2021 NFS Statement of Financial Condition

[Pages:15]NATIONAL FINANCIAL SERVICES LLC STATEMENT OF FINANCIAL CONDITION

AS OF JUNE 30, 2021 (Unaudited) * * * * * * *

The most recent Statement of Financial Condition, filed pursuant to Rule 17a-5(e)(3) under the Securities Exchange Act of 1934, is available for inspection at the principal office of the Company and at the Boston Regional Office of the Commission.

441816.30.0

National Financial Services LLC, Member NYSE, SIPC

1.9860472.107

NATIONAL FINANCIAL SERVICES LLC STATEMENT OF FINANCIAL CONDITION (Unaudited)

AS OF JUNE 30, 2021 (Dollars in millions)

__________________________________________________________________________________________________________________________________________________________________________

ASSETS Cash and segregated cash Securities segregated under federal regulations

(includes securities owned with a fair value of $18,379) Securities borrowed Resale agreements Receivables:

Brokers, dealers and other organizations Customers, net of allowance for doubtful accounts

Total receivables

Securities owned - at fair value ($291 pledged as collateral) Other assets

Total Assets

LIABILITIES Securities loaned Repurchase agreements Payables:

Brokers, dealers and other organizations Customers Drafts Affiliates

Total payables

Securities sold, but not yet purchased - at fair value Accrued expenses and other liabilities

Total Liabilities

COMMITMENTS AND CONTINGENCIES

MEMBER'S EQUITY Member's equity

Total Liabilities and Member's Equity

$ 1,103

40,495 9,651

426

1,983 37,519 39,502

1,342 286

$ 92,805

$ 3,917 282

3,295 78,773

135 106 82,309

25 305 86,838

5,967 $ 92,805

The accompanying notes are an integral part of the statement of financial condition. 1

NATIONAL FINANCIAL SERVICES LLC NOTES TO STATEMENT OF FINANCIAL CONDITION (Unaudited)

(Dollars in millions)

______________________________________________________________________________________________________________________________________________________________

1. Organization:

National Financial Services LLC (the "Company"), a single member limited liability company, is whollyowned by Fidelity Global Brokerage Group, Inc. (the "Parent"), a wholly-owned subsidiary of FMR LLC ("FMR").

The Company is a registered broker-dealer with the Securities and Exchange Commission ("SEC") and is a member of the Financial Industry Regulatory Authority ("FINRA"). The Company is licensed to transact on the NYSE Euronext, and various national and regional stock and option exchanges. The Company provides a wide range of securities related services to a diverse customer base primarily in the United States. The Company's client base includes institutional and individual investors, introducing brokerdealers, investment advisors and corporations. The Company engages in brokerage, clearance, custody and financing activities for which it receives fees from customers. The Company also engages in securities transactions either on a principal or agent basis and facilitates securities transactions for its clients. The Company provides clearing and other services for an affiliated broker-dealer, Fidelity Brokerage Services LLC ("FBS"). FBS provides securities brokerage services to a retail customer base that affect transactions across a wide array of financial instruments. The Company also provides clearing and other services for an affiliate, Digital Brokerage Services LLC ("DBS"). DBS provides securities brokerage services to a retail customer base through a digital mobile application-based brokerage platform.

2. Summary of Significant Accounting Policies:

Basis of Presentation and Use of Estimates

The preparation of the statement of financial condition in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, including fair value measurements, and the disclosure of contingent assets and liabilities. Actual results could differ from the estimates included in the statement of financial condition.

Cash and Segregated Cash

For the purposes of reporting amounts in the statement of financial condition, the Company defines cash as cash on hand, demand deposits, and time deposits with original maturities less than 60 days. The Company generally invests excess cash into money market funds, which are classified as securities owned in the statement of financial condition. Included in cash and segregated cash is $1 in interest bearing deposits segregated to satisfy SEC rules regarding the protection of customer assets.

Securities Segregated Under Federal Regulations

The Company is required by SEC regulations to segregate cash and securities to satisfy rules regarding the protection of customer assets. As of June 30, 2021, the Company had $40,495 of securities segregated to be in compliance with regulations. This balance includes resale agreements, which are collateralized by U.S. Government and agency securities. Resale agreements are accounted for as collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. Securities segregated under federal regulations also include U.S. Government and agency securities, which are recorded at fair value. These balances are disclosed in the statement of financial condition under securities segregated under federal regulations.

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NATIONAL FINANCIAL SERVICES LLC NOTES TO STATEMENT OF FINANCIAL CONDITION (Unaudited)

(Dollars in millions)

______________________________________________________________________________________________________________________________________________________________

2. Summary of Significant Accounting Policies, continued:

Receivables from and Payables to Brokers, Dealers and Other Organizations and Customers

Receivables from brokers, dealers and other organizations include amounts receivable for securities failed to deliver, clearing deposits, commissions receivable, unsettled trades, and margin loans made to the Company's introducing brokers. The Company also has receivables from mutual fund companies related to its customers' sales of mutual funds, of which $51 is from mutual funds managed by an affiliate. A portion of the Company's trades and contracts are cleared through a clearing organization and settled daily between the clearing organization and the Company. The amount of credit exposure is limited as a result of the daily settlement of these receivables. Based on both the aging of these balances and the review of historical losses, no reserve for credit losses has been recorded related to these receivables at June 30, 2021.

Receivables from brokers, dealers and other organizations consist of the following at June 30, 2021:

Clearing organizations Broker dealers Mutual fund companies

Total

$ 1,052 608 323

$ 1,983

Payables to brokers, dealers and other organizations include amounts payable for securities failed to receive and amounts payable to clearing organizations. The Company also has payables to mutual fund companies related to its customers' purchases of mutual funds, of which $635 is to mutual funds managed by an affiliate. Payables to brokers, dealers and other organizations consist of the following at June 30, 2021:

Broker dealers Mutual fund companies Clearing organizations

Total

$ 1,604 1,076 615

$ 3,295

Receivables from and payables to customers include amounts related to both cash and margin transactions. Receivables also include non-purpose loans, which are collateralized. The Company records customer transactions on a settlement date basis, which is generally two business days after trade date, with the related commission and clearing fees revenue and related expenses recorded on a trade date basis. Margin transactions are collateralized by the customers' underlying securities. The Company requires collateral on a basis consistent with industry practice or regulatory requirements. The amount of collateral is continually monitored and customers are required to provide additional collateral as necessary. The Company applies the practical expedient based on collateral maintenance provisions in reviewing allowance for credit losses for customer receivables. In addition, the Company's customer base is monitored through a review of account balance aging, collateral value in the account and an assessment of the customer's financial condition. Customer receivables are carried net of an allowance for credit losses. An allowance against doubtful receivables is established through a combination of historical losses and an aging review of all unsecured accounts. At June 30, 2021, unsecured receivables from customers were $29 for which the Company recorded an allowance for credit losses of $14. Securities owned by customers, including those that collateralize margin transactions, are not reflected on the accompanying statement of financial condition.

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NATIONAL FINANCIAL SERVICES LLC NOTES TO STATEMENT OF FINANCIAL CONDITION (Unaudited)

(Dollars in millions)

______________________________________________________________________________________________________________________________________________________________

2. Summary of Significant Accounting Policies, continued:

Other Assets and Accrued Expenses and Other Liabilities

Other assets primarily consists of furniture, right-of-use lease assets ("ROU"), office equipment, leasehold improvements and software, net of accumulated depreciation and amortization, interest and dividends receivable, and concession payments. Accrued expenses and other liabilities primarily consist of accrued compensation, lease liabilities, and interest payable.

Furniture, office equipment, leasehold improvements and software are stated at cost less accumulated depreciation and amortization. Software includes certain costs incurred for purchasing software for internal use. Depreciation is computed using the straight-line method based on estimated useful lives as follows: furniture and office equipment, three to five years; leasehold improvements, the shorter of their useful lives or the remainder of the lease term; and software, generally three years.

Included in other assets are furniture, office equipment, leasehold improvements and software of $7 with a cost of $45 and accumulated depreciation and amortization of $38.

Concession payments are the costs of acquiring or retaining customers. These concessions are amortized using the straight-line method over the contractual period.

These long-lived assets in the statement of financial condition are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying amount of a long-lived asset is not recoverable if the carrying value exceeds the sum of the expected future undiscounted cash flows.

Income Taxes

As a single-member limited liability company, the Company is disregarded as an entity separate from its owner and its operations are included in the federal and state income tax returns of FMR or its Parent. The Company is not allocated income taxes by FMR.

3. Securities Segregated Under Federal Regulations:

Securities segregated under federal regulations consist of the following at June 30, 2021:

U.S. Government and agency securities obtained as collateral under resale agreements (See Note 2)

U.S. Government and agency securities - at fair value

Total

$ 22,116 18,379

$ 40,495

As of June 30, 2021, interest bearing cash deposits segregated under federal regulations of $1 are included in cash and segregated cash on the statement of financial condition.

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NATIONAL FINANCIAL SERVICES LLC NOTES TO STATEMENT OF FINANCIAL CONDITION (Unaudited)

(Dollars in millions)

______________________________________________________________________________________________________________________________________________________________

4. Credit Facilities:

The Company has entered into committed and uncommitted overnight credit facilities which are borrowed against periodically to satisfy daily operating needs. The committed credit facility permits the Company to borrow at any time up to $750 and requires the payment of a commitment fee. At June 30, 2021, the Company had uncommitted credit facilities with fourteen financial institutions. There were no outstanding borrowings against these committed or uncommitted facilities at June 30, 2021. The Company also has a liquidity facility with FMR. There were no borrowings under this line as of June 30, 2021.

Amounts available under these facilities at June 30, 2021 were as follows:

Committed, unsecured credit facilities

$

Uncommitted facilities:

Secured

Unsecured

Liquidity facility with FMR

$

750

500 3,295 2,500 7,045

5. Securities Owned and Securities Sold, but Not Yet Purchased:

Securities owned and securities sold, but not yet purchased consist of the following at June 30, 2021:

Securities owned - at fair value: Money market funds U.S. Government and agency Municipals Equities Corporates Other Total

$

703

499

63

45

3

29

$ 1,342

Securities sold, but not yet purchased - at fair value:

U.S. Government and agency

$

25

Total

$

25

6. Derivative Financial Instruments:

The Company enters into foreign exchange contracts to facilitate certain customer transactions. These contracts are subject to volatility in the currency markets. At June 30, 2021, the Company included $1 related to these contracts in securities owned at fair value in the statement of financial condition. The contracts are recorded at fair value and included in Level 2 assets in the valuation hierarchy (See Note 11). The Company's determination of fair value includes an assessment of non-performance risk. The notional value of the outstanding contracts purchased as of June 30, 2021 totaled $602.

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NATIONAL FINANCIAL SERVICES LLC NOTES TO STATEMENT OF FINANCIAL CONDITION (Unaudited)

(Dollars in millions)

______________________________________________________________________________________________________________________________________________________________

7. Leases:

The Company leases certain office space under non-cancelable operating leases that expire over various terms. Certain lease agreements contain renewal options and escalation clauses. ROU assets of $27 are included in other assets and lease liabilities of $33 are included in accrued expenses and other liabilities in the statement of financial condition at June 30, 2021. For the period ended June 30, 2021, the Company did not have any finance leases.

Supplemental balance sheet information related to leases at June 30, 2021 is as follows:

Operating leases: ROU asset Lease liabilities

$

27

$

33

Weighted average remaining lease term:

Operating leases

4.9 years

Weighted average discount rate: Operating leases

3.7%

Maturities of lease liabilities are as follows:

2021

$

4

2022

7

2023

7

2024

7

2025

7

Thereafter

3

Total lease payments

35

Less: imputed interest

(2)

Total

$

33

6

NATIONAL FINANCIAL SERVICES LLC NOTES TO STATEMENT OF FINANCIAL CONDITION (Unaudited)

(Dollars in millions)

______________________________________________________________________________________________________________________________________________________________

8. Commitments and Contingencies:

Litigation

The Company has been named as a defendant in several legal proceedings and is subject to regulatory inquiries incidental to the nature of its business. The Company reviews such matters on a case by case basis and records reserves if a loss is probable and the amount of the loss can be reasonably estimated. The resolution of such actions is not expected to materially impact the Company's statement of financial condition.

Guarantees

Guarantees are defined as contracts and indemnification agreements that contingently require a guarantor to make payments to the guaranteed party based on changes in an underlying input (such as an interest or foreign exchange rate, security or commodity price, an index or the occurrence or nonoccurence of a specified event) in relation to an asset, liability or equity security of a guaranteed party. Guarantees are also defined as contracts that contingently require the guarantor to make payments to the guaranteed party based on another entity's failure to perform under an agreement as well as indirect guarantees of the indebtedness of others.

The Company enters into securities lending transactions on behalf of mutual funds managed by an affiliate. When entering into these securities lending transactions, the Company acts as an agent whereby it lends securities of the mutual funds to brokers and other institutions. The Company indemnifies these clients for the difference between the fair market value of collateral posted by the borrower and the fair market value of the securities loaned to the borrower, in the event that the borrower fails to return such securities. The borrowers in these agent securities lending transactions are required to maintain collateral in an amount in excess of 100% of the fair market value of the securities borrowed. Securities on loan and the collateral are revalued daily to determine if additional collateral is necessary or if excess collateral is required to be returned to the borrower. The Company acts as an agent and any collateral received in connection with these securities lending transactions is not recorded in the Company's statement of financial condition.

The Company is a member of numerous exchanges and clearinghouses. Under the membership agreements, members are generally required to guarantee the performance of other members. Additionally, if a member becomes unable to satisfy its obligations to the clearinghouse, other members would be required to meet shortfalls. To mitigate these performance risks, the exchanges and clearinghouses often require members to post collateral as well as meet certain minimum financial standards. The Company's maximum potential liability under these arrangements cannot be quantified. However, management believes the potential for the Company to be required to make payments under these arrangements is remote. Accordingly, no contingent liability is recorded in the statement of financial condition for these arrangements.

Letters of Credit

At June 30, 2021, the Company had $18 in unsecured letters of credit outstanding.

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