# CLEAR STREET LLC X-17A-5 (2020-03-02) — Broker-dealer annual report - Company: CLEAR STREET LLC - Form: X-17A-5 - Filed: 2020-03-02 - Period: 2019-12-31 - Accession: 0001708828-20-000007 - CIK: 1708828 - File #: 8-69972 - Material weakness: No - Auditor: RSM US LLC - Auditor location: New York, NY - Contact: Tim Dunham - Phone: 201-232-9038 - Signed by: Timothy Dunham (CFO) Original filing: https://www.sec.gov/Archives/edgar/data/1708828/000170882820000007/clearstreet2019public.pdf --- {0}------------------------------------------------ # Clear Street LLC SEC # 8-69972 CRD # 288933 Consolidated Combined ## Statement of Financial Condition With Report of Independent Registered Public Accounting Firm December 31, 2019 This report is deemed PUBLIC in accordance with Rule 17a-5(e)(3) under the Securities Exchange Act of 1934 {1}------------------------------------------------ ### Page(s) | Report of Independent Registered Public Accounting Firm………………………. | 2 | |-------------------------------------------------------------------|--------| | Consolidated Combined Statement of Financial Condition.……………….……… | 3 | | Notes to Consolidated Combined Statement of Financial Condition…… | 4 - 14 | {2}------------------------------------------------ ![](_page_2_Picture_0.jpeg) #### **Report of Independent Registered Public Accounting Firm** To the Members of Clear Street LLC #### **Opinion on the Financial Statements** We have audited the accompanying consolidated combined statement of financial condition of Clear Street LLC and Subsidiary (the Company) as of December 31, 2019, and the related notes to the consolidated combined financial statement (collectively, the financial statement). In our opinion, the financial statement presents fairly, in all material respects, the financial position of the Company as of December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. #### **Basis for Opinion** This financial statement is the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. We have served as the Company's auditor since 2019. New York, New York March 2, 2020 {3}------------------------------------------------ ## Clear Street LLC Consolidated Combined Statement of Financial Condition December 31, 2019 | Clear Street LLC
Consolidated Combined Statement of Financial Condition
December 31, 2019 | | |---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------| | Assets
Cash and cash equivalents
Cash segregated under federal and other regulations
Financial instruments owned, at fair value
Securities borrowed
Securities received as collateral
Receivable from broker-dealers and clearing organizations
Receivable from customers
Other assets | \$
43,847,835
7,400,000
644,946,485
650,963,060
756,676,339
14,659,237
12,117,626
2,218,288 | | Total Assets | \$ 2,132,828,870 | | Liabilities and Equity
Liabilities
Financial instruments sold, not yet purchased, at fair value
Securities loaned
Obligation to return securities received as collateral
Payable to broker-dealers and clearing organizations
Payable to customers
Accounts payable and accrued liabilities
Subordinated borrowings | \$
594,680,017
655,427,521
756,676,339
10,507,326
3,937,451
10,257,112
24,000,000
\$ 2,055,485,766 | | Equity | | | Members' Equity
Total Liabilities and Equity | 77,343,104
\$ 2,132,828,870 | {4}------------------------------------------------ #### 1. Organization and Description of Business Clear Street LLC (the "Company"), is a limited liability company organized in the state of Delaware. The Company's sole Class A member is Clear Street Holdings LLC ("Holdings") and the Company's sole Class B Member is Clear Street Capital LLC ("Capital"). Holdings was created as a vehicle through which the Company can allocate future, cumulative profits to its partners and employees. The Company's operating agreement provides that the CEO has sole authority to carry out management responsibilities and control day-to-day management of the Company's operations, including determination of profit and loss allocations among members, distributions and admittance of new members. As a limited liability company, the members' liabilities are limited to amounts reflected in their capital account. Founded in 2016, the Company, headquartered in New York, is a broker-dealer registered with the U. S. Securities and Exchange Commission ("SEC"), the Municipal Securities Rulemaking Board ("MSRB") and the Financial Industry Regulatory Authority, Inc. ("FINRA"). The Company has clearing memberships with principal stock exchanges in the United States, including the New York Stock Exchange ("NYSE") and The Nasdaq Stock Market ('NASDAQ") among others. The Company is also a member of the Depository Trust and Clearing Company ("DTCC"), the National Securities Clearing Corporation ("NSCC") and the Options Clearing Corporation ("OCC"). The Company's primary designated self-regulatory organization is FINRA. The Company is the sole Class A member of Clear Street Markets LLC ("Markets"). Markets is a proprietary trading firm and broker-dealer registered with the SEC and maintains memberships at most principal United States exchanges including NYSE, NASDAQ and the Chicago Board Options Exchange ("Cboe"). Markets' designated self-regulatory organization is Cboe. Market's sole Class B member is Capital. The accompanying Consolidated Combined Statement of Financial Condition includes the accounts of Markets at December 31, 2019. The Company has entered into clearing arrangements with introducing brokers and executes and clears securities transactions directly for customers. Accordingly, the Company is subject to SEC Rule 15c3-3 pertaining to the possession or control of customer assets and reserve requirements. The Company is approved to engage in clearing, execution, prime brokerage, stock lending, and margin lending to customers of introducing firms as well as to direct customers and correspondents. In August of 2019, the Company completed a corporate reorganization whereby Markets, who was the Company's immediate parent prior to August 31, 2019 became a subsidiary of the Company. As both the Company and Markets are entities under common control, the accompanying Consolidated Combined Financial Statements are presented as if the reorganization occurred on January 1, 2019, the beginning of the period presented. Accordingly, as of January 1, 2019, the Company's Consolidated Combined Statement of Changes in Member's Equity was adjusted by \$31,620,317, the amount of the Company's Members' Equity attributable to Markets as of December 31, 2018. {5}------------------------------------------------ ## Clear Street LLC ### Notes to Consolidated Combined Statement of Financial Condition December 31, 2019 #### 2. Significant Accounting Policies #### Basis of Presentation The accompanying Consolidated Combined Statement of Financial Condition includes the accounts of the Company and its wholly owned subsidiary, Clear Street Markets LLC and are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). All material intercompany balances and transactions are eliminated in consolidation. #### Use of Estimates The preparation of financial statements in conformity with U.S.GAAP requires management to make estimates and assumptions that affect the reported amounts of certain types of assets and liabilities and disclosure of contingent assets and liabilities at the reporting date. Actual results may differ from estimated amounts. These assets would be categorized as Level 1 in the fair value hierarchy if they were required to be recorded at fair value. #### Cash and Cash Equivalents Cash and cash equivalents and Cash segregated in compliance with federal and other regulations include demand deposits held in banks and certain highly liquid investments with original maturities of three months or less. The carrying amount of such cash equivalents approximates their fair value due to the short term nature of these instruments. The Company maintains cash in bank accounts that, at times, may exceed federally insured limits. The Company manages this risk by selecting financial institutions deemed highly credit worthy to minimize the risk. #### Securities borrowed and Securities loaned The Company conducts securities borrowing and lending activities with external counterparties. In connection with these transactions, the Company receives or posts collateral, which comprises cash and/or securities. In accordance with substantially all of its stock borrow agreements, the Company is permitted to sell or repledge securities received. Securities borrowed or loaned are recorded based on the amount of cash or other collateral advanced or received. The initial cash collateral advanced or received generally approximates or is greater than 102% of the fair value of the underlying securities borrowed or loaned. The Company monitors the fair value of securities borrowed or loaned, and delivers or obtains additional collateral as appropriate. Receivables and payables with the same counterparty are not offset in the Consolidated Combined Statement of Financial Condition. #### Securities received as collateral and Obligations to return securities received as collateral The Company acts as lender in securities lending transactions and may receive securities that can be pledged or sold as collateral instead of receiving cash. The Company recognizes an asset on the Consolidated Combined Statement of Financial Condition for the market value of those securities and recognizes a liability for the same amount to recognize the obligation to return such collateral. {6}------------------------------------------------ #### Receivable from/Payable to broker-dealers and clearing organizations Amounts receivable from broker-dealers and clearing organizations may be restricted to the extent they serve as deposits for securities sold, not yet purchased. At December 31, 2019, Receivables from broker-dealers and clearing organizations primarily represent amounts due from prime brokers in relation to the Company's trading activity, deposits with clearing organizations, amounts due for unsettled trades and amounts receivable related to interest on securities lending activities. Payables to broker-dealers and clearing organizations primarily represent interest payable related to securities lending activities and securities failed to receive. #### Financial Instruments Owned Including Those Pledged as Collateral and Financial Instruments Sold, Not Yet Purchased Financial instruments owned and Financial instruments sold, not yet purchased relate to market making and trading activities, and include listed and other equity securities. The Company records financial instruments owned, including those pledged as collateral, and financial instruments sold, not yet purchased, at fair value. #### Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or would be paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. Fair value measurements are not adjusted for transaction costs. The recognition of "block discounts" for large holdings of unrestricted financial instruments where quoted prices are readily and regularly available in an active market is prohibited. The Company categorizes its financial instruments into a three level hierarchy which prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy level assigned to each financial instrument is based on the assessment of the transparency and reliability of the inputs used in the valuation of such financial instruments at the measurement date based on the lowest level of input that is significant to the fair value measurement. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements). Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories based on inputs: 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 in markets that are not active and financial instruments for which all significant inputs are observable, either directly or indirectly; or Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. {7}------------------------------------------------ Transfers in or out of levels are recognized based on the beginning fair value of the period in which they occurred. #### Derivative Instruments Derivative instruments are used for trading purposes, including economic hedges of trading instruments, are carried at fair value, and include futures contracts, and options. Fair values for exchange-traded derivatives, principally futures, are based on quoted market prices. The Company presents its derivatives balances on a net-by-counterparty basis when the criteria for offsetting are met. #### Exchange Memberships Exchange memberships are recorded at cost or, if any other than temporary impairment in value has occurred, at a value that reflects management's estimate of fair value. The Company's exchange memberships are included in Exchange memberships in the Consolidated Combined Statement of Financial Condition. #### Income Taxes The Company is a limited liability company and therefore no provision is made in this financial statement for federal, state or local income taxes as such liabilities are the responsibility of the individual members. #### New Accounting Pronouncements #### Leases In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new ASU, a lessee is required to recognize assets and liabilities for leases with lease terms of more than 12 months. The liability is equal to the present value of the future lease payments. The ROU asset is based on the liability, subject to adjustment, such as for initial direct costs. For statement of operations purposes, leases are classified as either operating or finance. Operating leases result in straight-line expense (similar to previous operating lease guidance) while finance leases result in a front-loaded expense pattern (similar to previous capital lease guidance). Classification is based on criteria that are largely similar to those applied in previous lease accounting. Management has determined that as the lease of office space occupied by the Company is held by a related party and the space arrangement can be cancelled by either party at any time. Therefore, the lease would not fall under ASC 842 and would have no impact on the Company's Consolidated Combined Financial Statements. #### Fair Value Measurement In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which modified the disclosure requirements on fair value measurements in ASC Topic 820, Fair Value Measurement. Disclosure requirements were eliminated for the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for {8}------------------------------------------------ timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Disclosure requirements were added for changes in unrealized gains and losses for the period included in operating income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The ASU is effective for periods beginning after December 15, 2019, including interim periods within that fiscal year. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Combined Statement of Financial Condition. #### Measurement of Credit Losses on Financial Instruments In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) -Measurement of Credit Losses on Financial Instruments. This ASU amends several aspects of the measurement of credit losses on financial instruments, including replacing the existing incurred credit loss model and other models with the Current Expected Credit Losses model ("CECL"). Under CECL, the allowance for losses for financial assets that are measured at amortized cost reflects management's estimate of credit losses over the remaining expected life of the financial assets. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, would be recognized in earnings, and adoption of the ASU will generally result in earlier recognition of credit losses. Expected credit losses will be measured based on historical experience, current conditions and forecasts that affect the collectability of the reported amount, and credit losses will be generally recognized earlier than under current U.S. GAAP. In June 2019, the FASB issued ASU 2019-05, Financial Instruments-Credit Losses (Topic 326): Targeted Transition Relief, which provides entities with an option to irrevocably elect the fair value option on an instrument-by-instrument basis for certain instruments upon adoption of the new Credit Losses standard. The ASUs are effective for periods beginning after December 15, 2019, including interim periods within that fiscal year. The Company is currently in the process of identifying and developing the changes to the Company's existing models and processes that will be required under CECL. As of December 31, 2019, the ASU is expected to impact only those financial instruments that are carried by the Company at amortized cost such as securities borrowing/lending transactions and receivables from customers, broker-dealers and clearing organizations. However, the ultimate impact of adoption of this ASU on the Company's financial condition will depend on, among other things, the economic environment and the type of financial assets held by the firm on the date of adoption. #### 3. Cash Segregated Under Federal or Other Regulations The Company maintains custody of customer funds and is obligated by rules and regulations mandated by the SEC to segregate or set aside cash and or qualified securities to satisfy these regulations, which have been promulgated to protect customer assets. Included in Cash segregated under federal or other regulations was \$7,000,000 which has been segregated in a special reserve account for the exclusive benefit of customers and \$400,000 in a special account for the exclusive benefit of introducing brokers under SEC Rule 15c3-3. The amounts recognized as Cash segregated under federal or other regulations approximate fair value. {9}------------------------------------------------ #### 4. Receivables from and Payables to Broker-Dealers and Clearing Organizations | Clear Street LLC
Notes to Consolidated Combined Statement of Financial Condition | | |------------------------------------------------------------------------------------------------------------------------------|------------------| | | | | | | | December 31, 2019 | | | 4. Receivables from and Payables to Broker-Dealers and Clearing Organizations | | | Receivables from and Payables to broker-dealers and clearing organizations at December
31, 2019 consist of the following: | | | Assets | | | Deposits with clearing organizations | \$
8,317,956 | | Due from prime brokers | 2,658,778 | | Net equity with futures commission merchants | 2,329,576 | | Unsettled trades with clearing organization | 732,617 | | Commissions and fees | 620,308 | | Total receivables from broker-dealers and clearing | | | organizations | \$
14,659,237 | | Liabilities | | | Due to prime brokers | \$
9,527,479 | | Due to introducing brokers | 251,914 | | Commissions and fees | 655,923 | | Securities failed to receive | 72,010 | | Total payables to broker-dealers and clearing | | | organizations | \$
10,507,326 | #### 5. Fair Value The Company's financial instruments recorded at fair value have been categorized based upon a fair value hierarchy in accordance with accounting standards as described in note 2: Significant Accounting Policies. Exchange-traded equity securities and listed equity options, are valued based on quoted prices from the primary exchange, and are classified as Level 1 securities in the fair value hierarchy. Corporate bonds are value based on recently executed transactions or market quotations, and are generally categorized as Level 2 investments in the fair value hierarchy. Values for financial instruments other than those discussed above are estimated in good faith by the Company, and are generally categorized as Level 3 in the fair value hierarchy. As of December 31, 2019, the Company held no financial instruments whose values were estimated by the Company. {10}------------------------------------------------ Financial instruments owned and Financial instruments sold, not yet purchased consist of trading and investment securities reported at fair values, as follows: | | | Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) | | Significant
Other
Observable
Inputs (Level 2) | | Significant
Unobservable | | Inputs (Level 3) Total Fair Value | | |------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------|----------------------------------|--------------------------------------------------------|------------------|-----------------------------|----------------------------|-----------------------------------|----------------------------------------------------------| | Assets | | | | | | | | | | | | Financial instruments owned | | | | | | | | | | Equities | | | \$
627,923,010 | \$ | - | \$ | - | \$ | 627,923,010 | | | Listed equity options | | 15,194,373 | | - | | - | | 15,194,373 | | | Corporate bonds | | - | | 1,849,102 | | - | | 1,849,102 | | | Total Financial instruments owned | | 643,117,383 | | 1,849,102 | | - | | 644,966,485 | | Total Assets | | \$ | 643,117,383 | \$ | 1,849,102 | \$ | - | \$ | 644,966,485 | | Liabilities | | | | | | | | | | | Financial instruments sold, | | | | | | | | | | | not yet purchased | | | | | | | | | | | Equities | Listed equity options | | \$
309,636,617
275,272,424 | \$ | -
- | \$ | -
- | \$ | 309,636,617
275,272,424 | | | | | | | | | | | | | | Corporate bonds
Total Financial instruments owned, | | | | 9,770,976 | | - | | 9,770,976 | | not yet purchased | | | 584,909,041 | | 9,770,976 | | - | | 594,680,017 | | Total Liabilities | | \$ | 584,909,041 | \$ | 9,770,976 | \$ | - | \$ | 594,680,017 | | | | | | | | | | | | | Derivative Assets
Interest rate futures
Options | 6. Derivative Instruments
The fair value of the Company's derivative instruments not designated as hedging
instruments on a gross basis consisted of the following at December 31, 2019:
Financial Statement Location
Receivable from broker-dealers and clearing organizations
Financial instruments Owned | | | | Fair Value
\$ | 15,194,373 | 313
\$ | | Notional Value
24,613,531
1,696,239,121 | | Derivative liabilities
Interest rate futures
Fixed income futures
Options | Financial Statement Location
Receivable from broker-dealers and clearing organizations
Receivable from broker-dealers and clearing organizations
Financial instruments sold, not yet purchased | | | | Fair Value
\$ | 275,272,424 | (18,439)
\$
(11,875) | | Notional Value
24,595,718
779,531
2,727,593,425 | | | | | | | | | | | | #### 6. Derivative Instruments | | not yet purchased | | | | | | |-----------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|-----------------|----------------------|----|-----------------------------| | Equities | | \$
309,636,617 | \$
- | \$ | - | \$
309,636,617 | | | Listed equity options | 275,272,424 | - | | - | 275,272,424 | | | Corporate bonds | | 9,770,976 | | - | 9,770,976 | | | Total Financial instruments owned, | | | | | | | not yet purchased | | 584,909,041 | 9,770,976 | | - | 594,680,017 | | Total Liabilities | | \$
584,909,041 | \$
9,770,976 | \$ | - | \$
594,680,017 | | | | | | | | | | | The fair value of the Company's derivative instruments not designated as hedging
instruments on a gross basis consisted of the following at December 31, 2019: | | | | | | | | | | | | | | | Interest rate futures
Options | Receivable from broker-dealers and clearing organizations
Financial instruments Owned | | \$ | 313
15,194,373 | \$ | 24,613,531
1,696,239,121 | | | | | | | | | | Derivative liabilities | Financial Statement Location | | Fair Value | | | Notional Value | | Interest rate futures
Fixed income futures | Receivable from broker-dealers and clearing organizations
Receivable from broker-dealers and clearing organizations | | \$ | (18,439)
(11,875) | \$ | 24,595,718
779,531 | {11}------------------------------------------------ #### 7. Collateralized Transactions The Company enters into securities borrowing and lending transactions to meet counterparty needs, earn residual interest spreads and obtain securities for settlement purposes. Under most agreements the Company is permitted to sell or repledge securities received as collateral and use these securities to enter into securities lending transactions or deliver these securities to counterparties or clearing organizations to cover short positions. At December 31, 2019, substantially all of the securities received as collateral have been repledged. Although the Company does not net securities borrowed and securities loaned, substantially all securities borrow and loan agreements are transacted under master securities loan agreements that give the Company the right to liquidate securities held and offset receivables and payables with the same counterparty in the event of default by that counterparty. These financial instruments are presented on a gross basis on the Consolidated Combined Statement of Financial Condition. In the table below, the amounts of financial instruments that are not offset in the Consolidated Combined Statement of Financial Condition, but could be netted against financial liabilities with specific counterparties under legally enforceable master netting agreements in the event of default, are presented to provide financial statement readers with the Company's estimate of its net exposure to counterparties for these financial instruments. Gross Amounts Net Amounts of Offset in the Assets Presented Consolidated in the Consolidated Combined Combined Statement of Statement of Gross Amounts of Financial Financial Financial Cash Collateral Recognized Assets Condition Condition Instruments Received Net Amount | receivables and payables with the same counterparty in the event of default by that
counterparty. These financial instruments are presented on a gross basis on the Consolidated
Combined Statement of Financial Condition. In the table below, the amounts of financial
instruments that are not offset in the Consolidated Combined Statement of Financial
Condition, but could be netted against financial liabilities with specific counterparties under
legally enforceable master netting agreements in the event of default, are presented to provide | loan agreements that give the Company the right to liquidate securities held and offset | | | | | | |-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------|-----------------------------------------------------------|---------------------------------------------------------------------|------------------------------------|----------------------------------------------------------------------------------|----------------------------| | financial statement readers with the Company's estimate of its net exposure to counterparties
for these financial instruments. | | | | | | | | The following tables set forth the gross and net presentation | | | | | | of Securities Borrowed and | | Securities loaned as of December 31, 2019: | | | | | | | | | | Offset in the
Consolidated
Combined
Statement of | Assets Presented
in the Consolidated
Combined
Statement of | | Gross Amounts Not Offset in the
Consolidated Statement of Financial Condition | | | | Gross Amounts of | Financial | Financial | Financial | Cash Collateral | | | Offsetting of Financial Assets
Securities borrowed | \$
650,963,060 | | \$
650,963,060 | \$
639,344,407 | \$
10,923,734 | \$
694,919 | | Market value of collateral received | 756,676,339
\$
1,407,639,399 | \$
- | 756,676,339
\$
1,407,639,399 | 756,676,339
\$
1,396,020,746 | \$
10,923,734 | -
\$
694,919 | | Total
Offsetting of Financial Liabilities
Securities loaned
Obligation to return colateral | \$
655,427,521
756,676,339 | | \$
655,427,521
756,676,339 | \$
643,668,994
756,676,339 | \$
10,923,734 | \$
8,347,923
- | At December 31, 2019, all of the open securities borrowed and securities loaned transactions had maturities that were either overnight or continuous. Substantially all of the securities pledged as of December 31, 2019 were Equities or Exchange Traded Funds ("ETF's") {12}------------------------------------------------ #### 8. Borrowings On June 3, 2019, the Company entered into a revolving credit agreement (the "Agreement") with a bank for an aggregated borrowing limit of \$10 million. The Agreement is to be used to finance the purchase and settlement of securities and bears interest at the Federal Funds Rate plus 1.5% per annum. In connection with the Agreement, the Company incurred issuance costs of \$50,000 which is being amortized over the term of the Agreement. Included in Other assets at December 31, 2019 is \$20,833 representing the unamortized balance of these costs. At December 31, 2019 there were no outstanding balances under the Agreement. #### 9. Financial Instruments and Off-Balance Sheet Risk #### Customer Activities The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to customers which is collateralized by cash and/or securities in a customer account. In connection with these activities, the Company executes and clears customer transactions involving securities sold, not yet purchased. The Company seeks to control risks associated with customer activities by requiring customers to maintain margin collateral in compliance with various regulatory, exchange and internal guidelines. The Company monitors required margin levels daily, pursuant to such guidelines, the Company requires the customer to deposit additional collateral or reduce positions, when necessary. Such transactions may expose the Company to significant off-balance sheet risk in the event the collateral is not sufficient to cover losses which customers may occur. In the event the customer fails to satisfy its obligations, the Company may be required to purchase or sell the collateral at prevailing market prices in order to fulfill the customer's obligations. #### Market Risk The Company has sold securities that it does not currently own and will therefore be obligated to purchase such securities at a future date. The Company has recorded these obligations in the Consolidated Combined Financial Statements at December 31, 2019 at fair value of the related securities and will incur a loss if the fair value of the securities increases subsequent to December 31, 2019. In connection with its proprietary market making and trading activities, the Company enters into transactions in a variety of securities and derivative financial instruments, primarily exchange-traded equity options, futures contracts, and options on futures contracts. Options held provide the Company with the opportunity to deliver or take delivery of specified financial instruments at a contractual price. Options written obligate the Company to deliver or take delivery of specified financial instruments at a contractual price in the event the option is exercised by the holder. Futures contracts provide for the delayed delivery or purchase of financial instruments at a specified future date at a specified price or yield. The majority of the Company's transactions with off-balance sheet risk are short-term in duration. {13}------------------------------------------------ #### Credit Risk Credit risk arises from the potential inability of counterparties to perform in accordance with the terms of the contract. The Company's exposure to credit risk associated with counterparty nonperformance is limited to the current cost to replace all contracts in which the Company has a gain. Exchange-traded derivative financial instruments, such as options, futures, and options on futures, generally do not give rise to significant counterparty exposure due to the cash settlement procedures for daily market movements or the margin requirements of the individual exchanges and clearing brokers. The Company clears its trades through clearing brokers. In the event these entities do not fulfill their obligations, the Company may be exposed to risk. This risk of default depends on the creditworthiness of these entities. The Company attempts to minimize this credit risk by monitoring the creditworthiness of these entities. #### 10. Related Party Transactions The Company has a management and an expense sharing agreement with Clear Street Management LLC ("CS Management") which is the sole Class A member of Capital. The Company shares office space in New York with CS Management. CS Management also provides payroll and administrative services to the Company. The company is allocated cost based on actual usage. At December 31, 2019, included in Accrued expenses and other liabilities was \$557,328 payable to CS Management. The Company maintains a consulting and service agreement with Clear Street Technologies LLC ("CS Tech") for technology infrastructure and support. CS Tech is under common control with the Company through Capital which is the parent for both. At December 31, 2019, included in Accrued expenses and other liabilities was \$655,928 payable to CS Tech. The Company maintains a software license agreement with Clear Street Technologies USVI LLC ("CS Tech USVI") for technology infrastructure and support. CS Tech USVI is under common control with the Company through the ultimate owners of Capital. At December 31, 2019, there were no amounts payable or receivable between the Company and CS Tech USVI. In the ordinary course of business, the Company also interacts with three other affiliated entities under common control for various services. At December 31, 2019, included in Accrued expenses and other liabilities was \$27,650 payable to one of these related parties. The Company executed a subordinated borrowing agreement with Capital on December 31, 2019 which bears interest at the rate of 6.50% per annum and matures on December 31, 2024. The subordinated borrowings are available in computing net capital under the SEC's uniform net capital rule. To the extent that such borrowings are required for the Company's continued compliance with the minimum net capital requirements it cannot be repaid. {14}------------------------------------------------ #### 11. Net Capital Requirements The Company and Markets are subject to the SEC Uniform Net Capital Rule ("SEC Rule 15c3-1"), which requires the maintenance of minimum net capital. The Company has elected to use the alternative method, permitted by SEC Rule 15c3-1, which requires the Company to maintain net capital equal to the greater of \$1.5 million or 2% of aggregate debit items as defined. Markets is required to maintain net capital equal to the greater of \$250,000 or a calculated amount based on the number of securities it makes markets in to a maximum of \$1,000,000 These regulations also prohibit a broker-dealer from paying cash dividends, making loans to its parent, affiliates or employees, or otherwise entering into transactions, which, if executed, would result in a reduction of its total net capital to less than 150% of its minimum required capital. Moreover, broker-dealers are required to notify the SEC and other regulators prior to paying cash dividends, making loans to its parent, affiliates or employees, or otherwise entering into transactions, which, if executed, would result in a reduction of 10% or more its excess net capital (net capital less the minimum requirement). The SEC and FINRA have the ability to prohibit or restrict such transactions if the result is detrimental to the integrity of the broker-dealer. At December 31, 2019, the Company had net capital of \$54,054,813, which was \$52,554,813 in excess of its required net capital of \$1,500,000. At December 31, 2019, Markets had net capital of \$18,915,798, which was \$17,915,798 in excess of its required net capital of \$1,000,000. #### 12. Subsequent Events The Company has performed an evaluation of events that have occurred subsequent to December 31, 2019 and through March 2, 2020 the date of the issuance of these financial statements. There have been no material subsequent events that have occurred during such period that would require disclosure in this report or would be required to be recognized in the Consolidated Combined Statement of Financial Condition as of December 31, 2019. Source: SEC EDGAR via Adviser Search (https://search.stillhousedata.com). Agents: see https://search.stillhousedata.com/llms.txt.