<Translation>
[Disclosure Booklet]
Explanatory Documents on the Status of Business and Propertyfor the fiscal year ended Dec 31, 2017
This disclosure booklet is prepared by the Company to publish with utilization
of internet under Article 46-4 of the Financial Instruments and Exchange Law.
I Outline and Organization
1. Corporate Name ………………………………………………………………………………………………………… 1
2. Registration Date ( Registration Number ) …………………………………………………………………………… 1
3. History and Organization ………………………………………………………………………………………………… 1
4. Shareholders in the Top 10, Number of Shares Held and Percentage of Voting Rights ………………………… 3
5. Names of Board of Directors and Statutory Auditor ………………………………………………………………… 3
6. Names of Employees Specified by Cabinet Order …………………………………………………………………… 3
7. Business Operation ……………………………………………………………………………………………………… 4
8. Addresses of Head Office and Other Branches ……………………………………………………………………… 5
9. Other Business Operation ……………………………………………………………………………………………… 5
10.
(3)-2, (3)-3(a) and from (4) to (9) of the Cabinet Office Ordinance on Concerning Financial Instruments
Business …………………………………………………………………………………………………………………… 6
11. 6
12. Financial Instruments Firms Associations and Certified Investor Protection Organization Memberships………… 7
13. Financial Instruments Exchange Memberships………………………………………………………………………… 7
14. 7
II Business Overview
1. Business Outline for the Current Period ……………………………………………………………………………… 8
2. Key Financial Data ……………………………………………………………………………………………………… 10
III Financial Matters
1. Financial Information ………………………………………………………………………………………………………12
2. Major Lenders and Borrowings ………………………………………………………………………………………… 18
3. Securities Held (Non-Trading) ……………………………………………………………………………………………18
4. Derivative Transactions (Non-Trading) …………………………………………………………………………………18
5. External Audit ………………………………………………………………………………………………………………19
6. Others ……………………………………………………………………………………………………………………… 19
IV Internal Control Structure
1. Overview of Internal Control …………………………………………………………………………………………… 20
2. Condition of Customers' Assets Segregation ………………………………………………………………………… 22
V Status of Consolidated Subsidiaries, etc. …………………………………………………………………………………26
Contents
Engaged Businesses included in the Matters Set Forth in Article 29-2(1)(VI) of FIEL and Article 7(3)(a),
Complaint Processing and Dispute Resolution ………………………………………………………………
Investor Protection Fund Membership …………………………………………………………………………
I Outline and Organization
1. Corporate Name Citigroup Global Markets Japan Inc. (the Company)
2. Registration Date September 30, 2007( Registration Number ) (The Director-General of the Kanto Finance Bureau (Kinsho) No.130)
3. History and Organization
(1) History
Year
1972 ・ Smith Barney Tokyo Representative Office established
1977 ・ Salomon Brothers Asia Limited established in Hong Kong
1980 ・ Salomon Brothers Asia International Tokyo Representative Office established
・ Smith Barney Tokyo Branch opened
1982 ・ Salomon Brothers Asia Limited Tokyo Branch opened
1987 ・ Becomes Remote Member of Osaka Securities Exchange
1988 ・ Becomes Official Member of Tokyo Stock Exchange
1989 ・ Becomes Standing Underwriting Manager for JGB syndication
・ Becomes Clearing Member of Tokyo International Financial Futures Exchange
・ Becomes Special Participant of Nagoya Stock Exchange
1991 ・ Becomes Official Member of Osaka Securities Exchange
1998 ・ Salomon Smith Barney (Japan) Limited formed upon Salomon Brothers Asia Limited's
acquisition of all operations of Smith Barney Tokyo Branch
1999 ・ Name changed to Nikko Salomon Smith Barney Limited upon acquisition of Nikko Securities'
institutional businesses
・ Becomes Official Member of Nagoya Stock Exchange
2004 ・ Begins operation as Nikko Citigroup Limited
2008 ・ Nikko Citi Holdings Inc. established
2009 ・ Name changed to Citigroup Global Markets Japan Inc.
2017 ・ Japan headquarters moved to Otemachi Park Building
History
1
4. Shareholders in the Top 10, Number of Shares Held and Percentage of Voting RightsAs of December 31, 2017
Name of shareholdersNumber of shares
held
Citigroup Japan Holdings G.K. 3,842,000 100.00%
5. Names of Board of Directors and Statutory AuditorAs of December 31, 2017
Name Representation
Anthony P. Della Pietra, Jr.
Yes
Kuniyoshi Hayashi No
Yusuke Asai No
Koichi Tanaka No
Tatsuo Tanaka No
Mamoru Sato
6. Names of Employees Specified by Cabinet Order
(1)
As of December 31, 2017
Matt van Weezel
Yasuto Hashinaga Interim General Counsel
(2) Persons overseeing the division to make an advice or conducting management with respect
to the investment advisory business and investment management business
Not applicable
Persons overseeing the operations concerning the guidance for compliance with the lawsand regulations, etc. with respect to the financial instruments business
Name Title
Head of Compliance Division, Chief Internal Control Officer
Director, Chairman executive
Statutory Auditor executive
Director, Deputy President executive
Director, Deputy President executive
Director executive
Percentage ofvoting rights
Total 1 party
Positionexecutive/
non-executive
Representative Director, President and CEO
executive
3
7.Business Operation
(1) Type I Financial Instruments Business
① Businesses under Article 28(1) (i) of Financial Instruments and Exchange Law (hereinafter referred to as the
"FIEL")
(i)
(ii)
agency service ("Dairi") for sale and purchase of Securities falling under Article 2(8) (x) of FIEL)
(iii)
following transactions;
(a)
Exchange traded Derivatives; or
(b)
apply hereinafter) or Foreign Exchange traded Derivatives Transactions
(iv) Brokerage for Clearing of Securities, etc.; or
(v)
(vi)
Placement of Securities or exclusive Offer to Sell, etc. to Professional Investors
② Business under Article 28(1) (ii) of FIEL
Over-the-Counter Transactions of Derivatives or intermediary ("Baikai"), brokerage ("Toritsugi") ( excluding
Brokerage for Clearing of Securities,etc.) or agency service ("Dairi") therefor; or, Brokerage for Clearing of
Securities, etc. in relation to Over-the-Counter Transactions
③ Business under Article 28(1) (iii) (a) of FIEL
Wholesale Underwriting of Securities that are specified by a Cabinet Order as those for which management
of risks of loss is highly necessary
④ Business under Article 28(1) (iii) (b) of FIEL
Wholesale Underwriting of Securities other than those listed in Article 28(1) (iii) (a) of FIEL
⑤ Business under Article 28(1) (iii) (c) of FIEL
Acts listed in Article 2(8) (vi) that are other than Wholesale Underwriting of Securities
⑥ Securities, etc. Management Business
(2) Type II Financial Instruments Business
(3) Investment Advisory and Agency Business
① Business under Article 28(3) (ii) of FIEL.
(Note) The Company obtained registration to conduct the Investment Advisory and Agency Business on April25th 2017 and commenced the Business on Jun 20th 2017.
Sale and purchase of Securities conducted in a Foreign Financial Instruments Market (meaning
a market in a Foreign State similar to Financial Instruments Exchange Market; the same shall
Secondary Distribution of Securities or exclusive Offer to Sell, etc. to Professional Investors
The handling of a Public Offering or Secondary Distribution of Securities, or the handling of a Private
Agency or intermediation for the conclusion of an Investment Advisory Contract or a Discretionary InvestmentContract
Intermediary ("Baikai"), brokerage ("Toritsugi") (excluding Brokerage for Clearing of Securities,etc.) or
agency service ("Dairi") for sale and purchase of Securities, Exchange traded Derivatives or Foreign
Exchange traded Derivatives Transactions (excluding intermediary ("Baikai"), brokerage ("Toritsugi") or
Intermediary ("Baikai"), brokerage ("Toritsugi") or agency service ("Dairi") for agency ("Itaku") of the
Sale and purchase of Securities conducted in a Financial Instruments Exchange Market or
Transactions (excluding sale and purchase of Securities falling under Article 2(8) (x) of FIEL)
Sale and purchase of Securities (excluding those falling under the category of Derivative Transactions;
the same shall apply hereinafter), Exchange traded Derivatives (excluding Financial Instruments (limited
to those in Article 2(24) (iii-2)) or Financial Indices (limited to the value of the Financial Instruments or
figures calculated based thereon) related Exchange traded Derivatives (the same shall apply
"Commodities related Exchange traded Derivatives" hereinafter ) or Foreign Exchange traded Derivatives
4
(4) Supplemental Business Operation to Financial Instruments Business
(i.e. the business conducted by the Company listed in Article 35(1) of FIEL)
① Lending and borrowing of Securities, or intermediary ("Baikai") or agency service ("Dairi") thereof
② Money loan incidental to a margin transaction
③ Money loan secured by Securities that are deposited for safe custody from customers
④ Agency service ("Dairi") for customers concerning Securities
⑤ Agency service ("Dairi") of the business pertaining to payment of earnings, redemption money or cancellation
Securities
⑥
Subscription Rights Certificates or Investment Corporation Bonds, or Foreign Investment Securities
⑦ Conclusion of a Contract for Cumulative Investment
⑧ Provision of information or advice in relation to Securities
⑨ Agency service ("Dairi") of the business of any Counterparty Financial Business Operator, etc.
⑩ Retention of assets of a registered investment corporation
⑪
share exchange or share transfer, or intermediation for these matters
⑫ Consultation to any other business operator with regard to management
⑬
brokerage ("Toritsugi") or agency service ("Dairi") thereof
⑭
category of Securities), or intermediary ("Baikai"), brokerage ("Toritsugi") or agency service ("Dairi") thereof
8.
As of December 31, 2017
9.Other Business Operation
(1) Registered businesses conducted by the Company listed in Article 35(2) of FIEL
① Business pertaining to transactions conducted by using fluctuations in commodity prices and other indicators,
market gaps, etc. as specified by a Cabinet Office Ordinance (excluding business pertaining to transactions on
a commodity market, etc. defined in Article 2(21) of the Commodity Futures Act)
② Business pertaining to money lending business defined in Article 2(1) of the Act on Controls, etc. on Money
Lending or other money loan, or intermediary service of lending and borrowing of money
③ Business pertaining to conclusion of a Loan Participation Contract, or an intermediary, brokerage or agency
service
④ Goods leasing business
⑤ Business pertaining to creation and sale of computer programs for the business of any other business operator,
and a business to accept the entrustment of computing service
⑥ Business of a conclusion of a contract on the acquisition or transfer of Carbon Dioxide Equivalent Quotas, or
an intermediary, brokerage or agency service
⑦ Derivertives transactions pertaining to Carbon Dioxide Equivalent Quaotas, or an intermediary, brokerage or
agency service
Head Office 1-1, Otemachi 1-Chome, Chiyoda-ku, Tokyo 100-8132
money with regard to beneficiary securities of Investment Trusts or foreign investment trusts, or the business
pertaining to delivery of the Securities or any other assets belonging to the trust property pertaining to the
Agency service ("Dairi") of the business pertaining to distribution of money, distribution of refunds or residual
assets or payment of interest or redemption money with regard to Investment Securities, Investment Equity
Consultation to any other business operator with regard to a business assignment, merger, company split,
Sale and purchase of currencies and other assets designated by a Cabinet Order as being related to
Derivative Transactions (excluding Transactions of Securities-Related Derivatives) or intermediary ("Baikai"),
Sale and purchase of negotiable deposits and other monetary claims (excluding those that fall under the
Addresses of Head Office and Other Branches
Category Address
5
⑧ Business of concluding a contract for a guarantee or assumption of an obligation, or an intermediary,
brokerage or agency service
⑨ Business of making an arrangement with or introducing another business operator, to customers of
its Business
(2) Approved Businesses conducted by the Company listed in Article 35(4) of FIEL
① Business for intermediary, etc. of custody business, business for intermediary, etc. of fund service business
and business for intermediary, etc. of foreign depositary receipt business
② Business for intermediary business related to LNG physical trading
③ Business for maritime freight index derivative transactions including intermediary and agency thereof
10.Engaged Businesses included in the Matters Set Forth in Article 29-2(1)(VI) of FIEL and Article
① Securities-related business
② Sale and purchase of real estate trust beneficiary interests
11.Complaint Processing and Dispute Resolution
(1) Type I Financial Instruments Business
Measures to conclude a Basic Contract for Implementation of Dispute Resolution Procedure with Financial
Instruments Mediation Assistance Center (hereinafter referred to as the "FINMAC")
(2) Type II Financial Instruments Business
Measures to utilize the Financial Futures Association of Japan (outsourcing to FINMAC) or measures to
utilize Type II Financial Instruments Firms(outsourcing to FINMAC); otherwise, measures to utilize FINMAC
(3) Investment Advisory and Agency Business
Measures to utilize the Center of Tokyo Bar Association, Daiichi Tokyo Bar Association,
and Diani Tokyo Bar Association as the measures for dispute resolution prescribed in article 37-7(1)(iii)(b)
of FIEA Measures to publicize the business operation system and internal policy on public website of the
Company.
(4) Investment Management Business
Not applicable
(5) Money Lending Business
Measures to conclude a Basic Contract for Implementation of Dispute Resolution Procedure with Japan
Financial Services Association
7(3)(a), (3)-2, (3)-3 (a) and from (4) to (9) of the Cabinet Office Ordinance on Concerning
directly as grievance procedure and dispute resolution prescribed in article 37-7(1) (ii) (b) of FIEL.
Financial Instruments Business
6
12.Financial Instruments Firms Associations and Certified Investor Protection Organization
Memberships
・ Financial Instruments Firms Association : Japan Securities Dealers Association
The Financial Futures Association of Japan
Type II Financial Instruments Firms Association
13.Financial Instruments Exchange Memberships
Tokyo Stock Exchange
Osaka Exchange
Nagoya Stock Exchange
Tokyo Financial Exchange
14. Investor Protection Fund Membership
Japan Investor Protection Fund
(Note) Utilization contract of Financial Instruments Mediation Assistance Center (Type II Financial Instruments Business) was cancelled on March 31st, 2017.
7
II Business Overview
1. Business Outline for the Current Period
In the fiscal year under review, Japanese stock prices were relatively flat, despite small fluctuations, until
March. However, in April the Nikkei Stock Index ( “Nikkei 225 ” ) dropped to 18,224, which was the lowest in
2017, reflecting market participants' vigilance against the outcome of French national election, concerns on the
Trump administration and heightened geopolitical risks in North Korea. Afterwards, the market returned to an
upward trend with the expectation of solid corporate performance. Although, Japanese stock prices briefly
dropped during summer due to heightened concern on North Korea, Japan market marked a record rise with a
16-day bull run in October, following the strong performance of the ruling government in parliamentary elections
in Japan and rise in U.S. stock prices. Subsequently, in November as US stock market continued its rising
trend and Japanese Yen depreciated against the US dollar, Nikkei 225 recorded a 26-year high, since Jan
1992, at 23,382. At the end of the 2017 fiscal year, the Nikkei 225 stood at 22,764 and the Tokyo Stock Price
Index (TOPIX) stood at 1,817, which were up 3,650 and 299 respectively compared to the previous 2016 fiscal
year end.
In the Japanese bond market, 10-year JGBs yields started the year with an upward (prices decreased) trend
following the rise in U.S. interest rate driven by the outcome of the US president election and rose to positive
rates, and temporarily marked over 0.1 percent in February. However, the Bank of Japan’s (“BOJ”) “yield curve
control ” framework has suppressed the rise in 10-year JGBs yields. In April, amid an economic slowdown in
U.S. and heightened geopolitical risks, 10-year JGBs yields temporarily declined (prices increased) to around 0
percent. Subsequently rising global interest rates led to a rise in 10-year JGBs yields (prices decreased) to over
0.1 percent in July. However, yields declined (prices increased) to negative range again in September following
BOJ’s 2nd "outright purchases of JGBs", increasing concern on North Korea and a decline in U.S. interest rate.
10-year JGBs yields then moved relatively flat towards the year-end and marked at 0.05% at the end of 2017.
In foreign exchange markets, the yen started the year with a depreciation trend against US dollar, moving within
the range of 117-118. Subsequently, following increasing uncertainty around the Trump administration ’ s
policies, the yen started to appreciate moderately against dollar, although, there were several factors pointing to
appreciation of the dollar such as solid U.S. economy and U.S. interest rate hikes by FRB. The yen
strengthened against the dollar under normalization of U.S. monetary policy and has remained in the range of
108-114 against the dollar. The yen closed the year 2017 at the 112 level against the dollar.
The yen appreciated against the euro from the beginning of 2017 reflecting uncertainties regarding national
elections and politics in Europe and strengthened up to 115 yen against the euro in April. Following the results
of French Presidential Elections and the abatement of political uncertainties in Europe and speculation about a
reduction in monetary accommodation by the ECB has caused a sharp depreciation of the yen. The yen closed
the year 2017 at the 135 level against the euro.
Operating revenue totaled 56.2 billion yen, and Operating revenue, net of interest expense, amounted to 47.1
billion yen. Selling, general and administrative expenses totaled 40.3 billion yen, the operating income
amounted to 6.7 billion yen and the ordinary income including non-operating income and expenses amounted
to 6.9 billion yen. The net income before income tax amounted to 8.1 billion yen and the net income amounted
to 4.4 billion yen with extraordinary income and loss and income taxes. Summaries by accounts are as follows.
8
(1) Commission received
Commission received was 43.8 billion yen. The following is the breakdown by category.
① Brokerage commissions
② Underwriting and selling commissions
③ Subscription and distribution commissions
④ Other commissions
(2) Net trading income
(3) Interest revenue and expenses
(4) Selling, general and administrative expenses
(5) Non-operating income and expenses
(6) Extraordinary income and loss
(7) Income taxes
Net trading income recorded 1.7 billion yen. Trading gain related to equities was 0.3 billion yen. Tradingloss related to bonds was 0.1 billion yen and trading gain related to foreign exchange and other were1.6 billion yen.
Net interest revenue and expenses were 1.5 billion yen income.
Selling, general and administrative expenses were 40.3 billion yen.
Net non-operating income was 0.1 billion yen, mainly due to revaluation gain generated from assets andliabilities in foreign currencies.
Extraordinary income included 3.0 billion yen of gain on forgiveness of debts on consolidated taxpayable. Extraordinary loss was 1.8 billion yen mainly comprised of 1.1 billion yen from restructuringloss, 0.5 billion yen from loss on early redemption of loan and 0.1 billion yen provision for reserve forfinancial products transaction liabilities.
Net income before income taxes amounted to 8.1 billion yen. Income taxes-current amounted to 3.8billion yen and income taxes-deferred amounted to a benefit of 0.08 billion yen.
Brokerage commissions were 12.8 billion yen. Equity trading volume was 27,228.3 billion yen.Brokerage commissions on equities were 12.5 billion yen and brokerage commissions on JGBfutures and ETFs totaled 0.2 billion yen.
Underwriting and selling commissions were 0.4 billion yen.
There was no subscription and distribution commissions in the current fiscal year.
Other commissions were 30.5 billion yen.
9
2.Key Financial Data
(1) Overall Operating Results
(Millions of Yen)
Operating revenue
(Commission received)
((Brokerage commissions))
((Underwriting & sellingcommissions))
((Other commissions))
(Net trading income)
((Equities and other))
((Bonds))
((Foreign exchange and other))
(Financial revenue)
Financial expenses
Ordinary income
Net income
(2) Trading and underwriting volume in securities
① Equity Trading Activity (Millions of Yen)
Brokerage
Proprietary
Total
7,839,577 6,774,643 9,949,256
33,718,523 24,005,880 37,177,569
FY 2015FY 2016
( 9 months )FY 2017
25,878,946 17,231,237 27,228,312
14,799 5,052 6,924
8,309 12,092 4,404
Operating revenue, net of interest expense
55,126 34,984 47,135
2,977 1,951 10,647
2,985 1,834 9,132
21,327 515 (144)
(17,626) 3,488 1,619
4,453 4,327 1,786
751 324 312
28,868 20,388 30,584
718 384 426
21,093 9,766 12,823
Total number of issued shares (thousands)
3,842 3,842 3,842
58,111 36,818 56,268
50,680 30,539 43,834
FY 2015FY 2016
( 9 months )FY 2017
Capital stock 96,307 96,307 96,307
10
②
offering placement, private placement and solicitation for placement for professional investors
(Millions of Yen)
(3) Other business activities
(4) Regulatory capital adequacy ratio (Millions of Yen)
(5) Number of employees and registered sales representatives
Employees 561 610 833
(Registered sales representatives ) ( 250 ) ( 266 ) ( 263 )
Basic risk 9,950 10,673 10,958
FY 2015 FY 2016 FY 2017
Market risk 20,003 19,749 22,904 Counterparty risk 18,503 15,890 15,085
Net capital ( A ) 180,082 190,409 194,840
Risk total ( B ) 48,457 46,313 48,948
FY 2015 FY 2016 FY 2017
Net capital ratio ( A / B X 100 ) 371.6% 411.1% 398.0%
The Businesses listed in Article 35(2) and (4) of FIEL have been omitted in consideration of financial statements impact.
192,416 -
Other - - - - - - -
Beneficiary certificate - -
FY
201
7
Corporate bonds 42,900 - - 29,900 - - -
Total 185,282 - - 172,282 - - -
18,082 - -
124,300 - - -
- - -
Bon
ds
JGBs - -
Stocks 1,708 - - 845
Special bonds 124,300 - -
- -
Municipal bonds 18,082
519,954 -
Other - - - - - - -
Beneficiary certificate - -
- - -
Total 269,104 - - 268,104 - - -
- - -
Bon
ds
JGBs - - - -
Municipal bonds 22,604 22,604 - -
216,400 - - -
FY
201
6(
9 m
onth
s)
Stocks 889 40 - 1,029
Special bonds 216,400 - -
Corporate bonds 30,100 - - 29,100
190,891 -
Other - - - - - - -
Beneficiary certificate - -
- 1,200 60,300
Total 155,900 - 21,200 139,200 - 1,200 60,300
- - -
Bon
ds
JGBs - - - -
Municipal bonds 35,600 35,600 - -
36,700 - - -
FY
201
5
Stocks 1,335 36 - 1,738
Special bonds 36,700 - -
Corporate bonds 83,600 - 21,200 66,900
Underwriting, offering and solicitation for selling and others for professional investors, and subscription placement,
Type Underwriting Offering
Total salessolicitation toprofessional
investors
SubscriptionPlacement
OfferingPlacement
PrivatePlacement
Placementsolicitation toprofessional
investors
11
III Financial Matters
1. Financial Information
(Millions of Yen)
Previous fiscal year Current fiscal year
( As of December 31, 2016 ) ( As of December 31, 2017 )
1,907,445 1,858,226
164,424 186,733
38,268 10,196
519,697 361,228
Trading securities and other 309,634 229,800
Derivatives 210,063 131,428
- 1,130
- 9,395
Cash collateral pledged for securitiesborrowing on margin transactions
- 9,395
936,912 1,132,644
Cash collateral pledged for securities borrowed 465,368 884,259
Loans on Gensaki transactions 471,544 248,384
142 290
240,532 147,364
266 563
3,879 5,216
3,175 3,279
148 184
(1) -
3,073 3,651
0 4
Furniture & fixtures 0 4
41 164
Software 0 22
Others 41 141
3,031 3,483
742 742
808 767
1,111 1,359
- 41
369 325
- 246
1,910,518 1,861,878
Others
Total Assets
Deferred tax assets
Others
Allowance for doubtful accounts
Noncurrent assets
Property, plant and equipment
Intangible assets
Investments and other assets
Investment securities
Long-term loans receivable
Long-term guarantee deposits
Long-term prepaid expenses
Deferred tax assets
Cash segregated as deposits
Trading products
Trade date accrual
Margin transaction assets
Loans secured by securities
Advance paid
Short-term guarantee deposits
Accounts receivable
Accrued income
Cash and deposits
(1) Statement of financial condition
Account
( ASSETS )
Current assets
12
(Millions of Yen)
Previous fiscal year Current fiscal year
( As of December 31, 2016 ) ( As of December 31, 2017 )
1,646,177 1,646,534
637,529 275,456
Trading securities and other 424,014 150,843
Derivatives 213,514 124,613
22,513 -
- 9,223
Cash collateral received for securities lending on margin transactions
- 9,223
732,481 1,142,894
Cash received on debt credit transaction of securities 41,104 140,460
Borrowings on Gensaki transactions 691,377 1,002,433
269 5,969
159,034 110,635
483 13,231
80,000 74,000
846 64
5,119 5,704
589 934
4,452 4,970
2,859 3,449
94,706 40,672
3,600 2,600
81,500 28,000
3,773 9,409
5,832 662
2,463 2,585
2,463 2,585
1,743,346 1,689,791
172,369 176,773
96,307 96,307
55,660 55,660
Legal capital surplus 55,660 55,660
20,401 24,805
Other retained earnings/ (deficits) 20,401 24,805
Retained earnings brought forward 20,401 24,805
(5,197) (4,687)
(5,197) (4,687)
167,172 172,086
1,910,518 1,861,878
Valuation and translation adjustments
Deferred net gain/ (loss) on hedges
Total Net Assets
Total Liabilities and Net Assets
Retained earnings/ (deficits)
( NET ASSETS )
Shareholders' equity
Capital stock
Capital surplus
Total Liabilities
Reserve for bonuses
Others
Noncurrent liabilities
Bonds payable
Long-term loans payable
Reserve for retirement benefits
Others
Reserves under the special laws
Reserve for financial products transaction liabilities
Margin transaction liabilities
Loans payable secured by securities
Deposits received
Guarantee deposits received
Variation margin received
Short-term loans payable
Accounts payable
Accrued expenses
Income taxes payable
Trade date accrual
Account
( LIABILITIES )
Current liabilities
Trading products
13
(Millions of Yen)
Previous fiscal year Current fiscal year
( ) ( )
36,818 56,268
30,539 43,834
4,327 1,786
1,951 10,647
1,834 9,132
29,972 40,382
6,091 7,915
13,086 17,928
4,226 6,220
4,605 6,064
3 5
1,035 1,397
924 851
5,012 6,752
40 171
0 0
5,052 6,924
6,170 3,093
6,168 3,093
1 -
295 1,838
295 1,168
- 533
- 121
- 15
10,928 8,178
2,455 3,855
(3,618) (81)
12,092 4,404
Income taxes - current
Income taxes - deferred
Net income
Loss on disposal of fixed assets
Net income before income taxes
Extraordinary loss
Restructuring loss
Loss on early redemption of loan
Reserve for financial products transactionliabilities
Reversal of reserve for financial productstransaction liabilities
Taxes
Others
Operating income
Non-operating income
Non-operating expenses
Ordinary income
Extraordinary income
Gain on forgiveness of debts on consolidatedtax payable
Depreciation
Financial revenue
Financial expenses
Operating revenue, net of interest expense 34,984
Selling, general and administrative expenses
Trade-related expenses
Compensation
Occupancy
Administrative expenses
47,135
(2) Statement of operations
Account
Operating revenue
Commission received
Net trading income
from April 1, 2016to December 31, 2016
from January 1, 2017to December 31, 2017
14
(3) Statement of changes in net assets
(Millions of Yen)
96,307 55,660 8,309 160,277 (5,463) 154,813
Net income - - 12,092 12,092 - 12,092
Net changes of net assetsother than shareholders'equity
- - - - 266 266
- - 12,092 12,092 266 12,358
96,307 55,660 20,401 172,369 (5,197) 167,172
(Millions of Yen)
96,307 55,660 20,401 172,369 (5,197) 167,172
Net income - - 4,404 4,404 - 4,404
Net changes of net assetsother than shareholders'equity
- - - - 510 510
- - 4,404 4,404 510 4,914
96,307 55,660 24,805 176,773 (4,687) 172,086Closing balance
Legal capitalsurplus
Otherretainedearnings
Retainedearningsbroughtforward
Beginning balance
Changes of itemsduring the fiscal year
Total changes of items during thefiscal year
FY 2017 (from January 1, 2017 to December 31, 2017)
Shareholders' equityValuation and
translationadjustments
Totalnet assetsCapital
stock
Capitalsurplus
Retainedearnings
Totalshareholder's
equity
Deferrednet gain/ (loss)
on hedges
Closing balance
FY 2016 (from April 1, 2016 to December 31, 2016)
Shareholders' equityValuation and
translationadjustments
Totalnet assetsCapital
stock
Capitalsurplus
Retainedearnings
Totalshareholder's
equity
Deferrednet gain/ (loss)
on hedgesLegal capital
surplus
Otherretainedearnings
Retainedearningsbroughtforward
Beginning balance
Changes of itemsduring the fiscal year
Total changes of items during thefiscal year
15
(4) Notes to the financial statements
① Notes to statement of financial condition
1) Assets pledged as collateral and collateralized liabilities
(Millions of Yen) (Millions of Yen)
・ Assets pledged as collateral FY2016 FY2017
4,000
(Note)
FY2016
FY2017
(Millions of Yen) (Millions of Yen)
・ Collateralized liabilities FY2016 FY2017
65,000 5,000
2) Collateralized securities (Millions of Yen) (Millions of Yen)
・ Securities pledged out FY2016 FY2017
- 9,496
98,461 262,304
702,196 1,032,474
4,190 12,890
73,196 8,950
(Millions of Yen) (Millions of Yen)
・ Securities received in FY2016 FY2017
- 9,496
555,797 1,065,714
471,371 247,956
(Millions of Yen) (Millions of Yen)
3) Accumulated depreciation of property, plant and equipment FY2016 FY2017
1 2
Securities received related to securities purchased underGensaki transactions
Securities Clearing Corporation, Tokyo Financial Exchange, etc.
Short-term loans payable
Securities loaned to customers for margin transactions
Securities loaned as collateral under financing agreements
Securities pledged related to securities sold under Gensakitransactions
Securities pledged as margin
Securities pledged as collateral for other transactions
Securities borrowed on margin transactions
Securities borrowed under financing agreements
of 8,390 million yen and securities borrowed of 6,743 million yen were pledged as collateral with Japan
Trading products 46,192
In addition to the above, following assets are pledged as collateral.
Securities borrowed of 20,661 million yen were used as collateral for short-term loans payable. Trading
products of 150 million yen were used as collateral for short-term borrowed securities. Trading products of
1,996 million yen were pledged as collateral in lieu of guarantee deposits for listed futures transactions.
Trading products of 7,856 million yen and securities borrowed of 529 million yen were pledged as
collateral with Japan Securities Clearing Corporation, Tokyo Financial Exchange, etc.
Securities borrowed of 1,466 million yen were used as collateral for short-term loans payable. Trading
products of 1,239 million yen were used as collateral for short-term borrowed securities. Trading products
16
(Millions of Yen) (Millions of Yen)
4) FY2016 FY2017y
・ 105 223
・ 11,052 56,182
・ 20,541 12,570
② (Millions of Yen) (Millions of Yen)
1)FY2016
(9 months)FY2017y
Operating transactions
・ 339 1,584
・ 357 232
Other than Operating transactions 6,168 3,093
2)
FY2016 ( 9 months)
parent company of consolidated tax group.
FY2017
parent company of consolidated tax group.
③ Notes to statement of changes in net assets
1) Outstanding shares
(FY2016) (Unit: shares)
Numberincreased
Numberdecreased
Numberat the end of
the fiscal year
- - 3,842,000
(FY2017) (Unit: shares)
Numberincreased
Numberdecreased
Numberat the end of
the fiscal year
- - 3,842,000
Common stock 3,842,000
Types of sharesNumber
at the beginning ofthe fiscal year
Common stock 3,842,000
Types of sharesNumber
at the beginning ofthe fiscal year
Volume of transactions with the affiliates
Operating revenue from the affiliates
Operating expenses to the affiliates
Extraordinary income
6,168 million yen is recorded in Extraordinary income, as the individually attributed amount of consolidated
corporation tax payable and consolidated local corporate tax payable of the Company were forgiven by the
3,093 million yen is recorded in Extraordinary income, as the individually attributed amount of consolidated
corporation tax payable and consolidated local corporate tax payable of the Company were forgiven by the
Notes to statement of operations
Monetary claims from the affiliates and monetary debts to the affiliates
Short-term monetary claims from the affiliates
Short-term monetary debts to the affiliates
Long-term monetary debts to the affiliates
17
2. Major Lenders and Borrowings
(Millions of Yen)
3.
(Millions of Yen)
- - - - - -
- - - - - -
- - - - - -
- - - - - -
- - - -
- - - -
- - - - - -
- - - - - -
4. Derivative Transactions (Non-Trading)
(Millions of Yen)
Unrealizedgain/ (loss)
Interest rate swap on long-termcash collateral pledged for bondsborrowed
43,000 (5,276) (5,276) 36,000 (4,718) (4,718)
Bonds
Others
Transaction type
FY2016 FY2017
Notionalamount
Fair valueAsset
(Liability)
Unrealizedgain/ (loss)
Notionalamount
Fair valueAsset
(Liability)
Others
Noncurrentassets
742 742
Equities 742 742
Book Value Fair ValueUnrealizedgain/ (loss)
Currentassets
Equities
Bonds
20,000 Citigroup Japan Holdings G.K. 12,000
Securities Held (Non-Trading)
FY2016 FY2017
Book Value Fair ValueUnrealizedgain/ (loss)
Long-term
Citigroup Financial Products Inc. 59,000 Citigroup Financial Products Inc. 16,000
Citigroup Japan Holdings G.K.
Short-term
Bank of Japan 65,000 Citicorp LLC 55,000
Citigroup Japan Holdings G.K. 10,000 Citigroup Financial Products Inc. 8,000
FY2016 FY2017
Lender
Balanceat theend of
the fiscalyear
Lender
Balanceat theend of
the fiscalyear
Bank of Japan 5,000
18
5. External Audit
6. Others
Change in fiscal year
were audited by KPMG AZSA LLC. And the Company received audit report with unqualified opinion from KPMG
AZSA LLC.
Based on the resolution of the general meeting of shareholders on June 27, 2016, the Company changed the fiscal
year-end from March 31 to December 31. As a transitional period, the accounting period of the previous fiscal year is
the 9 months from April 1, 2016 to December 31, 2016.
Pursuant to the Article 436(2) (i) of the Companies Act, the Company’s financial report and its supplementary schedules
19
IV Internal Control Structure
1. Overview of Internal Control
・ Legal Division
・ Compliance Division
・ Risk Management Division
・ Finance Division
・ Corporate Planning Division
the matters related to assistance to President of the Company and the matters related to handling orders, etc.
from authorities, etc.
The Corporate Planning Division is responsible for the matters related to corporate planning of the Company,
policies
Risk Management Division consists of Credit Risk Management, Market Risk Management, UDCS-NPAC,
Underwriting Review, Risk Analytics, Operational Risk Management and Risk Governance Units. The Division
is responsible for tracking credit status, management of markets risks, oversight of new products, underwriting
review, analysis/establishment of internal risk models including research / development/ governance process,
management of risk operational risks and preparations/management of risk related reports.
Finance Division consists of Regulatory Reporting, Treasury, Product Control and Financial Planning & Analysis
and Tax Units. The Division is responsible for production, maintenance, and management of ledgers/ reports, etc.
of the Company's finance, accounting and tax, risk management based on the Company's Capital Adequacy
Ratio, liquidity analysis, fund raising, fund management and planning of management accounting and budget of
the Company.
・ Providing live and on-line trainings to increase understanding of employees regarding key laws, regulations and
Banking & Research Compliance / Control Group and ICRM Compliance Assurance Units. The Division is seen
as a key advocate within Citi of "Responsible Finance". This is accomplished by the following:
・ Setting standards through the creation and maintenance of Compliance policies and embedding the required
standards into the business and operation of the company
・ Managing the regulatory environment by tracking Japanese and overseas regulatory developments and active
participation in industry organizations
・ Providing advisory and support to other divisions to promote appropriate business behavior and activity that is
consistent with the required standards
・ Conducting testing and surveillance to evaluate compliance with policies and regulations
・ Promoting appropriate risk management and governance through the development of procedures and systems
to comply with applicable laws and regulations
Compliance Division consists of Markets Compliance, Surveillance, Central Compliance, AML Compliance,
The Company has the following divisions and departments which are responsible for internal control of the Company.
Legal Division consists of Legal Department and Derivatives Documentation Group and has, in connection with
general legal affairs and various laws and regulations and miscellaneous rules relating to financial instruments
transactions, the duty to have the officers and employees of the Company abide by the foregoing or give advice to
them on such matters, as the case may be.
20
・ Corporate Affairs Division
・ O&T Planning Unit (under Operations and Technology Division)
・ Information Technology Department
・ Government Affairs
・ Markets Operations Department (excluding CMO Support Unit)
・ Internal Audit Division
Company is involved in.
The Markets Operations Department consists of Cash Management, Information Service Group, Risk& Control,
Foreign Securities Operations, Domestic Securities Operations, Exchange Trade Derivatives Operations, OTC
Derivatives Operations, Okinawa Operations, KYC Utility, FX& Treasury Operations, Middle Office and CMO
Support Units (CMO Support Unit is excluded from Internal Control Function). The Division is responsible for
matters related to settlement of financial products trades, etc. with Japanese and foreign customers.
The Company also has established the below division which directly report to Board of Directors.
The Division conducts internal audits on the business of the Company and reports their results and evaluations
to the Board of Directors.
government agencies. It is also responsible for engagement in activities of business associations which the
The Corporate Affairs Division is responsible for the planning and execution of communications and public affairs
programs designed to strengthen the Company's recognition, enhance its brand and protect its reputation and also
responsible for the promotion of the Company's CSR activities.
The O&T Planning Unit is responsible for the matters concerning risk management around information security,
personal information protection, business continuity risk, system risk management, record management and
outsourcing management.
The Information Technology Department is responsible for development of Company’s information technology
strategies, systems development, systems operations and maintenance, associated expense and project
management, and overall system risk management activities.
The Government Affairs is responsible for information gathering, research and analysis for the Company on
government policies/activities as well as consultancy and advisory regarding relationship management with
21
2. Condition of Customers' Assets Segregation
securities at the end of December 2016 and December 2017 are as follows.
(1) Asset segregation based on article 43-2 of FIEL
① Condition of trust funds (Millions of Yen)
② Condition of securities segregation
A. Securities for safe keeping
989,951 thousandshares
8,960,445 thousandshares
785,142 thousandshares
thousandshares
303,881 millions ofyen
1,041,242 millions ofyen
252,646 millionsof yen
millionsof yen
83,310 millionaccounts
152,086 millionaccounts
146,106 millionaccounts
millionaccounts
- units 24 units - units units
B. Securities received as collateral
B. Not applicable
Stock purchase warrants(number of units)
-
Equities (shares) 9,019,961
Bonds (face amount) 998,885
Beneficiary certificates(number of accounts)
153,344
Security TypeAs of December 31, 2016 As of December 31, 2017
Domestic securities Foreign securities Domestic securities Foreign securities
Required segregation of customers’cashdeposits at the latest calculation date
2,944 9,141
Funds entrusted for segregatedcustomers' cash deposits at the end ofthe fiscal year
38,247 10,147
Required segregation of cash depositsat the end of the fiscal year
12 8,734
We have managed deposited cash and securities to secure and orderly stored them separately from our own property.
Thus, even in the event of bankruptcy, deposited money and securities are refunded to customers under certainty. Asset
segregation balance of cash and securities, and type of storage condition of the securities or the amount or quantity of
Type As of December 31, 2016 As of December 31, 2017
22
C. Condition of securities segregation
1.
2.
4.
3. Corporate debt securities, stocks etc.handled at book-entry system underthe transfer law
① The Japanese Government Bonds shall be managed at the Bank of Japanpursuant to the Transfer Law in a manner whereby Company-owned Securities etc.and Customer-owned Securities are clearly segregated and, with respect toCustomer-owned Securities, the holdings of each customer can be immediatelyidentified by means of the Company’s ledger of the book-entry accounts.
② The corporate debt securities stocks etc.(excluding JGBs described in ① above)shall be managed at the Depository pursuant to the Transfer Law in a mannerwhereby Company-owned Securities etc. and Customer-owned Securities areclearly segregated and, with respect to Customer-owned Securities, the holdings ofeach customer can be immediately identified by means of the Company’s ledger ofbook-entry accounts.
Domestic bonds other than CB-typecorporate bonds with stockacquisition rights and securities setforth in section 3 above, and stockacquisition rights securities, etc.
In principle, these securities shall be stored in Japan Information Processing, Ltd.or any other outside place of custody where Company-owned Securities, etc., andCustomer-owned Securities are clearly segregated and managed in a mannerwhereby the holdings of each customer can be immediately identified by means ofthe Company’s ledger, etc. However, in the case of securities of largedenomination, etc., where a single certificate is held in common by the Companyand the customer, and it is not possible to clearly segregate the place of custody ofCompany-owned portion etc. and Customer-owned portion, the place of custodyshall be made clear and Company-owned portion etc. and Customer-owned portionshall be segregated by means of the Company’s ledger, etc. and Customer-ownedSecurities shall be managed in a manner whereby the holdings of each customercan be immediately identified.
Convertible bond-type corporatebonds with stock acquisition rights,equity securities of investmentcorporations, beneficiary securitiesand investment securities that arelisted on financial instrumentsexchange markets
① With respect to CB-type corporate bonds with stock acquisition rights (includingCB certificates, the same shall apply hereinafter), equity securities of investmentcorporations, beneficiary certificates and investment securities that are listed onFinancial Instruments Exchange Markets (the hereinafter referred to as the“Domestically Listed Securities”), those securities that are the assets of theCompany and the other securities that are not Customer-owned Securities(hereinafter referred to as "Company-owned Securities"), in principle, shall bemanaged separately from Customer-owned Securities by means of a ledger, etc.,but stored together at Japan Securities Depository Center (hereinafter referred toas the "Depository", including the organization that is entrusted by the Depositary,the same shall apply hereinafter).
② Customer-owned Securities shall be managed in a manner whereby the holdingsof each customer can be immediately identified by means of the Company’s ledger,etc.; provided, however, that Domestically Listed Securities that are not re-deposited in the Depository at the customer’s request shall be stored in JapanInformation Processing, Ltd. or any other outside place of custody clearlysegregated from Company-owned Securities and managed in a manner wherebythe customer to whom the particular securities belong can be immediatelyidentified.
Customer-owned Securities that have been delivered to the issuing company(including the transfer agent; the same shall apply hereinafter) for the exercise ofstock acquisition rights of CB-type corporate bonds with stock acquisition rights etc.at the request of a customer shall be managed appropriately by means of theCompany’s ledger, etc., in a manner whereby the issue, the amount and the issuingparty of the particular securities can be immediately identified for eachcommissioning customer.
Domestically listed foreign securities
With respect to domestically listed foreign securities, Company-owned Securitiesand Customer-owned Securities, in principle, shall be managed separately bymeans of a ledger, etc. but stored together at Depository. Customer-ownedSecurities shall be managed in a manner whereby the holdings of each customercan be immediately identified by means of the Company’s ledger, etc.
Security Type Depositary agent and segregation method
23
5.
6.
[Overview of overseas custody]
③ Condition of asset segregation for Over-the-Counter Transactions of subject Securities-Related
Derivatives
Not applicable
Separate accounts have beenestablished for Company-ownedSecurities and customer-ownedSecurities at each custodial facility,and the securities for the customers’account is on a separate basis.
Name of custodial facilityCountry of
establishmentType of securities
depositedExistence of segregated accounts
and method of segregation
Euroclear Belgium
Australian bonds,Italy national bonds,UK bonds,UK stocks, etc.
Separate accounts have beenestablished for Company-ownedSecurities and customer-ownedSecurities at each custodial facility,and the securities for the customers’account is on a commingle basis.
Citibank (Hong Kong) Ltd. Hong KongHong Kong stocks,Thailand stocks, etc.
Citigroup Global Markets Inc. USA
US stocks,Canadian stocks,US bonds,Canadian bonds, etc.
Security Type Depositary agent and segregation method
Beneficiary certificates of investmenttrust
With respect to domestic Beneficiary certificates of investment trust, in principle,these certificates shall be stored together at the Depository. In such a case, theplace of custody of Company-owned Securities, etc. and Customer-ownedSecurities shall be clearly segregated at said trustee trust bank and Customer-owned Securities shall be managed in a manner whereby the holdings of eachcustomer can be immediately identified by means of the Company’s ledger, etc.However, in the case where a single certificate is held in common by the Companyand the customer, and it is not possible to clearly segregate the place of custody ofCompany-owned portion etc. and Customer-owned portion, the place of custodyshall be made clear and Company-owned portion etc. and Customer-owned portionshall be segregated by means of the Company’s ledger etc. and Customer-ownedSecurities shall be managed in a manner whereby the holdings of each customercan be immediately identified.With respect to foreign Beneficiary certificates of investment trust, in principle, thesecertificates shall be managed clearly as Customer-owned Securities at an overseasAgency's facility and Customer-owned Securities shall be managed in a mannerwhereby the state of such management of Customer-owned Securities at theAgency can be immediately available and identified by means of the Company’sledger.
Securities stored or managed atoverseas custodial facilities
With respect to the securities stored or managed at an overseas Custodial Facility,Company-owned Securities and Customer-owned Securities shall be segregated byestablishing separate accounts, etc. as shown in the chart below, and Customer-owned Securities shall be managed in a manner whereby the holdings of eachcustomer can be immediately identified by means of the Company’s ledger, etc.;provided, however, that in the case it is not possible to store or manage Customer-owned Securities at the Custodial Facility in a manner whereby the holdings of eachcustomer can be immediately identified, the Company shall manage these securitiesby means of the Company’s ledger in such a way that the Company-owned portionand the Customer-owned portion is segregated and the holdings of each customercan be immediately identified.
24
(2) Asset segregation based on article 43-2-2 of FIEL
Not applicable
(3) Asset segregation based on article 43-3 of FIEL
Not applicable
25