6-K 1 d162600d6k.htm FORM 6-K FORM 6-K
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FORM 6-K

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

Commission File Number: 1-15270

For the month of August 2021

NOMURA HOLDINGS, INC.

(Translation of registrant’s name into English)

13-1, Nihonbashi 1-chome

Chuo-ku, Tokyo 103-8645

Japan

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F      X             Form 40-F              

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):             

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):             

 

 

 


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Information furnished on this form:

EXHIBITS

 

Exhibit Number
1.    (English Translation) Quarterly Securities Report Pursuant to the Financial Instruments and Exchange Act for the Three Months Ended June 30, 2021.
2.    (English Translation) Confirmation Letter.

The registrant hereby incorporates Exhibits 1 and 2 to this report on Form 6-K by reference in the prospectus that is part of the Registration Statement on Form F-3 (Registration No. 333-229191) of the registrant, filed with the SEC on January 11, 2019.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NOMURA HOLDINGS, INC.
Date: August 26, 2021   By:  

/s/ Yoshifumi Kishida

    Yoshifumi Kishida
    Senior Managing Director

 


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Exhibit 1

Quarterly Securities Report Pursuant to the Financial Instruments and Exchange Act for the Three Months Ended June 30, 2021

Items included in the Quarterly Securities Report

 

     Page  

Part I    Corporate Information

     1  

Item 1. Information on Company and Its Subsidiaries and Affiliates

     1  

1. Selected Financial Data

     1  

2. Business Overview

     2  

Item 2. Operating and Financial Review

     3  

1. Risk Factors

     3  

2. Operating, Financial and Cash Flow Analyses by Management

     3  

3. Significant Contracts

     19  

Item 3. Company Information

     20  

1. Share Capital Information

     20  

2. Directors and Executive Officers

  

Item 4. Financial Information

     22  

Preparation Method of Consolidated Financial Statements and Quarterly Review Certificate

     22  

1. Consolidated Financial Statements

     23  

(1) Consolidated Balance Sheets (UNAUDITED)

     23  

(2) Consolidated Statements of Income (UNAUDITED)

     26  

(3) Consolidated Statements of Comprehensive Income (UNAUDITED)

     27  

(4) Consolidated Statements of Changes in Equity (UNAUDITED)

     28  

(5) Consolidated Statements of Cash Flows (UNAUDITED)

     29  

Notes to the Consolidated Financial Statements (UNAUDITED)

     31  

2. Other

     104  

Part II    Information on Guarantor of the Company

  

Quarterly Review Report of Independent Auditors

     105  

 

Note: Translations for the underlined items are attached to this form as below.


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Part I    Corporate Information

Item 1. Information on Company and Its Subsidiaries and Affiliates

1. Selected Financial Data

 

          Three months
ended
June 30,
2020
    Three months
ended
June 30,
2021
    Year ended
March 31,
2021
 

Total revenue

   (Mil yen)      514,049       405,172       1,617,235  

Net revenue

   (Mil yen)      460,747       353,275       1,401,872  

Income before income taxes

   (Mil yen)      181,811       78,533       230,671  

Net income attributable to Nomura Holdings, Inc. (“NHI”) shareholders

   (Mil yen)      142,516       48,487       153,116  

Comprehensive income attributable to NHI shareholders

   (Mil yen)      142,648       49,455       141,077  

Total equity

   (Mil yen)      2,830,643       2,804,320       2,756,451  

Total assets

   (Mil yen)      41,545,394       41,830,204       42,516,480  

Net income attributable to NHI common shareholders per share—basic

   (Yen)      46.77       16.12       50.11  

Net income attributable to NHI common shareholders per share—diluted

   (Yen)      45.65       15.59       48.63  

Total NHI shareholders’ equity as a percentage of total assets

   (%)      6.7       6.6       6.3  

Cash flows from operating activities

   (Mil yen)      380,845       (539,112     665,770  

Cash flows from investing activities

   (Mil yen)      16,786       47,939       (139,026

Cash flows from financing activities

   (Mil yen)      (231,169     218,784       (269,927

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

   (Mil yen)      3,355,531       3,231,015       3,510,011  

 

 

1

The selected financial data of Nomura Holdings, Inc. (the “Company”) and other entities in which it has a controlling financial interest (collectively referred to as “Nomura”, “we”, “our”, or “us”) are stated in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”).

2

As the consolidated financial statements have been prepared, selected financial data on the Company are not disclosed.

 

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2. Business Overview

There were no significant changes to the businesses of the Company and its 1,273 consolidated subsidiaries for the three months ended June 30, 2021.

There were 15 affiliated companies which were accounted for by the equity method as of June 30, 2021.

 

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Item 2. Operating and Financial Review

1. Risk Factors

Significant changes in our Risk Factors which were described on the annual securities report are stated below. The titles below correspond to the titles of “Part I Corporate Information—Item 2. Operating and Financial Review—2. Risk Factors” in the annual securities report. The discussion below contains future matters that are based on the assessments made as of the date of submission of this report (August 16, 2021), unless noted separately.

5. Our business may incur losses due to various factors in the conduct of its operations.

(1) We may incur significant losses from our trading and investment activities

(Omission)

For example, in March 2021, following the default of a U.S. prime brokerage client in respect of a margin call, we issued a close-out event notice to such client, and proceeded to wind down positions held as hedges for transactions with the client. We refer to this event and the losses caused as the “U.S. Prime Brokerage Event.” See Item 5. “Operating and Financial Review—Executive Summary—U.S. Prime Brokerage Event” for further information on the nature of this event. Despite our efforts to wind down the relevant positions in a way that would limit losses to us and impacts on the market, volatility in the underlying securities led us to recognize a trading loss of ¥204.2 billion during the year ended March 31, 2021. We also recognized a provision for current expected credit losses ¥41.6 billion during the same period to reflect a shortfall in the value of securities pledged as collateral by the client against financing provided to the client, caused by a decrease in the value of such securities before we were able to liquidate them. The unwinding of the underlying positions was completed in the first quarter of the fiscal year ending March 31, 2022, and we recognized additional losses of ¥65.4 billion in the three months ended June 30, 2021 as a result. Despite our actions in response to the U.S. Prime Brokerage Event, including to improve our risk management activities, our business model necessarily involves significant trading activity, and we may record significant losses as a result of such trading activity again in the future.

(Omitted)

2. Operating, Financial and Cash Flow Analyses by Management

(1) Operating Results

Nomura reported net revenue of ¥353.3 billion, non-interest expenses of ¥274.7 billion, income before income taxes of ¥78.5 billion, and net income attributable to NHI shareholders of ¥48.5 billion for the three months ended June 30, 2021.

The breakdown of net revenue and non-interest expenses on the consolidated statements of income is as follows:

 

     Millions of yen  
     Three months ended June 30  
     2020     2021  

Commissions

   ¥ 85,512          ¥ 82,886  

Brokerage commissions

     67,274       61,919  

Commissions for distribution of investment trust

     14,077       14,407  

Other

     4,161       6,560  

Fees from investment banking

     10,828       35,703  

Underwriting and distribution

     4,886       17,825  

M&A / financial advisory fees

     4,711       13,115  

Other

     1,231       4,763  

Asset management and portfolio service fees

     53,656       64,044  

Asset management fees

     49,762       59,490  

Other

     3,894       4,554  

Net gain on trading

     139,089       51,994  

Gain (loss) on private equity and debt investments

     1,070       25,988  

Net interest

     53,241       12,639  

Gain (loss) on investments in equity securities

     3,473       3,468  

Other

     113,878       76,553  
  

 

 

   

 

 

 

Net revenue

   ¥ 460,747     ¥ 353,275  
  

 

 

   

 

 

 

 

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     Millions of yen  
     Three months ended June 30  
     2020     2021  

Compensation and benefits

   ¥ 138,297          ¥ 135,603  

Commissions and floor brokerage

     28,511       26,816  

Information processing and communications

     43,238       44,099  

Occupancy and related depreciation

     17,058       16,716  

Business development expenses

     2,832       3,294  

Other

     49,000       48,214  
  

 

 

   

 

 

 

Non-interest expenses

   ¥ 278,936     ¥ 274,742  
  

 

 

   

 

 

 

 

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Business Segment Information

Results by business segment are noted below. In April 2021, the Investment Management Division was newly established by replacing the Asset Management Division and the Merchant Banking Division. Accordingly, our operating management and management reporting are prepared based on the Retail, the Investment Management and the Wholesale segments. We disclose business segment information in accordance with this structure from the first quarter commencing on April 1, 2021.

Reconciliations of Net revenue and Income (loss) before income taxes on segment results of operations and the consolidated statements of income are set forth in Item 4. Financial Information, 1. Consolidated Financial Statements, Note 16. “Segment and geographic information.

Net revenue

 

     Millions of yen  
       Three months ended June 30    
     2020     2021  

Retail

   ¥ 81,078     ¥ 84,986  

Investment Management

     39,674       63,482  

Wholesale

     248,669       132,777  

Other (Incl. elimination)

     89,023       68,659  
  

 

 

   

 

 

 

Total

   ¥ 458,444     ¥   349,904  
  

 

 

   

 

 

 

Non-interest expenses

    
     Millions of yen  
     Three months ended June 30  
     2020     2021  

Retail

   ¥ 66,009     ¥ 65,964  

Investment Management

     17,503       18,569  

Wholesale

     160,800       161,134  

Other (Incl. elimination)

     34,624       29,075  
  

 

 

   

 

 

 

Total

   ¥ 278,936     ¥ 274,742  
  

 

 

   

 

 

 

Income (loss) before income taxes

    
     Millions of yen  
     Three months ended June 30  
     2020     2021  

Retail

   ¥ 15,069     ¥ 19,022  

Investment Management

     22,171       44,913  

Wholesale

     87,869            (28,357

Other (Incl. elimination)

     54,399       39,584  
  

 

 

   

 

 

 

Total

   ¥  179,508     ¥ 75,162  
  

 

 

   

 

 

 

Note: Prior period amounts have been reclassified to conform to the current year presentation.

Retail

Net revenue was ¥85.0 billion primarily due to an increase in fees from investment banking and investment trust administration fees, which is partially offset by decreases in commissions from sales of stocks from the previous year. Non-interest expenses were ¥66.0 billion and income before income taxes was ¥19.0 billion. Retail client assets were ¥127.0 trillion as of June 30, 2021, a ¥0.4 trillion increase from March 31, 2021.

Investment Management

Net revenue was ¥63.5 billion. Non-interest expenses were ¥18.6 billion and income before income taxes was ¥44.9 billion. Assets under management were ¥65.8 trillion as of June 30, 2021, a ¥1.1 trillion increase from March 31, 2021, primarily due to increases in the market value of assets under management and inflows to our investment trusts.

 

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The breakdown of net revenue for Investment Management is as follows:

 

     Millions of yen  
       Three months ended June 30    
     2020           2021        

Business revenue(1)

   ¥ 26,026     ¥ 28,023  

Investment gain/ loss(2)

     13,648            35,459  
  

 

 

   

 

 

 

Net revenue

   ¥     39,674     ¥     63,482   
  

 

 

   

 

 

 

Note: Prior period amounts have been reclassified to conform to the current year presentation.

 

(1)

Consists of division revenue, other than investment gain/loss, including revenue generated by our asset management business (excluding gains and losses related to our investment in American Century Investments), revenues generated by Nomura Babcock & Brown Co., Ltd.’s aircraft leasing-related businesses and management fee revenues generated from our private equity and other investment businesses

(2)

Consists of division revenue attributable to investments (including fair value fluctuations, funding cost and dividends), including gains and losses related to our investment in American Century Investments, our investments held in our private equity and other investment businesses and our investment in Mebuki Financial Group, Inc.

Wholesale

Net revenue was ¥132.8 billion. Non-interest expenses were ¥161.1 billion and loss before income taxes was ¥28.4 billion, which included losses of ¥65.4 billion arising from transactions with a U.S. client.

The breakdown of net revenue for Wholesale is as follows:

 

     Millions of yen  
       Three months ended June 30    
     2020     2021  

Global Markets

   ¥ 232,586     ¥ 97,230  

Investment Banking

     16,083            35,547   
  

 

 

   

 

 

 

Net revenue

   ¥  248,669     ¥   132,777  
  

 

 

   

 

 

 

Global Markets net revenue was ¥97.2 billion. Fixed Income net revenue decreased from ¥154.9 billion in the previous year to ¥88.1 billion primarily due to market normalization. Equities net revenue decreased from ¥77.7 billion in the previous year to ¥9.1 billion primarily due to losses arising from transactions with a U.S. client. Investment banking net revenue was ¥35.5 billion.

Other Operating Results

Other operating results include net gain (loss) related to economic hedging transactions, a part of realized gain (loss) on investments in equity securities held for operating purposes, equity in earnings of affiliates, corporate items, and other financial adjustments. Other operating results for the three months ended June 30, 2021 include losses from changes in the fair value of derivative liabilities of ¥3.9 billion attributable to the change in its own creditworthiness and gains from changes in counterparty credit spread of ¥2.1 billion. Net revenue was ¥68.7 billion, mainly due to income of ¥36.2 billion recognized in June 2021 from the sale of a part of our shares held in Nomura Research Institute, Ltd. Non-interest expenses were ¥29.1 billion and income before income taxes was ¥39.6 billion for the three months ended June 30, 2021.

Geographic Information

Please refer to Item 4. Financial Information, 1. Consolidated Financial Statements, Note 16. “Segment and geographic information” for net revenue and income (loss) before income taxes by geographic allocation.

Cash Flow Information

Please refer to “(6) Liquidity and Capital Resources.”

 

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(2) Assets and Liabilities Associated with Investment and Financial Services Business

1) Exposure to Certain Financial Instruments and Counterparties

Market conditions continue to impact numerous products to which we have certain exposures. We also have exposures to Special Purpose Entities (“SPEs”) and others in the normal course of business.

Leveraged Finance

We provide loans to clients in connection with leveraged buy-outs and leveraged buy-ins. As this type of financing is usually initially provided through a commitment, we have both funded and unfunded exposures on these transactions.

The following table sets forth our exposure to leveraged finance with unfunded commitments, presenting funded and unfunded portions by geographic location of the target company as of June 30, 2021.

 

     Millions of yen  
     June 30, 2021  
     Funded      Unfunded     Total  

Europe

   ¥ 5,342      ¥ 116,181     ¥ 121,523  

Americas

     8,434        108,607            117,041  

Asia and Oceania

     14,196        12,986       27,182  
  

 

 

    

 

 

   

 

 

 

Total

   ¥     27,972      ¥      237,774     ¥     265,746  
  

 

 

    

 

 

   

 

 

 

Special Purpose Entities

Our involvement with these entities includes structuring, underwriting, as well as, subject to prevailing market conditions, distributing and selling debt instruments and beneficial interests issued by these entities. In the normal course of securitization and equity derivative activities business, we also act as a transferor of financial assets to, and underwriter, distributor and seller of repackaged financial instruments issued by these entities. We retain, purchase and sell variable interests in SPEs in connection with our market-making, investing and structuring activities. Our other types of involvement with SPEs include guarantee agreements and derivative contracts.

For further discussion on Nomura’s involvement with variable interest entities (“VIEs”), see Item 4. Financial Information, 1. Consolidated Financial Statements, Note 6. “Securitizations and Variable Interest Entities.

2) Fair Value of Financial Instruments

A significant amount of our financial instruments are carried at fair value, with changes in fair value recognized through the consolidated statements of income or the consolidated statements of comprehensive income on a recurring basis. Use of fair value is either specifically required under U.S. GAAP or we make an election to use fair value for certain eligible items under the fair value option.

Other financial assets and financial liabilities are carried at fair value on a nonrecurring basis, where the primary measurement basis is not fair value. Fair value is only used in specific circumstances after initial recognition, such as to measure impairment.

In accordance with Accounting Standard Codification (“ASC”) 820 “Fair Value Measurements and Disclosures”, all financial instruments measured at fair value have been categorized into a three-level hierarchy based on the transparency of inputs used to establish fair value.

Level 3 financial assets as a proportion of total financial assets, carried at fair value on a recurring basis was 5% as of June 30, 2021 (5% as of March 31, 2021) as listed below:

 

     Billions of yen  
     June 30, 2021  
     Level 1      Level 2      Level 3      Counterparty
and
Cash Collateral
Netting
    Total  

Financial assets measured at fair value

(Excluding derivative assets)

   ¥ 8,304      ¥ 7,545      ¥ 726      ¥ —       ¥ 16,575  

Derivative assets

     32        13,850        175        (12,992     1,065  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   ¥ 8,336      ¥ 21,395      ¥ 901      ¥ (12,992   ¥ 17,640  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Please refer to Item 4. Financial Information, 1. Consolidated Financial Statements, Note 2. “Fair value measurements” for further information.

 

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(3) Trading Activities

Assets and liabilities for trading purposes

Please refer to Item 4. Financial Information, 1. Consolidated Financial Statements, Note 2. “Fair value measurements” and Note 3. “Derivative instruments and hedging activities” regarding the balances of assets and liabilities for trading purposes.

Risk management of trading activity

We adopt Value at Risk (“VaR”) for measurement of market risk arising from trading activity.

1) Assumptions on VaR

 

   

Confidence Level: 99%

 

   

Holding period: One day

 

   

Consideration of price movement among the products

2) Records of VaR

 

     Billions of yen  
     March 31, 2021     June 30, 2021  

Equity

   ¥ 93.4     ¥ 3.6  

Interest rate

     8.6       3.8  

Foreign exchange

     4.2       2.3  
  

 

 

   

 

 

 

Subtotal

     106.2       9.7  

Diversification benefit

     (12.8     (3.9
  

 

 

   

 

 

 

VaR

   ¥ 93.4     ¥ 5.8  
  

 

 

   

 

 

 

 

     Billions of yen  
     Three months ended June 30, 2021  
     Maximum(1)      Minimum(1)      Average(1)  

VaR

   ¥ 89.7      ¥ 4.8      ¥ 16.1  

 

(1)

Represents the maximum, average and minimum VaR based on all daily calculations over the three-month period.

 

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(4) Deferred Tax Assets Information

Details of deferred tax assets and liabilities

The following table presents details of deferred tax assets and liabilities reported within Other assetsOther and Other liabilities, respectively, in the consolidated balance sheets as of June 30, 2021.

 

     Millions of yen  
     June 30, 2021  

Deferred tax assets

  

Depreciation, amortization and valuation of fixed assets

   ¥ 26,841  

Investments in subsidiaries and affiliates

     20,475  

Valuation of financial instruments

     79,179  

Accrued pension and severance costs

     19,964  

Other accrued expenses and provisions

     55,039  

Operating losses

     412,308  

Lease liabilities

     51,172  

Other

     10,050  
  

 

 

 

Gross deferred tax assets

     675,028  

Less—Valuation allowance

     (470,630
  

 

 

 

Total deferred tax assets

     204,398  
  

 

 

 

Deferred tax liabilities

  

Investments in subsidiaries and affiliates

     91,892  

Valuation of financial instruments

     53,124  

Undistributed earnings of foreign subsidiaries

     2,505  

Valuation of fixed assets

     23,356  

Right-of-use assets

     50,639  

Other

     5,316  
  

 

 

 

Total deferred tax liabilities

     226,832  
  

 

 

 

Net deferred tax assets (liabilities)

   ¥ (22,434
  

 

 

 

Calculation method of deferred tax assets

In accordance with U.S. GAAP, we recognize deferred tax assets to the extent we believe that it is more likely than not that a benefit will be realized. A valuation allowance is provided for tax benefits available to us, which are not deemed more likely than not to be realized.

 

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(5) Qualitative Disclosures about Market, Credit and Other Risk

1) Risk Management

Nomura defines risks as (i) the potential erosion of Nomura’s capital base due to unexpected losses arising from risks to which its business operations are exposed, such as market risk, credit risk, operational risk and model risk, (ii) liquidity risk, the potential lack of access to funds or higher cost of funding than normal levels due to a deterioration in Nomura’s creditworthiness or deterioration in market conditions, and (iii) strategic risk, the potential failure of revenues to cover costs due to a deterioration in the earnings environment or a deterioration in the efficiency or effectiveness of its business operations.

A fundamental principle established by Nomura is that all employees shall regard themselves as principals of risk management and appropriately manage these risks. Nomura seeks to promote a culture of proactive risk management throughout all levels of the organization and to limit risks to the confines of its risk appetite. The risk management framework that Nomura uses to manage these risks consists of its risk appetite, risk management governance and oversight, the management of all risk classes, and processes to measure and control risks.

2) Risk Appetite

Nomura has determined the types and levels of risk that it will assume in pursuit of its strategic objectives and business plan and has articulated this in its Risk Appetite Statement. This document is jointly submitted by the Chief Risk Officer (“CRO”), the Chief Financial Officer (“CFO”) and the Chief Compliance Officer (“CCO”) to the Executive Management Board (“EMB”) for approval. The Risk Appetite Statement provides an aggregated view of risk and includes capital adequacy, liquidity, financial risk and non-financial risk. It is subject to regular monitoring and breach escalation as appropriate by the owner of the relevant risk appetite statement.

Nomura’s Risk Appetite Statement is required to be reviewed at least annually by the EMB but it is reviewed on an ad hoc basis if necessary, and must specifically be reviewed following any significant changes in Nomura’s strategy. Risk appetite underpins all additional aspects of Nomura’s risk management framework.

3) Market Risk Management

Market risk is the risk of loss arising from fluctuations in the value of financial assets and liabilities (including off-balance sheet items) due to fluctuations in market factors (interest rates, foreign exchange rates, prices of securities and others). Effective management of market risk requires the ability to analyze a complex and evolving portfolio in a constantly changing global market environment, identify problematic trends and ensure that appropriate action is taken in a timely manner.

Nomura uses a variety of statistical risk measurement tools to assess and monitor market risk on an ongoing basis, including, but not limited to, Value at Risk (“VaR”), Stressed VaR and Incremental Risk Charge. In addition, Nomura uses sensitivity analysis and stress testing to measure and analyze its market risk. Sensitivities are measures used to show the potential changes to a portfolio due to standard moves in market risk factors. They are specific to each asset class and cannot usually be aggregated across risk factors. Stress testing enables the analysis of portfolio risks or tail risks, including non-linear behaviors and can be aggregated across risk factors at any level of the group hierarchy, from group level to business division, units or desk levels. Market risk is monitored against a set of approved limits, with daily reports and other management information provided to the business units and senior management.

4) Credit Risk Management

Credit risk is the risk of loss arising from an obligor’s default, insolvency or administrative proceeding which results in the obligor’s failure to meet its contractual obligations in accordance with agreed terms. This includes both on and off-balance sheet exposures. It is also the risk of loss arising through a credit valuation adjustment (“CVA”) associated with deterioration in the creditworthiness of a counterparty. Nomura manages credit risk on a global basis and on an individual Nomura legal entity basis.

The measurement, monitoring and management of credit risk at Nomura are governed by a set of global policies and procedures. Credit Risk Management (“CRM”), a global function within the Risk Management Division, is responsible for the implementation and maintenance of these policies and procedures. These policies are authorized by the Group Integrated Risk Management Committee (“GIRMC”) and/or Global Risk Strategic Committee (“GRSC”), prescribe the basic principles of credit risk management and set delegated authority which enables CRM personnel to set Credit limits.

Credit risk is managed by CRM together with various global and regional risk committees. This helps to ensure transparency of material credit risks and compliance with established credit limits, the approval of material extensions of credit and the escalation of risk concentrations to appropriate senior management.

 

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CRM operates as a credit risk control function within the Risk Management Division, reporting to the CRO. The process for managing credit risk at Nomura includes:

 

   

Evaluation of likelihood that a counterparty defaults on its payments and obligations;

 

   

Assignment of internal credit ratings to all active counterparties;

 

   

Approval of extensions of credit and establishment of credit limits;

 

   

Measurement, monitoring and management of Nomura’s current and potential future credit exposures;

 

   

Setting credit terms in legal documentation;

 

   

Use of appropriate credit risk mitigants including netting, collateral and hedging.

For regulatory capital calculation purposes, Nomura has been applying the Foundation Internal Rating Based Approach in calculating credit-risk weighted asset since the end of March 2011. The Standardized Approach is applied to certain business units or asset types, which are considered immaterial to the calculation of credit-risk weighted assets. The exposure calculation model used for counterparty credit risk management has also been used for the Internal Model Method based exposure calculation for regulatory capital reporting purposes since the end of December 2012.

5) Operational Risk Management

Operational risk is the risk of financial loss or non-financial impact arising from inadequate or failed internal processes, people and systems, or from external events. Operational risk includes in its definition Compliance, Legal, IT and Cyber Security, Fraud, Third Party and other non-financial risks. Operational risk does not include strategic risk and reputational risk, however, some operational risks can lead to reputational issues and as such operational and reputational risks may be closely linked.

Nomura adopts the industry standard “Three Lines of Defence” for the management of operational risk, comprising the following elements:

 

  1)

1st Line of Defence: The business which owns and manages its risks

 

  2)

2nd Line of Defence: The Operational Risk Management (“ORM”) function, which co-ordinates the Operational Risk Management Framework and its implementation.

 

  3)

3rd Line of Defence: Internal and External Audit, who provide independent assurance

An Operational Risk Management Framework has been established in order to allow Nomura Group to identify, assess, manage, monitor and report on operational risk. The GIRMC, with delegated authority from the EMB has formal oversight over the management of operational risk.

Nomura Group uses The Standardized Approach for calculating regulatory capital for operational risk. This involves using a three-year average of gross income allocated to business lines, which is multiplied by a fixed percentage (“Beta Factor”) determined by the Financial Services Agency of Japan (“FSA”), to establish the amount of required operational risk capital.

6) Model Risk Management

Model Risk is the risk of financial loss, incorrect decision making, or damage to the firm’s credibility arising from Model errors or incorrect or inappropriate Model application.

To effectively manage the Firm’s Model Risk, Nomura has established a Model Risk Management Framework to govern the development, ownership, validation, approval, usage, ongoing monitoring, and periodic review of the Firm’s Models. The framework is supported by a set of policies and procedures that articulate process requirements for the various elements of the model lifecycle, including monitoring of model risk with respect to the Firm’s appetite.

New models and material changes to approved models must be independently validated prior to official use. Thresholds to assess the materiality of model changes are defined in Model Risk Management’s procedures. During independent validation, validation teams analyze a number of factors to assess a model’s suitability, identify model limitations, and quantify the associated model risk, which is ultimately mitigated through the imposition of approval conditions, such as usage conditions, model reserves and capital adjustments. Approved models are subject to Model Risk Management’s periodic review process and ongoing performance monitoring to assess their continued suitability. Appropriately delegated Model Risk Management Committees provide oversight, challenge, governance, and ultimate approval of validated Models.

 

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(6) Liquidity and Capital Resources

Funding and Liquidity Management

Overview

We define liquidity risk as the risk of loss arising from difficulty in securing the necessary funding or from a significantly higher cost of funding than normal levels due to deterioration of the Nomura Group’s creditworthiness or deterioration in market conditions. This risk could arise from Nomura-specific or market-wide events such as inability to access the secured or unsecured debt markets, a deterioration in our credit ratings, a failure to manage unplanned changes in funding requirements, a failure to liquidate assets quickly and with minimal loss in value, or changes in regulatory capital restrictions which may prevent the free flow of funds between different group entities. Our global liquidity risk management policy is based on liquidity risk appetite formulated by the Executive Management Board (“EMB”). Nomura’s liquidity risk management, under market-wide stress and in addition, under Nomura-specific stress, seeks to ensure enough continuous liquidity to meet all funding requirements and unsecured debt obligations across one year and 30-day periods, respectively, without raising funds through unsecured funding or through the liquidation of assets. We are required to meet regulatory notice on the liquidity coverage ratio issued by the FSA.

We have in place a number of liquidity risk management frameworks that enable us to achieve our primary liquidity objective. These frameworks include (1) Centralized Control of Residual Cash and Maintenance of Liquidity Portfolio; (2) Utilization of Unencumbered Assets as Part of Our Liquidity Portfolio; (3) Appropriate Funding and Diversification of Funding Sources and Maturities Commensurate with the Composition of Assets; (4) Management of Credit Lines to Nomura Group Entities; (5) Implementation of Liquidity Stress Tests; and (6) Contingency Funding Plan.

Our EMB has the authority to make decisions concerning group liquidity management. The Chief Financial Officer (“CFO”) has the operational authority and responsibility over our liquidity management based on decisions made by the EMB.

 

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1) Centralized Control of Residual Cash and Maintenance of Liquidity Portfolio

We centrally control residual cash held at Nomura Group entities for effective liquidity utilization purposes. As for the usage of funds, the CFO decides the maximum amount of available funds, provided without posting any collateral, for allocation within Nomura and the EMB allocates the funds to each business division. Global Treasury monitors usage by businesses and reports to the EMB.

In order to enable us to transfer funds smoothly between group entities, we limit the issuance of securities by regulated broker-dealers or banking entities within the Nomura Group and seek to raise unsecured funding primarily through the Company or through unregulated subsidiaries. The primary benefits of this strategy include cost minimization, wider investor name recognition and greater flexibility in providing funding to various subsidiaries across the Nomura Group.

To meet any potential liquidity requirement, we maintain a liquidity portfolio, managed by Global Treasury apart from other assets, in the form of cash and highly liquid, unencumbered securities that may be sold or pledged to provide liquidity. As of June 30, 2021, our liquidity portfolio was ¥6,894.1 billion which sufficiently met liquidity requirements under the stress scenarios.

2) Utilization of Unencumbered Assets as Part of Our Liquidity Portfolio

In addition to our liquidity portfolio, we had unencumbered assets comprising mainly of unpledged trading assets that can be used as an additional source of secured funding. Global Treasury monitors other unencumbered assets and can, under a liquidity stress event when the contingency funding plan has been invoked, monetize and utilize the cash generated as a result. The aggregate of our liquidity portfolio and other unencumbered assets was sufficient against our total unsecured debt maturing within one year.

3) Appropriate Funding and Diversification of Funding Sources and Maturities Commensurate with the Composition of Assets

We seek to maintain a surplus of long-term debt and equity above the cash capital requirements of our assets. We also seek to achieve diversification of our funding by market, instrument type, investors, currency, and staggered maturities in order to reduce unsecured refinancing risk.

We diversify funding by issuing various types of debt instruments—these include both structured loans and structured notes with returns linked to interest rates, currencies, equities, commodities, or related indices. We issue structured loans and structured notes in order to increase the diversity of our debt instruments. We typically hedge the returns we are obliged to pay with derivatives and/or the underlying assets to obtain funding equivalent to our unsecured long-term debt.

3.1) Short-Term Unsecured Debt

Our short-term unsecured debt consists of short-term bank borrowings (including long-term bank borrowings maturing within one year), other loans, commercial paper, deposit at banking entities, certificates of deposit and debt securities maturing within one year. Deposits at banking entities and certificates of deposit comprise customer deposits and certificates of deposit of our banking subsidiaries. Short-term unsecured debt includes the current portion of long-term unsecured debt.

The following table presents an analysis of our short-term unsecured debt by type of financial liability as of March 31, 2021 and June 30, 2021.

 

     Billions of yen  
     March 31, 2021      June 30, 2021  

Short-term bank borrowings

   ¥ 265.8      ¥ 270.4  

Other loans

     138.7        161.8  

Commercial paper

     460.0        483.3  

Deposits at banking entities

     1,149.9        1,173.2  

Certificates of deposit

     83.6        121.7  

Debt securities maturing within one year

     831.5        740.2  
  

 

 

    

 

 

 

Total short-term unsecured debt

   ¥ 2,929.5      ¥ 2,950.6  
  

 

 

    

 

 

 

 

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3.2) Long-Term Unsecured Debt

We meet our long-term capital requirements and also achieve both cost-effective funding and an appropriate maturity profile by routinely funding through long-term debt and diversifying across various maturities and currencies.

Our long-term unsecured debt includes senior and subordinated debt issued through U.S. registered shelf offerings and our U.S. registered medium-term note programs, our Euro medium-term note programs, registered shelf offerings in Japan and various other debt programs.

As a globally competitive financial services group in Japan, we have access to multiple global markets and major funding centers. The Company, Nomura Securities Co. Ltd., Nomura Europe Finance N.V., Nomura Bank International plc, Nomura International Funding Pte. Ltd., and Nomura Global Finance Co., Ltd. are the main group entities that borrow externally, issue debt instruments and engage in other funding activities. By raising funds to match the currencies and liquidities of our assets or by using foreign exchange swaps as necessary, we pursue optimization of our funding structures.

We use a wide range of products and currencies to ensure that our funding is efficient and well diversified across markets and investor types. Our unsecured senior debt is mostly issued without financial covenants, such as covenants related to adverse changes in our credit ratings, cash flows, results of operations or financial ratios, which could trigger an increase in our cost of financing or accelerate repayment of the debt.

The following table presents an analysis of our long-term unsecured debt by type of financial liability as of March 31, 2021 and June 30, 2021.

 

     Billions of yen  
     March 31, 2021      June 30, 2021  

Long-term deposits at banking entities

   ¥ 109.0      ¥ 105.7  

Long-term bank borrowings

     2,635.2        2,638.2  

Other loans

     74.2        129.6  

Debt securities(1)

     3,877.9        3,963.4  
  

 

 

    

 

 

 

Total long-term unsecured debt

   ¥ 6,696.3      ¥ 6,836.9  
  

 

 

    

 

 

 

 

  (1)

Excludes long-term debt securities issued by consolidated special purpose entities and similar entities that meet the definition of variable interest entities under ASC 810 “Consolidation” and secured financing transactions recognized within Long-term borrowings as a result of transfers of financial assets that are accounted for as financings rather than sales in accordance with ASC 860 “Transfer and Servicing.

3.3) Maturity Profile

We also seek to maintain an average maturity for our plain vanilla debt securities and borrowings greater than or equal to three years. A significant amount of our structured loans and structured notes are linked to interest rates, currencies, equities, commodities, or related indices. These maturities are evaluated based on internal models and monitored by Global Treasury. Where there is a possibility that these may be called prior to their scheduled maturity date, maturities are based on our internal stress option adjusted model. The model values the embedded optionality under stress market conditions in order to determine when the debt securities or borrowings are likely to be called.

3.4) Secured Funding

We typically fund our trading activities through secured borrowings, repurchase agreements and Japanese “Gensaki Repo” transactions. We believe such funding activities in the secured markets are more cost-efficient and less credit-rating sensitive than financing in the unsecured market. Our secured funding capabilities depend on the quality of the underlying collateral and market conditions. While we have shorter term secured financing for highly liquid assets, we seek longer terms for less liquid assets. We also seek to lower the refinancing risks of secured funding by transacting with a diverse group of global counterparties and delivering various types of securities collateral. In addition, we reserve an appropriate level of liquidity portfolio for the refinancing risks of secured funding maturing in the short term for less liquid assets. For more detail of secured borrowings and repurchase agreements, see Note 5 “Collateralized transactions” in our consolidated financial statements.

 

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4) Management of Credit Lines to Nomura Group Entities

We maintain and expand credit lines to Nomura Group entities from other financial institutions to secure stable funding. We ensure that the maturity dates of borrowing agreements are distributed evenly throughout the year in order to prevent excessive maturities in any given period.

5) Implementation of Liquidity Stress Tests

We maintain our liquidity portfolio and monitor the sufficiency of our liquidity based on an internal model which simulates changes in cash outflow under specified stress scenarios to comply with our above mentioned liquidity management policy.

We assess the liquidity requirements of the Nomura Group under various stress scenarios with differing levels of severity over multiple time horizons. We evaluate these requirements under Nomura-specific and broad market-wide events, including potential credit rating downgrades at the Company and subsidiary levels. We call this risk analysis our Maximum Cumulative Outflow (“MCO”) framework.

The MCO framework is designed to incorporate the primary liquidity risks for Nomura and models the relevant future cash flows in the following two primary scenarios:

 

   

Stressed scenario—To maintain adequate liquidity during a severe market-wide liquidity event without raising funds through unsecured financing or through the liquidation of assets for a year; and

 

   

Acute stress scenario—To maintain adequate liquidity during a severe market-wide liquidity event coupled with credit concerns regarding Nomura’s liquidity position, without raising funds through unsecured funding or through the liquidation of assets for 30 days.

We assume that Nomura will not be able to liquidate assets or adjust its business model during the time horizons used in each of these scenarios. The MCO framework therefore defines the amount of liquidity required to be held in order to meet our expected liquidity needs in a stress event to a level we believe appropriate based on our liquidity risk appetite.

As of June 30, 2021, our liquidity portfolio exceeded net cash outflows under the stress scenarios described above.

We constantly evaluate and modify our liquidity risk assumptions based on regulatory and market changes. The model we use in order to simulate the impact of stress scenarios includes the following assumptions:

 

   

No liquidation of assets;

 

   

No ability to issue additional unsecured funding;

 

   

Upcoming maturities of unsecured debt (maturities less than one year);

 

   

Potential buybacks of our outstanding debt;

 

   

Loss of secured funding lines particularly for less liquid assets;

 

   

Fluctuation of funding needs under normal business circumstances;

 

   

Cash deposits and free collateral roll-off in a stress event;

 

   

Widening of haircuts on outstanding repo funding;

 

   

Additional collateralization requirements of clearing banks and depositories;

 

   

Drawdown on loan commitments;

 

   

Loss of liquidity from market losses;

 

   

Assuming a two-notch downgrade of our credit ratings, the aggregate fair value of assets that we would be required to post as additional collateral in connection with our derivative contracts; and

 

   

Legal and regulatory requirements that can restrict the flow of funds between entities in the Nomura Group.

 

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6) Contingency Funding Plan

We have developed a detailed contingency funding plan to integrate liquidity risk control into our comprehensive risk management strategy and to enhance the quantitative aspects of our liquidity risk control procedures. As a part of our Contingency Funding Plan (“CFP”), we have developed an approach for analyzing and quantifying the impact of any liquidity crisis. This allows us to estimate the likely impact of both Nomura-specific and market-wide events; and specifies the immediate action to be taken to mitigate any risk. The CFP lists details of key internal and external parties to be contacted and the processes by which information is to be disseminated. This has been developed at a legal entity level in order to capture specific cash requirements at the local level—it assumes that our parent company does not have access to cash that may be trapped at a subsidiary level due to regulatory, legal or tax constraints. We periodically test the effectiveness of our funding plans for different Nomura-specific and market-wide events. We also have access to central banks including, but not exclusively, the Bank of Japan, which provide financing against various types of securities. These operations are accessed in the normal course of business and are an important tool in mitigating contingent risk from market disruptions.

Liquidity Regulatory Framework

In 2008, the Basel Committee published “Principles for Sound Liquidity Risk Management and Supervision.” To complement these principles, the Committee has further strengthened its liquidity framework by developing two minimum standards for funding liquidity. These standards have been developed to achieve two separate but complementary objectives.

The first objective is to promote short-term resilience of a financial institution’s liquidity risk profile by ensuring that it has sufficient high-quality liquid assets to survive a significant stress scenario lasting for 30 days. The Committee developed the Liquidity Coverage Ratio (“LCR”) to achieve this objective.

The second objective is to promote resilience over a longer time horizon by creating additional incentives for financial institutions to fund their activities with more stable sources of funding on an ongoing basis. The Net Stable Funding Ratio (“NSFR”) has a time horizon of one year and has been developed to provide a sustainable maturity structure of assets and liabilities.

These two standards are comprised mainly of specific parameters which are internationally “harmonized” with prescribed values. Certain parameters, however, contain elements of national discretion to reflect jurisdiction-specific conditions.

In Japan, the regulatory notice on the LCR, based on the international agreement issued by the Basel Committee with necessary national revisions, was published by Financial Services Agency. The notices have been implemented since the end of March 2015 with phased-in minimum standards. Average of Nomura’s LCRs for the three months ended June 30, 2021 was 216.0%, and Nomura was compliant with requirements of the above notices. As for the NSFR, the revision of the liquidity regulatory notice was published by Financial Services Agency (on March 31, 2021) and NSFR will be implemented from the end of September 2021.

Cash Flows

Cash, cash equivalents, restricted cash and restricted cash equivalents’ balance as of June 30, 2020 and as of June 30, 2021 were ¥3,355.5 billion and ¥3,231.0 billion, respectively. Cash flows from operating activities for the three months ended June 30, 2020 were inflows of ¥380.8 billion due primarily to a decrease in Loans and receivables, net of allowance for credit losses and the comparable period in 2021 were outflows of ¥539.1 billion due primarily to Securities purchased under agreements to resell, net of securities sold under agreements to repurchase. Cash flows from investing activities for the three months ended June 30, 2020 were inflows of ¥16.8 billion due primarily to Decrease (increase) in non-trading debt securities, net and the comparable period in 2021 were inflows of ¥47.9 billion due primarily to Decrease in investments in affiliated companies, net. Cash flows from financing activities for the three months ended June 30, 2020 were outflows of ¥231.2 due primarily to a decrease in Deposits received at banks, net and the comparable period in 2021 were inflows of ¥218.8 billion due primarily to an increase in long-term borrowings.

Balance Sheet and Financial Leverage

Total assets as of June 30, 2021, were ¥41,830.2 billion, a decrease of ¥686.3 billion compared with ¥42,516.5 billion as of March 31, 2021, primarily due to a decrease in Securities borrowed. Total liabilities as of June 30, 2021, were ¥39,025.9 billion, a decrease of ¥734.1 billion compared with ¥39,760.0 billion as of March 31, 2021, primarily due to a decrease in Securities sold under agreements to repurchase. NHI shareholders’ equity as of June 30, 2021, was ¥2,739.2 billion, an increase of ¥44.3 billion compared with ¥2,694.9 billion as of March 31, 2021.

We seek to maintain sufficient capital at all times to withstand losses due to extreme market movements. The EMB is responsible for implementing and enforcing capital policies. This includes the determination of our balance sheet size and required capital levels. We continuously review our equity capital base to ensure that it can support the economic risk inherent in our business. There are also regulatory requirements for minimum capital of entities that operate in regulated securities or banking businesses.

 

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As leverage ratios are commonly used by other financial institutions similar to us, we voluntarily provide a Leverage ratio and Adjusted leverage ratio primarily for benchmarking purposes so that users of our annual report can compare our leverage against other financial institutions. Adjusted leverage ratio is a non-GAAP financial measure that Nomura considers to be a useful supplemental measure of leverage.

The following table sets forth NHI shareholders’ equity, total assets, adjusted assets and leverage ratios:

 

     Billions of yen, except ratios  
     March 31, 2021     June 30, 2021  

NHI shareholders’ equity

   ¥ 2,694.9     ¥ 2,739.2  

Total assets

     42,516.5       41,830.2  

Adjusted assets(1)

     26,477.0       25,782.5  

Leverage ratio(2)

     15.8     15.3

Adjusted leverage ratio(3)

     9.8     9.4

 

(1)   Represents total assets less Securities purchased under agreements to resell and Securities borrowed. Adjusted assets is a non-GAAP financial measure and is calculated as follows:

    

(2)   Equals total assets divided by NHI shareholders’ equity.

(3)   Equals adjusted assets divided by NHI shareholders’ equity.

    
                      Billions of yen                    
     March 31, 2021     June 30, 2021  

Total assets

   ¥ 42,516.5     ¥ 41,830.2  

Less:

    

Securities purchased under agreements to resell

     10,775.1        11,381.7  

Securities borrowed

     5,264.4       4,666.0   
  

 

 

   

 

 

 

Adjusted assets

   ¥ 26,477.0     ¥ 25,782.5  
  

 

 

   

 

 

 

Total assets decreased by 1.6% reflecting primarily decreases in Securities borrowed. NHI shareholders’ equity increased by 1.6% primarily due to an increase in Retained earnings. As a result, our leverage ratio declined from 15.8 times as of March 31, 2021 to 15.3 times as of June 30, 2021.

Adjusted assets decreased primarily due to a decrease in Trading assets. As a result, our adjusted leverage ratio declined from 9.8 times as of March 31, 2021 to 9.4 times as of June 30, 2021.

Consolidated Regulatory Capital Requirements

The FSA established the “Guideline for Financial Conglomerates Supervision” (“Financial Conglomerates Guideline”) in June 2005 and set out the rules on consolidated regulatory capital. We started monitoring our consolidated capital adequacy ratio in accordance with the Financial Conglomerates Guideline from April 2005.

The Company has been assigned by the FSA as a Final Designated Parent Company who must calculate a consolidated capital adequacy ratio according to the Capital Adequacy Notice on Final Designated Parent Company in April 2011. Since then, we have been calculating our consolidated capital adequacy ratio according to the Capital Adequacy Notice on Final Designated Parent Company. The Capital Adequacy Notice on Final Designated Parent Company has been revised to be in line with Basel 2.5 and Basel III since then. We have calculated a Basel III-based consolidated capital adequacy ratio from the end of March 2013. Basel 2.5 includes significant change in calculation method of market risk and Basel III includes redefinition of capital items for the purpose of requiring higher quality of capital and expansion of the scope of credit risk-weighted assets calculation.

 

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In accordance with Article 2 of the Capital Adequacy Notice on Final Designated Parent Company, our consolidated capital adequacy ratio is currently calculated based on the amounts of common equity Tier 1 capital, Tier 1 capital (sum of common equity Tier 1 capital and additional Tier 1 capital), total capital (sum of Tier 1 capital and Tier 2 capital), credit risk-weighted assets, market risk and operational risk. As of June 30, 2021, our common equity Tier 1 capital ratio (common equity Tier 1 capital divided by risk-weighted assets) was 17.73%, Tier 1 capital ratio (Tier 1 capital divided by risk-weighted assets) was 20.29% and consolidated capital adequacy ratio (total capital divided by risk-weighted assets) was 20.33% and we were in compliance with the requirement for each ratio set out in the Capital Adequacy Notice on Final Designated Parent Company (required level as of June 30, 2021 was 7.52% for common equity Tier 1 capital ratio, 9.02% for Tier 1 capital ratio and 11.02% for consolidated capital adequacy ratio).

In accordance with Article 2 of the “Notice of the Establishment of Standards that Indicate Soundness pertaining to Loss-absorbing and Recapitalisation Capacity, Established as Criteria by which the Highest Designated Parent Company is to Judge the Soundness in the Management of the Highest Designated Parent Company and its Subsidiary Corporations, etc., under Paragraph 1, Article 57-17 of the Financial Instruments and Exchange Act” (the “TLAC Notification”), we have started calculating our external TLAC ratio on a risk-weighted assets basis from March 2021. As of June 30, 2021, our external TLAC as a percentage of risk-weighted assets is 26.07% and we are in compliance with the requirement set out in the TLAC Notification.

The following table presents the Company’s consolidated capital adequacy ratios and External TLAC as a percentage of risk-weighted assets as of June 30, 2021.

 

     Billions of yen, except ratios  
     June 30, 2021  

Common equity Tier 1 capital

   ¥ 2,608.9  

Tier 1 capital

     2,986.8  

Total capital

     2,991.5  

Risk-Weighted Assets

  

Credit risk-weighted assets

     7,862.2  

Market risk equivalent assets

     4,403.8  

Operational risk equivalent assets

     2,448.5  
  

 

 

 

Total risk-weighted assets

   ¥ 14,714.5  
  

 

 

 

Consolidated Capital Adequacy Ratios

  

Common equity Tier 1 capital ratio

     17.73

Tier 1 capital ratio

     20.29

Consolidated capital adequacy ratio

     20.33

External TLAC as a percentage of risk-weighted assets

     26.07

Since the end of March 2011, we have been calculating credit risk-weighted assets and operational risk equivalent assets by using the foundation Internal Ratings-Based Approach and the Standardized Approach, respectively, with the approval of the FSA. Furthermore, Market risk equivalent assets are calculated by using the Internal Models Approach for market risk.

We provide consolidated capital adequacy ratios not only to demonstrate that we are in compliance with the requirements set out in the Capital Adequacy Notice on Final Designated Parent Company but also for benchmarking purposes so that users of this quarterly report can compare our capital position against those of other financial groups to which Basel III is applied. Management receives and reviews these capital ratios on a regular basis.

 

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Consolidated Leverage Ratio Requirements

In March 2019, the FSA set out requirements for the calculation and disclosure and minimum requirement of 3% of a consolidated leverage ratio, and the publication of “Notice of the Establishment of Standards for Determining Whether the Adequacy of Leverage, the Supplementary Measure to the Adequacy of Equity Capital of a Final Designated Parent Company and its Subsidiary Corporations, etc. is Appropriate Compared to the Assets Held by the Final Designated Parent Company and its Subsidiary Corporations, etc., under Paragraph 1, Article 57-17 of the Financial Instruments and Exchange Act” (2019 FSA Regulatory Notice No. 13; “Notice on Consolidated Leverage Ratio”), through amendments to revising “Specification of items which a final designated parent company should disclose on documents to show the status of its sound management” (2010 FSA Regulatory Notice No. 132; “Notice on Pillar 3 Disclosure”). We started calculating and disclosing a consolidated leverage ratio from March 31, 2015 in accordance with the Notices. We have also started calculating a consolidated leverage ratio from March 31, 2019 in accordance with the Notice on Pillar 3 Disclosure, Notice on Consolidated Leverage Ratio and other related Notices. In June 2020, in coordination with the monetary policy of the Bank of Japan in response to the impact of coronavirus (“COVID-19”) pandemic, the FSA published amendments to the Notice on Consolidated Leverage Ratio. Under these amendments, amounts of deposits with the Bank of Japan Japan have been excluded from the total exposure measure used to calculate the leverage ratio during the period from June 30, 2020 to March 31, 2021. In March 2021, the FSA announced this measure will be extended for one year due to the continuous uncertainty regarding the impact of COVID-19. As of June 30, 2021, our consolidated leverage ratio is 6.03%.

In accordance with Article 2 of the TLAC Notification we have started calculating our external TLAC ratio on a total exposure basis from March 2021. As of June 30, 2021, our external TLAC as a percentage of leverage ratio exposure measure is 8.65% and we are in compliance with the requirement set out in the TLAC Notification.

Credit Ratings

There were no significant rating actions in the first quarter of the fiscal year ending March 2022.

(7) Current Challenges

There is no significant change to our current challenges nor new challenges for the three months ended June 30, 2021.

In addition, regarding the issues relating to the U.S. Prime Brokerage Event reported in the previous consolidated accounting year, we made progress as follows in this first quarter.

 

   

Phase 1: Initial Responses (completed).

 

   

Phase 2: Review of Prime Brokerage Risk Management Framework (in progress). As part of this phase, we are taking actions to enhance the monitoring of concentrated positions, revise our margin rates applicable to clients and to enhance management of margin rates for individual transactions (including internal approvals and other processes).

 

   

Phase 3: Comprehensive Review of Wholesale Risk Framework (in progress). We have already completed our comprehensive internal review of the risk management framework in the Wholesale division. Based on a further review by third-party risk management experts, we have started to determine additional remediation plans. We are also taking actions to further strengthen our risk management organizational structure including IT infrastructure and staffing.

 

   

Phase 4: Enhance Global Risk Governance (in progress): We are considering actions to strengthen the functions of our risk management committees, including expanding the scope of our Wholesale division’s risk monitoring beyond our financing businesses to include other businesses in the Wholesale division. We are also working to promote a better understanding of further proactive risk management capabilities among front office teams.

3. Significant Contracts

Not applicable.

 

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Item 3. Company Information

1. Share Capital Information

(1) Total Number of Shares

A. Number of Authorized Share Capital

 

Type

   Authorized Share Capital
(shares)
 

Common stock

     6,000,000,000  

Class 1 preferred stock

     200,000,000  

Class 2 preferred stock

     200,000,000  

Class 3 preferred stock

     200,000,000  

Class 4 preferred stock

     200,000,000  
  

 

 

 

Total

     6,000,000,000  
  

 

 

 

 

The “Authorized Share Capital” is stated by the type of stock and the “Total” is the number of authorized share capital as referred in the Articles of Incorporation.

B. Issued Shares

 

Type

   Number of
Issued Shares as of
June 30, 2021
     Number of
Issued Shares as of
August 16, 2021
     Trading Markets   Details  

Common stock

     3,233,562,601        3,233,562,601      Tokyo Stock Exchange(2)     1 unit is 100 shares  
         Nagoya Stock Exchange(2)  
         Singapore Exchange  
         New York Stock Exchange  
  

 

 

    

 

 

    

 

 

 

 

 

Total

     3,233,562,601        3,233,562,601      —       —    
  

 

 

    

 

 

    

 

 

 

 

 

 

(1)

Shares that may have increased from exercise of stock options between August 1, 2021 and the submission date (August 16, 2021) are not included in the number of issued shares as of the submission date.

(2)

Listed on the First Section of each stock exchange.

(2) Stock Acquisition Rights

A. Stock option

Not applicable in this quarter.

B. Other stock acquisition rights

Not applicable in this quarter.

(3) Exercise of Moving Strike Bonds with Subscription Warrant

None

(4) Changes in Issued Shares, Shareholders’ Equity, etc.

 

                   Millions of yen  

Date

   Increase/Decrease
of Issued Shares
     Total
Issued Shares
     Increase/Decrease
of Shareholders’
Equity—
Common stock
     Shareholders’
Equity—
Common stock
     Increase/Decrease of
Additional
capital reserve
     Additional
capital reserve
 

June 30, 2021

     —          3,233,562,601        —          594,493        —          559,676  

(5) Major Shareholders

Not applicable as this is the first quarter.

 

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Table of Contents

(6) Voting Rights

The “Voting Rights” as of the end of the current first quarter is presented as of March 31, 2021, the most recent cutoff date, because the number of beneficiary shareholders as of June 30, 2021, could not be ascertained.

A. Outstanding Shares

 

     As of March 31, 2021
     Number of Shares      Number of Votes      Description

Stock without voting right

       —          —        —  

Stock with limited voting right (Treasury stocks, etc.)

       —          —        —  

Stock with limited voting right (Others)

       —          —        —  

Stock with full voting right (Treasury stocks, etc.)

    

(Treasury stocks

Common stock


 

    170,057,100        —       
    

(Crossholding stocks

Common stock


 

    2,055,700        —        —  

Stock with full voting right (Others)

     Common stock       3,059,922,400        30,599,224      —  

Shares less than 1 unit

     Common stock       1,527,401        —        Shares less than 1 unit

(100 shares)

  

 

 

   

 

 

    

 

 

    

 

Total Shares Issued

       3,233,562,601        —        —  
  

 

 

   

 

 

    

 

 

    

 

Voting Rights of Total Shareholders

       —          30,599,224      —  
  

 

 

   

 

 

    

 

 

    

 

 

2,000 shares held by Japan Securities Depository Center, Inc. are included in “Stock with full voting right (Others).” 67 shares of treasury stocks are included in “Shares less than 1 unit.”

B. Treasury Stocks

 

Name

        As of March 31, 2021  
   Address    Directly
held
shares
     Indirectly
held
shares
     Total      Percentage of
Issued Shares
(%)
 

(Treasury stocks)

Nomura Holdings, Inc.

   1-13-1, Nihonbashi, Chuo-ku,

Tokyo, Japan

     170,057,100        —          170,057,100        5.25  
     

 

 

    

 

 

    

 

 

    

 

 

 

Total

   —        170,057,100        —          170,057,100        5.25  
     

 

 

    

 

 

    

 

 

    

 

 

 

In addition to the above, 2,055,700 shares are directly held by a subsidiary of the Company for the purpose of securities related business.

 

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Item 4. Financial Information

 

1

Preparation Method of Consolidated Financial Statements

 

  (1)

The consolidated financial statements have been prepared in accordance with accounting principles, procedures, and presentations which are required in order to issue American Depositary Shares, i.e., U.S. generally accepted accounting principles, pursuant to Article 95 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements” (Cabinet Office Ordinance No. 64, 2007).

 

  (2)

The consolidated financial statements have been prepared by making necessary adjustments to the financial statements of each consolidated company which were prepared in accordance with the accounting principles generally accepted in each country. Such adjustments have been made to comply with the principles noted in (1) above.

 

2

Quarterly Review Certificate

Under Article 193-2 Section 1 of the Financial Instruments and Exchange Act, Ernst & Young ShinNihon LLC performed a quarterly review of the consolidated financial statements for the three months ended June 30, 2021.

<Note>

Although Ernst & Young ShinNihon LLC reported that they applied limited procedures in accordance with professional standards in Japan on the interim consolidated financial statements, prepared in Japanese for the three months ended June 30, 2021, they have not performed any such limited procedures nor have they performed an audit on the English translated version of the consolidated financial statements for the above-mentioned periods which are included in this report on Form 6-K.

 

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Table of Contents

1. Consolidated Financial Statements

(1) Consolidated Balance Sheets (UNAUDITED)

 

            Millions of yen  
     Notes      March 31,
2021
    June 30,
2021
 

ASSETS

       

Cash and cash deposits:

       

Cash and cash equivalents

                       ¥     3,509,754     ¥     3,230,541  

Time deposits

        281,422       345,724  

Deposits with stock exchanges and other segregated cash

        373,559       319,258  
     

 

 

   

 

 

 

Total cash and cash deposits

        4,164,735       3,895,523  
     

 

 

   

 

 

 

Loans and receivables:

       

Loans receivable (including ¥818,523 million and ¥823,235 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2, 7        2,943,472       2,867,032  

Receivables from customers (including ¥163,388 million and ¥160,660 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2, 4        459,090       452,253  

Receivables from other than customers

        793,669       1,011,571  

Allowance for credit losses

     *7        (53,784     (61,419
     

 

 

   

 

 

 

Total loans and receivables

        4,142,447       4,269,437  
     

 

 

   

 

 

 

Collateralized agreements:

       

Securities purchased under agreements to resell (including ¥366,506 million and ¥326,682 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2        10,775,078       11,381,727  

Securities borrowed

        5,264,360       4,666,008  
     

 

 

   

 

 

 

Total collateralized agreements

        16,039,438       16,047,735  
     

 

 

   

 

 

 

Trading assets and private equity and debt investments:

       

Trading assets (including securities pledged as collateral of ¥5,587,555 million and ¥4,923,727 million as of March 31, 2021 and June 30, 2021, respectively; including ¥10,122 million and ¥10,061 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2, 3        15,674,354       15,277,367  

Private equity and debt investments (including ¥3,599 million and ¥3,117 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2        63,825       74,345  
     

 

 

   

 

 

 

Total trading assets and private equity and debt investments

        15,738,179       15,351,712  
     

 

 

   

 

 

 

Other assets:

       

Office buildings, land, equipment and facilities (net of accumulated depreciation and amortization of ¥395,429 million and ¥399,299 million as of March 31, 2021 and June 30, 2021, respectively)

        464,449       466,516  

Non-trading debt securities (including securities pledged as collateral of ¥ 9,427 million and ¥ 14,332 million as of March 31, 2021 and June 30, 2021, respectively)

     *2        426,758       416,990  

Investments in equity securities

     *2        126,649       131,008  

Investments in and advances to affiliated companies

     *7        364,393       356,309  

Other (including ¥171,482 million and ¥171,374 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2, 10        1,049,432       894,974  
     

 

 

   

 

 

 

Total other assets

        2,431,681       2,265,797  
     

 

 

   

 

 

 

Total assets

      ¥ 42,516,480     ¥ 41,830,204  
     

 

 

   

 

 

 

 

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Table of Contents

(1) Consolidated Balance Sheets—(Continued) (UNAUDITED)

 

            Millions of yen  
     Notes      March 31,
2021
    June 30,
2021
 
LIABILITIES AND EQUITY                         

Short-term borrowings (including ¥634,714 million and ¥678,485 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2      ¥ 1,368,098     ¥ 1,500,334  

Payables and deposits:

       

Payables to customers

     *4        1,454,755       1,432,935  

Payables to other than customers

        1,773,699       1,303,772  

Deposits received at banks (including ¥49,874 million and ¥50,505 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2        1,342,464       1,400,599  
     

 

 

   

 

 

 

Total payables and deposits

        4,570,918       4,137,306  
     

 

 

   

 

 

 

Collateralized financing:

       

Securities sold under agreements to repurchase (including ¥224,056 million and ¥235,062 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2        13,360,429       12,875,394  

Securities loaned (including ¥128,886 million and ¥117,240 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2        1,380,629       1,112,934  

Other secured borrowings

        392,515       421,679  
     

 

 

   

 

 

 

Total collateralized financing

        15,133,573       14,410,007  
     

 

 

   

 

 

 

Trading liabilities

     *2, 3            9,473,261           9,913,221  

Other liabilities (including ¥44,708 million and ¥41,091 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2, 10        1,239,167       949,683  

Long-term borrowings (including ¥4,098,457 million and ¥4,240,331 million measured at fair value by applying the fair value option as of March 31, 2021 and June 30, 2021, respectively)

     *2        7,975,012       8,115,333  
     

 

 

   

 

 

 

Total liabilities

        39,760,029       39,025,884  
     

 

 

   

 

 

 

Commitments and contingencies

     *15       

Equity:

       

Nomura Holdings, Inc. (“NHI”) shareholders’ equity:

       

Common stock

       

No par value share

       

Authorized—6,000,000,000 shares as of March 31, 2021 and June 30, 2021

       

Issued—3,233,562,601 shares as of March 31, 2021 and June 30, 2021

       

Outstanding—3,063,155,434 shares as of March 31, 2021 and 3,093,691,885 shares as of June 30, 2021

        594,493       594,493  

Additional paid-in capital

        696,122       677,476  

Retained earnings

        1,533,713       1,579,330  

Accumulated other comprehensive income

     *14        (38,144     (37,176
     

 

 

   

 

 

 

Total NHI shareholders’ equity before treasury stock

        2,786,184       2,814,123  

Common stock held in treasury, at cost—170,407,167 shares as of March 31, 2021 and 139,870,716 shares as of June 30, 2021

        (91,246     (74,896
     

 

 

   

 

 

 

Total NHI shareholders’ equity

        2,694,938       2,739,227  
     

 

 

   

 

 

 

Noncontrolling interests

        61,513       65,093  

Total equity

        2,756,451       2,804,320  
     

 

 

   

 

 

 

Total liabilities and equity

      ¥ 42,516,480     ¥ 41,830,204  
     

 

 

   

 

 

 

 

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Table of Contents

(1) Consolidated Balance Sheets—(Continued) (UNAUDITED)

The following table presents the classification of consolidated variable interest entities’ (“VIEs”) assets and liabilities included in the consolidated balance sheets above. The assets of a consolidated VIE may only be used to settle obligations of that VIE. Creditors do not typically have any recourse to Nomura beyond the assets held in the VIEs. See Note 6 “Securitizations and Variable Interest Entities” for further information.

 

          Billions of yen  
          March 31,
2021
     June 30,
2021
 

Cash and cash deposits

      ¥ 13      ¥ 25  

Trading assets and private equity and debt investments

        984        1,035  

Other assets

                     77        152  
     

 

 

    

 

 

 

Total assets

      ¥            1,074      ¥            1,212  
     

 

 

    

 

 

 

Trading liabilities

      ¥ 2      ¥ 2  

Other liabilities

        2        2  

Borrowings

        837        862  
     

 

 

    

 

 

 

Total liabilities

      ¥ 841      ¥ 866  
     

 

 

    

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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(2) Consolidated Statements of Income (UNAUDITED)

 

     Notes      Millions of yen  
     Three months ended June 30  
     2020      2021  

Revenue:

                       

Commissions

     *4      ¥ 85,512      ¥ 82,886  

Fees from investment banking

     *4        10,828        35,703  

Asset management and portfolio service fees

     *4        53,656        64,044  

Net gain on trading

     *2, 3        139,089        51,994  

Gain on private equity and debt investments

        1,070        25,988  

Interest and dividends

        106,543        64,536  

Gain on investments in equity securities

        3,473        3,468  

Other

     *4        113,878        76,553  
     

 

 

    

 

 

 

Total revenue

        514,049        405,172  

Interest expense

        53,302        51,897  
     

 

 

    

 

 

 

Net revenue

        460,747        353,275  
     

 

 

    

 

 

 

Non-interest expenses:

        

Compensation and benefits

        138,297        135,603  

Commissions and floor brokerage

        28,511        26,816  

Information processing and communications

        43,238        44,099  

Occupancy and related depreciation

        17,058        16,716  

Business development expenses

        2,832        3,294  

Other

        49,000        48,214  
     

 

 

    

 

 

 

Total non-interest expenses

        278,936                    274,742  
     

 

 

    

 

 

 

Income before income taxes

        181,811        78,533  

Income tax expense

     *13        37,513        28,540  
     

 

 

    

 

 

 

Net income

      ¥ 144,298      ¥ 49,993  

Less: Net income attributable to noncontrolling interests

        1,782        1,506  
     

 

 

    

 

 

 

Net income attributable to NHI shareholders

      ¥             142,516      ¥ 48,487  
     

 

 

    

 

 

 
     Notes      Yen  
     Three months ended June 30  
     2020      2021  

Per share of common stock:

     *11        

Basic—

        

Net income attributable to NHI shareholders per share

      ¥ 46.77      ¥ 16.12  

Diluted—

        

Net income attributable to NHI shareholders per share

      ¥ 45.65      ¥ 15.59  

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

(3) Consolidated Statements of Comprehensive Income (UNAUDITED)

 

            Millions of yen  
            Three months ended June 30  
            2020     2021  

Net income

                       ¥ 144,298     ¥ 49,993  

Other comprehensive income (loss):

       

Cumulative translation adjustments:

       

Cumulative translation adjustments

        (95     (2,764

Deferred income taxes

        (14     (311
     

 

 

   

 

 

 

Total

        (109     (3,075

Defined benefit pension plans:

       

Pension liability adjustment

        2,807       (130

Deferred income taxes

        (499     139  
     

 

 

   

 

 

 

Total

        2,308       9  

Own credit adjustments:

       

Own credit adjustments:

        603       5,725  

Deferred income taxes

        (2,095     (1,432
     

 

 

   

 

 

 

Total

        (1,492     4,293  
     

 

 

   

 

 

 

Total other comprehensive income

        707       1,227  
     

 

 

   

 

 

 

Comprehensive income

      ¥ 145,005     ¥ 51,220  

Less: Comprehensive income attributable to noncontrolling interests

        2,357       1,765  
     

 

 

   

 

 

 

Comprehensive income attributable to NHI shareholders

      ¥             142,648     ¥               49,455  
     

 

 

   

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

(4) Consolidated Statements of Changes in Equity (UNAUDITED)

 

          Millions of yen  
          Three months ended June 30  
          2020      2021  

Common stock

                     

Balance at beginning of year

      ¥ 594,493      ¥ 594,493  
     

 

 

    

 

 

 

Balance at end of period

        594,493        594,493  
     

 

 

    

 

 

 

Additional paid-in capital

        

Balance at beginning of year

        683,232        696,122  

Stock-based compensation awards

        (8,314      (18,628

Changes in an affiliated company’s interests in its subsidiary

        1,122        —    

Changes in an affiliated company’s interests

        —          (18
     

 

 

    

 

 

 

Balance at end of period

        676,040        677,476  
     

 

 

    

 

 

 

Retained earnings

        

Balance at beginning of year

        1,645,451        1,533,713  

Cumulative effect of change in accounting principle (1)

        (18,200      —    

Net income attributable to NHI shareholders

        142,516        48,487  

Gain (loss) on sales of treasury stock

        (542      (2,870
     

 

 

    

 

 

 

Balance at end of period

        1,769,225        1,579,330  
     

 

 

    

 

 

 

Accumulated other comprehensive income (loss)

        

Cumulative translation adjustments

        

Balance at beginning of year

        (26,274      18,316  

Net change during the period

        (684      (3,334
     

 

 

    

 

 

 

Balance at end of period

        (26,958      14,982  
     

 

 

    

 

 

 

Defined benefit pension plans

        

Balance at beginning of year

        (62,571      (43,477

Pension liability adjustment

        2,308        9  
     

 

 

    

 

 

 

Balance at end of period

        (60,263      (43,468
     

 

 

    

 

 

 

Own credit adjustments

        

Balance at beginning of year

        62,740        (12,983

Own credit adjustments

        (1,492      4,293  
     

 

 

    

 

 

 

Balance at end of period

        61,248        (8,690
     

 

 

    

 

 

 

Balance at end of period

        (25,973      (37,176
     

 

 

    

 

 

 

Common stock held in treasury

        

Balance at beginning of year

        (243,604      (91,246

Repurchases of common stock

        (1      (3

Sales of common stock

        0        0  

Common stock issued to employees

        9,323        16,353  
     

 

 

    

 

 

 

Balance at end of period

        (234,282      (74,896
     

 

 

    

 

 

 

Total NHI shareholders’ equity

        
     

 

 

    

 

 

 

Balance at end of period

        2,779,503        2,739,227  
     

 

 

    

 

 

 

Noncontrolling interests

        

Balance at beginning of year

        77,797        61,513  

Cash dividends

        (990      (1,610

Net income attributable to noncontrolling interests

        1,782        1,506  

Accumulated other comprehensive income attributable to noncontrolling interests

        575        259  

Purchase / sale of subsidiary shares, net

        530        197  

Other net change in noncontrolling interests

        (28,554      3,228  
     

 

 

    

 

 

 

Balance at end of period

        51,140        65,093  
     

 

 

    

 

 

 

Total equity

        

Balance at end of period

      ¥          2,830,643      ¥          2,804,320  
     

 

 

    

 

 

 

 

(1)

Represents the adjustments to initially apply Accounting Standards Update 2016-13,Measurement of Credit Losses on Financial Instruments” for the three months ended June 30, 2020.

The accompanying notes are an integral part of these consolidated financial statements.

 

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Table of Contents

(5) Consolidated Statements of Cash Flows (UNAUDITED)

 

            Millions of yen  
            Three months ended June 30  
            2020     2021  

Cash flows from operating activities:

       

Net income

                       ¥ 144,298     ¥ 49,993  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

       

Depreciation and amortization

        15,337       14,644  

Gain on investments in equity securities

        (3,473     (3,468

Gain on investments in subsidiaries and affiliates (1)

        (224     (36,249

Gain on disposal of office buildings, land, equipment and facilities

        (69,902     (4,523

Deferred income taxes

        22,505       761  

Changes in operating assets and liabilities:

       

Time deposits

        131,639       (62,409

Deposits with stock exchanges and other segregated cash

        (180,442     53,435  

Trading assets and private equity and debt investments

        142,949       360,058  

Trading liabilities

        149,144       463,289  

Securities purchased under agreements to resell, net of securities sold under agreements to repurchase

        (141,243     (1,064,879

Securities borrowed, net of securities loaned

        186,486       320,801  

Other secured borrowings

        (354,322     29,314  

Loans and receivables, net of allowance for doubtful accounts

                 1,130,926       (127,784

Payables

        (631,173     (439,641

Bonus accrual

        (62,606     (93,093

Accrued income taxes, net

        (18,826     (49,015

Other, net (1)

        (80,228     49,654  
     

 

 

   

 

 

 

Net cash provided by (used in) operating activities

        380,845       (539,112
     

 

 

   

 

 

 

Cash flows from investing activities:

       

Payments for purchases of office buildings, land, equipment and facilities

        (17,460     (38,924

Proceeds from sales of office buildings, land, equipment and facilities

        4,978       25,275  

Proceeds from sales of investments in equity securities

        1,102       318  

Decrease (increase) in loans receivable at banks, net

        18,510       (8,698

Decrease in non-trading debt securities, net

        27,455       9,562  

Business combinations or disposals, net

        (11,152     —    

Decrease (increase) in investments in affiliated companies, net

        (9,651     49,945  

Other, net

        3,004       10,461  
     

 

 

   

 

 

 

Net cash provided by investing activities

        16,786       47,939  
     

 

 

   

 

 

 

Cash flows from financing activities:

       

Increase in long-term borrowings

        588,277       707,662  

Decrease in long-term borrowings

        (533,333     (606,590

Increase (decrease) in short-term borrowings, net

        (94,867     96,061  

Increase (decrease) in deposits received at banks, net

        (176,052     67,601  

Proceeds from sales of common stock held in treasury

        2       6  

Payments for repurchases of common stock held in treasury

        (1     (3

Payments for cash dividends

        (15,195     (45,953
     

 

 

   

 

 

 

Net cash provided by (used in) financing activities

        (231,169     218,784  
     

 

 

   

 

 

 

Effect of exchange rate changes on cash, cash equivalents, restricted cash and restricted cash equivalents

        (3,241     (6,607
     

 

 

   

 

 

 

Net increase (decrease) in cash, cash equivalents, restricted cash and restricted cash equivalents

        163,221       (278,996

Cash, cash equivalents, restricted cash and restricted cash equivalents at beginning of year

        3,192,310                3,510,011  
     

 

 

   

 

 

 

Cash, cash equivalents, restricted cash and restricted cash equivalents at end of period

      ¥ 3,355,531     ¥ 3,231,015  
     

 

 

   

 

 

 

Supplemental information:

       

Cash paid during the period for—

       

Interest

      ¥ 65,287     ¥ 46,034  

Income tax payments, net

      ¥ 33,834     ¥ 76,794  

 

(1)

Certain reclassifications of previously reported amounts have been made to conform to the current period presentation.

 

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The following table presents a reconciliation of cash, cash equivalents, restricted cash and restricted cash equivalents as reported within the consolidated balance sheets to the total of the same such amounts shown in the statements of cash flows above. Restricted cash and restricted cash equivalents are amounts where access, withdrawal or usage by Nomura is substantively prohibited by a third party entity outside of the Nomura group.

 

          Millions of yen  
          Three months ended June 30  
          2020          2021  

Cash and cash equivalents reported in Cash and cash equivalents

                   ¥ 3,354,793        ¥ 3,230,541  

Restricted cash and restricted cash equivalents reported in Deposits with stock exchanges and other segregated cash

      ¥ 738        ¥ 474  
     

 

 

      

 

 

 

Total cash, cash equivalent, restricted cash and restricted cash equivalents

      ¥          3,355,531         ¥          3,231,015   
     

 

 

      

 

 

 

Non-cash—

Total amount of Right- of use assets recognized during the three months ended June 30, 2020 and June 30, 2021 were ¥16,233 million and ¥10,271 million, respectively.

The accompanying notes are an integral part of these consolidated financial statements.

 

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Notes to the Consolidated Financial Statements (UNAUDITED)

1. Basis of accounting:

In December 2001, Nomura Holdings, Inc. (“the Company”) filed a registration statement, in accordance with the Securities Exchange Act of 1934, with the United States Securities and Exchange Commission (“SEC”) in order to list its American Depositary Shares (“ADS”) on the New York Stock Exchange. Since then, the Company has had an obligation to file an annual report on Form 20-F with the SEC in accordance with the Securities Exchange Act of 1934.

Therefore, the Company and other entities in which it has a controlling financial interest (collectively “Nomura”) prepares consolidated financial statements in accordance with the accounting principles, procedures and presentations which are required in order to issue ADS, i.e., U.S. generally accepted accounting principles (“U.S. GAAP”), pursuant to Article 95 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements” (Cabinet Office Ordinance No. 64, 2007).

The following paragraphs describe the major differences between U.S. GAAP applied by Nomura and accounting principles generally accepted in Japan (“Japanese GAAP”) for the three months ended June 30, 2021. Where the effect of these major differences are significant to Income before income taxes, Nomura discloses as (higher) or (lower) below the amount by which Income before income taxes based on U.S. GAAP was higher or lower than Japanese GAAP, respectively.

Scope of consolidation—

Under U.S. GAAP, the scope of consolidation is mainly determined by the ownership of a majority of the voting interests in an entity or by identifying the primary beneficiary of variable interest entities. Under Japanese GAAP, the scope of consolidation is determined by a “financial controlling model”, which takes into account the ownership level of voting interests in an entity and other factors.

Unrealized gains and losses on investments in equity securities—

Under U.S. GAAP applicable to broker-dealers, minority investments in equity securities with readily determinable fair values are measured at fair value with changes in fair value recognized in earnings. Under Japanese GAAP, these investments are also measured at fair value, but unrealized gains and losses, net of applicable income taxes, are reported in other comprehensive income. Income before income taxes prepared under U.S. GAAP, therefore, was ¥2,860 million (higher) and ¥3,649 million (higher) for the three months ended June 30, 2020 and 2021, respectively.

Unrealized gains and losses on non-trading debt and equity securities—

Under U.S. GAAP applicable to broker-dealers, non-trading securities are measured at fair value with changes in fair value recognized in earnings. Under Japanese GAAP, these securities are also measured at fair value, but unrealized gains and losses, net of applicable income taxes, are reported in other comprehensive income. Income before income taxes prepared under U.S. GAAP, therefore, was ¥1,183 million (higher) and ¥471 million (higher) for the three months ended June 30, 2020 and 2021, respectively for non-trading debt securities. Income before income taxes prepared under U.S. GAAP was ¥846 million (lower) and ¥32 million (lower) for the three months ended June 30, 2020 and 2021, respectively for non-trading equity securities.

Retirement and severance benefits—

Under U.S. GAAP, gains or losses resulting from either experience that is different from an actuarial assumption or a change in assumption is amortized over the average remaining service period of employees when a net gain or loss at the beginning of the year exceeds the “Corridor” which is defined as 10% of the larger of projected benefit obligation or the fair value of plan assets. Under Japanese GAAP, these gains or losses are amortized over a certain period regardless of the Corridor.

 

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Amortization of goodwill and equity method goodwill—

Under U.S. GAAP, goodwill is not amortized and is tested for impairment periodically. Under Japanese GAAP, goodwill is amortized over a certain periods of less than 20 years using the straight-line method. Therefore, under U.S. GAAP, Income before income taxes was ¥971 million (higher) and ¥913 million (higher) for the three months ended June 30, 2020 and 2021, respectively.

Changes in the fair value of derivative contracts—

Under U.S. GAAP, all derivative contracts, including derivative contracts that have been designated as hedges of specific assets or specific liabilities, are carried at fair value, with changes in fair value recognized either in earnings or other comprehensive income. Under Japanese GAAP, derivative contracts that have been entered into for hedging purposes are carried at fair value with changes in fair value, net of applicable income taxes, recognized generally in other comprehensive income.

Fair value for financial assets and financial liabilities—

Under U.S. GAAP, the fair value option may be elected for eligible financial assets and financial liabilities which would otherwise be carried on a basis other than fair value (“the fair value option”). Where the fair value option is elected, the financial asset or liability is carried at fair value with changes in fair value are recognized in earnings. Under Japanese GAAP, the fair value option is not permitted. Therefore, under U.S. GAAP, Income before income taxes was ¥21,070 million (higher) and ¥10,162 million (higher) for the three months ended June 30, 2020 and 2021, respectively. In addition, non-marketable equity securities which are carried at fair value under U.S. GAAP applicable to broker-dealers are carried at cost less impairment loss under Japanese GAAP.

Offsetting of amounts related to certain contracts—

Under U.S. GAAP, an entity that is party to a master netting arrangement is permitted to offset fair value amounts recognized for the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) against fair value amounts recognized for derivative instruments that have been offset under the same master netting arrangement. Under Japanese GAAP, offsetting of such amounts is not permitted.

Stock issuance costs—

Under U.S. GAAP, stock issuance costs are deducted from capital. Under Japanese GAAP, stock issuance costs are either immediately expensed or capitalized as a deferred asset and amortized over periods of up to three years using the straight-line method.

Accounting for change in controlling interest in a consolidated subsidiary’s shares—

Under U.S. GAAP, when a parent’s ownership interest decreases as a result of sales of a subsidiary’s common shares by the parent and the subsidiary becomes an equity method investee, the parent’s remaining investment in the former subsidiary is measured at fair value as of the date of loss of a controlling interest and a related valuation gain or loss is recognized in earnings. Under Japanese GAAP, the remaining investment on the parent’s consolidated balance sheet is computed as the sum of the carrying amount of investment in the equity method investee recorded in the parent’s stand-alone balance sheet as adjusted for the share of net income or losses and other adjustments from initial acquisition through to the date of loss of a controlling interest multiplied by the ratio of the remaining shareholding percentage against the holding percentage prior to loss of control.

Stock-based and other compensation awards—

Under U.S. GAAP, Restricted Stock Units (“RSUs”) are classified as equity awards, and the total compensation cost is measured based on the fair value of the Company’s common stock on the grant date. Under Japanese GAAP, the total compensation cost of RSUs is measured by the amount of monetary compensation liabilities which is granted to management and employees. Therefore, under U.S. GAAP, Income before income taxes was ¥588 million (lower) and ¥2,684million (higher) for the three months ended June 30, 2020 and 2021, respectively.

Use of estimates—

While the COVID-19 pandemic has impacted some of the critical accounting estimates and underlying assumptions used in the consolidated financial statements during the year ended March 31, 2021, no further significant adverse changes in these estimates occurred during the 3 months ended June 30, 2021 as a result of the COVID-19 pandemic.

New accounting pronouncements recently adopted—

No new accounting pronouncements relevant to Nomura were adopted during the three months ended June 30, 2021.

Future accounting developments—

There are no new authoritative accounting pronouncements relevant to Nomura which will be adopted on or after July 1, 2021 which may have a material impact on these consolidated financial statements.

 

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2. Fair value measurements:

The fair value of financial instruments

A significant amount of Nomura’s financial instruments are measured at fair value. Financial assets measured at fair value on a recurring basis are reported in the consolidated balance sheets within Trading assets and private equity and debt investments, Loans and receivables, Collateralized agreements and Other assets. Financial liabilities measured at fair value on a recurring basis are reported within Trading liabilities, Short-term borrowings, Payables and deposits, Collateralized financing, Long-term borrowings and Other liabilities.

Other financial assets and financial liabilities are measured at fair value on a nonrecurring basis, where the primary measurement basis is not fair value but where fair value is used in specific circumstances after initial recognition, such as to measure impairment.

In all cases, fair value is determined in accordance with ASC 820 “Fair Value Measurements and Disclosures” (“ASC 820”) which defines fair value as the amount that would be exchanged to sell a financial asset or transfer a financial liability in an orderly transaction between market participants at the measurement date. It assumes that the transaction occurs in the principal market for the relevant financial assets or financial liabilities, or in the absence of a principal market, the most advantageous market.

Fair value is usually determined on an individual financial instrument basis consistent with the unit of account of the financial instrument. However, certain financial instruments managed on a portfolio basis are valued as a portfolio, namely based on the price that would be received to sell a net long position (i.e., a net financial asset) or transfer a net short position (i.e., a net financial liability) consistent with how market participants would price the net risk exposure at the measurement date.

Financial assets measured at fair value also include investments in certain funds where, as a practical expedient, fair value is determined on the basis of net asset value per share (“NAV per share”) if the NAV per share is calculated in accordance with certain industry standard principles.

Increases and decreases in the fair value of assets and liabilities will significantly impact Nomura’s position, performance, liquidity and capital resources. As explained below, valuation techniques applied contain inherent uncertainties and Nomura is unable to predict the accurate impact of future developments in the market. The valuation of financial instruments is more difficult during periods of market stress as a result of greater volatility and reduced price transparency, which has been the case during the COVID-19 pandemic in 2020, and may therefore require the greater use of judgement in the determination of fair value. Where appropriate, Nomura uses economic hedging strategies to mitigate its risk, although these hedges are also subject to unpredictable movements in the market.

Valuation methodology for financial instruments carried at fair value on a recurring basis

The fair value of financial instruments is based on quoted market prices including market indices, broker or dealer quotations or an estimation by management of the expected exit price under current market conditions. Various financial instruments, including cash instruments and over-the-counter (“OTC”) contracts, have bid and offer prices that are observable in the market. These are measured at the point within the bid-offer range which best represents Nomura’s estimate of fair value. Where quoted market prices or broker or dealer quotations are not available, prices for similar instruments or valuation pricing models are considered in the determination of fair value.

Where quoted prices are available in active markets, no valuation adjustments are taken to modify the fair value of assets or liabilities marked using such prices. Other instruments may be measured using valuation techniques, such as valuation pricing models incorporating observable valuation inputs, unobservable parameters or a combination of both. Valuation pricing models use valuation inputs which would be considered by market participants in valuing similar financial instruments.

Valuation pricing models and their underlying assumptions impact the amount and timing of unrealized and realized gains and losses recognized, and the use of different valuation pricing models or underlying assumptions could produce different financial results. Valuation uncertainty results from a variety of factors, including the valuation technique or model selected, the quantitative assumptions used within the valuation model, the inputs into the model, as well as other factors. Valuation adjustments are used to reflect the assessment of this uncertainty. Common valuation adjustments include model reserves, credit adjustments, close-out adjustments, and other appropriate instrument-specific adjustments, such as those to reflect transfer or sale restrictions.

 

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The level of adjustments is largely judgmental and is based on an assessment of the factors that management believe other market participants would use in determining the fair value of similar financial instruments. The type of adjustments taken, the methodology for the calculation of these adjustments, and the valuation inputs for these calculations are reassessed periodically to reflect current market practice and the availability of new information.

For example, the fair value of certain financial instruments includes adjustments for credit risk; both with regards to counterparty credit risk on positions held and Nomura’s own creditworthiness on positions issued. Credit risk on financial assets is significantly mitigated by credit enhancements such as collateral and netting arrangements. Any net credit exposure is measured using available and applicable valuation inputs for the relevant counterparty. The same approach is used to measure the credit exposure on Nomura’s financial liabilities as is used to measure counterparty credit risk on Nomura’s financial assets.

Such valuation pricing models are calibrated to the market on a regular basis and inputs used are adjusted for current market conditions and risks. The Valuation Model Validation Group (“VMVG”) within Nomura’s Risk Management Department reviews pricing models and assesses model appropriateness and consistency independently of the front office. The model reviews consider a number of factors about a model’s suitability for valuation and sensitivity of a particular product. Valuation models are calibrated to the market on a periodic basis by comparison to observable market pricing, comparison with alternative models and analysis of risk profiles.

As explained above, any changes in fixed income, equity, foreign exchange and commodity markets can impact Nomura’s estimates of fair value in the future, potentially affecting trading gains and losses. Where financial contracts have longer maturity dates, Nomura’s estimates of fair value may involve greater subjectivity due to the lack of transparent market data.

Fair value hierarchy

All financial instruments measured at fair value, including those measured at fair value using the fair value option, have been categorized into a three-level hierarchy (“fair value hierarchy”) based on the transparency of valuation inputs used by Nomura to estimate fair value. A financial instrument is classified in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement of the financial instrument. The three levels of the fair value hierarchy are defined as follows, with Level 1 representing the most transparent inputs and Level 3 representing the least transparent inputs:

Level 1:

Observable valuation inputs that reflect quoted prices (unadjusted) for identical financial instruments traded in active markets at the measurement date.

Level 2:

Valuation inputs other than quoted prices included within Level 1 that are either directly or indirectly observable for the financial instrument.

Level 3:

Unobservable valuation inputs which reflect Nomura assumptions and specific data.

The availability of valuation inputs observable in the market varies by product and can be affected by a variety of factors. Significant factors include, but are not restricted to the prevalence of similar products in the market, especially for customized products, how established the product is in the market, for example, whether it is a new product or is relatively mature, and the reliability of information provided in the market which would depend, for example, on the frequency and volume of current data. A period of significant change in the market may reduce the availability of observable data. Under such circumstances, financial instruments may be reclassified into a lower level in the fair value hierarchy.

Significant judgments used in determining the classification of financial instruments include the nature of the market in which the product would be traded, the underlying risks, the type and liquidity of market data inputs and the nature of observed transactions for similar instruments.

Where valuation models include the use of valuation inputs which are less observable or unobservable in the market, significant management judgment is used in establishing fair value. The valuations for Level 3 financial instruments, therefore, involve a greater degree of judgment than those valuations for Level 1 or Level 2 financial instruments and has become more prevalent during the COVID-19 pandemic.

Certain criteria management use to determine whether a market is active or inactive include the number of transactions, the frequency that pricing is updated by other market participants, the variability of price quotes among market participants, and the amount of publicly available information.

 

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The following tables present the amounts of Nomura’s financial instruments measured at fair value on a recurring basis as of March 31, 2021 and June 30, 2021 within the fair value hierarchy.

 

     Billions of yen  
   March 31, 2021  
   Level 1      Level 2      Level 3      Counterparty
and Cash
Collateral
Netting(1)
    Balance as of
March 31,
2021
 

Assets:

             

Trading assets and private equity and debt investments(2)

             

Equities(3)

   ¥ 2,338      ¥ 968      ¥ 16      ¥ —       ¥ 3,322  

Private equity and debt investments(4)

     —          —          58        —         58  

Japanese government securities

     1,637        —          —          —         1,637  

Japanese agency and municipal securities

     —          76        2        —         78  

Foreign government, agency and municipal securities

     2,838        1,987        12        —         4,837  

Bank and corporate debt securities and loans for trading purposes

     —          1,259        135        —         1,394  

Commercial mortgage-backed securities (“CMBS”)

     —          0        8        —         8  

Residential mortgage-backed securities (“RMBS”)

     —          2,387        6        —         2,393  

Issued/Guaranteed by government sponsored entity

     —          2,325        —          —         2,325  

Other

     —          62        6        —         68  

Real estate-backed securities

     —          0        106        —         106  

Collateralized debt obligations (“CDOs”) and other(5)

     —          36        23        —         59  

Investment trust funds and other

     573        29        0        —         602  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total trading assets and private equity and debt investments

     7,386        6,742        366        —         14,494  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivative assets(6)

             

Equity contracts

     9        1,318        75        —         1,402  

Interest rate contracts

     29        9,577        26        —         9,632  

Credit contracts

     4        427        24        —         455  

Foreign exchange contracts

     0        4,479        37        —         4,516  

Commodity contracts

     1        0        —          —         1  

Netting

     —          —          —          (14,786     (14,786
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total derivative assets

     43        15,801        162        (14,786     1,220  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

   ¥ 7,429      ¥ 22,543      ¥ 528      ¥ (14,786   ¥ 15,714  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Loans and receivables(7)

     —          878        104        —         982  

Collateralized agreements(8)

     —          349        18        —         367  

Other assets

             

Non-trading debt securities

     123        304        —          —         427  

Other(2)(3)

     353        173        185        —         711  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   ¥ 7,905      ¥ 24,247      ¥ 835      ¥ (14,786   ¥ 18,201  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities:

             

Trading liabilities

             

Equities

   ¥ 2,341      ¥ 20      ¥ 0      ¥ —       ¥ 2,361  

Japanese government securities

     1,039        —          —          —         1,039  

Japanese agency and municipal securities

     —          1        —          —         1  

Foreign government, agency and municipal securities

     2,912        1,172        1        —         4,085  

Bank and corporate debt securities

     —          230        5        —         235  

Residential mortgage-backed securities (“RMBS”)

     —          0        —          —         0  

Collateralized debt obligations (“CDOs”) and other(5)

     —          0        1        —         1  

Investment trust funds and other

     243        13        0        —         256  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total trading liabilities

     6,535        1,436        7        —         7,978  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivative liabilities(6)

             

Equity contracts

     1        2,112        116        —         2,229  

Interest rate contracts

     21        8,948        69        —         9,038  

Credit contracts

     3        458        62        —         523  

Foreign exchange contracts

     —          4,380        22        —         4,402  

Commodity contracts

     0        0        —          —         0  

Netting

     —          —          —          (14,697     (14,697
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total derivative liabilities

     25        15,898        269        (14,697     1,495  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

   ¥ 6,560      ¥ 17,334      ¥ 276      ¥ (14,697   ¥ 9,473  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Short-term borrowings(9)

   ¥ —        ¥ 532      ¥ 103      ¥ —       ¥ 635  

Payables and deposits(10)

     —          49        1        —         50  

Collateralized financing(8)

     —          352        1        —         353  

Long-term borrowings(9)(11)(12)

     5        3,546        547        —         4,098  

Other liabilities(13)

     231        179        35        —         445  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   ¥ 6,796      ¥ 21,992      ¥ 963      ¥ (14,697   ¥ 15,054  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents
     Billions of yen  
   June 30, 2021  
   Level 1      Level 2      Level 3      Counterparty
and Cash
Collateral
Netting(1)
    Balance as of
June 30,
2021
 

Assets:

             

Trading assets and private equity and debt investments(2)

             

Equities(3)

   ¥ 2,047      ¥ 880      ¥ 11      ¥ —       ¥ 2,938  

Private equity and debt investments(4)

     23        —          45        —         68  

Japanese government securities

     2,189        —          —          —         2,189  

Japanese agency and municipal securities

     —          97        2        —         99  

Foreign government, agency and municipal securities

     3,352        2,021        13        —         5,386  

Bank and corporate debt securities and loans for trading purposes

     —          1,091        131        —         1,222  

Commercial mortgage-backed securities (“CMBS”)

     —          0        8        —         8  

Residential mortgage-backed securities (“RMBS”)

     —          1,827        7        —         1,834  

Issued/Guaranteed by government sponsored entity

     —          1,766        —          —         1,766  

Other

     —          61        7        —         68  

Real estate-backed securities

     —          0        158        —         158  

Collateralized debt obligations (“CDOs”) and other(5)

     —          30        21        —         51  

Investment trust funds and other

     283        22        1        —         306  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total trading assets and private equity and debt investments

     7,894        5,968        397        —         14,259  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivative assets(6)

             

Equity contracts

     0        947        90        —         1,037  

Interest rate contracts

     28        8,877        19        —         8,924  

Credit contracts

     3        420        32        —         455  

Foreign exchange contracts

     0        3,606        34        —         3,640  

Commodity contracts

     1        0        —          —         1  

Netting

     —          —          —          (12,992     (12,992
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total derivative assets

     32        13,850        175        (12,992     1,065  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

   ¥ 7,926      ¥ 19,818      ¥ 572      ¥ (12,992   ¥ 15,324  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Loans and receivables(7)

     —          873        111        —         984  

Collateralized agreements(8)

     —          311        16        —         327  

Other assets

             

Non-trading debt securities

     123        294        —          —         417  

Other(2)(3)

     287        99        202        —         588  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   ¥ 8,336      ¥ 21,395      ¥ 901      ¥ (12,992   ¥ 17,640  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Liabilities:

             

Trading liabilities

             

Equities

   ¥ 1,615      ¥ 13      ¥ 0      ¥ —       ¥ 1,628  

Japanese government securities

     1,074        —          —          —         1,074  

Japanese agency and municipal securities

     —          0        —          —         0  

Foreign government, agency and municipal securities

     4,155        1,409        0        —         5,564  

Bank and corporate debt securities

     —          207        2        —         209  

Residential mortgage-backed securities (“RMBS”)

     —          0        —          —         0  

Collateralized debt obligations (“CDOs”) and other(5)

     —          0        0        —         0  

Investment trust funds and other

     124        0        0        —         124  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total trading liabilities

     6,968        1,629        2        —         8,599  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Derivative liabilities(6)

             

Equity contracts

     0        1,429        129        —         1,558  

Interest rate contracts

     23        8,246        60        —         8,329  

Credit contracts

     2        441        63        —         506  

Foreign exchange contracts

     —          3,553        25        —         3,578  

Commodity contracts

     0        1        —          —         1  

Netting

     —          —          —          (12,658     (12,658
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total derivative liabilities

     25        13,670        277        (12,658     1,314  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Subtotal

   ¥ 6,993      ¥ 15,299      ¥ 279      ¥ (12,658   ¥ 9,913  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Short-term borrowings(9)

     —          584        94        —         678  

Payables and deposits(10)

     —          49        2        —         51  

Collateralized financing(8)

     —          352        —          —         352  

Long-term borrowings(9)(11)(12)

     11        3,721        508        —         4,240  

Other liabilities(13)

     178        103        33        —         314  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   ¥ 7,182      ¥ 20,108      ¥ 916      ¥ (12,658   ¥ 15,548  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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Table of Contents

 

(1)

Represents the amount offset under counterparty netting of derivative assets and liabilities as well as cash collateral netting against net derivatives.

(2)

Certain investments that are measured at fair value using net asset value per share as a practical expedient have not been classified in the fair value hierarchy. As of March 31, 2021 and June 30, 2021, the fair values of these investments which are included in Trading assets and private equity and debt investments were ¥24 billion and ¥28 billion, respectively. As of March 31, 2021 and June 30, 2021, the fair values of these investments which are included in Other assets - Others were ¥4 billion and ¥5 billion, respectively.

(3)

Includes equity investments that would have been accounted for under the equity method had Nomura not chosen to elect the fair value option.

(4)

Private equity and debt investments are typically private non-traded financial instruments including ownership or other forms of junior capital (such as mezzanine loan). Includes equity investments that would have been accounted for under the equity method had Nomura not chosen to elect the fair value option.

(5)

Includes collateralized loan obligations (“CLOs”) and asset-backed securities (“ABS”) such as those secured on credit card loans, auto loans and student loans.

(6)

Each derivative classification includes derivatives with multiple risk underlyings. For example, interest rate contracts include complex derivatives referencing interest rate risk as well as foreign exchange risk or other factors such as prepayment rates. Credit contracts include credit default swaps as well as derivatives referencing corporate and government debt securities.

(7)

Includes loans for which the fair value option has been elected.

(8)

Includes collateralized agreements or collateralized financing for which the fair value option has been elected.

(9)

Includes structured notes for which the fair value option has been elected.

(10)

Includes embedded derivatives bifurcated from deposits received at banks. If unrealized gains are greater than unrealized losses, deposits are reduced by the excess amount.

(11)

Includes embedded derivatives bifurcated from issued structured notes. If unrealized gains are greater than unrealized losses, borrowings are reduced by the excess amount.

(12)

Includes liabilities recognized from secured financing transactions that are accounted for as financings rather than sales. Nomura elected the fair value option for these liabilities.

(13)

Includes loan commitments for which the fair value option has been elected.

Valuation techniques by major class of financial instrument

The valuation techniques used by Nomura to estimate fair value for major classes of financial instruments, together with the significant inputs which determine classification in the fair value hierarchy, are as follows.

Equities and equity securities reported within Other assetsEquities and equity securities reported within Other assets include direct holdings of both listed and unlisted equity securities, and fund investments. The fair value of listed equity securities is determined using quoted prices for identical securities from active markets where available. These valuations should be in line with market practice and therefore can be based on bid prices or mid-market prices. Nomura determines whether the market is active depending on the sufficiency and frequency of trading activity. Where these securities are classified in Level 1 of the fair value hierarchy, no valuation adjustments are made to fair value. Listed equity securities traded in inactive markets are also generally valued using the exchange price and are classified in Level 2. Whilst rare in practice, Nomura may apply a discount or liquidity adjustment to the exchange price of a listed equity security traded in an inactive market if the exchange price is not considered to be an appropriate representation of fair value. These adjustments are determined by individual security and are not determined or influenced by the size of holding. The amount of such adjustments made to listed equity securities traded in inactive markets was ¥nil as of March 31, 2021 and June 30, 2021, respectively. The fair value of unlisted equity securities is determined using the same methodology as private equity and debt investments described below and are usually classified in Level 3 because significant valuation inputs such as liquidity discounts and credit spreads are unobservable.

 

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Table of Contents

Private equity and debt investments—The determination of fair value of unlisted private equity and debt investments requires significant management judgment because the investments, by their nature, have little or no price transparency. Private equity and debt investments are initially carried at cost as an approximation of fair value. Adjustments to carrying value are made if there is third-party evidence of a change in value. Adjustments are also made, in the absence of third-party transactions, if it is determined that the expected exit price of the investment is different from carrying value. In reaching that determination, Nomura primarily uses either a discounted cash flow (“DCF”) or market multiple valuation technique. A DCF valuation technique incorporates estimated future cash flows to be generated from the underlying investee, as adjusted for an appropriate growth rate discounted at a weighted average cost of capital (“WACC”). Market multiple valuation techniques include comparables such as Enterprise Value/earnings before interest, taxes, depreciation and amortization (“EV/EBITDA”) ratios, Price/Earnings (“PE”) ratios, Price/Book ratios, Price/Embedded Value ratios and other multiples based on relationships between numbers reported in the financial statements of the investee and the price of comparable companies. A liquidity discount may also be applied to either a DCF or market multiple valuation to reflect the specific characteristics of the investee. The liquidity discount includes considerations for various uncertainties in the model and inputs to valuation. Where possible these valuations are compared with the operating cash flows and financial performance of the investee or properties relative to budgets or projections, price/earnings data for similar quoted companies, trends within sectors and/or regions and any specific rights or terms associated with the investment, such as conversion features and liquidation preferences. Private equity and debt investments are generally classified in Level 3 since the valuation inputs such as those mentioned above are usually unobservable.

Government, agency and municipal securities—The fair value of Japanese and other G7 government securities is primarily determined using quoted market prices, executable broker or dealer quotations, or alternative pricing sources. These securities are traded in active markets and therefore are classified within Level 1 of the fair value hierarchy. Non-G7 government securities, agency securities and municipal securities are valued using similar pricing sources but are generally classified in Level 2 as they are traded in inactive markets. Certain non-G7 securities may be classified in Level 1 because they are traded in active markets. Certain securities may be classified in Level 3 because they are traded infrequently and there is not sufficient information from comparable securities to classify them in Level 2. These are valued using DCF valuation techniques which include significant unobservable inputs such as credit spreads of the issuer.

Bank and corporate debt securities—The fair value of bank and corporate debt securities is primarily determined using DCF valuation techniques but also using broker or dealer quotations and recent market transactions of identical or similar debt securities, if available. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. The significant valuation inputs used for DCF valuations are yield curves, asset swap spreads, recovery rates and credit spreads of the issuer. Bank and corporate debt securities are generally classified in Level 2 of the fair value hierarchy because these valuation inputs are usually observable or market-corroborated. Certain bank and corporate debt securities will be classified in Level 3 because they are traded infrequently and there is insufficient information from comparable securities to classify them in Level 2, or credit spreads or recovery rates of the issuer used in DCF valuations are unobservable.

Commercial mortgage-backed securities (“CMBS”) and Residential mortgage-backed securities (“RMBS”)—The fair value of CMBS and RMBS are primarily determined using DCF valuation techniques but also using broker or dealer quotations and recent market transactions of identical or similar securities, if available. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. The significant valuation inputs include yields, prepayment rates, default probabilities and loss severities. CMBS and RMBS securities are generally classified in Level 2 because these valuation inputs are observable or market-corroborated. Certain CMBS and RMBS positions will be classified in Level 3 because they are traded infrequently and there is insufficient information from comparable securities to classify them in Level 2, or one or more of the significant valuation inputs used in DCF valuations are unobservable.

Real estate-backed securities—The fair value of real estate-backed securities is determined using broker or dealer quotations, recent market transactions or by reference to a comparable market index. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. Where all significant inputs are observable, the securities will be classified in Level 2. For certain securities, no direct pricing sources or comparable securities or indices may be available. These securities are valued using DCF or valuation techniques and are classified in Level 3 as the valuation includes significant unobservable valuation inputs such as yields or loss severities.

 

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Table of Contents

Collateralized debt obligations (“CDOs”) and other—The fair value of CDOs is primarily determined using DCF valuation techniques but also using broker or dealer quotations and recent market transactions of identical or similar securities, if available. Consideration is given to the nature of the broker and dealer quotations, namely whether these are indicative or executable, the number of available quotations and how these quotations compare to any available recent market activity or alternative pricing sources. The significant valuation inputs used include market spread data for each credit rating, yields, prepayment rates, default probabilities and loss severities. CDOs are generally classified in Level 2 of the fair value hierarchy because these valuation inputs are observable or market-corroborated. CDOs will be classified in Level 3 where one or more of the significant valuation inputs used in the DCF valuations are unobservable.

Investment trust funds and other—The fair value of investment trust funds is primarily determined using NAV per share. Publicly traded funds which are valued using a daily NAV per share are classified in Level 1 of the fair value hierarchy. For funds that are not publicly traded but Nomura has the ability to redeem its investment with the investee at NAV per share on the balance sheet date or within the near term, the investments are classified in Level 2. Investments where Nomura does not have the ability to redeem in the near term or does not know when it can redeem are classified in Level 3. The fair value of certain other investments reported within Investment trust funds and other is determined using DCF valuation techniques. These investments are classified in Level 3 as the valuation includes significant unobservable valuation inputs such as credit spreads of issuer and correlation.

Derivatives—Equity contracts—Nomura enters into both exchange-traded and OTC equity derivative transactions such as index and equity options, equity basket options and index and equity swaps. Where these derivatives are traded in active markets and the exchange price is representative of fair value, the fair value of exchange-traded equity derivatives is determined using an unadjusted exchange price and classified in Level 1 of the fair value hierarchy. The fair value of exchange-traded equity derivatives which are traded in inactive markets or where the exchange price is not representative of fair value is determined using a model price and are classified in Level 2. The fair value of OTC equity derivatives is determined through option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include equity prices, dividend yields, volatilities and correlations. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura‘s own creditworthiness on derivative liabilities. OTC equity derivatives are generally classified in Level 2 because all significant valuation inputs and adjustments are observable or market-corroborated. Certain less liquid vanilla or more complex equity derivatives are classified in Level 3 where dividend yield, volatility or correlation valuation inputs are significant and unobservable.

Derivatives—Interest rate contracts—Nomura enters into both exchange-traded and OTC interest rate derivative transactions such as interest rate swaps, currency swaps, interest rate options, forward rate agreements, swaptions, caps and floors. Where these derivatives are traded in active markets and the exchange price is representative of fair value, the fair value of exchange-traded interest rate derivatives is determined using an unadjusted exchange price and classified in Level 1 of the fair value hierarchy. The fair value of exchange-traded interest rate derivatives which are traded in inactive markets or where the exchange price is not representative of fair value is determined using a model price and are classified in Level 2. The fair value of OTC interest rate derivatives is determined through DCF valuation techniques as well as option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include interest rates, forward foreign exchange (“FX”) rates, volatilities and correlations. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura‘s own creditworthiness on derivative liabilities. OTC interest rate derivatives are generally classified in Level 2 because all significant valuation inputs and adjustments are observable or market-corroborated. Certain less liquid vanilla or more complex OTC interest rate derivatives are classified in Level 3 where interest rate, volatility or correlation valuation inputs are significant and unobservable.

Derivatives—Credit contracts—Nomura enters into OTC credit derivative transactions such as credit default swaps and credit options on single names, indices or baskets of assets. The fair value of OTC credit derivatives is determined through DCF valuation techniques as well as option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include interest rates, credit spreads, recovery rates, default probabilities, volatilities and correlations. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura’s own creditworthiness on derivative liabilities. OTC credit derivatives are generally classified in Level 2 of the fair value hierarchy because all significant valuation inputs and adjustments are observable or market-corroborated. Certain less liquid vanilla or more complex OTC credit derivatives are classified in Level 3 where credit spread, recovery rate, volatility or correlation valuation inputs are significant and unobservable.

 

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Table of Contents

Derivatives—Foreign exchange contracts—Nomura enters into both exchange-traded and OTC foreign exchange derivative transactions such as foreign exchange forwards and currency options. The fair value of exchange-traded foreign exchange derivatives which are traded in inactive markets or where the exchange price is not representative of fair value is determined using a model price and are classified in Level 2. The fair value of OTC foreign exchange derivatives is determined through DCF valuation techniques as well as option models such as Black-Scholes and Monte Carlo simulation. The significant valuation inputs used include interest rates, forward FX rates, spot FX rates and volatilities. Valuation adjustments are also made to model valuations in order to reflect counterparty credit risk on derivative assets and Nomura’s own creditworthiness on derivative liabilities. OTC foreign exchange derivatives are generally classified in Level 2 because all significant valuation inputs and adjustments are observable or market-corroborated. Certain foreign exchange derivatives are classified in Level 3 where interest rates, volatility or correlation valuation inputs are significant and unobservable.

Nomura includes valuation adjustments in its estimation of fair value of certain OTC derivatives relating to funding costs associated with these transactions to be consistent with how market participants in the principal market for these derivatives would determine fair value.

Loans—The fair value of loans carried at fair value either as trading assets or through election of the fair value option is primarily determined using DCF valuation techniques as quoted prices are typically not available. The significant valuation inputs used are similar to those used in the valuation of corporate debt securities described above. Loans are generally classified in Level 2 of the fair value hierarchy because all significant valuation inputs are observable. Certain loans, however, are classified in Level 3 because they are traded infrequently and there is not sufficient information from comparable securities to classify them in Level 2 or credit spreads of the issuer used in DCF valuations are significant and unobservable.

Collateralized agreements and Collateralized financing—The primary types of collateralized agreement and financing transactions carried at fair value are reverse repurchase and repurchase agreements elected for the fair value option. The fair value of these financial instruments is primarily determined using DCF valuation techniques. The significant valuation inputs used include interest rates and collateral funding spreads such as general collateral or special rates. Reverse repurchase and repurchase agreements are generally classified in Level 2 of the fair value hierarchy because these valuation inputs are usually observable.

Non-trading debt securities—These are debt securities held by certain non-trading subsidiaries in the group and are valued and classified in the fair value hierarchy using the same valuation techniques used for other debt securities classified as Government, agency and municipal securities and Bank and corporate debt securities described above.

Short-term and long-term borrowings (“Structured notes”)—Structured notes are debt securities issued by Nomura or by consolidated variable interest entities (“VIEs”) which contain embedded features that alter the return to the investor from simply receiving a fixed or floating rate of interest to a return that depends upon some other variables, such as an equity or equity index, commodity price, foreign exchange rate, credit rating of a third party or a more complex interest rate (i.e., an embedded derivative).

The fair value of structured notes is determined using a quoted price in an active market for the identical liability if available, and where not available, using a mixture of valuation techniques that use the quoted price of the identical liability when traded as an asset, quoted prices for similar liabilities, similar liabilities when traded as assets, or an internal model which combines DCF valuation techniques and option pricing models, depending on the nature of the embedded features within the structured note. Where an internal model is used, Nomura estimates the fair value of both the underlying debt instrument and the embedded derivative components. The significant valuation inputs used to estimate the fair value of the debt instrument component include yield curves, prepayment rates, default probabilities and loss severities. The significant valuation inputs used to estimate the fair value of the embedded derivative component are the same as those used for the relevant type of freestanding OTC derivative discussed above. A valuation adjustment is also made to the entire structured note in order to reflect Nomura’s own creditworthiness. This adjustment is determined based on recent observable secondary market transactions and executable broker quotes involving Nomura debt instruments and is therefore typically treated as a Level 2 valuation input. Structured notes are generally classified in Level 2 of the fair value hierarchy as all significant valuation inputs and adjustments are observable. Where any unobservable inputs are significant, such as yields, prepayment rates, default probabilities, loss severities, volatilities and correlations used to estimate the fair value of the embedded derivative component, structured notes are classified in Level 3.

Long-term borrowings (“Secured financing transactions”)—Secured financing transactions are liabilities recognized when a transfer of a financial asset does not meet the criteria for sales accounting under ASC 860 “Transfer and Servicing (“ASC 860”) and therefore the transaction is accounted for as a secured borrowing. These liabilities are valued using the same valuation techniques that are applied to the transferred financial assets which remain on the consolidated balance sheets and are therefore classified in the same level in the fair value hierarchy as the transferred financial assets. These liabilities do not provide general recourse to Nomura and therefore no adjustment is made to reflect Nomura’s own creditworthiness.

 

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Table of Contents

Level 3 financial instruments

The valuation of Level 3 financial assets and liabilities is dependent on certain significant valuation inputs which are unobservable. Common characteristics of an inactive market include a low number of transactions of the financial instrument, stale or non-current price quotes, price quotes that vary substantially either over time or among market makers, non-executable broker quotes or little publicly released information.

If corroborative evidence is not available to value Level 3 financial instruments, fair value may be measured using other equivalent products in the market. The level of correlation between the specific Level 3 financial instrument and the available benchmark instrument is considered as an unobservable valuation input. Other techniques for determining an appropriate value for unobservable input may consider information such as consensus pricing data among certain market participants, historical trends, extrapolation from observable market data and other information Nomura would expect market participants to use in valuing similar instruments.

Use of reasonably possible alternative valuation input assumptions to value Level 3 financial instruments will significantly influence fair value determination. Ultimately, the uncertainties described above about input assumptions imply that the fair value of Level 3 financial instruments is a judgmental estimate. The specific valuation for each instrument is based on management’s judgment of prevailing market conditions, in accordance with Nomura’s established valuation policies and procedures.

 

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Table of Contents

Quantitative and qualitative information regarding significant unobservable inputs

The following tables present quantitative and qualitative information about the significant unobservable valuation inputs used by Nomura to measure the fair value of financial instruments classified in Level 3 as of March 31, 2021 and June 30, 2021. These financial instruments will also typically include observable valuation inputs (i.e. Level 1 or Level 2 valuation inputs) which are not included in the table and are also often hedged using financial instruments which are classified in Level 1 or Level 2 of the fair value hierarchy. Changes in each of these significant unobservable valuation inputs used by Nomura will impact upon the fair value measurement of the financial instrument. The following tables also illustrate qualitatively how an increase in those significant unobservable valuation inputs might result in a higher or lower fair value measurement at the reporting date and the interrelationship between significant unobservable valuation inputs where more than one is used to determine fair value measurement of the financial instruments. The impact of the COVID-19 pandemic on financial markets has been considered in determining which valuation inputs are used to measure fair value.

 

    March 31, 2021

Financial Instrument

  Fair
value in

billions
of yen
   

Valuation

technique

 

Significant

unobservable
valuation input

 

Range of

valuation inputs(1)

 

Weighted

Average(2)

 

Impact of

increases in

significant

unobservable
valuation

inputs(3)(4)

 

Interrelationships

between valuation

inputs(5)

Assets:

             

Trading assets and private equity and debt investments

             

Equities

  ¥        16      DCF   Liquidity discounts   75.0%   75.0%   Lower fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Private equity and debt investments

    58     DCF  

WACC

Growth rates

Credit spreads

Liquidity discounts

 

6.3 – 11.5%

0.0 – 1.0%

7.6 – 8.8%

5.0 – 30.0%

 

8.4%

0.5%

8.1%

12.8%

 

Lower fair value

Higher fair value

Lower fair value

Lower fair value

 

No predictable

interrelationship

   

 

 

 

 

 

 

 

 

 

 

 

    Market multiples  

EV/EBITDA ratios

PE Ratios

Liquidity discounts

 

1.9 – 10.8 x

11.1 x

5.0 – 20.0%

 

6.5 x

11.1 x

12.2%

 

Higher fair value

Higher fair value

Lower fair value

 

No predictable

interrelationship

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Foreign government, agency and municipal securities

    12     DCF  

Credit spreads

Recovery rates

 

0.0 – 1.5%

9.2 – 9.3%

 

0.4%

9.2%

 

Lower fair value

Higher fair value

 

No predictable

interrelationship

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Bank and corporate debt securities and loans for trading purposes

    135     DCF  

Credit spreads

Recovery rates

 

0.0 – 23.1%

0.0 – 100.0%

 

7.4%

73.3%

 

Lower fair value

Higher fair value

 

No predictable

interrelationship

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage

backed securities

(“CMBS”)

    8     DCF  

Yields

Loss severities

 

4.2 – 10.6%

27.5 – 69.5%

 

5.0%

50.3%

 

Lower fair value

Lower fair value

 

No predictable

interrelationship

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage

backed securities

(“RMBS”)

    6     DCF  

Yields

Prepayment rates

Loss severities

 

0.0 – 14.3%

6.4 – 15.0%

0.8 – 100.0%

 

1.4%

7.2%

5.8%

 

Lower fair value

Lower fair value

Lower fair value

 

No predictable

interrelationship

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Real estate-backed

securities

    106     DCF   Loss severities   0.0 – 18.6%   2.4%   Lower fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Collateralized debt obligations (“CDOs”) and other

    23     DCF  

Yields

Prepayment rates

Default probabilities

Loss severities

 

5.4 – 35.0%

20.0%

2.0%

77.0 – 100.0%

 

11.0%

20.0%

2.0%

88.1%

 

Lower fair value

Lower fair value

Lower fair value

Lower fair value

  Change in default probabilities typically accompanied by directionally similar change in loss severities and opposite change in prepayment rates
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

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Table of Contents
    March 31, 2021

Financial Instrument

  Fair
value in

billions
of yen
   

Valuation

technique

 

Significant

unobservable

valuation input

 

Range of

valuation inputs(1)

 

Weighted

Average(2)

 

Impact of

increases in

significant

unobservable

valuation

inputs(3)(4)

 

Interrelationships

between valuation

inputs(5)

Derivatives, net:

             

Equity contracts

  ¥       (41  

Option

models

 

Dividend yield

Volatilities

Correlations

 

0.0 – 9.8%

4.0 – 102.0%

(0.80) – 0.98

 

—  

—  

—  

  Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

    (43  

DCF/

Option

models

 

Interest rates

Volatilities

Volatilities

Correlations

 

0.1 – 2.3%

9.6 – 13.1%

24.9 – 94.0 bp

(1.00) – 0.98

 

—  

—  

—  

—  

  Higher fair value Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Credit contracts

    (38  

DCF/

Option

models

 

Credit spreads

Recovery rates

Volatilities

Correlations

 

0.0 – 20.8%

0.0 – 100.4%

41.9 – 65.0%

0.29 – 0.72

 

—  

—  

—  

—  

  Higher fair value Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

    15    

Option

models

 

Interest rates

Volatilities

Volatilities

Correlations

 

0.1 – 2.1%

2.6 – 31.5%

16.2 – 25.5 bp

(0.25) – 0.80

 

—  

—  

—  

—  

  Higher fair value Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Loans and receivables

    104     DCF   Credit spreads Recovery rates  

0.0 – 25.6%

26.4 – 100.0%

 

6.6%

95.8%

  Lower fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Collateralized agreements

    18     DCF   Repo rate   2.8 – 5.8%   4.0%   Lower fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Other assets

             

Other(6)

    185     DCF  

WACC

Growth rates

Liquidity discounts

 

9.2%

2.0%

10.0%

 

9.2%

2.0%

10.0%

  Lower fair value Higher fair value Lower fair value   No predictable interrelationship
   

 

 

 

 

 

 

 

 

 

 

 

    Market multiples  

EV/EBITDA ratios

PE Ratios

Price/Book ratios

Liquidity discounts

 

5.0 – 6.2 x

8.2 – 32.0 x

0.3 – 1.6 x

10.0 – 40.0%

 

5.4 x

13.8 x

0.9 x

30.6%

  Higher fair value Higher fair value Higher fair value Lower fair value   Generally changes in multiples result in a corresponding similar directional change in a fair value measurement, assuming earnings levels remain constant.
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

             

Trading Liabilities

             

Bank and corporate debt securities

    5     DCF   Recovery rates   3.4 – 3.5%   3.4%   Higher fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

    103    

DCF/

Option models

 

Volatilities

Correlations

 

13.8 – 82.3%

(0.69) – 0.96

 

—  

—  

  Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Long-term borrowings

    547    

DCF/

Option models

 

Volatilities

Volatilities

Correlations

 

9.5 – 82.3%

29.6 – 77.0 bp

(1.00) – 0.98

 

—  

—  

—  

  Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

43


Table of Contents
    June 30, 2021

Financial Instrument

  Fair
value in

billions
of yen
   

Valuation

technique

 

Significant

unobservable input

 

Range of

valuation inputs(1)

 

Weighted

Average(2)

 

Impact of

increases in

significant

unobservable

valuation

inputs(3)(4)

 

Interrelationships

between valuation

inputs(5)

Assets:

             

Trading assets and private equity and debt investments

             

Equities

  ¥        11      DCF   Liquidity discounts   75.0%   75.0%   Lower fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Private equity and debt investments

    45     DCF  

WACC

Growth rates

Credit spreads Liquidity discounts

 

6.3 – 11.4%

0.0 – 0.3%

7.6 – 8.8%

5.0 – 30.0%

 

9.2%

0.1%

8.1%

15.3%

  Lower fair value Higher fair value Lower fair value Lower fair value   No predictable interrelationship
   

 

 

 

 

 

 

 

 

 

 

 

    Market multiples  

EV/EBITDA ratios

PE Ratios

Liquidity discounts

 

2.2 – 11.0 x

11.9 x

5.0 – 20.0%

 

6.8 x

11.9 x 12.1%

  Higher fair value Higher fair value Lower fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Foreign government,

agency and

municipal securities

    13     DCF  

Credit spreads

Recovery rates

 

0.0 – 1.3%

9.8 – 29.0%

 

0.5%

13.1%

  Lower fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Bank and corporate debt

securities and loans for

trading purposes

    131     DCF  

Credit spreads

Recovery rates

 

0.0 – 39.2%

0.0 – 100.0%

 

6.8%

79.1%

  Lower fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage-

backed securities (“CMBS”)

    8     DCF  

Yields

Loss severities

 

4.1 – 10.4%

28.3 – 71.5%

 

4.8%

42.6%

  Lower fair value Lower fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Residential mortgage-backed securities (“RMBS”)

    7     DCF  

Yields

Prepayment rates

Loss severities

 

0.0 – 15.7%

6.9 – 15.0%

0.0 – 100.0%

 

1.8%

7.4%

4.5%

  Lower fair value Lower fair value Lower fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Real estate-backed securities

    158     DCF   Loss severities   0.0 – 31.9%   1.4%   Lower fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Collateralized debt

obligations (“CDOs”) and

other

    21     DCF  

Yields

Prepayment rates

Default probabilities

Loss severities

 

5.4 – 30.0%

20.0%

2.0%

78.4 – 100.0%

 

11.6%

20.0%

2.0%

90.3%

  Lower fair value Lower fair value Lower fair value Lower fair value   Change in default probabilities typically accompanied by directionally similar change in loss severities and opposite change in prepayment rates
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

44


Table of Contents
    June 30, 2021

Financial Instrument

  Fair
value in
billions
of yen
   

Valuation

technique

 

Significant

unobservable input

 

Range of

valuation inputs(1)

 

Weighted

Average(2)

 

Impact of
increases in
significant
unobservable
valuation

inputs(3)(4)

 

Interrelationships
between valuation

inputs(5)

Derivatives, net:

             

Equity contracts

  ¥       (39  

Option

models

 

Dividend yield

Volatilities Correlations

 

0.0 – 13.4%

5.0 – 118.2% (0.80) – 0.98

 

—  

—  

—  

  Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

    (41  

DCF/

Option models

 

Interest rates

Volatilities

Volatilities

Correlations

 

0.1 – 2.0%

9.5 – 13.9%

27.1 – 70.7 bp

(1.00) – 0.98

 

—  

—  

—  

—  

  Higher fair value Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Credit contracts

    (31  

DCF/

Option models

 

Credit spreads

Recovery rates

Volatilities

Correlations

 

0.0 – 39.1%

0.0 – 105.8%

30.0 – 50.0%

0.27 – 0.69

 

—  

—  

—  

—  

  Higher fair value Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange

contracts

    9     Option models  

Interest rates

Volatilities

Volatilities

Correlations

 

0.1 – 1.7%

2.4 – 24.3%

15.5 – 20.1 bp

(0.25) – 0.80

 

—  

—  

—  

—  

  Higher fair value Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Loans and receivables

    111     DCF  

Credit spreads

Recovery rates

 

0.0 – 19.7%

54.0 – 100.0%

 

7.0%

96.6%

  Lower fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Collateralized agreements

    16     DCF   Repo rate   2.8 – 6.7%   3.8%   Lower fair value   Not application
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Other assets

             

Other(6)

    202     DCF  

WACC

Growth rates

Liquidity discounts

 

9.2%

2.0%

10.0%

 

9.2%

2.0%

10.0%

  Lower fair value Higher fair value Lower fair value   No predictable interrelationship
   

 

 

 

 

 

 

 

 

 

 

 

    Market multiples  

EV/EBITDA ratios

PE Ratios

Price/Book ratios Liquidity discounts

 

4.2 – 5.9 x

9.7 – 30.8 x

0.3 – 1.6 x

25.0 – 40.0%

 

4.8 x

15.1 x

0.9 x

30.6%

  Higher fair value Higher fair value Higher fair value Lower fair value   Generally changes in multiples result in a corresponding similar directional change in a fair value measurement, assuming earnings levels remain constant.
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

             

Trading liabilities

             

Bank and corporate debt securities

    2     DCF   Recovery rates   4.4%   4.4%   Higher fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Short-term borrowings

    94     DCF/option models  

Volatilities

Correlations

 

11.9 – 73.2%

(0.74) – 0.96

 

—  

—  

  Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Payables and deposits

    2     DCF/option models  

Volatilities

Volatilities

Correlations

 

9.5 – 11.6%

31.2 – 59.9 bp

0.35 – 0.98

 

—  

—  

—  

  Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Long-term borrowings

    508     DCF/option models  

Volatilities

Volatilities

Correlations

 

9.5 – 73.2%

31.2 – 69.4 bp

(1.00) – 0.98

 

—  

—  

—  

  Higher fair value Higher fair value Higher fair value   No predictable interrelationship
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

Other liabilities

    33     DCF   Recovery rates   88.0 – 93.3%   91.9%   Higher fair value   Not applicable
 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

45


Table of Contents

 

(1)

Range information is provided in percentages, coefficients and multiples and represents the highest and lowest level significant unobservable valuation input used to value that type of financial instrument. A wide dispersion in the range does not necessarily reflect increased uncertainty or subjectivity in the valuation input and is typically just a consequence of the different characteristics of the financial instruments themselves.

(2)

Weighted average information for non-derivative instruments is calculated by weighting each valuation input by the fair value of the financial instrument.

(3)

The above table only considers the impact of an increase in each significant unobservable valuation input on the fair value measurement of the financial instrument. However, a decrease in the significant unobservable valuation input would have the opposite effect on the fair value measurement of the financial instrument. For example, if an increase in a significant unobservable valuation input would result in a lower fair value measurement, a decrease in the significant unobservable valuation input would result in a higher fair value measurement.

(4)

The impact of an increase in the significant unobservable input on the fair value measurement for a derivative assumes Nomura is long risk to the input e.g., long volatility. Where Nomura is short such risk, the impact of an increase would have a converse effect on the fair value measurement of the derivative.

(5)

Consideration of the interrelationships between significant unobservable inputs is only relevant where more than one unobservable valuation input is used to determine the fair value measurement of the financial instrument.

(6)

Valuation technique(s) and unobservable valuation inputs in respect of equity securities reported within Other assets in the consolidated balance sheets.

 

46


Table of Contents

Qualitative discussion of the ranges of significant unobservable inputs

The following comments present qualitative discussion about the significant unobservable valuation inputs used by Nomura for financial instruments classified in Level 3.

Derivatives—Equity contracts—The significant unobservable inputs are dividend yield, volatilities and correlations. The range of dividend yields varies as some companies do not pay any dividends, for example due to a lack of profits or as a policy during a growth period, and hence have a zero dividend yield while others may pay high dividends for example to return money to investors. The range of volatilities is wide as the volatilities of shorter-dated equity derivatives or those based on single equity securities can be higher than those of longer-dated instruments or those based on indices. Correlations represent the relationships between one input and another (“pairs”) and can either be positive or negative amounts. The range of correlations moves from positive to negative because the movement of some pairs is very closely related and in the same direction causing highly positive correlations while others generally move in opposite directions causing highly negative correlations with pairs that have differing relationships throughout the range.

Derivatives—Interest rate contracts—The significant unobservable inputs are interest rates, volatilities and correlations. The range of interest rates is due to interest rates in different countries/currencies being at different levels with some countries having extremely low levels and others being at levels that while still relatively low are less so. The range of volatilities is wide as volatilities can be higher when interest rates are at extremely low levels, and also because volatilities of shorter-dated interest rate derivatives are typically higher than those of longer-dated instruments. The range of correlations moves from positive to negative because the movement of some pairs is very closely related and in the same direction causing highly positive correlations while others generally move in opposite directions causing highly negative correlations with pairs that have differing relationships through the range. All significant unobservable inputs are spread across the ranges.

Derivatives—Credit contracts—The significant unobservable inputs are credit spreads, recovery rates, volatilities and correlations. The range of credit spreads reflects the different risk of default present within the portfolio. At the low end of the range, underlying reference names have a very limited risk of default whereas at the high end of the range, underlying reference names have a much greater risk of default. The range of recovery rates varies primarily due to the seniority of the underlying exposure with senior exposures having a higher recovery than subordinated exposures. The range of volatilities is wide as the volatilities of shorter-dated credit contracts are typically higher than those of longer-dated instruments. The correlation range is positive since credit spread moves are generally in the same direction. Highly positive correlations are those for which the movement is very closely related and in the same direction, with correlation falling as the relationship becomes less strong.

Derivatives—Foreign exchange contracts—The significant unobservable inputs are interest rates, volatilities and correlations. The range of interest rates is due to interest rates in different countries/currencies being at different levels with some countries having extremely low levels and others being at levels that while still relatively low are less so. The range of volatilities is mainly due to the lower end of the range arising from currencies that trade in narrow ranges e.g. versus the U.S. Dollar while the higher end comes from currencies with a greater range of movement such as emerging market currencies. The range of correlations moves from positive to negative because the movement of some pairs is very closely related and in the same direction causing highly positive correlations while others generally move in opposite directions causing highly negative correlations with pairs that have differing relationships through the range.

Short-term borrowings and Long-term borrowings—The significant unobservable inputs are yields, prepayment rates, default probabilities, loss severities, volatilities and correlations. The range of volatilities is wide as the volatilities of shorter-dated instruments are typically higher than those in longer-dated instruments. The range of correlations moves from positive to negative because the movement of some pairs is very closely related and in the same direction causing highly positive correlations while others generally move in opposite directions causing highly negative correlations with pairs that have differing relationships through the range.

 

47


Table of Contents

Movements in Level 3 financial instruments

The following tables present gains and losses as well as increases and decreases of financial instruments measured at fair value on a recurring basis which Nomura classified in Level 3 for the three months ended June 30, 2020 and 2021. Financial instruments classified in Level 3 are often hedged with instruments within Level 1 or Level 2 of the fair value hierarchy. The gains or losses presented below do not reflect the offsetting gains or losses for these hedging instruments. Level 3 financial instruments are also measured using both observable and unobservable valuation inputs. Fair value changes presented below, therefore, reflect realized and unrealized gains and losses resulting from movements in both observable and unobservable valuation inputs.

For the three months ended June 30, 2020 and 2021, gains and losses related to Level 3 assets and liabilities did not have a material impact on Nomura’s liquidity and capital resources management.

 

    Billions of yen  
    Three months ended June 30, 2020  
    Beginning
balance as of
three months
ended
June 30,
2020
    Total gains
(losses)
recognized
in revenue(1)
    Total gains
(losses)
recognized in
other
comprehensive
income
    Purchases /
issues(2)
    Sales /
redemptions(2)
    Settlements     Foreign
exchange
movements
    Transfers
into
Level 3(4)(5)
    Transfers
out of
Level 3(5)
    Balance as of
three months
ended
June 30,
2020
 

Assets:

                   

Trading assets and private equity and debt investments

                   

Equities

  ¥ 14     ¥ 0     ¥ —       ¥ 0     ¥ (3   ¥ —       ¥ 0     ¥ 0     ¥ 0     ¥ 11  

Private equity and debt investments

    31       1       —         7       (2     —          0       —         —         37  

Japanese agency and municipal securities

    2       0       —         —         0       —         —         0       —         2  

Foreign government, agency and municipal securities

    8       0       —         6       (2     —         0       0       (2     10  

Bank and corporate debt securities and loans for trading purposes

    228       (4     —         10       (28     —         0       15       (14     207  

Commercial mortgage-backed securities (“CMBS”)

    1       0       —         0       0       —         —         —         0       1  

Residential mortgage-backed securities (“RMBS”)

    62       0       —         11       (29     —         0       —         (23     21  

Real estate-backed securities

    94       (5     —         15       (22     —         0       —         0       82  

Collateralized debt obligations (“CDOs”) and other

    32       (2     —         14       (26     —         0       —         (7     11  

Investment trust funds and other

    0       0       —         —         —         —         0       —         —         0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total trading assets and private equity and debt investments

    472       (10     —         63       (112     —         0       15       (46     382  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivatives, net(3)

                   

Equity contracts

    19       (22     —         —         —         (6     0       7       (14     (16

Interest rate contracts

    (54     (5     —         —         —         (4     0       (2     (1     (66

Credit contracts

    (1     (6     —         —         —         2       0       (3     0       (8

Foreign exchange contracts

    7       2       —         —         —         (8     0       (3     2       0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives, net

    (29     (31     —         —         —         (16     0       (1     (13     (90
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

  ¥ 443     ¥ (41   ¥ —       ¥ 63     ¥ (112   ¥ (16   ¥ 0     ¥ 14     ¥ (59   ¥ 292  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans and receivables

    96       1       —         17       (22     —         0       8       (2     98  

Collateralized agreements

    15       0       —         —         —         —         0       4       —         19  

Other assets

                   

Other

    168       15       —         1       (36     —         (1     —         0       147  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 722     ¥ (25   ¥ —       ¥ 81     ¥ (170   ¥ (16   ¥ (1   ¥ 26     ¥ (61   ¥ 556  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

                   

Trading liabilities

                   

Equities

  ¥ 0     ¥ 0     ¥ —       ¥ 1     ¥ 0     ¥ —       ¥ 0     ¥ 0     ¥ —       ¥ 1  

Foreign government, agency and municipal securities

    0       —         —         —         0       —         0       —         —         0  

Bank and corporate debt securities

    1       0       —         1       (1     —         0       1       0       2  

Collateralized debt obligations (“CDOs”) and other

    1       0       —         1       (1     —         0       —         —         1  

Investment trust funds and other

    0       0       —         —         —         —         0       —         —         0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total trading liabilities

  ¥ 2     ¥ 0     ¥ —       ¥ 3     ¥ (2   ¥ —       ¥ 0     ¥ 1     ¥ 0     ¥ 4  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Short-term borrowings

    29       (1     0       25       (26     —         0       3       (2     30  

Payables and deposits

    1       0       0       —         0       —         —         —         —         1  

Long-term borrowings

    409       (18     4       75       (64     —         0       20       (7     447  

Other liabilities

    0       (4     —         1       0       —         0       —         —         5  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 441     ¥ (23   ¥ 4     ¥ 104     ¥ (92   ¥ —       ¥ 0       ¥24     ¥ (9   ¥ 487  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

48


Table of Contents
    Billions of yen  
    Three months ended June 30, 2021  
    Beginning
balance as of
three months
ended
June 30,
2021
    Total gains
(losses)
recognized
in revenue(1)
    Total gains
(losses)
recognized in
other
comprehensive
income
    Purchases /
issues(2)
    Sales /
redemptions(2)
    Settlements     Foreign
exchange
movements
    Transfers
into
Level 3(4)(5)
    Transfers
out of
Level 3(5)
    Balance as of
three months
ended
June 30,
2021
 

Assets:

                   

Trading assets and private equity and debt investments

                   

Equities

  ¥ 16     ¥ 0     ¥ —       ¥ 1     ¥ (4   ¥ —       ¥ 0     ¥ 0     ¥ (2   ¥ 11  

Private equity and debt investments

    58       3       —         —         (3     —         0       —         (13     45  

Japanese agency and municipal securities

    2       0       —         —         0       —         —         —         —         2  

Foreign government, agency and municipal securities

    12       0       —         5       (5     —         0       1       0       13  

Bank and corporate debt securities and loans for trading purposes

    135       1       —         14       (18     —         (1     10       (10     131  

Commercial mortgage-backed securities (“CMBS”)

    8       0       —         0       0       —         —         —         —         8  

Residential mortgage-backed securities (“RMBS”)

    6       0       —         1       0       —         0       —         —         7  

Real estate-backed securities

    106       2       —         110       (60     —         0       —         —         158  

Collateralized debt obligations (“CDOs”) and other

    23       0       —         20       (22     —         0       —         —         21  

Investment trust funds and other

    0       0       —         1       —         —         0       0       —         1  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total trading assets and private equity and debt investments

    366       6       —         152       (112     —         (1     11       (25     397  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Derivatives, net(3)

                   

Equity contracts

    (41     (1     —         —         —         (1     0       (9     13       (39

Interest rate contracts

    (43     (2     —         —         —         1       0       1       2       (41

Credit contracts

    (38     2       —         —         —         3       0       1       1       (31

Foreign exchange contracts

    15       (7     —         —         —         1       0       0       0       9  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total derivatives, net

    (107     (8     —         —         —         4       0       (7     16       (102
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

  ¥ 259     ¥ (2   ¥ —       ¥ 152     ¥ (112   ¥ 4     ¥ (1   ¥ 4     ¥ (9   ¥ 295  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans and receivables

    104       0       —         6       (6     —         0       9       (2     111  

Collateralized agreements

    18       0       —         —         (2     —         0       —         —         16  

Other assets

                   

Other

    185       18       —         0       0       —         0       —         (1     202  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 566     ¥ 16     ¥ —       ¥ 158     ¥ (120   ¥ 4     ¥ (1   ¥ 13     ¥ (12   ¥ 624  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities:

                   

Trading liabilities

                   

Equities

  ¥ 0     ¥ 0     ¥ —       ¥ 0     ¥ 0     ¥ —       ¥ 0     ¥ —       ¥ 0     ¥ 0  

Foreign government, agency and municipal securities

    1       0       —         —         —         —         (1     —         —         0  

Bank and corporate debt securities

    5       0       —         1       (1     —         0       —         (3     2  

Collateralized debt obligations (“CDOs”) and other

    1       —         —         —         (1     —         0       0       —         0  

Investment trust funds and other

    0       —         —         0       —         —         0       —         —         0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total trading liabilities

  ¥ 7     ¥ 0     ¥ —       ¥ 1     ¥ (2   ¥ —       ¥ (1   ¥ 0     ¥ (3   ¥ 2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Short-term borrowings

    103       (8     0       43       (39     —         0       5       (26     94  

Payables and deposits

    1       0       0       0       —         —         —         1       —         2  

Collateralized financing

    1       —         0       —         —         —         —         —         (1     —    

Long-term borrowings

    547       (14     2       159       (146     —         0       16       (80     508  

Other liabilities

    35       (3     —         0       (6     —         1       0       —         33  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  ¥ 694     ¥ (25   ¥ 2     ¥ 203     ¥ (193   ¥ —       ¥ 0     ¥ 22     ¥ (110   ¥ 639  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes gains and losses reported primarily within Net gain on trading, Gain on private equity and debt investments, and also within Gain on investments in equity securities, Revenue—Other and Non-interest expenses—Other, Interest and dividends and Interest expense in the consolidated statements of income.

(2)

Amounts reported in Purchases / issues include increases in trading liabilities while Sales / redemptions include decreases in trading liabilities.

(3)

Each derivative classification includes derivatives with multiple risk underlyings. For example, interest rate contracts include complex derivatives referencing interest rate risk as well as foreign exchange risk or other factors such as prepayment rates. Credit contracts include credit default swaps as well as derivatives referencing corporate and government debt securities.

(4)

Amounts of gains and losses on these transfers which were recognized in the period when the Transfers into Level 3 occurred were not significant for the three months ended June 30, 2020 and 2021.

(5)

Transfers into Level 3 indicate certain valuation inputs of a financial instrument become unobservable or significant. Transfers out of Level 3 indicate certain valuation inputs of a financial instrument become observable or insignificant. See Quantitative and qualitative information regarding significant unobservable inputs above for the valuation inputs of each financial instruments.

 

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Unrealized gains and losses recognized for Level 3 financial instruments

The following table presents the amounts of unrealized gains (losses) for the three months ended June 30, 2020 and 2021, relating to those financial instruments which Nomura classified in Level 3 within the fair value hierarchy and that were still held by Nomura at the relevant consolidated balance sheet date.

 

     Billions of yen  
       Three months ended June 30    
           2020                 2021        
     Unrealized gains / (losses)(1)  

Assets:

                                                      

Trading assets and private equity and debt investments

    

Equities

   ¥ 1     ¥ 0  

Private equity and debt investments

     1       2  

Japanese agency and municipal securities

     0       0  

Foreign government, agency and municipal securities

     0       0  

Bank and corporate debt securities and loans for trading purposes

     (3     1  

Commercial mortgage-backed securities (“CMBS”)

     0       0  

Residential mortgage-backed securities (“RMBS”)

     0       0  

Real estate-backed securities

     (2     3  

Collateralized debt obligations (“CDOs”) and other

     (2     (2

Investment trust funds and other

     0       0  
  

 

 

   

 

 

 

Total trading assets and private equity and debt investments

     (5     4  
  

 

 

   

 

 

 

Derivatives, net(2)

    

Equity contracts

     (36     (1

Interest rate contracts

     (6     (4

Credit contracts

     (10     5  

Foreign exchange contracts

     1       (6
  

 

 

   

 

 

 

Total derivatives, net

     (51     (6
  

 

 

   

 

 

 

Subtotal

   ¥ (56   ¥ (2
  

 

 

   

 

 

 

Loans and receivables

     0       0  

Collateralized agreements

     0       0  

Other assets

    

Other

     15       18  
  

 

 

   

 

 

 

Total

   ¥ (41   ¥ 16  
  

 

 

   

 

 

 

Liabilities:

    

Trading liabilities

    

Equities

   ¥ 0     ¥ —    

Bank and corporate debt securities

     0       0  

Collateralized debt obligations (“CDOs”) and other

     0       —    
  

 

 

   

 

 

 

Total trading liabilities

   ¥ 0     ¥ 0  
  

 

 

   

 

 

 

Short-term borrowings

     0       (4

Payables and deposits

     0       0  

Long-term borrowings(3)

     (12     (7

Other liabilities

     (2     (2
  

 

 

   

 

 

 

Total

   ¥ (14   ¥ (13
  

 

 

   

 

 

 

 

(1)

Includes gains and losses reported within Net gain on trading, Gain (loss) on private equity and debt investments, and also within Gain on investments in equity securities, Revenue—Other and Non-interest expenses—Other, Interest and dividends and Interest expense in the consolidated statements of income.

(2)

Each derivative classification includes derivatives with multiple risk underlyings. For example, interest rate contracts include complex derivatives referencing interest rate risk as well as foreign exchange risk or other factors such as prepayment rates. Credit contracts include credit default swaps as well as derivatives referencing corporate and government debt securities.

(3)

Includes ¥4 billion and ¥2 billion of changes in unrealized gains and losses in Other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period for the three months ended June 30, 2020 and 2021, respectively.

 

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Investments in investment funds that calculate NAV per share

In the normal course of business, Nomura invests in non-consolidated funds which meet the definition of investment companies or are similar in nature and which do not have readily determinable fair values. For certain of these investments, Nomura uses NAV per share as the basis for valuation as a practical expedient. Some of these investments are redeemable at different amounts from NAV per share.

The following tables present information on these investments where NAV per share is calculated or disclosed as of March 31, 2021 and June 30, 2021. Investments are presented by major category relevant to the nature of Nomura’s business and risks.

 

     Billions of yen  
     March 31, 2021  
     Fair value      Unfunded
commitments(1)
     Redemption frequency
(if currently eligible)(2)
     Redemption notice(3)  

Hedge funds

   ¥ 2      ¥ —          Monthly        Same day-30 days  

Venture capital funds

     4        2        —          —    

Private equity funds

     18        21        —          —    

Real estate funds

     4        1        —          —    
  

 

 

    

 

 

       

Total

   ¥ 28      ¥ 24        
  

 

 

    

 

 

       
     Billions of yen  
     June 30, 2021  
     Fair value      Unfunded
commitments(1)
     Redemption frequency
(if currently eligible)(2)
     Redemption notice(3)  

Hedge funds

   ¥ 7      ¥ —          Monthly        Same day-30 days  

Venture capital funds

     3        4        —          —    

Private equity funds

     19        21        —          —    

Real estate funds

     4        1        —          —    
  

 

 

    

 

 

       

Total

   ¥ 33      ¥ 26        
  

 

 

    

 

 

       

 

(1)

The contractual amount of any unfunded commitments Nomura is required to make to the entities in which the investment is held.

(2)

The range in frequency with which Nomura can redeem investments.

(3)

The range in notice period required to be provided before redemption is possible.

Hedge funds:

These investments include funds of funds that invest in multiple asset classes. The fair values of these investments are determined using NAV per share. Although most of these funds can be redeemed within six months, certain funds cannot be redeemed within six months due to contractual, liquidity or gating issues. The redemption period is unknown for certain suspended or liquidating funds. Some of these investments contain restrictions against transfers of the investments to third parties.

Venture capital funds:

These investments include primarily start-up funds. The fair values of these investments are determined using NAV per share. Most of these funds cannot be redeemed within six months. The redemption period is unknown for certain suspended or liquidating funds. Some of these investments contain restrictions against transfers of the investments to third parties.

Private equity funds:

These investments are made mainly in various sectors in Europe, U.S. and Japan. The fair values of these investments are determined using NAV per share. Redemption is restricted for most of these investments. Some of these investments contain restrictions against transfers of the investments to third parties.

Real estate funds:

These are investments in commercial and other types of real estate. The fair values of these investments are determined using NAV per share. Redemption is restricted for most of these investments. Some of these investments contain restrictions against transfers of the investments to third parties.

 

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Fair value option for financial assets and financial liabilities

Nomura measures certain eligible financial assets and liabilities at fair value through the election of the fair value option permitted by ASC 815 “Derivatives and Hedging” and ASC 825 “Financial Instruments.” When Nomura elects the fair value option for an eligible item, changes in that item’s fair value are recognized through earnings. Election of the fair value option is generally irrevocable unless an event occurs that gives rise to a new basis of accounting for that instrument.

The financial assets and financial liabilities primarily elected for the fair value option by Nomura, and the reasons for the election, are as follows:

 

   

Equity method investments reported within Trading assets and private equity and debt investments and Other assets held for capital appreciation or current income purposes which Nomura generally has an intention to exit rather than hold indefinitely. Nomura elects the fair value option to more appropriately represent the purpose of these investments in these consolidated financial statements.

 

   

Loans receivable and Receivables from customers reported within Loans and receivables which are risk managed on a fair value basis and loan commitments related to loans receivable for which the fair value option will be elected upon funding. Nomura elects the fair value option to mitigate volatility through earnings caused by the difference in measurement basis that otherwise would arise between loans and the derivatives used to risk manage those instruments.

 

   

Reverse repurchase and repurchase agreements reported within Collateralized agreements and Collateralized financing which are risk managed on a fair value basis. Nomura elects the fair value option to mitigate volatility through earnings caused by the difference in measurement basis that otherwise would arise between the reverse repurchase and repurchase agreements and the derivatives used to risk manage those instruments.

 

   

All structured notes issued on or after April 1, 2008 reported within Short-term borrowings or Long-term borrowings. Nomura elects the fair value option for those structured notes primarily to mitigate the volatility through earnings caused by differences in the measurement basis for structured notes and the derivatives Nomura uses to risk manage those positions. Nomura also elects the fair value option for certain notes issued by consolidated VIEs for the same purpose and for certain structured notes issued prior to April 1, 2008. Certain subsidiaries elect the fair value option for structured loans and straight bonds.

 

   

Certain structured deposit issuances reported within Deposits received at banks. Nomura elects the fair value option for those structured deposits primarily to mitigate the volatility through earnings caused by differences in the measurement basis for structured deposits and the derivatives Nomura uses to risk manage those positions.

 

   

Financial liabilities reported within Long-term borrowings recognized in transactions which are accounted for as secured financing transactions under ASC 860. Nomura elects the fair value option for these financial liabilities to mitigate volatility through earnings that otherwise would arise had this election not been made. Even though Nomura usually has little or no continuing economic exposure to the transferred financial assets, they remain on the consolidated balance sheets and continue to be carried at fair value, with changes in fair value recognized through earnings.

 

   

Financial reinsurance contracts reported within Other assets. Nomura elects the fair value option to mitigate income volatility caused by the difference in measurement basis that would otherwise exist. Changes in the fair value of the reinsurance contracts carried at fair value are reported in the consolidated statements of income.

In March 2021, Nomura also elected the fair value option for certain claims receivable arising from the U.S. prime brokerage losses. This election was made as these receivables will be prospectively managed on a fair value basis. The receivables are reported within Loans and receivables in the consolidated balance sheets and any subsequent changes in fair value recognized in earnings and reported within Net gain (loss) on trading in the consolidated statements of income..

Interest and dividends arising from financial instruments for which the fair value option has been elected are recognized within Interest and dividends, Interest expense or Net gain on trading.

 

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The following table presents gains (losses) due to changes in fair value for financial instruments measured at fair value using the fair value option for the three months ended June 30, 2020 and 2021.

 

     Billions of yen  
               Three months ended June 30             
     2020        2021  
     Gains / (Losses)(1)  

Assets:

       

Trading assets and private equity and debt investments(2)

       

Trading assets

   ¥ 0        ¥ 0  

Private equity and debt investments

     0          —    

Loans and receivables

     2          4  

Collateralized agreements(3)

     (1        0  

Other assets(2)

     20          11  
  

 

 

      

 

 

 

Total

   ¥ 21        ¥ 15  
  

 

 

      

 

 

 

Liabilities:

       

Short-term borrowings(4)

   ¥ (46      ¥ (12

Payables and deposits

     1          3  

Collateralized financing(3)

     1          (2

Long-term borrowings(4)(5)

     (154        (55

Other liabilities(6)

     1          (4
  

 

 

      

 

 

 

Total

   ¥ (197      ¥ (70
  

 

 

      

 

 

 

 

(1)

Includes gains and losses reported primarily within Net gain on trading and Revenue—Other in the consolidated statements of income.

(2)

Includes equity investments that would have been accounted for under the equity method had Nomura not chosen to elect the fair value option.

(3)

Includes reverse repurchase and repurchase agreements.

(4)

Includes structured notes and other financial liabilities.

(5)

Includes secured financing transactions arising from transfers of financial assets which did not meet the criteria for sales accounting.

(6)

Includes unfunded written loan commitments.

As of March 31, 2021 and June 30, 2021, Nomura held an economic interest of 39.27% and 39.43% in American Century Companies, Inc. respectively. The investment is measured at fair value on a recurring basis through election of the fair value option and is reported within Other assets—Other in the consolidated balance sheets.

There was no significant impact on financial assets for which the fair value option was elected attributable to instrument-specific credit risk.

Nomura calculates the impact of changes in its own creditworthiness on certain financial liabilities for which the fair value option is elected by DCF valuation techniques using a rate which incorporates observable changes in its credit spread.

The following table presents changes in the valuation adjustment for Nomura’s own credit worthiness applied to certain financial liabilities for which the fair value option has been elected recognized in other comprehensive income during the period and cumulatively, and amounts reclassified to earnings from accumulated other comprehensive income on early settlement of such financial liabilities during the period ended June 30, 2020 and 2021.

 

     Billions of yen  
             Period ended or as of June 30          
      2020          2021   

Changes recognized as a credit (debit) to other comprehensive income

     1          6  

Credit (debit) Amounts reclassified to earnings

     (9           0   

Cumulative credit (debit) balance recognized in accumulated other comprehensive income

        81           (5

 

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As of March 31, 2021, the fair value of the aggregate unpaid principal balance (which is contractually principally protected) of Loans and receivables for which the fair value option was elected was ¥219 billion less than the principal balance of such Loans and receivables. The significant portion of the principal balance is derived from receivables for the claim of the losses on the related hedges from default by the U.S. client. The fair value of the aggregate unpaid principal balance (which is contractually principally protected) of Long-term borrowings for which the fair value option was elected was ¥45 billion less than the principal balance of such Long-term borrowings. There were no Loans and receivables for which the fair value option was elected that were 90 days or more past due.

As of June 30, 2021, the fair value of the aggregate unpaid principal balance (which is contractually principally protected) of Loans and receivables for which the fair value option was elected was ¥269 billion less than the principal balance of such Loans and receivables. The fair value of the aggregate unpaid principal balance (which is contractually principally protected) of Long-term borrowings for which the fair value option was elected was ¥28 billion less than the principal balance of such Long-term borrowings. There were no Loans and receivables for which the fair value option was elected that were 90 days or more past due.

Investment by Investment companies

Nomura carries all of investments by investment companies under ASC 946 “Financial Services—Investment Companies” at fair value, with changes in fair value recognized through the consolidated statements of income.

Concentrations of credit risk

Concentrations of credit risk may arise from trading, securities financing transactions and underwriting activities, and may be impacted by changes in political or economic factors. Nomura has credit risk concentrations on bonds issued by the Japanese Government, U.S. Government, British Government (“U.K.”), Governments within the European Union (“EU”), their states and municipalities, and their agencies. These concentrations generally arise from taking trading positions and are reported within Trading assets in the consolidated balance sheets. Government, agency and municipal securities, including Securities pledged as collateral, represented 15% of total assets as of March 31, 2021 and 18% as of June 30, 2021.

The following tables present geographic allocations of Nomura’s trading assets related to government, agency and municipal securities. See Note 3 “Derivative instruments and hedging activities” for further information regarding the concentration of credit risk for derivatives.

 

     Billions of yen  
     March 31, 2021  
     Japan      U.S.      EU & U.K.      Other      Total(1)  

Government, agency and municipal securities

   ¥ 1,715      ¥ 1,888      ¥ 2,329      ¥ 620      ¥ 6,552  
     Billions of yen  
     June 30, 2021  
     Japan      U.S.      EU & U.K.      Other      Total(1)  

Government, agency and municipal securities

   ¥ 2,288      ¥ 2,167      ¥ 2,642      ¥ 577      ¥ 7,674  

 

(1)

Other than above, there were ¥299 billion and ¥279 billion of government, agency and municipal securities reported within Other assets—Non-trading debt securities in the consolidated balance sheets as of March 31, 2021 and June 30, 2021, respectively. These securities are primarily Japanese government, agency and municipal securities.

Estimated fair value of financial instruments not carried at fair value

Certain financial instruments are not carried at fair value on a recurring basis in the consolidated balance sheets since they are neither held for trading purposes nor are elected for the fair value option. These are typically carried at contractual amounts due or amortized cost.

The carrying value of the majority of the financial instruments detailed below will approximate fair value since they are short-term in nature and contain minimal credit risk. These financial instruments include financial assets reported within Cash and cash equivalents, Time deposits, Deposits with stock exchanges and other segregated cash, Receivables from customers, Receivables from other than customers, Securities purchased under agreements to resell and Securities borrowed and financial liabilities reported within Short-term borrowings, Payables to customers, Payables to other than customers, Deposits received at banks, Securities sold under agreements to repurchase, Securities loaned and Other secured borrowings in the consolidated balance sheets.

The fair values of other financial instruments which are longer-term in nature or may contain more than minimal credit risk may be different to their carrying value. Financial assets of this type primarily include certain loans which are reported within Loans receivable while financial liabilities primarily include long-term borrowings which are reported within Long-term borrowings.

 

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The following tables present carrying values, fair values and classification within the fair value hierarchy for certain classes of financial instrument of which a portion of the ending balance was carried at fair value as of March 31, 2021 and June 30, 2021.

 

     Billions of yen  
     March 31, 2021(1)  
     Carrying
value
     Fair
value
     Fair value by level  
     Level 1      Level 2      Level 3  

Assets:

              

Cash and cash equivalents

   ¥ 3,510      ¥ 3,510      ¥ 3,510      ¥ —        ¥ —    

Time deposits

     281        281        —          281        —    

Deposits with stock exchanges and other segregated cash

     374        374        —          374        —    

Loans receivable(2)

     2,937        2,937        —          2,120        817  

Securities purchased under agreements to resell

     10,775        10,775        —          10,757        18  

Securities borrowed

     5,264        5,264        —          5,264        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 23,141      ¥ 23,141      ¥ 3,510      ¥ 18,796      ¥ 835  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

              

Short-term borrowings

   ¥ 1,368      ¥ 1,368      ¥ —        ¥ 1,265      ¥ 103  

Deposits received at banks

     1,342        1,343        —          1,342        1  

Securities sold under agreements to repurchase

     13,360        13,360        —          13,360        0  

Securities loaned

     1,381        1,381        —          1,381        —    

Other secured borrowings

     393        393        —          393        —    

Long-term borrowings

     7,975        7,978        5        7,370        603  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 25,819      ¥ 25,823      ¥ 5      ¥ 25,111      ¥ 707  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Billions of yen  
     June 30, 2021(1)  
     Carrying
value
     Fair
value
     Fair value by level  
     Level 1      Level 2      Level 3  

Assets:

              

Cash and cash equivalents

   ¥ 3,231      ¥ 3,231      ¥ 3,231      ¥ —        ¥ —    

Time deposits

     346        346        —          346        —    

Deposits with stock exchanges and other segregated cash

     319        319        —          319        —    

Loans receivable(2)

     2,808        2,808        —          1,985        823  

Securities purchased under agreements to resell

     11,382        11,382        —          11,366        16  

Securities borrowed

     4,666        4,665        —          4,665        —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 22,752      ¥ 22,751      ¥ 3,231      ¥ 18,681      ¥ 839  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities:

              

Short-term borrowings

   ¥ 1,500      ¥ 1,500      ¥ —        ¥ 1,406      ¥ 94  

Deposits received at banks

     1,401        1,401        —          1,399        2  

Securities sold under agreements to repurchase

     12,875        12,875        —          12,875        —    

Securities loaned

     1,113        1,113        —          1,113        —    

Other secured borrowings

     422        422        —          422        —    

Long-term borrowings

     8,115        8,128        11        7,556        561  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 25,426      ¥ 25,439      ¥ 11      ¥ 24,771      ¥ 657  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Includes financial instruments which are carried at fair value on a recurring basis.

(2)

Carrying values are shown after deducting relevant allowances for credit losses.

 

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Assets and liabilities measured at fair value on a nonrecurring basis

In addition to financial instruments carried at fair value on a recurring basis, Nomura also measures other financial and non-financial assets and liabilities at fair value on a nonrecurring basis, where the primary measurement basis is not fair value. Fair value is only used in specific circumstances after initial recognition such as to measure impairment.

As of March 31, 2021, the equity method investment in Nomura Real Estate Holdings, Inc., one of Nomura’s affiliated companies, is measured at fair value on a nonrecurring basis. The investment that is reported within Investments in and advances to affiliated companies in the consolidated balance sheets was impaired by ¥47,661 million. The fair value used to measure the other than temporary impairment was the quoted market price as of March 31, 2021 which would be classified in Level 1 of the fair value hierarchy.

As of June 30, 2021, there were no significant amount of assets and liabilities which were measured at fair value on a nonrecurring basis.

 

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3. Derivative instruments and hedging activities:

Nomura uses a variety of derivative financial instruments, including futures, forwards, options and swaps, for both trading and non-trading purposes.

Derivatives used for trading purposes

In the normal course of business, Nomura enters into transactions involving derivative financial instruments to meet client needs, for trading purposes, and to reduce its own exposure to loss due to adverse fluctuations in interest rates, currency exchange rates and market prices of securities. These financial instruments include contractual agreements such as commitments to swap interest payment streams, exchange currencies or purchase or sell securities and other financial instruments on specific terms at specific future dates.

Nomura maintains active trading positions in a variety of derivative financial instruments. Most of Nomura’s trading activities are client oriented. Nomura utilizes a variety of derivative financial instruments as a means of bridging clients’ specific financial needs and investors’ demands in the securities markets. Nomura also actively trades securities and various derivatives to assist its clients in adjusting their risk profiles as markets change. In performing these activities, Nomura carries an inventory of capital markets instruments and maintains its access to market liquidity by quoting bid and offer prices to and trading with other market makers. These activities are essential to provide clients with securities and other capital market products at competitive prices.

Futures and forward contracts are commitments to either purchase or sell securities, foreign exchange contracts or other capital market instruments at a specific future date for a specified price and may be settled in cash or through delivery. Foreign exchange contracts include spot and forward contracts and involve the exchange of two currencies at a rate agreed by the contracting parties. Risks arise from the possible inability of counterparties to meet the terms of their contracts and from movements in market prices. Futures contracts are executed through exchanges which clear and guarantee performance of counterparties. Accordingly, credit risk associated with futures contracts is considered minimal. In contrast, forward contracts are generally negotiated between two counterparties and, therefore, are subject to counterparty risks.

Options are contracts that grant the purchaser, for a premium payment, the right to either purchase or sell a financial instrument at a specified price within a specified period of time or on a specified date from or to the writer of the option. The writer of options receives premiums and bears the risk of unfavorable changes in the market price of the financial instruments underlying the options.

Swaps are contractual agreements in which two counterparties agree to exchange certain cash flows, at specified future dates, based on an agreed contract. Certain agreements may result in combined interest rate and foreign exchange exposures. Entering into swap agreements may involve the risk of credit losses in the event of counterparty default.

To the extent these derivative financial instruments are economically hedging financial instruments or securities positions of Nomura, the overall risk of loss may be fully or partly mitigated by the hedged position.

Nomura seeks to minimize its exposure to market risk arising from its use of these derivative financial instruments through various control policies and procedures, including position limits, monitoring procedures and hedging strategies whereby Nomura enters into offsetting or other positions in a variety of financial instruments.

 

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Derivatives used for non-trading purposes

Nomura’s principal objectives in using derivatives for non-trading purposes are to manage interest rate risk, to modify interest rate risk profile of certain financial liabilities, to manage foreign exchange risk of certain foreign currency denominated debt securities, to manage net investment exposure to fluctuations in foreign exchange rates arising from certain foreign operations and to mitigate equity price risk arising from certain stock-based compensation awards given to employees. Credit risk associated with derivatives utilized for non-trading purposes is controlled and managed in the same way as that associated with derivatives used for trading purposes.

Nomura designates certain derivative financial instruments as fair value hedges of interest rate risk arising from specific financial liabilities and foreign currency risk arising from specific foreign currency denominated debt securities. These derivatives are effective in reducing the risk associated with the exposure being hedged and are highly correlated with changes in the fair value and foreign currency rates of the underlying hedged items, both at inception and throughout the life of the hedging relationship. Changes in fair value of the hedging derivatives are reported together with those of the hedged liabilities and assets through the consolidated statements of income within Interest expense and Revenue—Other, respectively.

Derivative financial instruments designated as hedges of the net investment in foreign operations relate to specific subsidiaries with non-Japanese Yen functional currencies. When determining the effectiveness of net investment hedges, the effective portion of the change in fair value of the hedging derivative is determined by changes in spot exchange rates. Changes in fair value of the hedging derivatives attributable to changes in the difference between the forward rate and spot rate are excluded from the measurement of hedge effectiveness and are reported in the consolidated statements of income within Revenue—Other. All other movements in fair value of highly effective hedging derivatives are reported through NHI shareholders’ equity within Accumulated other comprehensive income (loss).

Concentrations of credit risk for derivatives

The following tables present Nomura’s significant concentration of exposures to credit risk in OTC derivatives with financial institutions including transactions cleared through central counterparties as of March 31, 2021 and June 30, 2021. The gross fair value of derivative assets represents the maximum amount of loss due to credit risk that Nomura would incur if the counterparties of Nomura failed to perform in accordance with the terms of the instruments and any collateral or other security Nomura held in relation to those instruments proved to be of no value.

 

     Billions of yen  
     March 31, 2021  
     Gross fair value of
derivative assets
     Impact of
master netting
agreements
    Impact of
collateral
    Net exposure to
credit risk
 

Financial institutions

   ¥ 13,474      ¥ (11,473   ¥ (1,500   ¥ 501  
     Billions of yen  
     June 30, 2021  
     Gross fair value of
derivative assets
     Impact of
master netting
agreements
    Impact of
collateral
    Net exposure to
credit risk
 

Financial institutions

   ¥ 11,966      ¥ (10,220   ¥ (1,438   ¥ 308  

 

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Derivative activities

The following tables quantify the volume of Nomura’s derivative activity as of March 31, 2021 and June 30, 2021 through a disclosure of notional amounts, in comparison with the fair value of those derivatives. All amounts are disclosed on a gross basis, prior to counterparty netting of derivative assets and liabilities and cash collateral netting against net derivatives.

 

            Billions of yen  
            March 31, 2021  
            Derivative assets      Derivative liabilities  
     Total Notional(1)      Fair value      Fair value(1)  

Derivatives used for trading and non-trading purposes(2)(3):

        

Equity contracts

   ¥ 40,396      ¥ 1,402      ¥ 2,229  

Interest rate contracts

     2,524,407        9,617        9,023  

Credit contracts

     38,850        455        523  

Foreign exchange contracts

     351,662        4,511        4,402  

Commodity contracts

     334        1        0  
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 2,955,649      ¥ 15,986      ¥ 16,177  
  

 

 

    

 

 

    

 

 

 

Derivatives designated as hedging instruments:

        

Interest rate contracts

   ¥ 1,168      ¥ 15      ¥ 14  

Foreign exchange contracts

     130        5        —    
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 1,298      ¥ 20      ¥ 14  
  

 

 

    

 

 

    

 

 

 

Total derivatives

   ¥ 2,956,947      ¥ 16,006      ¥ 16,191  
  

 

 

    

 

 

    

 

 

 
            Billions of yen  
            June 30, 2021  
            Derivative assets      Derivative liabilities  
     Total Notional(1)      Fair value      Fair value(1)  

Derivatives used for trading and non-trading purposes(2)(3):

        

Equity contracts

   ¥ 34,620      ¥ 1,037      ¥ 1,558  

Interest rate contracts

     2,809,808        8,919        8,328  

Credit contracts

     39,241        455        506  

Foreign exchange contracts

     368,415        3,638        3,578  

Commodity contracts

     320        1        1  
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 3,252,404      ¥ 14,050      ¥ 13,971  
  

 

 

    

 

 

    

 

 

 

Derivatives designated as hedging instruments:

        

Interest rate contracts

   ¥ 1,293      ¥ 5      ¥ 0  

Foreign exchange contracts

     137        2        —    
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 1,430      ¥ 7      ¥ 0  
  

 

 

    

 

 

    

 

 

 

Total derivatives

   ¥ 3,253,834      ¥ 14,057      ¥ 13,971  
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes the amount of embedded derivatives bifurcated in accordance with ASC 815.

(2)

Each derivative classification includes derivatives referencing multiple risk components. For example, certain interest rate contracts include complex derivatives referencing interest rate risk as well as foreign exchange risk or other factors such as prepayment rates. Credit contracts include credit default swaps as well as derivatives referencing corporate and government securities.

(3)

As of March 31, 2021 and June 30, 2021, the amounts reported include derivatives used for non-trading purposes which are not designated as fair value or net investment hedges. These amounts have not been separately presented since such amounts were not significant.

Changes in fair value are recognized either through earnings or other comprehensive income depending on the purpose for which the derivatives are used.

 

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Offsetting of derivatives

Counterparty credit risk associated with derivative financial instruments is controlled by Nomura through credit approvals, limits and monitoring procedures. To reduce the risk of loss, Nomura requires collateral, principally cash collateral and government securities, for certain derivative transactions. In certain cases, Nomura may agree for such collateral to be posted to a third-party custodian under a control agreement that enables Nomura to take control of such collateral in the event of counterparty default. From an economic standpoint, Nomura evaluates default risk exposure net of related collateral. Furthermore, OTC derivative transactions are typically documented under industry standard master netting agreements which mitigate Nomura’s credit exposure to counterparties. A master netting agreement is a single agreement with a counterparty that permits multiple transactions governed by that agreement to be terminated or accelerated and settled through a single payment in a single currency in the event of a default of the counterparty (“close-out and offsetting rights”).

For certain OTC centrally-cleared and exchange-traded derivatives, the clearing or membership agreements entered into by Nomura provide similar rights to Nomura in the event of default of the relevant central clearing party or exchange. Nomura generally seeks to obtain an external legal opinion in order to ascertin the enforceability of such close-out and offsetting rights within these agreements.

For certain counterparties and /or in certain jurisdictions, Nomura may enter into derivative transactions which are not documented under a master netting agreement. Even when derivatives are documented under such agreements, Nomura may not have obtained, or may not be able to obtain evidence to determine with sufficient certainty that close-out and offsetting rights within such agreements are legally enforceable. This may be the case where the relevant local laws explicitly prohibit the enforceability of such close-out and offsetting rights, or where the local laws are complex, ambiguous or silent on the enforceability of such rights. This may include derivative transactions executed with certain foreign governments, agencies, municipalities, central clearing counterparties, exchanges and pension funds.

Nomura considers the enforceability of a master netting agreement in determining how credit risk arising from transactions with a specific counterparty is hedged, how counterparty credit exposures are calculated and applied to credit limits and the extent and nature of collateral requirements from the counterparty.

Derivative assets and liabilities with the same counterparty and the related cash collateral receivables and payables documented under an enforceable master netting agreement are presented on a net basis on the consolidated balance sheets where the specific criteria defined by ASC 210-20 “Balance Sheet—Offsetting” (“ASC210-20”) and ASC 815 are met.

The following table presents information about offsetting of derivatives and related collateral amounts on the consolidated balance sheets as of March 31, 2021 and June 30, 2021 by type of derivative contract, and additional amounts permitted to be offset legally by Nomura under enforceable master netting agreements, central clearing counterparties or exchange rules in the event of counterparty default but not offset on the consolidated balance sheets due to one or more of the criteria defined by ASC 210-20 and ASC 815 are not met. Derivative transactions which are not documented under a master netting agreement or are documented under a master netting agreement for which Nomura does not have sufficient evidence of enforceability of close-out and offsetting rights are not offset in the following table.

 

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     Billions of yen     Billions of yen  
     March 31, 2021     June 30, 2021  
     Derivative
assets
    Derivative
liabilities(1)
    Derivative
assets
    Derivative
liabilities(1)
 

Equity contracts

        

OTC settled bilaterally

   ¥ 904     ¥ 1,439     ¥ 602     ¥ 951  

Exchange-traded

     498       790       434       607  

Interest rate contracts

        

OTC settled bilaterally

     8,456       7,871       7,917       7,309  

OTC centrally-cleared

     1,147       1,146       979       997  

Exchange-traded

     29       20       28       22  

Credit contracts

        

OTC settled bilaterally

     169       251       173       242  

OTC centrally-cleared

     282       269       280       263  

Exchange-traded

     4       3       3       2  

Foreign exchange contracts

        

OTC settled bilaterally

     4,516       4,402       3,640       3,578  

Commodity contracts

        

OTC settled bilaterally

     0       0       0       0  

Exchange-traded

     1       0       1       0  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total gross derivative balances(2)

   ¥ 16,006     ¥ 16,191     ¥ 14,057     ¥ 13,971  

Less: Amounts offset in the consolidated balance sheets(3)

     (14,786     (14,697     (12,992     (12,658
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net amounts reported on the face of the consolidated balance sheets(4)

   ¥ 1,220     ¥ 1,494     ¥ 1,065     ¥ 1,313  

Less: Additional amounts not offset in the consolidated balance sheets(5)

        

Financial instruments and non-cash collateral

     (240     (310     (198     (229
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amount

   ¥ 980     ¥ 1,184     ¥ 867     ¥ 1,084  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes the amount of embedded derivatives bifurcated in accordance with ASC 815.

(2)

Includes all gross derivative asset and liability balances irrespective of whether they are transacted under a master netting agreement or whether Nomura has obtained sufficient evidence of enforceability of the master netting agreement. As of March 31, 2021, the gross balance of derivative assets and derivative liabilities which are not documented under master netting agreements or are documented under master netting agreements for which Nomura has not yet obtained sufficient evidence of enforceability was ¥392 billion and ¥589 billion, respectively. As of June 30, 2021, the gross balance of such derivative assets and derivative liabilities was ¥378 billion and ¥525 billion, respectively.

(3)

Represents amounts offset through counterparty netting of derivative assets and liabilities as well as cash collateral netting against net derivatives under master netting and similar agreements for which Nomura has obtained sufficient evidence of enforceability in accordance with ASC 815. As of March 31, 2021, Nomura offset a total of ¥1,594 billion of cash collateral receivables against net derivative liabilities and ¥1,683 billion of cash collateral payables against net derivative assets. As of June 30, 2021, Nomura offset a total of ¥1,252 billion of cash collateral receivables against net derivative liabilities and ¥1,586 billion of cash collateral payables against net derivative assets.

(4)

Net derivative assets and net derivative liabilities are generally reported within Trading assets and private equity and debt investments—Trading assets and Trading liabilities, respectively in the consolidated balance sheet. Bifurcated embedded derivatives are reported within Short-term borrowings or Long-term borrowings depending on the maturity of the underlying host contract.

 

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(5)

Represents amounts which are not permitted to be offset on the consolidated balance sheets in accordance with ASC 210-20 and ASC 815 but which provide Nomura with a legally enforceable right of offset in the event of counterparty default. Amounts relating to derivative and collateral agreements where Nomura has not yet obtained sufficient evidence of enforceability of such offsetting rights are excluded. As of March 31, 2021, a total of ¥283 billion of cash collateral receivables and ¥572 billion of cash collateral payables, including amounts reported in the table, have not been offset against net derivatives. As of June 30, 2021, a total of ¥240 billion of cash collateral receivables and ¥438 billion of cash collateral payables, including amounts reported in the table, have not been offset against net derivatives.

Derivatives used for trading purposes

Derivative financial instruments used for trading purposes, including bifurcated embedded derivatives, are carried at fair value with changes in fair value recognized through the consolidated statements of income within Revenue—Net gain on trading.

The following table presents amounts included in the consolidated statements of income for the three months ended June 30, 2020 and 2021 related to derivatives used for trading and non-trading purposes by type of underlying derivative contract.

 

     Billions of yen  
     Three months ended June 30  
               2020                     2021          

Derivatives used for trading and non-trading purposes(1)(2):

    

Equity contracts

   ¥ 137     ¥ (68

Interest rate contracts

     136       9  

Credit contracts

     (7     10  

Foreign exchange contracts

     (59     69  

Commodity contracts

     (5     23  
  

 

 

   

 

 

 

Total

   ¥ 202     ¥ 43  
  

 

 

   

 

 

 

 

(1)

Each derivative classification includes derivatives referencing multiple risk components. For example, interest rates contracts include complex derivatives referencing interest rate risk as well as foreign exchange risk or other factors such as prepayment rates. Credit contracts include credit default swaps as well as derivatives referencing corporate and government securities.

(2)

Includes net gains (losses) on derivatives used for non-trading purposes which are not designated as fair value or net investment hedges. For the three months ended June 30, 2020 and 2021, these amounts have not been separately presented as net gains (losses) for these non-trading derivatives were not significant.

 

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Fair value hedges

Nomura issues Japanese Yen and foreign currency denominated debt with both fixed and floating interest rates. Nomura generally enters into swap agreements to convert fixed rate interest payments on its debt obligations to a floating rate and applies fair value hedge accounting to these instruments. In conjunction with the abolition of LIBOR, Nomura terminated the hedging instruments that reference LIBOR and began new hedging transactions. The cancelled hedging transactions are accounted for as termination of hedge accounting.

The following table presents the carrying value of the hedged items that are currently designated in a hedging relationship and the related cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items as of March 31, 2021 and June 30, 2021.

 

     Billions of yen  

Line items in the statement of financial

position in which the hedged item is included:

   Carrying amount of the hedged liabilities     

Cumulative gains/(losses) of fair value hedging

adjustment included in the carrying amount of the

hedged liabilities

 
  

 

 

    

 

 

 
   March 31, 2021      June 30, 2021      March 31, 2021      June 30, 2021  

Long-term borrowings

   ¥ 1,164      ¥ 1,296      ¥ 2      ¥ (4
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 1,164      ¥ 1,296      ¥ 2      ¥ (4
  

 

 

    

 

 

    

 

 

    

 

 

 

Hedging derivatives designated as fair value hedges are carried at fair value attributable to the hedged risk, which is recognized in the consolidated statements of income within Interest expense and Revenue-Other, respectively together with the change in fair value of the hedged items.

The cumulative amount of fair value hedging adjustments remaining for the liabilities which hedge accounting has been discontinued is ¥87 million as of March 31, 2021 and ¥834 million as of June 30, 2021.

The following table presents amounts included in the consolidated statements of income for the three months ended June 30, 2020 and 2021 related to derivatives designated as fair value hedges by type of underlying derivative contract and the nature of the hedged item.

 

     Billions of yen  
     Three months ended June 30  
             2020                     2021          

Derivatives designated as hedging instruments:

    

Interest rate contracts

   ¥ (2   ¥ (8
  

 

 

   

 

 

 

Total

   ¥ (2   ¥ (8
  

 

 

   

 

 

 

Hedged items:

    

Long-term borrowings

   ¥ 2     ¥ 8  
  

 

 

   

 

 

 

Total

   ¥ 2     ¥ 8  
  

 

 

   

 

 

 

Net investment hedges

Nomura designates certain foreign currency derivative contracts, as hedges of net investments in certain foreign operations with significant foreign exchange risks and applies hedge accounting to these instruments. Accordingly, foreign exchange gains (losses) arising from the derivative contracts and non-derivative financial products designated as hedges, except for the portion excluded from effectiveness assessment, are recognized through the consolidated statements of comprehensive income within Other comprehensive income (loss)—Change in cumulative translation adjustments, net of tax. This is offset by the foreign exchange adjustments arising from consolidation of the relevant foreign subsidiaries.

 

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The following table presents gains (losses) from derivatives designated as net investment hedges included in the consolidated statements of comprehensive income for the three months ended June 30, 2020 and 2021.

 

     Billions of yen  
     Three months ended June 30  
             2020                     2021          

Hedging instruments:

    

Foreign exchange contracts

   ¥ (2   ¥ (2
  

 

 

   

 

 

 

Total

   ¥ (2   ¥ (2
  

 

 

   

 

 

 

 

The portion of gains (losses) representing the amount excluded from the assessment of hedge effectiveness are recognized within

Revenue—Other in the consolidated statements of income. The amount of gains (losses) was not significant during the three months ended June 30, 2020 and 2021.

Derivatives containing credit risk related contingent features

Nomura enters into certain OTC derivatives and other agreements containing credit-risk-related contingent features. These features would require Nomura to post additional collateral or settle the instrument upon occurrence of a credit event, the most common of which would be a downgrade in the Company’s long-term credit rating.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position as of March 31, 2021 was ¥727 billion with related collateral pledged of ¥583 billion. In the event of a one-notch downgrade to Nomura’s long-term credit rating in effect as of March 31, 2021 the aggregate fair value of assets that would have been required to be posted as additional collateral or that would have been needed to settle the instruments immediately was ¥2 billion.

The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a liability position as of June 30, 2021 was ¥502 billion with related collateral pledged of ¥340 billion. In the event of a one-notch downgrade to Nomura’s long-term credit rating in effect as of June 30, 2021 the aggregate fair value of assets that would have been required to be posted as additional collateral or that would have been needed to settle the instruments immediately was ¥2 billion.

Credit derivatives

Credit derivatives are derivative instruments in which one or more of their underlyings are related to the credit risk of a specified entity (or group of entities) or an index based on the credit risk of a group of entities that expose the seller of credit protection to potential loss from credit events specified in the contract.

Written credit derivatives are instruments or embedded features where Nomura assumes third party credit risk, either as guarantor in a guarantee-type contract, or as the party that provides credit protection in an option-type contract, credit default swap, or any other credit derivative contract.

Nomura enters into credit derivatives as part of its normal trading activities as both purchaser and/ or seller of protection for credit risk mitigation, proprietary trading positions and for client transactions.

The most common type of credit derivatives used by Nomura are single-name credit default swaps where settlement of the derivative is based on the credit risk of a single third party. Nomura also writes credit derivatives linked to the performance of credit default indices and issues other credit risk related portfolio products.

Nomura would have to perform under a credit derivative contract if a credit event as defined in the respective contract occurs. Typical credit events include bankruptcy, failure to pay and restructuring of obligations of the reference asset.

Credit derivative contracts written by Nomura are either cash or physically settled. In cash-settled instruments, once payment is made upon an event of a default, the contract usually terminates with no further payments due. Nomura generally has no right to assume the reference assets of the counterparty in exchange for payment, nor does Nomura usually have any direct recourse to the actual issuers of the reference assets to recover the amount paid. In physically settled contracts, upon a default event, Nomura takes delivery of the reference asset in return for payment of the full notional amount of the contract.

 

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Nomura actively monitors and manages its credit derivative exposures. Where protection is sold, risks may be mitigated by purchasing credit protection from other third parties either on identical underlying reference assets or on underlying reference assets with the same issuer which would be expected to behave in a correlated fashion. The most common form of recourse provision to enable Nomura to recover from third parties any amounts paid under a written credit derivative is therefore not through the derivative itself but rather through the purchase of separate credit derivative protection with identical or correlated underlyings.

Extent of these purchased credit protection contracts is quantified in the following tables under the column titled “Purchased Credit Protection.” These amounts represent purchased credit protection with identical underlyings to the written credit derivative contracts which act as a hedge against Nomura’s exposures. To the extent Nomura is required to pay out under the written credit derivative, a similar amount would generally become due to Nomura under the purchased credit protection.

Credit derivatives have a stated notional amount which represents the maximum payment Nomura may be required to make under the written credit derivative contract. However, this is generally not a true representation of the amount Nomura will actually pay under these contracts as there are other factors that affect the likelihood and amount of any payment obligations under the contracts, including:

Probability of default: Nomura values credit derivatives taking into account of the probability that the underlying reference asset will default and that Nomura will be required to make payments under the contract. Based on historical experience and Nomura’s assessment of the market, Nomura believes that the probability that all reference assets on which Nomura provides protection will default in a single period is remote. The notional amounts are therefore, significantly higher than Nomura’s actual exposures to these contracts as a whole.

Recovery value on the underlying asset: In the case of the occurrence of an event of default, Nomura’s liability on a written credit derivative contract is limited to the difference between the notional amount and the recovery value of the underlying reference asset under default. While the recovery value on a defaulted asset may be minimal in certain cases, this does reduce amounts paid on these contracts.

Nomura holds assets as collateral in relation to written credit derivatives. However, these amounts do not enable Nomura to recover any amounts paid under the credit derivative but rather mitigate the risk of economic loss arising from a counterparty defaulting against amounts due to Nomura under the contract. Collateral requirements are determined on a counterparty level rather than individual contract, and also generally cover all types of derivative contracts rather than just credit derivatives.

The following tables present information about Nomura’s written credit derivatives and purchased credit protection with identical underlyings as of March 31, 2021 and June 30, 2021.

 

     Billions of yen  
     March 31, 2021  
           Maximum potential payout/Notional      Notional  
                  Years to maturity      Purchased
credit
protection
 
     Carrying value
(Asset) / Liability(1)
    Total      Less than
1 year
     1 to 3
years
     3 to 5
years
     More than
5 years
 

Single-name credit default swaps

   ¥ (80   ¥ 7,035      ¥ 1,318      ¥ 2,297      ¥ 2,642      ¥ 778      ¥ 5,452  

Credit default indices

     (246     10,235        1,271        4,065        3,989        910        7,737  

Other credit risk related portfolio products

     10       396        73        180        131        12        280  

Credit-risk related options and swaptions

     0       39        —          —          39        —          33  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ (316   ¥ 17,705      ¥ 2,662      ¥ 6,542      ¥ 6,801      ¥ 1,700      ¥ 13,502  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Billions of yen  
     June 30, 2021  
           Maximum potential payout/Notional      Notional  
                  Years to maturity      Purchased
credit
protection
 
     Carrying value
(Asset) / Liability(1)
    Total      Less than
1 year
     1 to 3
years
     3 to 5
years
     More than
5 years
 

Single-name credit default swaps

   ¥ (89   ¥ 6,519      ¥ 1,102      ¥ 2,597      ¥ 2,143      ¥ 677      ¥ 4,963  

Credit default indices

     (249     10,443        1,579        4,760        3,460        644        7,884  

Other credit risk related portfolio products

     5       518        64        187        256        11        406  

Credit-risk related options and swaptions

     0       23        —          —          23        —          23  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ (333   ¥ 17,503      ¥ 2,745      ¥ 7,544      ¥ 5,882      ¥ 1,332      ¥ 13,276  
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Carrying value amounts are shown on a gross basis prior to cash collateral or counterparty netting. Asset balances represent positive fair value amounts caused by tightening of credit spreads of underlyings since inception of the credit derivative contracts.

 

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The following tables present information about Nomura’s written credit derivatives by external credit rating of the underlying asset. Ratings are based on S&P Global Ratings (“S&P”), or if not rated by S&P, based on Moody’s Investors Service. If ratings from either of these agencies are not available, the ratings are based on Fitch Ratings Ltd. or Japan Credit Rating Agency, Ltd. For credit default indices, the rating is determined by taking the weighted average of the external credit ratings given for each of the underlying reference entities comprising the portfolio or index.

 

     Billions of yen  
     March 31, 2021  
     Maximum potential payout/Notional  
     AAA      AA      A      BBB      BB      Other(1)      Total  

Single-name credit default swaps

   ¥ 198      ¥ 1,218      ¥ 1,887      ¥ 2,098      ¥ 753      ¥ 881      ¥ 7,035  

Credit default indices

     114        128        1,880        6,294        1,415        404        10,235  

Other credit risk related portfolio products

     —          —          4        237        58        97        396  

Credit-risk related options and swaptions

     —          —          —          32        7        —          39  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 312      ¥ 1,346      ¥ 3,771      ¥ 8,661      ¥ 2,233      ¥ 1,382      ¥ 17,705  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Billions of yen  
     June 30, 2021  
     Maximum potential payout/Notional  
     AAA      AA      A      BBB      BB      Other(1)      Total  

Single-name credit default swaps

   ¥ 99      ¥ 1,154      ¥ 1,797      ¥ 2,001      ¥ 699      ¥ 769      ¥ 6,519  

Credit default indices

     46        186        2,722        5,663        1,409        417        10,443  

Other credit risk related portfolio products

     —          —          4        359        58        97        518  

Credit-risk related options and swaptions

     —          —          —          13        10        —          23  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 145      ¥ 1,340      ¥ 4,523      ¥ 8,036      ¥ 2,176      ¥ 1,283      ¥ 17,503  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

“Other” includes credit derivatives where the credit rating of the underlying reference asset is below investment grade or where a rating is unavailable.

Derivatives entered into in contemplation of sales of financial assets

Nomura enters into transactions which involve both the transfer of financial assets to a counterparty and contemporaneously enters into a separate agreement with the same counterparty through which Nomura retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. These transactions primarily include sales of securities with bilateral OTC total return swaps or other derivative agreements which are in-substance total return swaps.

These transactions are accounted for as sales of the securities with the derivative accounted for separately if the criteria for derecognition of the securities under ASC 860 are met. Where the derecognition criteria are not met, the transfer and separate derivative are accounted for as a single collateralized financing transaction which is reported within Long-term borrowings in the consolidated balance sheets.

For the year ended March 31, 2021, certain transactions which involve sales of securities and total return swaps were accounted for as sales. As of the date of transfer, the carrying amount of the securities and the amount of gross cash proceeds from the sales were ¥69,405 million and ¥69,535 million, respectively. As of March 31, 2021, the fair value of the securities derecognized by Nomura and the gross liability balances of the total return swaps arising from the transactions were ¥67,773 million and ¥1,539 million respectively.

For the three months ended June 30, 2021, certain transactions which involve sales of securities and total return swaps were accounted for as sales. As of the date of transfer, the carrying amount of the securities and the amount of gross cash proceeds from the sales were ¥69,734 million and ¥69,865 million, respectively. As of June 30, 2021, the fair value of the securities derecognized by Nomura and the gross liability balances of the total return swaps arising from the transactions were ¥68,113 million and ¥1,597 million, respectively.

 

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4. Revenue from services provided to customers

Revenues by types of service

The following table presents revenue earned by Nomura from providing services to customers by relevant line item in Nomura’s consolidated statement of income for the three months ended June 30, 2020 and 2021.

 

     Millions of yen  
       Three months ended June 30    
     2020      2021  

Commissions

   ¥ 85,512      ¥ 82,886  

Fees from investment banking

     10,828        35,703  

Asset management and portfolio service fees

     53,656        64,044  

Other revenue

     11,805        8,363  
  

 

 

    

 

 

 

Total

   ¥ 161,801      ¥ 190,996  
  

 

 

    

 

 

 

Commissions represent revenue principally from trade execution, clearing services and distribution of fund units provided by both the Retail and Wholesale Divisions approximately equally across the divisions. The following table shows the breakdown of Commissions for the three months ended June 30, 2020 and 2021.

 

     Millions of yen  
       Three months ended June 30    
     2020      2021  

Stock Brokerage Commissions

   ¥ 62,949      ¥ 58,233  

Commissions for distributing of investment trusts

     14,077        14,407  

Other

     8,486        10,246  
  

 

 

    

 

 

 

Total

   ¥   85,512      ¥   82,886  
  

 

 

    

 

 

 

Fees from investment banking represent revenues from financial advisory, underwriting and distribution primarily from Wholesale followed by Retail. The following table shows the breakdown of Fees from investment banking for the three months ended June 30, 2020 and 2021.

 

     Millions of yen  
       Three months ended June 30    
     2020      2021  

Equity underwriting and distribution

   ¥ 1,550      ¥ 9,955  

Bond underwriting and distribution

     3,330        7,322  

Financial advisory fees

     4,711        13,115  

Other

     1,237        5,311  
  

 

 

    

 

 

 

Total

   ¥   10,828      ¥   35,703  
  

 

 

    

 

 

 

Asset management and portfolio service fees represent revenues from asset management services primarily from the Investment Management Division followed by Retail.

The following table shows the breakdown of Asset management and portfolio service fees for the three months ended June 30, 2020 and 2021.

 

     Millions of yen  
       Three months ended June 30    
     2020      2021  

Asset management fees

   ¥ 35,238      ¥ 40,585  

Administration fees

     14,524        18,905  

Custodial fees

     3,894        4,554  
  

 

 

    

 

 

 

Total

   ¥   53,656      ¥   64,044  
  

 

 

    

 

 

 

 

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The following table presents summary information regarding the key methodologies, assumptions and judgments used in recognizing revenue for each of the primary types of service provided to customers, including the nature of underlying performance obligations within each type of service and whether those performance obligations are satisfied at a point in time or over a period of time. For performance obligations recognized over time, information is also provided to explain the nature of the input or output method used to recognize revenue over time.

 

Type of service provided to

customers

  

Overview of key services provided

  

Key revenue recognition policies, assumptions and

judgments

Trade execution, clearing services and distribution of fund units   

•  Buying and selling of securities on behalf of customers

 

•  Distribution of fund units

 

•  Clearing of securities and derivatives on behalf of customers

  

•  Trade execution and clearing commissions recognized at a point in time, namely trade date.

 

•  Distribution fees are recognized at a point in time when the fund units have been sold to third party investors.

 

•  Commissions recognized net of soft dollar credits provided to customers where Nomura is acting as agent in providing investment research and similar services to the customer.

Financial advisory services   

•  Provision of financial advice to customers in connection with a specific forecasted transaction or transactions such as mergers and acquisitions

 

•  Provision of financial advice not in connection with a specific forecasted transaction or transactions such as general corporate intelligence and similar research

 

•  Issuance of fairness opinions

 

•  Structuring complex financial instruments for customers

  

•  Fees contingent on the success of an underlying transaction are variable consideration recognized when the underlying transaction has been completed since only at such point is it probable that a significant reversal of revenue will not occur.

 

•  Retainer and milestone fees are recognized either over the period to which they relate or are deferred until consummation of the underlying transaction depending on whether the underlying performance obligation is satisfied at a point in time or over time.

 

•  Judgment is required to make this determination with factors influencing this determination including, but not limited to, whether the fee is in connection with an engagement designed to achieve a specific transaction or outcome for the customer (such as the purchase or sale of a business), the nature and extent of benefit to be provided to the customer prior to, and in addition to such specific transaction or outcome and the fee structure for the engagement.

 

•  Retainer and milestone fees recognized over time are normally recognized on a straight-line basis over the term of the contract based on time elapsed.

Underwriting and syndication services   

•  Underwriting of debt, equity and other financial instruments on behalf of customers

 

•  Distributing securities on behalf of issuers

 

•  Arranging loan financing for customers

 

•  Syndicating loan financing on behalf of customer

  

•  Underwriting and syndication revenues recognized at a point in time when the underlying transaction is complete.

 

•  Commitment fees where drawn down of the facility is deemed remote recognized on a straight-line basis over the life of the facility based on time elapsed.

 

•  Underwriting and syndication costs recognized either as a reduction of revenue or on a gross basis depending on whether Nomura is acting as principal or agent for such amounts.

 

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Type of service provided to

customers

  

Overview of key services provided

  

Key revenue recognition policies, assumptions and

significant judgments

Asset management services   

•  Management of funds, investment trusts and other investment vehicles

 

•  Provision of investment advisory services

 

•  Providing custodial and administrative services to customers

  

•  Management fees earned by Nomura in connection with managing a fund, investment trust or other vehicle generally recognized on a straight-line basis based on time elapsed.

 

•  Performance-based fees are variable consideration recognized when the performance metric has been determined since only at such point is it probable that a significant reversal of revenue will not occur.

 

•  Custodial and administrative fees recognized on a straightline basis over time based on time elapsed.

Where revenue is recognized at a point on time, payments of fees are typically received at the same time as when the performance obligation is satisfied, or within several days or months after satisfying a performance obligation. In relation to revenue recognized over time, payments of fees are typically received every month, three months or six months.

The underlying contracts entered into by Nomura in order to provide the services described above typically do not have significant financing components within the contracts either provided to or from Nomura. If such components did exist in a contract, Nomura has made an accounting policy permitted by ASC 606 “Revenue from Contracts with Customers” (“ASC 606”) not to adjust for the effects of a significant financing component where the financing is effectively for a period of one year or less. Such contracts also typically do not contain rights of return or similar features for the customer.

 

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Customer contract balances

When Nomura or the customer performs in accordance with the terms of a customer contract, a contract asset, customer contract receivable or contract liability is recognized in Nomura’s consolidated balance sheet.

A contract asset represents accrued revenue recognized by Nomura for completing or partially completing a performance obligation, namely a right of Nomura to receive consideration for providing the service to the customer, which is conditioned on something other than the passage of time. A customer contract receivable is an unconditional right of Nomura to receive consideration in exchange for providing the service. Both contract assets and customer contract receivables are reported in Receivables from Customers within Nomura’s consolidated balance sheet. A contract liability is any liability recognized in connection with a customer contract, including obligations to provide refunds and obligations to provide a service in the future for which consideration has already been received or is due to be received. Contract liabilities are reported in Payables to Customers within Nomura’s consolidated balance sheet.

The following table presents the balances of customer contract receivables, contract assets and contract liabilities in scope of ASC 606. The amount of contract assets as of March 31, 2021 and June 30, 2021 was immaterial.

 

     Millions of yen  
     March 31, 2021      June 30, 2021  

Customer contract receivables

   ¥ 85,205      ¥ 85,023  

Contract liabilities(1)

     3,497        3,849  

 

(1)

Contract liabilities primarily rise from investment advisory services and recognized in connection with the term of the contract based on time elapsed.

The balance of contract liabilities as of March 31, 2020 were recognized as revenue for the three months ended June 30, 2020 and the balance of contract liabilities as of March 31, 2021 were recognized as revenue for the three months ended June 30, 2021. Nomura recognized ¥80 million and ¥4,113 million of revenue from performance obligations satisfied in previous periods for the three months ended June 30, 2020 and 2021, respectively.

Transaction price allocated to the remaining performance obligations

Nomura retaines significant transactions for which individual estimated contract period exceeds one year. Transaction price allocated to the remaining performance obligations is ¥1,187 million as of March 31, 2021 and ¥1,144 million as of June 30, 2021.

As permitted by ASC 606, Nomura has chosen not to disclose information about remaining performance obligations that have original expected durations of one year or less as of March 31, 2021 and June 30, 2021. These amounts are not included in the above. In addition, considerations arising from contracts with customers do not comprise any significant amount that is not included in transaction price.

Customer contract costs

As permitted by ASC 340 “Other Assets and Deferred Costs”, Nomura has elected to expense all costs to obtain customer contracts where such amounts would be otherwise expensed within one year or less. As a result, the amount of deferred costs to obtain or fulfill customer contracts as of March 31, 2021 and June 30, 2021 were not significant.

 

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5. Collateralized transactions:

Nomura enters into collateralized transactions, including reverse repurchase agreements, repurchase agreements, securities borrowing transactions, securities lending transactions, other secured borrowings and similar transactions mainly to meet clients’ needs, finance trading inventory positions and obtain securities for settlements.

Reverse repurchase agreements, repurchase agreements, securities borrowing transactions and securities lending transactions are typically documented under industry standard master netting agreements which reduce Nomura’s credit exposure to counterparties as they permit the close-out and offset of transactions and collateral amounts in the event of default of the counterparty. For certain centrally-cleared reverse repurchase and repurchase agreements, the clearing or membership agreements entered into by Nomura provide similar rights to Nomura in the event of default of the relevant central clearing counterparty. In order to support the enforceability of the close-out and offsetting rights within these agreements, Nomura generally seeks to obtain an external legal opinion.

For certain types of counterparty and in certain jurisdictions, Nomura may enter into reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions which are not documented under a master netting agreement. Similarly, even when these transactions are documented under such agreements, Nomura may not have yet sought evidence, or may not be able to obtain evidence to determine with sufficient certainty that the close-out and offsetting rights are legally enforceable. This may be the case where relevant local laws specifically prohibit such close-out and offsetting rights, or where local laws are complex, ambiguous or silent on the enforceability of such rights. This may include reverse repurchase agreements, repurchase agreements, securities borrowing and securities lending transactions executed with certain foreign governments, agencies, municipalities, central clearing counterparties, agent banks and pension funds.

Nomura considers the enforceability of a master netting agreement in determining how credit risk arising from transactions with a specific counterparty is hedged, how counterparty credit exposures are calculated and applied to credit limits and the extent and nature of collateral requirements from the counterparty.

In all of these transactions, Nomura either receives or provides collateral, including Japanese and non-Japanese government, agency, mortgage-backed, bank and corporate debt securities and equities. In most cases, Nomura is permitted to use the securities received to enter into repurchase agreements, enter into securities lending transactions or to cover short positions with counterparties. In repurchase and reverse repurchase agreements, the value of collateral typically exceeds the amount of cash transferred. Collateral is generally in the form of securities. Securities borrowing transactions generally require Nomura to provide the counterparty with collateral in the form of cash or other securities. For securities lending transactions, Nomura generally receives collateral in the form of cash or other securities. Nomura monitors the market value of the securities either received from or provided to the counterparty. Additional cash or securities are exchanged as necessary, to ensure that such transactions are adequately collateralized throughout the life of the transactions.

Offsetting of certain collateralized transactions

Reverse repurchase agreements and repurchase agreements, securities borrowing and lending transactions with the same counterparty documented under a master netting agreement are offset in the consolidated balance sheets where the specific criteria defined by ASC 210-20 are met. These criteria include requirements around the maturity of the transactions, the underlying systems on which the collateral is settled, associated banking arrangements and the legal enforceability of close-out and offsetting rights under the master netting agreement.

The following tables present information about offsetting of these transactions in the consolidated balance sheets as of March 31, 2021 and June 30, 2021, together with the extent to which master netting agreements entered into with counterparties and central clearing parties permit additional offsetting in the event of counterparty default. Transactions which are not documented under a master netting agreement or are documented under a master netting agreement for which Nomura does not have sufficient evidence of enforceability are not offset in the following tables.

 

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     Billions of yen  
     March 31, 2021  
     Assets     Liabilities  
     Reverse
repurchase
agreements
    Securities
borrowing
transactions
    Repurchase
agreements
    Securities
lending
transactions
 

Total gross balance(1)

   ¥ 31,568     ¥ 5,241     ¥ 34,154     ¥ 1,781  

Less: Amounts offset in the consolidated balance sheets(2)

     (20,793     —         (20,794     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net amounts of reported on the face of the consolidated balance sheets(3)

   ¥ 10,775     ¥ 5,241     ¥ 13,360     ¥ 1,781  
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Additional amounts not offset in the consolidated balance sheets(4)

        

Financial instruments and non-cash collateral

     (9,390     (3,211     (9,448     (1,488

Cash collateral

     (1     —         (1     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amount

   ¥ 1,384     ¥ 2,030     ¥ 3,911     ¥ 293  
  

 

 

   

 

 

   

 

 

   

 

 

 
     Billions of yen  
     June 30, 2021  
     Assets     Liabilities  
     Reverse
repurchase
agreements
    Securities
borrowing
transactions
    Repurchase
agreements
    Securities
lending
transactions
 

Total gross balance(1)

   ¥ 31,305     ¥ 4,661     ¥ 32,799     ¥ 1,385  

Less: Amounts offset in the consolidated balance sheets(2)

     (19,923     —         (19,924     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net amounts of reported on the face of the consolidated balance sheets(3)

   ¥ 11,382     ¥ 4,661     ¥ 12,875     ¥ 1,385  
  

 

 

   

 

 

   

 

 

   

 

 

 

Less: Additional amounts not offset in the consolidated balance sheets(4)

        

Financial instruments and non-cash collateral

     (9,649     (3,004     (9,093     (1,210

Cash collateral

     (3     —         (16     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Net amount

   ¥ 1,730     ¥ 1,657     ¥ 3,766     ¥ 175  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Includes all recognized balances irrespective of whether they are transacted under a master netting agreement or whether Nomura has obtained sufficient evidence of enforceability of the master netting agreement. Amounts include transactions carried at fair value through election of the fair value option. As of March 31, 2021, the gross balance of reverse repurchase agreements and repurchase agreements which were not transacted under master netting agreements or are documented under master netting agreements for which Nomura has not yet obtained sufficient evidence of enforceability was ¥480 billion and ¥2,653 billion, respectively. As of March 31, 2021, the gross balance of securities borrowing transactions and securities lending transactions which were not transacted under master netting agreements or are documented under master netting agreements for which Nomura has not yet obtained sufficient evidence of enforceability was ¥1,947 billion and ¥213 billion, respectively. As of June 30, 2021, the gross balance of reverse repurchase agreements and repurchase agreements which were not transacted under master netting agreements or are documented under master netting agreements for which Nomura has not yet obtained sufficient evidence of enforceability was ¥494 billion and ¥2,208 billion, respectively. As of June 30, 2021, the gross balance of securities borrowing transactions and securities lending transactions which were not transacted under master netting agreements or are documented under master netting agreements for which Nomura has not yet obtained sufficient evidence of enforceability was ¥1,563 billion and ¥176 billion, respectively.

(2)

Represents amounts offset through counterparty netting under master netting and similar agreements for which Nomura has obtained sufficient evidence of enforceability in accordance with ASC 210-20. Amounts offset include transactions carried at fair value through election of the fair value option.

(3)

Reverse repurchase agreements and securities borrowing transactions are reported within Collateralized agreements—Securities purchased under agreements to resell and Collateralized agreements—Securities borrowed in the consolidated balance sheets, respectively. Repurchase agreements and securities lending transactions are reported within Collateralized financing—Securities sold under agreements to repurchase and Collateralized financing—Securities loaned in the consolidated balance sheets, respectively. Amounts reported under securities lending transactions also include transactions where Nomura lends securities and receives securities that can be sold or pledged as collateral. Nomura recognizes the securities received at fair value and a liability for the same amount, representing the obligation to return those securities. The liability is reported within Other liabilities in the consolidated balance sheets.

(4)

Represents amounts which are not permitted to be offset on the face of the balance sheet in accordance with ASC 210-20 but which provide Nomura with the right of offset in the event of counterparty default. Amounts relating to agreements where Nomura has not yet obtained sufficient evidence of enforceability of such offsetting rights are excluded.

 

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Maturity analysis of repurchase agreements and securities lending transactions

The following table presents an analysis of the total carrying value of liabilities recognized in the consolidated balance sheets for repurchase agreements and securities lending transactions by remaining contractual maturity of the agreement as of March 31, 2021 and June 30, 2021. Amounts reported are shown prior to counterparty netting in accordance with ASC 210-20.

 

     Billions of yen  
     March 31, 2021  
     Overnight
and open(1)
     Up to
30 days
     30 – 90
days
     90 days – 1 year      Greater
than 1 year
     Total  

Repurchase agreements

   ¥ 13,837      ¥ 16,452      ¥ 1,991      ¥ 1,590      ¥ 284      ¥ 34,154  

Securities lending transactions

     872        351        291        266        1        1,781  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total gross recognized liabilities(2)

   ¥ 14,709      ¥ 16,803      ¥ 2,282      ¥ 1,856      ¥ 285      ¥ 35,935  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Billions of yen  
   June 30, 2021  
   Overnight
and open(1)
     Up to
30 days
     30 – 90
days
     90 days – 1 year      Greater
than 1 year
     Total  

Repurchase agreements

   ¥ 13,456      ¥ 16,641      ¥ 1,303      ¥ 1,021      ¥ 378      ¥ 32,799  

Securities lending transactions

     742        218        128        297        —          1,385  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total gross recognized liabilities(2)

   ¥ 14,198      ¥ 16,859      ¥ 1,431      ¥ 1,318      ¥ 378      ¥ 34,184  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Open transactions do not have an explicit contractual maturity date and are terminable on demand by Nomura or the counterparty.

(2)

Repurchase agreements and securities lending transactions are reported within Collateralized financing—Securities sold under agreements to repurchase and Collateralized financing—Securities loaned in the consolidated balance sheets, respectively. Amounts reported for securities lending transactions also include transactions where Nomura lends securities and receives securities that can be sold or pledged as collateral. Nomura recognizes the securities received at fair value and a liability for the same amount, representing the obligation to return those securities. The liability is reported within Other liabilities in the consolidated balance sheets. The total gross recognized liabilities reported for repurchase agreements and securities lending transactions are consistent with the total gross balances reported in the offsetting disclosures above.

 

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Securities transferred in repurchase agreements and securities lending transactions

The following table presents an analysis of the total carrying value of liabilities recognized in the consolidated balance sheets for repurchase agreements and securities lending transactions by class of securities transferred by Nomura to counterparties as of March 31, 2021 and June 30, 2021. Amounts reported are shown prior to counterparty netting in accordance with ASC 210-20.

 

     Billions of yen  
   March 31, 2021  
   Repurchase
agreements
     Securities
lending
transactions
     Total  

Equities and convertible securities

   ¥ 724      ¥ 1,600      ¥ 2,324  

Japanese government, agency and municipal securities

     1,168        0        1,168  

Foreign government, agency and municipal securities

     27,531        8        27,539  

Bank and corporate debt securities

     1,926        117        2,043  

Commercial mortgage-backed securities (“CMBS”)

     6        —          6  

Residential mortgage-backed securities (“RMBS”)(1)

     2,532        —          2,532  

Collateralized debt obligations (“CDOs”) and other

     223        —          223  

Investment trust funds and other

     44        56        100  
  

 

 

    

 

 

    

 

 

 

Total gross recognized liabilities(2)

   ¥ 34,154      ¥ 1,781      ¥ 35,935  
  

 

 

    

 

 

    

 

 

 
     Billions of yen  
   June 30, 2021  
   Repurchase
agreements
     Securities
lending
transactions
     Total  

Equities and convertible securities

   ¥ 294      ¥ 1,246      ¥ 1,540  

Japanese government, agency and municipal securities

     1,251        11        1,262  

Foreign government, agency and municipal securities

     27,364        13        27,377  

Bank and corporate debt securities

     1,789        88        1,877  

Commercial mortgage-backed securities (“CMBS”)

     6        —          6  

Residential mortgage-backed securities (“RMBS”)(1)

     1,898        —          1,898  

Collateralized debt obligations (“CDOs”) and other

     179        —          179  

Investment trust funds and other

     18        27        45  
  

 

 

    

 

 

    

 

 

 

Total gross recognized liabilities(2)

   ¥ 32,799      ¥ 1,385      ¥ 34,184  
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes ¥2,170 billion as of March 31, 2021 and ¥ 1,557 billion as of June 30, 2021 of U.S. government sponsored agency mortgage pass-through securities and collateralized mortgage obligations

(2)

Repurchase agreements and securities lending transactions are reported within Collateralized financing—Securities sold under agreements to repurchase and Collateralized financing—Securities loaned in the consolidated balance sheets, respectively. Amounts reported for securities lending transactions also include transactions where Nomura lends securities and receives securities that can be sold or pledged as collateral. Nomura recognizes the securities received at fair value and a liability for the same amount, representing the obligation to return those securities. The liability is reported within Other liabilities in the consolidated balance sheets. The total gross recognized liabilities reported for repurchase agreements and securities lending transactions are consistent with the total gross balances reported in the offsetting disclosures above.

 

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Collateral received by Nomura

The following table presents the fair value of securities received as collateral, securities borrowed with collateral and securities borrowed without collateral, which Nomura is permitted to sell or repledge, and the portion that has been sold or repledged as of March 31, 2021 and June 30, 2021.

 

     Billions of yen  
     March 31, 2021      June 30, 2021  

The fair value of securities received as collateral, securities borrowed as collateral and securities borrowed without collateral where Nomura is permitted by contract or custom to sell or repledge the securities

   ¥     50,466      ¥      49,199  

The portion of the above that has been sold (reported within Trading liabilities in the consolidated balance sheets) or repledged

     38,342        37,101  

Collateral pledged by Nomura

Nomura pledges firm-owned securities to collateralize repurchase transactions, other secured financings and derivative transactions. Pledged securities that can be sold or repledged by the transferee, including Gensaki Repo transactions, are reported in parentheses as Securities pledged as collateral within Trading assets in the consolidated balance sheets.

The following table presents the carrying amounts of financial assets recognized in the consolidated balance sheets which have been pledged as collateral, primarily to stock exchanges and clearing organizations, without allowing the secured party the right to sell or repledge them by type of asset as of March 31, 2021 and June 30, 2021.

 

     Millions of yen  
   March 31, 2021      June 30, 2021  

Trading assets:

     

Equities and convertible securities

   ¥ 239,393      ¥ 253,165  

Government and government agency securities

     1,064,164        1,162,108  

Bank and corporate debt securities

     32,262        35,866  

Residential mortgage-backed securities (“RMBS”)

     1,790,395        1,073,188  

Collateralized debt obligations (“CDOs”) and other(1)

     32,081        16,217  

Investment trust funds and other

     43,805        16,102  
  

 

 

    

 

 

 
   ¥ 3,202,100      ¥ 2,556,646  
  

 

 

    

 

 

 

Non-trading debt securities

   ¥ 115,659      ¥ 110,204  

Investments in and advances to affiliated companies

   ¥ 4,136      ¥ 4,149  

 

(1)

Includes CLOs and ABS such as those secured on credit card loans, auto loans and student loans.

The following table presents the carrying amount of financial and non-financial assets recognized in the consolidated balance sheets, other than those disclosed above, which are subject to lien as of March 31, 2021 and June 30, 2021.

 

     Millions of yen  
   March 31, 2021      June 30, 2021  

Loans and receivables

   ¥ 114,051      ¥ 172,379  

Trading assets and private equity and debt investments

     1,344,361        1,412,106  

Office buildings, land, equipment and facilities

     5,076        5,023  

Non-trading debt securities

     1,047        489  

Other

     5,823        353  
  

 

 

    

 

 

 
   ¥ 1,470,358      ¥ 1,590,350  
  

 

 

    

 

 

 

Assets in the above table were primarily pledged for secured borrowings, including other secured borrowings, collateralized borrowings of consolidated VIEs, trading balances of secured borrowings, and derivative transactions.

 

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6. Securitizations and Variable Interest Entities:

Securitizations

Nomura utilizes special purpose entities (“SPEs”) to securitize commercial and residential mortgage loans, government agency and corporate securities and other types of financial assets. Those SPEs are incorporated as stock companies, Tokumei kumiai (silent partnerships), Cayman special purpose companies (“SPCs”) or trust accounts. Nomura’s involvement with SPEs includes structuring SPEs, underwriting, distributing and selling debt instruments and beneficial interests issued by SPEs to investors. Nomura accounts for the transfer of financial assets in accordance with ASC 860. This statement requires that Nomura accounts for the transfer of financial assets as a sale when Nomura relinquishes control over the assets. ASC 860 deems control to be relinquished when the following conditions are met: (a) the assets have been isolated from the transferor (even in bankruptcy or other receivership), (b) the transferee has the right to pledge or exchange the assets received, or if the transferee is an entity whose sole purpose is to engage in securitization or asset-backed financing activities, the holders of its beneficial interests have the right to pledge or exchange the beneficial interests, and (c) the transferor has not maintained effective control over the transferred assets. Nomura may retain an interest in the financial assets, including residual interests in the SPEs. Any such interests are accounted for at fair value and reported within Trading assets in Nomura’s consolidated balance sheets, with the change in fair value reported within RevenueNet gain on trading. Fair value for retained interests in securitized financial assets is determined by using observable prices; or in cases where observable prices are not available for certain retained interests, Nomura estimates fair value based on the present value of expected future cash flows using its best estimates of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved. Nomura may also enter into derivative transactions in relation to the assets transferred to an SPE.

As noted above, Nomura may have continuing involvement with SPEs to which Nomura transferred assets. For the three months ended June 30, 2020 and 2021, Nomura received cash proceeds from SPEs in new securitizations of ¥123 billion and ¥55 billion, respectively. The associated gain on sale was ¥7 billion for the three months ended June 30, 2021, and the amount was not significant for the three months ended June 30, 2020. For the three months ended June 30, 2020 and 2021, Nomura received debt securities issued by these SPEs with an initial fair value of ¥526 billion and ¥682 billion, respectively, and cash inflows from third parties on the sale of those debt securities of ¥485 billion and ¥581 billion, respectively. The cumulative balance of financial assets transferred to SPEs with which Nomura has continuing involvement was ¥5,323 billion and ¥5,462 billion as of March 31, 2021 and June 30, 2021, respectively. Nomura’s retained interests were ¥160 billion and ¥166 billion, as of March 31, 2021 and June 30, 2021, respectively. For the three months ended June 30, 2020 and 2021, Nomura received cash flows of ¥5 billion and ¥9 billion, respectively, from the SPEs on the retained interests held in the SPEs.

Nomura did not provide financial support to SPEs beyond its contractual obligations as of March 31, 2021 and June 30, 2021.

 

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The following tables present the fair value of retained interests which Nomura has continuing involvement in SPEs and their classification in the fair value hierarchy, categorized by the type of transferred assets.

 

     Billions of yen  
     March 31, 2021  
     Level 1      Level 2      Level 3      Total      Investment
grade
     Other  

Government, agency and municipal securities

   ¥ —        ¥ 154      ¥ —        ¥ 154      ¥ 154      ¥ —    

Bank and corporate debt securities

     —          —          —          —          —          —    

CMBS and RMBS

     —          —          6        6        0        6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ —        ¥ 154      ¥ 6      ¥ 160      ¥ 154      ¥ 6  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Billions of yen  
     June 30, 2021  
     Level 1      Level 2      Level 3      Total      Investment
grade
     Other  

Government, agency and municipal securities

   ¥ —        ¥ 159      ¥ —        ¥ 159      ¥ 159      ¥ —    

Bank and corporate debt securities

     —          —          —          —          —          —    

CMBS and RMBS

     —          —          7        7        0        7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ —        ¥ 159      ¥ 7      ¥ 166      ¥ 159      ¥ 7  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

As of June 30, 2021, predominantly all of the retained interests held by Nomura were valued using observable prices. The initial fair value of these retained interests are mostly level 2 in the fair value hierarchy

The following table presents the type and carrying value of financial assets included within Trading assets which have been transferred to SPEs but which do not meet the criteria for derecognition under ASC 860. These transfers are accounted for as secured financing transactions and generally reported within Long-term borrowings. The assets are pledged as collateral of the associated liabilities and cannot be removed unilaterally by Nomura and the liabilities are non-recourse to Nomura.

 

     Billions of yen  
     March 31, 2021      June 30, 2021  

Assets

     

Trading assets

     

Loans

   ¥ 106      ¥ 164  
  

 

 

    

 

 

 

Liabilities

     

Long-term borrowings

   ¥             106      ¥             164  
  

 

 

    

 

 

 

 

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Variable Interest Entities

In the normal course of business, Nomura acts as a transferor of financial assets to VIEs, and underwriter, distributor, and seller of repackaged financial instruments issued by VIEs in connection with its securitization and equity derivative activities. Nomura retains, purchases and sells variable interests in VIEs in connection with its market-making, investing and structuring activities.

If Nomura has an interest in a VIE that provides Nomura with control over the most significant activities of the VIE and the right to receive benefits or the obligation to absorb losses that could be significant to the VIE, Nomura is the primary beneficiary of the VIE and must consolidate the entity, provided that Nomura does not meet separate tests confirming that it is acting as a fiduciary for other interest holders. Nomura’s consolidated VIEs include those that were created to market structured securities to investors by repackaging corporate convertible securities, mortgages and mortgage-backed securities. Certain VIEs used in connection with Nomura’s aircraft leasing business as well as other purposes are consolidated. Nomura also consolidates certain investment funds, which are VIEs, and for which Nomura is the primary beneficiary.

The power to make the most significant decisions may take a number of different forms in different types of VIEs. For transactions such as securitizations, investment funds, and CDOs, Nomura considers collateral management and servicing to represent the power to make the most significant decisions. Accordingly, Nomura does not consolidate such types of VIEs for which it does not act as collateral manager or servicer unless Nomura has the right to replace the collateral manager or servicer or to require liquidation of the entity.

For many transactions, such as where VIEs are used for re-securitizations of residential mortgage-backed securities, there are no significant economic decisions made on an ongoing basis and no single investor has the unilateral ability to liquidate the VIE. In these cases, Nomura focuses its analysis on decisions made prior to the initial closing of the transaction, and considers factors such as the nature of the underlying assets held by the VIE, the involvement of third party investors in the design of the VIE, the size of initial third party investment and the amount and level of any subordination of beneficial interests issued by the VIE which will be held by Nomura and third party investors. Nomura has sponsored numerous re-securitization transactions and in many cases has determined that it is not the primary beneficiary on the basis that control over the most significant decisions relating to these entities are shared with third party investors. In some cases, however, Nomura has consolidated such VIEs, for example, where it was determined that third party investors were not involved in the design of the VIEs, including where the size of third party investment was not significant at inception of the transaction.

 

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The following table presents the classification of consolidated VIEs’ assets and liabilities in these consolidated financial statements. Most of these assets and liabilities are related to consolidated SPEs which securitize corporate convertible securities, mortgages and mortgage-backed securities. The assets of a consolidated VIE may only be used to settle obligations of that VIE. Creditors do not typically have any recourse to Nomura beyond the assets held in the VIEs.

 

     Billions of yen  
     March 31, 2021      June 30, 2021  

Consolidated VIE assets

     

Cash and cash equivalents

   ¥ 13      ¥ 25  

Trading assets

     

Equities

     524        553  

Debt securities

     414        455  

CMBS and RMBS

     20        20  

Investment trust funds and other

     4        —    

Derivatives

     1        1  

Private equity and debt investments

     21        6  

Office buildings, land, equipment and facilities

     51        56  

Other

     26        96  
  

 

 

    

 

 

 

Total

   ¥ 1,074      ¥ 1,212  
  

 

 

    

 

 

 

Consolidated VIE liabilities

     

Trading liabilities

     

Derivatives

   ¥ 2      ¥ 2  

Borrowings

     

Short-term borrowings

     74        99  

Long-term borrowings

     763        763  

Other

     2        2  
  

 

 

    

 

 

 

Total

   ¥ 841      ¥ 866  
  

 

 

    

 

 

 

Nomura continuously reassesses its initial evaluation of whether it is the primary beneficiary of a VIE based on current facts and circumstances as long as it has any continuing involvement with the VIE. This determination is based upon an analysis of the design of the VIE, including the VIE’s structure and activities, the power to make significant economic decisions held by Nomura and by other parties, and the variable interests owned by Nomura and other parties.

Nomura also holds variable interests in VIEs where Nomura is not the primary beneficiary. Nomura’s variable interests in such VIEs include senior and subordinated debt, residual interests, and equity interests associated with commercial and residential mortgage-backed and other asset-backed securitizations and structured financings, equity interests in VIEs which were formed primarily to acquire high yield leveraged loans and other lower investment grade debt obligations, residual interests in operating leases for aircraft held by VIEs, and loans and investments in VIEs that acquire operating businesses.

 

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The following tables present the carrying amount of variable interests of unconsolidated VIEs and maximum exposure to loss associated with these variable interests. Maximum exposure to loss does not reflect Nomura’s estimate of the actual losses that could result from adverse changes, nor does it reflect the economic hedges Nomura enters into to reduce its exposure. The risks associated with VIEs in which Nomura is involved are limited to the amount recorded in the consolidated balance sheets and the amount of commitments and financial guarantees.

 

     Billions of yen  
     March 31, 2021  
     Carrying amount of
variable interests
     Maximum exposure
to loss to
unconsolidated VIEs
 
     Assets      Liabilities  

Trading assets and liabilities

        

Equities

   ¥ 30      ¥ —        ¥ 30  

Debt securities

     60        —          60  

CMBS and RMBS

     2,362        —          2,362  

Investment trust funds and other

     195        —          195  

Private equity and debt investments

     3        —          3  

Loans

     556        —          556  

Other

     19        —          19  

Commitments to extend credit and other guarantees

     —          —          110  
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 3,225      ¥ —        ¥ 3,335  
  

 

 

    

 

 

    

 

 

 
     Billions of yen  
     June 30, 2021  
     Carrying amount of
variable interests
     Maximum exposure
to loss to
unconsolidated VIEs
 
     Assets      Liabilities  

Trading assets and liabilities

        

Equities

   ¥ 48      ¥ —        ¥ 48  

Debt securities

     51        —          51  

CMBS and RMBS

     1,806        —          1,806  

Investment trust funds and other

     152        —          152  

Private equity and debt investments

     12        —          12  

Loans

     616        —          616  

Other

     18        —          18  

Commitments to extend credit and other guarantees

     —          —          110  
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 2,703      ¥ —        ¥ 2,813  
  

 

 

    

 

 

    

 

 

 

 

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7. Financing receivables:

In the normal course of business, Nomura extends financing to clients primarily in the form of loan receivables, loan commitments and collateralized agreements such as reverse repurchase agreements and securities borrowing transactions. These financing receivables are recognized as assets on Nomura’s consolidated balance sheets at fair value or on amortized cost basis and provide a contractual right to receive money either on demand or on future fixed or determinable dates.

The carrying value of financing receivables measured on an amortized cost basis as of June 30, 2021 is adjusted for an allowance for current expected credit losses (“CECL”) defined by ASC 326 “Financial Instruments—Credit Losses” (“ASC 326”). Allowances for CECL against recognized financial instruments are reported in the consolidated balance sheets within Allowance for credit losses.

Collateralized agreements

Collateralized agreements consist of reverse repurchase agreements reported as Securities purchased under agreements to resell and securities borrowing transactions reported as Securities borrowed in the consolidated balance sheets, including those executed under Gensaki Repo agreements. Reverse repurchase agreements and securities borrowing transactions principally involve the buying of government and government agency securities from customers under agreements that also require Nomura to resell these securities to those customers, or borrowing these securities with cash and non-cash collateral. Nomura monitors the value of the underlying securities on a daily basis to the related receivables, including accrued interest, and requests or returns additional collateral when appropriate. Except for those where we apply fair value options, reverse repurchase agreements are generally recognized in the consolidated balance sheets at the amount for which the securities were originally acquired with applicable accrued interest. Securities borrowing transactions are generally recognized in the consolidated balance sheets at the amount of cash collateral advanced. Allowances for current expected credit losses against collateralized agreements are not significant because of our application of practical expedients permitted by ASC 326 based on the collateralization requirements and ongoing monitoring of the collateral levels and the short expected life of the financial instruments.

Loans receivable

The key types of loans receivable recognized by Nomura are loans at banks, short-term secured margin loans, inter-bank money market loans and corporate loans.

Loans at banks include both retail and commercial secured and traditional unsecured loans mainly extended by Nomura Trust & Banking Co., Ltd. For both retail and commercial loans secured by real estate or securities, Nomura is exposed to the risk of a decline in the value of the underlying collateral. Loans at banks also include unsecured commercial loans provided to investment banking clients for relationship purposes. For unsecured commercial loans, Nomura is exposed to risk of default of the counterparty, although these counterparties usually have high or good credit ratings. Where loans are secured by guarantees, Nomura is also exposed to the risk of default by the guarantor.

Short-term secured margin loans are margin loans provided to clients in connection with securities brokerage business in retail and wealth management services. These loans provide funding for clients in order to purchase securities. Nomura requests initial margin in the form of acceptable collateral securities or deposits against these loans and holds the purchased securities as collateral through the life of the loans. If the value of the securities declines by more than specified amounts, Nomura can make additional margin calls in order to maintain a specified ratio of loan-to-value (“LTV”) ratio. These clients are required and reasonably expected to continue to replenish the amount of collateral. For these reasons, the risk to Nomura of providing these loans is limited.

Inter-bank money market loans are loans to financial institutions in the inter-bank money market, where overnight and intra-day financings are traded through money market dealers. The risk to Nomura of making these loans is limited as only qualified financial institutions can participate in these markets and these loans are usually overnight or short-term in nature.

Corporate loans are primarily commercial loans provided to corporate clients except Loan at banks. Corporate loans include loans secured by real estate or securities, unsecured commercial loans provided to investment banking clients for relationship purposes. The risk to Nomura of making these loans is similar to those risks arising from commercial loans reported in loans at banks.

 

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The following tables present a summary of loans receivable reported within Loans receivable or Investments in and advances to affiliated companies in the consolidated balance sheets by portfolio segment.

 

     Millions of yen  
     March 31, 2021  
     Carried at
amortized cost
     Carried at
fair value(1)
     Total  

Loans receivable

        

Loans at banks

   ¥ 605,200      ¥ —        ¥ 605,200  

Short-term secured margin loans

     436,221        —          436,221  

Inter-bank money market loans

     1,289        —          1,289  

Corporate loans

     1,082,239        818,523        1,900,762  
  

 

 

    

 

 

    

 

 

 

Total loans receivable

   ¥ 2,124,949      ¥ 818,523      ¥ 2,943,472  
  

 

 

    

 

 

    

 

 

 

Advances to affiliated companies

     1,000        —          1,000  
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 2,125,949      ¥ 818,523      ¥ 2,944,472  
  

 

 

    

 

 

    

 

 

 
     Millions of yen  
     June 30, 2021  
     Carried at
amortized cost
     Carried at
fair value(1)
     Total  

Loans receivable

        

Loans at banks

   ¥ 613,901      ¥ —        ¥ 613,901  

Short-term secured margin loans

     445,418        —          445,418  

Inter-bank money market loans

     31,807        —          31,807  

Corporate loans

     952,671        823,235        1,775,906  
  

 

 

    

 

 

    

 

 

 

Total loans receivable

   ¥ 2,043,797      ¥ 823,235      ¥ 2,867,032  
  

 

 

    

 

 

    

 

 

 

Advances to affiliated companies

     1,000        —          1,000  
  

 

 

    

 

 

    

 

 

 

Total

   ¥ 2,044,797      ¥ 823,235      ¥ 2,868,032  
  

 

 

    

 

 

    

 

 

 

 

(1)

Includes loans receivable and loan commitments carried at fair value through election of the fair value option.

There were no significant purchases nor sales of loans receivable during the three months ended June 30, 2020. There were no significant reclassifications of loans receivable to trading assets during the same period.

There were no significant purchases nor sales of loans receivable during the three months ended June 30, 2021. There were no significant reclassifications of loans receivable to trading assets during the same period.

Allowance for current expected credit losses

Management has established an allowance for current expected credit losses using the CECL impairment model against the following types of financial instruments, including financing receivables, which are not measured at fair value on a recurring basis, to reflect the net amount Nomura expects to collect:

 

   

Loans and written unfunded loan commitments;

 

   

Deposits;

 

   

Collateralized agreements such as reverse repos and securities borrowing transactions;

 

   

Customer contract assets and receivables; and

 

   

Other receivables including margin receivables, security deposits, default fund contributions to central clearing counterparties, reinsurance and net investments in finance leases.

Current expected credit losses for an individual or portfolio of financial instrument are measured at each Nomura reporting date based on expected credit losses over the remaining expected life of the financial instruments that consider forecast of future economic conditions in addition to information about past events and current conditions. Key macroeconomic inputs to our weighted average forecasts of three years include GDP and credit spreads.

 

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The risk of loss is considered, even when that risk of loss is remote. While management has based its estimate of the allowance for current expected credit losses on the best information available, future adjustments to the allowance may be necessary as a result of changes in the economic environment or variances between actual results and original assumptions.

Nomura has elected to exclude accrued interest receivable from the amortized cost basis of financial instruments used to measure expected credit losses. The amount of accrued interest receivable as of June 30, 2021 was not significant.

The methodology used by Nomura to determine allowances for current expected credit losses in accordance with the CECL impairment model primarily depends on the nature of the financial instrument and whether certain practical expedients permitted by ASC 326 are applied by Nomura.

Financial instruments subject to the CECL impairment model are charged off when Nomura has deemed the loan or receivable as uncollectible, namely management believes there is no reasonable expectation of collecting future contractual cash flows and all commercially reasonable means of recovering outstanding principle and interest balances have been exhausted.

The following table summarizes the methodology used for each significant type of financial instrument subject to the CECL impairment model and the key assumptions used which have impacted the measurement of current expected credit losses during the year ended June 30, 2021.

 

Financial instrument

  

Methodology to determine current expected credit losses

Loans, written loan commitments and certain deposits   

•   Full loss rate model developed by Nomura’s Risk department

 

•   Measures expected credit losses based on probability of default (PD), Loss Given Default (LGD) and Exposure at Default (EAD) inputs.

 

•   PD inputs incorporate forward-looking scenarios used by Nomura for internal risk management and capital purposes.

 

•   Immediate reversion method used for periods beyond which reasonable and supportable forecast is not available.

 

•   For financial instruments which have defaulted or are probable of defaulting, expected credit losses measured using discounted cash flow analyses or, where the financial instrument is collateral dependent, based on any shortfall of fair value of the underlying collateral.

Collateralized agreements, short-term secured margin loans and cash prime brokerage loans   

•   For reverse repos and short-term secured margin loans and cash prime brokerage loans where frequent margining is required and the counterparty has ability to replenish margin, as permitted by a practical expedient provided by ASC 326 expected credit losses are limited to difference between carrying value of the reverse repo or margin loan and fair value of underlying collateral.

 

•   Securities borrowing transactions typically have very short expected lives and are collateralized and therefore expected credit losses are generally determined qualitatively to be insignificant based on historical experience and consistent monitoring of collateral.

Customer contract assets and receivables   

•   Expected credit losses typically based on ageing analysis where loss rates are applied to the carrying value based on historical experience, the current economic climate and specific information about the ability of the client to pay.

 

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The following table presents changes in the allowance for current expected credit losses for the three months ended June 30, 2020 and 2021 as determined using the CECL impairment model defined by ASC 326.

 

                                                                                                     
     Millions of yen  
     Three months ended June 30, 2020  
     Allowance for current expected credit losses     Allowance  for
receivables
other than
loans(2)
    Total
allowance for
current
expected
credit losses
 
     Loans
at banks
    Short-term
secured
margin
loans
    Corporate
loans
    Subtotal  

Opening balance prior to CECL adoption

   ¥ 1,564     ¥ 352     ¥ 7,944     ¥ 9,860     ¥ 3,152     ¥ 13,012  

Impact of CECL adoption(1)

     232       —         1,738       1,970       2       1,972  

Opening balance after CECL adoption

     1,796       352       9,682       11,830       3,154       14,984  

Provision for losses

     (342     (76     (1,852     (2,270     1,044       (1,226

Charge-offs

     —         —         —         —         (1,322     (1,322

Other(4)

     —         16       (103     (87     5       (82
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   ¥ 1,454     ¥ 292     ¥ 7,727     ¥ 9,473     ¥ 2,881     ¥ 12,354  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Millions of yen  
     Three months ended June 30, 2021  
     Allowance for current expected credit losses     Allowances
against

receivables
other than
loans(2)
    Total
allowance for
current
expected
credit losses
 
     Loans
at banks
    Short-term
secured
margin
loans
    Corporate
loans
    Subtotal  

Opening balance

   ¥ 1,282     ¥ —       ¥ 47,985     ¥ 49,267     ¥ 4,517     ¥ 53,784  

Provision for losses(3)

     —         —         9,197       9,197       3       9,200  

Charge-offs

     —         —         (7     (7     (57     (64

Other(4)

     (9     —         384       375       (1,876     (1,501
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   ¥ 1,273     ¥ —       ¥ 57,559     ¥ 58,832     ¥ 2,587     ¥ 61,419  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

The balance recognized on April 1, 2020 on adoption of ASC 326.

(2)

Includes collateralized agreements, customer contract assets and receivables and other receivables.

(3)

In June 2021, following the default by the U.S. client an additional allowance for current expected credit losses of ¥9,289 million was taken on the loans with the client.

(4)

Includes recoveries collected and the effect of foreign exchange movements.

Troubled debt restructurings

In the ordinary course of business, Nomura may choose to restructure a loan classified as held for investment either because of financial difficulties of the borrower, or simply as a result of market conditions or relationship reasons. A troubled debt restructuring (“TDR”) occurs when Nomura (as lender) for economic or legal reasons related to the borrower’s financial difficulties grants a concession to the borrower that Nomura would not otherwise consider.

Expected credit losses for a loan being restructured under a TDR which only involve modification of the loan’s terms (rather than receipt of assets in full or partial settlement) is typically determined using a discounted cash flow analysis. Assets received in full or partial satisfaction of a loan in a TDR are recognized at fair value.

Discussions continue with various borrowers to modify the existing contractual terms of certain loans. These modifications where the borrower is deemed to be in financial difficulty and Nomura has, or expects to, grant a financial concession would typically be accounted for and reported as a TDR.

The amounts of TDRs which occurred during the three months ended June 30, 2020 and 2021 were not significant.

 

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Nonaccrual and past due loans

Loans are placed on a nonaccrual status if interest is deemed uncollectible. Nomura policy is to define interest as being uncollectible if the borrower is determined to be in financial difficulty or an interest or principal payment on the loans is 90 days or more past due.

Where a loan is placed on a nonaccrual status, any accrued but unpaid interest receivable reversed and no further accrual of interest is permitted. Interest income is subsequent recognized when a cash payment is received from the borrower using the cash basis method.

Loans are generally only returned to an accrual status if the loan is brought contractually current, i.e., all overdue principal and interest amounts are paid. In limited circumstances, a loan which has not been brought contractually current will also be returned to an accrual status if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time or there has been a sustained period of repayment performance by the borrower.

As of March 31, 2021, there were ¥204,404 million of loans which were placed on a nonaccrual status, primarily secured corporate loans. Nomura uses, as a practical expedient, the fair value of the collateral when determining the allowance for current expected credit losses, for which repayment is expected to be provided substantially through the operation or sale of the collateral. Of the corporate loans on non-accrual status, these loans relate to U.S. client as of March 31,2021 causing an increase of an allowance for current expected credit losses of ¥41,561 million to be recorded. The amount of loans which were 90 days past due was not significant.

As of June 30, 2021, there were ¥57,622 million of loans which were placed on a nonaccrual status, primarily secured corporate loans. Of the corporate loans on non-accrual status, these loans relate to U.S. client as of June 30,2021 causing an increase of an allowance for current expected credit losses of ¥9,289 million to be recorded. The amount of loans which were 90 days past due was ¥57,623 million.

Credit quality indicators

Nomura is exposed to credit risks deriving from a decline in the value of loans or a default caused by deterioration of creditworthiness or bankruptcy of the obligor. Nomura’s risk management framework for such credit risks is based on a risk assessment through an internal rating process, in depth pre-financing credit analysis of each individual loan and continuous post-financing monitoring of obligor’s creditworthiness.

The following tables present an analysis of each class of loans not carried at fair value using Nomura’s internal ratings or equivalent credit quality indicators applied by subsidiaries by years of origination as of March 31 and June 30, 2021.

 

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     Millions of yen  
     March 31, 2021  
     2021      2020      2019      2018      2017      2016 or
earlier
     Revolving      Total  

Secured loans at banks:

                       

AAA-BBB

   ¥ 54,179      ¥ 115,003      ¥ 17,106      ¥ 12,450      ¥ 4,240      ¥ 17,634      ¥ —        ¥ 220,612  

BB-CCC

     75,680        115,131        3,864        2,324        —          5,484        —          202,483  

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     —          61,185        —          —          —          —          —          61,185  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured loans at banks

   ¥ 129,859      ¥ 291,319      ¥ 20,970      ¥ 14,774      ¥ 4,240      ¥ 23,118      ¥ —        ¥ 484,280  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unsecured loans at banks:

                       

AAA-BBB

   ¥ 9,101      ¥ 22,955      ¥ 27,863      ¥ 17,563      ¥ 8,484      ¥ 34,719      ¥ —        ¥ 120,685  

BB-CCC

     —          —          235        —          —          —          —          235  

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured loans at banks

   ¥ 9,101      ¥ 22,955      ¥ 28,098      ¥ 17,563      ¥ 8,484      ¥ 34,719      ¥ —        ¥ 120,920  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Short-term secured margin loans:

                       

AAA-BBB

   ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —    

BB-CCC

     —          —          —          —          —          —          —          —    

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     170,514        141        —          —          —          —          265,566        436,221  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term secured margin loans

   ¥ 170,514      ¥ 141      ¥ —        ¥ —        ¥ —        ¥ —        ¥ 265,566      ¥ 436,221  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unsecured inter-bank money market loans:

                       

AAA-BBB

   ¥ 1,289      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 1,289  

BB-CCC

     —          —          —          —          —          —          —          —    

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured inter-bank money market loans

   ¥ 1,289      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 1,289  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Secured corporate loans:

                       

AAA-BBB

   ¥ 33,965      ¥ 261,182      ¥ 45,880      ¥ 9,817      ¥ 6,406      ¥ 27,672      ¥ 97      ¥ 385,019  

BB-CCC

     20,093        102,941        34,435        29,869        13,067        17,573        173,178        391,156  

CC-D(2)

     197,859        —          —          —          —          —          —          197,859  

Others(1)

     —          39        40        11        30        4,697        428        5,245  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured corporate loans

   ¥ 251,917      ¥ 364,162      ¥ 80,355      ¥ 39,697      ¥ 19,503      ¥ 49,942      ¥ 173,703      ¥ 979,279  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unsecured corporate loans:

                       

AAA-BBB

   ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —    

BB-CCC

     84        —          450        —          —          —          —          534  

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     1        191        8        97,212        —          5,014        —          102,426  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured corporate loans

   ¥ 85      ¥ 191      ¥ 458      ¥ 97,212      ¥ —        ¥ 5,014      ¥ —        ¥ 102,960  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Advances to affiliated companies

                       

AAA-BBB

   ¥ 1,000      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 1,000  

BB-CCC

     —          —          —          —          —          —          —          —    

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total advances to affiliated companies

   ¥ 1,000      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 1,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 563,765      ¥ 678,768      ¥ 129,881      ¥ 169,246      ¥ 32,227      ¥ 112,793      ¥ 439,269      ¥ 2,125,949  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Relate to collateralized exposures where a specified ratio of LTV is maintained.

(2)

Includes loans of ¥197,859 million in relation to the U.S. prime brokerage event.

 

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     Millions of yen  
     June 30, 2021  
     2021      2020      2019      2018      2017      2016 or
earlier
     Revolving      Total  

Secured loans at banks:

                       

AAA-BBB

   ¥ 72,006      ¥ 104,635      ¥ 17,059      ¥ 10,420      ¥ 4,240      ¥ 16,525      ¥ 48      ¥ 224,933  

BB-CCC

     125,814        75,930        2,946        2,229        —          5,285        —          212,204  

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     64,288        —          —          —          —          —          —          64,288  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured loans at banks

   ¥ 262,108      ¥ 180,565      ¥ 20,005      ¥ 12,649      ¥ 4,240      ¥ 21,810      ¥ 48      ¥ 501,425  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unsecured loans at banks:

                       

AAA-BBB

   ¥ 11,206      ¥ 21,540      ¥ 25,343      ¥ 15,625      ¥ 5,092      ¥ 26,260      ¥ 7,184      ¥ 112,250  

BB-CCC

     —          —          226        —          —          —          —          226  

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured loans at banks

   ¥ 11,206      ¥ 21,540      ¥ 25,569      ¥ 15,625      ¥ 5,092      ¥ 26,260      ¥ 7,184      ¥ 112,476  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Short-term secured margin loans:

                       

AAA-BBB

   ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —    

BB-CCC

     —          —          —          —          —          —          —          —    

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     156,130        —          —          —          —          —          289,288        445,418  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term secured margin loans

   ¥ 156,130      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 289,288      ¥ 445,418  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unsecured inter-bank money market loans:

                       

AAA-BBB

   ¥ 31,807      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 31,807  

BB-CCC

     —          —          —          —          —          —          —          —    

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured inter-bank money market loans

   ¥ 31,807      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 31,807  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Secured corporate loans:

                       

AAA-BBB

   ¥ 9,115      ¥ 202,350      ¥ 38,315      ¥ 7,519      ¥ —        ¥ 21,269      ¥ 9,156      ¥ 287,724  

BB-CCC

     104,862        52,730        36,300        60,862        11,000        15,692        224,030        505,476  

CC-D(2)

     52,645        —          —          —          —          —          —          52,645  

Others(1)

     —          23        40        17        31        80        517        708  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total secured corporate loans

   ¥ 166,622      ¥ 255,103      ¥ 74,655      ¥ 68,398      ¥ 11,031      ¥ 37,041      ¥ 233,703      ¥ 846,553  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Unsecured corporate loans:

                       

AAA-BBB

   ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —    

BB-CCC

     —          —          2,963        —          —          —          —          2,963  

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     668        194        358        96,915        —          8        5,012        103,155  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total unsecured corporate loans

   ¥ 668      ¥ 194      ¥ 3,321      ¥ 96,915      ¥ —        ¥ 8      ¥ 5,012      ¥ 106,118  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Advances to affiliated companies

                       

AAA-BBB

   ¥ 1,000      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 1,000  

BB-CCC

     —          —          —          —          —          —          —          —    

CC-D

     —          —          —          —          —          —          —          —    

Others(1)

     —          —          —          —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total advances to affiliated companies

   ¥ 1,000      ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ —        ¥ 1,000  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 629,541      ¥ 457,402      ¥ 123,550      ¥ 193,587      ¥ 20,363      ¥   85,119      ¥ 535,235      ¥ 2,044,797  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1)

Relate to collateralized exposures where a specified ratio of LTV is maintained.

(2)

Includes loans of ¥52,645 million in relation to the U.S. prime brokerage event.

 

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The following table presents a definition of each of the internal ratings used in the Nomura Group.

 

Rating Range

  

Definition

AAA    Highest credit quality. An obligor or facility has extremely strong capacity to meet its financial commitments. ‘AAA range’ is the highest credit rating assigned by Nomura. Extremely low probability of default.
AA    Very high credit quality category. An obligor or facility has very strong capacity to meet its financial commitments. Very low probability of default but above that of ‘AAA range.’
A    High credit quality category. An obligor or facility has strong capacity to meet its financial commitments but is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than those in higher-rated categories. Low probability of default but higher than that of ‘AA range.’
BBB    Good credit quality category. An obligor or facility has adequate capacity to meet its financial commitments. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to meet its financial commitments. Medium probability of default but higher than that of ‘A range.’
BB    Speculative credit quality category. An obligor or facility is less vulnerable in the near term than other lower-ratings. However, it faces major ongoing uncertainties and exposure to adverse business, financial, or economic conditions which could lead to the inadequate capacity to meet its financial commitments. Medium to high probability of default but higher than that of ‘BBB range.’
B    Highly speculative credit quality category. An obligor or facility is more vulnerable than those rated ‘BB range’, but the obligor currently has the capacity to meet its financial commitments. Adverse business, financial, or economic conditions will likely impair the issuer’s or obligor’s capacity or willingness to meet its financial commitments. High probability of default—more than that of ‘BB range.’
CCC    Substantial credit risk. An obligor or facility is currently vulnerable, and is dependent upon favorable business, financial, and economic conditions to meet its financial commitments. Strong probability of default – more than that of ‘B range.’
CC    An obligor or facility is currently highly vulnerable to nonpayment (default category).
C    An obligor or facility is currently extremely vulnerable to nonpayment (default category).
D    Failure of an obligor to make payments in full and on time of any financial obligations, markedly disadvantageous modification to a contractual term compared with the existing obligation, bankruptcy filings, administration, receivership, liquidation or other winding-up or cessation of business of an obligor or other similar situations.

Nomura reviews internal ratings at least once a year by using available credit information of obligors including financial statements and other information. Internal ratings are also reviewed more frequently for high-risk obligors or problematic exposures and any significant credit event of obligors will trigger an immediate credit review process.

 

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8. Leases:

Nomura as lessor

Nomura leases office buildings and aircrafts in Japan and overseas either as head lessor or through subleases. These leases and subleases are primarily classified as operating leases. The related assets are stated at cost, net of accumulated depreciation, except for land, which is stated at cost in the consolidated balance sheets and reported within Other assets—Office buildings, land, equipment and facilities.

The following table presents the types of assets which Nomura leases under operating leases as of March 31, 2021 and June 30, 2021.

 

     Millions of yen  
     March 31, 2021      June 30, 2021  
     Cost      Accumulated
depreciation
    Net carrying
amount
     Cost      Accumulated
depreciation
    Net carrying
amount
 

Real estate(1)

   ¥ 354      ¥ (288   ¥ 66      ¥ 354      ¥ (289   ¥ 65  

Aircraft

     39,736        (1,382     38,354        58,047        (1,784     56,263  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

   ¥ 40,090      ¥ (1,670   ¥ 38,420      ¥ 58,401      ¥ (2,073   ¥ 56,328  
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

(1)

Cost, accumulated depreciation and net carrying amounts include amounts relating to real estate utilized by Nomura.

Nomura recognized lease income of ¥325 million and ¥837 million for the three months ended June 30, 2020 and 2021, respectively. These are included in the consolidated statements of income within Revenue—Other.

The following table presents an analysis of future undiscounted lease payments to be received in connection with noncancellable operating leases entered into by Nomura as lessor over the remaining lease term as of June 30, 2021. Amounts in connection with finance leases were not significant.

 

     Millions of yen  
     June 30, 2021  
     Minimum lease payments
to be received
 

Years of receipt

  

Less than 1 year

   ¥ 4,375  

1 to 2 years

     4,321  

2 to 3 years

     4,311  

3 to 4 years

     4,311  

4 to 5 years

     4,311  

More than 5 years

     28,000  
  

 

 

 

Total

   ¥ 49,629  
  

 

 

 

 

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9. Business combinations:

On April 1, 2020, Nomura acquired 100% of Greentech Capital, LLC (“Greentech”), a leading M&A advisory boutique in sustainable technology and infrastructure in the United States. The acquisition of Greentech comprises an initial cash payment and additional contingent payments based on future performance of the company. The transaction has been accounted for as a business combination under ASC 805 and consideration for the purchase as used to determine goodwill was ¥12,389 million which includes the estimated fair value of contingent payments accounted for as contingent consideration on acquisition date. Changes in the fair value of contingent consideration are recognized in the consolidated statements of income until the contingency is resolved. Contingent payments linked to future employment of employees of Greentech are recognized in the consolidated statements of income as compensation expense over the relevant service period and when payment of those amounts becomes probable. The operating results and cash flows of Greentech have been reflected to Nomura’s consolidated financial statements from April 1, 2020. The assets acquired and liabilities assumed as of the acquisition date were not material to Nomura’s consolidated balance sheet.

 

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10. Other assets—Other / Other liabilities:

The following table presents components of Other assets—Other and Other liabilities in the consolidated balance sheets as of March 31, 2021 and as of June 30, 2021.

 

     Millions of yen  
     March 31,
2021
     June 30,
2021
 

Other assets—Other:

     

Securities received as collateral

   ¥ 399,975      ¥ 272,450  

Goodwill and other intangible assets(1)

     29,040        28,520  

Deferred tax assets

     30,433        25,768  

Investments in equity securities for other than operating purposes(2)

     270,246        270,219  

Prepaid expenses

     18,741        22,234  

Other

     300,997        275,783  
  

 

 

    

 

 

 

Total

   ¥ 1,049,432      ¥ 894,974  
  

 

 

    

 

 

 

Other liabilities:

     

Obligation to return securities received as collateral

   ¥ 399,975      ¥ 272,450  

Accrued income taxes

     60,275        21,595  

Other accrued expenses

     424,961        334,486  

Other(3)

     353,956        321,152  
  

 

 

    

 

 

 

Total

   ¥ 1,239,167      ¥ 949,683  
  

 

 

    

 

 

 

 

(1)

For the three months ended June 30, 2020, Nomura recognized goodwill attributable to the Wholesale segment as a result of acquiring 100% of the ownership interests in Greentech Capital, LLC. See Note.9 “Business combination“ for further information.

(2)

Includes equity securities without readily determinable fair value of ¥65,365 million as of March 31, 2021 and as of June 30, 2021 respectively.

(3)

Includes operating lease liabilities.

 

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11. Earnings per share:

A reconciliation of the amounts and the numbers used in the calculation of net income attributable to NHI shareholders per share (basic and diluted) is as follows:

 

     Millions of yen
except per share data
presented in yen
 
     Three months ended June 30  
     2020      2021  

Basic—

     

Net income attributable to NHI shareholders

   ¥ 142,516      ¥ 48,487  

Weighted average number of shares outstanding

     3,047,302,930        3,007,328,504  

Net income attributable to NHI shareholders per share

   ¥ 46.77      ¥ 16.12  
  

 

 

    

 

 

 

Diluted—

     

Net income attributable to NHI shareholders

   ¥ 142,492      ¥ 48,437  

Weighted average number of shares outstanding

     3,121,234,228        3,107,455,855  

Net income attributable to NHI shareholders per share

   ¥ 45.65      ¥ 15.59  
  

 

 

    

 

 

 

Net income attributable to NHI shareholders is adjusted to reflect the decline in Nomura’s equity share of earnings of subsidiaries and affiliates for the three months ended June 30, 2020 and 2021, arising from options to purchase common shares issued by subsidiaries and affiliates.

The weighted average number of shares used in the calculation of diluted earnings per share (“EPS”) reflects the increase in potential issuance of common shares arising from stock-based compensation plans issued by the Company and affiliates, which would have minimal impact on EPS for the three months ended June 30, 2020 and 2021.

Antidilutive stock options and other stock-based compensation plans to purchase 15,451,900 common shares and 10,079,200 common shares were not included in the computation of diluted EPS for the three months ended June 30, 2020 and 2021 respectively.

 

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12. Employee benefit plans:

Nomura provides various pension plans and other post-employment benefits which cover certain employees worldwide. In addition, Nomura provides health care benefits to certain active and retired employees through its Nomura Securities Health Insurance Society.

Net periodic benefit cost

The net periodic benefit cost of the defined benefit plans of Japanese entities’ includes the following components.

 

       Millions of yen  
       Three months ended June 30  
       2020        2021  

Service cost

     ¥ 1,680        ¥ 1,613  

Interest cost

       446          511  

Expected return on plan assets

       (1,456        (1,514

Amortization of net actuarial losses

       1,380          989  

Amortization of prior service cost

       (380        (400
    

 

 

      

 

 

 

Net periodic benefit cost

     ¥ 1,670        ¥ 1,199  
    

 

 

      

 

 

 

Nomura also recognized net periodic benefit cost of plans other than Japanese entities’ plans, which are not significant.

 

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13. Income taxes:

For the three months ended June 30, 2020, the difference between the effective statutory tax rate of 31% and the effective tax rate of 20.6% was mainly due to a decrease in valuation allowance of foreign subsidiaries, whereas non-deductible expenses increased the effective tax rate.

For the three months ended June 30, 2021, the difference between the effective statutory tax rate of 31% and the effective tax rate of 36.3% was mainly due to a decrease of non-taxable revenues, whereas an increase of the valuatuon allowance of foreign subsidiaries increased the effective tax rate.

14. Other comprehensive income (loss):

Changes in accumulated other comprehensive income (loss) are as follows:

 

     Millions of yen  
     Three months ended June 30, 2020  
     Balance at
beginning
of year
    Other
comprehensive
income (loss)
before
reclassifications
    Reclassifications out of
accumulated other
comprehensive
income (loss) (1)
    Net change
during the
period
    Balance at
end of period
 

Cumulative translation adjustments

   ¥ (26,274   ¥ (664   ¥ (20   ¥ (684   ¥ (26,958

Pension liability adjustment

     (62,571     1,328       980       2,308       (60,263

Own credit adjustments

     62,740       7,758       (9,250     (1,492     61,248  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   ¥ (26,105   ¥ 8,422     ¥ (8,290   ¥ 132     ¥ (25,973
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Change in own credit adjustments, net of tax in other comprehensive income (loss) for three months ended June 30, 2020 includes reclassification adjustment of ¥11,056 million recognized in Revenue—Net gain on trading. The amount of Income tax expense allocated to this reclassification adjustment is ¥1,806 million. See Note 2 “Fair value measurements” for further information.

 

     Millions of yen  
     Three months ended June 30, 2021  
     Balance at
beginning
of year
    Other
comprehensive
income (loss)
before
reclassifications
    Reclassifications out of
accumulated other
comprehensive
income (loss) (1)
    Net change
during the
period
    Balance at
end of period
 

Cumulative translation adjustments

   ¥ 18,316     ¥ (3,395   ¥ 61     ¥ (3,334   ¥ 14,982  

Pension liability adjustment

     (43,477     (534     543       9       (43,468

Own credit adjustments

     (12,983     3,892       401       4,293       (8,690
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

   ¥ (38,144   ¥ (37   ¥  1,005      ¥ 968     ¥ (37,176
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Reclassifications out of accumulated other comprehensive income (loss) were not significant.

 

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15. Commitments, contingencies and guarantees:

Commitments—

Credit and investment commitments

In connection with its banking and financing activities, Nomura provides commitments to extend credit which generally have fixed expiration dates. In connection with its investment banking activities, Nomura enters into agreements with clients under which Nomura commits to underwrite securities that may be issued by the clients. As a member of certain central clearing counterparties, Nomura is committed to provide liquidity facilities through entering into reverse repo transactions backed by government and government agency debt securities with those counterparties in a situation where a default of another clearing member occurs. The outstanding commitments under these agreements are included below in commitments to extend credit.

Nomura has commitments to invest in various partnerships and other entities and also has commitments to provide financing for investments related to these partnerships. The outstanding commitments under these agreements are included below in commitments to invest.

The following table presents a summary of the key types of outstanding commitments provided by Nomura.

 

     Millions of yen  
     March 31, 2021      June 30, 2021  

Commitments to extend credit

     

Liquidity facilities to central clearing counterparties

   ¥ 1,400,076      ¥ 1,597,192  

Other commitments to extend credit

     901,867        869,243  
  

 

 

    

 

 

 

Total

   ¥ 2,301,943      ¥ 2,466,435  
  

 

 

    

 

 

 

Commitments to invest

   ¥ 136,367      ¥ 26,299  

As of June 30, 2021, these commitments had the following maturities:

 

     Millions of yen  
     Years to Maturity  
     Total
contractual
amount
     Less than
1 year
     1 to 3
years
     3 to 5
years
     More than
5 years
 

Commitments to extend credit

              

Liquidity facilities to central clearing counterparties

   ¥ 1,597,192      ¥ 1,597,192      ¥ —        ¥ —        ¥ —    

Other commitments to extend credit

     869,243        159,911        190,443        242,337        276,552  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   ¥ 2,466,435      ¥ 1,757,103      ¥ 190,443      ¥ 242,337      ¥ 276,552  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Commitments to invest

   ¥ 26,299      ¥ 336      ¥ 2,427      ¥ 4,248      ¥ 19,288  

The contractual amounts of these commitments to extend credit represent the amounts at risk but only if the contracts are fully drawn upon, should the counterparties default, and assuming the value of any existing collateral becomes worthless. The total contractual amount of these commitments may not represent future cash requirements since the commitments may expire without being drawn upon. The credit risk associated with these commitments varies depending on the clients’ creditworthiness and the value of collateral held. Nomura evaluates each client’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by Nomura upon extension of credit, is based on credit evaluation of the counterparty.

Contingencies—

Investigations, lawsuits and other legal proceedings

In the normal course of business as a global financial services entity, Nomura is involved in investigations, lawsuits and other legal proceedings and, as a result, may suffer loss from any fines, penalties or damages awarded against Nomura, any settlements Nomura chooses to make to resolve a matter, and legal and other advisory costs incurred to support and formulate a defense.

The ability to predict the outcome of these actions and proceedings is inherently difficult, particularly where claimants are seeking substantial or indeterminate damages, where investigations and legal proceedings are at an early stage, where the matters present novel legal theories or involve a large number of parties, or which take place in foreign jurisdictions with complex or unclear laws.

 

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The Company regularly evaluates each legal proceeding and claim on a case-by-case basis in consultation with external legal counsel to assess whether an estimate of possible loss or range of loss can be made, if recognition of a liability is not appropriate. In accordance with ASC 450 “Contingencies” (“ASC 450”), the Company recognizes a liability for this risk of loss arising on each individual matter when a loss is probable and the amount of such loss or range of loss can be reasonably estimated. The amount recognized as a liability is reviewed at least quarterly and is revised when further information becomes available. If these criteria are not met for an individual matter, such as if an estimated loss is only reasonably possible rather than probable, no liability is recognized. However, where a material loss is reasonably possible, the Company will disclose details of the legal proceeding or claim below. Under ASC 450 an event is defined as reasonably possible if the chance of the loss to the Company is more than remote but less than probable. As of March 31, 2021 and June 30, 2021, the total liability of ¥62,889 million ¥64,400 million have been recognized respectively, and reported within Other liabilities in respect of outstanding and unsettled investigations, lawsuits and other legal proceedings where loss is considered probable and the loss can be reasonably estimated.

The most significant actions and proceedings against Nomura are summarized below. The Company believes that, based on current information available as of the date of these consolidated financial statements, the ultimate resolution of these actions and proceedings will not be material to the Company’s financial condition. However, an adverse outcome in certain of these matters could have a material adverse effect on the consolidated statements of income or cash flows in a particular quarter or annual period.

For certain of the significant actions and proceedings, the Company is currently able to estimate the amount of reasonably possible loss, or range of reasonably possible losses, in excess of amounts recognized as a liability (if any) against such cases. These estimates are based on current information available as of the date of these consolidated financial statements and include, but are not limited to, the specific amount of damages or claims against Nomura in each case. As of August 16, 2021, for those cases where an estimate of the range of reasonably possible losses can be made, the Company estimates that the total aggregate reasonably possible maximum loss in excess of amounts recognized as a liability (if any) against these cases is approximately ¥68 billion.

For certain other significant actions and proceedings, the Company is unable to provide an estimate of the reasonably possible loss or range of reasonably possible losses because, among other reasons, (i) the proceedings are at such an early stage there is not enough information available to assess whether the stated grounds for the claim are viable; (ii) damages have not been identified by the claimant; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the outcome of pending appeals or motions; (v) there are significant legal issues to be resolved that may be dispositive, such as the applicability of statutes of limitations; (vi) there are novel or unsettled legal theories underlying the claims and/or (vii) a judgment has been made against Nomura but detailed reasons for the basis for the judgment and how the amount of the judgment has been determined have not yet been received.

Nomura will continue to cooperate with regulatory investigations and to vigorously defend its position in the ongoing actions and proceedings set out below, as appropriate.

In January 2008, Nomura International plc (“NIP”) was served with a tax notice issued by the tax authorities in Pescara, Italy alleging breaches by NIP of the U.K.-Italy Double Taxation Treaty of 1998 (“Tax Notice”). The alleged breaches relate to payments to NIP of tax credits on dividends on Italian shares. The Tax Notice not only denies certain payments to which NIP claims to be entitled but also seeks reimbursement of approximately EUR 33.8 million, plus interest, already refunded. NIP has exhausted all avenues of appeal following a judgment of the Italian Supreme Court dismissing NIP’s appeal in July 2021.

Similar claims have been made by the tax authorities against IBJ Nomura Financial Products (UK) PLC (“IBJN”) a group company which has been in members’ voluntary liquidation since 2000. An Italian Supreme Court judgment in June 2019 confirmed that tax credit refunds of approximately EUR 38 million, plus interest, were payable by IBJN to the Italian tax authorities.

In October 2010 and June 2012, two actions were brought against NIP, seeking recovery of payments allegedly made to NIP by Fairfield Sentry Ltd. and Fairfield Sigma Ltd. (collectively, “Fairfield Funds”), which are now in liquidation and were feeder funds to Bernard L. Madoff Investment Securities LLC (in liquidation pursuant to the Securities Investor Protection Act in the U.S. since December 2008) (“BLMIS”). The first suit was brought by the liquidators of the Fairfield Funds. It was filed on October 5, 2010 in the Supreme Court of the State of New York, but was subsequently removed to the United States Bankruptcy Court for the Southern District of New York. The second suit was brought by the Trustee for the liquidation of BLMIS (“Madoff Trustee”). NIP was added as a defendant in June 2012 when the Madoff Trustee filed an amended complaint in the United States Bankruptcy Court for the Southern District of New York. Both actions seek to recover approximately $35 million.

 

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Certain of the Company’s subsidiaries in the U.S. securitized residential mortgage loans in the form of residential mortgage-backed securities (“RMBS”). These subsidiaries did not generally originate mortgage loans, but purchased mortgage loans from third-party loan originators (“originators”). In connection with such purchases, these subsidiaries received loan level representations from the originators. In connection with the securitizations, the relevant subsidiaries provided loan level representations and warranties of the type generally described below, which mirror the representations the subsidiaries received from the originators.

The loan level representations made in connection with the securitization of mortgage loans were generally detailed representations applicable to each loan and addressed characteristics of the borrowers and properties. The representations included, but were not limited to, information concerning the borrower’s credit status, the loan-to-value ratio, the owner occupancy status of the property, the lien position, the fact that the loan was originated in accordance with the originator’s guidelines, and the fact that the loan was originated in compliance with applicable laws. Certain of the RMBS issued by the subsidiaries were structured with credit protection provided to specified classes of certificates by monoline insurers.

With respect to certain of the RMBS issued from 2005 to 2007, the relevant subsidiaries received claims demanding the repurchase of certain loans from trustees of various securitization trusts, made at the instance of one or more investors, or from certificate insurers. The total original principal amount of loans for which repurchase claims were received by the relevant subsidiaries within six years of each securitization is $3,203 million. The relevant subsidiaries summarily rejected any demand for repurchase received after the expiration of the statute of limitations applicable to breach of representation claims. For those claims received within six years, the relevant subsidiaries reviewed each claim received, and rejected those claims believed to be without merit or agreed to repurchase certain loans for those claims that the relevant subsidiaries determined to have merit. In several instances, following the rejection of repurchase demands, investors instituted actions through the trustee alleging breach of contract from 2011 to 2014. The breach of contract claims that were brought within the six-year statute of limitations for breach of contract actions have survived motions to dismiss and the claims are now in the expert discovery phase of litigation in the Supreme Court of the State of New York. These claims involve substantial legal, as well as factual, uncertainty and the Company cannot provide an estimate of probable loss or reasonably possible loss at this time.

A monoline insurer, Ambac Assurance Corp (“Ambac”), brought an action in April 2013 against Nomura Credit & Capital, Inc. (“NCCI”) and Nomura Holding America Inc. (“NHA”) alleging breach of contract with respect to representations concerning specific loan characteristics and fraud in the inducement of the insurance contract based on misrepresentations concerning the loans for two trusts insured by Ambac. The court dismissed all claims against NHA, and the claims against NCCI are continuing in the Supreme Court of the State of New York and are now in the expert discovery phase of litigation.

In November 2011, NIP was served with a claim filed by the Madoff Trustee in the United States Bankruptcy Court for the Southern District of New York. This is a clawback action similar to claims filed by the Madoff Trustee against numerous other institutions. The Madoff Trustee alleges that NIP received redemptions from the BLMIS feeder fund, Harley International (Cayman) Limited in the six years prior to December 11, 2008 (the date proceedings were commenced against BLMIS) and that these are avoidable and recoverable under the U.S. Bankruptcy Code and New York law. The amount that the Madoff Trustee is currently seeking to recover from NIP is approximately $21 million.

In March 2013, Banca Monte dei Paschi di Siena SpA (“MPS”) issued a claim in the Italian Courts against (1) two former directors of MPS and (2) NIP. MPS alleged that the former directors improperly caused MPS to enter into certain structured financial transactions with NIP in 2009 (“Transactions”) and that NIP acted fraudulently and was jointly liable for the unlawful conduct of MPS’s former directors. MPS claimed damages of not less than EUR 1.1 billion.

In March 2013, NIP commenced a claim against MPS in the English Courts. The claim was for declaratory relief confirming that the Transactions remained valid and contractually binding. MPS filed and served its defence and counterclaim to these proceedings in March 2014. MPS alleged in its counterclaim that NIP was liable to make restitution of a net amount of approximately EUR 1.5 billion, and sought declarations regarding the illegality and invalidity of the Transactions.

On September 23, 2015, NIP entered into a settlement agreement with MPS to terminate the Transactions. NIP believes that the Transactions were conducted legally and appropriately, and does not accept the allegations made against it or admit any wrongdoing. Taking into account the views of relevant European financial authorities and the advice provided by external experts, NIP considered it to be in its best interests to reach a settlement in relation to this matter. As part of the agreement, the Transactions were unwound at a discount of EUR 440 million in favour of MPS and the civil proceedings between MPS and NIP in Italy and England, respectively, will no longer be pursued. Pursuant to the settlement agreement MPS and NIP applied to the Italian Courts to discontinue the proceedings brought by MPS against NIP. These proceedings have since been discontinued.

 

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In April 2013, an investigation was commenced by the Public Prosecutor’s office in Siena, Italy, into various allegations against MPS and certain of its former directors, including in relation to the Transactions. The investigation was subsequently transferred to the Public Prosecutor of Milan. On April 3, 2015, the Public Prosecutor’s office in Milan issued a notice concluding its preliminary investigation. The Public Prosecutor was seeking to indict MPS, three individuals from MPS’s former management, NIP and two former NIP employees for, among others, the offences of false accounting and market manipulation in relation to MPS’s previous accounts. The preliminary hearing at which the Milan criminal court considered whether or not to grant the indictment concluded on October 1, 2016, the Judge ordering the trial of all individuals and banks involved except for MPS (which entered into a plea bargaining agreement with the Public Prosecutor). The trial commenced in December 2016. As part of these proceedings, a number of civil claimants have been permitted to bring damages claims against a number of entities and individuals, including NIP.

On November 8, 2019, the court delivered its oral verdict, finding two former employees of NIP guilty of false accounting, market manipulation and obstructing the supervisory activities of CONSOB and that NIP had breached Italian corporate liability legislation. In so doing, it imposed a fine of EUR 3.45 million on NIP as well as ordering confiscation of EUR 88 million. On May 12, 2020, the court issued the detailed reasoning for the verdict (including the rationale for the penalties imposed). NIP has appealed the decision to the Milan Court of Appeal. The penalties will not be enforceable until all appeals have been concluded.

In addition, NIP is involved in a number of separate civil or administrative matters relating to the Transactions including those described further below.

In July 2013, a claim was issued against former directors of MPS, and NIP, by the shareholder group Fondazione Monte dei Paschi di Siena (“FMPS”). The grounds of the FMPS claim were similar to those on which the MPS claim was founded and the level of damages sought by FMPS was not less than EUR 315.2 million. In September 2020, NIP, without admitting any wrongdoing, entered into a settlement agreement with FMPS pursuant to which FMPS waived its claim against NIP. NIP and FMPS have applied to the court to discontinue the proceedings brought against NIP.

In January 2018, a claim before the Italian Courts brought by two claimants, Alken Fund Sicav (on behalf of two Luxembourg investment funds Alken Fund European Opportunities and Alken Fund Absolute Return Europe) and Alken Luxembourg S.A (the funds’ management company) (collectively referred to as “Alken”) was served on NIP. The claim was made against NIP, MPS, four MPS former directors and a member of MPS’s internal audit board, and sought monetary damages of approximately EUR 434 million on the basis of allegations similar to those made in the MPS and FMPS claims, as well as non-monetary damages in an amount left to be quantified by the Judge. In July 2021, the court rejected all of Alken’s claims.

In May 2019, a claim before the Italian Courts brought by York Global Finance Offshore BDH (Luxembourg) Sàrl and a number of seemingly related funds was served on NIP. The claim is made against NIP, MPS, two MPS former directors and a member of MPS’s internal audit board, and seeks monetary damages of approximately EUR 186.7 million on grounds similar to those in the MPS and FMPS claims, as well as non-monetary damages in an amount left to be quantified by the Judge.

Additionally, NIP was served by the Commissione Nazionale per le Società e la Borsa (“CONSOB”, the Italian financial regulatory authority) with a notice commencing administrative sanction proceedings for market manipulation in connection with the Transactions. In relation to the Transactions, the notice named MPS, three individuals from MPS’s former management and two former NIP employees as defendants, whereas NIP was named only in its capacity as vicariously liable to pay any fines imposed on the former NIP employees. On May 22, 2018 CONSOB issued its decision in which it levied EUR 100,000 fines in relation to each of the two former NIP employees. In addition, CONSOB decided that the two employees did not meet the necessary Italian law integrity requirements to perform certain senior corporate functions, for a period of three months and six months respectively. NIP was vicariously liable to pay the fines imposed on its former employees. NIP paid the fines and appealed the decision to the Milan Court of Appeal. In December 2020, the Court of Appeal annulled the CONSOB decision against NIP. CONSOB has appealed the Court of Appeal’s decision to the Italian Supreme Court.

In June 2016 and August 2016, Nomura International (Hong Kong) Limited (“NIHK”) and Nomura Special Investments Singapore Pte Limited (“NSIS”) were respectively served with a complaint filed in the Taipei District Court against NIHK, NSIS and certain individuals by Cathay United Bank, Co., Ltd., Taiwan Cooperative Bank Ltd., Chang Hwa Commercial Bank Ltd., Taiwan Business Bank Ltd., KGI Bank and Hwatai Bank Ltd. (collectively, “Syndicate Banks”). The Syndicate Banks’ complaint relates to a $60 million syndicated term loan to a subsidiary of Ultrasonic AG that was arranged by NIHK, and made by the Syndicate Banks together with NSIS. The Syndicate Banks’ allegations in the complaint include allegations that NIHK failed to comply with its fiduciary duties to the lenders as the arranger of the loan and the Syndicate Banks seek to recover approximately $48 million in damages and interest.

 

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In March 2017, certain subsidiaries of American International Group, Inc. (“AIG”) commenced proceedings in the District Court of Harris County, Texas against certain entities and individuals, including Nomura Securities International, Inc. (“NSI”), in connection with a 2012 offering of $750 million of certain project finance notes, of which $92 million allegedly were purchased by AIG. AIG alleges violations of the Texas Securities Act based on material misrepresentations and omissions in connection with the marketing, offering, issuance and sale of the notes and seeks rescission of the purchases or compensatory damages.

On May 20, 2021, NIP and the Company were named as addressees in a decision issued by the European Commission in which NIP, the Company and various other third party banks have been found to have infringed EU competition law in connection with their activity in the primary and secondary markets for European Government Bonds (“EGB”). The European Commission found that the infringement consisted of anticompetitive agreements and/or concerted practices in the EGB sector in breach of EU competition law and fined NIP and the Company approximately EUR 129.6 million. In August 2021, NIP and the Company appealed the decision.

NIP and NSI have been served with a class action complaint filed in the United States District Court for the Southern District of New York alleging violations of U.S. antitrust law in relation to the alleged manipulation of the primary and secondary markets for EGB.

NIP and NSI were also defendants in a separate class action complaint filed in the United States District Court for the Southern District of New York alleging violations of U.S. antitrust law relating to the alleged manipulation of the secondary trading market for supranational, sub-sovereign and agency bonds. In July 2021, the Second Circuit Court of Appeals affirmed the District Court’s dismissal of the complaint. Additionally, NIP and NSI are defendants in a similar class action complaint filed in the Toronto Registry Office of the Federal Court of Canada alleging violations of Canadian competition law.

Nomura is responding to requests from governmental authorities in relation to swap trading related to bond issuances. On February 1, 2021, the U.S. Commodity Futures Trading Commission filed a civil enforcement action against a Nomura employee and charged him with violating the anti-fraud, price manipulation and false statements provisions of the Commodity Exchange Act in relation to a 2015 interest rate swap transaction.

In September 2017 and November 2017, NIHK and NSIS were respectively served with a complaint filed in the Taipei District Court against NIHK, NSIS, China Firstextile (Holdings) Limited (“FT”) and certain individuals by First Commercial Bank, Ltd., Land Bank of Taiwan Co., Ltd., Chang Hwa Commercial Bank Ltd., Taishin International Bank, E.Sun Commercial Bank, Ltd., CTBC Bank Co., Ltd., Hwatai Bank, Ltd. and Bank of Taiwan (collectively, “FT Syndicate Banks”). The FT Syndicate Banks’ complaint relates to a $100 million syndicated term loan facility to borrower FT that was arranged by NIHK, and made by the FT Syndicate Banks together with NSIS. The FT Syndicate Banks’ allegations in the complaint include tort claims under Taiwan law against the defendants. The FT Syndicate Banks seek to recover approximately $68 million in damages and interest.

In August 2017, the Cologne public prosecutor in Germany notified NIP that it is investigating possible tax fraud by individuals who worked for the Nomura Group in relation to the historic planning and execution of trading strategies around dividend record dates in certain German equities (known as “cum/ex” trading) and in relation to filings of tax reclaims in 2007 to 2012. During the fiscal year ended March 31, 2020, Nomura Group became aware that certain of those individuals would be the subject of investigative proceedings in Germany. NIP and another entity in the Nomura Group are cooperating with the investigation, including by disclosing to the public prosecutor certain documents and trading data. If the investigation involving Nomura Group entities and former individuals proceeds to trial, the individuals could face criminal sanctions and Nomura Group entities could face administrative sanctions such as administrative fines or profit confiscation orders.

In June 2020, NIP issued a claim against a current Italian counterparty in the courts of England and Wales. The claim seeks declarations that the terms of a derivative transaction entered into in 2005 are binding. The counterparty filed and served its defense and counterclaim to these proceedings in January 2021 which seeks, amongst other things, restitution of sums paid under the transaction. Separately, in June 2020, the counterparty filed an interim injunction application against NIP in the Tribunal of Palermo relating to payments due by it in relation to the same transaction. This application was dismissed at first instance but the counterparty is currently appealing that decision.

A former counterparty has asserted a claim against NIP relating to derivative transactions entered into between the counterparty and NIP between 2009 and 2011. The counterparty alleges that it lacked the authority and the capacity to enter into the transactions. To date, no legal proceedings have been issued in respect of the claim.

 

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Guarantees—

In the normal course of business, Nomura enters into various guarantee arrangements with counterparties in the form of standby letters of credit and other guarantees, which generally have a fixed expiration date.

In addition, Nomura enters into certain derivative contracts that meet the accounting definition of a guarantee, namely derivative contracts that contingently require a guarantor to make payment to a guaranteed party based on changes in an underlying that relate to an asset, liability or equity security held by a guaranteed party. Since Nomura does not track whether its clients enter into these derivative contracts for speculative or hedging purposes, Nomura has disclosed below information about derivative contracts that could meet the accounting definition of guarantees.

For information about the maximum potential amount of future payments that Nomura could be required to make under certain derivatives, the notional amount of contracts has been disclosed. However, the maximum potential payout for certain derivative contracts, such as written interest rate caps and written currency options, cannot be estimated, as increases in interest or foreign exchange rates in the future could be theoretically unlimited.

Nomura records all derivative contracts at fair value on its consolidated balance sheets. Nomura believes the notional amounts generally overstate its risk exposure. Since the derivative contracts are accounted for at fair value, carrying value is considered the best indication of payment and performance risk for individual contracts.

The following table presents information on Nomura’s derivative contracts that could meet the accounting definition of a guarantee and standby letters of credit and other guarantees.

 

     Millions of yen  
     March 31, 2021      June 30, 2021  
     Carrying
value
     Maximum
Potential
Payout/
Notional
Total
     Carrying
value
     Maximum
Potential
Payout/
Notional
Total
 

Derivative contracts(1)(2)

   ¥ 5,207,911      ¥ 322,635,226      ¥ 4,111,278      ¥ 349,196,073  

Standby letters of credit and other guarantees(3)

     —          206,072        —          457,364  

 

(1)

Credit derivatives are disclosed in Note 3. “Derivative instruments and hedging activities” and are excluded from derivative contracts.

(2)

Derivative contracts primarily consist of equity, interest rate and foreign exchange contracts.

(3)

As of March 31, 2021 and June 30, 2021, primarily related to a certain sponsored repo program where Nomura guarantees to a 3rd party clearing house the payment of its clients’ obligations. Our exposure under this guarantee is minimized through effectively obtaining collaterals whose amount is approximately equal to the maximum potential payout of the guarantee.

The following table presents maturity information on Nomura’s derivative contracts that could meet the accounting definition of a guarantee and standby letters of credit and other guarantees as of June 30, 2021.

 

     Millions of yen  
     Carrying
value
     Maximum Potential Payout/Notional  
     Total      Years to Maturity  
     Less than
1 year
     1 to 3
years
     3 to 5
years
     More than
5 years
 

Derivative contracts

   ¥ 4,111,278      ¥ 349,196,073      ¥ 80,748,420      ¥ 80,914,891      ¥ 63,341,450      ¥ 124,191,312  

Standby letters of credit and other guarantees

     —          457,364        444,736        9,193        281        3,154  

 

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16. Segment and geographic information:

Operating segments—

In April 2021, the Investment Management Division was newly established by replacing the Asset Management Division and the Merchant Banking Division. Accordingly, Nomura’s operating management and management reporting are prepared based on the Retail, the Investment Management, and the Wholesale segments. Nomura structures its business segments based upon the nature of its main products and services, its client base and its management structure.

The accounting policies for segment information follow U.S. GAAP, except for the impact of unrealized gains/losses on certain investments in equity securities held for operating purposes, which under U.S. GAAP are included in Income (loss) before income taxes, but excluded from segment information.

Revenues and expenses directly associated with each business segment are included in the operating results of each respective segment. Revenues and expenses that are not directly attributable to a particular segment are allocated to each respective business segment or included in “Other”, based upon Nomura’s allocation methodologies as used by management to assess each segment’s performance.

Business segments’ results are shown in the following tables. Net interest revenue is disclosed because management views interest revenue net of interest expense for its operating decisions. Business segments’ information on total assets is not disclosed because management does not utilize such information for its operating decisions and therefore, it is not reported to management.

The prior period amounts have been reclassified to conform to the current year presentation, in accordance with the realignment in April 2021.

 

     Millions of yen  
     Retail      Investment
Management
    Wholesale(1)     Other
(Incl. elimination)
    Total  

Three months ended June 30, 2020

           

Non-interest revenue

   ¥ 80,345      ¥ 40,157     ¥ 190,547     ¥ 94,154     ¥ 405,203  

Net interest revenue

     733        (483     58,122       (5,131     53,241  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     81,078        39,674       248,669       89,023       458,444  

Non-interest expenses

     66,009        17,503       160,800       34,624       278,936  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

   ¥ 15,069      ¥ 22,171     ¥ 87,869     ¥ 54,399     ¥ 179,508  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Three months ended June 30, 2021

           

Non-interest revenue

   ¥ 84,080      ¥ 63,700     ¥ 110,770     ¥ 78,715     ¥ 337,265  

Net interest revenue

     906        (218     22,007       (10,056     12,639  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net revenue

     84,986        63,482       132,777       68,659       349,904  

Non-interest expenses

     65,964        18,569       161,134       29,075       274,742  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

   ¥ 19,022      ¥ 44,913     ¥ (28,357   ¥ 39,584     ¥ 75,162  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

(1)

Non-interest revenue and Non-interest expense for the three months ended June 30, 2021 include losses of ¥65,362 million arising from transactions with a U.S. client. The losses are reported within Net gain on trading in the amount of ¥(56,073) million and in Non-interest expenses—Other in the amount of ¥9,289 million in the consolidated statements of income.

Transactions between operating segments are recorded within segment results on commercial terms and conditions and are eliminated in “Other.

 

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The following table presents the major components of Income (loss) before income taxes in “Other.”

 

     Millions of yen  
     Three months ended June 30  
     2020     2021  

Net gain (loss) related to economic hedging transactions

   ¥     5,577     ¥     3,444  

Realized gain (loss) on investments in equity securities held for operating purposes

     685       173  

Equity in earnings of affiliates

                6,609                  9,617  

Corporate items(1)

     45,090       (9,272

Other(2)(3)

     (3,562     35,622  
  

 

 

   

 

 

 

Total

   ¥ 54,399     ¥ 39,584  
  

 

 

   

 

 

 

 

(1)

The income before income taxes for the three months ended June 30, 2020 includes a gain of ¥ 71,075 million which represents the difference between the fair value of the assets acquired and the carrying value of the assets transferred by Nomura as a result of the rights conversion of the Tokyo Nihonbashi district redevelopment project.

(2)

The income before income taxes for three months ended June 30, 2021 includes gain of ¥36,249 million from the sale of Nomura Research Institute, Ltd. ordinary shares.

(3)

Includes the impact of Nomura’s own creditworthiness.

The table below presents reconciliations of the combined business segments’ results included in the preceding table to Nomura’s reported Net revenue, Non-interest expenses and Income before income taxes in the consolidated statements of income.

 

     Millions of yen  
     Three months ended June 30  
     2020     2021  

Net revenue

   ¥ 458,444     ¥ 349,904  

Unrealized gain (loss) on investments in equity securities held for operating purposes

                2,303                  3,371  
  

 

 

   

 

 

 

Consolidated net revenue

   ¥ 460,747     ¥ 353,275  
  

 

 

   

 

 

 

Non-interest expenses

   ¥ 278,936     ¥ 274,742  

Unrealized gain (loss) on investments in equity securities held for operating purposes

     —         —    
  

 

 

   

 

 

 

Consolidated non-interest expenses

   ¥ 278,936     ¥ 274,742  
  

 

 

   

 

 

 

Income before income taxes

   ¥ 179,508     ¥ 75,162  

Unrealized gain (loss) on investments in equity securities held for operating purposes

      2,303         3,371   
  

 

 

   

 

 

 

Consolidated income before income taxes

   ¥ 181,811     ¥ 78,533  
  

 

 

   

 

 

 

 

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Geographic information—

Nomura’s identifiable assets, revenues and expenses are generally allocated based on the country of domicile of the legal entity providing the service. However, because of the integration of the global capital markets and the corresponding global nature of Nomura’s activities and services, it is not always possible to make a precise separation by location. As a result, various assumptions, which are consistent among years, have been made in presenting the following geographic data.

The table below presents a geographic allocation of Net revenue and Income (loss) before income taxes from operations by geographic areas, and long-lived assets associated with Nomura’s operations. Net revenue in “Americas” and “Europe” substantially represents Nomura’s operations in the U.S. and the U.K., respectively. Net revenue and Long-lived assets have been allocated based on transactions with external customers while Income (loss) before income taxes have been allocated based on the inclusion of intersegment transactions.

 

     Millions of yen  
     Three months ended June 30  
             2020                      2021          

Net revenue(1) (2) :

                                                       

Americas

   ¥ 109,188      ¥ 38,304  

Europe

     20,171        33,368  

Asia and Oceania

     10,237        21,161  
  

 

 

    

 

 

 

Subtotal

     139,596        92,833  

Japan

     321,151        260,442  
  

 

 

    

 

 

 

Consolidated

   ¥ 460,747      ¥ 353,275  
  

 

 

    

 

 

 

Income (loss) before income taxes(2) :

     

Americas

   ¥ 39,998      ¥ (36,599

Europe

     15,017        (5,287

Asia and Oceania

     9,195        6,621  
  

 

 

    

 

 

 

Subtotal

     64,210        (35,265

Japan

     117,601        113,798  
  

 

 

    

 

 

 

Consolidated

   ¥ 181,811      ¥ 78,533  
  

 

 

    

 

 

 

 

(1)

There is no revenue derived from transactions with a single major external customer.

(2)

Includes losses arising from transactions with a U.S. client.

 

     Millions of yen  
     March 31, 2021      June 30, 2021  

Long-lived assets:

                                                       

Americas

   ¥ 98,611      ¥ 96,851  

Europe

     65,165        52,973  

Asia and Oceania

     26,690         26,096   
  

 

 

    

 

 

 

Subtotal

     190,466        175,920  

Japan

     303,355        319,428  
  

 

 

    

 

 

 

Consolidated

   ¥ 493,821      ¥ 495,348  
  

 

 

    

 

 

 

 

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2. Other

On April 27, 2021, the Board of Directors resolved to pay the dividend based on the record date of March 31, 2021 to shareholders registered as of March 31, 2021.

 

a. Total dividend based on the record date of March 31, 2021

   ¥45,953 million

b. Dividend based on the record date of March 31, 2021 per share

   ¥15.0                

 

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[Translation]

Quarterly Review Report of Independent Auditor

August 16, 2021

The Board of Directors

Nomura Holdings, Inc.

 

Ernst & Young ShinNihon LLC

Tokyo office, Japan

Hiroki Matsumura

Certified Public Accountant

Designated and Engagement Partner

Hisashi Yuhara

Certified Public Accountant

Designated and Engagement Partner

Kenjiro Tsumura

Certified Public Accountant

Designated and Engagement Partner

Toshiro Kuwata

Certified Public Accountant

Designated and Engagement Partner

Auditor’s Conclusion

We have performed a quarterly review of the quarterly consolidated financial statements of Nomura Holdings, Inc. (the “Company”) included in Financial Information section for the three-month period ended June 30, 2021 within the fiscal period from April 1, 2021 to March 31, 2022, which comprise the quarterly consolidated balance sheet, the quarterly consolidated statements of income, comprehensive income, changes in equity and cash flows, and the related notes, pursuant to the requirement of the rule specified in Article 193-2, Section 1 of the Financial Instruments and Exchange Act.

Based on our quarterly review, nothing has come to our attention that causes us to believe that the quarterly consolidated financial statements referred to above do not present fairly, in all material respects, the consolidated financial position of the Company and its consolidated subsidiaries (the “Group”) as of June 30, 2021, and the consolidated results of their operations and cash flows for the three-month period then ended in conformity with accounting principles generally accepted in the United States of America pursuant to Article 95 of “Regulations Concerning the Terminology, Forms and Preparation Methods of Quarterly Consolidated Financial Statements” (see Note 1 to the quarterly consolidated financial statements).

Basis for Auditor’s Conclusion

We conducted our quarterly review in accordance with quarterly review standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Quarterly Review of the Quarterly Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that we have obtained the evidence to provide a basis for our conclusion.

Responsibilities of Management and the Audit Committee for the Quarterly Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the quarterly consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (see Note 1 to the quarterly consolidated financial statements), and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the quarterly consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the quarterly consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern and disclosing, as required by accounting principles generally accepted in the United States of America (see Note 1 to the quarterly consolidated financial statements), matters related to going concern.

The Audit Committee is responsible for overseeing the Group’s financial reporting process.

 

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Auditor’s Responsibility for the Quarterly Review of the Quarterly Consolidated Financial Statements

Our responsibility is to independently express a conclusion on the quarterly consolidated financial statements in the quarterly review report based on our quarterly review. As part of a quarterly review in accordance with quarterly review standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the quarterly review. We also:

 

   

Make inquiries, primarily of management and persons responsible for financial and accounting matters and apply analytical and other quarterly review procedures. A quarterly review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in Japan.

 

   

Conclude on whether nothing has come to our attention that causes us to believe that the quarterly consolidated financial statements do not present fairly in conformity with accounting principles generally accepted in the United States of America (see Note 1 to the quarterly consolidated financial statements) based on the audit evidence obtained if we conclude that a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our quarterly review report to the related disclosures in the quarterly consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the evidence obtained up to the date of our quarterly review report. However, future events or conditions may cause the Group to cease to continue as a going concern.

 

   

Evaluate whether nothing has come to our attention that cause us to believe that the overall presentation, structure and content of the quarterly consolidated financial statements, including the disclosures, and the quarterly consolidated financial statements do not represent the underlying transactions and events in a manner that achieves fair presentation in accordance with accounting principles generally accepted in the United States of America (see Note 1 to the quarterly consolidated financial statements).

 

   

Obtain evidence of the financial information of the Group to express its conclusions on the quarterly consolidated financial statements. The auditor is responsible for directing, overseeing and implementing the quarterly review of the quarterly consolidated financial statements. The auditor is solely responsible for the auditor’s conclusions.

We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the quarterly review and significant quarterly review findings.

We also provide the Audit Committee with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the consolidated financial statements in Japan, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

Conflicts of Interest

We have no interest in the Group which should be disclosed in accordance with the Certified Public Accountants Act.

 

*1.

Above is an electronic version of the original Quarterly Review Report of Independent Auditor and the Company maintains the original report.

*2.

XBRL data is not included in the scope of the quarterly review.

(Note)

This is an English translation of the Japanese language Quarterly Review Report of Independent Auditor issued by Ernst & Young ShinNihon LLC in connection with the limited procedures applied on the quarterly consolidated financial statements of Nomura Holdings, Inc., prepared in Japanese, for the three-month period ended June 30, 2021 within the fiscal period from April 1, 2021 to March 31, 2022. Ernst & Young ShinNihon LLC have not applied any such procedures nor have they performed an audit on the English language version of the quarterly consolidated financial statements for the above-mentioned period which are included in this report on Form 6-K.

 

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Exhibit 2

Confirmation Letter

1 [Appropriateness of Quarterly Securities Report]

Kentaro Okuda, Group Chief Executive Officer, and Takumi Kitamura, Chief Financial Officer, have confirmed that the quarterly securities report of Nomura Holdings, Inc. for the three months ended June 30, 2021 is appropriate under the Financial Instruments and Exchange Act.

2 [Special Comments]

There is no special comment to be stated.

 

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