STATEMENT OF FINANCIAL CONDITION JUNE 30, 2018

Transcription

1 STATEMENT OF FINANCIAL CONDITION JUNE 30, 2018 Member SIPC FINRA Filed in accordance with Rule 17a-5(e)(3) as a PUBLIC DOCUMENT Page 1 of 10

2 STATEMENT OF FINANCIAL CONDITION As of JUNE 30, 2018 ASSETS Cash $ 1,009,622 Cash and securities segregated under federal and other regulations (cash of $180,997,422 and securities with a fair 238,151,013 value of $57,153,591) Receivable from broker-dealers and clearing organizations 3,802,191 Receivable from customers 81,727,704 Receivable from non-customers 328,930 Securities owned-marketable, at fair value 9,376,477 Securities borrowed 62,437,541 Property, equipment and leasehold improvements, net of accumulated depreciation and amortization 415,635 Other assets 1,918,732 LIABILITIES AND STOCKHOLDERS EQUITY Liabilities See notes to financial statements $ 399,167,845 Payable to customers $ 316,469,255 Payable to non-customers 16,204,174 Drafts payable 3,568,726 Payable to broker-dealers and clearing organizations 1,323,391 Bank loans payable 7,200,000 Securities loaned 34,629,343 Securities sold, not yet purchased, at fair value 54,681 Accounts payable, accrued expenses and other liabilities 880,678 $ 380,330,248 Stockholder's Equity Common stock; $.0016 par value, 20,000,000 shares authorized, 6,152,500 shares issued and outstanding 9,844 Paid-in capital 14,726,520 Retained earnings 4,263,233 Less: stock subscription receivable (162,000) 18,837,597 $ 399,167,845 Page 2 of 10

3 STOCKCROSS FINANCIAL SERVICES, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, ORGANIZATION AND NATURE OF BUSINESS StockCross Financial Services, Inc. (the "Company") is a securities broker-dealer registered with the Securities and Exchange Commission ( SEC ) and is a member of Financial Industry Regulatory Authority ( FINRA ). The Company is located in Beverly Hills, California, with offices throughout the United States and customers around the world. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements are presented on the accrual basis of accounting in accordance with generally accepted accounting principles in the United States of America. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU , Leases, which replaces the existing guidance in ASC 840, Leases. The new standard establishes a right-of-use model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. The guidance will be effective for annual reporting periods beginning after December 15, 2018, and early adoption is permitted. Management of the Company is currently evaluating the impact of ASU will have on its financial statements and related disclosures. Cash Cash represents cash on hand and cash held in banks. At times, cash balances may exceed Federal Deposit Insurance Corporation ( FDIC ) insured limits. Cash and Securities Segregated under Federal and Other Regulations Cash (interest bearing deposit accounts) and securities owned in the amount of $238,151,013 (cash $180,997,422, securities with a fair value of $57,153,591) have been segregated in special reserve accounts for the benefit of customers and for the benefit of introducing broker-dealers under Rule 15c3-3 of the SEC. Page 3 of 10

4 Receivable From and Payable to Broker-Dealers and Clearing Organizations Accounts receivable from and payable to broker-dealers and clearing organizations include amounts held on deposit with clearing organizations, amounts due from/to introducing broker-dealers, fail-to deliver and fail-to-receive items, and amounts receivable for unsettled regular-way transactions. Receivable From and Payable to Customers Accounts receivable from and payable to customers include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables. Receivable From and Payable to Non-Customers Accounts receivable from and payable to non-customers includes amounts due on cash and margin transactions on accounts owned and controlled by principal officers, directors and stockholders of the company. Securities owned by non-customers are held as collateral for receivables. Securities Owned-Marketable, at Fair Value Securities owned-marketable, at fair value represent marketable securities owned by the company at trade-date valuation. See Fair Value of Financial Instruments disclosure below. Securities Borrowed and Loaned Securities borrowed are recorded at the amount of cash collateral advanced. Securities borrowed transactions require the Company to deposit cash, letters of credit, or other collateral with the lender. Securities loaned are recorded at the amount of cash collateral received. For securities borrowed and loaned, the Company monitors the market value, with additional collateral obtained or refunded as necessary. See Offsetting Assets and Liabilities disclosure below. Property, Equipment, and Leasehold Improvements Property, equipment and leasehold improvements are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are recorded on a straightline basis over the lesser of the estimated useful lives of the related assets or the noncancelable remaining lease terms, as appropriate. Other Assets Other assets consist of miscellaneous receivables and prepaid expenses not otherwise categorized above. Page 4 of 10

5 Income Taxes Beginning January 1, 2018, the Company elected to be taxed as a C Corporation for federal income tax purposes and in various states. The Company is subject to state and local income taxes in various states and localities. The Company recognizes the effect of tax positions only when they are more likely than not to be sustained under audit by the taxing authorities. As of June 30, 2018, the Company did not have any unrecognized tax benefits or liabilities. The Company operates in the United States and in state and local jurisdictions, and tax years prior to 2013 are no longer subject to examination by taxing authorities. There are presently no income tax examinations in process. Drafts Payable Drafts payable represent checks drawn by the Company against customer accounts which remained outstanding and had not cleared the bank as of June 30, Bank Loans Payable Bank loans payable represent uncommitted loans obtained by StockCross collateralized by the securities of customers. Securities Sold, Not Yet Purchased, at Fair Value Securities sold, not yet purchased, at fair value represent marketable securities sold by the company prior to purchase at trade-date valuation. See Fair Value of Financial Instruments disclosure below. Accounts Payable, Accrued Expenses, and Other Liabilities Accounts payable, accrued expenses, and other liabilities represent amounts accrued in the reporting period but not yet paid. Concentrations of Credit Risk The Company is engaged in various trading and brokerage activities whose contraparties include broker-dealers, banks and other financial institutions. In the event contra-parties do not fulfill their obligations, the Company may sustain a loss if the market value of the instrument is different from the contract value of the transaction. The risk of default primarily depends upon the credit worthiness of the contra-parties involved in the transactions. It is the Company s policy to review, as necessary, the credit standing of each contra-party with which it conducts business. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 Page 5 of 10

6 amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. 3. COMMITMENTS AND CONTINGENCIES Lease Commitments The Company rents office space and leases computers and other equipment under various operating leases. Lease commitments going forward are: 2018 $ 379, , ,591 Thereafter 312,601 $2,001,276 Litigation and Regulatory Matters The Company is subject to various claims and arbitrations in the normal course of business. The Company believes that the resolution of these matters will not have a material adverse effect on these financial statements. 4. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Company enters into various transactions to meet the needs of customers, conduct trading activities, and manages market risks and is, therefore, subject to varying degrees of market and credit risk. In the normal course of business, the Company's customer activities involve the execution, settlement, and financing of various customer securities transactions. These activities may expose the Company to off-balance sheet risk in the event the customer or other broker is unable to fulfill its contracted obligations and the Company has to purchase or sell the financial instrument underlying the contract at a loss. The Company's customer securities activities are transacted on either a cash or margin basis. In margin transactions, the Company extends credit to its customers, subject to various regulatory and internal margin requirements. Credit extended to customers is collateralized by cash and securities in the customers' accounts. In connection with these activities, the Company executes and clears customer transactions involving the sale of securities not yet purchased, substantially all of which are transacted on a margin basis subject to individual exchange regulations. Such transactions may expose the Company to off-balance sheet risk in the event margin requirements are not sufficient to fully cover losses that customers may incur. In the event the customer fails to satisfy its obligations, the Company may be required to purchase or sell financial instruments at prevailing market prices to fulfill the customer's obligations. The Company seeks to control the risks associated with its customer activities by Page 6 of 10

7 requiring customers to maintain margin collateral in compliance with various regulatory and internal guidelines. The Company monitors required margin levels daily and, pursuant to such guidelines, require customers to deposit additional collateral or to reduce positions, when necessary. The Company's customer financing and securities settlement activities may require the Company to pledge customer securities as collateral in support of various secured financing sources such as bank loans and securities loaned. In the event the counterparty is unable to meet its contractual obligation to return customer securities pledged as collateral, the Company may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy its customer obligations. The Company controls this risk by monitoring the market value of securities pledged on a daily basis and by requiring adjustments of collateral levels in the event of excess market exposure. In addition, the Company establishes credit limits for such activities and monitors compliance on a daily basis. 5. OFFSETTING ASSETS AND LIABILITIES In accordance with ASU , the Company elected offsetting treatment of assets and liabilities for its securities borrowed and securities loaned positions. Rights of set-off exist for the portion of the securities borrowed and loaned positions based on a netting agreement that allows for the full offset and guarantee of securities borrowed and loaned positions. The following table presents the Company s offsetting assets and liabilities, measured at fair value, as of June 30, 2018: Page 7 of 10

8 Offsetting of Financial Assets and Derivative Assets As of June 30, 2018 (i) (ii) (iii) = (i) - (ii) (iv) (v) = (iii) - (iv) Gross Amounts Not Offset in the Statement of Financial Position Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets Presented in the Statement of Financial Position Financial Instruments Cash Collateral Received Net Amount Description Securities borrowed $ 311,608,000 $ 249,170,459 $ 62,437,541 $ - $ - $ 62,437,541 Total $ 311,608,000 $ 249,170,459 $ 62,437,541 $ - $ - $ 62,437,541 Offsetting of Financial Liabilities and Derivative Liabilities As of June 30, 2018 (i) (ii) (iii) = (i) - (ii) (iv) (v) = (iii) - (iv) Gross Amounts Not Offset in the Statement of Financial Position Description Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities Presented in the Statement of Financial Position Financial Instruments Cash Collateral Pledged Net Amount Securities loaned $ 283,799,802 $ 249,170,459 $ 34,629,343 $ - $ - $ 34,629,343 Total $ 283,799,802 $ 249,170,459 $ 34,629,343 $ - $ - $ 34,629,343 Page 8 of 10

9 6. PROFIT SHARING PLAN The Company entered into a joint-employment agreement with Kennedy Cabot Acquisition, LLC ( KCA ) and all StockCross employees from January 1, 2018 forward are eligible to participate in KCA s 401(K) plan. Employee contributions to the plan are at the discretion of eligible employees. 7. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company s financial instruments, securities owned and securities sold but not yet purchased, are recorded at fair value in the Statement of Financial Condition. The fair value option is an accounting election that allows the reporting entity to apply fair value accounting for certain financial assets and liabilities on an instrument-by-instrument basis. As of June 30, 2018, the Company did not elect the fair value option for any of its financial assets or liabilities not already recorded at fair value. The following represents financial instruments in which the ending balance as of June 30, 2018 is not carried at fair value in the Statement of Financial Condition: Short-term financial instruments: The carrying value of short-term financial instruments, including cash and securities segregated pursuant to federal regulations are recorded at amounts that approximate the fair value of these instruments. These financial instruments generally expose the Company to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market rates. Receivables and other assets: Brokerage client receivables, receivables from brokerdealers and clearing organizations, securities borrowed, other receivables and certain other assets are recorded at amounts that approximate fair value. Payables: Brokerage client payables, payables due to broker-dealers and clearing organizations and certain other liabilities are recorded at amounts that approximate fair value due to their short-term nature. 8. NET CAPITAL REQUIREMENTS The Company, as a broker-dealer, is subject to the Uniform Net Capital Rules of the SEC (Rule 15c3-1) of the Securities Act of Under the alternate method permitted by this rule, net capital, as defined, shall not be less than 2% of aggregate debit items arising from customer transactions. As of June 30, 2018, the Company s net capital was $14,078,346, which was $11,774,697 excess of its required net capital of $2,303,649. The Company s percentage of aggregate debit balances to net capital was 12.22% as of June 30, The Company is subject to Rule 15c3-3 of the SEC which requires segregation of funds in a special reserve account for the exclusive benefit of customers (Rule 15c3-3). As of June 30, 2018, the Company had segregated cash of $180,997,422 under the customer segregation rule 15c3-3. On June 30, 2018, the Company had $237,145,033 in the Page 9 of 10

10 special reserve account which was $3,543,214 in excess of the deposit requirement of $233,601,819. Beginning January 1, 2018, the Company is also subject to the provisions of the Proprietary Account of Broker-Dealers ( PAIB ) Rule 15c3-3 of the SEC which requires segregation of introducing broker-dealer proprietary funds in a special reserve account (Rule 15c3-3). As of June 30, 2018, the Company had segregated cash of $1,003,044 under the PAIB segregation rule 15c3-3. On June 30, 2018, the Company had $1,003,044 in the special reserve account which was $300,701 in excess of the deposit requirement of $702, SUBSEQUENT EVENTS The Company has evaluated events that have occurred subsequent to June 30, 2018 and through August 10, 2018, the date of the filing of this report. All material subsequent events that occurred during such period have been disclosed in this report or recognized in the financial statements as of June 30, Page 10 of 10