# WATERMILL INSTITUTIONAL TRADING LLC X-17A-5 (2020-02-27) — Broker-dealer annual report - Company: WATERMILL INSTITUTIONAL TRADING LLC - Form: X-17A-5 - Filed: 2020-02-27 - Period: 2019-12-31 - Accession: 0001467398-20-000001 - CIK: 1467398 - File #: 8-68311 - Material weakness: No - Auditor: CITRIN COOPERMAN & COMPANY, LLP - Auditor location: LIVINGSTON, NJ - Contact: Dmitriy Rutitskiy - Phone: 2127514422 - Signed by: David J. Dempsey (COO) Original filing: https://www.sec.gov/Archives/edgar/data/1467398/000146739820000001/WatermillPublic2019.pdf --- {0}------------------------------------------------ UNITED ST ATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 #### ANNUAL AUDITED REPORT FORM X-17 A-5 PART Ill | | OMB APPROVAL | |-------------|---------------------------| | OMB Number: | | | | Expires: August 31, 2020 | | | Estimated average burden | | | hours per resPOnse 12.00 | | | SEC FILE NUMBER | | | 8. 68311 | #### FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule I 7a-5 Thereunder | 01/01/2019 | AND ENDING | 12/31/2019
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WATERMILL INSTITUTIONAL TRADING LLC | | | | | | | | | | | | | | | (No. and Streel) | | | | | NJ | | 07310 | | | {~tale) | | {Arca Code- Telephone No.) | | | | | | | | | | | | | | | | | | | | | | | LIVINGSTON | NJ | 07039 | | | (City) | (Scace) | (Zip Code) | | | | | | | | | | | | | | | | | | | | | | | | 290 WEST MOUNT PLEASANT AVE, SUITE 3310
0 Accountant not resident in United States or any of its possessiom | --~~~~-----~~~~~
A. REGISTRANT IDENTIFICATION
111 TOWN SQUARE PLACE SUITE 1520
NAME AND TELEPHONE NUMBER OF PERSON TO CONT ACT IN REGARD TO THIS REPORT
B. ACCOUNT ANT IDENTIFICATION
INDEPENDENT PUBLIC ACCOUNT ANT whose opinion is contained in this Report•
(Name - if individual. slate la.FOR OFFICIAL USE ONLY | | ~/aims *for exemption from the requirement that the annual report be covered by the opinion of an independent public accountant must be supported by a statement of facts and circumstances relied on as the basis/or the exemption. See section 240.* / *7a-5(e){2).* > Potential persons who are to respond to the collection of lnfonnation contained in this fonn are not required to respond unless the fonn displays a currently valid OMB control number. SEC 1410 (06·02) {1}------------------------------------------------ #### OATH OR AFFIRMATION | | David J. Dempsey | swear ( swear (or affirm) that, to the | |------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------| | | best of my knowledge and belief the accompanying financial statement and supporting schedules pertaining to the firm of | | | | WATERMILL INSTITUTIONAL TRADING LLC | , as of | | | December 31, 2019, are true and correct. I further swear (or affirm) that neither the company | | | | nor any partner, proprietor, principal officer or director has any proprietary interest in any account classified solely as that of | | | | a customer, except as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chief Operating Officer | | | | Title | | | | | | | Notary Public | | | | | OLAJUWON J. BLAIN
TATE OF
NOTARY PUBLIC OF NEW JERSEY | | | | OTAR
COMM. # 2453620
PURLIC | | | This report ** contains (check all applicable boxes): | MY COMMISSION EXPIRES 9/22/2020
W JERS | | | (a) Facing page. | | | | (b) Statement of Financial Condition. | | | | (c) Statement of Income (Loss) | | | | (d) Statement of Changes in Financial Condition. | | | | (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital | | | | (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors | | | | (g) Computation of Net Capital. | | | | (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3 | | | | | | | (i) Information Relating to the Possession or control Requirements Under Rule 15c3-3
(i) A Reconciliation, including appropriate explanation of Net Capital Under Rule 15c3-1 and the | | | | | Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3 | | | | | | | | (k) A Reconciliation between the audited and unaudited Statements of Financial Condition with respect to methods of con
solidation. | | | | (1) An Oath or Affirmation. | | | | (n) A report describing any material inadequacies found to exist or found to have existed since the date of the previous audi | | | | (o) Exemption report | | | | | | \*\* For conditions of confidential treatment of certain portions of this filing, see section 240.17a-5(e)(3). {2}------------------------------------------------ STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 2019 {3}------------------------------------------------ FOR THE YEAR ENDED DECEMBER 31, 2019 #### TABLE OF CONTENTS | | Page | |---------------------------------------------------------|-------| | Report of Independent Registered Public Accounting Firm | ー | | Financial Statement | | | Statement of Financial Condition | 2 | | Notes to Statement of Financial Condition | 3 - 7 | {4}------------------------------------------------ ![](_page_4_Picture_0.jpeg) ### **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Member Watermill Institutional Trading LLC ### **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of Watermill Institutional Trading LLC as of December 31, 2019, and the related notes (collectively referred to as the "financial statement"). In our opinion, the statement of financial condition presents fairly, in all material respects, the financial position of Watermill Institutional Trading LLC as of December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. #### *Change in Accounting Principle* As discussed in Note 1 to the financial statement, Watermill Institutional Trading LLC has changed its method of accounting for leases in 2019 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification Topic 842, *Leases*. #### **Basis for Opinion** This financial statement is the responsibility of Watermill Institutional Trading LLC's management. Our responsibility is to express an opinion on Watermill Institutional Trading LLC'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 Watermill Institutional Trading LLC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. We have served as Watermill Institutional Trading LLC's auditor since 2014. Livingston, New Jersey February 26, 2020 {5}------------------------------------------------ ### **:\$7(50,// ,167,787,21\$/75\$',1\*//&** #### **\$/LPLWHG /LDELOLW\&RPSDQ\** #### **67\$7(0(172)),1\$1&,\$/&21',7,21** | 'HFHPEHU | | | |---------------------------------------------------|--|--| | \$66(76 | | | | &DVK | | | | &DVKVHJUHJDWHGLQFRPSOLDQFHZLWKIHGHUDOUHJXODWLRQV | | | | 5HFHLYDEOHVIURPFOHDULQJEURNHU | | | | 3URSHUW\DQGHTXLSPHQWQHW | | | | 3UHSDLGH[SHQVHVDQGRWKHUDVVHWV | | | | 5LJKWRIXVH\$VVHW | | | | 727\$/\$66(76 | | | | /,\$%,/,7,(6\$1'0(0%(5
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6(48,7< | | | {6}------------------------------------------------ #### NOTES TO STATEMENT OF FINANCIAL CONDITION #### DECEMBER 31, 2019 #### 1. Nature of business and summary of significant accounting policies #### Nature of Business Watermill Institutional Trading LLC (the "Company") is a limited liability company organized under the laws of the state of Delaware on August 24, 2009. Operations of the Company commenced in August 2010. The Company's operations consist primarily of engaging in agency equity transactions and investment banking services with institutional counterparties. Effective August 1, 2012, 100% of the Company's membership interest was acquired by Watermill Trading Holdings LLC. The Company is a registered broker-dealer with the Securities and Exchange Commission ("SEC") and is a member of the Financial Industry Requlatory Authority, Inc. ("FINRA") and the National Association of Securities Dealers Automated Quotations ("NASDAQ"). #### Basis of Presentation The financial statements has been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). #### Revenue from Contracts with Customers The Company accounts for revenues from contracts with customers in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2014-09, Revenue with Contracts from Customers ("ASU 2014-09") (Topic 606), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. #### Revenue and Expense Recognition from Securities Transactions Securities transactions and the related revenues and expenses are recorded on the trade-date basis and unrealized gains and losses are reflected in revenues. #### Service Income Service income is recorded when the services are performed. #### Advisory Income Investment Banking Advisory Income is recorded when the services are performed and the performance obligation is satisfied. {7}------------------------------------------------ # **:\$7(50,//,167,787,21\$/75\$',1\*//& \$/LPLWHG/LDELOLW\&RPSDQ\** #### **127(67267\$7(0(172)),1\$1&,\$/&21',7,21** #### **'(&(0%(5** #### **1DWXUHRIEXVLQHVVDQGVXPPDU\RIVLJQLILFDQWDFFRXQWLQJSROLFLHVFRQWLQXHG** #### *Property and Equipment* 3URSHUW\DQGHTXLSPHQWDUHVWDWHGDWFRVWOHVVDFFXPXODWHGGHSUHFLDWLRQDQGDPRUWL]DWLRQ7KH&RPSDQ\SURYLGHV IRUGHSUHFLDWLRQDQGDPRUWL]DWLRQDVIROORZV |

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Property and equipment Details of property and equipment at December 31, 2019 are as follows: | Furniture and fixtures | ಲ್ಲಿ | 157,468 | |--------------------------------|------|---------| | Network & server equipment | | 168.110 | | Computer hardware | | 394.239 | | Computer software | | 11,414 | | Leasehold improvements | | 235,007 | | | | 966,238 | | Less: accumulated depreciation | | | | and amortization | | 920,984 | | | ಲ್ಲಿ | 45,254 | Depreciation and amortization expense for the year ended December 31, 2019, was \$67,985. #### Net capital requirement s. The Company, as a member of FINRA, is subject to the SEC Uniform Net Capital Rule 15c3-1. This rule requires the maintenance of minimum net capital and that the ratio of aggregate indebtedness to net capital, shall not exceed 15 to 1. At December 31, 2019, the Company's net capital was \$2,006,415, which was \$1,756,415 in excess of its minimum requirement of \$250,000. #### 4. Commitment The Company leases its Jersey City office facility under an operating lease, which expires in September 2024. As of December 31, 2019, maturities of the outstanding lease liability for the Company, is as follows: | Year Ending December 31: | Amount | | |---------------------------|--------|---------| | 2020 | ക്ക | 92.414 | | 2021 | | 93.729 | | 2022 | | 95.045 | | 2023 | | 96.360 | | 2024 | | 73,010 | | Total | ക | 450,559 | | Discount to present value | ಕೊ | 59.959 | | Lease Liability | ಿ | 390,600 | As of December 31, 2019, the weighted average remaining lease term is 4.67 years and the weighted average discount rate is 6.0%. The Company leases its Florida office facility on a month-to-month basis for \$5,000 per month from Watermill Trading Holdings LLC. {10}------------------------------------------------ #### NOTES TO STATEMENT OF FINANCIAL CONDITION #### DECEMBER 31, 2019 #### 5. Concentrations of credit risk At December 31, 2019, and routinely throughout the year then ended, the Company maintained its cash balances in major financial institutions that exceed federally insured limits. The Company has not experienced any losses in these accounts, and management does not believe it is exposed to any significant credit risk with respect to cash. #### 6. Employee benefit plan The Company maintains a retirement plan (the "401(k) Plan"), pursuant to Section 401(k) of the Internal Revenue Code ("IRC"), for eligible participants. Under the terms of the 401(k) Plan, participants can contribute a portion of their annual compensation, subject to limitations provided by the IRC. The Company can make discretionary matching contributions to the 401(k) Plan on behalf of participating employees. #### 7. Soft dollar payables The Company has soft dollar arrangements within the provisions of Rule 28(e) which establishes a safe harbor for money managers, which allows them to purchase research and brokerage services for clients using soft dollars. The Company has a restricted cash account segregated on the statement of financial condition in accordance with SEC Rule 15c3-3(k)(2)(i) of \$9,005 related to proceeds from soft dollar transactions. The Company has a soft dollar payable of \$2,933 at December 31, 2019, which is included in "accounts payable and accrued expenses" on the accompanying statement of financial condition. The Company disburses this cash to third parties on behalf of its customers following Rule 28(e) requirements. #### 8. Off-balance-sheet risk Pursuant to clearance agreements, the Company introduces all of its securities transactions to clearing brokers on a fully-disclosed basis. All of the customers' money balances and long and short security positions are carried on the books of the clearing brokers. In accordance with the clearance agreements, the Company has agreed to indemnify the clearing brokers for losses, if any, which the clearing brokers may sustain from carrying securities transactions introduced by the Company. In accordance with industry practice and regulatory requirements, the Company and the clearing brokers monitor collateral on the customers' accounts. In the normal course of business, the Company's customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance-sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss. In addition, the receivables from the clearing brokers are pursuant to these clearance agreements and include a clearing deposit of \$500,000. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.