# VIRTUS CAPITAL MARKETS LLC X-17A-5 (2020-03-02) — Broker-dealer annual report - Company: VIRTUS CAPITAL MARKETS LLC - Form: X-17A-5 - Filed: 2020-03-02 - Period: 2019-12-31 - Accession: 0001724168-20-000004 - CIK: 1724168 - File #: 8-70057 - Material weakness: No - Auditor: Lilling & Company, LLP - Auditor location: Port Washington, NY - Contact: Richard Daniels - Phone: 2127514422 - Signed by: Matthew Martines (CEO) Original filing: https://www.sec.gov/Archives/edgar/data/1724168/000172416820000004/vcmllcpublic.pdf --- {0}------------------------------------------------ # **VIRTUS CAPITAL MARKETS LLC** Statement of Financial Condition December 31, 2019 With Report of Independent Registered Public Accounting Firm {1}------------------------------------------------ ## **VIRTUS CAPITAL MARKETS LLC** #### **Contents** | Page(s) | | |------------------------------------------------------------|--| | Facing Page and Oath or Affirmation | | | Report of Independent Registered Public Accounting Firm 1 | | | Financial Statement | | | Statement of Financial Condition 2 | | | Notes to Statement of Financial Condition , 3-8 | | {2}------------------------------------------------ | UNITED STATES | | |------------------------------------|--| | SECURITIES AND EXCHANGE COMMISSION | | | Washington, D.C. 20549 | | | | | | OMB APPROVAL | | | | |---------------------------|-----------|--|--| | OMB Number: | 3235-0123 | | | | Expires August 31, 2020 | | | | | Estimated average purden | | | | | hours per response 12.0G | | | | 8 - 70057 SEC FILE NUMBER #### ANNUAL AUDITED REPORT FORM X-17A-5 PART III #### FACING PAGE Information Required of Brokers and Dealers Pursuant to Section 17 of the Securities Exchange Act of 1934 and Rule 17a-5 Thercunder | REPORT FOR THE PERIOD BEGINNING | 01/01/2019 | AND ENDING | 12/31/2019 | | |----------------------------------------------------------------------------------------------|-------------------------------------------------------|-------------------|-----------------------------|--| | | יוואל אמטעמאוא | | NIMDD/VYYYY | | | | A. REGISTRANT IDENTIFICATION | | | | | NAME OF BROKER-DEALER: | | | | | | Virtus Capital Markets LLC | | OFFICIAL USE ONLY | | | | ADDRESS OF PRINCIPAL PLACE OF BUSINESS: (Do not use P.O. Box No.) | 20 Signal Road | | FIRM ID. NO. | | | | (No and Streel) | | | | | Stamford | CT | | -- 06902 | | | (Cily) | (State) | | (Zip Code) | | | NAME AND TELEFICING NUMBER OF PERSON TO CONTACT IN REGARD TO THIS REPORT
Matthew Martines | | | (203)-814-1970 | | | | | | (Area Code - Telephone No ) | | | | B. ACCOUNTANT IDENTIFICATION | | | | | INDEPENDENT PUBLIC ACCOUNTANT whose opinion is contained in this Report® | | | | | | Lilling & Company, LLP | | | | | | | (Name - frustividnat, state last, just, middle nume ) | | | | | 2 Seaview Blvd - Suite 200 | Port Washington | NY | 11050 | | | (Address) | (City) | (Slale) | (Zip Code) | | | CHECK ONE:
S Certified Public Accountant | | | | | | Poblic Accountant | | | | | | Accountant not resident in United States or any of its possessions | | | | | | | FOR OFFICIAL USE ONLY | | | | | | | | | | \*Claims for exemplion from the requirement that the annual report be covered by the opinion of an independent public accountant mist be supported by a statement of facts and creamstances rehed on as the cxemption, See section 240.17a-5(e)(2). Potential 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 valld OMB con SEC: 1410 (06-02) {3}------------------------------------------------ #### OATH OR AFFIRMATION | | Matthew Marines | , swear (or affirm) that, to the | |----------------|--------------------------------|---------------------------------------------------------------------------------------------------------------------------| | | | best of my knowledge and belief the accompanying financial statement and supporting scheelules pertaining to the firm of | | | Virtus Capital Markets LLC | -- , as of
December 31. 2019, are true and correct. I further swear (or affirm) that neither the company | | | | nor any putner, proprietor, principal of director has any propretary interest in any account chassified solely as that of | | | a customer. except as follows: | | | | | | | No oxceptions. | | | | | | | | | | | | | | | | | KARELY'S LOPEZ | | | | NOTARY PUBLIC | Simmalure | | | STATE OF CONNECTICL | | | | | CEO | | | MY COMM. EXP. 10/31/20 | Title | | | | | | | | | | | Notary Poblic | | This report\*\* contains (check all applicable boxes): - (n) Facing page, - (8) (b) Statement of Financial Condition. - (c) Statement of Income (Loss). - [ (d) Statement of Changes in Financial Condition. [] (e) Statement of Changes in Stockholders' Equity or Partners' or Sole Proprietors' Capital. - [ (f) Statement of Changes in Liabilities Subordinated to Claims of Creditors. - (g) Computation of Net Capital. - [ (h) Computation for Determination of Reserve Requirements Pursuant to Rule 15c3-3. - (i) Information Relating to the Possession or control Requirements Under Rule 15c3-3. - [] (j) A Reconciliation, including appropriate explansion of Nel Capital Under Rule 150.3-1 and the Computation for Determination of the Reserve Requirements Under Exhibit A of Rule 15c3-3. [] (k) A Reconciliation between the and unaudited Statements of Financial Condition with respect to methods of con- solidation. - 1) (1) An Oath or Affirmation, - (m) A copy of the SIPC Supplements) Report - [ (n) A report describing any material inadequacies found to have existed since the date of the previous audit. (0) Exemption report \*\*For conditions of confidential treatment of certain portions of this filing, see section 240.1 ~a-S(e)(3), {4}------------------------------------------------ # **Lilling** & Company LLP Certified Public Accountants #### **REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM** To the Member Virtus Capital Markets LLC Stamford, CT #### **Opinion on the Financial Statement** We have audited the accompanying statement of financial condition of Virtus Capital Markets LLC as of December 31, 2019, and the related notes (collectively referred to as the "financial statement"). In our opinion, the financial statement presents fairly, in all material respects, the financial position of Virtus Capital Markets LLC 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 Virtus Capital Markets LLC's management. Our responsibility is to express an opinion on Virtus Capital Markets LLC's financial statement based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to Virtus Capital Markets LLC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statement, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statement. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement. We believe that our audit provides a reasonable basis for our opinion. Lilling & Company LLP We have served as Virtus Capital Markets LLC's auditor since 2018. **Port Washington, New York February 28, 2020** {5}------------------------------------------------ ### **VIRTUS CAPITAL MARKETS LLC Statement of Financial Condition December 31, 2019** #### **Assets** | Cash
Due from broker
Securities owned, at fair value
Interest receivable
Prepaid expense
Due from Parent
Total assets | \$
\$ | 497,166
19,960
29,059,205
329,388
9,420
21 657
29,936,796 | |-----------------------------------------------------------------------------------------------------------------------------------------|----------|-----------------------------------------------------------------------------| | Liabilities and Member's Equity | | | | Securities sold, not yet purchased, at fair value
Due to broker, net
Accounts payable and accrued expenses
Interest payable | \$ | 10,617,031
13,755,628
115,561
41,617 | | Total liabilities
Member's equity | \$ | 24,529,837
5,406,959 | | Total liabilities and member's equity | \$ | 29,936,796 | The accompanying notes are an integral part of this financial statement. {6}------------------------------------------------ #### **1. Organization** Virtus Capital Markets LLC ("the Company") is a limited liability company established in the state of Delaware on October 30, 2017 and based in Stamford, CT. On June 22, 2018 the Company became a broker-dealer registered with the Securities and Exchange Commission ("SEC"). The Company is a member of Financial Industry Regulatory Authority ("FINRA") and the Municipal Securities Rulemaking Board ("MSRB"). The Company is a wholly owned subsidiary of Virtus Capital Markets Holdings LLC ("Parent"). The company operates pursuant to SEC Rule 15c3-3(k)(2)(ii) and does not hold customer funds or safe-keep customer securities. The Company is primarily engaged in trading fixed income securities on a principal basis, including U.S. Treasury Bonds and municipal bonds. The Company clears its securities transactions on a fully disclosed basis with its clearing brokers, Pershing LLC and Interactive Brokers, LLC. During the year ended December 31, 2019, all securities transactions were cleared through Pershing, LLC. #### **2. Summary of Significant Accounting Policies** #### **Recently Issued Accounting Pronouncements** In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the FASB's guidance on the impairment offinancial instruments. The ASU adds to United States generally accepted accounting principles ("U.S. GAAP") an impairment model (known as the current expected credit loss ("CECL") model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of lifetime expected credit losses, which the FASB believes will result in more timely recognition of such losses. The ASU is also intended to reduce the complexity of U.S. GAAP by decreasing the number of credit impairment models that entities use to account for debt instruments. Further, the ASU makes targeted changes to the impairment model for available-forsale debt securities. The new CECL standard is effective for annual reporting periods beginning after December 15, 2019, and interim periods therein. Management has evaluated the effect of adopting the new standard and expects the impact to the Company's financial statements to be minimal. 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 timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. Disclosure requirements were modified for liquidation of investments in certain entities that calculate net asset value, and for measurement uncertainty disclosures. Disclosure requirements were added for 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. The company has adopted this ASU on January 1, 2020 and has determined that the impact that this ASU will have in its financial statements and related disclosures is minimal. #### **Basis of Presentation** The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). {7}------------------------------------------------ #### **Summary of Significant Accounting Policies (continued)** #### **Use of Estimates** The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. #### **Cash** Cash consists of cash in a bank, held at one financial institution which at times may exceed federally insured limits. The Federal Deposit Insurance Corporation ("FDIC") insures accounts up to \$250,000. Cash in excess of the insurable limit was \$247,166 as of December 31, 2019. The company reduces its exposure to credit risk by depositing its cash with high credit-quality financial institutions. Management believes that the credit risk of the uninsured portion is remote. #### **Income Taxes** The Company is a single member limited liability company and is treated as a disregarded entity for federal, state and local income tax purposes. Accordingly, no provision or liability for federal, state and local income taxes is included in these financial statements. The Company's taxable income or loss is reportable on the income tax returns on the members of the Parent. At December 31, 2019, management has determined that there are no material uncertain income tax positions. #### **Revenue Recognition** Effective January 1, 2018, the Company adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC Topic 606"). The new revenue recognition guidance requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires an entity to follow a five step model to (a) identify the contract(s) with a customer, (b) identify the performance obligations in the contract, and (e) recognize revenue when (or as) the entity satisfies a performance obligation. The Company's principal sources of revenue are derived from: 1) trading gain/loss on the securities owned, 2) interest income generated from the securities. The new revenue recognition guidance does not apply to revenue associated with the financial instruments and interest income and expenses and therefore its impact on the Company's current methodology for revenue recognition with regards to investment gain/loss and interest income remain unchanged. #### **Securities transaction** Proprietary securities transactions are recorded on trade date and are carried at fair value. Profits and losses arising from all securities transactions are recorded on a trade date basis and included in proprietary trading, net on the statement of operations. Interest income and expense are recognized on the accrual basis. Amounts receivable and payable for securities transactions that have not reached their contractual settlement date are recorded net on the statement of financial condition. {8}------------------------------------------------ #### **3. Fair Value Measurements** FASB ASC 820 defines fair value, establishes a framework for measuring fair value, and establishes a hierarchy of fair value inputs. Fair value is 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. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. Valuation techniques that are consistent with the market, income or cost approach, as specified by FASB ASC 820, are used to measure fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: - Level 1. Quoted Prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date. - Level 2. Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly or indirectly. - Level 3. Unobservable inputs for the asset or liability The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgement. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in level 3. A description of the valuation techniques applied to the Company's major categories of assets and liabilities measured at fair value on a recurring basis follows. Municipal bonds - Valued using pricing models maximizing the use of observable inputs for similar securities. This includes basing value on yields currently available on comparable securities of issuers with similar credit ratings. Municipal bonds are categorized in Level 2 in the fair market hierarchy. U.S. treasury notes - Value using pricing models maximizing the use of observable inputs for similar securities. U.S. Treasury notes are categorized in Level 1 of the fair value hierarchy. {9}------------------------------------------------ #### **Fair Value Measurements (continued)** The following table presents the Company's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of December 31, 2019: | | Level 1 | Level2 | Level3 | Total | |---------------------------------------------------------------------------------------------|------------------|------------------|--------|------------------| | Assets:
Municipal bonds | \$ | \$
29,059,205 | \$ | \$
29,059,205 | | Securities owned, at fair
value | \$ | \$
29,059,205 | \$ | \$
29,059,205 | | Liabilities:
U.S. treasury notes
Securities sold, not yet
purchased, at fair value | \$
10,617,031 | \$ | \$ | \$
10 617 031 | | | \$
10,617,031 | \$ | \$ | \$
10,617,031 | The Company assesses the levels of investments at each measurement date and transfers between fair value hierarchy levels and is recognized by the Company at the end of each reporting period. The Company's policy is to recognize transfers between Level 1 and Level 2 and into and out of Level 3 as of the date of the event or change in circumstances that caused the transfer. There were no transfers between Levels 1, 2 or 3 during the year. #### **4. Due from (to) Brokers, Net** Due to broker, net at December 31, 2019 consist of the following amounts receivable from and payable to Pershing, LLC: | | Receivable | Payable | Net | | | |-------------|------------------|------------------|-----|--------------|--| | Cash/Margin | \$
12,582,451 | \$
26,338,079 | \$ | (13,755,628) | | At December 31 , 2019, the Company had a deposit of \$19,960 at Interactive Brokers LLC, which is presented as Due from Broker on the statement of financial condition. #### **5. Indemnification** In the normal course of business, the Company indemnifies and guarantees certain service providers, such as its clearing brol