# CITCO SECURITIES INC. X-17A-5 (2023-02-27) — Broker-dealer annual report - Company: CITCO SECURITIES INC. - Form: X-17A-5 - Filed: 2023-02-27 - Period: 2022-12-31 - Accession: 0001492087-23-000001 - CIK: 1492087 - File #: 8-68601 - Type: Broker-dealer - Material weakness: No - Auditor: Deloitte & Touche LLP - Auditor location: New York, NY - Contact: Scott Case - Phone: 16472606555 - Email: scase@citcosecurities.com - Website: citcosecurities.com - Signed by: Scott Case (CEO) Original filing: https://www.sec.gov/Archives/edgar/data/1492087/000149208723000001/csipublic.pdf --- {0}------------------------------------------------ # **UNITED STATES SECURITIES AND EXCHANGE COMMISSION** **Washington, D.C. 20549** # OMB Number: 3235-0123 Expires: October 31, 2023 Estimated average burden hours per response… 12.00 **8-68601** SEC FILE NUMBER OMB APPROVAL O # **ANNUAL AUDITED REPORT FORM X-17A-5 PART III** | REPORT FOR THE PERIOD BEGINNING | 01/01/2022 AND ENDING | 12/31/2022 | | | |--------------------------------------------------|------------------------------------------------------------------------------------------------|----------------------------------------|--------------------------------------------|--| | | MM/DD/YY | | MM/DD/YY | | | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF FIRM: Citco Securities Inc. | | | | | | TYPE OF REGISTRANT (check all applicable boxes): | | | | | | ☒Broker-dealer | ☐Security-based swap
dealer
☐ Check here if respondent is also an OTC derivatives dealer | ☐Major security-based swap participant | | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | | | | | 2 Bloor Street East, Suite 2700 | | | | | | | (No. and Street) | | | | | Toronto | Ontario, Canada | | M4W 1A8 | | | (City) | (State) | | (Zip Code) | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | Scott Case | +1- 647-260-6555 | | scase@citcosecurities.com | | | (Name) | (Area Code – Telephone Number) | | (Email Address) | | | | B. ACCOUNTANT IDENTIFICATION | | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report* | | | | | Deloitte & Touche LLP | | | | | | | (Name – if individual, state last, first, middle name) | | | | | 30 Rockefeller Plaza | New York | NY | 10112 | | | (Address) | (City) | (State) | (Zip Code) | | | 10/20/2003 | | | 34 | | | (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.** {1}------------------------------------------------ - - - - - - - - - - - - - - - - - - - - - - - - - - ![](_page_1_Picture_35.jpeg) {2}------------------------------------------------ ## **CITCO SECURITIES INC.** (SEC I.D. No. 8-68601) #### STATEMENT OF FINANCIAL CONDITION AS OF DECEMBER 31, 2022 ## AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Filed pursuant to Rule 17a-5(e) (3) under the Securities Exchange Act of 1934 as a Public Document**.** {3}------------------------------------------------ #### REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholder of Citco Securities Inc. #### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of Citco Securities Inc. (the "Company") as of December 31, 2022, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. #### Basis for Opinion The financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit 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 of the financial statement provides a reasonable basis for our opinion. February 24, 2023 We have served as the Company's auditor since 2019. {4}------------------------------------------------ # **Statement of Financial Condition as at December 31, 2022** | (Stated in U.S. Dollars) | Note | | | |----------------------------------------------------|------|-------------|---------| | Assets | | | | | Cash | 2.7 | 428,414 | | | Other assets | 7 | 42,070 | | | Trade receivable | | 8,618 | | | Total assets | | | 479,102 | | Equity and liabilities | | | | | Liabilities | | | | | Accrued expenses and other payable | | 27,684 | | | Due to affiliates | 4 | 3,145 | | | Total liabilities | | | 30,829 | | Equity | | | | | Share capital | 6 | 1 | | | Additional paid-in capital | | 2,915,000 | | | Accumulated deficit | | (2,466,728) | | | Total equity | | | 448,273 | | Total equity and liabilities | | | 479,102 | | See accompanying notes to the financial statement. | | | | {5}------------------------------------------------ ## **Notes to the Financial Statement** ## **1. General** ## **1.1 Ownership** Citco Securities Inc. (the "Company") was organized on April 28, 2010 as a registered broker and dealer in securities under the Securities Exchange Act of 1934. The Company is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA"). The Company is also registered as an exempt market dealer with the Ontario Securities Commission ("OSC"). The Company computes its regulatory net capital under the basic method of Securities and Exchange Commission ("SEC") Rule 15c3-1. The Company acts as a broker-dealer and is exempt from SEC Rule 15c3-3 under paragraph k(2)(ii) as the Company does not maintain customer accounts and clears all customer transactions on a fully disclosed basis with a clearing firm. The Company is a wholly owned subsidiary of Citco Financial Products (London) Limited ("Parent"). The ultimate parent company is Citco III Limited, a company incorporated in the Cayman Islands. The Company's registered office is as follows: 2 Bloor Street East, Suite 2700 Toronto, Ontario M4W 1A8 Canada ### **1.2 Activities** The Company's activities are assisting clients with administrative activities to invest in certain money market funds generating fixed service fees and acting as an agent for institutional buyers and sellers (collectively "Institutions") by facilitating the purchase and sale of private placement securities on behalf of the Institutions, on a no recommendations basis through the Citco Fund Net system or its functional equivalent, which may be adopted from time to time; in conjunction therewith, the firm does not act as placement agent for any issuer. ## **2. Principle accounting policies** ## **2.1 Statements of compliance** This financial statement has been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The U.S. dollar ("USD") is the functional currency of the Company. {6}------------------------------------------------ # **Notes to the Financial Statement** ## **2.2 Basis of measurement** This financial statement has been prepared on a historical cost basis. ## **2.3 Use of estimates in the preparation of financial statement** The preparation of financial statement in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenue and expenses during the year. Actual results could differ materially from those estimates and those differences could be material. Estimates are only used in the determination of accrued expenses and other payables. ### **2.4 Foreign currency transactions** Transactions in currencies other than USD are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are retranslated at the rates prevailing at the end of the reporting period. ## **2.5 Taxation** The Company uses the asset and liability method in providing for income taxes on all transactions that have been recognized in the financial statement. The asset and liability method requires that deferred taxes be adjusted to reflect the enacted tax rates at which future taxable amounts are anticipated to be settled or realized. The effects of tax rate changes on future deferred tax liabilities and deferred tax assets, as well as other changes in income tax laws, are recognized in net income in the period such change occurs. The measurement of a deferred tax asset is adjusted by a valuation allowance, if necessary, to recognize tax benefits only to the extent that, based on available evidence, it is more likely than not that they will be realized. No deferred tax asset has been recognized as the Company does not have sufficient taxable profits available against which the deductible temporary differences can be utilized. The realizability of deferred tax asset is reviewed on annual basis. ### **2.6 Fair value of financial assets and liabilities** Fair value is defined as 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. {7}------------------------------------------------ ## **Notes to the Financial Statement** All of the Company's financial assets and liabilities, including cash, trade receivable, other assets, due to affiliates, and accrued expenses and other payables are carried at amounts which approximate fair value due to their short-term nature or imminent maturity. All assets and liabilities are Level 2, except for cash which is considered as Level 1. Various valuation inputs are used to determine the fair value of assets or liabilities. Such inputs are defined broadly as follows: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 – Quoted prices for similar assets in active markets or quoted prices for identical assets in markets that are not considered to be active, or financial instruments for which all significant valuation inputs are observable, either directly or indirectly; and Level 3 – Prices or valuations that require inputs that are both significant to fair value measurement and unobservable. ## **2.7 Cash** Cash comprises current account balances with banks. The carrying value approximates fair value. | | 2022 | |--------------------------------------------|---------| | | USD | | Current accounts with third-party
banks | 419,221 | | Current account with affiliate | 9,193 | | | 428,414 | ### **2.8 Trade receivable** Trade receivable consists of an invoice issued for service fee income not yet received as of year-end. It is recognized at amortized cost less any expected credit loss. There was no such credit loss recorded as of December 31, 2022. ### **2.9 Liquidity** The Company has incurred recurring losses from operations and may incur additional losses in the future and has relied upon capital contributions from the Parent to fund operating activities. The Company's ability to continue as a going concern is dependent upon the continued financial support from the Parent. The Parent has indicated that it will provide additional capital as needed to sustain the Company one year from the date the financial statement is issued. {8}------------------------------------------------ # **Notes to the Financial Statement** ## **2.10 Allowance for credit losses** The Company accounts for credit losses in accordance with ASC Topic 326, Financial Instruments – Credit Losses ("ASC 326"). ASC 326 impacts the impairment model for certain financial assets measured at amortized cost by requiring a current expected credit loss ("CECL") methodology to estimate expected credit losses over the entire life of the financial asset, recorded at inception or purchase. The Company has the ability to determine there are no expected credit losses in certain circumstances. The Company identified trade receivable and other assets which are both carried at amortized cost as in scope for consideration under ASC 326. The allowance for credit losses is based on the Company's expectation of the collectability of financial instruments carried at amortized cost, including other assets utilizing the CECL framework. The Company considers factors such as historical experience, credit quality, age of balances and current and future economic conditions that may affect the Company's expectation of the collectability in determining the allowance for credit losses. The Company's expectation is that the credit risk associated with other assets is not significant until they are 90 days past due based on the contractual arrangement and expectation of collection in accordance with industry standards. The credit loss expense related to the allowance for credit losses as well as any recoveries of amounts previously charged are reflected in other operating expenses in the statement of operations. The Company did not record any allowances for credit losses or recoveries of amounts previously charged during the year ended December 31, 2022. ### **3. Deferred taxes** The following comprises the net deferred tax asset recognized by the Company as of December 31, 2022: | | 2022 | |----------------------------------------------------------|-----------| | | USD | | | | | Deferred tax asset –
net operating loss carryforwards | 653,683 | | Valuation allowance | (653,683) | | Net deferred tax asset as at December
31, | - | The Company recognizes a deferred tax asset that is solely related to its cumulative operating losses. The Company does not recognize any deferred tax liabilities. The Company has net operating loss carry forwards of USD 2,466,728 which are scheduled to expire starting on {9}------------------------------------------------ ## **Notes to the Financial Statement** December 31, 2031. A full valuation allowance has been applied to the related deferred tax asset, as it is not more likely than not that the net operating loss carry forwards will be utilized. ## **4. Related party transactions** The Company receives services from Citco (Canada) Inc. for the use of premises, from Citco Banking Corporation N.V., for custody related services for its money market activities, from Citco Bank Canada for custody related services for its money market activities and personnel expenses. The Company also settles its transaction fee with Citco Bank Canada as clients' bank accounts are maintained with Citco Bank Canada. Transactions are made in the normal course of business. At December 31, 2022, Company's due to affiliates balance includes the following related party balances: | | 2022 | |-----------------------------------|-------| | | USD | | To Citco Bank Canada | 2,135 | | To Citco Banking Corporation N.V. | 1,010 | | | 3,145 | The Company's bank account with Citco Bank Canada had a cash balance of USD 9,193 as of December 31, 2022. ### **5. Financial risk management** #### **Risk overview** In its operating environment and daily activities, the Company encounters various risks and constantly strives to mitigate related risks. The main risks identified by the Company, related to the activities, are: (a) Strategic risk: the risk to prospective earnings and capital arising from changes in the business environment and from adverse business decisions, improper implementation of decisions or lack of responsiveness to changes in the business environment. (b) Market risk, which includes two types of risk: Currency risk: the current or prospective risk to earnings and/or capital from adverse movements in foreign exchange rate exposures; and {10}------------------------------------------------ ## **Notes to the Financial Statement** Interest rate risk: the current or prospective risk to earnings and/or capital from adverse movements in interest rate exposures due to interest rate mismatches between assets and liabilities. (c) Credit risk: the current or prospective risk arising from counterparty's failure to meet the terms of any contract with the Company or its failure to perform as agreed. (d) Liquidity risk: the risk of an inability to meet payment obligations when they fall due and to replace funds when they are withdrawn. (e) Operational risk: the risk of loss resulting from people, inadequate or failed internal processes and systems or from external events. (f) Capital adequacy risk: the risk that the capital position is not consistent with the Company's overall risk profile and strategy, and it therefore, holds an inappropriate level of capital against its minimum regulatory capital requirements. ## **Market risk** It is the Company's policy not to actively enter into market risk positions. The Company maintains a Canadian dollar bank account to pay the majority of its expenses, and there is no other foreign currency exposure. The Company's revenue is earned in USD, and most consultancy fees and regulatory fees are also paid in USD. The Company has minimal exposure to market risk. The Company's financial instruments include USD 5,447 net exposure to the Canadian dollar as at December 31, 2022. A 5% increase or decrease in USD foreign currency exchange rates, all other factors being equal, at December 31, 2022 would have increased or decreased net loss by approximately USD 272, respectively. #### **Interest rate risk** Interest rate risk is the current or prospective risk to earnings and capital arising from adverse movements in interest rates. The Company is not exposed interest rate risk as there are no interest-bearing instruments held by the Company. ### **Credit risk** Credit risk is the current or prospective risk to earnings and capital arising from a debtor's failure to meet the terms of any contract with the Company or if a debtor otherwise fails to perform. The Company has little exposure to credit risk. At December 31, 2022, the Company had USD 8,618 of trade receivable and USD 17,585 in other assets subject to credit risk which includes USD 4,625 of harmonized sales tax (HST) receivable and USD 12,960 of accrued income. {11}------------------------------------------------ ## **Notes to the Financial Statement** #### **Liquidity risk management** The following table details the Company's remaining contractual maturity for its financial assets and liabilities. The table is based on the undiscounted cash flows of financial assets and liabilities based on the earliest date on which the Company can be required to settle. The table below summarizes the Company's exposure to liquidity risk: | | Up to 1 month | 1-3 months | Total | |----------------------------------------|---------------|------------|---------| | | USD | USD | USD | | As at December 31, 2022: | | | | | Trade receivable | 8,618 | – | 8,618 | | Other assets | 12,960 | 4,625 | 17,585 | | Cash | 428,414 | – | 428,414 | | Total assets | 449,992 | 4,625 | 454,617 | | Due to affiliates | 3,145 | – | 3,145 | | Accrued expenses and other
payables | 4,225 | 23,459 | 27,684 | | Total liabilities | 7,370 | 23,459 | 30,829 | | On-balance sheet surplus/(deficit) | 442,622 | (18,834) | 423,788 | ### **Legal and regulatory risk** The Company is subject to rules and regulations from the SEC, the Ontario Securities Commission ("OSC"), and FINRA. The Company has consultants in the United States of America and in Canada to assist management with compliance of regulatory developments. #### **6. Share capital** The Company has an unlimited amount of authorized shares. The Company has fully paid ordinary share of USD 1 and no new issuance of shares happened during the year. #### **7. Other assets** Other assets consist of prepaid expenses, HST receivables, and accrued income. Prepaid expenses consist of cash paid in advance of services rendered. | | 2022 | |------------------|--------| | | USD | | Prepaid expenses | 24,485 | | Accrued income | 12,960 | | HST receivables | 4,625 | | | 42,070 | {12}------------------------------------------------ ## **Notes to the Financial Statement** #### **8. Contingencies and other regulatory matters** #### **Legal matters** The Company reviews its legal and regulatory inquiries on an ongoing basis and provides disclosure and records loss contingencies in accordance with the loss contingencies accounting guidance. The Company establishes an accrual for losses at its best estimate when it assesses that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. The Company monitors these matters for developments that would affect the likelihood of a loss and the accrued amount, if any, and adjusts the amount as appropriate. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters will not have a material adverse effect on the Company's financial statement. #### **Regulatory matters** The Company operates as a SEC registered securities broker-dealer and FINRA member. Accordingly, the Company is subject to periodic regulatory examinations and inspections. Compliance and private company transaction issues that are reported to regulators, such as FINRA and the SEC, by dissatisfied clients or others are investigated by such regulators, and may, if pursued, result in formal claims being filed against the Company by clients or disciplinary action being taken against the Company or its employees by regulators. Any such claims or disciplinary actions that are decided against the Company could have a material impact on the financial results of the Company. #### **9. Net capital requirements** The Company is subject to the SEC Uniform Net Capital Rule (Rule 15c3-1). Under SEC Rule 15c3-1, the Company is required to maintain minimum net capital and an allowance ratio of aggregate indebtedness to net capital which, as defined under this rule shall not exceed 15 to 1. Under the basic method, the Company is required to maintain minimum net capital, as defined, equal to the greater of USD 5,000 and 6.67% of aggregate indebtedness. At December 31, 2022, the Company had net capital of USD 388,093 which is USD 383,093 in excess of the required minimum net capital. The Company's net capital ratio was 0.08 to 1 at December 31, 2022. #### **10.Subsequent events** The Company has evaluated subsequent events up to and including the date that this financial statement was issued. The Company has determined there were no events or transactions during such period which would require recognition or disclosure in this financial statement. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.