Statement of Financial Condition | | |
| Supplemental Information | | |
| Schedule I | Financial and Operational Combined Uniform Single Report Part II | 18 |
| | Schedule l
Under Rule 15c3-3 of the Securities and Exchange Commission | 21 |
| | Schedule III
Dealers Pursuant to Rule 15c3-3 Under the Securities Exchange Act of 1934 | 23 |
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### **Report of Independent Registered Public Accounting Firm**
Board of Directors of Electronic Transaction Clearing, Inc.
#### **Opinion on the Financial Statement**
We have audited the accompanying statement of financial condition of Electronic Transaction Clearing, Inc. (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 2021.
Chicago, Illinois February 28, 2023
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| | December 31,
2022 | |
|---------------------------------------------------------------|----------------------|--------------|
| Assets | | |
| Cash | S | 16,946,081 |
| Cash - segregated for regulatory purposes | | 9,834,048 |
| Securities borrowed | | 1,140,000 |
| Receivables, net | | |
| Customers (net of allowance for credit losses of \$651,254) | | 1,106,666 |
| Receivables from affiliates | | 34,691 |
| Brokers, dealers, correspondents and clearing organizations | | 3,371,712 |
| Total receivables, net | | 4,513,069 |
| Property and equipment, net | | 69,810 |
| Operating lease right-of-use assets | | 271,386 |
| Other assets | | 8,872,729 |
| Total assets | S | 41,647,123 |
| Liabilities and stockholder's equity | | |
| Securities loaned | S | 88,300 |
| Payables | | |
| Customers | | 2,880,661 |
| Brokers, dealers, correspondents and clearing organizations | | 1,642,967 |
| Payables due to affiliates | | 162,011 |
| Accrued expenses and other liabilities | | 7,144,120 |
| Total payables | | 11,829,759 |
| Operating lease right-of-use liabilities | | 341,137 |
| Total liabilities | | 12,259,196 |
| Commitments and contingencies | | |
| Stockholder's equity | | |
| Common stock, \$0.001 par value | | 4,918 |
| 5,000,000 shares authorized; 4,917,735 issued and outstanding | | |
| Additional paid-in capital | | 49,504,272 |
| Accumulated deficit | | (20,121,263) |
| Total stockholder's equity | | 29,387,927 |
| Total liabilities and stockholder's equity | S | 41,647,123 |
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#### 1. ORGANIZATION AND NATURE OF BUSINESS
Electronic Transaction Clearing, Inc. (the "Company" or "ETC"), doing business as Apex Pro, was incorporated on November 9, 2007, in the State of Delaware. The Company is a wholly owned subsidiary of Apex Fintech Solutions Inc. ("Apex Fintech") On February 14, 2022, the Apex Fintech converted from a limited liability company to a C-corporation in the State of Delaware and changed its name to Apex Fintech Solutions Inc. Apex Fintech is majority owned by PEAK6 APX Holdings LLC ("PEAK6 Holdings"). PEAK6 Holdings became the majority owner of Apex Fintech on February 28, 2022, when the ownership in Apex Fintech was transferred to PEAK6 Holdings from the previous majority owner, PEAK6 Investments LLC.
The Company is registered with the Securities and Exchange Commission ("SEC") as a securities broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA") as well as various exchanges and self-regulatory organizations. The Company is also a member of the National Securities Clearing Corporation ("NSCC") and is a participant in the Depository Trust Company ("DTC") and the Options Clearing Corporation ("OCC").
In July 2022, Apex Fintech announced its intention to sell certain assets ("Assigned Contracts") and future liabilities of the Company. On September 14, 2022, the Company executed a definite agreement") to sell certain of the Company's assets and future liabilities and closed the transaction on October 31, 2022 ("Closing Date"). The Company transferred the Assigned Contracts the quarter ended December 31, 2022, and the buyer entered into a software as a service agreement contract with Apex Silver"), a wholly owned subsidiary of Apex Fintech with an effective date of January 1, 2023, which represents the consideration. The transaction. The transaction did not qualify for accounting as discontinued operations under ASC 205-20, Discontinued Operations being disposed of this not meet the definition of a component of the Company. Management is currently evaluating different business alternatives for future operations of the Company.
#### 2. SIGNIFICANT ACCOUNTING POLICIES
#### Basis of Presentation and Use of Estimates
The Statement of Financial Condition has been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") as established by the Financial Accounting Standards Board ("FASB"). The preparation of the Statement of Financial Condition in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities in the notes to the Statement of Financial Condition at the Statement of Financial Condition. Actual results could differ materially from such estimates. Management believes the estimates utilized in preparing these financial statements are reasonable. The Company's functional base currency is the U.S. Dollar, and no transactions are conducted in other currencies.
#### Cash
Cash consists of deposit with major money center banks that are not segregated and deposited for regulatory purposes. The Company maintains its cash in bank deposit accounts which at times may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash.
The Company has significant balances and or activity with two banks that are deemed major money center banks under the Dodd Frank Act and two banks that are not. None of these banks have a history of defaults, nor have they had a previous issue with customer deposits and all balances are held in banks that are FDIC insured. In addition, on a regular basis the Company reviews its banks' public regulatory submissions to review creditworthiness and liquidity stress test results. Based on the above factors, it has been determined to not make any allowance for credit losses ("ACL") under Accounting Standards Update, ("ASU"), No. 2016-13, Measurement of Credit Losses on Financial Instruments –Credit Losses ("ASC 326"), for any cash deposits, including those segregated under Federal and other regulations.
#### Cash - Segregated for Regulatory Purposes
The Company, as a regulated broker-dealer, is subject to the customer protection rule, and is required by its primary regulators, the SEC and FINRA, to segregate cash, subject to withdrawal restrictions, to satisfy rules regarding the protection of client assets under the Securities Exchange Act of 1934 Rule 15c3-3 ("Rule 15c3-3").
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#### Securities Borrowed and Securities Loaned
Securities borrowed and securities loaned at the amount of cash collateral advanced or received, respectively, with all related securities, collateral, and cash held at and moving through DTC as appropriate for each counterparty. Securities borrowed transactions require the Company to deposit cash or similar collateral with the lender. Securities loaned transactions require the receipt of collateral by the Company in the form of cash in an amount generally in excess of the fair value of securities loaned. The Company monitors the fair value of securities loaned daily, with additional collateral obtained or returned as necessary. Securities borrowed rebate income and securities loaned rebate are accrued and reported respectively as Receivables from brokers, correspondents and clearing organizations, and Accrued expenses and other liabilities in the Statement of Financial Condition.
The Company applies the collateral maintenance practical expedient in accordance with ASC 326 regarding its securities borrowed and loaned balances and their underlying collateral. Inherent in this activity, the Company and its counterparties to securities borrowed and loaned transactions, market the collateral, securing these transactions on a daily basis through DTC. The counterparty continually replenishes the collateral securing the asset in accordance with standard industry practice. Based on the above factors, the Company has determined an ACL under ASC 326 for securities borrowed and loaned transactions is zero at December 31, 2022.
#### Securities Received from Customers
Customer securities are not reflected in the Statement of Financial Condition as the Company does not own such securities and they may only be sold or rehypothecated to the extent the equivalent funds to meet regulatory or counterparty requirements.
#### Receivables from and Payables to Brokers, Dealers, Correspondents and Clearing Organizations
Receivables include amounts due from clearing organizations relating to open transactions, non-customer receivables, unsettled securities activities, deposits with clearing organizations and Omnibus related balances due from other broker dealers. Payables include amounts payable to clearing to open transactions, non-customer payables and amounts related to unsettled securities. These balances are reported net by counterparty when the right of offset exists.
The Company conducts business with other brokers and various clearing organizations, specifically DTC, NSC, and OCC. Receivables from brokers' proprietary and omnibus activity along with correspondent brokers' clients' activity. Risks and the assessment of ASC 326 for correspondent brokers are addressed in Receivables from and Payable to Customers.
Receivables from clearing organizations include amounts due from DTC, Each has specific industry standard daily reconciliations of their securities activity, net settlements, and a daily update of margin and clearing for NSCC and OCC. DTC's clearing fund requirement is updated monthly. There is no prior loss history with these clearing organizations. Risk of loss from clearing organizations is expected to be immaterial over the life of these receivables. Based on the above factors, the Company has determined an ACL under ASC 326 for receivables from brokers, correspondents and clearing organizations is zero at December 31, 2022.
Amounts receivable from customer and broker-dealer omnibus accounts on deposit with a custodian with whom the Company has an omnibus relationship. Amounts payable to customer and broker-dealer omnibus accounts include amounts due regarding transactions with which the Company has an omnibus clearing agreement. These amounts are included in the Statement of Financial Condition respectively as Receivable from and Payable to brokers, clealers, and clearing organizations.
Receivable from customer omnibus accounts have the risk of default due to customers' losses exceeding the customers' account balances. Receivables from broker-dealer omnibus accounts have the risk of default of the carrying broker provides for these net balances in its weekly SEC Rule 15c3-3 PAB reserve. In the carrying broker's default, the SIPC liquidator would allocate the reserved funds to the Company. Prior to 2022, there have been no losses associated with receivables from customer and broker-dealer omnibus accounts. As of December 31, 2022, the Company recorded an ACL of \$80,268 for unsecured receivables from customer and broker-dealer omnibus accounts.
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Securities failed to deliver and securities failed to receive represent sales and purchases of securities by the Company, respectively, either for its accounts of its customers or other brokers and dealers, which were not delivered or received on settlement date. Such transactions are initially measured value. These amounts are included in the Statement of Financial Condition as Receivable from and Payable to brokers, dealers, and clearing organizations.
Securities failed to deliver fall under the scope of ASC 326 and are subject to losses due to counterparty risk as well as market risk through buy-ins. The Company is a participant in Continuous Net Settlement ("CNS"), the process used by NSCC that guarantees and nets street-wide activity, confirms all activity and end of day positions to market daily. ETC also participates in Obligation Warehouse, which reprices and attempts to settle certain outstanding fails through the automated CNS process.
The risk of loss for CNS fails is very low as they are marked to market daily and are guaranteed by NSCC. Non-CNS fails are collateralized by securities. ETC's use of Obligation Warehouse reduces overall non-CNS fails continuous monitoring has resulted in minimal losses over the past three years. Based on the above factors, the Company has determined no ACL under ASC 326 for securities failed to deliver at December 31, 2022.
Broker fails arising outside of CNS and Obligation Warehouse occur infrequently and are immaterial, and therefore, no ACL is recorded under ASC 326 at December 31, 2022.
#### Receivables from and Payables to Customers
Customer receivables and payables represent amounts due from and to customers, primarily related to margin transactions and cash deposits, which are reported net by customer as Receivable from and Payable to customers in the Statement of Financial Condition, respectively.
Generally, receivables from customers are created through secured margin lending by the Company and or through market activity that can create a cash shortage is secured by positions that, when liquidated, reduce or eliminate the Company's receivable from the customer. This category also includes interest and other fees that are directly charged to the customer's account that become a component of the Company's customer receivable. The risk of loss is the failure of the customer to repay its debt, in which case, the Company has the customer's correspondent broker by either reducing commissions paid to the correspondent broker or by charging the correspondent broker's security deposit. The correspondent's security deposit would be required to be replenished in accordance with the terms of the agreement.
Customers and correspondents each enter into margin agreements setting rules of conduct between the customer, and the Company. The Company monitors customer receivables and implements loss mitigation policies that include securing customer receivables with marketable positions, reviewing customer unsecured receivables and securing customer debits by charging their correspondents after a customer's unsecured receivable is over 30 days old. Additionally, to ensure all costs associated with the departure of a customer are received by the Company, customers are required to leave a portion of their accounts with the Company to absorb any final costs that had not yet been charged to the customer. Any residual account value is returned to customer after all costs are charged to their account.
Prior to 2022, the Company did not have any historical losses on customer receivables. The primary loss associated with a customer receivable will be incurred by the correspondent's security deposits security deposits serve to secure any customer receivable losses. As of December 31, 2022, the Company recorded an ACL of \$651,254 for unsecured customer receivables
#### Property and equipment
Property and equipment are recorded at cost, net of accumulated depreciation and consist primarily of computer hardware and furniture, fixtures, and equipment. Depreciation is recorded on a straight-line basis using estimated useful lives ranging from three to seven years.
### Revenue Recognition
The Company's revenue from contracts with clients is recognized when a performace obligation is satisfied, typically in the month that services are provided. These performance obligations are primarily to provide brokerage, clearing and
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other administrative support. The Company bills each client for such services monthly, with payment terms of net 30 days. Revenues are primarily earned on customer transactions and assets under management. Interest income are considered revenue from sources other than contracts with clients.
#### Transaction-Rased Revenue
Transaction-based revenues consist of clearing fees, and other contract revenues based on client's account activity. Clearing and execution revenue is driven by trade volume plus monthly charges for processing capability where applicable. This revenue is generally recognized on a trade date basis. The customer account activity revenue consists of bank ACH fees, wire fees, new account fees and clearing organization trading activity fees charged to clients. The Company records the customer account activity revenue when the transactions occur.
#### Asset-Based Revenue
Asset-based revenue consists of interest income and other contractual revenues based on assets held in a client's account. Interest income includes margin interest income and interest on banks plus securities lending revenue. The Company primarily records this revenue is earned and the service is earned and the service is performed. Other types of revenue consist of firm trading gains or losses and integration fees.
#### Share-Based Compensation
The Company's employees participate in Apex Fintech's stock-based compensation is accounted for under ASC 718, Compensation ("ASC 718"), which recognizes awards at fair value on the date of grant and the recognition of compensation expenses over the period during which an employee is required to provide services in exchange for the awards, known as the requisite service period (usually, the vesting period). The grant date fair value is utilized for restricted stock unit awards ("RSUs"). Time-based and graded vesting service awards are recognized on a straight-line basis over the employees' requisite service period.
#### Income Taxes
The Company files a consolidated federal income tax return and combined state income tax returns with Apex Fintech where required.
Deferred income taxes reflects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for federal and state income tax purposes, as well as the tax effects of net operating loss and tax credit carryovers. Deferred tax assets and liabilities are measured tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Only those income tax benefits management believes are more likely than not to be sustained are recognized. Such income tax benefits are measured at the dollar amount management believes is more likely than not to be sustained. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not at least a portion of the deferred tax assets will not be realized.
Management evaluates the recognition and measurement of any uncertain tax positions taken on the Company's income tax returns in the current year as well as in all past years that are still open to examination by tax authorties. Management's conclusion regarding uncertain tax positions may be subject to review and adjustment at a later date based upon ongoing analysis of tax laws, regulations, and interpretations thereof as well as other factors.
#### Lease Accounting
The Company determines if an arrangement is a lease for accounting purposes at the inception of the agreement and account for the lease as either a financing lease, depending on the terms and conditions of the lease. The Company has elected to apply the practical expedient which allows the Company to account for lease components of a contract as a single leasing arrangement. The Company records right-of-use ("ROU") assets and lease obligations for its operating leases, which are initially recognized based on the discounted future lease payments over the term of the lease.
A rate implicit in the lease when readily determinable is used in arriving at the present value of lease payments. As most of the Company's leases do not provide an implicit rate, the Company uses an incremental borrowing rate ("IBR") based on
{10}------------------------------------------------
information available at lease commencement date in determining the present value of lease payments. In determining the appropriate IBR, the Company considers including, but not limited to, the lease term and the currency in which the arrangement is denominated.
Lease term is defined as the non-cancelable period of the lease plus any options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company does not separate lease components from non-lease components across all lease categories. Variable lease payments are expensed as incurred and are not included in measurent of ROU assets and lease liabilities. Rent expense for operating leases is recognized using the method over the term of the agreement beginning on the lease commencement date. Operating lease ROU assess are subject to evaluation for impairment or disposal on a basis consistent with other long-lived assets.
As of December 31, 2022, the Company had no finance leases.
### Fair Value of Financial Instruments
FASB ASC 820, Fair Value Measurements, ("ASC 820") establishes a framework for neasuring fair value and establishes a fair value hierarchy which prioritizes the inputs to value is the price that would be received to sell an asset, or the price paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes 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 ASC 820 are used to measure fair value.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels:
- Level 1 Inputs are quoted prices in active markets for identical assets or liabilities that the ability to access at the measurement date.
- Level 2 Inputs other than quoted prices in active markets that are either directly observable as of the measurement date, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full terms of the assets or liabilities.
- Level 3 Valuations based on inputs that are unobservable and not corroborated by market data. These financial instruments have significant inputs that cannot be validated by readily determinable data and generally involve considerable judgment by management.
### Recent Accounting Developments - Issued but not yet Adopted
The Company's management has evaluated all of the recently issued, but not yet effective, accounting standards that have been issued or proposed by the FASB or other standards-setting bodies through the filing date of the Statement of Financial Condition and does not believe the future adoption of any such pronouncements will have a material effect on the Company's financial position.
### 3. CASH AND SECURITIES SEGREGATED UNDER FEDERAL REGULATIONS
As a registered broker-dealer, the Company is subject to Rule 15c3-3 under the Securities Exchange Act of 1934, the customer protection rule ("Rule 15c3-3"). Rule 15c3-3 requires the maintenance and periodic deposit or withdrawal of cash and/or qualified securities, as defined, in special reserve accounts for the exclusive benefits of customers and proprietary acounts of brokers or dealers ("PABs"). Cash and qualified securities held for the exclusive benefit of customers and PABs under Rule 15c3-3 consist of the following:
| | December 31, 2022 | |
|-------------------|-------------------|-----------|
| Customers - Cash- | રે | 6,469,874 |
| PAB - Cash1 | | 3,364,174 |
| Total | ਫ | 9,834,048 |
l Included in the Statement of Financial Condition in Cash - segregated for regulatory purposes.
{11}------------------------------------------------
AC ?f DecembeB 31, 2022, Dhe C?m@anI made a c?m@EDaDi?n BelaDed D? Dhe BeCeBFe BeAEiBemenD f?B PABC and GaC BeAEiBed D? mainDain a balance ?f \$1,687,229 in Dhe C@ecial BeCeBFe acc?EnDC. The C?m@anI had CegBegaDed caCh in demand acc?EnDC GiDh a FalEe ?f \$3,364,174 aC ?f DecembeB 31, 2022. On JanEaBI 3, 2023, Dhe C?m@anI made a caCh de@?CiD ?f \$325,000 inD? DheCe acc?EnDC f?B a D?Dal Bemaining caCh balance ?f \$3,689,174. 4. RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, CORRESPONDENTS AND
# CLEARING ORGANIZATIONS
| AC
?f DecembeB 31, 2022, Dhe C?m@anI made a c?m@EDaDi?n BelaDed D?
15c3-3 and GaC
BeAEiBed D? mainDain a balance ?f \$2,916,332 in Dhe C@ecial BeCeBFe acc?EnDC. The C?m@anI had CegBegaDed caCh
in demand acc?EnDC
GiDh a FalEe ?f \$6,469,874 aC
de@?CiD
?f \$455,000 inD?
DheCe acc?EnDC f?B a D?Dal Bemaining caCh balance ?f \$6,924,874. | Dhe BeCeBFe BeAEiBemenD f?B cECD?meBC
?f DecembeB 31, 2022. On JanEaBI 3, 2023, Dhe C?m@anI made a caCh | EndeB REle |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------|-----------------------------------------------------|
| AC
?f DecembeB 31, 2022, Dhe C?m@anI made a c?m@EDaDi?n BelaDed D?
mainDain a balance ?f \$1,687,229 in Dhe C@ecial BeCeBFe acc?EnDC. The C?m@anI had CegBegaDed caCh in demand acc?EnDC
FalEe ?f \$3,364,174 aC
?f DecembeB 31, 2022. On JanEaBI 3, 2023, Dhe C?m@anI made a caCh de@?CiD | Dhe BeCeBFe BeAEiBemenD f?B PABC and GaC | BeAEiBed D?
GiDh a
?f \$325,000 inD?
DheCe |
| acc?EnDC f?B a D?Dal Bemaining caCh balance ?f \$3,689,174. | | |
| CLEARING ORGANIZATIONS | | |
| ReceiFableC fB?m bB?keBC, dealeBC, c?BBeC@?ndenDC and cleaBing ?BganiJaDi?nC c?nCiCD | ?f Dhe f?ll?Ging: | |
| | A> | :2 D1c18b1= 31,
2022 |
| De@?CiDC
GiDh cleaBing ?BganiJaDi?nC | \$ | 3,176,922 |
| ODheB feeC and c?mmiCCi?nC
BeceiFable | | 164,213 |
| | | |
| PB?@BieDaBI acc?EnDC
?f bB?keBC
?B dealeBC (neD
?f all?Gance ?f \$80,268) | | 13,816 |
| SecEBiDieC failed D? deliFeB
ReceiFableC fB?m c?BBeC@?ndenDC | | 8,607
8,154 |
UndeB Dhe C?m@anIPC cleaBing agBeemenD GiDh Dhe NSCC, Dhe C?m@anI iC BeAEiBed D? mainDain a cleaBing fEnd de@?CiD DhaD eAEalC ?B eHceedC Dhe D?Dal cleaBing fEnd BeAEiBemenD aC c?m@EDed bI NSCC. T?Dal cleaBing fEnd BeAEiBemenDC geneBallI FaBI dailI, baCed ?n Dhe C?m@anIPC acDiFiDieC GiDh NSCC. AC ?f DecembeB 31, 2022, Dhe C?m@anI had \$2,341,602 ?n de@?CiD in Dhe NSCC cleaBing fEnd. The D?Dal NSCC cleaBing fEnd BeAEiBemenD aD DecembeB 31, 2022 GaC \$2,287,379. DEe D? BeCDBicDi?nC ?n NSCC cleaBing fEnd de@?CiDC, ?nlI Dhe am?EnD ?f caCh eHceeding Dhe BeAEiBed minimEm balance iC aFailable f?B immediaDe GiDhdBaGal. The NSCC cleaBing fEnd de@?CiD iC inclEded in ReceiFable fB?m bB?keBC, dealeB, c?BBeC@?ndenDC and cleaBing ?BganiJaDi?nC in Dhe SDaDemenD ?f Financial C?ndiDi?n.
In acc?Bdance GiDh Dhe C?m@anIPC membeBChi@ agBeemenD GiDh Dhe OCC, Dhe C?m@anI iC BeAEiBed D? mainDain a cleaBing fEnd de@?CiD DhaD eAEalC ?B eHceedC Dhe D?Dal cleaBing fEnd BeAEiBemenD aC c?m@EDed bI OCC. AC ?f DecembeB 31, 2022, Dhe C?m@anI had \$752,226 ?n de@?CiD in Dhe OCC cleaBing fEnd, ?f Ghich \$376,440 GaC BeAEiBed in caCh. TheCe am?EnDC aBe inclEded in ReceiFable fB?m bB?keBC, dealeBC, c?BBeC@?ndenDC and cleaBing ?BganiJaDi?nC in Dhe SDaDemenD ?f Financial C?ndiDi?n.
PaIableC D? bB?keBC, dealeBC, c?BBeC@?ndenDC and cleaBing ?BganiJaDi?nC c?nCiCD ?f Dhe f?ll?Ging:
| | A>
:2 D1c18b1= 31,
2022 | | |
|--------------------------------------------------|-------------------------------|-----------|--|
| PB?@BieDaBI acc?EnDC
?f bB?keBC
?B dealeBC | \$ | 1,267,229 | |
| SecEBiDieC failed D?
BeceiFe | | 375,738 | |
| T:?a7 | \$ | 1,642,967 | |
{12}------------------------------------------------
#### 5. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
| | | As of December 31,
2022 | |
|-------------------------------------------------|---|----------------------------|--|
| Computer hardware | S | 176,868 | |
| Leasehold improvements | | 20,962 | |
| Furniture, fixtures, and equipment | | 67,204 | |
| Total property and equipment | | 265,034 | |
| Less: Accumulated depreciation and amortization | | (195,224) | |
| Property and equipment, net | | 69,810 | |
### 6.
Under the Company's clearing agreement with the DTC, the Company is required to maintain a minimum deposit of cash and shares of DTC. As of December 31, 2022, the Company owned 107.25595 shares of DTC common stock valued at \$3,714,689 and 91.14 shares of \$100 par value DTC preferred stock series A, valued at \$9,114, which is included in Other assets in Statement of Financial Condition. The Company also maintained a cash deposit in the participant fund of \$83,094, which is included in Receivable from brokers, correspondents and clearing organizations in the Statement of Financial Condition.
#### NETTING OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES 7.
The Company enters into securities borrowed and securities loaned transactions to, among other things acquires to cover short positions and settle other securities obligations, to accommodate customers' needs, and to finance the overall operations of the Company. The Company manages credit exposure arising from such transactions by, in appropriate circumstances, entering into master securities lending, netting and collateral agreements with counterparties that provide the Company, in the event of a counterparty default (such as bankruptcy or a counterparty's failure to pay or perform), the right to net a counterparty's rights and obligations under such agreement and liquidate and setoff collateral against the net amount owed by the counterparty. These collateral agreements also provide a mechanism for an efficient and orderly closeout of transactions. The Company's policy is generally to take possession of securities loaned to receive cash as collateral. The Company monitors the fair value of the underlying securities borrowed or loaned as compared with the related receivable or payable, and as necessary, requests additional collateral as provided under the applicable agreements to ensure such transactions are adequately collateralized.
Under applicable accounting guidance, there were no balances netted under securities loaned in the Statement of Financial Condition. All securities borrowed and securities loaned transactions were executed on an overnight or open basis, which allows for the collateral to be returned, as deemed necessary.
The potential effect of rights of setoff associated with the Company's recognized assets and liabilities is as follows:
| | | Gross Amounts
of Recognized
Assets and
Liabilities | | Gross Amounts
Offset in the
Statement of
Financial
Condition | | Net Amounts
Presented in the
Statement of
Financial
Condition | | Collateral
Received or
Pledged* | Net
Amount® |
|-------------------------|---|-------------------------------------------------------------|---|--------------------------------------------------------------------------|---|---------------------------------------------------------------------------|---|---------------------------------------|----------------|
| As of December 31, 2022 | | | | | | | | | |
| Assets | | | | | | | | | |
| Securities borrowed | S | 1,140,000 | S | | S | 1,140,000 | S | (643,696) | 496,304 |
| Liabilities | | | | | | | | | |
| Securities loaned | | 88,300 | | | | 88,300 | | | 88,300 |
l Amounts represent recognized assets and liabilities that are subject to enforceable master agreements with rights of setoff.
{13}------------------------------------------------
- 2 Represents the fair value of collateral the Company had received or pledged under enforceable master agreements.
- 3 Represents the amount for which, in the case of net recognized assets, the Company had not received collateral, and in the case of net recognized liabilities, the Company had not pledged collateral.
#### 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
ASC 820 establishes a framework for value and establishes a fair value hierarchy which prioritizes the inputs to valuation techniques. Fair value is the price that would be received to transfer a liability in an orderly transaction between market participants at the measurement assument assumes 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 ASC 820, are used to measure fair value.
The level of input used for valuing securities is not necessarily an indication of the risk associated with investing in those securities.
The following is a description of the valuation techniques applied to the Company's major categories of assets and liabilities measured at fair value on a recurring basis:
- Level 1 Investment and trading securities: Quoted market prices are used where available.
- Level 2 Investment and trading securities: Relevant quotes from the appropriate clearing organization.
#### Assets and Liabilities Not Recorded at Fair Value
The carrying values of certain financial assets and liabilities that are not carried at fair value on the Statement of Financial Condition are carried at amounts that value due to their short-term nature and generally negligible credit risk.
The following table summarizes the assets and liabilities not carried at fair value as of December 31, 2022:
| | | Carrying Value | | Level 1 | | Level 2 | | Level 3 | | Total Estimated
Fair Value | |
|-------------------------------------------------------------------|------|----------------|---|--------------|---|-----------|---|---------|---|-------------------------------|--|
| Assets | | | | | | | | | | | |
| Receivables from brokers, dealers,
correspondents and clearing | | | | | | | | | | | |
| organizations | ಲ್ಲಾ | 3,345,864 | S | 3,345,864 | S | | S | | | 3,345,864 | |
| Other assets | | 3,723,803 | | | | 3,723,803 | | | | 3,723,803 | |
| | | 7,069,667 | | \$ 3,345,864 | | 3,723,803 | D | | D | 7,069,667 | |
| Liabilities | | | | | | | | | | | |
| Payables to brokers, dealers,
correspondents and clearing | | | | | | | | | | | |
| organizations | A | 1.642.967 | | \$ 1.642.967 | A | | | | | 1.642,967 | |
l Represents the value of DTC common stock and DTC preferred stock series A owned by the Company. See Footnote 6 for more information.
Under the Company's clearing agreements with the Industrial and Commercial Bank of China ("ICBC"), the Company maintained a minimum required deposit as of December 31, 2022 of \$51,470 which is included in Receivable from brokers, dealers, correspondents and clearing organizations in the Statement of Financial Condition. Currently, ICBC provides custodial services only for certain chilled securities, which are unable to be transferred to the Company's DTC account. The Company self-clears the entirety of its business independently of ICBC.
#### 9. SHORT-TERM BORROWINGS
The Company is a party to a broker loan and security agreement") with BMO Harris Bank N.A. ("BMO") that provides a revolving, uncommitted, and securities) lending facility with a maximum
{14}------------------------------------------------
borrowing amount of \$50,000,000. Interest is charged on amounts borrowed overnight at a rate of 5.60% per annum, which is based on Fed Funds overnight rate plus 1.50%. Up to \$25.000.000 of these loans are available on an intraday loan basis ("Day Loan''). Day Loans bear interest at a rate of 1.00% per annum. There were no amounts outstanding under this facility as of December 31, 2022.
The Company entered into a loan authorization agreement with BMO ("BMO Loan Agreement") on October 23, 2019, that provides a revolving, uncommitted, and unsecured credity with a maximum borrowing amount of \$10,000,000. Interest is charged on amounts borrowed at a rate of 6.60% per annum, based on Fed Funds overnight rate plus 2.5%. A facility fee of 0.50% per annum on unused borrowing capacity is paid quarterly. This facility is solely for the purpose of financing NSCC deposit requirements and customer withdrawals from the reserve account. There were no amounts outstanding under this facility as of December 31, 2022.
#### LEASES 10.
The Company's leases primarily consist of office spaces. As of December 31, 2022, the weighted-average remaining lease term on these leases is approximately 0.50 years and the weighted-average discount rate used to measure the lease liabilities is 4%. As of December 31, 2022, the operating lease right-of-use asset is \$271,386 and the operating lease liability is \$34,137. Expense from operating leases is calculated and recognized on a straight-line basis over the applicable lease periods, considering rent concessions, lease incentives, and escalating rent terms. The Company's lease agreements do not contain any residual value guarantees, restrictions, or covenants.
The Company has non-cancelable operating leases for its offices and rental equipment and hase and non-lease components. As of December 31, 2022, future undiscounted to operating lease payments are as follows:
| | Operating Lease
Commitments |
|----------------------------------------------------------------|--------------------------------|
| 2023 | 345,128 |
| Total undiscounted future cash flows related to lease payments | 345,128 |
| Less: Imputed interest | 3.991 |
| Present value of the lease liabilities | 341.137 |
#### 11. COMMITMENTS, CONTINGENCIES AND GUARANTEES
#### OCC Membership Guarantee
The OCC is a mutual company, where member's deficit if that member's clearing fund has been extinguished. The OCC has not had a significant issue with a member's deficit. The Company, therefore, cannot estimate any guarantee obligation associated with its OCC membership. Further, management believes the exposure to be remote and therefore, the Company does not take a reduction to regulatory Net Capital for this guarantee, nor has a reserve been established in the Statement of Financial Condition.
#### Other Membership Guarantees
The Company is a member of numerous exchanges and clearing organizations. Under the members are generally required to guarantee the performance of other member becomes unable to satisfy its obligations to the clearing organization, other members would be required to meet shortfalls. To mitigate these performance risks, the exchanges and clearing organizations often require members to post collateral as well as meet certain minimum financial standards. The Company's maximum potential liability under these arrangements cannot be quantified. However, the potential for the Company to be required to make payments is remote. Accordingly, no contingent liability is recorded in the Statement of Financial Condition for these arrangements.
#### FINRA Inquiry
In 2019, FINRA, as well as certain exchanges, requested documentation regarding order routing and trading activities of two clients of the Company during 2019. The Company terminated its relationship with these clients
{15}------------------------------------------------
regarding the activities in question in 2019. FINRA and certain exchanges have also requested documentation and information regarding certain erroneous orders of clients as well as the Company's risk system controls relating to order entries. The Company is cooperating with the regulatory authorities with respect to the ongoing inquiries. During June 2021, the Company received letters from FINRA representing certain exchanges with a prelimination to recommend disciplinary action addressing the above matter. Based on historical experience, the Company estimates the penalty to be \$4,375,000. This amount has been accrued and is included in Accounts payable and accrued liabilities in the accompanying Statement of Financial Condition.
### Other Inquiries
From time to time, the Company may become in various claims and regulatory inquiries or examinations in the ordinary course of conducting its business. The Company is not aware of any contingencies relating to such matters that would require accrual or disclosure in the financial statements at December 31, 2022.
#### 12. STOCKHOLDER'S EQUITY
The Company is authorized to issue 5,000,000 shares of common stock, at a par value of \$0.001 per share. As of December 31, 2022, 4,917,735 common shares are currently issued and outstanding, During the year ended December 31, 2022, the Company made return-of-capital distribution payments totaling \$39,000,000 to Apex Fintech, reducing the Company's Additional paid-in capital in the Statement of Financial Condition.
#### 13. SHARE-BASED COMPENSATION
Under the Apex Fintech Solutions, Inc. Equity Incentive Plan ("AFS Equity Plan"), up to 47,000,000 shares of Apex Fintech's common stock may be granted as share-based awards to eligible participants, as options to purchase shares of common stock in the form of incentive stock options or nonqualified stock options; stock appreciation rights ("SARs") in the form of tandem SARs or free-standing SARs; stock awards in the form of restricted stock awards ("RS Awards"), restricted stock unit awards ("RSUs") or other stock awards; and performance awards. Shares granted under the AFS Equity Plan will be issued from authorized but unissued shares.
The AFS Equity Plan is administered by the Compensation Committee of Apex Fintech's Board of Directors. The Compensation Committee has discretionary authority to determine the eligibility to participate in the AFS Equity Plan and establishes the terms and conditions of the awards, including the number of awards granted to each participant and all other terms and conditions applicable to such awards in individual grant agreements.
#### Restricted Stock Unit Awards
The following table summarizes the activity for RSUs for the year ended December 31, 2022:
| | Number of RSUs | Weighted- average
grant date fair value | | |
|-------------------------------|----------------|--------------------------------------------|------|--|
| Unvested at December 31, 2021 | | S | | |
| Granted | 66,422 | સ | 8.79 | |
| Vested | (62,588) | | 8.79 | |
| Forfeited | (3,834) | S | 8.79 | |
| Unvested at December 31, 2022 | | A | | |
RSUs represent the right to receive one share of the Apex Fintech's common stock upon vesting. RSUs granted under the AFS Equity Plan for the year ended December 31, 2022 were 66,422, that cliff-vested on December 31, 2022.
#### 14. INCOME TAXES
The Company's taxable income or loss is included in the consolidated tax returns filed by Apex Fintech. In the consolidated tax returns, the Company's taxable income or loss is added to Apex Fintech's taxable income or loss in arriving at the consolidated taxable income or loss. If the current year consolidation results income, then such income may be further offset by carry forward losses in the consolidated returns, subject to Internal Revenue Code section 382 ("IRC 382"), which limits net
{16}------------------------------------------------
income that can be offset by net operating losses ('NOL') after an ownership change. Pursuant to a tax sharing agreement with Apex Fintech, any utilization by Apex Fintech of the Company's tax losses, including any carryovers thereof, will either reduce the current tax liability or be remitted to the Company. During 2022, the Company estimates there will be sufficient taxable income to utilize the NOL's subject to the IRC 382 limitation.
The Company, in its ordinary course of business, pays all taxes involving its consolidated tax returns with Apex Fintech through its affiliate ACC. Current and deferred tax expense is allocated to the Company based on a "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 ACC. The current provision is the amount of tax payable or refundable on the basis of a hypothetical, current-year separate return. Any difference between the tax provision (or benefit) allocated to the Company under the separate return method and payments to be made to (or received from) Apex Fintech for tax expense are ultimately settled through cash transfers.
As of December 31, 2022the Company had a state income tax receivable of \$61,566 and a federal tax payable of \$148,406, which are included in Other asset and, Accrued expenses and other liabilities, respectively, in the accompanying Statement of Financial Condition. The net deferred tax asset of \$4,696,044 is included in Other assets in the accompanying Statement of Financial Condition.
| | December 31, 2022 |
|----------------------------------|--------------------|
| Deferred Income Tax Assets: | |
| Net operating loss carry-forward | ਦਿੱਤੇ
4,941,409 |
| Allowance for credit losses | 413,652 |
| Share-based compensation | 197,784 |
| Operating lease liabilities | 94,214 |
| Long term incentive plan | 32,527 |
| Valuation allowance | (385,802) |
| Total deferred tax assets | 5,293,784 |
| Deferred Income Tax Liabilities | |
| Unrealized gain | 458,581 |
| Operating lease ROU assets | 74,951 |
| Prepaid expenses | 54,066 |
| Property & equipment | 10,142 |
| Total deferred tax liabilities | 597,740 |
| Net deferred tax assets | S
4,696,044 |
The components of the net deferred tax assets and liabilities are as follows:
The following table provides details of the Company's tax carryforwards at December 31, 2022, including the expiration dates, any related valuation allowance and the amount of pre-tax earnings necessary to fully realize each net deferred tax asset balance:
| | | Expires between
2032 and 2037 | No Expiration | | | Total |
|--------------------------------|---|----------------------------------|---------------|--------------|--|-----------|
| Federal tax loss carryforwards | S | 2,460,191 \$ | | 1,491,304 \$ | | 3,951,495 |
| State tax loss carryforwards | | 989,914 | | | | 989.914 |
| Valuation allowance | | (385,802) | | | | (385,802) |
| | S | 3,064,303 \$ | | 1,491,304 \$ | | 4,555,607 |
{17}------------------------------------------------
The Company has evaluated the abilize these NOL carryforwards and, as such, has recorded a valuation allowance of \$385,802 on a portion of the NOL recorded at December 31, 2022.
The Company does not have any material uncertain tax positions. As of December 31, 2022, generally the past three years remain subject to examinations by various tax jurisdictions under the statute of limitations.
#### 15. EMPLOYEE BENEFIT PLANS
The Company's employees participate in ACC's defined contribution 401(k) employee benefit plan (the "Plan") that covers substantially all employees. Under the Company in conjunction with ACC, may make a discretionary matching contribution. All employees are eligible to participate in the Plan, based on meeting certain age and term of employment requirements.
#### 16. RELATED PARTIES TRANSACTIONS
#### Apex Clearing Corporation
On September 17, 2019, the Company entered into a support services agreement with its affiliate, ACC. Services provided include consultative and support services associated with business operations and process improvements. These fees are charged by ACC monthly, based on actual costs, with certain services charged by the Company back to ACC. Included in the amounts charged by ACC are amounts for the Company's tax liability, which are paid by the Company to ACC, who pays applicable taxing authorities on behalf of the Company. As of December 31, 2022, \$35,176 was owed to ACC for these services and is included in Accounts payable and accrued liabilities in the Statement of Financial Condition.
In the ordinary course of business, the Company introduces equity trades for clearing to ACC.
In the ordinary course of business, the Company conducts securities borrowing and lending transactions with ACC. Included in Securities borrowed is \$147,600 of open transactions with ACC and included in Securities loaned is \$147,600 of open balances with ACC as of December 31, 2022, and are included in the Statement of Financial Condition.
#### Apex Fintech Solutions LLC
As of December 31, 2022 the Company had a payable to Apex Fintech of \$119,674, included in Payables to affiliates in the Statement of Financial Condition.
#### PEAK6 Group LLC
PEAK6 Group LLC ("PEAK6 Group") provides various support and other services to the Company and is entitled to fees and other payouts pursuant to the terms of a Support Services Agreement between the Company and PEAK6 Investments, as amended (the "SSA"). As of December 31, 2022 the Company had a payable to PEAK6 Group of \$42,337, included in Payables to affiliates in the Statement of Financial Condition.
#### Apex Silver LLC
As of December 31, 2022 the Company had a payable of \$20,000 due to Apex Silver, included in Accrued expenses and other liabilities in the Statement of Financial Condition
#### Coda Markets, Inc.
As of December 31, 2022 the Company had a receivable due from CODA Markets, Inc., a wholly-owned subsidiary of Apex Fintech, of \$269, included in Receivables from in Receivables from affiliates in the Statement of Financial Condition.
#### 17. REGULATORY REQUIREMENTS
The Company is a registered broker-dealer subject to the SEC Uniform Net Capital Rule (Rule 15c3-1) under the Securities Exchange Act of 1934, under which the Company is required to maintain net capital. The Company has elected to use the alternative method which requires the maintenance of minimum net capital to the greater of \$250,000 or 2% of aggregate debit balances arising from customer transactions, as defined.
{18}------------------------------------------------
The table below summarizes net capital, minimum net capital, and excess net capital:
| | December 31, 2022 |
|---------------------|-------------------|
| Net Capital | 18,834,680
မခ |
| Minimum Net Capital | 250,000 |
| Excess Net Capital | 18,584,680 |
#### 18. CREDIT RISK
In the normal course of business, the Company executes and settles with customers, brokers, dealers, and affiliates. These securities transactions are completed on a cash or margin basis. The Company is exposed to risk of loss on these transactions in the counterparty or affiliate fails to satisfy its obligations in which case the Company may be required to purchase or sell financial instruments at prevailing market prices.
The Company engages in various securities with a diverse group of domestic and foreign counterparties. The Company's exposure to credit risk associated with the nonperformance of these counterparties in fulfilling their contractual obligations pursuant to securities can be directly impacted in volatile trading markets which may impair the ability of the counterparties to satisfy their obligations to the Company.
In margin transactions, the Company extends credit to its customers that is collateralized by cash and securities in the customer accounts and is subject to various regulatory and internal margin guidelines. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose the Company to significant off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event a customer fails to satisfy its obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customers' obligations. The Company seeks to control risks associated with its customer activities by requiring them to mantain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors the required margin levels daily, and puidelines, requires customers to deposit additional collateral or to reduce positions when necessary.
In connection with securities financing activities, the Company enters borrowing and lending arrangements which may result in significant credit exposure in the counterparty to the transaction is unable to fulfill its contractual obligations.
#### 19. INDEMNIFICATION
The Company enters into contracts that contain a variety of indemnifications for which the maximum exposure is unknown but for which management expects the risk of loss, if any, to be remote. The Company has no current claims or losses pursuant such contracts
#### 20. SUBSEQUENT EVENTS
The Company evaluated subsequent events through the date on which the financial statements were issued. Other than the below items, there have been no material subsequent events this period that could require an adjustment to these financial statements.
On January 17, 2023, the Company terminated the Broker Loan Agreement and the BMO Loan Agreement with BMO.
{19}------------------------------------------------
# SUPPLEMENTAL INFORMATION
{20}------------------------------------------------
#### ELECTRONIC TRANSACTION CLEARING, INC. Sc410@71 I F59a9c5a7 a90 O;1=a?5:9a7 C:8b5910 U952:=8 S59371 R1;:=? Pa=? II D1c18b1= 31, 2022
| | ELECTRONIC TRANSACTION CLEARING, INC. | | | | |
|----|------------------------------------------------------------------------------------------------------------------------|---------------|-------|------------------|------|
| | Sc410@71 I
F59a9c5a7 a90 O;1=a?5:9a7 C:8b5910 U952:=8 S59371 R1;:=? Pa=? II
D1c18b1= 31, 2022 | | | | |
| 1. | T?Dal ?GneBChi@ eAEiDI fB?m SDaDemenD
?f Financial C?ndiDi?n | | | \$
29,388,271 | 3480 |
| 2. | DedEcD
?GneBChi@ eAEiDI n?D all?Gable f?B NeD Ca@iDal | | | \$
0 | 3490 |
| 3. | T?Dal ?GneBChi@ eAEiDI
AEalified f?B NeD Ca@iDal | | | \$
29,388,271 | 3500 |
| 4. | Add:
LiabiliDieC
CEb?BdinaDed D? claimC
?f geneBal cBediD?BC all?Gable in c?m@EDaDi?n ?f neD
A.
ca@iDal | | | \$
0 | 3520 |
| | B.
ODheB (dedEcDi?nC) ?B all?Gable cBediDC (liCD) | | | \$
0 | 3525 |
| 5. | T?Dal ca@iDal and all?Gable CEb?BdinaDed liabiliDieC | | | \$
29,388,271 | 3530 |
| 6. | DedEcDi?nC and/?B chaBgeC:
T?Dal n?n-all?Gable aCCeDC fB?m SDaDemenD
?f Financial
A. | | | | |
| | C?ndiDi?n
AddiDi?nal chaBgeC f?B cECD?meBCP and n?n-cECD?meBCP | \$ 10,080,661 | 3540 | | |
| | 1.
CecEBiDI acc?EnDC | \$
0 | 3550 | | |
| | AddiDi?nal chaBgeC f?B cECD?meBCP and n?n-cECD?meBCP
2. | | | | |
| | CecEBiDI acc?EnDC
AddiDi?nal chaBgeC f?B cECD?meBC' and n?n-cECD?meBC' | \$
0 | 3560 | | |
| | 3.
CecEBiDI-baCed CGa@ acc?EnDC
AddiDi?nal chaBgeC f?B cECD?meBC' and n?n-cECD?meBC' | \$
0 | 12051 | | |
| | 4.
CGa@ acc?EnDC | \$
0 | 12052 | | |
| | B.
Aged fail-D?-deliFeB: | \$
4,891 | 3570 | | |
| | 1.
nEmbeB
?f iDemC
32
3450 | | | | |
| | C.
Aged Ch?BD
CecEBiDI diffeBenceC-leCC
BeCeBFe ?f
\$
0
3460 | | | | |
| | nEmbeB
?f iDemC
0
3470 | | | | |
| | D.
SecEBed demand n?De deficiencI
C?mm?diDI fEDEBeC c?nDBacDC and C@?D c?mm?diDieC
L
@B?@BieDaBI | \$
0 | 3590 | | |
| | E.
ca@iDal chaBgeC | \$
0 | 3600 | | |
| | F.
ODheB dedEcDi?nC and/?B chaBgeC | \$
468,039 | 3610 | | |
| | DedEcDi?nC f?B acc?EnDC caBBied EndeB REle 15c3-3(a)(6), (a)(7), and
G.
(c)(2)(H) | \$
0 | 3615 | | |
| | H.
ODheB dedEcDi?nC and/?B chaBgeC | | | \$ (10,553,591) | 3620 |
| 7. | ODheB addiDi?nC and/?B all?Gable cBediDC (LiCD) | | | \$
0 | 3630 |
| 8. | NeD ca@iDal bef?Be haiBcEDC
?n CecEBiDieC
@?CiDi?nC | | | \$
18,834,680 | 3640 |
| 9. | HaiBcEDC
?n CecEBiDieC (c?m@EDed, GheBe a@@licable, @EBCEanD
D? 15c3-1(f): | | | | |
| | A.
C?nDBacDEal CecEBiDieC c?mmiDmenDC | \$
0 | 3660 | | |
| | B.
SEb?BdinaDed CecEBiDieC b?BB?GingC | \$
0 | 3670 | | |
| | C.
TBading and inFeCDmenD
CecEBiDieC: | | | | |
| | BankeBCP acce@Dance, ceBDificaDe ?f de@?CiD and c?mmeBcial
1. | | | | |
| | @a@eB | \$
0 | 3680 | | |
| | 2.
U.S. and Canadian g?FeBnmenD
?bligaDi?nC | \$
0 | 3690 | | |
| | 3.
SDaDe and mEnici@al g?FeBnmenD
?bligaDi?nC | \$
0 | 3700 | | |
| | 4.
C?B@?BaDe ?bligaDi?nC | \$
0 | 3710 | | |
| | 5.
SD?ckC and GaBBanDC | \$
0 | 3720 | | |
| | 6.
O@Di?nC | \$
0 | 3730 | | |
| | 7.
ABbiDBage
RiCk-baCed haiBcEDC c?m@EDed EndeB 17 CFR 240.15c3-1a ?B 17 | \$
0 | 3732 | | |
| | 8.
CFR 240.18a-1a | \$
0 | 12028 | | |
| | 9.
ODheB
CecEBiDieC | \$
0 | 3734 | | |
{21}------------------------------------------------
### ELECTRONIC TRANSACTION CLEARING, INC. Schedule I Financial and Operational Combined Uniform Single Report Part II December 31, 2022
| D. Undue Concentration | | 0 3650 | | |
|-----------------------------------------------------|-----|-----------|------------|------|
| E. Other (List) | 0 1 | 3736 | | |
| 10. Haircuts on security-based swaps | | 0 12053 | | |
| 11. Haircuts on swaps | | 0 12054 | | |
| 12. Total haircuts (sum of Lines 9A-9E, 10, and 11) | | | () | 3740 |
| 13. Net Capital (Line 8 minus Line 12) | | | 18,834,680 | 3750 |
### Calculation of Excess Tentative Net Capital (If Applicable)
| | Tentative net capital | \$ 18,834,680 | 3640 |
|---|-----------------------------------------------------------------------------------------------|-----------------------|-----------|
| | 2. Minimum tentative net capital requirement | | 12055 |
| | 3. Excess tentative net capital (difference between Lines 1 and 2) | \$ 18,834,680 12056 | |
| 4 | Tentative net capital in excess of 120% of minimum tentative net capital requirement reported | | |
| | on Line 2 | | 0 12057 |
#### Calculation of Minimum Net Capital Requirement
| | 5. Ratio minimum net capital requirement | | | | | | | |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|------|------|------|------------|-------|--|--|
| | A. 6 2/3% of total aggregate indebtedness (Line Item 3840) | | | | | 3756 | | |
| | B 2% of aggregate debit items as shown in the Formula for Reserve Requirements
pursuant to Rule 15c3-3 | | | S | 94 | 3870 | | |
| | i. Minimum CFTC net capital requirement (if applicable) | ಲ್ಲಾ | 7490 | | | | | |
| | C. Percentage of risk margin amount computed under 17 CFR 240.15c3-1(a)(7)(i) or (a)(10) | | | | | 12058 | | |
| | D. For broker-dealers engaged in reverse repurchase agreements, 10% of the amounts in 17
CFR 240.15c3-1(a)(9)(i)-(iii) | | | | | | | |
| | E. Minimum ratio requirement (sum of Lines 5A, 5B, and/or 5D, as applicable) | | | S | 94 | 12060 | | |
| 6. | Fixed-dollar minimum net capital requirement | | | ಲ್ಲಿ | 250,000 | 3880 | | |
| 7. | Minimum net capital requirement (greater of Lines 5E and 6) | | | ಕ್ಕಿ | 250,000 | 3760 | | |
| 8. | Excess net capital (Item 3750 minus Item 3760) | | | ಲ್ಲಿ | 18,584,680 | 3910 | | |
| | 9, Ratio minimum net capital requirement | | | | | | | |
| | A. Net capital in excess of 120% of minimum net capital requirement reported on Line 7 | | | ಲ್ಲಿ | 18,534,680 | 12061 | | |
| | P Net capital in excess of 5% of combined aggregate debit items as shown in the Formula for
Reserve Requirements pursuant to Rule 15c3-3 | | | ಲ್ಲಿ | 18,834,444 | 3920 | | |
| | Calculation of Minimum Net Capital Requirement | | | | | | | |
| | 10. Total aggregate indebtedness liabilities from Statement of Financial Condition (Item 1230) | | | | | 3790 | | |
| 11. | Add | | | | | | | |
| | A. Drafts for immediate credit | S | 3800 | | | | | |
| | B Market value of securities borrowed for which no equivalent value | | | | | | | |
| | is paid or credited | ക്ക | 3810 | | | | | |
| | C. Other unrecorded amounts (list) | ಕಾ | 3820 | | | | | |
| | D. Total additions (sum of Line Items 3800, 3810, and 3820) | | | S | | 3830 | | |
| | 12. Deduct: Adjustment based on deposits in Special Reserve Bank Accounts (15c3-1(c)(1)(vii)) | | | | | | | |
| | 13. Total aggregate indebtedness (sum of Line Items 3790 and 3830) | | | ಕಿ | | 3840 | | |
| | 14. Percentage of aggregate indebtedness to net capital (Item 3840 divided by Item 3750)) | | | | 0% | 3850 | | |
| | 15 Percentage of aggregate indebtedness to net capital after anticipated capital withdrawals (Item
3840 divided by Item 3750 less Item 4880) | | | | | 3823 | | |
{22}------------------------------------------------
### ELECTRONIC TRANSACTION CLEARING, INC. Schedule I Financial and Operational Combined Uniform Single Report Part II December 31, 2022
| Calculation of Other Ratios | | |
|-----------------------------------------------------------------------------------------------------|-------------------|------|
| 16. Percentage of net capital to aggregate debits (Item 3750 divided by Item 4470) | 398870.82 % 3851 | |
| 17 Percentage of net capital, after anticipated capital withdrawals, to aggregate debits (Item 3750 | | |
| less Item 4880, divided by Item 4470) | 398870.82 % 3854 | |
| 18. Percentage of debt to debt-to-equity total, computed in accordance with Rule 15c3-1(d) | 0.00 % 3860 | |
| 19. Options deductions/net capital ratio (1000% test) total deductions exclusive of liquidating | | |
| equity under Rule 15c3-1(a)(6) and (c)(2)(x) divided by net capital | | 3852 |
{23}------------------------------------------------
### ELECTRONIC TRANSACTION CLEARING, INC. Schedule II Computation for the Determination of Customer Reserve Requirements Under Rule 15c3-3 of the Securities and Exchange Commission
| | | December 31, 2022 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|-------------------|
| Credit Balances | | |
| Free credit balances and other credit balances in customers' security accounts | S | 2,885,626 |
| Monies borrowed collateralized by securities carried for the accounts of customers | | |
| Monies payable against customers' securities loaned | | |
| Customers' securities failed to receive (including credit balances in continuous net settlement
accounts) | | |
| Credit balances in firm accounts that are attributable to principal sales to customers | | |
| Fair value of stock dividends, stock splits, and similar distributions receivable outstanding over 30
calendar days | | |
| Fair value of short security count differences over 30 calendar days | | |
| Fair value of short securities and credits (not to be offset by "longs" or by debits) in all suspense
accounts over 30 calendar days | | |
| Fair value of securities that are in transfer in excess of 40 calendar days and have not been
confirmed to be in transfer by the transfer agent or the issuer | | |
| Other Credits - Payable to Omnibus Clearing Firms | | 35,286 |
| Total Credit Items | S | 2,920,912 |
| | | |
| Debit Balances | | |
| Debit balances in customers' cash and margin accounts excluding unsecured accounts and accounts | | |
| doubtful of collection net of deductions pursuant to Rule 15c3-3 | S | 48 |
| Securities borrowed to effectuate short sales by customers and securities borrowed to make delivery | | |
| on customers' securities failed to deliver
Failed to deliver of customers' securities not older than 30 calendar days (including debit balances | | 4,640 |
| in continuous net settlement accounts) | | |
| Margin required and on deposit with the Options Clearing Corporation for all option contracts
written or purchased in customer accounts | | |
| Other, Receivable from Omnibus Clearing Firms | | 34 |
| Aggregate Debit Items | | 4,722 |
| Less 3% | | (142) |
| Total Debit Items | | 4,580 |
| Excess of total credits over total debits | S | 2,916,332 |
| Reserve computation | | |
| Excess of total credits over total debits | S | 2,916,332 |
| Amount held on deposit in reserve bank accounts | | 6,469,874 |
| Amount of deposit - January 3, 2023 | | 455,000 |
| New amount in reserve account after withdrawal | | 6,924,874 |
| Excess/(Deficit) | ಲ್ಲಿ | 4,008,542 |
Note: There are no material differences between the preceding computation and the Company's corresponding unaudited Part II of Form X-17A-5 as of December 31, 2022.
{24}------------------------------------------------
### ELECTRONIC TRANSACTION CLEARING, INC. Schedule II Computation for the Determination of PAB Reserve Requirements for Broker-Dealers
| | | December 31, 2022 |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|-------------------|
| Credit Balances | | |
| Free credit balances and other credit balances in proprietary accounts of broker-dealers ("PAB") | S | 1,687,229 |
| Monies borrowed collateralized by securities carried for PAB | | |
| Monies payable against PAB securities loaned | | |
| PAB securities failed to receive | | |
| Credit balances in firm accounts which are attributable to principal sales to PAB | | |
| Other - Payable to Omnibus Clearing Firms | | 39 |
| Total PAB Credits | ಕಿತ | 1,687,268 |
| | | |
| Debit Balances | | |
| Debit balances in PAB excluding unsecured accounts and accounts doubtful of collection | S | |
| Securities borrowed to effectuate short sales by PAB and securities borrowed to make delivery on
PAB securities failed to deliver | | |
| Failed to deliver of PAB securities not older than 30 calendar days | | |
| Margin required and on deposit with the Options Clearing Corporation for all option contracts
written or purchased in PAB accounts | | |
| Margin related to security futures products written, purchased or sold in PAB accounts required and
on deposit with clearing agency or a derivative clearing organization | | |
| Other - Receivable from Omnibus Clearing Firms | | 39 |
| Total PAR Debits | | 39 |
| Excess of total PAB credits over total PAB debits | ಕಿತ | 1,687,229 |
| | | |
| Reserve Computation | | |
| PAB reserve requirement | ತಿ | 1,687,229 |
| Amount held on deposit in PAB reserve bank account - December 31, 2022 | | 3,364,174 |
| Amount of deposit - January 3, 2022 | | 325,000 |
| New amount in PAB reserve bank account after deposit | | 3,689,174 |
| Excess (Deficit) | ಲ್ಲಿ | 2,001,945 |
| | | |
Note: There are no material differences between the preceding computation and the Company's corresponding unaudited Part II of Form X-17A-5 as of December 31, 2022.
{25}------------------------------------------------
### ELECTRONIC TRANSACTION CLEARING, INC. Sc410@71 III I92:=8a?5:9 R17a?593 ?: ?41 P:>>1>>5:9 := C:9?=:7 R1<@5=1819?> 2:= B=:61=> a90 D1a71=> P@=>@a9? ?: R@71 15c3-3 U901= ?41 S1c@=5?51> ECc4a931 Ac? :2 1934
| ELECTRONIC TRANSACTION CLEARING, INC.
Sc410@71 III
I92:=8a?5:9 R17a?593
?:
?41 P:>>1>>5:9
:= C:9?=:7 R1<@5=1819?>
2:= B=:61=> a90 D1a71=> P@=>@a9?
U901=
?41 S1c@=5?51> ECc4a931 Ac?
:2 1934 | | | ?: R@71 15c3-3 |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----|-------------------|----------------|
| | | D1c18b1= 31, 2022 | |
| | | Ma=61? Va7@1 | N:. :2 I?18> |
| CECD?meBCP fEllI
@aid CecEBiDieC and eHceCC maBgin CecEBiDieC n?D in Dhe C?m@anIPC
@?CCeCCi?n ?B c?nDB?l aC
?f DecembeB 31, 2022 (f?B
Ghich inCDBEcDi?nC
D?
BedEce D?
@?CCeCCi?n ?B c?nDB?l had been iCCEed aC
?f DecembeB 31, 2022, bED f?B
Ghich Dhe
BeAEiBed acDi?n GaC n?D
Daken GiDhin Dhe Dime fBameC
C@ecified EndeB REle 15c3-3). | \$ | M | M |
| CECD?meBCP fEllI
@aid CecEBiDieC and eHceCC maBgin CecEBiDieC f?B
Ghich inCDBEcDi?nC
D?
BedEce D?
@?CCeCCi?n ?B c?nDB?l had n?D been iCCEed aC
?f DecembeB 31, 2022, eHclEding
iDemC aBiCing fB?m NDem@?BaBI lagC
DhaD
BeCElD fB?m n?Bmal bECineCC
?@eBaDi?nCO aC
@eBmiDDed EndeB REle 15c3-3. | \$ | M | M |
Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.