Monex Group / 8698 COVERAGE INITIATED ON: LAST UPDATE:

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1 COVEAGE INITIATED ON: Shared esearch Inc. has produced this report by request from the company discussed in the report. The aim is to provide an owner s manual to investors. We at Shared esearch Inc. make every effort to provide an accurate, objective, and neutral analysis. In order to highlight any biases, we clearly attribute our data and findings. We will always present opinions from company management as such. Our views are ours where stated. We do not try to convince or influence, only inform. We appreciate your suggestions and feedback. Write to us at sr_inquiries@sharedresearch.jp or find us on Bloomberg. esearch eport by Shared esearch Inc.

2 esearch eport by Shared esearch Inc. INDEX How to read a Shared esearch report: This report begins with the trends and outlook section, which discusses the company s most recent earnings. First-time readers should start at the business section later in the report. Executive summary Key financial data ecent updates Highlights Trends and outlook Quarterly trends and results Full-year company forecasts Medium-term outlook Business Business description Services and customer segments Earnings structure Consolidated earnings Japan segment US segment Strengths and weaknesses Group companies Market and value chain Historical performance Income statement Balance sheet Cash flow statement Other information History News and topics Major shareholders Shareholder returns Corporate governance and top management Profile /129

3 esearch eport by Shared esearch Inc. Executive summary One of the top five online brokerages with advanced trading tools and overseas subsidiaries Monex Group, Inc. started as online brokerage Monex, Inc. in April 1999 with CEO Oki Matsumoto and Sony Corporation as core investors. The company grew through mergers with Nikko Beans, Inc. in 2005, and OIX Securities in The group expanded overseas by adding Boom Group and TradeStation Group, Inc. in 2010 and 2011, respectively. Seeing blockchain and cryptocurrency technology as key growth drivers in the future, Monex Group has been preparing to enter this field since announcing its "New Beginning" initiative in October In keeping with this plan, it subsequently acquired cryptocurrency exchange operator Coincheck, Inc. in April The core business is retail online brokerage. The company offers trading services mainly in equities, forex, and investment trusts as well as futures, options, and bonds. Peers are SBI Securities, akuten Securities, Matsui Securities, and kabu.com Securities (in order of market share). In FY03/18, main group subsidiary Monex, Inc. had 1.76mn accounts (third of the top five online brokerages; 16.2% share), total customer assets under custody of JPY4.2tn (third; 15.7%), equity trading volume of JPY16.8tn (fifth, 6.9%), and margin trading balance of JPY205.3bn (fifth; 8.8%). Monex has stood out for its advanced trading tools, overseas subsidiaries, and inhouse development of a new backbone brokerage system. The customer base mainly consists of investors with a medium- to long-term outlook who don t mind paying higher commissions for the diverse trading order options and trading tools the company offers. The company had three segments in past years, Japan (core business: Monex, Inc.), US (TradeStation Group, Inc.), and Asia- Pacific (Boom Group), but starting in FY03/19 will add two more, a Crypto Asset segment and Investment segment, giving it a total of five operating segments. In FY03/18, the composition of operating revenue after deducting financial expenses and cost of sales (referred to as net operating revenue for the rest of the report) was Japan 63.4%, US 34.7%, and Asia-Pacific 1.9%. Pre-tax profit in Japan was JPY8.6bn, on par with the consolidated figure of JPY8.6bn. The US booked a pre-tax profit of JPY281mn and Asia Pacific a pre-tax loss of JPY225mn. Monex, Inc. is the core of the Japan segment. Segment revenue consists of stock brokerage commissions (43.2% of the segment s net operating revenue in FY03/18), trading income (12.2%), and net financial income (32.2%). SG&A expenses are mostly fixed. Trading expenses accounted for 24.7%, personnel expenses 17.2%, and system-related expenses 52.4% of FY03/18 segment SG&A expenses. The core of the US segment is the TradeStation Group. Net operating revenue consists of commissions (68.1% of the segment s net operating revenue in FY03/18) and net financial income (25.3%). SG&A expenses are comprised of trading expenses (36.7% of segment SG&A expenses in FY03/18), personnel expenses (39.2%), and system-related expenses (18.5%). The share of personnel expenses is high because the company employs system developers. Trends and outlook The company s previous strategy, covering FY03/12 FY03/17, focused on responding to globalization and bringing system development in-house. While the company was able to expand its product range, particularly at Monex, Inc. and develop an IT system internally, the parallel operation of two backbone brokerage systems pushed up costs. As a result, although sales grew, profits fell, while competitors grew their earnings during this period. The company s new strategy, started in FY03/18, aims to utilize the assets acquired in the period of the previous strategy. Monex Group also looks to create new businesses leveraging its management resources. The company aims to reach and sustain OPM of 30%. Seeing blockchain and cryptocurrency technology as key growth drivers in the future, Monex Group has been preparing to enter this field since announcing its "New Beginning" initiative in October 2017, including making preparations for the startup of a cryptocurrency exchange business and establishing a cryptocurrency research center. 03/129

4 esearch eport by Shared esearch Inc. Strengths and weaknesses Shared esearch sees the company s strengths as many customers who are less price-sensitive, a highly acclaimed trading platform, and a proprietary online trading system that lowers costs while strengthening product offerings. Its weaknesses lie in a high cost structure, being late to acquire active traders due to a product-driven approach, and limited revenue from active traders. (See Strengths and weaknesses section for details.) 04/129

5 esearch eport by Shared esearch Inc. Key financial data Income statement FY03/09 FY03/10 FY03/11 FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) J-GAAP J-GAAP J-GAAP IFS IFS IFS IFS IFS IFS IFS Operating revenue 24,812 22,499 25,227 30,569 36,090 54,722 50,975 54,271 45,831 53,635 YoY -18.6% -9.3% 12.1% % 51.6% -6.8% 6.5% -15.6% 17.0% Net operating revenue 21,053 19,921 22,589 28,888 33,769 50,051 45,209 49,642 41,852 49,155 YoY -22.0% -5.4% 13.4% % 48.2% -9.7% 9.8% -15.7% 17.4% GPM 84.9% 88.5% 89.5% 94.5% 93.6% 91.5% 88.7% 91.5% 91.3% 91.6% Operating profit equivalent 5,269 4,461 4,741 2,827 3,410 15,069 8,066 8,247 1,274 9,302 YoY -59.5% -15.3% 6.3% % 341.9% -46.5% 2.2% -84.6% 630.1% OPM 21.2% 19.8% 18.8% 9.2% 9.4% 27.5% 15.8% 15.2% 2.8% 17.3% Pre-tax profit 48 3,996 3,268 2,668 6,998 16,895 6,115 5,100 1,071 8,631 YoY -99.6% % % 141.4% -63.8% -16.6% -79.0% 705.9% Pre-tax margin 0.2% 17.8% 13.0% 8.7% 19.4% 30.9% 12.0% 9.4% 2.3% 16.1% Profit attributable to owners of the parent -2,144 3,776 1,992 1,028 3,901 10,354 3,494 3, ,730 YoY % % 165.4% -66.3% 1.7% -91.6% - Profit margin -8.6% 16.8% 7.9% 3.4% 10.8% 18.9% 6.9% 6.5% 0.7% 12.5% Per share data Shares issued (year end; '000) 2,345 2,991 3,197 2,997 2, , , , , ,706 EPS EPS (fully diluted) Dividend per share Book value per share Balance sheet (JPYmn) Cash and cash equivalents 39,891 31,696 34,663 39,788 51,193 85,442 68,540 61,902 77,900 83,884 Cash segregated as deposits 92, , , , , , , , , ,438 Margin transaction assets 52, ,927 96,602 90, , , , , , ,224 Loans secured by securities ,339 44, , ,969 31,628 34,250 21,389 Intangible assets 2,138 9,945 11,055 35,916 37,394 41,558 48,807 53,053 53,751 49,851 Total assets 235, , , , , ,270 1,055, , , ,520 Margin transaction liabilities 26,557 43,677 31,637 27,826 39,745 36,308 46,125 33,006 40,664 29,683 Loans payable secured by securities 22,382 35,108 26,603 24,776 67, , ,521 71,974 77,504 78,203 Deposits received 41,119 70,583 93, , , , , , , ,256 Guarantee deposits 55, ,337 78, , , , , , , ,647 Bonds and loans payable 43,300 48,450 49,768 82, , , , , , ,010 Total liabilities 195, , , , , , , , , ,027 Total capital 40,066 66,310 73,995 75,806 79,702 80,701 86,932 86,022 81,687 80,493 Total interest-bearing debt 43,300 48,450 49,768 82, , , , , , ,010 Cash flow statement (JPYmn) Cash flows from operating activities 31,297-5,198 4,288 3,931-20,510-8, ,715-38,701 Cash flows from investing activities -3,874 4,201-2,087-25, ,960-8,602-5,934-8,301-5,872 Cash flows from financing activities -35,197-9,026 2,232 26,281 30,395 35,998-11, ,462 49,870 Financial ratios OA (pre-tax profit based) 0.0% 1.3% 0.9% 0.6% 1.2% 2.1% 0.6% 0.5% 0.1% 0.9% OE -5.0% 7.1% 2.8% 1.4% 5.0% 12.9% 4.2% 4.1% 0.4% 8.3% Equity ratio 17.0% 17.7% 20.6% 14.4% 11.7% 8.6% 8.2% 9.7% 8.7% 8.3% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods. Note: Figures that exceed 1,000% YoY are denoted by -. 05/129

6 esearch eport by Shared esearch Inc. ecent updates Highlights On January 31, 2019, Monex Group, Inc. announced earnings results for Q3 FY03/19; see the results section for details. On January 11, 2019, the company announced that its subsidiary Coincheck, Inc. registered as a cryptocurrency exchange. On the same day, Coincheck, Inc. completed its registration with the Kanto Local Finance Bureau as a cryptocurrency exchange in accordance with the Payment Services Act. Details of the registration Overseeing regulator: Kanto Local Finance Bureau egistration number: Director of Kanto Local Finance Bureau No egistration date: January 11, 2019 Name of the exchange: Coincheck, Inc. Corporate number: On November 26, 2018, Shared esearch updated the report following interviews with the company. For previous releases and developments, please refer to the News and topics section. 06/129

7 esearch eport by Shared esearch Inc. Quarterly trends and results Trends and outlook Cumulative (JPYmn) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Operating revenue 11,845 24,608 38,377 53,635 13,612 26,400 40,116 YoY 1.9% 11.6% 14.7% 17.0% 14.9% 7.3% 4.5% Net operating revenue 10,836 22,456 35,046 49,155 12,358 23,845 36,400 YoY 1.9% 11.7% 14.8% 17.4% 14.0% 6.2% 3.9% Commissions received 6,884 13,819 21,356 29,196 6,756 13,085 19,996 YoY 1.1% 7.1% 8.6% 10.8% -1.9% -5.3% -6.4% Brokerage 5,247 10,465 16,393 22,540 5,134 9,854 15,186 YoY -1.6% 4.9% 8.0% 11.9% -2.2% -5.8% -7.4% Equity and ETF 3,736 7,441 11,831 15,974 3,364 6,494 9,893 YoY 2.0% 7.4% 10.7% 12.5% -10.0% -12.7% -16.4% Futures and options 1,511 3,024 4,561 6,566 1,768 3,357 5,289 YoY -9.6% -0.8% 1.4% 10.4% 17.0% 11.0% 16.0% Underwriting and distribution YoY -76.9% 125.0% 57.0% 26.5% 283.3% -74.6% -63.7% Subscription and distribution YoY -32.8% -24.9% -9.5% 3.8% -20.5% -2.4% 4.9% Other commissions 1,543 3,062 4,522 6,025 1,530 3,038 4,455 YoY 17.1% 15.5% 11.2% 7.0% -0.8% -0.8% -1.5% Net trading income 883 1,807 2,893 3,865 1,791 3,209 5,014 YoY -32.5% -24.2% -16.0% -14.1% 102.8% 77.6% 73.3% Net financial income 3,951 8,703 13,074 19,349 4,889 9,733 14,562 YoY 20.8% 36.8% 33.0% 35.2% 23.7% 11.8% 11.4% Other operating revenue ,053 1, YoY -46.4% -30.4% 97.2% 82.6% 37.8% 33.7% -48.3% SG&A expenses 9,816 19,356 29,439 39,853 11,255 22,193 33,400 YoY -3.0% -3.1% -1.9% -1.8% 14.7% 14.7% 13.5% % of net operating revenue 90.6% 86.2% 84.0% 81.1% 91.1% 93.1% 91.8% Operating profit equivalent 1,020 3,100 5,607 9,302 1,103 1,652 3,000 YoY 97.7% % 8.1% -46.7% -46.5% % of net operating revenue 9.4% 13.8% 16.0% 18.9% 8.9% 6.9% 8.2% Pre-tax profit 795 3,009 5,437 8,631 1,130 1,830 3,223 YoY 43.0% % 705.9% 42.1% -39.2% -40.7% % of net operating revenue 7.3% 13.4% 15.5% 17.6% 9.1% 7.7% 8.9% Profit attributable to owners of the parent 441 2,014 4,661 6,730 1,196 1,745 2,696 YoY 69.0% % -13.4% -42.2% % of net operating revenue 4.1% 9.0% 13.3% 13.7% 9.7% 7.3% 7.4% Quarterly performance (JPYmn) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Operating revenue 11,845 12,763 13,769 15,258 13,612 12,788 13,716 YoY 1.9% 22.4% 20.5% 23.5% 14.9% 0.2% -0.4% Net operating revenue 10,836 11,620 12,590 14,109 12,358 11,487 12,555 YoY 1.9% 22.7% 20.8% 24.5% 14.0% -1.1% -0.3% Commissions 6,884 6,935 7,537 7,840 6,756 6,329 6,911 YoY 1.1% 13.8% 11.4% 17.3% -1.9% -8.7% -8.3% Brokerage 5,247 5,218 5,928 6,147 5,134 4,720 5,332 YoY -1.6% 12.4% 13.8% 24.0% -2.2% -9.5% -10.1% Equity and ETF 3,736 3,705 4,390 4,143 3,364 3,130 3,399 YoY 2.0% 13.4% 16.7% 18.2% -10.0% -15.5% -22.6% Futures and options 1,511 1,513 1,537 2,005 1,768 1,589 1,932 YoY -9.6% 10.0% 6.1% 38.1% 17.0% 5.0% 25.7% Underwriting and distribution YoY -76.9% 300.0% -29.5% -58.3% 283.3% -92.5% -19.4% Subscription and distribution YoY -32.8% -13.3% 26.6% 37.0% -20.5% 17.9% 15.1% Other commissions 1,543 1,519 1,460 1,503 1,530 1,508 1,417 YoY 17.1% 14.0% 3.3% -3.9% -0.8% -0.7% -2.9% Net trading income , ,791 1,418 1,805 YoY -32.5% -14.1% 2.4% -7.6% 102.8% 53.5% 66.2% Financial income 3,951 4,752 4,371 6,275 4,889 4,844 4,829 YoY 20.8% 53.7% 26.1% 39.9% 23.7% 1.9% 10.5% Other operating revenue YoY -46.4% -7.3% 482.0% 25.5% 37.8% 30.3% -77.9% SG&A expenses 9,816 9,540 10,083 10,414 11,255 10,938 11,207 YoY -3.0% -3.2% 0.4% -1.4% 14.7% 14.7% 11.1% % of net operating revenue 90.6% 82.1% 80.1% 73.8% 91.1% 95.2% 89.3% Operating profit equivalent 1,020 2,080 2,507 3,695 1, ,348 YoY 97.7% % 381.1% 8.1% -73.6% -46.2% % of net operating revenue 9.4% 17.9% 19.9% 26.2% 8.9% 4.8% 10.7% Pre-tax profit 795 2,214 2,428 3,194 1, ,393 YoY 43.0% % % -68.4% -42.6% % of net operating revenue 7.3% 19.1% 19.3% 22.6% 9.1% 6.1% 11.1% Profit attributable to owners of the parent 441 1,573 2,647 2,069 1, YoY 69.0% % % -65.1% -64.1% % of net operating revenue 4.1% 13.5% 21.0% 14.7% 9.7% 4.8% 7.6% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. Quarterly performance figures calculated using differences in cumulative quarterly performance. 07/129

8 esearch eport by Shared esearch Inc. SG&A breakdown SG&A breakdown (cumulative) (JPYmn) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Total SG&A expenses 9,816 19,356 29,439 39,853 11,255 22,193 33,400 YoY -3.0% -3.1% -1.9% -1.8% 14.7% 14.7% 13.5% Trading-related expenses 3,000 5,765 8,752 11,963 3,157 5,967 8,964 YoY 5.7% 5.5% 5.2% 6.0% 5.2% 3.5% 2.4% Commissions paid 981 1,943 2,960 4,125 1,255 2,309 3,552 YoY -9.8% -6.0% -3.9% 0.3% 27.9% 18.8% 20.0% Stock exchange and association fees YoY -6.1% 3.5% 10.0% 11.0% -7.4% -12.7% -12.2% Telecom, transportation, and information 1,139 1,897 2,693 3, ,791 2,634 YoY 38.7% 14.3% 2.1% -3.8% -21.2% -5.6% -2.2% Advertising expenses 611 1,367 2,244 3, ,339 1,961 YoY -7.6% 9.4% 18.1% 23.1% 21.1% -2.0% -12.6% Other expenses YoY 35.9% 85.7% 95.8% 111.1% 22.6% 22.2% 23.1% Personnel 2,535 5,186 8,046 10,854 3,275 6,459 9,860 YoY -1.4% -1.9% 3.7% 4.4% 29.2% 24.5% 22.5% eal estate-related 879 1,752 2,686 3,898 1,221 2,510 3,756 YoY 29.6% 30.4% 32.4% 36.5% 38.9% 43.3% 39.8% eal estate , YoY 4.7% -9.7% -7.7% 17.5% 34.2% 47.9% 45.0% Furniture and fixtures 654 1,353 2,062 2, ,920 2,851 YoY 41.3% 50.0% 52.4% 45.8% 40.5% 41.9% 38.3% Office expenses 746 1,365 2,042 2, ,434 2,226 YoY -49.2% -54.0% -53.9% -52.5% -3.1% 5.1% 9.0% Outsourcing 729 1,324 1,978 2, ,404 2,177 YoY -49.8% -55.0% -54.9% -53.4% -3.0% 6.0% 10.1% Supplies YoY -5.9% 37.9% 52.4% 42.1% 0.0% -25.0% -23.4% Depreciation 2,054 4,087 6,117 8,117 2,046 4,143 6,243 YoY 30.0% 28.2% 21.9% 14.4% -0.4% 1.4% 2.1% Taxes and dues YoY -4.3% 0.0% 5.5% -20.9% 12.2% 12.6% 4.8% Others ,337 1, ,349 1,869 YoY -45.5% -36.1% -33.7% -30.7% 47.4% 48.6% 39.8% SG&A breakdown (JPYmn) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Total SG&A expenses 9,816 9,540 10,083 10,414 11,255 10,938 11,207 YoY -3.0% -3.2% 0.4% -1.4% 14.7% 14.7% 11.1% Trading-related expenses 3,000 2,765 2,987 3,211 3,157 2,810 2,997 YoY 5.7% 5.1% 4.6% 8.6% 5.2% 1.6% 0.3% Commissions paid ,017 1,165 1,255 1,054 1,243 YoY -9.8% -1.9% 0.5% 12.7% 27.9% 9.6% 22.2% Stock exchange and association fees YoY -6.1% 14.7% 25.1% 14.1% -7.4% -17.7% -11.4% Telecom, transportation, and information 1, YoY 38.7% -9.5% -18.7% -18.8% -21.2% 17.8% 5.9% Advertising expenses YoY -7.6% 28.6% 34.7% 37.2% 21.1% -20.8% -29.1% Other expenses YoY 35.9% 166.7% 115.6% 177.3% 22.6% 21.9% 24.6% Personnel expenses 2,535 2,651 2,860 2,808 3,275 3,184 3,401 YoY -1.4% -2.4% 15.6% 6.7% 29.2% 20.1% 18.9% eal estate-related ,212 1,221 1,289 1,246 YoY 29.6% 31.1% 36.4% 46.7% 38.9% 47.7% 33.4% eal estate YoY 4.7% -23.3% -3.8% 84.3% 34.2% 65.5% 40.0% Furniture and fixtures , YoY 41.3% 59.2% 57.2% 30.2% 40.5% 43.2% 31.3% Office expenses YoY -49.2% -58.8% -53.6% -47.7% -3.1% 14.9% 17.0% Outsourcing YoY -49.8% -60.1% -54.7% -48.4% -3.0% 17.1% 18.2% Supplies YoY -5.9% 100.0% 84.6% 13.3% 0.0% -41.7% -20.8% Depreciation 2,054 2,033 2,030 2,000 2,046 2,097 2,100 YoY 30.0% 26.4% 10.9% -3.6% -0.4% 3.1% 3.4% Taxes and dues YoY -4.3% 5.3% 17.0% -73.7% 12.2% 13.0% -9.1% Others YoY -45.5% -23.3% -28.1% -19.7% 47.4% 49.7% 21.2% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. Quarterly performance figures calculated using differences in cumulative quarterly performance 08/129

9 esearch eport by Shared esearch Inc. Quarterly results by segment (Japan, US, and Asia-Pacific segments) Cumulative Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP Operating revenue 23,380 14, ,206 20, ,170 5, ,162 11, ,636 17, YoY - 4.5% 35.7% - 7.1% 31.5% 0.4% 14.0% -20.2% -2.1% 14.1% -11.7% -7.5% 17.2% -12.1% Commissions received 12,615 8, ,967 11, ,527 3, ,869 5, ,485 9, YoY 9.5% 6.1% 65.8% 11.1% 9.2% 60.5% -9.4% 5.8% -30.9% -13.6% 4.4% -21.9% -16.9% 8.2% -25.3% Brokerage 10,517 5, ,082 8, ,858 2, ,510 4, ,438 6, YoY 10.6% 1.8% 65.0% 12.2% 9.8% 59.2% -12.4% 16.5% -30.9% -15.9% 12.6% -22.6% -19.8% 17.1% -25.4% Equity and ETF 10,264 1, ,732 1, , , ,194 1, Futures and options 251 4, , , , ,045 - OSE FX Underwriting and distribution Subscription and distribution Other commissions 1,657 2, ,256 3, ,165 1, ,691 2,600 1 YoY 4.5% 15.5% - 5.4% 8.0% - 7.1% -14.2% - 5.0% -11.1% 0.0% 2.1% -9.2% -66.7% Net trading income 2, , , , YoY -16.1% % % % % - - Financial income 7,165 5, ,640 6, ,679 2, ,158 4, ,712 6, YoY % -1.1% % -3.8% 14.9% 26.1% 0.0% 11.1% 28.7% 12.8% 7.6% 27.5% 21.3% Other operating revenue , Financial expenses 1,569 1, ,177 2, ,050 1, ,543 2, Net operating revenue 21,811 12, ,028 17, ,634 4, ,111 9, ,092 14, YoY - 9.8% 35.2% % 31.7% 0.0% 9.4% -20.0% -2.5% 10.1% -11.4% -7.9% 13.7% -12.9% SG&A expenses 17,061 12, ,420 16, ,835 4, ,553 8, ,315 13, YoY - 4.9% 31.5% - 4.0% 26.1% 4.1% 4.0% -16.9% 3.5% 5.2% -9.9% 1.5% 4.9% -6.7% % of net operating revenue 78.2% 98.3% 101.9% 80.7% 94.7% 99.0% 88.0% 95.0% 107.8% 88.1% 93.4% 105.6% 86.2% 90.7% 109.2% Operating profit equivalent 4, , , ,778 1, YoY % % 229.3% % 511.9% - % of net operating revenue 21.8% 1.7% % 5.3% 1.0% 12.0% 5.0% % 6.6% % 9.3% - Other revenue , , Other expenses , , Pre-tax profit 4, , , ,933 1, YoY % % 218.4% % 490.4% - % of net operating revenue 22.3% 1.6% % 1.6% % 4.5% % 6.2% % 8.6% - Profit 3,222 1, ,807 1, , , , YoY % % 109.4% % -23.7% - Profit attributable to owners of the parent 3,335 1, ,959 1, , , , YoY % % 109.4% % -23.7% - % of net operating revenue 15.3% 9.5% % 7.3% % 4.1% % 4.8% % 6.3% - Quarterly Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US Operating revenue 8,915 4, ,826 5, ,170 5, ,992 5, ,474 6, YoY - 7.2% 30.8% % 21.4% 0.4% 14.0% -20.2% -4.5% 14.2% -2.6% -16.2% 23.2% -12.9% Commissions received 4,664 2, ,352 3, ,527 3, ,342 2, ,616 3, YoY 16.2% 3.1% 60.2% 16.0% 18.0% 45.7% -9.4% 5.8% -30.9% -17.6% 2.9% -13.6% -22.5% 16.0% -32.3% Brokerage 3,965 1, ,565 2, ,858 2, ,652 1, ,928 2, YoY 18.4% 3.4% 57.8% 17.5% 33.4% 45.7% -12.4% 16.5% -30.9% -19.4% 8.5% -13.7% -26.2% 26.2% -31.3% Equity and ETF 3, , , , , Futures and options 93 1, , , , ,823 - OSE FX Underwriting and distribution Subscription and distribution Other commissions YoY 4.0% 2.6% - 7.9% -10.4% - 7.1% -14.2% - 3.2% -7.8% 0.0% -4.0% -5.1% - Net trading income 1, , , YoY 2.4% % % % % - - Financial income 2,521 1, ,475 1, ,679 2, ,479 2, ,554 2, YoY % -6.6% % -13.1% 14.9% 26.1% 0.0% 7.2% 31.1% 24.6% 1.3% 25.3% 38.6% Other operating revenue Financial expenses Net operating revenue 8,368 4, ,217 4, ,634 4, ,477 4, ,981 5, YoY % 30.6% % 22.1% 0.0% 9.4% -20.0% -4.9% 10.8% -2.2% -16.6% 20.8% -16.2% SG&A expenses 5,895 4, ,359 4, ,835 4, ,718 4, ,762 4, YoY % 11.9% - 1.2% 11.1% 4.1% 4.0% -16.9% 2.9% 6.5% -3.0% -2.3% 4.4% 0.9% % of net operating revenue 70.4% 99.2% 97.7% 88.1% 85.1% 90.5% 88.0% 95.0% 107.8% 88.3% 91.8% 103.2% 82.5% 85.8% 117.7% Operating profit equivalent 2, , YoY % % % % 106.0% % - - % of net operating revenue 29.5% 0.8% 2.3% 11.9% 14.9% 9.5% 12.0% 5.0% % 8.2% % 14.2% - Other revenue Other expenses Pre-tax profit 2, , YoY % % % % 102.8% % - - % of net operating revenue 28.4% 0.7% 9.0% 13.0% 1.5% 18.9% 14.5% 4.5% % 7.8% % 12.9% - Profit 1, , YoY % % % 19.9% % -52.4% - Profit attributable to owners of the parent 1, , YoY % % % 19.9% % -52.4% - % of net operating revenue 19.6% 23.2% 6.3% 8.6% 1.7% 16.5% 15.9% 4.1% - 8.9% 5.5% % 9.1% - Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. Cumulative quarterly performance calculated as the total of quarterly results. Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments. 09/129

10 esearch eport by Shared esearch Inc. Quarterly results by segment (Crypto Asset and Investment segments) Cumulative Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Crypto Crypto Crypto Crypto Crypto Investment Investment Investment Investment Asset Asset Asset Asset Asset Investment Operating revenue , , , YoY % % Commissions received YoY Brokerage YoY Equity and ETF Futures and options OSE FX Underwriting and distribution Subscription and distribution Other commissions YoY Net trading income ,117-1,639 - YoY Financial income , YoY % % Other operating revenue Financial expenses Net operating revenue , , , YoY % % SG&A expenses , , ,393 7 YoY % % % % of net operating revenue % 0.5% Operating profit equivalent , , YoY % % % of net operating revenue % % % % Other revenue Other expenses Pre-tax profit , , YoY % % % of net operating revenue % % % % % Profit , YoY % % Profit attributable to owners of the parent , YoY % % % of net operating revenue % % % % % Quarterly Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Crypto Crypto Crypto Crypto Crypto Investment Investment Investment Investment Asset Asset Asset Asset Asset Investment Operating revenue , YoY % Commissions received YoY Brokerage YoY Equity and ETF Futures and options OSE FX Underwriting and distribution Subscription and distribution Other commissions YoY Net trading income YoY Financial income , YoY % - - Other operating revenue Financial expenses Net operating revenue , YoY % - - SG&A expenses , , ,149 3 YoY % % % % of net operating revenue % 128.6% 0.5% 327.9% 3.2% 221.8% 30.0% Operating profit equivalent , YoY % - - % of net operating revenue % % % % Other revenue Other expenses Pre-tax profit - 4-2, YoY % - - % of net operating revenue % % % - - Profit , YoY % - - Profit attributable to owners of the parent , YoY % - - % of net operating revenue % % % - - Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. Cumulative quarterly performance calculated as the total of quarterly results. Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments. 10/129

11 esearch eport by Shared esearch Inc. Quarterly SG&A expenses by segment (Japan, US, and Asia-Pacific segments) Cumulative Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US SG&A expenses 17,061 12, ,420 16, ,835 4, ,553 8, ,315 13, YoY -7.5% 4.9% 31.5% -6.5% 4.0% 26.1% 4.1% 4.0% -16.9% 3.5% 5.2% -9.9% 1.5% 4.9% -6.7% Trading-related expenses 4,147 4, ,787 6, ,371 1, ,562 3, ,854 4, YoY 4.6% 4.9% 60.4% 8.7% 3.0% 47.3% 11.5% -6.8% -38.4% -1.2% -0.7% -30.9% -7.1% 2.1% -24.3% Commissions paid 1,010 2, ,397 2, , ,074 2, Stock exchange and association fees Telecom, transportation, and information 1,218 1, ,668 1, ,270 1, Advertising expenses 1, ,784 1, Others Personnel 3,005 4, ,028 6, ,026 1, ,017 3, ,067 5, YoY -4.6% 8.4% 28.6% -4.2% 9.4% 29.0% 6.9% 17.1% 15.7% 3.2% 13.1% 18.8% 2.1% 10.9% 13.2% eal estate-related 2, ,578 1, , , , YoY 9.2% 121.1% 28.2% 13.9% 125.4% 15.8% 29.3% 15.0% 0.0% 37.5% 9.5% 0.0% 33.6% 7.4% 0.0% eal estate Furniture and fixtures 2, , , , Office and supplies 1, , , , YoY -54.4% % -53.0% % -31.1% -16.7% -46.2% -25.0% -23.1% -10.5% -23.4% -33.3% 25.0% Outsourcing 1, , , Supplies Depreciation 4,532 1, ,033 2, , ,049 1, ,571 1, YoY 28.2% 6.8% 10.5% 18.8% 3.4% 3.8% -1.2% 0.0% -14.3% 0.2% 2.1% -14.3% 0.9% 2.4% -14.3% Taxes and dues Others , Quarterly Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US SG&A expenses 5,895 4, ,359 4, ,835 4, ,718 4, ,762 4, YoY -6.2% 10.7% 11.9% -3.8% 1.2% 11.1% 4.1% 4.0% -16.9% 2.9% 6.5% -3.0% -2.3% 4.4% 0.9% Trading-related expenses 1,553 1, ,640 1, ,371 1, ,191 1, ,292 1, YoY 12.7% -3.0% 17.5% 20.7% -2.3% 16.4% 11.5% -6.8% -38.4% -12.7% 7.0% -22.5% -16.8% 8.4% -6.0% Commissions paid Stock exchange and association fees Telecom, transportation, and information Advertising expenses Others Personnel 1,050 1, ,023 1, ,026 1, , ,050 1, YoY 0.8% 25.8% 33.8% -3.0% 12.5% 30.0% 6.9% 17.1% 15.7% -0.4% 9.2% 21.8% 0.0% 6.9% 3.2% eal estate-related , , , , YoY 12.9% 165.3% 21.4% 25.6% 138.9% -11.1% 29.3% 15.0% 0.0% 46.2% 4.6% 0.0% 26.0% 3.7% 0.0% eal estate Furniture and fixtures Office and supplies YoY -53.9% % -48.2% % -31.1% -16.7% -46.2% -17.7% -28.6% 66.7% -20.3% -45.5% 160.0% Outsourcing Supplies Depreciation 1, , , , , YoY 13.6% 3.8% 5.0% -2.6% -6.2% -14.3% -1.2% 0.0% -14.3% 1.6% 4.2% -14.3% 2.3% 3.1% -14.3% Taxes and dues Others Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. Cumulative quarterly performance calculated as the total of quarterly results. Depreciation for US and Asia-Pacific segments include depreciation of identified intangible assets at the time of acquisition of TradeStation Group and Monex Boom Securities Group Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments. 11/129

12 esearch eport by Shared esearch Inc. Quarterly SG&A expenses by segment (Crypto Asset and Investment segments) Cumulative Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Crypto Crypto Crypto Crypto Crypto Investment Investment Investment Investment Asset Asset Asset Asset Asset Investment SG&A expenses , , , YoY % Trading-related expenses YoY % Commissions paid Stock exchange and association fees Telecom, transportation, and information Advertising expenses Others Personnel ,200 - YoY eal estate-related YoY eal estate Furniture and fixtures Office and supplies YoY Outsourcing Supplies Depreciation YoY Taxes and dues Others Quarterly Q3 FY03/18 Q4 FY03/18 Q1 FY03/19 Q2 FY03/19 Q3 FY03/19 (JPYmn) Crypto Crypto Crypto Crypto Crypto Investment Investment Investment Investment Asset Asset Asset Asset Asset Investment SG&A expenses , , ,149 3 YoY % % Trading-related expenses YoY % Commissions paid Stock exchange and association fees Telecom, transportation, and information Advertising expenses Other Personnel YoY eal estate-related YoY eal estate Furniture and fixtures Office and supplies YoY Outsourcing Supplies Depreciation YoY Taxes and dues Others Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. Cumulative quarterly performance calculated as the total of quarterly results. Starting with Q1 FY03/19, the company has changed its segmentation from three segments (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Asset, and Investment). The table above reflects results as broken down into five operating segments. 12/129

13 esearch eport by Shared esearch Inc. Monex, Inc. quarterly results Cumulative (JPYmn) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Operating revenue 7,715 15,140 24,487 32,454 7,749 14,844 22,809 YoY -2.8% 4.4% 11.0% 9.5% 0.4% -2.0% -6.9% Net operating revenue 6,691 13,547 21,918 29,394 6,713 13,267 20,324 YoY -3.2% 4.9% 12.3% 10.8% 0.3% -2.1% -7.3% Commissions received 3,916 8,000 12,688 17,087 3,538 6,892 10,523 YoY -1.3% 6.2% 9.7% 11.1% -9.7% -13.9% -17.1% Brokerage 3,290 6,613 10,613 14,238 2,885 5,564 8,522 YoY -0.1% 6.6% 10.7% 12.3% -12.3% -15.9% -19.7% Equity and ETF 3,208 6,455 10,361 13,889 2,819 5,429 8,278 YoY 1.6% 8.2% 11.9% 13.3% -12.1% -15.9% -20.1% Futures and options YoY -39.7% -33.6% -23.6% -17.5% -19.5% -14.6% -3.2% Underwriting and distribution YoY -80.8% 123.2% 56.0% 25.7% 340.0% -75.2% -64.1% Subscription and distribution YoY -32.3% -25.3% -9.5% 3.6% -20.5% -2.4% 4.6% Other commissions 531 1,094 1,633 2, ,135 1,645 YoY 2.7% 4.3% 4.3% 4.8% 5.5% 3.7% 0.7% Net trading income 882 1,804 2,839 3, ,092 3,372 YoY -32.6% -24.4% -17.6% -14.2% 6.9% 16.0% 18.8% Financial income 2,888 5,281 8,261 10,780 3,246 5,811 8,843 YoY 12.2% 18.9% 20.0% 12.8% 12.4% 10.0% 7.0% Other operating revenue YoY -67.1% -59.1% 323.0% 276.6% -28.6% -14.8% -90.0% SG&A expenses 5,789 11,558 17,743 24,024 5,932 11,726 17,593 YoY -7.5% -7.1% -6.3% -6.7% 2.5% 1.5% -0.8% % of net operating revenue 86.5% 85.3% 81.0% 81.7% 88.4% 88.4% 86.6% Operating profit 902 1,988 4,175 5, ,540 2,731 YoY 37.5% 315.0% 613.7% 576.2% -13.4% -22.5% -34.6% % of net operating revenue 13.5% 14.7% 19.0% 18.3% 11.6% 11.6% 13.4% Pre-tax profit 984 2,097 4,268 5, ,597 2,794 YoY -41.3% 55.0% 187.0% 267.3% -15.9% -23.8% -34.5% % of net operating revenue 14.7% 15.5% 19.5% 18.5% 12.3% 12.0% 13.7% Net income 693 1,445 2,945 3, ,100 1,931 YoY -47.6% 32.8% 157.4% 251.7% -16.9% -23.9% -34.4% % of net operating revenue 10.4% 10.7% 13.4% 12.7% 8.6% 8.3% 9.5% Quarterly performance (JPYmn) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Operating revenue 7,715 7,425 9,347 7,967 7,749 7,095 7,965 YoY -2.8% 13.2% 23.4% 5.4% 0.4% -4.4% -14.8% Net operating revenue 6,691 6,856 8,371 7,476 6,713 6,554 7,057 YoY -3.2% 14.2% 26.8% 6.6% 0.3% -4.4% -15.7% Commissions 3,916 4,084 4,688 4,399 3,538 3,354 3,631 YoY -1.3% 14.6% 16.1% 15.5% -9.7% -17.9% -22.5% YoY 3,290 3,323 4,000 3,625 2,885 2,679 2,958 YoY -0.1% 14.1% 18.3% 17.1% -12.3% -19.4% -26.1% Equity and ETF 3,208 3,247 3,906 3,528 2,819 2,610 2,849 YoY 1.6% 15.6% 18.7% 17.5% -12.1% -19.6% -27.1% Futures and options YoY -39.7% -25.5% 2.2% 4.3% -19.5% -9.2% 16.0% Underwriting and distribution YoY -80.8% 300.0% -29.5% -58.3% 340.0% -92.5% -19.4% Subscription and distribution YoY -32.3% -15.4% 27.7% 36.2% -20.5% 18.2% 14.2% Other commissions YoY 2.7% 5.8% 4.3% 6.2% 5.5% 2.1% -5.4% Net trading income ,035 1, ,149 1,280 YoY -32.6% -14.5% -2.5% -2.8% 6.9% 24.6% 23.7% Financial income 2,888 2,393 2,980 2,519 3,246 2,565 3,032 YoY 12.2% 28.0% 22.0% -5.7% 12.4% 7.2% 1.7% Other operating revenue YoY -67.1% -44.7% % -28.6% 0.0% -96.3% SG&A expenses 5,789 5,769 6,185 6,281 5,932 5,794 5,867 Taxes and dues -7.5% -6.7% -4.8% -7.7% 2.5% 0.4% -5.1% % of net operating revenue 86.5% 84.1% 73.9% 84.0% 88.4% 88.4% 83.1% Operating profit 902 1,086 2,187 1, ,191 YoY 37.5% % -13.4% -30.1% -45.5% % of net operating revenue 13.5% 15.8% 26.1% 16.0% 11.6% 11.6% 16.9% Pre-tax profit 984 1,113 2,171 1, ,197 YoY -41.3% % -30.9% -44.9% % of net operating revenue 14.7% 16.2% 25.9% 15.5% 12.3% 11.7% 17.0% Net income , YoY -47.6% % -30.3% -44.6% % of net operating revenue 10.4% 11.0% 17.9% 10.7% 8.6% 8.0% 11.8% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. 13/129

14 esearch eport by Shared esearch Inc. Key metrics at Monex, Inc. (Cumulative) Metrics related to commissions received Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 etail investors trading value on TSE and NSE (JPYtn) YoY 1.9% 5.0% 13.9% 19.5% 3.7% 0.6% -7.0% Monex, Inc. share 5.5% 5.4% 5.3% 5.3% 5.3% 5.2% 5.2% Monex, Inc. equity and ETF trading value (JPYtn) YoY 12.8% 14.8% 20.5% 25.9% -0.5% -1.8% -8.0% Equity brokerage commission rate 0.084% 0.087% 0.086% 0.083% 0.074% 0.075% 0.075% Metrics related to net trading income FX trading value (JPYtn) YoY -29.1% -17.0% -16.9% -10.9% 11.0% 4.9% 18.2% Metrics related to net financial income Margin trading balance (JPYbn) YoY 14.6% 14.3% 25.8% 23.7% 21.5% 9.1% -16.4% Avg. margin trading balance (month end; JPYbn) YoY 2.8% 9.0% 13.4% 17.1% 26.9% 17.1% 10.3% (Quarterly) Metrics related to commissions received Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 etail investors trading value on TSE and NSE (JPYtn) YoY 1.9% 8.4% 30.9% 36.8% 3.7% -2.5% -18.8% Monex, Inc. share 5.5% 5.2% 5.1% 5.3% 5.3% 5.2% 5.2% Monex, Inc. equity and ETF trading value (JPYtn) YoY 12.8% 17.0% 31.0% 42.1% -0.5% -3.2% -17.9% Equity brokerage commission rate 0.084% 0.091% 0.084% 0.075% 0.074% 0.075% 0.075% Metrics related to net trading income FX trading value (JPYtn) YoY -29.1% -1.0% -16.5% 5.6% 11.0% -0.9% 41.9% Margin transaction balance and market share (lon Margin trading balance (JPYbn) YoY 14.6% 14.3% 25.8% 23.7% 21.5% 9.1% -16.4% Avg. margin trading balance (month end; JPYbn) YoY 2.8% 15.6% 22.6% 27.2% 26.9% 7.8% -2.1% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Trading value of retail investors on the two markets is based on aggregate monthly totals from Japan Exchange Group Monthly Statistics eport. 14/129

15 esearch eport by Shared esearch Inc. US segment quarterly results Cumulative (USD'000) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Operating revenue 42,939 86, , ,593 50,162 99, ,003 YoY 3.5% -2.1% 0.6% 5.1% 16.8% 15.1% 18.1% Commissions received 26,081 51,199 75, ,067 28,297 53,949 82,759 YoY 0.5% 2.2% 2.1% 7.2% 8.5% 5.4% 9.1% Brokerage 17,067 33,646 50,230 73,056 20,377 38,211 59,310 YoY -8.2% -4.0% -2.0% 7.7% 19.4% 13.6% 18.1% Equity and ETF 4,255 7,890 11,675 16,917 4,731 8,989 13,802 Futures and options 12,813 25,757 38,556 56,139 15,646 29,221 45,507 Other commissions 9,014 17,553 25,613 34,011 7,920 15,738 23,449 YoY 22.6% 16.6% 11.2% 6.0% -12.1% -10.3% -8.4% Net trading income Financial income 14,446 30,471 46,905 62,713 18,680 39,581 60,291 YoY 22.5% 23.5% 26.5% 24.1% 29.3% 29.9% 28.5% Sales revenue ,231 Other operating revenue 2,313 4,824 7,409 10,306 3,007 6,007 8,723 Financial expenses 4,982 11,102 17,214 22,892 7,549 15,784 22,587 Cost of revenue ,944 Net operating revenue 37,870 75, , ,260 42,458 83, ,471 YoY 3.1% 4.1% 5.7% 9.5% 12.1% 11.1% 14.6% SG&A expenses 37,859 73, , ,858 40,345 78, ,437 YoY -2.2% -2.9% 1.0% 2.0% 6.6% 6.1% 5.8% Operating profit equivalent 11 1,652 1,947 8,402 2,113 5,500 12,034 Yoy % 518.1% Other revenue Other expenses , Pre-tax profit 7 1,610 1,858 2,542 1,921 5,172 11,082 YoY % 496.4% Profit 5 1,902 10,682 11,504 1,757 4,025 8,218 YoY % -23.1% Profit attributable to owners of the parent 5 1,902 10,682 11,504 1,757 4,025 8,218 YoY % -23.1% Quarterly (USD'000) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 Operating revenue 42,939 43,754 43,696 50,204 50,162 49,642 54,199 YoY 3.5% -7.0% 6.3% 18.8% 16.8% 13.5% 24.0% Commissions received 26,081 25,118 24,644 31,224 28,297 25,652 28,810 YoY 0.5% 4.0% 2.0% 21.8% 8.5% 2.1% 16.9% Brokerage 17,067 16,579 16,584 22,826 20,377 17,834 21,099 YoY -8.2% 0.8% 2.4% 37.7% 19.4% 7.6% 27.2% Equity and ETF 4,255 3,635 3,785 5,242 4,731 4,258 4,813 Futures and options 12,813 12,944 12,799 17,583 15,646 13,575 16,286 Other commissions 9,014 8,539 8,060 8,398 7,920 7,818 7,711 YoY 22.6% 10.8% 1.2% -7.2% -12.1% -8.4% -4.3% Net trading income Financial income 14,446 16,025 16,434 15,808 18,680 20,901 20,710 YoY 22.5% 24.4% 32.4% 17.6% 29.3% 30.4% 26.0% Sales revenue ,963 Other operating revenue 2,313 2,511 2,585 2,897 3,007 3,000 2,716 Financial expenses 4,982 6,120 6,112 5,678 7,549 8,235 6,803 Cost of revenue ,711 Net operating revenue 37,870 37,547 37,556 44,287 42,458 41,329 45,684 YoY 3.1% 5.2% 9.0% 20.4% 12.1% 10.1% 21.6% SG&A expenses 37,859 35,906 37,261 37,832 40,345 37,942 39,150 YoY -2.2% -3.7% 9.9% 5.2% 6.6% 5.7% 5.1% Operating profit equivalent 11 1, ,455 2,113 3,387 6,534 Yoy % 695.0% % - Other revenue Other expenses , Pre-tax profit 7 1, ,921 3,251 5,910 YoY % 0.1% % - Profit 5 1,897 8, ,757 2,268 4,193 YoY % % -52.2% Profit attributable to owners of the parent 5 1,897 8, ,757 2,268 4,193 YoY % % -52.2% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Note: Figures that exceed 1,000% YoY are denoted by -. 15/129

16 esearch eport by Shared esearch Inc. US segment: SG&A breakdown Cumulative (USD'000) Q1 FY03/18 Q2 Q3 Q4 Q1 FY03/19 Q2 Q3 Q4 SG&A expenses 37,859 73, , ,858 40,345 78, ,437 YoY -2.2% -2.9% 1.0% 2.0% 6.6% 6.1% 5.8% Trading-related 15,538 27,797 40,299 54,560 14,849 27,846 41,495 YoY 12.0% 3.5% 1.0% 1.1% -4.4% 0.2% 3.0% Commissions paid 6,283 12,217 18,185 25,657 7,929 14,165 21,952 Stock exchange and association fees Telecom, transportation, and information 6,235 9,376 12,573 16,008 3,484 6,912 9,405 Advertising expenses 2,589 5,191 8,090 11,115 2,937 5,686 8,399 Others Personnel 13,370 27,504 42,716 58,404 16,053 31,388 47,741 YoY -3.5% -4.5% 4.3% 7.4% 20.1% 14.1% 11.8% eal estate-related 2,035 4,369 6,746 9,139 2,402 4,828 7,308 YoY 89.0% 93.1% 113.4% 121.8% 18.0% 10.5% 8.3% eal estate 764 1,615 2,513 3, ,561 2,386 Furniture and fixtures 1,272 2,756 4,234 5,761 1,651 3,268 4,923 Office and supplies YoY % -18.8% -31.0% Outsourcing Supplies Depreciation 4,486 9,025 13,625 18,093 4,601 9,301 14,079 YoY 3.3% 3.0% 2.8% 1.4% 2.6% 3.1% 3.3% Taxes and dues Others 2,292 4,790 7,194 9,195 2,312 4,696 6,474 Quarterly FY03/18 FY03/19 (USD'000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SG&A expenses 37,859 35,906 37,261 37,832 40,345 37,942 39,150 YoY -2.2% -3.7% 9.9% 5.2% 6.6% 5.7% 5.1% Trading-related 15,538 12,259 12,502 14,261 14,849 12,997 13,649 YoY 12.0% -5.5% -4.2% 1.2% -4.4% 6.0% 9.2% Commissions paid 6,283 5,934 5,968 7,472 7,929 6,236 7,787 Stock exchange and association fees Telecom, transportation, and information 6,235 3,141 3,197 3,435 3,484 3,428 2,493 Advertising expenses 2,589 2,602 2,899 3,025 2,937 2,749 2,713 Others Personnel 13,370 14,134 15,212 15,688 16,053 15,335 16,353 YoY -3.5% -5.4% 25.3% 16.6% 20.1% 8.5% 7.5% eal estate-related 2,035 2,334 2,377 2,393 2,402 2,426 2,480 YoY 89.0% 96.8% 164.7% 149.5% 18.0% 3.9% 4.3% eal estate Furniture and fixtures 1,272 1,484 1,478 1,527 1,651 1,617 1,655 Office and supplies YoY % -33.9% -44.6% Outsourcing Supplies Depreciation 4,486 4,539 4,600 4,468 4,601 4,700 4,778 YoY 3.3% 2.7% 2.4% -2.6% 2.6% 3.5% 3.9% Taxes and dues , Others 2,292 2,498 2,404 2,001 2,312 2,384 1,778 Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Key metrics for US segment Cumulative FY03/18 FY03/19 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating days Daily average revenue trades (DATs) 67,182 65,250 64,616 70,520 77,880 73,661 79,092 YoY -38.3% -36.6% -35.9% -23.6% 15.9% 12.9% 22.4% Number of trades ('000) 4,232 8,222 12,148 17,559 4,984 9,318 14,909 Brokerage commissions (USD'000) 17,067 33,646 50,230 73,056 20,377 38,211 59,310 YoY -8.2% -4.0% -2.0% 7.7% 19.4% 13.6% 18.1% Commissions per trade (USD) Quarterly FY03/18 FY03/19 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operating days VIX YoY -27.1% -17.3% -26.9% 48.4% 34.2% 17.6% 104.2% Daily average revenue trades (DATs) 67,182 63,318 63,327 88,716 77,880 69,341 90,173 YoY -38.3% -34.9% -34.2% 33.1% 15.9% 9.5% 42.4% Number of trades ('000) 4,232 3,989 3,926 5,412 4,984 4,334 5,591 Brokerage commissions (USD'000) 17,067 16,579 16,584 22,826 20,377 17,834 21,099 YoY -8.2% 0.8% 2.4% 37.7% 19.4% 7.6% 27.2% Commissions per trade (USD) Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods; Note: Number of trades calculated as DATs times number of trading days 16/129

17 esearch eport by Shared esearch Inc. Number of customer accounts at top five online brokerages FY03/18 FY03/19 ('000) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SBI Securities 3,923 4,005 4,110 4,261 4,362 4,448 YoY 8.3% 8.9% 9.8% 11.0% 11.2% 11.1% akuten Securities - 2,372-2,611-2,858 YoY % % % Monex, Inc. 1,710 1,726 1,742 1,761 1,780 1,793 YoY 3.6% 3.7% 3.7% 3.8% 4.1% 3.9% Matsui Securities 1,104 1,113 1,122 1,136 1,147 1,157 YoY 3.7% 3.7% 3.7% 3.8% 3.9% 3.9% kabu.com Securities 1,058 1,068 1,078 1,087 1,096 1,103 YoY 4.4% 4.1% 4.1% 3.7% 3.6% 3.2% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Customer assets under custody at top five online brokerages FY03/18 FY03/19 (JPYbn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SBI Securities 9,805 10,369 10,961 11,426 11,378 12,028 YoY 25.2% 25.0% 23.4% 21.7% 16.0% 16.0% akuten Securities 4,369 4,584 4,946 5,026 5,184 5,515 YoY 26.8% 28.7% 26.4% 22.6% 18.7% 20.3% Monex, Inc. 3,977 4,099 4,328 4,229 4,283 4,409 YoY 20.3% 18.7% 13.9% 11.2% 7.7% 7.6% Matsui Securities 2,408 2,451 2,582 2,524 2,535 2,601 YoY 21.9% 20.3% 14.3% 11.0% 5.2% 6.1% kabu.com Securities 2,241 2,277 2,413 2,336 2,365 2,396 YoY 20.1% 18.8% 14.5% 10.2% 5.5% 5.2% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Equity trading value at top five online brokerages Quarterly FY03/18 FY03/19 (JPYt n) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 etail investors trading value on TSE and NSE YoY 2.1% 10.0% 30.8% 34.2% 3.7% -2.5% SBI Securities YoY -1.3% 7.5% 36.3% 39.6% 8.0% 1.2% % of total retail investors trading value 34.5% 35.1% 35.2% 35.4% 35.9% 36.4% akuten Securities YoY 7.9% 18.0% 43.5% 44.0% 13.7% 12.8% % of total retail investors trading value 16.1% 16.3% 16.1% 16.9% 17.6% 18.8% Monex, Inc YoY 12.8% 17.0% 31.0% 42.1% -0.5% -3.2% % of total retail investors trading value 5.5% 5.2% 5.1% 5.3% 5.3% 5.2% Matsui Securities YoY -6.9% -7.3% 14.5% 11.5% -7.9% -15.5% % of total retail investors trading value 12.3% 11.6% 10.6% 10.7% 10.9% 10.1% kabu.com Securities YoY 5.4% 7.5% 31.6% 28.1% 3.4% -3.4% % of total retail investors trading value 8.8% 8.8% 8.7% 8.8% 8.8% 8.7% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Brokerage commissions at top five online brokerages FY03/18 FY03/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Five major online brokers total 21,494 21,317 25,930 25,118 20,054 19,295 YoY 0.2% 16.9% 25.2% 21.2% -6.7% -9.5% SBI Securities 7,785 7,814 9,618 9,304 7,667 7,572 YoY 4.4% 21.2% 34.3% 25.8% -1.5% -3.1% akuten Securities 4,220 4,206 4,784 4,615 3,804 3,779 YoY -1.2% 20.6% 23.6% 14.2% -9.9% -10.2% Monex, Inc. 3,290 3,323 4,000 3,625 2,885 2,679 YoY -0.1% 14.1% 18.3% 17.1% -12.3% -19.4% Matsui Securities 4,152 3,997 5,082 5,018 3,848 3,543 YoY -3.6% 10.9% 20.2% 21.8% -7.3% -11.4% kabu.com Securities 2,047 1,977 2,446 2,556 1,850 1,722 YoY -3.2% 11.1% 18.5% 23.3% -9.6% -12.9% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods 17/129

18 esearch eport by Shared esearch Inc. Brokerage commission rates at top five online brokerages FY03/18 FY03/19 (Basis points) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 SBI Securities YoY change akuten Securities YoY change Monex, Inc YoY change Matsui Securities YoY change kabu.com Securities YoY change Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Margin trading balances at top five online brokerages FY03/18 FY03/19 (JPYbn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Margin trading balance on TSE and NSE 3,507 3,586 3,913 4,292 4,077 3,711 YoY 20.2% 23.6% 31.4% 23.2% 16.3% 3.5% SBI Securities , YoY 37.8% 30.6% 43.7% 25.3% 20.2% 7.2% % of total margin trading balance 22.4% 23.8% 23.7% 23.3% 23.2% 24.6% akuten Securities YoY 38.3% 34.6% 41.6% 32.6% 23.5% 12.2% % of total margin trading balance 10.5% 10.8% 11.0% 10.9% 11.2% 11.8% Monex, Inc YoY 14.6% 14.3% 25.8% 23.6% 21.5% 9.1% % of total margin trading balance 4.7% 4.6% 4.8% 4.8% 4.9% 4.8% Matsui Securities YoY 25.2% 20.4% 33.3% 19.4% 13.3% 3.3% % of total margin trading balance 7.9% 7.7% 8.1% 7.7% 7.7% 7.6% kabu.com Securities YoY 30.9% 23.9% 44.6% 13.5% 9.9% -1.1% % of total margin trading balance 6.8% 8.5% 6.9% 7.8% 6.5% 8.1% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Financial income at top five online brokerages FY03/18 FY03/19 (JPYmn) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Five major online brokers total 22,882 24,205 27,862 26,375 26,842 24,942 YoY 17.3% 38.6% 40.5% 27.2% 17.3% 3.0% SBI Securities 9,761 10,854 12,339 11,759 11,485 11,144 YoY 29.4% 51.1% 52.0% 35.2% 17.7% 2.7% Financial income / Margin trading balance 1.2% 1.3% 1.4% 1.2% 1.2% 1.2% akuten Securities 4,592 5,345 5,911 5,921 5,906 5,630 YoY 20.2% 44.4% 44.0% 42.1% 28.6% 5.3% Financial income / Margin trading balance 1.3% 1.4% 1.4% 1.3% 1.3% 1.3% Monex, Inc. 2,888 2,393 2,980 2,519 3,246 2,565 YoY 12.2% 28.0% 22.0% -5.7% 12.4% 7.2% Financial income / Margin trading balance 1.7% 1.5% 1.7% 1.3% 1.6% 1.4% Matsui Securities 2,743 2,893 3,196 3,208 3,064 2,897 YoY -5.1% 19.5% 26.3% 22.1% 11.7% 0.1% Financial income / Margin trading balance 1.0% 1.0% 1.1% 1.0% 0.9% 1.0% kabu.com Securities 2,898 2,720 3,436 2,968 3,141 2,706 YoY 8.0% 19.1% 30.2% 15.5% 8.4% -0.5% Financial income / Margin trading balance 1.1% 1.0% 1.2% 1.0% 1.0% 1.0% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Q3 FY03/19 results esults for the nine-month period through Q3 FY03/19 Operating revenue: JPY40.1bn (+4.5% YoY) Net operating revenue: JPY36.4bn (+3.9% YoY) Operating profit equivalent: JPY3.0bn (-46.5% YoY) Pre-tax profit: JPY3.2bn (-40.7% YoY) Profit attributable to owners of the parent: JPY2.7bn (-42.2% YoY) 18/129

19 esearch eport by Shared esearch Inc. Operating revenue of JPY40.1bn (+4.5% YoY) included JPY20.0bn in commissions received (-6.4% YoY), with the decline in commission income stemming from falling commissions at the Japan segment. Trading income of JPY5.0bn was up 73.3% YoY, the increase due in part to the addition of Coincheck, Inc. to consolidated results. Financial income was JPY14.6bn (+11.4% YoY), the increase driven by rises in margin trading income in the Japan segment and interest income in the US segment. On the expense front, SG&A expenses of JPY33.4bn were up 13.5% YoY; this includes expenses stemming from the addition of Coincheck to consolidated results. Corporate income tax expense of JPY632mn was down 28.9% YoY. The decline reflects a JPY387mn decrease in corporate income taxes in Japan, where losses recorded the previous year were deductible for tax purposes this year, and a JPY929mn decline in income tax expense in the US, which benefited from the reduction in the maximum federal income tax rate for US corporations that was part of the tax reform legislation passed during the same period the previous year. From Q1, Coincheck was consolidated into the group and the securities investment business expanded, centering on Monex Ventures, Inc., so the company changed its segmentation from the three segments it had been using (Japan, US, and Asia-Pacific) to five segments (Japan, US, Asia-Pacific, Crypto Assets, and Investment). Japan segment For the nine-month period through Q3 FY03/19, the Japan segment reported operating revenue of JPY21.6bn (-7.5% YoY). Commissions received came to JPY10.5bn, down 16.9% YoY trading income of JPY3.4bn was up 16.7%, and financial income of JPY7.7bn was up 7.6%. With financial expenses coming in at JPY1.5bn (-1.6% YoY), net financial income came to JPY6.2bn (+10.2% YoY). Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY20.1bn was down 7.9% YoY. The operating profit equivalent of JPY2.8bn was down 41.5%, pre-tax profit of JPY2.9bn was down 39.6%. Commissions Commissions received totaled JPY10.5bn, down 16.9% YoY, with the drop coming primarily from a fall in commissions from stock and ETF trading, which declined 20.2% YoY to JPY8.2bn. Equity trading by retail investors in the market as a whole was down, and a decline in the company's market share and a decrease in its average commission rate stemming from a reduction in commission rates charges on margins trades led to a further decline in commissions received. The average daily equity trading value of retail investors at the Tokyo and Nagoya stock exchanges fell 7.0% YoY to JPY1.1tn. Monex Inc. s market share of trading by retail investors decreased by 0.1pp to 5.2%, and its average daily stock trading value fell 8.0% to JPY59.5bn. The average commission rate on stock trading declined 0.011pp YoY to 0.075%. Trading income Net trading income of JPY3.4bn was up 16.7% YoY. Forex trading value totaled JPY25.2tn, up 18.2% YoY. Financial income Financial income of JPY7.7bn was up 7.6% YoY. After lowering commission rates for margin trades, the balance of margin trading accounts increased, as did income from margin trading. The balance of margin trading accounts at the end of Q3 was JPY157.8bn (-16.4% YoY); the average month-end balance of margin trading accounts rose 10.3% YoY to JPY186.8bn (estimated by Shared esearch using company data). As mentioned previously, the increase in margin account balances was driven by the company's move to lower commission rates in margin trades. SG&A expenses SG&A expenses of JPY17.3bn were up 1.5% YoY. System-related expenses (including all related rents, operational expenses, and depreciation), which account for a large proportion of SG&A expenses, rose 4.4% YoY to JPY9.4bn. 19/129

20 esearch eport by Shared esearch Inc. Customer trends As of the end of December 2018, Monex, Inc. had a total of 1,807,264 customer accounts (+3.7% YoY) and total customer assets under custody of JPY3.8tn (-11.5% YoY). US segment For the nine-month period through Q3 FY03/19, the US segment reported operating revenue of JPY17.1bn (+17.2% YoY), consisting of JPY9.2bn in commissions received (+8.2% YoY), JPY6.7bn in financial income (+27.5% YoY), and net financial income of JPY4.2bn (+26.0% YoY). Net operating revenue of JPY14.4bn was up 13.7% YoY, operating profit equivalent of JPY1.3bn was up 511.9%, and pre-tax segment profit of JPY1.2bn was up 490.4%. The core business of the US segment is TradeStation Securities, Inc., which is a subsidiary of TradeStation Group, Inc. The main customers of the US segment are active traders, who tend to contribute to earnings under high market volatility resulting in a trading volume hike. The company also captures financial income by managing customer deposits, and an increase in interest rates tends to contribute to earnings. The increase in brokerage commissions received reflects a rise in the number of new account openings as well as higher market volatility than in the same nine-month period in FY03/18. Higher short-term interest rates and higher stock-lending income underpinned the growth in financial income. The average yen/dollar exchange during the nine-month period represented a 0.8% appreciation of the yen versus the dollar compared with the same period the previous year, which lowered growth in revenues and earnings at the US segment when translated into Japanese yen. On the earnings front, the gains are attributable to top-line growth and careful cost control at the SG&A expense level, where the company held the YoY increase in expenses to only 4.9%. On a USD basis, operating revenue rose 18.1% YoY to USD154.0mn. Commissions of USD82.8mn were up 9.1% and financial income of USD60.3mn was up 28.5%. Net operating revenue of USD129.5mn was up 14.6%, operating profit equivalent of USD12.0mn was up 518.1%, and pre-tax profit of USD11.1mn was up 496.4%. Commissions Commissions received totaled USD82.8mn (+9.1% YoY) or JPY9.2bn (+8.2% YoY) on a yen basis. Brokerage commissions were up in US dollar terms. Brokerage commissions of USD59.3mn were up 18.1% YoY and, after converting to yen, the comparable figure of JPY6.6bn was up 17.1% YoY. An increase in the number of new account openings together with the YoY rise in market volatility led to high commission income. As of the end of December 2018, the company reported a total of 86,650 active accounts (+23.4% YoY). After lowering its commission rates for stock and option trading in March 2017 and for futures trading in August 2017, the number of accounts increased. The VIX volatility index was 16.4 (+50.7% YoY)). The average number of commissionable contracts or securities trades at the US segment on trading days (i.e., DATs) rose 22.4% YoY to 79,092 (estimated by Shared esearch using company data). Other fees and commission income totaled USD23.4mn (-8.4% YoY) or JPY2.6bn (-9.2% YoY) on a yen basis. Financial income Financial income of USD60.3mn was up 28.5% YoY; in yen terms, financial income of JPY6.7bn was up 27.5% YoY. Contributing factors include higher interest income due to a rise in short-term rates, and an increase in stock lending income. 20/129

21 esearch eport by Shared esearch Inc. Along with the increase in the number of active accounts, average customer assets under custody at the end of December 2018 rose 0.8% YoY to USD5.1bn. Financial expenses totaled USD22.6mn (+31.2% YoY) or JPY2.5bn (+30.1% YoY). Net financial income came to USD37.7mn (+27.0% YoY) or JPY4.2bn (+26.0% YoY). SG&A expenses SG&A expenses totaled USD117.4mn (+5.8% YoY) or JPY13.0bn (+4.9% YoY). Customer trends As of the end of December 2018, the number of active accounts at TradeStation Securities was 86,650 (+23.4% YoY) and customer assets under custody totaled USD5.1bn (+0.8% YoY). According to the company, the number of new account openings has risen since it lowered commission rates for stock and option trades in March 2017 and for futures trades in August Asia-Pacific segment For the nine-month period through Q3 FY03/19, the Asia-Pacific segment reported operating revenue of JPY611mn (-12.1% YoY), consisting of JPY301mn in commissions received (-25.3% YoY) and financial income of JPY211mn (+21.3% YoY). Net operating revenue of JPY599mn was down 12.9%; the operating loss equivalent of JPY55mn compares with a year-earlier loss of JPY14mn, and the pre-tax loss (segment loss) JPY44mn compares with a year-earlier loss of JPY271mn. The average JPY/HKD exchange rate during the nine-month period was up 1.3% YoY (yen appreciation), which affected the earnings results of the Asia-Pacific segment. The core businesses of the Asia-Pacific segment are Monex Boom Securities (H.K.) Limited (a subsidiary of Monex Group s Hong Kong operation Monex International Limited) and Monex Securities Australia Pty Ltd. Commission income Daily Average evenue Trades (DATs) at Hong Kong-based Monex Boom Securities (H.K.) Limited numbered 1,884 (-30.5% YoY) in Q1, 2,151 (-9.9% YoY) in Q2, and 1,504 (-18.7% YoY) in Q3, causing a drop in commissions received. SG&A expenses SG&A expenses fell 6.7% YoY to JPY654mn. Although personnel and advertising expenses increased at Monex Securities Australia, commissions paid at Monex Boom Securities declined on decreased stock trading. Other Other revenue and expenses came to a net loss of JPY8mn versus a loss of JPY289mn in the same period the previous year, when the company booked an impairment loss on financial assets of JPY294mn as a one-time expense. Equity-method investment income was JPY19mn (-40.5% YoY). The company logged a profit from a joint venture operating in mainland China. Crypto Asset segment Operating revenue of JPY1.8bn included JPY166mn in commissions and JPY1.6bn in trading income. Commissions included withdrawal and remittance fees and commissions from the cryptocurrency exchange. Trading income included income from buying and selling on the cryptocurrency exchange. The segment reported a pre-tax loss of JPY1.2bn. 21/129

22 esearch eport by Shared esearch Inc. The core business of the Crypto Asset segment is Coincheck, which was included in consolidated results starting in April After a long stretch when it was forbidden to open any new user accounts and was restricted to only offering a few services, Coincheck was given the go-ahead by regulatory authorities to begin accepting new accounts and resume trading in some crypto-currencies in October 2018, was subsequently given permission to handle transactions in all crypto-currencies at the end of November 2018, and finally completed its registration as a crypto-currency exchange operator in January With SG&A expenses of JPY3.4bn, including personnel and outsourcing expenses, the segment reported a pre-tax loss of JPY1.2bn. Other income and expenses yielded a net profit of JPY466mn; this includes JPY433mn in valuation gains stemming from changes in the fair value estimate of amounts in arrears whose value is subject to conditions. Investment segment Operating revenue for the nine-month period through Q3 FY03/19 was JPY325mn (-50.7% YoY), Financial income of JPY325mn was down 50.7%. The core business of the Investment segment is Monex Ventures, Inc. Financial income reported for the period represents valuation gains on shareholdings. SG&A expenses of JPY7mn was up 32.0%; equity-method investment profit of JPY9mn compares with a year-earlier loss of JPY9mn. Q3 FY03/19 (October December 2018) results Operating revenue: JPY13.7bn(-0.4% YoY) Net operating revenue: JPY12.6bn (-0.3% YoY) Operating profit equivalent: JPY1.3bn (-46.2% YoY) Pre-tax profit: JPY1.4bn (-42.6% YoY) Net profit*: JPY951mn (-64.1% YoY) *Net profit attributable to parent company shareholders Japan segment For Q3 FY03/19 (October December 2018), the Japan segment reported operating revenue of JPY7.5bn (-16.2% YoY), of which commissions received came to JPY3.6bn (-22.5% YoY), trading income JPY1.3bn (+18.2% YoY), and financial income JPY2.6bn (+1.3% YoY). Financial expenses were JPY493mn (-9.9% YoY), leaving net financial income of JPY2.1bn (+4.4% YoY). Net operating revenue (operating revenue after deducting financial expenses and cost of revenue) of JPY7.0bn was down 16.6% YoY, the operating profit equivalent of JPY1.2bn was down 50.7%, and pre-tax profit of JPY1.1bn was down 52.2%. Commissions Commissions received during the quarter totaled JPY3.6bn (-22.5% YoY), with the drop driven primarily by declining commissions from stock and ETF trading, which fell 27.2% YoY to JPY2.8bn. 22/129

23 esearch eport by Shared esearch Inc. The average daily equity trading value of retail investors at the Tokyo and Nagoya stock exchanges fell 18.8% YoY to JPY1.8tn. Monex, Inc. maintained a market share of trading by retail investors of 5.2% (up 0.1pp YoY), with its average daily stock trading value decreasing 17.9% YoY to JPY61.4bn. The average commission rate on stock trading declined, however, slipping 0.009pp YoY to 0.075%. Trading income Net trading income of JPY1.3bn was up 18.2% YoY. Forex trading value of JPY10.8tn was up 41.9% YoY. Financial income Financial income of JPY2.6bn was up 1.3% YoY. The balance of margin trading accounts at the end of Q3 was JPY157.8bn (-16.4% YoY); the average month-end balance of margin trading accounts fell 2.1% YoY to JPY175.4bn (estimated by Shared esearch using company data). SG&A expenses SG&A expenses for the quarter totaled JPY5.8bn (-2.3% YoY). System-related expenses (including related spending on rent, operations, and depreciation) increased 3.9% YoY to JPY3.1bn. US segment For Q3 FY03/19 (October December 2018), the US segment reported operating revenue of JPY6.1bn (+23.2% YoY), consisting of JPY3.2bn in commissions received (+16.0% YoY), JPY2.3bn in financial income (+25.3% YoY), and net financial income of JPY1.6bn (+33.8% YoY). Net operating revenue of JPY5.1bn was up 20.8% YoY. Operating profit equivalent of JPY728mn compares with a year-earlier profit of only JPY34mn. On a USD basis, operating revenue rose 24.0% YoY to USD54.2mn. Commissions of USD28.8mn were up 16.9% YoY and financial income of USD20.7mn was up 26.0% YoY. Net operating revenue of USD45.7mn was up 21.6%; operating profit equivalent of USD6.5mn compares with a year-earlier profit of only USD295,000. Commissions Commissions received totaled USD28.8mn (+16.9% YoY) or JPY3.2bn (+16.0% YoY) on a yen basis. Brokerage commissions of USD21.1mn were up 27.2% YoY and, after converting to yen, the comparable figure of JPY2.4bn was up 26.2%. Financial income Financial income of USD20.7mn was up 26.0% YoY; in yen terms, financial income of JPY2.3bn was up 25.3% YoY. Along with the increase in the number of active accounts, average customer assets under custody during the three-month period rose 7.9% YoY to USD5.3bn. Financial expenses totaled USD6.8mn (+11.3% YoY) or JPY764mn (+10.9% YoY). Net financial income came to USD13.9mn (+34.7% YoY) or JPY1.6bn (+33.8% YoY). SG&A expenses SG&A expenses totaled USD39.2mn (+5.1% YoY) or JPY4.4bn (+4.4% YoY). For details on previous quarterly and annual results, please refer to the Historical financial statements section. 23/129

24 esearch eport by Shared esearch Inc. Full-year company forecasts According to the company, it does not disclose earnings forecasts due to the difficulty estimating earnings of the mainstay brokerage business, which is strongly affected by stock market fluctuations. However, the company does release monthly trends in management indicators of main subsidiaries Monex, Inc., and TradeStation Group. Shared esearch understands that it is difficult to forecast earnings for Monex Group, but we estimate earnings for this fiscal year and explain important variables in the following section. For specific figures, please see the Quarterly trends and results section. The Earnings structure section later in the report explains the base of earnings trends in more detail. Most of the company s earnings come from the Japan and US segments. Japan segment The main factors that affect earnings of the Japan segment are the value of equity trading by retail investors on the Tokyo, and Nagoya stock exchanges, the company s share of this market, and margin trading balances. Net operating revenue of the Japan segment consists mainly of brokerage commissions, trading income, and net financial income. Brokerage commissions are commissions on stock trading (cash and margin accounts) and on futures and options trading. Trading income is revenue from forex trading. Net financial income is the difference between revenue from margin trading + stock lending income and financial expenses associated with margin trading and securities lending. Brokerage commissions Brokerage commissions = equity trading value x brokerage commission rate Equity trading value affected by stock market movements Monex s equity trading value is mostly affected by equity trading value of retail investors at the Tokyo and Nagoya stock exchanges, and the company s share. The correlation coefficient of TOPIX and monthly trading value of retail investors at the Tokyo and Nagoya stock exchanges in the 10 years from April 2008 to March 2018 is 0.72, showing a strong correlation between the stock index and equity trading value of retail investors. Monex s share of equity trading value of retail investors had been shrinking. It dropped from 7.3% in FY03/12 to 5.0% in FY03/17, but finished at 5.3% in FY03/18 as the company began to recover market share following the introduction of the Japanese equities version of its TradeStation trading platform in March 2016, with additional help from cuts in commissions for margin trades in November Brokerage commission rate may vary depending on usage of TradeStation The company does not engage in commission price wars. Its commission rate has been stable at around 0.09%. The commission rate is calculated as brokerage commission (includes commission for futures and options trading) divided by equity trading value (includes ETFs and EITs, but excludes futures and options). The commission rate is used as an indicator of overall trends. The Japanese equities trading tool TradeStation, which was launched in March 2016 targeting active traders, sets a commission rate of around 0.04%. TradeStation accounted for just 2.3% of the value of equity trading handled by Monex, Inc. in Q1 FY03/18, but by Q4 this figure was up to 4.6%. Monex, Inc. reduced commissions for margin trades in November 2017, introducing the following fee structure. For trades with a principal value of less than or equal to JPY100,000, the commission was lowered from JPY100 to JPY95; for trades with larger than JPY100,000 but less than or equal to JPY500,000, the commission was lowered from JPY450 to JPY190; for trades larger than 24/129

25 esearch eport by Shared esearch Inc. JPY500,000 but less than or equal to JPY1,000,000, the commission was lowered from JPY1,500 to JPY355; and for trades larger than JPY1,000,000 but less than or equal to JPY2,000,000, the commission was lowered from JPY3,000 to JPY800. Under this new fee structure, Shared esearch estimates that the brokerage commission rate on margin trades came down to 0.05% versus 0.12% previously. The brokerage commission rate in FY03/18 was 0.08% (versus 0.10% in FY03/17). However, if the proportion of equity trading value accounted for by TradeStation and margin trades both continue to rise, the brokerage commission rate on stock trades could decline even further depending on the mix of trading under the current fee structure. Net financial income Margin trading balance affected by stock market trends The margin trading balance, like equity trading value, is strongly affected by stock market movements. Monex s margin trading balance per account was only half the level of its competitors in FY03/18, but we think it may increase as a result of a growing number of TradeStation accounts and the ratio of active traders who use Monex, Inc. (for details see discussion under Competitions). SG&A expenses Variable expenses are transaction-related expenses linked to equity trading value. Variable expenses comprise around 15% of revenue (variable expenses / net operating revenue). Fixed expenses are personnel and system-related expenses (including all related rent, operating expenses, and depreciation), which declined by JPY1.6bn in FY03/18 following the completion of the transition to a new backbone system. US segment Operating revenue of the US segment consists mainly of brokerage commissions on equity, futures and options trading, and net financial income. Brokerage commissions The US segment s brokerage commissions are affected by Daily Average evenue Trades (DATs). DATs are highly correlated with the VIX index, which is an indicator of the market s outlook on volatility over the next 30 days. TradeStation Securities DATs tend to move in tandem with the VIX index. Net financial income Net financial income mainly comprises interest income earned from investing customer assets in custody (cash) and fluctuates according to the balance of these assets and US short-term interest rates. As customer assets are increasing along with the number of active accounts and the US short-term interest rates are on an increasing trajectory, interest income earned from investing customer assets is also on the rise. With customer assets in custody (cash) of some USD2.0bn, US operations generated more than USD30mn in interest income in this manner in FY03/18. 25/129

26 esearch eport by Shared esearch Inc. US segment: customer assets in custody Source: Company s earnings briefing materials In FY03/19, the company expects interest income from funds invested to increase by USD15mn over FY03/18. The increase reflects the scheduled end of a floating-to-fixed interest rate swap agreement covering principal of USD1.0bn in November 2018, and the company's expectations of a 0.25pp increase in the federal funds rate in June, September, and December SG&A expenses Variable expenses are transaction-related expenses linked to equity trading value. Variable expenses are more than 30% of revenue (variable expenses / net operating revenue). Fixed expenses are personnel and system-related expenses (including all related rent, operating expenses, and depreciation). Factors contributing to changes in revenues and earnings in FY03/19 Other than the impact of changes in the economy, stock market, and interests, the following factors are expected to affect company earnings in FY03/19. Addition of Coincheck as a consolidated subsidiary Founded in August 2012, Coincheck, Inc. is a cryptocurrency exchange operator. Coincheck is currently under a business improvement order from the Kanto Local Finance Bureau following the theft of cryptocurrency NEM that resulted from unauthorized access to its system in January 2018, and, pursuant to this order, is in the process of enhancing its governance and internal controls. Monex Group acquired all outstanding shares of Coincheck in April 2018, making it a wholly owned subsidiary. In addition to the JPY3.6bn paid to Coincheck shareholders, Monex Group agreed to make a contingent payment to Coincheck's former shareholders of up to half of aggregated sum of net income generated over the next three fiscal years (starting in FY03/19), after deducting a certain amount to adjust for the realized level of business risk. For FY03/18, Coincheck reported sales (revenues from cryptocurrency sales less the cost of sales) of JPY62.6bn and an operating profit of JPY53.7bn. After an extraordinary loss of JPY47.3bn (compensation paid to owners of accounts that suffered unauthorized withdrawals), pre-tax profit came to JPY6.3bn. Coincheck's user base numbered close to 1.7mn. The majority of the sales generated by Coincheck during FY03/18 came from the spread between the buying price and the selling price of the cryptocurrency trades handled by Coincheck. Coincheck was forced to suspend service due to the unauthorized withdrawals from accounts mentioned previously, but was able to partially resume operations from February to March 2018, generating sales of JPY2.0bn and, after SG&A expenses of JPY1.5bn, an operating profit of JPY500mn during that two-month timeframe. Coincheck was included in consolidated results starting in 1Q FY03/19. For 1H FY03/19 Coincheck reported operating revenue of JPY1.3bn and a pretax loss of JPY847mn under the Crypto Asset segment. As Coincheck was barred from registering new users during 1H and also could not offer some of its regular services, the main services it provided during the period were for cryptocurrency sales and withdrawals, which greatly limited it sources of revenue and led to operating losses. 26/129

27 esearch eport by Shared esearch Inc. In this relation, we note that cryptocurrency exchange operator GMO Coin, Inc. (a subsidiary of GMO Financial Holdings) reports roughly 197,000 accounts at its cryptocurrency exchange business, generating sales of JPY1.4bn and an operating profit of JPY740nm in Q3 FY12/18 (July September). Dropout of the temporary boosts to earnings that occurred in FY03/18 In FY03/18, earnings received a one-time boost from JPY610mn in licensing fees received from the licensing of the company's GALAXY backbone system to another securities company. FY03/18 earnings were also aided by a JPY2.8bn gain on the sale of operating investment securities. The dropout of both these items in FY03/19 will bring down operating revenues and profits at the company YoY. Medium-term outlook Earnings weak during period of medium-term management strategy (FY03/12 FY03/17) Initiatives under the previous medium-term strategy Global Vision FY03/17 was the final year of the company s medium-term management strategy, dubbed Global Vision. The company acquired Hong Kong-based Boom Group (now Monex Boom Securities) in December 2010 and US company TradeStation Group, Inc. in June 2011, and made them both subsidiaries. Global Vision was a strategy to strengthen and grow the US and Hong Kong businesses as well as Monex, Inc. in Japan, and harness the distinctive technological development capabilities of TradeStation (highly rated in the US) throughout the Monex Group to generate synergies from the acquisitions. The company implemented the following strategies: In November 2012, Monex, Inc. introduced the trading system developed by TradeStation Securities, Inc., and TradeStation Technologies, Inc., and fully revamped its US equities trading service. As a result, it offered the largest number of US stocks among Japanese online brokerages at the lowest commission rates and for the longest trading hours. In March 2016, Monex, Inc. launched the Japanese equities trading platform TradeStation, targeting active traders. It was developed by Monex, Inc., TradeStation Securities, and TradeStation Technologies with the goal of attracting more active traders in Japan. In January 2017, Monex, Inc. completed the transition to its new backbone brokerage system. The company previously outsourced its IT system to a system integration company, but has developed its own system in-house to reduce systemrelated costs and quickly develop and commercialize service to meet customer needs and stay competitive. In February 2014, TradeStation Technologies began providing a trading platform to customers of South Korea s leading financial group Shinhan Investment Corp. TradeStation Technologies also began providing a trading platform to customers of Guosen Securities Company Limited, which ranks eighth in China in terms of customer assets under custody. esults of the previous medium-term strategy Initiatives under the Global Vision strategy enhanced Monex Group s product range (mainly at Monex, Inc.) and completed the process of bringing system development in-house. However, as this meant the company had to run two backbone brokerage systems simultaneously, this also resulted in higher costs. Monex Group is one of the top five online brokerages. Between FY03/12 and FY03/17, the other four recorded a net operating revenue growth CAG of 15% (8% for Monex Group) and operating profit CAG of 27% (decline of 15% for Monex Group). Looking at revenues, Monex Group s commissions, trading income, and net financial income grew more slowly than average rates for its four peers. 27/129

28 esearch eport by Shared esearch Inc. Consolidated results performance under previous medium-term strategy (JPYmn) FY03/12 FY03/17 Change CAG Net operating revenue 28,888 41,852 12, % Commissions received 17,030 26,349 9, % Net trading income 6,200 4,498-1, % Net financial income 5,130 10,334 5, % SG&A expenses 26,060 40,578 14, % Trading-related 8,787 11,281 2, % Personnel 6,163 10,393 4, % System-related 9,072 15,686 6, % Operating profit equivalent 2,827 1,274-1, % Source: Shared esearch based on company data Earnings total of top four online brokerages (excluding Monex, Inc.) (JPYmn) FY03/12 FY03/17 Change CAG Net operating revenue 81, ,231 82, % Commissions received 52,337 87,698 35, % Net trading income 7,513 18,731 11, % Net financial income 21,372 56,687 35, % SG&A expenses 60,029 92,184 32, % Operating profit 21,722 72,046 50, % Source: Shared esearch based on each of the top four online brokerages data Japan segment performance under previous medium-term strategy (JPYmn) FY03/12 FY03/17 Change CAG Net operating revenue 20,582 26,693 6, % SG&A expenses 16,742 25,051 8, % Trading-related 4,747 5, % Personnel 3,165 4,206 1, % System-related 7,640 13,895 6, % Operating profit equivalent 3,840 1,643-2, % Source: Shared esearch based on company data US segment performance under previous medium-term strategy (JPYmn) FY03/12 FY03/17 Change CAG Net operating revenue 7,950 15,616 7, % SG&A expenses 8,884 15,858 6, % Trading-related 3,930 5,869 1, % Personnel 2,791 5,912 3, % System-related 1,336 2,388 1, % Operating profit equivalent Source: Shared esearch based on company data Between FY03/12 and FY03/17, while other online brokerages saw earnings grow, Monex Group saw positive top-line growth but lower earnings as a result of the higher costs stemming from running two backbone brokerage system simultaneously. The company s SG&A expenses grew more than net operating revenue. Personnel costs and system-related expenses (real estaterelated and administrative expenses plus depreciation) grew significantly. SG&A expenses went up in Japan and the US (mainly system-related expenses in Japan and personnel expenses in the US). New medium-term strategy from FY03/18 FY03/17 marked the end of the previous medium-term management strategy, which focused on globalization and development of an in-house system. The new strategy, dubbed Global Vision II: Bloom started in FY03/18. It aims to cut costs that ballooned over the previous five years and utilize the assets acquired under the previous strategy. Monex also plans to create new businesses using its management resources. The company says that it plans to build a business structure with a stable consolidated OPM of 30% over the long term. OPM=Operating profit equivalent/ net operating revenue Operating profit equivalent = Operating revenue (financial expenses + cost of revenue + SG&A expenses) Net operating revenue = Operating revenue (financial expenses + cost of revenue) Shared esearch believes attracting active traders in the Japan segment, increasing the number of accounts in the US segment, and reducing costs overall are key long-term growth drivers. 28/129

29 esearch eport by Shared esearch Inc. In October 2017, as part of what the company's calls its "New Beginning" initiative, the company announced that it was moving into the cryptocurrency exchange business and would be developing its own blockchain technology in order to offer new services to retail investors, traders, and startup companies. In line with this plan, the company subsequently acquired cryptocurrency exchange operator Coincheck, Inc. in April 2018, making it a wholly owned subsidiary. Japan segment The company introduced a US equities trading system, and promoted development of a Japanese equities trading tool TradeStation and a new backbone brokerage system during FY03/12 FY03/17. From FY03/18 onward, Shared esearch expects earnings growth as TradeStation attracts more active traders. The customers of Monex, Inc., the group s core subsidiary in Japan, are mainly investors seeking asset building over the long term, and relatively few are active traders. By drawing active traders away from rivals, the company believes it can increase its stock brokerage commission revenue. At Monex, Inc., margin accounts make up a smaller portion of total customer accounts and margin trading balance per account is lower than at the other online brokers. The company thinks attracting active traders will raise its margin trading balance, leading to higher financial income. Monex, Inc. has a relatively small share of active traders because it has been reluctant to engage in commission price wars, and was relatively late in launching margin trading services, as it took a cautious stance on providing margin trading to retail investors. Its strategy in the medium term is to entice active traders away from its competitors by offering advanced trading tools with competitive commissions; in line with this, in November 2017 lowered commissions on margin trades. Using Japanese equities trading tool TradeStation to attract active traders In March 2016, Monex, Inc. began offering TradeStation, a Japanese equities trading tool for active traders. TradeStation surpasses other trading tools Japanese equities trading tool TradeStation was developed by Monex, Inc., and Monex Group s US subsidiaries TradeStation Securities and TradeStation Technologies. The original US version of TradeStation is highly rated by active traders and has won numerous awards, as well as achieving a 4.5-star rating eight years running for the Best for Frequent Traders category in Barron s review of online brokerages. The company explains that TradeStation offers one of the fastest order placement speeds among online brokers (with average 6.6 milliseconds versus kabu.com Securities median value of 33 milliseconds) as well as sophisticated features required by active traders such as real-time monitoring of registered stocks (real-time sorting by percentage change of up to 2,000 stocks), screening (access to over 200 indices), and backtesting (verifying trade strategy using historical data before live trading) features. TradeStation also uses a proprietary programming language EasyLanguage, which allows active traders to customize indicators, trading signals, and program trades. TradeStation commissions are the lowest in the industry TradeStation s fee structure (based on daily trading value) is JPY50 per JPY100,000 (Mini Plan), JPY400 per JPY1mn (Normal Plan), and JPY3,250 per JPY10mn (Large Plan, available to margin account holders only). Commission rates range from 0.03% to 0.05%, which is the lowest in the industry for active trading. Aims to gain market share by attracting active traders, a new customer base According to Japan Securities Dealers Association s (JSDA) Online Securities Trading Activity (Monthly) statistics, active traders, who engage in 100 or more trades per month, have accounted for roughly 60% of equity trading value since March As such, a select group of customers who trade frequently account for most of the equity trading value of online brokerages. 29/129

30 esearch eport by Shared esearch Inc. Monthly equity trading value of customers who trade 100 or more times per month (JPYbn) Mar Sep Mar Sep Mar Sep Mar Sep Mar Sep Trading value by customers with 100 trades or less 8,320 7,763 6,775 7,685 9,031 6,685 6,645 4,307 7,949 7,947 % of total 38.2% 37.4% 36.7% 37.1% 34.9% 34.2% 32.1% 30.9% 40.8% 41.5% Trading value by customers with more than 100 trades 13,460 13,013 11,669 13,021 16,836 12,882 14,085 9,639 11,556 11,181 % of total 61.8% 62.6% 63.3% 62.9% 65.1% 65.8% 67.9% 69.1% 59.2% 58.5% Total 21,780 20,776 18,444 20,706 25,867 19,568 20,730 13,946 19,505 19,128 Source: Shared esearch based on JSDA Online Securities Trading Activity (Monthly) data Assuming that active traders accounted for 60% of the equity trading value for the four top online brokerages (excludes Monex, Inc.), the equity trading value of active traders was JPY136tn (JPY227tn x 60%) in FY03/17. If Monex were to capture 10% of the active trader market by offering TradeStation, it could increase its equity trading value by JPY14tn (in FY03/18, its equity trading value was JPY16.8tn). The increase in brokerage commissions would be around JPY5.0bn, since TradeStation s commission rates are roughly 0.04%, lower than the rates at Monex, Inc. The Japan segment s brokerage commissions totaled JPY13.7bn in FY03/18. With the introduction of TradeStation for Japanese equities, the company targets monthly equity trading value of JPY800bn and annual revenue of JPY2.4bn in the medium term. Scope for increasing net financial income by attracting active traders For the margin trading balance, applying the same assumption active traders accounting for 60% of the equity trading value of online brokerages we estimate that active traders margin trading balance in FY03/18 was JPY1.3tn (JPY2.1tn x 60%). If Monex, Inc. were to capture 10% of the active traders in Japan through TradeStation, it could increase its margin trading balance by JPY130.0bn (FY03/18 balance was JPY205.3bn). In this scenario, the company could raise its net financial income by around JPY3.9bn, because the margin trading profit margin is 3.0%. The Japan segment s net financial income totaled JPY10.2bn in FY03/18. Comparing net operating revenue per account, Monex, Inc. s brokerage commission per account is in line with its competitors, but financial income per account trends lower (see the Competition section for details). This means few Monex, Inc. customers are active traders. Shared esearch thinks the introduction of TradeStation will lead to lower commission rates, but can provide Monex, Inc. the opportunity to expand revenue by winning active traders from its rivals. US segment Factors contributing to revenue growth in the US segment include increasing the number of active accounts following the introduction of a new fee structure (see below). New fee structure According to the company, TradeStation is a trading platform that excels in real-time portfolio reporting and screening. It has won numerous awards, as well as achieving a 4.5-star rating eight years running for the Best for Frequent Traders category in Barron s review of online brokerages. In March 2017, TradeStation Securities introduced a new fee structure of USD5.00 per equity trade, and USD0.50 per contract plus USD5.00 per options trade. The previous plan was USD1.00 per equity trade plus a commission of USD0.006 USD0.01 per share (equities) and USD1.00 per contract (options). The company commented that the new fee plan is more straightforward and competitive, as it no longer includes charges for using the trading platform. According to the company, the number of newly opened funded accounts in the US segment reached a record high in FY03/18. The number of active accounts as of the end of March 2018 was up 18.7% from the end of March 2017, easily outpacing the 8% average annual growth rate over the past eight years. 30/129

31 esearch eport by Shared esearch Inc. In August 2017, the company introduced a simple plan for futures trades that charges USD1.50 per contract (one way). In the previous pricing plan, the commission per contract (one way) varied according to the number of contracts traded per month. The company will continue to offer this plan as well. Asia-Pacific segment Monex Boom Securities Group is a retail online brokerage based in Hong Kong. It was founded in 1997 and became a subsidiary of the Monex Group in December The company runs the Group s operations for Hong Kong and seeks business opportunities in mainland China. The Asia-Pacific segment has also established a joint venture with a brokerage in China to provide technical assistance to local online brokerages. Monex Group booked equity-method investment income from the joint venture in FY03/18. Monex Group launched the online brokerage operation of Monex Securities Australia Pty Ltd in 2H FY03/18. At the time of launch, it operated with less than eight local staff, but offers a service that provides access to stock markets in 12 countries. Shared esearch thinks Monex Group plans to partner with local companies that will be responsible for marketing while it provides the trading platform. New services based on new technologies The company believes that the data management technology based on blockchain and cryptocurrency mining will impact the capital markets and financial intermediaries in the future much as online brokers did in the early days of the internet. For that reason, the company announced its "New Beginning" initiative in October 2017 with plans to move into the cryptocurrency exchange business and develop its own blockchain technology in order to offer new services to retail investors, traders, and startup companies. In keeping with this plan, Monex Group acquired cryptocurrency exchange operator Coincheck, Inc. in April Services for retail investors Faced with falling returns on traditional investments such as stocks and bonds, institutional investors are now investing in a wide range of financial products based on everything from electric power projects to farming. To securitize investments such as these in denominations that are accessible to retail investors, Monex plans to use blockchain technology to create smaller investment units for various types of assets so that retail investors will have more low-cost investment alternatives that were not available to trade in the past. Toward this end, the company is also talking with other industry member and regulatory authorities to lay the legal groundwork for such a move. Services for traders According to the company, the quantitative easing implemented by the Bank of Japan coupled with the growing use of index funds has reduced market volatility and the opportunities for profitable short-term trading. For this reason, the company plans to operate a cryptocurrency exchange and offer cryptocurrency trading services to individual traders. Services for startup companies The company also intends to provide a financial support system for startup companies to provide the capital they need for growth. Starting with seed capital from its own group companies, in this area the company plans to also offer Series A and Series B funding, and serve as the lead manager position for initial public offerings. In conjunction with this, in October 2017 the company formed Monex Edison Investment Limited Partnership. Monex Edison Investment Limited Partnership will provide seed capital for early stage start-up companies. Plans call for follow-on financing, including Series A and Series B, to be handled by consolidated subsidiary Monex Ventures, Inc. and for Monex, Inc. to act as the lead manager for initial public offerings. Venture capital financing its typically done in stages or rounds, with the initial rounding of financing at the startup stage being referred as the seed funding round, followed by the Series A round (early stage funding), the Series B round (growth stage), and the Series C round (later stage). 31/129

32 esearch eport by Shared esearch Inc. Impact of Coincheck on consolidated results Founded in August 2012, Coincheck, Inc. is a cryptocurrency exchange operator. Coincheck is currently under a business improvement order from the Kanto Local Finance Bureau following the theft of cryptocurrency NEM that resulted from unauthorized access to its system in January 2018, and, pursuant to this order, is in the process of enhancing its governance and internal controls. Monex Group acquired all outstanding shares of Coincheck in April 2018, making it a wholly owned subsidiary. In addition to the JPY3.6bn paid to Coincheck shareholders, Monex Group agreed to make a contingent payment to Coincheck's former shareholders of up to half of aggregated sum of net income generated over the next three fiscal years (starting in FY03/19), after deducting a certain amount to adjust for the level of realized business risk. Monex Group intends to fully back Coincheck's efforts to enhance governance and internal controls and create a secure business environment for Coincheck customers. More specifically, Monex Group says it intends to make full use of its expertise and human resources of business administration, system risk management, and customer asset protection system that it has acquired over the many years since its start as an online securities broker. By integrating Coincheck s expertise in blockchain technology and cryptocurrencies with its own expertise and experience in the financial industry, Monex Group is also looking to accelerate the implementation of its New Beginning initiative. Coincheck has about 1.7mn accountholders, most of which are in their 20s, 30s, or 40s. In contrast, most of the roughly 1.8mn accountholders at Monex Inc. are in their 40s, 50s, and 60s. Because there is a substantial age gap between the core customers of the two companies, we can expect to see the group's overall client base expand as Coincheck and Monex Inc. start referring clients to each other. As for the impact of Coincheck on near-term results, Monex Group included Coincheck in consolidated results starting in 1Q FY03/19. In FY03/18, Coincheck reported sales (revenues from cryptocurrency sales less the cost of sales) of JPY62.6bn, operating profit of JPY53.7bn, an extraordinary loss of JPY47.3bn (reflecting compensation paid to owners of accounts that suffered unauthorized withdrawals), and a pre-tax profit of JPY6.3bn. The majority of the sales generated by Coincheck during FY03/18 came from the spread between the buying price and the selling price of the cryptocurrency trades handled by Coincheck. Coincheck was forced to suspend its services due to the unauthorized withdrawals from accounts mentioned previously, but was able to partially resume operations from February to March 2018, generating sales of JPY2.0bn and, after SG&A expenses of JPY1.5bn, an operating profit of JPY500mn during that two-month timeframe. During Q1 FY03/19, the Crypto Asset segment (mainly Coincheck) booked operating revenue of JPY942mn and, after SG&A expenses of JPY1.2bn, an operating loss equivalent of JPY269mn. During the two-month period of February-March 2018, Coincheck booked JPY2.0bn in operating revenue and, after JPY1.5bn in SG&A expenses, booked an operating profit of JPY500mn. evenue during Q1 FY03/19 (April June) was roughly half that amount. The majority of the revenue generated during both of these periods came from trading losses/gains related to the withdrawals and sales of cryptocurrency holdings in the accounts of existing accountholders. As the balance of cryptocurrency holdings in the accounts of existing accountholders declined, so too did the amount of withdrawals and sales of cryptocurrency holdings. SG&A expenses in Q1 FY03/19 were down versus the February-March period due to a decline in payments to attorneys and other outside parties, though expenditures in other SG&A expense areas were up as Coincheck moved to strengthen its internal control system. 32/129

33 esearch eport by Shared esearch Inc. Business Business description Monex Group, Inc. got its start in April 1999 as online brokerage Monex, Inc. with CEO Oki Matsumoto and Sony Corporation as key investors. Matsumoto believed that using the internet even a startup could offer retail financial services, so he founded the company by harnessing the latest technology and financial knowledge on par with global standards to support retail investors. The company grew in Japan by merging with Nikko Beans, Inc. in May 2005 and OIX Securities in January It made Sony Bank Securities Inc. a subsidiary in August It also expanded overseas by adding Boom Group and TradeStation Group, Inc. to its list of subsidiaries in December 2010 and June 2011, respectively. In April 2018, the company acquired cryptocurrency exchange operator Coincheck, Inc., making it a wholly owned subsidiary. Japanese brokerages can be categorized into full-service, mid-tier, local, and online firms. Monex Group operates a retail online brokerage Monex, Inc., which ranks among the top five online brokerages: the other four are SBI Securities, akuten Securities, Matsui Securities, and kabu.com Securities. Service offerings are mainly in equities, forex, and investment trusts as well as futures, options, and bonds. The company also underwrites, but underwriting revenue makes up a limited amount of total revenue. In FY03/18, main subsidiary Monex, Inc. had 1.76mn customer accounts (third of the top five online brokerages; 16.2% share), customer assets in custody of JPY4.2tn (third; 15.7%), equity trading value of JPY16.8tn (fifth, 6.9%), and margin trading balance of JPY205.3bn (fifth; 8.8%). Monex Group differentiates through advanced trading tools, overseas subsidiaries, and IT systems developed in-house. etail investors comprise active traders who trade frequently, those who invest with a long-term perspective, and those who do little trading. Most of Monex, Inc. s customers fall into the second category. The company charges higher commissions than its rivals, because it aims to differentiate itself by offering diverse trading order options and trading tools. It was also relatively late in offering margin trading services, and consequently its share of active traders (who are price-sensitive regarding commission rates and mainly trade on margin) is low. The company s three regional segments are Japan, the US, and Asia-Pacific. Core businesses in each region are Monex, Inc. in Japan, TradeStation Group, Inc. in the US, and Boom Group in Asia-Pacific. Net operating revenue by region (FY03/18): Japan 63.4%, US 34.7%, and Asia-Pacific 1.9% (ratio of each segment net operating revenue to the sum of net operating revenues for all segments). Pre-tax profit in Japan was JPY8.6bn, on par with consolidated pre-tax profit of JPY8.6bn, with the US logging a pre-tax profit of JPY281mn and Asia-Pacific a pre-tax loss of JPY246mn. Monex, Inc. is the core business in Japan. evenue comes from stock brokerage commissions (43.2% of Japan segment net operating revenue in FY03/18), trading income (12.2% of revenue), and net financial income (32.2% of revenue). SG&A expenses are mainly fixed, with transaction-related expenses accounting for 24.7%, personnel expenses 17.2%, and IT system-related expenses 52.4% of segment SG&A expenses in FY03/17. The US business is centered on TradeStation Group. Net operating revenue consists of commissions (68.1% of US segment net operating revenue in FY03/18) and net financial income (25.3%). SG&A expenses comprise transaction-related expenses (36.7% of segment SG&A expenses in FY03/18), personnel expenses (39.2%), and IT system-related expenses (18.5%). Personnel expenses are high due to hiring systems developers. 33/129

34 esearch eport by Shared esearch Inc. Services and customer segments The mainstay of Monex Group is the online brokerage business, which it operates in Japan, the US, and Asia-Pacific. Core services are offered by Monex, Inc. in Japan and TradeStation in the US. Monex, Inc. Monex, Inc. is the company s main subsidiary. The online brokerage industry is dominated by five players: SBI Securities, akuten Securities, Monex, Inc., Matsui Securities, and kabu.com Securities. These top five online brokers account for around 80% of the equity trading value of retail investors (see Market and value chain section for details). In FY03/18, Monex, Inc. had 1.76mn customer accounts (third among the top five online brokers in FY03/18), 119,000 margin accounts (fifth), customer assets under custody of JPY4.2tn (third), margin trading balance of JPY205.3bn (fifth), and equity trading value of JPY16.8tn (fifth). As an online brokerage, Monex, Inc. mainly provides equity trading (cash and margin), forex margin trading, and investment trust services. To differentiate, the company focuses on upgrading trading tool features and educating investors, and offers an extensive non-japanese equity trading service. The company also has a track record of being the first in Japan to introduce an after-hours trading service of Japanese equities, a stock lending service, and being the first online brokerage to serve as an IPO lead manager. Monex s customers are primarily retail investors. Compared with its rivals, the company has a larger share of customers who seek asset building over the longer term. Equity trading Shared esearch understands that in Japanese equity trading, key differentiating factors are commissions and trading tools. Although Monex, Inc. had the highest commission rates (brokerage commission / equity trading value) of the top five online brokerages in FY03/18, its trading tools are distinguished by the wide range of order options. Two commission options: fees per trade or flat daily fees The company offers two types of fee plans for stock trading fees per trade or flat daily fees. It also offers a separate fee structure for TradeStation, which targets active traders. Fees per trade Brokerage commissions are calculated based on the trade value of each transaction. The commission rate is approximately 0.10%. The company reduced its commission rate for margin trades in November Commission per trade (cash equities) Trade value per transaction Desktop Mobile / smartphone apps JPY100,000 or less Over JPY100,000 up to JPY200,000 Over JPY200,000 up to JPY300,000 Over JPY300,000 up to JPY400,000 Over JPY400,000 up to JPY500,000 JPY100 per trade JPY180 JPY250 JPY350 JPY450 Over JPY500,000 up to JPY1,000,000 (market orders)jpy1, % of trade value (limit orders)jpy1,500 Over JPY1,000,000 (market orders) 0.1% of trade value (limit orders) 0.15% of trade value Source: Shared esearch, based on company data Note: Loyalty points issued on approximately 50% of total monthly commission paid if it exceeds JPY300, /129

35 esearch eport by Shared esearch Inc. Commission per trade (margin trades) Trade value per transaction JPY100,000 or less Over JPY100,000 up to JPY200,000 Over JPY200,000 up to JPY300,000 Over JPY300,000 up to JPY400,000 Over JPY400,000 up to JPY500,000 Over JPY500,000 up to JPY1,000,000 JPY1,000,000 up to JPY1,500,000 JPY1,500,000 up to JPY2,000,000 Over JPY200,000,000 Source: Shared esearch, based on company data Commission JPY95 JPY140 JPY190 JPY355 JPY600 JPY800 Flat rate of JPY1,000 Flat daily fees In the flat daily fee plan, Monex, Inc. offers a flat rate for every JPY3mn (each JPY3mn in trading value is referred to as a box ) per day. The commission is a flat JPY2,500 per box regardless of the number of transactions, bringing the commission rate to around 0.08%. The fee per box goes down to JPY2,250 from the 21st box per month and to JPY1,650 from the 121st box per month. Day traders using this plan receive loyalty points for one of the two-way trades. Fee structures of Monex, Inc. and industry peers The five main online brokerages price their commissions per trade or based on daily trading value. kabu.com Securities offers a per-trade plan and Matsui Securities adopts a daily trading value-based fee structure. SBI Securities, akuten Securities, and Monex, Inc. offer both options. SBI Securities and akuten Securities offer lower commission rates as the total trading value increases. This is also true for Monex, Inc. s margin trading (fees per trade plan). Matsui Securities, and kabu.com Securities, and cash trading at Monex, Inc. charge the same rate regardless of the total value. SBI Securities, akuten Securities, Monex, Inc. and kabu.com Securities set lower commission rates for margin trading than for cash trading, but Matsui Securities charges the same rates for both. Top five online brokerages cash trading commissions Brokerage Brokerage commission Trading value (JPY) Commission rate 100, , , ,000 1,000,000 2,000,000 3,000,000 Simple average Avg. for JPY500,000+ Monex, Inc. Per Trade Plan Per trade ,000 2,000 3, % 0.10% Daily Flat ate Plan Per day JPY2,500 per JPY3,000,000 traded 0.08% 0.08% SBI Securities Standard Plan Per trade % 0.04% Active Plan Per day ,162 1, % 0.07% akuten Securities Super Discount Plan Per trade % 0.04% Daily Flat ate Plan Per day ,000 3, % 0.09% Matsui Securities Per day ,000 2,000 3, % 0.10% kabu.com Securities Per trade Trading value x 0.09% + JPY90 (max. JPY3,690) 0.09% 0.10% Source: Shared esearch based on company data * Simple average = simple average equity trading commission / trade value threshold Top five online brokerages margin trading commissions Brokerage company Brokerage commission Trading value (JPY) Commission rate (Per day, or per trade) 100, , , ,000 1,000,000 2,000,000 3,000,000 Simple average Avg. for JPY500,000+ Monex, Inc. Per Trade Plan Per trade , % 0.04% Daily Flat ate Plan Per day JPY2,500 per JPY3,000,000 traded 0.08% 0.08% SBI Securities Standard Plan Per trade % 0.03% Active Plan Per day , % 0.05% akuten Securities Super Discount Plan Per trade % 0.03% Daily Flat ate Plan Per day ,000 3, % 0.10% Matsui Securities Per day (0) 500 1,000 2,000 3, % 0.06% kabu.com Securities Per trade , % 0.00% Source: Shared esearch based on company data * Simple average = simple average equity trading commission / trade value threshold * Matsui does not charge commissions for trades of up to JPY300,000 in value per day during the first six months after a margin account is opened. In FY03/18 commission rates were around 0.03% for SBI Securities, akuten Securities, and kabu.com Securities, 0.05% for Matsui Securities, and 0.09% for Monex, Inc. The company wants to receive appropriate commissions for its services and aims to differentiate through its trading tools, product range, and investor education programs. According to the company, average online brokerage commission rates fall within the range of one stock s price movement. Therefore, it thinks that by offering 35/129

36 esearch eport by Shared esearch Inc. accelerated order placement and executing orders faster than stock price movements using automated trading can compensate for the higher commissions. We believe SBI Securities and akuten Securities attract the most active traders because of their pricing structures. Matsui Securities and kabu.com Securities are also gaining traction, the former by starting the no-fee Margin Trading Service for Daytrades (from January 2013), and the latter by lowering commission rates on margin trades and introducing a preferential fee plan for large-lot trades (from November 2013). In contrast, the majority of Monex, Inc. customers seek longer term asset building. TradeStation launch in Japan TradeStation, a Japanese equities trading tool for active traders, was launched in March It was developed by Monex, Inc., and Monex Group s US subsidiaries TradeStation Securities and TradeStation Technologies. The original US version of TradeStation is highly rated by active traders and has won numerous awards, as well as achieving a 4.5-star rating eight years running for the Best for Frequent Traders category in Barron s review of online brokerages. According to the company, TradeStation offers the fastest order placement speed at an average of 6.6 milliseconds versus kabu.com Securities median value of 33 milliseconds (the fastest among all Japanese online brokerages excluding Monex) and is equipped with advanced features for active traders such as real-time monitoring of registered stocks (can sort in real time the percentage change of 2,000 stocks), screening (can access over 200 indices), and backtesting (evaluate trading strategies using past data). TradeStation also uses a proprietary programming language EasyLanguage, which allows active traders to customize indicators, trade signals, and program trades. TradeStation s fee structure (based on daily trade value) is JPY50 per JPY100,000 (Mini Plan), JPY400 per JPY1mn (Normal Plan), and JPY3,250 per JPY10mn (Large Plan, available to customers with margin trading accounts only). The average commission rate is around 0.04%. Many trading order options Compared with its rivals, Monex offers a wider selection of trading order options for both cash and margin equity trades. As shown in the table below, in addition to stop and one-cancels-the-other (OCO) orders, it also provides options for advanced orders such as market-if touched (MIT) orders, sequential orders, and reverse orders, which are only offered by few online brokerages. Top five online brokerages trading order options Stop orders OCO orders Market-iftouched orders orders reverse orders Sequential Stop and Monex, Inc. Accepted Accepted Accepted Accepted Accepted SBI Securities Accepted akuten Securities Accepted Stop limit orders Matsui Securities Accepted Trail limit orders If-done orders kabu.com Securities Accepted Double limit elay orders U-turn orders Source: Shared esearch based on company data Stop order: A stop order works in the opposite direction of a limit order. A buy stop order is placed at a specified price above the market and a sell order at a price below the market; the order becomes active when the stock price reaches the specified price (the stop price) One-cancels-the-other (OCO) order: A type of conditional order where a limit order to secure a profit and a stop order to minimize loss are placed as parallel orders in such a way that when one order is filled, the other is cancelled. Investors can specify their range of risk tolerance. Market-if-touched (MIT) order: A limit order where the investor specifies the price as one bid or ask price better than the bid/ask price at the time of order Sequential order: A type of conditional order where once the first order is executed, the next order in a set sequence is triggered (e.g., once stock A is sold, a buy order for stock B is automatically placed. everse order: A type of conditional order where the execution of an entry order triggers the exit order for that position (e.g., once the buy order for stock A is executed, a sell order for stock A at a price JPY50 higher is placed. 36/129

37 esearch eport by Shared esearch Inc. Margin trading Monex, Inc. provides standardized and negotiable margin transactions. It does not offer a dedicated day-trade service equivalent to Matsui s Margin Trading Service for Day-trades service. In a standardized margin transaction, conditions of margin trades are based on rules set by the stock exchanges (e.g., designating tradable stocks and deadlines for repaying borrowed cash and stocks). In a negotiable margin transaction, conditions of margin trades such as repayment deadlines can be decided freely between the investor and the brokerage. Matsui Securities, SBI Securities, and akuten Securities have margin trading services dedicated to day traders. Matsui and akuten do not charge a commission, but collect interest and stock lending fees based on the trading value. Monex, Inc. revised its fee schedule for margin trades in November 2017, lowering its commission rates on margin trades with the aim of attracting new customers. Monex, Inc. s interest rates and stock lending fees for margin transactions are the third lowest of the five (following SBI Securities and akuten Securities). The company does not offer short selling services on negotiable margin transactions. Interest rates and stock lending fees for margin trading services (top five online brokerages) Brokerage Standardized margin trade General margin trade Interest rate Stock lending fee Interest rate Stock lending fee Margin requirement Margin requirement (minimum) General margin trade Short stock availability Monex, Inc. 2.80% 1.15% 3.47% - 30% 25% - Matsui Securities 3.10% 1.15% 4.10% 2.00% 31% 25% 860 SBI Securities 2.28% 1.15% 2.90% 2.00% 33% 20% 620 akuten Securities 2.28% 1.10% 2.90% - 30% 20% - kabu.com Securities 2.98% 1.15% 3.60% 1.50% 30% 25% 2,110 Source: Shared esearch based on company data In FY03/18, Monex, Inc. ranked lowest of the five top online brokers in the number of margin accounts and margin account balances. Forex margin trading Monex, Inc. offers a forex margin trading service called FX Plus. It has also continued to provide a service called Monex FX, previously provided by former Tokyo Forex Co., Ltd., which became a Monex Group subsidiary in April 2008 and was absorbed by Monex, Inc. in February In forex margin trading, competition also includes securities brokers that specialize in the field, such as GMO Click Securities and DMM.com Securities. FX Plus sets a large spread of 2 pips (around JPY0.02) for the USD/JPY currency pair, versus JPY0.005 for SBI Securities, and JPY0.003 for akuten Securities and GMO Click Securities. Most other online brokerages do not charge a commission. Monex, Inc. s FX Plus has no commissions for trades of over 10,000 currency units, but JPY30 per every 1,000 currency unit. Monex FX charges no commission and the spread for the USD/JPY currency pair is JPY In a forex margin trade, the currency exchange rate the forex broker offers comprises an ask price (the price at which the currency can be purchased) and a bid price (the price at which it can be sold). The difference between the ask and bid prices is called the spread. For example, if a USD/JPY pair has an ask of JPY and a bid of JPY100.0, the spread is JPY0.03. The broker generates revenue by offsetting customers buy and sell orders (marrying them in-house), and the spread between the ask and bid prices becomes the source of the broker s revenue. The company commented that FX Plus contributes more to profits than Monex FX. FX Plus offsets the disadvantage for customers of a larger spread than competitors with an Autorail ordering method (automatic repeat trail orders), offered since January /129

38 esearch eport by Shared esearch Inc. Autorail Autorail is an automated ordering method that automatically and continuously engages in forex trading on a single setting. Monex claims that this method maximizes profit if the market moves as expected or in a range, while the trail order features are also designed to minimize losses if the market moves contrary to expectations. A trail order, the base of Autorail ordering, is a stop-loss order method that trails real-time exchange rate fluctuations and automatically adjusts the order price to keep the loss within a preset range. A buy trail order tracks the upward movement of the exchange rate and automatically adjusts the order price; once the order price is adjusted upward, it will not fall even if the market rate goes down. Autorail order (JPY) 102 Market rate moves Trailing order execution The trail price adjusts upward trailing market rate rises, and is fixed when the market rate falls This spread becomes the gain Source: Shared esearch based on company data. Autorail continuously places these trail orders by following a set of rules. The rules kick in when the market rate reaches the trigger rate preset by the investor, which results in a new trail order being placed. Investors usually set multiple trigger prices, and trail orders are placed every time the market rate reaches the trigger price, but multiple trail orders will not be placed simultaneously at the same trigger price. Trail orders at the same trigger price can only be activated when the first trail order is executed and the market rate hits the trigger price again for a repeat trail order. Autorail repeat trail order Large gains from trailing prices in a upswing; timely stop loss during an unexpected downswing Buy and sell repeated even when the market is in a range, leading to repeated gains B S B S B S B B B B Each order is a simple trail order. Multiple trails enable sequential trade to maximize gains and minimize losses S 96 S B 95 (base) B Source: Shared esearch based on company data Note: B stands for buy, s for sell Investment trusts As of May 2018, Monex, Inc. offered a lineup of 1,111 funds. The balance of investment trusts was roughly JPY396.6bn in FY03/18. Monex, Inc. has marketed investment trusts for many years and has a long track record of providing highly specialized investment trusts to retail investors. Thus, the balance of investment trusts held in accounts at Monex was higher than that of akuten Securities until FY03/12. Since FY03/13 Monex has been outpaced by akuten and has been ranked third out of the five 38/129

39 esearch eport by Shared esearch Inc. online brokerages in both the number of funds offered and balance of investment trusts. As of May 2018, there were four funds that could be purchased only through Monex. Still, the impact of these funds on the company s overall balance of investment trusts appears to be limited. Monex, Inc. led the industry in offering highly specialized investment trusts to retail investors, including alternative investment products and robo-funds. In October 2004, Monex and Asuka Asset Management founded Monex Alternative Investments, Inc. (MAI) to provide alternative retail investment products. MAI set up a fund of hedge funds and a fund incorporating private equity funds, sold by Monex, Inc. (Note, in June 2012, Monex Group sold its shares in MAI to ASTMAX Co., Ltd., now Astmax Trading, Inc. [JASDAQ: 7162] and acquired 15% of outstanding shares in ASTMAX.) In July 2005, Monex Group began offering its first fund of hedge funds Fullerton-Monex Asian Fund of Hedge Funds, which focused on investments in Asia including Japan. (Total net assets were approximately JPY101bn as of end FY03/07, but the company exercised advanced redemption in October 2016.) In August 2006, the company began selling fund of funds Premium Hybrid 2006, incorporating private equity funds investing in unlisted stocks and hedge funds (net assets of approximately JPY4.2bn as of March 31, 2007). Premium Hybrid 2007 followed in October 2007, with net assets of roughly JPY2.2bn as of March 31, For robo-funds, the company launched Kabu-robo Fund (robo-fund investing in Japanese stocks) managed by an automated trading program that analyzes the market and companies for stock selection, determines the volume and price for buying and selling, and trading methods. The fund s net assets as of August 1, 2017 were approximately JPY1.2bn. US equities trading Monex, Inc. fully revamped its US equities trading service in November 2012 by introducing a trading platform developed by the group s subsidiaries TradeStation Securities and TradeStation Technologies. It made TradeStation Securities its intermediary for placing orders in US equities. According to the company, these initiatives have enabled it to offer the largest number of US stocks among Japanese brokers (approximately 3,000 stocks) at the lowest commissions and for the longest trading hours. The platform used for trading US equities is also TradeStation, which offers charting (access to 50 years of historical data) and backtesting functions. In March 2017 the company began offering TradeStation Mobile app to trade US stocks from a smartphone. Using the TradeStation Mobile app, customers can trade around the clock. Customers Compared with other online brokers, Monex, Inc. has a higher active account ratio and customer assets per account are also relatively high. It charges higher commissions than its online rivals, but in return offers a wide range of order options. The ratio of margin accounts to total accounts is small, indicating that its customers seek long-term asset building, and few of them are active traders. Monex, Inc. has a larger share of customers in their 30s and 40s Monex, Inc. s customers are mostly in their 40s and 50s but compared with rivals, Monex, Inc. has more customers in their 30s and 40s and fewer in their 60s and 70s. Shared esearch has noticed that, among online brokers, those that also accommodate person-to-person broking tend to have a lot of accounts holders that are older. At Monex, almost all trading is done online, and we believe this explains why most of its customers tend to be younger. 39/129

40 esearch eport by Shared esearch Inc. Active accounts by age group Active accounts at Monex, Inc. Active accounts at brokerages offering online trading Over % 20.2% 60s 14.9% 22.0% 50s 22.2% 20.6% 40s 29.7% 21.4% 30s 15.8% 12.0% Below % 3.7% Source: Shared esearch based on company data and results of survey on online trading conducted by the Japan Securities Dealers Association at the end of September High active account ratio and customer assets under custody Monex noted its active account ratio was 61% as of December 31, 2017, exceeding the average of 54% for other major online brokers (SBI Securities, akuten Securities, Matsui Securities, kabu.com Securities). Customer assets per account has also trended second to SBI Securities. Customer assets per account (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 SBI Securities akuten Securities Monex, Inc Matsui Securities kabu.com Securities Source: Shared esearch based on each company s data. Lower trade frequency Comparing how frequently customers trade (equity trading value / customer assets under custody), customer trade frequencies of the company hovers below its competition. Frequency of transactions of five online brokerages (equity trade value / customer assets under custody) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 SBI Securities akuten Securities Monex, Inc Matsui Securities kabu.com Securities Source: Shared esearch based on each company s data Active traders prefer margin trading, because it allows them to use leverage. The margin account ratio and the margin trading balance per account at Monex, Inc. are lower than those of its rivals. The company attributes this to the relatively late start of margin trading at Monex, Inc. and to its higher commission rates for margin trades compared with its online rivals. Margin account ratio FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 SBI Securities 10.2% 10.7% 10.9% 11.5% 12.0% 12.4% akuten Securities 10.5% 10.3% 10.2% 10.1% 9.9% 9.7% Monex, Inc % 6.4% 6.5% 6.8% Matsui Securities 15.5% 15.7% 15.9% 16.1% 16.2% 16.3% kabu.com Securities 11.0% 11.5% 12.3% 12.7% 13.2% 13.5% Source: Shared esearch based on each company s data Margin trading balance per account (JPYmn) FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 SBI Securities akuten Securities Monex, Inc Matsui Securities kabu.com Securities Source: Shared esearch based on each company s data TradeStation Group (US) Founded in 1982 as a system development company, TradeStation Group became an online brokerage known for its technological prowess after acquiring an online broker and starting its own online brokerage business. Its proprietary 40/129

41 esearch eport by Shared esearch Inc. trading/analytics platform is highly rated by active traders. The company has been a subsidiary of Monex Group since June As of March 31, 2018, TradeStation Group had a customer base of 74,810 active accounts and customer assets under custody totaling USD5.2bn. Industry peers include TD Ameritrade, Charles Schwab, E*Trade, and Fidelity Investment. The company provides equity, futures, and options trading services to active traders. Commissions Equities TradeStation introduced a new fee structure in March 2017, charging a flat USD5.00 per trade. For customers who make many small-lot trades, the company offers a fee structure which charges USD1.0 per trade plus a per-share commission ranging from USD In addition, TradeStation will continue to provide an unbundled pricing plan* for customers who trade more than 100,000 shares per month, which cuts commission per share to USD0.002 due to rebates paid on commissions for each trade executed. * Commissions are based on the number of traded shares per month in the unbundled pricing plan. Fees are charged or rebates are paid depending on the stock exchange. Options TradeStation introduced a new fee structure for options trading in March 2017, charging USD5.00 per trade plus USD0.50 per contract. It will continue to offer its previous plan of USD1.00/contract. Futures The new, simplified pricing plan for futures introduced in August 2017 charges USD1.50 per contract, per side. In the previous plan, a commission was charged per contract, per side based on the number of contracts per month. If the number of contracts per month exceeded 20,000, the per-contract commission was USD0.25. The company is continuing to offer this plan as well, which is better suited to customers who frequently trade a smaller number of contracts and wish to avoid high trading costs. TradeStation is also continuing to offer a fee plan of USD1.50 per contract, per side for trading futures options and futures using the Futures+ trading platform. Fee structures of industry peers Each of the following online brokerages in the US lowered their commissions in Charles Schwab: from US8.95 to USD4.95 for stocks; from USD0.75 to USD0.65 for options (February 2017) Fidelity Investment: from USD7.95 to USD4.95 for stocks; USD0.75/contract to USD0.65/contract for options (February 2017) TD Ameritrade: from USD9.99 to USD6.95 for stocks (February 2017) E*Trade: from USD9.99 to USD4.95 for stocks; from USD0.75/contract to USD0.5/contract for option trades targeting active traders (March 2017) Fee structures of major US online brokerages Minimum Stock trade Option fee Futures (USD) Deposit Fee (flat) Base Per contract TradeStation 5, Fidelity 2, TD Ameritrade E*Trade Charles Schwab 1, Source: Shared esearch based on each company s data Following this market trend, in March 2017 TradeStation reduced its commissions for both stock and options transactions, which now are among the lowest in the industry. 41/129

42 esearch eport by Shared esearch Inc. Trading platform In the US, online brokerages are rated based on their fee structures, trading tools, research report offerings, and customer support. TradeStation is a highly recognized trading platform. Major US online brokerages esearch No. of indices reports for charts TradeStation N/A 270 Fidelity TD Ameritrade E*Trade Charles Schwab 8 40 Excels in real-time reporting/screening features; offers backtesting using over 40 years of historical data. Proprietary programming language EasyLanguage allows active traders to customize indicators and trade signals, and program trades. Low commission rates. Highly recognized for quality of order execution and a research tool offering access to third party research reports (12 companies). High commission rates, but offers quality trading platform, research, investor education, and customer services. High commission rates. Customers required to have a minimum balance. Highly rated trading platform and mobile app. Low commission rates. Highly rated for strong research capability; offers proprietary stock ratings. Source: Shared esearch based on each company s data TradeStation s trading platform has won multiple awards in the US for its real-time portfolio monitoring and screening functions and a backtesting feature with access to over 40 years of historical data. TradeStation announced in March 2018 that it achieved a 4.5-star rating eight years running for the Best for Frequent Traders category in Barron s review of online brokerages. TradeStation announced in February 2017 that it was rated Best Platform Technology in the Online Broker eview conducted by US online financial medium StockBrokers.com for the fifth consecutive year in TradeStation received top ratings in five major categories of the 2017 Technical Analysis of Stock and Commodities (TASC) eader s Choice Awards in February TASC readers voted TradeStation Best Trading System Stocks and Best Trading System Futures for the 14th consecutive year. TradeStation also ranked highest in all four major categories. 42/129

43 esearch eport by Shared esearch Inc. Earnings structure Earnings structure FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) IFS IFS IFS IFS IFS IFS IFS Operating revenue 30,569 36,090 54,722 50,975 54,271 45,831 53,635 YoY % 51.6% -6.8% 6.5% -15.6% 17.0% Commissions received 17,030 20,367 33,542 30,079 32,152 26,349 29,196 YoY % 64.7% -10.3% 6.9% -18.0% 10.8% % of net operating revenue 59.0% 60.3% 67.0% 66.5% 64.8% 63.0% 59.4% Brokerage 13,047 15,676 27,572 23,822 25,317 20,141 22,540 YoY % 75.9% -13.6% 6.3% -20.4% 11.9% Equity and ETF 9,094 11,303 22,013 17,584 17,795 14,193 15,974 Futures and options 3,478 4,189 5,429 6,217 7,522 5,948 6,566 OSE FX Underwriting and distribution Subscription and distribution Other commissions 3,467 4,149 4,932 5,449 5,890 5,629 6,025 YoY % 18.9% 10.5% 8.1% -4.4% 7.0% FX fees (OTC retail FX) Administrative and transfer fees for margin trading Agent fee for investment trust trading 1,214 1,273 1,518 1,702 1,737 1,539 1,692 Others 2,251 2,803 3,267 3,643 3,628 3,607 3,899 Net trading income 6,200 6,974 8,011 6,242 6,671 4,498 3,865 YoY % 14.9% -22.1% 6.9% -32.6% -14.1% % of net operating revenue 21.5% 20.7% 16.0% 13.8% 13.4% 10.7% 7.9% Interest income 6,812 8,195 12,583 13,987 14,610 14,313 19,349 YoY % 53.5% 11.2% 4.5% -2.0% 35.2% % of net operating revenue 23.6% 24.3% 25.1% 30.9% 29.4% 34.2% 39.4% Other operating revenue ,225 Financial expenses 1,682 2,320 4,672 5,766 4,629 3,979 4,480 Net operating revenue 28,888 33,769 50,051 45,209 49,642 41,852 49,155 YoY % 48.2% -9.7% 9.8% -15.7% 17.4% SG&A expenses 26,060 30,359 34,981 37,143 41,395 40,578 39,853 YoY % 15.2% 6.2% 11.4% -2.0% -1.8% SG&A as % of net operating revenue 90.2% 89.9% 69.9% 82.2% 83.4% 97.0% 81.1% Operating profit equivalent 2,827 3,410 15,069 8,066 8,247 1,274 9,302 YoY % 341.9% -46.5% 2.2% -84.6% 630.1% OP equivalent as % of net operating revenue 9.8% 10.1% 30.1% 17.8% 16.6% 3.0% 18.9% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods 43/129

44 esearch eport by Shared esearch Inc. SG&A expense breakdown (JPYmn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Segment earnings Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Full-year segment results are the totals of quarterly results IFS IFS IFS IFS IFS IFS IFS SG&A expenses 26,060 30,359 34,981 37,143 41,395 40,578 39,853 Trading-related 8,787 10,223 12,235 13,236 13,862 11,281 11,963 Commissions paid 3,244 3,819 4,712 5,151 5,312 4,114 4,125 Stock exchange and association fees ,435 1,251 1, Telecom, transportation, and information 3,058 3,518 3,821 4,074 4,385 3,675 3,535 Advertising expenses 1,637 1,958 2,114 2,596 2,848 2,567 3,159 Others Personnel 6,163 8,503 9,613 9,538 10,651 10,393 10,854 eal estate-related 1,789 1,833 1,934 2,321 2,497 2,855 3,898 eal estate ,094 Furniture and fixtures ,129 1,487 1,692 1,923 2,804 Office and supplies 4,877 4,752 5,404 5,396 5,935 5,737 2,727 Outsourcing 4,824 4,699 5,330 5,340 5,865 5,679 2,646 Office supplies Depreciation 2,406 3,116 3,441 3,942 4,911 7,094 8,117 Taxes and dues Other 1,830 1,676 1,996 2,369 3,035 2,566 1,777 Variable costs 3,908 4,529 5,702 5,864 6,003 4,703 4,727 Variable cost ratio (% of commissions received) 22.9% 22.2% 17.0% 19.5% 18.7% 17.8% 16.2% Variable cost ratio (% of net operating revenue) 13.5% 13.4% 11.4% 13.0% 12.1% 11.2% 9.6% Fixed costs 22,152 25,831 29,280 31,280 35,393 35,876 35,126 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP Operating revenue 38,311 16, ,678 18, ,178 22, ,775 18, ,976 20, YoY 58.6% 37.0% 50.9% -14.7% 13.0% 4.3% 4.6% 26.3% 37.3% -15.8% -18.5% -14.7% 18.1% 7.1% 31.7% Commissions received 23,940 9, ,034 10, ,430 12, ,267 10, ,968 11, YoY 84.4% 29.6% 56.6% -20.5% 16.1% -4.3% 2.1% 15.0% 28.7% -21.4% -12.5% -23.2% 11.1% 9.2% 60.1% Brokerage 20,549 6, ,773 7, ,033 8, ,547 7, ,082 8, YoY 99.5% 30.1% 55.7% -23.2% 15.9% -3.8% 1.6% 15.1% 27.8% -21.7% -17.8% -22.7% 12.2% 9.8% 59.2% Equity and ETF 19,667 2, ,184 2, ,305 2, ,124 1, ,733 1, Futures and options 752 4, , , , ,218 - OSE FX Underwriting and distribution Subscription and distribution Other commissions 2,353 2, ,451 3, ,453 3, ,142 3, ,255 3,767 3 YoY 9.9% 28.3% - 4.2% 16.6% 0.0% 0.1% 14.5% 100.0% -12.7% 1.3% -50.0% 5.3% 8.0% 200.0% FX fees (OTC retail FX) Administrative and transfer fees for margin trading Agent fee for investment trust trading 1, , , , , Others 688 2, , , , ,767 3 Net trading income 5,747 2,264-4,831 1,411-5, , , YoY 11.2% 25.5% % -37.7% % -29.5% % % - - Financial income 8,486 4, ,670 5, ,860 5, ,803 5, ,412 6, YoY 44.4% 72.9% 45.0% 2.2% 28.2% 33.3% 2.2% 7.4% 99.1% -0.6% -4.3% 2.6% 41.0% 26.5% -4.2% Other operating revenue , , , Financial expenses 1,851 2, ,269 3, ,355 2, ,083 2, ,177 2,535 8 Net operating revenue 36,459 13, ,410 14, ,823 18, ,693 15, ,799 17, YoY 56.7% 30.7% 50.4% -16.6% 10.1% 4.3% 4.6% 27.1% 36.7% -16.1% -15.8% -14.8% 19.1% 11.5% 31.7% SG&A expenses 19,173 15, ,004 16, ,320 18, ,051 15, ,435 16, YoY 16.1% 13.9% 48.9% 4.3% 9.2% 10.7% 16.6% 10.1% -3.3% 7.4% -13.8% -3.7% -6.5% 4.0% 26.1% % of net operating revenue 52.6% 115.4% 121.8% 65.8% 114.5% 129.3% 73.3% 99.2% 91.4% 93.8% 101.5% 103.4% 73.7% 94.7% 99.0% Operating profit equivalent 17,287-2, ,406-2, , , , YoY 155.6% % % % % - - % of net operating revenue 47.4% % % 0.8% 8.6% 6.2% % 5.3% 1.0% Non-operating income 2,454 1, , , Non-operating expenses 245 1, , , , Pre-tax profit 19,497-2, ,498-4, , , , YoY 51.3% % % % % - - % of net operating revenue 53.5% % % % % 1.6% - Profit 12,022-1, ,755-3, , ,559 1, % of net operating revenue 41.4% % % % % - - Profit attributable to owners of the parent 12,020-1, ,755-3, , , ,709 1, YoY 41.8% % % % % - - % of net operating revenue 33.0% % % % % 7.3% - 44/129

45 esearch eport by Shared esearch Inc. SG&A expense breakdown by segment FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Japan US AP Japan US AP Japan US AP Japan US AP Japan US AP SG&A expenses 19,173 15, ,004 16, ,320 18, ,050 15, ,435 16, YoY 16.1% 13.9% 48.9% 4.3% 9.2% 10.7% 16.6% 10.1% -3.3% 7.4% -13.8% -3.7% -6.4% 4.0% 26.1% Trading-related expenses 6,147 5, ,200 6, ,356 7, ,323 5, ,797 6, YoY 26.7% 13.4% 48.6% 0.9% 16.1% 11.5% 2.5% 7.9% 10.9% -16.3% -21.8% 10.8% 8.9% 3.0% 46.9% Commissions paid 1,190 3, ,300 3, ,323 4, ,230 2, ,407 2, Stock exchange and association fees 1, Telecom, transportation, and information 2,427 1, ,293 1, ,134 2, ,780 1, ,668 1, Advertising expenses 1, ,489 1, ,812 1, , ,784 1, Others Personnel 3,680 5, ,525 5, ,047 6, ,206 5, ,029 6, YoY 4.7% 17.3% 52.0% -4.2% 0.9% 8.4% 14.8% 11.7% -17.4% 3.9% -6.1% -10.7% -4.2% 9.4% 29.3% Occupancy and rental 1, , , , ,578 1, YoY 7.4% 8.6% 53.8% 29.9% 5.5% 25.0% 31.7% 8.3% -22.7% 17.6% 7.7% -1.7% 13.9% 125.4% 15.8% Occupancy Furniture and fixtures 1, , , , , Office and supplies 5, , , , , YoY 13.4% % -0.4% % 9.2% % -2.9% % -53.0% % Outsourcing 5, , , , , Supplies Depreciation 1,531 1, ,985 1, ,032 1, ,077 1, ,033 2, YoY 20.6% 2.5% 26.0% 29.7% 2.4% 4.3% 52.7% -3.8% -7.3% 67.4% 8.3% -12.4% 18.8% 3.4% 2.6% Taxes and dues Others 544 1, , , , , Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Full-year segment results are the totals of quarterly results Depreciation for the US and Asia-Pacific segments include depreciation of identified intangible assets at the time of acquisition of TradeStation Group and Monex Boom Securities Group Net operating revenue: breakdown by region and by business Source: Company s earnings briefing materials Consolidated earnings evenue The company s operating revenue consists of commissions (mainly brokerage commissions), trading income (mainly from forex trading), and financial income. All three fluctuate differently, but generally vary in the short term in response to stock market trends in Japan and the US and forex rate movements. Operating revenue after deducting financial expenses and cost of revenue corresponds to the net operating revenue for brokerages that adopt the Japanese GAAP standard. (As such, this report uses net operating revenue when referring to the company s earnings.) Profits Expenses are mainly SG&A and financial expenses. SG&A expenses are mainly fixed expenses with the exception of transactionrelated expenses. Consequently, the marginal profit ratio is high and profits are easily affected by fluctuations in revenue. Profits outlined in the company s income statement comprise pre-tax profit, profit, and profit attributable to owners of the parent. The term operating profit equivalent is also used in materials supplementing earnings releases. Operating profit equivalent: net operating revenue minus SG&A expenses; corresponds to operating profit under J-GAAP Pre-tax profit: (operating profit equivalent + other financial income + other income) (other financial expenses + other expenses); corresponds to pre-tax profit under J-GAAP. Other financial income mainly includes gains on valuation of interest- 45/129

46 esearch eport by Shared esearch Inc. rate swaps (which have not been booked since Q2 FY03/18 because the company has not entered into any swap agreements), interests received, and gains on sale of investment securities. Other financial expenses include losses on valuation of interest-rate swaps (which have not been booked since Q2 FY03/18 because the company has not entered into any swap agreements) and interests paid Profit: pre-tax profit minus corporate income tax expenses; corresponds to net income under J-GAAP Profit attributable to owners of the parent: profit minus profit attributable to non-controlling interests; corresponds to net income attributable to parent company shareholders Segment information The company has three segments: Japan, US, and Asia-Pacific. In FY03/18, the Japan segment accounted for 63.4% of net operating revenue, the US segment 34.7%, and the Asia-Pacific segment 1.9%. Pre-tax profit was JPY8.6bn for Japan. The US segment booked a pre-tax profit of JPY281mn and the Asia-Pacific segment a pre-tax loss of JPY246mn. The Japan segment is the most significant contributor to revenue and profits, followed by the US segment. Shared esearch thinks the impact of Asia-Pacific on consolidated earnings as of May 2018 is minimal. 46/129

47 esearch eport by Shared esearch Inc. Japan segment Monex, Inc. is the core of the Japan segment. Until FY03/15, the difference in operating revenues of the Japan segment and Monex, Inc. was mainly in trading income and financial income, with the difference in trading income coming from Monex FX. For financial income, the difference stems from the difference between IFS and Japanese GAAP in methods of offsetting earnings and expenses; financial income figures of the Japan segment and Monex, Inc. are on the same level. In FY03/18, the difference between the operating revenues and each profit items at the Japan segment and Monex, Inc. stemmed from gains on the sale of stock by Monex Ventures, Inc., the group's venture capital investment subsidiary. SG&A expenses and operating profit equivalents differ between the Japan segment and Monex, Inc., due to management consulting fees Monex, Inc., pays to the parent company, but this falls out when consolidated results are calculated and intragroup transactions are eliminated. Income statement of the Japan segment FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Operating revenue 21,567 24,151 38,311 32,678 34,178 28,775 33,976 YoY % 58.6% -14.7% 4.6% -15.8% 18.1% Commissions received 10,928 12,980 23,940 19,034 19,430 15,267 16,968 YoY % 84.4% -20.5% 2.1% -21.4% 11.1% Brokerage 8,291 10,298 20,549 15,773 16,033 12,547 14,082 YoY % 99.5% -23.2% 1.6% -21.7% 12.2% Equity and ETF 7,276 9,483 19,667 15,184 15,305 12,124 13,733 Futures and options OSE FX Underwriting and distribution Subscription and distribution Other commissions 2,122 2,141 2,353 2,451 2,453 2,141 2,255 YoY - 0.9% 9.9% 4.2% 0.1% -12.7% 5.3% Net trading income 5,106 5,170 5,747 4,831 5,675 4,498 3,865 YoY - 1.3% 11.2% -15.9% 17.5% -20.7% -14.1% Financial income 5,403 5,878 8,486 8,670 8,860 8,803 12,412 YoY - 8.8% 44.4% 2.2% 2.2% -0.6% 41.0% Other operating revenue Financial expenses ,851 2,269 2,355 2,083 2,177 Net operating revenue 20,582 23,273 36,459 30,410 31,823 26,693 31,799 YoY % 56.7% -16.6% 4.6% -16.1% 19.1% SG&A expenses 16,742 16,509 19,173 20,004 23,320 25,051 23,435 YoY % 16.1% 4.3% 16.6% 7.4% -6.5% % of net operating revenue 70.9% 70.9% 52.6% 65.8% 73.3% 93.8% 73.7% Operating profit equivalent 3,840 6,763 17,287 10,406 8,502 1,643 8,365 YoY % 155.6% -39.8% -18.3% -80.7% 409.1% % of net operating revenue 18.7% 29.1% 47.4% 34.2% 26.7% 6.2% 26.3% Other revenue 776 6,640 2, ,077 5, Other expenses ,691 5, Pre-tax profit 3,646 12,888 19,497 10,498 5,887 1,768 8,581 YoY % 51.3% -46.2% -43.9% -70.0% 385.4% % of net operating revenue 17.7% 55.4% 53.5% 34.5% 18.5% 6.6% 27.0% Profit 1,717 8,501 12,022 6,755 3, ,559 YoY % 41.4% -43.8% -42.9% -77.5% 541.9% Profit attributable to owners of the parent 1,652 8,478 12,020 6,755 3,892 1,004 5,709 YoY % 41.8% -43.8% -42.4% -74.2% 468.6% % of net operating revenue 8.0% 36.4% 33.0% 22.2% 12.2% 3.8% 18.0% Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods 47/129

48 esearch eport by Shared esearch Inc. Income statement of Monex, Inc. Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Japan segment versus Monex, Inc. Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Operating revenue 20,119 22,894 37,513 32,930 35,078 29,630 32,454 YoY -5.8% 13.8% 63.9% -12.2% 6.5% -15.5% 9.5% Commissions received 10,505 12,719 23,913 19,041 19,478 15,379 17,087 YoY -15.7% 21.1% 88.0% -20.4% 2.3% -21.0% 11.1% % of net operating revenue 59.4% 61.5% 69.0% 63.9% 61.1% 58.0% 58.1% Brokerage 8,347 10,349 20,655 15,889 16,149 12,683 14,238 YoY % 99.6% -23.1% 1.6% -21.5% 12.3% Equity and ETF - 9,535 19,772 15,300 15,421 12,261 13,889 Futures and options OSE FX Underwriting and distribution Subscription and distribution Other commissions 1,643 1,828 2,220 2,344 2,384 2,117 2,218 YoY % 21.4% 5.6% 1.7% -11.2% 4.8% Net trading income 2,559 3,122 4,035 3,797 5,675 4,499 3,862 YoY 43.0% 22.0% 29.2% -5.9% 49.5% -20.7% -14.2% % of net operating revenue 14.5% 15.1% 11.6% 12.7% 17.8% 17.0% 13.1% Financial income 6,897 6,896 9,272 9,946 9,733 9,558 10,780 YoY -1.2% 0.0% 34.5% 7.3% -2.1% -1.8% 12.8% % of net operating revenue 39.0% 33.3% 26.8% 33.4% 30.5% 36.0% 36.7% Other operating revenue Financial expenses 2,420 2,215 2,872 3,114 3,191 3,097 3,060 Net operating revenue 17,698 20,678 34,640 29,816 31,886 26,532 29,394 YoY -5.5% 16.8% 67.5% -13.9% 6.9% -16.8% 10.8% SG&A expenses 15,676 15,801 20,367 21,088 24,428 25,738 24,024 YoY -0.8% 0.8% 28.9% 3.5% 15.8% 5.4% -6.7% % of net operating revenue 88.6% 76.4% 58.8% 70.7% 76.6% 97.0% 81.7% Operating profit 2,021 4,877 14,273 8,727 7, ,369 YoY -31.3% 141.3% 192.7% -38.9% -14.6% -89.4% 576.2% % of net operating revenue 11.4% 23.6% 41.2% 29.3% 23.4% 3.0% 18.3% ecurring profit 2,128 4,984 14,333 8,842 7, ,449 YoY -29.2% 134.2% 187.6% -38.3% -15.1% -89.2% 573.5% Extraordinary gains 140 5, , Extraordinary losses ,599 1, Pre-tax profit 1,911 10,007 13,784 8,384 4,905 1,478 5,429 YoY 42.0% 423.7% 37.7% -39.2% -41.5% -69.9% 267.3% FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Operating revenue 1,448 1, ,522 Commissions received Net trading income 2,547 2,048 1,712 1, Financial income -1,494-1, , ,632 Other operating income Net operating revenue 2,884 2,595 1, ,405 SG&A expenses 1, ,194-1,084-1, Operating profit equivalent 1,819 1,886 3,014 1,679 1, ,996 Pre-tax profit 1,735 2,881 5,713 2, ,152 Net operating revenue Net operating revenue refers to operating revenue after deducting financial expenses and cost of revenue. The Japan segment s net operating revenue breaks down into commissions (53.4% share in FY03/18), trading income (12.2%), net financial income (33.2%), and other operating revenue (2.3%). Commissions (53.4% of Japan segment s net operating revenue in FY03/18) Commissions break down into brokerage commissions (83.0% of total commissions of Japan segment in FY03/18), fees for securities underwriting and offering (1.0%), handling fees for subscription and offering (2.7%), and other fees and commissions (13.3%). 48/129

49 esearch eport by Shared esearch Inc. Brokerage commissions Brokerage companies receive brokerage commissions when a customer buys or sells stocks, ETFs, futures, or options. More than 90% of the commissions Monex, Inc. receives are for stocks and ETFs. Less than 10% are from futures and option trading. Brokerage commissions for trading stocks and ETFs = Equity trading value x brokerage commission rate In FY03/18, the equity trading value at Monex, Inc. was JPY16.8tn and the brokerage commission rate was 0.08%, equaling a brokerage commission on stocks and ETFs of JPY13.7bn (JPY16.8tn x 0.08%). Trends in equity trading value and brokerage commission rate FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Trading value on TSE and NSE (JPYtn) ,414 1,337 1,634 1,417 1,645 YoY -14.2% 16.5% 92.4% -5.4% 22.3% -13.3% 16.1% Individuals trading value on TSE and NSE (JPYtn) YoY -13.0% 38.5% 148.0% -18.5% 5.6% -19.8% 19.4% Individuals trading value as % of total 17.8% 21.1% 27.2% 23.5% 20.3% 18.8% 19.3% Monex equity trading value (JPYtn) YoY 117.1% -28.3% -0.2% -21.9% 25.9% Monex as % of individuals trading value on TSE and NSE 7.1% 6.2% 5.5% 5.1% 5.0% 5.3% Brokerage commissions for equity and ETF in Japan (JPYmn) 7,276 9,483 19,667 15,184 15,305 12,124 13,733 YoY 30.3% 107.4% -22.8% 0.8% -20.8% 13.3% Source: Shared esearch based on company data Equity trading value at the Tokyo and Nagoya exchanges includes ETFs and EITs Equity trading value (Monex, Inc.) The company s equity trading value is calculated from cumulative equity trading value at the Tokyo and Nagoya stock exchanges, its ratio of trades by retail investors, and the company s share of equity trading value by retail investors.] Equity trading value of Monex, Inc. = Equity trading value at the Tokyo and Nagoya stock exchanges x ratio of trades by retail investors x Monex, Inc. s share of equity trading value by retail investors In FY03/18, equity trading value at the Tokyo and Nagoya stock exchanges was JPY1,645tn. The ratio of retail investors was 19.3% and the company s share of equity trading value by retail investors was 5.3%. The equity trading value at Monex, Inc. was JPY16.8tn (JPY1,645tn x 19.3% x 5.3%). Equity trading value at the Tokyo and Nagoya stock exchanges is affected by the economy, interest rates, and stock market movements. The share of retail investors varies according to changes in investors profit/loss standings and investor confidence (see the Market and value section for details). Monex s share of retail equity trading value depends on the services provided and competitors performance and offerings. In the past, the company s share of equity trading value increased temporarily when merging with Nikko Beans, OIX Securities, and Sony Bank Securities, but fell each time post-merger. Brokerage commissions Brokerage commissions are determined by the company s commission pricing structure. The company has similar commission rate levels regardless of whether a customer chooses per-trade or fixed daily commission, and the rate does not vary much regardless of the size of the trade (trading value). Monex, Inc. s commission rate has generally trended at around 0.08%. We expect this to continue unless the company changes its fee structure. However, the commission rate is around 0.04% for TradeStation, the tool for active traders of Japanese stocks launched in March The company s commission rate may drop if the number and trading value of TradeStation accounts increase. 49/129

50 esearch eport by Shared esearch Inc. Trading income (12.2% of Japan segment s net operating revenue in FY03/18) The company mainly earns trading income from forex trading. Forex trades are over-the-counter trades between the broker and the customer. When a customer places a trading order at the rate offered, the broker takes the opposite side of the trade, leading to market volatility risk. The broker mitigates the risk of sharp swings in the market that would lead to large losses by placing a cover trade with a partner financial institution (a bank or interbank market participant that acts as the counterparty). In a cover trade, the difference between the spread offered by the counterparty to the broker and the spread offered by the broker to its customer becomes the broker s trading income. Meanwhile, when a broker receives many simultaneous buy and sell orders from customers, the orders offset each other by being married in-house. The offsetting portion is neutral market movement and cover trade is necessary only for the orders that could not be married. For offsetting trades, the spread between the bid and ask prices shown to the broker s customers generate the broker s trading income. Trading income = forex trading value x profit ratio (ratio of earnings to transaction value) In FY03/18, Monex, Inc. s forex trading value was JPY31.1tn, the profit ratio was 0.008%, leading to forex trading income of JPY2.4bn. Forex trading income indicators FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Trading value on FX (JPYtn) 1,733 2,208 4,196 4,698 5,525 4,939 4,179 YoY -12.5% 27.5% 90.0% 12.0% 17.6% -10.6% -15.4% Monex FX trading value (JPYtn) YoY % 38.2% -1.5% 11.4% -12.4% -10.9% Monex as % of total 1.5% 1.2% 0.9% 0.8% 0.7% 0.7% 0.7% Net trading income (excl. swap income; JPYmn) 4,446 4,159 4,519 3,627 4,528 3,342 2,434 Margin 0.017% 0.016% 0.012% 0.010% 0.011% 0.010% 0.008% Source: Shared esearch based on The Financial Futures Association of Japan and company data Trading value increases when market volatility is high and decreases when it is low. Monex, Inc. s share in the forex trading market is trending downward at levels below 1%. Profitability also depends on the spread available on the currency pair being traded. The most frequently traded currency pair is the USD/JPY. Net financial income (32.2% of Japan segment s net operating revenue in FY03/18) Net financial income is the difference between financial income and financial expenses (net gains/losses from margin trading, stock lending/borrowing, and interest). The company only discloses consolidated figures and does not release a breakdown by segment. Shared esearch understands that margin trading occurs mainly in the Japan segment, whereas stock lending transactions and the investment of customer assets under custody happen mainly in the US segment. We thus break down net financial income in Japan into revenues from consolidated margin trading, stock lending transactions, and others. In the US the breakdown is stock lending transactions, most of interest income, and others. 50/129

51 esearch eport by Shared esearch Inc. Net financial income and related indicators (JPYmn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Monex, Inc. margin trading balance (year end; JPYbn) Long position (JPYbn) Short position (JPYbn) Monex, Inc. margin trading balance (average; JPYbn) Securities borrowing on loan contracts 99, , , , , , ,324 Securities lending on loan contracts 35,917 77, , ,126 69,891 73,386 74,553 Financial income: Japan 5,403 5,878 8,486 8,670 8,860 8,803 12,412 a) Financial income: Monex, Inc. 6,897 6,896 9,272 9,946 9,733 9,558 10,780 b) Cons. income from margin trading ,830 5,973 4,837 5,455 c) Cons. income from securities lending transactions ,119 4,610 4,392 6,136 a) - b) - c) x ,892 2,838 3,843 4,098 Financial expenses: Japan ,851 2,269 2,355 2,083 2,177 a') Financial expenses: Monex, Inc. 2,420 2,215 2,872 3,114 3,191 3,097 3,060 b') Cons. income from margin trading c') Cons. income from securities lending transactions ,747 2,630 2,113 2,568 a') - b') - c') x ,901 2,191 2,147 1,921 Net financial income: Japan 4,417 5,000 6,635 6,401 6,505 6,720 10,235 a'') Net financial income: Monex, Inc. 4,477 4,681 6,400 6,832 6,542 6,461 7,720 b'') Cons. income from margin trading ,366 5,499 4,310 4,830 c'') Cons. income from securities lending transactions ,372 1,980 2,279 3,568 a'') - b'') - c'') x ,695 2,176 Source: Shared esearch based on company data Financial income Financial income consists of income from margin trading and stock lending, and interest received. In the Japan segment, financial income is mainly income from margin trading and stock lending. Income from margin trading Income from margin trading comprises interest on margin transactions and stock lending fees, calculated as the margin trading balance x the rates of interest and stock-lending (net interest ratio). Income from margin trading = Average margin trading balance (long + short positions) x net interest ratio (weighted average of interest rate on margin transactions and stock lending fees) = Average margin trading balance (long positions) x interest rate on margin transactions + Average margin trading balance (short positions) x stock lending fees In FY03/18, the average margin trading balance (long + short positions) was JPY177.9bn, with long positions totaling JPY188.8bn and short positions totaling JPY16.4bn. Income from margin trading was JPY5.4bn and the net interest ratio was 3.1%. Monex Group publishes in its monthly disclosures the margin trading balance (long and short positions) of Monex, Inc. It is also possible to calculate from the balance sheet published in the subsidiaries quarterly earnings results (Monex, Inc.) (Japanese only) the values broken down into long position balance (under loans on margin transactions ) and short position balance (under cash collateral pledged for securities borrowed on margin transaction ). Based on the margin trading balance at end FY03/18, assuming that the ratio of long and short positions was 80/20, the weighted average of the interest rate (2.80%) and stock lending rate (1.15%) on margin transactions is 2.5%. The above net interest ratio (at 3.2%) exceeds this figure. We think this is due to brokerages receiving one day s interest on day trades, although the trades are not reflected in the balance. The margin trading balance, like equity trading value, fluctuates according to stock market movements. Investors have more scope for buying in a bull market, when the margin trading balance tends to rise, and vice versa in a bear market. The interest rate on a long position is 2.80% for standardized margin transactions and 3.47% for negotiable margin transactions, with standardized transactions accounting for most of the margin trading balance. The stock lending rate for negotiable transactions is 1.15%. Monex, Inc. does not offer short selling services for negotiable margin transactions. 51/129

52 esearch eport by Shared esearch Inc. Income from stock lending Stock lending services allow a brokerage company to borrow stocks held in customer accounts and lend them to other investors. Brokerages pay customers an interest fee for borrowing stocks and receive a fee by lending them to institutional investors in the stock lending market. Stock lending income = the stock lending balance (securities loaned under a contract) x the stock lending fee The stock lending balance fluctuates according to demand among borrowers such as hedge funds. For example, if the prices of stocks associated with a specific theme increase sharply, the stock lending balance is likely to go up as demand increases to borrow and sell certain individual stocks. Stock lending fees vary. Stocks that are in high demand for the lending service incur higher fees. Fees can also vary depending on stock lending market demand. Institutional investors lend and borrow stocks in the stock lending market. Brokerages act as intermediaries, borrowing stocks from customers, which are loaned to foreign brokerages and hedge funds. Borrowers can sell the shares on the stock market or gain rights to dividends and voting rights as a result of the shares being transferred to their name. Borrowers pay a fee (stock lending rate) to lenders. When the stock lending transaction comes to an end, the borrower must return the same number of shares to the lender. Financial expenses Financial expenses are margin trading expenses, stock lending fees, and interest paid. In the Japan segment, these are mainly margin trading expenses and stock lending fees. Margin trading expenses Margin trading expenses are interest and stock lending fees paid to securities finance companies incurred by backwardation, margin transactions, and stock lending transactions. Margin trading expenses are trending at around 10% of income from margin trading. Stock lending fees Brokerages pay stock lending fees to customers from whom they borrow shares. These fees are trending at around 15 20% of income from stock lending. SG&A expenses Mainly fixed expenses in the Japan segment SG&A expenses are mainly trading expenses (24.7% of SG&A expenses in FY03/18), personnel expenses (17.2%), and systemrelated expenses (52.4%). System-related expenses break down into real-estate (15.3%), administrative (11.4%), and depreciation (25.7%). Variable SG&A expenses consist of fees and commissions, stock exchange fees, communication and transport expenses, and information expenses related to trading. We believe most other expenses are fixed. Fixed expenses of the Japan segment had been trending higher since FY03/15 due mainly to the increase in system-related expenses stemming from the development of a new backbone brokerage system. System-related expenses came down in FY03/18, however, as the company completed its transition to the new backbone system. 52/129

53 esearch eport by Shared esearch Inc. SG&A expenses of Japan segment (JPYmn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 SG&A expenses 16,742 16,509 19,173 20,004 23,320 25,050 23,435 YoY % 16.1% 4.3% 16.6% 7.4% -6.4% Trading-related 4,747 4,851 6,147 6,200 6,356 5,323 5,797 YoY - 2.2% 26.7% 0.9% 2.5% -16.3% 8.9% Commissions paid ,190 1,300 1,323 1,230 1,407 Stock exchange and association fees , Telecom, transportation, and information 2,148 2,195 2,427 2,293 2,134 1,780 1,668 Advertising expenses 1, ,139 1,489 1,812 1,506 1,784 Others Personnel 3,165 3,515 3,680 3,525 4,047 4,206 4,029 YoY % 4.7% -4.2% 14.8% 3.9% -4.2% eal estate-related 1,591 1,455 1,562 2,029 2,672 3,141 3,578 YoY % 7.4% 29.9% 31.7% 17.6% 13.9% eal estate Furniture and fixtures ,154 1,623 2,268 2,641 2,919 Office and supplies 4,868 4,740 5,377 5,357 5,849 5,677 2,666 YoY % 13.4% -0.4% 9.2% -2.9% -53.0% Outsourcing 4,815 4,688 5,305 5,304 5,782 5,622 2,617 Office supplies Depreciation 1,181 1,270 1,531 1,985 3,032 5,077 6,033 YoY - 7.5% 20.6% 29.7% 52.7% 67.4% 18.8% Taxes and dues Others Source: Shared esearch based on company data Variable expenses related to transactions Transaction-related expenses consist of fees and commissions paid, stock exchange fees, communication and transport costs, information expenses, and others. oughly 60% of fees and commissions paid and stock exchange fees are linked to equity trading value. The remaining portion of fees and commissions not linked to equity trading value, and communications, transport, and information expenses are mostly linked to the number of accounts. Fees and commissions: These are fees paid to banks, Japan Securities Clearing Corporation (JSCC), and the Japan Securities Depository Center, Inc., for delivery and settlement of trades at stock exchanges. The total amount is linked to equity trading value and number of accounts. Stock exchange fees: Monthly transaction fees paid to the stock exchange by brokerages according to equity trading value. Communication, transportation, and information expenses: Includes fees paid to QUICK Corp. for stock price information and Tokyo Stock Exchange system usage fees. Personnel expenses Personnel expenses are determined by the number of employees and average personnel expense per employee. The number of employees in the Japan Segment went up in FY03/16, but decreased in FY03/17 and FY03/18. The average personnel expense per employee is trending higher, reaching JPY12.4mn in FY03/18. Personnel expenses and employees of Japan segment (JPYmn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Personnel expenses 3,165 3,515 3,680 3,525 4,047 4,206 4,029 YoY % 4.7% -4.2% 14.8% 3.9% -4.2% % of net operating revenue 15.4% 15.1% 10.1% 11.6% 12.7% 15.8% 12.7% Number of employees YoY 2.7% 2.6% -2.6% 5.9% 9.9% -7.6% -1.8% Personnel expenses per employee YoY - 8.2% 4.7% -5.7% 6.3% 3.2% 0.7% Operating revenue per employee YoY - 9.1% 58.6% -16.1% -3.1% -16.4% 24.1% Source: Shared esearch based on company data * Personnel expenses per employee is calculated as personnel expenses / total number of employees (average of figures at beginning and end of FY) 53/129

54 esearch eport by Shared esearch Inc. System-related expenses System-related expenses are categorized according to purpose and type. Categories are real estate-related, outsourcing, and depreciation. System-related expenses of Japan segment (JPYmn) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 System-related expenses 7,640 7,465 8,470 9,371 11,553 13,895 12,277 YoY % 13.5% 10.6% 23.3% 20.3% -11.6% eal estate-related 1,591 1,455 1,562 2,029 2,672 3,141 3,578 YoY % 7.4% 29.9% 31.7% 17.6% 13.9% Office and supplies 4,868 4,740 5,377 5,357 5,849 5,677 2,666 YoY 328.5% -2.6% 13.4% -0.4% 9.2% -2.9% -53.0% Depreciation 1,181 1,270 1,531 1,985 3,032 5,077 6,033 YoY - 7.5% 20.6% 29.7% 52.7% 67.4% 18.8% Source: Shared esearch based on company data eal estate-related expenses Expenses related to real estate, furniture, and equipment. The majority of equipment expense is related to server management. Outsourcing expenses are mainly for system management and maintenance Business outsourcing expenses are mainly related to system management and maintenance. Depreciation Most depreciation expenses are for software. Software is treated as assets written off over a five-year period. System-related expenses in the Japan segment had been rising since FY03/16 in line with the introduction of the Japanese equities version of the TradeStation platform and development of a new backbone brokerage system. System-related expenses at Monex, Inc. were relatively high, coming after SBI Securities in FY03/17, and system-related expenses per account and per contract were both high (see the Competition section for details). The end of parallel operation of the new and old IT systems reduced fixed expenses in FY03/18, mainly on lower system-related expenses (administrative costs of old system) and personnel expenses. 54/129

55 esearch eport by Shared esearch Inc. US segment TradeStation Securities, Inc. is the core of the US segment. Income statement of the US segment (JPY basis) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (JPYmn) Operating revenue 8,643 11,726 16,062 18,146 22,912 18,684 20,002 YoY 35.7% 37.0% 13.0% 26.3% -18.5% 7.1% Commissions received 5,808 7,173 9,298 10,791 12,406 10,858 11,858 YoY 23.5% 29.6% 16.1% 15.0% -12.5% 9.2% Brokerage 4,467 5,165 6,720 7,786 8,965 7,371 8,091 YoY 15.6% 30.1% 15.9% 15.1% -17.8% 9.8% Equity and ETF 1,529 1,608 2,043 2,136 2,168 1,845 1,874 Futures and options 2,939 3,557 4,676 5,648 6,794 5,526 6,218 OSE FX Underwriting and distribution Subscription and distribution Other commissions 1,341 2,008 2,577 3,006 3,441 3,487 3,767 YoY 49.7% 28.3% 16.6% 14.5% 1.4% 8.0% FX fees (OTC retail FX) Administrative and transfer fees for margin trading Agent fee for investment trust trading Others 1,341 2,008 2,577 3,006 3,441 3,488 3,767 Net trading income 1,098 1,804 2,264 1, YoY 64.3% 25.5% -37.7% -29.5% - - Financial income 1,435 2,410 4,168 5,343 5,736 5,493 6,946 YoY 67.9% 72.9% 28.2% 7.4% -4.3% 26.5% Other operating revenue ,381 1,242 1,141 Financial expenses 693 1,593 2,818 3,496 2,269 2,115 2,535 Net operating revenue 7,950 10,134 13,245 14,584 18,541 15,616 17,417 YoY 27.5% 30.7% 10.1% 27.1% -15.8% 11.5% SG&A expenses 8,884 13,423 15,291 16,701 18,392 15,858 16,487 YoY 51.1% 13.9% 9.2% 10.1% -13.8% 4.0% % of operating revenue 111.7% 132.5% 115.4% 114.5% 99.2% 101.5% 94.7% Operating profit equivalent ,289-2,047-2, YoY % of operating revenue % - 5.3% Other revenue , Other expenses 90 2,627 1,473 2, Pre-tax profit ,774-2,388-4, YoY % of net operating revenue % Profit ,488-1,450-3, ,274 YoY Profit attributable to owners of the parent ,488-1,450-3, ,274 YoY % of net operating revenue % Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods 55/129

56 esearch eport by Shared esearch Inc. Income statement of the US segment (USD basis) FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 (USD'000) Operating revenue 141, , , , , ,593 YoY 14.0% 3.2% 15.0% -9.9% 5.1% Commissions received 86,263 93,086 98, ,273 99, ,067 YoY 7.9% 5.3% 5.3% -3.3% 7.2% Brokerage 62,115 67,284 70,731 74,622 67,808 73,056 YoY 8.3% 5.1% 5.5% -9.1% 7.7% Equity and ETF 19,339 20,462 19,407 18,058 16,971 16,917 Futures and options 42,775 46,823 51,325 56,564 50,836 56,139 Other commissions 24,148 25,802 27,309 28,651 32,078 34,011 YoY 6.8% 5.8% 4.9% 12.0% 6.0% Net trading income 21,693 22,659 12,818 8, Financial income 28,975 41,739 48,542 47,756 50,531 62,713 YoY 44.1% 16.3% -1.6% 5.8% 24.1% Sales revenue - - 1,250 19,924 10, Other operating revenue 4,084 3,308 5,245 11,498 11,429 10,306 Financial expenses 19,153 28,213 31,760 18,885 19,459 22,892 Cost of revenue - - 1,148 17,500 8, Net operating revenue 121, , , , , ,260 YoY 8.8% 0.3% 16.1% -6.9% 9.5% SG&A expenses 161, , , , , ,858 YoY -5.2% -0.9% 0.9% -4.7% 2.0% Operating profit equivalent -39,554-20,489-18,763 1,246-2,225 8,402 Yoy Non-operating income 1,412 11, Non-operating expenses 31,297 14,740 20,802 6,043 2,485 5,882 Pre-tax profit -69,440-23,910-39,565-4,372-4,205 2,542 YoY Profit -53,961-14,517-28,964-1,263-4,573 11,504 YoY Profit attributable to owners of the parent -53,961-14,517-28,964-1,263-4,573 11,504 YoY Source: Shared esearch based on company data Figures may differ from company materials due to differences in rounding methods Net operating revenue Net operating revenue of the US segment breaks down into commissions (68.1% of segment net operating revenue in FY03/18), net financial income (25.3%), sales revenue (0.3%), and other operating revenue (6.6%). Commissions (68.1% share in FY03/18) Commissions are brokerage commissions on equities, futures and options trading (68.2% of total segment commissions), and other fees and commissions (31.8%). Brokerage commissions on equities, futures, and options trading Like the Japan segment, customers pay brokerage commissions to the brokerage when they trade equities, futures, and options. Brokerage commissions on equities, futures, and options trading = DATs x the number of business days x the unit price per transaction 56/129

57 esearch eport by Shared esearch Inc. DATs, commission per contract, and brokerage commission trends in the US segment FY03/12 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 FY03/18 Number of daily average revenue trades (DATs) - 107, , , , , ,946 YoY % 4.0% 1.7% -15.1% 4.7% Operating days Number of trades - 26,763,235 28,058,627 29,070,028 29,636,297 25,064,728 25,921,567 Commissions per trade (USD) YoY % 1.5% 3.5% 7.4% 4.2% Brokerage commissions (USD'000) - 62,115 67,284 70,731 74,622 67,808 73,056 YoY % 5.1% 5.5% -9.1% 7.7% Source: Shared esearch based on company data Note: Monex Group acquired TradeStation Group in June 2011; *DATs calculated by Shared esearch based on quarterly data released by the company; number of trade calculated as DATS times number of trading days; commission per trade calculated as commissions divided by number of trades In FY03/18, DATs totaled 104,946, there were 247 business days, and the unit commission per contract was USD2.80. DATs and unit commission per contract at TradeStation Securities were as follows. DATs at TradeStation Securities DATs at TradeStation Securities strongly correlate with the VIX index (an indicator of the market s outlook on volatility in the next 30 days), generally rising or falling with the index. DATs and VIX index Source: Company data (financial data book)) DATs are also affected by fluctuations in the number of active accounts. The number of active accounts at TradeStation Securities grew at a CAG of 8% from end FY03/10 to end FY03/18. Number of active accounts Source: Company data (earnings briefing material) Unit price per transaction TradeStation Securities offers two main fee structures: a per-trade plan or fees based on the number of stocks traded. The majority of customers opt for per-trade commissions. 57/129

58 esearch eport by Shared esearch Inc. Other fees and commissions Other fees and commissions are platform fees and payments for order flow. Platform fees Customers are charged about USD100 in platform fees if they do not trade at least once a month using the TradeStation tool. TradeStation Securities introduced a new fee plan for equity and options trading in March It now charges USD5.00 per equity trade and USD0.50 per contract plus USD5.00 per options trade. The company abolished platform fees for customers choosing the new fee structure. Platform fees should decline as more customers switch to the new pricing plan. Payment for order flow Payment for order flow is revenue received for order flow provided to exchanges and market makers. TradeStation Securities receives payment for order flow by passing on orders that do not specify an exchange to market makers instead of exchanges. This revenue has been increasing since 2H FY03/17. Market makers are intermediary firms that stand ready to buy/sell securities for a profitable price at all times. They offer their own bid-ask prices and transactions are executed between market makers that offer the best quotes. There is active participation of market makers in the US. Brokerages can receive a rebate from these market makers for passing on orders like limit orders that can create liquidity. A brokerage receiving an order that does not specify an exchange will check which party will provide the largest rebate before passing the order on to maximize revenue. Net financial income (25.3% of net operating revenue of US segment in FY03/18) Net financial income is income from stock lending and investment returns from customer assets under custody (cash), with the latter accounting for around 70% of US segment net financial income in FY03/18. Interest income from investing customer assets under custody According to the company, around 40% of assets in customer accounts at TradeStation Securities are cash, which totaled approximately JPY200bn in FY03/18. Interest income on assets in customer accounts is interest received by TradeStation Securities, which invests these assets (cash). As such, this income is affected by the balance of customer assets under custody (cash) and US short-term interest rates. According to the company, TradeStation Securities interest income from funds invested exceeded USD30mn in FY03/08 and earlier, when US short-term interest rates were over 4%. Interest income from funds invested trended below USD1mn after US short-term rates dropped to under 1% in FY03/10, but turned up since FY03/16 as US short-term rates started to rise. The company explained that it uses interest rate swaps to fix interest received on part of assets in customer accounts. Interest income from funds invested and trends in US short-term interest rates * Source: Company data (earnings briefing materials) 58/129