# Robinhood Securities, LLC X-17A-5 (2023-02-28) — Broker-dealer annual report - Company: Robinhood Securities, LLC - Form: X-17A-5 - Filed: 2023-02-28 - Period: 2022-12-31 - Accession: 0001699855-23-000003 - CIK: 1699855 - File #: 8-69916 - Type: Broker-dealer - Material weakness: No - Auditor: Ernst and Young LLP - Auditor location: Los Angeles, CA - Contact: Daniel Kelati - Phone: 6122322271 - Email: daniel.kelati@robinhood.com - Website: robinhood.com - Signed by: Daniel Kelati (CFO and Principal Financial Officer) Original filing: https://www.sec.gov/Archives/edgar/data/1699855/000169985523000003/fy22rhsshort.pdf --- {0}------------------------------------------------ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 > ANNUAL REPORTS FORM X-17A-5 OMB APPROVAL OMB Number: 3235-0123 Expires: Oct. 31, 2023 Estimated average burden hours per response: 12 # PART III SEC FILE NUMBER 8-69916 FACING PAGE Information Required Pursuant to Rules 17a-5, 17a-12, and 18a-7 under the Securities Exchange Act of 1934 FILING FOR THE PERIOD BEGINNING 01/01/2022 AND ENDING 12/31/2022 MM/DD/YY MM/DD/YY A. REGISTRANT IDENTIFICATION NAME OF FIRM: Robinhood Securities, LLC TYPE OF REGISTRANT (check all applicable boxes): @ Broker-dealer | | Security-based swap dealer | | Major security-based swap participant □ Check here if respondent is also an OTC derivatives dealer ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use a P.O. box no.) 500 Colonial Center Parkway, Suite 100 | | | (No. and Street) | | | | |-----------------------------------------------------------------------------|--|---------------------------------------------------------------------------|-----------------------------|--------------------------------------------|--| | Lake Mary | | ւ | | 32746 | | | (City) | | (State) | | (Zip Code) | | | PERSON TO CONTACT WITH REGARD TO THIS FILING | | | | | | | Daniel Kelati | | 650-613-0850 | daniel.kelati@robinhood.com | | | | (Name) | | (Area Code - Telephone Number) | (Email Address) | | | | | | B. ACCOUNTANT IDENTIFICATION | | | | | IN DEPENDENT PUBLIC ACCOUNTANT whose reports are contained in this filing * | | | | | | | Ernst and Young LLP | | | | | | | | | (Name - if individual, state last, first, and middle name)
Los Angeles | CA | 90017 | | | 725 S Figueroa Street
(Address) | | (City) | (State) | (Zip Code) | | | 10/20/2003 | | | 42 | | | | (Date of Registration with PCAOB)(if applicable) | | | | (PCAOB Registration Number, if applicable) | | \* Claims for exemption from the requirement that the annual 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}------------------------------------------------ #### OATH OR AFFIRMATION | Daniel Kelati | swear (or affirm) that, to the best of my knowledge and belief, the | |----------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------| | tinancial report pertaining to the firm of Robinhood Securities, LLC | as of | | 12/31 | 2 022 , is true and correct. I further swear (or affirm) that neither the company nor any | | | partner, officer, director, or equivalent person, as the case may be, has any proprietary interest in any account classified solely | | as that of a customer. | ANAAAAAAA
Notary Public State of Florida
Erin Aubrey Ward
Signature:
My Commission HH 088842
Expires 01/12/2025
it e: | | | CFO and Principal Financial Officer | Notary Public #### This filing \*\* contains (check all applicable boxes): - (a) Statement of financial condition. - (b) Notes to consolidated statement of financial condition. - □ (c) Statement of income (loss) or, if there is other comprehensive income in the period(s) presented, a statement of comprehensive income (as defined in § 210.1-02 of Regulation S-X). - (d) Statement of cash flows. - [] (e) Statement of changes in stockholders' or partners' or sole proprietor's equity. - [f) Statement of changes in liabilities subordinated to claims of creditors. - [ {g} Notes to consolidated financial statements. - [ (h) Computation of net capital under 17 CFR 240.15c3-1 or 17 CFR 240.18a-1, as applicable. - O (i) Computation of tangible net worth under 17 CFR 240.18a-2. - [] [] Computation for determination of customer reserve requirements pursuant to Exhibit A to 17 CFR 240.15c3-3. - □ {k) Computation for determination of security-based swap reserve requirements pursuant to Exhibit B to 17 CFR 240.15c3-3 or Exhibit A to 17 CFR 240.18a-4, as applicable. - | {|} Computation for Determination of PAB Requirements under Exhibit A to § 240.15c3-3. - [ (m) Information relating to possession or control requirements for customers under 17 CFR 240.15c3-3. - [ (n) Information relating to possession or control requirements for security-based swap customers under 17 CFR 240.15c3-3(p)(2) or 17 CFR 240.18a-4, as applicable. - O (o) Reconciliations, including appropriate explanations, of the FOCUS Report with computation of net capital or tangible net worth under 17 CFR 240.15c3-1, 17 CFR 240.18a-2, or 17 CFR 240.18a-2, as applicable, and the reserve requirements under 17 CFR 240.15c3-3 or 17 CFR 240.18a-4, as applicable, if material differences exist, or a statement that no material differences exist. - □ {p) Summary of financial data for subsidiaries not consolidated in the statement of financial condition. - | | | Oath or affirmation in accordance with 17 CFR 240.17a-5, 17 CFR 240.17a-12, or 17 CFR 240.18a-7, as applicable. - [ (r) Compliance report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - [s] Exemption report in accordance with 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - = (t) Independent public accountant's report based on an examination of the statement of financial condition. - □ (u) Independent public accountant's report based on an examination of the financial statements under 17 CFR 240.17a-5, 17 CFR 240.18a-7, or 17 CFR 240.17a-12, as applicable. - [v] Independent public accountant's report based on an examination of certain statements in the compliance report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - [ {w} Independent public accountant's report based on a review of the exemption report under 17 CFR 240.17a-5 or 17 CFR 240.18a-7, as applicable. - [] (x) Supplemental reports on applying agreed-upon procedures, in accordance with 17 CFR 240.17a-12, as applicable. - O (y) Report describing any material inadequacies found to exist or found to have existed since the date of the previous audit, or a statement that no material inadequacies exist, under 17 CFR 240.17a-12(k). - [ (z) Other: - \*\* To request confidential treatment of certain portions of this filing, see 17 CFR 240.17a-5(e)(3) or 17 CFR 240.18a-7(d)(2), as applicable. {2}------------------------------------------------ # **ROBINHOOD SECURITIES, LLC TABLE OF CONTENTS** | | Page No. | |---------------------------------------------------------|----------| | Report of Independent Registered Public Accounting Firm | 4 | | | | | Financial Statement: | | | Statement of Financial Condition | 5 | | Notes to the Statement of Financial Condition | 6 | {3}------------------------------------------------ Ernst & Young LLP 725 S Figueroa Street Los Angeles, CA 90017 Tel: +1 213 977 3200 Fax: +1 213 977 3729 ey.com # Report of Independent Registered Public Accounting Firm To the Member and The Board of Managers of Robinhood Securities, LLC #### Opinion on the Financial Statement We have audited the accompanying statement of financial condition of Robinhood Securities, LLC (the "Company") as of December 31, 2022 and the related notes (the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company at December 31, 2022, in conformity with U.S. generally accepted accounting principles. #### Basis for Opinion working world 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 the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the Pock വ 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 frest, 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 financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company's auditors since 2017. February 28, 2023 {4}------------------------------------------------ # **ROBINHOOD SECURITIES, LLC STATEMENT OF FINANCIAL CONDITION** | (in millions) | December 31,
2022 | |---------------------------------------------------------------|----------------------| | Assets | | | Cash and cash equivalents | \$
2,231 | | Cash segregated under federal and other regulations | 2,995 | | Receivables from users, net | 3,209 | | Receivables from brokers, dealers, and clearing organizations | 54 | | Securities borrowed | 517 | | Due from affiliate | 11 | | Deposits with clearing organizations | 185 | | User held fractional shares | 997 | | Other assets | 47 | | Total assets | \$
10,246 | | Liabilities and member's equity | | | Liabilities: | | | Payables to users | \$
4,702 | | Securities loaned | 1,834 | | Due to affiliated introducing broker-dealer | 65 | | Due to Parent | 9 | | Payables to brokers, dealers, and clearing organizations | 7 | | Fractional share repurchase obligation | 997 | | Accrued expenses and other liabilities | 20 | | Total liabilities | 7,634 | | Commitments and contingencies (Note 11) | | | Member's equity: | | | Total member's equity | 2,612 | | Total liabilities and member's equity | \$
10,246 | {5}------------------------------------------------ # **NOTE 1: ORGANIZATION AND NATURE OF BUSINESS** Robinhood Securities, LLC (the "Company," "we," "our," "us," or "RHS") is a wholly-owned subsidiary of Robinhood Markets, Inc. (the "Parent" or "RHM" or "Robinhood"). We are registered with the U.S. Securities and Exchange Commission ("SEC") as a clearing brokerdealer in securities under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). We are a member of the Financial Industry Regulatory Authority ("FINRA") and the Securities Investor Protection Corporation ("SIPC"). We clear trades for retail user accounts introduced by Robinhood Financial LLC ("RHF"), an affiliated introducing broker-dealer, on a fully disclosed basis. We have a fractional shares program which allows users to purchase and sell fractions of a share in certain equities, enabling users to place real-time fractional share orders in dollar amounts or share amounts, with purchases rounded to the nearest penny and the ability to purchase as small as 1/1,000,000 of a share. We also offer a cash sweep program which allows users' uninvested cash balances to earn interest with program banks insured by Federal Deposit Insurance Corporation ("FDIC"). We also offer instant withdrawals feature which enables eligible customers to withdraw money from their Robinhood brokerage accounts and instantly deposit it to their bank accounts (typically around 10 minutes but sometimes longer depending on customers' banks) with a fee. The COVID-19 pandemic has resulted, in part, in inefficiencies and delays in our business, operational challenges, additional costs related to business continuity initiatives as our workforce continues to work remotely, and increased vulnerability to cybersecurity attacks or other privacy or data security incidents. The extent of the impact of any COVID-19 resurgence or emergence of similar public health threats on our business, financial condition, and results of operations will depend largely on future developments, including the duration of COVID-19 resurgence or similar public health threat and actions taken to contain or address their impact, their impact on capital and financial markets, and the related impact on the financial circumstances of our customers, all of which are highly uncertain and difficult to predict. # **NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES** # *Basis of Presentation* The accompanying financial statement has been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). #### *Use of Estimates* The preparation of the financial statement in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statement and accompanying notes. We base our estimates on current and historical experience and other assumptions we believe to be reasonable under the circumstances. Assumptions and estimates used in preparing our financial statement include those related to the determination of allowances for credit losses and contingent liabilities. Actual results could differ from these estimates and could have a material adverse effect on our financial statement. #### *Segment Information* We operate and report financial information in one operating segment. Operating segments are defined as components of an enterprise for which separate financial information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. All our revenues and substantially all of our assets are attributed to or located in the United States. #### *Concentration of Credit* We are engaged in various trading and brokerage activities in which counterparties include primarily broker-dealers, banks, and other financial institutions. In the event counterparties do not fulfill their obligations, we may be exposed to risk. The risk of default depends on the creditworthiness of the counterparty. Default of a counterparty in equities and options trades, which are facilitated through clearinghouses, would generally be spread among the clearinghouse's members rather than falling entirely on us. It is our policy to review, as necessary, the credit standing of each counterparty. # *Cash and Cash Equivalents* Cash and cash equivalents include interest and non-interest bearing deposits with banks that are not segregated and deposited for regulatory purposes. We maintain cash in bank accounts at financial institutions that exceed federally insured limits. We are subject to credit risk to the extent any financial institution with which we conduct business is unable to fulfill contractual obligations on our behalf. As we have {6}------------------------------------------------ not experienced any losses in such accounts and we believe that we have placed our cash on deposit with financial institutions which are financially stable, we do not have an expectation of credit losses for these arrangements. #### *Cash Segregated Under Federal and Other Regulations* We are required to segregate cash for the exclusive benefit of customers, as defined by SEC Rule 15c3-3, and proprietary accounts of broker-dealers ("PAB") in accordance with the provisions of Rule 15c3-3 under the Exchange Act. Throughout the financial statement, the term "users" is defined as customers under Exchange Act Rule 15c3-3. We continually review the credit quality of our counterparties and have not experienced a default. As a result, we do not have an expectation of credit losses for these arrangements. #### *Fair Value of Financial Instruments* We apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statement on a recurring basis. 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. In determining fair value, we may use various valuation approaches, including market, income and/or cost approaches. The fair value hierarchy requires us to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Fair value is a market-based measure considered from the perspective of a market participant. Accordingly, even when market assumptions are not readily available, our own assumptions reflect those that market participants would use in pricing the asset or liability at the measurement date. The fair value measurement accounting guidance describes the following three levels used to classify fair value measurements: Level 1 Inputs: unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by us Level 2 Inputs: quoted prices for similar assets and liabilities in an active market, quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly Level 3 Inputs: unobservable inputs that are significant to the fair value of the assets or liabilities A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The carrying amounts of certain financial instruments approximate their fair value due to the short-term nature, which include cash, cash segregated under federal and other regulations, receivables from brokers, dealers, and clearing organizations, receivables from users, net, securities borrowed, deposits with clearing organizations, other assets, accrued expenses and other liabilities, payables to users, payables to brokers, dealers, and clearing organizations, due to affiliated introducing broker-dealer, due to Parent, and securities loaned. #### *Receivables From and Payables to Users* Receivables from users, net is primarily made up of margin receivables. These transactions are recorded on settlement date basis. Margin receivables are adequately collateralized by users' securities balances and are reported at their outstanding principal balance, net of an allowance for credit losses. We monitor margin levels and require users to deposit additional collateral, or reduce margin positions, to meet minimum collateral requirements and avoid automatic liquidation of their positions. We apply the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for receivables from users. We have no expectation of credit losses for receivables from users that are fully secured, where the fair value of the collateral securing the balance is equal to or in excess of the receivable amount. This is based on our assessment of the nature of the collateral, potential future changes in collateral values, and historical credit loss information relating to fully secured receivables. In cases where the fair value of the collateral is less than the outstanding receivable balance from a user, we recognize an allowance for credit losses in the amount of the difference, or unsecured balance, immediately. We write-off unsecured balances when the balance becomes outstanding for over 180 days or when we otherwise deem the balance to be uncollectible. We are indemnified by RHF for losses incurred in connection with unsecured users' receivables. Unsecured user receivables that are not collected from RHF are treated as a non-allowable asset in our net capital computation. If any of the unsecured user receivables become secured or collected, we will pay RHF back the amount collected. Payables to users represent free credit balances from users' uninvested deposits and/or funds attributed to users as a result of settled trades and other security related transactions. {7}------------------------------------------------ # *Receivables From and Payables to Brokers, Dealers, and Clearing Organizations* Receivables from brokers, dealers, and clearing organizations primarily include receivables from market makers for routing user orders for execution, receivables for securities not delivered by us to the counterparties by the settlement date ("securities failed to deliver"), and interest receivables on securities borrowed and securities loaned. Payables to brokers, dealers, and clearing organizations primarily include payables for securities not received by us from a counterparty by the settlement date ("securities failed to receive") and interest payables on securities borrowed and securities loaned. Due to affiliated introducing broker-dealer relates to payables to RHF for introducing broker fees and shared revenues pursuant to a revenue-sharing arrangement. These receivables and payables are short-term and normally settle within 30 days. Aged receivables from brokers, dealers, and clearing organizations are treated as non-allowable assets in our net capital computation. We continually review the credit quality of our counterparties and have not experienced a default. As a result, we do not have an expectation of credit losses for these arrangements. # *Deposits With Clearing Organizations* We are required to maintain collateral as deposits with clearing organizations such as Depository Trust & Clearing Corporation and Options Clearing Corporation which allows us to use their security transactions services for trade comparison, clearance and settlement. The clearing organizations establish financial requirements, including deposit requirements, to reduce their risk. The required level of deposits may fluctuate significantly from time to time based upon the nature and size of users' trading activity and market volatility. As we have not experienced historic defaults, we do not have an expectation of credit losses for these arrangements. #### *Due to Affiliated Introducing Broker-Dealer* Due to affiliated introducing broker-dealer relates to payables to RHF for introducing broker fees and shared revenues pursuant to a revenue-sharing arrangement. #### *Fractional Share Program* We operate our fractional share program for the benefit of our users and maintain an inventory of securities held exclusively for the fractional share program. This proprietary inventory is recorded within other assets on our statement of financial condition. When a user purchases a fractional share, we record the cash received for the user-held fractional share as pledged collateral and an offsetting liability to repurchase the shares, recorded on our statement of financial condition, as we concluded that we did not meet the criteria for derecognition under the accounting guidance. We measure our inventory of securities, user-held fractional shares and our repurchase obligation at fair value via the election of the fair value option at fair value at each reporting period. #### *Other Assets* Other assets primarily include corporate cash held at a third party to support our instant withdrawals feature for Cash Management product, prepaid expenses, proxy rebate receivables, and other various receivables. We classify prepayments made under contracts as prepaid expenses and expense them over the contract terms. These prepaid expenses primarily include items such as prepayments on insurance. As of December 31, 2022, prepaid expenses included in other assets were \$9 million. We evaluate proxy rebate receivables for credit losses and record an allowance for credit loss to estimate uncollectible receivables. We write-off the receivables when deemed uncollectible and any recoveries are recorded as a reduction to our allowance for credit losses. #### *Securities Borrowing and Lending* We operate a securities lending program under which shares that users have pledged to us to collateralize their margin borrowing are lent by us to third parties ("Margin Securities Lending") and a securities lending program under which we borrow fully-paid shares from participating users and lend them to third parties ("Fully-Paid Securities Lending"). We also occasionally borrow securities from third parties for operational purposes, and we occasionally lend to third parties securities that we hold for our own account (such as our holdings to support fractional share operations) or on behalf of our affiliated introducing broker-dealer. {8}------------------------------------------------ When we borrow securities from users participating in the Fully-Paid Securities Lending program (or from third parties), we provide cash as collateral and we record a receivable representing our right to the return of that collateral. The amount of that receivable is presented in "securities borrowed" on our statement of financial condition. In the case of our Fully-Paid Securities Lending program, the cash collateral is held by a FDIC insured third-party bank in a deposit account pledged to the user, which we administer as the user's agent. Users are not entitled to interest on such account, and any interest earned is for our benefit. Our authorization from users to lend shares that collateralize their margin borrowing is found in our margin account agreement, our borrowing of fully-paid shares from users is conducted under the terms of our Fully-Paid Securities Lending program to which users consent when they enroll in that program, and substantially all of our securities lending and borrowing transactions with third parties are conducted under the terms of an industry-standard master securities loan agreement ("MSLA"), which has an open contractual term and may be terminated upon notice by either party. We have also entered into fixed-term securities lending agreements with two financial institution counterparties (the "Fixed-Term Securities Lending Agreements"). One of these agreements has a contractual term of 30 days per lending transaction with a daily minimum commitment of \$25 million and another has a contractual term of 21 days per lending transaction with a daily minimum commitment of \$35 million. Under these two agreements we lend to the counterparties (for a fixed term) securities that collateralize users' margin borrowing, and we obtain cash collateral from the counterparties that we use to provide liquidity support for our margin lending to users. We manage risks associated with our securities lending and borrowing activities by requiring credit approvals for counterparties, by monitoring the market value of securities loaned and collateral values for securities borrowed on a daily basis and requiring additional cash as collateral for securities loaned or return of collateral for securities borrowed when necessary, and by participating in a risk-sharing program offered through the Options Clearing Corporation. Each of the MSLAs and Fixed-Term Securities Lending Agreements establishes a master netting arrangement between the lender and the borrower. A master netting arrangement is an agreement between two counterparties that creates a right of set-off for amounts due to and from that same counterparty that is enforceable in the event of a default or bankruptcy. In connection with our securities borrowing and lending activities, however, our policy is to recognize all amounts that are subject to master netting arrangements on a gross basis in our statement of financial condition even though some of those amounts may be eligible for offset (i.e., presented on a net basis) under GAAP. We apply the practical expedient based on collateral maintenance provisions in estimating an allowance for credit losses for securities borrowed receivables. Refer to Note 8 - Securities Borrowing and Lending, for more information and the gross presentation in tabular format. #### *Loss Contingencies* We are subject to claims and lawsuits in the ordinary course of business, including arbitration, class actions, and other litigation, some of which include claims for substantial or unspecified damages. We are also the subject of inquiries, investigations, and proceedings by regulatory and other governmental agencies. We review our lawsuits, regulatory inquiries and other legal proceedings on an ongoing basis and provide disclosures and record loss contingencies in accordance with the loss contingencies accounting guidance. We establish an accrual for losses at management's best estimate when we assess that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If the reasonable estimate is a range and no amount within that range is considered a better estimate than any other amount, an accrual is recorded based on the bottom amount of the range. Accrual for loss contingencies are recorded in accrued expenses and other liabilities on the statement of financial condition and expensed in general and administrative expenses in our statement of operations. We monitor these matters for developments that would affect the likelihood of a loss and the accrued amount, if any, and adjust the amount as appropriate. #### *Income Taxes* We are a single member limited liability company, which is treated as a disregarded entity for income tax purposes. All tax effects of our income or loss are included in the tax returns of the Parent. Therefore, no provision or liability for income taxes is included in the financial statement. No formal tax-sharing arrangement exists between us and the Parent and we have no obligation to fund any tax liability of the Parent with our earnings. #### **NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS** There are no recently issued accounting pronouncements that would materially impact our financial statement and related disclosures for the year ended December 31, 2022, and there were no recently adopted accounting pronouncements. {9}------------------------------------------------ # **NOTE 4: CASH SEGREGATED UNDER FEDERAL AND OTHER REGULATIONS** Cash segregated under federal and other regulations consisted of the following: | | December 31, | |---------------|--------------| | (in millions) | 2022 | | Customers | \$
2,987 | | PAB | 8 | | Total | \$
2,995 | # **NOTE 5: RECEIVABLES FROM AND PAYABLES TO BROKERS, DEALERS, AND CLEARING ORGANIZATIONS** The components of receivables from, and payables to, brokers, dealers, and clearing organizations are as follows: | | December 31, | |---------------------------------------------------------------------|--------------| | (in millions) | 2022 | | Receivables from brokers, dealers, and clearing organizations: | | | Executing broker receivables | \$
43 | | Securities lending interest receivable | 6 | | Securities failed to deliver | 4 | | Other brokers, dealers, and clearing organizations receivables | 1 | | Total receivables from brokers, dealers, and clearing organizations | \$
54 | | | | | Payables to brokers, dealers, and clearing organization: | | | Securities failed to receive | \$
4 | | Other brokers, dealers, and clearing organizations payables | 3 | | Total payables to brokers, dealers, and clearing organizations | \$
7 | # **NOTE 6: ALLOWANCE FOR CREDIT LOSSES** The following table summarizes the allowance for credit losses, which substantially all relate to unsecured balances of receivables from users due to "Fraudulent Deposit Transactions" and losses on margin lending. Fraudulent Deposit Transactions occur when users initiate deposits into their accounts, make trades on our platform using a short-term extension of credit from us, and then repatriate or reverse the deposits, resulting in a loss to us of the credited amount. | | Year Ended
December 31, | | |--------------------------------|----------------------------|--| | (in millions) | 2022 | | | Beginning balance | \$
48 | | | Provision for credit losses(1) | 32 | | | Write-offs | (59) | | | Ending balance | \$
21 | | (1) We are indemnified by RHF for losses incurred in connection with unsecured users' receivables. See Note 2 - Summary of Significant Accounting Policies, for more information. During the year ended December 31, 2022, RHF indemnified us \$32 million for unsecured losses. {10}------------------------------------------------ # **NOTE 7: FAIR VALUE MEASUREMENT** Financial assets and liabilities measured at fair value on a recurring basis as of the date indicated below were presented in our statement of financial condition as follows: | | December 31, 2022 | | | | |-----------------------------------------|-------------------|---------|----|-------| | (in millions) | | Level 1 | | Total | | Assets | | | | | | User-held fractional shares | \$ | 997 | \$ | 997 | | Other assets: | | | | | | Equity securities - securities owned | | 7 | | 7 | | Total financial assets | \$ | 1,004 | \$ | 1,004 | | | | | | | | Liabilities | | | | | | Fractional share repurchase obligations | \$ | 997 | \$ | 997 | | Total financial liabilities | \$ | 997 | \$ | 997 | During the year ended December 31, 2022, we did not have any transfers in or out of Level 3 assets. #### **NOTE 8: SECURITIES BORROWING AND LENDING** When we lend securities to third parties we receive cash as collateral for the securities loaned. In the table below, the cash collateral we hold related to loaned securities is presented in "securities loaned" and the fair value of securities lent is presented in "security collateral pledged." Similarly, when we borrow securities from third parties or fully-paid securities from users, we provide cash collateral. In the table below, the amount of that cash collateral is presented in "securities borrowed" and the fair value of the securities received is presented in "security collateral received." Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities borrowing and lending transactions. Therefore, activity related to securities borrowing and lending activities are presented gross in our statement of financial condition (refer to Note 2 - Summary of Significant Accounting Policies, for more information). {11}------------------------------------------------ The following tables set forth certain balances related to our securities borrowing and lending activities: | (in millions) | December 31,
2022 | | | |-----------------------------------------------------------------------------------------|----------------------|------------------------|--| | Assets | | Securities
borrowed | | | Gross amount of securities borrowed | \$ | 517 | | | Gross amount offset on the statement of financial condition | | — | | | Amounts of assets presented on the statement of financial condition | | 517 | | | Gross amount of securities borrowed not offset on the statement of financial condition: | | | | | Securities borrowed | | 517 | | | Security collateral received | | (509) | | | Net amount | \$ | 8 | | | | | Securities | | | Liabilities | | loaned | | | | | | | | Gross amount of securities loaned | \$
1,834 | |---------------------------------------------------------------------------------------|-------------| | Gross amount of securities loaned offset on the statement of financial condition | — | | Amounts of liabilities presented on the statement of financial condition | 1,834 | | Gross amount of securities loaned not offset on the statement of financial condition: | | | Securities loaned | 1,834 | | Security collateral pledged | (1,629) | | Net amount | \$
205 | As described in Note 2 - Summary of Significant Accounting Policies, we obtain securities on terms that permit us to pledge and/or transfer securities to others. As of December 31, 2022, we were permitted to re-pledge securities with a fair value of \$4.36 billion under margin account agreements with users, and securities with a fair value of \$18.4 million that we had borrowed under MSLAs with third parties. Under the Fully-Paid Securities Lending program, as of December 31, 2022, we were permitted to re-pledge securities with a fair value of \$4.45 billion including securities with a fair value of \$490.4 million that we had borrowed from users. As of December 31, 2022, we had re-pledged securities with a fair value of \$1.63 billion, in each case under MSLAs and Fixed-Term Securities Lending Agreements with third parties. In addition, as of December 31, 2022, we had re-pledged \$231.2 million of the permitted amounts under the Margin Securities Lending program with clearing organizations to meet deposit requirements. # **NOTE 9: FINANCING ACTIVITIES AND OFF-BALANCE SHEET RISK** # *Revolving Credit Facilities* As of December 31, 2022, we had seven revolving and unsecured lines of credit with the Parent for a total of \$1.05 billion of which \$300.0 million was committed and \$750.0 million was uncommitted. There were no outstanding borrowings against these lines of credit as of year end. Interest on these lines of credit is based on the effective federal rate as determined by Internal Revenue Service ("IRS"). These lines of credit have no maturity date and remain in effect until terminated by either party. There are no covenants to the lines of credit with the Parent. In April 2021, we entered into a \$2.18 billion committed and secured revolving line of credit, subject to certain borrowing base limitations, with a maturity date of April 15, 2022 (the "April 2021 Credit Facility"). Borrowings from the April 2021 Credit Facility must be specified to be Tranche A, Tranche B, Tranche C or a combination thereof. Tranche A loans are secured by users' securities purchased on margin and are used primarily to finance margin loans. Tranche B loans are secured by the right to the return from National Securities Clearing Corporation ("NSCC") of NSCC margin deposits and cash and property in a designated collateral account and used for the purpose of satisfying NSCC deposit requirements. Tranche C loans are secured by the right to the return of eligible funds from any reserve account of the borrower and cash and property in a designated collateral account and used for the purpose of satisfying reserve requirements under Rule {12}------------------------------------------------ 15c3-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Interest for this line of credit is determined at the time a loan is initiated and the applicable interest rate is calculated as a per annum rate equal to 1.25% for Tranche A loans and 2.50% for Tranche B and Tranche C loans, plus the Short-Term Funding Rate at the applicable time. The Short-Term Funding Rate is equal to the greatest of (i) the Eurodollar Rate for a one month interest period on such day, which equals to the Eurodollar Base Rate that is derived from LIBOR, multiplied by the Statutory Reserve Rate at the applicable time, (ii) the Federal Funds Effective Rate (as defined in the agreement) and (iii) the Overnight Bank Funding Rate (as defined in the agreement) in effect on such day. no outstanding borrowings under the April 2021 Credit Facility at December 31, 2021. We are obligated to pay a commitment fee calculated as a per annum rate equal to 0.50% on any unused amount of the April 2021 Credit Facility quarterly in arrears. In April 2022, we entered into a \$2.275 billion committed and secured revolving line of credit with a maturity date of April 10, 2023 (the "April 2022 Credit Facility"), amending and restating the April 2021 Credit Facility. Under circumstances described in the agreement for the April 2022 Credit Facility, the aggregate commitments may be increased by up to \$1.138 billion, for a total commitment under the agreement of \$3.413 billion. The April 2022 Credit Facility terms are otherwise substantially the same as the April 2021 Credit Facility in all material aspects except for the Short-Term Funding Rate, which is equal to the greatest of (i) Daily Simple SOFR (as defined in the agreement) plus 0.10%, (ii) the Federal Funds Effective Rate (as defined in the agreement) and (iii) the Overnight Bank Funding Rate (as defined in the agreement), in each case, in effect on such day. There were no outstanding borrowings under the April 2022 Credit Facility at December 31, 2022. We are obligated to pay a commitment fee calculated as a per annum rate equal to 0.50% on any unused amount of the April 2022 Credit Facility quarterly in arrears. The April 2021 Credit Facility and April 2022 Credit Facility contain customary covenants, including limitations with respect to debt, liens, fundamental changes, asset sales, restricted payments, investments and transactions with affiliates, subject to certain exceptions. We were in compliance with all covenants under these facilities as of December 31, 2022. #### *Off-Balance Sheet Risk* In the normal course of business, we engage in activities involving settlement and financing of securities transactions. User securities transactions are recorded on a settlement date basis, which is generally two business days after the trade date for equities and one business day after the trade date for options. These activities may expose us to off-balance sheet risk in the event that the other party to the transaction is unable to fulfill its contractual obligations. In such events, we may be required to purchase financial instruments at prevailing market prices in order to fulfill our obligations. #### **NOTE 10: RELATED PARTY TRANSACTIONS** The amount of revenue earned from affiliates may not be reflective of revenues that could have been earned on similar levels of activity with unaffiliated third parties. The amount of expenses allocated to us may not be reflective of expenses that would have been incurred by us if we used third party service providers. We have an expense sharing agreement with the Parent and pursuant to the agreement, we reimburse the Parent for payroll, technology, information services, occupancy, share-based compensation, and other expenses. The Parent also pays certain direct expenses on our behalf and cash settles monthly with allocated expenses. As of December 31, 2022, the balance due to the Parent was \$9 million. As of December 31, 2022, we had an affiliate user with a free credit balance of \$6 million, included in payables to users on the statement of financial condition. Pursuant to the clearing agreement with RHF, we clear and facilitate transactions for users introduced by RHF on a fully disclosed basis. Due to affiliated broker-dealer on the statement of financial condition consists of the balance due to RHF of \$59 million and proprietary accounts for the exclusive benefit of RHF in the amount of \$6 million. #### **NOTE 11: COMMITMENTS & CONTINGENCIES** We are subject to contingencies arising in the ordinary course of our business, including contingencies related to legal, regulatory, non-income tax and other matters. We record an accrual for loss contingencies at management's best estimate when we determine that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. If the reasonable estimate is a range and no amount within that range is considered a better estimate than any other amount, an accrual is recorded based on the bottom amount of the range. If a loss is not probable, or a probable loss cannot be reasonably estimated, no accrual is recorded. Amounts accrued for contingencies in the aggregate were \$8 million as of December 31, 2022. In our opinion, an adequate accrual had been made as of December 31, 2022 to provide for the probable losses of which we are aware and for which we can reasonably estimate an amount. {13}------------------------------------------------ #### *Legal and Regulatory Matters* The securities industry is highly regulated and many aspects of our business involve substantial risk of liability. In past years, there has been an increase in litigation and regulatory investigations involving the brokerage and cryptocurrency industries. Litigation has included and may in the future include class action suits that generally seek substantial and, in some cases, punitive damages. Federal and state regulators, exchanges, or other state and self-regulatory organizations investigate issues related to regulatory compliance that may result in enforcement action. We are also subject to periodic regulatory audits and inspections that have in the past and could in the future lead to enforcement investigations or actions. We have been named as a defendant in lawsuits and from time to time we have been threatened with, or named as a defendant in arbitrations and administrative proceedings. The outcomes of these matters are inherently uncertain and some may result in adverse judgments or awards, including penalties, injunctions, or other relief, and we may also determine to settle a matter because of the uncertainty and risks of litigation. With respect to matters discussed below, we believe, based on current knowledge, that any losses (in excess of amounts accrued, if applicable) as of December 31, 2022 that are reasonably possible and can be reasonably estimated will not, in the aggregate, have a material adverse effect on our business, financial position, operating results, or cash flows. However, for many of the matters disclosed below, particularly those in early stages, we cannot reasonably estimate the reasonably possible loss (or range of loss), if any. In addition, the ultimate outcome of legal proceedings involves judgments and inherent uncertainties and cannot be predicted with certainty. Any judgment entered against us, or any adverse settlement, could materially and adversely impact our business, financial condition, operating results, and cash flows. We might also incur substantial legal fees, which are expensed as incurred, in defending against legal and regulatory claims. Described below are certain pending matters in which there is at least a reasonable possibility that a material loss could be incurred. We intend to continue to defend these matters vigorously. #### *Best Execution, Payment for Order Flow ("PFOF"), and Sources of Revenue Civil Litigation* Beginning in December 2020, multiple putative securities fraud class action lawsuits were filed against RHM, RHF, and RHS. Five cases were consolidated in the United States District Court for the Northern District of California. An amended consolidated complaint was filed in May 2021, alleging violations of Section 10(b) of the Exchange Act and various state law causes of action based on claims that we violated the duty of best execution and misled putative class members by publishing misleading statements and omissions in customer communications relating to the execution of trades and revenue sources (including PFOF). Plaintiffs seek damages, restitution, disgorgement, and other relief. In February 2022, the court granted Robinhood's motion to dismiss the amended consolidated complaint without prejudice. In March 2022, plaintiffs filed a second consolidated amended complaint, alleging only violations of Section 10(b) of the Exchange Act, which Robinhood moved to dismiss. In October 2022, the court granted Robinhood's motion in part and denied it in part. In November 2022, Robinhood filed a motion for judgment on the pleadings, which the court denied in January 2023. #### *March 2020 Outages* A consolidated putative class action lawsuit relating to service outages on our stock trading platform on March 2-3, 2020 and March 9, 2020 (the "March 2020 Outages") is pending in the United States District Court for the Northern District of California. The lawsuit generally alleges that putative class members were unable to execute trades during the March 2020 Outages because our platform was inadequately designed to handle customer demand and we failed to implement appropriate backup systems. The lawsuit includes, among other things, claims for breach of contract, negligence, gross negligence, breach of fiduciary duty, unjust enrichment and violations of certain California consumer protection statutes. The lawsuit generally seeks damages, restitution, and/or disgorgement, as well as declaratory and injunctive relief. In May 2022, the parties notified the court that they had reached an agreement in principle resolving this action. The settlement agreement has been preliminarily approved by the court. In addition, in September 2021, approximately 400 jointly-represented customers initiated an arbitration of individual claims against us arising out of the March 2020 Outages and other alleged system outages. The parties have reached an agreement to resolve this matter. #### *Brokerage Enforcement Matters* FINRA Enforcement staff are conducting investigations related to, among other things, RHS's reporting of fractional share trades, as applicable, to a Trade Reporting Facility ("TRF"), the Over-the-Counter Reporting Facility ("ORF"), the Order Audit Trail System ("OATS"), and the Consolidated Audit Trail ("CAT"); RHS's reporting of accounts holding significant options positions to the Large Option Position {14}------------------------------------------------ Report ("LOPR") system; processing of certain requests for transfers of assets from Robinhood through the Automated Customer Account Transfer System ("ACATS"); responses to Electronic Blue Sheets requests from FINRA; and collaring the prices of certain trade orders. We are cooperating with these investigations. RHS has received requests from the SEC Division of Enforcement regarding its compliance with Regulation SHO's trade reporting and other requirements in connection with securities lending and fractional share trading and previously received similar requests from FINRA examinations staff. RHS has also received requests from the SEC Division of Enforcement and FINRA Enforcement staff related to the Firms' compliance with recordkeeping requirements. We are cooperating with these investigations. #### *Account Takeovers, Anti-Money Laundering, and Cybersecurity Matters* In January 2021, Siddharth Mehta filed a putative class action in California state court against RHF and RHS, purportedly on behalf of approximately 2,000 Robinhood customers whose accounts were allegedly accessed by unauthorized users. RHF and RHS removed this action to the United States District Court for the Northern District of California. Plaintiff generally alleges that RHF and RHS breached commitments made and duties owed to customers to safeguard customer data and assets and seeks monetary damages and injunctive relief. In April 2022, the parties reached a settlement in principle to resolve this matter. The settlement agreement has been preliminarily approved by the court. # *Early 2021 Trading Restrictions Matters* Beginning on January 28, 2021, due to increased deposit requirements imposed on RHS by the NSCC in response to unprecedented market volatility, particularly in certain securities, RHS temporarily restricted or limited its customers' purchase of certain securities, including GameStop Corp. and AMC Entertainment Holdings, Inc., on our platform (the "Early 2021 Trading Restrictions"). A number of individual and putative class actions related to the Early 2021 Trading Restrictions were filed against RHM, RHF, and RHS, among others, in various federal and state courts. In April 2021, the Judicial Panel on Multidistrict Litigation entered an order centralizing the federal cases identified in a motion to transfer and coordinate or consolidate the actions filed in connection with the Early 2021 Trading Restrictions in the United States District Court for the Southern District of Florida (the "MDL"). The court subsequently divided plaintiffs' claims against Robinhood into three tranches: federal antitrust claims, federal securities law claims, and state law claims. In July 2021, plaintiffs filed consolidated complaints seeking monetary damages in connection with the federal antitrust and state law tranches. The federal antitrust complaint asserted one violation of Section 1 of the Sherman Act; the state law complaint asserted negligence and breach of fiduciary duty claims. In August 2021, we moved to dismiss both of these complaints. In September 2021, plaintiffs filed an amended complaint asserting state law claims of negligence, breach of fiduciary duty, tortious interference with contract and business relationship, civil conspiracy, and breaches of the covenant of good faith and fair dealing and implied duty of care. In January 2022, the court dismissed the state law complaint with prejudice. Plaintiffs have appealed the court's order to the United States Court of Appeals for the Eleventh Circuit. In November 2021, the court dismissed the federal antitrust complaint without prejudice. In January 2022, plaintiffs filed an amended complaint in connection with the federal antitrust tranche and Robinhood moved to dismiss the amended complaint. In May 2022, the court dismissed the federal antitrust complaint with prejudice. Plaintiffs have appealed the court's order to the United States Court of Appeals for the Eleventh Circuit. In November 2021, plaintiffs for the federal securities tranche filed a complaint alleging violations of Sections 9(a) and 10(b) of the Exchange Act. In January 2022, we moved to dismiss the federal securities law complaint. In August 2022, the court granted in part and denied in part Robinhood's motion to dismiss. RHM, RHF, RHS, and our Co-Founder and CEO, Vladimir Tenev, among others, have received requests for information, and in some cases, subpoenas and requests for testimony, related to investigations and examinations of the Early 2021 Trading Restrictions from the United States Attorney's Office for the Northern District of California ("USAO"), the DOJ, Antitrust Division, the SEC's Division of Enforcement, FINRA, the New York Attorney General's Office, other state attorneys general offices, and a number of state securities regulators. Also, a related search warrant was executed by the USAO to obtain Mr. Tenev's cell phone. There have been several inquiries based on specific customer complaints. We have also received requests from the SEC Division of Enforcement and FINRA related to employee trading in certain securities that were subject to the Early 2021 Trading Restrictions, including GameStop Corp. and AMC Entertainment Holdings, Inc., during the week of January 25, 2021. These matters include requests related to whether any employee trading in these securities may have occurred after the decision to impose the Early 2021 Trading Restrictions and before the public announcement of the Early 2021 Trading Restrictions on January 28, 2021. We are cooperating with these investigations. FINRA Enforcement has also requested information about policies, procedures, and supervision related to employee trading generally. {15}------------------------------------------------ #### **NOTE 12: NET CAPITAL** As a registered broker-dealer, we are subject to the SEC's uniform net capital rule (Exchange Act Rule 15c3-1). Advances to affiliates, dividend payments and other equity withdrawals are subject to certain notification and other provisions of the net capital rule of the SEC and other regulatory bodies. We have elected to use the alternative method permitted by the rule, which requires us to maintain net capital equal to the greater of 2% of aggregate customer-related debit items in the customer reserve computation under Exchange Act Rule 15c3-3 or \$0.25 million. Our net capital balance changes day to day, but on December 31, 2022, our net capital was \$2.50 billion which was \$2.44 billion in excess of the minimum required net capital of \$66 million. #### **NOTE 13: SUBSEQUENT EVENTS** We have evaluated events subsequent to the date of the statement of financial condition for items requiring recording or disclosure in the financial statement. The evaluation was performed through February 28, 2023, the date the financial statement were available to be issued. No event took place that requires recording or disclosure in our financial statements. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.